The Jacobs Financial Group

Labor Dept: Available Labor Rate Increases To 10.2%

WASHINGTON—In what is being touted by the Labor Department as extremely positive news, the nation’s available labor rate has reached double digits for the first time in 26 years, bringing the total number of potentially employable Americans to an impressive 15.7 million.

Hilda Solis briefs the press corps on the unprecedented level of untapped manpower.

“This is such an exciting time to be an employer in America,” said Labor Secretary Hilda Solis, adding that every single day 6,500 more citizens join America’s growing possible workforce. “There’s such a massive and diverse pool of job-ready Americans to choose from. And each month the number only gets higher.”

“While our current available labor rate of 10.2 percent isn’t quite as robust as it was in 1982 or 1933, we’re happy to say that reaching that benchmark is no longer out of the realm of possibility,” Solis continued.

According to the Department of Labor’s report, nearly 200,000 more Americans suddenly became fully hirable in October alone. And November saw unprecedented gains in the number of high-quality auto workers, teachers, lawyers, part-time retailers, and even doctors who could be employed.

The report also explained that, because of the booming would-be-employee market, college graduates are having an easier time than ever joining the ranks of those ready and able to receive monetary compensation for work performed at some point.

Moreover, it found that, while all Americans were benefiting in some way from the new trend, the nation’s African Americans appeared to be in the best position to take advantage of the upward swing in potential employment, with 15.7 percent of all black citizens now situated to have a chance of becoming wage-earners someday.

“We are very lucky to be living in a time when so many people can just go out whenever they feel like it and get a job application,” Deputy Labor Secretary Seth Harris announced. “Compare that to the late ’60s or late ’90s, when the available labor rate plummeted to 4 percent and employers didn’t have their pick of millions upon millions of Americans dying to put on a hard hat or suit jacket for practically peanuts.”

Added Harris, “Those were scary times in America.”

Though Labor sources said the new figures were encouraging, officials were quick to point out that the exact number of those now possessing the capacity to be offered work someday is actually much higher.

“Our findings don’t take into account all the men and women who are available for work but haven’t applied for a job in the last month,” Solis said. “That’s another 2.4 million Americans out there who can proudly say they wake up every day, get their kids ready for school, and then sit in their living rooms praying for the phone to ring.”

Solis told reporters she is also encouraged by the vast number of citizens in every state who are willing to take jobs beneath their personal dignity and education level.

The Labor Secretary cited the fact that California boasts an impressive available labor force of more than 2 million citizens, while in Oregon, 11.5 percent of the state is ready to fill out a growing stack of empty W-2 forms. In Michigan, more than 15 percent of all citizens said they could start work either today, tomorrow, or right this very second if that’s what it takes.

“I’ll do anything,” said Ohio resident Garret Landry, who was last not available for steady employment more than 10 months ago. “Seriously, anything. Cars? I could learn how to fix cars. Manual labor? An office job? Just say the word and I’m there.”

“I’ll transcribe what you’re writing for $50,” Landry added. “Okay, $25.”

Reverse Mortgages – What Should You and Your Parents Know Before Applying?

The number of reverse mortgages backed by the government jumped nearly 20 percent in March and April alone from the same period in 2008. At a time when seniors have seen their retirement assets depleted by market losses, tapping home equity has been a safety net. But it can be a risky one.

If your parents are at least 62 years of age and have significant equity in their home, a reverse mortgage can turn that equity into tax-free cash without forcing them to move or make a monthly payment.

If it’s right for them, it’s a worthwhile financial tool. If not, they could make some serious mistakes with their financial future.

A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a number of forms:

• A lump sum cash payment;
• A monthly cash payment;
• A line of credit (which tends to be the most popular option);
• Some combination of the above.

When the owner dies or moves away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within six months with the option of two 90-day extensions that must be applied for.

There are three basic types of reverse mortgages:

• Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;
• Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);
• Proprietary reverse mortgages are private loans that are backed by the companies that develop them.

The size of a reverse mortgage is determined by the borrower’s age, the interest rate and the home’s value. The older a borrower, the more they can borrow, but the amounts are capped by the maximum FHA loan limit for each city and county.

