US poised to become world's only superpower

 

Published: Wednesday, 12 Mar 2014 | 1:26 PM ET

By: Ron Insana

The U.S. is poised to become the sole economic superpower in the world.
I call it "Fortress America."

I've been traveling around the U.S. for the past 18 months and have noticed enormous changes. They're not driven by the Federal Reserve's easy money policies, although many of the positive changes taking place in energy, manufacturing, technology and retail sales could not have happened if the Fed, namely Ben Bernanke, had not saved the economy from another Great Depression.

Getty Images

A gas flare is seen at an oil well site on July 26, 2013 outside Williston, North Dakota.

I was happy to find, on Sunday, as I moderated a panel of top performing hedge-fund managers that, they too, see good things for the U.S. in the years ahead.

I base my outlook on four legs of an economic stool:

* The energy revolution
* A manufacturing renaissance here at home
* Rapid technological innovation
* A major recovery in residential real estate

Many of these factors are beginning to get the appropriate recognition for their contribution to a more durable, sturdy and long-lasting economic expansion, which, I believe, will also be supported by a secular bull market in U.S. stocks.

I believe the current period to be analogous to 1949 to 1968, when the U.S. was winding down government spending in the post-World War II environment … one in which the government got smaller, but the private sector, ripe, and rife, with new innovations, pent-up consumer demand and manufacturing excellence drove the economy into a pre-eminent position in the world economy.
In both relative, and absolute terms, the U.S. economy is gaining supremacy in its competitive, and comparative, economic advantages.

The energy revolution is making the U.S. economy energy self-sufficient and bringing down the cost of manufacturing so much that U.S. companies are bringing jobs back home and enticing foreign firms, particularly, auto, chemical and petrochemical companies to come here to benefit from cheaper energy costs and a more competitive, flexible and educated American work force.
The U.S. is now the largest producer of natural gas in the world, thanks to fracking and horizontal drilling technologies.

In 2020, the U.S. is projected to overtake Saudi Arabia and Russia as the world's largest producer of crude oil and will likely be a net exporter of both crude and refined energy products, turning our current trade and balance of payments deficits into surpluses. (The situation in Ukraine will likely hasten approval of new licenses to export liquified natural gas (LNG) and even crude oil itself.)
Over 600,000 jobs have been created in the sector, with many more to come.
For the first time in over six decades, the U.S. is a net exporter of refined energy products already.

That energy revolution, the nation's second in about 150 years, is leading to radical changes in the manufacturing platform that globalization gutted in the last 40 years.
With 3.8 million open jobs in the U.S., many in advanced manufacturing, the U.S. middle class may be re-built, as high-paying, high value-added jobs are there for the taking, especially for those worker who have the requisite software and robotics training necessary on today's factory floor.

3-D printing is revolutionizing manufacturing and health care, changes that will lead to be a better economic quality of life and longer and better lives for the average American who, some experts say, will also benefit from lower healthcare costs, thanks to the benefit of technological advances.
The recovery in real estate, though it slowed recently, will re-accelerate as millennials form households and start their own families. True, we may never see a real-estate boom like the one we witnessed in the last decade. But, like the baby-boom period, we may also see a steady and prolonged bull market in real estate as the 100-million strong cohort takes its place as a drive of economic growth in the decades ahead.

I was quite heartened to hear that four top hedge fund managers, that I spoke with over the weekend (event and manager names withheld since it was a private event), largely agreed that the U.S. remains the best place in the world in which to invest, even if you would like overseas exposure.
U.S. multinationals are best poised to profit from overseas growth. Brazil, Russia, India and China will continue to disappoint investors, they say, while emerging markets, from Turkey to Thailand and from Australia to Argentina, have too many troubles to be good investments, for now.

True, U.S. stocks could suffer a meaningful 10 to 20 percent correction this year, amid geopolitical turmoil, shifting monetary policy in the U.S., UK and elsewhere, and simply take a break after a 170-percent advance after a five year bull-run, the pullback, they say will offer a significant buying opportunity to benefit from the next leg in a secular bull market.

Glad to know I am not alone in my thinking. For those asking, "what do I do now," if I missed the big rally so far? Get your pencils out, pick the stocks you like and buy 'em when their down, but in this scenario, they are certainly not out!

— By Ron Insana
Ron Insana is a CNBC and MSNBC contributor and the author of four books on Wall Street. He also delivers a daily podcast, "Insana Insights," and a long-form weekly version, both available on iTunes and at roninsana.com. Follow him on Twitter @rinsana.

