The Benefits Firm

During the past quarter financial markets rebounded from the decline of the third quarter, recovering most of their losses. Like the June-September period, the fourth quarter was another volatile one for most markets. Over the period, the S&P 500 Index moved by over 10 points on 40 of 64 trading days. This volatility continues to highlight the skittishness of investors in light of global economic circumstances.

Major headlines from Europe continued to be the main focus of investors worldwide. Greece began enacting steep austerity measures in order to continue receiving bailout funding, and these measures were met with protest as thousands lost jobs and entitlements. As the quarter wore on, the focus shifted to similar circumstances in Italy. Unlike Greece, the Italian economy is too large for a bailout, and officials acted quickly to ensure that appropriate measures were taken to begin remedying these issues. On November 16, Italy’s Prime Minister Silvio Berlusconi resigned and was replaced by Mario Monti, a prominent Italian economist whose government quickly began enacting austerity measures aimed at bringing the country’s growing debt crisis under control.

While European news dominated the headlines of the past quarter, domestic data continued to show improvement here in the U.S. This reduced fears of a double dip recession that some felt may be on the horizon following the events of the previous quarter. While unemployment remains elevated following the recession of 2008-2009, 2011 was the strongest year for hiring since 2006. The economy added 1.64 million jobs during the year, reducing the unemployment rate to 8.5%.

Patrick Hall, Financial Advisor

pat@thebenefitsfirm.com

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A SIMPLE IRA is a type of group retirement plan that allows for both employee and employer contributions. Annual costs are generally very low when compared to a 401k and there is far less administrative work involved.

This type of retirement plan is very advantageous for certain smaller companies who are looking for a nice benefit to offer their employees without a lot of headache and without paying a lot of money.

There are two different ways for an employer to structure the matching and at first glance it can seem confusing, so please let us know if you need further explanation, but here is a quick rundown:

Option 1: The employer contributes 2% of pay to each eligible employee whether the employee decides to contribute or not. In other words, an eligible employee making $30,000 a year would have $600 (2% of $30,000) put into his/her SIMPLE IRA annually by the employer even if that same employee decided to contribute nothing.

Option 2: The employer makes a matching contribution of up to 3% for each employee who decides to contribute. If an employee puts in 1%, then the employer matches 1%. If an employee puts in 5%, then the employer only has to match 5%. If an employee puts in nothing, then there is no match.

There is a lot to know about6 how a SIMPLE works, but hopefully you now have a better understanding of how the contributions work.

Charlie Farnsley, Financial Advisor

Charlie@thebenefitsfirm.com

Lipitor, which is used by patients to lower blood cholesterol, was the top-selling pharmaceutical brand in the world in 2008 with $12.4 billion in sales. Not only was it a top selling pharmaceutical, but consumers prescribed this medication paid very high co-pays. If one was on a high deductible health plan, then he/she certainly felt the hit at the pharmacy when picking up Lipitor.

Lipitor was set to lose it patent in June of 2011, but an agreement was made by Pfizer and Ranbaxy Laboratories that delayed the generic launch in the U.S. until November 30, 2011. On November 30, 2011 the generic drug for Lipitor called atorvastatin was released to the market.

What does this mean for consumers?  They will now pay less for the popular medication that they have been taking. If you want to know specifics on how it will affect you and your insurance plan please give me a call and I would be happy to discuss this with you.

Mindy Payne, Benefits Advisor

Mindy@thebenefitsfirm.com

Many retirees rely on Social Security payments as a major
source of income in retirement. For these retirees it is important to be aware
of the tax on Social Security payments during the retirement planning process.
According to the Social Security Administration, the exposure these payments
have to federal taxation depends on the level of “combined income” and the type
of tax return filed.

Combined income equals adjusted gross income, plus
non-taxable interest, plus one half of Social Security payments received.

For retirees filing individually with a combined income
between $25,000 and $34,000 ($32,000-$44,000 for those filing jointly), up to
50% of Social Security payments can be subject to federal taxation. Individuals
with a combined income above $34,000 ($44,000+ for those filing jointly) can
have up to 85% of their Social Security payments subject to federal taxation.

