Is The Forever Stamp A Good Investment?

Absolutely not. Since 1971, postal rates have increased more slowly than the actual inflation rate, as measured by the Consumer Price Index. In fact, this pattern must hold—as a matter of law. In December, President Bush signed the Postal Accountability and Enhancement Act, which ensures that future price increases will be kept below an inflation-based ceiling. See full story in Slate.

Cash Sweep Swept Under The Rug

The Securities and Exchange Commission is considering rules requiring more disclosure about the cash sweep choices in investment accounts. The need for more disclosure arises from large brokerage firms forays into banking. In the past cash balances at firms like Merrill Lynch, Morgan Stanley, and Wachovia were automatically swept into money market mutual fund accounts. These money market fund invested in short term treasury and corporate securities and paid out dividends that were very competitive after deducting the funds management fees with were very reasonable, averaging around one tenth of one percent of assets.

All of that began to change when these firms started to buy banks and offer banking services. The firms realized they could offer bank deposits which provided a cheap source of deposits for their banking subsidiaries, pay lower interest rates (sometimes based on the size of your account), and pocket more income from net interest income.

While money market mutual fund sweeps are still available, you have to ask or opt out of the bank deposit defaults. The SEC wants firms to advise investors of this option on a quarterly basis.

If you have an account that is being swept into a bank deposit program you should ask your broker what alternatives his firm offers. If you use a money market mutual fund you will give up FDIC insurance on those deposits, but will probably receive a much higher interest rate. Firms are loath to reveal the options because this is such profitable business for them.

Photo courtesy of cohdra@mourgefile.com

The Shrinking Stock Market

Many are puzzled buy the recent strength of the US stock markets. Once again it looks like a simple case of supply and demand. In this case, less supply. USA Today reports that the supply of stocks has been shrinking due to the buyout activity of private equity ( read LBO) firms. Astoundingly, the Wilshire 5000 is no longer made up of 5,000 companies it has shrunk to only 4,910! Read the full story here.

Medicaid Rules and Gifts

With nursing homes care running north of $40,000 per year many families who have a "comfortable retirement" could find themselves facing the prospect of spending down a large chunk of their savings and investments should the need for nursing home care arise. Without long term care insurance some will find their only option may be to apply for Medicaid assistance.

While Medicaid rules vary from state to state, typically a person needing long term care benefits must spend down their assets to $2,000. If there is a surviving spouse they can usually keep the family home (but states can consider home equity in excess of $500,000) , a prepaid burial plan, and between $50,000 and $100,000 in resources.

Medicare rules are separate from and independent of tax rules. You may know that you can gift $12,000 per year to anyone you choose through the tax code, but did you know that a gift you made to your children within a five year period are considered assets that could disqualify you or your spouse for medicaid benefits?

If you or a family member are facing the prospect of nursing home care, and you do not have long term care insurance, you should quickly consult with an Elder care attorney, to help guide you through the complex set of rules for your state Medicaid system. But as they say an ounce of prevention is worth a pound of cure, so the prudent approach is to plan ahead time.

The ABC's of Reverse Mortgages

Reverse mortgages have been around for a decade but their popularity remains low. The primary reason seems to be home owner's reluctance to take any chance when it comes to their abode. Reverse mortgages are also confusing, complex, and expensive, making them an option of last resort in the minds of homeowners.

How they work.

A reverse mortgage is like a home equity loan with no payback schedule. Instead of having a mortgage you make payments on you have a mortgage that provides income to you. You can choose to take a lump sum payment, a credit line to draw on, or set up a payout schedule much like an annuity. No payments are due as long as you live in your home, however, interest accrues as you access the funds.

Contrary to common perception, the lender doesn't take your home automatically when the loan comes due. Heirs may refinance or sell the home to pay off the balance, life insurance benefits could provide funds to pay off the balance, or the heirs could just use cash to repay the balance if they want to keep the property. If the house is worth less than the amount due, you or your heirs will only owe the lender what the house can sell for.

Costs

Reverse mortgages are expensive. You can expect to pay 6% to 8% of your homes value at the time of loan origination to cover HUD insuring the mortgage, closing costs, and lender fees. Fees are usually rolled into the mortgage so you do not see an out of pocket expense, but it does increase you borrowing costs and decrease the money available for you to access.

For more information see AARP and this item from the Federal Trade Commision.