 BY JULIA ANDERSON
Nik Miles knows a thing or two about cars, the automotive industry and where it’s headed. With electric vehicles grabbing headlines and some two-thirds of Americans now open to buying electric, we thought it was time to talk to Miles, a nationally known “car guy” and principle at ourautoexpert.com. Smart Money co-host, Pat Boyle, and I covered the basics with Miles: -- How to buy an electric car, what’s out there and when to buy. Click here for the video on YouTube presented by TVCTV public television in Beaverton, Ore. The landscape is changing so fast that it is hard for buyers, dealers, and reviewers like himself to keep up with new offerings, new technology and performance enhancements, he said. Battery technology improvements are the big driver. “We are seeing advances in battery ranges in the 250-mile range and are starting to see 300-mile ranges before recharging,” Miles said. “It’s crazy how fast the technology is going.” Next year (2022), he expects there will be at least 100 electric vehicle brands and models on the market from lower-cost commuter cars to high-end luxury models tempting the rich. Moving to electric Ford Motor Co. now says that 40 percent of its vehicles will be electrified by 2030. Next year, Ford will start making an all-electric F-150 truck called the Ford F-150 Lightning. The company will start production in late 2022 of its first fully electric cargo van. You can order its Mustang Mach-E, right now. Priced at $42,895. A Nissan Leaf sells right now for between $31,670 and $40,520. That’s before the possible $7,500 federal tax credit on the purchase. (See below) The Chevrolet Bolt EV is priced at $40,000. Cadillac will be in production in late 2022 with the Cadillac LYRIQ, an electric luxury sedan. BMW will soon offer the BMWiX, a fully electric “sport activity vehicle.” Volvo said it will be all-electric by 2030. Toyota, long in the hybrid business with its Prius, will be out with its first all-electric SUV soon. The company intends to sell 5.5 million electrified vehicles worldwide by 2025. “Toyota is clearly the market leader with the most hybrids out there,” Miles said. He expects Toyota to do it right when it makes its move into electric. After more than 100 years of gas- and diesel-power engines and gas stations to go with them, it is no surprise that interested buyers may be a bit overwhelmed by the new technology and its reliability. THREE buying TIPS from Nik Miles at ourautoexpert.com. Tip No. 1: Don’t buy, lease!!! The technology is advancing so fast that an electric car you buy today or even tomorrow will be out of date with old technology in two or three years. The resale value will be questionable. “When your lease is up, you won’t be stuck owning an outdated vehicle,” Miles said. Tip No. 2: Don’t go out looking at what’s electric. Instead, thoughtfully (my words) consider what you need in a vehicle. What fits your lifestyle. Then look at how much money you can spend. “After all that, start looking at electric cars,” he said. “Do it the other way around (looking first) and you end up with something that doesn’t work for you.” Tip No. 3: Test drive and test drive some more. “Test drive everything you can get your hands on,” Miles said. “Test driving doesn’t cost you anything. It will make a big difference.” COST: Because our interview with Miles was to pick his brain on the basics of electric vehicles, we left a lot of questions unanswered. Cost could have been a big topic. Research again will pay-off. At www.fueleconomy.gov, the U.S. Dept. of Energy provides a table showing federal tax credits available by brand and model, if you buy hybrid or all-electric. For example, you get up to a $7,500 federal tax credit when you buy a 2021 Ford Mustang Mach-E Premium AWD. But there are quotas and other considerations to gain these tax credits. Automakers are allotted 200,000 buyers per eligible EV buyer. When that number of buyers have used up the credits, they’re gone for the rest of the year. Bottom line on cost: You can get into an electric vehicle for a little as $7,500, if you buy used. Or go for a luxury car such as the Tesla long-range Model 3 with a battery range of 353 miles for $50,190. There is a lot more coming to address every price category and user preference. BATTERY CHARGING: This is another area deserving in-depth buyer research. How will you charge your electric car battery and how long will it take? Must you invest in upgraded 220-volt or 240-volt outlets at home to get a full charge in a reasonable amount of time? How much will all that cost? Will cold weather affect battery range and performance? We didn’t talk with Miles about any of this. He observed that the door on the electric car market is only just beginning to open. “We are in the pre-fireworks stage of electrics, he said. A big unanswered question: How reliable is the nation’s power grid? Can existing electric power companies, their generating capacity and infrastructure supply enough power to juice up all these electric batteries every night? What happens if we begin experiencing more brownouts and blackouts like those that already have occurred in California. Will we be walking to work? Electric car technology is just getting started. Exciting but a lot to think about before you buy. Thanks, Nik! BY JULIA ANDERSON
