Category Archives: Individual and Medicare

THE BIG TAX QUESTIONS OF 2013

How will Congress resolve these issues?

Decisions must be made. In the next couple of months, Congress will address several major tax matters. Here are the big questions looming.

The Bush-era income tax cuts. Will the current 10%-15%-25%-28%-33%-35% federal tax rate structure give way to 15%-28%-31%-36%-39.6% tax brackets in 2013? After the election, some analysts feel a compromise will be struck to maintain some of the Bush-era cuts for another year. In 2013, you may see the 10%, 15%, 25% and 28% brackets being retained while the wealthy face higher taxes.1

Tax rates on capital gains & dividends. Right now, dividends and most long-term capital gains are taxed at either 0% or 15% (depending on the income tax bracket you fall into). In 2013, dividends are scheduled to be taxed as regular income (cf. 15%-39.6% tax brackets above) and the capital gains tax rates are set to increase to 10% and 20%. So will dividend taxes and capital gains taxes only increase for the rich in 2013? That may very well turn out to be the case.2

Estate & gift taxes. President Obama’s proposal has the U.S. returning to a top estate tax rate of 45% with a $3.5 million exemption. In other words, estate taxes would return to 2009 levels as opposed to 2001 levels (55% top rate, $1 million exemption), which is what would happen if the Bush-era cuts simply expired. While Sen. Orrin Hatch (R-UT) and others in Congress have called for an end to estate taxes, many analysts think they will return to 2009 levels as a byproduct of Obama’s re-election. Will we see a unified gift and estate tax in 2013? That is a possibility, though not a given. It could be that the lifetime gift tax exemption becomes $3.5 million in 2013 (it is currently $5.12 million per individual with the unused portion of an individual exemption portable between spouses) with gifts past the exemption taxed at 35%. That would be better than the alternative: a scheduled $1 million exemption, along with a 55% maximum gift tax rate.2,3

The payroll tax holiday. Months ago, the consensus was that this would not survive into 2013. Yet last month, Rep. Christopher Van Hollen, the top Democrat on the House Budget Committee, told C-SPAN that it should be extended. Former Treasury Secretary and Obama administration economic advisor Larry Summers agrees. So it may live on for another year.4

The marriage penalty. Our federal tax code has a longstanding quirk: occasionally, married couples pay more in tax than they would if they were single filers. The Economic Growth and Tax Relief Reconciliation Act of 2001 attempted to lessen the penalty in two ways. It made the standard deduction for married joint-filing couples twice what it was for singles, and it made the bottom two tax brackets for those married and filing jointly twice as broad as for singles. In 2013, the marriage penalty could become more severe: the standard deduction for joint filers will be only about 167% of the standard deduction for singles and those widened joint-filer tax brackets are slated to narrow. As middle-income couples will probably face higher payroll taxes in 2013, retaining the current softer penalty seems likely.2

Child & childcare tax credits. Both of these credits are set to shrink next year. The child tax credit is supposed to be halved to $500, and the maximum childcare credits available to most parents ($600 for one child aged 12 or younger, $1,200 for more than one) are poised to drop to $480 and $960. Extending these credits into 2013 could amount to good PR for a disdained Congress.5

The American Opportunity Credit. In 2009, the up-to-$1,800 Hope tax credit was supercharged into the AOC: an up-to-$2,500 education credit which could be claimed for four tax years that include college education rather than two. In 2013, the AOC is scheduled to disappear with an $1,800 (or possibly $1,900) Hope credit slated to reappear. The AOC may be extended into 2013; again, it would be a popular move at a time when Congress is riding a wave of unpopularity.5,6

College expense deduction. Back in 2011, you could write off as much as $4,000 in tuition on your federal return. Some legislators would like to see this deduction made available again in 2013 and perhaps even made retroactively available for 2012. It would be a popular move and it could prove a nice “sweetener” on any bill addressing tax issues for the coming year.5

Charitable IRA gifts. Universities and retirees found the IRA charitable rollover quite useful, but it faded away at the end of 2011. Many in the education community (and some in Congress) would like to see it return for 2013, and given that tax hikes seem to be imminent next year, a big tax break like this might be offered pursuant to a Congressional compromise.5

