Oak Harvest Financial Group | Financial Advisors Houston and Life Insurance Houston

2013 Tax Changes!

admin — Mon, 28 Jan 2013 16:13:56 +0000

A taxpayer’s guide to 2013

The 2013 tax changes you can expect, and what you can do about them.

After a long period of uncertainty over taxes, the fiscal cliff deal has finally given taxpayers some much-needed clarity—and the opportunity to put in place some tax-smart long-term saving and investment plans.

“Now that many of the expiring tax cuts and temporary tax relief provisions have been made permanent, you have the opportunity to take stock of the situation, create a careful plan, and then put it into practice over the coming years,” says John Sweeney, executive vice president at Fidelity.

First the good news:

For most taxpayers with modified adjusted gross income (MAGI) under $200,000—$250,000 for married couples filing jointly—marginal income tax rates won’t increase, and most tax relief provisions remain in effect. Among them: marriage penalty relief, the child tax credit, the American Opportunity Tax Credit, and lower capital gains tax rates.
The alternative minimum tax (“AMT”) exemption is permanently patched (with inflation adjustments), thereby sparing millions of middle-income Americans from the AMT’s snare. In 2013 the AMT exemption is $51,900 for single filers and $80,800 for joint filers, up from $50,600 for single filers and $78,750 for joint filers in 2012.
Qualifying municipal bond interest remains free of federal income taxes.
Qualified dividends continue to be taxed at preferential capital gains rates, rather than as ordinary income.

Now, some not-so-good news:

Income by any other name

Gross income includes salaries and other employment income, interest, dividends, capital gains, and other sources of income.
Adjusted Gross Income (AGI) is gross income minus tax deductions that are allowable whether or not you itemize deductions on your tax return, such as certain IRA deductions, student loan interest, and unreimbursed business expenses. See the IRS definition.
Modified Adjusted Gross Income (MAGI) is calculated by adding back certain items to your Adjusted Gross Income that were deducted including traditional IRA contributions, student loan interest, tuition and fees, and adoption benefits. See the IRS definition.
Taxable income is adjusted gross income minus standard or itemized deductions and personal exemptions.

The employee share of payroll taxes will return to its 2010 level of 6.2% on the Social Security wage base, ending the 2011 and 2012 2% tax holiday.
People with MAGI greater than $200,000—$250,000 for couples—may be impacted by a new Medicare surtax on net investment income. Taxpayers with earned income above $200,000—$250,000 for couples—will also pay a higher Medicare payroll tax.
Anyone with an AGI above $250,000—$300,000 for married couple filing jointly—may have their personal exemptions and itemized deductions reduced.
In addition, taxpayers with taxable income greater than $400,000—$450,000 for couples—should get ready for a new 39.6% top marginal income tax rate and higher qualified dividend and long-term capital gains rates.

The bottom line: If your modified adjusted gross income is below $200,000 (single filer), you’ll probably feel the biggest impact from the higher payroll taxes. If you make more than $200,000 (single filer), you may see additional taxes kick in, depending on your exact level of income. If you are impacted by these other tax changes, the combination of higher rates and reduced deductions could take a significant bite out of your income. So, it may be all the more critical for upper income people to focus on strategies to manage their taxes effectively.

Here’s how the new law may impact taxpayers in three different income brackets—and steps they might consider as they plan for 2013 and beyond.

MAGI less than $200,000—$250,000 married filing jointly

“For most single taxpayers with modified adjusted gross income under $200,000 a year, or couples with less than $250,000, the fiscal cliff resolution is largely about the dog that didn’t bark,” says Sweeney. “Income tax rates didn’t jump up, dividend taxes didn’t move, and a number of other hikes didn’t come to pass.”

The holiday ends

One exception, though, is the end to the payroll tax holiday. This means a return to the 6.2% withholding rate on wages up to $113,700 in 2013. The rate was 4.2% in 2012. So, for a taxpayer with an annual salary of $30,000, the increase in withholding rate means $50 less in take-home pay per month. For someone earning $60,000, take-home pay goes down by $100 per month—and at $90,000, it’s $150 less per month. For earners making $113,700 or more, monthly take-home pay is reduced by $189.50.

What to consider

You should see this tax change in your withholding immediately, though the IRS is giving employers the option of waiting until Feb. 15, 2013, to implement the new withholding (with appropriate adjustments to reflect amounts that should have been withheld from earlier paychecks).¹ To get ready, you may want to look for places to cut costs in your budget so you can absorb the additional tax expense.

Income greater than $200,000—$250,000 married filing jointly

The year 2013 will have several new wrinkles for individuals with incomes above $200,000—for couples, $250,000—higher Medicare payroll taxes, the new Medicare surtax on net investment income, and the phaseouts of itemized deductions and the personal exemption.

Medicare payroll and net investment income taxes

The healthcare law included two new taxes that were scheduled to take effect in 2013. These taxes were not repealed as part of the fiscal cliff deal, and will kick in this year as expected.

The Medicare payroll tax. Here is what’s changing. In 2012, the Medicare payroll tax was 2.9%. It applied only to earned income, which includes wages you are paid by an employer, plus tips. Your share, 1.45%, was deducted automatically from your paycheck. Your employer kicked in the other 1.45%.

