Premier Tax CFO

Financial Wellness

Here is another great article from Denis Walsh.  I hope you enjoy it!

All the best,
Nick Hodges, CPA/PFS, MBA, CFP

---

Financial Wellness

Americans’ saving rate has climbed to the highest level in a decade.  According to usdebtclock.org, we are saving approximately $54,000 per minute.  But that is not all.  We are paying down debt at a rate of $100,000 per minute!

Consumers and businesses are deleveraging (paying down debt) while keeping expenses in check.  Sadly, the federal government is going in the other direction.  The federal government is borrowing money at an unprecedented pace.  Deficits skyrocket as spending increases.  The rate of federal government spending is now at $5 million per minute.  Multiply that by 60 minutes in an hour… 24 hours a day… 365 days in a year; you’re talking real money!  This year’s deficit is expected to come in at $1.4 trillion.  Our national debt is now $11.9 trillion.  That is equal to $38,000 per citizen, or $86,000 per taxpayer.

With that in mind, we can’t rely on the federal government.  We need to protect ourselves financially.  How will you manage your money more successfully?  Should you rebuild your retirement accounts?  Contribute to your kids’ college funds?  Buy a new home?  Increase your rainy day fund?  Which should you do first, and in what order?

4 Life Lessons from My Tour of the New York Stock Exchange

Last Tuesday I lived a dream come true:  I spent two hours on a private tour of the New York Stock Exchange (NYSE). 

Since 9/11, visitors to the Stock Exchange must go through a background check, pass a security inspection, present ID, and go through metal detectors.  The visitor’s gallery is closed now, so guests must be sponsored by a floor broker or director and escorted their entire visit.  Director, Kevin G. McCarthy, sponsored my tour.  How did I know Mr. McCarthy?  I didn’t.  My introduction to him was facilitated by Denis Walsh, President of Money Concepts, my broker dealer.  Mr. Walsh in turn, made a request to Pershing, the world’s largest custodian of stock and bonds (owned by the Bank of New York) and they made my introduction to Mr. McCarthy. 

The Pink Slip Blues

According to the Bureau of Labor Statistics, the number of unemployed in July was 9.4%.  Since the start of the recession in December of 2007, the number of unemployed people has skyrocketed to 6.7 million.  Most economists believe that the recession is coming to an end.  Despite this good news, economists believe that the unemployment rate will climb through the first half of 2010.  Only then will the employment picture start to improve.

What should you do if you or someone you know is worried about receiving a pink slip?  If you have time, start by paying off high interest consumer debt (credit cards) and avoid future debt.  Do not make any unnecessary purchases.  Hoard your cash.  Make sure your emergency fund equals six months of your expenses.  Focus on upgrading your skills.  Make yourself a more valuable asset to your employer or future employers.

What should you do if you receive that dreaded pink slip?

First - understand that feeling a sense of shock, fear, and even anger are normal human reactions.  But, you must not let that hold you back.  The best weapon against fear is to take action.

Why is Personal Money Management So Hard?

As markets stabilize and fear subsides, it is time to once again think about planning. Here are some lessons learned by Denis Walsh.

All the best,

Nick Hodges CPA/PFS, MBA, CFP™

---

On June 10, 2009, Fidelity Investments announced the results of their second Couples Retirement Study.  They found that only 15% of couples had confidence in each other’s ability to manage finances.  Why is this so hard?

Successful money management is not easy.  There are four major obstacles to financial success.  First, is a lack of education. Second, is the volatility of the market itself.  Third, is our own human nature and fourth is a system that seems to foster distrust.  Let’s look at each one individually, and see how we can overcome these barriers so that we can enjoy life.

The first problem is a lack of education.  Most Americans went through their entire educational careers without taking a single course on personal money management or investments.  Even the language of finance seems foreign.  It is no wonder that many feel overwhelmed.  While it may be impractical to go out and get a doctorate in finance at this stage of the game, a little knowledge can help make you feel more comfortable when making financial decisions.  You can read books, attend seminars, but the best way to learn is through a mentor or coach.  A money mentor or coach is one who will take the time to fully explain your options so you can make informed decisions.  Moreover, your money coach should continue to work with you in the months and years ahead, providing ongoing advice and counsel.

The End of the Great Recession

This is another great article from Denis Walsh that I thought you would want to see.