IDLs & PEPs. In 2010, itemized deduction limits and personal exemption phase-outs were repealed. In 2013, they may return as the federal government seeks much-needed tax revenues.2

Reeve Conover may be reached at 877-423-9990, or at reeve@reevewillknow.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – money.usnews.com/money/blogs/the-best-life/2012/08/29/get-ready-for-5-key-money-changes-in-2013 [8/29/12]

2 – www.smartmoney.com/taxes/tax-policy/key-tax-issues-to-watch-postelection-1351019063876 [10/23/12]

3 – www.deseretnews.com/article/765589424/Sen-Orrin-Hatch-calls-for-end-of-estate-tax-as-Jan-2013-taxmageddon-looms.html [7/12/12]

4 – online.wsj.com/article/SB10000872396390444734804578066991225311524.html [10/18/12]

5 – www.marketwatch.com/story/14-tax-issues-to-watch-after-the-election-2012-11-01 [11/1/12]

6 – www.finaid.org/otheraid/hopescholarship.phtml [11/8/12]

Monthly Economic Update November 2012

 

 

MONTHLY ECONOMIC UPDATE

 

 

MONTHLY QUOTE

“A friendship founded on business is better than a business founded on friendship.”
       

– John D. Rockefeller

 

  

MONTHLY TIP

As 2012 ends, remember that you can gift up to $13,000 (or $26,000 as a married couple) to any individual without the gift counting against your lifetime exclusion.

  

  

MONTHLY RIDDLE

Hannah went to a local hardware store to buy some small items. One would cost $2, two would run $4 … but buying 122 would only cost $6. She bought 122, yet she was not buying in bulk at all; she could carry what she bought with one hand. What did she purchase?

Last month’s riddle:
How can you turn the Roman numeral for 9 (IX) into 6 merely by drawing a single, continuous line?

Last month’s answer:

Draw an S to the left of the IX to get SIX.

 

November 2012

THE MONTH IN BRIEF
Stocks pulled back in October: the S&P 500 had its poorest month since May, retreating 1.98%. The Q3 earnings season proved disappointing, just as many analysts had warned. Elsewhere, the unemployment rate fell and home values continued to rebound. Our service and manufacturing sectors seemed to be expanding again. Oil prices dropped along with gas prices. Finally, “superstorm” Sandy closed trading at the NYSE for two days and left flooding and destruction throughout the Tri-State Area.1

DOMESTIC ECONOMIC HEALTH
The unemployment rate ticked up to 7.9% in October, having dipped to 7.8% in September. That was because more Americans returned to the job hunt. Labor Department revisions showed the economy adding an average of 173,000 jobs per month in August, September and October; the October gain was 171,000; a better showing than the five-figure monthly payroll expansions seen earlier in the year.2

The nation’s two most-watched consumer polls showed confidence rising: the Conference Board’s October survey improved 3.8 to a mark of 72.2 (the highest since February 2008) and the University of Michigan’s final October survey rose to 82.6, a 61-month peak. Consumers were in a buying mood, and they weren’t just spending more of their incomes on gasoline. Households increased spending by 0.8% in October, with incomes rising 0.4% and the savings rate heading to an 11-month low of 3.3%. The Commerce Department also said that consumer spending had increased 2.0% in the third.3,4,5

America’s service and manufacturing sectors seemed to have gotten out of mid-year doldrums. The Institute for Supply Management’s October manufacturing PMI rose to 51.7, a 0.2% increase from September; its September service sector PMI showed a 1.4% increase to 55.1.6,7

Gas prices jumped 7% in September (after a 9% leap in August), so the Consumer Price Index advanced 0.6% in September. Still, the overall and core CPI only showed yearly increases of 2.0%, right at the Federal Reserve’s target. The Producer Price Index jumped 1.1% in September as energy prices climbed 4.7% for the month; core PPI remained flat, however. Annualized wholesale inflation hit 2.1% in September, the highest rate since March. Inflation did not hurt retail sales; they rose 1.1% in September, and they were up 0.9% even with gas, auto and home improvement purchases factored out.8,9,10

A “superstorm” named Sandy, a ferocious product of a tropical hurricane meeting a winter jet stream, forced a two-day closure of the stock market toward the end of the month. IHS Global Insight says Sandy may cause as much as an 0.6% drag on U.S. GDP in the fourth quarter; it estimates the storm did $20 billion in real estate damage and will result in $30 billion in lost business.11

