Pay Yourself First

Each month you settle down to pay bills. You pay your mortgage lender. You pay the electric company. You pay the trash collector. But do you pay yourself? One of the most basic tenets of sound investing involves the simple habit of “paying yourself first,” in other words, making the first payment of each month into your savings account.
Americans’ saving patterns vary widely. And too often, short-term economic trends can interrupt long-term savings programs. For example, the U.S. Personal Savings Rate reached 6.5% in December 2008 following the housing and banking crisis. Three years later, as the economic environment appeared to stabilize, the savings rate fell to 4%.¹

The Genius of Pay Yourself First

Anyone who’s ever managed their own finances knows that saving can be a challenge. There seems to be an endless stream of expenses that demand a piece of each month’s paycheck. Herein lies the genius of paying yourself first: you get the cream at the top of the bucket, and not the leftovers at the bottom.
The trick is to prioritize. Make it a point to put your future first. At first, saving may mean a small lifestyle change. But most individuals want to see their net worth increase steadily. For them, finding ways to save becomes more of a long-term commitment than a short-term challenge.

Putting Your Money to Work

What will you do with the money you save?
If retirement is your priority, consider taking advantage of tax-advantaged investments. Employer-sponsored retirement plans, such as 401(k)s and 403(b)s, can be a great way to save because the money comes out of your paycheck before you even see it. Also, as an added incentive, some employers offer to match a percentage of your contributions.²
For money you may want to access before retirement, consider placing the funds in a separate account. When the balance hits your target, you may want to move the money into investments that offer the potential for higher returns. Of course, this may mean exposing your money to more volatility, so you’ll want to choose vehicles that fit your risk tolerance, time horizon, and long-term goals.
In the pursuit of growing wealth, sound habits can be your most valuable asset. Develop the habit of “paying yourself first” today. The sooner you begin, the more potential your savings may have to grow.

Ups and Downs

The U.S. Personal Savings Rate historically has fluctuated as Americans are influenced by the short-term economic environment.

Sources: Bureau of Economic Analysis, 2012; National Bureau of Economic Research, 2012; for the period January 1, 2002 through December 31, 2011.

1. Bureau of Economic Analysis, January 2012
2. Distributions from 401(k), 403(b) and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

Resource: http://www.authenticcounsel.com/resource-center/money/pay-yourself-first

What If You Get Audited?

“Audit” is a word that can strike fear into the hearts of taxpayers.
However, the chances of an Internal Revenue Service audit aren’t that high. In 2012, the IRS audited 1.0% of all individual tax returns.¹
And being audited does not necessarily imply that the IRS suspects wrongdoing. The IRS says an audit is just a formal review of a tax return to ensure information is being reported according to current tax law and to verify that the information itself is accurate.
The IRS selects returns for audit using four main methods.²

• Random Selection. Some returns are chosen at random based on the results of a statistical formula.
• Information Matching. The IRS compares reports from payers — W2 forms from employers, 1099 forms from banks and brokerages, and others — to the returns filed by taxpayers. Those that don’t match may be examined further.
• Related Examinations. Some returns are selected for an audit because they involve issues or transactions with other taxpayers whose returns have been selected for examination.

There are a number of sound tax practices that may reduce the chances of an audit.

• Provide Complete Information. Among the most commonly overlooked information is missing Social Security numbers — including those for any dependent children and ex-spouses.
• Avoid Math Errors. When the IRS receives a return that contains math errors, it assesses the error and sends a notice without following its normal deficiency procedures.
• Match Your Statements. The numbers on any W-2 and 1099 forms must match the returns to which they are tied. Those that don’t match may be flagged for an audit.
• Don’t Repeat Mistakes. The IRS remembers those returns it has audited. It may check to make sure past errors aren’t repeated.
• Keep Complete Records. This won’t reduce the chance of an audit, but it potentially may make it much easier to comply with IRS requests for documentation.

Remember, the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Audits Have Changed

Most audits don’t involve face-to-face meetings with IRS agents or representatives. In 2012, 76% were actually conducted through the mail; only 24% involved face-to-face meetings.

Internal Revenue Service, 2013

1. Internal Revenue Service, 2013 (2012 is the latest year for which information is available.)
2. Internal Revenue Service, 2013
3. Commerce Clearing House, 2012

Resource: http://www.authenticcounsel.com/resource-center/tax/what-if-you-get-audited

What Do Your Taxes Pay For?

