Using Donor Advised Funds To Achieve Your Philanthropic Goals

Yfat Yossifor

A Donor Advised Fund (DAF) is a simple, flexible, and tax-efficient way to give to your favorite charities. Consider three examples of DAFs in action:

Temporary surge in income. As a senior executive at a major corporation, Sally’s compensation package includes annual stock option grants that vest over four years. Sally decided earlier this year to exercise some of her vested stock options and use the proceeds to purchase a second home and add funds to her investment accounts. Because gains on stock option sales are taxed as ordinary income, Sally was looking for a way to reduce the tax bill on her temporary surge in income. A regular contributor to various philanthropic causes, Sally elected to pre-fund 5 years of charitable donations in a DAF. Because DAF contributions are treated as a gift to a public charity, the donor receives an upfront tax deduction while the distributions to charities can be postponed to a later date.

Helping charities who cannot accept appreciated securities. Donating appreciated securities rather than cash is a popular way to support charities. By doing so, the donor avoids paying capital gains taxes on the increase in value while simultaneously receiving a tax deduction equal to the value of the appreciated securities. But many charities, especially smaller ones, may only be able to accept cash. Funding a DAF with appreciated securities, which are then sold, can be a tax-efficient way to get proceeds into the coffers of charities who only accept cash.

Rebalancing an investment portfolio. John and Laura, now in their early 70s, had a large investment portfolio, but it was highly concentrated in just a handful of stocks. To reduce their risk, they elected to lower their concentrated positions and redeploy the capital into a more diversified and lower risk investment portfolio. To help lower the long-term capital gains taxes they would pay on the sale of the securities, they contributed appreciated securities to a DAF to pre-fund future charitable contributions. Like Sally in the first example, this enabled them to get an upfront tax deduction.                  

How do DAFs work in practice?

With a DAF, you transfer your assets, watch them grow, and decide which charities to contribute to when you are ready. DAFs are a particularly good choice for year-end giving if you are still not sure which charities to support.

Make a tax-deductible donation. Donate cash, stocks, bonds or more complex assets like real estate, private business interests and private company stock and get your tax receipt. You will be eligible for an immediate tax deduction based on the fair-market-value of the donated property. The DAF platform provider you select will then sell the contributed assets and credit your account with sale proceeds.

Support charities that are important to you, now or over time. You can use money in your DAF to support any IRS-qualified public charity. The DAF platform provider sponsoring your account will conduct due diligence to ensure the funds granted out of your account will be used for charitable purposes and is IRS-qualified.

Grow your donation, tax-free. While deciding which charities to support, you can elect to have your account invested in different investment products, creating the potential for even more money to be available for distribution to charities of your choice.

You cannot fulfill a pledge with your DAF. This rule is based on semantics. When a pledge is considered legally binding and a financial obligation of the donor, and the pledge is fulfilled using a DAF, the donor is viewed as getting a benefit from the DAF.  This violates the Internal Revenue Code.  However, a donor can set up recurring gifts from the DAF if there is no legally binding pledge behind the gifts. Fidelity Charitable, for example, recommends that donors avoid language with fund-raisers that imply a pledge and replace it with a non-binding letter of intent. For more on this topic, click here

How popular are DAFs?

Congress created the legal structure for DAFs in the late 1960s, but it took time for the concept to grow in popularity. It has since become the fastest growing charitable giving vehicle in the United States.

The National Philanthropic Trust, a non-profit focused on charitable giving, reported that $85.2 billion of charitable assets were held in approximately 285,000 DAF accounts in 2016. Total contributions to DAF accounts last year totaled $23.3 billion, with $15.8 billion being paid out to various charitable organizations.  

Some of the biggest DAF providers include Fidelity Charitable, Schwab Charitable, and Vanguard Charitable. All of them have user-friendly web platforms that make donating and granting easy.

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Dalya Inhaber, Ph.D., CFP ® is a financial advisor based in New York. She is the founder of Minerva Wealth Advisory, a Registered Investment Advisory firm. The mission of the company is to provide clients with tailored and unbiased financial planning and investment management. Dalya holds a Ph.D. in economics and statistics from the University of Michigan.  The firm is named after Minerva - the Roman goddess of wisdom and knowledge. Minerva is often depicted with her sacred creature the owl, whose keen eyesight helps her navigate a path forward.

Negotiating Major Charitable Gift Agreements

Americans are extraordinarily philanthropic. The Charities Aid Foundation recently ranked the United States first among twenty-four countries based on the value of charitable giving when expressed as a percent of GDP.

Individuals sometimes find themselves in a fortunate position where they can consider making a major charitable gift. Perhaps they received a substantial inheritance and now want to share some of it with a non-profit where they have been active. Or they recently sold a family business and want to use some of the sale proceeds to fund a merit-based scholarship program at a university they attended. While the motivations to be generous are various, gifts of this magnitude necessitate entering into a gift agreement with the non-profit. A carefully negotiated and well-drafted agreement is essential for the donor to have a fulfilling charitable experience.

What goes into a gift agreement?

Most charities have routine gift agreements that specify the obligations and rights of the donor and the charity. The larger the gift, especially when compared to other major gifts received by the non-profit, the greater the negotiating leverage of the donor. Gift agreements should memorialize the goals and objectives mutually agreed to by the donor and charity, along with building in some flexibility in case of unforeseen circumstances. In a recent white paper, UBS highlighted a variety of issues that can be addressed in a gift agreement:

· The charity’s use of the gifted assets

· Recognition for the donor and/or the donor’s family (i.e., naming rights, publicity)

· Permitted participation or monitoring by the donor of the use of the funds. For example, if the donor is endowing a professorship, it is unlikely that the donor will have any role in selecting the professor. In the case of a scholarship, the donor may be able to serve as part of a selection committee or have some say in the recipients of the scholarship.

