One does not need to be a tax attorney to know what is ahead for all Americans. Here is why rates are going higher:

• Congress moves rates from high to low and back to high. You have been in a “low” period.

• Effective 12/31/2010, the Bush tax cuts will expire, so rates go back up to pre-Bush. This means an average of 3-5% higher for every bracket.

• The war on terrorism will continue for another generation and will require increasing amounts of money.

• Social Security and Medicare are broke. The Baby Boomers are just starting to lean on these programs, so both programs will need increasing amounts of money.

• We have a financial crisis not seen in two generations – a stimulus and mortgage bailout program were failures and thus, will require more monies to pay back these borrowed funds.

• The present administration is designing programs so that 45% of American taxpayers (the payers) will provide for 55% of American non-taxpayers (the takers). Thus, the payers (producers) will be required to ante up more for the takers (non-producers).

Now, all the hype has been…”tax the rich.” Be careful what you wish for…you will become part of the rich very soon, according to the present administration’s plan.

• A report from the IRS for the 2008 tax returns filed, only 256,000 returns out of 142 million returns filed, which is the top 2%, had an adjusted gross of over $250,000 (what some may think is rich). This top 2% paid 45% of all federal taxes collected even though they only earned 25% of all income. Hmmm…. I thought the system was to be fair…you know, top 10% pays 10%, top 50% pays 50%, and so forth. Right now, 50% of all those that earn income pays NO TAX!!

• Even if they confiscated 100% of the income of the top 2%, it would not touch the deficit. Do the math yourself.

• They asked Willy Sutton…“why do you rob banks?” He said…“cuz that is where the money is.” Look for Congressional Revenuers to come looking for more money… “where is the money” – the middle class.

To make my point, let’s look at a few new taxes that have come into effect due to the new health care law:

1) Medicare taxes will increase by 0.9% on joint household wages above $250,000 (on 1/1/2013). Thus, if a couple had $400,000 in wages, they would have a new tax of $1,350 ($150,000 x 0.9%). This amount is not indexed for inflation. So, in the future more people will creep into this area. Also, as with every tax they place on high income earners, it eventually goes down to the middle class.

2) The same upper-income couple above will be subject to a 3.8% new tax on unearned income (interest, dividends, royalties, rents, and capital gains). Say our couple earns $50,000 in interest from their bank accounts. This would produce a new $1,900 tax bill for them (sources: House of Representatives and CBO). This will have a dramatic negative effect on savings and the stock market. In all cases, see your tax advisor for details.

3) As you sell your home in the future, there will be a 4% tax on the gross sales proceeds for everyone. (Hmmm…I thought no new taxes on those earning less than $250,000 – then, they said only on those above $200,000, then they said on those above $150,000.)

You know Congress does all its tax planning based on the “static” approach. That is, they assume everything will stay static and no one will do anything to avoid taxes. In our example above, our couple will incur over $3,000 in taxes and they will do whatever it takes to lower or reduce the taxes. This avoidance will lead to less economic growth, fewer jobs, less tax revenue coming in, then they will have to raise taxes somewhere else and…well, you connect the dots. Just cut spending. Stop this madness!!

Now, I have just covered a few of the new taxes. Rather than waiting for the sword to cut you, I am demanding you take action now…or forever hold your peace.

I have been advocating for years to get your money into programs that will allow your money to grow tax-free. You can have access to the money tax-free at any time and when you die, it transfers income tax-free. This strategy is a layup with a ladder, or a stolen base on a wild pitch.

Please contact us at (713) 871-5919 or at conswella@fgmci.com to take action now. If you wait until the rates go up, it will be too late.

Ah yes….discipline or regret.

The Social Security system is a “Ponzi scheme” system. That is, present workers have money deducted and said funds are sent immediately to the recipients. So, the trick is you need more and more workers into the system to pay the retired ones. There is NO money set aside in a “lockbox” as Al Gore promised many years ago. Congress over the years has taken excess monies in the Trust Fund and used it for other purposes, depositing an IOU into the Trust Fund.

So let me get this straight…you had Social Security tax money deducted from your paycheck to supposedly have it set aside for your retirement, but instead your money was sent to a retired person (Social Security is not set up like a pension or 401(k)). Now, since there is no money in the account for you when you retire, the Government’s system is that any payment you get will be taxed in order to pay back the IOU that Congress took out without asking your permission. If any other person or company did this scam, they would be in prison…Let’s see…Bernie Madoff, the Keating Five, Enron executives – on and on! Now, tell me again why you voted for these legislators?

