Friday Financial Five – February 12, 2016

Friday, February 12, 2016

Dan Forbes, GoLocalWorcester Contributor

Rough start to 2016 has competing theories

The presidential election, a Chinese economic slowdown, spiraling oil prices, and interest rate concerns are all competing as the impetus for the global market swoon this year. It’s always impossible to pinpoint the exact cause, but suffice to say, investors haven’t shown a great deal of confidence in any sector, region, or company size thus far. The fear of an economic slowdown has Fed Chairwoman Janet Yellen talking about the legality of negative interest rates just months after a minimal rate hike last December.

President Obama’s budget proposes multiple changes

President Obama’s 2017 budget proposal tackles multinational companies and high income earners but also includes several components that will affect a wide range of earners. S-Corporations, which generate roughly half of business income, would face changes. The budget seeks to close the “backdoor Roth IRA” option where higher income earners make non-deductible IRA contributions and then convert them to Roth IRAs. The president would make Required Minimum Distributions a part of Roth IRAs while also disallowing contributions to those accounts after the age of 70 ½ and eliminating the “Stretch IRA”. Estimates for additional revenue from the proposal come to $2.6 trillion from 2017 to 2026.

Student loan debt more troublesome for women

A gap in pay between genders gets all the attention, but there seems to be less focus on what a gap means for retirement savings in the long term. A gap would also mean women have less income to repay school loans, and that’s happening according to a study by the American Association of University Women. Women take longer to pay back their loans leading to less time saving for retirement. For example, women who graduated in 2008 paid back 33 percent of their student loans by 2012, compared to 44 percent of debt being repaid by men.

Retirement confidence survey emphasizes need for planning

The Employee Benefit Research Company conducted a 2015 Retirement Confidence Survey. While nearly forty percent of all workers reported they wouldn’t have enough money to live comfortably in retirement, confidence was actually higher than in 2009. Data showed that workers and retirees spend less time doing retirement planning than they spend planning for the holidays. For example, 40 percent of workers spent eight or more hours planning for the holidays in the past year versus 34 percent of workers spending that amount of time planning for retirement. Nearly two-thirds of workers claimed they are still behind when it comes to planning and saving for retirement.

Sanders income tax plan

Following a decisive win in New Hampshire, Bernie Sanders’ tax plans may come under more scrutiny. The Tax Foundation’s analysis estimates almost $14 trillion in new tax revenue over the next decade. The taxes would include a 6.2 percent employer payroll tax increase and a 2.2 percent income tax on everyone. It would add four new tax brackets and push the highest bracket up to 54.2%, for those making $10,000,000 and more including capital gains and dividends. It also includes a tax on financial transactions.

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].