MONEY MATTERS, ETC.
Archives
Created February 5, 2001
This site will contain Lew Bohn's Money Matters, Etc. column from May 1997 to the present indexed by topic. This is a work in progress.
- May 1997 - Technicians from Sears (800-927-7957) will talk you through major home appliance repairs (whether or not the appliance comes from Sears) over the telephone for $11.99. You can call back on a single repair as often as you want for a month. If you can't fix the problem, Sears will put the $11.99 toward a repair visit or a new appliance.
- July 1997 - In response to my tip to save 5% on auto insurance premiums, AREA member M. Brandwein writes me that AARP has a "55 Alive/Mature Driving Program" given in two 4 hour sessions over a two day period or a special 1 day 6 hour program. Tuition is $8.00. He says this is a "better deal than that offered by AAA" which I had noted in an earlier column.
- July 1997 - Tired of increasing bank fees? You might be better off using an asset management account at a broker. You'll need a balance of $5K to $20K but that includes you entire portfolio with the broker. Your cash will earn (currently) over 5%. Among the no annual fee brokers are Dreyfus, Charles Schwab, Waterhouse Securities, and Jack White.
- May 1997 - How much are you paying your bank for printing your checks? Probably too much. Those ads by several companies which you see each week in the Sunday paper are a good deal. Usually you can get 200 checks for around $5.00.
- January 2001 - From time to time, as space allows, I'll include a brief tutorial on subjects of interest such as that which follows. Bond "laddering" is a popular investment practice for conservative investors who wish to receive a relatively steady retirement income such as semi-annual interest payments at specific times. The effect of "laddering" is to smooth out interest rate fluctuations. Example: You have $100,000 to invest. You wish payments on April 1 and October 1. To do this you purchase two $10,000 bonds on April 1 with a maturity of 1 year. At the same time you purchase other bonds with 2 year, 3 year, 4 year, and 5 year maturity. Thereafter, as each bond matures, you use the principal to purchase another 5 year bond. If, at the end of 1 year, interest rate have dropped, you still have a portfolio already invested in longer term bonds at a higher rate. If interest rates have risen, your returned principal will be invested at a higher rate. (You may wish to consider a longer (e.g. 10 year) ladder depending on your own circumstances.) Interest rates will depend upon how much risk you are willing to take. Government bonds are essentially risk free as well as free of state and local taxes. Rates will be higher for corporate bonds, but so will be the risk. The lower the bond rating the higher the risk. Due to interest rate fluctuations all bonds are subject to substantial gain or loss if sold before maturity. If you hold to maturity you will get back your original principal but in the event of inflation it may be worth less. Your broker or financial planner can set up a ladder for you.
- May 1997 - I have mentioned the government's Treasury Inflation Protection Securities (TRIPS). Worth Magazine (April '97) advises considering putting TRIPS in a tax deferred account (e.g. an IRA rollover) to avoid paying taxes on their appreciation each year. The initial issue pays 3.45%. These are for only the most conservative investor or one who worries about inflation.
- November 1997 - As the holiday season approaches, think about your best possible investment: a charitable gift (with love) to those less fortunate than you.
- July 1997 - On the horizon - HERO cards - being test marketed in Atlanta this summer. HERO is an acronym for Health, Education, Retirement Organization, Inc. Concept - you pay cash for your purchases but your HERO card is run through the card reader. A deposit (from rebate or discount) is made into your HERO escrow account. It is estimated that you might save $250 - $500 a year with $6,000 of purchases. You will get periodic statements showing merchant name, amount of purchases and rebate. Costs are borne by the merchants who will use this as a promotion as well as save their charges (around 1.75%) to the credit card companies. My personal forecast - if it goes well in Atlanta the credit card companies will mount a huge attack on it.
- November 1997 - Are you wasting electricity on appliances that consume energy when not in use? You would be surprised. An answering machine draws 5 watts, a TV 6 watts, a VCR 10 watts, a cable box 20 watts. A total of 50 watts will cost you $4.80 a month.