In 2013, high-wage earners will owe an additional 0.9% on earned income above $200,000 (single filers) or $250,000 (married filing jointly). So, for example, if you are a single filer whose salary will be $225,000 in 2013, you will pay a 1.45% Medicare tax on the first $200,000, then 2.35% (1.45% plus 0.9%) on the next $25,000. Your employer will be required to withhold the extra 0.9% once your wages pass the $200,000 threshold for individuals.

The Medicare surtax on net investment income. A 3.8% surtax will be due on the lesser of your net investment income for the year, or the amount by which your “modified adjusted gross income”—or MAGI—exceeds those income thresholds. Note that a taxpayer could be subject to both the additional 0.9% tax on earned income and this 3.8% tax.

Here is a hypothetical example: Paul and Ann’s MAGI is $372,000, of which $330,000 is wages and $42,000 is net investment income. Their MAGI is $122,000 over the $250,000 threshold for married couples filing jointly. They’ll incur the 3.8% tax on their $42,000 of net investment income, because it is less than the amount they are over the MAGI threshold ($122,000). They’ll also owe 0.9% on the $80,000 that their wages are over the $250,000 earned income threshold for married couples filing jointly. Their total Medicare tax surcharge will be $2,316, which includes $1,596 (3.8% of $42,000) and $720 (0.9% on $80,000).

The personal exemption and itemized deduction phaseouts

Single filers with adjusted gross income (AGI) in excess of $250,000 or couples who are married filing jointly and have AGI in excess of $300,000 will also face phaseouts of their deductions and personal exemptions. The phaseout of the personal exemption (sometimes called “PEP”) means for every $2,500 of AGI (or portion thereof) above $250,000 ($300,000 for married couples filing jointly), the $3,900 per-person personal exemption will be reduced by 2%. For married couples, personal exemptions will be fully phased out once their AGI exceeds $422,501, or for single filers if AGI exceeds $372,501.

The phaseout of itemized deductions (often called the “Pease” phaseout, for the legislator who sponsored the rule) could also raise tax bills for higher income earners by reducing the tax benefit of the mortgage interest, state income and sales tax, home office, and certain other itemized deductions. The Pease limitation reduces the value of itemized deductions by 3% of the AGI above $300,000 for couples, and $250,000 for single filers—to a maximum reduction of 80% in value. Itemized deductions for certain medical expenses, investment interest, and for casualty, theft, or gambling losses are exempt from the phaseout.

Let’s look at a hypothetical example:

Say a married couple, Jim and Erica, claim $25,000 in itemized deductions for mortgage interest and state taxes and claim a combined $7,800 in personal exemptions. The new phaseout schedule will reduce the tax benefit of those deductions based on their earnings. If their AGI was $250,000, putting them in the 33% bracket, they could claim the full amount of their itemized deductions and personal exemptions, resulting in a combined benefit of $10,824. But what if their AGI was $440,000? That would put them in the 35% tax bracket and their exemptions and itemized deductions would have been worth $11,480. But because of the PEP and Pease phaseouts, their personal exemptions would have been fully phased out and their itemized deductions would have been reduced by $4,200 (3% x $140,000). As a result, the tax benefit of their deductions would be only $7,280.

Taxable income above $400,000—$450,000 for couples

In addition to the higher taxes described above, upper-income Americans may be subject to a new 39.6% marginal rate on taxable income over $400,000 or $450,000 for married couples filing jointly. Likewise, they may be subject to tax on capital gains and qualified dividends at a rate as high as 20%—23.8% if the Medicare surtax on net investment income applies.

New taxes for top earners

Year	2012	2013
Top marginal long-term capital gains and qualified dividend rate	15%	23.8%*
Top marginal ordinary income tax rate	35%	39.6%
Top rate on short-term capital gains and non-qualified dividends	35%	43.4%*
Personal exemption phaseout	None	Completely eliminates value of personal exemption for single earners with an AGI over $372,501 and couples filing jointly with an AGI greater than $422,501.
Pease itemized deduction phaseout	None	All itemized deductions reduced by 3% of MAGI over $300,000 for married couples filing jointly ($250,000 for single filers)—to a maximum reduction of 80% in value.
*includes 3.8% Medicare surtax

Strategies to consider

The higher the tax rates go, the more incentive taxpayers have to focus on tax-efficient strategies. Of course, taxes are just one consideration among many when making investment or income decisions. But the new law made them a bigger part of the equation.

For considerations for upper-income people, call Oak Harvest Financial Group 281-822-1350

Top Earners Set to Pay Most Especially Married People

admin — Mon, 21 Jan 2013 21:49:30 +0000

Top Earners Set to Pay Most Especially Married People

By Margaret Collins - Jan 17, 2013

It pays to be single — that is, when it comes to high earners’ tax bills.

U.S. taxpayers with income of more than $200,000 a year will see federal tax rates rise this year on wages and investments. Tax increases will pinch married couples faster than individuals, especially if both spouses work and have capital gains and dividend income, said Joseph Perry, partner- in-charge of tax and business services at the accounting firm Marcum LLP.

