debt pay down

Jobs Report Fosters Market Milestones


The labor market closed out the first-half of the year with strong gains. The economy created a greater than expected 288,000 jobs in June and the unemployment rate fell to 6.1 percent, the lowest level since September 2008. Unlike some of the previous reports, this drop in rate occurred for the right reason: more people found jobs while the size of the workforce remained relatively steady. The June results bring total average monthly job creation this year to 231,000, 19 percent faster than last year’s pace and the economy is on track to add more jobs this year than any year since 1999. Still, there are obvious big problems that linger: there are still 9.5 million unemployed Americans, of which about a third (3.1 million) have been out of work for more than six months; many of the new jobs created continue to be in low wage areas like retail and food and drinking establishments; and wage growth remains stubbornly low at just two percent over the past 12 months.

Still, the June report felt like turning point and to celebrate, investors pushed US stock indexes into new record territory. The Dow broke out above the 17,000 level for the first time ever, the S&P 500 is knocking on the door of 2,000 and NASDAQ 5,000 does not seem like such a crazy pipe dream anymore.

This week, it’s back to business as we head into earnings season. According to Fact Set, the estimated earnings growth rate for S&P 500 companies in the second quarter is 5.1 percent, which is down from estimates three months ago of over 6 percent growth. The telecom services sector expected to lead the way; and the financial sector is likely to bring up the rear. Mid-week, minutes from the Federal Reserve’s recent policy meeting will be released. Fed watchers will parse the central bank officials’ assessment of the current economy, seeking clues as to when short term interest rates may rise. Given the recent buoyancy of economic data, the central bank may be rethinking its timing.


  • DJIA: 17,068, up 0.7% on week, up 3% YTD (7 ½ months to go from 16K to 17K, the seventh-fastest 1000-point gain in the index's history)
  • S&P 500: 1985, up 0.7% on week, up 7.4% YTD
  • NASDAQ: 4,486, up 1.4% on week, up 7.4% YTD
  • 10-Year Treasury yield: 2.64% (from 2.53% a week ago)
  • August Crude Oil: $104.06, down 1.6% on week
  • August Gold: $1320.60, flat on week
  • AAA Nat'l average price for gallon of regular Gas: $3.67 (from $3.48 a year ago)


Mon 7/7:

Tues 7/8:


7:30 NFIB Small Bus Optimism

10:00 JOLTS

3:00 Consumer Credit

Weds 7/9:

2:00 FOMC Minutes

Thurs 7/10:

8:30 Weekly Jobless Claims

Fri 7/11:

Wells Fargo

401K Q&A


When AOL CEO Tim Armstrong made a splash recently about changing (and then not-changing) the 401(k) corporate matching policy, the focus was on his rationale for the new policy. He blamed costly “distressed births” of two AOL employees ($1,000,000 each) and an additional  $7.5 million attributable to Obamacare, as the catalysts for the shift in the company’s match to a one-time end-of-year match, from a per-pay period match. Now that Armstrong has apologized and restored the policy, it’s a good time to review a few 401(k) basics. As Ron Lieber noted in his NYT column, “what was mostly lost in the discussion was just how much it would cost employees if every employer tried to do what AOL did. The answer? Close to $50,000 in today’s dollars by the time they retired.”

The reason is that over the long-term, stocks tend to rise. So if a company waits until the end of the year to match, in most years, participants lose out on appreciation. Of course, there are always a few rotten years (2008 comes to mind) when participants would be happy not to receive the match until the end of the year. But those loser years are the minority, which is why AOL employees rebelled and ultimately forced Armstrong to recant.

But there’s a larger problem beyond the matching melee. As highlighted in last year’s excellent Frontline documentary "The Retirement Gamble," one in three Americans has no retirement savings at all; one in two say that they can't save enough; and the demographics of an aging population are making matters worse.

While I could lament the transition from company-funded pension plans to 401(k) plans (suffice it to say that it was not in the worker’s best interest), the AOL affair is a good reminder to those who are fortunate enough to have a 401(k), to make the most of them.

Here are a few of the most frequent questions that I field about employer-sponsored retirement accounts.

Should I contribute to 401K or pay down student loans? If the employer provides a match, I suggest making a retirement contribution that will allow you to capture the match. Every other available dollar should be used to aggressively pay down the student loans.

Should I buy company stock in my 401 (k)? Limit your company stock exposure to 5 percent of your holdings. Sure, the stock may be awesome now, but do you really need to risk your retirement on the company’s performance? Since many companies match in stock, it may be helpful to use the auto-rebalance feature that many plans offer to diversify.

I lost my job – should I use retirement funds to pay down debt, even if I am under 59 1/2? Last year, 35 percent of all participants who left their jobs cashed out their accounts, according to Fidelity Investments. More worrying, cash-outs are most prevalent among younger workers, the ones who would most benefit from keeping the money in a tax-deferred retirement account. Among workers from 20 to 39 years of age who left their jobs last year, 41 percent cashed out their 401(k) balances.

While it is tempting to tap retirement funds to pay down debt, the math is lousy. Fidelity says that the average balance of a 401(k) account that was cashed out last year was close to $16,000. Of that, the typical person pocketed just $11,200 assuming 20 percent was withheld for taxes and the 10 percent penalty was assessed. Additionally, the saver no longer gets the compounded growth the savings would have had in a retirement account.

Now that I am over 59 ½ and retired, should I use my 401(k) to pay down my mortgage? This is a trick question, because it depends on a number of variables, like current income, savings, tax rates, the number of years remaining on your mortgage, your mortgage interest, among many other factors. I would be loath to have someone pay down a mortgage, if it left him or her with a deeply depleted nest egg.

Radio Show #151: Financial Priorities


No matter where you are in your life, it's important to prioritize your financial goals and objectives. In this episode, we help listeners at different stages, understand how to make those important decisions.

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Mark from MN is trying to figure out the best way to finance his daughters' college educations, without draining too much from his retirement nest egg. David from TX is almost finished paying for his daughter's college and is wondering whether he and his wife can retire early.

After leading a debt-free life and shunning all loans, Brian is having a hard time purchasing a car, while Brad is wondering how to manage a lump sum insurance settlement.

We helped both Kristen and Angel think about how to prioritize debt pay down, establish emergency reserves and contribute to a retirement plan; Bob needed a strategy to redeem his E and EE savings bonds; and David wanted to know how to maximize his various retirement plan options.

Thanks to everyone who participated and to Mark, the BEST producer in the world. Let me know if you think we should provide Mark with a little space to vent his various grievances with you...we're considering calling it "Mark's Musings". If you have a financial question, there are lots of ways to contact us:
  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE