Yearly Archives: 2009


Review Your Finances Once in a Blue Moon?

If you only review your finances once in a blue moon, you’re in luck. Most years have 12 full moons, occurring approximately monthly. Because each calendar year contains about 11 extra days, every few years there is an extra full moon, called a “blue moon” (hence the phrase “once in a blue moon,” meaning a rare event). This year, December will have two full moons. The first one occurred on the 2nd. The next will occur on the 31st, giving us a blue moon for New Year’s Eve.

What better time to review your financial plan and make sure you’re on track with your goals? Here are a few financial planning tips to help you get started:

Know Thyself: How successfully you manage your money is as much about the mind as it is about the money. How often have you read about people who earned high incomes, won the lottery, or inherited large sums of money, yet ended up going broke? Or the reverse: people who earned modest incomes yet managed to build substantial wealth and live comfortably?

Most people have a love-hate relationship with money, and understanding what makes that relationship tick can do as much for your finances as picking the next successful stock. What are your spending and investing habits? Do you and your spouse have conflicting views about spending, saving, investing? Exploring and understanding your relationship with money will provide invaluable insights for making the right changes in your money management strategies.

Pay Attention: Countless families have no household budgets and thus have no idea where their money goes. The majority of people have never calculated how much money they need to accumulate for a comfortable retirement and, thus, have no idea if they’re saving enough. Workers mistakenly believe their employer covers them with long-term disability insurance. No wonder their finances look like a garden of weeds. Just starting a budget and thoroughly reviewing your financial situation will be huge steps toward putting your financial house in order in the New Year.

Take Personal Responsibility: Too often people simply hand over management of their finances to financial professionals – stockbrokers, accountants, insurance agents, attorneys, financial planners – without staying involved. But the more involved and knowledgeable you are about your own finances, the better this team of professionals can help you meet your personal goals.

By |December 21st, 2009|Financial Planning|

“12 Days of Christmas” Cost Rises Slightly

Every year, PNC Wealth Management tabulates the cost of the 12 Days of Christmas, based on classic holiday song. Their Christmas Price Index (CPI, a whimsical play on the Consumer Price Index) rose a modest 1.8 percent compared to last year, with the total cost for gifts in the song totaling just under $21,500. It was the smallest increase since 2002, when the index fell 7.6 percent.

Among the 12 gifts in the index, three items fell measurably from last year, while five increased in cost and four remained steady. The sharp rise in gold prices in the past year caused a dramatic 43 percent jump in the purchase price of five gold rings for one’s true love. Declines in the cost of birds in the index helped keep the overall price index low. The cost for a partridge in a pear tree was down 27 percent and the six geese-a-laying price tag dropped roughly 37 percent.

As the only unskilled laborers in the PNC Christmas Price Index, the eight maids-a-milking received an automatic raise for the third straight year due to another increase in the federal minimum wage. The ladies dancing were the only performers to receive a raise this year, a whopping 15 percent.

For those who prefer the convenience of shopping online, it will cost nearly 50 percent more. PNC Wealth Management estimates the cost of gifts purchased on the Internet for the 12 days of Christmas will be roughly $10,000 higher because of convenience and the cost of shipping live birds.

By |December 15th, 2009|Current Affairs, Financial Planning|

New Roth IRA Rules Expand Savings Options

Starting in 2010, individuals with a modified adjusted gross income of more than $100,000 are now eligible to convert a traditional IRA to a Roth IRA. The IRS is offering taxpayers a three-year window in 2010 to pay taxes due on a conversion as part of removing the income limits.

Traditional IRAs allow investors to save money tax-deferred with deductible contributions (within certain income limits if either spouse is eligible for a qualified plan at work) until they’re ready to begin withdrawals anytime between age 59 ½ and 70 ½. Roth IRAs don’t allow tax-deductible contributions, but they allow tax-free withdrawal of funds with no mandatory distribution age and allow these assets to pass to heirs tax-free as well. If you leave your savings in the Roth for at least five years and wait until you’re 59 ½ to take withdrawals, you’ll never pay taxes on the gains. You can convert a traditional IRA to a Roth, but you must pay taxes on any pre-tax contributions, plus any gains.

Keep in mind that conversion might be a good idea for people in lower income tax brackets. Talk to your tax professional about doing a full or partial Roth conversion.

