November Election
The upcoming election seems to be consuming an inordinate amount of media attention and the hype seems to be escalating all the time.  Not sure about you, but I have tried to shut this media frenzy out (admittedly not easy).  As far as actually working on meaningful legislation, there does not seem to be much progress, as politicians are not willing to stick their necks out before the election.  Individuals and businesses are not making any spending plans or hiring employees.  Even after the election, do not expect much to happen during the “lame duck” legislative session until the end of the year.  Make your voice heard and get out and vote!

The Fiscal Cliff
You have probably heard this new term, which refers to the combination of tax increases  and Federal Government spending cuts scheduled for 2013.  The pundits are predicting the higher taxes and corresponding lower Federal spending could throw our week economy back into recession.  No one knows what is actually going to happen, but the one thing I am certain of is that American ingenuity and hard work will result in us surviving a real economic calamity.   We have weathered worse storms in the recent past like 9/11, invasion of Iraq in 2003, Hurricane Katrina and the ongoing European turmoil.

What can we do about the Impending Changes?
As I mentioned in the last newsletter, “Control your Personal Economy”.  It is not healthy to worry too much about things we cannot control, but make changes that can have a meaningful effect in your live and future.  Here are some ideas that could help your situation:

  • Fully fund your emergency fund.  If your job situation is unsure, keep more in your emergency fund.
  • Keep your costs and overhead under control.  If taxes or healthcare costs do go up,you do not want to go into debt as a result.
  • Plan for large purchases, or be proactive to nip expensive car or home repairs with preventative maintenance.
  • Consider taking long-term capital gains in your portfolio if prudent. For most people the capital gains tax will go up from 15% to 20% next year.
  • Push income into this year if possible, and delay tax-deductible expenditures into 2013.
  • Consider converting some of your regular IRA into a Roth IRA.
  • Many employers are offering Roth 401K (or Roth 403b & Roth TSP) options.  Considerdiverting some of your pre-tax deductible contributions to the post-tax Rothcontributions.  This could prove very beneficial if tax rates go up over the long-term during your retirement.
  • If you have not done so for a while, rebalance your portfolio back to your target allocation.
  • Current interest rates are at historic lows. If you have a sizable mortgage (>$100,000), consider refinancing to a lower rate or even a shorter term.

Let me know if you need any help with any of these strategies, and if taxes are involved,consult your tax professional as they know your specific tax situation intimately.

New Retirement Plan Fee Disclosures
Recently you should have received information from your retirement plan provider on the costs that you are shouldering in your company’s retirement plan.  Not only are individual expenses disclosed like costs for buying and selling funds in the plan, but also the total annual operating expenses that are coming out of your retirement savings. The disclosures  are confusing as they are only stated in dollars/$1,000 you have invested, but it is definitely worth calculating what you are currently paying for your investments. One of my clients is currently paying an average fee of 1.19% (some funds have expense ratios of 1.71%). Compared to a low-cost retirement plan with annual expenses of say 0.20% (versus 1.19%), an individual with a $100,000 401K balance would have approximately $208,000 less than the individual with the low-cost plan. This assumes no more contributions are made to the plan for the next 30 years and a net 7% annual return1.  A seemingly inconsequential percentage cost difference definitely makes a very big difference over the long term. What can you do about it? Not a lot if you work for a very large employer, but with a smaller company by bringing the high plan expenses to the attention of the relevant authority at the company, change for the better may occur down the road. It would not harm getting your coworkers to also complain to management. Remember, senior management probably has the most to lose with a high-cost retirement plan.

Personal Notes
We have been busier than usual this summer, with a lot of fun travel.  In July we met my“British” sister and brother-in-law in Page, Arizona and then visited the spectacular North Rim of the Grand Canyon with them.  On the way we spent a few days in Moab, UT,tackling the slick rock with our mountain bikes. El Paso was the venue for my men’s tennis team’s Sectionals in August. My partner and I were unbeaten (a nail biter included), but unfortunately we did not do enough to qualify for Nationals. In mixed doubles, we missed sectionals by being soundly beaten in the playoffs. A few weeks later, we returned to El Paso for a triathlon, with Roberta smoking it in the sub 90 degree temperatures!  She beat me by a minute, so the challenge is now officially on!  Finally, last month I attended the NAPFA West Conference in Portland, OR, which was educational, as usual. Roberta joined me afterwards, and we enjoyed a few days on the beautiful Oregon coast.  No more travelling is planned for a while! 

Please contact me for a review meeting if needed. This is a busy time for my business, so please plan early for setting up an appointment. Feel free to pass this newsletter on as seems appropriate.


1Assuming a 6.01%/year annual return for the higher cost plan, versus 7.0%/year annual return for low-cost plan.