This week’s blog is inspired by our political leadership since I can’t seem to go anywhere without being reminded of the ticking clock in Washington. Once again, by putting off a decision until the last possible minute, its impact on all of us will be much greater than it should have been.
We all know that it’s easier to put off today what we can do tomorrow, but oftentimes we are simply taking a manageable situation and turning it into a crisis. If you look around, examples of this are not hard to find – and might even be happening in your own life.
A detrimental mistake I see people making at an early age occurs when they are just entering the workforce. The euphoria of earning (and spending) your first “real” paycheck may overshadow the importance of enrolling in the company 401(k). However, the combination of compound interest and time is a compelling reason to start saving early. If you start at age 25 and save just $20/ day and earn 6% interest, you will have amassed over $1.2 million at age 65. If you wait until you’re 35 and save $25/day, you will have $450,000 less to spend in your golden years.
As your career continues, retirement may seem a distant concern, so ensuring you are on track to get there is easy to put on the back burner. You need to take the time to make certain you are saving enough and your accounts are properly allocated at least annually. If you wait until you are ready to walk out the door before seeking financial advice the road to retirement may become even longer.
In retirement, if your spending is putting your financial solvency in jeopardy, many times making at least a small change can immediately make a large impact over time. The only thing you will accomplish if you ignore the situation is making it worse. Be honest when examining your needs versus your wants and wishes. It is a lot less painful to spend fewer dollars eating out, traveling or on gifts for your family than it is to get by on Social Security alone.
I often joke that when I am overwhelmed with the scope of a task, I like to “eat the elephant one bite at a time.” This is a good saying to keep in mind if it feels easier to put off or avoid making a financial decision. The ability to reach your goals may feel impossible at times, but procrastination may only ensure it is more difficult to achieve them. Just ask Congress.
Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://www.taaginc.com/
Tuesday, July 26, 2011
Tuesday, July 19, 2011
Why Do Americans Hate 'the Rich?'
The on-going Congressional budget negotiations have highlighted a social class divide in the US that nobody likes to talk about. The President has repeatedly called for an end to the Bush era tax cuts, saying the rich need to contribute their fair share to cut the deficit. An article in last Wednesday’s Wall Street Journal highlighted the attitude of most Americans when it quoted a teacher saying, ‘There are so many wealthy at the top, if Washington needs more revenue, it shouldn't come from people like me.’
But based on research by the Tax Policy Center, in order to reduce the deficit from its current level of 10% of the gross domestic product to 3% by 2015 using only taxes paid by the 'rich' (those with incomes over $250,000 a year) the top tax rate would have to be raised to 76.8%. The best way I know to discourage someone from working is to tell them they get to keep less than twenty four cents of every dollar they earn.
And who are these 'rich people' anyway? Everyone likes to talk about people who have offshore bank accounts and pay $30,000 for a shower curtain, but those are caricatures, and represent an extreme minority. At the risk of jumping into the political fray, I think my parents are closer to reality.
They were both born in West Virginia. My mother’s father worked as a coal miner and my paternal grandfather was a carpenter. My father almost died as a baby because his family could not afford the medical attention he needed. The youngest in his family, he was the only one to go to college. They both worked multiple jobs to pay for school.
After graduation, my parents worked as teachers, but they never stopped working. We lived on a farm and spent summers raising crops and selling them to groceries and people who stopped at our roadside stand. We used the money they made to buy a rundown house, fixed it up, rented it, and then used the income to buy more houses. When I was in junior high they bought a small monument company whose owners no longer wanted the hassle of running a business. When they retired from teaching they managed the business full-time. They maintained the rental properties, delivered monuments, and continued to run the farm.
While they worked, they never spent. My mom's favorite stores are still TJ Maxx and the ALDI Grocery. Dad bought only used cars, and mom still saves the wax paper lining from cereal boxes to use to chop vegetables. So they managed to accumulate savings.
They are in their 70's now, and they continue to manage a few rental properties. They volunteer for Meals-on-Wheels, their church pantry, the Rotary, and provide financial support for these and other not-for-profits. They set up a charitable trust that will benefit their church and two universities when they die. None of this would have happened if they hadn't worked so hard all their lives and become 'rich.' But now my parents are embarrassed about what they accomplished and are afraid people will think they are those ‘bad, rich people’ they are always reading about in the paper.
America was built on a strong work ethic. It's what has made us different from other countries all these years. I’ve met many people like my parents over my career as a financial advisor, and for every person like them there is someone else who worked long hours to reach the executive ranks, or started their own company; and many others who are employed by companies that someone else made sacrifices to create.
I understand it is an eternal human condition to be jealous of others who have more than we do. But America wouldn't be the country the world turns to for help if it wasn't for all the people who worked hard and became ‘rich.’ Before we demonize and demotivate them, we need to think about what it will mean for America's future and our own.
Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com/
But based on research by the Tax Policy Center, in order to reduce the deficit from its current level of 10% of the gross domestic product to 3% by 2015 using only taxes paid by the 'rich' (those with incomes over $250,000 a year) the top tax rate would have to be raised to 76.8%. The best way I know to discourage someone from working is to tell them they get to keep less than twenty four cents of every dollar they earn.
And who are these 'rich people' anyway? Everyone likes to talk about people who have offshore bank accounts and pay $30,000 for a shower curtain, but those are caricatures, and represent an extreme minority. At the risk of jumping into the political fray, I think my parents are closer to reality.
They were both born in West Virginia. My mother’s father worked as a coal miner and my paternal grandfather was a carpenter. My father almost died as a baby because his family could not afford the medical attention he needed. The youngest in his family, he was the only one to go to college. They both worked multiple jobs to pay for school.