The millennials' rut: Why it costs all of us

Published: Saturday, 22 Feb 2014 | 9:00 AM ET

By: Nia Hamm, special to CNBC.com

Steve Debenport | E+ | Getty Images

 

They're called the "invincibles" and the "lost generation." Today's young American adults have had to endure one of the worst recessions in 70 years and then watch as their futures seemingly evaporate before them.


Many are educated, stuck in dead-end jobs or unemployed, living with their parents and seeking government assistance.

"If these persons are not quickly reconnected with the economy and the workforce, we are truly looking at a lost generation in terms of upward mobility and productivity," said Joe Minarik, director of research for the Committee for Economic Development, a nonprofit, public policy research group.

A recent report by the Federal Reserve Bank of New York sheds some light on just how severe the jobs crisis is for young adults.


Using Census data, the researchers found that the percentage of unemployed young adults—currently about twice the national average—and those who are underemployed or working in jobs that don't require the degrees they hold, has risen steadily since the 2001 recession.
Research indicates that through 2012, about 44 percent of young, working college graduates were underemployed and the quality of jobs held by those underemployed has declined, with today's recent graduates increasingly accepting low wage jobs or part-time work, sometimes pushing other low-skilled workers out of the labor market.


What it costs
 
The youth jobs crisis is costing the U.S. economy and may continue to do so for years, further hindering this generation's ability to contribute to economic growth.

One report from a youth advocacy group called the Young Invincibles, measuring only lowered tax revenue and safety net costs, found that high unemployment among millennials, ages 18-34, costs the U.S. more than $25 billion annually. And jobless rates for millennials have been in double digits for nearly six years with the youngest among them, ages 16-24, experiencing the highest rate at 15 percent.

Other studies put the cost of youth unemployment at several hundred million dollars a year. Experts say this trend could undo many gains of the economic recovery.

"At a time of tight budgets when we're already trying to recover from the recession and invest in things like education, … having so many people out of work, we're really shooting ourselves in the foot here," said Rory O'Sullivan, Young Invincibles' policy director and chief author of the report.

To be fair, higher unemployment and underemployment for young workers isn't unusual as they generally have a tougher time in the labor market because they're the least connected to the workforce. But some economists believe this is more than a cyclical labor trend.

Recent figures suggest there has been a reversal in demand for cognitive skills. A report published by the National Bureau of Economic Research found that since 2000, businesses have needed fewer people to perform high-tech jobs that initially drove the information economy.

Hiring of college graduates sank after the information technology revolution of the 1990s reached maturity, according to the report. Demand for cognitive skills subsequently fell during the first decade of the 2000s, forcing college graduates farther down the occupational ladder.

"The demand for this group is slowly going down, but we're also educating still more people, and so that makes the situation very difficult when you don't have a lot of demand," said Paul Beaudry, co-author of the report.

Ph.D.s and food stamps
 
Nobody knows that situation better than 30-year-old Rachel Bolden-Kramer, who graduated from Harvard in 2006 with a major in social studies. After graduating, she started a nonprofit but lost funding within a year. She attempted to enter the labor market, but like many of her peers she did not have much luck.

Bolden-Kramer eventually became a yoga and a so-called mindfulness instructor, moved to New York City and has been self-employed ever since.

"That's kind of what kept me out of searching for jobs and continuing with the entrepreneur track. I didn't feel very encouraged by what other people, my peers, were finding with jobs. It didn't seem like they were getting much more of an advantage financially even if they found a job."

To make ends meet, Bolden-Kramer used food stamps. This experience inspired her to write what she calls a "food stamp cook book" that explains how to have a nutritious diet on a limited income. She is trying to get it published.


"I have friends who are Ph.D. candidates that are food stamps eligible," she said, "or in medical school, or whatever it is, or just like brilliant 28-year-olds who are living in New York (where) rent is so high."


Don't blame it all on the recession


Contrary to popular belief, the data show that the jobs crisis cannot simply be ascribed to the Great Recession.

(Read more: A record 21.6 million millennials live with Mom and Dad)

This presents a bleak outlook for this group of young workers who, according to economists, are already more likely to see permanent negative effects on their wages because they began their careers in a weak labor market.


"Once the larger economy is fully recovered from the after-effects of the Great Recession, this cohort will still be feeling the effects because the effects of entering the labor market during a downturn are severe and last a long time," said Heidi Shierholz, an economist for the Economic Policy Institute.
And it may be too late to reverse some of the policy and fiscal impacts of the jobs crisis for America's youth.