- January 2001 - If you have more than $675,000 in your estate you can create an A-B trust (also called a bypass trust) which can be appended to a will or a living trust. It breaks off a set amount of a couple's joint assets on the death of the first spouse. The investment earnings go to the surviving spouse. At the death of the surviving spouse those assets go to the heirs. This, in effect, doubles the amount on which you can avoid estate taxes.
- July 1997 - Speaking of financial advisors - the International Association for Financial Planning (800) 945-4237 has a free referral program that will provide you with dossiers on five advisors in your area as well as guidelines on conducting due diligence.
- May 1997 - Want to bid at a government auction on a confiscated drug smugglers yacht, or cameras or cars or practically anything? Call for a copy of the U.S. General Services Administration Guide to Federal Government Sales (202-512-1800); cost $1.75.
- November 1997 - Are you putting off buying a TV, awaiting high definition TV (HDTV)? Many people are doing just that and that is driving down the price of current TV's, especially the big screen TV's. You might want to rethink the situation. The date when all TV's are supposed to be converted to digital is 2006, but that may slip somewhat. When the first HDTV's arrive they will be priced at around $5,000 or higher. When they come out there will be very few stations broadcasting a digital signal. Also there'll be very little difference in picture quality on TV's 27" and smaller. As soon as HDTV programming becomes available, digital TV converters will enable you to still use your old TV. Your picture will even improve, but it won't be quite as good as HDTV sets.
- January 2001 - Another reminder to you that IRA distributions before age 59 1/2 are not subject to a10% penalty if funds are used for certain education and home expenses (see your tax advisor).
- January 2001 - If you turned 70 1/2 in 2000, don't overlook your minimum required distribution from your IRA by April 1, 2001. If you forget, your are subject to a 50% tax penalty.
September 1997
- Tip - Tell your working children to consider the new Roth-IRA. The money you put in is after tax, but all the appreciation is tax free, i.e. you pay taxes when you put money in but never again. It is a great deal for those who leave their money in for at least 10 years and it gets better every year thereafter. For those who plan to take their money out sooner, use a regular IRA as the initial tax bite for Roth takes a number of years to make up.
- July 1997 - AREA Member David Danson offers AREA members a 5% discount on any purchase from an Internet Gift Mall. He invites us to inspect the mall and the products at www.themodern way.com. Be sure to identify yourself as an AREA member in the shipping instructions on the payment page.
- November 1997 - If you're thinking of investing in mutual funds (in an unsheltered account) be aware that many funds declare dividends and capital gains distributions near year end. You want to avoid the tax liability that is involved, so wait until after the fact. If your investment is sheltered (e.g. a rollover IRA) it doesn't make any difference.
- January 2001 - If you are selling your home and investing a major portion of the money, consider financing the sale of your home. This way you may get a higher interest (e.g. 8.5%) compared to CD's (e.g. 6.0%). That would result in a better than 40% increase in your monthly income.
- July 1997 - If you are a plain vanilla CD purchaser you might want to consider callable CD's which pay a higher interest rate. Caution - they might be called should interest rates fall. There are also step-up and step-down callable CD's which are plays on which direction you think future interest rates will take. Step-ups start with a low rate and increase each year. Step-downs start with a higher rate and the rate diminishes each year.
- July 1997 - A "wrap" account is a fee based investment program. Your portfolio is individually professionally managed based on your personal investment goals. This relieves you of day to day tracking individual investments and the decision making. You get regular performance updates. There are no transaction fees, commissions or termination charges. You can provide as little or as much input as you want. Minimum investments range from $25K to $100K. The average annual fee is 1.4% of your portfolio value. Brokerages, banks, financial planners, etc., will set them up for you. This info was provided by Bill Murphy of A.G. Edwards. If you have any questions call him at (800) 526-1057 and identify yourself as an AREA member. I got a letter from Fidelity Investments Portfolio Advisory Services which said for accounts over $200K they would charge 1.0% or less (phone (800)526-1057).