The Campbell Soup Co. is raising prices on an array of grocery items by fall. Crude oil prices are hitting three-year highs, boosting the gasoline pump price by 95 cents a gallon from a year ago. As restaurant operators struggle to hire and retain workers the cost of eating out has skyrocketed. Yes from home construction materials to automobiles, prices are rising. These increases on a market-basket of goods and services tracked by the U.S. Department of Labor are running at an estimated overall 6 percent a year. Our cost-of-living is going up. In other words, we have an INFLATION problem. After more than two decades of keeping inflation at bay, we all are talking about it and what to do about it. Economists say a bit of inflation in the range of 2 percent a year is OK, but 4-percent, 6-percent, 8-percent a year is a hardship especially on retired people with fixed incomes and on women who tend to save less and are more conservative investors. Inflation is the invisible enemy that eats into your buying power and your long-term savings and investment strategy. Here’s why: Let’s say you save $1,000 in a bank savings account. If the cost-of-living increases by 2 percent over the next 12 months, the buying power of that $1,000 drops by $20 to $980. That’s because as prices increase it will take more money to buy the same stuff. Twenty dollars may not seem like a big deal, but if the cost-of-living increases at 2 percent a year for 10 years, the buying power of your $1,000 drops to $800. In other words, your $1,000 of savings takes a 20 percent hit over those 10 years. Here’s another way to look at inflation and how it undermines investors. You have $200,000 in a tax-deferred savings plan such as an Individual Retirement Account or a 401(k) through your job. You lose sleep at night when stock markets go down, so you have your money in “safe” money market funds. You just can’t stand seeing your retirement savings drop in value if markets retreat. The inflation problem The problem? Money market and bank accounts are paying you nothing on the savings. The Federal Reserve Bank is keeping interest rates low, near zero, to stimulate the economy as it rebounds from the Covid-19 pandemic. Unfortunately, inflation at 6 percent this year is outpacing your savings by a lot. Your money is “safe,” but you actually are losing money on the safe savings. If it keeps up, your $1,000 will lose $60 of purchasing power in just the next 12 months. Meanwhile that $200,000 retirement account is losing buying power, too, unless its value grows at least even with the inflation rate. Better yet your long-term investments should be gaining on inflation. To review, over 10 years with little or no interest income on your $200,000 money market account, you effectively lose $40,000 of buying power if the inflation rate holds at around 2 percent. If the cost-of-living jumps to 6 percent a year over ten years, you lose $120,000 or 60 percent of your buying power on the $200,000. Beating inflation requires confidence This is where risk vs. reward comes in. In the current financial environment where ordinary bank savings, money market accounts and certificates of deposit are paying little or nothing in interest, you must look for other ways to “GROW” your investments. It is counter-intuitive but safe money in a bank with no interest is not safe. If you are working, use the 60/40 ratio of stock investments vs bonds or other holdings. Stock index funds work best because they spread the risk and are low-cost. Management fees should be under 1 percent on the value of the fund. Use the fund dividends paid quarterly to reinvest by buying more fund shares. Over time you will be happily rewarded by the “miracle of compound interest” growth in the value of your savings investments. Diversify by spreading your investments over several growth categories – real estate investment trusts, shorter-duration bonds, Treasury Inflation-Protected Bonds, or individual dividends-producing blue-chip stocks. So, research to determine long-term performance and management fees. Looking ahead If you don’t have the confidence to do this on your own, hire a financial consultant for a one-hour session