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How Americans are Saving for Retirement

Recent estimates indicate that the Social Security Trust Fund will run out of its surplus in 2034. Once this occurs, program payouts are expected to be worth only about 77 percent of current benefits. Unfortunately, one-third of retirees rely on social security payments for at least 90 percent of their retirement income. With social security payouts likely headed for significant reduction, contributing to self-directed retirement accounts is more crucial than ever. Just how are Americans doing when it comes to saving for their future?

How America Saves
According to a TransAmerica Center survey, the typical American expects to retire at 67 but actually ends up retiring five years earlier than anticipated.
A shortened career means less time for earning and saving, as well as more time spent withdrawing from accounts. This further emphasizes how saving for retirement is even more crucial than some Americans might assume.

 

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

Financial Literacy Quiz

Here’s a chance to put your financial knowledge to the test. Below are eight general (but not necessarily easy) questions that could be essential to your financial planning. The answers are provided below. While you can take pride in the questions you answer correctly, it is more important to look at the ones you may have missed. Of these, is the question significant to your finances or have you been structuring your finances using an incorrect assumption? Regardless of how many questions you get right or wrong, they can help add clarity to your financial decisions.

1.    How much can a person increase his or her Social Security check by waiting until age 70 to begin taking benefits, rather than taking them at “full retirement” at age 66? 
a.    10 percent
b.    16 percent
c.    24 percent
d.    32 percent

2.  A husband and wife decide to begin saving for retirement at age 25. The wife starts funding her retirement account right away with $400 a month. She continues saving at this rate for 10 years. When she stops, her husband begins funding his retirement account at the same rate, but contributes for 30 years, at which point they retire. Both accounts grow tax free at a rate of 6 percent a year. We know the wife only saved one-third of what her husband saved, but which statement best describes the final value of the account?
a.    The wife ended up with significantly more money
b.    The wife ended up with slightly more money
c.    The husband ended up with slightly more money
d.    The husband ended up with significantly more money

3.    True or False: 
Annuities are a poor investment because they return less money than if the principal cost was invested directly.

4.    For the 2017 tax year, what is the maximum amount an estate is exempt from taxation?
a.    $1.49 million
b.    $2.49 million
c.    $5.49 million
d.    No maximum on the exemption

5.    Using the S&P 500 market index, what has been the average annual growth rate of large-cap stocks from 2007-2016?
a.    2 percent
b.    5 percent
c.    8 percent
d.    12 percent

6.    What is the primary difference between mutual funds and exchange-traded funds (ETFs)?
a.    ETFs are not actively managed by anyone, and therefore have lower management fees than most mutual funds.
b.    Unlike mutual funds, ETFs are not regulated by the Securities Exchange Commission, allowing ETFs to use much riskier investment strategies.
c.    Mutual funds are not allowed to invest in foreign bonds; ETFs can make use of any bonds available.
d.    The average ETF comprises far more unique investment assets than mutual funds, which typically make use of less than 10 different assets. 

7.    Say you start your retirement with a target income of $50,000 a year. Assuming inflation continues at a modest 2 percent, how much money will you need by the 25th year of your retirement to maintain the same spending power as $50,000?
a.    $70,000
b.    $80,000
c.    $90,000
d.    $100,000

8.    True or False: 
Bonds are often considered safer assets than stocks; a safe portfolio is one that consists mostly of bonds.

Answers and Explanations 

1.    d. 32 percent
Your monthly social security benefit increases by 8 percent of its full retirement value for each year you defer, reaching its maximum at age 70. 
This increase can make delaying your social security benefit extremely advantageous if you end up having a long retirement.

2.    c. The husband ended up with slightly more money
This one was a bit of a trick question and would have been difficult to answer unless you got a calculator and did the math. In this scenario, the husband ended up with about 4 percent more than his wife did, but contributed 300 percent of what she did and only passed her value in the last four years of saving. The husband ended up with more in his account, but the extra $96,000 the wife got to use elsewhere makes her the better planner.

3.    False
Like most things with retirement and investing, the usefulness of a strategy or investment comes down to the individual. Annuities can be extremely helpful for certain people. Only a comprehensive retirement plan can determine whether an annuity is right for a person.

4.    c. $5.49 million
In 2011, the government allowed individuals to pass up to $5 million through their estate (married couples could pass $10 million). Since this value is adjusted for inflation, it increases each year; in 2017, this exclusion is now $5.49 million for an individual and $10.98 million for married couples. Any amount exceeding this exemption is taxed at 40 percent.

