Bob Carlson

August 30, 2016

Analyzing the Latest Home Sales

Filed under: Economy,Housing — Bob @ 5:20 pm

Home sales data are tricky to analyze. Often, different factors affect new home sales and existing home sales. Also, the data tend to be volatile from month-to-month and frequently are revised in the following months. Here’s a good commentary on last week’s data and the longer-term trends from Bill McBride of Calculated Risk blog.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Who Wants to Live a Long Life?

Filed under: Health,Retirement - General — Bob @ 12:20 pm

I used to think everybody wanted to maximize their living years. It turns out that research over the years found out that’s not the case. The latest research is here. Many people want to live less than life expectancy. The responses also vary by factors such as race, sex, current age, and other factors. Apparently, many people have a dim view of aging. They believe it is inevitable that after a certain age they will lose mobility and other faculties. They say they don’t want to live that way and want to die while all their faculties are fully functional.

The results, which were controlled for overall happiness, confirmed that having fewer positive old age expectations was associated with the preference to die before reaching average life expectancy. On the contrary, having fewer negative old expectations was associated with the preference to live either somewhat longer or much longer than average life expectancy.

“Having rather bleak expectations of what life will be like in old age seems to undermine the desire to live up to and beyond current levels of average life expectancy,” said first author Catherine Bowen, PhD and expert on mental representations of old age and the aging process. “People who embrace the ‘better to die young’ attitude may underestimate their ability to cope with negative age-related life experiences as well as to find new sources of well-being in old age.”

Why They Commit Scams

Filed under: Investing — Bob @ 8:20 am

There’s a new book that attempts to explain why successful people commit financial crimes and scams. As part of the research, the author sent letters to a number of people who were convicted of financial crimes, asking why they did what they did. The answers vary from criminal to criminal. Most had some excuse, as you can see in these excerpts. But one, Allen Stanford, insists he did nothing wrong.

“It is all part of the biggest theft caused by a U.S. government agency in U.S. history,” Robert Allen Stanford, 66, complained to the author. Stanford is serving a 110-year prison sentence after being convicted of charges related to his investment company operating as a Ponzi scheme. “I will win this war,” he added. “Make no mistake, Eugene, I am going to win.” (A federal appeals court turned him down in October.)

August 29, 2016

How the Financial Crisis Affected Retirement Preparedness

Filed under: Economy,Housing,Retirement - General — Bob @ 5:27 pm

The Congressional Budget Office says that those closest to retirement were hurt badly by the financial crisis, and their finances haven’t recovered despite the stock market recovery. The CBO only uses data through 2013, so we don’t know if the picture is better know than in this report. But those pre-retirees not only lost value in their net worths after the financial crisis but also lost the post-2007 appreciation from the 2007 peak wealth that they were counting on. The CBO blames the decline in housing prices for much of the decline, stating that home equity is a significant part of the wealth of most Americans middle-aged or older.

In part this reversed a trend from 1995 up until 2007 when median wealth for middle-aged Americans crept upwards, even surpassing seniors’ median wealth by 2001. Much was because of the increase in housing prices. The housing crash sent home equity shooting downward.

The lack of wealth is especially alarming for less-educated and lower-income Americans, who hadn’t built much wealth before the crisis. Median wealth for high school graduates increased slightly from 1989 to 2007 but those gains were wiped out by the crisis. For those with less than a high school degree, the numbers are even starker.

Paper Prospectuses to Continue

Filed under: Economy — Bob @ 12:38 pm

This post explains why mutual funds will continue to be required to print paper copies of those massive prospectuses that no one reads. It’s all a consequence of lobbying by the paper industry and related industries.

Five years ago, a new quirky-sounding consumer-rights group set up shop in a sleepy corner of Capitol Hill. “Consumers for Paper Options is a group of individuals and organizations who believe paper-based communications are critically important for millions of Americans,” the group explained in a press release, “especially those who are not yet part of the online community.”

Another Fading Pension Miracle

Filed under: Economy,Retirement - General — Bob @ 8:35 am

The national retirement system of Chile created 35 years ago often was held up as a model for other countries worried about the retirement security of their citizens. But now that system is having problems. According to this article, the system was well-designed. The problems are that people had unrealistic expectations about the retirement payouts they would receive and didn’t save as much as recommended by the system designers. The result is Chile is looking at reforming the system and probably will do as some other countries have and impose mandatory contributions and other changes.