to advise you. Or take your nest egg to an adviser to manage. Just make sure you know how much in fees you are paying them for the privilege. Keep in mind that some inflation around 2 percent a year is normal. Historically over the past 20 years that’s about what we’ve been seeing. Also remember that being too conservative with your savings is a liability. You must accept some risk to earn the rewards. And beside, The Fed is counting on the inflation surge to abate as the economy gets back to a more balanced supply-demand ratio. But a lot of stimulus (money) has been dumped into the economy. Normal may take awhile. Historically, U.S. equities (stocks and stock funds) have generated an average 5 percent to 7 percent return annually. They must form the bedrock of your long-term financial plan. FOR MORE: "Worried about surging inflation? Here's 3 ways to protect your wallet from taking a hit, Bankrate.com, click here. "Warren Buffett's top tips for beating inflation," Bankrate.com click here. "9 Assets for Protection Against Inflation," Forbes, click here. Why a capital gains tax increase hurts us allBY JULIA ANDERSON
Those of us who are retired should pay attention to the proposed tax increases on capital gains income being promoted both by states (Washington state) and by the Biden Administration. Even though President Biden says his capital gains tax increase will only affect the wealthy, not you, don’t believe it. Any change in tax law affects markets top to bottom, changes investment strategies and could generally dampen enthusiasm for capital investment at all levels. Retirees are living on investment savings --- CDS, stocks and bonds -- and income generated by U.S. stock markets and underlaying resilient economy. For the past ten years, it has been a good ride, up 13.6 percent a year. Our portfolios are looking healthy. Here’s the deal. Even though only those with $400,000 of capital gains “profit” or more annually would pay higher capital gains taxes up to 43.4 percent (double the current rate), the higher tax rate will hurt markets…our markets. Capital gains tax (15 percent for middle income investors, 20 percent for the wealthy) have been used by government for decades to deliberately create incentives for investors who put money into new business ventures and into corporate stock. This tax strategy supports new enterprise, grows overall employment, and strengthens the general economy. Middle-income retirees benefit from this economic momentum. When these stocks are sold, up to now, we pay a lower income tax on the gain (or profit). Here’s a chart: 2021 capital gains tax rates: 15 percent for those with taxable income of $40,451 to $441,450. 20 percent for those with taxable income $441,451 and more 2021 ordinary federal income tax rates - married, filing jointly. 12 percent for those with taxable income from $19,751 to $80,250 22 percent for those with taxable income of $80,251 to $171,050 Raising capital gains taxes punishes businesses seeking capital investment to support expansion. At the same time, higher capital gains tax punishes investors by reducing income. That means fewer of their discretionary dollars are spent on housing, cars, consumer goods, dining out -- all the sectors that need support as we recover from the pandemic. The higher tax puts a damper on the entire U.S. economy. Meanwhile, wealthy Americans are already strategizing for how to avoid higher capital gains taxes. Wharton School of Business researchers conclude that tax avoidance could cut $900 billion from the estimated $1 trillion the Biden Administration says it will collect in new capital gains tax money to pay for infrastructure and more. Do they think the wealthy are stupid? An easy alternative for them? Tax-exempt municipal bonds. By the way, money coming out of your tax deferred retirement (401(k) and IRAs) accounts is taxed as ordinary income at a rate commensurate with your federal income tax bracket. An increased capital gains tax applies only to income from shares invested outside of a retirement plan. Expert analysis in numerous studies on capital gains taxes, however, says that a rise in the capital gains tax rate reduces wage growth by dampening investment in corporations looking for new capital to expand. At the same time, the tax reduces revenue growth for governments simply because people will be more reluctant to sell stock and thus pay the higher tax. According to the Congressional Budget Office for each 1 percent increase in the capital gains rate, there is a 1.2 percent reduction in tax realizations (collections). That’s because rich investors will hold on to investments longer and look for other ways to avoid taxes. There are other aspects in the Biden tax proposal that have estate planners