Reverse mortgages have traditionally been chosen by older Americans who can’t cover everyday living expenses or who otherwise need cash for such things as long-term care premiums, home healthcare services, home improvements or to pay off their current mortgage or credit card greater than their income can support. More recently, though, they’ve become popular with individuals who see them as a better alternative to home equity lines. Some use the proceeds to supplement monthly income, buy a car, fund travel and second homes and evaluate with the help of a financial adviser if reverse mortgage funds can be used to restructure estate taxes.

Elderly borrowers will have to consult with a financial advisor before they’re granted this loan – that’s one of the requirements. This step can be completed within the first few days of the process. The basic loan closing now takes place in about 30-40 days from the date of application. Generally the only out-of-pocket cost is an appraisal fee ranging from $300- $500.

Here are other things to consider:

Cost can be substantial: Reverse mortgages are generally more expensive than traditional mortgages in terms of origination fees, closing costs and other charges. The basic FHA-backed HECM loan finances these fees into the initial loan balance, and they can run between $12,000-$18,000. The loans are based on anticipated home value appreciation of 4 percent a year, so if the housing market is healthy, those costs are generally recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.

They’ll need to make sure they’re not endangering their Federal retirement benefits: The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if their total liquid assets exceed allowable limits under federal guidelines, they might endanger your benefits. This is another critical reason to work with a financial adviser on this decision.

Rates can be higher: Reverse mortgages have rates that are typically higher than those charged on conventional mortgages. Interest is charged on the outstanding balance and added to the amount they owe each month. Again, check the total annual loan cost.

Their mortgage can be called: The homeowner or estate always retains title to the home, but if they fail to pay your property taxes, adequately maintain their home, pay their insurance premiums, or change their primary residence, the lender can declare the mortgage due or reduce the amount of monthly cash advances to pay those overdue amounts.

The family needs to talk. If your parents’ house is their major asset, getting involved in a reverse mortgage may not leave much to the next generation – if it appreciates, there may be some difference that the kids can have. That’s why that in addition to discussing a reverse mortgage with a financial adviser, parents and their adult children need to talk with their family.

December 2009 — This column is produced and is provided by The Jacobs Financial Group. (08-09)

Whether You Call It a Budget or a Spending Plan, It’s a Good Way to Start 2010

Granted, the New Year is a time for best intentions. People vow to stick to a diet, knuckle down at work, spend more quality time with people they care about, start scratching off that long list of key chores around the house, and of course, keep a closer watch on their pocketbook.

If you find you can do only one of these things, focus on that last item–making and sticking to a budget. It might help you handle the rest of those resolutions:

• Being in control of one’s finances reduces stress. Stress can make people eat more and spend more.
• Having a spending plan in place means you’ll have already prioritized the key activities, expenditures and projects you’ll need to make for the year and the money you’ll need to afford them.
• Spending less time worrying about money means you’ll have more time to think about the people in your life.

Here are some ideas you may want to incorporate into that process.

Don’t be afraid to ask for help: Do you know where you need to be? A financial advisor can ask the right questions and develop a customized plan to figure out your starting point and where you’ll finish based on your age, earnings potential and the new habits you’ll develop.

Start tracking every dime you spend: Whether you do it with a pen and a notebook or a computer program, make a concerted effort to track your everyday spending. Physicians say overweight people should track every morsel of food they eat; with money, it’s the same thing. Knowing where every penny goes gives a quick picture where certain pennies can be saved or invested.

Prioritize… When it comes to spending, there are needs and wants. Try this exercise. You can do this on a big 2010 desk calendar (or an electronic calendar that allows space for lots of notes to yourself). Mark down at the appropriate dates and times of the year items for which you need to spend and those for which you want to spend. What are needs? In part, food (not carryout or restaurant meals), monthly mortgage, tuition, auto or rent payments; monthly utilities; home, auto, life or disability insurance; retirement savings; property taxes and credit card payments. What are wants? Non-essential items like vacations, non-essential home improvement projects, restaurant meals (you can cook at home) or treats like clothing splurges or electronics. Compare these total expenditures to your total income. What will this crowded calendar tell you? That by attacking debt, making certain sacrifices and spending and saving smarter, you can eventually un-crowd that calendar and your financial life.

…then zero in each month: There has to be a living, breathing side to budgeting that accommodates change. Do this: Near the end of each month, make a list of the specific “needs” and “wants” you’ll face next month, and figure out how much money you’ll have for wants after needs are addressed. For example, if your car needs a necessary repair, that’s certainly going to boost the “needs” side of the page. If you find due to a one-time event (paying off a particular credit card, for example) that you have more to spend in the “wants” column, then it’s time to decide whether it’s time for a treat or to throw more into savings, investments or attacking any other debt.

Identify and plan for long-term goals: You need to think about the things you really want to do with your life and what those things will cost. Putting goals in writing gives them a formality and a starting point for the planning you must do. If these goals require saving, make sure you put those savings dates on the financial calendar you made.

Build failure and recovery into the plan: How many diets have evaporated with the words, “I blew it!” The fact is, with food or money; everyone goes off course at times. The important thing is to have a plan for corrective action – if you’re about to make an impulse purchase; implement a three-day spending rule. That means you should give yourself three days to check your budget and think through the purchase before you make it. If you can minimize the damage and get back on course, your progress will continue.

December 2009 — This column is produced and is provided by The Jacobs Financial Group. (01-09)

Taking Steps to Safer Investment Decisions in 2010

It’s tough to tell how much one investor can do alone to preserve their assets in 2009, particularly with unprecedented government intervention in world markets. But there are some general ideas to employ as markets and economies hopefully stabilize in the New Year:

Start with a plan – or review an old one: If you’ve worked with a good financial advisor, you should be able to articulate your long-term investment goals by yourself. Much of the riskiest investing, overbuying and panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for achieving long-term specific goals such as retirement or a college education.

Check all your assets in banks: As a result of federal economic bailout legislation, the Federal Deposit Insurance Corporation (FDIC) temporarily raised the per-deposit account, per bank coverage level from $100,000 to $250,000 through Dec. 31, 2013. Certain retirement-related accounts carry $250,000 of FDIC coverage, but again, check in with your bank to make sure you’re covered, and if not, get the right advice for moving funds so you don’t incur an unexpected tax liability or fees.

Review your risk tolerance: Having a plan doesn’t mean make the plan and leave it to sit for years. You and your financial advisor should decide when it’s time for a review of your investment goals and your feelings about them. An annual conversation makes sense if nothing’s going on, but when unusual circumstances in life or the markets take place, a phone call might be a good idea.

Prepare to stay invested: Stock downturns are always filled with panic selling – and buying. If your financial plan is sound, be prepared to stay the course, but work with your advisor to make sure you have your priorities covered. While times are tough, it’s wise to examine all your investment choices, but if they make sense, definitely put what you can afford in. You’ll reap rewards when the market returns.

Check your credit: No one knows how long it might take to unravel the nation’s current credit situation. That’s why creditworthy individuals might want to delay looking for new lines of credit until things loosen, and it’s definitely a good time to schedule review of each of your latest credit reports at staggered intervals throughout the next year. Why? Because in tough economies and times of tight credit, identity theft might be on the rise, and you’ll need to make sure the information on your credit data is truly your own.

Pay attention to your cash: You should have an emergency fund of three to six months’ worth of living expenses in case your job situation goes south, but the market turbulence we’ve experienced also highlights the need to be somewhat liquid in your investment positions so you can take advantage of certain opportunities. Not every investment that’s lost value is necessarily a bad investment, and with careful study, you should be able to have cash on reserve so you can capitalize on legitimate opportunities.

Re-budget: It’s a good time to make a budget or re-assess the one you have. Though the federal government would love for consumers to start spending again to lift the economy, that doesn’t mean you have to jump in with both feet. Keep your spending smart, your debt low so it’s easier to set savings and investment priorities that will do you the most good when the economy and the market come back.

Check your retirement: How will the activity in the market affect your retirement timetable? You might want to continue working full-time or plan a phased-in approach as you continue to build assets. There is a great danger now that people may become either too risk-adverse or assume too much risk in planning for their retirement, and that’s why it’s wise to get advice.

December 2009 — This column is produced and is provided by The Jacobs Financial Group. (12-08)

Dementia Is Not Only a Family Matter; It’s Also a Financial Matter

When a close relative or friend starts to display signs of dementia or related neurological ailments, it is a family tragedy requiring speedy action and medical care. But in many cases, the disease comes on gradually, and it becomes evident with inconsistencies in behavior and sometimes, problems with money.

It is not uncommon for older people with diminished cognitive function to be a ready target for scams and ID theft as well as out-of-character decisions with regards to savings or investments.

If this were you in five, 10 or 20 years, would you have a plan?

Last July, a Mayo Clinic study reported that men were twice as likely as women to develop mild cognitive impairment over the age of 70, a transitional phase between healthy aging and full-blown dementia, which is a significant loss of intellectual and memory abilities severe enough to interfere with social or occupational functioning. Women develop Alzheimer’s disease in greater numbers than men, but that’s due largely to the fact that women live longer than men.

So when does this become a money issue? In the best circumstances, as part of a full estate planning process before an individual becomes ill. In the worst, it needs to happen immediately after a loved one is diagnosed.

Once stricken, older relatives may be unable to understand questions or express their wishes in proper detail. If there is no plan, family members grasp at responsibilities – or shirk them – without any idea of what the older relative would really want.

So what’s the answer? Everyone should make a plan that includes the worst-case scenario of incapacity in one’s long-term financial plan. Some key points:

Have a discussion with people you trust to make decisions for you: It’s not fun to imagine yourself in the state dementia brings, but it’s important to consider trigger points where trusted people would step in to do specific functions for you. It would make sense to pre-select individuals as your executor as well as your health and financial powers of attorney, responsible for paying bills and executing your specific investment wishes under specific circumstances.

Make sure how major assets will be used to pay for care: If an elderly relative becomes sick and irreversibly incapacitated, the equity in your home may come under consideration as a resource to pay uncovered medical or household maintenance. Since the home is both a major asset and an emotional focal point, it’s best to get good advice and spell out specifically what you want done you’re your property and under what conditions.

Pick the right experts: It would be wise to confer with a tax professional as well as a trained financial advisor. The professionals and nonprofessionals in this role should have significant experience working with seniors and be prepared to interact with other members of your team if they notice anything particularly out of character in your future actions.

Put it in writing: Once you’ve established the team that will carry out your wishes in a variety of situations – not just in the case you are diagnosed with dementia – then you should have such instructions written into a formal estate plan with the necessary powers of attorney as well as your updated will.

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December 2009 —This column is produced and is provided by The Jacobs Financial Group. (02-09)

Richard’s Rebuttal December 2009

- The Unemployment Rate will rise as more jobs are created in 2010. It appears to be a paradox. Those unemployed individuals who had given up finding a job will become more optimistic and enter the job market thus driving up the unemployment rate until they find a job. Expect unemployment to be below 8.6% by the end of 2010.

- US GDP growth for 2010 will be over 5%. The “New Normal” naysayers such as Bill Gross and Nouriel Roubini who say the economy will grow at very low rates will be proven wrong. There will always be someone who says “it’s different this time”.

- Expect the Stock market as measured by S&P 500 to be up 10-15% in 2010. We haven’t seen such high returns in the US markets since the Clinton era. Remember all that peace and prosperity at the same time – even with higher capital gains taxes and marginal tax rates. And let’s not forget balanced budgets. I could say more but, I think it is time for a cup of tea.

- High growth opportunities will still be found in emerging markets especially in Brazil, China and Vietnam, but it will likely be very volatile in 2010 – hold on to your hat.

- Interest rates will remain at present rates for the next two quarters in 2010. The Fed will begin raising interest rates in the 3^rd Quarter 2010. Investors will be looking for higher returns than .01% found in money market accounts. Investors are now more concerned about return on capital than return of capital.