Recession-impacted millennials tend to believe that success in life was more a matter of luck than hard work, according to a study from UCLA Anderson School of Management economist Paola Giuliano and International Monetary Fund advisor Antonio Spilimbergo.
"This can make them less entrepreneurial," Giuliano said. "Perhaps as a result of believing that luck is important, they also want more government intervention in the economy."

(Read more: Millennials' ball and chain: Student loan debt)

College still does matter
 
This doesn't mean college students should just drop out of school and graduates should burn their degrees.

New York Fed researchers also found that while the labor market is much worse for young people who do not have a college degree, college graduates as a whole fare the best, experiencing unemployment rates at about half the rate of all workers, though unemployment was consistently higher for recent graduates, ages 22-27.

Certain majors, especially those in fields providing technical training such as engineering or math and computers or those geared toward growing parts of the economy such as education and health, have also done relatively well.


That, however, does not account for the huge remainder of young adults in other fields with bleak prospects and mounds of debt, which economists believe could be a huge drag on the economy for years to come.

—By Nia Hamm, special to CNBC.com.

40-plus? It's not too late to start saving

Published: Tuesday, 11 Feb 2014 | 8:00 AM ET

By: Shelly K. Schwartz, Special to CNBC.com

You're 40 and you wear it well. Career-wise you're right on track. You no longer seek others' approval. And you finally figured out how to get your kids to soccer practice and guitar lessons at 6 p.m. on Wednesday night—in two different towns.

Now, about that nest egg.

From a retirement-planning perspective, this is the decade where the rubber meets the road.
Those who started socking money away sooner are best positioned to meet their long-term goals, of course, but there's still plenty of time to shore up your savings if you've been hitting the snooze button on your 401(k) plan for the last 20 years.
"For a lot of people, their 40th birthday is when they start thinking about their financial future in earnest," said Gregory Olsen, a certified financial planner and partner with Lenox Advisors, noting 40-somethings often have the insight and maturity to project with greater accuracy their future income needs.

That figure, which differs for everyone, will depend on when you plan to retire, your projected life expectancy and whether you envision a low-budget retirement or one that includes trips to Europe and drinks at the club.

The Social Security Administration's life expectancy calculator offers general guidance on how long you may live, but you'll need to adjust the result to reflect your own health and family health risks.

When estimating your monthly expenses in retirement, factor in food, housing, transportation (car loan, gas and maintenance) and health care. (Remember, your home may be paid off by then and you'll no longer have to shell out for work-related expenses, but your health-care costs and travel budget will likely be higher.)

Next, determine how much, based on current projections, you'll be getting from guaranteed sources of income, including Social Security, trust funds (for the lucky few) and any pensions you may receive. Here again, you can estimate your future benefits on the Social Security Administration's website.


The difference between what you'll likely spend and how much you'll have in guaranteed income is the amount you need to save to maintain your standard of living, using tax-deferred retirement plans and taxable brokerage accounts.

Save up, stay healthy

Most financial planners recommend long-term savers sock 15 percent of their income away annually, maxing out tax-deferred 401(k)s and traditional IRAs first and then funneling extra savings into a Roth IRA.

A Roth IRA is funded with after-tax dollars, so you can't deduct your contributions. However, the earnings grow tax-free, and you won't need to begin a required minimum distribution at age 70½—or ever—allowing those dollars to continue generating compounded returns. That is one of the benefits of a Roth IRA vs. a standard IRA.

Married couples with a modified adjusted gross income of less than $181,000 can contribute the full $5,500 in 2014. Contribution limits kick in for those earning more.

However, if braces and car repairs make it hard to save as much as you should, don't panic, says Bob Adams, a certified financial planner with Armstrong Retirement Planning.
Simply direct new sources of income to your savings going forward and make a conscious decision to moderate your discretionary expenses starting today.
 

"If you should receive employment bonuses, stock option proceeds, inheritances or other unexpected money, think very seriously about applying it first toward your larger savings goals." -Bob Adams, certified financial planner, Armstrong Retirement Planning

"If you should receive employment bonuses, stock option proceeds, inheritances or other unexpected money, think very seriously about applying it first toward your larger savings goals and not a new car, new bathroom or European vacation," Adams said. "These one-time windfalls can significantly jump-start your savings program."

