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Could retiring out of the country be a good idea?

Article taken from Karin Price Mueller/NJMoneyHelp.com and posted on NJ101.5.com

Q. I’ve heard that tax-wise, moving out of the country when you retire is a good idea. I have no kids so I’m open to the idea. What places — warm weather — could make sense? I would still stay a few months in America.

— Thinking

A. Whoa! Moving out of the country to avoid taxes is an extreme move.

Let’s take a step back and look at the big picture.

“The nice thing about living in New Jersey is that virtually every state in the nation will be less taxing and less expensive to live — maybe with the exception of California, New York and Connecticut, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

He said you should never move anywhere for tax purposes. Instead, you should move because you really want to and it fits your lifestyle.

Lynch said even if you move out of the country and become a resident of another country, it will not eliminate taxes that you pay in the U.S.

For example, he said, your IRA distributions, pensions and Social Security are still subject to federal income tax.

“Taking your IRAs and pension as a lump sum before you leave means that you will lose half in state and federal income taxes,” he said.

The benefit of many of these warm weather islands is that the cost of living is substantially less they the cost of living in New Jersey, but there are other things to consider, Lynch said.

The number one issue is health care.

“I would not want to have emergency surgery in many of these areas,” he said.

There are other potential drawbacks.

“These islands may have great seafood, but I like a steak and a pizza every once in a while as well,” he said. “Also, getting off these islands when they have big storms is not as easy as it is here. Things are different and you need to see if long-term it fits what you want.”

Lynch suggests you take a few steps before you go any further.

Start with doing a financial plan to see if the numbers work if you stay in New Jersey.

“If yes, and you have no kids to leave your money to, then option No. 1is stay here,” Lynch said. “Option No. 2 would be if it doesn’t work by staying in New Jersey, can it work in other areas of the U.S. that are less expensive.?”

Next, he said, make a list of what you are looking for in retirement.

“Cost of living is definitely an issue, but medical care, physical activities — golf, tennis, etc. — people your age, etc.,” he said. “You need to take the emotion out of this decision as everyone on vacation never wants to go home.”

He said the reality is living there is much different then visiting for a few weeks.

“If you really do want to move, sit with a certified public accountant who is familiar with these types of moves and develop a long-term tax plan that will discuss the issues and work on some alternatives,” he said.

And if you decide you really want to move outside the U.S., he recommends you rent for a year and make sure it is what you are looking for.

“Stick your toe in before you jump into the deep end,” he said.

Email your questions to This email address is being protected from spambots. You need JavaScript enabled to view it. .

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.

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Work with one of NJs top financial planning firms!


Position Title:

Director of 1st Impressions/Director of Marketing 


Immediate Supervisor:

Jerry Lynch, CFP(R) CLU(R) ChFC(R)


Summary/Purpose of Position:

Assist Jerry Lynch and the firm with developing, coordinating and implementing a marketing program to attract, retain and service Ideal Clients. Expand and further develop relationships with existing Ideal Clients and add prospective Ideal Clients to our client base. Communicate and reinforce our “Gold Medal Services” to our most important clients and prospective clients.


Primary Goal:

To attract new clients into the firm that match our firm’s capacities for both individuals and 401(k)’s


Duties and Responsibilities:

Marketing and Lead Generation:


  • Actively participate in developing the firm’s “Growth Initiative” program and marketing campaigns/activities
  • Develop, Coordinate and Implement our multi-touch 12 month “Marketing Calendar”
  • Manage and Implement our “Prospect Awareness” program
  • Coordinate Client/Prospect Newsletters and other marketing pieces
  • Produce and Manage “Client Education Events” and “Client Appreciation Events”
  • Manage and track all aspects of prospect relations from inception (cold calls, referrals and client events) through Initial Client Interview
  • Schedule appointments with client and prospects using CRM Software 
  • Review and coordinate all Web, Social Network, Electronic and Printed Marketing materials with Team and various regulating agencies.
  • Send out Client greeting cards/gifts (birthday, anniversary, wedding, etc)
  • Develop and implement strategic alliance programs with professional advisers
  • Maintain and Track “Cycle of Operations” for existing and potential Idea Clients.


Client Management:


  • Contact and schedule all clients for new business opportunities
  • Maintain & coordinate Jerry’s calendar and appointments with Team
  • Prepare Initial Client Interview packets.
  • Maintain Client Contact System and Smart Pad Notes.
  • Attend Client meetings when appropriate


  • Review and Monitor compliance procedures of Jerry.
  • Monitor Registered Investment Advisor compliance for FINRA and State of NJ.
  • Monitor Privacy Notices and procedures for clients.
  • Monitor client files for required documentation.
  • Monitor all out going marketing correspondence for compliance purposes.
  • Maintain marketing and product resource materials including product information, procedures contacts, addresses and forms.


Knowledge and Skills:

  • Goal Orientated and Self Starting
  • Multi-tasking Ability
  • Organizational Skills
  • Marketing Skills
  • Social Media
  • Basic business correspondence including proper letter/memo formats and grammar/punctuation/spelling accuracy
  • Proofreading accuracy
  • Telephone Etiquette
  • Computer Software skills including Microsoft Office, Internet, Client Database CRM


Decision-Making (Degree of Independence):

As the Director of 1st Impression/Marketing Manager masters knowledge and skill areas, more control over decisions affecting areas of responsibility will relinquish. It is hoped that the Director of 1st Impression/Marketing Manager will have knowledge and skills necessary within 12-18 months from the date of hire. 


Scope of Accountability:

The Director of 1st Impression/Marketing Manager position is critical to the overall success of our Wealth Management Team; as such this team member has total accountability for all duties and areas of responsibility associated with this position.

The Director of 1st Impression/Marketing Manager will have access to Client and prospective Client Personal and Financial information and data and will be required to sign and abide with Privacy and Confidentiality Agreements. A Credit and Background check will be completed prior to hire. 



Individual will need to have a securities license or to obtain one. 


Work Schedule:

The Director of 1st Impression/Marketing Manager is expected to be a Full Time position. The candidate will have flexibility to control his or her schedule provided that the Goals, Duties and Responsibilities of this position are being met.



The Director of 1st Impression/Marketing Manager will receive base compensation and incentive bonuses based upon meeting and achieving Goals, Duties and Responsibilities of this position.


Call 973-439-1190 to apply or email This email address is being protected from spambots. You need JavaScript enabled to view it. .

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Thoughts on the current market volatility

A long time ago I was a ski instructor…when I was skinny and had more hair.  The biggest issue that I would see with beginner skiers is that they would always be looking at their skis instead of down the hill.  By doing this, they were always reacting to problems happening now, as opposed to the more advanced skier who was looking down the hill and simply avoiding the problems.  Avoiding the problems is a lot easier and a heck of a lot less stressful.

As you are all aware, there was a pretty big selloff in the stock market last week that resulted in the Dow dropping 5.82%, the Nasdaq 6.78%, and the S&P 5.77%.  It was the worst week for the US stock market for the year and oil prices dipped below $40 a barrel.  This was driven mainly due to a report from China that showed factory activity at a 6 year low.  They are not sure if China can maintain 7% growth annually like they have been doing.

