A Taxing Situation

This week’s CBTV show is entitled, “A Taxing Situation: How the NEW Federal Tax Code May Hurt or Help Your Finances!”

The 2012 U.S. federal tax code will remain largely the same as last year, due to the extension of the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.”  However, President Obama alluded to a significant change in the near future for some Americans, during his annual State of the Union address, on January 24th.  As of now, the lowest individual income tax rate will stay at 10% throughout 2012, rather than rising back UP to 15%, and the highest income tax rate will remain at 35%, rather than increasing to 39.6%.  The 15% maximum tax rate on long-term capital gains and dividends were also extended through 2012, fueling a heated debate on whether or not the highest income earners in our country should pay more taxes on their investment earnings.

If you tuned into the annual State of the Union address last week, you probably saw Warren Buffett’s secretary Debbie Bosanek (boe-SAHN-eck) sitting near the First Lady, as a special guest of President Obama.  You would have also heard about the so-called “Buffet Rule,” which stems from the statement made by Buffet that his secretary pays a higher income tax rate than he does!  In an editorial Buffet wrote last August for The New York Times, he admitted that he has a 17.4% effective tax rate.  The “effective tax rate” is the net rate paid by a taxpayer, when adding up the total amount of taxes paid and dividing it by the total taxable income.  Buffett argued that the rich should pay taxes at a higher rate, even though he himself makes a substantial part of his annual income off investment earnings taxed at the 15% rate.  As a national proponent for increasing taxes on the wealthy, the “Buffett Rule” was first introduced last September by President Obama, as a means to, as he puts it, “alleviate income inequality in the U.S., between the top 1% of Americans and the remaining 99%.” In his State of the Union address, President Obama updated the “Buffet Rule,” by proposing a minimum tax rate of 30%, on those who earn at least $1 million dollars annually. 

The capital gains tax rate has been a hot topic in the media recently, as presidential hopefuls release their tax returns in advance of the upcoming November election.  Billionaire Warren Buffett thinks he has the answer to the debate. As we all know, he is one of the richest men in the world, but he’s not leading by example when it comes to the taxes he owes the IRS.  It might seem like an easy fix to simply double the taxes on long-term capital gains for the rich, but the consequences of that one single action could derail economic growth for years to come.  If you think about it – long-term capital gains are taxed at a lower rate to encourage individual investments into companies, whose growth fuels the economy.  Investors have already been taxed on their investment principal, and increasing taxes on any potential earnings to 30%, could detour investors from investing at all, as the risks of investing may start to outweigh the potential rewards.  What the U.S. economy really needs right now, are more people investing in our country and corporations, not less!

I would like to hear from you on this important topic of “taxes.” Do you think we’re paying too much in income and capital gains tax, or not enough? Let me know.

Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

  -Matt

http://www.ChecksandBalances.TV

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Full Disclosure

This week’s CBTV show is entitled, “New Federal 401(k) Disclosure Rules Reveal Internal Fees!”

Despite heavy opposition by retirement plan providers throughout the U. S., the Department of Labor has no plans of moving the April 1^st compliance deadline for implementing 401(k) fee disclosure rules.  However, plan providers are still waiting for the final rule regarding how they will be required to disclose their fees to plan participants. The Department of Labor expects to finalize this provision by the end of this month.  These new federal rules will require plan providers to thoroughly explain how these fees impact 401(k) returns, to both employers, as well as employees who sign up for these plans. 

The Employee Retirement Income Security Act (ERISA) is a federal law that was enacted in 1974 to protect the retirement assets of American workers, by implementing rules for qualified benefit plans. These plans include tax-deferred company sponsored plans, such as pensions, and now 401(k)s. These rules were set in place by the federal government to ensure that plan fiduciaries, or those responsible for managing the assets within a retirement account, did not misuse the assets.  It also serves as a “guideline” to how plans should be administered and address potential irregularities or “red flags” that could arise in the administration of larger corporate plans.  The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) is responsible for overseeing the protection of employee benefit rights.  In 2010, following the recession and a significant decline in 401(k) account values, EBSA recognized the need to improve transparency of fees and expenses to workers participating in 401(k)-type retirement plans.  New regulations from ERISA were then published, to help workers become more informed about the management fees being deducted from their 401(k) account. Now, in the light of increased disclosure, many employees will learn for the first time just how high some of those fees have been.

