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Inheriting Trillions

February 26, 2011 | Filed Under Finance, Investment | Comments Off

A study conducted by the Center for Retirement Research at Boston College in January of 2011, indicated that approximately $8.4 trillion will be inherited by baby boomers. Those to inherit the most will receive an average of $1.5 million, while the least wealthy will average about $27,000. That translates to roughly $64,000 per person.

The study also estimates that two-thirds of the baby boomer generation will receive some inheritance.

In addition to the $8.4 trillion, some baby boomer parent’s will transfer a portion of their wealth to their children while they are still living. That would estimably increase the total transfer of assets between generations to $11.6 trillion.

The writers of the study concluded their paper with this caveat:

“It is important to stress that most boomers have not yet received any inheritance. And the amount and timing of inheritance receipts is highly uncertain. Even parents who have a strong desire to leave a bequest may be forced to revise their plans based on fluctuations in the value of their assets. Or they may exhaust their wealth as a result of medical and, especially, long-term care costs. In short, an anticipated inheritance may not materialize. Even when inheritances do occur, recipients generally get the money when they are older and the amounts are typically not large enough to be life-changing. Therefore, boomer households need to make many of their key financial decisions before they ever receive any inheritance. And they should not count on an inheritance to eliminate the need for increased retirement saving.”1

[1] How Important Are Inheritances For Baby Boomers? By Alicia H. Munnell, Anthony Webb, Zhenya Karamcheva, and Andrew Eschtruth*© 2011, by Trustees of Boston College, Center for Retire­ment Research

Shari Mattingly Bevan- “Managing Risk”

February 24, 2011 | Filed Under Finance, Investment, Retirement Savings | Comments Off

Managing risk successfully in various areas of one’s life requires
knowledge, skill, and a little bit of luck. When evaluating any investment,
risk exposure is central to the determination you make. Typically, the
better the return, the higher the risk. Before, you can make the best
choice for you, you need to understand your own comfort level of risk.
Personal circumstances, preferences, personality, knowledge base, affect
one’s ability to handle different levels of risk.. When you are reviewing
your portfolio or considering a new investment, your primary thought should
be how much risk are you willing to bear, can you withstand the potential
loss, and then to consider what returns might you gain. Whether, your
neighbor invests in derivatives and has gained a small fortune, or you are
focused solely on a rate of return those should not be what drives your
investment decisions.
The goal of investing is better expressed as having enough cash on the day
a bill comes due.

Shari Mattingly-Bevan – “Remodeling the Mortgage Interest Deduction”

February 16, 2011 | Filed Under Finance, Real Estate, Retirement Savings, Tax Articles | Comments Off


The decision to purchase a home is often influenced by the tax break a homeowner receives with the mortgage interest deduction. Recently, even those who just take the standard deduction can take advantage of the property tax deduction on their federal return.

The federal government is in desperate need of revenue and is looking for it in places it once did not touch. Altering the deduction has been a consideration by both Democrats and Republicans for years. The national concern over the federal debt may be the window of opportunity both parties are looking for.

One idea is to lower the cap on the loan amounts that qualify for the interest deduction. The Congressional Budget Office examined a proposal to cut the loan amounts to $500,000 by 2018. I speculate many of California homeowners would be left out because of this cap. Considering California’s own financial troubles, I imagine this could send California into the Pacific, sooner than an earthquake would.

Another recommendation put forth by President Bush’s 2005 Tax Reform Advisory is to remodel the deduction to a tax credit. This would mean a dollar-for-dollar reduction in the taxes you owe.

The projected revenue the modification in the benefit would bring the Federal government, is in the billions, according to the Congressional Budget Office. Perhaps, it is only a matter of time, not if, before the government takes this sacred cow to the butcher?

Reducing the national debt is going to hurt, if it is to be done right and quickly. Nobody wants “their benefits” to be on the chopping block. However, with the housing market in a whirlwind, making home buying less attractive might not be the smart choice to fix our financial woes.

Tax-friendly states for retirees. Do they exist?