So here are my thoughts.  Any time I sit down with an individual discussing how to set up a portfolio, we first discuss the potential pain that’s associated with investments.  The reason why I ask is so that they can invest within their pain threshold, and remain consistent in their long term approach.  The stock market goes up and down, but over time, it goes up!  The only way to get average returns that you are aiming for is to remain consistent and not sell every time there is a little dip in the market.

So what does this mean?  A 100% stock portfolio (S&P 500) had its largest loss in 2008 with a 42.9% drop.  So if you so not want to experience 42.9% losses, you should not be invested 100% in the S&P 500!  If the most you are willing to lose is let’s say 20%, then you should not be more than 45% stocks!  So the first thing you need to do is look at your asset allocation and make sure that you are within your “pain threshold”!

Second- can China sustain 7% annual growth for ever….no.  Nobody can, so yes that will create some volatility.  Also, we have had a huge 6 year market run-up and it is very reasonable to see some form of correction, definitely.  So should we change our asset allocation and move into cash….no!  If you are invested within your pain threshold, remain consistent in your approach.

Here is what is making me feel much better.  First, the US job market continues to get better…slowly but consistently.  If people have jobs, they spend money, which helps the economy.  Second, the housing market is also continuing to get better.  This stimulates local jobs in the US economy as well.  Third, companies and especially the banks are much better capitalized then they were back in 2008.  Market volatility has less of an impact then it did back in 2008.

If you are living on your income at this time, the most important thing are not rates of return….it I is cash flow.  If you have protected your cash flow, this allows you to ride through this and not sell investments at a loss.  Everything corrects itself over time and you will be fine.  

For those investing, take advantage of this dip and continue to buy, and if possible, accelerate your buying.  The stock market historically is the only thing people do not buy on sale.  If you are in a 401(k) plan, continue investing and make sure that the account is set up to automatically rebalance so we are taking advantage of these dips.  The best time to invest in my mind is during a volatile market with a long term horizon.

I realize that most people walking into my office for the first time expect me to get them out of the market right before it drops, then get them back in right before it comes back up.  That is not an option and I have never met any investment manager that could do this effectively!  Also, if they could do it effectively, why would then ever do it for you?  Wouldn’t they just do it for themselves, make a billion dollars, and take time off with their family?  If you are meeting with someone who says that they can do this effectively….run!  

Market volatility makes you look at your overall plan and see how it works under bad conditions.  Here are a few rules that I always suggest we stick to.

1)Cash is King!- I don’t care that it is getting .25%...it’s not designed to do much more than that.  Cash is the foundation of any financial plan and it is what gets you through any bad times in your life and allows you to take advantage of opportunities during market dips.

2)Consistent approach- invest always, remain consistent in your asset allocation, over time reduce the risk (stock allocation), and take advantage of opportunities (such as market dips).

3)Never make an emotional decision with money!  Money does not care.  Take a step back and think about your approach.  If it based upon logic or emotion.  Emotional investing will get you destroyed.

4)Don’t look at the market daily and don’t listen to the business news.  Bad news sells and it keeps you tied to the TV, watching their ads and making them money.  Look at this quarterly so that you are not seeing as much volatility…just the trends.

So yes, big spikes are always concerning but never change your long term strategy over a short term situation.  Just as I would tell my beginner skiers, look farther out then right in front of your face and things get a lot easier over time.

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Taxes: Are Bill and Hillary paying too much?

Some people relax by reading, going to a gym or just taking a walk. I like to review tax returns! I like to see where, if I was doing their return, I might be able to lower their taxes. Bill and Hillary Clinton just released their tax returns, so here's a peek at where I think they could've saved some money:

Income assessment

Total income: For 2013 and 2014, their income was $27 million and $28 million dollars, respectively. This puts them in a 39.6-percent federal tax bracket. New York State charges them 8.82 percent. On top of that, there are the new Obamacare surcharges that add an additional 0.9 percent on earned income and 3.8-percent on investment income. What this means is that, for every additional dollar they earn, they lose about half (49.32 percent). In investment income, for every additional dollar they earn, they lose 52.22 percent. If you lose half your money in taxes, you need to have a proactive tax plan.

Interest income: This is money in the bank and generally banks are paying nothing. In 2013, they received $27,143 in interest and in 2014, they received $25,171. In 2014, their interest income cost them $13,144 in taxes. Assuming they're earning half a percent interest (the average for savings accounts, according to Bankrate.com), they should have about $12.5 million in cash in the bank, which is way too much.

Where to save

Investment tips: Why not look into New York state muni bonds? They are exempt from federal and New York state income tax and pay pretty competitive rates for high-income earners. Why not invest some of the money in dividend-producing stocks? The S&P 500 has a yield of 2.01 percent and that yield is taxed at capital-gains rates vs. ordinary income. What this means is that their tax rate would drop to 32.62 percent from 52.22 percent. That is a significant reduction in their tax liability, plus the yield is four times what they're getting on their cash!

Business income: In reviewing the Schedule C (which reports business income) there are a few things that could have a big impact on their income.

  • 401(k) — both Hillary and Bill have their own businesses which means that they can put aside $59,000 each ($53,000 plus a $6,000 catch-up contribution as they are over age 50). This would save then around $59,000 in taxes annually.
  • Pension — On top of the 401(k), they can also do a pension plan that allows for much larger contributions than traditional 401(k) plans. The older you are and the higher your income, the larger the tax deductions and contributions that you can make. Easily, they could get an additional $250,000 each in deductions saving them around $250,000 in taxes annually.
  • Long-term care — Owners of companies can deduct the cost of long-term care insurance policies as a business expense and it is an "above-the-line" deduction on their personal taxes. Since they are both over 60, they can get a $3,800 deduction each for a total of $7,600 annually. This would save them around $3,800 in taxes. This deduction increases to over $9,300 after they hit age 71.
  • Why not an "S" corp.? In an LLC (which is what they both have), all wages are subject to Social Security and Medicare taxes. While they are way above the limits on Social Security wages, they still have to tax (1.45 percent as both an employer and employee — 2.9 percent combined). They had about $13 million in profits that cost them an additional $377,000 in Medicare taxes. If they had an "S" corp., they would have to take a "reasonable salary," but any additional profits would not be subject to Medicare wages.
  • Loss carry-forward — I am seeing a $3,000 loss, which indicates to me that they have a long-term loss carry-forward ($702,540). We can use this to offset ordinary income with a maximum of $3,000 per year (which will take 234 years) or we can take some gains and use that loss to offset any taxes, which would be much better (and a lot faster.)

Charitable contributions: Cash is probably the least effective asset to give to charity and they gave around $3 million last year. So this is how it works using the $3 million that they gave to their foundation in 2014.

To give away $3 million, they would've had to have earned at least $6 million —and pay taxes on that, which we've already established is at a rate of almost 50 percent for the Clintons. Sure, they can deduct the charitable donation, but that would only save them about $1.5 million. If they'd used appreciated securities, they would not have to pay capital gains on the gain and would get the same tax deduction on the value of the gift. That would save them around 33 percent, or $2 million, on the gain in their investments.

With some proactive planning, the Clintons could save hundreds of thousands of dollars. For most people, tax planning is collecting receipts, putting them in a shoe box and giving them to their CPA. If they get money back, their CPA is great. If they have to pay, they yell at their CPA and threaten to fire them. That is not tax planning…that is scorekeeping.

