Congress Just Helped Save Social Security (not)

The sunny name of the Bipartisan Budget Act of 2015 belies the fact that it unnecessarily guts important provisions that benefit both married and divorced spouses.  AARP estimates that only 1/10 of one percent of eligible Americans take advantage of these provisions.  But, even if every single eligible beneficiary maximized the use of timing strategies, the effect on the Social Security trust fund would amount to less than 1/2 of one percent.  Even if Social Security were part of the Federal budget (it isn't) or, even if the Social Security trust fund were in trouble (it isn't) this change will have insignificant budgetary benefits but devastating consequences for many couples and divorced spouses.  This amounts to senior abuse.

Before they approved this nonsensical bill, the Senate did soften it a bit with two amendments:

• It does not take effect until 5/1/2016*
• Certain provisions are grandfathered in for those age 62 or older.

I suspect, and hope, that before 5/1/2016* Congress will incur enough outrage that they will also fix the divorced spouse benefits and perhaps even all timing strategies.
Regardless, it is imperative that you:

1. Meet with me or call to see how this law- in its current form -could change your strategy
2. Contact your Congressional representatives & prevail upon them to fix this mistake:  http://www.congressmerge.com/onlinedb/

Best Always,
Gary Duell

Your Constructive Comments are Welcome!
*I must confess a previous version of this post had a typo in both of these dates.

You Can Wait Until You Are 62 To Plan How to Take Social Security Benefits

The title of this post isn't a myth.  It's true.  You can wait until age 62.  It's just a bad idea.  If you are 50, you may still have time to start working on an ideal cash flow plan for your 60's & 70's.

I know.  So much can change over 10, 20 years.  And a well crafted cash flow plan will be organic and fluid, as it should be.  Why start so early in life?  So you don't leave free money on the table.  And to decrease the discipline required to make the plan work.

A cash flow plan becomes more important if you may be subject to longevity risk (outliving your money).  I suggest you use this calculator at Life Expectancy  I took the questionnaire and my life expectancy is 88, higher than I imagined.  For benefit timing strategies under current law, the break even age for delaying Social Security averages 8-12 years at age 70.  In other words, if your life expectancy is longer than 78-82 then you should prepare for benefit timing strategies.

"Can you give us an example about why and how a 50 yr. old would need to start Social Security planning?" you wisely ask.  I'm glad you asked.  Sure.  I wish I had the skill to show this graphically.

Assumptions:

1. Current age 50
2. Life expectancy is 85
3. Expected budget at planned retirement age of 65 is $5000/mo. in today's dollars
4. Expected retirement year budget inflated at 3.3%/yr.:  $8137/mo.
5. Social Security break even age is 78.  This means that by waiting until 70 to turn on Social Security, your delayed retirement credits will have increased your benefit by 24%. So by 78, the income that you lost by waiting is fully recovered.  After that, you're money ahead.
6. Expected guaranteed income at 65:  $5000/mo.
7. Income gap at 65:  $3137/mo. (8137 - 5000).  And let's assume Social Security will make up that gap at 70.
8. Total funding shortfall, with inflation, age 65-70:  $201,059.

So here would be my plan:

1. Set aside enough per month (including any employer matching, if applicable), before tax to accumulate the $201,059.  At 6% APR, this would require about $691/mo.  Use a true target date fund with at least quarterly automatic rebalancing.
2. At 65, roll this into an IRA annuity that guarantees the inflation adjusting $3137/mo. you'll need at 65.  This way you avoid sequence of returns risk.  You will also be spending down taxable money at a low tax bracket.
3. Save as much as you can in after tax vehicles like Roth IRAs, Roth 401(k)s, real estate, that may give you tax-free income beyond age 70, which will likely be your highest tax bracket years.

Every detail here depends on individual circumstances, ever changing tax regulations and many other factors.

Your Constructive Comments are Welcome!

Congress is Gutting Social Security Benefits!!

By now it seems to be common knowledge that Congress is intent on "fixing" the Social Security "loopholes" created by themselves with the obnoxiously titled "Senior Citizens' Freedom to Work Act of 2000" (what we really need is a bill titled "Congressional Freedom to Resign Act of 2016").
The "Bipartisan Kumbaya* Budget Act of 2015" aims to eliminate benefit timing strategies** for married couples.  The reasoning is essentially two-fold (1) It is primarily the "wealthy" who take advantage of these strategies.  Therefore eliminating them won't hurt the poor.  And (2) This needs to be done to protect the solvency of Social Security.  Here are my random thoughts about that reasoning:

• If regulations allowed Social Security employees to demonstrate timing options to new beneficiaries, more lower income folks would probably take advantage of them.  The issue isn't wealth as much as it is which people are able to get expert advice.
• I've ceased being amazed at how easily so-called business & public policy experts sidestep the revenue half of the Social Security equation.  If they were on the board of a private corporation and budget shortfalls loomed, they would be asking "How can we increase revenue?"
• Social Security is not part of the budget!  It is a separate insurance program funded separately by separate payments from workers.  Separate.  If they're seeking budget solutions, they should be looking at the budget.

