History on Social Security

From 1800 to 1929 Americans lived through 23 recessions and 4 depressions, or one every 4.8 years. After the depressions in 1929 more people began to look to the government for assistance.

In 1930 Senator Huey Long of Louisiana proposed a program called “Share the Wealth”. Here the Federal Government would “confiscate” the wealth of the nation’s rich to “guarantee” an annual income of $5,000 to every family ($5,000 in 1930 equates to $69,000 today)… Sad part of this sick idea is that once you take all the wealth from the top earners… where will the government get the money for this program in ensuing years? Duh! The whole thing sounds very Marxist!

In 1932, FDR imposed a massive government expansion focused on the “Three R’s” … relief for the poor, recovery for the economy and reform of the financial system (sounds a lot like Obama’s proposals). There were cries from Congress of socialism as it was pushed and rushed through Congress with debates over the constitutionality of the program (sounds just like the show during Obama Care). Ah, the more things change… the more they stay the same!

FDR responded to these delays by grabbing new presidential authority out of the hands of Congress, including appointing new judges he wanted in districts where the judges refused to retire. He appointed 44 lower court judges and six new justices to the Supreme Court which tipped the political scales in his favor.

FDR then resent the “Social Security” and New Deal program to the Supreme Court where it was approved. Congress is allowed to collect taxes for the “general welfare of the United State”. Hence the contributions by employees and employers were considered a tax, thus, making it constitutional. A crafty piece of illusion and similar to the court ruling on Obama Care.

Withholding History

    In the first twelve years of the program a 1% tax was withheld from employers and employees. In 1950 the rate began to rise until it peaked at 6.2% in 1990. In 1965 Medicare was added in to the program with 0.35% tax for both sides. Presently, each side contributes 7.65% for a total of 15.3% of wages.

Mortality History

    A major threat to the viability of Social Security in the increase in American’s longevity. Back in 1940 a 65 year old male had a life expectancy of 12.7 years (to age 77.7). A female could live to 79.7 years. A study in 2009 showed a 65 male can expect to live to 82.5 years and a female to 85.2 years. So the payout period is lasting longer. The improvement in mortality comes about by socioeconomic status. Thus upper income earners enjoy a longer life expectancy as well as improvement in longevity. The affluent have better access to health care, do not participate in excess use of illegal drugs, alcohol and nicotine products. Also, they tend to be more forward looking and goal oriented resulting in a healthier life style.
    Taxation of Social Security

    Prior to 1984 Social Security benefits were exempt from federal income taxes. In 1984 as much as 50% of one’s benefits became subject to tax. In 1993 a new 85% level was added.

    The amount that is taxed is based on the person’s filing status and modified adjusted gross income (MAGI) also known as provisional income. The thresholds are: (1) No amount of Social Security being taxed, (2) 50% being taxed or (3) 85% being taxed. These thresholds were established years ago and are NOT indexed for inflation. This simply means more people each day are being trapped at 85% subject to tax.

If you would like to learn more about how to double your Social Security benefits while reducing your retirement taxes by more than 80% … watch my YouTube video and then request your free report. https://www.youtube.com/watch?v=ZFnxHDuyNb

Providers Pursue Kids for Parent’s LTC Costs

In 1994 the Pennsylvania Superior Court ruled that an indigent mother could sue her adult son to pay her overdue nursing home bill. Ever since that ruling came down it has lit a fuse for filial support litigation and is spreading across the country.

In 28 states filial support laws are on the books and being set up in other states. It establishes a legal precedent of financial responsibility among family members for the expenses incurred by a loved one for health care or long term care. Other states are jumping on the band wagon via statutory precedents.

The Omnibus Budget Reconciliation Act of 1993, signed by Bill Clinton, allowed Medicaid and state agencies a legal way to collect from families. It allows these agencies to collect back funds they have expended from families if they discover the families have assets available.

Technically, before Medicaid kicks in your must liquidate and spend down all your assets including any cash value in a life policy and spend it on health or long term care before Medicaid pays for anything.

If you did not disclose and use up your assets first and Medicaid discovers you did not, it will sue you to get their money back. They are desperate for money so they have set up teams to find your money. Even after you die and your family collects the death benefit on your life insurance, Medicaid can and will sue the family memebers in probate court. It does not matter if the family intentionally or accidentally deceived Medicaid. This is true for any and all assets may have had.

