tag:blogger.com,1999:blog-67250666702192946512024-03-13T19:47:51.028-07:00Point Of ViewMary Margolishttp://www.blogger.com/profile/04705473422501446584noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-6725066670219294651.post-1154320196599846042017-09-12T14:11:00.001-07:002017-09-12T14:13:39.423-07:00<h2>Have you been Hacked?</h2>
<p>Equifax, one of the three major credit agencies, announced that its data has been hacked! The Social Security numbers, addresses, birth dates, drivers license numbers and credit card numbers of up to 1.4 million U.S. consumer accounts were affected. This is arguably the most consequential data breach in history, as nearly all U.S. adults have their credit histories on file with each of the three credit bureaus— Equifax, Experian, and Transunion.</p>
<h4>WERE YOU AFFECTED?</h4>
<p>Visit www.equifaxsecurity2017.com/potential‐impact and enter your last name and the last six digits of your Social Security number. The site will tell you whether your personal information may have been impacted.
</p>
<h4>EQUIFAX'S OFFER</h4>
<p>Regardless of whether you have compromised credit data, Equifax will allow you to enroll in their "TrustedID Premier" service free of charge for one year. Click to continue, and you will receive the date you can enroll; write it down, as they will not send a reminder. On or after your enrollment date, return to the site and follow the "How do I enroll?" instructions. (Note: the enrollment period ends on Tuesday, November 21, 2017.)</p>
<p>When you return to the site, you will be asked to provide certain information to verify your identity and your email address. Several days later, you should receive an email with a link to activate "TrustedID Premier." With this service you receive a copy of your Equifax credit report, a year of credit monitoring across all three major credit bureaus, internet scanning for your Social Security number to see if it pops up on websites, and the ability to freeze or unfreeze your Experian credit for one year – again, free of charge.
</p>
<h4>OUR RECOMMENDATION</h4>
<p>We recommend that you enroll in TrustedID Premier for the year. Also, get a copy of your credit reports from all three bureaus and carefully check to see if anything unusual is listed. Report any activity you believe may be fraudulent to your local police and to the FTC at www.identitytheft.gov. You are entitled to free copies of your reports once every 12 months, as well as any time you are denied credit, insurance or employment due to your credit report. Go to www.annualcreditreport.com. Then protect your credit going forward:</p>
<h4>SECURITY FREEZE</h4>
<p>Consider putting a security freeze on your information with all three major credit reporting agencies. A Credit Freeze gives you maximum control over access to your credit. You will receive a PIN that you can use to turn the security freeze on and off ‐‐ online or by phone ‐‐ to enable you to use your credit when you need it: opening a credit card, buying a cell phone, etc. If you submit a police report documenting that you were a victim of fraud or ID theft, this service is free. Otherwise, depending on your state, there is a $5‐10 fee per credit bureau to add or temporarily lift the freeze, but no cost to remove it.</p>
<p><strong>Equifax</strong><br /><a href="https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp" target="_blank">https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp</a></p>
<p><strong>Experian</strong><br /><a href="https://www.experian.com/freeze/center.html" target="_blank">https://www.experian.com/freeze/center.html</a></p>
<p><strong>TransUnion</strong><br /><a href="https://freeze.transunion.com/sf/securityFreeze/landingPage.jsp" target="_blank">https://freeze.transunion.com/sf/securityFreeze/landingPage.jsp</a></p>
<h4>FRAUD ALERT</h4>
<p>The next best option is a Fraud Alert. It directs the credit report recipient to contact the consumer at several consumer providers before granting credit. However, this service only lasts 90 days, so you have to remember to put a new alert four times a year to each of the three Credit Bureaus. If you are a victim of fraud or ID theft, you can set the fraud alert for seven years. This service is free.</p>
<h4>CREDIT MONITORING</h4>
<p>There are credit monitoring services you can pay to monitor your credit and inform you after your credit has been accessed (which is not protection against identity theft). Note: We do not recommend LifeLock, as they have been fined repeatedly by the government for unfair and deceptive trade practices.
</p>
<p>Each of the three Credit Bureaus ‐‐ Equifax TrustID Premier, TransUnion Plus, and Experian CreditWorks Premium ‐‐ has their own form of credit monitoring, through which you can set up credit alerts, freeze and unfreeze your credit online, access your credit report and credit score, and be entitled to up to $1 million of Identity Theft Insurance. The monthly cost for these services varies from about $25‐ $30/month, but as mentioned above, Equifax is providing theirs free for one year. Although signing up for all three services can get pricey, it is the safest option for credit monitoring.</p>
<h4>THE BOTTOM LINE</h4>
<p>The Credit Freeze on all three bureaus is still the best option even if you have to pay for it. Unlike credit monitoring, a security freeze stops an identity theft from happening rather than alerting you to potential fraud after the fact, and, unlike a Fraud Alert, the Credit Freeze stays in force until you remove it.