You can improve your financial prospects greatly, as well, by keeping yourself healthy, said Olsen at Lenox Advisors.

"If you can't save more today, you can at least minimize future expenses by taking better care of yourself," he said. "Lose weight, quit smoking and exercise often, because one of the biggest expenses in retirement is health-care costs."


Indeed, Fidelity Investments, which tracks retiree health-care costs, estimates that a 65-year-old couple retiring this year would need $240,000 to cover future medical costs—not including the cost of long-term care or any additional costs they might incur by opting for an early retirement before Medicare kicks in.
Expenses are higher still for those with chronic conditions like heart disease, diabetes and obesity.

Invest in yourself

During your 40s, don't forget to invest in yourself, said Matt Saneholtz, a certified financial planner and chartered financial analyst with Tobias Financial Advisors.

"Your highest income-earning years are usually still ahead of you into your 50s, so keep investing in your human capital," he said. "Keep learning, utilize your employer's training programs, take classes and stay on the cutting edge, because who knows what's going to happen with the job market."
One of the biggest pitfalls to retirement planning, he noted, is losing your job and being unemployed for a year or more—which not only impacts the amount you're able to save but may force your family to drain your retirement savings.

The other pitfall is being underinsured, Saneholtz said. If death or disaster strike, be sure your family—and your hard-earned nest egg—is protected with adequate health, life, auto and homeowner's coverage.

Other tips to ensure you don't outlive your savings down the road include maintaining an aggressive but diversified portfolio that consists of anywhere from 75 percent to 100 percent stocks, with any remaining percentage allocated to cash and bonds.
With a time horizon of 20 to 30 years before you retire, said Lenox Advisors' Olsen, you'll need that level of risk to grow your principal and offset the corrosive effects of inflation.
"Don't stress over how much you haven't saved," he said. "Get the facts in front of you, take your head out of the sand, and do the best you can with the time you have."

—By Shelly K. Schwartz, Special to CNBC.com

After 50, growing a nest egg gets easier

After 50, growing a nest egg gets easier

Published: Thursday, 20 Feb 2014 | 8:00 AM ET

 

By: Shelly K. Schwartz, Special to CNBC.com

Sharon Epperson and members of CNBC's Financial Advisors Council on how to turbo charge your savings in the years before retirement.

So you're 50. It's a lot better than you feared. It's better still if you're ready to get serious about your retirement savings.

Indeed, pre-retirees are often positioned to fund their nest eggs as never before.

Why? One or more of your kids may be out of the house, which frees up disposable income; your take-home pay may be at its peak; and you're now eligible to supersize your savings with higher tax-deferred contribution limits.
"There's a lot you can do in your 50s to build up that war chest," said Christopher Olsen, a certified financial planner with Ameriprise Platinum Financial Services.


The IRS allows those over age 50 to make additional catch-up contributions of $5,500 to their 401(k), 403(b), SARSEP or governmental 457(b), above and beyond the $17,500 annual limit for all taxpayers. Married couples who filed jointly and are both over age 50 may put a combined $11,000 extra into their accounts.

Those with a traditional IRA may contribute an extra $1,000 ($2,000 for married filers) beyond the standard $5,500 annual limit ($11,000 for married filers), but you may not be able to deduct all of your contribution if you also participate in a retirement plan at work.
Additionally, those with a SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account) or SIMPLE 401(k) plan may contribute an extra $2,500 per year. Married filers over age 50 may contribute an extra $5,000.

Courtney Keating | E+ | Getty Images

 

Higher tax bracket, bigger benefit

"If you're married and you and your spouse both make catch-up contributions to your 401(k)s or IRAs, you can save a good chunk of money," Olsen said.
For example, assuming you start catch-up contributions to your 401(k) at age 50, with an 8 percent annual rate of return, you would have amassed a savings of $667,661 by age 65. By comparison, if you make only the standard $17,500 contribution per year starting at age 50, you would have $508,003—about $160,000 less.

Another upside to being 50 and at the top of your earnings game is that your contributions to a tax-deferred account will likely benefit you more now than they did when you were 20, says certified financial planner Ken Waltzer, founder and president of Kenfield Capital Strategies.


"Many of my clients in their 50s are in the highest tax rate, which makes retirement saving even more attractive," he said, noting independent contractors and small-business owners can significantly reduce their taxable income.

Self-employed individuals and small-business owners over age 50, for example, who defer the maximum $57,500 per year to their Solo 401(k) ($17,500 in employee contributions, $5,500 for catch-up contributions, and $34,500 in employer contributions) can save $20,125 in federal taxes, he said.

