The recently released quarterly and annual GDP report is a sign of tough times ahead for retirees.  4th quarter GDP of 2.8% would generally be considered as marginall acceptable, but a breakdown of that number shows most of that growth was an increase in company inventories, and without an increase in sales, that is only a temporary boost to GDP.  GDP represents the total value of goods and servces sold within the US economy.  The greater the GDP, the greater personal income, revenues to state tax coffers and most importantly to investors, the greater the revenues for businesses, both small and large.  This for investors would reflect in higher dividends, and stock valuation.  In addition, with greater personal earnings, there becomes more capital for investment, and thus another force to drive up stock prices, demand.  However, unless there is a significant increase in GDP for the first quarter, investors should take serious consideration into the short term value of their equity positions.  You can measure the cost of reallocation with ExecPlan Express personal financial planning software with its integrated fedeeral and state income tax analysis in its retirement planning projections.

As the year goes on, there maybe a gradual “turnover” in the equities market by both institutional  and individual investors to capture income now before the tax increases scheduled for next year.  Next year’s capital gains rate plus the Medicare supplemental tax on investment income could increase tax rates on the sale of stocks and mutual funds by nearly 60%, a significant incestive to pay the tax now, rather than wait.  This may casue a stedy downward preasure on equities throughou the year, especially if the economy does not pick up speed.  ExecPlan Express personal financial planning software will help you look at the impact of liquidating investments this year versus next year to get a true picture of the impact of the financial exposure you may soon face

If thte housing market wasn’t bad enough, next year’s medicare supplemnatl tax to fund The 2010 affordable heath care act, will likely make things wors.  Financial advisors and accountants will soon begin to advise individuals who are considering retiring and moving to a lower cost area, to consider doing it this year for two reasons.  First the new medicare supplemenetal tax that adds 3.8% to the current capital gains rate, and secondly the current capital gains rate is schedule to go from 15% to 20% next year without any action by congress.  This means a 8.8% increas in the cost to sell a home, a financial and tax incentive to make many to consider putting their home on the market.  The increase in supply willdrive down pricing, and for those who think this will only effect those in high priced homes that face this tax burden, think again.  With a flood of higher priced homes forced to lower their price, lower priced homes that offer less will now be competing with these high level homes and will be forced to lower their price, which will make them better values than the homes that were once less in value then these homes.  This downward preasure on pricing will forcepricing preasure on all homes on the marketplace not just those subject to the new tax.  If you were thinking about selling your home ExecPlan Express personal financial planning software will help guide you through the implication of the tax and financial impact of your sale

The Affortable health care act passed in 2010 has a tax in it that might hit home owners hard, especially in high price housing areas.  For a single person earning over 200k or married couples earning over 250k starting next year will face a new medicare supplental tax on all income including investment income and capital gains.  This means an additional tax of 3.8% on the net capital gains fom the sale of your home, and if you do not qualify for the $250,000 exemption, your tax bill on a $250,000 profit would go up an additional $10,000.  This could be a significant burden to those who plan to use the sale of their home to fund their retirement goals.  ExecPlan Express personal financial planning software will break down the cost difference from selling your home this year versus witing until the tax hike next year

The capital gains tax is a personal income tax onthe appreciation of an investment asset.  However, unlike earned income, which tax tables are indexed to inflation to avoid bracket creep, the basis in an asset is not, thus in real dollars over time, an asset that appreciates at the rate of inflation may actually be taxed when liquidated, even if the sales proceeds has the same purchasing power as when originally purchased.  For example a rental property bought for 100K that grow in one year to 103K while inflation is 3%, would face a capital gains tax on $3,000 even though the real value of the property in adjusted dollars didn’t change.  ExecPlan Express personal financial planning software, allows for both adjustments to tax tables, as well as to the year by year value of assets to assess the inflation risk that all assets face

Like company provided disability policiies the benefits are generally considered taxable if you did not pay for the premium.  If it is a group policy thta you funded, then the policy benefits are treated the same way aa an individual LTHC policy in that the benefit is free as long as it does not exceed the current daily IRS limit of $270.  If the company paid for the policy, then the benefits will be taxable.  However to a certain extent since they wil be covering a medical expense, adn that expense will be large and will likely exceed the %7.5 AGI limit, then you will likely recieve a deduction that would offset most of the tax consequences of the benefit.  ExecPlan Express personal financial planning software.  provides retirement planning projections and long term care analysis that integrate an actual federal and state income tax calculation to appropriately project the real life experience of a long term care event

Long term care benefits are generally tax free as long as they do not excedd the IRS quidelines for daily allowable medical expense coverage, currently $270 per day.  The premiums may be deductible if the policy meets certain IRS criteria, however even if you meet those crtieria, it is important to nore, that the premium is only deductible to those who itemize and can meet the 7.5% income limiation.  And the allowable maximum deduction is subject to age as follows

Execplan Express persoanl financial planning software will allow for a real life modeling of both the exepnse and the benefit in your retirement planning projections.

Like all insurance, the need for a long termcare policy is a function of risk managment.  Insurance is best used to manafe risks that you cannot manage to self fund, we buy auto insurance against an accident because the cost is large, but the risk is rare (opefully), thus the cost protection is relatively low compared to the [aid benefit.   We do not buy insurance for oil changes on a car, simply becasue they will  occur and the cost is small, and though this means the cost of such a policy would be small, it would still be more than the expense itself, making it unnecessary.  Long term care is an event that will likely happen to all of us, but it is also the cost wil vary substantially (depending on where we live, our physical condition when it happens, and how long we need it) and that cost will be high no matter what.  So in many ways, long term care becomes a long term “pooled” savings plan since insurers know that most people will collect, just in various degrees.  This makes premiums expensive, however the younger and thus the longer those “pools” can be funded the lower the policy cost.  For some, insurance may niot be necessary because they have the resources, for others they will need to determine how much benefit or “pooled” resources they can afford.  ExecPlan Express Personal financial planning software allows for various levels of benefit, premiums, and personal medical expenses to allow retirees to view what and how much expsoure they can self fund.

Most retirees will fund the bulk of their personal medical expenses through some form of medical insurance.  Those not lucky enough to have a generous state or company plan that’s benefits exceed those of medicare, need to look to either a medigap policy or a Medicare Advantage plan.  A medigap policy provides 11 different standadized benefits structures to cover expense not cover by Medicare Part A and B.  These premiums as well as the Medicare premium are fully tax deductible, except in the case that they are funded with tax free withdrawals from and HSA account.  Of course these deductions are subject to those who file itemized deductions and are subject to the 7.5% medical expense limitation.  ExecPlan Express personal financial planning software calculates these limitation in its retirement planning projections to illustate a real life retirement cash flow.

A reverse mortgage should be a last resort for funding retirement for several reasons.  First.  The amount that you can attain from a reverse mortgage is directly related to your life expectancy.  The younger you are the less the payout,so using a reverse mortgage when you first start your retirement will only yield a fraction of what you most likely will need.  Secondly, reverse mortgages have significant interanl expenses, this makes their overall yeld poor, and in the low fixed rate return we currently have, the cost will be steep relative to inflation.  Finally you take the flexibility of where you reside in the future out of your hands, without facing significant financial expense.  To really see the cost of using your home to finance your cash flow, vs. other options such as downsizing and investing the difference or even renting, ExecPlan Express personal financial planning software will help you wak through what makes the most sense for your retirement needs.