· Ongoing reporting obligations of the charity to the donor

· Measurements for success of the donor’s goal (incorporating realistic short-term and long-term benchmarks)

· Mechanisms to modify the agreement by the parties

· Alternative plans and procedures if the original purpose of the gift becomes impractical or impossible to sustain

· Circumstances under which naming rights might be changed (i.e., if the donor receives negative publicity)

· Terms and circumstances under which the charity may sell the gifted assets

Who should a donor consult when negotiating a gift agreement?

Donors can potentially receive substantial tax benefits associated with their charitable gifts. For example, a New York City resident in the highest income tax bracket in 2017 could potentially receive an income tax benefit equal to almost 50 percent of the value of their charitable gift. But the tax benefits can vary dramatically based on individual circumstances. As a result, it is vital that donors include their financial and tax advisors in their gift negotiation team, along with a qualified lawyer.

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Dalya Inhaber, Ph.D., CFP ® is a financial advisor based in New York. She is the founder of Minerva Wealth Advisory, a Registered Investment Advisory firm. The mission of the company is to provide clients with tailored and unbiased financial planning and investment management. Dalya holds a Ph.D. in economics and statistics from the University of Michigan. The firm is named after Minerva - the Roman goddess of wisdom and knowledge. Minerva is often depicted with her sacred creature the owl, whose keen eyesight helps her navigate a path forward.

A Better Way to Give – Using Appreciated Securities Rather Than Cash

Andy Warhol,9 Dollar Bills, 1982

With the stock market at record highs, many people have substantial long-term capital gains in their investment portfolios. When it comes to being generous with charities or family members, using appreciated securities is sometimes wiser than using cash. Let’s consider two important cases.

Charitable Giving

Suppose you want to make a $5,000 contribution to a charitable organization. You write a check and get a $5,000 charitable deduction. Assuming you are a NYC resident in the 33 percent federal tax bracket (making approximately $200,000 to $400,000) who itemizes deductions, you save approximately $2,200 in federal, state, and local income taxes.

Instead, suppose you have appreciated securities in your portfolio that you would like to sell, perhaps to lower your equity exposure or simply rebalance your portfolio. When the securities are sold, you will need to pay capital gains tax on the appreciated value. If you are in the 15% capital gains tax bracket and live in NYC, you will pay approximately $.25 for every dollar of appreciation. If the securities you are considering selling have doubled in value (which is not unusual in the eighth year of a bull market), then selling $5,000 of appreciated securities will create $2,500 in capital gains and a capital gains tax of approximately $625.

However, if the $5,000 in appreciated stock is donated to the charity, then you still get the $5,000 deduction and the associated income tax savings, but also save $625 in capital gains taxes. For these reasons, appreciated securities are often a better way to make charitable donations. 

Gifting appreciated securities to your children or grandchildren

Suppose you want to gift your daughter $14,000 per year as part of your estate plan. Under current law, you can gift $14,000 a year per individual and maintain your estate tax exemption amount.

If you gift $14,000 of appreciated securities, you will not have to pay capital gains taxes nor gift taxes. You have just gotten $14,000 out of your estate without incurring any taxes. However, your daughter receives the securities at your original cost basis. When she sells the securities, she will have to pay the capital gains taxes. So effectively, the capital gains taxes were transferred from you to your daughter, who still comes out ahead because she received a gift, but the gift is potentially worth less than $14,000 when she nets out the capital gains taxes. Since the tax is not avoided, why do this at all?

The answer depends on your child’s tax bracket. If your child just graduated from college and will work full time for only part of the year, then it is likely that her capital gains tax will be zero if she sells the security during that year. As long as your child’s capital gains tax bracket is lower than yours, your family will save on capital gains taxes even if you don’t avoid them altogether. For this strategy to work, your child must sell the securities while her income is low. If she holds on to the securities and sells them after her income has increased as she matures in her career, then the strategy won’t work.

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Dalya Inhaber, Ph.D., CFP ® is a financial advisor based in New York. She is the founder of Minerva Wealth Advisory, a Registered Investment Advisory firm. The mission of the company is to provide clients with tailored and unbiased financial planning and investment management. Dalya holds a Ph.D. in economics and statistics from the University of Michigan. The firm is named after Minerva - the Roman goddess of wisdom and knowledge. Minerva is often depicted with her sacred creature the owl, whose keen eyesight helps her navigate a path forward.

What is Longevity Insurance?

Is there a downside to living a long life? Yes – the fear of running out of money. As a financial advisor, when I develop long term plans for clients, I need to make assumptions about how long their resources will need to last. I rely on assumptions derived from a family history I talk through with a client and longevity tables constructed by insurance company actuaries. These calculations, however, only tell us what is likely to happen ‘on average’. There is always the possibility of something unlikely happening (known as a “black swan”), such as the grandmother of a friend who lived to 104.

If you think you may be a black swan, then you may want to explore longevity insurance. The term refers to a strategy or product that provides income later in life, insuring that you do not outlive your financial resources. Longevity insurance products are typically annuities that provide income only after a certain age, usually 85.  In exchange for a single, upfront premium payment, the annuity provides income if the policy holder reaches 85, and then continues to make payments until they pass away.

While longevity insurance helps mitigate the financial risk of being a black swan, it comes with some disadvantages. First, many policies do not include a death benefit. That makes them a ‘use-it-or-lose-it’ proposition.  Second, once the annuity is purchased, the policy holder has no access to the funds. Moreover, since inflation is one of the main issues in long term planning, inflation protection should be included in the policy, but rarely is. As the market for longevity insurance grows and matures, more companies are likely to offer policies with a death benefit and other features.

