Turning Point Financial

Will I Get My Social Security?

Mark — Wed, 01 Sep 2010 20:34:43 +0000

Most people, especially younger investors, are sceptical of whether or not social security will be around once they finally get to retirement. Social Security is on shakey ground, that’s for sure. But I don’t think you should assume that you’ll get absolutely nothing from it.

If you look at your most recent social security statement, on the front page, right hand column, there is a paragragh that reads: “In 2016 we will begin paying more in benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 76 cents for every dollar of scheduled benefits. We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.”

However, changes could be made to the program that could put Social Security on firmer financial ground for at least 75 more years, according to a U.S. Senate Special Committee on Aging report released in May. Potential fixes currently being considered by Congress include tax increases, benefit cuts, and pushing back the retirement age. While none of these options are great, I guess they wouldn’t be the end of the world.

The bottom line is, you need to make sure that you’re not counting on Social Security as your ONLY source of retirement income. As you do your financial planning for retirement income, plan on getting a portion of what your Social Security statement says you’ll get. That way, if you get more, it will be a nice surprise. Saving more for retirement and setting up multiple sources of income will help secure a solid financial future for yourself and your family. My “Income For Life” post is a good one for more information on this topic.

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Will My Taxes Go Up In 2011?

Mark — Tue, 31 Aug 2010 12:58:40 +0000

Everyone wants to know what their tax bill is going to look like next year. As of right now it seems very likely that your tax bill will be higher next year, even if you stay in the same tax bracket.

The Bush tax cuts involved more than just marginal tax rates. They included many deductions and credits that helped to reduce taxes for people in every bracket.

There are currently a lot of different ideas for the Bush tax cuts floating around Congress. As of right now, they are all set to expire at the end of this year. However, there is a chance that at least part of the Bush tax cuts could be extended into next year. Many in Congress are calling for this to happen. But there are many others who want to let them expire. So we’ll just have to wait and see what happens.

I found a great website that will show you what your new tax bill could look like in 2011. It shows you a side-by-side comparison of your 2011 tax bill under the following three scenarios: 1. Bush cuts expire. 2. Bush cuts extended. 3. Congressional Democrats plan. It’s pretty interesting: www.mytaxburden.org

I would welcome your questions or comments below.

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Consider State & Local Taxes Before Taking Capital Gains

Mark — Fri, 27 Aug 2010 12:37:06 +0000

Here’s a great article from Forbes magazine about the effect of state and local taxes on your capital gains.

Should you rush to take long-term capital gains before Jan. 1, when the top federal gains rate is set to rise from 15% to 20%? That depends, of course, on many factors, including whether you’ll be needing cash or otherwise wanting to liquidate a holding in the next few years anyway.

But investors often overlook another key variable: the state and local tax bite. “It’s kind of a forgotten-about tax,” reports Carl DiNicola, an Ernst & Young partner in Irvine, Calif. It shouldn’t be; 42 states tax gains and only a few of them have lower rates for long-term gains, making state tax a big deal when you take profits.

At the federal level, ordinary income such as salary is taxed this year at a top 35% rate, more than twice the gains rate. But New York City residents pay the same top 12.9% state/local rate on salary and gains. Oregonians pay a top 11% rate and Californians a top 10.6% rate on both. In fact, among the highest tax states, only Hawaii, with a top 11% rate on ordinary income, cuts long-term gains a break; they’re taxed at a top 7.25% rate.

In reality, then, you may not be deciding whether to pay a 15% tax now or 20% later but whether to pay, say, a 25% tax now or 30% later. “It may in many cases be unwise to sell something this year just to get the lower [federal] tax rate,” say Kaye Thomas, a tax lawyer and author of Capital Gains, Minimal Taxes. Here are additional pointers:

Investigate the quirks.

“Each state has little crazy rules,” says Barry Horowitz, director of state and local tax for Eisner & Lubin in New York City. New Jersey, for example, doesn’t allow taxpayers to carry forward capital losses, as is allowed for federal tax purposes. Tennessee taxes capital gains from the sale of mutual funds but not individual stocks. New Jersey, Connecticut, Kentucky and Ohio exempt gains on their own state’s bonds from tax.

