Document 6579895

WSJ 2
SUNDAY, OCTOBER 26, 2014
THE AGGREGATOR
For Social Security Recipients, a 1.7% Raise
Tens of millions of elderly
and disabled Americans will see
a small bump in their government payments next year, another reflection of a sluggish
economic recovery that has kept
inflation low.
The Social Security Administration last week announced a
1.7% annual cost-of-living adjustment for the nearly 64 million
Americans who receive federal
retirement or disability benefits.
The increase would result in
about a $22-a-month increase
for the average retiree. Increases
have been between 1.5% and 1.7%
for three straight years.
The benefit increase in 2015
matches the 1.7% gain in consumer prices in September, compared with a year earlier, according to Labor Department
data also released last week.
The small bump nonetheless
limits the ability of beneficiaries—about one-fifth of the U.S.
population—to step up spending. A majority of people age 65
and older rely on Social Security
benefits for at least half of their
retirement income, according to
AARP, the lobbying group for
older Americans.
—Eric Morath
And Josh Mitchell
The Wall Street Journal
Mortgage Rates Tumble
Interest rates on mortgages
are tumbling again, defying experts who have long predicted
a sustained rise and offering
borrowers a fresh opportunity
to save money.
The average rate on a fixedrate 30-year mortgage fell to
4.03% in the week ended Oct.
17—the lowest level since June
2013—and remained there
through Thursday, according to
mortgage-information website
HSH.com. Rates have hovered
around that level in the intervening days, HSH.com says.
That compares with 4.29%
in mid-September and marks a
sharp decline from the average
rate in the week ended Jan. 3,
when it was 4.63%. Declines of
that magnitude can translate
into tens of thousands of dollars in savings through lower
monthly payments over the
course of a 30-year mortgage—
and potentially even greater
savings on jumbo mortgages.
—AnnaMaria Andriotis
WSJ.com
Home Sales Climb
U.S. home sales reached the
highest level of the year in
September, a sign of halting
progress in the housing market
that could lift the broader
economy.
Sales of previously owned
homes climbed 2.4% to a seasonally adjusted annual rate of
5.17 million in September, the
National Association of Realtors said. Sales had declined
slightly in August.
Economists surveyed by The
Wall Street Journal had expected sales to rise 1% to a
rate of 5.1 million. Home sales
exceeded an annual pace of
seven million at the height of
the last decade’s boom. After
the crash, they hit a low of
3.45 million in mid-2010.
The report suggests the
housing market resumed the
steady climb it began early
this year, after hitting a soft
patch at the end of summer.
Despite the latest progress, the
market continues to underperform. Sales in September were
down 1.7% compared with a
year earlier.
Sales reached a pace of 5.38
million in mid-2013 but lost
momentum amid a rise in interest rates and home prices.
They haven’t reached that pace
this year.
Home prices, meanwhile,
continue to climb. The median
sale price for a home last
month stood at $209,700, up
5.6% from a year earlier.
—J.M. and Jonathan House
WSJ.com
A Rethink on Hedge Funds
Pension-fund
managers
across the U.S. are rethinking
their investments in hedge funds
in the wake of a retreat by the
California Public Employees’ Retirement System.
In San Francisco, the chairman of that city’s pension fund
has put on hold a vote to invest
15% of its assets in hedge funds.
In Austin, Texas, officers responsible for the retirement savings
of city police officers are discussing whether to withdraw all
of their hedge-fund investments.
In Harrisburg, Pa., a prominent
state official asked the systems
that manage money for teachers
and other public workers to reconsider the $7.6 billion parked
in such investments.
The new conversations were
spurred by Calpers, the largest
U.S. public pension fund, which
last month decided to shed its
entire $4 billion in hedge-fund
investments over the next year.
Calpers said the investments
were too small a slice of its
$298 billion portfolio to justify
the time and expense they required.
Hedge funds typically bet on
and against stocks, bonds or
other securities, often using borrowed money, which can amplify
their gains (and their losses).
—Dan Fitzpatrick
The Wall Street Journal
Stable Nonprofit Jobs
The nonprofit sector largely
dodged massive job losses and
weak wage growth experienced
across most of the U.S. during
the recession and first years of
the economic recovery, new Labor Department data show.
The nonprofit field, a crosssection of employment mainly in
industries such as health care,
social assistance, and religious
and civic organizations, added
jobs each year from 2008
through 2012. By contrast, the
broader economy didn’t recover
all the jobs lost during recession
until this year.
Similarly, average pay gains
in the nonprofit field outpaced
gains in the broader private sector. Nonprofit pay increased
more than 16% between 2007
and 2012, while profit-sector
wages advanced almost 12%. The
average weekly wage for a nonprofit worker was $85 higher
than for a private-sector employee in 2012, the most recent
data available. The data exclude
government workers.
—E.M.,
Real Time Economics blog
WSJ.com
Mixed Grades for Big 529s
The largest college-savings
BARRON’S INSIGHT
The Best Days to Buy Airplane Tickets
How the average cost of a domestic and international flight changes by the day:
$1,961
$2,000
1,800
1,600
1,400
International ticket price
Average ticket cost
Lowest price: $1,004
(171 days before departure)
1,200
1,000
800
600
400
Domestic ticket price
$698
Lowest price: $402
(57 days before departure)
Average ticket cost
200
0
300 days
before flight
250
200
150
100
Source: Airlines Reporting Corp
50
0
The Wall Street Journal
FARE GAME | Average price paid for domestic and international round-trip airline tickets
on each day of the week:
SUNDAY
$432
MONDAY
$503
TUESDAY
$497
A good day
Airline sales
The most
to buy. The
typically
expensive day.
average may
kick in. Most
Avoid.
be lower
popular day for
because of
booking.
fewer corporate
bookings.
plans aren’t always the best.
Just two of the 10 largest 529
college-savings plans by assets
received the highest marks in
Morningstar’s annual ratings, released recently. Another three of
the 10 largest plans came in the
second- and third-place categories, graded on their ability to
outperform and to help parents
and other investors meet their
savings goals.
Of the remaining plans, four
WEDNESDAY THURSDAY
$498
Also a good
day to book
because sales
are still active.
FRIDAY
SATURDAY
See
Monday.
The slowest day for
bookings,
but secondcheapest.
$501 $502 $439
People want
to get trips
booked
before the
weekend, but
it’s costly.
received a “neutral” or average
rating, and one was excluded
from the rankings altogether.
The largest plans with
Morningstar’s highest “Gold
Analyst Rating” are Nevada’s
Vanguard 529 College Savings
Plan and the Utah Educational
Savings Plan, which uses mutual funds from both Vanguard
Group and Dimensional Fund
Advisors. (Ascensus College
Savings is the program man-
ager for the Nevada Vanguard
plan. Some plans have separate
investment and program managers.)
That top grade also went to
two smaller plans in Maryland
and Alaska that are managed
by T. Rowe Price Group.
—A.A.,
Total Return blog
WSJ.com
Email: [email protected]
INVESTING BASICS
Western Digital’s Competitive Drives An Opportunity in Benefits Enrollment
BY JACK HOUGH
Western Digital (WDC)
Shares in disk-drive maker
Western Digital (WDC) have
fallen 7.4% over the past month,
versus a 2.4% decline for the
S&P 500 index. Shares of Campbell Soup, meanwhile, have
gained a smidgen. That’s because when markets turn wobbly, investors view pantry companies as havens and technology
as a sector to flee.
It’s time to rethink that logic.
Nervous investors should buy
cheap exposure to big data
rather than pay top dollar for
big soup.
Both companies remained
solidly profitable during the
global financial crisis. But the
disk-drive maker has quadrupled
its profit from precrisis levels,
while the chicken-noodler is still
earning like it’s 2006. Drives are
a growth market, yet the number of hard-drive makers has
shrunk from 10 to three in a decade. Two of them—Western
Digital, followed closely by Seagate Technology (STX)—control
85% of the market, according to
Morningstar. Competition in
food is fierce.
