An Idea for Social Security

The future funding problems of Social Security could be solved by an old idea. Invest a portion of the Social Security Trust fund in a stock market index fund, rather than putting it all in U.S. Treasuries.

At the end of 2012 there was a $2.732 Trillion surplus in the fund. All of it was invested in Treasury debt that does not even keep up with the inflation rate. The surplus monies, in the Trust funds, have been “borrowed out” by our legislators to fund the voter’s hand outs that are enjoyed today.

Therefore, in the future the U.S. Treasury will have to borrow $2.732 trillion from the public (or foreign countries or the Federal Reserve) to repay the borrowings. Under the “static” scenario all the monies will be gone by 2035. The present value of the next 75 year shortfall will be $9.6 Trillion (Don’t you just love what a socialistic program does for your pocketbook?)

What are some options to fix this: (1) Increase taxes or (2) reduce benefits… both politically devastating. Ten years ago George W. Bush proposed privatizing a PORTION of Social Security. The outcome: The media and the Democratic House and Senate nearly lynched him. The public, on the other hand, did not make any noise to save their own fate.

A third option is to index a portion of the Trust fund into a broad spectrum of U.S. common stocks. It is not privatization nor individual ownership. Rather, it is investing a portion of the monies into a diverse common stock index.

Some people say investing in the Great Companies of America is a gamble. Social Security, in its present state, is not a gamble??? It is a bet that has already been lost. Historically, long term indexing would have increased Social Security assets compared with equal investments in Treasuries over any investment horizon.

Yes, there have been periods during which there were no real gains in the stock market (1929 – 1954 and 2000 – 2013). This program would be using the power of dollar cost averaging. In addition, the effect of dividend reinvestment would have been overwhelmingly beneficial. The S&P 500, exclusive of dividends grew 94 times from 1935 to 2011. When you add in the dividends, over the same time period, the increase “was” 1,686 times.

The opposition to this idea will come from your Washington representatives. All they know how to do is raise taxes. It goes back to the old adage: If you only own a hammer, then, you see every problem as a nail.

Write to your representatives on this idea on indexing, now, so things will be “right” for you later!

Please watch our webinar on “How to double your Social Security benefits while reducing your taxes by 80% in retirement”

Living with Obama Care “Medical IRA”

Those who have had to switch over to Obama Care (ACA) now see the horrors and nightmares that were predicted by the Republicans. One area that has “shocked” people is the increase in deductibles. “With a basic bronze plan the minimum deductible is usually $5,000, with no first dollar coverage except for preventive care.”

The “shock” factor is that most people, who previously had a personal or company plan, had a $50 up to $500 deductible. [Important note: I am 100% against this government takeover of 1/6th of our economy. The long range plan by the present administration is to go to a single payer system like the bankrupt Medicare and Medicaid programs. I need you to understand my position before my next statement.)

The only positive point of the ACA is that it is making people aware of the true cost of healthcare. First off, in a typical company plan a family may have paid $400/month in premiums while the company subsidized them by contributing $1,600/month as the company’s portion of the monthly premium. With low monthly premiums and low deductibles, well, people ran to the doctor for every little sniffle. Under Obama Care people must now be more responsible and self reliant (What a concept! Ah yes, an old American tradition coming back into vogue.) Since people will have to pay the first $5,000 of medical care (plus a huge increase in their monthly premiums) – they may use my dad’s old remedy for illness instead of going to the doctor so rapidly- He always said… “Rub some dirt on it!”

But let’s talk about the real cost to you of this $5,000 deductible. Using a 40% marginal tax bracket (39.6% is the top Federal bracket plus 3.8% Obama care tax on net investment income and not counting, Social Security taxes, state or local taxes)… you need to earn $8,400 so that your net after Federal taxes is about $5,000. This $5,000 is available to pay for the higher deductible. One other “gotcha”, for high tax bracket people, is the phase out and/or decrease in deductible medical expenses so you may not be able to “write off” any of the $5,000 you spend out of pocket. Therefore, what did the $5,000 in high deductible really cost you: $8,400. See above.

Would you like to learn a way to make the $5,000 be deductible now and not be taxable in the future. [If your advisor did not discuss this with you please contact us at If you are your own financial advisors and did not know about this… contact us at and “fire” yourself as advisor.]

Health Savings Accounts, HSA, are a wonderful solution to the problems listed above. If you will be on the hook for the $5,000 deductible you might as well set up an HSA for the tax benefits. Here is a summary of many of the HSA benefits:

    • Allowable contributions for 2014 are $3,300 for those younger than 55 with individual health insurance up to $7,550 for those over 55 with family coverage.

