What should I do about the Equifax data breach?

By now, you’ve learned that up to 143 million people in the United States have had their private information stolen through a data breach at Equifax, a national credit reporting agency. What is new and most concerning about this breach is that Equifax is one of the few companies we entrust with our most sensitive financial data.

What was stolen?

Per the Federal Trade Commission, “The hackers accessed names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. They also stole credit card numbers for about 209,000 people and dispute documents with personally identifiable information for about 182,000 people.”

How do you protect yourself?

If you’ve already enrolled in an identity theft and credit monitoring service, then you have the necessary coverage and don’t need to do anything further.

If you aren’t using such a service, take the following steps: (more…)

How the TAP Annuity Works for Washington State Employees

When planning for retirement, Washington State employees have lots of options. The employer-based retirement for the Washington Public Employees Retirement System (PERS 3) is one part defined benefit (pension) and one part defined contribution. The state’s contribution and obligation is on the pension side and is based on a formula that creates a guaranteed lifelong income stream for the participant. The employee’s contributions are put into an investment account (the defined contribution portion of the plan) like a 401(k) where you can choose between a few investment options. Returns and payments from investments in the defined contribution plan aren’t guaranteed and are subject to risk; however, they have the potential to grow at a faster rate than your pension benefit.

Once retired, you can either withdraw from the defined contribution portion like a regular retirement account or turn part or all of this account into a guaranteed income stream through the plan’s Total Allocation Portfolio (TAP) annuity.

What is the TAP annuity?

The TAP annuity provides a guaranteed income stream with a 3% automatic inflation increase each year. Furthermore, your beneficiaries receive a refund of any undistributed portion of your investment in the TAP annuity upon your death. For example, if a retiree contributes $200,000 into the TAP Annuity and passes away five years after retirement, having only received $60,000 in monthly income, their heirs would be entitled to a refund of $140,000. (more…)

Why It’s Important to Keep Track of Improvements to Your House

Whether you live in a popular residential market like Seattle, San Francisco or New York, or have simply lived in the same home for several decades, it’s more common than ever that households are incurring taxable gains when they sell their home.

Taxable gains from the sale of a primary residence occur when the gain from the sale is above the $250,000 gain exclusion for an individual and $500,000 for a couple. This gain exclusion is available to households that meet the following criteria:

  • You’ve used the home as your primary residence for two out of the past five years (use test).
  • You’ve owned the home for two out of the past five years (ownership test).
  • You did not use the home sale exclusion in the past two years.

The gain is calculated by subtracting selling expenses and your adjusted cost basis in the property from the sale price. The adjusted basis is what you previously paid for the home plus the cost of improvements. Since you are subject to federal capital gains taxes, state taxes (where applicable) and the 3.8% Medicare surtax (in many cases as the taxable gain can be sizeable), keeping track of your improvement history can lead to significant savings on your taxes.

What’s considered an improvement?

The IRS provides the following examples of common improvements to your home that will increase your basis. (more…)

Determining Which Term Life Insurance Policy Makes the Most Sense

Term life insurance is used primarily for pure income replacement (i.e., your human capital). When you apply for term life (non-permanent) insurance, you have to choose the amount of coverage you want ($50,000 to more than $2,000,000) and the term of the policy – usually a 10-, 15-, 20- or 30-year policy. The coverage amount and term depend on your specific needs, such as taking care of young children, or paying off the mortgage if you pass away unexpectedly.

Since term life insurance policy premiums stay level, i.e., the same, your premium does not change during the term. This causes the premium to be higher for longer terms. At the end of the term, you either lose life insurance coverage or apply to obtain a new policy with a different term, conditions and premium costs.

How the Premium Is Determined
Your premium is determined by your age, gender and health rating, multiplied by a stated factor for the term and coverage amount you’re applying for. The health rating component requires an insurance physical exam where a nurse visits you at home or at work, or you can go to a doctor’s office.

When deciding how much insurance to get, consider the costs of raising a child and potential college tuition, plus the mortgage, funeral costs and any other potential debt. For lower coverage amounts, such as under $250,000, many companies offer simplified issue insurance, which you usually receive advertisements for by mail from your mortgage lender or homeowner’s insurance company. This type of life insurance doesn’t require a medical exam and can be approved in just a couple of days. (more…)

Why Unrealized Gains/Losses Isn’t the Best Way to Look at Performance

When trying to figure out your own performance, it’s common to look at your unrealized gain and loss first on your statement (Charles Schwab, Fidelity, TD Ameritrade). The problem with trying to evaluate performance based upon the gain and loss column alone is that it doesn’t reflect your total return and the impact of rebalancing.

Rebalancing entails selling assets that have grown beyond your target and buying assets that have fallen below your target, meaning, selling overvalued securities to buy undervalued securities. When rebalancing occurs, the assets sold likely had a large unrealized gain. Once sold, that gain is wiped out and the proceeds are re-invested in an asset that may show an unrealized loss or a much smaller gain. Rebalancing helps avoid your portfolio drifting too far from your target allocation of stocks, bonds and specialized investments to reduce your risk if the stock market were to decline. Furthermore, rebalancing takes advantage of the shift over time in which assets are in or out of favor.

Total return takes into consideration changes in the price of the asset (unrealized gain/loss), dividends, interest and capital gains distributions received. For many investments, such as more income focused mutual funds, most of the return comes from the components of total return that are not reflected in the unrealized gain or loss column on the statement. Below is the formula to calculate total return. (more…)