After graduation, my parents worked as teachers, but they never stopped working. We lived on a farm and spent summers raising crops and selling them to groceries and people who stopped at our roadside stand. We used the money they made to buy a rundown house, fixed it up, rented it, and then used the income to buy more houses. When I was in junior high they bought a small monument company whose owners no longer wanted the hassle of running a business. When they retired from teaching they managed the business full-time. They maintained the rental properties, delivered monuments, and continued to run the farm.
While they worked, they never spent. My mom's favorite stores are still TJ Maxx and the ALDI Grocery. Dad bought only used cars, and mom still saves the wax paper lining from cereal boxes to use to chop vegetables. So they managed to accumulate savings.
They are in their 70's now, and they continue to manage a few rental properties. They volunteer for Meals-on-Wheels, their church pantry, the Rotary, and provide financial support for these and other not-for-profits. They set up a charitable trust that will benefit their church and two universities when they die. None of this would have happened if they hadn't worked so hard all their lives and become 'rich.' But now my parents are embarrassed about what they accomplished and are afraid people will think they are those ‘bad, rich people’ they are always reading about in the paper.
America was built on a strong work ethic. It's what has made us different from other countries all these years. I’ve met many people like my parents over my career as a financial advisor, and for every person like them there is someone else who worked long hours to reach the executive ranks, or started their own company; and many others who are employed by companies that someone else made sacrifices to create.
I understand it is an eternal human condition to be jealous of others who have more than we do. But America wouldn't be the country the world turns to for help if it wasn't for all the people who worked hard and became ‘rich.’ Before we demonize and demotivate them, we need to think about what it will mean for America's future and our own.
Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com/
Wednesday, July 13, 2011
Update from Washington
It was my hope this week to follow up my May blog on how changes in Social Security might impact you with an update on how the debt ceiling and budget agreement in Washington would do the same.
One small problem, I was relying on Washington to actually have a deal in place by today. Serves me right, I suppose. Here we sit Wednesday morning knowing just as little, if not less, than ever. It’s still my humble opinion that some kind of deal will get done soon, but the details from there are anyone’s guess.
I’ll instead attempt to introduce some more of the latest proposals getting support in regards to this legislation. I hesitate to add to the load of information (and misinformation) on this topic. But, as these ideas get kicked around the floor of Congress, the nightly news and the internet, I think it’s important to provide a basic, centered background on what they might mean for you.
Social Security Cost of Living Adjustments
One targeted way to help slow the growing costs of Social Security is to change how it accounts for inflation. Currently, annual adjustments are tied to the consumer price index, or CPI. For example, with traditional CPI, if the cost of beef rises, the index rises accordingly. The push is to change this in favor of what’s known as a “chained” consumer index. In this case, if the price of beef rises, an adjustment is made to account for those that would simply buy cheaper cuts or choose another source of protein. This would lower the average rise in social security benefits from year to year. It is unclear how much support this has and it would not be sufficient to sustain Social Security for any length of time, but it is a term you might hear in the coming days and weeks.
Social Security Payroll Tax
Employees have been enjoying a 2% cut in the Social Security payroll tax over the last year and a half. While it seems counterintuitive when trying to determine how to get more money into the program, there is talk of maintaining that reduction and extending it to employers as a form of additional stimulus for the economy. Of course, this would likely be tied into the other Bush era tax cuts that are currently extended through 2012, setting up another major clash on tax rules not too far down the road.
Medicare Adjustments
Medicare is an area where details are few and far between as politicians remain reticent to tackle Washington’s most challenging program. The most commonly advocated tax reform measure tied to Medicare is limiting the current $1.1 million mortgage interest deduction ceiling to $500,000 and restricting the deduction solely to primary residences. This would be another drop in the bucket, but seems to have a fair amount of support.
In other words, the unknown continues to be the unknown. The good news is that most of the changes being considered are slow moving and will take 10-20 years to fully come into play. It will take much of the burden off anyone currently receiving benefits and give those who hope to in the future time to plan and adjust accordingly.
The best offense is still a good defense. Having a broadly diversified portfolio capable of responding to different market pressures and providing for what you need in the short term, maintaining spending patterns that are within your means, and combating future health care costs by eating well and staying fit are the best tools to combat whatever comes down the pike. The only other recommendations I have would be to ignore the noise as much as possible until firmer details present themselves and, if you feel strongly about it, put that venting to use by sending an e-mail to your representatives.
It is my sincere hope to have an actual update on what was passed rather than what might be passed in the near future and how the rising debt ceiling and budget agreement impact you.
Have a great week!
Chip Workman, CFP®
Tuesday, July 5, 2011
The 25 Documents You Need Before You Die
On July 20th, The Asset Advisory Group will be hosting an Estate Planning lunch and learn session with Jeff Albrinck of Rendigs, Fry, Kiely & Dennis, LLP. The topics will range from the basics to Jeff's take on the current state of estate tax legislation and how to plan for the future as laws continue to fluctuate with each election cycle.
In the meantime, the Wall Street Journal published an excellent article, "The 25 Documents You Need Before You Die" which does an excellent job of prefacing Jeff's presentation by breaking down the basic documentation all of us should have on hand and easily accessible by our heirs or those that would carry out our wishes. This often feels like an overwhelming task, but as author Saabira Chaudhuri explains, it really doesn't have to be.
You can link to the article above or by clicking here.
Have a great week!
The Asset Advisory Group
http://taaginc.com
info@taaginc.com
You can link to the article above or by clicking here.
Have a great week!
The Asset Advisory Group
http://taaginc.com
info@taaginc.com
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