Articles for May 2017

The Rough Consequences of Not Saving for Retirement

Do you really want to risk facing these potential outcomes?

Saving for retirement may seem a thankless task. But you may be thanking yourself later. Putting away a percentage of one’s income, money that could be used for any number of bills or luxuries, is a sacrifice made in the present in order to avoid a larger trouble down the road.

More than a quarter of seniors have no retirement savings. To be more specific, the Government Accountability Office says 29% of households headed by people 55 or older have no savings in a retirement account and no possibility of receiving an employer pension.1

Late last year, a PWC survey revealed that 37% of baby boomers had less than $50,000 in retirement assets. Just 24% of baby boomer households PWC polled had saved more than $300,000 for their “second acts.”2

What kind of future awaits boomers who have saved less than $50,000 for retirement? It is hard to say exactly what may happen to them financially, but it is possible to make some educated guesses.

They will likely try to work into their seventies. If their health permits, they will attempt to stay employed at least part time. Their earnings will presumably drop as they age.

They will probably rely heavily on Social Security & home equity. Social Security income by itself will prove insufficient to retire on, so they will look at selling their homes or arranging reverse mortgages to help fund their retirement (if they own homes to begin with).

A fortunate few may have a third option: augmenting their inadequate retirement savings with proceeds from a business sale. Some small business owners save relatively little, believing that the money they get from selling their company will fund their future. That is not a given. It may take years for their business to sell, and it may sell for far less than they assume.

Within a few years, they will need to accept a significantly lower quality of life. They may be forced to scale back creature comforts, live in tiny quarters, or relocate to a cheaper, less desirable area (assuming they can handle relocation costs). They may end up doing all of this.

At some point, they may start spending down their assets. If they do enough of that, they will be eligible for Medicaid – a grim consolation in a sad process. Debts may impel them to whittle away their net worth even faster.

Then, they may need help from their children. Having little or no income besides Social Security, they will struggle mightily to keep up with the bills. If they own their homes free and clear, at least they will be able to stay in them; if not, they may choose the apartment of last resort and move in with one of their adult children.

Will this be your future? If you want to plan to avoid this financial nightmare, then you must save and invest for retirement. Save and invest as if your entire future depends on it, for it may. Saving and investing now could help you save your quality of life someday.

Michael Moffitt may be reached at 641-782-5577 or email:  www.mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – smartasset.com/retirement/average-retirement-savings-are-you-normal [3/29/17]

2 – fool.com/retirement/2016/12/17/baby-boomers-average-savings-for-retirement.aspx [12/17/16]

 

 

What Are Your Odds of Being Audited?

They are low, unless you show the I.R.S. some conspicuous “red flags” on your return. 

Fewer than 1% of Americans have their federal taxes audited. The percentage has declined recently due to Internal Revenue Service budget cuts. In 2016, just 0.7% of individual returns were audited (1 of every 143). That compares to 1.1% of individual returns in 2010.1,2

The rich are more likely to be audited – and so are the poor. After all, an audit of a wealthy taxpayer could result in a “big score” for the I.R.S., and the agency simply cannot dismiss returns from low-income taxpayers that claim implausibly large credits and deductions.

Data compiled by the non-profit Tax Foundation shows that in 2015, just 0.47% of Americans with income of $50,000-75,000 were audited. Only 0.49% of taxpayers who made between $75,000-100,000 faced I.R.S. reviews. The percentage rose to 8.42% for taxpayers who earned $1-5 million. People with incomes of $1-25,000 faced a 1.01% chance of an audit; for those who declared no income at all, the chance was 3.78%.2

What “red flags” could prompt the I.R.S. to scrutinize your return? Abnormally large deductions may give the I.R.S. pause. As an example, suppose that you earned $95,000 in 2016 while claiming a $14,000 charitable deduction. Forbes estimates that the average charitable deduction for such a taxpayer last year was $3,529.3

Sometimes, the type of deduction arouses suspicion. Taking the Earned Income Tax Credit (EITC) without a penny of adjusted gross income, for example. Or, claiming a business expense for a service or good that seems irrelevant to your line of work. A home office deduction may be ruled specious if the “office” amounts to a room in your house that serves other purposes. Incongruous 1099 income can also trigger a review – did a brokerage disclose a big capital gain on your investment account to the I.R.S. that you did not?4

Self-employment can increase your audit potential. In 2015, for example, taxpayers who filed a Schedule C listing business income of $25,000-100,000 had a 2.4% chance of being audited.2

Some taxpayers illegitimately deduct hobby expenses and try to report them on Schedule C as business losses. A few years of this can wave a red flag. Is there a profit motive or profit expectation central to the activity, or is it simply a pastime offering an occasional chance for financial gain?

If you are retired, does your audit risk drop? Not necessarily. You may not be a high earner, but there is still the possibility that you could erroneously claim deductions and credits. If you claim large medical expenses, that might draw extra attention from the I.R.S. – but if you have proper documentation to back up your claims, you can be confident about them.

The I.R.S. does watch Required Minimum Distributions (RMDs) closely. Failure to take an RMD will draw scrutiny. Retirees who neglect to withdraw required amounts from IRAs and employer-sponsored retirement plans can be subject to a penalty equal to 50% of the amount not withdrawn on time.1

The fastest way to invite an audit might be to file a paper return. TurboTax says that the error rate on hard copy returns is about 21%. For electronically filed returns, it falls to 0.5%. So, if you still drop your 1040 form off at the post office each year, you may want to try e-filing in the future.4

Mike Moffitt may be reached at phone# 641-782-5577 or email: mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – kiplinger.com/slideshow/retirement/T056-S011-9-irs-audit-red-flags-for-retirees/index.html [3/17]

2 – fool.com/retirement/2017/02/06/here-are-the-odds-of-an-irs-audit.aspx [2/6/17]

3 – forbes.com/sites/baldwin/2017/01/23/tax-guide-deductions-and-audit-risk/ [1/23/17]

4 – fool.com/retirement/2016/12/19/9-tax-audit-red-flags-for-the-irs.aspx [12/19/16]

 

Is an Extended Warranty Worth It?

In many cases, the answer is no. 

If you purchase anything that uses electricity and is designed to last more than a year, odds are you will be offered an extended warranty at the point of sale. What are the chances of that product malfunctioning just outside the standard warranty term? Often, they are low – and the store or manufacturer is just reminding the consumer of that remote possibility in pursuit of extra profit.

Online research may reveal that the standard warranty on a product you want to buy has proven adequate. Not only that, some credit cards provide consumers with extended warranties. In some cases, buying a product with a particular card may lengthen the basic warranty period by a year.

Sometimes it can be smart to purchase an extended warranty. Most basic warranties don’t cover accidents, but some extended warranties do. You may not have to buy an extended warranty when an item is in your real or virtual shopping cart, though. Some retailers will let you buy longer warranty coverage after the sale, and online businesses like SquareTrade sell extended protection plans for some products at a discount.3

Mike Moffitt may be reached at Phone# 641-782-5577 or email:  mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Stock investing involves risk including loss of principal.

The economic forecasts set forth in this material may not develop as predicted.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

3 – quickenloans.com/blog/5-reasons-not-buy-extended-warranty [1/13/17]

The High Cost of Dining Out

Is it lightening your wallet a little too much?

Do you like to eat out at a nice restaurant once or twice a week? That habit may be costing your household more than $500 a month. Zagat says the average restaurant meal in America cost $36 last year. The national average tip was 18.9%, meaning that even a solo diner spent an average of $42.80 for the experience. Foodies may be allocating even more of their budgets to fine dining. The average respondent to Zagat’s 2016 National Trends Survey reported eating out 4.5 times a week, with 85% saying they had planned dining getaways out of their area (effectively adding fuel costs to their tab). Even if you simply stop at fast casual eateries, the cost of the meal may be multiples greater than that of home cooking.

If you are eating out less these days, you are part of a trend. According to a new Reuters/Ipsos poll, a third of Americans say that they are eating out less in 2017 compared to 2016, with 62% of them citing cost as the top factor.2,3

Mike Moffitt may be reached at Phone# 641-782-5577 or email:  mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Stock investing involves risk including loss of principal.

The economic forecasts set forth in this material may not develop as predicted.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

2 – zagat.com/b/the-state-of-american-dining-in-2016 [1/26/17]

3 – fortune.com/2017/02/22/restaurants-eating-out-americans/ [2/22/17]