Paul Ferraresi

A report this week showed that Social Security and Medicare’s financial health has weakened. In fact, Medicare is now paying out more than it receives. The report further said the same fate is in store for Social Security one year earlier than projected, namely, by 2016. That means if you are retiring in 6-7 years, both of these programs will be defunct. Medicare will be totally insolvent by 2017. So, better plan for higher taxes for EVERYONE if these programs are to survive, and make plans to make it on your own.
Keep in mind the supposed “Trust Fund” is just a group of bonds in a filing cabinet in Parkersburg, West Virginia. These bonds are backed by the “full faith and credit” of the Government (you and me). There is NO money or assets to back this up. All the money has been spent to fund other parts of the government. So, basically you are going to be responsible to come up with additional money to fund this government program and keep it solvent. Wait a minute… you already put your money in to cover it and your representatives spent it to get your votes. Now you have to “double down” on a bet that is a sure loss. Yes, Another Government failure!
Hmmm….why aren’t these leaders being fired or prosecuted. The leader of General Motors (sorry, now it is Government Motors) was fired for poor performance. Why aren’t you voicing your disdain?? How much more are you going to put up with?
So you want the government to run the automakers, the banks and provide health care? Ah, more failure! How many more failures will you put up with?
You know, Americans’ action (lack of action) on this is like the guy who keeps hitting himself on his head with a hammer. When asked “why don’t you stop?”…he says…”because when I stop it hurts.”
How much longer are you going to put up with the hurt?
We have positioned our clients in an investment program that will be their own Social Security/Medicare program. It does not have any government involvement. The investment grows tax free, you can pull out money tax free (not like Social Security which is taxable) and when you die it transfers tax free.
Please take responsibility for your actions and do not be part of the “entitlement” crowd.
Go to our other blog at www.WealthyFutureBlog.com and subscribe for free to learn about this “self reliant” way to protect your financial future.

As of April 1, 2009 the new Federal Withholding tables have been established. Under this temporary arrangement, there has been a short term adjustment to the amount being withheld from your paycheck. THIS IS NOT A TAX CUT. Rather it is a sleight -of-hand.
You see, although you will have a few more dollars in your pay check it is not necessarily yours to keep. Here is a simple example…
Let’s say you earned $75,000 in 2008, and the tax withheld by year end was $10,000. For simplicity, let’s say an April 15th, 2009, tax day, you do not owe any more tax, nor do you get a refund. So, for the 2008 year your tax liability is $10,000. Simple.
Now for 2009 let us assume all things are going to be exactly the same ($75,000 income, $10,000 withheld and tax for 2009 will be $10,000). Well, this new withholding legerdemain, of the current administration, is set so you will have more money in your pay check for the remainder of 2009. To you it appears as a tax cut, but it is NOT. Let’s say the new withholding change gives you an extra $125 per month in take home pay. That means you will have $1,000 in extra “pay” by year’s end. But it isn’t. You see, you will only have $9,000 in your year end withholding account (since they did not withhold that “extra” $1,000). So, come April 15th 2010 you will owe $1,000 in tax (the amount that was not withheld in 2009).
Be careful! If you do not have the money to pay in when you file your return, or, have not had the correct amount withheld you may be subject to a penalty tax plus interest.
You may consider setting this extra money aside until the air clears next April 15th or you could be in financial pain later. Please get proper tax advice on your specific situation.
Why didn’t someone tell you the rest of the story? I just did!
So, it is a tax decrease that will be a tax increase!!! Did I tell you about the bridge in Brooklyn or the swamp land that is for sale…….
Discipline or regret!

In an effort to help clients refocus on planning, I hit upon what I thought was a brilliant idea. I asked some of my married clients to pretend they only had a few days to live and to write letters to their spouses expressing their love, their cherished memories and what they had planned for the future. I also requested they write similar letters to their children. I wanted them to see what was truly important and envisioned these letters would become treasured family heirlooms, passed down and read by future generations.
Not everyone wrote the letters so I tried again, but this time I told my clients that I wanted to record a conversation with them each year for three or four years. I wanted them to talk about themselves, their ancestors and roots, the important events in their lives, their plans and dreams for the future and for that of their spouses and children.
My plan here was to create a legacy for their future generations, and in so doing get to know my clients, their motivations and their financial perceptions better. In the process, I hoped to gain insights that would help me do a better job of planning for them and, in turn, help them better appreciate the importance and value of the planning process.
Interestingly, clients who could not find the motivation to write a letter willingly submitted to the taped conversations. During these sessions, I try to remain merely a facilitator, asking a few questions to get the conversation rolling and then receding into the background.
The response has been truly heartwarming, not to mention productive. The conversations prompt people to recall events they haven’t thought about in years. Many times, there is an emotional reaction to the recollection. People remember things they intended to say or do for their loved ones that were somehow forgotten. They frequently start to talk about something and it triggers a distant memory that had great importance but became lost in the recess of their minds. They open up and share all kinds of memories and dreams. They openly express their affection and hopes for their children.
They explain their decisions in raising their offspring and how they tried to pass on their values. They talk about the meaningful events that formed their values, the choices they made early in life, the paths they took and those they didn’t.
If you would like to learn more about our process or need assistance from us to participate in this legacy planning, then email me at paul@fgmci.com.