     

GLOBAL ECONOMIC HEALTH
In the eyes of many economists, Europe was the region poised to impede global growth in 2013. The latest available data showed the overall unemployment rate for the European Union rising for a 17th consecutive month in September, hitting 11.6%; in Spain and Greece, unemployment was above 25%. The eurozone’s manufacturing sector shrank for a 15th straight month in September, with its overall PMI dropping to 45.4; of 17 EU nations, only Ireland had a manufacturing PMI above 50 for the month.12,13

In contrast, activity in China’s manufacturing sector showed improvement. The PRC’s official PMI indicated sector growth again, moving to 50.2 last month from 49.8 in September. HSBC’s private-sector PMI for China rose to 49.5 in October – up considerably from the previous 47.9 reading to the highest mark recorded in eight months. China’s growth rate had been 7.4% in Q3 2012, the lowest GDP reading in three years – but estimates of 4Q GDP ranged from 7.8-8.4%. Manufacturing activity in Taiwan, India and South Korea also improved in October, with Taiwan’s PMI hitting a 4-month peak.14  

    

WORLD MARKETS
Performances ran the gamut last month. Some indices fell: Argentina’s MERVAL (5.35%), Russia’s MICEX (2.39%), Korea’s KOSPI (4.22%), China’s Shanghai Composite (0.83%), Brazil’s Bovespa (3.56%), India’s BSE Sensex (1.37%) and Taiwan’s TWSE 50 (5.69%). Others posted minor or major gains for October: Australia’s All Ordinaries (2.93%), Canada’s TSX Composite (0.86%), France’s CAC 40 (2.22%), the U.K.’s FTSE 100 (0.71%), Mexico’s Bolsa (1.84%), Germany’s DAX (0.62%), Japan’s Nikkei 225 (0.66%), Hong Kong’s Hang Seng (3.85%) and Malaysia’s KLCE Index (2.22%). Among regional and multinational indices, the FTSE Eurofirst 300 rose 0.66% while the MSCI World Index and MSCI Emerging Markets Index respectively fell 0.76% and 0.95% in U.S. dollar terms.15,16

COMMODITIES MARKETS

Gold ended October at $1,719.10, with prices falling 3.1%; it remained up 9.7% YTD. Silver slipped 6.5% in October, copper 6.4%, platinum 5.5% and palladium 4.8%. Natural gas gained 11.2%, but oil fell 6.5% and wrapped up last month at just $86.24 a barrel. Heating oil lost 3.1%, RBOB gasoline fell 9.9% on the month, and retail gasoline prices also descended 7.0%. Some key crops were also among the October losers: corn, -0.2%; cotton, -0.8%; wheat, -3.5%; coffee, -10.9%.17,18

REAL ESTATE
Shrinking inventory, especially at the low end of the market, contributed to a 1.7% reduction in existing home sales in September; still, the National Association of Realtors did note an 11.0% year-over-year increase in sales levels, and a 0.3% September gain in pending home sales. The Census Bureau said new home buying increased 5.7% in September, while the Commerce Department reported a 15.0% jump in housing starts. September’s 20-city S&P/Case-Shiller Home Price Index showed an overall yearly gain of 2.0%, up from 1.2% in August.19,20

Comparing Freddie Mac’s October 4 and November 1 Primary Mortgage Market Surveys, we see small increases in mortgage rates. The average on the 30-year fixed rose from 3.36% to 3.39% in that period; the average rate on the 15-year FRM ticked up from 2.69% to 2.70%. Average rates on 5/1-year ARMs went from 2.72% to 2.74% and average rates on 1-year ARMs edged up to 2.58% from 2.57%.21

LOOKING BACK…LOOKING FORWARD
The S&P, NASDAQ and Dow all slipped in October and so did the Russell 2000, which fell 2.24% to a month-ending close of 818.73.22

% CHANGE Y-T-D 1-MO CHG 1-YR CHG 10-YR AVG
DJIA +7.19 -2.54 +9.55 +5.60
NASDAQ +14.28 -4.46 +10.91 +12.39
S&P 500 +12.29 -1.98 +12.68 +5.94
REAL YIELD 10/31 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS -0.78% 0.08% 2.14% 3.10%