In the law passed by Congress Jan. 1, multiple thresholds for higher rates kick in for married couples only $50,000 above where they hit for singles. Married taxpayers with income of at least $300,000 also face limits on the value of deductions and personal exemptions that were reinstated for 2013.

“If they’re sending a message, it’s not to be married,” Perry said of U.S. tax policy. “People who are married, working, earning two good salaries, are being penalized.”

The budget deal struck by Congress and new taxes stemming from the 2010 health-care law are exacerbating the long- established marriage penalty for high earners. The added bite will affect taxes they pay for 2013, and not the current filing season that starts this month.

Accountants and wealth advisers are recommending that high earners start planning and strategizing about how they recognize income from investments or when they take deductions.

Crossover Point

Three thresholds are now in effect at which higher taxes can affect top earners. Taxable income exceeding $450,000 a year for married couples and $400,000 for singles is the crossover point to the top income-tax bracket of 39.6 percent, from 35 percent, and the 20 percent rate for capital gains and dividends, compared with 15 percent.

The second threshold starts at adjusted gross income of more than $250,000 for married couples compared with $200,000 for individuals. Those are the markers for a new 3.8 percent surtax on investment income and a 0.9 percent added levy on wages starting this year. Both were enacted in 2010 to help finance the expansion of medical coverage.

Limits on the value of deductions and personal exemptions start at a third level: $300,000 a year for married couples and $250,000 for individuals.

Consider a couple living in New York state with each earning $280,000 in annual wages — for a combined $560,000. The couple will pay about $22,000 more in taxes this year if they are married filing jointly than if they were single, according to an analysis by Perry. That assumes each of them has $20,000 in capital gains and dividends as well as $35,500 each in deductions for charitable contributions, mortgage interest and real estate taxes.

Personal Exemptions

As a married couple, more of their income is subject to the phase-outs on personal exemptions and limits on itemized deductions as well as the higher taxes on wages and investment income from both the health-care law and budget deal.

“They made it worse because of where they set the brackets,” Perry said of the marriage penalty as it applies to high-earning, married couples.

That’s because the thresholds for individuals and married couples at the higher rates are close together, said Scott Kaplowitch, a partner at the Boston-based accounting firm of Edelstein & Co. LLP.

“$50,000 isn’t really a big spread,” Kaplowitch said. “People may just cohabitate because it’s better from a tax perspective.”

Varying Rates

Penalties — and bonuses — for being married or single have existed in the tax code for decades because the system is based on household income and the rates vary, saidEugene Steuerle, co-founder of the Washington-based Tax Policy Center.

Lawmakers have adjusted since the 1940s where to set income- tax brackets to address inequities among different types of families including married couples and singles, said Dennis Ventry, a professor at the University of California, Davis School of Law who specializes in family taxation. Families often feel the so-called marriage penalty if they don’t account for it when deciding how much to withhold from theirpaychecks throughout the year for taxes, Ventry said.

The marriage penalty also affects lower-income households who may phase out of benefits such as the earned income tax credit because as a couple their income is too high, he said.

President George W. Bush’s income-tax cuts reduced the marriage penalty by setting the 10 percent and 15 percent brackets for married couples at double the amount for individuals, which essentially splits a couple’s income for tax purposes, Steuerle said.

Budget Deal

The budget deal passed Jan. 1 extended marriage-penalty relief for those brackets and for the standard deduction, which is used by those who don’t itemize. While that helped married couples in the lower-to-middle income tax brackets, the law didn’t apply the same relief to top earners, Steuerle said.

“Among the people most likely to be caught by this are two professionals, highly paid doctors or lawyers,” said Steuerle, whose Tax Policy Center is funded by the Brookings Institution and the Urban Institute.

High earners with significant income from capital gains and dividends may feel a bigger tax bite because they are married.

A married couple with taxable income of $600,000 a year is subject to the top 20 percent rate because they exceed the $450,000 threshold, while if they each recognized $300,000 individually they would pay at the 15 percent rate. That doesn’t include the 3.8 percent investment-income surtax.

Early Planning

The multiple levels of higher rates mean families should start planning early this year because there are ways to save on taxes or reduce their sting.

Married couples should review their withholding to make sure they are taking out enough from their paychecks for taxes, Ventry said. The higher-earning spouse usually should be the one accounting for the family’s exemptions and any additional withholding, because they are in the higher bracket, he said.

Couples also should consider installment sales of appreciated assets such as real estate or stakes in a business, said Baker Crow, senior vice president of the private wealth management group at Regions Financial Corp. That can help spread the income received over more than one year, he said.

Socking away investments that generate income in tax- deferred individual retirement accounts as well as harvesting losses throughout the year to offset gains are strategies for married couples, said Kent Kramer, chief investment officer of the investment advisory firm Foster Group.

Timing Deductions

Timing of deductions also will be more of a focus this year, said Susan Bruno, an accountant and financial planner at Beacon Wealth Consulting LLC.

“If you have unusually high income one year, that’s probably not the year you want to make your normal contributions and deductions,” Bruno said.

The option for a married couple to file separately rather than jointly is still generally more expensive even with the higher rates, said Marcum’s Perry. And while couples face a marriage penalty, advisers aren’t seriously recommending divorce for tax reasons.

Some tax-conscious high earners who haven’t yet married may see staying single as a way to avoid the penalty. Steuerle, though, says there are other financial advantages to marriage such as the way Social Security benefits are structured.

“People who are less concerned about the formal marriage vow have more ability” to avoid the penalty, he said.

Retirement Concerns Keep You Awake at Night?

admin — Fri, 18 Jan 2013 20:44:41 +0000

Retirement Concerns Keep You Awake at Night?

Ever heard your stock broker say, “Your approaching retirement, you should start looking for a specialist to help you overcome all the challenges you are about to face”. Of course you haven’t. Stock Brokers and Investment Advisors get paid, handsomely, to keep your assets in risky investments like stocks and bonds. They will not ever recommend you find a specialist when approaching retirement. That would be career suicide.

One professional in the financial industry is what we call an Accumulation Phase specialist. This is someone that helps you accumulate a nest egg during the earning years. They help you diversify your risk holdings and position for long term growth in your portfolio if the markets cooperate. For decades the market did cooperate. Now that the New Economic Normal has set in, we don’t necessarily know which direction the markets are going to head moving forward. Up? Down? Level? A volatile combination of all those ways is most likely.

Worldwide economic growth is stagnant, but markets seem to be moving higher temporarily. Most likely this is because of the direct injection of Federal Funds into the market place through the large banks and the secondary markets, but how sustainable is that? Europe is strangled with debt, all of Asia is slowing and America is saddled with an aging population, a decreasing workforce and ever growing debts and deficits. Where is all the economic growth going to come from?

Still, the accumulation phase advisor is part of the “All-Is-Well Committee”. They always want their clients to feel that better days are ahead, the glory is on the horizon, and you have nothing to lose except…..everything you’ve ever worked for???? Hold on a minute. http://www.zerohedge.com/news/2013-01-18/guest-post-2008-again

That’s where the Retirement Phase specialist can lend a very helpful hand. The retirement specialist focuses on safely growing the nest egg, without market risk, while building an intelligent distribution and income strategy that protects against inflation and future long term care costs.

Stocks and bonds weren’t designed for safety and they weren’t designed for retirees. They were designed for investors. At this stage of your life you have to ask yourself, are you an investor? Or are you a retiree that simply wants to enjoy your remaining years without the fear of running out of money, or losing it all in a stock market or bond market crash. Yes, the bond market can crash just as hard as the stock market.

If you aren’t in the market for the roller coaster ride, I encourage you to look at some of your safe options and learn about how comfortable retirement can be. Take a look at our website, listen to our client testimonials www.oakharvestfg.com .

These are people just like you. They used to have their money at risk, they would lose sleep at night, they were unsure if they had enough money to make it through retirement. Now, all those questions are answered. They have implemented our Retirement Defense System ™ and sleep well knowing they have a plan with a promise. Not just a hope and a prayer.

2008 Again?

admin — Fri, 18 Jan 2013 20:20:07 +0000

Guest Post: 2008 Again?

Submitted by John Aziz of Azizonomics blog,

The so-called recovery is built on sand, and as stock markets climb and climb, and more traders and investors turn bullish, we come ever-closer to a new 2008-style collapse.

Markets have already gone far, far higher than many expected on a drift of reinflationary central bank liquidity. Yesterday the DJIA hit a new post-2007 high.

The same day, it was revealed that the big Wall Street banks are gambling again with billions and billions of dollars of clients’ funds. Goldman Sachs are back to pre-crisis-style profits. Again and again — from the LIBOR scandal, to MF Global, to the London Whale, to Kweku Adoboli — the financial sector has illustrated that it has learned very little from 2008, and is still practising many of the same hyper-fragile ponzi finance practices that led to the subprime bubble and the 2008 collapse.

Soaring markets, and soaring speculation. Big finance using loopholes to speculate bigger and harder. Mainstream financial journalists becoming more and more complacent about the “recovery”.

We’ve been here before. Isn’t repeating the same behaviour and hoping for different results the very definition of insanity?

I don’t know exactly how the next crash will occur — although there are many potential ignition spots including a severe trade or energy shock, or a Chinese real estate and subprime meltdown, or a natural disaster, or a new Western financial crisis. I don’t know when the next crash will occur, or how high the markets will climb before it does (DJIA 36,000 maybe? That would be hilarious).

But I know that if markets and regulators continue to repeat the mistakes that led to 2008, we will be back in a similar or worse hole soon.

First Radio segment

admin — Sat, 05 Jan 2013 23:45:03 +0000

Engage_H264_15fps_534X300_121104 (1)

Insurance Industry vs. Wall Street

admin — Thu, 29 Nov 2012 18:35:24 +0000

Insurance Industry vs. Wall St. for Income During Retirement

If you’re an avid listener to the Retirement Rescue Show, heard on AM950 Saturday mornings at 8, you are familiar with the concept of using your financial vehicles for what they were designed to accomplish. For example, you wouldn’t use a spoon to eat spaghetti would you? Of course you wouldn’t. A spoon was not designed to be used in that manner.

Retirees would be well served to apply that same concept to their portfolios to guarantee they do not outlive their nest egg while protecting against inflation.