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Mary Margolishttp://www.blogger.com/profile/04705473422501446584noreply@blogger.com0tag:blogger.com,1999:blog-6725066670219294651.post-86902978775430198032017-08-30T13:46:00.000-07:002017-08-30T14:13:20.645-07:00Picking up the Pieces In the Aftermath of Hurricane Harvey<div class="separator" style="clear: both; text-align: center;">
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<br />Mary Margolishttp://www.blogger.com/profile/04705473422501446584noreply@blogger.com0tag:blogger.com,1999:blog-6725066670219294651.post-3430718013937873462012-09-28T09:22:00.003-07:002012-09-28T09:22:55.333-07:00Embracing Politics as an Opportunity to Teach
<b>By Mary Margolis - September 2012</b>
<br /><br />
Before we become overwhelmed by the last weeks of the Presidential election and tune out the many talking heads who espouse their own spin, we may want to consider the opportunity that elections provide as a teaching opportunity for our children and/or grandchildren to think for themselves. It’s not so much about political activism as it is about using these real life issues as a classroom to learn how to rise above emotionally-based discussions and automatic alignment with one side or the other.<br /><br />
The top issues are jobs and the economy, with health care as a close second. But websites of the candidates and major publications include at least a dozen more issues including federal deficit reduction, immigration, and our energy policy. Not only is each of these issues complex, but the sheer number of them daunting.<br /><br />
We can do several things to help make sense of this process.<br />
<h5>Check the facts</h5>
Both sides of the political debate will have valid points but will also distort or misstate the facts to support their view or to discredit their opponent. Most campaign rhetoric is fear based—that is, pointing out the negative aspects of their opponent rather than the positive aspects of their candidate. Like it or not, this is our political system. <br /><br />What we can do is to show our children how we can educate ourselves on the facts. Several fact-checking websites may be useful:<br />
<ul>
<li><a href="http://www.FactCheck.org" target="_blank">www.FactCheck.org</a></li>
<li><a href="http:/www.politifact.com" target="_blank">www.politifact.com</a></li>
<li><a href="http:/www.OpenSecrets.org" target="_blank">www.OpenSecrets.org</a>
</li>
</ul>
<h5>Balance your reading</h5>
Practice reading articles and editorials from the left and the right. Encourage your children to pick out statements that elicit an emotional response and do not appear to be supported by facts; suspicious statistical quotes that are conveniently self-serving and that may have been taken out of a broader context; or sweeping assumptions made from minimal facts.<br />
<h5>Listen to the Presidential Debates</h5>
Encourage your children to listen for emotion-based sound bites. You might even make a game of it by identifying what emotional response the candidate is looking for. Research and discuss what the real facts are.<br />
<h5>Attend local political candidate forums or debates</h5>
Get involved in your local communities and make a point of becoming informed about the issues and each candidate’s views. Attend forums prepared to ask a few pointed questions to understand the candidate’s position. Take your children along if you can; otherwise, make a point of discussing with your children what you observed.<br />
<h5>Discuss how we form opinions</h5>
Discuss how we weigh the facts against our own beliefs and values in order to arrive at opinions about each issue. Resist the temptation to tell your child how they should think, as strongly-held emotional issues have a way of being passed on to the next generation with the same degree of fervor; sometimes, however, they adopt the polar opposite position. Instead, encourage your children to thoughtfully develop their own opinions. Encourage a dialogue that includes dissenting view points. If you agree on an issue, factually discuss why others disagree. <br />
<h5>Summary</h5>
By teaching children how to think rather than what to think, we will give them the skills they need to develop their own independent thinking. <br />
Current political events provide a wealth of opportunities to develop these skills. The presidential election will be decided not by those who are hard and fast on the right or the left, but by those in the middle. By helping your children to learn how to listen with a critical ear and weigh facts against their own values and beliefs, their vote and yours can make even more of a difference.<br /><br />
Efforts toward independent thinking can not only activate leadership qualities, but can serve as an adaptive mechanism to deal with inevitable changes that occur in our families, our communities, our country and our world.<br />
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Mary Margolishttp://www.blogger.com/profile/04705473422501446584noreply@blogger.com0tag:blogger.com,1999:blog-6725066670219294651.post-63362825686203943282011-11-01T12:56:00.001-07:002011-11-01T13:15:22.206-07:00How Much is Enough?<h5>November 2011</h5><br /><p>Most people pass their assets on to their children from a desire to keep them from going through the same hardships they did. That being said, they may choose to consciously limit what they pass on for fear that their children won't learn the value of a dollar, or of work. A few even disinherit their children because they feel it's important to make them earn it on their own.</p><p>Which is the "right" way? Warren Buffet is often quoted as saying that he wants to leave enough money to his children so "that they feel they could do anything, but not so much that they could do nothing." <sup>(1)</sup> But how much is enough to do anything, and when does it become too much? After all, most of us would like to see the remaining fruits of our labors benefit our children most (blood is thicker than water), but neither do we want to "ruin" them.</p><p>Is there a "right" amount to pass on? That's a big question, so let's take a step back to consider it in its entirety, and perhaps even to reframe the question. Rather than focusing on how much money to leave our children, let's instead focus for a moment on how best to prepare our children to become responsible stewards of wealth. This, in the end, may benefit them far more.</p><p>When you think about it, many who want to limit or eliminate an inheritance often are attempting to teach their children the same way they learned. But the school of hard knocks may not be the best place to send them. In most cases, our children have led very different lives from ours. We've given them opportunities and experiences we may never have had growing up — travel to Europe, private schools, upscale summer camps...not to mention smart phones, iPods and all the rest. (Come to think of it, if only we'd had the opportunities our kids have had, who knows what else we might have accomplished!)</p><p>When we raise our kids with such privileges, will the withholding of an inheritance teach them what took us a lifetime to learn? And what is it that they really need to learn?