Home / Blog - Finance
Mortgage, Personal Finance, Retirement, Taxes

Trumps Proposed Tax Plan

Republican lawmakers just released the Trump tax plan, cutting corporate and middle-class taxes.

It has the potential to impact:

• Individual tax rates
• Changes for the middle class
• Increasing the standard deduction and the child tax credit
• Potential changes in the mortgage interest deduction
• The medical expense deduction
• Estate tax changes
• And more…
trump tax plan
The Highlights of the Trump Tax Plan:
• $90,000 income pays 12% tax
• $259,999 income and below would pay a 25% tax
• Standard Deduction doubles to $12,700 for single filers and $24,000 for married couples
• Newly purchased mortgage interest deduction cap at $500,000
• $10,000 limit on property tax
• Retains the low income housing credit
• Repeals the AMT (Alternative Minimum Tax)

Here is a great article in The New York Times that highlights the proposed Trump Tax Plan changes.

This impacts real estate in a big way. First, the obvious, mortgage interest deduction reduction from $1 million to only $500,000 and the House bill restores an itemized property tax deduction for property taxes up to $10,000.

But additionally, the not so obvious, doubling the standard deduction for married couples to $24,000 would make the mortgage deduction useless for most homeowners.

A married couple would need a home-loan balance of about $608,000 before it would make sense to itemize and use the mortgage-interest deduction.

Any questions how the TRUMP TAX PLAN could affect you please do not hesitate to contact us.

Mortgage, Personal Finance, Retirement

Reverse Mortgages, Reconsidered

Once widely disparaged, Reverse Mortgages are getting a second look.

Too many baby boomers are retiring with insufficient savings.

Many of these boomers are “house rich” and “cash poor,” and in response to their circumstances, they may decide to utilize a reverse mortgage. That move could make funding their retirement much easier and greatly increase the quality and longevity of their retirement.

Opinions about reverse mortgages are changing rapidly.

Once saddled with an image problem, they are now seen as useful instruments for producing additional retirement income. Just like any mortgage, they are not without risk. Today a Reverse Mortgage is looked at as a smart choice; an opportunity, a financial planning opportunity to utilize a large retirement asset, just like a IRA or 401-k throughout their retirement.

Does borrowing against the value of a home in retirement seem like a clever idea or not?

The average American household has about 75% of their net worth in real estate and very little saved through traditional retirement means; such as a company pension, 401-k or a Traditional IRA. These retiree’s have been led to believe, effectively lied to, that having a mortgage free home increases the longevity of their retirement. Sadly, this is not the case in most instances.

utilizing a reverse mortgage in retirement, reverse mortgages This old age thinking erupted from the experiences of their parents the “The Greatest Generation.”

These parents of the Baby Boomers had company pensions and Social Security. Growing up through the Great Depression, The Greatest Generation rapidly paid their mortgage because the bank could call the loan until it was re paid by the borrower. During this time there was no such thing as a 30 year fixed mortgage. Maintaining this same the same “Depression” thinking today can hinder a retirement and actually make it a risky proposition.

The Journal of Accountancy had a great article on What role should your house have in retirement planning? You can read it here.

Not everyone is eligible for a reverse mortgage.

Most Reverse mortgages are insured by the Federal Housing Administration (FHA), which imposes some rules and have stricter financial requirements. One, the couple or individual applying for the loan must be age 62 or older. Two, the home involved must have a certain level of equity. Three, the borrower(s) must have the means to pay property taxes and insurance. Four, the borrower(s) must pay a fee to attend a counseling session on reverse mortgages. In addition, you cannot have a reverse mortgage and be delinquent on any federal debt.

The Reverse Mortgage loan can be as large as $625,000.

The limit varies per county, and three other factors can influence the loan amount – interest rates, the appraised value of the residence, and the age of the borrower(s). A retiree household can access the money in one of three ways – as a lump sum, as a monthly income stream, or as a line of credit, letting the money grow. Borrowers usually cannot acquire more than 60% of the home value within the first year.

Interest accrues during the life of a reverse mortgage, so the loan grows larger over time. A reverse mortgage is a non-recourse loan, though, meaning that the borrower is never personally liable for repayment. A reverse mortgage only needs to be repaid once the borrower dies, sells the home, or moves out of the home.

Stronger spousal protections were put in place during 2015.

If one spouse dies or moves out of the home the remaining spouse can stay as long as it’s their primary residence.  Even if they were not originally listed on the loan. Additionally, with Reverse mortgages, the taxes and insurance need to be paid.

