Simply Junior

In this day and age of economic crisis, every single penny that you spend counts (unless you’re a self-proclaimed millionaire). And for a lot of people, nowhere else do they see themselves losing more money than when it comes to driving. A few years ago, I made the mistake of being young and naive when it came to buying my first car. Everything that you are supposed to do when buying a car the right way, I pretty much went the opposite direction. As a result, I ended up purchasing a brand new Jeep Liberty (which is considered a small SUV). No sooner had I purchased this car, then the economy decided to take a swan dive. Gas prices shot up, and I saw my checking account drain out fairly quickly.

I’m not the only one who has found themselves in a predicament when it comes to driving. Millions of Americans everywhere who made poor choices in the types of cars that they purchased have felt the pinch. Shortly after I got my new Jeep, I switched careers and had to commute thirty minutes to almost an hour at times just to get to work one way. In total, I was putting over forty miles on my Jeep each day just going back and forth to work, not to mention wasting gasoline sitting in traffic.

After a little while and a couple of negative hits at the bank in my checkbook, I began to get frustrated. Why couldn’t I keep any money in my account? After all, I was pretty sure that the only things I was spending money on were gasoline, food and bills. I did some investigating and soon discovered that I was right. I was living as frugally as one could- even sacrificing social events that other people my age were having fun with- all in an effort to save money that wasn’t getting saved. So where was it all going? My car.

That’s right. I discovered that on average, I was spending over $400 a month in gasoline just to get back and forth to work! This didn’t even count the gasoline that it took for me to fill up to run other errands around town, etc. After I tacked in my monthly car payment and car maintenance (I.e. oil changes, miscellaneous, etc.), I was spending close to $1,000 PER MONTH on my car alone. I started to figure that short of getting rid of my car (which I couldn’t do), I would have to drive it less because my paycheck that I was receiving was literally getting handed over to paying for my gas to get to work.

I wasn’t even breaking even. I started thinking about applying to a different job because it didn’t make sense for me to drive so far and not see the fruits of my labor. It was actually costing me money to go to work! Luckily, my situation improved, and I didn’t have to do anything drastic, but it just goes to show how the choices we make can really come back to bite us!

Many people are aware that there are currently laws that are scheduled to lead to a death tax repeal in 2010. However, this is one area of the law where significant changes should be expected over the next year. President Barack Obama has already announced plans to prevent the estate tax from disappearing in 2010. Due to the current economic emergency, the ability to transfer wealth tax free to the next generation may be reduced to $1 million in 2010 rather than in 2011.

IN MASSACHUSETTS THE ESTATE TAX PROBLEM ALREADY EFFECTS ANY FAMILY WITH OVER $1 MILLION INCLUDING HOMES, INVESTMENTS AND INSURANCE

Many are aware of the importance of eliminating the completely avoidable Massachusetts estate tax on all estates over $1 million. This tax cost families approximately $100,000 in 2008 and that increases to approximately $230,000 in 2009. This tax is completely avoidable if the proper steps are taken to eliminate it. However, eliminating the Massachusetts estate tax is not your family’s only concern– the president and congress have announced plans to reduce the Federal tax free estate threshold. With large projected budget shortfalls over the next years due to the economic crisis, the federal estate tax is a potential source of revenue $324 billion over the next ten years.

THE FEDERAL ESTATE TAX CAN COST YOUR FAMILY SIGNIFICANTLY MORE

If the Massachusetts estate tax will effect your family, you must also address the much larger problem in the scheduled increase in federal estate taxes that will affect many possibly as soon as next year. When you look at your projected estate tax amounts factoring in an increase in your net worth from today’s level, even at a very modest 4% rate of growth, the federal and state estate tax can be quite large– the combined rate is 50%. While a return to growth in the value of your assets is good, it creates a big tax problem when the applicable exclusion is reduced to $1 million. Now may be a good time to review the current value of your assets as well as to consider your tax savings opportunities.

DO YOU HAVE AN ESTATE TAX PROBLEM? WHAT CAN YOU DO ABOUT IT?