Stock brokers often claim that through diversification, you can provide safety to your stock investments. Unfortunately, stocks were never designed for safety. It’s like eating spaghetti with a spoon. Stocks were designed for providing potential financial rewards for those willing to take the risk of losing their investment.

Then, you’ll hear that “Bonds are safe”. Well, that’s untrue also as bonds were never designed for safety. They were designed for fixed income. As a matter of fact, Warren Buffet (in his annual letter to shareholders) just labeled bonds as “among the most dangerous of assets”. http://www.bloomberg.com/news/2012-02-09/buffett-says-bonds-are-among-most-dangerous-assets-on-low-rates-inflation.html

That leaves us with the insurance industry. The insurance industry, and its’ hundreds of years of experience providing safety and income, is the hands-down winner when it comes to providing retirees the most amount of income with the least amount of risk. The industry has designed financial vehicles that retirees can attach “income riders” to and guess what…they were designed for the specific purpose of providing retirees with the most amount of income during retirement!

Now, you’ve found your fork for that plate of spaghetti!

Let’ do some quick comparisons:

Stock Market:

The world has entered a “New Normal” and worldwide economic growth is expected to be around 1-3% for the foreseeable future. As a matter of fact, one of the world’s foremost investment managers, Bill Gross, recently said investors will be lucky to earn 5% within their portfolios because of the growth-constricting problems of the U.S. and Europe. http://www.cnbc.com/id/45474748/5_Returns_Will_Be_Upper_Echelon_for_Years_Gross

Let’s assume you’re 55 years old, have $500,000, and are in that “lucky” bunch of investors that will earn 5% annually for the next 10 years. Then, when you retire at 65, you start withdrawing 4% per year from your portfolio to ensure you and your spouse don’t run out of money.

At retirement your $500,000 will have grown to $814,447. Withdrawing 4% per year will provide you with $32,577 per year in income. To achieve this annual income, you must assume the risk involved with putting your money on the stock market. It may grow, it may not. It may be worth less in ten years than it is today. And finally, there are no guarantees that you won’t run out of money.

Insurance Industry

That same 55 year old with $500,000, that plans to retire at age 65, could look to a much safer industry to provide income during retirement, the insurance industry. This industry offers financial vehicles that are actually designed to provide income during retirement…What a novel concept!

If that investor chose to go this route, his $500,000 would be guaranteed to provide $57,072 per year for life, no matter how long they happen to live. This is 100% contractually guaranteed, with zero market risk. It is also the worst case scenario. The income could actually be more, but it is guaranteed not to be less.

That’s 75% more income during retirement, guaranteed, without all the risk of the stock market. Why would any sane investor, who doesn’t want to risk losing all they’ve worked for over the years, go any other route?

We often ask ourselves that same question.

If all that was needed was the $32,577 per year for retirement, the investor in our example could retire at age 60, 5 years earlier, and be guaranteed $36,992 per year for life.

If you are in or approaching retirement, we encourage you to contact Oak Harvest Financial Group to see how much more income you can have in retirement, without the market risk. Our professionals will educate you about your safe options during retirement and structure your own personalized retirement income plan, we call the Retirement Defense System, that can provide so much more income than your stock and bond portfolio.

Don’t wait, contact Oak Harvest today!

The Math Behind Our Country’s Greatest Challenge…Ever

admin — Thu, 29 Nov 2012 17:17:52 +0000

As the Presidential election has now come and gone, and the hopes of millions of Americans have either been crushed or fulfilled, the question now becomes: Where do we go from here?

If you’re in or nearing retirement, these are facts you absolutely must understand if your broker is advising that you “Stay the course”. The stock market’s post-election fallout/nosedive of 312 points in a single day may just be the beginning of things to come.

It all actuality, it may just turn out that the winner of the election is absolutely irrelevant in regards to the fiscal nightmare facing our country. The mounting pressure from the “Fiscal Cliff” is laughable when you look at the deeper, structural problems facing our nation.

Everyone may have their own opinion, and we all know they do, but one cannot ignore the facts. These numbers, albeit shocking, speak volumes regarding the direction our fiscal house is heading.

The Math

1) When the US federal government spends money, expenses are officially categorized in three different ways.

Discretionary spending includes nearly everything we think of related to government– the US military, Air Force One, the Department of Homeland Security, FBI agents, etc.

Mandatory spending includes entitlements like Medicare, Social Security, VA benefits, etc. which are REQUIRED by law to be paid.

The final category is interest on the debt. It is non-negotiable.

Mandatory spending and debt interest go out the door automatically. It’s like having your mortgage payment autodrafted from your bank account– Congress doesn’t even see the money, it’s automatically deducted.

2) With the rise of baby boomer entitlements and steady increase in overall debt levels, mandatory spending and interest payments have exploded in recent years. In fact, the Congressional Budget Office predicted in 2010 that the US government’s TOTAL revenue would be exceeded by mandatory spending and interest expense within 15-years.

That’s a scary thought. Except it happened the very next year.

3) In Fiscal Year 2011, the federal government collected $2.303 trillion in tax revenue. Interest on the debt that year totaled $454.4 billion, and mandatory spending totaled $2,025 billion. In sum, mandatory spending plus debt interest totaled $2.479 trillion… exceeding total revenue by $176.4 billion.