</p><p>One critical life skill is the making of principled decisions. Principles form the basis for our own personal codes of conduct, and arise from our having decided where we stand on certain matters; in short, what we will or will not do in a given situation. Principled decisions, then, arise primarily from a rational belief system as opposed to emotion-based feelings. Important decisions, if made thoughtfully and in alignment with our core principles, usually stand the test of time far better than those made impulsively, based largely on what <br />"feels right." <sup>(2)</sup></p><p>It's normal, of course, to assume that our children already know what we believe, or where we stand on things. After all, they've grown up around us. But they may not fully grasp as much as we think. We might consider sharing with them the principles we've fashioned out of experience and reflection — not simply to have them adopt those principles, but to help them understand how we arrived at them, and why they're important to us.</p><p>As our children became more articulate, we would do well at times to assume an "interested listener" role, respecting their right to think differently and listening to them without judgment (insofar as possible) as they learn to speak and think about their own lives and principles. It's a matter, then, of teaching them not what to think but how to think for themselves, how to arrive at a decision based on logic and personal principles and being able to recognize the difference between feelings and beliefs. <sup>(3)</sup></p><p>So, instead of worrying about how much is enough to leave our children, perhaps the question should be that of how we best prepare them to make good decisions. In that way, they can become wise stewards for whatever they earn or are given, no matter the amount. That should be enough.</p><br /><p class="disclaimer"><br />1. Kirkland, Richard I. Jr., <u>Should You Leave It All to your Children</u>, Fortune September 29, 1986<br /><br />2. Gilbert, Roberta M., <u>Extraordinary Relationships</u>, A New Way of Thinking About Human Interactions, 144, John Wiley & Sons, Inc., 1992.<br /><br />3. Gilbert, 153.</p>Mary Margolishttp://www.blogger.com/profile/04705473422501446584noreply@blogger.com0tag:blogger.com,1999:blog-6725066670219294651.post-15816779203559695012011-09-28T10:47:00.000-07:002011-10-24T07:46:52.758-07:00Crisis Proportions: Reacting to Market Downturns<h5>September 2011</h5><p>The market has been trending downward since July. You've see your account values drop for a while, but in the past few weeks the pace has increased. The headlines are becoming more sensational as the media fuels the fear — Markets Swoon On Recession Fears <sup>(1)</sup> is enough to unnerve most people.</p><p>Your anxiety increases as you follow the markets no longer month-to-month, but hour-to-hour. News about Greece and the Fed become your daily topic of conversation at the water cooler and dinner table. What if we go back to the lows of August 2010 (10,000 on the DOW) or worse yet—the lows of March 2009! What happens to your 401Ks that were getting close to recovering from 2009? You don't want to lose it again. So, what should you do?</p><p>Anxiety is a funny thing. As it consumes your thoughts, you lose your ability to think clearly, to put facts into perspective. Common responses to such stress can be flight, fight or freeze.</p><h5>FLIGHT</h5><p>For some, the anxiety is so uncomfortable that they need to act. They call their advisor and order that their investments be sold.</p><h5>FIGHT</h5><p>Some choose to fire their advisor and replace him or her with another, or to handle their investments themselves</p><h5>FREEZE</h5><p>Others shut down and do nothing. They can't deal with the anxiety, so they cope by ignoring the problem.</p><p>All three of these are automatic responses, and you’ll find yourself consistently favoring one over the others when you face highly stressful situations. Of course, there are consequences to each.</p><ul><li>The "sell everything" strategy can work if the market continues to go down AND if you have the nerve to re-enter the market at the lower levels. But most people sell at the apex of pessimism (the bottom), after which time the market turns up. Those who sold are often too fearful to buy back until the market has moved significantly higher, locking in a permanent loss.</li><li>An anxiety-driven decision to switch advisors seldom results in a well-thought out strategy change. The change may make you feel good for the moment, but the new strategy is likely to be overly conservative—in reaction to your discomfort—and may cause you to fall short of your objectives.</li><li>You may consider the freeze reaction the most desirable, since you'll ride through the market's hard times and be there when it recovers. Alas, this may not be true. While wholesale changes may not be appropriate, freezing may cost you the opportunity to make timely adjustments that could mitigate the downside and position you for a quicker recovery</li></ul><p>While no one is immune from automatic responses, recognizing your own patterns can help you control your anxiety. One of the most effective means of reducing anxiety, whether caused by the stock market or a family crisis, is to maintain an open relationship with the people around you, such as your advisor and your family. An open relationship is one with optimal communication marked by thoughtful, nonreactive give-and-take of ideas with each party really listening <sup>(2)</sup>.</p><p>Thought-based (as opposed to feeling-based) conversations center on facts, like reviewing your investment objectives, timeframe and strategy.</p><ul><li>Have your objectives or timeframe changed?</li><li>Is your strategy consistent with the long-term outlook for the market?</li><li>Is there a floor or minimum threshold that your investments cannot fall below?</li></ul><p>Together, explore the options and potential outcomes. Decide what changes, if any, are appropriate. If you establish an exit strategy to maintain a floor, be sure to put in place a re-entry strategy so that you can participate in the recovery. Similarly, if you reduce risk in your portfolio because of unfavorable market conditions, you should also set in place a plan to recognize when you should increase risk so as to take advantage of market recoveries. A thoughtful, forward-looking analysis of market conditions that takes into account your overall financial situation will result in better financial decisions.</p><p>By maintaining open relationships, you can keep your investment objectives, timeframe and strategy current, making you less likely to swoon next time the market does!</p><p><strong>Citations:</strong></p><p class="disclaimer">1. Wall Street Journal.September 23, 2011</p><p class="disclaimer">2. Extraordinary Relationships: A New Way of Thinking About Human Interactions, by Roberta Gilbert, 104-110. John Wiley & Sons, Inc., 1992</p>Mary Margolishttp://www.blogger.com/profile/04705473422501446584noreply@blogger.com0tag:blogger.com,1999:blog-6725066670219294651.post-12389098675379722602010-10-28T13:12:00.001-07:002010-11-01T10:11:10.241-07:00Counting on Social Security?<blockquote class="style1"><p><span>I care about our young people, and I wish them great success, because they are our hope for the future, and some day, when my generation retires, they will have to pay us trillions of dollars in social security.