Archive for August, 2013:

Are you rich?

Written on August 29th, 2013 by Jamesno shouts

As we gear up to celebrate the labor day holiday for all you workers out there, just wanted to tease you with a little rhetorical question: Are you Rich?  Well if you make more than $200,000 this year the government thinks you are…..

And why should you care?  Because it is going to hit you in the wallet when you file your 2013 taxes next April.

So, let’s run down the list of the new tax rates for 2013 and the “add-on” gotcha taxes that are new for this year:

2013 tax brackets for singles:

If you are a big money earner then you will pay the 33% rate for income between $183k and $398k.  If you earn more than $398k you pay 35% on that (but here is the funny part – the 35% rate is only for income between $398k and 400k)  over $400k  you jump up to 39.6% rate.  And if that wasn’t bad enough, read below on the new .9% medicare surtax and 3.8% investment tax!

2013 tax bracket for married:

If your total household income falls between $223k and $398k you are in the 33% tax bracket.  From $398k to $450k you fall in the 35% tax bracket and over $450k you jump to the 39.6% tax bracket.  And yes you get hit with the .9% medicare surtax and 3.8% investment tax as well, see below….

“Add-On taxes for the rich”

.9% medicare surtax:  this one actually should be deducted from your paycheck if you are a wage earner.  For singles you pay 1.45% in medicare tax on wages up to $200k, then over that it increases by .9% to 2.35% medicare tax.  For married couples the additional tax still kicks in if either spouse is over $200k, but isn’t officially required unless you are over $250k in household income.  This means if you had both spouses making $150k per year their employer won’t withhold the additional tax but it will be due for any income over $250k joint.  For anyone self employed, you will get to settle up with the IRS come tax day if you haven’t been making enough estimated payments.

3.8% tax on investments: same $200k single and $250k married threshold applies.  Any passive investment income you receive (interest, dividend, cap gains, rents, etc) is subject to an additional 3.8% tax to help offset the cost of the Affordable Care Act.  So if you are a high wage earner and cashed in some stock options or sold some stock for a long term capital gain get ready for a higher tax bill.

Year end tip:  If you are on the border line with hitting the higher tax rates or going over the add-on tax thresholds, consider increasing your 401k contribution through year end to defer a little more income.  under age 50 you can contribute $17,500 pretax and if you are over age 50 you can contribute $23,000.  For two spouses contributing it could knock your tax rate quite a bit lower.

 

Student Loan Time Bomb

Written on August 21st, 2013 by Jamesno shouts

Matt Taibbi with Rolling Stone Magazine has a new article out about how the Federal Government has been a willing accomplice in saddling a generation with student loan debt.  I’ve mentioned several times about how the easy money has allowed colleges to charge exorbitant prices for education, but Matt does a much better job with some real life examples.  Here is the link:  http://www.rollingstone.com/politics/news/ripping-off-young-america-the-college-loan-scandal-20130815

Filed under General Tags:

How to reach $1,000,000 for retirement

Written on August 20th, 2013 by Jamesno shouts

Could you retire comfortably on $1,000,000?  It’s sort of a nice round number to strive for, will it be enough for you?  To answer that question would require a lot more analysis, but for the sake of this post let’s assume that is your goal.  So how much do you need to save every year to accumulate $1M in 30 years (@ 7% avg rate or return)?  The answer is $10,600 per year or $884/month.

If this sounds like a bit of a stretch, consider this:  start with $417/month into your 401k (that’s $5000 per year).  Then let’s assume that your employer matches 1/2 of that, so they toss in another $2500 during the year.  That $7500 annually in savings over 30 years (@ 7% avg rate of return) would get you just north of $700k for retirement.

Want to play around with your own numbers?  Here is a free calculator for you:  http://www.myvizer.com/calc_retirement.php

Filed under Investing, Miser Tip Tags:

George Soros is shorting the S&P, should you be concerned?

Written on August 15th, 2013 by Jamesno shouts

I saw this article pop up on Marketwatch (http://blogs.marketwatch.com/thetell/2013/08/15/soross-biggest-holding-a-bearish-call-on-the-sp-500/)  regarding Billionaire George Soros having a large short position in the S&P.  A short position basically means that you think the market is heading down and are trying to profit from it.  No doubt Mr. Soros has quite a track record of making big money in the market both long and short, so should you be concerned?

Depends on your time frame.  Mr. Soros and his team are traders meaning they try and profit from shorter time horizons.  There is a lot of talk about the market being extended and due for a correction.  CNBC has even picked up on the Hindenburg Omen theme recently which is said to portend market selloffs.  (to much technicality to explain what that is!).

I will leave it to you to decide if you think he is right or not.  My general point is that we forget very quickly that markets don’t go up forever.  If you want to make adjustments please do it with the S&P here in the mid 1600′s and not when we are in the midst of a full scale correction.  Remember Warren Buffett’s philosophy “buy when others are fearful, sell when others are greedy”.