Health Care costs are skyrocketing.

Today retirees are living much longer and medical costs are only going up. Fidelity estimates the average retired couple will spend $275,000 during retirement for medical costs. You can read the article here. Where would this money come?

Inflation and taxes are only going up.

During 10 years of retirement and 4% inflation your social security check just got 40% less. Think the government won’t tax Social Security? Think again.  Rising Medicare premiums is the ultimate back door tax of Social Security and they are going up fast!

Reverse Mortgages can help guard against inflation and be a safety net against rising healthcare costs.

Annuva Financial is a comprehensive Retirement Income Planning firm. If you believe your financial  future is worth a quick conversation with one of our professional advisers, call us at 800-282-1530. There’s no obligation.

Economy, Personal Finance, Retirement, Stock Market, Wealth Management

Enjoy the Market Rally, But Prepare for the Retreat!

Investors may be lulled into a false sense of security by this market.

Will the current bull market run for another year? How about another two or three years? Some investors will confidently say “yes” to both questions. Optimism abounds on Wall Street: the major indices climb more than they retreat, and they have attained new peaks. On average, the S&P 500 has gained nearly 15% a year for the past eight years.

Stocks will correct at some point. A bear market could even emerge. Is your investment portfolio ready for either kind of event?

It may not be. Your portfolio could be over weighed in stocks and stock mutual funds – that is, a higher percentage of your invested assets may be held in equities than what your investment strategy outlines. As your stock market exposure grows greater and greater, the less diversified your bull market and bear marketportfolio becomes, and the more stock market risk you assume.

You know diversification is important, especially when one investment sector that has done well for you suddenly turns sideways or plummets. When a bull market becomes as celebratory as this one, that lesson risks being lost.

How do bear markets begin?

They seldom arrive abruptly, but some telltale signs may hint that one is ahead. Notable declines or disappointments in corporate profits and quickly rising interest rates are but two potential indicators. If the pace of raising rates speeds up at the Federal Reserve, borrowing costs will climb not only for households, but also for big businesses. A pervasive bullishness – irrational exuberance, by some definitions – that helps to send the CBOE VIX down to unusual lows and can be seen as another indicator of a bear market or stock correction.

How long could the next bear market last?

It is impossible to say, but we do know that the longest bear market on record lasted 929 days (calendar days, not trading days). That was the 2000-02 bear. A typical bear market lasts 9-14 months.

Enjoy this record-setting Wall Street run, but be pragmatic.

Equities do have bad years, and bears do come out of hibernation from time to time. Patience and adequate diversification may make a downturn more tolerable for you. You certainly do not want the value of your portfolio to fall drastically in the years preceding your retirement.  If this happens, you will have a narrow window of time to try and recoup that loss. Remember, the market does not always advance. It may be time to lock in these gains or re balance your portfolio.

Be careful listening to the media.

So while 15% gains sound great, way over 200% gains without a significant correction; the average annual return since the 2000 bear market has been only 4.11% (without dividends). Adjust for inflation and the return goes down to 1.90%. Minus out taxes, management fees, brokers fees and expenses and it seems like those that have been in the market since 2000 are still losing money.

The coming correction is right around the corner. Be Proactive, Not Reactive. Our clients didn’t lose a dime in 2000 or 2008. How low can it go? That’s anyone’s guess but this guy thinks it will be the Worst Stock Market Crash Ever… and that would be pretty bad.

Personal Finance

Tips for Women Trying to Save for Retirement

Woman & RetirementNumerous articles have mentioned the obstacles women can face as they save for retirement. Turning from the negative, here are some positive factors that may help women save more.

Financial literacy. Learning about investing, retirement topics and the markets is step one. An appreciation and understanding of the potential of equity investment, a recognition that a six-figure or seven-figure sum may be needed to retire – a retirement savings effort proceeds from these understandings.

When you have knowledge, you have more confidence and your money decisions feel empowering. A 2014 TIAA-CREF survey found that 81% of women who had obtained knowledge from a financial professional reported feeling informed about retirement planning and retirement saving, and 63% of women who had received financial advice felt confident about their retirement saving progress.1

Debt reduction. Less debt leaves more money to save. One recent survey suggests that women amass less debt than men: in reviewing credit trends for 2013, Experian found women were 4.3% less indebted than men overall and that female borrowers missed fewer mortgage payments and took out smaller home loans. As for handling a student loan burden while saving for retirement, most federal college loans are eligible for at least one of the new income-based repayment plans which cap monthly payment levels based on family size and income.2,3

Estimating high. Here are seven words you will rarely (if ever) hear from a financial professional: “You are saving too much for retirement.” Most people save too little, and here is a case where erring on the side of caution is no error at all. Building your retirement nest egg through multiple vehicles (an IRA, a workplace retirement plan, an equity portfolio, savings accounts) can contribute to the generation of a larger-than-necessary retirement fund.