Remember that when you do a conversion, you must pay income tax on the amount you are converting. Since you received a tax deduction on your initial contributions to most traditional IRAs, you must pay the taxes due on those initial contributions and any growth in your IRA. But, subject to certain restrictions, you won’t pay tax when you finally need to withdraw your money. That’s where the silver lining comes in for you, or for your heirs if you pass that money on to them.

The conversion issue is a potentially attractive retirement and estate planning idea for all Americans who want to make sure they maximize the assets they have for themselves and for their heirs on a tax-free basis. And the conversion option isn’t available just for traditional IRAs – it can be used for retirement assets held at other employers and 401(k) holdings. Anyone considering such a move – regardless of his or her income status – should first review their current retirement asset strategy with a tax or financial advisor.

Things to consider:

How close is retirement? If you have more than five years until you plan to withdraw your retirement funds, conversion of traditional IRA assets to a Roth IRA might make sense. The longer the time span where earnings can grow tax deferred, the greater the benefit of being able to withdraw those earnings without paying tax on them.

What will your tax rate at retirement be? Many people, such as business owners, may be paying taxes now at a fairly low rate. So they might pay higher taxes at retirement. If that’s the case, converting to a Roth might make a lot of sense. Additionally, with Social Security benefits being taxable at certain income levels, Roth IRAs can allow you to limit or eliminate such taxes.

A Roth conversion can be expensive. You’ll have to pay taxes on contributions that you previously deducted, as well as taxes on the accumulated earnings. Also, you need to be aware that conversion could push you into a higher tax bracket, especially if you’ve accumulated sizeable earnings over the years. This is why a conversion needs to be planned with a tax expert. Why? It may trigger the Alternative Minimum Tax (AMT) due to those high earnings.

Know how the conversion window will work. Keep in mind that 2010 is the actual year you will be able to convert your retirement assets to a Roth, but you’ll be able to spread out the tax hit. The Internal Revenue Service has granted taxpayers the option to claim 50 percent of conversion amount as income in 2011 and the remaining 50 percent in 2012. Also, you have to understand that if you choose the conversion period, your tax will be based on the bracket you fit that year. That means swings in income will affect what you pay.

This blog was adapted from an article by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Perspective Financial Services, a local member of FPA.

By |December 3rd, 2009|Retirement|

Stories of the Super Rich

The Forbes 400 Richest People in America provides a fascinating annual look at the people and stories behind the fortunes of the super rich.  Not surprisingly, this year’s rankings as of September 2009 reveal that even the richest got poorer last year. For only the fifth time in more than 25 years, the collective net worth of The Forbes 400 fell, dropping a total of $300 billion to $1.27 trillion.

For the 16th straight year, Microsoft founder Bill Gates took the top slot, with an estimated net worth of $50 billion, down from $57 billion last year. Gates, who sells Microsoft shares every quarter, has managed to diversify 60 percent of his net worth outside of Microsoft. He and his wife spend an increasing amount of time and effort giving away their fortune, having made charitable contributions of $3.8 billion in 2009.

Number two on The Forbes 400, Warren Buffett of Berkshire Hathaway, was hit harder by last year’s financial crisis. Buffett’s net worth declined $10 billion to an estimated $40 billion. He is making a comeback via investments in Goldman Sachs and GE and an overall market recovery. Despite his billions, Buffett continues to live a modest lifestyle in Omaha, Nebraska.

The Walton family name shows up four times in list’s top ten. The four heirs of Wal-Mart founder Sam Walton, who started as a JC Penney clerk, have personal fortunes of approximately $20 billion each or an astounding $80 billion total. That’s down about $14 billion from last year. Dubbed “retail’s royal family,” two Walton heirs still live in unpretentious Bentonville, Arkansas.

Some Forbes 400 billionaires managed to increase their riches in 2009. Dallas Cowboys owner Jerry Jones, whose wealth is estimated at $1.8 billion, benefitted from being part of the recession-resilient sports industry. Jones bought the Cowboys for $150 million in 1985. Three Super Bowl victories later, the team is now valued at $1.67 billion, an astonishing 865 percent return on investment.

To read the full Forbes article, go to their Web site by clicking here.

By |November 23rd, 2009|Current Affairs|