 
Sources: money.cnn.com, bigcharts.com, treasury.gov – 10/31/121,23,24,25,26,27,28

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

So much is up in the air as we enter November. Who will win the presidency, and what will happen with health care reforms, the debt ceiling and the Bush-era tax cuts? Will the present lame-duck Congress punt the issue of the fiscal cliff to the incoming one, arriving at a compromise for the short term? Or will the scheduled tax hikes and spending cuts be allowed to happen in full? Will Wall Street turn merely cautious in the face of all this, or bearish? There is still a surprising amount of bullish momentum, aided by recent employment, manufacturing, housing and retail data. This data stream was not quite positive enough to overcome the letdown leveled by the Q3 earnings season; indicators will need to show additional strength to ease Wall Street’s collective anxiety this month. 

UPCOMING ECONOMIC RELEASES: The news feed for November continues with ISM’s October non-manufacturing index (11/5), September wholesale inventories and the University of Michigan’s initial consumer sentiment survey for the month (11/9), October’s PPI and retail sales, September business inventories and FOMC  minutes from October 24 (11/14), the October CPI (11/15), October industrial output (11/16), October’s existing home sales and the November NAHB housing market index (11/19), October housing starts and building permits (11/20), the University of Michigan’s final consumer sentiment survey for the month and the Conference Board’s October Leading Economic Indicators index (11/21), October durable goods orders, the Conference Board’s October consumer confidence survey, the September Case-Shiller home price index and the November FHFA housing price index (11/27), October new home sales and a new Federal Reserve Beige Book (11/28), October pending home sales and the second estimate of Q3 GDP (11/29) and then October consumer spending (11/30).

 

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«RepresentativeDisclosure»

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The MICEX 10 Index is an unweighted price index that tracks 10 most liquid Russian stocks listed on MICEX-RTS in Moscow. The KOSPI Index is a capitalization-weighted index of all common shares on the Korean Stock Exchanges. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The TWSE, or TAIEX, Index is capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The S&P/ASX All Ordinaries Index represents the 500 largest companies in the Australian equities market. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The Mexican Bolsa IPC index (Indice de Precios y Cotizaciones) is a capitalization-weighted index of the leading stocks traded on the Mexican Stock Exchange. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE Bursa Malaysia KLCI Index comprises of the largest 30 companies by full market capitalization on Bursa Malaysia’s Main Board. The FTSE Eurofirst 300 is an index of the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – money.cnn.com/data/markets/sandp/  [10/31/12]

2 – www.latimes.com/business/money/la-fi-mo-jobs-unemployment-20121102,0,642852.story 6 [11/2/12]

3 – articles.marketwatch.com/2012-11-01/economy/34847281_1_lynn-franco-director-of-economic-indicators-confidence-readings [11/1/12]

4 – www.bloomberg.com/news/2012-10-26/michigan-consumer-sentiment-index-increased-to-82-6-in-october.html [10/26/12]

5 – www.bloomberg.com/news/2012-10-29/consumer-spending-in-u-s-increases-0-8-as-incomes-climb-0-4-.html [10/29/12]

6 – www.ism.ws/ISMReport/MfgROB.cfm [11/1/12]

7 – www.ism.ws/ISMReport/NonMfgROB.cfm [10/3/12]

8 – articles.latimes.com/2012/oct/17/business/la-fi-inflation-20121017 [10/17/12]

9 – www.nasdaq.com/article/us-producer-prices-rise-11-core-ppi-flat-20121012-00342#.UHh9YaCMLHp [10/12/12]

10 – www.reuters.com/article/2012/10/15/us-usa-economy-idUSBRE89E0RI20121015 [10/15/12]

11 – abcnews.go.com/blogs/business/2012/10/business-winners-losers-from-sandy/ [11/2/12]

12 – www.guardian.co.uk/business/economics-blog/2012/oct/31/europe-leaders-unemployment-economic-disaster/print [10/31/12]

13 – www.reuters.com/article/2012/11/02/us-pmi-manufacturing-eurozone-idUSBRE8A10F520121102 [11/2/12]

