European stocks rise, as rates on hold (via AFP)European stock markets climbed but the euro fell against the dollar on Thursday as both the European Central Bank and the Bank of England held interest rates at record low levels. Markets were also analysing a batch of earnings from some of Europe’s…
Mortgage Interest Rates Seesaw (via Personal Finance Updates)The average interest rate for fixed rate mortgages has increased for the week ending August 1, according to Freddie Mac’s weekly survey. Rates are up almost a full point from last year. 30-year fixed-rate mortgage (FRM) averaged 4.39 percent with…
By www.CentralBankNews.info The central bank of the Czech Republic held its benchmark two-week repo rate steady at 0.05 percent, along with the discount rate at 0.05 percent and the Lombard rate at 0.25 percent, and made no announcements regarding possible intervention in foreign exchange markets.
In May, the Czech National Bank (CNB) had said it was ready to use foreign exchange intervention if further monetary policy easing becomes necessary but minutes from its meeting showed that only three of the board’s seven members want immediate action.
The Czech koruna has been weakening against the euro since September last year when the central bank’s governor for the first time signaled that it may sell the currency in markets. This year, the koruna is down a further 3.4 percent, quoted at 25.96 to the euro earlier today.
The Czech Gross Domestic Product contracted by 1.3 percent in the first quarter from the fourth, the seventh quarterly contraction in a row. On an annual basis, first quarter GDP shrank by 2.4 percent, up from a 1.7 percent decline in the fourth quarter.
By www.CentralBankNews.info The European Central Bank (ECB), which earlier today kept its benchmark refinancing rate steady at 0.50 percent, said its “monetary policy stance will remain accommodative for as long as necessary” and it “expects the key ECB interest rates to remain at present or lower levels for an extended period of time.”
The policy outlook by ECB President Mario Draghi is the same as last month, when the bank for the first time in its history gave financial markets guidance to its expected policy stance.
Draghi said the policy outlook was based on continued subdued outlook for inflation given the broad-based economic weakness, including weak credit.
“At the same time, recent confidence indicators based on survey data have shown some further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity,” Draghi said, adding the bank still expects a gradual economic recovery in the rest of this year and into 2014.
The economy of the 17-nation euro zone contracted by 0.3 percent in the first quarter, the sixth consecutive quarterly contraction. Compared with the first quarter of 2012, Gross Domestic Product shrank by 1.1 percent.
The ECB expects the euro zone economy to shrink by 0.6 percent this year, less than the 1.5 percent fall in 2012 and last cut its refinancing rate by 25 basis points in May.
Draghi said he expects exports to benefit from a gradual recovery in global demand during the rest of this year and into 2014 while domestic demand is supported by the bank’s accommodative policy and gains in real income due to generally lower inflation.
In July the euro zone inflation rate was steady at 1.6 percent from June, and Draghi said he expects a temporary fall in coming months due to base effects from energy prices last year.
But medium to long-term inflation expectations remain anchored in line with the ECB’s aim for price stability. The ECB targets inflation of below, but close to 2.0 percent.
Despite some improvement in financial markets since last summer that are working their way through the economy, Draghi said the risks surrounding the outlook remain on the downside.
“Recent developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions,” Draghi said, adding that weaker than expected global demand and insufficient structural reforms also pose risks.
www.CentralBankNews.info
Tax planning is not difficult if we take even a wee bit interest in the same. Infact, as I believe it this form of forced savings usually end up saving us.
Every year all of us sit before the TV set and watch our Finance Minister read out our General Budget, with whatever little knowledge we have, we make our own presumptions about how good or bad the budget is for us. Thus when it comes time for us to submit or proofs in our respective offices or to our CA’s we start scurrying for answers, answers which can help us save maximum amount of Tax. Who doesn’t want to save on tax? Thus in this quest of ours to save the maximum possible in the best product we usually end up making a few wrong investments. These wrong investments usually happen around the time of December & January, when we get a email reminder from CA’s or our Finance team at our place of work, requesting us to submit proof of investments done by us.