5.    b. 5 percent
Though it has improved significantly since the Recession, the S&P 500 stock index has only climbed an average of about 5 percent per year for the past 10 years. It’s important to note that historical growth rates are no indication or guarantee of future changes in the market.

6.    a. ETFs are not actively managed by anyone, and therefore have lower management fees  than active mutual funds. 
The lower fees associated with inactive management has made ETFs very popular in recent years; however, though mutual funds typically generate higher fees, their active management often allows them to survive market upheaval better than ETFs.

7.    b. $80,000 (technically, $82,030)
After 25 years of 2 percent inflation, each dollar has lost about 40 percent of its buying power. It is absolutely vital to consider the significance of inflation when calculating your retirement plan.

8.    False
“Safety” in investing is all relative to a person’s situation. Any portfolio that is overly committed to a single asset or type of asset is carrying extra risk. Additionally, safer assets produce lower returns. It is possible for a “safe” asset to be dangerous because it does not produce high enough returns for you to meet your goals.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

Succession Planning

by Kirk Hoffman
April 2017

A succession plan for a business is one of the most important safeguards that can be used to ensure the company’s future success.  Approximately one-third of family businesses that transfer to the next generation result in success, and only 12 percent make it to the third generation.  Choosing tomorrow’s leaders and formulating a plan for retirement, death, disability, or even divorce are tasks that should be done early and reviewed often.  The transfer of power and wealth can provide a smooth transition or can be the demise of a company, depending on how future leaders are chosen and groomed, and how tax and estate planning implications are handled.

There are various business succession options available to the owners of privately held businesses. These include:

o   Transfer of ownership to the next generation

o   Employee stock ownership plan (ESOP)

o   Public offering

o   Recapitalization of the business

o   Sale of the business to a third party

o   Liquidation of the business

Transfer Ownership to Next Generation

When choosing and grooming successors for a business, business owners must consider the person’s business strength and savvy, and the psychological and emotional impacts of any decision on employees and family members.

Children who are active in the family business present both unique opportunities and potential pitfalls. There is the opportunity to take advantage of gifting and valuation discounts when transferring the business to family members.  A Family Limited Partnership often works well in these circumstances. However, there is always the risk of family disagreements and the challenge of balancing the estate with family members who are not active in the business.

Whether the successors are family or not, it’s important that the succession process begins early.  The first step is to recruit talented employees from the beginning and help them develop their leadership skills within the company.  They should also get comfortable with taking over long before they actually do so, to ensure a smoother transition.  It may also be helpful to get clients used to the new leadership before they take over.  Adequately preparing the successors is one of the best things that can be done to maintain a company’s success in the next generation.

ESOP 

If the choice is to transfer the business to the employees, an Employee Stock Ownership Plan (ESOP) may be the solution.  An ESOP is a qualified plan designed to benefit all employees and must be non-discriminatory.  Unlike other qualified plans, an ESOP can borrow money to purchase investments in the stock of the sponsoring corporation.  An ESOP is an excellent method for business owners to plan for the transfer of ownership.  In addition, an ESOP provides tax advantages to the selling shareholders that assist in maximizing the value of the business.

With an ESOP, the business owners sell their shares to an ESOP trust.  The trust in turn makes annual contributions to the accounts of the employees.  One key issue that must be addressed with an ESOP is the concept of repurchased liability.  The sponsoring corporation must create a market for the employees to redeem their vested shares upon certain events (e.g. death, retirement).  It’s important to give careful attention to this issue.

Public Offering

An alternative to the ESOP is to go public.  Using this method, corporate shares are offered to the public and traded on the stock market.  Going public is usually an expensive option that requires a sufficient revenue base and a strong business plan.  It is not optimal as an exit strategy if the business owner is near retirement; rather, this strategy is best employed early in the succession planning process while the owner is still very active in the business.  This option is most useful to provide growth capital for the business; however, it can provide liquidity to an owner in the long run.

Recapitalization

If the business owner would like to begin to transfer value while retaining control of the company, recapitalization may be the answer.  Using this method, the business issues two classes of stock: voting preferred and non-voting common stock.  The non-voting stock is transferred either through sale or gift to the successors.  The business retains the voting preferred stock until the owner are ready to transfer control.  This is more commonly appropriate when transferring a business from parents to the next generation and may be most useful to provide growth for the business.