<br /><div>— Dave Barry, America Writer and Humorist</div></span></p></blockquote><br /><p>Social Security began in 1935 and has evolved into a program that covers 98% of all workers and that pays benefits to one in six Americans. In 1940, when monthly benefits began, recipients numbered 222,000; today, more than 47 million people receive benefits. 35% of those over 65 rely solely on Social Security payments; one in three workers has no retirement savings other than Social Security; and 50% of Americans have $2,000 or less saved for retirement, according to <a href="http://www.alternet.org/economy/147570/the_retirement_nightmare:_half_of_americans_have_less_than_$2,000_banked_for_their_golden_years/" target="_blank">Dallas Salisbury</a>, president of the Alliance for Investor Education</p><p>This year, and for the first time in 25 years, Social Security is projected to take in less in taxes than it is spending on benefits: high unemployment and low wage inflation result in diminished payroll taxes; and older unemployed workers are opting to begin Social Security earlier. Is Social Security approaching insolvency? Can the baby boomers count on receiving their benefits? A recent <a href="http://www.usatoday.com/news/washington/2010-07-20-1Asocialsecurity20_ST_N.htm" target="_blank">USA Today/Gallup poll</a> found that 60% of workers do not believe they will ever receive Social Security payments, and that 56% of workers and retirees thought that their Social Security benefits will eventually be cut.</p><p>In August, the <a href="http://www.ssa.gov/OACT/TR/2010/index.html" target="_blank">2010 OASDI Trustee Report</a> was issued, taking a 75-year outlook on the financial stability of Social Security. During 2009, the Social Security trust fund increased to $2.54 trillion, a net increase of $122 billion (includes $118 billion of interest and $22 billion in income taxes that higher income retirees pay on their Social Security benefits). Some argue that the $118 billion in interest is not a legitimate source of income, as it is just the government borrowing from itself. Indeed, the $2.54 trillion trust is nothing more than an IOU from the government. What's going to happen when those IOU's are needed to begin paying benefits as the costs start to exceed all revenues sources, a scenario currently projected for 2025? Stephen C. Goss, chief actuary of the Social Security Administration, answers that the government will refinance the debt. In other words, it will sell new Treasuries to the public and use the proceeds to pay back the Social Security trust fund. The Treasuries held by the trust fund are guaranteed as to the principle and interest by the full faith and credit of the U.S. government, as are all publicly held Treasuries.</p><p>The Social Security's actuarial projected deficit is often confused with the U.S. budget deficit, but the fact is that the redemption of Treasury securities by the trust fund will not affect the U.S. government budget deficit. The Social Security trust fund is a stand-alone system, self-financed and prohibited by law from borrowing. <strong>Unlike the U.S. Treasury, the Social Security trust fund cannot run a deficit.</strong> Using, a rolling 75-year view of the trust fund and identifying problems earlier so that we can make adjustments as we go could help keep the trust fund solvent. If not, beginning 2025, the trust fund principle will be needed to make payments. By 2037, the trust fund is projected to be exhausted and the system will return to a pay-as-you-go system.</p><p>In their annual report, the Trustees outline the mathematical changes needed to bring the system into balance over the next 75 years. The projections are done based on high, intermediate and low-cost scenario. The latest projections under the intermediate-cost scenario would require either an increase in payroll taxes by 1.84% or a 12% reduction in benefits. Obviously, the longer we wait to fix the system, the more expensive it will get.</p><p>The solutions being discussed focus on increasing payroll taxes and the eligibility age for full benefits. President Obama has appointed a bipartisan deficit commission that is likely to address Social Security reform sometime after the midterm elections. For more information on options being discussed, you can view these reports:</p><ul class="bullets"><br /><li>Congressional Budget Office: <a href="http://www.cbo.gov/ftpdocs/115xx/doc11580/07-01-SSOptions_forWeb.pdf" target="_blank">Social Security Policy Options</a></li><li>American Academy of Actuaries: <a href="http://www.actuary.org/pdf/socialsecurity/Social_Security_Reform_Issue_Brief_6-15-10.pdf" target="_blank">Social Security Reform: Possible Changes in the Benefit Formulas and Taxation</a></li><li>AARP Public Policy Institute: <a href="http://assets.aarp.org/rgcenter/econ/i3_reform.pdf" target="_blank">Reform Options for Social Security</a></li></ul><br /><p>In considering the potential solutions, I believe it is important to understand the cause of the underfunding, which is a lower ratio of workers to retirees. <a href="http://www.benzinga.com/10/08/407354/22-statistics-about-america%E2%80%99s-coming-pension-crisis-that-will-make-you-lose-sleep-at-ni" target="_blank">In the 1950's there were 16 workers contributing to Social Security for each retiree receiving benefits</a>. Today, there are 3.3 workers for each retiree; by 2025, there are projected to be just two workers for each retiree. One obvious solution not being discussed much is to increase the number of workers. The U.S. is in a unique position in the world to be able to attract workers from other countries through immigration. We can even do it selectively, by making it easier for foreign students who graduate from our universities to receive work visas and even become citizens. There is much talk about closing our borders and not enough on making it easier to enter the U.S. legally, so that those immigrating become taxpayers as well! A more open legal immigration policy might even have the added benefit of reducing illegals.</p><p>As the solutions are being debated, what do we do about our own retirement? Clearly, we cannot wait for the government to solve our problems. Americans are responding by increasing savings as the Commerce Department reports a national personal savings rate of 5.8% (August, 2010) while just three years ago, the personal savings rate was 1.7%. While I do believe that Social Security will continue to pay benefits for many generations, I also know that Social Security is not enough. We must each take personal responsibility to plan for our future.</p><p>If you are still working, the first best course is to contribute the maximum you can to a retirement plan through your employer. If there is no retirement plan where you work, start your own IRA (before-tax contributions) or Roth IRA (after-tax contributions). Earmark part of every raise to saving and don’t forget to build up your after-tax savings as well.</p><p>If you are nearing retirement, it's especially important to get help. Keep in mind that most people will see their net worth double or triple in the five-year period up to retirement. Understanding the different payment options within the Social Security program will help you to maximize the benefits you are entitled to receive.