Ready for YOUR New Tax Rate, Come January 1, 2011?...

Ready for YOUR New Tax Rate, Come January 1, 2011?

I am sure you are aware that your current income-tax rate is much lower than what you were paying prior to the passage of what many call the “Bush tax cuts,” which went into effect on June 7, 2001. Among other things, that law created a new 10 percent rate, indexed the then lowest rate on the table of 15 percent, and lowered the 28 percent, 31 percent, 36 percent and 39.6 percent rates to 25 percent, 28 percent, 33 percent and 35 percent, respectively. So, if you were, say, in the 28 percent bracket, the law lowered your rate to 25 percent, and so on.

This law is schedule to end December 31 of this year. So in approximately four months and a few days – unless Congress passes new legislation – tax rates, including yours, are scheduled to revert to the higher rates of before the “Bush tax cuts.” For instance, if you are a single filer with a taxable income of $35,000, today’s rate of 25 percent will go up to 28 percent. Those at 28 percent will move up to 31 percent, those at 33 percent now will become 36 percent, and so on. Here’s my question for you – and though the answer is obvious, I’ll ask you anyway:

Where Do You Believe YOUR Future Tax Rate Is Headed – Beginning January 1, 2011?

If you believe your taxes are going anywhere other than up, I’m afraid you may be living in complete denial. If you believe rates are headed up, why do you – or anyone else – see an advantage in postponing your tax obligations into the future? Next question:

Isn’t It Time YOU Seriously Revamped Your Retirement Strategy?

Recently, a young lady who had just received $70,000 of qualified money from her late father’s estate consulted me about her desire to make the best move with that money – which she intended to save toward her retirement, which is still some years ahead (aka, the future). Prior to our meeting, every other advisor she had consulted recommended that she allow those funds to sit in a tax-deferred status until her retirement, because doing anything else will amount to her paying “too much” in taxes today. That sounds like a good idea, doesn’t it? But does it really hold water? Let’s analyze this together.

This young lady is a head of household, with a steady annual taxable income of approximately $46,000, putting her in a 25 percent bracket based on today’s rate. You see, according to the IRS tax tables for 2010, a head of household with taxable income between $45,550 and $117,650 will pay a 25 percent marginal rate. So if you do the simple math, this gal could claim the entire $70,000 this year and bump up her taxable income from $46,000 to $116,000 and her tax rate will STILL be 25 percent! So how’s she worse off, as all those advisors claim? If things stay as is, come January 2011 – which is just four months away – this same young lady’s rate will increase from 25 to 28 percent! Yet for some strange reason, other financial advisors believe that she’ll be better off waiting?

After looking at the facts of her case with me and getting a better understanding of the situation, she decided that it would be extremely savvy to pay her taxes at today’s rate – of which she is sure – rather than gambling that her future rates might be lower. She can then save her after-tax $52,500 money ($70,000, less 25% tax) in a nonqualified alternative, that under IRS rules allows her access those funds anytime (even before age 59 ½), tax-free. Yes – completely tax-free! In addition, she won’t have to meet any “required minimum distribution” rules once she hits age 70½. And the income she pulls out of this account will not affect the taxation of her Social Security benefits one bit. When she dies, any remainder will go to her heirs, completely income-tax free!

I don’t know about your situation, but this young lady believes she’ll be better off with tax-free income in the future than betting on tax rates coming down any time soon. A word of caution: please don’t just run out there and try to mimic this lady’s solution, because that could be extremely dangerous. You need a qualified professional with a ton of common sense to guide you through your specific situation.

We’d be glad to talk with you. Please call us at (301) 949-4449 or visit us on the web to schedule your complimentary consultation to see if there is anything you can do today to keep more of your hard-earned dollars tomorrow.

Are the Right People Due to Inherit When You Die?

Are the Right People Due to Inherit When You Die?

What, as an investor, do you look for when you review your investment portfolios? Chances are good that you – as most people often do – focus only on the gains or losses to your funds. And usually when your portfolio made gains, everything is great; but, of course, you’re displeased when the opposite occurs. Either way, though, that generally is the end of the review.

Many so-called financial advisors focus their reviews solely on this “how the portfolio is doing” approach. In fact, do you even remember the last time that you and/or your advisor reviewed your portfolio? Did that review include an audit of your beneficiaries – the people/entities you have indicated as heirs to your invested funds, should you die today?