September 1997
- Want to sue somebody? If the suit is less than $5,000, you can do-it-yourself through a small claims court. First write for a new 12 page booklet. "About Taking Legal Action" (a bonus booklet, "About Being Sued" comes with it). Write MetLife, Consumer Information Center, Dept. 76, Pueblo, CO 81009.
- November 1997 - For those interested in obtaining long term care insurance, I recommend that before you make any commitment, refer to the October 1997 issue of Consumer Reports (any library). There is a lengthy and informative article together with ratings on 67 different comprehensive policies and 47 different nursing home only policies.
- November 1997 - In an earlier column I reported that as an AREA member you could get a 10% discount on John Hancock long term care policies, even ones you already held. One of our members found out that wasn't entirely accurate. Feeling somewhat sandbagged, I contacted a John Hancock representative and received the following answer. With regard to the discount on Long Term Care Insurance for AREA members, this discount applies to John Hancock Tax Qualified plans "Advantage Gold" and "Advantage Classic" which have been written in New Jersey since January, 1997. If you have one of these policies you need to call John Hancock and inform the company you are an AREA member and the discount will be effective on your next policy anniversary. If you have an older policy, "Protectcare Advantage", there is no AREA discount approved by the New Jersey Department of Insurance. However, in early 1998, all "Protectcare Advantage" policyholders will be given the opportunity to upgrade to the new plans; and if you choose to do so, the discount will be applied to your new policy. The AREA member who brought this to our attention says the new policy with the discount is still more expensive than her old policy. The Hancock representative says the new policy gives greater coverage. All of which leads me to say that we try our best to be as accurate as possible in this column, but sometimes our sources may not be accurate.
- July 1997 - Through a contact by AREA member Tom Norato, John Hancock Mutual Life Insurance Co. will be offering AREA members a discount on Long Term Care Insurance (even if you already own a policy). Information will be available at our Fall meeting (October 23). If you want info sooner, call Greg Calvert at (908) 933-1168 ext. 151 and identify yourself as an AREA member.
- May 1997 - AREA has made arrangements to offer Long-Term Care protection to its members at a discount. Among the companies for which discounts are available are: CNA, Travelers, G.E.(formerly AmEx), Time-Fortis, and UNUM. For further information call Karlene Mitchell at (800-455-2448, ext 155). Ms Mitchell is the one who produced our well received financial planning seminars.
- May 1997 - A reverse mortgage may meet certain people's needs. A homeowner gets cash advances from a lender and the money is eventually repaid when the borrower dies or sells the house. AARP warns against paying referral fees to someone for finding you a lender. A national list of selected lenders can be obtained by sending $1.00 and a business-sized stamped, self-addressed envelope to: The National Center for Home Equity Conversion at: NECHEC Preferred, Room 115, 7373 147th Street West, Apple Valley, MN 55124.
- May 1997 - Senior citizens can ski free year-round at over 100 resorts in the U.S. Call the National Ski Areas Association for a list of locales (800-575-4386).
September 1997
- By January 1, 1999, all social security payments must be electronically deposited into a bank or brokerage account. It is a good idea. If you don't have your social security deposited electronically already, why not do it now? Talk to your banker or call the Social Security Administration.
- January 2001 - Tax season is upon us. The estate tax deduction is still $675,000 in 2001 escalating to $1,000,000 in 2006. Don't bet on it. It's almost a sure thing this will be among the items changed by Congress this year. Both Gore and Bush advocated change. Gore wanted to increase the deduction. Bush wants to eliminate estate taxes altogether. The educational loan interest deduction increases to $2,000 in 2001 from $1,500 in 2000. In 2000 there is no social security penalty for those 65. For 2000, the generation skipping transfer tax exemption has been increased to $1,030,000. The mileage deduction this year is 32.5 cents per mile for business mileage, 14 cents for charity mileage, and 10 cents for medical mileage subject to the 7.5% of income limitation.
- May 1997 - Tax season is over, thank goodness! Now is time to get ready for next year. Are you expecting a big refund this year? Or did you send the IRS a big check? Neither is smart. Your should be close to break even. If you weren't, perhaps you should either change the number of dependents your withholding is based upon or adjust your estimated tax payments.