</p><p>If you are retired, and particularly if you retired recently, it's likely that you have many years ahead of you, so it is very important that your savings not retire when you do. And, don't overlook options you may still have to change the way you receive your Social Security. If your income and savings are still not enough, it's important to find out sooner rather than later, as a small decrease in spending now may help avoid drastic reductions later. If your savings are more than enough, then planning will help you minimize estate taxes and maximize what you are able to pass on to your heirs.</p><p>How much do you need to save? The answer depends on many individual factors: lifestyle, age, health and longevity. There is no one rule of thumb so I encourage you to seek the advice of a Certified Financial Planner to help you come up with a plan tailored to you.</p>Mary Margolishttp://www.blogger.com/profile/04705473422501446584noreply@blogger.com0tag:blogger.com,1999:blog-6725066670219294651.post-7501619339978187992010-10-01T09:51:00.000-07:002011-09-07T17:11:54.904-07:00Bulls and Taxes and Bears, Oh My!<h5>October 2010</h5><p>While the bulls and the bears are back and forth in the stock market, one thing is for sure…taxes are on the rise. Between the expiration of the Bush tax cuts in 2011 and the unearned income Medicare contribution tax in 2013, the highest income tax bracket will rise by 13% for ordinary income while investment income tax rates will rise between 24% and 189%! How will these tax increases affect you and what can you do about them?</p><blockquote class="style1"><p><span>Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.<br /><div>— Ronald Reagan</div></span></p></blockquote><p>The debate has been raging as to whether to extend the Bush tax cuts, let them lapse or selectively extend them for those with income under $250,000. President Obama favors the latter. Congressmen, facing very tough mid-term elections, have post-poned the decision to a lame duck Congress when they return in November. The path of least resistance is to let the Bush tax cuts expire, which in effect raises taxes for everyone. But, most believe there will be a partial extension of the Bush tax cuts, limited to income under $250,000.</p><p>So what changes will we see? Certainly not just a return to the days of a 39.6% top tax rate: we must not forget that the Obama Health Care and Education Reconciliation Act of 2010 also raises tax rates.</p><p>Moreover, beginning in 2013, the "unearned income Medicare Contribution Tax" will take effect. That 3.8% rate will be in addition to any other taxes and will be assessed on the <em>lesser</em> of:</p><ul><li>Net investment income, or</li><li>the excess of modified Adjusted Gross Income over the threshold amount.</li></ul><p>To understand what this means, we first need to define the terms.</p><h6>Net Investment Income</h6><p>Net Investment Income is defined in this legislation as:</p><ul><li>Interest</li><li>Dividends</li><li>Annuity payments received (taxable portion)</li><li>Royalties</li><li>Rents</li><li>Gross income derived from a passive activity</li><li>Gross income from a business of trading financial instruments or commodities</li></ul><p>Normal investment expenses that typically are deductible would be allowed to be netted from the above gross income to arrive at the Net Investment Income.</p><p>What is not included in <em>Net Investment Income</em> is:</p><ul><li>Income to which employment taxes were already applied, and</li><li>Distributions from retirement plans.</li></ul><p>Income from deferred compensation plans is not specifically addressed but most believe it will not be included.</p><h6>Modified Adjusted Gross Income</h6><p>This now means the Adjusted Gross Income (from the front page of your tax return) plus net income excluded under the foreign owned income exclusion.</p><h6>Threshold</h6><p>The <em>threshold</em> amount is:</p><ul><li>Married, filing jointly <strong>$250,000</strong></li><li>Married, filing separately <strong>$125,000</strong></li><li>Single and Head of Household <strong>$200,000</strong></li></ul><p>The threshold amounts are <strong>not</strong> indexed for inflation.</p><h6>Calculating the tax</h6><table> <tr class="row1"><th>Single Taxpayer</th><th>1</th><th>2</th><th>3</th><th>4</th><th>4+ RMD</th></tr><tr class="row2"><td>(A) Modified AGI</th><td>300,000</td><td>250,000</td><td>225,000</td><td>150,000</td><td>220,000</td></tr><tr class="row1"><td>(B) Less Threshold</td><td>200,000</td><td>200,000</td><td>200,000</td><td>200,000</td><td>200,000</td></tr><tr class="row2"><td>(C) Income above threshold (A-B)</td><td>100,000</td><td>50,000</td><td>25,000</td><td>0</td><td>20,000</td></tr><tr class="row1"><td>(D) Net Investment Income</td><td>0</td><td>40,000</td><td>35,000</td><td>50,000</td><td>50,000</td></tr><tr class="row2"><td>Subject to 3.8% tax (lesser of C or D)</td><td>0</td><td>40,000</td><td>25,000</td><td>0</td><td>20,000</td></tr></table><br /><p>The lesser of the Net Investment Income and the amount that the Modified AGI exceeds the threshold is subject to the Medicare Contribution Tax.</p><ol><li>While the income is above the threshold, there is no net investment income. </li><li>All the net investment income is subject to the 3.8% tax.</li><li>Only the net investment income above the threshold is subject to tax.</li><li>A Modified AGI below the threshold results in no Medicare contribution tax.</li></ol><br /><p>However, watch out for the <strong>Medicare tax cross-over zone</strong>. In example 4, if Sam's pension ($100,000) and net investment income ($50,000) was increased by a $70,000 IRA Required Minimum Distribution (even though the RMD itself is not subject to the Medicare contribution tax) the net investment income would be pushed into the taxable zone.</p><h6>Trust or Estate</h6><p>The 3.8% tax may apply to irrevocable trusts and estates, but with slightly different rules. The tax would be assessed on the lesser of:</p><ul><li><strong>Undistributed</strong> net investment income, or</li><li>the excess of Modified Adjusted Gross Income over the threshold amount.</li></ul><p>The threshold for trusts and estates is the dollar amount that falls within the highest tax bracket for the year -- $11,200 for 2010. To the extent that investment income is distributed, it would be reported on the beneficiary's tax return and subject to the Medicare Contributions Tax on the beneficiary's return at a much higher threshold than the trust. For trusts with multiple beneficiaries, income-spreading could minimize the impact of this tax.</p><p>The Medicare Contributions Tax does not apply to tax-exempt trust such as 501(c)(3) charitable trusts and charitable remainder trusts.</p><p>In the case of a Grantor trust, the tax will not apply: income will be reported on the Grantor's return, where the exposure to the Medicare Contributions Tax will be calculated and assessed, if applicable.</p><h6>Tax Impact</h6><p>By 2013, the highest income tax bracket will be significantly higher. Assuming the Bush tax expires, the top income tax brackets will rise by 13% for ordinary income while investment income tax rates will rise between 24% and 189%!