Leonesmoneymonitormonthly's Blog

By: Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information:  edleonedds@gmail.com     303-478-6793

We are all very much aware of the rhetoric coming out of Washington DC regarding tax reform. It will be interesting to see at what level the corporate tax rate is set. 15% would be very competitive globally and allow many business owners who have set up a corporate structure which allows business income pass-throughs (partnerships, LLCs, S corps etc.) a benefit since this would create a tax advantage to those who could take the income pass-through at this lower rate instead of a salary taxed at their higher marginal tax rate. The level of marginal tax rates along with the selected elimination of some tax deductions will be another very important ingredient in the effects of tax reform legislation. Another element in tax reform legislation which relates to the treatment of PSAs and HSAs will have impact on potential health care reform legislation. Let the show go on!

US and global equity market returns are still positive due to slowly improving economic conditions and reports on positive earnings in some key industries (e-commerce and technology for example). The expectation of tax reform and reductions in regulation burdens is still a driver in the US equity markets in my opinion. Dividend payments along with stock price increases have mitigated in some fashion the burden for income generation with existing low-interest rates on fixed income investments, but there may be additional future investment risk in the short-term.

According to a study done by Willis Towers Watson, there has been an over all reduction in employer contributions to retirement benefits of about 25% to employees over the last 15 years. This is due to the conversion from defined benefit pension plans to defined contribution plans such as the 401K. The defined contribution plans must be built more on employee savings habits and discipline than on employer contributions in most instances. There also seems to be a trend of decline in retiree health care benefits.

Alicia Munnell who is director of the Center for Retirement Research at Boston College, shares information that the average US citizen would like to see Social Security benefits be retained at current levels. There is a cash flow shortage in this program which will become very evident in the year 2034 as projected. Measures to adjust the incoming assets to the program are viewed as politically unpopular and are being delayed into the future. The longer we wait to institute measures such as increase in full retirement age, adjustment in payroll tax levels and disability and surviving family member benefits, the more painful and dramatic these changes will be. The government management of the “Social Security Trust Fund” must also be addressed. Author and financial advisor Ric Edelman has proposed a method to privatize the Social Security Program which appears to be significantly beneficial to participants due to increased earning patterns for assets invested over many years instead of the government strategy now being employed. It is likely that government will not want to give up control of this program. What and when??

The summer season will end in several weeks on Labor Day– a day off to celebrate working!!

For The Record:

DJIA          21,830.31

S&P 500     2,472.10

NASDAQ    6,374.68

Suggested Reading      “Back Stage Wall Street”  by Brown

By Edward Leone Jr. CFP RFC RIA MBA DMD

Contact Information: edleonedds@gmail.com   303-478-6793

The news media is quite entertaining depending on the sources we consume. We are not being exposed in an adequate way to the examples globally which demonstrate that capitalism (as we have seen it in the history of the US) leads to economic and social progress while central planning as in socialism (Venezuela as an example) leads to struggle, starvation and social and economic failure.

We are also not yet, seeing evidence of significant improvement of what has been a very slow-growing US economy. Our Congress is struggling with the elements of tax reform, regulation reform and other potential economic stimulus policies. Let us all hope that there can be a coming together over social needs and economic growth. It is very important that the global economy can generate demand for goods and services which both US and foreign companies can provide. We may be seeing the elements of such a trend since the S&P 500 has gained 9.28% for the first 6 months of this year and the All Country World Index has gained 18.11% for the first 6 months of this year. Can these trends be maintained over a long-term?

So many of us focus mostly on the accumulation of assets to support retirement. This is very important; however, an individual’s personal needs as projected must also be included in a retirement plan. Health, social contacts, family relations, physical activity, recreation and community involvement are essential to happiness and longevity in the years of retirement.

There is much discussion about conversions from a traditional IRA to a Roth IRA. This is a troubling time to consider this action since we are not sure what future income tax rates will be. Most of those considering this move should perhaps wait until the new tax rates are known. It is an option to do these conversions incrementally instead of all at one time. It is also important to have a plan to meet the immediate tax burden associated with the conversions.

A financial planning tool which is often used to reduce estate tax burdens and to identify beneficiaries outside of a will document is a trust. The selection of a trustee to administer the trust should be carefully considered:

1. The trustee should have the knowledge and skills to perform the duties assigned.
2. The trustee must perform as a fiduciary.
3. The trustee must be understanding and familiar with the estate and family history and desires.

It is important to engage a qualified attorney to formulate such a tool.

This summer season appears to be stimulating a lot of pleasurable travel. Enjoy your summer activities with family and friends!

For The Record:

DJIA               21,532.14

S&P 500           2,443.25

NASDAQ         6,261.17

Suggested Reading:            “Trading In The Zone”  by Mark Douglass