For most people the 10% contribution rate, just half the average in the OECD, a club of mainly rich countries, is too low. As a result, the typical benefit, including a supplement paid to poor people, is 45% of a pensioner’s final salary, well below the OECD average of 61%. Women are worst off. They take home pensions worth 31% of their final salaries, compared with 60% for men. In 2008 the government decided to reward mothers for each child they raised by topping up their pensions, but that does not fully compensate for the shortfall.

Chileans with other grievances have latched onto the pensioners’ cause. Some decry the system’s dictatorial origins. Sceptics of capitalism grumble that the scheme has enriched dodgy fund managers. Two former owners of AFP Cuprum are being investigated on charges that they made irregular campaign contributions to dozens of right-wing politicians. The system has generated high returns for pensioners, averaging 8.6% a year between 1981 and 2013. But the AFPs’ high fees have bitten a huge chunk out of those returns, reducing them to 3-5.4%.

August 25, 2016

IRS Gives People a Break on IRA Rollovers

Filed under: IRA Management — Bob @ 10:21 am

You know that when you take money from IRAs, you have 60 days to put that amount of money in the same or a different IRA or other qualified retirement plan. If you miss the 60-day deadline, you have to treat the amount as a distribution and include it in gross income. The IRS could waive the 60-day deadline, but in the past it made it difficult to apply for a waiver and granted waivers under limited circumstances.

Yesterday the IRS issued new rules that make it easier and cheaper to receive a waiver. The waivers still are limited to 11 situations. To claim a waiver, the delay in meeting the 60-day deadline can’t be your fault.

But in Revenue Procedure 2016-47, both  issued and effective today, the IRS has created a new “self-certification” procedure that allows someone who misses the 60 day deadline to avoid the expense and delay of obtaining a private letter ruling. Instead, a taxpayer submits a model IRS letter to the  new retirement account custodian, checking in that letter one of 11 acceptable excuses for missing the deadline. This isn’t an unconditional pass—the IRA custodian will report the letter to the IRS and should the taxpayer be audited, the IRS can still determine he didn’t quality for 60 day relief.

August 23, 2016

Estimated Retiree Medical Expenses Increase

Filed under: Health,Medical Insurance,Medicare — Bob @ 8:20 am

The annual Fidelity Retiree Health Care Cost Estimate is published. Fidelity Benefits Consulting estimates that a 65-year-old couple retiring now will pay $260,000 out of pocket for medical expenses through retirement.That’s a $15,000 increase from last year, and the highest level since Fidelity’s been doing the estimate.

Of course, there are a lot of assumptions in that estimate. Some assumptions are the couple will belong in traditional Medicare and each will live exactly to life expectancy, 85 for the man and 87 for the wife. Fidelity uses data that determine an average expenditure to develop the estimate. The estimate also doesn’t include long-term care. It also doesn’t include expenses not covered by Medicare, such as over-the-counter medications and dental care. The estimate was down to $220,000 for 2013 and 2014.

August 22, 2016

A Light Week Ahead

Filed under: Uncategorized — Bob @ 5:20 pm

I’ll be in San Francisco for the MoneyShow most of the week, so there will be limited updates to the blog.

Aging and Anxieties

Filed under: Health,Retirement - General — Bob @ 12:20 pm

This article discusses how long-term anxieties often ruin retirement. It says that many people are able to cope with or hide them for most of their adult years. Also, researchers now believe that anxieties might become worse as we age. It says many people let anxieties ruin their retirements, because they don’t recognize them or seek help.

Parker’s fear of heights — small, enclosed spaces also made him nervous — is not unusual. About 12 percent of US adults have struggled at some point in their lives with a specific phobia, an often paralyzing fear of such things as spiders, flying, or driving over bridges or through tunnels, according to the National Institute of Mental Health.

But as the population ages, researchers are realizing they have long underestimated the reach of these hidden anxieties among older adults. Anxiety disorders are now believed to be more prevalent than dementia in people over age 65.

Yet Parker’s decision to seek help last spring, at the age of 71, is out of the ordinary. Only about one-third of those struggling with a phobia get treatment, government data show.

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