The latest release of Internal Revenue Service data on individual income taxes comes from calendar year 2005, a year in which the economy remained healthy and continued to grow, as well as a year with higher-than-average price inflation.

This year’s numbers show that both the income share earned by the top 1 percent and the tax share paid by the top 1 percent have reached all-time highs. In 2005, the top 1 percent of tax returns paid 39.4 percent of all federal individual income taxes and earned 21.2 percent of adjusted gross income, both of which are significantly higher than 2004 when the top 1 percent earned 19 percent of AGI and paid 36.9 percent of federal individual income taxes.

Wait! I thought the system was to be fair and equal. The top group earned 19% of the income, but, paid 36% of all taxes. It should be that those 19% should pay 19% – Isn’t that right… all you socialist out there… that feel it should all be equal?

(Note: For a detailed paper on the distribution of the entire U.S. fiscal system, including all federal and state and local taxes, read Who Pays Taxes and Who Receives Government Spending? An Analysis of Federal, State and Local Tax and Spending Distributions, 1991 – 2004.)

The IRS data also shows increases in individual incomes across all income groups. Just as the highest earners lost the biggest percentage of their incomes during the recession of 2001, so they have prospered the most as the economy has continued to rebound. For example, from 2000 to 2002, the adjusted gross income (AGI) of the top 1 percent of tax returns fell by over 26 percent. In that same period, the AGI of the bottom 50 percent of tax returns actually increased by 4.3 percent. However, since 2002, as the recession has ended, AGI has risen by 61 percent for the top 1 percent and 10.7 percent for the bottom 50 percent.

In sum, between 2000 and 2005, pre-tax income for the top 1 percent group grew by 19.1 percent. On the other hand, in that same time period, pre-tax income for the bottom 50 percent increased by 15.5 percent.

This pattern of income loss and growth at the top of the income spectrum is the same during every recession and recovery. The net result has also been a sharp rise in federal government tax revenue from 2003-2005 compared to previous years.

You see… tax income has gone up. The problem is that government spending has increased faster than income.

The IRS data below include all of the 132.6 million tax returns filed in 2005 that had a positive AGI, not just the returns from people who earn enough to owe taxes. From other IRS data, we can see that 90.6 million of the tax returns came from people who paid taxes into the Treasury. That leaves 42 million tax returns filed by people with positive AGI who used exemptions, deductions and tax credits to completely wipe out their federal income tax liability. Not only did they get back every dollar that the federal government withheld from their paychecks during 2005; but some even received more back from the IRS. This is a result of refundable tax credits like the Earned Income Tax Credit, which are not included in the aggregate percentile data here.

Including all tax returns that had a positive AGI, those taxpayers with an AGI of $145,283 or more in 2005 constituted the nation’s top 5 percent of earners. To break into the top 1 percent, a tax return had to have an AGI of $364,657 or more. These numbers are up significantly from 2003 when the equivalent thresholds were $130,080 and $295,495. Top incomes in 2005 are also continuing to surpass the peak they reached in 2000. At the height of the boom and bubble, $313,469 was the threshold to break into the top 1 percent, and then it fell to $285,424 in 2002 only to finally recover fully last year.

The top-earning 25 percent of taxpayers (AGI over $62,068) earned 67.5 percent of the nation’s income, but they paid more than four out of every five dollars collected by the federal income tax (86 percent). The top 1 percent of taxpayers (AGI over $364,657) earned approximately 21.2 percent of the nation’s income (as defined by AGI), yet paid 39.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns combined. Now is that fair? NO!