The title of this post Congress is Gutting Social Security Benefits!! is a myth because the new provisions are more like a slap to the face of retirees than a genuine evisceration.  The key is, this law is not in effect for six months.  There is still time to appeal to your Senators and Representatives to truly enhance Social Security.

Your Constructive Comments are Welcome!

*Just kidding.  The term "Bipartisan" is an attempt to imply a nonexistent legislative hug fest.  Title VIII of the act will be magnanimously named the "Social Security Benefit Protection and Opportunity Enhancement Act of 2015".  I'm not making that up.  I'll go through the details of Title VIII in another post.
**Most notably, the rather terse Subtitle C, Sec. 831 "Closure of Unintended Loopholes".

12 Worst Financial Advisers in America

Sadly, this heading is not a myth.  Thank you to Producer's Web for compiling this list, not to be cynical, but to be instructive in paying attention to danger signals.

http://www.producersweb.com/r/pwebmc/d/contentFocus/?pcID=a8153d49783e8261086671c87cc329c8&pn=1


Your Constructive Comments are Welcome!

You Should Always Name a Family Member as Your Personal Representative**

Until a recent death in the family abruptly dragged me into the executor/executrix ("Personal Representative" in Oregon) world, I had no clue how humongous and complex a job you assign to someone by making them your Personal Representative in your will. ORS 114 gives you a pretty good idea.

I did not know, for example, a Personal Representative must comply with these two requirements:

1. You are required to hire an attorney
2. As of 2/2/2015 you are required to take a "Non-Professional Fiduciary Education & Training" course within 60 days of being appointed as Personal Representative by the court.

And there's more.  As Personal Representative:

• You must immediately take possession of all decedent's assets & file an inventory- including estimated values -with the court within 60 days.  This may not be a fun job if significant property is on "loan" to friends or family.
• You must not commingle the decedent's assets with your own or anybody else's.  So don't transfer that bank account to yourself just yet (unless you are a TOD beneficiary).
• You cannot loan estate money to anyone without the court's approval.  And never to yourself.
• You must set up a separate checking account in the name of the estate & keep detailed records of every deposit and disbursement
• If you pay certain documented estate expenses out of your own pocket, such as funeral expenses, you may reimburse yourself from the estate.  If you were owed money by the decedent, you can't pay yourself without written permission from the court.
• You can't give estate property to anyone without permission from the court.
• You have the authority to ""discontinue and wind up any business or venture in which the decedent was engaged at the time of death" (114.305(23).  Since your primary obligation is to preserve and enhance the value of the estate, what if you unwittingly unwind a profitable venture that might continue adding cashflow to an estate?

Having dug deeper into the role of Personal Representative, I recommend that you:

• Give careful thought about who you know that can be trusted, competent and willing to go through all this.
• Possibly designate a lawyer and/or other professionals (CPA, investment adviser, realtor) to work with your Personal Representative.

Your Constructive Comments are Welcome!

**The furthest intention of this post is to be legal advice.  It is not, nor intended to be.  It is no more than the conveyance of the author's personal experience and layman's view of the ORS.  Consult with your estate planning attorney in all such matters.

Why the Fed Won't Raise Interest Rates This Week, But Who Would Win If They Did

Before we step into this Alice-In-Wonderlandish warehouse of paranoia and mystery, I'll give my opinion on the second topic in this post title, which is not a myth by the way.  So far.

Who wins when the Federal Reserve raises the short term rate it charges banks?  (And that's an important point; the Fed doesn't- and can't -alter the rate you pay on your mortgage, credit cards or car loan.  It can only raise the overnight rate banks earn or pay, as the case may be, on their surplus or short balances.  The current rate is 0.25%.).  Historically, and oddly, big banks, brokerages and insurance companies win when short term rates rise.  Suppose the Fed triples the Fed fund rate from 0.25% to 0.75%.  Although still essentially zero, borrowers become psychologically fertile for similar rate increases.  "Oh, the Fed tripled interest rates!  But my bank only raised my credit card rate from 8% to 12%.  Lucky me".  So rather than suffering from an increase in short term rates, the big lenders actually cash in.  That's my theory, anyway, and that's why I think there is substantial pressure from that community on the Fed to raise its rate.

Theoretically the Fed only raises rates in the face of an improving economy to moderate the effects of inflation.  We don't really have an improving economy.  And we certainly wouldn't have one if the cost of capital increases right now.  So no rate increase this week.

Your Constructive Comments are Welcome!

There is One Best Trick for Maximizing Social Security Benefits

Do you get a lot of emails with the words "trick", "weird" "secret", "epic" and so on to the ends of hyperbole & hubris?  I do.  So I remind you again that the title of this blog- like all my titles -is a big, fat MYTH.  There are two moving parts to Social Security benefit optimization:

1. Social Security regulations, and,
2. Your life

And the most important part of that equation is Your Life, more specifically:

• Your age
•   
• Your marital status
• 
• Your current and future budget
• 
• Your past, current and future income sources
• How long and how much you expect to keep working
• 
• Your current health & genetic health history
• 

Social Security is an important but relatively small puzzle piece.  It's worth a $25, ninety minute class and a free hour with me to be sure you have an unbiased and holistic picture of your future.

Register Now!

Your Constructive Comments are Welcome!

The Best Annuities are Always the Best

Barrons magazine regularly publishes their "The Best Annuities" article but without the most important caveat:  these products vary wildly state by state, even if they have the same name.  Different states allow- or require -varying policy provisions.  Oregon is one of the most strict; if bonus, guaranteed rate or other contract provisions appear too generous to be supported by the company's long term financial outlook, the Oregon Dept. of Insurance will make the annuity company change those provisions.  As a result, national publications can be a misleading source of comparisons.  "The Best" must be compared in each state.
However, the article is close.  Indeed, for guaranteed income, Allianz, American Equity and American General (AIG) are the current income kings and I use them almost exclusively.  The table in the article is inaccurate.  For most retirement age brackets, AIG trumps the others.  Which is another caveat:  contract provisions vary by age and gender too!  So the only solution is to have someone like me do a market comparison for you.

Gary


Your Constructive Comments are Welcome!

Sometimes The Best Action is Inaction

This is one of those interesting post titles that is both true and a myth, depending on who is reading it.  Hence the danger of mass financial advice directed at the "average person".
 
As a fan of Vanguard and it's founder, John Bogle, I want to share their recent timely article on market volatility.  And I also must add my caveat about rules of thumb and averages.  Here's the link to their three "Rules", which I'll summarize and supplement below:
https://personal.vanguard.com/us/insights/article/market-volatility-082015

Rule #1- Recognize that volatility and periodic corrections are common in equity markets.  You'd have to be Rip VanWinkle to not be aware of this rule.  Most of us are painfully recognizant of the roller coaster ride.  And I would add bond markets too because as we saw in 2009 they are no longer the safe hedge against equity risk.  Hell, any market these days, whether it's real estate or precious metals, is volatile because of the craziness with which investors are chasing returns.

Rule #2- Tune out the noise and remove emotion from investing.  I'm on board with this.  The two most common- and destructive -investor motivators are (1)Fear and (2)Greed.  A realistic, well conceived Cash Flow Plan should be primary.  As an adviser who constantly seeks to understand what has happened and will happen in the markets, I'm weary of all the retroactive blather from my colleagues claiming to explain the past while failing to predict the future.  So yes, tune out the noise.
But I also believe emotions must be taken into account.  Life is more than a math problem.  It is more than just getting as much as you can.  It is more than a fancy pie chart.  A good adviser will use a process to ferret out and give shape to clients' true feelings about their situation and the future and then build a plan accordingly.  The goal should be to feel safer and happier!

Rule #3- Make volatility work for you.  This rule appears to be directed at younger investors who have time to dollar cost average into the market.  At least it had better be, because for the retiree drawing down assets, volatility is a retirement killer due to sequence of returns risk.  To apply this rule to retirees it should be stated as "Keep volatility from destroying you".  Here's the difference and how to avoid getting stung by volatility in both cases:

• Dollar cost averaging for Accumulators- By investing the same fixed amount every month, volatility becomes your buddy.  When, for example, a fund costs $100/share this month and you are investing $500/mo. you'll buy 5 shares this month.  But if the fund price drops to $50 next month, hurray!  You buy 10 of the now cheaper shares.  If the price then rises to $250 three months from now, you only buy 2 shares.  So dollar cost averaging neutralizes the two destructive investor emotions, fear and greed, by making you act counter to your intuition:  when shares increase you buy fewer, when they decrease you buy more.  Dollar cost averaging alone can increase your returns 30% or more over the long term.  But, there is . . .
• Sequence of Returns risk for Decumulators- On the other hand, if you are decumulating you need to adopt the opposite tactic.  Instead of a fixed dollar amount you should withdraw only a fixed percentage of your total assets.  That way when the market is down your withdrawals will be less, when it's up you can take out more or- better yet -leave more in the market for further growth.  Why this is important:  Imagine a 57% decline in your retirement account in the same year that you've also taken out 5% to meet your budget.  To recover, you would need a 263% rate of return the following year!  Which is impossible.  This is why losses in the early years of retirement must be avoided, unless you have excess assets you can leave untouched for at least 10 years.  Unnlike Vanguard's "inaction plan", in this case it is absolutely not "okay to ignore volatility".

