Calling UK Public Sector Pension Scheme Members..,

CLICK to find out what your pension scheme is not telling you!

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Unfortunately, pension promises for providing current income levels in retirement are unsustainable, mainly due to the ballooning liabilities of these unfunded schemes.

Government reforms to address this has created many new changes to the schemes, resulting in approximately 4 million public sector workers will see huge reductions in their pensions, along with raising the state retirement age for access.

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Retirement Income: Smart Tax Strategies

For many, the two most important sources of retirement income are Social Security benefits and distributions from retirement accounts, including required minimum distributions after age 70 ½.

But these two present a tax challenges.

The rules for calculating taxes on distributions from retirement plans are not the same as those for taxing Social Security.

Withdrawals from employer retirement plans and IRAs are taxed as ordinary income, but Social Security benefits may or may not be taxable, depending on a few factors.

Advisor’s must help their clients create a plan that will optimize both income sources in terms of benefits and taxes.

Under the tax code, there are special rules for calculating the taxation of Social Security benefits. No one ever pays taxes on more than 85% of their benefits.

This means 15% is tax-free for everyone. However, these tax rules do not apply to distributions from retirement plans.

The amount of your clients’ Social Security benefits that are subject to income tax depends on the total amount of combined, or provisional, income they have.
The formula for calculating this can be a bit confusing; see the “Add It Up” graphic.

SS plus AGI IRS form 1040

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Note that adjusted gross income includes wages, self-employment income, dividends and interest, capital gains, pension payments and rental income, among other items.

If a client is single and has a combined income between $25,000 and $34,000, up to 50% of the Social Security benefits are subject to tax. If the combined income is more than $34,000, up to 85% of Social Security benefits are subject to tax.

If clients are married filing jointly, they may have to pay taxes on 50% of Social Security benefits if their combined income is between $32,000 and $44,000. And if their combined income is more than $44,000, up to 85% of their Social Security benefits are subject to tax.

Unlike many thresholds in the tax code, these amounts are not indexed for inflation.

RETIREMENT PLAN RMDs

RMDs and other distributions from retirement plans add a layer of complexity to the taxation of Social Security benefits.

When calculating combined income for the taxation of Social Security income, you must include distributions from retirement plans, including RMDs from both IRAs and employer plans.

RMDs can increase the taxation of Social Security because they raise the AGI and thus boost combined income. But, of course, clients should not stop taking RMDs to lower the taxation of their Social Security, because there is a 50% excess accumulation tax for not taking (or not taking enough of) an RMD.

Clients should plan, however, for the potential impact RMDs may have on Social Security benefits. There are several planning strategies advisors should at least consider.

SPENDING DOWN THE IRA

One strategy that could make sense for clients is “spending down” IRAs in early retirement to delay claiming Social Security benefits.

This approach offers several primary benefits. Among them:

  • Delaying Social Security benefits can result in higher monthly payments for life (and, potentially, over the lifetime of a surviving spouse).
  • Required minimum distributions will be smaller due to lower year-end balances. As a result, combined income may be lower, resulting in a smaller amount of Social Security benefits becoming taxable.
  • By swapping out IRA income for Social Security benefits, a client may be able to have more spendable dollars due to the relative tax efficiencies of those benefits.

However, there are also some drawbacks to this approach:

  • There is no guarantee a client will live long enough to see the benefits of delaying Social Security payments.
  • IRA assets remaining at a client’s death can be passed on to beneficiaries, but Social Security benefits generally die along with the client (or spouse).

ROTH CONVERSIONS

Another potential strategy to consider is converting IRAs and other pretax retirement account funds to Roth IRAs prior to taking Social Security benefits.

The primary benefits of this approach include:

  • Unlike supposedly tax-free municipal bond interest, tax-free distributions from Roth IRAs don’t increase combined income. Therefore, tax-free distributions from Roth IRAs can be taken without subjecting Social Security benefits to increased taxation.
  • Roth IRAs have no required minimum distributions, so clients can supplement their other income (including Social Security benefits) with distributions from Roth IRAs as they please, without triggering taxation of Social Security benefits.

There are, of course, some downsides to this approach as well.

For one thing, it may be more tax efficient for a client to have more of their future Social Security benefits included in their income than it is for them to complete a Roth IRA conversion today.

And, of course, there’s no guarantee that the rules for Roth IRAs today will be the same as when a client is eligible to claim Social Security benefits.

If the Roth IRA conversion strategy is going to be used to minimize the taxation of Social Security benefits, it’s often best to do so before benefits are received. That’s because, when clients are receiving Social Security benefits, converting IRA or employer plan funds to a Roth IRA may increase the taxation of Social Security for the year of the conversion.