Sale

The business owner may choose to sell the business to someone who is not currently involved in the company—a competitor, an existing customer or supplier, for example.  This can be done as a lump sum sale or in the form of an installment sale that spreads the payments and tax implications over a number of years. The sale of the business may be structured as an asset sale, a sale of stock or a combination of both.  The business owner is motivated to sell the stock in the company to take full advantage of the lower capital gains tax rates (a sale of assets usually subjects a portion of the gain to ordinary tax rates).  However, the market and other factors may dictate the nature of the sale. 

Liquidation

If there is no market for the business as an ongoing entity and other options are not available, the business owner may choose to close the business and liquidate its assets.

Buy-sell agreements

What will happen to succession plans if a business owner or a partner dies prematurely, becomes permanently disabled or gets divorced?  Most closely held businesses need to have a buy-sell agreement in place when other partners, principals or shareholders are involved.  Most commonly, this agreement states what occurs if a partner/shareholder should die, but it should also include provisions for retirement or other departure, disability and for the divorce of a partner.

A properly structured buy-sell agreement stipulates in a binding contract what occurs in each of the events outlined below.

Death: There are two general structures to the buy-sell agreement in the event of death–a cross purchase or an entity purchase.  In a cross purchase plan, each of the partners owns life insurance on the lives of the other partners.  In the event of the death of a partner, these life insurance proceeds are used to purchase the business equity from the estate of the deceased partner.  This type of plan works well in a company with few partners.  The entity purchase plan is similar, except the company owns the life insurance on each of the partners, and the company purchases the deceased partner’s shares.  This is easier to administer when the business has many partners.

Disability: A disability buy-out provision specifies the method and timing for the buy-out of a disabled partner.  This can be done with an installment sale (providing the company can afford the payments) or more likely with a disability buy-out insurance policy.  This policy provides a lump-sum benefit to purchase the business shares from the disabled partner.

Divorce: A divorce decree or the operation of provincial law can stipulate that all assets are divided between the spouses, including business interests.  Unless the couple had a pre- or post-nuptial agreement protecting the partner’s business assets, the business may end up with a new and potentially unwanted partner.  To prevent this from happening, the buy-sell agreement should include provisions in the event of a divorce.

Creating a business succession plan may be one of the most difficult management challenges.  Juggling the selection and preparation of successors with tax and estate concerns makes succession planning a complicated endeavor, as evidenced by the failure rate of second and third generation businesses.  The best way to successfully send a company into the future is to start forming a plan now.  Each type of plan has its own strengths and tax implications, so it is important to discuss the decision with a professional well versed in business succession.


The information contained in this article should not be considered legal or tax advice.

 

Generosity

by Scott Blakemore

Over the years, Jackson has been the recipient of some very generous people and institutions –   our Carnegie Library is just one example.  When you think about ‘Generosity’, what comes to mind?  Does generosity pay dividends?

Big business understands that giving back matters.  In fact, the three finalists in the ‘Best Bank’ category all share how much their employees volunteer to Michigan nonprofits.   Being generous with time does make a difference. 

Generosity can take many forms – from donating time or talents to serve others, to offering financial assistance.  But what can we do, as an individual? 

Here are some ideas to consider that might help us be more generous on an individual level:

  • Mentor a co-worker or friend on advancing their career.
  • Help a neighbor who needs some home repair.
  • Offer financial assistance, groceries or gas cards to someone you know in need.
  • Teach a class in your area of expertise to help educate others.
  • Buy a cup of coffee for a friend and ask them how they are doing, and listen.
  • Be hands and feet for an organization that needs helpers to serve others.
  • Financially back a young entrepreneur to give them a chance to create something new.

There are a host of ways we can live generously.  Unfortunately, what often hinders us from being generous is that when we really stop and look at the needs around us, it is overwhelming.  We live in a needy community and we can’t do it all.  However, I challenge you to do for one what you wish you could do for many.  We all have abilities or resources we can invest in someone else.

Each of us, at our core, seeks to have a life of significance.  We want to live a life that makes a difference.  In many line of work, we often focus on the dollars and cents of our net worth, and while that is important, it is only part of the equation.  In the end, it is my conviction your worth is measured primarily by the impact your life has on the lives of others.  These are the dividends of a generous life.

By giving of ourselves, we can model generosity to those around us, build a Better Jackson and continue in the footsteps of the generous people who came before us.  