Another thing: Western Digital stock, at a recent $91, goes
for 10.7 times projected earnings
for the next four quarters and
Campbell, 17.3 times.
World-wide data storage is
expected to multiply 10 times
Daily share price
As of Friday, 1 p.m.: $90.83
$110
100
90
80
70
60
50
2013 ’14
Source: WSJ Market Data Group
through 2020, but recent conditions in the storage industry
leave room for improvement. Industry revenue grew just 1% last
year and is projected to remain
flat this year, as companies consider carefully whether to invest
more in local storage systems,
move their data to the cloud, or
both. Demand looks pent up. Enterprise-network assets are the
oldest they’ve been in six years.
Wall Street expects Western
Digital, led by Chief Executive
Stephen Milligan, to increase its
revenue by 1.2%, to $15.3 billion,
and earnings per share by 2.9%,
to $8.33, in its fiscal year ending
June 2015. Early forecasts for
the following two years show
the earnings growth rate quickening to 6.8%, then 8.5%.
Western Digital looks likely to
gain market share in enterprise
drives, thanks to its recent shift
to sealed, helium-filled drives
that help save on electricity.
Over the long term, more storage could move to flash drives,
which use much less power than
magnetic ones. But for now,
flash is far more expensive—the
price gap actually widened last
year. IDC, a market-research
group, predicts 75% of storage
will still be magnetic by 2020.
This month, securities firm
Jefferies initiated coverage of
Western Digital as its top pick in
information-technology hardware. It pointed to a wild card
that could provide 15% upside to
calendar-2015 earnings per
share. China’s regulators approved Western Digital’s 2012
purchase of Hitachi Global Storage Technologies on the condition that the two companies
would be separately run. This
year, Western Digital applied to
China for permission to integrate them, a move that would
cut costs.
Jefferies puts a $9-a-share
value on the possibility. That,
plus 11.5 times its calendar-2015
earnings estimate, leads it to a
price target of $124, some 36%
above where the stock trades.
Jack Hough is a senior editor for
Barron’s. For more stories, see
barrons.com.
TAX TIP
About That Missing Refund Check
BY TOM HERMAN
What ever happened to my
missing federal income-tax refund check?
If you’ve been wondering
about this, a good place to start
your search is by visiting the
Internal Revenue Service website (irs.gov) and clicking on
“Where’s My Refund?”
The IRS says refunds generally are issued within 21 days
after the government receives
your return.
There are many possible explanations for a missing refund
check. For example, the government may have mailed your
check only to have it returned
as undeliverable because of an
incorrect address.
In such cases, the IRS says it
reissues checks once the tax-
payer provides a correct or updated address.
“You can easily avoid an undelivered refund by choosing direct deposit,” an IRS spokesman
says. “Last year, more than
three out of four refund recipients chose direct deposit.”
But the wait can be significantly longer if you are among
the millions of people who have
filed an “amended” federal income-tax return using Form
1040X. That’s the form to use
for fixing errors and omissions
in previously filed returns.
The IRS says it can take “up
to three weeks” from the date
you mailed your amended return for it to arrive in its system. Amended returns must be
mailed. You still can’t file them
electronically.
Then comes additional wait-
ing time for the IRS to process
your amended return. The
wheels of tax justice grind
slowly.
“You can generally expect
your amended return to be processed up to 12 weeks from the
date we receive it,” the IRS
says.
To find out the status of an
amended return, try clicking on
the “Where’s My Amended return” tool on the IRS site. That
has the status of amended returns for the current year and
up to three prior years, the IRS
says.
Send your questions to us at
[email protected]
and include your name, address
and telephone number. Questions
may be edited; we regret that we
cannot answer every letter.