A few states give relief from capital gains taxes to seniors. For residents 62 or older Georgia already exempts from its 6% tax $70,000 per couple of income from pensions, retirement accounts, annuities, interest, dividends, capital gains and rents. In 2012 the Georgia exemption for couples 65 and older will rise to $130,000, and by 2016 all their retirement income will be exempt. Delaware, Michigan and South Carolina also exempt some of seniors’ gains.

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The CLASS Act – More Taxes on The Way

Mark — Wed, 25 Aug 2010 19:10:09 +0000

Part of Obama’s 2000 page health reform includes another big taxpayer bailout called the Community Living Assistance Services and Supports Act (CLASS) program. It is designed to try and meet the rising costs of healthcare by providing some long-term care benefits to people who pay into the system, and will begin in 2012. The problem however is that its numbers just don’t add up.

People paying taxes into the program will have premiums/taxes as high as $240 per month in the first year. And you would have to pay into the program for at least 5 years to get any benefits from it. The benefits would be at least $50/day, which isn’t going to go very far when it comes to long-term care. So that’s the first problem.

The second, and bigger problem is that the program is going to be unsustainable in short order. Independent actuaries and budget analysts reviewed CLASS Act and reached the same conclusion – it is fundamentally flawed and financially unsustainable. The Congressional Budget Office concludes that after an initial 5 year period of collecting premiums and not paying benefits, the program begins to lose money.

In fact, CBO found the program “would add to budget deficits in the third decade – and in succeeding decades—by amounts on the order of tens of billions of dollars for each 10-year period.”

Likewise, Rick Foster, the government’s own actuary, declared the program flawed and stated “there is a very serious risk that the problem of adverse selection will make the CLASS program unsustainable.”

The President sent out a mailer to to 40 million seniors to “educate” them about the CLASS program, but failed to mention these concerns in that mailer. Americans deserve to know CLASS premiums won’t be set aside solely to fund promised benefits.

Instead, Congress spent the money on other parts of the health-care law but still argues it will be available to pay benefits when the time comes. Only in Washington can you collect a dollar once but spend it twice!

It really is amazing how a program this bad could get passed into law. I guess because it was buried deep inside the 2000 page reform which no one could have possibly read completely, let alone understand prior to its passing.

In my professional opinion, if you can afford to pay out $240/month in extra taxes/premiums, you’d be much better off to buy your own private long-term care insurance policy from a company with a proven track record of success rather than from someone who is on track for financial disaster (our government).

The best time to buy long-term care insurance is when you are healthy and young. The longer you wait, the more expensive it gets and the greater risk you have of not qualifying due to health conditions. It’s really just another form of health insurance. Most people who buy health insurance wouldn’t think of not having it. But when it comes to long-term care, many of us think that we’ll never be in a position to need it. But for people age 50 and older, you have a 1 in 2 chance of needing some type of care like this.

Call us today if you would like to learn more about protecting yourself and your family from the rising costs of health care, rather than enrolling in the failing CLASS Act program.

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Is China As Strong As We Think?

Mark — Fri, 20 Aug 2010 01:24:33 +0000

Everyone is talking about China right now as its GDP is nearing that of Japan, and could become the second largest in the world. But is it sustainable? I read a great analogy of the Mayfly. The Mayfly is a species of inset that goes from egg to death sometimes in as little as 30 minutes, and never more than a day. Is there a chance that China’s economy could have a boom-and-bust similar to the Mayfly? Watch this video, an interview with a STRATFOR analyst, to find out why this may be true:

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Securing Retirement Income

Mark — Mon, 16 Aug 2010 19:24:04 +0000

I thought this was a timely article (given my last post) from SmartMoney that I found today discussing the growing interest in using annuities for retirement income.

Pop Quiz: How much of a lump sum would a 65-year-old need to generate an extra $500 a month for the rest of his life?

A soon-to-be-published study by Chris Browning, a doctoral student in the division of personal financial planning at Texas Tech University, found that even people with good math skills who scored well on overall measures of financial sophistication had trouble coming up with a reasonable estimate.

Here’s the answer. Assuming an average life expectancy of 84 and a return of between 3% and 10%, that 65-year-old would need $50,000 to $85,000 to bankroll the monthly bonus.

Most of the subjects in Browning’s study, even the more-sophisticated ones who understood the relative risk and likely return of different financial instruments, made wildly inflated guesses of more than $500,000. (That would be correct if the 65-year-old had another 146 years to live, Browning says.)