You see, life can and usually does get extremely busy. Aside from the million and one things we must take care of on a daily basis, events like marriages, births, divorces, adoptions, and deaths happen – to name only a few – and things get even more hectic. Here’s the thing, though. I believe that these are the exact reasons that every investor must and should perform a review of their beneficiary designations at least annually, and optimally, as soon as a life-changing event occurs.

Let’s Consider a Few Scenarios

• A gentleman remarries shortly after a bitter divorce, but never gets around to changing his beneficiary from his ex-wife (whom, by all accounts, he despises a whole lot). The man unfortunately dies suddenly – and guess who receives the check? Yes, his ex-wife.
• A woman worked for the state government for more than 42 years and passed away just a year before her retirement. She had accumulated a little more than a million bucks in her retirement account, which she opened as a new – and still single – employee. Her designated beneficiaries were her mother, father, and younger sister. Although she got married 8 years after starting her job (34 YEARS before she died), she unintentionally forgot to update her beneficiaries. All of the $1 million+ went to her sister, because both her parents had passed away more than a decade earlier. Her sister refused to give even a portion of the money to the widowed husband.
• A grandfather forgot to update his beneficiaries to include his youngest grandson, who was 3 years old when grandpa died. As a result, his 8-year-old granddaughter received 100 percent of the money. The issue is that the grandchildren are cousins, not siblings, so as one might expect, family dinners have gotten extremely complicated.

And it’s often seemingly minor things like “how” beneficiaries are actually listed on the form that throws things w-a-a-a-a-a-y off. A mother wanted each of her three children to receive a third of her estate, dividing the portions equally. The beneficiary form read “John, Kim and Michael, equally.” Due to the missing comma after “Kim,” the court interpreted the will as intending half for John and the other half to be shared by Kim and Michael.

You may think that you have things under control or that none of these scenarios even applies to you, but you should probably notice that in each of these cases, the individuals involved must have thought that everything was in perfect order. The only way to be sure that your beneficiary designations are as current as you want them to be is to actually review them.

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For your complimentary consultation that includes a conversation about your desires for your estate once it passes to your heirs, please call Laser Financial Group at 301.949.4449 or visit us on the Web.

Investment Math That Most Financial Advisors DON’T Understand

Investment Math That Most Financial Advisors DON’T Understand

Compare these two equations:

20-10+20=30

15+0+15=30

Now what if I told you that the first equation was LESS than the second? I wouldn’t blame you if your reaction were something like, “You must crazy! How in the world can this guy say that 30 is less than 30?” That has always been the initial sentiment expressed by most people who have heard me discuss this concept.

This is a vitally important concept that you must know – and understand – in order to make any positive headway with your investment portfolio, especially given today’s stock market condition. I am willing to bet that without this knowledge, your chances of becoming financially comfortable during retirement are rather slim to none.

Let me explain.

Let’s assume that you invested $10,000 in the stock market via individual stocks or mutual funds of some sort, and the first year the market gained 20 percent. You gained $2,000, so you’ll end Year 1 with a total of $12,000. Now, all things being equal, if the market happens to lose 10 percent the following year, your balance will whittle down to $10,800, because you lost 10 percent of the $12,000, or $1,200. If the market performs well again the following year and you gain another 20 percent, you’ll end Year 3 with a total of $12,960 in your account.

Here’s the part that will blow you away. It’s what I call the common-sense strategy where, instead of investing the way most people are doing – which is getting them nowhere – you linked your $10,000 to the appreciation of the stock market index with a guaranteed minimum interest rate (let’s assume 0% for this illustration) and an upside cap (which we’ll make 15 percent for this example). What would have happened to the same $10,000 at the end of those same three years? Like they say, seeing is believing – so why don’t we do just that?

In the first year, even though the index returns 20 percent, your gains are capped at 15 percent. So you’ll end Year 1 with a total of $11,500. In Year 2, although the index sinks by 10 percent, your minimum guarantee is 0 percent, so you still have the $11,500 intact. You may be starting to recognize the power of this seemingly simple strategy, but let’s complete Year 3. Say the stock market index gains 20 percent, so you’ll gain up to the cap of 15 percent, which increases your balance to $13,225.