The federal government has tried to monitor and regulate the management of securities dating back to the “Securities Act of 1933,” also known as the “Truth in Securities Act.”  Before that, it was up to individual states to regulate securities.  It was the stock market crash of 1929 that prompted action by the federal government, and since then the government has taken many steps in an attempt to regulate financial institutions in an effort to protect the investment accounts of all Americans.  ERISA was established by the government 41 years later in 1974, to further protect all employee’s pensions, and ensure they would not lose their retirement income due to mismanagement of funds.  Now, this new federal legislation is designed to protect consumers from losing important retirement savings dollars, due to extremely high, and often times unnecessary, plan administrative fees.  During the most recent recession, many employees lost a lot of money in their 401(k) plans, when the stock market declined.  At the same time many employers cut back their matching contributions, with some eliminating them altogether.  And some employees were even forced to raid their 401(k) plans in an effort to stay afloat during this tough economic time. 

Again, I’d like to hear from you on this important topic. What are your thoughts on the new fee disclosure rules? Do you know what kind of fees you've been paying in the past? Sound off in the comment section below!

Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

  -Matt

http://www.ChecksandBalances.TV

http://www.facebook.com/ChecksandBalancesTV

http://www.twitter.com/MatthewJRettick

Unhealthy State of the Union

This week’s CBTV show is entitled, “Unhealthy State of the Union: Our National Debt is Now Growing Faster Than the Economy.”

For the first time since World War II, our national debt has reached the same level as the total production value of the country’s economy.  In other words, the national debt, which is the amount of money the country owes to its creditors, combined with IOUs to government retirement programs and other initiatives, now tops $15.23 trillion.  This now equals the value of all goods and services the U.S. economy produces in one year’s time.  With the debt ceiling expected to rise by another $1.2 trillion dollars sometime this month, the national debt will officially surpass the country’s annual economic output.

The ratio of U.S. debt to GDP has now officially hit 100%, and it’s rising.  The last time the ratio of national debt to Gross Domestic Product topped 100%, was just after World War II.  GDP measures the market value of all goods and services produced within a country during a specific time period, usually on a quarterly or annual basis.  National debt is defined as the total amount of debt owed by a country, both internally, as well as externally to foreign lenders.  The ratio of national debt to GDP reached 121% in 1946, one year after WW II ended.  That is the highest ratio in U.S. history and understandably so.  The U.S. spent an estimated $341 billion dollars fighting World War II, and the U.S. GDP didn’t top that figure until 1952.  After the war was paid for, the national debt to GDP ratio decreased incrementally over the next 35 years, falling to just 32% of GDP by 1981.

When the debt ceiling rises to $16.4 trillion dollars this month, more borrowing and spending is expected to continue through the rest of 2012.  In fact, the Congressional Budget Office (CBO) has already estimated the government will run at a deficit of $973 billion dollars for Fiscal Year 2012, which started on October 1^st of 2011.  That number will top $1 trillion dollars for the fourth year in a row, if the payroll tax cut and emergency unemployment benefits are “extended” for the rest of the year, as expected. What’s worse is that President Obama’s 2012 budget projects U.S. debt rising above $26 trillion dollars in just a decade from now, making this alarming trend of debt growing faster than the economy a real concern for all of us who live in this country.

Just how bad is the state of the U.S. national debt?  It’s so bad that every working American would need to give up one year’s salary to pay it off!  Some have argued that raising taxes is the easy solution, but who wants to pay more in taxes to fund the governments continued spending. Taxes at the end of WWII were increased to pay for the cost of defending the U.S., which was a noble cause, and one that most Americans supported.  But in today’s scenario, the money the government spends seems to be out of control with no accountability. Take for example how it funds companies such as solar-panel manufacturer Solyndra for half a billion dollars, only to have the company file bankruptcy a short time later.  No matter how much money Americans pay in taxes to our government, our elected officials are still the ones who are making the important decisions on what to spend our money on.  They need to wake up, and decide on a plan to significantly cut spending and start digging us out of this seemingly bottomless pit, before it’s too late!

Again, I’d like to hear from you on this important topic that can ultimately affect all of us, as well as our children and grandchildren. Are you concerned about our national debt increasing by leaps and bounds or do you think it’s no big deal? Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

  -Matt

http://www.ChecksandBalances.TV

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http://www.twitter.com/MatthewJRettick

2012 Resolutions!

This week’s CBTV show is entitled, “Make Your 2012 Resolution to Become Financially Fit!”

As 2012 gets underway, many Americans have made it their New Year’s resolution to become financially fit.  The beginning of the year is traditionally the perfect time for people to start fresh, and make plans to begin paying down that holiday debt and saving more money for retirement.  November and December were record-breaking months for consumer spending, and consumer credit card debt is expected to rise.  While final 4^th quarter numbers aren’t in yet, the third quarter of 2011 saw a 154% increase in consumer debt, when compared to 2010, according to credit card research company Card Hub.  They also reported that people have historically made a strong effort to pay down credit card debt in the first quarter of each year, proving that many Americans take the resolution of “fiscal fitness” seriously.