Tax planning is not difficult if we take even a wee bit interest in the same. Infact, as I believe it this form of forced savings usually end up saving us from a financial mess, which may happen at the time of our retirement. Thus it is important that we do our planning timely and with little focus on products that can help us both save tax and fetch returns. Here is what you need to to know, to help plan for saving the maximum amount.
Know the sections you can save the most in
Section 80C is where a tax payer can save the maximum amount of money. But, what we all do not know is that Life Insurance Premium, Mutual Funds & PPF are not the only option in the same. For people with kids you can also avail of benefits on Tuition Fee paid under section 80C. Similarly, Principal Component of the Housing Loan is also eligible for Tax deductions under the same section. Thus you need to know of all such options. What many of us do not realize is, that by adding such simple things as Tuition fee we could have already, registration charges paid for a house we may have already crossed our Rs. 1 Lac investment cut off in section 80C.
Diversify your investments
Keeping all your eggs in one basket is never a great idea. Even though investing the complete Rs. 1 Lacs in insurance or an ELSS can help you save tax, but it is important that you diversify and broaden your horizon while looking to invest. Each and every investment instrument comes with it’s respective investment guidelines thus the returns they offer are not similar. By diversifying you will ensure that you are not reliant on only one security for growth & security. Taking an example, ULIP’s invest majorly in Equity market, Life Insurance in Debt, ELSS is again Equity whereas NSC and Post office deposits largely in government bonds and money market instruments.
Goal Based Saving
Public Provident Funds have a Lock In of 15 yrs, Unitlinked Insurance Plans & Life Insurance Policies have a lock in of 5yrs, similarly Tax Saving Fixed Deposit with Nationalized Banks have a lock in of 5yrs. Thus you need to know the investment that you are making how soon can the same become liquid & available to you for re-use. Thus all good financial planners advocate goal based savings, if you have a specific goal in mind then the number of investments you are looking at can be considerably knocked down fast to arrive at a best possible result.
Health Insurance
Health insurance is steadily gaining momentum and one of the reasons for the same is the ever rising cost of medication & hospitalization. Under the section 80D, Rs. 15,000 savings is available on premiums paid for self, spouse and kids. Additionally, Rs. 15,000 more is available in case the premiums have been paid for parent’s (Rs. 5,000 additional incase of senior citizen parents).
What a individual needs to be careful with here is, that a office provided Group Medica cover will not help them get a tax deduction as the premium for the same is not paid by them, but the organization. Thus this should not be taken into account.
Look at not so popular sections
Other than Section 80C and 80D, there are other few sections like section 80G which helps you get deductions on charities made to specific organizations, similarly you can also get deductions on, Permanent Physical disability (self) u/s 80U and also for a cost of treatment paid for a physically disabled relative u/s 80DD & 80DDB.
Tax planning is not difficult if started at the right time and with the right mindset. All we need to do is to compare before we make an investment.
About the Author
A finance blogger with avid interest in equities, markets, commodities, currencies and ipos. I hold an important position in a reputed brokerage firm with its presence globally.
By www.CentralBankNews.info Zambia’s central bank held its policy rate steady at 9.75 percent, saying the “monetary policy environment should remain tight during the policy-relevant period in order to be consistent with the end-year inflation objective.”
The Bank of Zambia, which raised its rate by 25 basis points last month, said there were still upside risks to its inflation objective from cost push pressures, largely from the pass-through effects of the depreciation of the kwacha currency, and it anticipates that further inflationary pressures may arise from demand pull factors in coming months.
“Notwithstanding the above, the Committee observed that inflationary pressures may moderate on account of lower food prices due to seasonal improvement in supply and the waning effects of the recent upward adjustment in fuel prices following the removal of subsidies,” it added in a statement from July 31.
Zambia’s inflation rate was steady at 7.3 percent in July and June and from late May to today the kwacha depreciated 4.4 percent against the U.S. dollar, quoted at 5.48 to the dollar today.
By www.CentralBankNews.info Albania’s central bank cut its benchmark repurchase rate by 25 basis points to 3.50 percent, but it did not release any reason for the decision on July 31 by the bank’s supervisory council.
Last week the bank’s governor, Ardian Fullani, said the country’s economy was “in a fragile stage” with weak aggregate demand due to low consumer spending from household uncertainty about the future and slowing income. Public spending is also limited due to high public debt while exports suffer from sluggish international demand and a low degree of diversification.
