Last week I was writing a bit about a new threat in the form of interest rates. Long term rates have been in decline for almost 27 years straight.

Things are changing, which will have quite an effect on the economy this time around. Why is this so? Generally if rates were to rise to around 7-10% it would make the cost of borrowing higher and may cause the economy to slow down, but this time it is truly different.

The difference is the leverage in the economy. Easy, cheap money has prompted a rash of borrowings from everything from Real Estate to Stocks and everything in between. In summary, the economy is leveraged.

The problem is that most people have a heard mentality. They like to buy assets in the mania phase where everyone issupposedly making a fortune. Leverage in and of itself is not a bad thing.

Many fortunes have been build using leverage. It works very well when interest rates are going down. Interest rates are now starting to rise. If anything, this represents a signal to use caution and common sense. My advice would be to pair down the amount of debt even on asset purchases. Some people like to leverage their investments up to 100% or more. This has been especially true with real estate. It may be a good idea to reduce your exposure to interest rate risk by converting any adjustable rates to fixed and avoid borrowing more money for the time being.

American men in their 30s today are worse off than their fathers’ generation, a reversal from just a decade ago, when sons generally were better off than their fathers, a new study says.

The study, the first in a series on economic mobility undertaken by several prominent think tanks, also says the typical American family’s income has lagged far behind productivity growth since 2000, a departure from most of the post-World War II period.

The findings suggest the up escalator that has historically ensured that each generation would do better than the last may not be working very well says the study. It was written principally by John Morton of the Pew Charitable Trusts, which is leading the series, called the Economic Mobility Project, and Isabel Sawhill of the Brookings Institution. Other participating think tanks are the Heritage Foundation, American Enterprise Institute and Urban Institute.

In 2004, the median income for a man in his 30s, a good predictor of his lifetime earnings, was $35,010, the study says, 12% less than for men in their 30s in 1974 — their fathers’ generation — adjusted for inflation.
A decade ago, the median income for men in their 30s was $32,901, 5% higher (after adjusting) than 30 years earlier. It seems there’s been some slowdown in economic growth in the middle class.

The study suggests that absolute mobility — the rate at which an entire generation’s lot improves relative to previous generations — has declined. But within a particular generation, individuals can still get ahead if relative mobility, the rate at which the rich and poor trade places, remains high. Poor fathers may have rich sons, and vice versa.

The report also says that between 1947 and 1974, productivity, or output per hour, and median family income, adjusted for inflation, both roughly doubled. Between 1974 and 2000, productivity rose 56% while income rose 29%. Between 2000 and 2005, productivity rose 16% while median income fell 2%, challenging the notion that a rising tide will lift all boats.

Sawhill said several factors could explain the divergence: a growing share of income going to the highest-paid workers, or to profits; an increased share of labor compensation going toward benefits such as health care; or a decline in the number of wage earners in the typical family.

This means that individuals need to become more entrepreneurial in order to break this unsettling trend. Creating extra income through a home bases business, or other activity is making more important cents all the time. Pun intended….

A growing number of Americans are choosing to spend their golden years abroad.

Living overseas offers a sense of adventure and, often, a reduced cost of living.
Yet most people–and their advisors–don’t realize how much planning is needed to make the move a success.

It’s hard to say how many Americans have retired abroad. The State Department doesn’t keep track
of the numbers, and the U.S. Census Bureau doesn’t count Americans overseas.
The Social Security Administration sends checks to more than 260,000 retired workers abroad,
but this represents only a fraction of the total because many overseas retirees have their
Social Security checks deposited in the U.S.

Despite the lack of statistics, anecdotal evidence suggests an increase in the number of retirees overseas.
Many U.S. citizens going abroad assume they’ll encounter the same legal and tax systems as those back home.
They don’t realize the complications that can arise if they don’t do the proper planning.

Retirement income calculations take on a new complexity when you live abroad.
It’s not enough simply to convert dollars into the local currency to see how much the client will need to live on.
You should count on currency fluctuations of 10% to 20% in either direction. You also need to consider the
stability of the country you want to move to.

In the past, several Latin American countries have been very popular as the currency conversion has
given many US expatriots more for their money. This is quickly changing.
Often, countries prized for their low cost of living get pricier as their popularity among retirees grows.
For example, housing prices skyrocketed in Guadalajara, Mexico, over the past 10 years as that country’s
second-largest city turned into an expat haven.

Yet even with the added expense, the cost of living is still lower in Mexico than in the U.S..
Retirees there can spend less than they would at home and get more for their money, including the
service of maids and gardeners. Retirees who have become frail and need in-home assistance
could particularly benefit from this kind of purchasing power.

eaving the country doesn’t exempt U.S. citizens from their home-country tax obligations.
Retirees may not owe any U.S. income tax while they’re living abroad, but they must still file annually with the IRS.
This is the case even if a U.S. citizen moves all of his or her assets to a foreign country:
U.S. citizens are taxed on their worldwide income and, when they die, on their worldwide estate.

The benefits of living abroad can be attractive, but if you are unprepared, it could become a real challenge
financially. Ask your coach what things you will need to consider when contemplating a move to retire
outside the U.S.