Resolutions are simply goals we all dream of achieving.  When you resolve to change activities or results in the New Year, you’re committing yourself to creating new habits and improving your life.  To become financially fit in 2012, and make good on your financial resolutions, you should focus on a written plan, and be willing to sacrifice to reach your goals.  For many people, their financial goal is to pay off debt and save more money.  Like most resolutions though, this is much easier said than done.  For some, the task won’t seem too difficult until they receive their new credit card statements in January.  It’s then that a true reality check of what it’s going to take to become financially fit in 2012 sets in.  This is where a written plan and true commitment becomes imperative!  

You may have heard the old saying, “resolutions are made to be broken.”  But breaking your financial resolutions in 2012 could leave you broke!  While it was easy for shoppers to use their credit cards this past holiday season, the hard part lies ahead, paying it down or off over many months or years.  Credit card debt can snowball out of control, if you’re not careful. The “Buy Now, Pay Later” plan always catches up with you.  Becoming “financially fit” involves a lot of hard work and dedication, and a written plan plays a huge role in your success.  If your New Year’s resolution includes dumping debt and saving more for retirement, make it happen!  Stick to your resolutions and turn them into solutions, before Father Time catches up to you and your finances, and keeps you from achieving your financial goals.

Once again, I’d like to hear your views on this week’s show. Did you spend more or less this year on Christmas presents? Do you plan on paying off a chunk of your credit card purchases during the first quarter of 2012? And, are you still paying for 2010’s Christmas gifts?

Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

 -Matt

http://www.ChecksandBalances.TV

http://www.facebook.com/ChecksandBalancesTV

http://www.twitter.com/MatthewJRettick

2011: A Year In Review

This week’s CBTV show is entitled, “2011 – A Year of Many Financial Ups and Downs!”

The end of the year is usually a time for reflection on what “happened” over the previous 12 months.  But in 2011, some of the top financial news stories have been on what “did NOT happen.”  One of the biggest stories was the U.S. long-term credit rating downgrade from AAA to AA+ by Standard & Poor’s on August 5th.  The downgrade sent the stock market in a tailspin, with the Dow Jones Industrial Average suffering its sixth-biggest, single day decline ever, of 635 points.  The S&P downgrade was a result of the federal government’s inability to make a decision on how to cut the federal deficit.  The debt ceiling was raised by Congress three days before the S&P downgrade was issued.  The failure of the Congressional “Super Committee” to trim at least $1.2 trillion dollars out of our budget over the next 10 years, has made 2011, the “Year of Inaction.”

When the “super committee” failed to fulfill their assignment, they essentially handed off the responsibility of slashing our country’s deficit back to Congress, and possibly a new president, in November of 2012.  The automatic spending cuts, totaling $1.2 trillion dollars, will not become effective until 2013, which means Congress has another full year to argue against them, or figure out an alternative solution.  As it stands now, these cuts must be divided equally between defense and select domestic programs.  Leaders of the U.S. Armed Forces have already fought against these measures, expressing deep concerns over cutting our military budget and strategic presence around the globe, as well as compromising our national security.

While the “Year of Inaction” is nearly over, we may very well be talking about the “Years of Inaction” at the end of 2012.  The indecision of our elected officials to change the financial course of our country this year, shows a lack of true leadership.  But there is a silver lining to this year’s indecision by Congress that helped some Americans in 2011.  The failure of the “super committee” faired well for retirees, who had feared cuts to Social Security and Medicare.  Some Americans also found ways to make the most of a bad situation by cashing in on timely investment opportunities such as gold.  Mortgage rates also fell below 4% for the first time in 30 years, and made it very tempting for many to buy a home.  Yes, 2011 was an interesting year, but it also furthered the U.S. on a financial path it cannot sustain.  While the forecast for 2012 looks like more of the same, take advantage of the good while you can, but also brace yourself for more rough waters ahead.

Again, I’d like to hear from you on this week’s show. How do you think our government officials are doing in making decisions to improve our financial future?

Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

 -Matt

http://www.ChecksandBalances.TV

http://www.facebook.com/ChecksandBalancesTV

http://www.twitter.com/MatthewJRettick

The Perfect Gift For Yourself

This week’s CBTV show is entitled, “How to Choose the Perfect Gift for Yourself this Holiday Season- Financial Security in Retirement.”

