McKonomics

Identity Theft: Keep Your Name Clear

Identity theft is a growing problem. It can result in a ruined credit record and even the loss of your life savings.

 

Many people think it's a problem that could not happen to them. But even if you are careful about storing personal papers securely, there are many ways an identity thief can get information. For example, making a change of address to divert your mail, rummaging through your trash, or posing as someone who has a legitimate need for information, such as a landlord or a creditor.

 

With the data in hand, the thief may then, among other things, change the mailing address on your credit card account and run up charges; open a new credit card account in your name and not pay the bills, establish phone or wireless service; open a bank account and write bad checks; file for bankruptcy under your name, and buy cars using a loan.

 

Here are some of the precautions you should take to prevent identity theft:

Ten Myths About Starting a Business

1."I'm broke, so it's a good time to start a business." New ventures drain bank accounts fast, so plan on having at least two year's worth of income in addition to start-up costs, which vary depending on the business. Then, you can devote all your time and energy without having to hold down a job at the same time.

 

2. "I need a little more practice before I launch my business." Many people start new businesses based on their experience, but it's easy to keep putting it off because you need "more practice." At some point, you have to take the leap from "practicing" to "owning a business."

Five Questions Business Owners Should Answer Now

The recession has "bottomed out," former Federal Reserve Chairman Alan Greenspan recently stated. But he warned that the recovery will be "slow" and "trudging."

 

Although the comments of Greenspan and other economists are cautious, they are good news for struggling business owners who are waiting for a return to prosperity. With the economy showing some signs of recovery, now is the time to position your company to reap the benefits of improved conditions.

 

Here are five questions business owners and executives can answer to help assess their readiness to take advantage of upcoming opportunities and challenges.

Retiring in a Weak Economy

It's one of the worst things that can happen to a retiree. Just as you are about to retire or right after you retire, the market substantially declines, drastically lowering your portfolio's value. How damaging can this be to your retirement?

One study looked at the probability of a retirement portfolio lasting 30 years, based on the portfolio's performance during the first five years of retirement. The study assumed that 4% of the portfolio balance was withdrawn in the first year, with withdrawals increasing annually by 3% for inflation. The portfolio was comprised of 55% stocks and 45% bonds. If the portfolio earned between 4% and 5% annually in the first five years of retirement, there was a 74% probability that the portfolio would last for 30 years. With a return of 0% to 1% during the first five years, the probability was reduced to 50% (Source: The Wall Street Journal, June 14, 2008).

The market declines of the past couple of years, combined with decreasing housing values, have substantially reduced retirement portfolios. If you are still working, you can work longer to help overcome these lower balances. But if you are already retired or about to retire, the choices aren't as easy. Faced with that situation, consider the following tips:

• Withdraw as little as possible from your investments. If your investments have declined substantially, reevaluate your withdrawals. Withdrawing the same amount from a substantially smaller portfolio means you'll deplete the balance much sooner. At a minimum, consider freezing your withdrawal amounts and not increasing them for inflation.
• Go back to work on at least a part-time basis. By going back to work, you'll be able to reduce your withdrawals from your retirement portfolio. Even modest earnings can help.
• Set aside a cash reserve. This reserve should contain assets not tied to the stock market, totaling two to four years of retirement expenses. With the reserve in place, you'll have money for day-to-day expenses and won't be forced to sell stock investments during market declines.
• Withdraw funds in a tax-efficient manner. In general, you should consider withdrawing taxable investments first, so your tax-deferred investments can continue growing. This may also help with income tax expenses. You already paid taxes on your taxable investments, while any withdrawals from tax-deferred investments will likely be fully taxable as ordinary income.

If you would like other useful tips on how to handle declines in your retirement portfolio, please contact us.

Uncle Sam Continues Health Insurance Life Ring

Although some indicators point the economy recovering, other signs are not as encouraging.

 

For example, the U.S. economy lost 85,000 jobs in December of 2009, and the unemployment rate continues at 10 percent, according to statistics just released by the Labor Department.

 

Fortunately, the federal government has provided a last-minute reprieve for some unemployed taxpayers. In new legislation, Uncle Sam extended the COBRA assistance program for some unemployed people who want to continue health insurance with their former employers. Specifically, the law made these changes:

U.S. Starts Fiscal 2010 With $176 Billion Gap

From Reuters -  The U.S. government began fiscal 2010 with a record shortfall for the month of October, right after posting a record $1.4 trillion budget gap for all of the 2009 budget year, the Treasury Department said Thursday.

 

The department, in its monthly budget statement, reported a $176.36 billion budget gap in October, which was the fifth largest deficit for any month. That exceeded both Wall Street analysts ' expectations for $150 billion deficit, and the October 2008 deficit of $155.5 billion.

 

The report for October pointed to a growing gap between government spending and income at a time when a fragile economy is beginning to emerge from the steepest recession in 70 years. The federal budget year starts on Oct. 1.

Job losses, early retirements hurt Social Security

From the AP - Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.

 

The deficits -- $10 billion in 2010 and $9 billion in 2011 -- won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

 

Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn't expect the increase to be so large.

Bank Failure Toll Reaches 94

From (CNNMoney.com)  Regulators closed subsidiaries of Irwin Financial Corporation in Kentucky and Indiana Friday, bringing the total number of bank failures this year to 94, according to the Federal Deposit Insurance Corp.

Customers of the bank, however, are protected. The FDIC, which has insured bank deposits since the Great Depression, currently covers customer accounts up to $250,000.

Irwin Union Bank and Trust Company and Irwin Union Bank, F.S.B. operated a combined 27 branches in nine U.S. states. Both banks were run by Columbus, Ind.-based Irwin Financial Corp.

First Financial Bank, NA, which is based in Hamilton, Ohio, will assume all of the deposits of the two banks.

ABC Unveils New Construction Backlog Indicator

Associated Builders and Contractors (ABC) recently released a Construction Backlog Indicator (CBI), a forward-looking measurement reflecting the amount of work to be performed by contractors in the months ahead.  

The report is a key economic indicator as it offers a specific report on US commercial, institutional, industrial and infrastructure construction industries. The most recent report shows the nation's nonresidential construction industry rebounded in May to 6.3 months of backlog, up from 6.2 months in April, but still down by roughly 24 days since November 2008. 

Keep an eye on this report as it will be a true indicator of when this economic downturn is ending.

Commercial Real Estate: How Bad Is It?

Commercial real estate is bad… How bad is it?  Some have suggested even if it is a problem, it is much smaller than the residential crisis.  Some people have even questioned if it even impacts them.  Many are calling it a ticking time bomb.  What is the status of commercial real estate?

Let me start by saying that I am not an expert on commercial real estate.  The things that I do know I have learned by reading and listening.  Let’s start with some facts.  Currently, 26 percent of all loans in FDIC insured bank portfolios are backed by the commercial real estate market.  Residential and other nonresidential real estate loans make up about 40 percent.  So the commercial real estate sector is a bit smaller, but not by a lot.  It still comprises over $3 trillion in outstanding loans.  Obviously this entire $3 trillion is not at risk, but how much is?