and their clients worried. Those include changes in inheritance tax regulations that will make it harder to pass on farms and businesses to a new generation. But that deserves a separate column. Many states also have capital gains taxes or are implementing them. California leads the pack with a rate of 13.3 percent. Among other top five capital gains tax states are Hawaii, (11 percent), New jersey, (10.75 percent), Oregon, (9.9 percent) and Minnesota, (9.8 percent). Washington state’s Legislature has approved a bill (2021) that creates a new capital gains flat tax of 7 percent on the long-term gain from the sale of stocks, bonds, and other high-end assets more than $250,000 for both individuals and couples. For details, click here. The tax exempts real estate, retirement accounts, agricultural land, and family-owned small businesses. It still is a new tax on income in a state that up to now has not had an income tax. Meanwhile, the Biden administration is proposing a top tax rate on capital gains of 43.4 percent, up from the current 23.8 percent. That means on every $10,000 of stock sold, the tax would total $4,340, up from $2,380 with the lower rates. The editorial board of the Wall Street Journal calls the idea, “the dumbest way” to raise taxes. The bandwagon to raise capital gains taxes is pitched as a tax on “rich people” who should “pay their fair share.” This ignores that fact that the top 50 percent of all taxpayers already pay 97 percent of all federal individual income tax. The top 1 percent pay 40.1 percent. The bottom 90 percent of taxpayers combined pay 28.6 percent of all federal income tax. In 2019, 46.6 percent of U.S. households with an annual income of between $40,000 and $50,000 paid NO income taxes at all. Click here. The Biden Administration says only 500,000 taxpayers would be affected by the proposed tax. The issue is not about who pays but the longer-term impact on markets in terms of slower investment and slower economic growth that will affect us all. It’s politics, not common-sense economics that is driving the capital-gains campaign. Tax incentives related to capital gains have been on the books for more than 50 years. They work. Women and good financial credit: You may need it sooner than you thinkBY JULIA ANDERSON
Don’t wait until you are widowed at 67 to build a credit history. When you lose a spouse to death or divorce, (or never marry, for that matter) creditors may view you differently, as a bigger credit risk. It may come as a surprise for many women that access to credit in the form of credit cards, a car loan or mortgage refinance may be a bigger challenge, when single and financially independent. The pandemic has been a set-back. Last year, some women lost income, increased debt, and put less into savings. All of this can undermine your credit standing. According to Experiena.com, a major online credit score service, 2.7 million women left the workforce in 2020 as compared with 1.7 million men. Female participation in the workforce is now the lowest since 1988, the report said. Married or single, women need a good credit history in their own right. It is another aspect of planning for the unexpected…an unplanned death, an unplanned divorce, a serious accident, or illness that can affect finances and the ability to borrow. What is good credit? Establishing good credit means that you pay bills on time. It means not taking on more debt than you should related to your income. Good credit means not having filed for bankruptcy in the past seven years, not having been foreclosed on or had a debt sent to a collection agency. Lenders use your income and your bill-paying history to establish your credit score, which in turn helps determine if you are a good credit risk and likely to pay back a loan over time. Financially independent women know that a good credit score helps with credit cards and loans, but also with lower insurance rates and when applying to rent an apartment. Yes, you can live without a credit score but that might mean carrying around more cash or going through a bigger hassle is securing a loan. What is a credit score? There is no one credit score, but a higher score or scores usually means it will be easier to get a loan or rent an apartment. “Any credit score depends on the data used to calculate it, and may differ depending on the scoring model, the source of your credit history, the type of loan product, and even the day when it was calculated,” says the federal Consumer Financial Protection Bureau. “Most credit scores range from 300-850.” The good news is that in 2021, men and women now share the save average national credit score of 705. “This is a 1-point increase for women from 2019 and about a 10-point increase for both groups from 