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]