BY CAROLYN T. GEER
Going
through open
enrollment at
work? Be sure
to consider
both your
health and wealth.
The process of choosing a
medical plan and allocating
your money among various
other benefits allows you to
reassess whether you are saving enough for retirement,
and in the right ways.
Experts advise saving at
least 15% of your annual income (including any employer
contributions) for retirement.
And with the array of savings
and reimbursement accounts
on offer, you’ll need to decide
which ones to fund, and in
what order to fund them.
Snag the match: Your first
priority should be to contribute at least enough to your
401(k) to qualify for any employer match. This is true
even if the plan’s investment
choices aren’t the greatest or
if its fees aren’t the cheapest,
says Nicole Mayer, a financial
adviser with RPG Life Transition Specialists.
The vast majority of 401(k)type plans run by Vanguard
Group offer employer-matches,
with a median value of 3% of
pay. More than half of Vanguard-run plans offer Roth
401(k)s, where contributions
are made after tax but distributions can be tax-free. If your
employer offers the Roth feature and you think you’ll be
paying the same or a higher
tax rate in the future, you
should probably choose the
Roth, says Stuart Ritter, a senior financial planner at T.
Rowe Price. The more years
you have until retirement, the
stronger the case for the Roth.
One exception is if you are
aged 50 or over and expect
your income to fall significantly in retirement, he says.
In that case you, should probably stick with a traditional
401(k), where contributions are
made pretax and distributions
are taxed as ordinary income.
If you aren’t comfortable
predicting your future tax rate,
hedge your bets and put some
money in both. But pick something. The most important
thing at this stage of the game
is to snag the match.
Make a triple play: For
Nathalie Dion
many people, the next order
of business should be to fund
a health savings account, or
HSA, if one is available, says
Mr. Ritter. This is a triple-taxadvantaged medical reimbursement account. Contributions reduce your taxable
income, money in the account
grows tax-deferred, and distributions for qualified healthcare expenses are tax-free.
Your contributions, plus
any from your employer—employers put on average $600
per employee into HSAs—can
total up to $3,350 (for individuals) or $6,650 (for families)
in 2015. If you’re 55 or older
(and not yet enrolled in Medicare) you can put in an additional $1,000. If you can pay
some out-of-pocket medical
expenses with other funds,
you can effectively turn the
account into a medical IRA.
Money not spent in one year
can be rolled over to the next,
and you can take your account
with you if you change jobs or
retire. If you don’t need the
money for medical care in retirement, you can spend it on
anything you like, paying only
regular income tax on the distributions. (Before age 65 you’d
typically owe income tax and a
20% penalty on distributions
used for nonmedical expenses.)
To participate in an HSA,
you must be enrolled in a
health plan with an annual deductible of at least $1,300 (for
individual coverage) or $2,600
(for family coverage) for 2015.
For a growing number of
employees, a high-deductible
plan coupled with an HSA—
sometimes called an “accountbased” or “consumer-directed”
plan—will be their only healthplan option in 2015. Others
with a choice of plans will need
to decide whether the accountbased variety is right for them.
A few guidelines: Accountbased plans often work well
for those with scant medical
expenses, but in some cases
their premiums are low
enough—and the tax benefits
of HSAs high enough—that
even someone who spends a
lot on health care should consider them. Most states follow the federal tax treatment
of HSAs. Some plans allow
you to invest in stocks and
bonds.
Top off retirement plans:
Next, continue funding your
401(k). The limit on employee
contributions will rise to
$18,000 for 2015, up from
$17,500 this year. The additional, “catch-up” contribution
for those aged 50 and up will
increase to $6,000 in 2015
from $5,500 this year.
If you don’t have a Roth
401(k) option, or if you don’t
like your employer’s plan, consider funding an IRA first if
you’re eligible. But keep in
mind: You can’t contribute as
much to an IRA. The combined
traditional and Roth IRA contribution limit will stay the
same in 2015: $5,500, plus
$1,000 for those 50 and up.
[email protected]