Taxes are one of the biggest budget items for most taxpayers, yet many have no idea what they’re getting for their money.
In 2012, as in recent years, Americans spent more on taxes than on groceries, clothing, and shelter combined. In fact, we worked until mid-April just to earn enough money to pay our taxes. So what do all those weeks of work get us?
The accompanying chart breaks down the $3.7 trillion federal budget for 2012 into major categories. By far, the biggest category is Social Security and income programs, which consume one-third of the budget. This includes Social Security, retirement and disability programs for federal employees, food assistance, and unemployment compensation. Another 21% of the budget goes to defense and related items, and 23% goes to Medicare and health programs
Are taxes one of your biggest budget items? Take steps to make sure you’re managing your overall tax bill. Please consult a tax professional for specific information regarding your individual situation.

Pieces of the Federal Pie

Roughly 67% of the 2012 Federal budget was used for Social Security, Medicare, defense, and related programs.

Source: Congressional Budget Office, 2013

Itemized Federal Spending

Here’s a breakdown of how the Federal budget was spent, according to categories established by the Congressional Budget Office.

Source: Center on Budget and Policy Priorities, 2012

Resource: http://www.authenticcounsel.com/resource-center/tax/what-do-your-taxes-pay-for

Healthcare Costs in Retirement

Americans workers are split about 50/50 when asked if they are confident they will have enough money to pay for medical expenses in retirement.
In a 2013 survey, 52% of all workers reported they were “not too” or “not at all” confident they would have enough money to pay for their medical expenses in retirement. The other 48% said they were “very” or “somewhat” confident they could pay the cost.¹
Regardless of whether you’re confident or not, it’s important to have an idea about how much healthcare may cost in retirement. By putting the costs in better perspective, you might be able to better understand what you can pay for and what you can’t.

Health-Care Breakdown

A retired household faces three types of health-care expenses.

1. A household may have the expense of premiums for Medicare Part B (which covers physician and outpatient services) and Part D (which covers drug-related expenses). Typically, Part B and Part D are taken out of a person’s Social Security check before it mailed, so the premium cost is often overlooked by retirement-minded individuals.
2. The household should expect to pay for co-payments related to Medicare-covered services that are not paid by Medigap or other health insurance.
3. The retired household should expect to pay for dental care, eyeglasses, and hearing aids, which are typically not covered by Medicare or other insurance programs.

It All Adds Up

A typical married couple, age 65, can expect these health-care expenses to add up to $197,000 over their lifetime, according to a study by the Center for Retirement Research. The study also concluded that there is 5% risk these costs will exceed $311,000.²
If nursing home costs are included, the uninsured health costs for a typical couple jumps to $260,000, with a 5% risk of it exceeding $570,000.³
Should you expect to pay this amount? Possibly. Seeing the results of one study may help you make some critical decisions when creating a strategy for retirement. Without a solid approach, health-care expenses may add up quickly and alter your retirement spending.

Out-of-Pocket Health-Care Cost

How much a typical couple, age 65, can expect to pay for uninsured health-care costs.

	Without nursing-home costs	With nursing-home costs
Average	$197,000	$260,000
Top 5 percent	$311,000	$570,000

Source: Center for Retirement Research, March 2010. Most recent figures available.

Prepared for the Future?

Workers age 55 and older were asked how much they have saved and invested for retirement — excluding their residence and defined benefit plans.

Employee Benefit Research Institute, 2013 Retirement Confidence Survey.

1. Employee Benefit Research Institute, 2013 Retirement Confidence Survey
2,3. Center for Retirement Research, March 2010. Most recent figures available.

Resource: http://www.authenticcounsel.com/resource-center/retirement/healthcare-costs-in-retirement

TIPS for Inflation

“Inflation will be 1.2 to 1.7 percent this year, and will be at or below the 2 percent level that the committee judges to be consistent with its statutory mandate,” said Federal Reserve Chairman Ben Bernanke when he testified in July 2012 before Congress.¹
When the Fed Chairman talks about inflation, he’s concerned with the upward price movement in the cost of goods and services in the U.S. economy. Bernanke and the Fed governors are tasked with adjusting short-term interest rates to help control inflation in an effort to promote overall economic growth.
In recent years, inflation has remained low, which has allowed the Fed to maintain record-low short-term interest rates. But some are concerned that the Fed’s interest-rate policy may accelerate inflation in the future, and they are looking for investment opportunities that have the potential to react to higher interest rates.

A Few TIPS

Unlike conventional U.S. Treasury bonds, the principal amount of Treasury Inflation-Protected Securities, or “TIPS,” is adjusted when there are changes in the Consumer Price Index (CPI), which measures changes in inflation. When the CPI increases, a TIPS’ principal increases. If the CPI falls, the principal is reduced.