There is an important form of longevity insurance offered by the US government: deferring your Social Security benefits.

Example: A retiree at their full retirement age of 66.5 years in 2017 receives $2,900 a month in Social Security benefit. But if they waited until age 70, they would get $3,760 in monthly benefits (adjusted for inflation) for the rest of their lives. The additional $860/month benefit is their longevity insurance payout. What are they paying for it? The $121,800 in foregone Social Security benefits between age 66.5 and 70.  This may be a good deal if they expect to live past age 85.

More generally, your Social Security benefits increase approximately 8% each year they are deferred.  By giving up benefits for 3 to 4 years, the retiree gets a higher benefit once they start taking Social Security. For someone deferring until age 70, it takes about 12 years to make up the benefits they gave up, not taking account of the time value of money. This means that a retiree would have to live to 82 to break even. If a retiree believes that she will live past age 82, then the 30% increase in deferred benefits acts as a form of longevity insurance.

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 DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results.                                   

How Long Are You Likely to Live?

Many of us wonder how long we are likely to be alive. Sometimes the question arises when existential thoughts are going through our brains, or in more pragmatic moments, when we want to figure out if we have enough financial resources to live a long life.

While it will always be a guessing game, longevity calculators can help frame for you what may come to pass. Popular online calculators include:

Social Security Administration Calculator. This calculator will show you the average number of additional years you can expect to live based only on your gender and date of birth. Simple and easy to use, it is probably the first place to look for insight.

Wharton Life Calculator. This tool was developed by Professors at the University of Pennsylvania Business School using data from different life insurance companies. It estimates life expectancy based on answers to 14 demographic and lifestyle questions.

Living to 100 Calculator. This popular tool asks you 40 quick questions related to your health and family history and takes about 10 minutes to complete. At the end, you will be asked to create an account to store your answers.

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

The Longevity Revolution

More people than ever before are leading longer and healthier lives. The longevity premium we enjoy today has been rising for decades. A recent study by The Economist Intelligence Unit found that:

• “Life expectancy at birth in developed countries is longer than at any time in history and more than double what it was for millennia before the 1800s.
• Across wealthy countries it has been increasing at a rate of roughly 2.5 years per decade for more than a century and a half.
•  Until several decades ago, the extension of average life expectancy came from preventing early death.  Since the 1970s, though, it has overwhelmingly come from reduced mortality among those over 65, as more people than ever live into their 80s, 90s and 100s.
•  These later life years, while not free of chronic disease, are ones in which most people can live autonomously.”

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

Do You Know What Your Broker Is Charging You For Bond Management? Probably Not.

Transparency in investment management fees is uneven and confusing. This blog post touches on different ways that investors pay for their bonds and bond portfolio management. 

Investors in bond mutual funds and ETFs are charged an annual expense ratio associated with owning that specific investment. While the expense ratio they pay will not show up in their monthly or quarterly brokerage statements, investors can learn what they are paying by looking up the expense ratio on the Internet. Fees for bond mutual funds and ETFs vary widely between .05% and .8% of assets under management, and typically depend on the type of bond fund and whether it is an index or actively managed fund.

For separately managed bond accounts (which are accounts where an outside manager is buying and selling individual bonds for an investor), the investor pays a management fee that is normally a percentage of assets under management, with no additional fees on the bonds. These types of accounts typically have an annual fee between .2% and .7%, and the fee will often depend on the account size.  If a broker or financial advisor is managing the bond portfolio as part of a larger portfolio in a “wrap account”, the fee may be much higher (1.0-1.5%).

We occasionally hear from clients that they are not paying anything for the management of their bond portfolio. Brokers and advisors may not charge a separate fee for bond management, but they still get compensated through bond mark-ups/commissions. The mark-up/commission is the difference between what the brokerage firm paid for the bond and the price they sell it to the client. It is usually not disclosed to the client. The lack of mark-up transparency in the municipal bond market has been especially contentious. According to the Financial Industry Regulatory Authority, the rules for disclosure of mark-ups for both municipal and corporate bonds are as follows: 

“If the firm acts as agent, meaning it acts on your behalf to buy or sell a bond, you may be charged a commission. In most bond transactions, the firm acts as principal. For example, it sells you a bond that the firm already owns. When a firm sells you a bond in a principal capacity, it may increase or mark up the price you pay over the price the firm paid to acquire the bond. The mark-up is the firm's compensation. Similarly, if you sell a bond, the firm, when acting as a principal, may offer you a price that includes a mark-down from the price that it believes it can sell the bond to another dealer or another buyer. You should understand that the firm very likely has charged you a fee for its transaction services.  

If the firm acts as agent, the fee will be transparent to you. The firm must disclose the amount of the commission you were charged in the confirmation of the transaction. However, if the firm acts as principal, it is not required to disclose to you on the confirmation how much of the total price you paid to buy the security was the firm's mark-up; it is only required to disclose the price at which it sold the bond to you and the yield. Similarly, if you sell a security to a firm and it acts as principal, the firm is not required to tell you how much of a mark-down the firm incorporated in determining the price the firm would pay you. It is also possible to buy and sell bonds through an online or discount broker, which often charges a flat fee to buy or sell a bond.”

Being an informed bond investor is difficult, but help is on the way, at least for municipal bond investors. In November 2016, the SEC approved a proposal by the Municipal Securities Rulemaking Board (MSRB) to require brokers to disclose mark-ups and mark-downs to retail customers on “certain” principal transactions. These rules go into effect in May 2018. While the quality of the new rules will be better understood once they are implemented, this is a welcome move toward fee transparency.