For Fiscal Year 2012 which just ended 37 days ago, that shortfall increased 43% to $251.8 billion.

In other words, they could cut the entirety of the Federal Government’s discretionary budget– no more military, SEC, FBI, EPA, TSA, DHS, IRS, etc.– and they would still be in the hole by a quarter of a trillion dollars.

4) Raising taxes won’t help. Since the end of World War II, tax receipts in the US have averaged 17.7% of GDP in a very tight range. The low has been 14.4% of GDP, and the high has been 20.6% of GDP.

During that period, however, tax rates have been all over the board. Individual rates have ranged from 10% to 91%. Corporate rates from 15% to 53%. Gift taxes, estate taxes, etc. have all varied. And yet, total tax revenue has stayed nearly constant at 17.7% of GDP.

It doesn’t matter how much they increase tax rates– they won’t collect any more money.

5) GDP growth prospects are tepid at best. Facing so many headwinds like quickening inflation, an enormous debt load, and debilitating regulatory burdens, the US economy is barely keeping pace with population growth.

6) The only thing registering any meaningful growth in the US is the national debt. It took over 200 years for the US government to accumulate its first trillion dollars in debt. It took just 286 days to accumulate the most recent trillion (from $15 trillion to $16 trillion).

Last month alone, the first full month of Fiscal Year 2013, the US government accumulated nearly $200 billion in new debt– 20% of the way to a fresh trillion in just 31 days.

7) Not to mention, the numbers will only continue to get worse. 10,000 people each day begin receiving mandatory entitlements. Fewer people remain behind to pay into the system. The debt keeps rising, and interest payments will continue rising.

8) Curiously, a series of polls taken by ABC News/Washington Post and NBC News/Wall Street Journal show that while 80% of Americans are concerned about the debt, roughly the same amount (78%) oppose cutbacks to mandatory entitlements like Medicare.

9) Bottom line, the US government is legally bound to spend more money on mandatory entitlements and interest than it can raise in tax revenue. It won’t make a difference how high they raise taxes, or even if they cut everything else that remains in government as we know it.

This is not a political problem, it’s a mathematical one. Facts are facts, no matter how uncomfortable they may be.

The one certainty this all leads to is continued downward pressure on the markets and extreme volatility. Oak Harvest Financial Group stands by ready to assist those that are looking for more stability, certainty, and guaranteed growth and income for life. The stock market is not your only choice for retirement investing. There are guaranteed financial contracts available that can remove the volatility and replace it with peace of mind strategies designed specifically for those conservative investors who simply want to protect and distribute everything they’ve accumulated over the years.

Contact Oak Harvest Financial Group today to learn more!

Wells Fargo Study Finds Middle Class Americans Teeter on Edge of Retirement Cliff

admin — Fri, 26 Oct 2012 15:03:40 +0000

More than a Third Could Live At or Near Poverty in

Retirement

Press Release: Wells Fargo & Company – Tue, Oct 23, 2012 9:22 AM ED

Symbol	Price	Change
WFC	34.06	0.34

CHARLOTTE, N.C.–(BUSINESS WIRE)–

In the final weeks before the Presidential election, much has been said of the “middle class squeeze” and the “fiscal cliff,” but a greater obstacle looms in the distance: millions of Americans who are underprepared for retirement with diminishing prospects for how to manage their future and avoid poverty. Half of middle class Americans (52%) say their most important day-to-day financial concern is paying the monthly bills, up from 37% a year ago according to the latest results from the annual Wells Fargo Retirement Survey (WFC), a telephone survey conducted by Harris Interactive of 1,000 middle class Americans, ages 25 to 75, interviewed between July 9 and Sept. 4. Saving for retirement is in second place with less than a fifth (16%) saying it is a key concern. Over half of pre-retired Americans (53%) say they are not confident they will have saved enough for the life they want in retirement, up from 42% percent in 2011.

One third (30%) of Americans say they will need to “work until at least 80,” in order to live comfortably in their retirement years, up from 25% a year ago. Yet, 73% of Americans said their employer would not want them to work in their 80s. Similar to 2011, 70% of middle class Americans say they’ll work in retirement, with 39% saying they’ll work out of financial necessity.

Thirty-four percent of middle class Americans estimate their retirement income will consist of 50% or less of their current annual income. According to the U.S. Census Bureau, median household income for Americans in 2011 was $50,054. Americans say they need less than half of their pre-retirement income and this translates to $25,000, close to the poverty line for a family of four according to the government.

“It is so tough for Americans to save for retirement, and we feel it is very important to keep shining the light on this issue. People say they’ll work longer, but how possible will this be for millions of Americans? Preparing for retirement can’t be kicked down the road because the other picture that is emerging is how many people will live very close to the poverty line in retirement. We’ve got to marshal our resources as a country, an industry and as individuals to deal with the issues creating this cliff,” said Joe Ready, director of Wells Fargo Institutional Retirement and Trust.

Who’s Responsible for Your Retirement? YOU

The survey asked Americans to assign a proportion of responsibility for funding their retirement and a clear majority of responsibility, 50%, was assigned to the individual through saving and investment, followed by the employer through a pension (27%), and followed by the government through Social Security (24%). While individuals see themselves as primarily responsible for retirement funding, there is a difference of intensity based on party affiliation with 56% of Republicans saying retirement is on the shoulder of the individual through savings and investments versus 42% of identified Democrats.

