In an effort to cut the trade gap and negotiate a more favorable trade agreement with China, President Trump recently announced tariffs of
25 percent on steel and 10 percent on aluminum. This means that the cost of purchasing these items from abroad will increase.
This will ostensibly help American steel and aluminum companies become more profitable because their competition will need to raise their prices to cover the cost of the tariff. However, this means that all American companies that need to buy steel and aluminum for their products will have to pay more for those products. Therefore, those companies will make less profits and will need to raise prices. This could result in a loss of sales and potentially cause a loss of jobs.
Additionally, foreign countries tend to retaliate by imposing tariffs on U.S. exports. For instance, China has indicated that it is now considering imposing tariffs on U.S. agricultural exports, wine and pork products. This would result in a loss of sales and profits to these U.S. industries and could reduce jobs in those industries as well.
Most economists agree that tariffs are bad for the economy.
In a letter to the White House signed by leaders of the U.S. Chamber of Commerce, the National Retail Federation and other groups, President Trump was urged to consider that “the imposition of sweeping tariffs would trigger a chain reaction of negative consequences for the U.S. economy, provoking retaliation; stifling U.S. agriculture, goods and services exports; and raising costs for businesses and consumers.”*
We don’t yet know how this will end or if the tariffs will become permanent and lead to a full-scale trade war. However, the stock market dislikes uncertainty and until this is favorably resolved, expect the possibility of continued volatility.
Although tax-deferred annuities will delay the due date of tax liability, taxes will eventually be due at some point because eventually the non-spousal beneficiaries will be required to take the money out of the contract and pay taxes.
Modified endowment contracts (MECs) are life insurance contracts that were created by an act of Congress in 1988, and can be designed to grow like deferred annuities — but with several advantages.
The biggest advantage is the tax treatment. Modified endowment contracts have an income-tax-free death benefit.
Secondly, they tend to be much more liquid than annuities. Advisers commonly recommend deferred annuities that typically allow for annual penalty-free access of up to 10 percent of the account value. MECs typically allow for access of up to 90 percent of the account value without any penalties.
Additionally, some insurance companies, such as TIA CREF, will — for no additional cost — allow penalty-free access to 100 percent of the account value. Like other fixed deferred annuities, MECs pay interest based on either a fixed rate, or a portion of the increases — but not the decreases of a stock index. For those looking for attractive growth potential without the risk of stock market loses, a fixed index MEC could be a viable alternative.
Many insurance companies are now offering MECs that not only provide safety, liquidity and growth potential but are also offering sizable tax-free death benefits that can be accelerated and accessed during one’s lifetime if there is a long-term care need.
This could be a more palatable way to plan for potential long-term care needs than a traditional LTC policy. These insurance benefits typically cost between
1 and 2 percent per year of the account value, depending on one’s age.
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