February 8, 2011 | Filed Under Finance, Real Estate, Retirement Savings, Tax Articles | Comments Off

Looking for tax savings can be a full-time job these days. Whether it’s income tax, sales tax, estate tax and even taxes on your Social Security Benefits or Pension, we all could improve our financial picture by reducing the amount of taxes we pay out. Retirement brings a reduced income for most people, even with Social Security Benefits and Pensions to draw upon. That is all the more reason to look for legitimate ways to decrease your tax liability.

Reducing your taxes doesn’t always have to be complicated. Retirees have an advantage over the working class. That is, they aren’t tied down to any one spot because of a job. Freedom to pack it up, and move to greener pastures is one way that you could save on taxes.

I found this great guide to looking up which states are more favorable for reducing taxes. For instance, you can look up the 5 states with no sales tax, the 9 states with no income tax, states with the lowest sales and real estate tax. Particularly important for retirees, is the states that don’t tax your Social Security Benefits and that are Pension-Friendly. I recommend you take a look at the guide and see if perhaps a move is in your future.

Check out

What Expenses Congress Should Cut

January 23, 2011 | Filed Under Finance, Retirement Savings, Tax Articles | Comments Off


The politics of spending has changed with the recent economic tide. There is an expectation among fiscally conservative voters; Republicans, Independents, Tea Partiers and even some Democrats, that the government tighten its financial belt, just as some Americans have been forced to do during this recession. The primary economic challenge in today’s economy is that our government spends too much money and it is money the government does not have. Nothing evidences this more than the $1.3 trillion annual deficit and a $14 trillion dollar national debt. The more insidious effects of this fiscal policy are (1) a debased dollar; (2) possible double-digit inflation; (3) massive unfunded liabilities such as Medicare and Social Security; and (4) a deterrent to hiring by employers.

Milton Friedman, a Nobel Prize winning economist, argued that the “real cost of government, the total tax burden, equals what government spends plus the cost to the public of complying with government mandates and regulations, as well as, the calculating, paying and taking measures to avoid taxes.” He added “anything that reduces that real cost, lower government spending, elimination of costly regulations on individuals and businesses and simplification of taxes” all mean tax reform. Tax reform is good for the taxpayer.

If Congress returned to the baseline spending before the supposedly “temporary stimulus bill” of 2009, $177 billion per year would be saved, according to the Congressional Budget Office (CBO). If spending went back to the 2007 baseline, the beginning of the first Pelosi Congress, $374 billion per year would be saved.
Other major sources for reduced spending include repealing ObamaCare and elimination of taxpayer funded bailouts, especially for Fannie Mae and Freddie Mac. Taxpayers have already contributed more than $127 billion to the bailout and they are on the hook for hundreds of billions more for Fannie Mae and Freddie Mac.

Entitlement programs comprise 56% of the annual budget and they are growing. They are the most difficult, but the most important programs to reform because the total unfunded liability tops $100 trillion for Social Security and Medicare alone. The federal government does not put these liabilities on the books, but serious budgeting requires that this ominous and looming problem be dealt with sooner rather than later.

Republican, Ryan Paul, the new chairman of the House Budget Committee, has designed a complete work on entitlement reform referred to as the “Roadmap of America’s Future”. This “Roadmap” combines a gradual slowing of Social Security benefit growth with optional personal accounts that seniors would own and control. He also converts the big 3 health care programs, Medicare, Medicaid and tax subsidies for employer sponsored health benefits, into capped contributions to individuals. This is a patient-driven approach, allowing individuals to take control of their own dollars. According to an analysis by the CBO, the “Roadmap” would reduce government spending by $370 billion a year by 2020.

There is some good news on the horizon. The New House rules enable Mr. Ryan to create the conditions for reform via enforceable spending caps on all domestic government spending, if Congress fails to produce a budget. He should use that authority to halt the current government spending binge.