Your Constructive Comments are Welcome!

RELAX, IRS has eliminated Fraud

Wish this was true, but it's yet another Financial Myth.  You can read the whole article here, or, my abridged version below.
http://www.irs.gov/uac/Newsroom/IRS-Warns-Taxpayers-to-Guard-Against-New-Tricks-by-Scam-Artists

It's good to know the 5 things IRS will not do:

• Angrily demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
• Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Require you to use a specific payment method for your taxes, such as a prepaid debit card.
• Ask for credit or debit card numbers over the phone.

If someone attempts to fool you in this manner, immediately turn them in at http://apps.irs.gov/app/scripts/exit.jsp?dest=https://www.treasury.gov/tigta/contact_report_scam.shtml

Best Always,

Gary
Your Constructive Comments are Welcome!

Trees Grow to Outer Space

Well, trees don't grow to outer space.  Isn't that strange?  Why not?  Well, if you've ever tried sucking a soda up a 50 foot straw you'll see why; there is too much mass to escape the inexorable pull of gravity.  The only way giant Sequoias reach record heights is if they break off or get struck by lightening, thereby allowing water to pool in the cavity.  We find nothing odd about the fact that trees only grow to limited heights.
Conversely, we expect all things human to barrel forward and upward forever.  A good example is the economy.  In particular, one measure of it:  The stock market.  Although not a physical thing like a tree the markets are, nevertheless, subject to forces beyond our control, and "rules" beyond our perception.
Jeremy Grantham, founder of GMO funds (Grantham Mayo van Otterloo, nothing to do with genes) describes a case in point.  I quote:

What the past 25 years has done in the form of an overly inflated P/E ratio requires a 57% decline to revert or “normalize” the market’s key ratio and revert to the historic average that was present prior to Greenspan.

Grantham points out that 80% of executive comp. is stock options vs. 20% 30 years ago.  What awful incentives.  It's easier and less risky "for management to use corporate cash for stock buybacks".  They get the greatest reward for creating nothing!  Why spend money on R&D, plant and equipment when you can boost your own stock- and your own pay -by buying it up with stockholder cash?  I believe this profligate behavior will soon come back to bite us all.

The Affordable Care Act will destroy businesses

Will the Affordable Care Act destroy businesses?  Has it destroyed businesses?

Well, no.  In exchange for putting up with some new reporting requirements, most small employers should see lower premiums, healthier & happier employees and better bottom lines.  To learn more, see the following webinars conducted by IRS:
[webinars have been conducted already.]

Your Constructive Comments are Welcome!

HEALING OR STEALING

I've always been a fan of Paul Hawken due to his gentle but indefatigable spirit, in addition to his brilliant creativity.  You may know him from Smith & Hawken yard and garden products.  Or the Rocky Mountain Institute.  Or his fact-filled encouraging environmental thesis, "Natural Capitalism"  He spoke years ago at my alma mater, Willamette University, about the thousands of organizations working around the globe for healing purposes and how they would eventually triumph over the "stealers".
So when I found his commencement address to U of P's class of 2009, I was excited and wanted to share it with you.  My favorite quote from the address:

When asked if I am pessimistic or optimistic about the future, my answer is always the same: If you look at the science about what is happening on earth and aren’t pessimistic, you don’t understand the data. But if you meet the people who are working to restore this earth and the lives of the poor, and you aren’t optimistic, you haven’t got a pulse.

It is not only possible to invest in and conduct business in ways that heal one another and our surroundings, it is the only truly profitable way.

Your Constructive Comments are Welcome!

Financial Abuse of Seniors Isn't Really a Problem

I want to remind you again, especially with this title, that the titles of these posts are myths.

A recent article in Financial Planning Magazine detailed the red flags that regulators look for to catch and prevent financial abuse of seniors.  Here they are, summarized by me:

• Taking too much risk with the senior client's money & income.
• "Churning" the account, that is, excessive trading for the purpose of generating fees and commissions.
• Exaggerating benefits and/or falsely minimizing risks
• Failure to disclose fees.  I would also add, failure to justify them.
• Offering "forbidden" inappropriately risky, expensive or complex products to older clients.  Elder law attorney Carolyn Rosenblatt mentions non-traded Real Estate Investment Trusts (REITs) and variable annuities.
• Failure to include- or even consider -family members in recommendations

In my experience, the worst offenses I've come across with new clients are all of the above.