14 – www.businessweek.com/news/2012-10-31/china-oct-dot-manufacturing-pmi-50-dot-2-vs-50-dot-2-economists-estimate [10/31/12]

15 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [10/31/12]

16 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [10/31/12]

17 – www.coinnews.net/2012/10/31/gold-silver-prices-dive-in-october-us-bullion-coins-firm/ [10/31/12]

18 – money.msn.com/market-news/post.aspx?post=144836a9-4549-4019-9bfb-6419b9dfe935 [10/31/12]

19 – www.foxbusiness.com/news/2012/10/25/us-pending-home-sales-rise-03/ [10/25/12]

20 – briefing.com/investor/calendars/economic/2012/10/29-02 [11/2/12]

21 – www.freddiemac.com/pmms/ [11/2/12]

22 – money.cnn.com/data/markets/russell/ [10/31/12]

23 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [10/31/12]

24 – money.cnn.com/data/markets/dow/  [10/31/12]

25 – money.cnn.com/data/markets/nasdaq/  [10/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F11&x=0&y=0 [10/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F11&x=0&y=0 [10/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F11&x=0&y=0 [10/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F31%2F02&x=0&y=0 [10/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F31%2F02&x=0&y=0 [10/31/12]

26 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F31%2F02&x=0&y=0 [10/31/12]

27 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [10/31/12]

27 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [10/31/12]

28 – treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm71002.pdf [7/10/02]

BIG SPENDERS vs. BIG SAVERS

Who would you rather emulate?

 Presented by Reeve Conover

 You stand at your window and look across the street. Nice house, you think. Nice landscaping. Nice sports car. Nice driveway. New bikes for the kids. Wow, your neighbors are really well off. If only you had that kind of money.

That plain home down the street with the older model sedan parked out front pales in comparison. A couple in their seventies lives there, and the front yard hasn’t been spruced up in a decade. Who knows, maybe they struggle just to get by.

If you could somehow look into the financial lives of those two households, you might be surprised. The couple with all the toys might not be as wealthy as the neighborhood perceives, while the vanilla exterior on that humble rancher might hide a multimillionaire next door.

Remember that affluence does not = net worth. When you look across the street at the house of that well-to-do family, you are not necessarily gazing at a portrait of wealth. You are seeing a portrait of their spending habits.

What are they spending their money on? Perhaps, quite literally, a façade; their house may be the best house in the neighborhood, but what of kind of mortgage payment are they grappling with? Are they making payments on that sports car? That vehicle is a depreciating asset (unless they keep it garaged for a few decades). The flat-screen, the pool, the home audio system … they have put their dollars into things that their neighbors can see. They may be engaging in all-too-common financial behavior: thinking of wealth in terms of material items, spending money on toys instead of their lives.

Real wealth may not be advertised. Perhaps the older couple down the street isn’t interested in the hottest new luxuries. Decades ago, they put extra money toward their mortgage; even with housing values currently depressed, their residence is still worth much more than they paid for it. Most importantly, it is paid off.

Maybe they are good savers, always have been. When they were the age of the flashy couple up the street, they directed money into things that their neighbors couldn’t see – their investments, their retirement accounts, their bank accounts.

Years ago, they could have lived ostentatiously like that high-earning couple up the street – but instead of living on margin, they chose to live within their means. They saw some of their friends “rent” a luxury lifestyle for a few years, only to lose homes and cars they couldn’t really afford. Sometimes the economy or fate had a hand in it, but too often their friends simply made poor decisions. 

It could be that it was just more important for them to think about the future rather than the moment. Parenting reinforced that philosophy. Their good financial habits kept their family away from a bunch of bad debts, and helped them build wealth slowly. Indirectly, it also helped their kids, who grew up in a household with less financial stress and with an appreciation and understanding of key financial principles. Now, they are applying those principles to build wealth in their own lives.