This link to the
Social Security Administration’s website provides important information and
valuable calculators regarding Social Security payments.

Patrick J. Hall, Financial Advisor

pat@thebenefitsfirm.com

Now that it has been a number of years since the Health Savings Account (HSA) was established, it seems that I get a lot of questions about what can be done with money inside of this account. One popular question is can an HSA be rolled over into an IRA. The short answer is NO.

In 2006 the Tax Relief and Health Care Act was passed that allows for a one-time rollover of assets inside of an IRA into an HSA, but does not permit a rollover the other way around.

Some banks will allow for certain investments to be made inside the HSA, and often times there are monthly fees associated with maintaining the account. There are plenty of banks out there that do not charge monthly fees and sometimes they will be waived just simply by asking.

Charlie Farnsley, Financial Advisor

Charlie@thebenefitsfirm.com

Life Insurance- Do you really need it?  If you are independently wealthy and can provide an income for your dependents after you are gone, you probably do not need life insurance.  However, ifIf on the other hand you have a family and you provide the primary source of income, then a life insurance policy is a pretty sound investment.  It could mean the difference between your family struggling for an income and continuing their standard of living.

Insurance companies offer two types of policies: Term and Permanent (also called “cash value.”)  The following is a brief description of the two types of policies:

Term Life

Term insurance is the cheapest type of life insurance to own.  It is a policy that will pay out a specified amount of money if you die within a specified term.  Unlike permanent insurance this insurance does not accrue cash value while you are alive, and it is designed to give your dependents financial support until you have enough assets to be self-insured.  An important feature of term insurance is that it can be converted to permanent insurance without a new medical examination for a higher premium.  This can be useful if you have not accrued the amount to be self-insured and you have turned 65.

Permanent Life Insurance (Cash Value)

Permanent insurance, also called “cash value” insurance, commands much higher premiums.  The reason for the higher premium payments is because once the life Insurance portion has been paid the remainder of the premium goes into a savings account that accrues interest over the life of the policy.  Disadvantages to permanent policies include having no say in the investment account of the policy, and having the potential of a penalty for withdrawing cash.  Permanent insurance does provide stability when the stock market is volatile because most insurance companies provide a guaranteed interest rate. 

Generally, term insurance fits most people’s needs, but permanent insurance is very useful if your family needs to pay estate taxes when you pass away or you have dependents at the time of your death and have insufficient funds to provide for them. 

Every person’s situation is different. Make sure to determine which insurance best suits your needs and that you know the particulars about both types. 

Allen J. Bahe, Financial Advisor

Allen@thebenefitsfirm.com

 On Thursday, The Conference Board released their monthly Leading Economic Index Report designed to signal peaks and troughs in the economy. The LEI rose 0.3% in August. Increases in financial and monetary components (particularly the M2 money supply) offset weakness in other indicators aimed at measuring expectations.

Economists at the Conference Board stated, “There is growing risk that sustained weak confidence could put downward pressure on demand and business activity causing the economy to potentially dip into recession.” They also went on to say that while the chance of double-dip was still less than 50%, the odds have increased in recent months.

Patrick Hall, Financial Advisor

pat@thebenefitsfirm.com

Treasury yields have been hovering near historic lows in recent weeks, with the yield on 10 year Treasuries dipping below the 2% level on several instances. Bond yields move inversely to price, and the low yield is a result of investors pouring more money into Treasuries, thus driving up their price. This seems counterintuitive given the fact that the Standard & Poor’s downgraded US debt from  its highest AAA rating to AA+ on August 5. Typically, such a downgrade usually implies a higher risk to investors, who in turn demand a higher return on their investment. However, the market has balked at S&P’s decision and instead investors have been flocking to the safety of Treasuries as economic sentiment has worsened.

While it is by no means an all-encompassing figure, Treasury yields do provide investors with a general sentiment of the market. This link provides an interesting graph of Treasury yields between 1990 and 2010.

