In light of a recent Wealth Management Workshop about Social Security that we hosted for our clients, I have found it helpful to review with people the potential taxation of their Social Security benefits in retirement. Many people do not realize how taxation will affect them in retirement, and consequently fail to plan for it properly.
The IRS looks at your “combined income” to determine the taxability of your Social Security benefit. Combined income is calculated by adding your Adjusted Gross Income with any non-taxable interest (such as Muni Bond interest), plus half of your Social Security Benefits. The equation looks like this:
AGI + Non-taxable Interest + ½ Social Security Benefits = Combined Income
If your “combined income” is between $25K and $34K for a single person, or $32K and $44K for a couple, 50% of your Social Security benefit will be taxable.
If your “combined income” is over 34K for a single person, or $44k for a couple, 85% of your Social Security Benefit will be taxable.
As you can see this can become quite significant and should be weighed when planning for retirement income.
Friday, February 19, 2010
Monday, February 8, 2010
Europe’s PIiGS vs.Emerging BRICs
As we have watched the globally economy grapple with Greece’s debt load in the last couple of weeks, it has become clear that international investing in 2010 will be characterized by a tug of war between the struggling Euro-zone and the potentially overbought Emerging Markets.
The investment world loves to use acronyms whenever possible, so let’s be clear. Dubbed the PIiGS, the struggling economies of Portugal, Ireland, Greece, Spain, and to a lesser extent Italy (the small “i”). The basic challenge for Greece is that the decline in world eco¬nomic growth has exposed the declining relative productivity of Greek business. Historically in this situation, the currency of the country would decline and interest rates would be cut. The decline in currency would improve the trade deficit because cheaper goods become more attractive to foreign markets, thus reducing any trade deficit.
Because these countries use the Euro for their currency, they have little to no control on monetary policy—specifically interest rates. The Europe¬an Central Bank remains reluc¬tant to cut rates as low as the Federal Reserve, which would help Greece. The other PIiGS are not in as bad a shape as Greece, but the entire continent has been terribly hit by this recession.
On the other side are the Emerging market BRIC countries of Brazil, Russia, India, and China—with China being the biggest of the capital letters here. To get an understanding of just how large the Chinese market is, consider that it has three of the four largest banks, the two largest insurance companies, and the second-largest stockmarket. Currency issues have been a global concern toward China, with the yuan having been “allowed” to devalue with the US dollar. Both economists and politicians have argued that the value of China’s currency should be much higher given the country’s improving economic performance.
The challenges with Greece will result in a challenge to the rest of Europe and to global liquidity. If this challenge becomes more likely, emerging markets, corpo¬rate bonds, and domestic equities may suffer. China will have the biggest questions to answer of all of the BRICs, with an exploding economy. With regard to the international sector in 2010 the balance will be between the old world and the new.
The investment world loves to use acronyms whenever possible, so let’s be clear. Dubbed the PIiGS, the struggling economies of Portugal, Ireland, Greece, Spain, and to a lesser extent Italy (the small “i”). The basic challenge for Greece is that the decline in world eco¬nomic growth has exposed the declining relative productivity of Greek business. Historically in this situation, the currency of the country would decline and interest rates would be cut. The decline in currency would improve the trade deficit because cheaper goods become more attractive to foreign markets, thus reducing any trade deficit.
Because these countries use the Euro for their currency, they have little to no control on monetary policy—specifically interest rates. The Europe¬an Central Bank remains reluc¬tant to cut rates as low as the Federal Reserve, which would help Greece. The other PIiGS are not in as bad a shape as Greece, but the entire continent has been terribly hit by this recession.
On the other side are the Emerging market BRIC countries of Brazil, Russia, India, and China—with China being the biggest of the capital letters here. To get an understanding of just how large the Chinese market is, consider that it has three of the four largest banks, the two largest insurance companies, and the second-largest stockmarket. Currency issues have been a global concern toward China, with the yuan having been “allowed” to devalue with the US dollar. Both economists and politicians have argued that the value of China’s currency should be much higher given the country’s improving economic performance.
The challenges with Greece will result in a challenge to the rest of Europe and to global liquidity. If this challenge becomes more likely, emerging markets, corpo¬rate bonds, and domestic equities may suffer. China will have the biggest questions to answer of all of the BRICs, with an exploding economy. With regard to the international sector in 2010 the balance will be between the old world and the new.
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