Browning’s study was designed to help explain why demand for annuity products is low even though pure theory suggests they can provide great benefits to retirees by countering the risk of outliving one’s savings. The results suggest that “while people might have financial sophistication in one area of financial markets, it doesn’t necessarily translate to others,” he says. In other words, understanding the stock market may not help individuals evaluate a complex product like an annuity.

Demand for annuities may pick up if retirees’ anxiety about securing stable income is compounded by a new political push to boost adoption of the products. In a recent survey by MetLife, 55% of American workers said they would rather receive their nest egg slowly over the course of their retired lifetime than as a lump sum, while only 9% said they’d prefer to manage the lump sum. MetLife, which sells annuities, has a financial interest in promoting this finding, as well as the fact that 44% of survey respondents said they would like their workplace retirement plan to include an annuity option.

Insurance companies aren’t the only ones promoting annuities. The Obama administration has indicated its support for annuities, and the Department of Labor will hold hearings in mid-September on promoting lifetime income options as part of retirement plans. Among other issues, the hearings will cover the question of whether 401(k) statements should be required to include an estimated monthly benefit if the current account balance were annuitized.

This renewed interest in annuities comes amidst a decline in the number of defined-benefit pension plans that pay retirees a fixed amount each month. There were more than 170,000 such plans in 1986, and as of 2007 there were fewer than 50,000 such plans, according to MetLife data.

“You’re seeing all of these defined-benefit principles being brought into the defined contribution market,” says Jody Strakosch, the national director of MetLife’s Retirement Products group. In other words, there’s a move to make 401(k)s look a lot more like traditional pensions.

The movement makes sense because when most workers retire, they have little or no experience managing a large lump sum of money, says Marc Pearlman, an investment advisor who specializes in behavioral finance. For some, the transition from spending to saving is painful, “like throwing a car from drive into reverse with no neutral,” Pearlman says. “Some people go on spending sprees, but a lot of people just get paralyzed,” he says.

Income annuities can purchased that allow you to have an inflation hedge for rising costs. This is very important when you’re talking about setting up an income stream that will last for the next 20 – 30 years. The cost of everything is going to go up during retirement, so you want to make sure your income will as well. Call us today to find out how an income annuity could fit in to your overall retirement income plan at 1-866-983-4222.

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Income For Life

Mark — Wed, 11 Aug 2010 20:08:10 +0000

As a person approaches the retirement years they start to think more and more about establishing secure sources of retirement income. Most retirees who are eligible have social security as one source of retirement income. However, we all know that the future of social security is less than secure, and it’s usually not even close to being enough for most people to live on by itself. In fact, I just got my most recent statement from social security, and right on the front page it has an onerous warning. It says, “In 2016 we will begin paying more in benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 76 cents for each dollar of scheduled benefits.” I compared this statement to my statement from last year and noticed that on it the years were 2017 and 2041, so the drop dead dates are getting closer.

The instability of the Social Security system makes all of us think a lot harder about other ways that we can provide ourselves with safe, lifetime streams of income. We have to rely less on money that will come from the government, and more on our own planning and savings. Fortunately, there are many investment vehicles available today that allow us to secure a long and stress-free retirement. I recently helped a client do just this with part of his IRA.

The particular vehicle that we used was a fixed index annuity with an income rider issued by a very stable and well rated insurance company. These types of fixed annuities are very different from the traditional pension-type annuity that most people think of. Fixed index annuities are designed to grow and accumulate money on a tax-deferred basis. At some point in the future, determined by the investor, these annuities can be converted into a stream of retirement income. These annuities pay interest each year based on how a stock index performs. However, one of the big benefits of them are that in years when the market goes down, you don’t lose anything. The trade off is in years when the market is up, your returns are capped at a certain level. Here are some of the basic features of this annuity:

You earn an up-front 8% bonus on your premium
Any indexed interest is locked in once a year, and can never be lost due to market declines
Your income account value earns a guaranteed 7.2% compound interest per year for the first 20 years (this means it will double every 10 years!)
You can start taking lifetime guaranteed income at any time
You can stop taking the income at any time
If you become confined to a nursing home, your income amount DOUBLES for the rest of your life
When you pass away, your beneficiaries would get whatever amount is left in your accumulation account.