Proactive tax planning means that you review your tax situation today, and develop plans to be proactive, during the tax year. You have 5 months left in the tax year. What is your proactive tax strategy?

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Divorced woman, unemployed, faces unplanned early retirement

At age 56, Claudine wasn’t quite ready to retire, but she lost her job eight months ago, and she hasn’t found work yet.

The divorced woman has been living off her savings because her unemployment benefits have ended. She’s concerned about what her savings can do for her in the short and long term.

And, it’s not just about her. She has a 20-year-old child who goes to college, and Claudia has been paying the college bills. She has an expected $21,000 expense for tuition, and those payments should be done by January 2016.

Claudine has accumulated $506,800 in 401(k) plans, $99,200 in an annuity, $30,300 in IRAs, $25,700 in a brokerage account, $61,200 in mutual funds, $16,000 in options and $500 in checking.

Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton, reviewed Claudia’s prospects for NJMoneyHelp.com.

This thing is a foot race to see if she can get to Social Security before she runs out of money,” Lynch says. “My concern for her is that she is almost 100 percent in stock. I have seen this happen before where they go for it as they feel that they have to”.

She is not in a bad place yet, but if she does not find employment, it is going to get bad rather fast,” Lynch says.


Net Worth:


Checking: $500

IRAs: $30,300

401(k): $506,800

Annuity: $99,200

Brokerage Account: $25,700

Mutual Funds: $61,200

Options: $16,000

Primary Home: $425,000

Personal Property: $15,000

Autos: $20,000

Total Assets: $1,199,700


Mortgage: $182,000

Car Loans: $18,000

Total Liabilities: $200,000

Total Net Worth: $999,700


Salary: none

Income Taxes: $530

Housing: $1,640

Utilities: $702

Food: $450

Tuition: $1,220

Personal Care: $30

Transportation: $727

Medical: $875

Entertainment: $30

Charity: $120

Lynch says you are financially successful when your passive income — income that does not require you to work — is greater than your expenses.

So he took a look at the expenses Claudine will not have when she’s retired — per Social Security’s guidelines — at age 66 and 8 months.

When you remove her COBRA health payments, the college payments and her mortgage, Claudine she would have expenses of around $2,250 per month. To make sure it’s not too con

servative, Lynch boosted that monthly number to $3,000.

Her Social Security benefit at normal retirement age is $2,389, so we are pretty close to being there,” he said.

Claudine has $250,000 in equity in her current home, and retirement accounts are worth about $640,000. She also has taxable investments worth about $100,000.

Assuming that she moves out of New Jersey for retirement, she can buy a home with no loan, her property taxes will be much lower, and it frees up here money to spend on herself in retirement,” Lynch says. “So in my mind. the challenge is: how do we get from age 56 to age 66 without spending all her money?”

Lynch says at a 6 percent growth rate, Claudine’s portfolio would be worth around $1.14 million at age 66.

That should reasonably generate somewhere in the range of $34,000 to $45,000 annually, plus her Social Security, and that should cover her cost in retirement — and then some,” he says. “The key in not making any really big mistakes and she should be able to have a great retirement.”


First, she wanted to know what would happen if she couldn’t get another job at a similar income level. Then she wanted to know if her investments were too aggressive, and finally, she wanted to know if she’d be ready for retirement.

Let’s focus on what happens if she can’t get a job.

You do what you must to get by,” Lynch says. “Everything is on the table to potentially be cut.”

One area to consider is college.

“You can get a loan for college but not for retirement,” he says. “College should be an investment, so if her child takes on reasonable debt, I’m okay with that. This frees up money.”

Next, Claudine should consider her home.

“New Jersey is an incredibly expensive place to live,” he says. “Moving out of state would probably cut her property taxes by 70 percent or more.”

Lynch says a move would also allow her to pay cash for a new home so she wouldn’t have to worry about a mortgage payment. This would free up around $20,000-plus a year, he said.

Changes like those mean Claudine wouldn’t need to find a high-paying job.

Even if she found a position that only paid $35,000 per year, it would allow her money to continue to grow,” he says.


Lynch says he has serious concerns about Claudine’s asset allocation. She has 96 percent of her investments in stocks, and of that, 32 percent is in international equities. Lynch calls that “incredibly aggressive.”

For the past five years, Lynch says, Claudine’s portfolio has averaged over 17 percent.

“That’s great, however, in 2008, the portfolio was down 45 percent,” Lynch says. “Claudine should not put herself be in a position where she can lose almost half her money. That would blow up the plan and keep her from retiring.”

So what should she do? Lynch recommends Claudine take down her stock allocation substantially. He suggests a range of 40 to 60 percent in stocks, tops.

“It is more important to protect what you have then to continue to invest that aggressively,” he says.


To Claudine’s question about whether or not she’s okay for retirement, Lynch says the answer depends.

“As long as she does not make any really big mistakes between now and then, she should be fine,” he says.

So what is the biggest mistake she could make at this time? He says it would be investing with a 90-plus percent stock allocation.

“If she is that aggressive and she is right, she will probably not spend more in retirement,” he says. “However, if she is wrong and loses half her money, she will not be retiring. There is too much to risk with very limited upside.”

Lynch says one of the hardest things to do as you prepare for retirement is to reduce the stock allocation in your portfolio. For the past 30 or 40 years, you’ve tried to get the highest rate of return that you could, he says, and now you are supposed to focus more on not losing money, than on higher returns.

“It is not natural!” he says. “One of the common questions that I hear in our client review meeting is that the S&P was up 14 percent in the past year, but our portfolio is only up 8 percent. What is wrong with our portfolio?”

Nothing is wrong with that kind of portfolio, Lynch says. If your portfolio is 40 percent stock and you still returned almost 60 percent of the index, you actually did incredibly well based upon the risk that was taken.

Lynch says when he reviews performance, he generally breaks out performance into a variety of different sectors. This may include U.S., international and emerging markets stocks, U.S. and international fixed income, and so on.

“After we have broken out the performance by sector, we then compare it to the indexes that are the sectors that you are invested in,” he says. “This is really the only way that you can really tell if your performance is good, bad or indifferent.”

Lynch wanted to add to the conversation a quote from economist John Maynard Keynes: The market can stay irrational longer than you can remain solvent.”

Lynch says he believes in the law of averages and that over time, the stock market will return the 10 percent-plus that it has historically returned. But, you can’t count on that over the short term, he says.

“If you are fortunate where your retirement dream is possible, take the risk out of the portfolio,” he says. “Even if you can afford to lose 45 percent of your money — and Claudine can’t — I guarantee you that it will make you miserable.”

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JFL 18th Anniversary Letter from the President

By Jerry Lynch, CFP CLU ChFC

On April 21st 1998 we opened our doors for the first time…one of the scariest things I have ever done in my life. I had a mortgage, was married and had a lot of financial obligations at that time. I was at a point in my career at my previous employer where I wasn’t having fun, I was getting incredibly frustrated with corporate policies and politics. I wanted to do something where I had more control, fun and where I would really add value.