The relationship between TIPS and the CPI can affect the amount of interest you are paid every six months and the amount you are paid when your TIPS matures.²
Remember, TIPS pay a fixed rate of interest. Since the fixed-rate is applied to the adjusted principal, interest payments can vary from one period to the next.
When TIPS mature, the bondholder will receive either the adjusted principal or the original principal, whichever is greater.²^,³
If you are concerned about inflation — and expect short-term interest rates may increase — TIPS are an investment that may be worth considering. A close review of your overall strategy also might reveal other investment choices that may be appropriate in an environment of changing interest rates.

Inflation in Perspective

In recent years, the Consumer Price Index has bounced below 2.9%, its average rate for the past 25 years.

U.S. Bureau of Labor Statistics, 2013. Past performance does not guarantee future results. Actual results will vary.

1. Board of Governors of the Federal Reserve,July 17, 2012
2. The interest income from a Treasury Inflation-Protected Security (TIPS) is exempt from state and local taxes. However, according to current tax law, it is subjected to federal income tax. Adjustments in principal are taxed as interest in the year the adjustment occurs even though the principal adjustment is not received by the bond holder until maturity. Individuals should consider their ability to pay the current taxes before investing.
3. TreasuryDirect.gov, 2013

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2013 FMG Suite.

Resource:http://www.authenticcounsel.com/resource-center/investment/tips-for-inflation

Trends in Charitable Giving

Whether the economy is expanding or contracting, Americans tend to be consistent with charitable donations.
In 2012, as the U.S. economy continued to stabilize, Americans gave an estimated $316.23 billion to charity. That’s almost $18 billion more than the previous year.¹
Americans give to charity for two main reasons: To support a cause or organization they care about, or to leave a legacy through their support.
When giving to charitable organizations, some people elect to support through cash donations. Others, however, understand that supporting an organization may generate tax benefits. They may opt to follow techniques that can maximize both the gift and the potential tax benefit. Here’s a quick review of a few charitable choices:
Direct gifts are just that: contributions made directly to charitable organizations. Direct gifts may be deductible from income taxes depending on your individual situation.
Charitable gift annuities are not related to annuities offered by insurance companies. Under this arrangement, the donor gives money, securities, or real estate and in return, the charitable organization agrees to pay the donor a fixed income. Upon the death of the donor, the assets pass to the charitable organization. Charitable gift annuities enable donors to receive consistent income and potentially manage taxes.
Pooled-income funds pool contributions from various donors in a fund, which is invested by the charitable organization. Income from the fund is distributed to the donors according to their share of the fund. Pooled-income funds enable donors to receive income, potentially manage taxes, and make a future gift to charity.

Gifts in trust enable donors to contribute to a charity and leave assets to beneficiaries. Generally, these irrevocable trusts take one of two forms. With a charitable remainder trust, the donor can receive lifetime income from the assets in the trust, which then pass to the charity when the donor dies; in the case of a charitable lead trust, the charity receives the income from the assets in the trust, which then pass to the donor’s beneficiaries when the donor dies.
Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
Donor-advised funds are funds administered by charity to which a donor can make irrevocable contributions. This gift may have tax considerations, which is another
benefit. The donor also can recommend that the fund make distributions to qualified charitable organizations.
Some people are comfortable with their current gifting strategies. Others, however, may want a more advanced strategy that can maximize both your gift and generate potential tax benefits. A financial professional can help you assess which approach may work best for you.
Remember, the information in this article is not intended as tax or legal advice. And it may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Giving and Net Worth

Charitable giving appears to trail household net worth by about one year. When household net worth dipped in 2008, charitable giving dipped in 2009.

Chart Source: Giving USA Foundation, 2013; Federal Reserve, 2013

Where the Money Goes

The biggest percentage of charitable contributions — 32% — went to churches and religious organizations. A variety of different types of groups were on the receiving end of charitable gifts.

Chart Source: Giving USA Foundation, 2013

Resource: http://www.authenticcounsel.com/resource-center/estate/trends-in-charitable-giving

A Brief History of Estate Taxes

Federal estate taxes have been a source of funding for the federal government almost since the U.S. was founded.

In 1797, Congress instituted a system of federal stamps that were required on all wills offered for probate when property (land, homes) was transferred from one generation to the next. The revenue from these stamps was used to build the navy for an undeclared war with France, which had begun in 1794. When the crisis ended in 1802, the tax was repealed.¹
Estate taxes returned in the build up to the Civil War. The Revenue Act of 1862 included an inheritance tax, which applied to transfers of personal assets. In 1864, Congress amended the Revenue Act and added a tax on transfers of real estate and increased the rates for inheritance taxes. As before, once the war ended the Act was repealed.