This annuity provides a very safe, guaranteed source of income that will last as long as you live. The longer you wait to start taking the income, the higher your withdrawal percentage will be. And the Confinement Income Doubler Benefit offers a great way to protect yourself from the high costs of long-term care, without the hassle of buying traditional long-term care insurance. No matter how long you live, the income will never stop or be reduced. But if you pass away early and there is still money left in the annuity, your beneficiaries would receive it.

In planning for retirement income, diversification is still the key. Just as you would never invest all of your money into one stock or one mutual fund, you don’t want to have all of your retirement income coming from one source. The more you can diversify your retirement income sources, the better. Having income from a pension, social security, dividends, rental properties, annuities, bonds, etc. is a good idea.

Fixed index annuities can have many variations and moving parts, and some are better than others. We can help you evaluate the world of fixed and variable annuities to help you understand all the details and find the best one for your situation. If you would like to find out if an annuity makes sense for part of your retirement income plan, please call us at 1-866-983-4222. We offer free consultations to help investors evaluate their entire situations and find solutions that work.

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Many Aging Boomers Are Fat & Broke

Mark — Tue, 27 Jul 2010 14:59:07 +0000

This article was in yesterday’s Charlotte Observer. If you didn’t get a chance to read it, I think it’s worth taking a look. Here’s a summary of the article.

According to some recent statistics, many North Carolina baby boomers in the 55 – 64 age bracket are not in good shape, both physically and financially.

Overall Health

Researchers say that NC residents in this age bracket exercise less than younger groups, with more than a third of them being obese. 85% of this group admit to getting no exercise at all. One in six has been told by a doctor that diabetes has affected their kidneys. There’s a great website about healthy living that I like, written by my good friend Spencer Iacono at www.SuperiorCleansing.com . You should check it out sometime.

“My sense is that we are in denial about aging,” said Joan Pellettier, director os the Triangle J Area Agency on Aging, a group that coordinates programs for older people in central North Carolina counties. Pelletier also urges boomers to start thinking about long-term care insurance, coverage that’s been made more accessible through recent state and federal legislation. Pelletier wants to get the word out about the things people have to learn before they get to retirement. “I am thinking of moving our focus from people who are 60 to people that are 50 and older” she said.

Financial Health

The financial health of baby boomers in general is not so good, and that’s not just in North Carolina. About three-quarters of baby boomers nationally say their retirement plans have been negatively affected by the current financial downturn, which is no surprise.

Mauricio Soto, a researcher at the Urban Institute, has estimated that nationally retirement accounts initially lost $2.8 trillion, or about a third of their value, in the stock market, although some of that ground has been recovered (but not all).

There is a great majority of baby boomers in the country who have not saved enough towards retirement. These people need assistance, but many are reluctant to ask for it. If you feel like you might be in trouble financially, then there’s a good chance you are. Now is the time to get your finances in order and start catching up. Working with a Certified Financial Planner professional will ensure that you develop a realistic plan to get you on track. You want to work with an advisor who is not afraid to give you bad news. You need to be realistic about your future. If you don’t have enough money saved, and you’re spending too much, the last thing you need is an advisor who tells you that you’re doing a great job. That’s a recipe that will end up with you living in your kids basement one day.

Call us today to set up an appointment for a financial health check-up. We will tell you if you are on track for success, or disaster. Call us at 1-800-983-4222 today.

For more information on state health statistics visit http://tinyurl/34ncww8

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Many Can’t Find Affordable Health Insurance

Mark — Tue, 29 Jun 2010 00:34:04 +0000

If you are someone who is lucky enough to have health insurance benefits provided by your employer, you should count your blessings. Many individuals who are self employed, or whose employer doesn’t offer health insurance benefits, have to find their own coverage. And many of these individuals who you and I might consider otherwise healthy, are being turned down for health insurance. It doesn’t take much these days to be considered “uninsurable.”

Health insurance companies make you fill out very detailed applications that ask you for details about your complete medical history. And the questions are getting tougher these days. Most companies used to ask if you had been diagnosed or treated for conditions in the last 5 or 10 years. Now, many are asking if you have EVER had those conditions. If you have had something (depending on the condition), there’s a good chance you’re going to be declined for coverage. This is making it harder and harder for many people to obtain health insurance.

