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The Independent Investor: IRA Distribution Time
By Bill Schmick On: 11:52AM / Friday December 26, 2014
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Information abounds on why and when you should contribute to a tax-deferred savings plan such as an Individual Retirement Account (IRA). Less is known about what happens in retirement when you have to take money out of these plans. For those who turned 70 1/2 years or older in 2014, pay attention, because it's distribution time.

The original idea behind tax-deferred savings was to provide Americans a tax break in order to encourage us to save towards retirement. Individuals could stash away money tax-free while they were working and then take it out again once they retired, when they were presumably earning less and at a lower tax rate. The government determined that once you reached 70 1/2 you have until April 1 of the next tax year to take your first distribution.  If you are older than that, you only have until the end of the year.

Officially, it's called a Required Minimum Distribution (RMD) and applies to all employee sponsored retirement plans. That includes profit-sharing plans, 401(K) plans, Self Employed Persons IRAs (SEPS), SARSEPS and SIMPLE IRAs, as well as contributory or traditional IRAs. The individual owner of each plan is responsible for computing the MRD and taking it from their accounts. There are stiff IRS penalties (of up to 50 percent of the total MRD) levied on those who fail to comply.

The RMD is calculated by taking the total amount of money and securities in each IRA, or other tax-deferred plan, as of Dec. 31 of the prior year and dividing it by a life expectancy factor that the Internal Revenue Service publishes in tables. The document, Publication 590, Individual Retirement Arrangements, can be easily accessed over the internet. As an example, let's say at the end of last year your IRA was worth $100,000. You are 72 years old. Looking up the life expectancy ratio in the IRS table for that age, which is 15.5, you divide your $100,000 by 15.5. Your RMD for this year would be $6,451.61 (100,000/15.5 = 6,451.61).

Remember that you must compute your RMD for every tax-deferred account you own. However, you can withdraw your entire distribution from just one account if you like. You can always withdraw more than the MRD from your accounts, but remember that whatever you withdraw is taxed at your tax bracket. If you make an error and withdraw too much in one year, it cannot be applied to the following year. And before you ask, no, you can't roll the RMD over into another tax-deferred savings account.

What happens if you forget or for some reason you cannot take your RMD in the year it is required? You might be able to avoid the 50 percent penalty if you can establish that the shortfall in distributions was the result of a reasonable error and that you have taken steps to remedy the situation. You must fill out Form 5329 and attach a letter of explanation asking the IRS that the penalty be waived.

For those who have an Inherited IRA, you too may have to take a RMD before the end of the year. The calculations and rules are somewhat different. Generally, if you have received the inheritance this year, as the beneficiary, you have the choice of taking one lump sum, taking the entire amount within five years or spreading out the distributions over the course of your life expectancy, starting no later than one year following the former owner's death. The IRS produces a table for use by beneficiaries in Publication 590 as well.

Many retirees have a hard time remembering to take their MRD each year. It is a good idea to ask your money manager or your accountant to handle the distribution or at least to remind you each year when the RMD is due. The last thing you want to do is give back to the IRS half your hard-earned savings each year.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Election Investors Ignored
By Bill Schmick On: 07:09PM / Thursday December 18, 2014
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Last weekend Japan held "snap" elections, which gave Prime Minister Shinzo Abe the mandate to continue his pro-growth economic policies.  No one outside Japan seemed to care. The Nikkei stock market index fell 1.6 percent and traders moved on. That may prove to be a big mistake.

Granted, given the precipitous decline in the price of oil and the calamity it is causing in Russia (well-covered in last week's columns), investors may be forgiven for focusing on other more immediate concerns. Still, I believe that now that Abe has a clear mandate to continue his pro-reform, economic policies, Japan's prospects for next year have been elevated considerably. And don't forget that Japan is by far the greatest beneficiary of those falling oil prices.

Japan is technically in recession at the moment. GDP over the last two quarters was dismal. And the third quarter 1.9 percent decline shocked observers, who were actually expecting a rise. Economists pointed to a national sales tax hike that hurt economic growth. Back in April, the sales tax was increased from 5 percent to 8 percent, which hurt consumer spending.  After the election, Abe announced that another hike in the sales tax (to 10 percent) would be delayed, if not suspended.

Readers may recall the "three arrows" of Abe's plan. They are: radical monetary easing (well over a $1 trillion so far in asset purchases), extra public spending ($17 billion plus) and a much-needed program of structural reforms. The last arrow is probably the most difficult and yet to be accomplished. Abe will need all the support of a renewed voter mandate to accomplish these changes. It is the main reason the snap election was called in the first place.

Take unemployment, for example. Although unemployment is only 3.5 percent in Japan, those numbers can be deceiving. The country's labor structure is antiquated. A decades-old labor coalition between the government, unions and corporations shelter most workers from market forces. For example, there is a de facto ban on firing and dismissals can be thrown out of court if they do not meet with "social approval." Employment in Japan, in many ways is part and parcel of the country's welfare system.

Obviously, Japanese companies are at a severe disadvantage in this globally competitive environment. Corporations have resorted to hiring more low-paid workers with little job protection as an alternative. These "irregulars" now make up two-fifths of the labor market. They are not members of the unions and therefore fall outside the unions' ironclad agreements protecting their members. As a result of this system, even the most unproductive workers remain employed.

Reform would require Abe to scrap the old system and institute things like severance pay, equal pay for equal work and an overhaul of Japan's short duration, low unemployment compensation system.  In addition, the concept of free trade must be introduced. The end of Japan's post-WWII protectionism must be tackled. This won't make him popular among many domestic entities. Japanese farmers, for example, benefit from import duties that are so high that the Japanese consumer spends an average 14 percent of household budgets on food, compared to American consumers who pay 6 percent.

The battle to achieve these reforms will be formidable. Pressure groups that have gained economic and political power in postwar Japan will not give in easily. Although the general public agrees that reform is necessary to "save Japan from itself," the devil will be in the details.

Within Japan, there is an understandably cynical attitude over Abe's chances of successfully addressing these and other structural issues. Too many politicians in the past have tried and failed. What, they say, makes Abe any different?

It could be his heritage. He is the son and grandson of politicians and tradition counts in that country. On his mother's side, his grandfather was a war criminal, who later established Japan's Democratic Party. He served as prime minster from 1957-1960.

But it could also be his generation. He is both the first post-war candidate to hold office and the youngest Japanese leader in history. He appeals to both sides of the political spectrum and can inspire, motivate and lead. He has, in my opinion, the best chance to steer Japan in a new direction.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Is Russian Bear Back In His Cave?
By Bill Schmick On: 03:46PM / Thursday December 11, 2014
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Ukraine had been the topic on everyone's lips for over six months. Today, nary a word is written about Russian's plan to annex that nation. You can thank declining oil prices for that.

While most of the West rejoices over the recent precipitous drop in the price of oil, the story is quite different for the largest producer of fossil fuel energy, Mother Russia. That's right, Russia, and not Saudi Arabia, leads the world in energy production. As such, Russia depends on energy for 16 percent of its gross domestic product, 52 percent of total federal revenues and 70 percent of all exports. And that was in 2012. Since then the numbers are even higher.

As the price of energy continues to decline, so does the Russian currency, the ruble. It has dropped by 26 percent in the last year and just today fell another 1.3 percent. In the first half of this year alone, the Russian economy contracted by over 10 percent and that was before the brunt of the oil decline occurred. Russian officials estimated they will lose $90-100 billion a year based on oil's decline.

Officially, the Russian Economic Ministry cut its forecast for GDP in 2015 from 1.2  percent to minus-0.8. The Russian people are going to feel that bite with real incomes falling by 2.8 percent. This will be the country's first recession since 2009. At the same time, the inflation rate is expected to rise from 7.5 percent to 9 percent. In an effort to combat rising inflation their central bank is hiking interest rates at the same time to almost 10.5 percent, further hurting economic growth.

 Earlier in the year, the prospects for the Russian economy were already looking fairly anemic, thanks to Putin's adventurism in Crimea. In retaliation, U.S. and European sanctions have now begun to bite. By Russian forecasts, those sanctions will cost the country $40 billion this year. They have also effectively closed off global capital markets to Russian banks and corporations. As a result, investment has dropped off a cliff as uncertainty, combined with a lack of security, has devastated corporate Russia

On Dec. 4, Putin addressed his government ministers and parliament with a mix of sophisticated economic plans to liberalize the economy and good old-fashioned nationalism that would have made Hitler proud. Of course, he blamed the West for everything from Russia's current economic woes to annexing Crimea and Ukraine.

It was interesting that he barely mentioned the continuing war in Eastern Ukraine. It appears that the declining oil price has damaged Putin's plans far more than the economic sanctions instituted by the West. Was it a fortuitous coincidence that energy prices started to decline this year just as Vladimir Putin began to marshal his forces for a move into Ukraine?

Readers should remember that the Kingdom of Saudi Arabia, which is getting the blame for not supporting oil prices, is a key U.S. ally. What better way to hamstring Russian adventurism than to hit them where it really hurts via oil? Notice, too, that both the administration and Congress has been silent about this recent energy rout, although theoretically, declining oil prices hurts our burgeoning shale industry and American efforts at energy independence.

I say let the oil price fall until it doesn't. Let the markets determine the fair value of energy and hopefully, in the meantime, bankrupt the Russian bear.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: The Truth Behind Black Friday
By Bill Schmick On: 05:09PM / Thursday December 04, 2014
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The disappointing 11 percent decline in brick and mortar retail sales on Black Friday took Wall Street and Corporate America by surprise. Excuses vary from the holiday shopping fad has run its course, to people just wanted to be with their families on Thanksgiving. Don't believe it.

One CEO of a mega-discount retail company, when interviewed, bemoaned the disappointing sales, blaming the economy's 2-3 percent growth range, which he said, "feels like it's kind of perpetual."  For all of the hype and advertising devoted to turning out consumers for the extended Thanksgiving weekend, Black Friday was the biggest dud of the year.