Sidestepping landmines

When you reach your 50s, of course, there are plenty of financial landmines that could put a dent in your savings as well.

You may, for example, find yourself part of the "sandwich generation," providing often costly care to aging parents while still supporting your children.
A recent MetLife study found the proportion of adult children providing personal care and/or financial assistance to a parent has more than tripled over the past 15 years, with a quarter of adult children, mainly baby boomers, providing care to a parent.


For those age 50 and older who leave the labor force early to care for an aging parent, the cost of providing that care averages $303,880 when you factor in lost wages, lost Social Security benefits and the negative impact on pensions, according to the study.
That's some serious coin.

Thus, it's important to talk openly with your parents about their financial position and plans for the future, said Matthew Saneholtz, a certified financial planner with Tobias Financial Advisors.

"You don't want to put too much weight in any inheritance you expect to receive. Anything can happen." -Matthew Saneholtz, certified financial planner, Tobias Financial Advisors

"Be sure your parents have an estate plan in place and long-term care coverage, or at least a picture of their final stages of life, because it might affect you," he said. "If you know your parents don't have the money to pay for care on their own, are you willing to use your own savings to help them? Will they rely on Medicaid? Will you take care of them in your own home? These are questions you need to think about, as they could become your dependents."
On the other end of the spectrum, a frank financial discussion with your parents is equally important if you expect to receive an inheritance, Saneholtz said.


They may share details about the estate they plan to leave behind, including gifts to charity, which will impact you. Just be sure you continue to save for yourself.
"You don't want to put too much weight in any inheritance you expect to receive," Saneholtz said. "Anything can happen. There are so many different variables, and documents can be changed at the last minute."

Sticker shock: Your investment fees are more than you think

 Published: Thursday, 16 Jan 2014 | 7:00 AM ET

 

By: Elizabeth MacBride, Special to CNBC.com

When investors come to FutureAdvisor, an online financial advisor that offers a free fee-evaluation service, their biggest surprise is not how much they're paying in fees—it's that they're paying fees at all.
Despite decades of work by regulators pushing greater disclosure of fees on mutual funds, most investors remain blissfully unaware that they are paying hundreds, if not more than $1,000, in investment fees each year.

"People think because there's not a number, like the one above the button on Amazon.com, that they're not paying anything," said FutureAdvisor CEO Bo Lu. "Just because it's not above the button doesn't mean you're not paying it."


A typical American fund-holding household, with $120,000 in mutual fund assets, paid $873 annually in ongoing fees for its mutual funds in 2012, the latest year available, based on an analysis by Lipper.

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That doesn't include sales charges or other fees, which could amount to several hundred dollars more a year. Front- and back-end commissions and fees can each be as high as 4.75 percent and 5 percent, respectively, Lu said.

The average ongoing fees paid by the typical household have dropped since 2000, but that is mostly due to the adoption of passive index-based funds. The fees paid by investors in actively managed mutual funds dropped slightly between 2000 and 2012, falling from .99 percent basis points to .82 percent, according to Lipper. A different analysis of fees on actively managed funds published by Princeton University economist and Wealthfront chief investment officer Burt Malkiel last spring showed that fees on actively managed mutual funds rose by about one-third between 1980 and 2010, to .90 percent from .66 percent.


Don't fall into the trap of thinking the dollars are small because the percentages are, and don't count on a fund company, financial advisor or broker to be up front with you about fees, said Barbara Roper, head of investor protection for the Consumer Federation of America, pointing out that investors usually receive their prospectuses after they buy.
"If you want people to focus on fees, you would provide that information before they buy and in a form that they can easily understand. That's not done," Roper said.
So how do you cut your fees?

Stocknshares | E+ | Getty Images

 

• Become aware of the size of your fee burden. After a year like 2013, in which the S&P returned 30 percent, it's easy to get complacent. A rising market lifts all boats, but the boats that win the race have the lightest weights. You can't control the market, but you can control your fees. Assuming the typical investor had invested that $876 every year instead of paying it to the investment company, he or she would have had an additional $80,000 in her portfolio after 30 years, assuming a 6 percent average return.

• Think of your fees in dollars, not percentages. "There is all kinds of behavioral economics research that shows people tend to think a figure quoted in dollar figures is larger: $100 is more than 1 percent, even when they are the same," Roper said. Think about how much time you put into considering the costs of a purchase like a washing machine, dryer or refrigerator—those are purchases made once a decade or so. You spend that much on your investment fees every year.