This combination of a reduced applicable exclusion (the tax free amount), only $1 million in 2010 or 2011, and an increase in value of your investments and other assets creates a major tax problem for many clients. It is important to be aware of this and begin to take steps to increase the gift and estate tax free amounts for both federal and Massachusetts state tax purposes. There are techniques and planning opportunities available that should be considered, especially with values at lower levels, the opportunity to save gift and estate taxes is much sweeter now. Most people we help do not wish to pay more in estate taxes than absolutely necessary. We are available to review these tax saving opportunities with you.

If you do not take advantage of the annual tax-free amounts, the opportunity is lost as each year goes by. Another problem is, due to IRS regulations, some of the tax reduction planning involves a three-year waiting period to be effective. Because of the combination 3 year waiting period and the 2010 or 2011 reduction in tax free amounts to $1 million, it is critical to evaluate your situation now to see if there is a possible tax problem and if so, take immediate steps to reduce or eliminate it. The time to address and act on tax reduction opportunities that you have is now. Please call our office at 781-237-2815 to review your situation to see if you have a growing tax problem, and if so, develop a plan to reduce or eliminate taxes.

ARE YOU CONFIDENT THAT YOUR INVESTMENTS ARE SAFE AND PRODUCTIVE?

In addition to estate tax considerations, you may wish to review your investments. In a turbulent market it is more important to review your investments to make sure that you are properly positioned to meet your financial goals and objectives over the coming years. Working with a collaborative team of professionals can help develop a comprehensive approach for their tax, retirement, estate and investment planning.

If you wish to protect you retirement and investment assets, while saving more in taxes, please review your situation and consider a current review of your estate tax liability, both at today’s estate tax rates and a projected estate tax for life expectancy. It is also vital to determine that your assets are owned properly so that you will be entitled to the maximum state and federal applicable exclusions.

PROTECTING HOMES AND ASSETS FROM NURSING HOME COSTS

Growing concerns for many clients includes protecting homes and other assets from increasing medical and nursing home costs as well as from lawsuits and other claimants. The 2006 law increased the cost of nursing home and other medical care for many of our clients (currently about $400/day, $12,000/month which equals $720,000 for a 5 year stay at today’s rates). Please call our office at 781-237-2815 if you would like information on the provisions of this law and how it makes it more difficult to protect your life savings from nursing home costs. We will help you evaluate what steps you can take to protect yourself and develop a plan to deal with this possible problem.

PROTECTING IRAS FROM THE 70% TAX AND MAXIMIZING TAX DEFERRED GROWTH

Because the rules for IRA’s, Roth IRA’s, 401K’s, etc., have changed, methods can now be implemented to protect these investments, enabling you to provide significant protected tax deferred growth for children and grandchildren. The results of careful wealth management can be significant. The retirement plans inherited by children and grandchildren can even be protected from lawsuits, divorce and financial problems. Provided your IRA is properly managed and coordinated with your estate plan, it can be a powerful tool to build wealth and pass it on to heirs and beneficiaries.

The US needs more jobs. Our economy has not been fully repaired despite recent stimulus programs. Both sides argue now as to the value of extending tax cuts in order to stimulate the economy. How can we increase job production with tax cuts? I predict in 2011 new tax cuts will stimulate jobs and lift the US out of recession and economic crisis.

Instead of extending the current income tax cuts that do not directly stimulate hiring workers, I predict the US will devise new laws for employers who hire staff. Yes, a new law that allows additional income tax credits for hiring and retention of workers is the newest form of tax cut for the US. With this new law unemployment figures will improve, the economy will begin to accelerate and the national debt will be reduced.

Any new hires that increase an employer’s payroll will receive an additional 30 percent tax credit over and above the regular deductions for paid wages for the first six months. This tax cut would be in effect as long as the business does not lay off other workers. Any business that retains these new staff and maintains a higher payroll will receive an additional 20 percent tax credit on wages for the next six months. Then a 10 percent tax credit for increased payroll for the following whole year will be made. Employers will automatically feel less economic risk and uncertainty when hiring because of these new laws.

Of course, if a business later lays off any new or senior workers during that time, then that employer will lose that portion of their new tax credit and their regular deduction. Meanwhile all the employers who merely want to avoid or evade paying taxes will receive no further benefit in their federal income tax assessments.