Saving 10% or more of your income as soon as you can. Starting early allows you to take advantage of the considerable power of compounding. Putting away 10% or 15% of your annual income into retirement accounts is not excessive; it is quite reasonable, even necessary.

As a hypothetical example, 35-year-old Christina has already saved $30,000 for retirement with the idea of retiring at 65. She currently earns $70,000 annually. A retirement income of $100,000 seems like a nice idea for 2045 and the 20 years stretching beyond that date.

Assuming a 6% return before and after retirement, Christina would need to save 17.61% of her income, or $12,329 a year, to reach her goal under such parameters.4

At age 45 she has built $152,000 in retirement savings and earns $120,000 a year. To get that $100,000 retirement income for a 20-year retirement, she still has to save 14.9% of her income ($17,928) at a hypothetical 6% consistent return to realize that objective. The lesson: save, save early, and save more.4

Asking for raises or creating new income streams. It can be hard to ask for a raise, but it is harder to live on a substandard salary or risk positioning yourself for a retirement savings shortfall. Your employer will not likely give you one out of thin air, so initiate the conversation and assert your value. Also, look for opportunities to make more money outside of the 8-to-5 or 7-to-4: speaking engagements, home organizing, direct sales, consulting and other methods.

Owning your financial life. That is to say, keep control over it. If a relationship is wonderful and intense, great, but avoid being seduced into a passive financial role in the long-term. That was the default role for women decades ago when they married, but even today, when one person makes most of the financial decisions in a relationship, the other person risks moving forward in life with inadequate financial knowledge. That problem plagues widows.

Actively managing your finances also means straightforwardly addressing spending issues, debt and any other financial problems or dilemmas that must be resolved as you pursue your retirement savings goal.

Thinking positive. Saving for retirement begins by pairing the right outlook and the right actions. Stay positive; stay consistent; run the numbers and make sure you are saving enough. To find out just how much is enough, consult a financial professional who can help you assess your saving potential.

For more information on this topic please contact Ben Borden Richmond, Va Financial Advisor, (804) 282-8820

1 – [10/29/14]
2 – [5/22/13]
3 – [4/9/15]
4 – [4/9/15]

Stock Market

Bull Market

Looking Beyond the Current Bull Market

When the latest bull market for U.S. stocks reached the five-year mark on March 10, 2014, only five bulls had lasted longer. The Standard & Poor’s 500 index posted a gain of 177% for the five-year period.1

The current bull followed on the heels of the Great Recession and the worst stock market decline since the 1929 stock market crash. The most recent bear market began in October 2007; the S&P 500 fell 57% before hitting the bottom on March 9, 2009.2

In typical fashion, investors who sold stocks during the downturn may not have participated fully in some of the subsequent bull market gains. A recent Morningstar study found that emotional trading practices had a negative effect on investment returns over the last decade. For the 10-year period ending December 31, 2013, investor dollars returned an average of 2.5 percentage points per year less than the average mutual fund’s performance, largely because people have a tendency to buy high and sell low.3


Looking Back
A bull market is often defined as a period in which asset prices rise 20% or more without a drop of 20% in between. A price decline of 20% is called a bear market. Most of Wall Street’s worst bear markets have been caused by recessions, but history shows each bull and bear market to be different.

  • The longest and most profitable bull market began in late 1987 and lasted until the tech bubble burst in 2000, posting a 582% gain.4
  • During one rough period from late April to early October 2011, the S&P 500 lost 19.4% based on closing prices. However, the index actually dropped below the 20% threshold for a short time during the trading day on October 3. Some people believe this resulted in a momentary bear and the beginning of a new bull market.5
  • There have been a total of 12 bull markets since the end of World War II (including the current one). Half of those lasted five years, and only three made it to a sixth year.6

Room to Run?
The terms “bull” and “bear” are also used to describe the positive or negative outlook of individual investors.