Over this 18 year period of time, we have been in three locations. The first was in Palisades Park NJ for almost 3 years. Second was our old location in Fairfield where we were there for around 15 years. Finally last September we moved to our current location in Boonton NJ. Our new location in Boonton has more than 5 times the square footage of our old location and while we are only using the 1st floor right now, we have the ability to continue to grow without ever having to move again.

There are many people that I want to thank who have helped me get to this point. First would be my family and especially my wife Deena. As many of you know, being a business owner means that 9-5 is not an option, and you leave only when the job is done! You need a very supportive wife and family to do that.

Second, I wanted to thank my employees, especially Pam Karkenny who has worked with me off and on since I was skinny and had more hair (don’t want to put a year to that), and who handles all my established business. I also need to thank Steven Crevar, CFP my new business manager, Rafael Arellano who handles my reporting, and Nicole Johnson who is helping us with new business and many of our marketing events. They do a tremendous amount of work to provide these services to our clients.

Finally, I need to thank each and every one of you who have worked with us over the past 18 years! I meet a lot of people who do not like their job and are waiting for the day that they can retire. In comparison, each day I go to work excited about helping people and coming up with creative solutions to complex problems. Working with each one of you individually has helped me more effectively work with everyone. I often say that my 90 year olds, help me work better with my 80 year olds, who help me plan for my 60-70 year olds, which helps me with pre-retirees planning for retirement. I have so much fun with working with you and wanted to take a moment to say thanks!

We have spent a lot of time, effort and money over the past year to upgrade all our systems, not to just have a new office. IT systems, technology, training and additional employees just to name a few. It is my goal to continue to add to the services that we provide, and look for ways to add additional value and to exceed your expectations.

Thanks again for an amazing 18 years and the confidence you have shown in our organization!


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Obama’s tax return: His rate—and how he could save money

So we all have our hobbies. Some like to fish, or go to the gym, maybe play a little golf. I like to review tax returns and if one pops up, let’s say like President Obama’s, I feel obligated to review it to see if he paid more than he needed to if he had planned properly.

Most people spend almost no time proactively planning for their taxes which generally is one of the largest expenses that all of us have. The process generally starts in February when you throw a bunch of 1099′s into a shoebox, think of a few creative ideas to say to your CPA to justify some expenses, then hope for the best. Hope is not a plan! So if we were proactive, what could we potentially save in taxes assuming that we were the president.

Now just because you can do something to reduce your taxes, does not necessarily mean that you should do it! It has to make sense with the rest of the plan. In addition, reviewing a return generally shows other issues that you may want to consider relating to how you are spending and investing your money.

First, let’s start with President Obama’s tax numbers by looking at a copy of his return (Barack & Michelle Obama 2014 federal tax return). Last year they had $477,383 in adjusted gross income and this is how their taxes broke out:

Federal: $90,894 (that includes $10,087 in additional taxes due to the Alternate Minimum Tax (AMT))

Self-employment tax: $2,362 (they get a credit for ½ that $1,181)

State income (IL): $24,819

eal-estate taxes: $29,571 (up almost $3,000 from 2013)

Total: $146,465 (This is what we call being very patriotic!)

So this puts the president in a 33 percent federal income-tax bracket and 15 percent on capital gains. He is also subject to the Obamacare surcharges that adds an additional 0.9 percent on earned income and 3.8 percent on investment income above $250,000 for families. Finally, he is a resident of Illinois so we have an additional income tax of 5 percent. So here are his marginal (top) tax rates:

Capital gains: 23.8 percent

As we review the return, these rates are very important to know to understand the after-tax rates of returns. So here is what I see:

Taxable interest: ($16,092 (gain) x 38.9% (tax rate) = $6,259.79 (taxes paid). His return after taxes was $9,832. +He is mainly invested in U.S. government securities that are taxable at a federal level. He would probably be better off in Illinois muni bonds that are exempt from federal and state income taxes, and the returns are very competitive as well.

Qualified dividends: ($0). These are dividends that come from stocks such as AT&T. They get taxed at capital- gains rates, which is about 40 percent less than his earned income rate. Also, just using the S&P 500 as an example, the current dividend of the S&P is 1.94 percent, which is about the same as the 10-year Treasury yield. Better tax rates — better potential upside. This also tells me that the president has very little if any stock investments in his portfolio and that has cost him a lot of money over the past 6 years. We should probably review his portfolio allocation as well.

Capital loss: $3,000. This indicates to me a long-term capital loss carry forward (his return indicated a carry forward of $109,057). This is a planning opportunity, as it allows us to offset capital gains in our portfolio. I would suggest that we proactively sell gains in the portfolio to offset that loss, so we can get the tax deduction sooner rather than later.

Self-employment income: $88,181 (This is from his books). They did do an SEP contribution of $17,400, which is great; however, they did not do the maximum, deduction of 25 percent of income, so they could have deferred almost $5,000 more. In addition, if they did a solo 401(k) plan, they could have done $17,500 plus an additional catch-up contribution of $5,500, plus an additional 25 percent of income. This would have allowed them to more than double their deduction for 2014 and save for their retirement. If I were his advisor, I would suggest we at least explore this option.

Overpayment: $25,641. You should never be getting back checks this size. This means that your returns and income were not planned out correctly and you got a zero-percent return on your money for 15 months. This was even larger than last year’s overpayment, so this needs to be better planned out!

Mortgage interest: $39,566. Let’s assume that his mortgage interest and property taxes ($29,571) have been the same over the past 6 years. That would mean that they have paid $69,137 annually for 6 years (total cost: $414,822) just in property taxes and mortgage interest in a home that they have not been in for 6 years. This property is worth approximately $1.6 million so the additional maintenance on the property is around 1 percent to 4 percent of the value of the home. So, let’s split the difference and use 2 percent, which is an additional $32,000 annually (192,000 over 6 years). So over the 8-year period of time that he will be president, the property would cost $809,096. He would have been much better off selling the home and investing the additional $809,096 over those 8 years.

Charity: The Obamas gave $70,712 to charity last year to some great organizations. For any of my clients that give to charity, I look to do one of two things. Either allow them to give more at the same cost or to give the same amount and have that cost them less. Generally, cash is the worst thing to give to a charity from a tax standpoint. I would rather see them give appreciated securities or actually transfer ownership of the book rights into a charitable trust. This would substantially reduce their taxable income and help them support their charitable causes in a more efficient manner.

I realize that the president does not want to be very aggressive in tax planning as it would not look too good if he did. But when I review tax returns, I see opportunity to at least have the conversation on should we consider changes based upon the person’s tax and personal situation. Specifically with the president, there are hundreds of thousands of dollars (if not more than $1 million), over this 8-year period of time that we need to at least discuss to see if it is an option.

My advice to everyone is to bring your 2014 tax returns to your next financial advisors meeting and say, walk me through this and what we should be doing differently based upon my tax situation. And remember: You don’t get a medal for overpaying your taxes!

Commentary by Jerry Lynch, a certified financial planner, chartered underwriter and chartered financial consultant (CFP, CLU, ChFC). He is president of JFL Total Wealth Management, a registered investment-advisory firm. Follow him on Twitter @JFLJerry.

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Happy Anniversary for the Stock Markets 6 Year Bull Run!