Federal Reserve Rejecting State and Local Government Bailouts

January 23, 2011 | Filed Under Finance, Retirement Savings | Comments Off


In a recent Wall Street Journal article, Federal Reserve Chairman, Ben Bernanke “ruled out a central bank bailout of state and local governments strapped with big municipal debt burdens, saying the Fed has limited legal authority to help and little will to use that authority.” (Wall Street Journal: “Bernanke Rejects Bailouts”, Saturday/Sunday January 8-9, 2011).
This is the list of top 20 states with the most staggering debt and budget deficits for 2010:
1. California – last count was $42 billion dollar deficit;
2. Oklahoma – a drop in oil and gas prices caused this budget gap;
3. Arizona – this was one of the states worst hit by the housing crisis;
4. Illinois;
5. Hawaii;
6. New Jersey – the state has the third highest expected budget shortfall for fiscal year 2011, behind Arizona and Nevada:
7. New York;
8. Nevada – one of the states hardest hit by the housing crisis, but its legislature has already taken action to close its budget gap for 2011;
9. Colorado; and
10. Michigan – which entered the recession long before any other state due to the serious reduction in production in the auto industry. The unemployment rate is the worst in the nation at a record high of 14.7%.

Mr. Bernanke testified before the Senate Budget Committee stating “we have no expectation or intention to get involved in state and local finance.”
The Fed only has legal authority to buy muni debt with maturities of six months or less that is directly backed by tax or other assured revenue, which makes up less than 2% of the overall market. Moreover, the Dodd-Frank financial regulation law enacted last year further ties the Fed’s hands by barring the central bank from lending to insolvent borrowers or pursuing bailouts of individual borrowers.
States may attempt to persuade Congress on enacting laws that will help bailout of the individual states: however, lawmakers also are setting financial boundaries and senior House Republicans say they will oppose any state requests for money. “If we bail out one state, then all of the debt of all of the states is almost explicitly put on the books of the federal government” House Budge Committee Chairman Paul Ryan said. Democrats seem to be wary of state bailouts as well.
In 2010, there were 5 municipal bankruptcy filings, down from 10 filings in 2009, according to a report from Bank of America Merrill Lynch. On a recent broadcast of “60 Minutes”, a banking analyst who recently turned to analyzing state and local finances, said the U.S. could see “50 to 100 sizable defaults” in 2011 amounting to hundreds of billions of dollars. This is a bleak outlook for many states with substantial budget deficits.

The New Estate Tax Law and Gift Tax Exemption

January 11, 2011 | Filed Under Finance, Investment, Retirement Savings, Tax Articles | Comments Off

As most people are aware, Congress passed a new estate tax law just prior to the end of calendar year 2010. Not only was the estate tax law changed, so was the lifetime gift tax exemption, as well as the generation skipping transfer tax exemption.

First, the estate tax exemption was increased to $5 million per person from the prior law, which was scheduled to sunset and be reduced to $1 million dollars. This is a $4 million dollar increase in the amount of wealth that an individual can die with, before the federal estate tax law applies to an estate. There is no way to describe this law change other than it is a windfall to taxpayers. Very few people have estates that are subject to estate tax and most of these people either reside on the east coast or west coast, due in large part to real estate values. Although this is a tremendous windfall to taxpayers, the counterargument is that the reduction in estate tax revenue to the federal government will hinder the government’s ability to decrease the federal deficit that is currently spiraling out of control.

The estate tax exemption is also now portable between spouses. This means that if spouse #1 dies and doesn’t need or use all of his or her $5 million exemption, the unused portion is portable or transferable to the surviving spouse. For example, husband dies and has an estate worth $3 million. His surviving widow can aggregate the unused $2 million exemption of her late husband and add it to her $5 million exemption, so she now effectively has a $7 million exemption. This provides for huge tax planning opportunities for wealthier people. Amounts passing to a US citizen spouse and to charity don’t count against the exemption amount.

Second, the lifetime gift tax exemption and the federal estate tax are once again unified; meaning both are set at a $5 million dollar exemption amount for 2011 and 2012 and are tied together. This concept is confusing for many people, so hopefully this will add clarity to the subject. Each year, you may gift up to $13,000 to any person (unlimited in number). This is referred to as the annual gift tax exclusion amount. If the amount of the gift is over $13,000, then it is subject to gift tax and reduces the amount of one’s lifetime gift exemption of now $5 million dollars. The reduction in the lifetime gift tax exemption also reduces the estate tax exemption because the system of gift and estate tax is designed to limit the amount of wealth that can be transferred either during lifetime or upon death. However, tremendous gift planning opportunities are available, without paying a gift tax, to reduce the size of an estate so that an estate tax will not apply upon death.