- Every day in the financial press there is reported a new Ponzi scheme – some are big like Madoff but mostly they are much smaller $10 – $100 million. They all have one common thread – the investor WANTS to believe that someone can promise a high rate of return with no risk. This suspension of rational thinking always amazes me. This happens to both the supposedly sophisticated and neophyte investors. If someone promises too much with little or no risk it is time to figure out who the sucker is – if you are not sure who it is, it probably is you. Do your due diligence.

- When the Medicare drug benefit was passed during the Bush administration what taxes were increased to fund this huge new entitlement benefit for senior citizens? Absolutely none. Ponzi scheme? Might want to ask Congressman Kevin Brady about his so-called fiscally conservative voting record on that issue (I was in favor but, I thought it should have been funded with additional taxes).

- Every time you buy or sell a security because you think it is a great idea – there is someone on the other side of the trade with equal conviction that thinks you are wrong.

- Factoid – According to the New York Times, the US at the end of 2000 had 29 of the world’s top 50 companies – the Chinese had 1. The world largest was General Electric. In November 2009, 21 were American and 9 were Chinese. The world’s largest was PetroChina.

The opinions stated in this column are the sole responsibility of Richard Jacobs and should not be construed as investment advice.

Re-setting the Business Exit Plan in a Tough Economy

The unpredictability of the markets and the economy has reset plenty of retirement plans, and that’s been especially true for business owners.

Business owners on the brink of retirement are facing potentially the worst conditions for selling or handing off a business in decades. But their circumstance should serve as a lesson to their younger counterparts. It’s critical to build an exit plan that works under both sunny and stormy conditions.

Exit plans are essential in companies large and small, and not strictly for the purpose of letting the owner and founder retire. They certainly set in motion a series of triggering events for the owner to get his or her money out of the business at retirement, but they also incorporate succession and other strategic moves a company might make to assure its future in family hands or in the hands of a new owner.

That said, an exit plan isn’t born in a day. In fact, many financial experts in investment, tax, valuation and estate planning disciplines think it’s wise for business owners to come up with the first broad strokes of an exit plan when they start a company if possible, and if not, within 3-5 years of the date they’d like to exit. A financial advisor with specific business expertise can be a helpful liaison that works with other key professionals to help owners find answers to the broadest issues in any company’s exit plan, including:

• The family’s business legacy – should a business be passed on to family or associates, or should it simply be sold or closed?
• The owner’s own career goals – does he or she want to do this for the rest of their life, or should they make way for other professional or personal directions?
• The company’s overall creation of wealth – too many people think of a business as a job and a paycheck instead of a creator of wealth that can support one or more generations of a family. A paycheck supports short-term goals; wealth is accumulated money that can either be invested smartly in the business or outside the business to support philanthropy, or family and personal goals.
• The owner’s retirement strategy that allows them to do everything they’ve dreamed after they leave.

Advisors can help owners get to more specific questions based on the broader goals they’ve discussed with family members:

• How many more years does the owner want to run this business?
• What’s the optimal way to get rid of the business when I’m ready to go – sell it, transfer it to family or associates or just close it down?
• What’s the value of the business now and how can it be made more valuable to potential buyers or for transition to the next generation?
• If the company is being transferred or sold to family members, is there a growth plan in place that they have contributed to and are therefore likely to follow?
• What happens if there’s an unforeseen event or market downturn that threatens the business or the industry as a whole? Are there healthy relationships in place with potential acquirers?
• What if there was a great offer on the business tomorrow?
• If the business is sold, how do owners protect themselves from a personal and business tax standpoint?
• How does the owner communicate his or her ideas with spouses, children and other family members with a stake in the business?
• What about employees, clients and customers? How will they be protected if the owner dies or leaves the business?
• How much money does the owner want after leaving the business and how should it be handled?
• How should investors in the business be compensated if the owner leaves?
• Are there specific goals that should be met by the business before the owner leaves?