12 Common Tax Errors to Avoid

Filing taxes can be a tedious process. If you plan to do it yourself, either online or with an old-fashioned pen and paper, it can be all too easy to make mistakes. If you aren’t familiar enough with the tax code to take advantages of available tax breaks, you could lose money. Clerical errors and math mistakes can lead to tax audits, late fees and even jail time for tax fraud. Avoid the following common mistakes to ensure that you get through tax season unscathed. 

1.    Choosing the wrong filing status: Choosing the correct filing status is important because tax brackets, deductions and credits vary for each status. You may fare better filing separately even if you’re married, so make sure to calculate both scenarios before choosing a status. You should also consider filing as Head of Household if you’re single and have a dependent living with you. Your filing status is based on your status as of Dec. 31 of the filing year. 

2.    Not claiming all available deductions and credits: You could end up with a smaller refund or a larger tax liability than necessary if you fail to take advantage of the tax breaks available to you. Do your research and consider getting help from a tax preparer or software to make sure you’re not missing anything in your return.

3.    Not claiming all dependents: You probably won’t forget to claim your children as dependents, but did you know you could claim your parents, too? Anyone you support financially (adult children, elderly parents or other relatives) more than they support themselves, may be claimed as a dependent as long as they meet the requirements. Even if your parents don’t live with you, you may be able to claim them.

4.    Forgetting to claim carryover items: Some tax credits must be taken over the course of several years if they exceed certain thresholds. Common examples include charitable donations, capital losses and business write-offs. If you weren’t able to claim the entire credit in years past, make sure you’re claiming it this year.

5.    Neglecting to calculate the AMT: The Alternative Minimum Tax is a parallel tax code with its own set of rules. Taxpayers are expected to calculate their tax burden two ways, once under the regular tax code and once under the AMT’s rules. Whichever outcome is higher is the tax they owe. Many taxpayers don’t calculate their taxes under the AMT because they assume they aren’t eligible, but the number of people required to file under the AMT is increasing. If you pick the wrong tax code, the IRS could come looking for the remaining balance.

6.    Claiming the wrong credits and deductions: Make sure you actually qualify for the credits and deductions you claim. If the IRS catches on, you could face a tax audit, recalculation of your tax burden, or in extreme cases—jail time for tax evasion.

7.    Not including all sources of income: If you worked at more than one job during the year, you should have a Form W-2 for each job. You should also include applicable Form 1099 for other income sources. Missing forms or leaving out income can lead to tax audits or a delayed refund. If you inadvertently leave something out of your return, you can file a Form 1040X Amended Return.

8.    Math errors: It’s easy to make math mistakes when you’re doing your taxes by hand and flipping back and forth between forms. Double-check your math before filing, because a mistake could lose you money or get you in trouble with the IRS.

9.    Direct deposit mistakes: You can now elect to receive your tax refunds via direct deposit to your checking or saving accounts. This election can help you save money and speed the process along, but it’s also another opportunity for error. If you input the wrong routing number, your return could go to someone else or be sent back to the IRS.

10.    Forgetting to include your social security number: You must include your correct social security number in order to file a return. Failing to do so can hold up your return and subject you to late filing fees. You must also include your spouse’s social security number if you file jointly, as well as the numbers of any dependents you claim.

11.    Forgetting to sign and date your return: Your return is not valid if you don’t sign and date it. Failing to do so could also subject you to late fees and delayed refunds. To remedy this, the IRS will send out a signature card for you to sign. Speed up the process by double-checking that your signatures are present.

12.    Not including your payment: If you owe the IRS money, make sure to include what you owe when you file. If you forget, you may end up owing interest and late fees even though you had the return filed on time.


Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

Concerning Income Mobility

According to a recent study led by Stanford economist Raj Chetty, when adjusted for inflation, approximately half of Americans born in 1984 earned more at age 30 than their parents did at the same age. This represents a stark decline from earlier generations, as Americans born in 1940 had a 90 percent chance of earning more than their parents. For many, the “American Dream” means climbing the economic ladder and making a better life for themselves and their families. However, over the past 30 years, this goal is becoming increasingly difficult to achieve. Though the study by the Stanford economists does not directly investigate reasons behind the decline in wage growth over the years, here are a few factors to examine that may shed some light on this alarming trend.