    • The payments into your HSA are tax deductible (this sort of looks like a deductible medical IRA).

    • Earnings in HSA are untaxed; Distributions are tax free if used to pay qualified health care costs.

    • There are no income limits or phase outs for a tax deduction. (Deductions are above the line on your tax return). This helps those whose tax benefits are keyed to adjusted gross income or modified AGI. These HSA deductions can help reduce exposure to the 3.8% surtax.

    • Your subsidies under ACA are based on modified AGI so this deduction may help provide a subsidy for you by lowering your modified AGI.

    • Once you are over 65 any money left in the HSA can be used for any purpose even if not medically related, and, it would be a great supplement to Medicare in your retirement years.

    • Using the HSA you are paying for your medical expenses with pre tax versus after tax dollars (above).

    • These are not “use it or lose it” accounts. It stays in the account growing untaxed until you decide to use it.

    • You can use monies in your HSA for uncovered medical, dental, vision etc.

    • HSA are portable which is good for those whose company plans will be switched into Obama Care next year, or, if they lose their job.

    • Let’s sum up the economics. As noted above the $5,000 deductible actually costs you at least $8,400 (since taxes have to be taxen out to have $5,000 available). Instead, if you put $5,000 into your HSA, in the 40% tax bracket, you will save $2,000 off your tax bill. So your REAL out of pocket this way with the HSA will be $3,000. This is the tough question… which is better for your health budget?… spending $8,400 or $3,000? Duh!

Need ideas?… Contact us at


IRA rollover ruling stunts advisers and savers

From an article By Robert Powell at MarketWatch

(Note by Paul Ferraresi: Once you complete this article you will see how desperate the present administration is to get more tax money from you. Many of the custodians that hold your monies do not know of this tax ruling. It is insane. Next, will be your 401k plans. As we have written many times… we instruct all our clients to use a far better alternative than a 401k or IRA for their retirement.)

Retirement experts call it a game changer for the 50 million or so households in the US that own an individual retirement account. (IRA)

Uncle Sam’s Tax Court just ruled that the one-rollover-per-year rule applies to all of a taxpayer’s IRA’s rather than to each IRA separately. And that ruling, experts say, is in direct conflict with IRS Publication 590, the bible for IRA’s.

”Industry leaders, financial advisers, and everyone else who handles IRA’s are stunned ,” said Denise Appleby, the editor and publisher of The IRA Authority .
According to Appleby, there are two ways to move money
between IRA’s:

    1. Transfers, which are not reported to the IRS and not reported on a tax return. The IRA owner never touches the money. You can do this as often as you like, whenever you like, Appleby said.

    2. And rollovers. With this method, the IRA owner takes the money as a distribution and they have 6O-days to rollover (put back) the amount in an IRA. And this, you can do only once per 12-month period, said Appleby.

According to Appleby, the IRS, through their publications and regulations, has said for at least 20 years that the rollover method applies on a “per-IRA” basis. In other words, if you have 10 IRA’s, you can do 10 rollovers for the year (12-month period), as long as each IRA does it only once in that year.

Here’s the guidance found in Publication 590, which everyone viewed as gospel:

“Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a one-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same one-year period, from the IRA into
which you made the tax-free rollover. The one-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA.”

The IRS gives this example: You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You cannot, within 1 year of the distribution from IRA-1,
make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA.

However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because you have not, within the past year, rolled over, tax free, any distribution from
IRA-2 or made a tax-free rollover into IRA-2.

Enter Alvan and Elisa Bobrow, who had a few IRA’s.

In 2008, Alvan rolled over two distributions from his IRA’s and took the position that the rollovers were valid because they were done in a timely manner, and involved different IRA’s, Appleby wrote in her analysis of the court case. His
position was that he had not broken any rules, as explained by the IRS in their publication for the past 20 years.

The IRS disagreed and determined that only one of the two rollovers was valid. So, Uncle Sam and the Bobrows went off to court. And the Tax Court – much to the surprise of all IRA experts – agreed with the IRS.

The mistake cost the Bobrows an additional $51,298 in income tax and a penalty of $10,260. Maybe they should be thankful; it could have cost them $31,000 more, according to Appleby. You can read the gory details in Bobrow v. Comm’r, T.C. Memo. 2014-21.

