Understanding Mechanical Breakdown Insurance – Is It Necessary to Purchase?

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By Whitney Rhyne, MS
Associate Financial Planner 

When looking at your latest automobile insurance statement, you may find something new: Mechanical Breakdown Insurance. If you’re like me, your first thoughts were “what is this and is it necessary?”  

What is Mechanical Breakdown Insurance (MBI)?

MBI typically covers new or leased cars with few miles. For example, most insurers require that the vehicle must be less than 15 months old or have less than 15,000 miles, but the policy can be renewed until the car is 7 years old or has 100,000 miles. Typically, the first owner of the vehicle is the only one that can purchase the insurance.

The coverage includes mechanical failure or collapse that includes all parts and systems of the vehicle, and generally allows for repair wherever the owner chooses.  This is coverage that is in addition to your manufacturer’s warranty. 

MBI does not include typical wear and tear on your car or coverage for an accident and liability.

Is Mechanical Breakdown Insurance for you?

For some, MBI could be an important piece to their automobile insurance policy because it offers coverage longer and for more miles than their manufacturer’s warranty (if you sign up before the month and mileage limit). Also, if you would be at financial risk if a mechanical breakdown were to occur, this insurance could be something to consider. You cannot put a price on being able to sleep at night, knowing that if something were to happen, you would be covered. One option is to use this as an extended warranty, knowing that it could have added benefits with a lower cost, as well as generally being able to cancel at any time.

Most new cars already come with warranties, so MBI can be seen as duplicated coverage, and simply unnecessary. For these, having this added into their policy would not be as important. If MBI isn’t for you, one option is to set aside these premium dollars in an account to use if a problem arises, and if one doesn’t, this money can be used on anything else for your vehicle.

Whitney Rhyne is a part of the planning team at Longview Financial Advisors in Huntsville, Alabama. She holds a Masters in Financial Planning from the University of Alabama. Whitney can be reached via e-mail at whitney@longviewfa.com  

What Do You Want to Hear?

With financial planning being our passion, there is a wide array of topics that we are always willing to talk about. However, we want to write about what you are interested in! Call or e-mail us on any topic in financial planning you want to read about. We may not get to them right away, but we will do our best to incorporate them in future posts.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

IRS Clears the Way for After-Tax 401(k) Rollover to Roth

Internal Revenue Service (IRS) Notice 2014-54 has cleared the way allowing direct rollover of after-tax contributions in a 401(k), 403(b), or a § 457(b) plan maintained by a governmental employer to be rolled directly into a Roth IRA. Before we get into the details, here’s a little background on the Roth IRA.

For tax year 2014, if a single taxpayer’s adjusted gross income (AGI) is over $114,000 or married filing jointly taxpayers’ AGI is over $181,000, they begin to be phased out of making Roth IRA contributions. When eligible for the full annual Roth IRA contribution, each taxpayer can contribute $5,500 (plus $1,000 extra if over age 50) to a Roth IRA. Why is the Roth IRA so important? While contributions are made with after-tax dollars and you receive no tax-deduction, qualified Roth IRA distributions are tax-free. That means you pay no taxes on the growth!

In the past, the IRS has said if you make after-tax contributions to a 401(k) and you rollover the monies, all must go to a IRA or distributions are considered to be split pro rata, essentially removing the option to breakout the after-tax contributions from the pre-taxed contributions without paying taxes.  It appears that so many taxpayers have complained about this and tried to find ways around it that the IRS has acquiesced and changed the rule.

As long as your employer’s 401(k) plan allows for it, you can max out the pre-tax contributions for the 401(k) ($17,500) and then make additional after-tax contributions as long as the total of all employee and employer contributions for 2014 do not exceed $52,000. Any after-tax 401(k) contributions would be eligible for a direct rollover upon separation of service to a Roth IRA with no tax consequences.  Beware of a “gotcha:” The rollover to the Roth has to be made at the same time as the pre-tax contributions are rolled to avoid having them treated as two separate rollovers thus triggering the pro-rata rollover rules. You also have to ensure that the growth on the post-tax contributions are not rolled to the Roth and stay with the pre-tax monies during the rollover process to avoid having to deal with conversions.

This new rule is great news and now opens up another avenue for high income earners to utilize a Roth IRA.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

IRS Announces Increased 401(k) Contribution Limits for 2015

The Internal Revenue Service (IRS) recently announced the 2015 cost-of-living adjustments for pension and retirement plan limitations. Not all limitations have been increased. Changes that you might be interested in include:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases from $17,500 to $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases from $5,500 to $6,000.
  • The limitation for defined contribution plans (e.g. 401(k), 403(b), etc.) increases from $52,000 to $53,000. This is the total of elective deferrals, employer contributions, and employee elective after-tax contributions.
  • The phase out break points for contributing to a Traditional IRA increases slightly as will the Roth IRA phase out limitations.