If that method does not work then the states can use a “theory of fiduciary obligation”. Thus if a loved one has been given a power of attorney then they can be held personally liable for any unpaid bills of the deceased person.

There are countless cases too numerous to list here. It is a real and present danger for your finances.

    (1) If one goes into a nursing home then spell out who is financially responsible and have regular accounting.
    (2) Plan ahead. Purchase long term care insurance. (LTC) If it is too expensive there are superb alternatives that are multi faceted and lower in cost. See you Certified Financial Planner.
    (3) Kids can protect themselves by paying for and insuring their parents with LTC insurance or the alternative in #2.
    (4) Employer group LTC multi life plans provide discounts for family members including parents.
    (5) Family conversation with your Certified Financial Planner to map out a strategy. Referrals to elder care attorneys and geriatric- care managers can also help.

Lawyers are reaching out for class action opportunities and contacting nursing homes and home health agencies to file lawsuits against children to collect money.

Forewarned is forearmed

Financial Education for Kids

Parents always seem to want their kids to learn about finance but do not seem to know how to teach them.

I found a website by NISA….Financialsoccer.com

In light of the recent World Cup in Brazil, it is a site to help financial literacy. The players are swooped into a soccer stadium where they are prompted to play a game that asks them financial questions as the soccer match is played.

There are 3 levels and the oldest bracket is age 18+. Game lengths are 5, 10, 20 and 30 minutes. As a member of Team USA, I chose Italy as my opponent. In the 5 minute game, I trashed Italy 6-0.

It is a fun game and you will learn a lot. May I suggest you sit with the family (and all the kids) to play the match. It will bond you together and help everyone learn some basics about finance.

Good luck and Gooooooal!!

Gathering Debt Storm

The Congressional Budget Office (CBO) keeps warning that the nation’s debt is building so the fiscal ship is going to hit an iceberg.

The warning cited a similar crisis in Argentina, Ireland and Greece as examples. The crisis is not imminent so politicians will not address the issue since it will happen after they leave office.

Federal debt held by the public is at 74% of GDP and set to rise dramatically over the next 10 years to 180% and climb from there. The next 10 years will be the calm before the storm. In 10 years, the baby boomers cohort will be age 62 to 80. Combine that with a slow expansion of the working age population and grim demographics are baked in the cake.

Add to this, the growth of federal spending for Social Security, Medicare, Medicaid, CHIPS and Obamacare and it is evident that federal spending will swamp revenue.

The government will need to keep borrowing, which creates the “crowding out effect”. As the government borrows more, it crowds out savings available for investment into capital goods, which makes workers more productive. Wages are primarily determined by workers productivity, thus reducing wages.

Also, with the huge amount of debt, the government will not be able to use borrowing to respond to financial crisis.
As the debt continues to grow, the public will be less willing to lend to the government thus pushing rates higher.

What to expect: I have mentioned many times in this blog that the long term plan of the “spend and tax” politicians is to raise taxes to 60% for those making $50,000 to $100,000 per year. Just look at the facts. In 1980, the top 10% of income earners paid 49% of all taxes. In 2011, the 10%, those with AGI above $120,000, paid 68% of all personal income taxes.

We are here to help you develop tax free income sources that will never be taxed. Forewarned is forearmed.

Breaking the Buck

In 1972, the first “money market fund” (MMFD) was brought to market. For many years, the public was terrified to use this investment program. Now it is an everyday, run of the mill, simple holding pot for cash. One of the main features was that it produced higher interest rates than the average bank savings account. Many will remember in 1978, getting in excess of 12-13% from these MMFD’s. In order to obtain higher returns, they invested in higher risk instruments, but, it was promised that the NAV (Net Asset Value) would never drop below $1 per share. During the 2008 financial crisis, the Reserve Primary Fund “broke the buck” when the NAV dropped below $1, mainly due to the large position in Lehman Brothers commercial paper.

In mid July, 2014, the SEC approved rules that included the new NAV standard. This will allow money market funds to implement “exit fees” and other measures to safeguard against any investor exodus. In effect, it will allow for the NAV to drop below a “buck”. This new rule only applies to institution prime funds, but, be prepared for it to hit your personal money market accounts in the not too distant future.