Your Constructive Comments are Welcome!

Seniors Don't Need Help With or Protection From Fraud & Abuse

It seems necessary to again remind you that these blog titles are myths, they are not true.  This one is especially not true.  Which is why I just love this new website:
http://www.justice.gov/elderjustice/

If you plug in your zip code, up pops a table of local resources for getting help and turning in crooks and abusers.  Elder abuse ranks way up there in the top sickest of crimes.  I don't understand it.  With the same amount of effort one could earn an honest living . . . and get to keep the income and stay out of jail as well.  I welcome any and all available tools to foil these awful people.  Please help by propagating this website.



Your Constructive Comments are Welcome!

Christian Financial Planning

The title of this post asserts nothing so it is more of a contradiction than a myth.

I know. I'm tugging on the tail of a hungry & rather grouchy lion. But this blog is intended to be controversial and challenging.  What could be more controversial and challenging than religion and money?  Case in point is "Christian" financial planning.

What is  "Christian" financial planning?  Oddly, none of the "Christian" financial planning websites I visited even mentioned Jesus.  Perhaps it was because Jesus' financial plan was quite clear:  Sell everything and give it to the poor (Matthew 19:21).  And then there's Jesus' metaphor of a camel trying to go through the eye of a needle having better odds than a rich man attempting to enter Heaven (Matt. 19:24). Not being a Biblical literalist- since I can't read Hebrew, Aramaic or Greek -from everything else I've read about him, I think Jesus was referring to attachment to or obsession with or love of money (or any other ego attachments for that matter) not just the mere possession of wealth. 

Here is the key point:  without emotional attachment to material wealth, you would indeed gain more happiness by relieving suffering, by giving, than from amassing and clinging to wealth.  (How contrary to the sadistic, stingy behavior so common in some supposedly religious circles today, no?)  Hence the camel metaphor. [Some scholars suspect a mistranslation- remember, this was an oral history -that instead of "camel" (kamilos) the Greek word was "kamelos" or rope. The metaphor still gets the idea across as neither rope nor camel will fit through the eye of a needle.  BTW, there is no scholarly basis for interpreting "needle" to mean "doorway", as the tour guides may tell you.] So is it unreasonable to ask this?:  Why would a "Christian" financial planner do his clients the massive disservice of encouraging attachment to wealth, thereby preventing their entry into Heaven?  (To be fair, several of the websites did emphasize the tax advantages of charitable giving.)

Here is where the grand contradiction occurs:  Self-labeling as "Christian financial planner" is meant to imply "Hey, you can trust me without knowing anything else about me!". But then, every Christian financial planning website I've reviewed reverts to mostly Old Testament "Biblical financial principles". That way they don't have to deal with Christ's rather simple wealth redistribution plan for which their services would be unnecessary.

Anyway, even if you use a "Biblical" financial adviser, insist on these basics:

1. A holistic approach.  A good planner will ask lots of questions and deal with you as a whole person, not just as an investor or product consumer.  
2. Unbiased advice, meaning driven by evidence and reason rather than production quotas.  Please base your trust on evidence and understanding, not warm & fuzzy buzzwords.
3. A legal fiduciary who must put your best interests first, ahead of his own and his firm's.  Ask a lot of questions too, and assume nothing.

Your Constructive Comments are Welcome!

Corporate Sovereignty is Under Attack!

It is Good Friday indeed.  I am glad to say that the title of this post is true.  And none too soon.  When corporate sovereignty exceeds human integrity, then it is grossly out of balance.  Since when should paper fabrications have more influence than living things?  Shall we hazard a guess and say , "Never"?

This week the Securities and Exchange Commission fined KBR Inc. $130,000 for violation of an important provision of Dodd-Frank, Rule 21F-17:

"According to the SEC, KBR required witnesses in certain internal investigations and interviews to sign confidentiality statements with language warning that they could face discipline and even be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department."

Such a ridiculously piddling fine no doubt got a yawn from KBR, which was the number one recipient of mostly no-bid contracts in the illegal "war" in Iraq, to the tune of $39.5 billion.   However, the more important effect will be less suppression by all companies of whistleblowers nationwide.  These out-of-control behemoths would not survive without pillaging the Treasury, trampling competitors (through illegal restraint of trade & collusion, to name two of hundreds of ways).  So they should at the very least be forced to comply with federal & local regulations.

Is your employer breaking the law?  Or trying to make you do so?  Then turn 'em in to the appropriate regulatory and/or law enforcement agencies.  Help level the playing field for the rest of us who manage to make a living honestly.  The SEC just opened their doors a little wider for you.


Your Constructive Comments are Welcome!

Top Financial Frauds for 2014 to avoid in 2015

I wish this were a myth, but there will always be misguided people who prey on the hopes and fears of the gullible, not realizing that with the same or less effort they could make an honest living!  On the State level here are the most pernicious frauds being perpetrated here in Oregon:
http://www.doj.state.or.us/releases/pdf/2014_top_ten_complaint_list.pdf

The list includes, unfortunately, 95 investment related complaints.  Which is fewer complaints than cable TV companies received.  Which I suppose is a good sign.
The most common of these frauds are Pyramid Schemes, which peter out when there are finally too many existing participants to support by ripping off new participants:

Pyramid Schemes* 

Illegal pyramids typically involve a few people at the top who get their friends and relatives to give them money in return for the chance to recruit more participants. These scams are called "pyramids" because they depend on an ever-increasing supply of willing participants. Pyramids inevitably collapse because it is impossible to recruit enough people to support the scam. 

*Courtesy of the Oregon Dept. of Justice.

Your Constructive Comments are Welcome!

For the Most Important Issues, IRS Will Call You Directly To Preserve Your Privacy

Once again, the title of this post is a MYTH.  IRS doesn't call you or email you, they send letters.  Or, agents!  Email and phone scams are the primary focus of IRS's 2015 "Dirty Dozen" scams list.  Here they are verbatim.  Each scam is followed by a link to even more details.  If you do get contacted like this, check with somebody before you do or say anything!  Call me.  Call your CPA.  Call the Consumer Protection Section of the Oregon Dept. of Justice:  877-877-9392.  Crooks use these strategies because they work.

• Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season. (IR-2015-5)
  
  
• Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information. (IR-2015-6)
  
  
• Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. (IR-2015-7)
  
  
• Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns. (IR-2015-8)
  
  
• Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order. (IR-2015-09)
  

• Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims. (IR-2015-12)
  
  
• Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations. (IR-2015-16)
  
  
• Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns. (IR-2015-18)
  
  
• Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2015-19)
  
  
• Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return. (IR-2015-20)

• Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds. (IR-2015-21)
  
  
• Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2015-23)

Additional information about tax scams is available on IRS social media sites, including YouTube http://www.youtube.com/irsvideos and Tumblr http://internalrevenueservice.tumblr.com, where people can search “scam” to find all the scam-related posts.

Your Constructive Comments are Welcome!

Does "The Hand We're Dealt" Matter?

In a long but worthwhile interview of sociologist Dalton Conley (by Ariane Conrad) in The Sun magazine it becomes clear that Conley is Ayn Randian in only one aspect:  he questions his assumptions (unlike Ayn Rand herself and the disciples she admonished to do so).
Having spent his childhood as a (white) minority in a New York housing project Conley has the creds to postulate "why some people get ahead and others fall behind".  His conclusion:

"Only two measurable socioeconomic aspects of the parents really matter in predicting who succeeds: the parents’ education, which is the most important, and the family’s wealth, which is the second most important. By “wealth” I don’t mean how much the parents make a year. I mean net worth, including savings, property, and other financial resources."

My takeaway is that a healthy society would want all of its members to get ahead socially, financially, and physically because the beneficial effects are pervasive and compounded.    A sick society thinks life is a zero sum game with the already powerful lavishing rewards upon rewards upon rewards upon themselves at the expense of the rest of the society & The Commons.  The resulting negative effects of which are also pervasive and compounded.

This is why I support the following macroeconomic policies:

1. Universal single payer healthcare
2. Free education for anyone with the ability and work ethic, all the way through graduate school, including law and medicine
3. Elimination of for-profit home financing.  If banks can borrow money at near zero interest then homeowners should be able to as well
4. Reversal of the legal precedents granting personhood to corporations and equating money with speech

Your Constructive Comments are Welcome!

Investors Should Only Read Materials That Give Them Happy Thoughts

This happy-thought rule unfortunately is an indicator of a Ponzi scheme or cult, this admonition to only be "positive" and avoid "negative" thoughts.

To tell you the truth, I don't even know what that means.  Who determines what's "positive" or "negative"?  As real estate mogul & guru John T. Reed has said, (if I may paraphrase) "I don't care if information is pessimistic or optimistic.  I only care that it's accurate."  I agree.  Do you really want to filter out all displeasing information?  At your peril.

Suppose I'm driving down the highway and you are my passenger.  Up ahead, you see a large wooden box that has fallen off a truck into our lane.  Is it "negative" for you to point that out to me?  Certainly.  But not nearly as negative as crashing into the box.  It would be accurate for you to say, "Look out!  There's a box in the road!".  It would also be accurate for me to decide that it would be better to avoid that box than to smash into it.  It would be no time for smarmy value judgments or magical thinking like "Think positive and the box will disappear!".