By Jerry Lynch Now, here is why I’m concerned! Maybe I am just getting older and seeing things in a more pessimistic way …who knows. I am speaking with clients that are not happy that the returns are not in line with the three major indexes, and I get that. My concern is that client expectations have radically changed in the past 6 years from “try to minimize losses”, to “we need to get higher returns”.

Yes I get it, everyone always wants more. What most people do not understand is that my job is to worry for my clients, to keep them from acting emotionally and help them make smarter decisions with their money. Here is what worries me.

Valuations- right now the S&P trades a little above 20x earnings. The historical average is around 15.5x. This is telling me that verse the average, stocks are selling at much higher multiples. I use historical averages on almost everything (mortgage rates, stock prices, even gas prices) to figure out if things are expensive, or cheap. When pricing is below the historical averages, it is a buying time. When it is above the averages, it is time to be very cautious.

Think like a Retiree- most retirees plan for retirement was to have a certain amount of money, let’s say $1 million, put it in a bond fund or CD that pays 5%, get $50k annually in income (without touching principal) plus social security and live happily ever after. The problem is that those CD’s are renewing at .5%, and now generate $5k in income. The options are to either eat into principal (which freaks them out), or take more risk by investing in the market, which is what has happened. This has driven up stock prices but sooner or later when interest rates rise, this money will go back to the more conservative investments. That generally causes the market to drop.

Real Unemployment- What is reported as unemployment numbers and what is real unemployment (referred to as the U-6 rates) are not even close. The U-6 rates in 2007 were around 8.3% and the current U-6 numbers are over 11%. The U-6 rates include people who have stopped working because they could not find a job, are underemployed making a lot less than they were, or who are working part time. In the current government reporting, if you work 1 hour per week, you are considered employed. These U-6 numbers are still substantially higher than in 2007, which shows that the unemployment is actually worse not better.

We are the prettiest dog out there. Europe has major issues, Russia is tanking, and very few areas in the world have real economic growth. Investing in the US because we are the “least bad thing out there” is really not a very compelling reason to invest. At some point that plays out and investing in something because it is the best of the worst is not a great strategy.

Low interest rates- having interest rates at 0% held artificially for years is not a great thing. It causes the stock market to rise but it is not real. This will definitely have an impact when interest rates are not being held artificially low.

We have had a 6 year great run- the average bull market lasts 67 months (Shiller 2013), and we are now in month 72. The average negative year in the stock market gives you a little worse than a negative 13% return. A bear market is a correction is at least a 20% drop from the market highs. It is simply reasonable to assume that there can be a correction in the market.

So what should you be doing?

Have a consistent approach to investing. Selling when the market is low and buying when the market is up is not a great long term approach. To get the average returns, you need to remain consistent.

Reconsider your allocation- in the past 6 years, stock prices have gotten a lot higher and it is very possible that you a higher stock allocation (and thereby more risk) then you were previously. Maybe it is time to take it down a notch, especially if you are close to retirement.

Reconsider your portfolio- I meet with people who do not know what they are invested in, do not read their investment statements, and have not made changes in their portfolio for years. You need to look at this every once in a while and understand what you are doing.

Continue to invest! Your least “risky” money is the dollars you invest today, and the most risky is the money you have invested today. If the market goes down, your invested dollars drops and there is no benefit to you at all. If the market drops and you continue to invest, you are buying at a discount and it works to you advantage.

So I really do not know if the market will go up or down from here, but I am concerned. At least I’m honest about that!

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Fiduciary duty isn’t as simple as the headlines

by Jerry Lynch, CFP, JFL Total Wealth Management

The White House is proposing new rules for qualified retirement accounts. (You can read the details here.)

I totally agree with some of the proposals, but there are some that I simply feel are a spin on what is really happening.

For the record, we have always acted as a “fiduciary” for our clients — individuals clients as well as corporate retirement accounts. This simply means that we legally have to act in the best interest of our clients. We disclose conflicts of interest, what we get paid, what we do for our services and we are very proud of the work that we do in this area. Our fees are not hidden, and I do feel that we help employees make better decisions with their investments, which over time, leads to higher returns. The fees must be in line with the services and value provided. Everyone, both employers and employees, should be aware of them.

What many people do not know is that you do not need a securities license to sell company retirement accounts if you use group annuity contracts. A simple life insurance license is all you need to sell that, and I think that is insane. Generally, group annuity contracts are more expensive and do have more fees than pure mutual funds. I also feel that someone with a securities license will generally be a better resource for retirement planning then someone who is just licensed for insurance.

There is a cost of providing this type of service as an employee benefit. The costs are for the investments (expense ratios), third party administrators (that do the testing and plan design) and the investment advisor. Generally, the larger the plan, the lower the fees due to the economies of scale. Smaller companies will definitely be more expensive, simply because there is less money and a lot of work involved.

So think about this: A 10-employee company wants to start up a 401(k) plan with people of different income levels. Assuming the company puts in $100,000 over the next 12 months — which is very high for 10 employees — and the fee is .5 percent, the advisory fee is $500. After the expenses of doing business, if the advisor is doing their job of meeting with the trustees and the employees for the educational meetings, that advisor will lose money. The only people who can afford to do this are generally new advisors with very limited experience. The problem is that advisor and their lack of experience is not as helpful for the trustees to make better plan decisions, or for the employees to understand, which can be rather confusing. Who is going to work this market and help these people, many of whom are middle class!

In theory, the employer can pay all the costs of doing this, which is what all employees want. Advisory fees, administrative fees and using no-load funds (we have some clients that do) can be entirely employer-paid if they work with an investment firm that is a Registered Investment Advisor (we are). The problem is that not many employers can afford to do this, so instead of offering a plan with marginal fees, the employer says it is too expensive and say they can’t afford to do it. So who wins then?

There are good and bad people in every industry and financial services falls within that category as well. It is getting more and more difficult to get new and younger advisors into the business due to compliance issues and the time needed to develop a book of business.

My point here is that this is not a simple issue and before we make some rules that may cause more harm than good, we should really think this out.

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Is Gold a Good Investment for Retirement – AARP

by Eileen Ambrose, AARP The Magazine, February/March 2015

See this paper money? In 100 years, that’ll be long gone.” Those late-night television infomercials pitch gold as the only hedge against a future where your dollars are worthless.

The claims tap into our fear that with unrest in the Middle East and elsewhere, a plague threatening Africa and a disappointing job market at home, the end of life as we know it may be near. It’s tempting to call that 800 number and stock up on gold, whether Krugerrands and other coins, or gold bars. Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case.

Despite these emotional appeals, many financial experts warn that gold (and, for that matter, silver, an even more volatile commodity) is just too risky, especially for retirees who need income-producing investments rather than an asset that can swing wildly in value within short periods, or languish for years.

Gold itself doesn’t produce anything,” says Eric Meermann, a portfolio manager with Palisades Hudson Financial Group in Scarsdale, New York, which has $1.3 billion under management. “It just sits there — a form of money for people who don’t trust other forms of money, like cash or investment securities.

Currency of fear

Gold has always had a unique allure, and for the past century it has swung in and out of fashion with investors, surging in times of economic stress or political turmoil. It’s not called the currency of fear for nothing.

