From A Six Figure Salary To Minimum Wage: A Story Of Bad Planning

Presented by Nick Bautista

Sometimes the stories we hear can mean more than words we read from any text book. Such is the case for Tom Palome. A man who was an executive earning a six figure salary most of his lifetime and now has to work two minimum wage jobs due to inadequate savings.  I define the unretired 77 year old as a failure to plan. He had a total of $90,000 saved for retirement. All I can think is, really? Of course, he can still enjoy life but how would you like to live to 77 and be flipping burgers instead of pursuing the dreams you have had your entire life?

To me it comes down to the most fundamental question of all. How much do you need in retirement to live the life you want to? As of 2011 the median retirement account had a value of $120,000. So tell me how that works for 30 years in retirement?

Maybe Tom Palome can help you get a better picture of what that looks like. Read the entire story here…

http://www.businessweek.com/articles/2013-09-26/former-executive-tom-palome-spends-his-retirement-flipping-burgers

Retiring and Living Abroad

Presented by Mark Phillips

Thinking about retiring to your favorite travel destination? How much money will that cost you and what does that even look like? Well, here is an article to keep you up to date on the cost involved with retiring and living abroad. Although, this may be an extreme take on this type of retirement there is something to be said about living in an entirely different culture.

Click here to see the wall street journal article.  

Aim To Retire Comfortably, No Matter How Much You Make

Presented by Nick Bautista

 

 

 

 

 

When thinking about saving for retirement it is often forgotten that even if you don’t make a lot of money, you can still retire comfortably. Building saving habits and spending less than you make are some of the keys to success.

Too often I see young people not save any money when they get out of College, and this is usually the slippery slope to bad savings habits. The temptation to spend every penny made is so high that a majority of them don’t start saving until it’s too late. This unfortunately continues into adulthood as the thought of savings gets pushed to the side for a variety of reasons, (house, car, kids, kids’ college, etc.)

 

The principles for pursuing a comfortable retirement boil down to two simple rules.

         1.  Spend less than you make

         2.   Set aside money every paycheck no matter how much it is.

 

Doing both these things can help create good saving habits and help you get better aligned with your financial dreams.

So, think about how much are you saving in retirement; are you spending less than you make?

What Happens When There is No Money Left?

Presented by Mark Phillips

Money is not the root cause of any degree of happiness we may enjoy, and yet having some sure can help make many of the challenges of life less annoying if we know how best to use it. That acknowledged, what does broke look like?

For so many in America who lived longer than they thought they would or planned for, who faced bigger challenges later in life than they imagined, or who in one way or another found themselves with no more cash until the next Social Security check arrives, life can be very restricted, solitary, and even humiliating.

One account I found most poignantly told is that of William McPherson as it appeared in The Week recently.

Click to read: When your money is all gone

Excerpted from an article that appeared in the fall 2014 issue of The Hedgehog Review, published by the University of Virginia

1 in 4 Seniors Have Meager Savings

Presented by Mark Phillips

We found this article that we thought was interesting about the savings situation of seniors. Particularly disturbing is that one-quarter of the Medicare beneficiaries have less than $11,300 in their retirement and financial accounts.

“Most people on Medicare are of modest means with relatively low incomes, low savings and low home equity,” said Gretchen Jacobson Associates Director of the Medicare policy program at Kaiser Family Foundation.

While our practice is focused on designing and implementing retirement income for clients of moderate to high means we understand that there are some people in your life, that matter a lot to you, that are in this group with very limited means. For you as our clients we urge you to have them meet once off with us such that we might help them focus on those behaviors that may help them not slip into a financial black hole.

Of course we welcome an introduction to your friends of moderately to high means as they too want to maximize their “lifestyle” with the resources, and to manage the risk in their life going forward.

We are here to help create financial stability and security for you and your friends.

Access the full Article  - Enjoy!

IRS Benefit Plan Limits for 2015

Presented by Mark Phillips

he Internal Revenue Service (IRS) has announced contribution limits for retirement plan participants for 2015. Many of the limits will change because the Consumer Price Index met the statutory thresholds that trigger their adjustment.

The maximum annual contribution employees can make through salary reduction to a 401(k), 457(b), or 403(b) has increased to $18,000. Catch-up contributions for employees 50 years of age and older has also increased, to a maximum of $6,000 per year. SIMPLE IRA limits have increased from $12,000 to $12,500, while the compensation limit for SEPs has also increased from $550 to $600.

 

The dollar limit used in the definition of a key employee for top-heavy purposes remains unchanged at $170,000, but the definition of a highly compensated employee has increased to $120,000.