Which is why you should write your Congressional representatives and insist they support FINRA's** "CARDS" program.  CARDS stands for "Comprehensive Automated Risk Data System", the main purpose of which is to catch crooks in the act, in real time, instead of years later.  Naturally, the financial industry says CARDS would be "burdensome" (it wouldn't) and jeopardize investor privacy (wrong again).  What it would actually jeopardize is Wall Street's insider profiteering at investor expense.
It is good enough for me that the Consumer Federation of America* supports the CARDS proposal.  Don't believe the fear mongering from the brokerage community.  CARDS will level the playing field back in the direction of you and me.  After all, if we're going to spy on people, why not spy on those who handle other people's money?







** Financial Industry Regulatory Authority
*An association of hundreds of pro-consumer groups

My Classes are just like "Rich Dad" Superstar Robert Kiyosaki's.

ALERT:  The title of this post is a MYTH.

My Retirement Planning Success classes are nothing like the infamous Rich Dad, Poor Dad author and entrepeneur's.  In addition to my never having declared bankruptcy  (twice)-or in any other way stiffed anyone on a debt- here are the differences between my Richness of Life classes and Rich Dad Education:

1. My classes are not hook, line and sinker come-ons to sell you on ever more expensive classes and materials, preying on that greatest (and most exploited) of human tendencies:  hope.  My class materials are based on academic research.  As Helaine Olen wrote in Forbes, Rich Dad "tips ran the gamut from ridiculous to illegal and downright hurtful and included advocating for insider trading, . . . purchase of multiple real estate properties with little or no money down and telling followers they could purchase stocks on margin via unfunded brokerage accounts"
2. My net worth doesn't come from the money you pay for my classes.  In fact, your tuition doesn't even cover my costs.  In contrast, most of Kiyosaki's $80 mil. net worth came right out of the pockets of his now much poorer students.
3. The information and strategies I teach are not secret, magical, exclusive or exciting.  They are tried and true, boring, and methodical.  They are widely available online and in print.  So why come to a class?  Because I've sorted through all the chaff for you.  Because when you're done with my class and our one-hour strategy session, you will have a clear picture of where you are and where you're going.  And where you can go in retirement.
4. Again, from Forbes "No one has ever proven that Rich Dad, the man who supposedly gave Kiyosaki all his advice for wealthy living, ever existed".  The researchers and academics I use all exist.  I give you their names and websites.  
5. I give you everything I have upfront in the 6 hour course.  No need to enroll in progressively more expensive "workshops" which have cost up to $45,000 with Rich Dad.  If you need individual work and a customized plan, we execute a professional contract on an hourly basis with definite costs and benefits spelled out.
6. I am a legal fiduciary.  I have to demonstrate that my recommendations are in your best interests without regard to mine.

So that's enough.  Though, it still astounds me how people pursue the appearance of advisors' financial stability (fancy offices, $1000 suits, expensive cars, Vogue-ish secretaries) without asking, "Who is really paying for all that?"  You are.

Best Wishes for a successful New Year.

Gary

Myth: "Socialism" curtails our freedoms

Do I even dare go here? Can't resist.
First, let's set the stage for the recent revival and use of the terms "socialist" and "socialism". Here are the elements:
1. An American population whose every shifting thought, feeling, belief and behavior has been analyzed and cataloged by a gargantuan corporate marketing machine.
2. Since the 50's this information has been exploited to inject into all of us a deep sense of inadequacy, longing and discontent paired with artificial external "solutions" (aka mindless consumption of goods and services).
3. Because government is and has been the only referee in this game, corporate marketers have every motivation to bribe or sabotage the referees.
4. So they portray government agencies as the source of the very discontent which they themselves have sown upon us!
5. Hence their propagation of that incendiary but obtusely overused word, "socialism", in talking about "government".

What percent of folks who use the socialism label do you think have actually looked up the definition? I would guess close to zero, based on the facile arguments that include it. I'm not going to get into it in this blog. Please see the excellent discussion at: http://en.wikipedia.org/wiki/Socialism
Can we agree on just one thing?: That it makes sense to maximize the efficiency and effectiveness of our means of production and allocation of resources.  How could anyone argue against that guideline?  Am I being unreasonable?

No single system will be the best at doing this in all cases at all times. As Blackwater (the mercenaries in the Middle East who massively botched the job) has demonstrated, a private sector military just does not work.  Self-regulation by the financial sector does not work.  Corporate prisons do not work.  Self-management of pollution by the polluters does not work (might as well have prison inmates managing their incarceration).  The private sector also gets a D- grade for its dismal investment in essential infrastructure like roads, bridges, communications networks, schools, water quality, air quality, soil & food quality, research & development.  We should be using an evidence-based approach to decide which type of system works in each situation.