“People tell us that retirement preparation should be on their shoulders but they are grappling with the financial pressures of each day. As a result, retirement has become a guessing game. But, people can’t afford to approach twenty plus years of their life by ignoring the facts. People are telling us that times are tough financially – even more so than a year ago — but people also need to take action,” said Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust.

Key highlights of the survey include:

70% of middle class Americans say they are not confident in the stock market as a place to invest for retirement.
Three quarters (75%) of Americans describe their calculations for retirement to be some sort of a guess and 22% who describe their planning efforts as detailed and based on “calculations.”
When provided with a list of activities, middle class Americans say that in the last 12 months, they’ve spent the most time ‘planning’ a home remodel, followed by planning a vacation. Planning for retirement fell to third place in the list of priorities.
A little more than a third (36%) of Americans has a written plan for retirement, up from 30% in 2011. 46% of people between 50 and 59 attest to a written plan.
Middle class Americans believe the median cost of their out-of-pocket healthcare costs in retirement will be $47,000. The Center for Retirement Research has estimated a typical couple at age 65 can expect to spend $260,000 or more over their remaining lifetime.
If given $5,000 to invest for retirement, 40% say they would invest it in a CD or savings account, 24% would invest in stocks and 22% say they would invest the money in gold or precious metals. Of note, 37% of middle class Americans in their 30’s would invest the money in the market versus 18% of Americans between the ages of 25 and 29.

What Do People Say They Need in Retirement?

Middle class Americans say they will need a median of $300,000 to support them in retirement, but to date, have only saved $25,000 (median). When asked what percentage of their nest egg they expect to withdraw annually in retirement, the median withdrawal predicted by middle class Americans is 10%. Many experts say withdrawals should be maintained at three to four percent.

Almost half (40%) of middle class Americans without a written retirement plan say they haven’t planned for retirement because they are too focused on “current financial obligations.” This is particularly true for people in their 50s, of which 54% say they are too focused on today to plan for the future.

Half of middle class (51%) Americans say they need to “significantly” cut back on spending money in order to save for retirement, and this jumps to 61% of those who are in their 50s – prime retirement saving years.

401(k) is Best Retirement Savings Vehicle

Americans say the 401(k) is the “best retirement savings vehicle,” followed by the IRA and a savings account. Thirty-four percent of Americans who have a 401(k) available through their employer are saving between 3 and 5% in their 401k plan, and 32% are saving between 6 and 10%, and 12% are saving 11% or more for their retirement. Those contributing to a 401(k) report more companies are offering the match (77%) this year versus 66% a year ago.

Although most 401(k) investment options include investment expenses, a majority (82%) of Americans with a 401(k) available through their employer say they do not pay an investment fee on their 401k plan.

401k Views and Political Party Affiliation

The survey examined American views on the 401k based on party affiliation.

Three quarters of Americans (74%) say that employers should provide personal advice to help employees manage their retirement savings; 67% of those who identify themselves as Republican support advice versus 86% who identify as a Democrat.
Sixty percent of Americans say plans should automatically increase contribution rates by 1% each year; 56% of Republicans agree with this versus 72% of Democrats.
Fifty-nine percent of Americans say plans should automatically enroll employees in the plan; 55% of Republicans support auto enroll versus 77% of Democrats.

Social Security Plays a Lead Role in Retirement Vision

Social Security continues to be a strong component of retirement planning for the middle class. Middle class Americans between the ages of 25 and 75 expect to begin taking or began taking Social Security payments at the median age of 65 and estimate payments will cover a median of 25% of their monthly retirement income. However, 27% of people between the ages of 25 and 49 say that Social Security won’t cover any portion of their retirement.

Yet, for those who say they expect to take Social Security, a majority (71%) of non-retirees said they would prefer delaying the age they begin taking Social Security so they receive higher payments. There are differences between the genders, with 51% of women in their 40s and 50s predicting they’ll take Social Security between the ages of 61 and 65, versus 35% of men.

As the country continues to debate strategies for reducing the deficit, the number of middle class Americans who say they would be willing to accept a reduction in Social Security or Medicare to help reduce the country’s debt burden has declined to 37%, down from 43% in 2011. There is a pronounced difference between men and women between the ages of 40 and 59 when asked whether they’d be willing to take a cut in Social Security and Medicare, with 44% of men saying “yes” versus 26% of women who would agree to cuts.

About the Survey

On behalf of Wells Fargo, Harris Interactive Inc. conducted 1,000 telephone interviews of middle class Americans in their 20s, 30s, 40s, 50s, 60s and 70-75s, surveying attitudes and behaviors around planning, saving and investing for retirement. The survey was conducted July 9 – Sept. 12, 2012. To target the middle class, the survey included only respondents who fell within specified income and wealth brackets. Those between the ages of 25 and 29 had 2011 household income of $25,000 to $99,999 and household investable assets of $99,999 or less. Those between the ages of 30 and 75 had 2011 household income of $50,000 to $99,999 or household investable assets of $25,000 to $99,999. The lower limits for 20-somethings were used to reflect the early stage of their careers. For the 20s age group, only respondents age 25 to 29 were included in order to focus on workers.