Lastly, the generation skipping transfer tax exemption, which is an additional tax imposed on transfers of assets to a “skip generation”; generally, one to grandchildren when the parents are still alive, is $5 million, up from $1 million in 2009. When this $5 million GST exemption is leveraged with advanced wealth transfer techniques, such as a grantor retained annuity trust or an installment sale to a trust, wealthy clients will be able to transfer vast sums, tax free, to trusts for their children, grandchildren and generations beyond.

With these new tax law changes, it is critically important to revisit your estate plan. Planning opportunities abound for people with substantial wealth.

Some Projected Growth for 2011

December 15, 2010 | Filed Under Finance | Comments Off

The outlook for US economic growth for 2011 has grown more optimistic, according to the latest Wall Street Journal forecasting survey of 55 responding economists. Meanwhile, the odds of a double dip recession have been reduced to 15% from 22% in September. “The majority of respondents said there is a better chance the economy will outperform their forecasts than that it will underperform.” (Wall Street Journal, December 13, 2010, “Economists Predict Growth in 2011”) The data used to make these forecasts appears to be looking better. This data includes trade, retail sales, consumer sentiment and manufacturing. Economists are also encouraged by the news of the tax-cut compromise expected to pass the Senate in the near future. The extension of the Bush tax-cut in combination with the payroll tax cut is expected to provide further stimulus to the economy and boost growth, as well as jobs. However, there are still problems that can hold growth at bay: the unemployment rate ticked up for the first time in three months and the housing market is in trouble with excess foreclosures and very restrictive lending parameters for potential home buyers.

Lenders Still Tightening Credit in the Housing Markets

December 15, 2010 | Filed Under Finance, Investment, Real Estate, Retirement Savings | Comments Off

The housing market may be headed for another downturn, according to some economists, because mortgage lenders continue to tighten the already restrictive lending standards for home loans.

Earlier this year, the housing market was buoyed by the home-buyer tax credits, but sales have plunged in the second half of the year after the tax credits expired. New and existing home sales were down by more than 25% in October from a year ago.

Even though mortgage rates are at the lowest in 60 years, mortgage applications are hovering near their lowest levels in more than a decade. Housing economists are very concerned that tight credit at the bottom of a housing cycle could result in continued retardation of the hoped for recovery. An expanding housing market will usually help lift an economy as it exits a recession, but in this current market, it appears the glut of foreclosures will continue to hit the market without buyers who can qualify for home loans due to restrictive lending parameters. Because the lending standards have increased significantly, the housing market will not be propping up the economy in the near future. Economists say lending standards typically ease at this point in the business cycle as banks look for new business. Banks are not looking for new business at this point, could it be because they are flush with cash from the Troubled Asset Relief Program (TARP monies)? If banks were not in possession of the TARP cash, would they be looking for new business? Did the TARP money to banks interrupt the normal business cycle which will lead to prolonged financial difficulties for consumers? It appears the more big government spends, the more consumers experience financial woes.

Big Banks Recovering and Profiting While Small Banks Still Struggling

December 2, 2010 | Filed Under Finance | Comments Off

“A report released by the Federal Deposit Insurance Corporation (FDIC) showed that the nation’s largest financial institutions are recovering from the financial crisis at a far faster pace than that of their smaller rivals…  The number of banks on the FDIC’s list of problem institutions climbed to 860 at the end of September, the highest level since March 1993, while the average size of those banks dropped to $440 million from the $486 million.” Wall Street Journal November 24, 2010.

There are diverging fortunes between small and large banks, which could have long term consequences for the banking industry.  Only a few national banks dominate the industry with mortgages, small business loans and checking accounts.  For example, Wells Fargo Company’s acquisition and merger with Wachovia Bank, has recently resulted in Wells Fargo Company reporting third quarter profits of 19%.  The larger banks are not necessarily depositor friendly, as they tend to pay lower interest rates to keep their costs to a minimum.  Some smaller banks are seeking out mergers as they struggle to survive financially.  The FDIC chairman, Sheila Bair, recently said that “commercial real estate continues to weigh heavily on community banks’ balance sheets.”

Some of the dominant banks have recently passed a new round of regulatory stress tests administered by the Federal Reserve.  This could result in the banks returning to dividend payouts to shareholders in the near future.

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