“In Bank of Albania’s opinion, this situation requires pursuit of stimulating macroeconomic policies,” Fullani said on July 25.
Albania’s economy expanded by an annual 1.7 percent in the first quarter, down from 1.8 percent in the fourth quarter, while inflation rose to 2.3 percent in June from 2.1 percent.
In January the central bank cut the refi rate to 3.75 percent, saying the rate cut should help ensure that inflation meets the bank’s target of 3.0 percent, plus/minus one percentage point.
If you are a Baby Boomer and looking forward to retirement, you might want to sit down with a pencil and a notepad. Retirement is a lot more complicated than it used to be, and not just because retirees in the post-pension era are having to take more responsibility for their investment allocations.
The investing environment itself is shifting—bonds have reached the end of a 30-year bull market, globalization means that events in faraway places have a direct impact on the stock and bond markets here, and Social Security—the single most important source of income for a majority of Americans—may be facing significant cuts in the years ahead.
So, before you quit your job and venture into the next stage of your life, stop for a minute to consider a set of numbers that could make the difference between retiring comfortably and having to move in with your adult children.
1. What is a reasonable estimate of your cost of living?
This should be obvious, but most Americans dramatically underestimate their living expenses. Be honest here, and thorough. What do you pay in rent or in property taxes and insurance? What about utilities? And what about medical expenses or insurance premiums not covered by Medicare?
What do you spend in a given month on restaurant dining and entertainment?
Don’t just look at your last month’s expenses and multiply by 12, as your expenses can vary wildly based on weather (utility bills) or based on holidays and birthdays. If you like buying your grandkids expensive Christmas presents, make sure to take these into account.
Whatever total figure you come up with, tack on an additional 25%. No matter how thorough you are, I promise you that you forgot something. And you want a little wiggle room to allow for unexpected expenses or for the occasional off-budget luxury.
The total you come up with here is the single most important figure; it’s the dollar amount you’ll need to generate from your portfolio investments and from Social Security.
2. How much can you expect to receive from Social Security?
According to the Social Security Administration, 53% of married couples and 74% of unmarried beneficiaries depend on Social Security for at least half of their income. A shocking 46% of unmarried beneficiaries rely on Social Security for 90% or more of their income.
To put it lightly, Social Security matters.
If you are near retirement age, you should receive regular correspondence from the Social Security Administration that outlines how much annual income you can expect to receive depending on what age you choose for retirement. If you’ve never been notified, contact your local Social Security office and ask.
To play it safe, assume that all of your Social Security benefits will be fully taxable. Currently, they are not. But given the fiscal position of the government, we should assume they soon will be. Better to err on the side of caution.
Marginal rates are always something of a moving target; we’ll use a rate of 28% for the purposes of this article. Take the income estimate from the Social Security Administration and multiply it by 0.72 (which what is left over after the 28% tax).
3. How much do your other investments need to earn to meet your retirement expenses?
Take your expense estimate from question one and subtract the after-tax Social Security payout from question two. Also subtract any other fixed income streams you expect, such as from a traditional pension or a trust. The amount left over is what you’ll need to generate from your investment portfolio.
This number is critical because it will determine what kind of returns you need to generate…and what kind of risk you can take.
Let’s look at an example. Let’s say you need $100,000 per year to maintain your lifestyle in retirement and that Social Security is on the hook to pay you $50,000. After taxes, that $50,000 becomes $36,000…meaning you’ll need your portfolio to throw off $64,000 in after-tax income. On a $1.5 million portfolio, that amounts to a return of 4.3% after tax, or a little less than 6% before tax (for now, I’ll assume all investment income is subject to the same 28% tax rate).
Is that a realistic figure for you? If not, you may need to downsize your retirement goals or postpone retirement for a few more years to build a bigger nest egg. Personally, I wouldn’t want to bank on generating a 6% return given that the 10-year Treasury yields less than half that. I wouldn’t be comfortable assuming much more than about 4%…which in our example here means that we need a larger portfolio or a smaller retirement.
Be honest with yourself here. It’s better to make any hard decisions today, while you can still make changes, than in retirement when it is too late.