Average tax rates increased once again as the economy continues to grow, even though there were no significant pieces of tax legislation enacted in 2005. Overall, the average tax rate for returns with a positive liability went from 11.9 percent to 12.1 percent from 2003 to 2004 and then up to 12.5 percent for 2005. (Note this does not include any refundable credits.)

The 2003 tax cut was the second in three years, but the tax code still remains highly progressive. The average tax rate in 2005 ranges from 2.98 percent of income for the bottom half of the earning spectrum to 23.13 percent for the top 1 percent.

Table 1. Summary of Federal Individual Income Tax Data, 2005 (Updated October 2007)

Source: Internal Revenue Service

Look at the chart above. Find the top 10%. Then go to column 5. The top 10% pay 70% of all the taxes. That is not fair!! 10% should pay 10% etc.

We are all paying for government services with our taxes. How would you feel if when you went in to buy a gallon of milk some of you paid 10¢, others $1, some even pay $10. The price was based on your income. You would be angry. Same thing for gas….some pay 10¢/gallon, some at $12/gallon. Again, the price would be based on how much you earned. You would scream…that’s not fair. Why? Because we are all paying different prices for the same product/services.

Once again, you pay your taxes for government services. In my experience and opinions I find those that pay the most in taxes demand the least in government services. At the same time those that demand the most in government taxes, pay the least for it. That isn’t fair!

A slowing economy has investors worrying about past, present and future stock market returns. After a huge upward move that saw American stock values double from October 2002 to October 2007, everyone seems to be worried about the future.
This may surprise most people, despite the recent 5 year rally; the entire new decade has not been kind to U. S. stocks. Since the end of 1999, a popular starting point for this decade, cash accounts and Treasury Securities have beaten stock returns (keep in mind I am referring to indexes. Individual securities may have beaten out the indexes. For example; we bought Apple Computer about 5 years ago at $7/share and have sold out portions of shares on the way up at $50, $75, $100, $150 and $200. Fantastic returns.)
The average annualizes returns from 12/31/99 to 12/31/07 for various asset classes have been;
30 year Treasuries 8.77%
10 year Treasuries 6.45%
Dow Jones Industrial 3.95%
Cash 3.24%
S & P 500 Index 1.66%
NASDAQ -4.70%
During this same period foreign securities have outperformed the U.S. securities (in some part due to the 40%+ drop in the dollar). The S&P 500 Index is in 57th position out of 60 global markets this decade. As 2008 started markets were down even more due to the subprime mess. Actually, the Dow Jones average is about where it was prior to the 9/11 bear market. If you factor inflation into the return the situation is even more dire.
Oh, is this the end, you ask? NO! Markets like the weather move in cycles. The 1982-2000 bull market was the largest gain in history. You made a fortune during this run and like all excesses the markets are digesting the gains. Classically, long drawn out bear markets follow big bull markets. Overall, things average out. It may take a few more years to finish the cleansing of the “Indexes”.
U.S. shares do not look good as of late, but, in the most recent 50 years it does look fantastic. Since 1950, a period that includes some severe bear markets, stocks have risen 50 times!! Yet, in the first half of the 20th century, that is, up to 1954, which includes the worse quarter century in market history, stocks were up just10 times. The more recent past has been characterized by lack of global wars, great moves in industrialization, trade, technological knowledge and increasing education levels, reducing commissions and the increase in the work force.
Even if the next few years prove dull, the above positives, and many more, will help equities. I am very optimistic long term, and, isn’t that why you invest … for the long term.
Here is a thought for you. The S&P 500 has averaged an annual rate of return of around 13% since 1925. That 13% took place in good and bad years, World War 2, a depression, Hitler, mass murders, on the brink of thermonuclear extinction in the Cold War, Nixon resigning and even Elvis dying (Yes, he is dead). Through all of that, and, whatever the media will create as the “Crisis de jour”, the markets have averaged 13% per year. Here is a summary of the S&P 500 returns by decade.

You will note some periods produced below and some above the 13% average. Overall the market averaged 13%. Look at the ‘80s and ‘90s. The returns were WAY above 13%. You knew this current decade would have to be sub-13% just to average out the wild ‘80s and ‘90s. So don’t be upset if your returns have been paltry the past 8 years. Since 1980 to today how have you averaged? I am willing to bet you did fantastic.
I am carefully loading up my personal portfolio and all my clients with good quality low priced stocks. The benefit will be to enjoy the decade starting in 2010 and after –
Do your research, layout a plan and execute the plan. What am I saying …?? Discipline now or regret it later.