Monday, March 15, 2010

"Stop Acting Rich..."




"I spent a lot of my money on booze, birds and fast cars;
the rest I just squandered"
George Best


In his recent book "Stop Acting Rich... and start living like a real millionaire, " author Thomas J. Stanley, Ph.D. has surpassed his own classic "The Millionaire Next Door." Both books are excellent in my opinion, but the latter adds recent economics to the scenario.

The author makes a clear distinction between being rich and acting rich. He considers the former to be individual/couples with a high net worth, or balance sheet affluent (BA). The latter are people with high current incomes or income affluent (IA). The BA's can withstand pretty much any type of financial scenario and prevail. They also have assets that appreciate over time. The IA's are only as good as their income and often do not have money set aside for future goals. They are only as good as their income.

Stanley makes a great observation early in the book:

"Proprietors of small businesses, the segment I estimate to contain the largest number of millionaires, are ranked fifth or third from the bottom on a seven-point scale of status characteristics. On the other hand, one can be very upper middle class and have a level of net worth nowhere near seven figures... It is my belief that the number of households in America that are interested in looking wealthy is far greater than the number that are interested in being wealthy."

One clearly defined theme through out the book? The typical millionaire is not who you may think and their spending habits are vastly different than what you would expect!

Here are some millionaire statistics:
  • There are just over 4 million millionaire households in America.

  • In 2007, about 2.2 million American seniors passed away. Collectively, the earned more than $2 trillion in income during their lifetimes, yet only 2.6% left behind estates worth more than $1 million.


  • The 'glittering' wealthy (rock stars, actors, sports figures) are NOT the typical millionaire.


  • Often people who dress and drive as if they are rich are not (most millionaires drive Ford & Toyota vehicles).


  • Real millionaires (male) pay about $16 for a haircut at a traditional barbershop.


  • Only 5.7% of millionaires paid more than $1,000 for a suite (average price was $482).


  • Top 10 clothing stores for male millionaires include: Nordstrom, Macy's, Kohl's, Target, Costco, Dillard's, Brooks Brothers, Gap, WalMart & T.J. Max


  • Top 10 clothing stores for women millionaires include: Ann Taylor, Nordstrom, Macy's, Target, T.J. Maxx, Talbots, Gap, Costco, Lord & Taylor & Saks Fifth Avenue.





  • Most millionaires live in homes valued between $300,000 - $400,000.

  • The medium priced bottle of wine served to guests = $13.09.

  • One in nine millionaires wears a Timex watch (often purchased at WalMart).

  • The majority of millionaires (70%) have never owned a boat or a yacht, not even a raft.

    Lastly, we live in a marketing influenced society. Many products solely exist because of advertising. The author points to Vodka as a great example. The Federal government's definition of vodka is as follows:

    "Vodka... without distinctive character, aroma, taste of color."

    How is it then we have 300 different brands of vodka??? Based on the government's definition - vodka is essentially a commodity & the lowest price should be the end objective. Ahhh... this is where marketing comes into play! "Our brand is #1." "Best in taste tests!" Or the Grey Goose perennial favorite, "Judge for Yourself!"

    I'll be the first to admit, I'm not a vodka connoisseur. However, when the product doesn't have an aging process, oak barrels or anything referring to "10 years old," etc., what am I paying for? Marketing & brand recognition is the only way to differentiate the products. You can pay $65 for Grey Goose or purchase Smirnoff for $18.99. Your choice.





Wednesday, March 10, 2010

Roth IRA - Fast Facts for 2010


Many Financial Advisors will agree, the Roth IRA may be the single best retirement vehicle available to the individual investor. Here are the facts:

Key Features:
  • Qualified withdrawals of earnings are tax free.
  • Contributions can be withdrawn @ any time.
  • Contributions are permitted after age 70 1/2.

Roth IRA's may be Suitable for:

  • Individuals who do not qualify for Traditional IRA accounts.
  • Individuals who anticipate being in a higher tax bracket @ retirement.
  • Individuals who plan on leaving an inheritance (stretch IRA).
  • Individuals who need the ability to withdraw contributions @ any time.
  • Individuals who do not want to be mandated by IRS required minimum distribution rules (RMD). The Roth does not have to be distributed by age 70 1/2.
  • Individuals who simply want to compliment their existing retirement savings with a more flexible investment vehicle.

Tax Year Contribution Limits (2010):

  • Lessor of $5,000 or 100% of earned income.
  • Participants age 50 and older may contribute an additional $1,000.
  • Contributions are not tax deductible.

Eligibility Requirements (2010):

For individuals filing as an individual:

  • Full contribution allowed for owners with Modified Adjusted Gross Income (MAGI) of less than $105,000.
  • Partial, phased-out contributions for MAGI between $105,000 and $120,000.

For account owners filing jointly:

  • Full contribution if MAGI is less than $167,000.
  • Partial, phased-out contributions for MAGI between $167,000 and $177,000.

Distribution Requirements:

  • Distributions are tax and penalty free after account owner reaches age 59 1/2 or the account has been open five years, whichever comes later.
  • Early withdrawal penalties of 10% may be waived for certain qualified expenses.

Contribution Deadline (2010):

  • April 15, 2011.
  • Extensions may be granted for the Armed Forces. Please see the Armed Forces Tax Guide for more details @ irs.gov.



Thursday, March 4, 2010

Tax Season = Retirement Funding


Every year @ this time, individuals scramble to get their taxes filed before the April 15th deadline. A large percentage of you will get refunds while many self-employed individuals may owe a few dollars.

If you don't fund your retirement accounts on a monthly basis, this is a great time to make a lump sum contribution to your IRA account for 2009.

Every $1,000 contribution will save an individual in a 25% tax bracket $250. So, should you be one of the unfortunate soles who will owe money this year... or simply want a bigger refund... adding to your retirement nest egg is beneficial. It helps your current tax situation AND provides for your future well being. A win/win situation! Each person can invest $5,000 and individuals 50+ can contribute a total of $6,000 ($1,000 catch up provision).

Should you be lucky enough to qualify for the Roth IRA... there are income restrictions... this may be the best option of all. You won't get to lower your income taxes for 2009, but the tax free growth is a huge gift. Our country's current budget deficit isn't going anyway anytime soon and the likelihood of higher taxes in the future is inevitable. Everyone should have a Roth IRA as part of their retirement nest egg.

Another opportunity worth considering? Use your tax refund this year to fund your IRA account for 2010. Why wait until March/April of next year? Markets go up more than they go down (contrary to recent popular belief!) and investing @ the beginning of each year allows for more compound growth. Put time on your side!

Call your Accountant and/or Certified Financial Planner (CFP) to learn more.