In summary, we strongly encourage all investors to ask their financial advisor or broker what mark-ups, commissions, and fees are being charged on any purchase or sale of individual bonds, bond mutual funds, and ETF’s.  Your broker or financial advisor usually has some discretion over these charges. It is important for clients to show they want complete transparency and will be monitoring the fees and expenses charged on their assets.

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

Social Security Secrets For Divorcees

People considering their Social Security retirement options often know they qualify for benefits based on their own earnings record of that of their current or deceased spouse. But divorcees who have not remarried are often unaware that they may be eligible for benefits based on the earnings record of a spouse they divorced long ago. Because Social Security does not inform applicants of this benefit, it is up to divorcees to ask for it. The ex-spousal benefit review is not automatic for privacy reasons, says the Social Security Administration. Applicants will need to request information on benefits based on an ex-spouse's earnings record. They will also need to provide documentation to establish that they had indeed been married to the person, and subsequently divorced, before a benefits estimate will be provided.

What are the rules regarding getting benefits based on an ex-spouse’s earnings history?

The rules are relatively straightforward, although there are some twists and turns.

If your marriage lasted for at least 10 years, and you are currently not married, then you are entitled to receive whichever benefit is higher: one half of the Social Security benefit of your ex-spouse, or the benefit you qualify for based on your own earnings record. This can be an especially important benefit for divorced individuals with little or no prior Social Security earnings record.

For example, if their ex-spouse's Full Retirement Age benefit is $2,300, the divorced spouse would be eligible for one-half of this amount, or $1,150 per month, when they reach their Full Retirement Age. (For more information on Full Retirement Age, click here). For someone without a relevant earnings history, this can be a wonderful surprise. If they do have an earnings record of their own, and are entitled to receive a monthly Social Security retirement benefit greater than $1,150, then the ex-spousal benefit is of no use to them. They are better off receiving the higher benefit based on their own record. They are entitled to collect whichever benefit is higher.

What if their ex-spouse has remarried? Does that change the benefit calculation?

No, it does not matter if their ex-spouse has remarried.

What if the ex-spouse has died?

There are some important nuances in the rules for this situation. The marriage still must have lasted for at least 10 years and the surviving spouse’s retirement benefit based on their own record must be lower than what they could claim based on their ex-spouse's. But they can start claiming benefits when they are 60 or older (50 if they are disabled). Additionally, there is a special twist concerning their marital status. If they remarry before age 60 (50 if disabled), they can’t receive the benefit based on the ex-spouse's record. But if they remarry after 60 (50 if disabled), they can.

What if there are children?

If someone is caring for a child from a previous marriage (either biological or legally adopted), who is younger than 16, the person caring for the child can receive Social Security benefits based on the ex-spouse’s record. These benefits continue until the child reaches 16 or is no longer disabled. Importantly, the caregiver can receive this benefit even if they were not married to their ex-spouse for 10 years.

Is the ex-spouse informed about a pending application or required to give approval?

The answer to both questions is NO. An applicant does not need to ask their ex-spouse for permission to receive this benefit, nor will the Social Security Administration inform the ex-spouse that an application has been submitted. If you receive an ex-spouse benefit, it does not impact the size of the benefit that your ex receives. Moreover, if your ex-spouse has re-married, the Social Security retirement benefit their new spouse may be eligible to receive is not affected.

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Remember, if you are divorced and have not remarried, then you will have to ask Social Security about the ex-spouse benefit. Ignorance is not bliss.

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

How Much Will I Get in Social Security Retirement Benefits?

Social Security benefits are an important part of many American workers’ retirement plans. The purpose of this post is to provide readers with a quick sense for how retirement benefit amounts are determined and eligibility requirements.

WHO IS ELIGIBLE TO RECEIVE SOCIAL SECURITY RETIREMENT BENEFITS?

To qualify for benefits, applicants must be at least 62 years old and meet certain lifetime earnings requirements. Because the earnings bar is so low, most healthy people with at least 10 years of work experience will be included in the program. The Social Security Administration estimates that approximately 90 percent of Americans over the age of 65 currently collect Social Security retirement benefits.

Workers earn credits toward eligibility based on their lifetime earnings. They will need to accumulate at least 40 credits over their working life to be benefit eligible. In 2017, Social Security will award one credit for every $1,300 in earnings, up to a maximum of 4 credits a year. If someone earns just $5,200 this year ($1,300 x 4 = $5,200), they will pick up 4 credits. Because benefit recipients need to accumulate 40 credits over their lifetime, they must work some amount of time in at least 10 years to pick up the required total.

HOW ARE MONTHLY PAYMENTS DETERMINED?

The benefit payment is based on how much the person earned during their working life and the age at which they elect to draw benefits. Higher lifetime earnings result in higher benefits, but this impact tapers off at higher earning levels. The benefit formula is weighted toward lower-income workers and tends to replace less pre-retirement income of higher earners. Delaying retirement can also increase monthly payments, within certain limits. Let’s look at each of these factors to see how changes in them can impact the monthly payment.

For purposes of illustration, consider “Jane Doe”, born on April 1, 1960 (so she is now 57 years old) who will make $100,000 this year. The Social Security Administration provides a quick calculator that can be used to estimate her benefits. The calculator makes certain assumptions about Jane’s historical earning profile based on earnings today.  

(click here to go to the calculator https://www.ssa.gov/OACT/quickcalc/index.html) 

Using this calculator, Jane would likely receive $2,425 of monthly Social Security benefits, or $29,100 annually, when she retires in 10 years in 2027. Relative to her $100,000 of earnings, Social Security will replace 29.1 percent of it ($29,100 / $100,000 = 29.1%). Because many financial advisors recommend clients have savings and retirement benefits to replace at least 70 to 80 percent of annual earnings, Social Security is an important, but incomplete answer, to funding a retirement.

As Jane’s lifetime earnings increase, so do her Social Security benefits. As shown in the table below, if Jane earns $200,000 in 2017 rather than $100,000, then the Social Security quick calculator indicates she would likely receive a monthly payment of $2,931, which is $506 a month higher than the base case. But starting around $250,000 in annual income, benefits no longer increase with higher earnings.

“JANE DOE” AT FULL RETIREMENT AGE

In addition to earnings, Jane’s Social Security payment will also vary significantly depending on when she elects to start drawing benefits. Every eligible beneficiary has what is called a “Full Retirement Age” specified by Federal legislation. For people born in 1960 or thereafter, the Full Retirement Age is 67 years old. For those born earlier, it is somewhat younger. In the case of Jane, her Full Retirement Age is 67.

If Jane elects to delay retiring until she is 70 years old, then her monthly Social Security check will increase by 26 percent. If she elects to retire earlier at 62, the youngest age permitted, then her monthly payment would decline 32 percent relative to the full retirement payment.

ARE THERE ADDITIONAL SOCIAL SECURITY BENEFIT PROGRAMS?

Yes, there are four additional benefit programs:

1. Spousal benefits: If both parties file for Social Security at full retirement age, then each spouse is entitled to half of the other's benefit. For example, if Jane Doe is married, then her spouse will generally receive at least $1,212 (using the base case above), even if their own benefit amount is less.

2. Survivors' benefits: If a worker dies, their widow, children, and other dependents may be eligible for benefits.

3. Disability benefits: If someone becomes disabled and can no longer work, they may be eligible for Social Security Disability benefits.

4. SSI benefits: Supplemental Security Income, or SSI, provides extra income to disabled or retired individuals with limited assets and income.

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

A Brief History of Social Security

1935 - Social Security Act signed into law

• Provides benefits to retirees in certain job categories
• Job category exclusions exempt nearly half of the working population, e.g., agricultural labor, domestic service, and many teachers, nurses, and hospital employees
• Nearly two-thirds of all African Americans in the labor force, and just over half of all women employed, not covered
• Poverty rates among senior citizens exceed 50 percent

1937 - Social Security Cards issued by post offices

• 20 million issued in first year

1940 - First monthly payment to Ida May Fuller of Ludlow, Vermont

• Collects $22,888.92 in benefits over lifetime, but contributes only $24.75
• Because Social Security is a ‘pay-as-you-go’ system, each generation of current workers pays the benefits of current retirees.

Ida May Fuller with her first monthly Social Security check

1972 - Congress approves annual benefit cost-of-living increases

1975 – Social Security Trustees issue warning that ‘pay-as-you-go’ system not sustainable

1977 - Congress passes legislation to address financial problems

• Increase payroll tax
• Increase amount of income eligible for payroll tax
• Reduce some benefits

Early 1980s – Social Security faces serious funding problems yet again

• Alan Greenspan heads commission to examine the problem
• Congress passes legislation raising retirement age from 65 to 67 and increasing Social Security tax rates

National Commission on Social Security Reform (The Greenspan Commission)

2010 – More wealth in hands of Americans aged 55 to 75

• Dramatic reversal from 1950s when those 65 and older had highest poverty rate

Program Today

• Funded primarily through payroll taxes called Federal Insurance Contributions Act tax (FICA) or Self Employed Contributions Act Tax (SECA)
• With a few exceptions, all salaried income up to a specific amount is subject to payroll tax.
• Maximum amount of taxable income is $127,200 for 2017. Income above this not taxed
• Social Security expenditures totaled $897 billion in 2015

Outlook – Significant funding issues remain for three reasons

• Baby boomers, an unusually large cohort, reaching traditional retirement age
•  Life spans are longer, so retiring baby boomers will have longer retirements
•  Fertility rates decreasing so fewer workers to support pay-as-you-go model

Source: Forbes Magazine, Wikipedia, Social Security Administration

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

“College Haves” And “College Have-Nots” Since The Great Recession

The Center on Education and the Workforce at Georgetown University recently release a report with shocking news on the impact of education levels on who lost their job during the recession and who found work during the recovery. The post-Great Recession economy has divided the country along a fault line demarcated by college education. They found the economy added 11.6 million jobs since the recession bottomed out in December 2009. But 99 percent of job growth went to workers with at least some college education, leaving workers with a high school diploma or less far behind.

Workers with high school or less suffered largest decline in employment during the Great Recession

But this segment has seen few jobs come back during the recovery

Only those with at least some college enjoyed net job growth over the past 9 years

Source: Georgetown University Center on Education and the Workforce, America’s Divided Recovery: College Haves and Have-Nots, June 30, 2016. Employment includes all workers age 18 and older.

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

Turning 20-somethings Into Savers

It can be hard for many people to think about saving money when there are so many demands on their earnings. This is especially true for recent college graduates who are paying rent and making ends meet for the first time. Here are two strategies to help millennials start the journey to saving.

The first priority is to create an emergency reserve. Bad things can happen to good people. Millennials need a small cash hoard they can access quickly and easily. An old rule of thumb was 3 to 6 months of living expenses, which was based on assumptions about how long it would take someone to find a new job. Saving this amount can be a tall order and may discourage some from starting. But it is important to think about expenses that may crop up from time to time, such as a car repair, dental emergency, or an invitation to a friend’s wedding. Because this is emergency money, it should only be invested in liquid bank accounts, which can be easily researched online.