</p><table><tr class="row1"><th>Top Income Bracket</th><th>2010</th><th>2011</th><th>2013</th><th>% Increase</th></tr><br /><tr class="row2"><td>Ordinary Income</td><td>39.6%</td><td>39.6%</td><td>39.6%</td><td align="center">13%</td></tr><tr class="row1"><td>Long-Term Cap Gains</td><td>15%</td><td>20.0%</td><td>23.8%</td><td align="center">59%</td></tr><tr class="row2"><td>Interest, ST Cap Gains, NQ Dividends</td><td>35%</td><td>36.6%</td><td>43.4%</td><td align="center">24%</td></tr><tr class="row1"><td>Qualified Dividends</td><td>15%</td><td>39.6%</td><td>43.4%</td><td align="center">189%</td></tr></table><br /><p>Taxes affect behavior and there will be no exception here. Investment income will be hit hard, which reduces the return for the level of risk assumed. How will investors respond? We believe Blue Chip dividend paying stocks and interest producing corporate bonds and even CD’s won’t look so attractive. It is possible that investors will move out on the risk curve to favor small to mid size growth companies.</p><p>There may be an increased interest in tax-deferred and tax-free investment vehicles and strategies. While some of these may make sense for part of your portfolio, be sure they make sound business sense apart from the tax motive and fit into your master financial plan.</p><h6>Tax Planning Advice</h6><p>Working with a financial planning advisor becomes more important than ever. I am not talking about a broker who just brings you investment ideas, but someone who helps you articulate what is most important to you, analyzes your cash flow, and runs stress-tested projections to see how different planning ideas may work out (using Monte Carlo simulations). Most importantly, the advisor should proactively monitor your situation and recommend necessary adjustments.</p><ol><strong>Strategies to mitigate or eliminate the tax:</strong><li>reducing Net Investment Income</li><li>reducing Modified AGI</li><li>managing the cross-over zone.</li></ol><br /><p>Those who will benefit most from tax planning strategies will be taxpayers approaching or exceeding the threshold ($200,000 for singles and $250,000 for married filing jointly) and those who are likely to cross over the threshold.</p><ul><strong>Potential options for reducing Net Investment Income</strong><li>Change passive to active income, if possible</li><li>Utilize tax-free investments<ul><li>Roth IRA's</li><li>Roth 401k's</li><li>Health Savings accounts</li><li>Cash Value life insurance</li><li>Municipal bonds</li><li>529 plans</li></ul></li></ul><ul><strong>Potential options for reducing Modified AGI</strong><li>Shift timing of income by contribution to tax deferred accounts<ul><li>401K plans</li><li>Deferred Compensation plans</li><li>Fixed Annuities</li></ul></li><li>Convert IRA's to Roth IRA's</li><li>Accelerate withdrawals from IRA's in lower-income years prior to Required Minimum Distributions.</li></ul><p>While not avoiding the Medicare Contribution Tax, shifting income from qualified dividends to long-term capital gains can lower taxes.</p><h6>Conclusion</h6><p>As tax rates rise with the expiration of the Bush tax cut and the coming of the Medicare Contribution Tax, the importance of tax planning increases. Those with taxable income over $250,000 (married) and $200,000 (single) and for those likely to be at that level intermittently should proactively in explore their options.</p><p>An analysis of your current investment portfolio can uncover opportunities to help maximize your total <em>after</em> tax returns.</p><p>Of course, the tax planning strategies you consider should make sense for your portfolio and align with your overall objectives (i.e. be sure the tax tail doesn't wag the dog). Cost benefit analysis, cash flow analysis and probability analysis (Monte Carlo simulations) are important tools to evaluate the short and long term benefits--as well as the risks of various tax strategies. Seek out a financial planning advisor who can help you evaluate strategies and opportunities that are right for you.</p><blockquote class="style1"><p><span>The hardest thing in the world to understand is the income tax.<br /><div>— Albert Einstein</div></span></p></blockquote><p class="disclaimer">Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. View expressed in this newsletter may not reflect the views of FSC Securities Corporation. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. FSC Securities Corporation does not offer tax or legal advice. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining value.</p><p class="disclaimer">Investments in stocks of small and mid size companies may involve additional risks. They typically have a higher risk of failure, and are not as well established as larger blue-chip companies. Historically, small and midsize company stocks have experienced a greater degree of market volatility than the overall market average.</p><p class="disclaimer">A Roth IRA distribution is qualified if you've had the account for at least five years and/or the distribution is made after you've reached age 59 1/2 made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income tax on any previously deducted traditional IRA contributions and on all earnings. Because Roth IRA conversions may not be appropriate for all investors and individual situations vary we suggest that you discuss tax issues with a qualified tax advisor.</p><p class="disclaimer">Depending upon the municipal bond offered, alternative minimum tax and state/local taxes may apply.</p>Mary Margolishttp://www.blogger.com/profile/04705473422501446584noreply@blogger.com0tag:blogger.com,1999:blog-6725066670219294651.post-81894654569271811132010-07-21T14:53:00.000-07:002011-09-07T17:11:12.611-07:00Financial Reform or Foundation for the Next Crisis?<h5>July, 2010</h5><p>On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act that he says will end many of the practices that led to the worst recession in the U.S. since the Great Depression. This is Obama's second major domestic reform of the year, after health care.</p>The stated purpose of this legislation is to:<ul><li>Protect Consumers from abusive financial services practices</li><li>Rein in Wall Street by improving accountability and transparency in the financial system.</li><li>End "Too Big" to fail and taxpayer funded bailouts</li></ul><div class="push"></div><p>The Senate Committee on Banking, Housing and Urban Affairs added to this "We must create a sound foundation to grow the economy and create jobs."</p><p>Is it possible to achieve such lofty goals and what will be the unintended consequences?</p><p>For a summary of the bill <a href="#" id="button">click here</a></p><h6>Potential Impact</h6><p>This law is ambitious, but despite its 2,319 pages, is only a template. A vast number of details are left to regulators, such as the 67 studies to be conducted and some 243 new detailed rules to be written. How regulators write these rules (estimated to take two years or more) and how they and future administrations decide to enforce them will dictate the impact on financial institutions, businesses and, ultimately, consumers. I believe this legislation is on a spiraling path towards more government oversight and control, and ever more bureaucrats.</p><p>Not only is it important to understand what is in this bill, but what is noticeably absent. It does not address the problems faced by Fannie Mae and Freddie Mac, despite the fact that these two entities helped fuel the housing bubble and were recipients of $150 Billion in Federal bail-out monies. The Farm Credit System, a group of banks and cooperatives that lend money to farmers and rural land owners, will not be subject to the oversight other banks will have thanks to their lobbyists and the help of the Senate Agriculture Committee. (While the Farm Credit System has not made the front page during the current crisis, they did receive a government bailout back in 1987, to the tune of $1 billion. Of course, that seems like chump change now.) Additionally, car loans are exempt from the new law despite the fact that such loans are notoriously subject to abuse; such an exemption is all the more notable, given the sizable bailout of the car manufacturer industry.