In the wake of the 1970s oil crisis and years of high inflation, the price of gold hit a then-record peak of $850 an ounce in 1980. Next, after the Federal Reserve raised interest rates to quell inflation, gold swooned and barely budged for two decades. It took 28 years, until 2008, for the price of gold to creep over $850 an ounce again.

The last big run-up occurred during the recent Great Recession and the financial crisis of 2008. That year, credit froze, the Dow Jones industrial average lost 778 points in a single day, and Wall Street icons Bear Stearns and Lehman Brothers collapsed while the nation nervously waited to find out who was next.

In ’08 and ’09, it looked like we were going into the abyss,” says Barry Ritholtz, a financial columnist and the chairman and chief investment officer of Ritholtz Wealth Management in New York, with $182 million under management.

The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. Talk then was that gold would more than double. Instead, the economy improved, stocks rebounded and gold plunged, losing 28 percent of its value in 2013. It fell again in 2014, ending the year at $1,184 an ounce.

By comparison, the S&P 500 index, whose value was cut by more than half from its high in 2007 to the low in 2009, recovered all lost ground by last year and has since reached new heights. “Gold is an emotional investment, and not one that I would recommend for those approaching retirement or in retirement,” says David I. Kass, associate professor of finance at the University of Maryland, College Park. “The price of gold can drop as quickly as it can go up.

Older investors in particular, say many advisers, need investments that generate income, like dividend-paying stocks, municipal bonds or real estate investment trusts that pay out most of their earnings in dividends to shareholders. “To protect against inflation, just own equities,” says Meermann. Appreciating stock, over time, has more than kept up with inflation, he says.

Billionaire Warren Buffett, one of the world’s most successful investors, has a more colorful argument against gold. In a letter to shareholders in 2011, the Oracle of Omaha said all the gold mined would amount to a 68-foot cube, the money equivalent of all the cropland in the U.S., 16 ExxonMobils and a trillion dollars in cash. “A century from now, the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops—and will continue to produce that valuable bounty, whatever the currency may be. ExxonMobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons),” he wrote. “The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

And don’t overlook taxes. Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. In comparison, long-term capital gains on stocks and bonds are taxed at a top rate of 15 percent for most investors.

Gold: Pros and Cons


Hedge against inflation


Tends to grow in value during bad economic times


Not an income producer


Speculative; only worth what buyers will pay

Insurance policy

If you’re still convinced gold is for you, you can invest in funds that own gold, though many gold fans — often called goldbugs — prefer buying the physical metal, even though it may mean additional costs for storage and insurance.

Steve Brown, 60, of Texas, bought his first gold coins in 2011, and they now are about 10 percent of his holdings. He sees the metal as a way to diversify his investments and protect against inflation, which he suspects is much higher than reported

Gold, he says, is an insurance policy, not unlike buying a homeowner’s policy for a house that may never burn down: “If everything goes crazy, it gives me some peace of mind.”

Andrew Carrillo, a financial planner with Barnett Capital Advisors in Miami, has half his personal investments in gold and advises his clients — especially retirees — to keep 5 to 15 percent of their portfolio in the metal. “Their biggest risk is not running out of money,” he says. “The biggest risk is their money running out of purchasing power.”

But, in the end, many advisers say to take all that talk of doomsday with a grain of salt. Ritholtz, for one, asserts that the imminent demise of the dollar, the world’s dominant currency, is highly unlikely. “Trust me, the people who run Goldman Sachs are not going to let their dollars become worthless,” he says wryly. “And anyone who thinks that the dollar is worthless can send their money to me for proper disposal.”

And what about silver?

If you’re no longer sold on gold, should you consider silver? It’s cheaper — selling at around $16 an ounce at the end of last year — and it’s often called the poor man’s gold. Silver, though, is far more volatile than gold. That’s because it has more industrial uses, and when the economy expands and contracts, so does the demand, says Doug Eberhardt, author of Buy Gold and Silver Safely. In the second half of last year, gold fell about 10 percent, and silver plunged more than 24 percent. Silver also shares gold’s drawbacks: no dividends and higher taxes on gains.

Jerry Lynch, a financial planner with JFL Total Wealth Management in Boonton, New Jersey, says silver is a market-timing product that requires investors to get in and out at the right time. Few, if any, have that skill, he says.

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You are not supposed to beat the index, so stop thinking that you are

by Jerry Lynch, CFP, JFL Total Wealth Management

I read a lot of articles on investments, returns and how most people do not beat the index in their portfolio. Let me set the record straight. The question “Did your portfolio beat the index last year?” is a trick question. An index is not a portfolio and if you are beating the index (let’s say the NASDAQ or S&P) then you are probably doing something very wrong! Let me explain.

There are three major indexes that we generally compare portfolios to:

S&P 500: This is the top 500 companies in the U.S. based upon specific criteria, not just market cap.

Nasdaq: This was the first electronic trading market. This index has companies based in the U.S. and overseas and generally is in technology and growth companies.

Dow Jones Industrial Average: This was first an industrial index, but now it focuses on 30 larger U.S. companies.

These track only part of the investment options that are available to you and they mainly focus on larger companies. Also, these specific indexes do not track emerging markets, international, smaller companies or any fixed income investments, so they are a very small subset of the index universe. There are hundreds of indexes out there and only using only three to evaluate performance is not a fair comparison.

A portfolio is designed around several different sets of criteria that are generally based upon the investor. These would include risk tolerance (how much are you willing to lose), tax sensitivity, income requirements, and when you need the money back, just to name a few. Let’s discuss that a little.

Risk Tolerance: In 2008, the Dow, S&P and NASDAQ were down 33.8 percent, 38.5 percent and 40.5 percent respectively. If you do not want to lose that much money, you should not be invested 100 percent in those indexes. If your “pain” threshold was, let’s say, a 20 percent loss, the most I would have you in is 50 percent stock. If you were invested in 50 percent stock, then a good return for this portfolio would underperform the index by 50 percent.

Tax sensitive: If you are in a 10 or 15 percent tax bracket, you qualify for tax-free qualified dividend (stock) income and tax-free capital gains. If you are in the top tax brackets (over 50 percent in some states), part of the focus has to be tax-sensitive investing. Comparisons with indexes will not take into consideration the differences on an after-tax basis.

Income Requirements: If someone is looking to live off this income, the 2 percent dividend rate from the S&P 500 is not going to cut it. This leads to investments in things that generate income such as dividend stocks, REITs, Master Limited Partnerships (MLPs), and fixed income investments. These returns are not linked to the major indexes, so of course, they will perform differently versus these indexes.

Diversification: If you look at the performance of the market by sector, even sectors such as cash have led in performance at certain times (i.e. 2008). A diverse portfolio gives you options and allows you to select what works best to sell at that moment in time. So using 2008 for an example, having all your money in the three major indexes would have meant that you couldn’t or shouldn’t sell. Having money in cash meant that you did not have to sell at a loss and you could allow your money to recover.

I am not an index investing hater and I support both passive and active management styles in the portfolios that we manage. In large U.S. companies, I think that an S&P 500 index fund should be a core holding of any good portfolio, however, I do feel it is very difficult to index alone, especially in areas such as smaller companies and international investing. So I feel a combination of the two strategies is a great way to develop a portfolio.