The next priority is getting free investment money that may be available from your employer. If you work for a company with a retirement savings plan such as a 401(k), they may match your deposits to your 401K. Many employers will match your savings dollar for dollar up to a certain percent of your compensation. This amount is sometimes as high as 3 to 4 percent. For example, someone making $65,000 a year with a 4 percent employer match gets a great deal because their employer will contribute a dollar for every dollar the employee contributes, up to $2,600 (which is 4 percent of $65,000). By contributing $2,600 of their own money, the employee also gets $2,600 from their employer, for a total of $5,200. In a sense, the employee is getting an automatic 100 percent return on their investment. Moreover, because the money is in a 401(k) account, neither the employee contribution nor the employer match are taxed until money is withdrawn at retirement. Over 25 years with at an annual growth rate of 5 percent, this savings program will grow the 401(k) to $248,000!

For those with an employee match, this is just too good to pass up. Yet many young workers elect to pass on it perhaps because they do not understand how the employer match works.  But would you pass up a raise of $2,600? It’s worth scrimping on other expenses to contribute as much as possible when there is a match. While each plan varies, employees are often eligible for the 401(k) plan after a certain period of employment with the company, usually 6 months or 1 year. Be sure you know when you can participate so you can arrange for contributions from your paycheck as soon as you become eligible. You can also withdraw money without a penalty for a first-time home purchase and educational expenses (subject to limits on amounts). If you need emergency money, many plans also permit you to borrow from your 401(K), with some restrictions.

Finally, be sure your 401(K) account is not sitting in cash. A young investor starting out could elect to invest in a one broadly diversified and low cost mutual fund. "Total World" mutual funds invest in a broad selection of stocks from all over the world. A "balanced" mutual fund invests in stocks and bonds, for more risk-averse investors. "Target retirement date" funds pick a mix of stocks and bonds consistent with long term investing. "Just pick one" is often good advice for someone new to 401(k) investing.

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

Working While Getting An Education – Some Surprising Facts About Women

Almost 22 million people between the ages of 16 and 24 are in school, with 56 percent of them in college. More women now attend college then men. They also have a higher propensity then men to work while going to school, both in college and in high school. 

Source: All data from October 2015, as reported in the Bureau of Labor Statistics, ‘College Enrollment and Work Activity of 2015 High School Graduates,’ April 28, 2016. 

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

Turning Students Into Savers

In addition to classwork, many high school and college students work at least part of the year. The Bureau of Labor Statistics estimates that approximately 18 percent of high school students were employed in 2015, while 45 percent of college students held either full or part-time jobs. Because they have earned income, these students are eligible for an important, but widely overlooked, tax-advantaged savings opportunity called a Roth IRA. Parents (or grandparents, or really anybody) in the know can help children set up and fund a Roth IRA, helping to put them on a path to financial independence.

The purpose of this post is to explain why a Roth IRA should be on the minds of parents and grandparents and the steps they need to take before Tax Day.

What is a Roth IRA? This important savings vehicle was established by the Taxpayer Relief Act of 1997 and was named for its chief legislative sponsor, Senator William Roth of Delaware. A Roth IRA is a retirement savings account that allows money contributed into it to grow tax-free. Someone funds a Roth IRA with after-tax dollars, meaning they have already paid taxes on the money they put into it. In return for no up-front tax break, their money grows tax free, and when they withdraw the money at retirement, they pay no income taxes on the investment gains.

How does this apply to high school and college students with earned income?  There is no minimum age limitation on Roth IRA account holders, so students can have one. Moreover, they can also be claimed as a dependent on their parent’s tax return and still be eligible to open and receive contributions to a Roth IRA.

How much can they contribute? The contribution limit is the lower of $5,500 (for 2016 and 2017 tax years) or the amount of earned income the child made in that calendar year.  

How can relatives help them fund the account? Parents can incentivize kids to contribute to a Roth IRA by matching contributions. For example, if Junior made $2,000 last summer filing papers in an office, mom and dad, the grandparents, or someone else, can say to Junior that if he contributes $500 to his Roth IRA, they will fill the account up with the remaining $1,500 of allowed contributions.  If the parent, another relative, or friend is self-employed, they can also be the one to hire the student and pay them. This qualifies as earned income for Roth IRA contribution purposes. The hourly rate must be reasonable, or the IRS may disallow the contribution.

Any tips for convincing students to put money into a Roth IRA? Retirement planning is rarely an issue on young peoples’ radars. Suggesting they put away money for it often leads to blank stares. However, Roth IRA contributions (but not investment earnings in the account), can be withdrawn for any reason, at any time, without any tax or penalty. This should make young people much less reluctant to contribute. They can use Roth IRA as the vehicle to save for other goals, such as a down payment on a home.

Is it still possible to contribute to a Roth IRA for the 2016 tax year? Yes. Roth IRA contributions can be made by the tax filing deadline (without extensions) for the tax year in which the contribution will apply. The 2016 tax year filing deadline is April 18, 2017, a few days later than usual

What if the 2016 tax return has already been filed? Contributions can be made even if the student’s 2016 tax return was already filed. Because Roth contributions are not tax-deductible, they do not impact the income tax calculations and do not need to be reported to the Government. That being said, it is important to keep records of tax years and contribution amounts for the eventual time when withdrawals will be made.

Disclaimer: Get advice from your tax professional before making any tax-related moves. Minerva Wealth Advisory does not provide tax advice.

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

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Why Warren Buffett Is So Optimistic About The US Economy

Warren Buffett‘s annual letter to his partners and shareholders is among the most widely read and discussed missives in the business world. He has been releasing his pithy letters since 1959.

In his most recent letter, he eloquently explains what he believes to be the source of strength and wealth in the United States, and why he is so optimistic about the future. Since he has been right on so many things for so long, take a moment and read why he is so optimistic about the future (emphasis is our own):

“You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion.