New staff will soon start spending their paychecks while driving the engine of the US economy to new heights. These workers will also be paying taxes which will decrease the US national debt and fund necessary programs. This is the most effective single way to reward employers, hire jobless workers and lower the national debt. US citizens will demand the most effective solution possible – and I predict that this new tax law will be the answer in 2011 for the US.

Due to the current economic crisis, more and more people are thinking and considering starting their own small business. There are already several small businesses out there and if you are planning to join the trend, you should definitely think of unique and creative ideas on how to make your small business a true success.

One thing you need to avoid when it comes to successful business ideas is to think of something that isn’t really workable or doable. It is important that you bear in mind that the only way for you to be successful in your small business is to think of your prospective clients and what products and services you will be providing them with.

For example, if you have plans of starting your own small business online that is focused on selling household furniture, you should take a lot of things into consideration. Before taking the plunge, it is your responsibility to actually think of a concrete business plan.

After which, it is important that you consider who your target customers are and design your website in the most complete way that you can. Make sure that website is filled with necessary information not only about your business but also with regard to the products that you sell and of course make it user friendly.

There is huge competition when it comes to different types of small business ideas so it’s best for you to always be original and to always make sure that you will be able to deliver with good services.

Retirement Risks

If you’re one of the “Baby Boomers,” you’re probably giving serious thought to retiring, if you haven’t already retired – and if you have already retired, you may be wondering if you’re going to be able to afford to stay retired.

Today’s economic crisis complicates the situation considerably by increasing the following retirement related risks:

1. Average Life Expectancy Has Increased

People are living longer than their parents’ generation. For example, in 1970 a 60 year old white male had a life expectancy of an additional 16.2 years; however, by 2008 his life expectancy had grown to 20 years.

So how is the Boomer going to afford retirement during those bonus 3.8 years? There are only a few likely answers to that question:

Increase current savings Work longer Move in with children or other family members Get by with a lower standard of living
2. Health Care Costs Keep Rising

Predicting and planning for ways to cover one’s health care costs are some of the most difficult, largely because requirements are so individualistic with requirements varying substantially from one person to another. Long-term care needs are even more difficult to predict and arrange adequate funding.

Health care costs have grown at a rate greater than 5% (inflation adjusted) for the past 15 years – and that is higher than the growth in family income. Medicare costs are expected to rise at a comparable rate.

3. Government Actions May Impact Retirement Benefits & Benefit Programs

It is well known that the costs associated with the major social programs (e.g., Social Security, Medicare, and Medicaid) are growing faster than other parts of the economy, and some experts question their long-term viability because of the combined effects of increased longevity, size of the Boomer population, and rising health care costs in general.

Further, immediate questions regarding ongoing health insurance in retirement, and at what benefit levels, are rampant in today’s economy – and these questions are given even more fuel by the reorganizations occurring, especially among the auto industry.

There is currently a lot of discussion about a national health care program – but such conversations have been ongoing for decades, with few benefits to show for those efforts. Although President Obama will be leading such efforts this year, most people expect a lot of opposition from Congress (although maybe it will be a bit easier now that the Senate will soon be welcoming its 60th Democratic Senator).

Most people expect that seniors over age 55 will be protected from cuts in these social programs, but maintaining full coverage for them is a two-edged sword – doing so increases the likelihood of a new value-added tax, which would likely add to the tax burden for retirees.

4. Sometimes One’s Retirement Date is Dictated, and not a Free Choice

According to a 2004 Health and Retirement Survey (HRS), 37% are forced to retire. This can occur due to poor health or economic downturns, etc.

5. 401Ks Became 201Ks

Did your 401k and other retirement savings take a major hit with the stock market meltdown last year? Mine did. Many people saw their 401k and other stock market accounts take a 50% hit, which has led many comedians to rename them “201k”. For many people, their 401k was the bulk of their retirement savings, so this stock market meltdown has really damaged their retirement plans.

Humpty Dumpty Had It Wrong

But, the news is not all bad. You can fix a broken egg – a broken retirement “Nest Egg,” that is. You can work longer, semi-retire and take a part-time job, work from home, start your own business, etc. A study by Butrica, Smith and Steuerle (2006) indicated that working just one (1) extra year can increase annual retirement income by 9%, while working a total of five (5) extra years results in an extra 56% annual retirement income.