Pat Hall, Financial Advisor

pat@thebenefitsfirm.com

As Hurricane Irene bore down on the eastern seaboard this past week, residents began stashing emergency supplies, boarding up windows, and preparing for the worst. Thanks to meteorologists’ forewarnings, residents were able to prepare for the coming storm. Would investors have been wise to do the same? An analysis of stock market performance following recent natural disasters would argue no, showing that investors who “weathered the storm” typically suffered far less than their counterparts who were forced to evacuate their homes in the face of the event’s more real and potentially life-threatening devastation.

On Monday (August 29, 2011), the Dow Jones Industrial Average was up approximately 250 points largely in response to the fact the Irene’s wrath was not as bad as was once speculated. Looking back at market performance following other recent natural disasters lends additional support to the argument that such events typically only affect stocks for a very short period of time, if at all. The earthquakes in Haiti reaped a devastating human toll, leaving hundreds of thousands dead and millions more displaced. However,
the market hardly flinched in response to the earthquake. The Dow was down about 30 points on the day of the quake and recovered the losses the following day. Some may argue that the markets failed to respond because Haiti’s undeveloped economy left American companies unexposed to the direct impacts of the devastation.

How does the market respond more local events, like Hurricane Katrina or 9/11? Or when the disaster hits a more developed (and consequently more intertwined) economy like Japan’s following the earthquakes and Fukishima nuclear reactor disasters of earlier this year? While Hurricane Katrina was the costliest natural disaster in the history of the United States, causing over $80 billion in property damage, the S&P 500 actually rallied for eight straight days following Katrina’s arrival in New Orleans, moving up 3% over the period. The terrorist attacks of 9/11 were the saddest day in America’s history since the bombing of Pearl Harbor, and the New York Stock Exchange remained closed for the week following the tragedies at Ground Zero, the Pentagon and in Pennsylvania. Once it reopened six days later, stocks went on a four day slide, with the S&P losing 11.6%. However, within a month of 9/11, the S&P had returned to its pre-disaster level.

The earthquake and tsunami that landed on Japanese shores in March and caused the nuclear emergency at the Fukijima power station put a heavy damper on one of the world’s largest economies for an extended period of time. The Japanese Nikkei 225 index, the rough equivalent of the American Dow Jones Industrial Average, lost nearly 17.5% in the three trading days following the disaster. While it still has not yet recovered to the level it was at on the day of the disaster, it has pared many of its losses (down approximately 3% over that period). Oddly, American markets actually rallied following the disaster. The S&P 500 was up on the day of the event, and continued to rally towards its 2011 high in late April. While events such as Hurricane Irene force residents in their wake to prepare for the worst or evacuate, evidence of market performance following other recent natural disasters both here and abroad show that investors would be wise to stick out the temporary destruction such events may cause to their investment portfolios.

Pat Hall, Financial Advisor

Roth IRA Conversions

The ability to convert retirement funds held in a pre-tax Traditional IRA to an after-tax Roth IRA can be very beneficial to certain investors. Unlike Traditional IRA distributions, Roth distributions are taken entirely tax-free after age 59 ½. Because of this, Roth conversions are particularly beneficial for those who feel they will be in the same or higher tax bracket in retirement. Young investors may also benefit by taking the tax hit now, and allowing their accounts to grow tax-free for the remainder of their lifetimes. Not only do these investors realize the taxation on their smaller account values, but also during a time when their income level (and subsequent tax bracket) will likely be at lower levels than later in life. Additionally, as local, state, and federal governments wrestle with trying to reign in growing budget deficits, current tax rates are likely the lowest we will see for a long time. Policymakers will likely raise tax rates in the coming years to generate more revenue to begin rebalancing government balance
sheets.

When considering whether a Roth conversion is beneficial to your personal retirement plan, you should consult a CPA to discuss the specifics of your own situation. Conversion from a Traditional IRA to a Roth IRA is treated as a distribution and is added to your current taxable income. For larger accounts, this may push you into a higher tax bracket. However, conversions may also be made over a number of years and this may reduce the likelihood of a tax bracket bump up. Roth conversions can also be reversed if done so by October 15 of the year following the conversion should you later decide the conversion was not advantageous to your retirement plan.

Patrick Hall, Financial Advisor