Reasons for the decline
Wage growth in the United States has slowed over the past few decades, and the wage growth that our economy has experienced is not being evenly distributed between classes. Approximately 30 years ago, the median net worth of an upper-income family was about 350 percent larger than that of an average middle-income family. However, in 2013, this disparity nearly doubled to 660 percent. Based on these findings, it seems that wage growth is primarily benefitting the 21 percent of Americans in the upper-income class, as opposed to the 50 percent of those in the middle-income class. Since wage growth isn’t aiding middle-income families proportionately, there is a correlating decrease in the likelihood of a 30-year-old out-earning his or her parents. Children whose parents are in the top 10 percentile of income have a 70 percent chance of out-earning their parents, while those whose parents fall in the top 50 percentile have just a 45 percent chance.

Regions impacted the most
Though the percentage of Americans earning more than their parents has been steadily declining nationwide, particular areas of the country are being negatively affected harder than others. 

Of all the regions in the United States, the Midwest has experienced the most concentrated decline in income mobility.

Half of a century ago, the Midwest was known for its prominence of manufacturing job opportunities. But since the manufacturing sector reached its job total peak in 1977, the amount of nonfarm manufacturing jobs in the U.S. has fallen by nearly 40 percent. Sixty years ago, about one in four Americans held a manufacturing job; now, just about one in eight Americans work in manufacturing. When considering these figures, there appears to be a strong correlation between manufacturing opportunities and income mobility. The likelihood of a child earning more than their parent was at an all-time high throughout the 1970s. 

However, when manufacturing jobs started to decrease, the likelihood of upward income mobility declined at a rate that was nearly equal. In fact, when manufacturing jobs slightly increased in the mid-to-late 1990s, the likelihood of upward income mobility for children born in the late 60s and early 70s experienced its steadiest growth in nearly 30 years. It can be deduced that income mobility in the Midwest has been similarly impacted by the loss of manufacturing jobs, mainly due to the emphasis of importing goods, as well as the automation of domestic manufacturing jobs.

What the future holds
Though the picture looks bleak, there may be brighter days ahead for the middle class. The U.S. Census Bureau recently reported that last year marked largest single-year gain for middle-class earnings in a half-century. Additionally, joblessness is among its lowest in decades, coming in well under the historical average. Even though the middle and lower classes may be struggling to out-earn their parents, they are able to find work and make a living for themselves— even if it may not be the idealistic version of the American Dream.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

  • December 16, 2016
  • By admin
  • Comments Off on Important 2016 Tax Reporting Information
  • in tax

Important 2016 Tax Reporting Information

Please note the following important dates related to 2016 tax reporting for your GuideStream Financial account(s) provided by the custodian, Pershing.

  • Retirement Accounts (401k, 403b, Roth IRA, IRA, SEP, etc) - 2016 IRS Form 1099-R will be mailed to clients by January 31, 2017, and will include all the applicable 2016 reportable distribution information through December 31, 2016.
     
  • Taxable Accounts - 2016 IRS Forms 1099 (B, DIV, INT, OID and MISC): 

Your form 1099 B, DIV, INT, OID, etc. will be delivered as early as possible, beginning January 31, 2017. By February 15, you will be mailed either your 1099 form or special Pending 1099 Notice.

  • The Pending 1099 Notice will be sent if issuers of securities you hold have not yet provided their final tax information. It will inform you of the securities that are pending final reporting, and will provide the anticipated mail date of your 1099 form. Your final 1099 will be mailed no later than March 17, 2017.  It is suggested that you wait for your final 1099 before filing your taxes.

Delivery of Tax Information is available via your NetX Investor Online Access.  E-delivery is the convenient way to approach tax season.  If you are enrolled to receive e-delivery of account statements, but not tax documents, simply click on the green ”Go Paperless” icon after you log in.

Electronic delivery of account communications can make managing your financial information easier. With the ability to download your tax documents to your computer, you can easily upload these documents to your favorite tax preparation program or email your tax documents to your accountant.   

Contact Us:
Please feel free to contact us if you have any questions regarding the tax mailing information above or going Paperless and having your tax documents sent electronically. If you need assistance, please contact your GuideStream advisor, or one of our Client Service team members:  Debra Lyon, Laurie Frisbie, or Lori Pelham at 1-800-325-8975.

  • November 8, 2016
  • By admin
  • Comments Off on Middle-Class Earnings Move Forward
  • in financial management

Middle-Class Earnings Move Forward

A recent release from the Census Department reports that, six years into the economic recovery, the middle class has finally seen household earnings increase. Though the reports are generally viewed to show that the middle class is burgeoning, there are those who believe this to be a false positive. Let’s examine the data and what it truly means for the middle class.