2015,” said Experian.com, an online credit rating service. How to build good credit Establishing good credit takes time, maybe several years, as you create a bill-paying record. Here are tips from the federal Consumer Financial Protection Bureau for how “get and keep a good credit score.” Pay your loans on time, every time. Don’t get close to your credit limit on a credit card. Only apply for the credit you need. (According to Consumer Financial Protection, if you apply for a lot of credit over a short period of time, it may appear to lenders that your economic circumstances have changed for the worse.) Keep your credit card debt below 30 percent of your limit. Avoid high interest rate charges by paying off your credit card(s) every month. Fact-Check your credit scores. (You are entitled to a free credit report every 12 months from each of the three major consumer reporting companies – Equifax, Experian, and TransUnion. To do that visit AnnualCreditReprt.com or call 877 322 8228 to get a report) Avoid web sites that offer free credit report assistance. For most, it’s free, only if you buy their products. Unlike Dave Ramsay, I believe there is “good” debt but that is debt you can pay off on time. I never believed lenders who told me that based on my income I could afford xxxx amount of mortgage debt. For me, the amount was about half what they said I could borrow. Establish a credit card in your own name, separate from a joint family account. While married, I’ve kept my own name on credit cards and my home mortgage loan. When refinancing your home mortgage, do it in your own name, separate from a new married partner. Otherwise, he becomes joint 50 percent owner on the title. In a divorce, make sure your spouse’s aggressive attorney does not put a lien on your house without notice. Then this attorney forgets to remove the lien in the divorce settlement. Only three years later do you find out about the lien when you can’t refinance your loan unless it is removed. That means tracking down your ex-spouse, a frustrating and painful experience. A recent survey by creditsesame.com, an online card and loan tracking service, showed that 55 percent of women say, “they were never taught the best ways to manage credit and about a quarter would give themselves a failing grade when it comes to their current understanding of credit scores.” Tell your granddaughters about the good and bad of credit cards and about how to get and keep good credit. What to do if you have BAD credit Credit counseling can help if you have bad credit, are behind with bill paying or have defaulted on a loan. Credit counseling services can help you organize a debt management plan to pay down debt. Some of these services are free, some are not. Read the fine print before signing an agreement. For more: Go to www.consumerfinance.gov, search for credit counseling services. Topics include how to choose a credit counselor, counseling service fees and agreements. Or search YouTube for my Smart Money piece on credit and credit counseling services. Click here. It wasn’t long ago (early 1970s) that women could not apply for a loan in their own name, not gain a credit card in their own name without a male co-signer or make larger down payments on mortgage without a co-signer. The 1974 Equal Credit Opportunity Act prohibited creditors from such discrimination based on race, color, religion, national origin, sex, age, and marital status. It took years of lawsuits and complaints for lenders to comply. I know because in the late 1980s when divorcing, I asked my bank to reissue my credit card using my new name. It refused. I was shocked. I had the same job, the same credit history and same savings and checking accounts. I then applied to a national Mastercard issuer, got a new card, and changed banks. A Quote: “If you have debt, I’m willing to bet that general clutter is a problem for you too.” -- Suze Orman, American financial advisor, book author and podcast host. (1951 - ) BY JULIA ANDERSON Retirees are told to pay off their mortgage before they leave their jobs or at least soon after. But should you? Does it make financial planning sense? Here’s my analysis of why or why not paying off your mortgage is a good move. Pluses first. You eliminate a big monthly loan payment, which increases your monthly income. You don’t have to worry about rising interest rates, if you have a variable or adjustable-rate loan that could take a bigger bite out of your income, if the Fed raises interest rates. You increase your net worth by eliminating debt. It feels good to pay off the house loan and be debt-free as you head into retirement. But where will the cash come from to make this move? Will it leave you “cash poor” in case you face a financial emergency such as