Asset Planning, Inc Blog

In a recent study by deVere Group, one of the world's largest independent financial consultancy groups, they asked clients with investable assets over $1,000,000 what was their number one financial regret. The top 3 answers:

1. Not putting in place a regular reviewed personal financial plan earlier in life. (57%)
2. Not consistently scrutinizing personal investments (18%)
3. Taking on too much unnecessary debt. (13%)

While this survey only surveyed high-net worth families, I think middle-class families would answer the question with similar results.  It is clear the benefits of long-term financial planning and routinely reviewing or revising the plans help keep families on-track to reach their financial goals. 

It is interesting to note that all those surveyed have done well financially, but the regret is that it might have been less stressful if they had a plan in place and were monitoring it consistently.

Need money from your IRA or Trust accounts? No problem; securities, mutual funds and bonds can all be sold on the same day and the cash is settled into your account in approximately four business days; however, giving your financial advisor prior notice can get you more money from the sale of your investments.

If you need more than $15,000 in cash, it is advisable to give your advisor a one month notice to take advantage of market sales. This means your advisor tries to sells the investments when markets hit a high price in order to get the greatest amount of cash from the sale of from a stock, bond or mutual fund. Once the investments are sold it does take time for the cash to settle into your accounts. Mutual funds for example, can be sold on the same day but the cash doesn't settle into your account until the next business day. Stocks can too be sold on the same day; however, the cash takes three days to settle. Bond sales are unique since they are placed on a bond trading desk and wait for a reasonable bid. In our case, we would wait for the highest bidder.

Giving your advisor a month's time notice not only facilitates the selling process, but also allows us to search for the best selling prices for your investments, providing you with more cash.

President Obama's budget proposal would cap multimillion-dollar tax-favored retirement accounts. The budget plan would prohibit tax payers from accumulating more than $3 million over all IRA accounts. The proposal would generate $9 billion in revenue for the Treasury over the next decade.

According to Ed Slott, an IRA specialist and certified public accountant, IRAs have evolved from a retirement-planning technique into an estate-planning tool for some wealthy families because tax laws allow the accounts to be passed onto heirs. The cap would apply to the total of all of an individual's tax-favored retirement accounts.

The plan was unveiled on April 10 as part of the proposed budget for 2014.

Last year, to reduce costs, the Social Security Administration (SSA) stopped mailing annual paper statements to anyone under age 60. These statements are a great tool to use for retirement planning. The statements provide a history of your annual earnings and estimates of your social security benefits at various retirement ages, along with estimates for disability and survivor benefits.

Last week, the SSA added the ability to access your Social Security statements online. Here is the website to start the process to access your statement:
http://www.socialsecurity.gov/mystatement/

I recommend that you review this at least once a year to make sure that your income is recorded accurately in the Social Security database. Your future monthly benefit is based on your average earnings over your lifetime. If your earnings are incorrect, your benefit will most likely be wrong.

Changes for retirement contributions beginning in 2012:

• 401k, 403b, & 457 maximum employee contributions increase to $17,000 per year. The catch up contribution for those age 50 and above remains at $5,500 per year.
• IRA contributions remain unchanged at $5,000 plus $1,000 catch up per year for those age 50 and above.
  
• Adjusted Gross Income (AGI) phase outs increase for those that can deduct IRA contributions and still participate in a qualified retirement plan (QRP). All Fliers (except Married filing Separately) that don't participate in a QRP can deduct IRA contributions from their taxes regardless of AGI. Those participating in a QRP can only deduct IRA contributions if AGI is under $58,000 for Single Filers and $92,000 for Married Filing Joint. Partial deductions are allowed for fliers with AGI between $58,000-68,000(Single) and $92,000-110,000 (MFJ). For an IRA contributor who is not covered by a QRP but his or her spouse is, the deduction is phased out between $173,000-183,000 (MFJ). Remember if you make a deductible IRA contribution, always keep track of your basis by filing a 8606 with your tax return.
  
• You can make a full Roth IRA contribution if your AGI is under $110,000 (Single) or $173,000 (MFJ). Partial contributions are allowed for fliers with AGI between $110,000-$125,000 (Single) and $173,000-$183,000 (MFJ).
  

For the first time since 2009, social security recipients will get a 3.6% cost-of-living adjustment (COLA).  The COLA adjustment will also affect other areas:

1. The maximum amount of earnings subject to the social security tax will increase from $106,800 to $110,100.
2. The minimum amount a worker must earn to qualify for a quarter of coverage under social security is $1,130.
3. The amount a social security recipient can earn before having to forfeit social security benefits is increased to $14,640.  This only applies to people that are receiving benefits before their “Full Retirement Age” (FRA) and are also receiving wages.  For example, if you started to receive benefits at age 62 and your FRA is 66, you cannot earn more than $14,640 in wages without being penalized.  The income limit does not apply to investment or pension earnings.

Medicare also just announced their premium adjustments for 2012.  The new premium for part B will be $99.90/month.

1. If you were on Medicare in 2008, your premium was frozen at $96.40, due to a law that freezes part B premiums in years that there are no COLA increases if you also receive social security.
2. If you started Medicare in 2009 – 2011, the premium was $115.40, so the premium will be reduced to $99.90 for those recipients.
3. Medicare premiums are higher for recipients that have Adjusted Gross Incomes of more than $85,000 for single and $170,000 for married taxpayers.  Those premium adjustments have not been announced yet.

Medicare Part D prescription drug coverage and Medicare Advantage enrollment runs until December 7^th this year, which is earlier than in previous years when enrollment ran until the end of the year.  A great resource to help you decide is on the medicare website:

www.medicare.gov/find-a-plan

You just need to provide information about your prescription drugs and you will see what each plan in your area will cost in premiums and out-of-pocket expenses.

For the next two years, the social security tax that is withheld from an employee's paycheck is reduced from 6.2% to 4.2%. This concerns me because I keep hearing that social security is not going to be fully funded in the future. I guess the logic is to worry about that problem later. So my purpose today is to give you some recommendations of what to do with your larger paycheck.

I think this is a great opportunity for you to increase your retirement contributions. If you make $100,000, you will have a extra $2,000 for the year. I recommend that you increase your 401K (457 or 403B) or IRA accounts by 2%. This amount is tax deferred and able to grow tax free until you need it in retirement. This will help you increase your retirement savings so that you are not completely dependent on social security.

If you are younger than 50 years old, you can contribute as much as $16,500 to your 401K in 2011, And another $5,500 if you are 50 or older for a total of $22,000.

The preliminary proposal to reform Social Security has been release. The National Commission on Fiscal Responsibility and Reform is spearheading the effort to restructure Social Security in hopes of saving the program which is expect to become insolvent if left as is. The organization is expected to release their final proposal to Congress Dec 1st.  The main proposed changes are as follows:

• Increase the amount of income taxed by 2050
• Reduce benefits for high income earners
• Reduce COLA's (cost of living adjustments)
• Increase the full retirement age

To read more about the proposal Click Here