Friday Financial Five – December 4, 2015

Friday, December 04, 2015

Dan Forbes, GoLocalProv Contributor

Tackling the year-end checklist

The end of the year is a great time to review the financial picture to ensure necessary steps are taken before 2016 arrives. Those that have reached age 70 ½ this year will need to take Required Minimum Distributions by April of next year. Those that are older will need to take a distribution from IRA accounts before December 31st. This is also the time to review portfolios for possible imbalances and for tax benefits. That might mean selling securities to match outstanding gains or selling assets at a gain to offset losses carried over from 2014. Losses on a tax return carry forward indefinitely, so pull out 2014’s and review. Finally, charitable donations will need to be made before the New Year.

Spending habits after retirement

Most anticipate a spending decrease at retirement, as large expenses such as mortgages and college payments end, but an Employee Benefit Research Institute (EBRI) report refutes the conventional wisdom. According to the report, after the third or fourth year of retirement, median household spending dropped only 12.5% and spending reduction slowed down after the fourth year. While average spending fell as a whole, a large percentage of households (45.9%) had higher spending in retirement and these increases were not exclusively amongst high-income households.

CFPB tool helps projects Social Security

The Consumer Finance Protection Bureau’s “Planning for Retirement” tool assists with Social Security decisions, with plans to implement updates based on Congress’ recent changes to claiming strategies. It allows users to plug in birthdays and highest annual work income to calculate estimated benefits from age 62 to age 70, while also allowing the calculation of spousal benefits and cost of living increases.

Some health insurers struggle under the ACA

United Healthcare announced that the company will pull back on the marketing efforts for exchange products in 2016. The company revised their 2015 net earnings, while anticipating losses and declining enrollments into the exchanges. The nation’s largest health insurer will pull out of the health exchange marketplaces by the end of 2017 if staying remains unprofitable. Anthem and Aetna have also struggled. Aetna has reported losses, and Anthem is making less than they anticipated. There have been additional worrying signs as well; 12 of the 23 nonprofit exchanges created to sell insurance under the ACA have announced closures, overwhelmed by financial losses.

Marco Rubio’s student loan option

An idea to privatize a portion of student loans comes from presidential nominee, Marco Rubio. Instead of taking out the traditional federal loans to pay for college, students would apply for backing from investment groups. The investment groups would fund college based on the student’s aptitude and earning potential. After graduation, the student would then pay back the investment group a percentage of income. In theory, the higher the earning potential, the higher the return for the investor. The plan has been referred to as “indentured servitude” but Rubio notes not paying the investor differs from a failure to pay back federal loans. While efforts are ongoing to make hardship provisions easier to get out of paying back federal loans, it’s currently very difficult to qualify.

Dan Forbes, a CFP Board Ambassador, is a regular contributor on financial issues. He leads the firm Forbes Financial Planning, Inc in East Greenwich, RI and can be reached at [email protected].

Related Slideshow: Massachusetts Business Rankings

See how Massachusetts stacked up.

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WalletHub

Massachusetts has 2015's 28th highest insurance premium penalties for high risk drivers, according to a WalletHub report.

Mass is behind Colorado and New Mexico who come in at 26 and 27 spots respectively while Mass is ahead of Tennessee and the District of Columbia who rank 29 and 30 respectively.

Massachusetts ranks 14th overall in the category of DUI conviction annual premium increase with an amount of $756.

Massachusetts ranks 20th overall in the category of speeding over 20 mph annual premium increase with a total of $261 while ranking 21 overall in the category of two accidents annual premium increase with a total of $1,364.

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WalletHub

Massachusetts has been ranked as the 5th most eco-friendly state in the country, according to a recent study by WalletHub.

Mass ranks tenth in environmental quality and fourth in Eco-Friendly Behaviors landing them in 8th overall.

Mass is behind Minnesota and New York who are in the fourth and third spots respectively, and in front of Washington and New Hampshire who come in at the six and seven spots.

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The Economist

Small Business Friendliness Grade: D+

The Economist grades states on an A+ to F grading scale for its small business climate. Massachusetts ranks near the bottom of the nation, joining New Mexico and New York in receiving D+ grades. 9 states scored worse than a D+ in the Economist rankings.

Overbearing bureaucracy and excessive licensing is stifling small business in America.

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CNBC

#25 CNBC

CNBC ranks each state in cost of doing business, economy, technology and innovation.

Massachusetts' unemployment rate as of May 2014 was 5.6 percent. The state added 9,100 jobs in the month of May.

Forbes

#13 Forbes

Forbes ranks each state in business costs, economic climate, and growth prospects.

The most damning in the commentary:

Massachusetts’ business costs, including labor, energy and taxes, are the highest of the 48 contiguous states—only Hawaii is higher—at 20% above the national average.

ChiefExecutive.net

#47 ChiefExecutive.net

ChiefExecutive.net ranks each state in taxations and regulations, workforce quality, and living environment.

The most damning in the commentary:

Taxation and regulation are always the key barometers. Massachusetts and Oregon are the worst.

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Tax Foundation

#25 Tax Foundation

Tax Foundation ranks each state in corporate tax rank, sales tax rank, and unemployment insurance tax rank.

Massachusetts ranked #49 in unemployment insurance tax.

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Wallet Hub

#10 Wallet Hub

Wallet Hub ranks each state in ROI rank, state tax rank, and overall government services.

Massachusetts ranked #49 in worst roads and bridges, but ranked #7 in overall government services.

ALEC

#41 ALEC

ALEC ranks each state in economic performance and outlook.

Although Massachusetts ranked low in economic performance, a forward-looking forecast is based on the state’s standing in 15 important state policy variables. Some of these variables include top marginal personal income tax rate and sales tax burden.

Kauffman Foundation

#29 Kauffman Foundation

Kauffman Foundation ranks each state in entrepreneurship.

Entrepreneurial activity generally is highest in Western and Southern states
and lowest in Midwestern and Northeastern states.

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Free Enterprise

#18 Free Enterprise

Free Enterprise ranks each state in performance, exports, innovation + entrepreneurship, business climate, talent pipeline, infrastructure.

Massachusetts's reputation as a hotspot for science and technology endures in this year's rankings. The commonwealth is a center for STEM jobs and university research and development, ranking 4th and 2nd, respectively, in those two categories. It also ranks 6th as a center for high-tech establishments. Massachusetts is taking aggressive steps to bolster economic activity with high-impact university-industry R&D projects and new tools for tech-based startup companies.