In 1898, a federal legacy tax was proposed to raise revenue for the Spanish-American War. This served as a precursor to modern estate taxes. It instituted tax rates that were graduated by the size of the estate. The end of the war came in 1902, and the legacy tax was repealed later that same year.³
Until 1916. The 16th Amendment to the Constitution was ratified in 1913 — the one that gives Congress the right to “lay and collect taxes on incomes, from whatever source derived.” The Revenue Act of 1916 established an estate tax, and in one way or another, it’s been part of U.S. history since then.
In 2010, the estate tax expired — briefly. But in December 2010, Congress passed the Tax Relief Act of 2010 and the new law retroactively imposed tax legislation on all estates settled in 2010.
It’s possible the estate tax law may be revised at least once during the next few years. If you’re uncertain about your estate strategy, it may be a good time to review the approach you currently have in place.

Estate Taxes and Overall Federal Revenues

In 2011, estate taxes accounted for less than one half percent of total federal revenue.

Chart Source: Joint Economic Committee, July 25, 2012

Exemption through the Years

Federal estate taxes exempt a share of estates from federal estate taxes. Currently, if an estate’s worth less than $5 million, no federal estate taxes may apply.

1916	$50,000	10.0%
1917	$50,000	25.0%
1918-1923	$50,000	25.0%
1924-1925	$50,000	40.0%
1926-1931	$100,000	20.0%
1932-1933	$50,000	45.0%
1934	$50,000	60.0%
1935-1939	$40,000	70.0%
1940	$40,000	70.0%
1941	$40,000	77.0%
1942-1976	$60,000	77.0%
1977	$120,000	70.0%
1978	$134,000	70.0%
1979	$147,000	70.0%
1980	$161,000	70.0%
1981	$175,000	70.0%
1982	$225,000	65.0%
1983	$275,000	60.0%
1984	$325,000	55.0%
1985	$400,000	55.0%
1986	$500,000	55.0%
1987-1997	$600,000	55.0%
1998	$625,000	55.0%
1999	$650,000	55.0%
2000-2001	$675,000	55.0%
2002	$1,000,000	50.0%
2003	$1,000,000	49.0%
2004	$1,500,000	48.0%
2005	$1,500,000	47.0%
2006	$2,000,000	46.0%
2007	$2,000,000	45.0%
2008	$2,000,000	45.0%
2009	$3,500,000	45.0%
2010	$0 or $5,000,000	0% or 35%
2011	$5,000,000	35.0%
2012	$5,120,000	35.0%
2013	$5,250,000	55.0%

Chart Source: Internal Revenue Service, 2013

Resource: http://www.authenticcounsel.com/resource-center/estate/a-brief-history-of-estate-taxes

The Business Cycle

What has upswings and downturns, troughs, peaks, and plateaus? Though such terms could easily describe a roller coaster ride, in fact they are commonly used to refer to something known as the business cycle.

The business cycle — also known as the economic cycle — refers to fluctuations in economic activity over several months or years. Tracking the cycle helps professionals make forecasts about the direction of the economy. The National Bureau of Economic Research makes official declarations about the economic cycle, based on factors such as the growth of the gross domestic product, household income, and employment rates.

Recovery & Recession

An upswing, or recovery, occurs when the economic indicators improve over time. A recession occurs when the same indicators go through a contraction. A particularly long or severe recession is referred to as a depression.

Despite being called a cycle, it’s important to understand that the business cycle is not regular. It doesn’t happen at set intervals. Some recoveries have lasted several years while others are measured in months. Recessions, too, can last for a number of years or be as short as a few months.

Moving in Waves

The economic cycle moves through periods of recession and recovery. Despite being called a cycle, it’s important to understand that the economic cycle is not regular.

Stages of Cycle

So how should investors look at information about the business cycle?

Investors who understand that the economy moves through periods of recovery and recession may have a better perspective on the overall cycle. During recovery, understanding whether the economy is at an early or late stage of the cycle may influence certain investment decisions. Conversely, during a recession, deciphering whether the economy is passing through a shallow or deep cycle also may influence certain decisions.

Generally, the business cycle will transition from recovery to recession — and recession to recovery — over several months. Understanding that the economy travels through cycles may help you put current business conditions in better perspective.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite, to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. 

Resource:http://www.authenticcounsel.com/resource-center/investment/the-business-cycle

Financial Planner Colorado Springs

At Authentic Counsel, LLC our purpose is to serve as a financial steward to families through long term relationships. With a focus on communication, listening and education.