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Friday Financial Five—September 20th, 2013

Friday, September 20, 2013


Handing off the Federal Reserve baton

Wednesday’s news that the Fed is committed to bond buying through year’s end was a matter of Ben Bernanke not rocking the boat before handing the baton off to his successor. Janet Yellen is expected to assume the chairperson’s role in January. While similar to Bernanke in many regards, she should bring a varied perspective to the position. Continuing to have the Fed purchase bonds allows for status quo through the end of the year. Yellen and the Federal Reserve can start 2014 fresh and strategically position the Fed’s pullback given positive leading economic data and continued strength in the housing market.

Five years since the Lehman Brothers collapse

This week marks the five year anniversary of Lehman Brothers bankruptcy and the ensuing financial crisis. Since that fateful week, we seen nearly two million jobs disappear and incomes stagnate or reduce in many areas. There is still work to be done to make sure nothing like this happens again. Most importantly, the biggest banks still have not been properly addressed in terms of capital requirements and regulation. At this point, the six biggest banks are roughly 30 percent larger today than they were at the time of the crisis.

Taking advantage of the 403(B) 15 year catch up

A sometimes overlooked technique to build up retirement funds is the “15 year catch up” provision of some qualified 403(b) plans. For those that have been with a qualified organization for 15 years, this can mean adding an additional $3,000 per year for five years. There are certain limitations applied, but for those that don’t feel they have enough saved, this may be an appetizing option. For those over the age of 50 with 15 years of service, the maximum contribution of $17,500 can be supplemented by the 15-year catch up, and then further supplemented by the age-50 catch up.

Income gap trending to an all-time high

A disheartening recent economic study shows the momentum of income disparity hasn’t slowed. Despite a recent presidential race that focused on “the 1%”, these wealthiest of Americans earned 19 percent of all income in 2012. The top 10 percent of American wage earners made almost half the money for the country. This makes for the greatest income disparity since before the Great Depression.

The possible end to the “Stretch IRA”

A stretch IRA is a technique for extending IRA payments for non-spouse beneficiaries by stretching payments over the life of the person (usually a child or grandchild) inheriting the retirement account. In effect, it delays taxation on these funds. As has been the case over the last few years, the Obama administration has targeted this technique for tax avoidance and would like it remedied in the upcoming budget proposal. They would like all inherited retirement funds withdrawn over a five year period.

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


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