</p><p>The new law is intended to help prevent another financial system crisis of the magnitude we experienced in 2008. Unfortunately, no bill can anticipate every possible crisis and its causes. There have been many financial crises in the past, of varying severity, and there will be others, either in spite of or as an unintended consequences of certain rules contained in this legislation. After all, many point to the government policies put in place to stimulate the economy through housing in the wake of the tech bubble as the cause of this crisis. The pressure was on Washington to do something about the 2008 financial crisis, so they moved at record speed to pass a broad-reaching and complex set of laws. In my opinion, this legislation is a knee-jerk response to the high degree of anxiety felt by Americans and is not well thought out. We can only hope that this legislation will not be the cause of the next crisis.</p><p>That said, I believe there are some good reforms in the law, such as the establishment of exchanges for derivatives. The increased standardization should bring down the cost of trading and increase volume, so the falling profit margins will be offset by volume. Moreover, with contracts cleared centrally, the current required reserves will be reduced.</p><p>The resulting increase in jobs from this legislation will be from a growing bureaucracy, more lobbyists and compliance staffs. The two major agencies created by this bill, the Consumer Financial Protection Agency and the Financial Stability Oversight Council, are only a start. The additional offices added to existing agencies (Office of Financial Research, Office of Housing Counseling, Federal Insurance Office, Office of Minority & Women), the 67 studies and the 243 detailed rules would expand government employment considerably. Additionally, as the bureaucrats begin writing the rules, the lobbyists will be out in force to help shape the outcome. Of equal concern will be the increase of corporate accountants and attorneys to keep track of and comply with the new rules. Unfortunately, this type of job growth is counter-productive to the growth of the economy, as increase in spending by the government must come from the taxpayers (hence higher taxes). In addition, businesses will incur higher compliance cost—which, of course, can reduce productivity, increase overall costs passed on to consumers, and reduce profitability to its shareholders. How high can the costs rise?</p><p>At the Economic Club of Washington on June 22, Chairman of the Business Roundtable and Verizon Communications CEO, Ivan Seidenberg expressed his opinion about what is coming out of Washington: "In our judgment, we have reached a point where the negative effects of the proposed policies are simply too significant to ignore...By reaching into virtually every sector of economic life, government is injecting uncertainty into the market place and making it harder to raise capital and create new businesses."</p><p>In my opinion, while some aspects of this bill will result in much-needed improvements, its ambiguous, over-reaching rules and regulations will significantly hamper the recovery of our economy. Ronald Reagan once said that the closest thing to eternal life on Earth is a federal program, as "they never end."</p><p>While we do expect the economy to recover, the impact of this legislation will impede its pace and, more importantly, prevent it from reaching its potential. We will need to be watchful in the coming months and years as this legislation is implemented, changing the rules of the game to create opportunities in certain areas while ending them in others. As investors, we must be vigilant in identifying the companies and industries that benefit, along with those who will suffer...for every cloud has a silver lining and it's our job is to find it.</p><br /><div class="push"></div><br /><div id="popupContact"><a id="popupContactClose">CLOSE X</a><br /><p id="contactArea"> <br /><h1>2010 Financial Reform Bill</h1><h4>AKA Dodd-Frank Wall Street Reform and Consumer Protection Act</h4><h5>Protect Consumers</h5><h6>New Consumer Protection Agency</h6><p>The Consumer Financial Protection Bureau (CFPB) will be formed in one year with broad powers to write rules and ban certain financial products. Its jurisdiction will include mortgages, credit cards, student loans, payday lenders and debt collection, while car loans and loans through the Farm Credit System are exempted. The CFPB will also oversee the enforcement of federal laws intended to ensure the fair, equitable and nondiscriminatory access to credit for individuals and communities. The CFPB will be under the Federal Reserve, with a director appointed by the President and confirmed by the Senate, although the Financial Stability Oversight Council can override CFPB. The CFPB is also charged with creating an Office of Financial Literacy, with a toll-free hotline for consumer complaints.</p><h6>Mortgage regulations</h6><p>Within two years, there will be more mortgage protections by holding mortgage brokers and loan originators responsible for ensuring that borrowers can afford their mortgage and get the right product for their needs. Lenders will be required to verify the income and assets of borrowers. The law prohibits financial incentives for selling more expensive loans and bans prepayment penalties on all but the most basic mortgages; in addition, any prepayment penalty mortgage must also be presented with a non-penalty alternative. Variable-rate loans must include disclosures as to the maximum a borrower could end up paying. Lenders who sell off riskier loans to investors must retain a 5% ownership stake.</p><p>Within a year there will be new home-appraisal rules, with the aim of ensuring appraiser independence. There will also be a study of reverse-mortgage loans, to determine whether stronger consumer protections are needed.</p><h6>Housing Counseling</h6><p>Establishes an Office of Housing Counseling within HUD to promote homeownership and provide housing counseling.</p><h6>Credit and Debit Cards</h6><p>An individual will be able to access their credit scores for free if turned down for a loan or a job, in addition to the credit report available once a year from the three big credit bureaus (at Annual CreditReport.com).</p><p>The Federal Reserve is charged with creating rules to cap the fees that debit card issuers can charge merchants. The hope is that retailers will offer discounts for debit card use. More likely, however, is that banks will raise other fees as their profit margins on these products get squeezed. In addition, merchants may set a $10 minimum purchase for credit card use. And colleges and federal agencies will be allowed to set maximums for credit card charges they accept.