401(k) Plan Limits for Plan Year	2015 Limit	2014 Limit	IRC Reference
401(k) Elective Deferral Limit1	$18,000	$17,500	402(g)(1)
Catch-Up Contribution2	$6,000	$5,500	414(v)(2)(B)(i)
Defined Contribution Dollar Limit	$53,000	$52,000	415(c)(1)(A)
Compensation Limit3	$265,000	$260,000	401(a)(17); 404(i)
Highly Compensated Employee Income Limit	$120,000	$115,000	414(q)(1)(B)
Key Employee Officer Limit	$170,000	$170,000	416(i)(1)(A)(i)
Non-401(k) Limits
403(b) Elective Deferral Limit1	$18,000	$17,500	402(g)(1)
Defined Benefit Dollar Limit	$210,000	$210,000	415(b)(1)(A)
457 Employee Deferral Limit	$18,000	$17,500	457(e)(15)
SEP and SIMPLE IRA Limits
SEP Minimum Compensation	$600	$550	408(k)(2)(C)
SEP Maximum Compensation	$265,000	$260,000	401(a)(17); 404(i)
SIMPLE Contribution Limit	$12,500	$12,000	408(p)(2)(E)
SIMPLE Catch-Up Contribution2	$3,000	$2,500	414(v)(2)(B)(i)

¹ Employee deferrals to all 401(k) and 403(b) plans must be aggregated for purposes of this limit.

² Available to employees age 50 and older during the calendar year.

³ All compensation from a single employer (including all members of a controlled group) must be aggregated for purposes of this limit.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax preparer, professional tax advisor, and/or a lawyer.

IRS CIRCULAR 230 DISCLOSURE:
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax information contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed here.

 

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Securities and advisory services offered through Commonwealth Financial Network® , Member FINRA/SIPC,
a Registered Investment Adviser. Rev. 10/14

 

 

 

 

Year-End Financial Planning

Presented by Mark Phillips

With the end of the year quickly approaching, it is a wonderful time to begin organizing your finances for the New Year. We’ve put together a list of important financial planning topics that warrant consideration.

Flexible spending accounts
Money that you’ve put away in your flexible spending accounts (FSAs) generally must be used by year-end or it will be forfeited. Recently, however, the IRS modified this rule to allow participants to carry over up to $500 of unused funds into the next year. Your employer plan must elect to participate in this option, so be sure to check your plan terms to see if you can take advantage of this new rule.

If your employer has not elected this carry-over option, now is the time to schedule those doctor’s appointments you’ve been meaning to attend to or to stock up on items that are eligible for flexible spending. Doing this as soon as possible may help relieve some last-minute headaches and ensure that you don’t lose your hard-earned dollars.

Additionally, open enrollment begins around this time of year for certain employee benefit plans. So if you’re not using an FSA, take stock of your average expenses that would qualify. This can help you determine whether setting up an FSA for 2014 makes sense for you. If you already use an FSA, assess how much extra you have left in the account or how much of a deficit you ran and use it to calculate your allotment for the New Year.

Medicare enrollment
Open enrollment for Medicare started in October and ends December 7, 2013. For many, this is the only chance to change health and prescription drug coverage for 2014. If you want to make any changes, act now.

Too little or too much withholding.
Also of note is that workers with gross earned income of more than $200,000 may have had too little or too much tax withholding in 2013. Employers may have withheld an additional 0.90-percent tax on incomes over $200,000 without regard to the taxpayer’s withholding status, which would put these taxpayers at a higher threshold. Other taxpayers may have had too little withholding because of other income unknown to the employer due to second jobs. Employees should plan to take a credit on their returns or pay additional taxes.

Consider seeking professional guidance
The above list of financial planning dates is not exhaustive. We are happy to go over deadlines that are most relevant to your personal situation, so you can better prepare for the coming year.
Whatever your planning may entail, we wish you a happy, healthy, and prosperous 2014!

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

IRS CIRCULAR 230 DISCLOSURE:
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

From A Six Figure Salary To Minimum Wage: A Story Of Bad Planning

Presented by Nick Bautista

Sometimes the stories we hear can mean more than words we read from any text book. Such is the case for Tom Palome. A man who was an executive earning a six figure salary most of his lifetime and now has to work two minimum wage jobs due to inadequate savings.  I define the unretired 77 year old as a failure to plan. He had a total of $90,000 saved for retirement. All I can think is, really? Of course, he can still enjoy life but how would you like to live to 77 and be flipping burgers instead of pursuing the dreams you have had your entire life?

To me it comes down to the most fundamental question of all. How much do you need in retirement to live the life you want to? As of 2011 the median retirement account had a value of $120,000. So tell me how that works for 30 years in retirement?

Maybe Tom Palome can help you get a better picture of what that looks like. Read the entire story here…

http://www.businessweek.com/articles/2013-09-26/former-executive-tom-palome-spends-his-retirement-flipping-burgers

Aim To Retire Comfortably, No Matter How Much You Make

Presented by Nick Bautista

When thinking about saving for retirement it is often forgotten that even if you don’t make a lot of money, you can still retire comfortably. Building saving habits and spending less than you make are some of the keys to success.

