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Kiplinger’s Personal Finance

Partners' Network Blog

I read a lot of finance publications. Those for professionals provide pretty sophisticated analyses while those for the general public have short articles with single points that are easy to absorb. The July 2019 issue of Kiplinger’s Personal Finance is a gem and I wanted to share some of that issue with you.

I usually run through these types of publications pretty quickly but this issues had me stopping at almost every article. The articles were well written, short and made their points pretty quickly. Following is a rundown of some of the articles I found particularly informative.

A Kinder, Gentler IRA:

This article illustrated IRA withdrawal amounts under current law and under a proposed law. I no longer pay much attention to proposals because they change so much and it is hard enough keeping up with the current laws and the many voluminous regulations attempting to explain its applications. The IRA illustration assumed a 6% annual return and shows a 10% asset increase at age 85 after 15 years of required minimum distributions. Further, the distribution amount at age 85 is more than double the age 70 ½ amount. Not such a bad nest egg for those that planned when they were working. The 6% return can reasonably be assumed if the funds were in an S&P 500 index fund with a 2% dividend and a steady 4% growth rate. If the funds were in fixed income investments or even a combination of stocks and fixed income the 6% might not be reasonable to assume. The proposed bill raises the beginning age, which hasn’t changed since IRAs started in 1975 while life expectancies, wealth accumulation and economic globalization has.

The Problem with Plus Loans:

This refers to student loan rates being reduced. The July 1, 2019 rates drop to 4.529% for new student loans and 7.079% for new parent plus loans. I think both of these rates are high considering the funds come from the federal government which has much lower borrowing rates. Also the parent plus rate is much higher than a home equity line of credit or a margin loan from many brokers, so perhaps they should look there first. Whatever the rate, student loan debt is over $1.5 trillion with about 45 million debtors. Also, considering that the loans have to be repaid with take home pay, i.e. after tax dollars, the apparent crises is even worse meaning that almost $2.5 trillion would need to be earned to repay today’s debt making each debtor needing to earn about $56,000 to repay what they owe.

Your Boss May Help You Save for College:

Many employers are offering Section 529 Plan payroll deductions so the funds can be deposited in those tax favored accounts to pay for college costs before employees get a chance to spend the money. There is no tax break for the deposits but the Section 529 funds will earn income tax free if used for the appropriate purpose. This should be considered as an alternative plan to pay for college costs. However, it does involve advance planning and action.

The Right Way to Think About Bonds:

The first five columns of this six column article provide a good explanation of how bonds work, the benefits of bond ladders, and how to select bonds. The last column contains advice recommending bond funds and is completely contradictive to the good parts of the article. The article also implies that bonds should be owned because they are not correlated with stocks and that bonds are a safer part of a portfolio. I rejected this supposition in previous blogs. See my blog posted July 14, 2015.

The Talk Before Moving in Together:

Great advice for people getting married or moving in together about sharing expenses and determining a method of covering common expenses.

Same Fund, Different Returns:

This ASK KIP Q&A explains the effect of investment timing in measuring results. I like what they suggest.

There are many more interesting and easy to read articles in this issue. FYI, I do not like any of the articles with stock or bond fund tips, but there is plenty of reading material to make the issue well worthwhile. Pick up a copy and check it out.
If you have any questions, I am available for your questions at emendlowitz@withum.com or by filling out the form below.

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