All the best,

Nick Hodges, CPA/PFS, MBA, CFP™

---

This has been one of the longest recessions in over 50 years, but it may end this summer.  This was the finding of BNA’s mid-year survey of 23 well-known economists.  Most Americans won’t recognize the recovery until the middle of 2010.  This delay is due to the fact that the unemployment rate will continue to rise through the end of this year and beginning of next year.

The survey indicates that most economists predict that economic growth will be slow throughout 2010.  They predict a GDP growth rate of just 2% for next year.  At that rate, the economy is unlikely to be able to make any significant gains in employment.  They expect the 10-year Treasury bond rate will rise to 4.33%.  As rates rise, Treasury bond prices fall. 
Other economists disagree.  Brian S. Wesbury, Chief Economist and Robert Stein, Senior Economist at First Trust Advisors in Wheaton, Illinois, see a much more robust recovery.  They are forecasting a GDP growth rate of 3.5% for the second half of 2009, and 4.5% for 2010.  They base their predictions on the following five assumptions.

First - Inventory Levels.  While businesses have been selling off current inventories, manufacturing has slowed to a crawl.  As inventories get reduced, manufacturing will pick up, although it will not be the same as the pre-recessionary level, but it will be significantly higher than its previous lows. 

Mid-Year Personal Review

July is the perfect time for a mid-year review of your personal finances and tax outlook.  By spending some time now, you can save money later.  Let’s take a look at some of the issues you can review.

• Evaluate Savings:  One of the best ways to save is through the various tax advantage savings plans.  The most common is the 401k program.  Every dollar, up to $16,500 ($22,000 for those over age 50) deposited into a 401k reduces your taxable income, and therefore, your tax bill.  If you are not currently participating… START!  If you are already participating, make it your goal to increase your contributions over time until you hit the maximum.
• Evaluate Your Portfolios:  How are your assets allocated?  Should you consider moving part or all?  Now that the dust has settled, it is a great time to review your options.  A word of caution… make sure you get a full disclosure of all risks and fees before investing.  Review your investment portfolio with your financial advisor before making any decisions.
• Tax Savings Strategies:  Many activities, such as home improvements, may provide tax benefits.  The Energy Tax Act offers tax incentives for energy efficient products installed in your home.  The benefit allows taxpayers’ credits up to 30% of the cost of the improvements.  There is a maximum credit of $1,500 for 2009.  Consult your tax advisor for more information.
• Review Your Withholdings:  Many Americans end up owing taxes because they did not have enough withheld during the year.  This year will likely be worse than normal.  The Make Work Pay Bill provision of the stimulus package automatically lowered withholdings for most taxpayers.  The problem is many of those same taxpayers will not be entitled to the $400 (single) or $800 (for couples filing jointly) tax break.  If you are one of these individuals, you could find yourself $800 short in your withholdings.  Check with your tax advisor for help.
• Buying a Home:  If you are a first-time homebuyer, or if you have not owned a home in the last three years, you can claim a refundable credit of 10% of the purchase price, up to $8,000.  This credit applies to homes purchased after December 31, 2008 through December 1, 2009.
• Buying a New Car:  New for 2009, you can claim sales taxes paid on the purchase of a new car.  There are also additional credits, up to $7,500 for the purchasing of a hybrid or “plug-in” car.  Congress has just passed this so-called, “cash for clunker” bill.  Under this legislation, you can turn in a gas guzzling car and receive between $3,500 - $4,500 in tax credits toward the purchase of a high-mileage vehicle.  There are a number of requirements that will make it difficult for most Americans to qualify, but if you do, it is a great opportunity.
• Commit to Getting Organized:  Start filing important statements and receipts.  Safely store all tax-related documents, financial statements and insurance contracts.  If possible, keep an electronic copy of all important documents.

---

INDEPENDENT CONTRACTOR OF MONEY CONCEPTS INTERNATIONAL, INC.
All Securities through Money Concepts Capital Corp.  Member FINRA/SIPC
11440 N Jog Rd., Palm Beach Gardens, FL  33418  Tel: (561) 472-2000
NCH Wealth Advisors and Money Concepts are not affiliated.

The Equilibrium Between Fear and Hope

After sitting tight for a few months, it’s good to know that the world is not coming to an abrupt end and we don’t have soup kitchens on every corner.  I believe it’s time for us to look at what is happening in the market with fresh perspective. 