Congress has known that Social Security is in a mess, but they have not had the guts to tell you. Yet, you are told every year that things are bad when you get your annual Social Security statement.

Here is a paragraph from the front page of my statement dated February 18, 2009:

“…Now, however, the Social Security system is facing serious financial problems, and action is needed soon to make sure the system will be sound when today’s younger workers are ready for retirement.

In 2017 we will begin paying more in benefits then we collect in taxes. Without changes, by 2041 the Social Security Trust Fund will be exhausted* and there will be enough money to pay only about 78 cents for each dollar of scheduled benefits”… (*These estimates are based on the intermediate assumptions from the Social Security Trustees’ Annual Report to Congress.)

Now look one year later at the February 12, 2010, statement:

“…Now, however, the Social Security system is facing serious financial problems, and action is needed soon to make sure the system will be sound when today’s younger workers are ready for retirement.
In 2016 we will begin paying more in benefits then we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted* and there will be enough money to pay only about 76 cents for each dollar of scheduled benefits”… (*These estimates are based on the intermediate assumptions from the Social Security Trustees’ Annual Report to Congress.)

In just one year, from 2009 to 2010, notice that the payout in benefits versus tax intake drops by one year; the fund become exhausted four years earlier, and the payout drops from 78 cents to 76 cents.

Social Security has been printing these reports yearly. So, some years in the future when there is no money to pay out to you, or you have reduced benefits…you can’t say…”but no one told me.”

I remember George W. Bush trying to push Congress and Americans to do something about Social Security in 2005, but everyone rejected his ideas to privatize part of the system, and 10-15 other remedies that he proposed.

As for your planning…well, I have all my clients develop their own “social security plan,” with their own money that they control.

Do not count on this system for your retirement.

The late Loren Dunton, founder of the non-profit National Center for Financial Education in San Diego, wrote about his lifestyle decisions to buy new cars and spend weekends in Reno, instead of investing a hundred dollars each month in a mutual fund when he was in his late twenties. That fund would have been worth over a million dollars today.

AN EXPENSIVE CAR

Perhaps you think the difference between a full-sized car, fully-equipped, and a compact is only about $10,000. Actually, it is more like a million dollars. Consider this, borrowing $25,000 for a new car over four years will cost about $634 a month, while borrowing just $15,000 will cost only $381 a month.

If one saved the difference of $253 each month for 35 years, earning an 8% average rate of return, it would swell to $580,352. However, that is just the accumulation of the funds. What about the earnings as the funds are withdrawn during retirement?

If one were to get monthly payments of $4,479 from that sum from ages 65 to 90 (and some predictions say there may be over 250,000 people over the age of 100 in America in the 21st century), the total amount collected would be $1.3 million.

This is the magic of compound interest. However, it is not retroactive! One must save now to enjoy the benefits of compound interest in the future.

WAITING TO INVEST

For instance, if the difference in the example above were saved for only 25 years it would grow to just $240,000. Paid out at $1,857 a month, the total would be $557,000. It is amazing that the difference in saving an additional ten years is about a half million dollars. However, the monthly difference in payments of $2,622 monthly shows how today’s lifestyle decisions can be worth a million dollars in retirement years.

When should people begin saving money? Never soon enough. If ten years could mean a difference of $2,622 in retirement income each month, can you imagine what 15 or 20 additional years of savings would mean when you reach age 65?

JUST A LITTLE POSTPONEMENT

For some, no doubt saving now would be easier if there was more current income. People 17 to 23 years old may think: “Me save? Are you kidding? I am just getting my education and besides I want to have a good time. When I get out of college and start my career, I’ll start saving.”

People 24 to 30 may be tempted to think: “You don’t expect me to save now? I have only been working a few years. Right now, it is important to dress well. I’ll save later.”

From 31 to 42, the reasoning may go something like this: “How can I save now? I am married with small children. Perhaps when they are older I can think about saving.”

Those 43 to 55 wish they could save now. However, many just do not, saying they cannot because of children in college and education loans to pay.

From 56 to 65 most recognize the urgency to begin saving now. However, money is tight. It is not easy for people that age to better themselves. It is tough to break years of over-spending habits. “Maybe something will turn up,” many say.

At age 65 and older, it is too late to begin saving money. You cannot save when there is no income. Many older people live with their children and are dependent on Social Security, which is inadequate, since Social Security was only designed to be supplemental.