This occurred even as the price of oil declined by over 30 percent, providing the largest boost to the consumer's pocketbook in years. Despite this windfall, consumers stayed home. It is part of an on-going story within this American economic recovery. Sure, Corporate America is making record profits. The stock markets are at record highs and, on the surface, unemployment is trending lower, but much of America is being left out of these good times.

Although the October jobs report showed strength in employment, a deeper examination reveals that much of the gains were in part-time or temporary employment. October's report showed that wages rose 0.1 percent for the month and for the year just 2.0 percent. That's below the rate of inflation. The truth is that after six years of recovery wages have stood still.

The jobs that are being created in this country are minimum wage service jobs for the most part. Last month, one out of every five jobs created in the U.S. went to a bartender or waiter. We now have almost as many jobs in those professions as we do in manufacturing.

This year congress, at the behest of Corporate America, shot down a hike in the minimum wage, arguing that a pay raise would cause corporations to reduce the number of workers they employ. With a shrinking middle class and more and more Americans subsisting on minimum wage jobs, exactly how are we expected to go shopping on Black Friday? At best, a worker's monthly paycheck covered Thanksgiving dinner for the family. Is Wall Street so far removed from the economic reality that the rest of us face?

In January, 1914, over a hundred years ago, thousands of American workers stood in the frigid Detroit winter to take Henry Ford up on his offer. The auto magnate was offering workers $5 an hour, double the prevailing wage, to work in his motor assembly plant. With that act alone, Ford established a middle class in this country and revolutionized the business world.

Now Ford was no philanthropist, far from it. Up until then his yearly production of Model "T” Fords was averaging about 200,000 automobiles. He wanted to move that number up to a million, but realized that there simply were not enough Americans with the kind of money necessary to buy one. None of his workers, for example, could afford to buy the product that they were making. He resolved to solve that problem and he did.

Fast forward to today. What is happening in this country is quite the opposite. Corporations are making fatter and fatter profits, mainly by cost cutting and financial engineering, while their workforce is succumbing to a lower and lower standard of living. The big retailer I mentioned at the beginning of this column, while lamenting his lack of sales, neglected to mention that his company had just discontinued medical benefits for their thousands of part-time workers.

This is going to be a real problem going forward for a country that depends on consumer spending for almost 70 percent of its economic growth. Unfortunately, both Wall Street and Corporate America exhibit, at best, short-term myopia and at worse, long term stupidity.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Is There a Doctor in the House?
By Tammy Daniels On: 03:50PM / Thursday November 27, 2014
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A doctor shortage in America has been predicted ever since the first Baby Boomers started to retire.  Now, that shortage is coming into question as technology and non-doctor, medical professionals are stepping forward to fill the gap.

The Association of American Medical Colleges predicts the nation will need 90,000 doctors by 2020 and 130,000 physicians by 2025. It is understandable how that organization arrived at that number. Just compute the proportion of Americans who will reach the age of 65 between now and 2030. Add to it the number of Americans newly insured, thanks to the Affordable Care Act, and you come pretty close to those numbers.

However, those figures simply represent the demand side of the equation assuming everything else remains the same.  To be sure, there will still be a shortage of general practitioners, those front line physicians who are our first stop in accessing medical treatment and services.  But a whole host of breakthroughs in medical knowledge, technology and treatment protocols are reducing not only the hours required to treat an aging population, but also the location of such treatment.

As a result, fewer patients visit hospitals today and when they do, their stay is reduced by a variety of outpatient choices. This pares down on the number of doctor visits each patient requires. In addition, many surgical procedures, thanks to advances in knowledge and technology, can be accomplished today through minimally invasive procedures that require less recovery time and therefore less doctor time.

Take my upcoming knee replacement, as an example. I have only seen my orthopedic surgeon once and will probably not see him again until the surgery. My hospital stay will be 2-3 days at the most, barring complications, and I'll most likely see him a week or so after the operation. That's it. Of course, in the meantime, I am seeing an army of technicians, physical therapists and so on.

This brings me to another sea change in medical treatment, the rise of the non-doctor primary care providers that include physician assistants, nurse practitioners, pharmacists and social workers. More often than not, you will find them working in teams. Think of the doctor’s assistant as the operations manager who, in my case, is sending me hither and yon to see various practitioners both before, during and after my operation.

In today's world you may never even see the doctor for some ailments. This year my GP suggested I see a dermatologist, (something I have avoided in the past). I have been back five times since that first visit and have never once seen the doctor. My skin ailments have been handled by a physician's assistant and a nurse practitioner. I'm sure the same thing is happening to you.

Training 130,000 doctors over the next decade requires an enormous amount of resources. In contrast, expanding medical practice law to allow nurses and pharmacists to provide more comprehensive primary care is a cheaper and a more time-efficient method to fill much of this potential doctor shortage. More emphasis on "team care" in our medical schools would also help leverage an underutilized medical work force that could do much, much more. Combined with the continued breakthroughs in medical technology and devices, we may just be able to keep up with the demand from people like me.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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