At this point, it should be pretty clear that the common-sense strategy generated the higher balance of $13,225, versus $12,960 under the exact same sets of circumstances, in the same market conditions, following the traditional strategy of investing directly in the market. Aren’t peace of mind and a good night’s sleep better than losing sleep stressing over investment woes associated with the directly-in-the-market approach? And what is even more challenging, in my opinion, is that you have no control over those market forces that are causing you all that stress.

Now you know that the same 30 percent net result really is not the same. The reason I mentioned in the title that most financial advisors don’t understand this basic math is simple. I personally find it extremely difficult to comprehend how such bright and – seemingly honest – individuals could understand the differences in these two approaches and still implore their clients to subject their hard-earned nest eggs to the unnecessary gambling associated with traditional in-the-market investing.

For those of you in the DC area, I will be teaching a workshop that is sponsored by the Maryland Women’s Journal where I’ll be explaining this and other simple, actionable strategies you can implement right now to build a truly secure financial future. The workshop will be held this Saturday, July 17, at the C. Burr Artz Library in Frederick, Md., with encore presentations in College Park on July 24 and in Columbia on July 31. Get details and reserve your free seats now! Invite your friends and family to join you, and be sure to come say hi to me.

If you are outside of these locations you can still request a complimentary consultation by visiting our website or calling 301.949.4449.

“Balanced Investing” Is a Fallacy You MUST Avoid if You Want to Enjoy a Comfortable Retirement

“Balanced Investing” Is a Fallacy You MUST Avoid if You Want to Enjoy a Comfortable Retirement

Sometime during the latter part of 2009, I came across an article on the CBS Money Watch wddebsite, authored by Charlie Farrell: Top Three Financial Moves Before 2010. In my opinion, one of the moves the author refers to as “Balance Your Investments” is completely out of touch with reality for most investors. It may well be that I am a bit slow, and therefore missing something. Let’s see what you think. 

According to the article:

One of the best things you can do to help protect and grow your retirement savings is to implement a balanced investment strategy. And by balanced I mean a basic split between diversified stocks, which carry more risk, and high-quality bonds, which carry much less risk. The reason so many people lost so much money in this recent crisis is because they weren’t balanced. It’s such a basic strategy, but very few people follow it.

With all due respect, Mr. Farrell doesn’t seem to understand that most investors (at least those I meet and hear from on an almost daily basis) are sick and tired of the same old vague talk. See, while there are investors who are out there doing their own thing, so to speak, a large number of Americans have advisors, consultants, pros, experts, and whatnots who are designing and managing their portfolios. These so-called pros tell investors exactly what to buy and what not to buy, and yet most of their investors are still suffering the losses they experienced in the market freefall of 2008. So if balanced investing is, as the author claims, really “such a basic strategy,” is it fair for me to conclude that these gurus don’t know what the heck they are doing?

Not to mention that investors read columns like the one penned by Mr. Farrell and others “who know what to do” in order to avoid going broke with their investments. Yet, these investors continue to get nowhere with their portfolios – some lost unimaginable portions of their life savings. So, please, maybe we just need a break from this kind of advice.

Then, in the follow-up paragraph, the article points out:

Consider that in 2008, the S&P 500 was down about 37 percent and the Barclay’s Aggregate Bond Index, which measures the return of the total bond market, was up about 5 percent. So if you had split your money between these two very basic asset classes, you’d have been down about 16 percent, which was pretty manageable. And by now, your total portfolio would probably be down less than 10%, given the recent recovery we’ve had in stock prices.

If Monday morning quarterbacking were a paid profession, wouldn’t some folks be multizillionaires already? I, for one, am glad it’s not. Here’s what I don’t understand: Why would any investor want to lose even 1 percent of their hard-earned dollars when they don’t have to? Do folks like this author even realize that there is a proven strategy that kept certain investors from losing anything in 2008, yet as the market improves they stand to make money up to their contracted caps? Not one of our clients here at Laser Financial Group lost even a penny during the recent market downturn.

As I have said several times in the past, some people simply don’t know what they don’t know, and that is a very dangerous position to be in because you literally become vulnerable to all sorts of, frankly, toxic advice –just like this bit from Mr. Farrell.

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Call Laser Financial Group at 301.949.4449 or visit us on the Web to schedule your complimentary consultation and explore the best options and strategies to preserve ALL of your retirement investments.