Too often I see young people not save any money when they get out of College, and this is usually the slippery slope to bad savings habits. The temptation to spend every penny made is so high that a majority of them don’t start saving until it’s too late. This unfortunately continues into adulthood as the thought of savings gets pushed to the side for a variety of reasons, (house, car, kids, kids’ college, etc.)

The principles for pursuing a comfortable retirement boil down to two simple rules.

         1.  Spend less than you make

         2.   Set aside money every paycheck no matter how much it is.

Doing both these things can help create good saving habits and help you get better aligned with your financial dreams.

So, think about how much are you saving in retirement; are you spending less than you make?

Declining Wealth Brings a Rising Retirement Risk

Presented by Mark Phillips

With equity tied up in homes and facing the switch to defined-contribution pension plans, many Americans have been left short of funds needed for a comfortable retirement, writes Bruce Bartlett in the New York Times.

The statistics are very depressing from a broad view perspective.  Among these is the Median (50^th of 100) Household savings and investments (net worth ex home equity) level.

For more on this impending slow motion “middle class” train wreck click on the title or here.

Retiring and Living Abroad

Thinking about retiring to your favorite travel destination? How much money will that cost you and what does that even look like? Well, here is an article to keep you up to date on the cost involved with retiring and living abroad. Although, this may be an extreme take on this type of retirement there is something to be said about living in an entirely different culture.

Click here to see the wall street journal article.

Deflating the Home Price Bubble: Where Might We Be?

A fairly simple way to assess the value of the housing market is to look at the price-to-rent ratio. This metric equates the median home price to what an equivalent property would yield in rent (known as owners’ equivalent rent). As is evident from calculations based on national and regional median prices and rents, this metric appears returned to levels last seen in the early 2000s, which means that in some markets buying is again looking like a reasonable option. A corollary to this, rental properties in select markets may have become attractive investment opportunities for some individuals with the capacity and means to invest and borrow inexpensively.

The run-up to the 2005/2006 peak certainly showed signs of a bubble in the making, as property values significantly outpaced rental prices during that period. In many markets prices were well higher than 20 times annual rent, a benchmark that many seem to see as an indication of overpricing.

Example: a home selling for $800,000 should have been renting for ~$3,500/month. This would have been a ratio of:

                           $800,000/$42,000 = 19

($3,500 x 12 months/year = $42,000 in annual rent)

We should also consider that the current wisdom finds 20 to 1 as the tipping point for the Buy vs. Rent decision.  While select factors can push this ratio they cannot do so for long, at least not forever. These may include:

·         Property tax rates

·         Interest rates

The higher they go (and this we must imagine is inevitable at some point) the more expensive will be buying and, as rents tend to lag, renting will enjoy a margin of advantage until either home prices come down, or rents catch up.

So, what can we expect for the long term return in housing stock investments?

When considering a home as an investment please consider: home prices, on average, track to inflation, as do rents. They do not grow any faster in the broad market.

“Wrong!” you say?

How can they grow faster I reply, when all we have at our disposal with which to buy these homes is our wages, which have, on average, struggled mightily to keep up with inflation.

This is to suggest that a portfolio of fully owned (not leveraged) average residential real estate will on average not grow wealth (increased purchasing power) over an extended period. History is littered with one off examples where this has not been the case. This is particularly true in many in the “hot” markets of California and others. And yet - maybe not.

As I said above, changes in Interest Rates are a lever that can throw off the equilibrium – but only for a while. A forty year period in which interest rates drop from ~14% to ~4% for home mortgages allows for a 150% market price increase for the same mortgage payment. This attributes 3% of the annual average real estate price growth. Add this to the ~4.3% average inflation from 1070 to today and we should have gotten a compounded ~7.3% price increase just to stay even with inflation

So…

That home one bought in 1981 for $25,000 with no upgrades made (only basic maintenance – find me that house!?!) could have appreciated to ~$530,000 today and yet only kept up with inflation and the interest rate decline “bonus”.

Well then… How were people making money investing in homes?

Appreciation of a leveraged asset.

Ok then… How might it work well going forward?

Charging more for rent than you pay in financing, lost opportunity cost, and tax, which may be do-able as the cost of financing is temporarily so low.

This is not a new normal – except for so many who do not study or remember history – this is the old normal all over again.
Keep in mind also what an increase in mortgage rates from 4% to 7% (near to the long term national average rate) may mean for the price of such a home? All else held static, it would require a ~30% price correction to sustain the current monthly payment. This would drop the $530,000 house to ~$370,000.

So how might we approach purchasing a home or a rental now?

1.      Consider the article “Why U.S. Housing Prices Won’t Recover” by Jack Hough on Marketwatch, and

2.      Consider the below interesting (dare I say, useful) linked interactive graph as relates to your specific case analysis. Click on the below image to jump to the New York Times web site tool: