Gimme a Break! Who Are They Kidding?

The April inflation number year over year was 4.9%. While this continued the downward trend, we must keep in mind that it was only a few years ago that inflation was running below the Fed’s 2% target. At that time, there was little or no increase in Social Security payments. In fact, for many, the increase was entirely wiped out by the increase in Medicare premiums. Last year, given the inflation that manifested itself, the increase was 8.7%. Social Security does not use the Consumer Price Index (CPI) as its inflator, but rather the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The first estimate for next January came out about two weeks ago at only 3.1%. You have got to be kidding right? No, it is not April Fool’s Day. The Senior Citizens League estimates that there has been a 36% loss of Social Security purchasing power since 2000 because Social Security does not use the CPI Index.

Is Social Security No Longer Taxable?

It hasn’t happened yet, but Representative Thomas Massie, R-KY would like to stop taxing Social Security benefits. Before 1984, no one who received Social Security benefits paid taxes on the income. Beginning that year, however, the rules changed such that anyone with an income of more than $25,000 would pay taxes on 50% of their benefits and if the income was over $42,000 then 85% was taxable. These thresholds were not indexed to inflation. If we assume an average of 3% inflation over the past 38 years, then these levels would be $76,870 and $129,140, respectively. Thus, each year more people have been forced to pay taxes on their Social Security benefits.

Representative Massie introduced the Senior Citizens Tax Elimination Act to keep benefits from being taxed. What many do not realize is that this “extra” tax goes into the Social Security trust fund and has helped to keep it solvent. Without this tax, Social Security’s trust fund would run out of money even sooner than the expected date of 2033. The bill is politically attractive but financially ruinous and virtually dead-on arrival.

IRS Plan Lacks Details and Now Needs to Be Redone

Last year, the IRS was given an extra $80 billion over the next ten years to beef up more audits, especially on wealthy taxpayers, and then to catch those that simply were not reporting their income. It was on top of the IRS’s normal budget. Congress required the IRS to come up with a plan on how to use the money. Well, the plan was disclosed in April and it sure lacks details, and some speculate it was intentional to hide what they are planning.

First, the plan says no one with an income of $400,000 or less will see an increase in the rate of audits. Further, that income level is at a gross amount before deductions, losses, etc. The IRS wants to upgrade its database and then use analytics (think AI) to root out those most suspected of tax evasion. In total, there are 190 projects. To accomplish these projects, they need to hire an enormous number of accountants when most accounting firms cannot hire enough people. Many firms have had to employ tax preparers outside of the U.S., while others are simply withdrawing from doing tax returns altogether except for their business clients. Now, the IRS is going to have to redo the plan as the debt ceiling negotiations took back $21 billion. Such is the way of government.

“Financial Planning for Your Life and Lifestyle”™

It is amazing to us at ProVise how so many financial advisors are suddenly discovering that financial planning involves more than investment advice and money. Make no mistake, money is important, but living, especially in retirement, is more than money. Our trademark headline above is a philosophy we developed about 30 years ago when it first dawned on us that many people with plenty of money were not living happy and thriving lives because they needed something more and often couldn’t find it.

Those of you who have been long-time clients know about the conversations we have had around family values, having a purpose in life, and rewiring instead of retiring. How many people do you know that have lots of money, but just don’t seem happy? What a sad situation. When a so-called financial planner lives and dies only managing money, they are missing the essence of what is important to their clients.

What About Mothers’ Mental Health?

Just in time for Mother’s Day, Motherly released its State of Motherhood report focusing on mothers who are either millennial (born between 1981-1996) or Gen Z (born between 1995–2010). The report reviewed a host of concerns mothers face from the Great Resignation to Self-Care to Household and Family Responsibilities. What do you think is keeping our mothers awake at night?

Did you guess lack of sleep or lack of affordable childcare? No, the answer is mental health with 46% of moms seeking therapy to address issues including anxiety, depression, relationships, and postpartum. Another 72% answered that they were either “very stressed” or “somewhat stressed” about their finances. Mothers are also sacrificing sleep as well as social invitations due to their parenting responsibilities.

How can we better support our mothers throughout the year and not just on Mother’s Day?

Hobby or Business?

Horses, making wine, brewing beer, stamp/coin collecting, and many more “hobbies” can become a business. How do you turn a hobby into a business and write off “expenses”? What separates one from the other?

First, start with your intent. If you are making wine for personal consumption (hobby) but start selling it on a continuous and regular basis and it might be considered a business enterprise. Why “might” in the previous sentence? Are you selling it to make a profit or just unloaded it because you can’t drink it all before it turns to vinegar?

The second rule – the IRS expects you to make a profit in three out of five years. If it is a legitimate business, then you can report the income and expenses on Schedule C. But make sure all those expenses are real expenses attributable to the business and not those that are more personal. Be sure to chat with your tax advisor.

Want to Be a 1 Percenter?

As it turns out, it depends on where you live according to research from Frank Knight and documented in its 2023 Wealth Report. Here in the United States, you need a net worth of $5.1 million to find yourself in this exclusive club. Surprised it is that low? Well, it is when you look around the rest of the world. Actually, the U.S. is in fifth place behind New Zealand ($5.2 million), Australia ($5.5 million), Switzerland ($6.6 million), and Monaco ($12.4 million).

Healthy and Unhealthy Places to Retire

America’s Health Rankings Senior Report was recently released by the United Health Foundation. The report weighs 35 measures accumulated over 10 years for those 65 and over. The unhealthiest places according to the report are: 10) New Mexico; 9) Tennessee; 8) Nevada; 7) Arkansas; 6) Alabama; 5) Oklahoma; 4) West Virginia; 3) Kentucky; 2) Louisiana; and 1) Mississippi. Looks like the South and Southwest have some work to do.
Okay, here are the top ten healthiest places: 10) Massachusetts; 9) Maryland; 8) Washington; 7) Hawaii; 6) Connecticut; 5) Vermont; 4) Minnesota; 3) Colorado; 2) New Hampshire; and 1) Utah. Florida was in the middle of the pack at number 25, Arizona was number 30, California was number 34, and Texas was number 38. It appears that not many of those that are moving to these four states are paying much attention to this and other similar reports. Ugh!

We Hope You Continue to Stay Safe and Well

Proudly and successfully serving our clients for over 37 years. As always, we encourage you to call or email us if you would like to discuss anything.

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