Data were weighted as needed to represent the population of those meeting the qualification criteria. Figures for education, age, gender, race/ethnicity, region, household income, investable assets, number of adults in the household, and number of phone lines (to adjust for probability of selection) were weighted where necessary to bring them in line with their actual proportions in the population.

Quantitative Easing 3 in Easy to Understand Terms

admin — Thu, 13 Sep 2012 20:36:08 +0000

Our Federal Reserve, led by Ben Bernanke, just announced another round of large scale bond purchases. The goal is to spur the economy and create job growth. This time, they will print $40 billion per month and “invest” in mortgage bonds until the economy improves. The program does not have an established end-date. It’s just an open-ended $40 billion per month that we will print out of thin air. This is the 3^rd time we’ve attempted this strategy in the past few years hence the name Quantitative Easing 3 or QE3.

Quantitative Easing can be explained most simply by understanding what actually happens, and the direct results of those actions. The Federal Reserve, (which is actually a private bank and not a government agency) prints trillions of dollars by way of the printing press. Once the money is ready, the Federal Reserve purchases bonds. Stick with me here.

It’s important to understand that the value of a bond rises and falls every day. It’s price moves up and down depending on interest rates. Their value moves inversely with interest rates which means if bond values go up, interest rates will go down.

So, when the Fed buys bonds, they drive the value of those bonds up. This is simple supply and demand working as nature intended. Logically, if there are more people trying to buy something (in this case bonds) the price will increase. Conversely, if there are more people trying to sell something the price will go down.

So because the Fed is buying so many bonds, and bonds and interest rates work in opposite directions, this causes interest rates to go down. Make sense?

The Federal Reserve believes that by driving the values of bonds up through large purchases, interest rates will decrease and that the economy will improve. The thought process is that if interest rates are lower, companies will borrow that money at super low rates and invest in things like manufacturing plants and undertake company expansions. This will lead to hiring more employees and ultimately revive the economy.

All of this sounds good in theory, but if that’s the case, why is the economy still in a clear decline? We’ve already printed $2.3 trillion during QE 1 and QE2. The economic numbers across the board are extremely weak and have been trending down for several months now. The poor economic data is the motivation for undertaking another round of quantitative easing, or QE3.

It’s apparent that $2.3 trillion worth of easing wasn’t enough to provide job growth so you must ask, “What is another $40 billion per month ultimately going to accomplish?”

Companies are already sitting on record levels of cash. They don’t necessarily need to borrow money if they want to expand. The problem is they don’t see any clear areas to safely invest the money they have which would create jobs. There is uncertainty about the economy, the solvency of Western Europe, the cost of the new health care law, and now escalation of violence and discontent in Muslim nations across the globe.

Keep in mind that interest rates are already at historic lows. If companies can currently borrow money at 2%, is lowering that rate to 1.9% really going to motivate them to take the risk of expanding their operations in a murky economy? Let’s be honest, the future is at best foggy. Most companies simply aren’t in the mood for expansion. And one of the reasons is the anemic economy that QE1 and QE2 failed to heal.

Folks, we have tremendous structural issues within our country. It does not seem that they are getting better; as a matter of fact they are getting worse. If you have money at risk that you’re depending on because you’re in or nearing retirement, you have to seriously consider the challenges that face you. While the government can just print off whatever they need, you in retirement cannot. When all of this ignorance catches up, the foundation of the stock market is likely to crack…once again. Except this time, there won’t be any bail-outs or printing of trillions of dollars to save the financial system because there could be nothing of value left to print.

In retirement, your nest egg is all you have. You can’t print more money and you can’t go back to work for another 40 years. You have to make sure what you have will last. Exposing it to excessive risk compels you to understand the consequences. And make no mistake about the severity of the consequences when it comes to retirement.

Many experts believe the stock market is already artificially propped up from all of the previous asset purchases and stimuli. The Dow is surging another 200 points on the news of QE3, while the economic data coming in is the worst it has been in years. Isn’t the stock market supposed to reflect the overall health of the economy somewhat? We may have officially entered the twilight zone.

If you are in or approaching retirement, I implore you to reach out and contact Oak Harvest Financial Group to begin to understand how to protect yourself from this chaos. Oak Harvest will custom tailor your very own Retirement Defense System that can provide guaranteed safety, growth and income that you cannot outlive. Your best offense in these times is a strong defense. Contact Oak Harvest Financial Group today.

Call 281-822-1350 or visit www.OakHarvestFG.com

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Great Day Houston

admin — Sun, 09 Sep 2012 01:30:01 +0000

Oak Harvest CEO Steve Watts on Great Day Houston!

Oak Harvest Financial Group was featured as Houston’s premier retirement planning firm for those that are looking for safety investments in retirement. Not one of Mr. Watts’ clients have ever lost a dollar

due to market volatility Steve Watts is a retirement specialist that only works with safe vehicles in retirement for growth, income and wealth transfer. Steve Watts and Troy Sharpe founded Oak Harvest Financial Group on the principal of safety over risk in retirement because of the New Normal economy our country has recently entered.