4. What do you expect the inflation rate to be?
Inflation is the single most dangerous figure for would-be retirees because it is the one they never see coming. Inflation creates a nightmare scenario: your expenses rise while your income remains fixed.
The news here isn’t good. One of the easiest ways—or most cowardly, depending on your point of view—for the government to reduce its Social Security liabilities is to tinker with or eliminate cost of living adjustments. It’s a stealth form of taxation and one that hits retirees particularly hard.
To play it safe, we should assume that your Social Security payout will be constant—with no inflation adjustment at all.
This means that your investment portfolio will need to generate enough to make up the difference. The math here can get a little cumbersome, but bear with me. If you assume an inflation rate of 3%, your $100,000 per year in living expenses will be $103,000 after the first year. This means that your portfolio will need to generate $67,000 instead of $64,000 (remember, we’re assuming no adjustment from Social Security).
On the same $1.5 million portfolio, this means a required after-tax return of 4.5% rather than 4.3% and a pre-tax return of 6.25%.
That may not sound like much, but remember that inflation is like interest. It compounds over time. By year two, you’re looking at expenses of $106,000…and a required pre-tax return of 6.5% on that same $1.5 million portfolio.
To compensate for this, you need portfolio growth and—more importantly—adequate exposure to income-producing asset classes that have built-in inflation protection—things like REITs, MLPs and certain dividend-paying stocks.
And more than anything, you need a margin of safety. You need a little bit of “wiggle room” in the event that your investments don’t generate as much income as expected or in case inflation is higher than forecast.
I used very conservative numbers in this article, but I encourage you to do the same. It’s better to be too conservative and end up with a bigger cushion than expected in retirement than to find yourself strapped for cash and forced to give up that house on the golf course.
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By www.CentralBankNews.info The European Central Bank (ECB) held its main interest rates steady, including its benchmark refinancing rate at 0.50 percent, and said its president, Mario Draghi, would comment on the decision by the bank’s governing council at a press conference later today.
Last month the ECB adopted a form of forward guidance, saying it expected to keep rates at their “present or lower levels for an extended period of time.”
The ECB cut its refi rate by 25 basis points in May.
In July the inflation rate in the 17-nation euro zone remained steady at 1.6 percent from June. The ECB targets inflation of below but close to 2.0 percent.
The economy in the euro zone continued to shrink in the first quarter but there have recently been signs that it may start to improve in the second half of the year, leading financial markets to expect that the ECB would maintain rates at today’s meeting.
The ECB expects the euro zone Gross Domestic Product to shrink by 0.6 percent this year, less than a 1.5 percent contraction in 2012.
In the first quarter, GDP contracted by a quarterly 0.3 percent, the sixth consecutive quarterly contraction, with the annual growth rate a negative 1.1 percent, up from a contraction of 0.9 percent in the fourth quarter.
By www.CentralBankNews.info The Bank of England (BOE) maintained its Bank Rate at 0.5 percent and the size of its asset purchases at 375 billion pounds, adding that it would release its latest inflation and output projections on August 7.
The BOE, which has held its rate steady since March 2009, also said that its Monetary Policy Committee, as already announced, “will also respond to the UK Chancellor’s request for its assessment of the use of thresholds and forward guidance at that time.”
The decision to maintain rates and the size of its asset purchase program was widely expected following the release of the minutes from the MPC’s July meeting in which it became clear that the size of the quantitative easing program would likely be maintained while the bank decides on the details of its forward guidance under its new governor, Mark Carney.
Following Carney’s first meeting in July, the BOE used a mild form for policy guidance, voicing concern over the recent rise in UK bond yields, saying this was weighing on its economic outlook and the implied rise in its bank rate was not warranted by economic developments.
Bond yields in the UK and in most other countries rose in June following better UK economic data and in reaction to the Federal Reserve’s planned tapering of its asset purchase program.
Inflation in the United Kingdom rose to 2.9 percent in June from 2.7 percent in May, continuing to remain above the BOE’s target of 2.0 percent.
The UK economy strengthened in the second quarter with Gross Domestic Product up by 0.6 percent from the first quarter, for annual growth of 1.4 percent, up from 0.3 percent in the first.