Some bearish investors believe central bank policies have helped sustain the bull market, and that stocks could suffer as the Fed cuts back on monetary stimulus. Moreover, price increases have outpaced earnings growth, making stocks more expensive relative to corporate profits. The S&P 500 traded at about 16 times earnings over the past year, which is about twice the level five years ago.7

On the positive side of this perpetual argument, bulls point out that the stock market has been rising from generational lows and could climb further if economic growth picks up speed.8 Stock prices generally reflect economic conditions and the financial performance of individual companies.

Volatility Resumes
The S&P 500 posted a 32% total return for 2013, the largest in 16 years.9 Thus far in 2014, the stock market has been bumpier. The S&P 500 index experienced 11 market swings of 1% or more through mid-March. By and large, these sell-offs and relief rallies were in response to news about monetary policy, the Ukrainian conflict, and signs of economic weakness in China and other fragile economies.10

Even professionals have a difficult time predicting market turning points, so investors may hinder themselves by changing course based on current events or recent performance.

Though it may be human nature to be wary of stocks during a bear market, a long bull market might tempt investors to invest too aggressively. For this reason, you might want to pay less attention to the market’s ups and downs and stick with a long-term strategy based on your time horizon, risk tolerance, and financial goals.

The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The S&P 500 is an unmanaged group of securities that is considered representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results; actual results will vary.

For more information on this topic please contact Ben Borden Richmond, Va Financial Advisor, (804) 282-8820

 1–2, 6) MarketWatch, March 7, 2013
 3) Kiplinger, March 12, 2014
 4) CFA Institute, December 2013
 5) The New York Times, March 24, 2012
 7) The Wall Street Journal, March 8, 2014
 8) Kiplinger’s Personal Finance, January 2014
 9) The Wall Street Journal, March 16, 2014
 10) CNNMoney, March 18, 2014
Business Owners, Insurance

Executive Bonus

Keeping Talent On Board with Executive Bonus Plans

Despite the high national unemployment rate, a hiring survey reveals that there are often shortages of qualified candidates to fill positions in certain fields. Engineers, IT experts, and executives (or top managers) are all on the list of professionals with sought-after skill sets. In addition, 60% of employers expect voluntary employee turnover to increase as the economy and job market continue to improve.¹

Thus, it could prove difficult and expensive for businesses to replace experienced workers who decide to leave. By some estimates, replacing managerial and professional employees could cost as much as 150% to 200% of their annual salaries.²

key man and executive bonus plans

Here’s how an executive bonus plan funded with cash-value life insurance could possibly be used to reward and help retain your most valuable employees.

Incentive to Stay
Business owners may appreciate that an executive bonus plan is typically easier to adopt and more flexible than some other types of employee benefits. The premiums are paid by the business with bonuses that are tax deductible to the employer but taxable to the employees. The company determines the amount of each bonus and when to pay it, so the timing of the expense can be controlled.

An executive bonus plan may also be designed with certain restrictions and vesting requirements that make the life insurance policy more valuable for an employee who remains with the company.

The employee owns the policy and also bears the responsibility to keep it in force. He or she can borrow against, and sometimes withdraw from, the cash value if needed for emergencies, to pay college tuition, to help fund retirement, or for any purpose. If the policy is in force at the time of death, the employee’s named beneficiaries will receive the death benefit, minus any outstanding loans, free of income taxes.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that the individuals for whom you are purchasing the policies are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

For more information on this topic please contact Ben Borden Richmond, Va Financial Advisor, (804) 282-8820.

1) Mercer, 2012
2) Wharton School of the University of Pennsylvania, 2012
Economy, Fed

New Chair, Same Fed?

In more than three hours of testimony before the House Financial Services Committee on February 11, new Federal Reserve Chair Janet L. Yellen laid out a monetary policy blueprint very similar to that of her predecessor, Ben Bernanke.1 Even so, Yellen — the first woman to head the central bank — takes over at a turning point when the Fed has begun to wind down the extraordinary measures instituted during the recession and may need to shift course as the economy continues to recover. This might be a good time to consider the direction the central bank is likely to take under its new leader.

Meet the Chair
Dr. Yellen — who prefers to be called “the chair” rather than chairwoman or chairperson — is a highly regarded economist who has specialized in the causes, implications, and mechanisms of unemployment. She received her Ph.D. in Economics from Yale and taught at Harvard and the University of California at Berkeley, where she remains on the faculty as Professor Emeritus. Yellen joined the Federal Reserve Board of Governors in 1993 but left in 1997 to chair the President’s Council of Economic Advisers through 1999. She returned in 2004 as head of the Federal Reserve Bank of San Francisco before becoming Vice Chair of the Board of Governors in 2010.2

Yellen has a reputation as a clear communicator who can present complex economic issues in plain language. She is considered a “dove” who is inclined to allow a freer flow of funds to stimulate jobs and wages in carrying out the Fed’s dual mandate to foster maximum employment while controlling inflation.3 (By contrast, “hawks” tend to be more concerned about the potential for inflation.)