An exit plan allows an owner not only to move out of a business, but also to make a wholesale career change. No one has to stay in the same industry – or company – for life, and with an exit plan, owners leave open the possibility for an endpoint that will allow them to travel, become philanthropic or engage in any number of new activities in business or other walks of life.

And while the economy is struggling back from the brink, many smart exit planners realize that there are ways to manage delayed transitions without losing valuable employees. For instance, many owners may elect to take a sabbatical while allowing next-generation leadership to get behind the wheel before an official transition takes place. Such a move lets the next generation steer the boat on the schedule they hoped for instead of standing in place while the owner found her best opportunity to go. The owner, meanwhile, benefits from the chance to step away from the day-to-day operation to better plan their future and the company’s.

December 2009 — This column is produced and is provided by The Jacobs Financial Group. (07-09)

Even When a Spouse Dies, Debt Lives On

The death of a loved one is a paralyzing event. Many survivors find it difficult, if not impossible to start dealing with the financial afterlife of a spouse even if they’ve planned extraordinarily well.

Consider then, the one single element that can turn this difficult process into a lengthy nightmare and potential financial disaster for a surviving spouse – the deceased’s outstanding debt.

Married couples — particularly those who hold credit cards jointly and keep month-to-month balances on them – really need to pay attention. And we’re not simply talking about elderly spouses. A spouse can die at any time.

The earlier a married couple focuses on the joint issues of credit management and estate planning, the better. And a financial advisor can tie the necessary elements of estate, retirement and debt planning together because they absolutely need to be.

While the following information can be a guide for individuals who have lost a spouse, it’s a much better guide for couples in good health who want to alleviate major financial problems for their survivors later on.

Just remember: The worst time to deal with joint or separate credit issues is after the funeral. Some key points to consider:

Joint credit in moderation…or not at all: If spouses have separate credit, then their rating won’t be affected by the spouse’s bad credit behavior (late payments, charge-offs, bankruptcies, etc.). Joint credit leaves the surviving spouse with a total obligation for any debt remaining on a car loan, credit card, mortgage or any other kind of debt.

Watch those “additional card” offers: Again, it might seem like a great idea for both spouses to carry credit cards on the same account, but in death, outstanding balances are often treated the same way as joint account is. It’s not unusual for an issuer to come after the holder of the additional card for that outstanding debt.

They will find you: You’ve never met Big Brother until you’ve tussled with today’s toughened-up lenders. Particularly as problem credit has grown to epidemic proportions, credit card companies in particular have gotten a lot better about determining whether customers have died so they can make a claim against the deceased’s assets. Most states have specific laws that put a timetable on a lender’s ability to make claims against an estate, and executors may have certain responsibilities under those laws to inform those creditors. A planner or estate attorney can help you go over those requirements in your home state as you’re addressing your estate, retirement and debt issues.

Keep in mind that keeping separate credit won’t protect the estate’s assets: Granted, a deceased partner’s bad credit may not affect your ratings on your separate accounts, but creditors will go after the assets of your shared estate to settle up. So what’s the message here? Keep debt under control at all times.

If the worst happens, what’s the process? It’s important to contact all lenders swiftly to let them know your spouse has died for several reasons. First, identity thieves are getting more sophisticated about checking death notices and tracing that information to their credit accounts. Dealing with a deceased spouse’s debt is one problem. Dealing with an identity theft calamity based on your spouse’s accounts is even worse. Also, if you do have joint accounts, ask the issuer if it will issue the card in your name only, and keep in mind that you will still need to maintain payments on those balances to preserve your credit rating as a single person. Lastly, lenders tend to look askance at customers who fail to make disclosure of a spouse’s death. So matter how tough things are, you need to make these calls.

What about the last joint accounts? For joint accounts, removing the deceased’s name from the account should have no impact on the survivor’s credit score, but the survivor should think twice before he or she closes the account, because it cuts back the amount of credit available to the survivor.

Just get rid of the debt: Debt-free is the best way to go through any crisis. Couples should strive to be debt-free not only for the good times, but for the awful ones as well.

December 2009 — This column is produced and is provided by The Jacobs Financial Group. (06-09)