Longer life expectancy and the likelihood of more years spent in retirement are realities now facing the baby boom generation, and most likely, the generations that follow. The Treasury Department and IRS realize this is a major concern for many and have recently passed new regulations.

The new regulations allow individuals to purchase a deferred income annuity which can be excluded from RMD calculations AND distributions don’t have to start until your Age 85. Of course, the annuity must be properly setup and certain conditions must be met, but Qualified Longevity Income Contracts (or QLACs) can be an important option to help plan for retirement and ensure you have a regular stream of income. Contact us for more information.

“These kinds of markets test the mettle of investors,” according to a quote in the Wall Street Journal. “You have to step away from the monitor so you don’t do anything stupid, like hit a sell button.”

Instead, investors are well advised to think long term and monitor the factors that generally support the stock market: consumer spending, the FED, and business profitability. All three of these are strong as further described immediately below in the “Heat Map”.

The price of oil was down more than 9.9 percent Friday afternoon after the Organization of the Petroleum Exporting Countries decided it would not cut back production significantly in the months ahead. Only 4 months ago, oil prices were 56% higher. Consumers will be the big winners from this price drop as is further explained in the “Heat Map” below. The petroleum industry takes several days to several weeks to pass through lower oil prices to the consumer. Delay filling your car’s gas tank as the gas stations take their time in passing through the $.30/gallon drop that is coming. Savvy homeowners will delay large purchases of home heating oil which will experience large declines also.

• Update on year-end tax planning and new income tax legislation for “extenders” – the tax bill was killed before it even left the Senate Committee based upon input from the White House. Congress must regroup to first settle the differences between the White House’s goals and the Senate Democrats. Then the parties must reconcile their differences. In short, this tax bill’s future remains unclear. Stay tuned for further updates.

• The bad guys are still trying to rob innocent Americans by masquerading as IRS agents. I have heard from 3 different clients who have either received a phone call or an email recently demanding immediate payment of income tax or penalty. DO NOT FALL VICTIM to these attempts. Legitimate IRS agents do not use this type of communication.

Year-end income tax “planning” is often the best method for taxpayers to reduce the tax burden to which they are exposed. Our research has uncovered the following tax planning opportunities which I recommend you review for applicability to your situation:

• Delay income and accelerate expenses if your income tax rate is higher this year than future years.
• Accelerate income and delay expenses if your income tax rate is lower this year than future years.
• Sell securities which have losses if your income tax bracket is higher than 15%.
• “Bunch” your deductions into one year to be able to itemize.
• Convert IRA’s to Roth IRA’s if your income tax rate is low this year.
• Maximize charitable contribution deduction.
• Discuss unusual transactions or events with your tax advisor.

NOTE: the recommendations above are general in nature and cannot be relied upon for individual situations. Income tax rules are tricky. Small deviations in your situations from those discussed above could change the recommendation; and, for that reason you should discuss your situation with your tax advisor before acting.

Many tax deductions and tax credits have “expired” which means these tax deductions and tax credits were on the 2013 Form 1040 (or business tax return); but, as of today they will not appear on the 2014 1040. There is ongoing discussion in Washington to “extend” these to make them available for 2014-with an uncertain outcome. The following tax deductions and tax credits currently not available for 2014 are:

1. Sales tax deduction.
2. Certain education supplies of teachers deduction.
3. Qualified tuition and related expenses deduction.
4. Tax free distributions of taxpayers over 70 ½ to charitable organizations.
5. Research tax credit.
6. Work Opportunity tax credit.
7. Bonus depreciation and increased Section 179 deduction.
8. Several Energy Tax credits.
9. Other many others

The uncertainty of these will make year-end tax planning more difficult. We will keep you posted on the actions or inactions of Congress on this topic.

Two weeks ago, U.S. interest rates may have hit their low point for the next 20 or 30 years. A study of the history of Interest rates in the U.S. indicates rates rise for decades e.g., 1952 to 1981, then decline for decades. The 33 year long downtrend in rates could have ended in mid-October. Trying to figure out the future of interest rates, like the stock market, is difficult. Even the smartest money can forecast rates moving in the wrong direction. Having offered that caution, my reason for believing rates have bottomed is the FED’s talking points’ language has changed to indicate they are preparing the financial world for higher rates here in the U.S. Once the FED starts moving rates higher, they could continue to raise them for years to come.

NOTE: the term “interest rates” as used above refers to the interest rate paid on U.S. Treasury Bills, Notes and Bonds. Keep in mind that all interest rates here in the U.S. are connected to these rates even savings accounts and CD rates at the bank, corporate borrowing rates, and mortgage interest rates for new home buyers.

The market gyrations of the past few weeks—after a 21-month ride up to the highs of Sept. 18—have investors fearful and perplexed. The cure is to take dispassionate look at the economic facts and business conditions and tune out the “noise” coming from the media. I recommend stop listening to the media’s conjecture about what is likely to happen in the future. Instead, focus on the 3 pillars that generally support the stock market prices- what I refer to as the “Heat Map”.

RECOMMENDATION: We recommend you review your planned withdrawals from your portfolio for the next 18 months and invest this amount in short term bond funds and other stable investments – and, not invest any of this in the stock market or stock market mutual funds.

REASON: We are receiving signals on the stock market pointing in two different directions. The details follow:

1. The fundamental analysis signal for the economy, which I report weekly to you as the “Heat Map” continues to be strong. The trend for the 3 pillars comprising the Heat Map is improving. Thus, the fundamental analysis would say BUY. Note: fundamental analysis attempts to be impartial as to investor emotions and behavioral attitudes toward the markets for intermediate and long term time periods.
2. The technical analysis signal for the market has weakened materially and indicates SELL. Technicians seek to identify momentum, price patterns, reversals, channels, lines of support, resistance and other market trends based upon charts or computer based computations. Note: technical analysis is typically short-term and used by many day traders to take advantage of investor emotional reactions and behavioral attitudes.

We continue to believe it is exceptionally difficult to time the market for quick developing corrections. For most investors, the best course of action is “stay the course”, but keep out of the stock market the money you intend to withdraw (i.e., to use)during the next 18 months.

The most important time of the year is upon the retailers. Economic activity during the Holiday season is the most important time of the year. Most retailers “make it or break it” during Holiday season. The start of holiday shopping continues to “creep” earlier and earlier into the year as retailers attempt to exploit its commercialization. And, holiday shopping season is extremely important for annual Consumer Spending which we believe is one pillar that support the stock market. This year, I am anticipating a surprisingly strong holiday shopping season due to lower unemployment, lower gasoline prices (which puts more money in consumers’ pockets), low interest rates, and increased demand for consumer borrowing. An increase of 5% or more in holiday shopping would result in an A+ grade for Consumer Spending.