… it’s our market system – an economic traffic cop ably directing capital, brains and labor – that has created America’s abundance. This system has also been the primary factor in allocating rewards. Governmental redirection, through federal, state and local taxation, has in addition determined the distribution of a significant portion of the bounty.

America has, for example, decided that those citizens in their productive years should help both the old and the young. Such forms of aid – sometimes enshrined as “entitlements” – are generally thought of as applying to the aged. But don’t forget that four million American babies are born each year with an entitlement to a public education. That societal commitment, largely financed at the local level, costs about $150,000 per baby. The annual cost totals more than $600 billion, which is about 31⁄2% of GDP.

However our wealth may be divided, the mind-boggling amounts you see around you belong almost exclusively to Americans. Foreigners, of course, own or have claims on a modest portion of our wealth. Those holdings, however, are of little importance to our national balance sheet: Our citizens own assets abroad that are roughly comparable in value.

Early Americans, we should emphasize, were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it.

This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

How To Minimize Capital Gains Taxes When Selling Your Home

Residential real estate prices nationwide have rebounded sharply since bottoming out in early 2012. The Case-Shiller National Home Price Index, for example, increased 38.2 percent by the end of last year from the 2012 trough. The index is now above its previous peak, recorded in July 2006.

The recovery in home prices means that homeowners looking to sell their primary residence need to be alert to steps they can take to eliminate or minimize capital gains taxes on the sale.

Refresh my memory, how does the IRS define capital gains? When the value of an asset, such as a home, is higher than what the owner paid for it, the difference in value is called a capital gain. The gain is not realized until the asset is sold. When sold, the capital gain is classified as either short-term (meaning the asset was held for one year or less) or long-term (held for more than one year). The asset owner must include realized gains, netted against realized capital losses, in their income tax return and pay any associated capital gains taxes. Many asset owners with long-term capital gains are likely to have federal tax liabilities equal to 15 to 20 percent of the gain.  

But residential home owners get a valuable tax benefit. There are special rules around home sales and capital gains, which are very different from how capital gains on stocks, bonds, and mutual fund are treated. The IRS grants taxpayers selling their primary residence an extremely valuable capital gain exclusion. For a single tax payer, up to $250,000 of capital gains on the sale of their primary residence are tax free, while for a couple, they can exclude $500,000.

Are there any restrictions on the benefit? The home must be the primary residence of the taxpayer for at least 2 out of the past 5 years. But there are no limits to the number of times a taxpayer can take advantage of this important tax benefit. In a rising housing market, taxpayers who move frequently can sometimes rack up substantial gains that are shielded from capital gains taxes.

For homeowners with capital gains over the exclusion amount, any tips for reducing capital gains taxes? There are 3 strategies that homeowners should be aware of, from simple techniques to one that requires more planning.

1. Home improvement costs increase your basis. From the perspective of the IRS, home improvements like adding a deck, a pool, or landscaping the property, add to the value of your home. Keep track of these expenses because taxpayers can add the sum incurred over the years to the original cost of the home, to come up with a revised cost basis for the house. This reduces the amount of capital gains on the sale, thereby reducing any capital gains tax bill.

2. Selling expenses lower your sale proceeds. Expenses like broker commissions, advertising and appraisal fees, and transfer taxes can be used to lower the sale value of the home, which reduces the gain on sale.

3. Evaluate keeping the home so heirs can benefit from a step-up in basis. Tax laws are notoriously complex. But there is an important wrinkle associated with estate taxes that creates an important tax planning tool for home owners. When someone dies, the IRS permits assets owned by the deceased to pass to their heirs at the then current market value, without being liable for any capital gains taxes. For example, suppose a homeowner purchased a home many years ago for $500,000 and it is now worth $1.7 million. If she elected to sell the home during her lifetime, she would then have a gain of $950,000 that would be subject to capital gains taxes (the gain is equal to the $1.2 million appreciation less the $250,000 exemption). Assuming the seller is in a high-income tax bracket, she would likely be subject to a capital gains tax of approximately 20 percent on the sale, or $190,000. But if instead the homeowner remained in the house until she passed away, it would pass to her heirs at $1.2 million, with no capital gains being due on the transfer.

NOTE: Nothing in this post should be considered as rendering legal or tax advice for specific cases. Readers should be sure to discuss their specific circumstances with their financial and tax advisors before taking any action. 

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

How Do People Self-Identify By Political Party?

Political news today is littered with commentary about a divided nation: red states/blue states and the polarization of the Republican and Democratic parties. The proliferation of political surveys has also created a steady stream of news reports with conflicting and confusing statements.

To cut through some of the noise, we decided to step back and look for information on how people have self-identified by political party over time. A Gallup Poll survey, conducted monthly since 2004, is an independent and reliable source of data on this very question. Every month, they ask respondents two questions:

• In politics, as of today, do you consider yourself a Republican, a Democrat or an independent?
• (If an independent) As of today, do you lean more to the Democratic Party or the Republican Party?

We reviewed these data to identify important patterns and trends. There were four interesting conclusions from our review:   

1. More people today self-identify as Independent instead of Republican or Democrat. In January of this year, for example, 44% of respondents considered themselves an Independent versus 28% Republican and 25% Democrat. The rise in political independence is likely related to Americans' frustration with party gridlock.

2. Being an Independent grew in popularity over the past 8 years. While 44% now consider themselves Independent, only 36% did so in January 2010. (See chart)

3. This was due to fewer people identifying as Democrats rather than a decline in Republican affiliation. In January 2010, 28% of respondents called themselves Republicans, the same percent as in January 2017. But over the same period, the percent identifying as Democrat fell from 34% to 25%.