• Comparison shop. Just as you might buy a washing machine from a discount store, one way to consider your fees is to consider whether you can get the same service for a cheaper price. For instance, in 2012 active and passive investors earned almost the same: 14.42 percent for investors in passive funds, on an asset-weighted basis, and 13.10 percent for investors in active funds. But the Lipper analysis showed that active investors paid $985 for their returns, and the passive investors paid only $216—less than a quarter of the price.

Don't think you're special. You may not see the fees you're being charged show up as a line item on your quarterly or annual statements, but that doesn't mean they're not there. The fees included in your expense ratio are taken right off the top of your returns before they're even reported to you. Other fees aren't included in your expense ratio; they fall under the category of commissions or under no category at all. Those fees are often deducted in the few days between the time you send the fund company your money and the time it shows up in your account. "When people see that their account is a few hundred dollars less than their deposit, they assume it's market movement," Lu said.


• Ask which fees you're being charged and when they are being applied. If you have a financial advisor, he or she should be able to tell you. In addition to the expense ratio and commissions, you should ask about transaction fees, redemption fees (for when you cash out the fund) and other fees, such as fees for research, legal transfers, custodial fees and fiduciary fees—or even a purchase fee, separate from your sales commission or load. Tip: Ask which fees are included in your annual expense ratio and which are not.

Also find out if your fund charges 12b-1 fees, which are marketing fees charged by the fund to the client and then paid out to the advisor or broker who sells the fund. The SEC imposes no limits on the size of those marketing fees.

You could, of course, read your prospectus, where you'd find the fees mentioned, too. But the dense document written in legalese is often hard to weed through. "The design of a prospectus is perfectly matched to the desire of someone to read it," said Charles Ellis, the author of "Winning the Loser's Game" and an investor advocate who is an advisor to low-fee online advisors, including Rebalance IRA and Wealthfront, both based in Palo Alto, Calif.

The bottom line: Do your homework.

—By Elizabeth MacBride, Special to CNBC.com

US no longer among top 10 for economic freedom

 

 Published: Monday, 13 Jan 2014 | 10:00 PM ET

 

By: Ansuya Harjani | Writer, CNBC Asia

The world's freest economy is...

Ed Feulner, Founder and Chairman of the Asian Studies Center, The Heritage Foundation, explains why Hong Kong took this year's top spot as the most freest economy.

The United States is no longer among the world's top 10 nations in terms of economic freedom, according to a newly published index.
The world's largest economy slipped two notches into the 12th position in the 2014 Index of Economic Freedom by think tank Heritage Foundation and the Wall Street Journal, released Tuesday, registering its seventh consecutive decline.
The index evaluates countries in four broad areas: rule of law; regulatory efficiency; limited government; and open markets.


"The overall economic policy direction of the United States in recent years has involved substantial growth in the size and scope of government, accelerating the erosion of economic freedom and contributing directly to America's fall from the top 10 freest economies," a report accompanying the index said.

Dario Cantatore | Getty Images Entertainment | Getty Images

 

"The absence of meaningful fiscal reform has weakened the government's balance sheet and led to the explosive growth of government debt. The increasing cronyism that has accompanied the growth of government has undermined the rule of law, further eroding America's economic freedom," it added.
In addition, costly regulations in areas like finance, health care and the environment have curtailed economic freedom in the country, which is at its second lowest level in the 20-year history of the Index.
"These have injected uncertainty into business decision-making that has slowed job creation and hiring and hurt economic recovery and growth," the report said.

The world's freest economy is...

While the U.S.'s economic freedom is deteriorating, the global trend is more positive, with much of the momentum lost during the past five years being regained.
The world average score of 60.3 is seven-tenths of a point above the 2013 average, and the highest average in the two-decade history of the Index.
Asian financial capital Hong Kong maintained its title as the world's freest economy for the twentieth consecutive year.


"Creation of a new company, the level of taxation, the ability of the lowest quintile to rise up, is better in Hong Kong than anywhere else," Ed Feulner, founder and chairman of the Asian Studies Center, The Heritage Foundation told CNBC Asia's Squawk Box.

What Hong Kong's chief executive needs to address

 

Ahead of Hong Kong's annual policy address, Anthony Nightingale, Director of Jardine Matheson Holdings, lists out issues that the government needs to tackle.