On the other hand, affluent clients who have higher combined income from wages, interest, dividends and RMDs may already be paying tax on 85% of their Social Security benefits. A Roth IRA conversion won’t affect their Social Security, because the taxes they’ll owe on this income can’t increase.

Of course, the Roth IRA conversion itself will add to their tax bill and could push them into a higher tax bracket.

Click image for a FREE Strategy Fact-Sheet on international FATCA compliant, Contract Based Personal Contribution Retirement Plans

Click image to download a FREE Strategy Fact-Sheet on international Contract Based Personal Contribution Retirement Plans

SAMPLE CASE

A recent tax court case illustrates the confusion over how the tax rules work for both Social Security benefits and RMDs, and how they can affect each other.

In this case in question, Dennis J. McCarthy et. ux. v. Commissioner, Holly and Dennis McCarthy, a married couple, were both receiving Social Security benefits. Holly — a retired school nurse who participated in Ohio’s State Teachers Retirement System’s qualified retirement plan — was also taking distributions from that plan.

In 2011, she received a $27,701 plan distribution. She received a copy of IRS Form 1099-R reporting a $27,701 gross distribution and a taxable amount of $27,413. (The small difference between the gross and taxable amount was $288 of tax-free basis, or after-tax, funds.)

No federal income taxes were withheld, in all likelihood because she chose to have zero withheld for taxes.
The McCarthys then filed a joint federal income tax return for 2011 in which they reported only one-third ($9,233) of the retirement plan distribution, with the tax able amount as $8,945 ($9,233 – $288 basis = $8,945).

Holly and Dennis also reported receiving Social Security benefits totaling $37,600 — an amount that, in truth, included some of Holly’s plan distribution — with a zero taxable amount on their tax return.

In 2013, the IRS sent the couple a Notice of Deficiency for errors in their 2011 federal income tax return. The IRS claimed the McCarthys owed over $1,000 more in taxes, because they had failed to include over $18,000 of Holly’s plan distribution as income.

The IRS also claimed that the couple should have included in income more than $3,800 of Dennis McCarthy’s Social Security benefits that year.

FIGHTING THE FEDS

The McCarthys disagreed with the IRS and took the issue to Tax Court, where they represented themselves. They were age 82 at the time.

Unfortunately for the McCarthys, the court agreed with the IRS and ruled that the pair owed taxes as a result of their miscalculations with respect to both the retirement plan distributions and the Social Security benefits. The court noted that the McCarthys had mistakenly claimed some of the Ohio teachers plan distribution as Social Security benefits.

In its ruling, the court found that “by classifying a portion of the STRS Ohio distribution as Social Security benefits, petitioners sought to minimize tax on the untaxed benefits Mrs. McCarthy accrued during her career.”

The court also ruled that the couple miscalculated the taxable amount of Dennis McCarthy’s Social Security benefits. He received $19,132 in Social Security benefits and reported none of it as taxable for 2011.

The McCarthys’ only argument was to ask the court to make an “equitable resolution” in this case. They obviously were confused, and argued that it was unfair that two agencies of the federal government tax their retirement distributions differently.

They said: “In essence, what we seek is ‘Judicial Redress’ of the financial inequity created by two different Arms of Government (SSA and IRS) defining the same monies (2/3 of the STRS Pension) in two completely opposite ways each to the detriment of the taxpayer. This seems to violate Court Rulings that the Government ‘Can’t Have Its Cake And Eat It.’ ”

The McCarthys are right that this is confusing. Even so, the court responded by saying that it must enforce the law as written and cannot change it to give them a break; only Congress can do that.

No one wants to spend their retirement years fighting the IRS. Advisors must ensure that their clients avoid a fate similar to that of the McCarthys by helping them understand the often confusing rules of taxation for different income sources.

NOW AVAILABLE for US Taxpayers in Secure Compliant TAX FREE Jurisdictions!
A special type of retirement account funded with after tax dollars that acts like a 401K or an IRA, but with major differences…

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Schedule a free strategy review here: Adrian.Rowles@devere-group.com 

Original article by Ed Slott, a CPA in Rockville Centre, N.Y., is a Financial Planning contributing writer and an IRA distribution expert, professional speaker and author of several books on IRAs. Follow him on Twitter at @theslottreport.

Top 3 Financial Concerns of Boomers Approaching Retirement

financial worries

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The number one financial concern of baby boomers nearing retirement is not being able to maintain their current lifestyle throughout their golden years, reveals a new survey by one of the world’s largest independent financial advisory organizations.

The second biggest worry is not being able to stop work when they want to; and the third is not being in a position to financially support close relatives…

Original article:
The Top 3 Financial Concerns of Boomers Approaching Retirement | ThirdAge.

The global bond market sell-off!

The global bond market sell-off putting retirement incomes increasingly at risk

The global bond market sell-off putting retirement incomes increasingly at risk

“The currently tumbling bond market is pushing company pension deficits even further into the red. I would urge people to have their company pensions checked sooner rather than later. This is because it is likely that their values could fall further as most trustees have already made almost every change possible, such as raising retirement age and amending the amount of pension increases, yet the schemes remain extremely vulnerable.” Nigel Green, deVere Group’s founder and chief executive.

Continue reading on the following link;
The bond market sell-off threatening retirement incomes

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FINANCIAL REPRESSION AUTHORITY with Marc Faber

Dr Marc Faber is credited for advising his clients to get out of the stock market before the October 1987 crash.

“If rates do not rise SIGNIFICANTLY for Pensions and Insurance funds, then they will have to DIMINISH the payments made to the pensioners and life insured !”

Dr Marc Faber is a highly respected Swiss economist investor well known for his contrarian investment approach. Amongst his frequent TV interviews, Dr Faber is a regular contributor to Forbes and “International Wealth” which is a sister publication of the “Financial Times” and several leading publications around the world, he also writes occasionally for the Herald Tribune, Wall Street Journal and Borsa E Finanza.

“It is irresponsible not to own some gold” 

“Expropriation” … the right of government to take private property ….
Continues on this video podcast;

The Confiscation of Bank Deposits & the Derivatives Debt.

Russian Roulette: Taxpayers could be on the hook for Trillions in Oil Derivatives

The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia.

The result could be trillions of dollars in oil derivative losses; and depositors and taxpayers could be liable, following repeal of key portions of the Dodd-Frank Act signed into law on December 16th.

On December 11th, Senator Elizabeth Warren charged Citigroup with “holding government funding hostage to ram through its government bailout provision.” At issue was a section in the omnibus budget bill repealing the Lincoln Amendment to the Dodd-Frank Act, which protected depositor funds by requiring the largest banks to push out a portion of their derivatives business into non-FDIC-insured subsidiaries.

Continue reading report here: Russian Roulette with Taxpayers Money

Watch the following interview explaining the details about The Confiscation of Bank Deposits & the Derivatives Debt

Demographics: The Generation Battle

When Americas social security and health care and entitlement systems were first conceived, the country has much different age distribution. There were roughly 7 active workers per retiree, and the ability to transfer some of that employee wealth to support older citizens was supportable.

But with the arrival on the scene of the Baby Boom as well as advances in longetivity, the math changed dramatically. By 2005, there were only 5 workers per retiree. And by 2030, just 15 short years away, there will be less than 3.

Our national demographic architecture no longer can afford the entitlement system we have. And that’s even assuming entitlements were currently sufficiently funded. But as the last chapter showed, the existing programs are underfunded to the tune of $100-200 Trillion.

America’s demographic situation is a ticking time bomb. The older generation is already competing more fiercely than ever with younger ones in the job market, as many seniors can’t afford to retire. Youth also has to contend with trends like automation, outsourcing, and high unemployment/underemployment, which further handicap their ability to build capital and, importantly, to afford all the assets (stocks, houses, etc) that the Boomers are counting on selling to them.

For the best viewing experience, watch the above video in hi-definition (HD) and in expanded screen mode.

Age distribution is too lopsided to support entitlements

Age distribution is too lopsided to support entitlements

Chapter 15 of the Crash Course Short Video Page Link: Demographics: Age distribution is too lopsided to support entitlements

Money Market Funds: New Exit Suspensions & Exit Fees!

SEC Approves Tighter Money-Fund Rules
Plan Allows Funds to Temporarily Block Withdrawals in Times of Stress

SECMoney market funds new rules have been passed by the Securities and Exchange Commission;

Money market funds can impose a liquidity fee on redemptions if the fund’s weekly liquidity falls below the level required by regulations.

Redemptions may also be suspended temporarily. The SEC calls them redemption “gates.”

Institutional prime money market funds are required to float the net asset value, or NAV, rather than keeping share prices fixed at $1.

See link: SEC Adopts Money Market Fund Rules

Note: An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

Investing Abroad: What US Investors Need to Know

At a time when overindebted governments are making increasingly desperate grabs for their citizens’ money, keeping all your assets invested in one country—and denominated in one currency—is a very bad idea.

Image courtesy of Gordon T Long

Image courtesy of Gordon T Long

A vitally important question for you

 Do you have a bank account in another country? If not, you should hurry up & get one.

Holding foreign currencies in an account outside of the United States is the way to go if you REALLY want to diversify your assets internationally—but in the last few years the US government has left no stone unturned to make it harder for investors to get a foreign bank account. It’s not too late, though—there are still feasible ways to open one. But you have to act quickly, before Washington enacts even stricter controls in a desperate grab for your money.