In this week’s financial tip, tool, or technique portion of the show I said, if you’re lucky enough to have an employer who still offers a defined benefit plan, you have several payout options available to you, come retirement time. Here are the 4 basic payout options to consider when creating an income stream from your pension in retirement:

1) Single Life Payout: This option pays out the biggest benefit, and is calculated based on a single life – yours, which means it ends at your death.  No benefit is available for your surviving spouse, so this might be appropriate for a single retiree, or a couple who can cover the loss of income, if the spouse who is receiving the pension dies first.

2) Spousal Continuation Payout: Unlike the single life payout, these benefits continue on, if survived by a spouse. The downside, is the monthly benefit paid to the retired spouse is reduced vs. the single life payout. The upside, is the monthly payments are paid out for the life of the retiree and the surviving spouse, no matter how long each one lives. 

3) Lump-Sum Distribution Payout: Some plans give you the option to take your pension funds in a lump sum, that can then be “rolled over” into an Individual Retirement Account (IRA).  Taking the lump-sum distribution allows you to invest your money as you wish, and gives you many more options to choose from, which may give you even more income in retirement.

4) Pension Arbitrage Payout- If you’re married consider taking the higher “single life pension payout” and buying a life insurance policy on yourself. With this strategy, you will receive a higher monthly income during your lifetime, and your surviving spouse will receive a “lump sum” income tax-free benefit upon your death.

Knowing all your options before you structure your pension payout, can help you maximize your retirement income stream.  I also recommend you consult with a qualified professional before making any decisions on this important election of benefits. Because once you decide which option to choose, you can never go back and change it!

 I would like to hear from you this week on whether or not you have a Pension Plan distribution coming to you when you retire. Many employees do not have this valuable option available to them anymore. If you do, you’re one of the lucky ones.

Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

 -Matt

http://www.ChecksandBalances.TV

http://www.facebook.com/ChecksandBalancesTV

http://www.twitter.com/MatthewJRettick

The Gift That Keeps On Giving

This week’s CBTV show is entitled, “This Holiday Season Give YOURSELF the Gift That Keeps on Giving – A Guaranteed Income Stream for Life.”

Retailers across the country cashed in on the most profitable Thanksgiving weekend ever last month, and they’re hopeful that December will produce strong fourth-quarter sales to carry them into the new year. Consumers spent a record $52.4 billion dollars over the “Black Friday” weekend, with an additional $1.25 billion generated in Internet sales on “Cyber Monday,” the heaviest online spending day in history.  A number of factors have contributed to these record sales, from stores opening earlier than ever before, to low sales prices being extended for longer periods of time.  While the country closes out another tough year, millions of Americans are giving the economy a boost, as they spend their way through the beginning of the holiday season.

While you’re spending money on great gifts for family and friends this holiday season, take a moment to think about yourself too.  The best gift you can give yourself is a gift that keeps on giving, such as an income for life!  This can be accomplished through saving for and then structuring your retirement assets to provide an income stream that will last throughout your retirement years.

Here are 4 financial challenges to be aware of as you create a master plan to live comfortably in retirement:

1) Inflation: Your income plan should figure inflation into the equation. Inflation has ranged between 3% and 4% for most of this year.  Costs will continue to go up for most goods and services, so make sure you plan for this expected rise in the cost of living when planning your income stream for retirement.

2) Life Expectancy: More Americans are reaching their 80’s, 90’s, and 100’s than ever before in history, which means our money must last longer too!  Therefore, you need to develop a plan that ensures your savings will go the distance.  For more and more people, that means working past the age of 65, so they can maintain an income to supplement Social Security and other retirement benefits.

3) Adequate Savings: An income plan should definitely include some form of retirement savings, whether it’s a 401(k), an IRA or an annuity.  The key is to put enough money away as soon as possible for the future, and not spend it on anything, but your retirement years!

4) Debt: You will never be able to truly enjoy retirement or even pre-retirement if you still owe money on anything you’ve purchased in the past. One of your goals should be to become debt-free as soon as possible. Stop being slave to the lender! Pay off all of your credit cards, home mortgage and car payments and watch your peace of mind, bank account and income increase!

Creating a solid income plan can keep your finances in good shape during retirement. So, as you shop `til you drop this holiday season, don’t forget to add “Your Name” to your list of gift recipients. This can truly be a gift that lasts a lifetime!

I would like to hear from you on this week’s important show topic. Have you given any thought to how you will create an income stream that will last as long as you do in retirement?

Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

 -Matt

http://www.ChecksandBalances.TV

http://www.facebook.com/ChecksandBalancesTV

http://www.twitter.com/MatthewJRettick