By Penelope Wang
December 16, 2016
Chad Griffith

This week the Federal Reserve made a long-expected move: It raised interest rates. The increase was modest—a quarter point—but more rate hikes may happen next year. For retirement investors, or anyone seeking income from bonds, the rate hike is both good news and bad news. The bad news first: Your bond funds took a hit, falling about 0.8% for the week. (When rates rise, bond prices fall.) This drop follows earlier losses this fall, as investors sold bonds on fears of higher inflation. But over the long term, you’re likely to come out ahead, since you’ll be reinvesting at higher rates. Still, bonds are not going to provide big returns or lofty yields as they once did. So stay focused on the main reason you own fixed income: to cushion the risks of stocks. In bear markets, having that protection in your portfolio can be priceless.

Best wishes,

Penny

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THIS WEEK’S RETIREMENT NEWS, INSIGHTS AND ADVICE

How the Fed Rate Hike Will Affect Your Retirement Income

It finally happened. The Federal Reserve raised its key interest rate by a smidgen—just a quarter of a percentage point. But it suggested more hikes are coming. That was enough to push up bond yields, as well as hurt bond prices. So yay and ouch. All of which may have you wondering if you need to make changes in your bond fund portfolio. Here’s what to consider. MONEY

Boost Your Nest Egg By Using Target-Date Funds Correctly

Many investors end up in target-date funds in their 401(k)s because they are auto-enrolled by their employers. So they don’t realize these funds are meant to be a standalone investment that offers complete diversification. But a recent study finds that many investors hold other funds in addition to target dates. And that can hurt your returns, writer Paul Katzeff reports. INVESTOR’S BUSINESS DAILY

Year-End Tips for Retirement Planning

It’s mid-December and 2017 is around the corner. You may not be a big fan of New Year’s resolutions, but now is a good time to take stock of your retirement progress and maybe make some tweaks to your plan. Columnist Rodney Brooks has gathered some helpful tips from personal finance experts. My favorite: Check out the free advice from your workplace retirement plan. WASHINGTON POST

Dear Millennials: One Geezer’s Guide to Achieving Financial Success

These days the financial service industry is eager to reach out to young adults—witness the slew of surveys, studies and nifty new apps aimed at millennials. All of which makes long-time contributor Walter Updegrave a bit skeptical. He offers his own advice to millennials , and it’s useful guidance for retirement savers of any age. MONEY

5 Retirement Planning Tips for Small Business Owners

Most entrepreneurs tend to make retirement saving a low priority compared to building their business. But as writer Kerry Hannon points out, that’s a risky approach, since your business may not provide the wealth you need in retirement. These five steps can provide essential financial security. FORBES

Making Retirement Work on a Shoestring

A 72-year-old entrepreneur, who is running a small business, has built up a $260,000 portfolio. That’s a decent amount, but doesn’t leave much room for error. Morningstar’s Christine Benz recommends a portfolio makeover to help stretch out income. Spoiler: The large allocation to individual stocks is far too risky. MORNINGSTAR

This Year-End IRA Mistake Could Cost You Big Bucks

If you’ve got tax-deferred retirement accounts, and you’re age 70½ or older, the clock may be ticking. IRS rules require you to take certain distributions from your 401(k) and IRAs by year end. If you miss the deadline, you will be on the hook for a hefty 50% penalty. The rules can be tricky, so make sure you do it the right way. MONEY

Why Thousands of Seniors Are Hit By a Costly Medicare Mistake

Many older Americans believe they don’t have to sign up for Medicare Part B when they turn 65 because they are covered by COBRA or Obamacare. Unfortunately, that coverage, as well as some types of employer plans, does not qualify for an exemption under Medicare rules. It’s a major stumbling block, and it means that many seniors end up paying hefty enrollment penalties and experience delays in coverage. Be warned. KAISER HEALTH NEWS

Why You May Want to Step Up Charitable Giving This Year

President-elect Donald Trump and Congressional Republicans have talked about tax changes that may result in cutting back deductions for charitable donations. So if you’re planning a major gift to charity, you may want to do it this year. One option worth considering: donor-advised funds, which offer lots of flexibility. CHICAGO TRIBUNE

YOUR RETIREMENT QUESTIONS ANSWERED

How Do the Extra Medicare Premiums for High Earners Work?

Q: I received a letter from the Social Security Administration saying that because my income for 2015 was above the limit of $85,000, I will pay an additional fee of $53.50 per month for Medicare Part B. I then read that this will not be changed even if I have a much lower income for 2016, and that the only way the administration will make a new decision is if I marry, divorce, become a widow, or a few other circumstances. If I am reading this right, then many more seniors may get into this problem also.

A: Medicare beneficiaries whose income exceeds certain thresholds must pay more in monthly premiums for Part B doctor coverage and Part D drug coverage. These income-adjusted premiums apply to single tax filers (and those married filing separately) with incomes of more than $85,000 and married couples filing jointly with incomes of more than $170,000. READ MORE

WORDS OF WISDOM

“Doubt is not a pleasant condition, but certainty is an absurd one.”

–French writer and philosopher Voltaire

 

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