Most people know of the general investment benefits of not having all your asset eggs in one basket. This portfolio-diversification concept—investing in multiple asset classes—also applies to the political risk associated with your home country. It is a risk few people think about diversifying.

In short, internationalization is prudent because it frees you from absolute dependence on any one country. Achieve that freedom, and it becomes very difficult for any country to control you.

While diversifying political risk is something that everyone in the world should strive to achieve, it goes double for those who live under a government that is sinking deeper into fiscal trouble (e.g., most Western governments).

Here are a few compelling arguments on why you should diversify, diversify, diversify—across different countries, exchanges, currencies, banks, and asset classes.

1: IMF Endorses Capital Controls

Bloomberg reported that the “IMF has endorsed the use of capital controls in certain circumstances.“

“In a reversal of its historic support for unrestricted flows of money across borders, the IMF said controls can be useful…”

2: There Is Academic Support for Capital Controls

Harvard Economists Carmen Reinhart and Ken Rogoff suggest debt write-downs and ‘financial repression’, meaning the use of a combination of moderate inflation and constraints on the flow of capital to reduce debt burdens.

3: Confiscation of Savings on the Rise

The IMF, in a report entitled “Taxing Times,” published in October of 2013, on page 49, states:

“The sharp deterioration of the public finances in many countries has revived interest in a capital levy—a one-off tax on private wealth—as an exceptional measure to restore debt sustainability.”

A study from the IMF: The tax rates needed to for a sample of 15 euro area countries is 10% on households with a positive net worth.

Note: The tax would apply to anyone with a positive net worth. And the 10% wealth-grab would, of course, be on top of regular income taxes, sales taxes, property taxes, etc.

4: We Like Pension Funds

Unfortunately, it’s not just savings. From a paper by Carmen Reinhart & M. Belén Sbrancia:

A subtle type of debt restructuring takes the form of ‘financial repression.’ Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks.

Yes, your retirement account is now a “captive domestic audience.”
“Directed” means “compulsory” in the above statement, and you may not have a choice if “regulation of cross-border capital movements”—capital controls—are instituted.

5: The Eurozone Sanctions Money-Grabs

Germany’s Bundesbank weighed in on this subject last January:

“Countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.”

And it’s not just in Germany. On February 12, 2014, Reuters reported on an EU commission document that states:

The savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis.

Reuters reported that the Commission plans to request a draft law, “to mobilize more personal pension savings for long-term financing.”

EU officials are explicitly telling us that the pensions and savings of its citizens are fair game to meet the union’s financial needs. If you live in Europe, the writing is on the wall.

Actually, it’s already under way… Reuters recently reported that Spain has introduced a blanket taxation rate of .03% on all bank account deposits, in a move aimed at… generating revenues for the country’s cash-strapped autonomous communities.

6: Canada Jumps on the Confiscation Bandwagon

You may recall this text from last year’s budget in Canada:

“The Government proposes to implement a bail-in regime for systemically important banks.”

A bail-in is what they call it when a government takes depositors’ money to plug a bank’s financial holes—just as was done in Cyprus last year.

The bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital.

What’s a “bank liability”? Your deposits.

7: FATCA

Have you considered why the Foreign Account Tax Compliance Act was passed into law? It was supposed to crack down on tax evaders and collect unpaid tax revenue.
However, the result of FATCA keeps US savers trapped in US banks and in the US dollar, where the US could implement a Cyprus-like bail-in. Given the debt load in the US and given statements made by government officials, this seems like a reasonable conclusion to draw.

Source>http://www.caseyresearch.com/articles/the-single-most-important-strategy-most-investors-ignore-1

Working till 70 ? Australia plans to raise retirement age

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Working till 70? Australia plans to raise retirement age

Australia is currently planning on raising the age of retirement to 70 years of age, which would make this the highest retirement age in the world. With advancements in technology and better health care readily available, many people are living longer and elderly populations are on the rise. Due to Australia’s forecasted budget deficit, pushing up the retirement age is thought to decrease the pressure on the state’s budget in the coming years.

As well as that may be, some Australians have been critical of this plan, believing that this will make it harder for young people to break into an industry, and leave older workers unemployed.

In Melbourne, Bernard Salt of KPMG doesn’t see it that way, saying that the current system is no longer appropriate for Australia today and that change is required for the economy to stay afloat.

Australia is unlikely to be the only country to continue raising the age of retirement. Already countries such as Norway and Iceland, have raised their retirement ages to 67.

Pensions are slowly slipping farther away all across the globe, with both taxpayers and pensioners suffering. Relying on the state to support you during retirement is becoming less and less attractive, leading elderly workers to take matters in their own hands and focus on their own personal retirement plan.