Roughly every fortieth American is a millionaire. There are nearly 8 million people with a net worth of $1 million or more in the U.S., and their financial characteristics may differ slightly from what you expect.1

Fidelity’s 2012 Millionaire Outlook survey (which polled 1,000 households with $1 million or more in investable assets) notes that 86% of millionaires are self-made. Not so amazing, perhaps, but here is a striking detail. Among the self-made millionaires, the top sources of assets were 1) investments and/or capital appreciation, 2) compensation and 3) employee stock options or profit sharing. Millionaires born into wealth were the most likely to cite entrepreneurship and real estate investing as key factors behind their fortunes.2

According to the survey, the average U.S. millionaire is 61 years old with $3.05 million in investable assets. Fidelity also found that with regard to the financial future, more than (30%) of these millionaires were focused on preserving wealth, rather than growing it (20%).2 

What will you spend your money on, tomorrow or today?

As Thomas J. Stanley and William D. Danko noted in their classic study The Millionaire Next Door, the typical millionaire lives on 7% of his or her wealth. That was in 1997; the percentage could be lower today. Call it frugal, call it boring, but such financial conservation may help promote lifetime wealth. Today, with so many enticements to spend your money as soon as you earn it, this mindset may have a lot of financial merit.1

         

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

 

Citations.

1 – www.investopedia.com/financial-edge/0411/why-many-millionaires-dont-feel-rich.aspx#axzz2AM2TWb3m [4/13/11]

2 – www.reuters.com/article/2012/07/19/idUS126070+19-Jul-2012+BW20120719 [7/19/12]

Expect small ’13 Social Security benefit increase

The Associated Press

STEPHEN OHLEMACHER | October 14, 2012

WASHINGTON (AP) — Social Security recipients shouldn’t expect a big increase in monthly benefits come January.

Preliminary figures show the annual benefit boost will be between 1 percent and 2 percent, which would be among the lowest since automatic adjustments were adopted in 1975. Monthly benefits for retired workers now average $1,237, meaning the typical retiree can expect a raise of between $12 and $24 a month.

The size of the increase will be made official Tuesday, when the government releases inflation figures for September. The announcement is unlikely to please a big group of voters — 56 million people get benefits — just three weeks before elections for president and Congress.

The cost-of-living adjustment, or COLA, is tied to a government measure of inflation adopted by Congress in the 1970s. It shows that consumer prices have gone up by less than 2 percent in the past year.

“Basically, for the past 12 months, prices did not go up as rapidly as they did the year before,” said Polina Vlasenko, an economist at the American Institute for Economic Research, based in Great Barrington, Mass.

This year, Social Security recipients received a 3.6 percent increase in benefits after getting no increase the previous two years.

Some of next year’s raise could be wiped out by higher Medicare premiums, which are deducted from Social Security payments. The Medicare Part B premium, which covers doctor visits, is expected to rise by about $7 per month for 2013, according to government projections.

The premium is currently $99.90 a month for most seniors. Medicare is expected to announce the premium for 2013 in the coming weeks.

“The COLA continues to be very critical to people in keeping them from falling behind,” said David Certner, AARP’s legislative policy director. “We certainly heard in those couple of years when there was no COLA at all how important it was.”

How important is the COLA? From 2001 to 2011, household incomes in the U.S. dropped for every age group except one: those 65 and older.

The median income for all U.S. households fell by 6.6 percent, when inflation was taken into account, according to census data. But the median income for households headed by someone 65 or older rose by 13 percent.

“That’s all because of Social Security,” Certner said. “Social Security has the COLA and that’s what’s keeping seniors above water, as opposed to everybody else who’s struggling in this economy.”

Seniors still, on average, have lower incomes than younger adults. Most older Americans rely on Social Security for a majority of their income, according to the Social Security Administration.

“It’s useful to bear in mind that no other group in the economy gets an automatic cost-of-living increase in their income,” said David Blau, an economist at The Ohio State University. “Seniors are the only group.”

Still, many feel like the COLA doesn’t cover their rising costs.

“You have utilities go up, your food costs go up. Think about how much groceries have gone up,” said Janice Durflinger, a 76-year-old widow in Lincoln, Neb. “I would love to know how they figure that.”

The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a broad measure of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.

In the past year, food prices have risen 2 percent while home energy prices have dropped 3.8 percent, according to the CPI-W. Housing costs have climbed by 1.4 percent and gasoline prices have increased by 1.8 percent.

Blau said it’s common for seniors to feel like the COLA doesn’t reflect their rising costs, in part because older people tend to spend more of their income on health care. Medical costs have risen 4.3 percent in the past year as measured by the CPI-W.