If the choice between cars can impact retirement income, imagine the possibilities when applied to lifestyle choices such as a home, vacations, dining out, entertainment, wardrobes, furnishings, etc.

Try to develop the art of money accumulation now. Begin by saving every day. Start today!

The mass affluent are people who:
• Save more than they spend.
• Seek to invest for the future.
• Worry about funding their children’s college education, but in most cases won’t impoverish themselves because they can cover costs through savings strategies, loans or personal income. In addition, many are not opposed to their children paying some part of their education costs.
• Worry about how they will replace their paychecks when retirement approaches, but in most cases will need to be encouraged to spend more money in retirement.
• Desire to leave a legacy to their children, not to charity.
• In retirement, seek to spend between $4,000 and $10,000 per month.
• Will have between $500,000 and $1.5 million in investable assets upon retirement.
• Would never consider calling themselves high-net-worth investors or millionaires.

Consider the following research: Russ Allen Prince and Associates just published a book entitled The Middle Class Millionaire, based on surveying middle-class Americans with investable assets between $1 and $10 million.

The mass-affluent community seeks advice on a wide array of planning issues. While they generally have investable dollars, they also want to explore how their money will affect their lives. However, many of the financial relationships they maintain are built on investment strategies, performance comparisons, technical analyses and tactical repositioning. These people feel the planning element of the relationship is missing, yet they struggle to articulate it, since their current advisor calls the existing narrow relationship financial planning.

Too many of these people visit our office with stories of how they felt like small fish in a big pond. They felt an initial sense of security aligning with a big-name firm, but when it came to having their financial planning needs addressed, the relationship would fall short.

The mass affluent seem to be stuck in a world where they want financial planning advice, yet what they buy is primarily investment advice.

Reprinted with permission from Oversold and Underserved: A Financial Planner’s Guidebok for Effectively Serving the Mass Affluent, by Marc Freedman. 2008. Denver: FPA Press

As of this writing, Medicare and Medicaid are available to seniors but it is not cheap and the costs to individuals continue to rise.

A recent study by the Employee Benefit Research Institute found that a 65 year old man, who retires this year, will need $68,000 to $173,000 in current savings to have a 50-50 chance of covering health premiums and out of pocket costs in retirement. If he wants a 90% chance, then, the amount of savings needed jumps to $134,000 to $378,000. The variance depends on whether a former employer subsidizes health costs in retirement.

The cost outlook is worse for women because they tend to live longer and need more health care. A 65 year old- woman who retires this year will need between $98,000 to $242,000 in savings for a 50-50 chance and $164,000 to $450,000 in savings for a 90% chance.

The study found that health care costs in retirement rose 9% for men and 16% for women over the past year.

These estimates do not include savings needed for long term care or for basic living. As I have stressed with my clients, you need to begin planning now. Remember these two items (health and long term care) are in addition to normal living expense.

Start today or you know the outcome… discipline or regret.

You have a host of examples that have accumulated over your lifetime. You can begin a simple mentoring program. The pressures and hectic activities the kids go through during the school year cease in the slower summer months.

For instance, many kids (possibly even you) that were latch-key kids, learned how to develop shopping lists, budgeting, reviewing bills, cooking, clipping coupons and how to use their allowance wisely.

I am sure you have your own stories that show simple ideas that you can teach and transfer a generation’s worth of financial knowledge. Obviously, children with financial skills and a history of being able to talk about money are better able to take on life. One method of education is an allowance. Do not tie the family chores to the money. Have the kids set up 3-4 “buckets” for their money: SAVINGS (say for college); Sharing (to contribute); Spending (for new purchases) and Spending later (for a later purchase).

Another method is to talk about bad habits of yours so they can learn. When driving to the mall with their kids, you may want to say out loud in the car: “I’m usually very tempted to buy clothes that are on sale, even if I don’t need them. Then I get home and wish I hadn’t bought them. So, I’m going to leave my wallet in the car. If I really want something, I can always come out and get my wallet.” Tactics like these can help your children understand how to value a dollar.

If the children run out of allowance money or want to buy an impulse item… let them “borrow” the money from you at a reasonable interest rate, but, they must put up some of their collateral until it is paid off… say a game or their computer. They can not use the collateral until the loan is paid off.

Oh, you say, that hurts and is “tough love.” Well, it is either discipline now or regret later.

In Venezuela, China will contribute $8 billion to a strategic fund for oil development mainly to increase Venezuela’s oil exports to China. China is paying now at today’s prices to insure growth in the supply of oil and their long term access to its share.

Meanwhile here in the U.S., the Obama administration is planning to severely tax exploration and production companies operating in the Gulf of Mexico (our core area of production). Boy, that will be a real incentive for any company to consider looking for oil (tish-tish). This will also make U.S. oil production more expensive (duh!).

The government has delayed and rescinded the opening of other offshore areas for additional incremental exploration and possible production (higher prices for us and less supply. Oh, and you did not know about this? HMMM! I thought we were to have full transparency in this new administration).

Since October 2004 the U.S. Department of Energy claims the global oil supply hasn’t grown much even though we had huge price increases. Most experts agree that large new oil supply is not in the picture.

So, if the supply for oil will be, say, “X” and China has already “bought up” an amount equal to “Y,” then, X-Y will equal the remaining supply. With the demand for oil rising and supply only at “Y”…..well better prepare for higher prices. Experts are predicting a price of $150-$180 a barrel very soon. That is without a major interruption in flow (war, terrorism, etc.) Ah, yes higher gas prices. Better prepare as well as make investments to benefit your family. Once again…discipline or regret.

Edmunds.com isn’t your only ‘Net resource.’ NADA Guides (www.nadaguides.com) is another longtime industry observer with much of the same functionality, but also covering classic and collectible cars, RVs, motorcycles and boats. Publisher of the NADA Appraisal Guides, the site has other useful features, such as vehicle history reports priced at $15 for starters, compared with $30 for vehicle reports on Carfax (www.carfax.com).
On the other hand, Carfax’s used-car search tool has an unusual feature: a free preliminary car history for each search result that is pretty complete and can include tantalizing tidbits. For example, one recently listed Dodge spent the first 19,643 miles of its young life in Nevada before deciding to move to California a month and 450 miles ago. That could be innocent enough or a sign of a problem.
For a truly omnibus auto resources, it’s hard to beat the auto community on AOL (http://autos.aol.com). Industry news and car blogs abound, as do lenders and car buyers sharing lessons learned. In terms of credit, AOL’s Wallet Pop (www.walletpop.com) has every calculator and personal finance resource imaginable.
If you have good credit, FirstAgain (www.firstagain.com) is a common-sense lender that will judge your credit-worthiness holistically – based on your payment history, employment and financial resources as opposed to just your FICO score. With a background in auto lending FirstAgain makes uncollateralized loans of $10,000 to $100,000, entirely over the Net, within 24 hours. Alternatively, BadCreditOffers (www.badcreditoffers.com) and BadCreditLoanServices.com are convenient Web gateways for shoppers with credit problems.
Generally, expect your average credit union (www.creditunions.org) without exposure to devalued debt securities to offer more flexible credit terms than an over-leveraged major bank. The Credit Union National Association (www.creditunion.coop/cu_locator/imdex.html) will locate a credit union in your area.

As many of you learned in your economics courses – inflation comes about as too many dollars are chasing too few goods.

The money being printed in Washington for TARP, the Stimulus Bill, and the 2009 budget is astronomical. Never in the history of the U.S. has so much money been printed (I wish I would have told everyone to invest in WD-40 to oil the printing machines. We would have all been wealthy).

None-the-less, my role as my client’s advisor is to look out into the future, note trends and have them invest ahead of the crowd. With all this money being created in Washington it will lead to a HUGE increase in inflation very soon (somewhat like a snake eating a rat, it will take a little time to go through the system).

I advised all my clients in December to increase their asset allocation position in metals, especially gold. I am not a gold bug, but, it is obvious what will take place. Last December prices for gold were at $750. It increased to $1000 recently (a 33% increase) and as of this writing is in the mid $900. Experts predict a rise to $1500+ in the next two years. Please do not follow the crowd and get into gold after the price rises (you know buy high sell low). You can, and should have long ago taken a position in gold via stocks, mutual funds or exchange traded funds. I am suggesting that you buy the physical gold. Coins are an acceptable method to do this and you must take possession. Do NOT store them at the coin company.

Remember you will never make money in gold. It is simply a hedging or insurance mechanism. That is, if gold is going up, then other asset classes are going down and vice versa. Make sure you work with a reputable coin dealer.

Watch the short video below that came from Glenn Beck’s show; it does show how dramatic money creation has been recently.