Benefiting the Middle Class
The term “middle-class” is used extensively in the media, but the exact parameters of who that applies to may be unclear for some. So first, let’s try to define what makes a family “middle-class.” First and foremost, because different areas have varying standards of living, there are no exact numbers for determining “middle-class” finances. According to Pew Research Center, a family of four must earn $46,960 to $140,900 annually to be considered “middle-class” in the United States. Alternatively, in terms of net worth, $0 to $401,000 is considered “middle-class,” according to NYU Professor Edward Wolff.

Middle-class earnings per household rose by 5.2 percent (inflation-adjusted) from 2014 to 2015. This figure includes increases for families of all ethnic backgrounds and for all major age groups. Last year marked the largest single-year household earnings increase for the middle class in nearly 50 years and is the first annual increase for middle-class families since 2007. Average household income for a middle-class family is now
$56,500.

Between 2014 and 2015, the amount of full-time, year-round workers increased by 2.4 million. This is the highest number of total, full-time working adults since the recession began. Together, the information regarding growing wages and increasing employment paints a positive picture of the current state of the middle class’s working situation.

In addition to increased earnings and higher employment rates, poverty levels and the number of Americans without health insurance also sharply declined between 2014 and 2015. The official poverty rate dropped by the largest amount in a single year since 1999, from 46.6 million to 43.1 million. Similarly, those without insurance declined from 33 million to just 29 million.

Cautious Optimism
Though tentatively interpreted as the middle class recovering from the recession, there may be need for cautious optimism when considering these statistics. It is important to note that the numbers that are consistently being cited by the media are based on “household” earnings, not individual earnings. Individual earnings are increasing at a much lower rate, at just 1.5 percent for men and 2.7 percent for women.

While the nominal value for household income is the highest it has been in nearly 20 years, purchasing power for the middle class’s median income is lower than its peak in 1999. Even given the recent earnings increase, the middle class is still earning less than it was in 1999 when considering inflation.

Though the increase in earnings was significant in relation to 2014 numbers, this is the first time that such an increase has happened since the recession. Therefore, some analysts suggest that 2015 should be considered an outlier and not necessarily indicative of an improving middle class.

While the recent data regarding middle class earnings is generally positive, it is important to take the report with a grain of salt. Though household incomes are on the rise, purchasing power in the middle class has yet to regain the high point set back in 1999. Similarly, while poverty levels are the lowest that they have been since the recession, they are still higher than before the recession began. Whether the increase of earnings will continue to rise remains to be seen, but for now, the recent bump is some of the best news the middle class has gotten in the past decade.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2015 Advicent Solutions. All rights reserved.

Year-End Financial Checklist

As we near the end of the year, it’s time to look back at what’s happened and how it will affect your financial future. Check off these important items so that you can start the new year’s finances with peace of mind.

INCOME TAX
Review your tax withholdings.
Have you had a major life change (employment change, marriage/divorce, a new child) that affects your income tax? Check to make sure your tax withholdings have been properly adjusted. Having low withholdings can lead to tax penalties, while having too high of withholdings prevents you from accessing your money until your tax return is filed.

Estimate your AGI.
Determine your adjusted gross income (AGI) with the help of your tax advisor. Your AGI will help determine your tax bracket, which you’ll need for investment and retirement planning.

Estimate your AMT.
Determine whether you will be subject to the Alternative Minimum Tax (AMT) and if there are ways to mitigate your AMT liability.

INVESTMENTS
Assure that your investment portfolios align with your long-term plan. 
If you don’t have a plan or have questions about the alignment, contact your GuideStream Financial advisor. 

Systematically review your portfolios and rebalance when appropriate.
As a client of GuideStream Financial, we handle this step for you. We systematically review each portfolio and periodically rebalance to make any necessary adjustments. We just completed a rebalance in early November. 

RETIREMENT ACCOUNTS
If you are retired, make sure you’ve taken all necessary required minimum distributions (RMDs).
RMDs may be one of the most important items to review when going over your finances at the end of the year. Standard IRAs require these distributions be taken annually after the year you turn 70 ½; standard 401(k)s require them annually after you retire or turn 70 ½ (whichever is earlier). Failure to take an RMD will trigger a 50 percent excise tax on the value of the RMD.