So if comparing an index to a portfolio is really not a fair analysis, how can you see if your performance is good or bad? Well, it is not easy, but you would need to evaluate every index in each area that you are invested. Even then, you may have to modify them based upon what you are investing in. For example, if you are investing in shorter duration bonds, the Morningstar Intermediate bond index has a longer duration, and you would then need to discount that.

So I think that it is always good to have a conversation on the performance of the portfolio so you can understand where and how you are making or losing money, and if changes need to be made. It is even more important that the portfolio is designed around you and helping you hit your goals and objectives, especially if you are retired.

The purpose of financial planning is not getting the highest rates of return, but rather making all your financial dreams come true with the minimal amount of risk. If you can make that happen, do not worry about what the indexes are doing!

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How not to go broke: Ideas for a great 2015

by Jerry Lynch, CFP, JFL Total Wealth Management

I am fortunate because I get to meet with a lot of different people in all types of financial positions. Some are very financially successful, and others… not so much. People often assume that if you make a great income you will be financially successful, and that simply is not the case. You can look at rock stars such as Michael Jackson — who had signed over a $1 billion contract in 1991 — to athletes such as Mike Tyson, with over $400 million in earnings. What can we learn from their experiences?

In 1990, MC Hammer reportedly made $33 million! During that time, he had a 200-person crew that cost him $500,000 per month to maintain. We all know how that ended. Income does not equal wealth and financial success is not tied to income. Financial independence happens when your passive income — income that comes from investments and not you working — is greater than your expenses. At that point, you are financially successful. So, if your Social Security check and your pension are greater than your expenses, even if that is $40,000 annually, then you are financially successful. Financial success is not about how much money you make. It is a matter of the money that you make being more than your expenses.

Investments that do not generate income are not investments! Michael Jackson’s “Neverland” was purchased for $18 million in 1988 and reportedly cost $10 million annually to maintain. Buying an expensive home that you live in is not an investment. It’s a huge expense. The maintenance on the property annually, especially for expensive properties, can be in the range of 5 to 10 percent of the value of the home each year. So the $1 million home can cost as much as $50,000 to $100,000 annually to maintain. You may not live in a multi-million dollar home, but you need to ask yourself if this ‘investment” generates income or generates an expense. Having an investment that just sucks cash from your wallet can destroy you in bad financial times.

Cash: Why would anyone want their money earning .01 percent? That’s easy. It’s because cash — liquidity — is the most important thing with any person’s (or business’) overall financial plan. Cash gives you breathing room and the ability to get through situations, while those who are locked into investments are forced to have fire sales. Part of financial success is not having big losses, and having cash gives you options to avoid these losses.

People: If you look at someone like a Michael Vick, his biggest problem, I felt, was that he had no good people giving him sound advice. I don’t only mean financial people such as CPAs and financial planners, but people who really cared about him and would keep him from doing stupid things. When things are going well, people climb out of the woodwork to be your best friend. However, those same people will plaster your face on Facebook in two seconds if they see you doing something stupid (i.e. Michael Phelps). Every person that you met since the first grade will give you their “great busines

The tortoise always wins! Many of the successful people that I have met do not look successful. They do not drive Bentleys, live in million dollar homes and have a staff of people catering to their every wish. They are hardworking people who saved their entire life, lived below their means and made the hard choices needed to be successful. Instead of expensive vacations, they fund their kid’s college plan. They buy reasonable cars and drive them into the ground, saving the rest for the future. They save more every time they get a raise. This is really not rocket science!

Financial success is not about luxury items. It is about feeling comfortable in your own skin and being able to live life on your own terms. If your goal is not to go broke, these rules will keep you on track!

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Owning two homes without going broke in retirement

Nick, 60, and Nora, 55, want more discretionary income than they have.

The couple plans to sell their current home in New Jersey to move to a smaller place in Pennsylvania in about five years. They just want to make sure they can afford the retirement lifestyle they desire.

“We want to spend more time at our Florida townhouse, travel and spoil our children and grandchildren the best we can,” Nora says.

The couple, whose names have been changed, have saved $65,800 in 401(k) plans, $64,400 in IRAs, $34,300 in mutual funds, $147,800 in savings bonds, $25,400 in savings and $102,000 in checking.

Net Worth:


Checking: $102,000

Savings: $25,400

Savings Bonds: $147,800

IRAs: $64,400

401(k): $65,800

Mutual Funds: $34,300

Primary Home: $375,000

Florida townhouse: $95,000

401(k): $65,800

Personal Property: $40,000

Autos: $25,000

Total Assets: $$974,700


Mortgage: $92,300

Car Loans: $15,000

Total Liabilities: $107,300

Total Net Worth: $867,400


Annual Income:

Nick pension: $49,000

Nora salary: $54,250

Monthly Expenses:

Income Taxes: $1,278

Housing: $2,074

Second home: $225

Utilities: $650

Food: $930

Personal Care: $250

Transportation: $993

Medical: $100

Entertainment: $200

Vacations: $500

Charity: $50

Gifts: $200

Pet Care: $25

Jerry Lynch, a certified financial planner with JFP Total Wealth Management in Boonton, reviewed the couple’s situation for NJMoneyHelp.com.

“They want what everyone wants to know: Can I retire?” Lynch said. “Let’s just keep things very basic. You are financially successful and can retire when your passive income — that comes without you working — is greater than your expenses.”

So Lynch set out to see if that will be the case for Nick and Nora in the long term.


The couple’s current expenses come to $4,500 per month, or $54,000 a year.

Nick’s pension pays $4,083 per month, or $49,000 a year.

Then there’s Social Security to consider. At age 62, Nick would receive $1,690 per month, and at the same age, Nora would receive $1,428 per month.

Add it all together and at Nick’s age 62, they’ll have guaranteed monthly income of $5,773, which will boost to $7,201 per month when Nora turns 62 in seven years. That amounts to $86,412 per year.

So the couple has to find a way to fund the two years until Nick receives Social Security from their savings. At that time, just with Nick’s pension and Social Security, the couple will have $1,000 a month more than their stated expenses.

“When Nora’s Social Security kicks in another five years, they will be $1,700 per month above what their expenses are,” Lynch said.

He said they already have enough cash to fund those two years in their bank accounts, so they can simply spend down the money there until Nick takes his Social Security.

But, it will be essential to review and stick to their retirement budget, Lynch said. He fears their expenses are understated, which could lead to some ugly spending surprises in retirement.


Nick and Nora need to consider the smartest investment strategy going into their retirement years.

Lynch said because their guaranteed income in retirement — the pension and Social Security — will be greater than their expenses, they really do not need to be overly conservative with their investments.

That’s not the case for many other retirees.

“You need to be very conservative if you need the money in a short period of time,” he said. “I believe in statistical averages, provided that you have the time to allow the averages to happen.”

You should set aside a certain amount to make sure you have cash if something goes wrong, Lynch said, especially in the early years of retirement when you are in the best financial shape of your retired life.

But sometimes, too much conservatism can work against you.

“Most of their money is in cash or government saving bonds that are guaranteed to lose money on an after-tax after inflation basis,” Lynch said. “We do not need to get crazy here in terms of stocks, but reasonably, they could be 50 percent in stocks and I would not be concerned at all, mainly because all their expenses are covered by the pension and Social Security.”

