Let's Put the Federal Debt into Perspective

Last year, in the midst of federal debt crisis, I observed in a client newsletter (Let's Put the Federal Debt and Budget Crises in Perspective) that as painful as the fractious debate over raising the nation’s debt ceiling was, that I hoped it would underscore for Americans that getting our nation’s fiscal house in order should be job one. Yet, although politicians on today’s primary campaign trails loudly address the need to reduce spending, each year our federal government continues to spend far more than it collects in tax revenues.

For many in Congress, I suspect the numbers on the federal balance sheet may be so big that they become meaningless. In my newsletter, I suggested stripping away zeroes to try and make it possible to relate to the numbers and take action to reduce spending. MFS Funds has gone one better and produced a chart (If your budget resembled the U.S. Government) that really puts the federal budget in perspective. For example, if you made $100,000 last year and ran your household like the federal government, you would have spent nearly $160,000 and would be shouldering an accumulated dent of almost $650,000, more than six times your current annual earnings. Take a look:



Source: MFS Fund Distributors, Inc.

 Thinking in terms of our own budgets illustrates the financial stress our nation operates under and underscores the need for spending and tax reform.

Survey Says . . . Independence Is the Way to Go

According to a new report from Cerulli Associates, “Advisor Migration: The Changing Landscape of Retail Distribution,” independent financial advisors, including registered investment advisor firms, independent broker-dealers, and dually-registered advisors, are gaining market share. The report’s author, Scott Smith, says investors’ and advisors’ disillusionment with the big wirehouses is driving the change.

Notably, the Cerulli report estimates that the major wirehouses lost $188 billion in client assets through September of 2011 as advisors left to embrace their independence. According to the report, we independent advisors increased our market share from 29% to 35% in 2011, while wirehouses’ 50% market share fell to 43%. If the trend continues, Cerulli expects that by the end of this year, independents and major wirehouses will each have a 39.3% share of assets under management nationwide. Cerulli expects independent advisors to surpass the wirehouses by 2013.

Nevertheless, it is important to note there is a difference between an advisor with an independent broker/dealer and an advisor with an independent registered investment advisor.  As you search for an independent advisor you should consider using the Focus on Fiduciary Questionnaire as a guide.

Clearly, recognition of the importance that advisory relationships be governed by the fiduciary standard where advisors always put their clients’ needs ahead of their own is gaining momentum.  And it’s about time. Our nation's investors deserve nothing less.

Women Express Justifiable Concern over Retirement Readiness

According to the Employee Benefit Research Institute (EBRI’s) 2011 Retirement Confidence Survey, more than half of the 1,260 respondents surveyed were not confident that they'd be able to afford the retirement they desire. While the survey registered the lowest level of confidence among workers in 21 years, results were particularly bleak for women who reported being less confident than men about retirement. From an advisor’s perspective, the lack of confidence women express seems understandable. The EBRI report found, for example, that 35% of women surveyed believed they will need less than $250,000 to fund retirement. This compares with just 26% of men who figure $250,000 is enough to support them in their golden years. More problematic, 12% of women compared to just 5% of men said they do not know how much they will need to save for retirement.

Women falling short on their retirement estimates and failing to plan ahead is even more troubling considering that women live longer than men and, therefore, need to save more for retirement. Consider these facts: The Women's Institute for a Secure Retirement reports that there are six million more women than men ages 65 and over in the United States. What’s more, according to the U.S. Census Bureau’s “Current Population Survey, 2010 Annual Social and Economic Supplement,” today 57% of American women 65 or older, compared with just 26% of elderly men, live alone and shoulder all the financial responsibility of monthly bills, real estate taxes, and the home’s upkeep.

If you are a woman seeking to boost your retirement confidence, your first step should be to maximize your contributions to your tax-advantaged retirement savings accounts, from 401(k)s to IRAs. And, if you are older than age 50, make the maximum catch-up contributions. Also, review your investment strategy to ensure it reflects your risk tolerance and is designed to fund your short- and long-term financial goals. In my experience tying specific goals to savings is a powerful motivator.