Meantime, Singapore, Australia, Switzerland, New Zealand and Canada placed in second through sixth place, respectively. The world's most-improved country is Burma thanks to improvements in its investment, business and labor freedom scores.

Finally, and not surprisingly, the hermit kingdom, North Korea has retained its position as the least free economy.

"North Korea may be attempting to open its economy slightly by encouraging limited foreign direct investment, but the dominant military establishment and ongoing leadership transition make any near-term substantial changes unlikely. Normal foreign trade is minimal, with China and South Korea being the most important trading partners," the report said.

—By CNBC's Ansuya Harjani. Follow her on Twitter:

@Ansuya_H

Retirement reality check: Time to get a grip

Published: Tuesday, 7 Jan 2014 | 7:00 AM ET

 

By: Jerry Lynch | President of JFL Total Wealth Management

Most of the time, right before you retire, you are at the highest discretionary income in your life. The kids had left the house (hopefully), you may have two incomes coming in, and you are having a lot of fun. Dinners out with friends, vacations, nice cars … life is grand! You cannot wait until you are retired and you can do this full time. So finally you pull the ripcord, fully retire, and plan on having the time of your life…until you meet with me (or someone like me) and you get the bad news. There is no way that you can continue to spend at the level that you are, and not run out of money! WHAT?? I want to get a new planner! Trust me, changing the planner will not help, you need to change the plan. 

 

After the original conversation sinks in, most people come to realize that they really need to plan for this (you think???) and get a handle on what they can spend. So, the question becomes: How can we make this happen and have fun?
Retirement and your income in retirement is all about choices and every decision has a ripple effect. It is about what you are willing to compromise on to make the master plan work.

Here are a few ideas to make this work:

Andy Ryan | FoodPix | Getty Images

 

Expenses. We need to start with what you are spending on a regular basis and break it out three ways. First, the necessities (shelter, medical expenses, electric, gas, insurance) and then, the wants and the wish list. After the expenses are divided, I give them a weighting of 1-10. Tens are must have, and ones are on the wish list. Also, we need to consider inflation.

Income. What do you have coming in, reasonably, from your investments, Social Security, pensions, etc.? Generally, withdrawal rates on investment accounts are around 4 percent or lower, depending on the ages. Add this to any pension and Social Security benefit and that is all we have to work with.


Compare the two. If expenses are below income, go back to the beach and enjoy your margarita! If expenses are above income, then we have some work to do. First let's see what the difference is as that is the number (minimum) that we need to cut. Let's get to it.
So, we have divided our expenses into needs, wants and the wish list. It still may be possible to accomplish everything but we are going to need to get creative. Let's start with the needs.

The needs list

I would assume that with rankings close to 10 included housing, auto expenses and medical. Let's just focus on this and remember, it is all about choices.

Housing. The bigger the number, the more we see if we can shrink it. Many people want to stay in the home that they lived in forever, but in most cases, that is not realistic! The home may be paid off however, depending on where you live, the property taxes can still be quite substantial. The property may be much larger they you need or it may be a two-story and guess what? At some point, you will need a one-story as you get much older. Oh yeah, you are the only retired person on the block and all of your friends have moved away. This may be a perfect time to rethink where you need to be in the next 10-20 years, incorporate it into the plan, and reduce your expenses.

Auto. Yeah, a sports car or a luxury sedan are impressive and very nice, however they are expensive. You need a car but not necessarily a car that costs you $1,000 per month plus insurance. Maybe you can bring it down a little and either get a certified pre-owned, hold the cars for longer time periods, or just get less expensive cars.

Everything on this list is necessary, however is it necessary at the level you are currently spending at? It is important to realize that even the "needs" are negotiable, and that dollars saved means that we have more flexibility in other areas.

The wants

This may include vacations, helping the kids with money, country clubs, etc. The key here is to develop a "reasonable range" so we can know what we would like to have, and what is the bare minimum that we can accept. Few examples.

Vacations. So, maybe we would like to do three vacations per year for a total of $10,000 per year. Is it possible to reduce that maybe to two per year? That would save you $3,333 per year. If three is a must, can we cut the cost? Maybe we can visit friends that we have not seen and stay with them. What are other creative ways we can cut this expense?

Country clubs. I have never met anyone who belonged to a country club that said it was financially better for them to be a member then to go to public courses! It is more a lifestyle decision. Let's think about alternatives that may work and help save money.