I recently had a client who applied for coverage for the whole family: mom, dad & two kids ages 9 and 6. The mother had a mild complication during her son’s pregnancy 10 years ago, but no other problems since then, and was on no medications. The 9 year old son had a short period of time about a year ago where he was feeling dizzy and they didn’t know why. They did an MRI and it was normal. He was told by the doctor that it was some kind of vertigo. He had no other health conditions before or since then, and was on no medications. The dad and daughter were approved for coverage, but the son and mom were declined. Both the family and I were shocked.

Many states now have Insurance Risk Pools that provide somewhat affordable, individual health insurance coverage. In North Carolina it’s called Inclusive Health, also know as the North Carolina Health Insurance Risk Pool (NCHIRP), created in 2007. If you are someone who doesn’t have access to a employer-based plan, or you’ve been declined for coverage, or you’ve been quoted a rate that is too expensive due to an existing medical condition, then you can apply to your state’s health insurance risk pool. Many of these plans also offer coverage to people who have lost their jobs due to the effects of international trade and are eligible for the health coverage tax credit under the Trade Adjustment Assistance (TAA) program.

Keep in mind that not all states have a health insurance risk pool such as this. You can call your state’s insurance commisson to find out. If you would like to learn more about North Carolina’s program, you can find it at www.inclusivehealth.org or just give us a call today at 866-983-4222, and we can help you apply.

Health insurance is a very important part of your personal financial plan. If you have a story about someone who has been declined for health insurance, I’d like to hear about it in the comments section below. Maybe if enough people hear about this problem we can get it fixed.

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Tax Credit for Small Business Health Insurance

Mark — Thu, 24 Jun 2010 18:14:00 +0000

If you are a small business owner, you are the backbone of America. It is estimated that 52% of US workers are employed by a small business. And many of these small businesses have not been able to afford health insurance benefits for their employees in the past. Just keeping the business going has been a feat in and of itself for many companies. Recent health care reform has taken a step to make it easier for a small business to offer health insurance to their employees. This should be a good thing for many people since having affordable health insurance is an important part of personal financial planning.

Small businesses that provide health insurance to their employees now qualify for a
special tax credit (up to 35%), due to recent health care reform legislation. The
credit, provided under the Patient Protection and Affordable Care Act, is designed to
encourage small employers to offer health insurance for the first time, or maintain
coverage they already have.

Who is eligible?

Groups with fewer than 25 full-time equivalent employees are eligible. The employer
must pay for at least half of the employees health insurance premiums (can include
dental and vision coverage) and must pay out less than $50,000 in average annual
wages to employees. The total number of employees does not include the business
owner or family members.

Can an employer with 25 or more employees qualify for the credit of some of
the employees are part-time?

Yes. Because the limitation on the number of employees is based on Full-Time
Employees, and employer with 25 or more employees could qualify for the credit if
some of its employees work part-time. For example, an employer with 46 half-time
employees (meaning they are paid wages for 1,040 hours) has the equivalent of 23
Full-Time Employees and therefore may qualify for the credit.

How does the employer claim the credit?

The credit is claimed on the employer’s annual income tax return.

Where can an employer find out more?

Beginning in early June 2010, anyone can call Turning Point Benefits Group at 704-
887-4984 to find out more information and see if they qualify for this credit. You can
also visit www.irs.gov to get more details.

How long will this tax credit be available to small businesses?

The tax credit is effective for the 2010 tax year, and is currently scheduled to run
through 2014. In 2014 the tax credit increases from 35% to 50% for qualifying
businesses.

Can other organizations qualify for the credit?

Tax exempt organizations can also qualify for the tax credit. Those organizations can
earn up to a 25% credit for the same guidelines as the small business. That rate
increases to 35% on Jan. 1, 2014.

How would the tax credit look in real dollar amounts?

The Internal Revenue Service provided the following fictional business as an example:

Main Street Mechanic, an automobile repair shop with 10 employees, can get
$24,500 in tax credits for 2010.

Here’s how:

Employees: 10

Annual Employee health care costs: $70,000

Wages: $250,000 total, or about $25,000 per employee

Tax Credit for 2010: $24,500

Tax Credit for 2014: $35,000

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