So what was the bottom line? In essence, only one of the Bobrow’s distributions was eligible for rollover during the 12-monlh period. In fact, that Tax Court concluded that the Internal Revenue Code Section 408(d)(3)(B) limitation – the relevant section of the federal tax code – applies to all of a taxpayer’s retirement accounts and that regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period.
In other words, we’ve all been operating under the impression that what was written in Publication 590 – you know, the IRS’ very own publication – was correct. But it’s not.

(If you want to learn how to avoid this problem and to get away from the crowd while doing what the super wealthy have been doing “tax free” for over 100 year contact us at


Bank Fiasco 2007

Here is the real story: In 2005 President George W. Bush warned the Congressional Banking oversight council that Fannie Mae and Freddie Mac were in severe financial shape and needed major reforms. Senator Chris Dodd and Representative Barney Frank, who both headed up the council, said there was nothing wrong with both organizations and nothing had to be done of a corrective nature.

In 2003 and 2004 these same two individuals threatened the banks (and their officers and directors) with discrimination lawsuits (and jail time) if they did not increase their underwriting of subprime mortgages.

Fannie and Freddie were reluctant to back these “no doc” subprime mortgages until ACORN and Dodd/Frank cried “discrimination”.

These “no doc” loans were severely toxic. Fannie and Freddie caved in to the pressure and funded the “no docs” with borrowed money. The banks, to safeguard their solvency, had to create mortgage – backed securities to spread the risk.

The “no docs” nonperforming loans collapsed, the securities became impossible to evaluate while Dodd and Frank both got a free pass. To cover up their tracks the two lawmakers created the Dodd- Frank Law that has curtailed the ability of credit worthy people to get a mortgage.

Once again when the Government imposes its socialistic policies and interferes with the free market… disaster is the outcome. Meanwhile those “elitist” that created the “discrimination” policy get off scott-free and the average person gets crushed.


Planning for a Comfortable Retirement

As you approach retirement your attention should not be just on accumulating and protecting your assets, but also, a transition to a new lifestyle.

I counsel people to start a minimum of 5 years before their actual retirement date to begin a “dress rehearsal.” Here is how… save all your take home pay and sock it away in a, say, savings account. Then, set up a separate account, funded with other money, to begin a monthly withdrawal of money equal to your estimated Social Security, estimated part time work income and withdrawals from your retirement plans. Thus, you will need to prefund this separate account. Let’s say the total of all your estimated income sources will be $3,000 per month in retirement. Put $36,000 in this account and withdrawal $3,000 per month to live on. For many people this is a shock as they see what their lower income level will allow them to do. Carry out your projected retirement life style on this, say, $3,000/month… that is basic living expenses, a little more travel, visiting grandkids more often etc. This dress rehearsal allows you to see what your financial life will be like and your lifestyle. Do you really like this life you have mapped out for yourself?

Treat your retirement like your health. As you enter your late 40’s through your 60’s you need to have a health and financial physical each year. Sit with your advisor… see what you have done and where that is taking you. It is a lot easier to make a small change at age 52 than a huge change at age 64.

One of the largest changes for you will be as an investor. There is a psyche when you are accumulating assets. There is a distinct other psyche when you are in the distribution phase of your life. Many variables that do not affect you in the accumulation phase could dramatically affect you during distribution.

One variable is sequence of returns. In the accumulation phase you are NOT concerned if the market is up 18%, then down 20%, then up 30%. Yet, while in the distribution phase the sequence of returns can affect your monthly cash flow and determine if you will be able to eat.

Another variable is longevity. If you could tell me exactly when you are going to die I can make a plan for you so when you jump in the hole you will have just $2 left in your hand. You can not tell me when that is.  Most people have not visited with a professional financial advisor, have not the foggiest idea how they will live through their retirement, and, unfortunately the vast majority will outlive their money. I heard a great statistic the other day: The person who is going to live to 150 has already been born. With people easily living past 100… and medical breakthroughs… it is not far fetched.

Retirement will be in 3 phases: A very active stage. You may do part time work or charitable work or travel around the world. The next stage you slow down a little, more tied to your residence and see your family more. The third stage is very inactive and an increase in the need for expensive personal care.

From a financial stand point we teach our clients how they can double their Social Security payments while reducing their taxes by over 80% in retirement. Outcome: more spendable income for themselves.

Retirement planning is also important for your children that are in their 20’s and 30’s. Why? The younger generation is having children later in life. That means their children are going to college later in their parent’s lives (the now 20-30 year olds). So the now 20-30 year olds will have less time to save between the kids getting out of college and the now 20-30 year olds retirement. Understand younger generation… the money you save in your early 20’s is going to be the most valuable money you will have in your 60’s.

Everyone needs to start planning for a comfortable retirement now! (