Forward Guidance
Under Ben Bernanke, the Federal Open Market Committee — charged with setting monetary policy — began issuing “forward guidance” to provide advance notice to consumers, businesses, and investors regarding future policy direction. In December 2012, with the unemployment rate at 7.8%, the Committee anticipated maintaining a near-zero federal funds rate — its primary tool to stimulate the economy — as long as the unemployment rate remained above 6.5% and inflation expectations were no more than half a percent above the longer-run goal of 2%.4–5

A year later, in December 2013, the unemployment rate had dropped to 7.0% and was on its way to 6.7% by the end of the month.6 Recognizing that unemployment was only one part of the labor picture, the Committee hedged on its previous statement, indicating that it would consider a wider variety of economic factors and expected to maintain the low federal funds rate well past the time that unemployment declines below 6.5%, as long as inflation remains in check.7 This has created an open-ended situation in which Yellen and her colleagues must decide which conditions might trigger raising rates.

Yellen’s Perspective
With unemployment down to 6.6%, Yellen affirmed this policy shift in her testimony to Congress, citing other labor concerns such as the large numbers of long-term unemployed and the underemployed, and the fact that wages have lagged growth in productivity. In addition, she emphasized that inflation has remained low and is not an impediment to maintaining the near-zero federal funds rate for now.8-9

At the same time, Yellen stated her commitment to the current gradual pace of tapering the Fed’s bond-buying program (known as “quantitative easing”) — which has put downward pressure on longer-term rates — unless there is a “notable change in the outlook.” She also emphasized her commitment to the Fed’s mission as a regulatory authority over the financial industry.10

What Can You Expect?
Yellen’s message offered a welcome shot of confidence for the stock market, which values consistency and seems reconciled to gradual tapering in an improving economy.11 Her stance might also inspire confidence among businesses and consumers who may benefit from low interest rates for expansion, hiring, and purchases.

For retirees and others who might prefer higher rates on savings, however, the prospect of prolonging the low-rate environment could be a concern. Consumers who see prices rising at their local grocery stores may wonder about the talk of “low inflation.” However, aided by lower gas prices, inflation (based on the Fed’s preferred measure) was only 1.1% in 2013.12

It appears for now that the Fed will take a measured approach under Janet Yellen, emphasizing job creation as a stronger policy focus than controlling inflation. However, Yellen also made it clear that the central bank would react as necessary to significant changes in the economy.13

All investments are subject to market fluctuation, risk, and loss of principal. Investments, when sold, may be worth more or less than their original cost. For more information on this topic please contact Ben Borden Richmond, Va Financial Advisor, (804) 282-8820

1, 3, 9–10, 13), February 11, 2014
 2, 4, 7) Federal Reserve, 2013–2014
 5, 6, 8) U.S. Bureau of Labor Statistics, 2014
 11) Bloomberg, February 11, 2014
 12) U.S. Bureau of Economic Analysis, 2014
Personal Finance, Taxes

When Your Child Should File a Tax Return

When Your Child Should File a Tax Return

You might assume that a young person doesn’t have to file a tax return until he or she has reached adulthood, moved out of the family home, and is generally self-supporting. Yet IRS rules regarding who must file are based on the amount and source of income rather than age.

Here’s a closer look at the filing requirements affecting dependents (meaning someone else pays more than half of their support, including college tuition, room, and board) such as teens and college students, as well as their parents.

Generally, a tax return must be filed if an individual has earned income above $6,200 (in 2014), unearned income from interest or dividends above $1,000, or a combination of earned and unearned income totaling more than $1,000 with at least $350 unearned. The filing threshold for net self-employment income is $400.


Unearned interest and dividend income (up to a maximum of $10,000) received by a dependent may be reported on a parent’s tax return. Otherwise, a separate return must be filed by the dependent or by a parent on the child’s behalf.

Many young workers who earn less than the filing threshold will want to file if they had income tax withheld from pay and are eligible for a refund.

Source: Internal Revenue Service, 2013
1 2
Recent Comments
    About ANNUVA Financial

    Annuva Financial is an advisor based in Virginia providing retirement income advice to baby boomers.


    Important Recommendation