Maximizing the efficiency and effectiveness of our means of production and allocation of resources requires a broad view, adherence to scientific principles, consensus on paths of action, and discipline to be sure everyone does his part and is rewarded for doing so.  Call it what you like- mass co-operative ventures, government, socialism, etc. -these types of large scale long-term collaboration are essential to a free and civilized society.  Which may be why we don't have one.

Civilized societies don't wage perpetual war.  Civilized societies don't let their members die or go bankrupt for lack of health care.  Civilized societies don't prey on their children to satisfy prurient urges and corporate bottom lines.  Civilized societies don't allow some of their members to poison others in the name of profits.  Civilized societies don't revel in imposing ignorance and deception upon their citizens.

So let's keep the debate at the level where it belongs- efficiency and effectiveness of public policy -and abandon the tossing about of uselessly labeled stereotypes like "socialist" or "free-market".

I Understand Mass Media

The truth is, I surely don't understand mass media.
  
For example, in all the years since I've been publishing this blog, the only post that generated hate mail- and also the highest number of page views -was my post "Myth- Studded Snow Tires Are the Safest".  Based on personal experience as well as lots of research, my opinion hasn't changed.  The preponderance of the evidence tells me the safest Winter tire for Oregon weather is the studless tire, such as Blizzak or Ice-x.   I drove up to Timberline lodge on fresh unsanded black ice with a Subaru & Blizzaks.  It was like driving on dry pavement.  I was actually disappointed at the lack of Winter driving skill required.  I have no idea why this post would generate the most interest and vitriol.

The next most frequently read posts involved Wall Street "guru" Ken Fisher, most notably "Ken Fisher Part II, Debunking 'Debunkery'"  a critique of his massive tome by that name.  I suspect most of the readers work for- or are considering working for -Fisher Investments.  The upshot is that the book is a dangerous blend of truth and falsehood (and I'm not saying the former is accidental nor that the latter is intentional).

Fisher's most glaring error is his claim that the subaccounts in Variable Annuities are only as sound as the financial strength of the annuity company.  Not true.  That's why those accounts are called "subaccounts" or "separate accounts".  This is not the only case of conflation of expensive, risky variable annuities with other safer varieties.

"Ten Things Life Insurance Agents Won't Say"- Thing #10: "Our Long Term Care Coverage Isn't So Great (for you or us)"

#10:   "Our Long Term Care Coverage Isn't So Great (for you or us)"  IS LAST IN MY SERIES OF RESPONSES TO "10 THINGS LIFE INSURANCE AGENTS WON'T SAY" BY DANIEL GOLDSTEIN "PERSONAL FINANCE REPORTER" FOR MARKETWATCH.

I guess Mr. Goldstein ran out of fabrications for life insurance agents & is shifting to long term care insurance (LTCi) agents.  And "shifting" is the key word:  remember thing #1, Americans are buying too much life insurance?  Now we shift to the exact opposite criticism, the supposed rotten thing about LTCi is that Americans aren't buying enough of it.  Why would that be?

I suspect it is not being properly structured by the agent.  In the old days I always recommended lifetime coverage because of the utterly financially devastating possibility of being on claim for 20 years.  Now, lifetime coverage is literally unaffordable in most budgets.  Plus, the average nursing home stay has fallen dramatically from 3.5 years to 13 months.  (Key caveat:  "Average" applies to no one.)  Here are the most important pieces to build an adequate, affordable LTCi plan:

• Compliance with your State's Partnership Program, the two main features of which are:
• Inflation protection is required (depending on age group)
• Enhanced asset protection- in a nutshell, to the extent you collect benefits from private LTCi, your asset thresholds to qualify for Medicaid, and for exemption from Medicaid recovery after you die, are increased.
• Partner or Spousal discounts.  Companies recognize that insureds who don't live alone will need less care.
• No more than a 5 year benefit period.  This will cover the Medicaid look-back period for transfer of assets.
• At least a 90-day Elimination period, the length of time you must wait- after going on claim -for benefits to begin.  If you can't afford to fund your first 90 days of expenses then you probably can't afford LTCi.
• A Cash benefit.  Most LTCi policies are indemnity plans;  they reimburse you for expenses incurred.  Cash benefits, on the other hand, are triggered by your poor health, whether you've incurred expenses or not.  This is a welcome benefit to help you through the 90-day elimination and to pay for excluded expenses.
• Finally, if you can afford it, a "limited pay" policy, which is paid up in 10 years or less.  An endangered species, limited pay LTCi is really expensive.  But it's bulletproof protection from future rate increases.  Because of the cost, hardly anyone does this outside of an executive benefits package.

If LTCi still has no room in your budget, there are great asset-based alternatives that don't impact your budget at all.