Filed under Investing, Miser Tip Tags:

death and taxes

Written on August 12th, 2013 by Jamesno shouts

As they say, there are only two things certain in life and since I don’t have anything new today on taxes let’s discuss the other one. That one area of a financial plan that people procrastinate more on than any other…….. Estate Planning.  I realize that it isn’t a fun topic to think about but if you have ever been involved in settling an estate where someone did not have a Will, you understand the importance.  But in reality even if you have been involved in settling an estate where the individual had a Will you also understand that nothing about the process is easy.  There are all the hours spent trying to locate financial statements and inventory all of the assets, debts, etc.  It can go on for months and months (even years).

One of my clients recently shared with me his estate plan and included in the traditional legal documents was a special instruction/inventory list he had created.  The list was basically an instruction letter to whomever would be Executor of his estate and itemized all his assets / liabilities, family information, account numbers, etc.  After reading through this I thought that it was such a valuable piece that I wanted to share the basic format with all of my clients.

Feel free to download and fill in your own personal version.  As this document needs to have personal info to be useful, make sure you keep in a secure spot along with your other estate planning documents.Personal Inventory-Instructions list for Estate Plan

 

30 minutes to save $70

Written on August 12th, 2013 by Jamesno shouts

It really works.  Spending 30 minutes with the Sunday paper coupons and grocery sales circular resulted in the wife saving $70 on a recent trip to Kroger.  That took a $170 shopping trip down to $99.  Now if I can just convince her that this doesn’t equal a new pair of shoes…

coupon savings

saving $70 on a $170 shopping trip

Filed under Budgeting, Credit & Spending Tags:

an I-Bond isn’t a new Apple product

Written on August 7th, 2013 by Jamesno shouts

Do you remember back when you were a kid and would get savings bonds from your grandparents at birthdays or holidays?  You would hold them forever and ever and then go down to the local bank and cash them in when they matured.  Or perhaps you never cashed them in and still have them sitting in your file box.  Anyway, savings bonds are still around they just got some tweaks over the years.

One of the key “savings” bonds that consumers still purchase is the I-Bond (inflation bond).  This is a savings bond that is adjusted for inflation but not to be confused with the inflation adjusted treasury bond otherwise known as a TIP (I will cover the difference below).

Here are the particulars on an I-Savings Bond:

  • you have to purchase from www.TreasuryDirect.gov this is a savings bond and has to be a direct purchase from you the consumer, us financial advisors can’t help you out with these.
  • the annual purchase limit is $10,000 (electronic) per person although you can purchase an additional $5000 with your tax refund and get a paper version of the savings bond.
  • You buy the savings bond at face value and get the stated interest rate at the time of purchase + variable inflation rate that is adjusted semi annually
  • redeemable after 12 months with small interest penalty or no penalty after 5 years.
  • can have tax benefits if used for college

So the question is why put your money in an I-Bond?  If you think inflation is in the near future it isn’t a bad way to make a decent interest rate and have some adjustment that protects the purchasing power of your money.  Think of it this way, if the cost of goods were increasing at 3% per year (as measured by the Consumer Price Index) and you have all your cash sitting in a bank account paying .0001% interest you are basically losing money safely.  That dollar isn’t going to purchase the same amount of goods next year as it does this year.  With that said, currently inflation readings are very low so the I-Bonds aren’t exactly paying a tremendous amount but they will adjust in the future if inflation picks up.  Here is a direct link for more info: http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

As mentioned above, I-Bonds are different from TIPS.  A TIP is a publicly traded debt security of the US government.  It can be purchased on the open markets and held within your investment accounts as part of your fixed income (bond) allocation.  A TIP has a set interest rate when issued but the principal is adjusted twice annually based on a multiplier of 1/2 the annual CPI.  The actual coupon payment can then go up because that original interest rate is multiplied by a higher inflation adjusted principal amount.  The biggest difference is in a deflationary environment the principal value of the TIP can go down, so principal fluctuation is a possibility.  Not so with the I-Bond.

 

Filed under General, Investing Tags:

New lending rules could dampen the realestate market

Written on August 5th, 2013 by Jamesno shouts

Came across this article regarding the Consumer Financial Protection Bureau’s new rules on mortgage lending and wanted to share.  Will it impact the real estate market?  That’s anyone’s guess but when you restrict lending you automatically have a smaller pool of buyers.  Maybe for the best, but somehow I get an uneasy feeling anytime I see a government agency trying to “protect” us from ourselves….  http://www.northfulton.com/Articles-BUSINESS-c-2013-07-29-199972.114126-sub24322.114126-Will-qualified-mortgage-rule-slow-housing-market-next-year.html

Filed under Credit & Spending, General Tags: