Uncle Sam’s Snake Oil

Uncle Sam and his band of merry-men, better known as Congress, have been pushing snake oil on the unsuspecting public in the form of retirement plans. But wait, isn’t a pension plan one of the perks we look to when shopping for an employer? Well, not all pension planning is created equal and in most cases, quite disastrous.

Distributions from all qualified plans must begin no later than April 1st of the calendar year following the year that the participant attains age 70 1/2, or the calendar year in which the employee retires. Special rules apply if the distribution is made to a 5 percent owner of the business. The purpose of minimum distribution rules for retirement plans is to force the owner or participant of the pension plan to withdraw money from the plans, thus triggering an income tax on these monies. On April 16, 2002, the Internal Revenue Service issued final regulations as to these distributions.

Generally, the idea pursuant to the regulations is to have the owner or participant of the pension plan begin taking the money out of the pension plan beginning at the later of when he finishes working or age 70.5. One purpose of this is to insure that these monies will be subject to income tax prior to the death of the owner.[1]

Based on the current system the government has created with pension plans, the average retired couple will pay eight to twelve times more in taxes on their IRAs and 401(k)s during their retirement years than they saved during their contribution and accumulation years.[2] Generally, it is understood that you put money into your pension plan and tax is deferred and this is a great thing. Unfortunately, you may well be in a higher tax bracket if your pension accumulation is done right.

In addition to a higher tax bracket upon reaching retirement, many people find themselves with a free and clear home; they no longer have mortgage interest deductions to offset income tax. Many Americans find they are now paying back everything they saved in taxes during their accumulation and contributions years within the first two years of distributions. Therefore, there is an insidious income tax awaiting most people and if they didn’t plan their estates, double taxation in the form of both income and estate tax.

Many postpone the transfer of their qualified funds until age 59 ½ in order to avoid the 10% tax penalty. Sometimes by delaying the payment of taxes, retirees will find themselves in a higher tax bracket after age 59 ½ because Congress could raise tax rates because of a political change. Inevitably, one must pay the piper now or later.

What is the answer? Simple, savings grade life insurance. This type of life insurance is not the same as the one you get countless letters about in the mail. This is life insurance that is focused on building up a triple compound because it is tax deferred. The difference between the deferral that life insurance experiences and pension plans is that when it comes time for payout, life insurance is received as a loan. This is a powerful concept because the proceeds will not be taxed; loans are not a form of taxable income. However, as a loan you will have interest on the payments. Most people mistakenly think they are going to pay interest on their own money with life insurance. While in theory that is true, the best insurance carriers provide for zero wash loans where the interest basically is forgiven or taken out of the death benefit when a person passes on. We are talking about real life insurance not the typical death insurance that most people have because you use it while you’re alive.

The best candidates for creating amazing wealth with Savings grade life insurance are those in the age rages of thirty to fifty. Once committed and in the proper product it is foreseeable they will retire wealthy and without the annoying taxation that surrounds a pension plan. There are even strategies to start a contribution plan to your investment that only requires repositioning your current finances.

Social Security received a 2.7 percent boost in 2005, but Medicare will continue to eat up much of the increase and when the 79 million qualifying Americans sign-up – for Social Security look out below. This does not even account for the bail out with TARP funds that President Obama awarded bankers and the fact we are headed for Debtflation.

Long Term Nursing Care – are your prepared?

Many states have a high cost for long term care and nursing but California is very explosive in expenses.

State Median Annual Care Costs for 2010 are:

Nursing Home Care

1. Private Room                                                      $87,345
2. Semi-private Room                                          $73,000

Assisted Living Facility

1. Private, one bedroom                                     $42,000

Adult Day Health Care

1. Adult day health care                                    $20,020

Home Care

1. Home health aide                                           $46,904
2. Homemaker Services                                   $45,646

The statistics are that 7 in 10 people will require one of these types of long term care in their senior years. The question is what have you done to take care of this potential problem?

You need to look at a long term care policy or better yet, an insurance policy that provides for supplemental retirement income but also has living benefits if you need them like nursing care. To ignore the numbers is to ignore a fact like you’re going to get old and that everyone has to pay taxes. You need to be responsible to your loved ones and in order to preserve all that you are and have worked for from going out the window to pay for this.

James Burns, Esq.

www.jamesgburns.com

Domestic Financial Terrorism – How do we defend?

The level of destruction on our financial system is incredible compared to what even Timothy McVee did as a domestic terrorist. You have to ask yourself who do some of these bankers and investment firms work for when you look at what they’ve done to the once wealthiest nation in the world.

Right now we’ve got $2 trillion in short-term debt that has to be refinanced this year of 2010 and China, India and Russia are not buying. This is not counting the extra deficit spending which should top $1.35 trillion this year…more or less. The fact the countries we’ve relied on are not buying means we have to fire up the printing presses again. We would already acknowledge that we are at a 10% inflation but the money folks have been using tricky phrases like “core inflation” which ignores half the things we spend money on so that way they can keep the numbers looking low.

A great book called This Time Is Different: Eight Centuries of Financial Folly by Carmen Reinhard and Kenneth Rogoff shows that EVERY TIME a nation’s debt went above 90% of GDP or Growth Domestic Product…the nation failed. The book studies 25 countries over 800 years and there were NO exceptions to the 90% rule. Every nation that ran their deficits to this 90% ratio is now off the map or turned Third World.

Right now, the US is above 90% and there appears no way to bring it down for decades unless some obscure genius comes out of the woodwork as they are not in the White House, Treasury or Fed.

It is unclear what Americans will do, especially for their retirement as the very tool our bankers use against us (stock market) they expect us to hand over our life’s savings and just be ok with negative 30 or 40% loses. You know, its just the market reacting and it goes up and down. Why is that Ok? Why should we accept losses that take us forever to recover just to get back where we started be considered alright?

We need to redo some of the Healthcare Reform Act that President Obama so valiantly promoted before 2013 when our investments could be ravaged with a sur-tax just because we are in a certain income bracket and that bracket is not hard to be in if you live in a state with a high cost of living. Where is Sarah Palin and the Tea Party when we need them.

It is time to look at guaranteed opportunities that does not go down when the market goes down. When Wall Street was once honorable a man named Benjamin Graham (mentor to Warren Buffet) extolled what was an investment. It preserved principal and gave an adequate return. We need to get back to this simple idea and quit trying to find home runs since base hits get you to home plate just as well.

We also need tax-free strategies to weather the storm our own government and their brainy bankers have left before us. It was like turning on the gas to an already smoldering economy.

James Burns

“THREE WAYS YOU CAN AVOID GOING BROKE IN THE NEW ECONOMY”

The first thing you can do as illustrated in “The 3 Secret Pillars of Wealth” book is take ownership of your monthly expenditures by having a family budget and a family balance sheet you observe with conviction. If you’re desirous of change, you have to do the work since the only place success comes before work is the dictionary.

Number two, if your home payments are too high because you’re job or industry has fallen off, seek a loan workout with your lender or use a law firm to assist you that has a success rate.

Mr. Burns also states that if you are carrying too much bad debt like credit cards and you’re slowing sinking into the quicksand, think about debt settlement or management services that don’t have an upfront cost and can get you from point A to point B in terms of eliminating this debt. While it may have a temporary blemish on your credit score, at least you get back to the surface where you can breathe.

Lastly, if you’re crunched for cash to invest or pay down bills, look if you or your parents have an old universal life or convertible term life insurance policy that has underperformed or is not really needed and consider having it sold in the secondary market as a life settlement.

More power solutions are available right here so stay tuned, get involved and please send in comments so we can save or pick up lives in this down economy. In numbers we are strong.

James Burns, Esq.

“Loan Modification or Complication?”

The plan centers on Fannie Mae and Freddie Mac, which between them own or back about 31 million mortgages worth a combined $5 trillion. The federal government took over the firms in September due to mounting losses on their portfolios of mortgages.

Eligibility is determined by several factors: Homeowners must be 90 days or more late in their mortgage payments, owe at least 90% of their home’s current value, live in the home on which the mortgage was taken and have not filed for bankruptcy.

Their mortgage payments would be adjusted through lower interest rates or longer repayment schedules with the goal of bringing payments below 38% of monthly household income. Interest rates could be lowered for five years and then raised to a predetermined level. Loan terms could be lengthened to 40 years.

Officials said the standards for loan modifications should fast-track changes in payments. The standards will be applied to loans owned and guaranteed by Fannie and Freddie, but officials said they hope they will also be adopted industry wide.

“We expect that it could significantly increase the number of modifications completed,” said James Lockhart, director of the Federal Housing Finance Agency, the regulator that oversees Fannie and Freddie. …

Fannie reported this week that 1.7% of its mortgages by value are delinquent by 90 or more days. Fannie’s filings suggest that it has about 18 million mortgages on its books, which would work out to about 300,000 mortgages that could potentially be eligible. The borrower will ultimately be responsible for paying the full amount of the principal borrowed, but payment on part of the principal can be deferred to make the monthly payment affordable.

Homeowners who purposefully default on their mortgage to get a modification will not be eligible. Borrowers will have to submit a statement showing financial hardship or a change in financial circumstances, along with proof of their income. The modification will become final once a borrower has made three payments under the modified terms.

But even in cases where declining home prices have taken the value of a home to less than is owed on the mortgage, the balance of the loan will not be lowered under this program.

“This is not loan forgiveness; the loans will be paid but at terms affordable for borrowers,” said Brian Montgomery, commissioner of the Federal Housing Administration.

The fact that mortgage balances will not be reduced for the so-called underwater mortgages — those in which a homeowner owes more than the home is worth — will limit the use and impact of the program, according to some experts.

However, there is a competing interest in getting modifications done and that is the investors who purchased these loans. Some hedge funds, including Greenwich Financial Services and Braddock Financial, told banks in October that they might sue the banks if they changed mortgages that were within mortgage bonds that the hedge funds had purchased. Modifying the terms of mortgages underlying mortgage bonds can change how much those bonds are worth.

Investor rules and underlying servicing contracts with respect to modifications are not uniform and may prevent us from doing modifications that would benefits borrowers and investors.

Under the plan, Fannie Mae, Freddie Mac and other mortgage firms will rewrite the terms on some overdue mortgages so the homeowners won’t pay more than 38% of their monthly income. Modifications could include deferring some of the principal owed, lowering interest rates or extending maturities to as much as 40 years. The process will be streamlined and uniform.

If you know someone in need of saving their home have them contact my office after downloading our questionnaire which should be faxed back to use…get it here .

James Burns, Esq.

Credit Card Wars

I’ve been predicting that credit cards would be the next financial branch to go on the offensive for risk management and start closing cards or cutting credit lines.

Indeed, credit card issuers are tightening lending terms with consumers to lower their risk profile, from cutting borrowing limits to closing dormant accounts and I’ve had a few clients already that have fallen victim to this pre-risk practice.

A survey of credit card industry executives in July found that 62 percent of their companies planned to reduce lines of credits because of economic conditions and risk mitigation, according to Javelin Strategy & Research.

While changing a customers credit limit is nothing new, representatives of the largest card issuers in the U.S., Bank of America, JPMorgan Chase and American Express, say they are increasingly cutting credit card limits for their customers because of the downturn and to avoid risk.

American Express routinely changes the credit limit of 20 percent of its customers every year, more cards are being limited or lowered than raised this time around, according to Kim Ford, a spokesperson at the company. This year, only one out of two customers saw an increase, versus four out of five in the recent past and they had excellent credit and payment history.

Ford says it reflects a change in the criteria used to assess riskier customers, factoring in such things as whether the card holder has a subprime mortgage, the geographic location of the home and whether home prices are falling in that area. We can only imagine how they view California right now as the earth drops all the way to China in terms of housing prices.

American Express is not alone. “We’re working more aggressively to control risk,” said Betty Riess a spokesperson at Bank of America , adding the company is also closing accounts of customers that have had a zero balance for over a year and have a riskier profile.

A spokesperson at JPMorgan Chase stated the bank is positioning itself by taking a second look at riskier customers as a result of economic conditions.

Like much of the credit crunch, the changes may mean little to those with the best credit or those who spend and borrow judiciously and pay off their monthly balances. But if you get caught in that financial quicksand, you could go down without a rope and have it adversely affect your credit score.

Accordingly, cutting credit limits or closing accounts can have a negative effect on a consumer’s credit score, or FICO, says Liz Pulliam Weston, a personal finance columnist and author of “Deal with Your Debt.” That’s because one way credit scores are calculated is by looking at the debt-to-available credit ratio. The closer the debt to the credit limit, the lower your credit score.

A credit limit reduction, for instance, can lower your credit score by 30 to 50 points, says Weston.

With lower credit limits, cash-strapped consumers, will have less of a back up— and in some cases none at all—when things get tough.

“It’s going to, in turn, effect discretionary spending,” says Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research.

What should you do?

Pay Attention

A change in credit lines or account closures will be communicated in writing. Woosley says consumers should check online statements as well as regular mail, as some of the notices can look like junk mail.

“You should know your credit score by checking it at least once a year, says Weston. I like and personally use myfico.com, as it comes from the folks who created FICO and is the most reliable in my opinion.

Appeal The Decision

If you get a notice saying your credit limit is being reduced, you can call up or write the company and try to reverse the decision, especially if you feel your credit score is in good standing. Sometimes, mentioning the possibility of changing card issuers can help. “Consumers still have some power,” says Weston.

Use Your Card

If you have a dormant, or inactive, card—one with a zero balance on a regular basis—use it for small purchases, recommends Kaplan. “It might be a good idea to go out and use it, so it doesn’t look like it’s sitting there unused,” she said.

Don’t Miss Payments

An obvious piece of advice, but worth repeating, try to pay your balance in full every month, avoiding interest and finance charges.

Companies are less likely to take action “if you have good credit,” says Kaplan.

Seek Credit Restoration

We assist consumers with credit restoration so you can contact my office as we’ve been successful in removing derogatory reporting and using the law to ensure that the reports are accurate as it is suprising how many times it is not.

Loan Modification and Foreclosure Avoidance

Usually if there is one financial situation there is another and we can help you get a loan modification that will free you from the bondage of a high interest rate that can totally sink you and your credit and once you’re credit is ruined it takes close to a decade to get it back without help.

James Burns, Esq.