</p><h6>Student Loans</h6><p>Private student loans from banks as well as student loans from for-profit career colleges will fall under the oversight of the CFPB. Private loans often carry variable rates with no cap, and lack the consumer safeguards that federal student loans provide, such as deferment options, forgiveness programs and affordable repayment plans. Within the CFPB, a Private Education Loan Ombudsman will give students a central place for help with private student loans.</p><h6>Rating Agencies</h6><p>The SEC has two years to produce a study to mitigate conflicts of interests at the biggest rating agencies; otherwise, a board will be created to match rating agencies with debt issuers. Investors are allowed to sue credit rating agencies if they recklessly failed to review information used in developing a rating.</p><h6>Deposits</h6><p>Federal deposit insurance limits will be permanently raised to $250,000 per account. The prohibition against paying interest on demand deposits is repealed.</p><h6>Executive Compensation</h6><p>The SEC is directed to enact new "say on pay" rules for public company compensation and golden parachutes. The new rules are expected within six months and enable shareholder to have an advisory vote on such pay practices. It will also require companies to provide charts comparing stock performance with executive compensation over a five-year period and require corporate compensation committees be comprised solely of independent directors, with the authority to hire consultants. The "pay czar" will have the authority to ban what is deemed to be inappropriate compensation practices and to require financial firms to disclose any compensation structure with incentive-based elements.</p><h5>Too Big To Fail</h5><h6>Agency heads to monitor risk</h6><p>Chaired by the Treasury Secretary, the <span style="font-weight:bold;">Financial Stability Oversight Council</span> is formed immediately to monitor systematic risk in the financial system. The Treasury, along with federal regulatory agencies and an independent member appointed by the President, are charged with identifying firms that threaten stability and subject them to tighter oversight by the Federal Reserve and with break up firms that pose an urgent threat—to be accomplished through an "orderly liquidation" process instead of bankruptcy or bailouts. So the same process used for banks will apply more broadly to non-banks.</p><p>The costs will be covered in the short term by a Treasury credit line, then recouped by sales of the liquidated firms assts. For the remaining shortfall, there will be certain claw-backs of creditor payments that exceed liquidation value, along with assessments on large financial companies in a complex assessment scheme that requires the "riskiest" to pay more.</p><p>The Stability Council will also make recommendations to the Federal Reserve for increasing strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity, with more regulation on those considered the riskiest.</p><p>The Council will have the ability to approve a Federal Reserve decision to break up large, complex companies, but only as a last resort. It will also have the ability to require non-bank financial companies that pose a risk to U.S. financial stability to submit to supervision by the Federal Reserve.</p><h6>Leveling the playing field</h6><p>The legislation initially included two requirements in order to offset the advantages that the too-big-to-fail banks have over smaller banks: </p><ul><li>A bank tax on the largest banks to encourage them to shrink, and to pay for the clean up of the large banks that fail. This provision was removed as a concession to get the bill passed.</li><li>The second is to require banks to have more capital and liquidity to make a collapse less likely. Higher capital requirements are included in this bill with the amount left to the regulators to determine.</li></ul><h5>Rein in Wall Street</h5><h6>Study to identify needs</h6><p>The SEC will conduct a study of the entire securities industry to identify needed reforms in the wake of the Madoff and Stanford Financial ponzi schemes.</p><h6>Exchanges for Derivatives</h6><p>Because of their leverage and lack of transparency, derivatives pose a threat to the financial system. Requiring most derivatives now traded dealer-to-dealer to be traded on public exchanges or passed through clearing houses will lessen the risk that one dealer's failure will bring others down. The SEC is charged with developing the necessary rules within one year.</p><h6>Regulate Hedge funds</h6><p>Requires hedge funds and private equity firms overseeing $150,000,000 or more in capital to register with the SEC, subjecting them to systemic risk regulation by the Financial Stability Oversight Council. At the same time, it shifts to state supervision those Registered Investment Advisors with assets under management under $100 million (from $30 million).</p><h6>New Insurance Agency</h6><p>Creates a Federal Insurance Office to monitor all aspects of the insurance industry, with an emphasis on identifying gaps in the existing regulation that could contribute to a systemic crisis. Currently, insurance is regulated by each state.</p><h6>Credit Rating Agencies</h6><p>Addresses the role that credit rating agencies played in the economic crisis and charges the regulators to create rules to reduce conflicts of interest and market reliance on credit rating agencies. Also imposes a liability standard on the agencies.</p><h6>Whistleblower</h6><p>The Commodities Futures Trading Commission will establish a whistleblower bounty program, with incentives to identify wrongdoing in the securities markets and to reward individuals whose tips lead to successful enforcement actions.</p><h6>Volker Rule</h6><p>The "Volker Rule," based on the proposal from former Federal Reserve Chairman Paul Volcker, restricts banks from making certain investments deemed to be speculative. Banks will have two years to wind down their proprietary trading activities. Insurance companies will retain limited trading privileges and banks will be able to invest three percent of their Tier 1 capital in hedge/private equity funds. Banks will be allowed to trade interest-rate, foreign exchange and high-quality credit swaps, while commodity, equity and non-investment-grade credit contracts must go into separate affiliates. This rule will affect fewer than 10% of all swaps, as foreign-exchange swaps comprise the majority of the market.</p><h6>Insurance</h6><p>As part of the Treasury, a new Federal Insurance Office will be created to gather information about the insurance industry, including access to affordable insurance products by minorities, low and moderate income earners and underserved communities. Additionally, the office will monitor systemic risk in the insurance industry.</p><h6>Minorities and Women</h6><p>A new Office of Minority and Women Inclusion will be formed at federal banking and securities regulatory agencies will address employment and contracting diversity matters, coordinate technical assistance to minority-owned and women-owned businesses, and seek diversity in the workforce.</p><h6>Regulating the Regulators</h6><p>The Federal Reserve will now be subject to audits by the GAO regarding emergency lending, discount window lending and open market transactions. Additionally, by Dec. 1, details of all emergency lending that took place during the financial crisis will be published on the Federal Reserve website.</p><br /> </div><br /> <div id="backgroundPopup"></div>Mary Margolishttp://www.blogger.com/profile/04705473422501446584noreply@blogger.com0