an early retirement buyout, a major illness or accident or an unexpected need to buy a car or one for your grandchild? Paying off a mortgage is more complicated that it might first appear. YOU WILL NEED A CALCULATOR AND POSSIBLY AT TAX ACCOUNTANT TO DECIDE WHAT’S BEST FOR YOU. Why paying off a mortgage is NOT a good ideaWith interest rates at historic lows, carrying a mortgage loan with a cheap 2.5 percent rate is not expensive. A 30-year fixed loan on $150,000 at less than 3 percent costs less than $1,000 in a monthly payment. On a $350,000 loan the monthly cost is $2,000 or less per month. It’s cheap money. You might want to put your cash to work elsewhere. You get a deduction on your federal income tax for interest you pay annually on the loan. That reduces your taxable income. On the other hand, you no longer are making those interest payments, which will save you thousands over the life of the loan. You might do better by investing the cash you would use to pay off the loan. Over the past 10 years, portfolios invested 60 percent in stocks and 40 percent in bonds have averaged roughly a 10 percent annualized return. With a $100,000 initial investment plus $1000 more a year invested over 10 years in stocks, your nest egg will grow to $276,905. BUT there are NO guarantees this track record will continue if interest rates go higher. Once money is sunk into a house it is “illiquid.” In other words, you can NOT easily tap the equity in your house in an emergency. However, this could be a forced savings plan if you are not a saver. But again, THERE ARE PLUSES: You are debt free. You eliminate a big monthly expense. You don’t have to worry about rising interest rates if you have a variable or adjustable loan. You are more financially secure without the debt. You lose the tax deduction but you gain way more income from NOT having a loan payment!! Take These Steps Before You DecideUnderstand the trade-offs between paying off the loan and eliminating your mortgage payment vs. the tax write-off benefit and/or investing your cash elsewhere for the long-term. Run some scenarios comparing household income expense and savings, if you pay off the loan and the changes in your tax profile, if you pay off the loan. How much will you save in loan interest payments? Interest saved on a $350,000 loan even at 2.5 percent over 30 years will total nearly $148,000. How will you use the “new” money if you eliminate the loan payment? Will you still have cash for unexpected emergencies? Get a tax professional to help you. Look at how you would invest the cash that you might use to pay off the loan but instead invest it for the long haul. What kind of earnings can you expect over the next 10 or 15 years. Will you still have cash for emergencies? Build up an emergency fund (in cash) to cover household expenses for at least six months. Do not tap your long-term tax advantages retirement funds – 401(k) or IRA to pay off your mortgage loan. You will need that tax-deferred nest egg for the long haul. Taking money out early undermines your compound reinvestment wealth-building strategy. How about a compromise? Consider making “early” payments on your mortgage loan instead of an outright payoff. You can pay down the loan faster, reducing the time to pay off the loan. Invest the rest of your money a 60/40 stock-bond fund. Don’t take an unexpected tax hit by selling investments to assemble the cash to pay off a mortgage. Those sales could bump you into a higher income tax bracket… 24 percent vs. 32 percent on taxable income (using current tax law). Celebrate your decision!If you pay off your mortgage, celebrate your decision. Your are debt-free, your net worth increases and your monthly income goes up. You will always wonder if you made the right call but stay focused on how good you will feel if there’s a stock market crash or interest rates go up. Going forward: Take the “new” money in the amount of your former mortgage payment and stash it in a savings or investment account…. a PAINLESS MOVE that will build long-term wealth. For more:AARP - Paying off your mortgage. click here
AARP mortgage calculator. click here WSJ “Should Retirees Pay Off Their Mortgage or Invest the Money?” click here. Bankrate.com "Does it make sense to pay off your mortgage early? click here Dave Ramsay: "Why Should I pay off the Mortgage?" click here Bloomberg (For those 40 and under) “The Opportunity Costs of Paying Off Your Mortgage Early,” click here. |
Julia anderson
I meet women all the time who face job and money transitions and who want to do them right. It’s about building confidence and taking charge of the future. This is your money. No one cares more than you do! Archives
February 2023
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