If they invest more, the other 50 percent of their portfolio — the cash and bonds — can be used for expenses, and if the market drops, they won’t need to worry about selling stocks at a loss. Then over time, the stock investments will come back, he said.

Lynch also had some thoughts about their $90,000 mortgage, which has an interest rate of 3.75 percent.

Instead of having almost $300,000 invested in cash and bonds earning on average, say, 1 percent — and Lynch says he’s being generous with that rate of return — they could pay off the mortgage. That would essentially give them an additional 2.75 percent rate of return (3.75% – 1% = 2.75%), risk-free.

The couple said their adult kids do not need their help financially, they may want to consider setting up a 529 Plan for college savings for their grandkids and future grandkids.

“You will see this as a longer term investment that can be more stock-oriented,” Lynch said. “The fund would grow tax-deferred and can be used tax-free for college.”

Lynch likes the 529 Plan idea because the couple could over time, if needed, change beneficiaries of the account, and they’d still have control over the funds, even though the money is considered a completed gift for IRS and estate planning purposes.

“So let’s say that Junior comes home one day and says to his grandparents, `Guess what? I do not want to go to college I want to get a Porsche and go to California with my buddies with my college money,’” Lynch said.

If Nick and Nora had put money in a Uniform Gift to Minor Act (UGMA) account, the money would belong to the grandchild and he could take his Porsche to the beach.

But with a 529, Nick and Nora would still own and control the account.

“Junior can still go to California, but he will driving his bike and the 529 money can be used for their other grandkids who are going to college,” Lynch said.

Finally, by funding college for the grandkids, Lynch said they’d be helping their adult children by taking some of the burden of college costs off their shoulders.


Nick and Nora are planning to retire by splitting their time between Florida and Pennsylvania, with Pennsylvania being their state of residence.

Lynch said this is a good idea for retirement planning purposes.

“Only two states, Pennsylvania and Mississippi, exempt all retirement income from state income tax,” he said. “Only nine states exempt Social Security benefits from income tax, and Pennsylvania is one of them.”

Plus, the combined property taxes on the two properties they’d own will almost certainly be lower then what they pay just for New Jersey right now, Lynch said.

One strategy to consider with the move, Lynch said, is that it’s possible for spouses to have residency in two different states. The general rule is that you need to be in your state of residence for six months and one day.

“Let’s say one of the spouses is a Florida resident and the property is in their name. They are now able to be `Homestead’ in the state,” Lynch said. “This means that your property tax increases are limited to a maximum of 3 percent or the Consumer Price Index.”

He said a non-resident can be subject to substantial annual increases that are not limited to anything other than the reasonable value of the property, which can make a substantial difference in tax rates over a 20-plus year time horizon.

While owning two properties may sound great, it can get expensive, Lynch said.

“Even when they are in Florida in the winter, their Pennsylvania home will need to have the driveway plowed and the home heated,” Lynch said.

It also locks up a lot of cash that isn’t really getting any rate of return, he said.

“Finally, do not take this the wrong way — unless you have a ski, lake or beach house, your kids and grandkids will generally limit vacations at your home to holidays,” he said.

So instead of owning two homes, Lynch recommends they consider a different plan.

Instead of buying in Pennsylvania, they could come up from Florida for a month or more each year, renting a beach house where the kids and grandkids may want to visit for a few weeks.

“You save your kids the expense of paying for a beach house, your grandkids will love it, and you will spend more time with them then several years of holiday dinners,” Lynch said. “From a cost standpoint, it will free up all the cost of maintaining the home, plus we get the use of the money that would have been locked up in the home.”

So to their original question: Can they afford to retire?

“The answer is yes,” Lynch said. “Their expenses are rather moderate and their pension and Social Security are way above their expenses. It will take a few dollars from their pocket to fund the pre-Social Security time, but they have enough to make this happen.”

Money makeovers offered by NJMoneyHelp.com should be treated as general advice about personal finance and money decisions. Before you make any changes to your personal financial plan, see a professional who can consider your entire financial situation. If you’d like a free money makeover, emailmoc.pleHyenoMJN@ksA.

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Rethinking Retirement: The 5-Step Process

by Jerry Lynch, CFP, JFL Total Wealth Management

Generally we work with two different types of individuals in our financial planning firm: pre-retirees who are planning on retiring within the next three to five years, and retirees ranging from 60 to 90 years old. Seeing life through the eyes of an 85-year-old retiree really helps us in our planning with pre-retirees as we know what to expect for them. So when they come to our office and ask, “What do we need to do to prepare for retirement?” my response is always the same. You need to change your mindset!

The skills needed to get you to a point where you can retire can actually hurt you when you retire. The rules of the game have now changed and unless you change with them, things will get a little tough. There is a term I learned a while ago called a “Paradigm Shift,” which means a radical change in underlying beliefs or theory. The investment rules and principals that you hold to as your bible of success need to be changed.

Here are five items you need to do now to successfully prepare for this transition.

It’s not about rates of return, it’s about cash-flow. Investments that generate high rates of return have the ability to drop just as quickly. Think of 2008 as an example. If you have to sell the securities you had in 2008 because you had to support your lifestyle, you never gave the securities the opportunity to rebound from 2009 through today. Developing consistent income strategies is critical for a successful retirement so you do not need to sell investments that are down.

Take it down a notch! For the past 40-plus years, your goal has been to get the highest rates of return. It is not about that anymore. The focus needs to be on not losing big. If you have an 80 percent stock portfolio, you have the ability to lose a third of your money. If that happens, you are going back to work. Do you know how hard my conversations are with clients who have always looked to outpace the index, when we are doing half that because we are 50 percent stock? The investment goals need to change.

Live at your target retirement income today. If you are planning on retiring with $10,000 of income per month, and are retiring in two years, live the next two years at that income level. Sure, you can spend much more as the kids are out and you are probably are at one of the highest income levels of your life, but you need the discipline to see if there numbers really work. If you cannot live on that income today, it is very unlikely that you can live on it in retirement. If the numbers do not work, figure out a “Plan B,” which may mean waiting a few more years.

Try longer vacations at your potential retirement spot, but during the worst possible times. Yeah, Florida is great in the winter when it is snowy in the northeast, however, for an Irish guy with fair skin, Florida summers could kill me. Go to the places that you may potentially live for several weeks at a time, in the off-season, so that you can see what it is really like to be there. Even a stopped clock is right twice per day but you don’t want to set your watch to it. You don’t want to move to an area because it is nice part of the year.

Think grandkids! When you are looking for that next home, think about what a place where your kids and grandkids will want to stay for weeks at a time without you begging them to visit. Think beaches, ski areas and lake resorts, water parks, snowboarding, mini-golf and ice cream shops. If the grandkids like to come because these things are there, your kids will bring them and you will have a lot of great times with your family. A home that is not convenient to kid-friendly attractions will limit the visits to one-day holidays (Thanksgiving and Christmas) as opposed to several week visits.

The best way to plan for your retirement is speak to people who are 15 years older than you because they have just gone through this. Understanding what these people would do differently today if they could do it again is very helpful in planning out a successful retirement strategy. I think most of us feel much wiser than we were 20 year ago. Retirement does not come with an owner’s manual that tells you what do, so asking people who have been through this will help you make less costly mistakes and better choices for your retirement.

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