Kids. I have never met a financially successful person that was "on the dole" from their parents. Generally you end up subsidizing your kid's lifestyle and then never make the tough decisions that they need to succeed. Subsidizing your kids in retirement is a sure way to go broke — then everyone goes down.

The wishes

This may be called the "Bucket list." Generally, they are more expensive items that would be terrific to do, the key is seeing if it works in your plan.
So, let's assume that you prioritized, cut, retooled and still the numbers do not work, what do you do then? Simple. You do not retire or, at least, you figure out a plan B.
Plan B may include:

Push back retirement a few years until the numbers do make sense. Let's say you need $50,000 annually to live. Pushing off three years saves $150,000, which invested at 7 percent for 20 years, gives you an additional $580,000 at the back end of your plan. That's a lot more than just $50,000 a year!

Part-time work. if you only earn $20,000 annually, that may be able to pay for those vacations or extra treats that you want in retirement.

Push back Social Security. Every year you wait, your benefit increases by 8 percent, and almost doubles from age 62 to age 70. Get 65 out of your mind as it is not realistic for most of the U.S. population. It is incredibly difficult to be retired from 65 to 85, which is around average life expectancy, and not run out of money. Don't gets sucked into the "I'm a failure if I do not retire at age 65" trap.

Everyone wants to be retired, have fun, go on great vacations, and spend money on the kids. Every decision that you make in life and especially in retirement has a ripple effect. It is better to push back retirement a few years when you are you (even if you hate it), than to run out of money in your 80s. A solid retirement income and expense plan means that you can still have fun, but just with a realistic budget! Retirement income and expenses are about choices. Knowing your numbers and what you are willing to compromise on will give you the ability to enjoy your retirement and not have to worry about money.

— By Jerry Lynch

Get a tax deduction for charitable giving

By Kay Bell • Bankrate.com

Each year as Dec. 31 draws near, Americans are bombarded by requests for donations. Many answer those solicitations, happily giving to their favorite charities.
This year-end generosity also might pay off at tax time, as long as you know and follow the Internal Revenue Service's rules on tax deductions for donations.

Itemizing required

You can give thousands of dollars, but if you claim the standard deduction amount on your tax return, your charitable gifts will do you no tax good. You must itemize expenses on Schedule A to deduct charitable donations.
The good thing about donations is that, in most cases, there is no limit on how much you can deduct.

Timing is everything

Donations must be made by the end of the tax year for which you want to claim the deduction. If you put a check dated Dec. 31 in the mail by that day, you're OK. So are donations charged by year's end to your credit card, even if you don't pay the card's bill until the next year.

Check out the charity

Only contributions to IRS-qualified charities are deductible. This means the group meets Uncle Sam's requirements to be classified as a tax-exempt organization. You've probably heard this referred to as 501(c)(3) status, so-called because that is the section of the Internal Revenue Code that governs such groups.
Ask the charity to which you plan to give for information on its tax status. Reputable nonprofits will be more than happy to offer proof.
You also can check out groups via various online databases, such as GuideStar and Charity Navigator, as well as by using the IRS' own online searchable database of exempt organizations.

Know your limits

Remember that phrase "in most cases, there is no limit on how much you can deduct" mentioned earlier in connection with itemizing? That applies to most people, but for some very generous folks, there are limits on tax deductions for donations.
Most public charities are known as 50 percent organizations. They get this name because donors' deductions are limited to 50 percent of their adjusted gross income. For example, if your adjusted income is $50,000 and you give $30,000 to a qualifying nonprofit, you can't claim your full charitable gift in the tax year in which you give. You can only claim up to $25,000.

However, the other $5,000 isn't lost. You can claim the excess donation amount on your next year's tax return. You have up to five years of "rollovers" to claim the full charitable gift.
Most of us won't have to worry about this limit, but in case you come into some unexpected cash and want to share it with a charity, take into account the deduction limit.
There also are 20 percent and 30 percent donation deduction limits for specific gifts and the groups -- typically private charities -- that receive them. These rules are more complicated, so you should talk to a tax professional if you're planning a gift that falls into this category.
Also, beginning with 2013 tax returns, higher-income taxpayers might not get the full benefit of their total itemized deductions, including charitable gifts. The Schedule A total is reduced for taxpayers who make more than $150,000 if married filing separately, $250,000 if single or $300,000 if married filing jointly or as a qualifying widow or widower.

Read more: http://www.bankrate.com/finance/taxes/get-a-tax-deduction-for-charitable-giving-1.aspx#ixzz2pSXeB8td