- January 2001 - Avoid capital gains taxes by giving appreciated assets directly to the charitable institution of your choice. You are limited to 30% per year of your adjusted gross income (AGI), but you can carryover for as many as five years.
- September 1997 - Everyone wanted a tax simplification bill. Our government just passed a tax complication bill, alias balanced budget, alias tax accountant full employment bill. There are some goodies for us, however. The former $125,000 once-in-a-lifetime capital gains avoidance in selling your home has been increased to $500,000 as many times as you sell a home in which you have lived in for at least two years. If you own a shore rental home, you can sell your present home, move into your shore home for two years and avoid capital gains on both. (Note: There's special treatment for any depreciation you may have taken, so consult your tax advisor.) Speaking of capital gains, there will be five new capital gains rates depending on your tax bracket and how long you have held the asset.
- September 1997 - Passage of the new capital gains tax may have a major impact on your investments. Now your mutual funds based upon capital appreciation will be less of a tax burden to you than those funds which depend on dividends and interest (unless they are sheltered in an IRA, 401(k), etc.). Similarly with individual stocks you buy. Most capital appreciation stocks (growth stocks) are generally small cap and mid cap stocks. Recently large cap and index funds have been doing poorly in the stock market compared to small caps and mid caps, so it's a good time to review your portfolio. Most advisors are recommending going to smaller companies where the P/E ratio is more realistic with value stocks being the most attractive. As an example, the August P/E of stocks in the DJIA (large caps) was 33 vs. 20 for the S&P 500 index. The P/E of Microsoft was 53, Coca Cola 43, Procter & Gamble 32 and GE 31. Should a major downturn occur, the stocks with high P/E's are more vulnerable.
- May 1997 - In the AREA Newsletter, I advised (if applicable) holding off selling your house until the once-in-a-lifetime capital gain forgiveness was increased from $125,000 to $500,000 as both political parties promised during the last presidential campaign. Don't hold your breath. Consideration of this has been bilaterally postponed until after the balanced budget issue has been resolved.
- January 2001 - If you pay any amount of money directly to a college for tuition or to a medical facility for your children or grandchildren or for anybody, you avoid estate and/or gift taxes on that money.
- January 2001 - If you pay any amount of money directly to a college for tuition or to a medical facility for your children or grandchildren or for anybody, you avoid estate and/or gift taxes on that money.
- July 1997 - Intrigued by "dial around" phone services? Watch out! These are those five digit numbers starting with "10", i.e. 10-XXX by which you go around your normal carrier. You may get zapped with monthly "access fees" or other hidden charges.
- September 1997 - Want to fly to the west coast and drive a new car back for delivery here or visa-versa? Call Auto Driveaway (800) 346-2277. You might arrange something. They prefer professional drivers and they might not allow as much time as you want. Check it out.
- November 1997 - A lot of leased cars are being turned in. Now is a good time to buy a used car.
- September 1997 - Used car prices are faltering due to a glut of expiring leases, especially those whose manufacturers are currently offering large rebates. The price effect spills over to lease cars. For a list of rebates consult the weekly Automotive News (at the library). Shop carefully.
- January 2001 - I have a daughter-in-law who gives me off beat gifts each year. Last year she gave me a remote control race car which I enjoy thoroughly and use whenever I can find some little kid on the street to join me and to provide me with cover. This year she gave me a beautiful Santa Claus suit. Of my 10 grandchildren I was able to embarrass the older ones, scare the younger ones and thrill the middle ones. I can't wait until next year when I try it out on the neighborhood kids. Would you take financial advice from someone like that?
- January 2001 - I saw several quotes advising youngsters that the recent election situation in Florida is something that they can tell their grandchildren about some day. They will have to have grandchildren different from the ones I have. I bring up in conversation the great depression, F.D.R., Pearl Harbor, WW II, rationing, blackouts, the atom bomb, the Korean War, etc., and their eyes glaze over.