4. When Independents are probed on whether they lean Republican or Democrat, Republicans and Democrats are virtually tied. While independents may lack a strong attachment to either party, most are inclined to favor one party and vote that way. Gallup questions independents to determine whether they tilt Republican or Democratic. By combining party identifiers and leaners, it gives a sense of the relative strength of the two major parties in the U.S. In January of this year, 44% of Gallup poll respondents identified as either Republican or as an Independent leaning Republican versus 43% for Democrats. The previous year was 44% Republican and 45% Democrat.  

NOTE: All the Gallup survey data is available on their web site at http://www.gallup.com/poll/15370/party-affiliation.aspx

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

What Does It Mean To Be A Millennial?

Despite numerous references in the popular press to the Millennial Generation – their tastes, habits, and work ethic -  most of us are unclear about what exactly defines a millennial. Also referred to as Generation Y, Generation Me, Echo Boomers, and the Peter Pan Generation, let’s review some facts about a generation.

What is a millennial? There is no ‘official’ definition of the dates within which someone needs to be born to be classified as a millennial. Each researcher uses their own definition. TIME Magazine, for example, has defined millennials as those born between 1980 and 2000, while The New York Times sometimes uses 1978 to 1998. Most researchers, however, tend to use the early 1980s as the start date with an endpoint ranging from the mid-1990s to the early 2000s.

The Pew Research Center, one of the leading authorities on social and demographic trends in the United States, uses the following generational definitions in their work. Which generation do you fall into?

View fullsize

How many millennials are there relative to other generations? The Pew Research Center estimated in a recent report that millennials surpassed baby boomers in 2015 as the nation’s largest living generation: 75.4 million millennials versus 74.9 million baby boomers.

The Center believes millennials will remain the largest generation for the next 35 years. The millennial population, as shown in the chart below, is estimated to peak at 81.1 million in 2036 due to immigration adding more people to this group that any other. The baby boomer generation will shrink as the number of deaths exceeds the number of older immigrants coming to the United States.

How did millennials vote in the recent Presidential election?

Shortly after the November election, Tufts University’s Center for Information and Research on Civic Learning and Engagement (CIRCLE) released a report on the voting behavior of millennials, which they defined as 18 to 29 years old at the time of the election. There were 3 interesting takeaways in their report:

· Voter turnout. 50 percent of the millennial electorate voted in the Presidential race, up slightly from 49 percent in 2012, but down from 5 2 percent in 2008.

· Candidate preference. Hillary Clinton won 55 percent of the millennial vote to 37 percent for Donald Trump.

· Party affiliation. Most millennials self-identify as moderates (38 percent), followed closely behind with 37 percent as liberal, and 26 percent as conservative.

How are millennials faring economically relative to other generations? For a witty take on the topic, check out a 3-minute video from The Atlantic Magazine.

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

Where Can You Live Well On $60,000 A Year?

The best cities to live in are likely to be where you can find a job, earn a good annual income, and buy a nice home.

Glassdoor, one of the fastest growing jobs and recruiting sites, pinpointed the most affordable cities by comparing salaries to the cost of buying a home. The higher this ratio, the more affordable the city.

In Cleveland, for example, Glassdoor estimated the median base salary for a full-time ‘white collar’ job was $55,000 while the median home value was only $125,000. Using these figures, one year of base salary covers 44 percent of the cost of a typical home. After calculating this ratio for many cities across the United States, Glassdoor determined that Cleveland was the fourth most affordable city.

The 15 cities where pay goes the furthest are shown below, with Detroit being the most affordable.

Click here for the Glassdoor report. https://www.glassdoor.com/blog/25-cities-where-pay-goes-furthest/

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results. 

What Does It Take To Be a 1-Percenter?

I went in search of information on what it takes to be in the top 1 percent. The answer depends dramatically on where you live and whether the focus is on income or wealth.

What does it take to be in the top 1 percent in the world? Based on income, you need to make $32,400. To make the cut based on wealth, which includes everything from the equity in your home to the value of your investments, you need net worth of $770,000. Given that median household income in the United States was $55,775 in 2015, does this mean that most U.S. households are in the top 1 percent? It does. It reflects a very wealthy U.S. population of 324 million relative to a worldwide population of 7.4 billion.

In the United States, what does it take to be in the top 1 percent based on income? Nationally, a family needs an income of $389,000 to get into the top 1 percent. But the cutoff point varies considerable by state. The highest cutoff is in Connecticut, where residents need $660,000 to make it into the top 1 percent, while in Kentucky, they only need $268,000. The highest and lowest states based on cutoff points are shown below.

What is the cutoff point in the U.S. based on wealth? To be in the top 1 percent based on wealth, a household needs to have net worth of $7.9 million. But to be in the top 10 percent, the cutoff point is much lower at $942,000.

Sources: The worldwide wealth and income estimates are from Daniel Kurt, “Are You in the Top One Percent of the World?” Investopedia, July 20, 2016. The income cutoff points by state are from Estelle Sommeiller, Mark Price, and Ellis Wazeter, “Income inequality in the U.S. by state, metropolitan area, and county,” Economic Policy Institute, June 16, 2016. The wealth cutoff points for the United States are from “Nine Charts about Wealth Inequality in America,” Urban Institute Report. Available at http://apps.urban.org/features/wealth-inequality-charts

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DISCLAIMER:  This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here. This is presented for informational or educational purposes only and does not constitute a recommendation to buy/sell any security investment or other product, nor is this an offer or a solicitation of an offer to buy/sell any security investment or other product. Any opinion or estimate constitutes that of the writer only, and is subject to change without notice. The above may contain information obtained from sources believed to be reliable. No guarantees are made about the accuracy or completeness of information provided. Past performance is no guarantee of future results.