And it is also recommended that you consult your financial advisor and discuss strategies you should consider before or during retirement.

In Praise of Innovation

With the recent passing of Apple’s Steve Jobs and from the interviews of a hundred entrepreneurs I have conducted, I have been thinking a lot about entrepreneurs and the amazing contributions they make to our society. As Jobs once said, “Innovation distinguishes between a leader and a follower.” Jobs’ point is well illustrated in the short video “Entrepreneurs Do Three Things” where Carl Schramm, President and CEO of the Kaufman Foundation, details how entrepreneurs’ push to innovate enriches our entire society. I found Schramm’s presentation inspirational. I hope you enjoy it!

BWM Cares 2011

The Holidays are a time of tradition and giving.  For nine consecutive years we offered to make contributions to charities in honor of our clients instead of sending gift baskets duing the Holiday Season.

We are proud to have contributed $4,700 to 20 local and national charities and $12,460 to the following six local charities in honor of our clients:

• Action in Community through Service
• BEST Kids
• CollegeTracks
• CrisisLink
• Operation Homefront
• YouthQuest Foundation

The response we get from each charity is similar to the response we received from a hospice facility this year:  "What a wonderful tradition of honoring your clients and helping charities fulfill their mission!  Thank you for selecting us for this donation!"

And just as important, we thank our clients for allowing us to serve them.  Without our clients we would not be able to help the charities that our clients identified.  Thank you!

We hope you had a wonderful Holiday Season and hope you have a happy, safe, healthy and prosperous year in 2012!

The Medicare Surtax

It may have seemed a ways off when this provision was first introduced into the tax code, but starting in 2013, couples filing jointly with more than $250,000 of Modified Adjusted Gross Income (MAGI) ($200,000 for single filers) will owe a 3.8% Medicare tax on the lesser of net investment income—including interest, dividends, capital gains, annuities, rents, and royalties—or MAGI over the threshold.

Fidelity Investments provides the following helpful example: If you and your spouse had a total MAGI of $275,000—with $225,000 coming from earned income and $50,000 from investment income—you would owe the Medicare tax on the amount of investment income equal to your MAGI over the $250,000 threshold, or $25,000. On the other hand, if your $275,000 in MAGI consisted of $260,000 in earned income and $15,000 of investment income, you would owe the 3.8% tax on just $15,000.

You can minimize your exposure to this new tax by holding your income-paying investments in tax-advantaged accounts, such as your IRA or 401(k). Of course, that income ultimately would be taxable when withdrawn in retirement.

There is no easy way to decide whether to pay Uncle Sam now or pay him later. To evaluate your situation, you need to make some long-term projections on both your earnings and future tax rates. You might also consider converting your IRA to a Roth IRA where qualified withdrawals are tax-free.

Ten Secrets of Success

A client recently reminded me of a list I distributed a few years ago. I do not recall where I found this list or when I sent it.  However, she liked it so much that she has it posted at her desk. And I am taking this opportunity to share it again on the first day of the New Year!.

Ten Secrets of Success

(Traits that leaders and successful people in all walks of life possess.)

1. How you think is everything. Always be positive. Think success, not failure. Beware of a negative environment.
2. Decide upon your true dreams and goals. Write down your specific goals and develop a plan to reach them.
3. Take action. Goals are nothing without action. Don’t be afraid to get started. Just do it.
4. Never stop learning. Go back to school or read books. Get training and acquire skills.
5. Be persistent and work hard. Success is a marathon, not a sprint. Never give up.
6. Learn to analyze details. Get all the facts, all the input. Learn from your mistakes.
7. Focus your time and money. Don’t let other people or things distract you.
8. Don’t be afraid to innovate; be different. Following the herd is a sure way to mediocrity.
9. Deal and communicate with people effectively. No person is an island. Learn to understand and motivate others.
10. Be honest and dependable; take responsibility. Otherwise, numbers 1–9 won’t matter.