“Inflation affects everybody differently unless you happen to be that mythical average person who buys the average bundle of goods,” Blau said.

By law, the Social Security Administration compares the price index for July, August and September with consumer prices in the same three months from the last year in which a COLA was awarded. A COLA was awarded a year ago, so the index from July, August and September of this year is being compared with the index from the same period in 2011.

If prices go up over the course of the year, benefits go up, starting with payments delivered in January. But if prices go down, benefits stay the same. That’s what happened in 2010 and 2011, when there was no COLA.

This year, consumer prices for July and August indicate next year’s COLA would be 1.4 percent. The price index for September — the final piece of the puzzle — will be released Tuesday. Several economists said they don’t expect it to change the projected COLA by more than a few tenths of a percentage point, if at all.

Vlasenko estimates the COLA will be from 1.5 percent to 1.7 percent. AARP estimates it will be about 1.5 percent.

Since 1975, the annual COLA has averaged 4.2 percent. Only five times has it been below 2 percent, including the two times it was zero. Before 1975, it took an act of Congress to increase Social Security payments.

“Over the past year, consumer prices have only gone up a little bit,” Blau said. “By historical standards, it’s a very low rate of increase.”

Why it matters: Social Security

This is part of a continuing series of articles by Stephen Ohlemacher, and is a good review of where Social Security Stands, and the politics surrounding it – Reeve

October 2, 2012

Unless Congress acts, the trust funds that support Social Security will run out of money in 2033, according to the trustees who oversee the retirement and disability program. At that point, Social Security would collect only enough tax revenue each year to pay about 75 percent of benefits. That benefit cut wouldn’t sit well with the millions of older Americans who rely on Social Security for most of their income.

Where they stand:

President Barack Obama hasn’t laid out a detailed plan for addressing Social Security. He’s called for bipartisan talks on strengthening the program but he didn’t embrace the plan produced by a bipartisan deficit reduction panel he created in 2010.

Republican challenger Mitt Romney proposes a gradual increase in the retirement age to account for growing life expectancy. For future generations, Romney would slow the growth of benefits “for those with higher incomes.”

Why it matters:

For millions of retired and disabled workers, Social Security is pretty much all they have to live on, even though monthly benefits are barely enough to keep them out of poverty. Monthly payments average $1,237 for retired workers and $1,111 for disabled workers. Most older Americans rely on Social Security for a majority of their income; many rely on it for 90 percent or more, according to the Social Security Administration.

Social Security is already the largest federal program and it’s getting bigger as millions of baby boomers reach retirement. More than 56 million retirees, disabled workers, spouses and children get Social Security benefits. That number that will grow to 91 million by 2035, according to congressional estimates.

Social Security could handle the growing number of beneficiaries if there were more workers paying payroll taxes. But most baby boomers didn’t have as many children as their parents did, leaving relatively fewer workers to pay into the system.

In 1960, there were 4.9 workers for each person getting benefits. Today, there are about 2.8 workers for each beneficiary, and that ratio will drop to 1.9 workers by 2035.

Nevertheless, Social Security is ripe for congressional action in the next year or two, if lawmakers get serious about addressing the nation’s long-term financial problems. Why? Because Social Security is fixable.

Despite the program’ s long-term problems, Social Security could be preserved for generations to come with modest but politically difficult changes to benefits or taxes, or a combination of both.

Some options could affect people quickly, such as increasing payroll taxes or reducing annual cost-of-living adjustments for those who already get benefits. Other options, such as gradually raising the retirement age, wouldn’t be felt for years but would affect millions of younger workers.

Fixing Social Security won’t be easy. All the options carry political risks because they have the potential to affect nearly every U.S. family while angering powerful interest groups. Liberal advocates and some Democrats oppose all benefit cuts; conservative activists and some Republicans say tax increases are out of the question.

But Social Security is easier to fix than Medicare or Medicaid, the other two big government benefit programs. Unlike Medicare and Medicaid, policymakers don’t have to figure out how to tame the rising costs of health care to fix Social Security.

Social Security’s problems seem far off. After all, the program has enough money to pay full benefits for 20 more years. But the program’s financial problems get harder to fix with each passing year. The sooner Congress acts, the more subtle the changes can be because they can be phased in slowly.

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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