I want to continue to emphasize the importance of staying invested in the market in order to capture the advantages of the upticks when they happen.  I want to remind you of the landmark 1994 study by Brinson, Beebower, and Singer, “Determinants of Portfolio Performance II:  An Update,”  that emphasized asset allocation as the single most important determinant of portfolio success, resulting in nearly 90% of performance results.  Please remember that HOW your assets are positioned in the market is more important trying to predict the timing of the market.

For those of you who are retired, I know that your day-to-day experience is all about managing your cash-flow needs.  For those of you who went to cash earlier this year, I want to encourage you to reevaluate your cash needs for the next 12-18 months as the bear market completes its cycle.  I would like to remind you that the money that you do not need for retirement right now needs to keep working for you as the market regains its long-term direction.

Finding equilibrium between fear and hope is the challenge of our times.  I remain available to all of my clients to help you understand what can work best for your unique situation.  Please contact me if you have any questions or concerns.

All the best,

Nick Hodges, CPA/PFS, MBA, CFP™

---

In the short term, the current value of the Stock Market is set at the equilibrium point between fear and hope.  These two emotions drive buying and selling decisions for far too many investors.  Emotions change behavior and behavior drives investing results.  A recent study conducted by Dalbar, Inc., entitled, “Quantitative Analysis of Investor’s Behavior – 2008”, found that investors’ behavior hurt their investment results.  The study covered from 1987 to 2007.  During that period, the S&P 500 averaged 11.81%, but the average equity fund investor only received a 4.48% return.  The primary cause of the difference was investors selling during market downturns.  This research lends support to Benjamin Graham’s assertion that “the investor’s chief problem, and even his worst enemy, is likely to be himself”.  Benjamin Graham was the legendary American investor, scholar and teacher. 

So Where Are We Now?

Nine Top Retirement Risks

Mr. Denis Walsh does a great job outlining the Nine Top Retirement Risks. Please contact me if you have any questions.

All the best,

Nick Hodges CPA/PFS, MBA, CFP™

---

Retirement planning is one of the most important endeavors we will ever undertake.  The current volatility in the stock and bond markets, along with the low interest rates being paid on safer investments, have combined to make this one of the most difficult times for retirees.  Let’s look at nine top risks we all must face in our retirement.

1. Longevity Risk.  The good news is that life expectancy has gone up.  Today’s 65 year old life expectancy is 17 years for men and 20 years for women.  30% of all women and 20%, of all men will make it to age 90.  The bad news is there is a very real risk that we will outlive our income.  Social Security benefits and some annuity contracts provide for income benefits to the recipient for life.

Retirement Insecurity and Social Security

Here is an article by Denis Walsh on Social Security. Please pass it on to anyone close to retirement.

All the Best,

Nick Hodges CPA/PFS, MBA, CFP™

---

According to a new Gallup poll, retirement worries are on the rise.  The poll found that a majority (52%) of non-retired Americans now doubt they will have enough money to live comfortably once they retire.  This represents an 18% increase from five years ago.  According to the Employee Benefits Research Institute, one out of four Americans has decided to delay their age of retirement in the past year.

The Gallup poll also indicated that a large percentage of Americans approaching retirement do not understand social security retirement benefits.  Many fear that social security will not be there when they reach retirement.  With the leading edge of the baby boomers (those born in 1946) reaching 62 this year, there is a lot of short-term retirement planning to be done…and, education is much needed.

Let’s look at social security retirement benefits.  Social security was established in 1935 to alleviate poverty among the elderly.  It was designed to provide an income floor.  It is many senior Americans’ primary source of income today. 

Seven 401k Rollover Traps

Here is another great article by Denis Walsh on 401K Rollover Traps.  Please inform us when leaving an employer, so we can help you make the right decision for you.

All the Best

Nick Hodges CPA/PFS, MBA, CFP™

---

In these days of increasing unemployment and layoffs, it is important not to lose money by falling into a 401k trap.  Direct rollovers from a 401k into an Individual Retirement Account (IRA) are not subject to income taxes or penalties.  However, a recent study by the Employee Benefits Research Institute found that those with $50,000 or more in their 401k rolled over on average 72.4% of the balances after leaving their employer.  The numbers got worse as the size of the 401k assets went down.

The consequences of failing to roll over 401k distributions can be severe.  The distributed funds are subject to ordinary income tax, plus a 10% penalty for early withdrawal.  Let’s look at the seven 401k traps you should avoid if you change employment.