The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Explosion

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 By Jeff Jones, MS
Financial Planner 

Given my history with NASA and my love for the space program, I was glued to the screen on Wednesday, October 29th, 2014, when the unmanned Antares rocket bound for the International Space Station (ISS) exploded six seconds after takeoff. While there were no injuries or deaths related to the accident, the financial loss exceeded $200 million! Over two tons of  equipment, experiments, and thousands of hours of work went up in flames in a matter of seconds.

As is often the case, daily events, especially one with such vivid imagery, begin to blend with my financial planner brain. This happens more often than I like to admit and my wife really enjoys the conversations that follow. OK…not really, but I digress.

My point being, you put years and tens of thousands of hours into building your retirement nest egg, into building your retirement plan. What happens when there’s an explosion six seconds after takeoff? In other words, what happens when you retire and tomorrow’s news is about a market crash? What if you had retired in August of 2008? Would your retirement plan withstand or would your nest egg be tomorrow’s scrambled mess? Would you be faced with the possibility of returning to the workforce or delaying retirement like so many Americans after the market crash of 2008-2009?

You don’t have to wonder. With the right retirement planning tools, you can stress test your portfolio against this very thing. We refer to it as the “Bad Timing” stress test. You can see how your retirement plan is affected after the worst historical 1-year or 2-year period of returns for your selected portfolio. You can set the “Bad Timing” to occur immediately or at any time in the future, such as next year, at retirement or 15 years into retirement.

Don’t simply wonder. Let’s find out what your future may look like. Let’s make a plan.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Probabilities Are Just That!

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By Jeffrey Cedarholm, CFP®, ChFC®, CLU®

Chief Investment Officer

Sometimes it’s nice to take the time on a weekend to just sit and read the newspaper, something fewer Americans seem to do these days, either because of lack of time or interest, or both.  But this past weekend, as I perused the paper, I came across two relevant articles on the same page. The first to catch my eye was an article written by Jason Zweig about his recent conversation with Robert Schiller. You might remember Schiller from my last blog; he is the economist who has developed the “cyclically adjusted price/earnings ratio” or the CAPE ratio for short. This ratio is widely used by investors to determine whether the S&P 500 is over or under valued, compared to historical values dating back to 1871. Lately Schiller says the ratio, at almost 26, is above the long-term average of about 16. The thrust of Zweig’s interview was to question Schiller about the recent market volatility and whether it might be time to cut back on equities. At Longview, we feel the recent pullback is a normal part of owning equities, and that five to ten percentage downdrafts are usually a healthy reset. Schiller’s quote was the CAPE ratio “might be high relative to history, but how do we know history hasn’t changed.”  Bottom line – he is sticking with stocks for now.

The other story, written by Liam Pleven, was about a 61 year old widower, Peter Nelson, who was recently diagnosed with a form of blood cancer. With the diagnosis, Mr. Nelson was seriously weighing all of the pros and cons regarding his current situation. He was very open about whether he should quit his job, accelerate retirement and the spending that is attached to it, while all the time worrying that he may live much longer than the typical man suffering from his condition. It appears that Nelson, after much thought and consultation, decided on a “compromised” or moderate approach.  He decided to work at least through 2015, and to make his portfolio slightly more conservative. He was thinking that after 2015 of slightly “living large” with the funds in his portfolio, and also delaying taking Social Security until age 70 to boost his income in later years. With his longer term health concerns, this “spend a little more now, but with a backup plan” seems to be a prudent strategy.

Both of these juxtaposed stories deal with relevant financial planning concerns – decisions about an unknown future and the inherent probability attached to each decision.  The case of Schiller staying with equities in his portfolio is the easiest case to model. Many, if not most people are still fearful of a repeat of the market crash in 2008. But as I said earlier, market corrections of five to ten percent are normal events, and while these short-term swings are caused by global economic concerns, history has shown that usually the longer term trend is positive. The probability study regarding Mr. Nelson is much more difficult. Not only are you dealing with the market, but also how a disease may affect this man, how much money does he have to start with, how is it invested and how will it be spent! In the past 20 years, Financial Planners have come a long way in their ability to model situational probabilities, which generally leads to better financial decisions for clients. 

Jeffrey Cedarholm is the Chief Investment Officer at Longview Financial Advisors, Inc.  He is a CERTIFIED FINANCIAL PLANNER™ practitioner with a passion for investment and wealth management. Jeff can be reached via e-mail at jeff@longviewfa.com.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.