Max contributions to an IRA and employer retirement plan for the year.
Both IRAs and 401(k)s have annual contribution limits. If you find you have excess savings and have not reached your annual limit, it may be a good idea to make additional contributions. Similarly, you may also consider making greater monthly contributions to your accounts next year, spreading out the cost of contribution. The deadline for IRA contributions is usually April 15 of the following year; 401(k) deadlines may be restricted to the calendar year, depending on your employer.

Consider converting a traditional IRA to a Roth IRA.
Did you have a good tax year? It may be an opportune time to convert a portion (or all) of your traditional IRA to a Roth IRA and pay your taxes at a lower rate. It is important to understand, however, that Roth accounts have contribution limits placed on them, so keeping a traditional IRA might be beneficial. Before making any changes, consider seeking the help of a professional   accountant who can help you with the conversion and calculate your new tax liability.

GIVING
Donate to charity.  
In additional to the joy received by assisting causes your care about, you can lower taxable income by 50 or 30 percent with a gift to a public charity or by 30 or 20 percent with a gift to a private foundation. If your gift exceeds these limits, you can roll over the excess deduction for up to five years.

Reduce your estate through gifts.
You are permitted to give up to $14,000 ($28,000 for married couples) a year per recipient as an untaxed gift. Gifts above this value will consume part of your lifetime gift/estate tax exemption amount ($5,430,000 in 2015). If a gift directly funds education tuition or pays for qualified medical expenses, it will go untaxed no matter what the value.

FAMILY FUNDING
Check your flexible savings account (FSA).
The government only permits a $500 annual rollover in an FSA; any excess funds disappear if unused by the end of the year. If you have extra money in your FSA, you may want to schedule necessary medical or dental procedures before the end of the year.

Check your health savings account (HSA).
HSA funds don’t disappear at the end of each year like with an FSA; however, many with few medical needs discover money accumulating in their HSAs much faster than they are using it. Consider reducing your contributions to your HSA if your account has reached a comfortable amount and you know of better uses for your money.

Consider contributions to a 529 plan to fund your children’s/grandchildren’s education. 529 Plans allow for you to make contributions to a tax-free account that may be used to pay for qualifying secondary education expenses. (Investors should consider investment objectives, risks, charges and expenses associated with 529 plans before using them. Information about 529 plans is available in their issuers’ official statements.)

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2015 Advicent Solutions. All rights reserved.

  • September 23, 2016
  • By admin
  • Comments Off on 30 and Successful?
  • in Uncategorized

30 and Successful?

by Caitlin Koppelman
September 2016

What’s the deal with being 30? Why does culture seem to press in on us to “have our lives together” by the time we reach this milestone? We’re told that college is the appropriate time to “find yourself”. There even seems to be a few years’ post-college where we’re allowed a “grace-period” to wrap up some last-minute things, but once we blow out those 30 candles: our Success-O-Meter had better be well on it’s way to 100%.

But, what does it mean to be successful? Somewhere along the way, most of us begin to look at the people and forces around us to tell us what success looks like: money, prestige, power… But what if we redefined success? What if we set goals for growth in different segments of our lives and let those things define our movement, instead of being pushed around by every wind and whim of culture?

I would never conclude that any of the aforementioned goals are bad. Money is simply a tool – not bad or good in its own right, but it’s all about what you do with it. Prestige (respect) and Power aren’t negatives either, but there are certainly two ways to carry these things. Our world seems to value arrogance and pride even though that’s not the only way to convey respect and power. For example: what if the most prestigious leaders led in humility and as public servants? Wouldn’t that be a lofty goal for a 30-something person!

I will say that some in this 18-30 age range seem to take pride in a lack of development. To that mindset, I would point out that your life is what you make of it. No one is obligated to create your life for you. Don’t wait for someone else to move first so you can follow them.

To those in my generation, looking to make their mark on the world, may I offer a bit of advice? Set Goals. Not cliché goals, but rather the kind that really shape your decisions. Think about who you want to be, what you want to do, what you want to offer society, and set goals accordingly. Let the things you value speak through your goals. Put some time frames on them and then set some simple steps to get there. Reaching for specific goals gives purpose and focus to where you point your resources: time, money, energy – the world tells us how we should spend those, but what if you let your values and your dreams point you in a direction and then pressed your resources into those purposes?

It is possible to be 30 and successful, but it won’t happen on accident, and what culture thinks is successful won’t fulfill you. Your life is what you make of it. Start building! 

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