Financial Stress Rings in the New Year

A December survey by the National Endowment for Financial Education® (NEFE) finds more than two thirds (68 percent) of U.S. adults will make a financial New Year’s resolution for 2017. Saving money (53 percent) tops the list, followed by managing debt (44 percent). Sadly, one in three (31 percent) rate the current quality of their financial life as worse than they expect it to be and more than three quarters (78 percent) say they wrestle with financial stress.

The survey also finds that nearly half (48 percent) of Americans admit that they are living paycheck to paycheck. More women than men live paycheck to paycheck: 51 percent versus 45 percent. The main reasons people believe they are living paycheck to paycheck are due to credit card debt (24 percent), employment struggles (22 percent), and mortgage/rent payments (18 percent). Americans cited the most significant financial setbacks they experienced in 2016 as transportation issues (23 percent), housing repairs/maintenance (20 percent), and medical care for an injury/illness (18 percent).

NEFE found higher income provides little protection. While 85 percent of adults earning under $50,000 per year report being stressed, the percentages didn’t improve much for people earning $50,000 to $74,900 (80 percent are stressed) and $75,000 to $99,999 (79 percent).

NEFE offers the following advice for those hoping to improve their financial lives:

Get debt under control. Set a goal to reduce your debt load next year by 5 to 10 percent. That might mean reducing impulse shopping. Six in 10 people admit they purchase on impulse and 80 percent of those regret purchases afterwards. When you face temptation, walk away for at least 30 minutes and see if you still want it and it’s a good idea.

Start saving now and do so often. Common advice tells us we should have six to nine months of income set aside in an emergency fund. Again, set a goal–start with as little as $500. Of course, more is better, but by starting small you gain a sense of security, a sense of goal achievement, and you reduce stress.

Shop for better services. Where can you come up with $500 for an emergency fund? Make a game out of shopping providers to find the best value in the services you use. How long has it been since you shopped your insurance policies? Any chance you can save money on your cell phone plan, internet or utilities?

Understand what’s behind your financial decisions. Ever wonder why you feel good about spending money on vacations, but avoid saving for retirement? Why you buy new golf clubs, but procrastinate when it comes to giving your kids an allowance? The answer may lie in your unique life values and how they influence your financial decision making. Consider taking the LifeValues Quiz and answer the 20 questions noted at this website.

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Are You Better Off Than You Were Four Years Ago?

Are you better off than you were four years ago? Ronald Reagan closed his 1980 debate with Jimmy Carter with that very question. At the time, Reagan’s rhetorical question was a knockout punch that secured his victory in the presidential election and cemented his legacy as the Great Communicator.

Less than a week to President-elect Trump’s inauguration, headlines suggest that the country is under great stress and coping with 20170117 GrandCanyonuncertainty. After a hotly contested presidential contest, allegations have surfaced that the Russian government might have influenced the election’s outcome. Yet, despite this unsettling news, the economic news has been broadly positive post-election. And as the market has advanced, we have also seen steady gains in the labor market. Yet, surveys continue to reveal that most Americans are concerned that, big picture, progress stuck in low gear.

Information on the website “Our World in Data” refutes those negative views. There, you will find five charts that convey a much more positive view of our world’s progress. For instance, today more people live a in democratically free society versus a closed totalitarian society. And only about 10 percent of the world’s citizens live in extreme poverty compared to 75% in 1950. Also, in 1800, roughly 10 percent of the population could read. Today, that percentage has increased to about 80 percent.

I encourage you to read more to gain some important perspective and encouragement at a time when our nation seems divided and short-sighted. As it is with investing, adopting a rational, long-term view and focusing on the positives can help us avoid emotional decision-making and best position ourselves as well as our families and communities for success.

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Solon Vlasto Named Newest Partner at BWM

McLean, VA (January 12, 2017) – Bernhardt Wealth Management, a fee-only independent investment advisory firm located in McLean, VA, today announced that Solon Vlasto, CFP®, CDFA™ has become a partner. The ownership became official on January 1, 2017.vlastosolon-photo

Vlasto is a CERTIFIED FINANCIAL PLANNER (CFP®) and Certified Divorce Financial Analyst (CDFATM) professional with nearly 25 years of financial services experience. In his new role as partner, Vlasto will be involved in all aspects of the business including development and execution of all strategic initiatives, new business, and staffing. In addition, he will continue providing wealth management services including retirement planning and analysis, implementing estate planning and tax strategies, reviewing protection planning matters, structuring philanthropic planning and investment planning matters to help clients reach their goals. “Partial ownership in such a well-respected firm is a genuine privilege,” said Vlasto. “Bernhardt Wealth Management’s independent structure, world-class investment platform and fiduciary responsibility differentiate it from most financial firms. I am delighted to team up with individuals who share my deep commitment to clients and disciplined investment philosophy. Our conflict-free investment offering and personalized service approach is befitting the sophisticated community we serve in the D.C. area.”

President and Chief Executive Officer Gordon J. Bernhardt said, “Solon has a heart to provide top notch service to clients while delivering superior advice across the wealth management spectrum. He is a great leader, outstanding individual and well-respected throughout the financial services industry. I am certain he will continue to serve the firm and our clients with distinction.”

“Solon’s wide-ranging experience and impressive ability to nurture long-term relationships with individuals and entrepreneurs help substantiate our standing as one of Washington D.C.’s top wealth management firms,” said Principal Tim S. Koehl, CFP®. “He has a proven track record of outstanding client service.”

The new ownership arrangement also serves as an update to the firm’s formalized contingency plan. “We regularly remind our clients to prepare for the unexpected. As fiduciaries, we have a responsibility to our clients to make sure this practice remains an ongoing business serving their best interests, even if something unforeseen should happen to me or one of our partners,” explained Bernhardt.

Vlasto, who has known Gordon Bernhardt for nearly two decades, joined Bernhardt Wealth Management in 2014. He served as Senior Financial Advisor and Chief Compliance Officer after working at another private wealth management firm located in Columbia, MD. Prior to that, he worked for more than 21 years at TD Ameritrade where he served as Branch Manager in Reston, VA. Vlasto earned an Executive Certificate in Financial Planning from Georgetown University. He also holds a Certified Divorce Financial Analyst ™ designation and received a Bachelor of Fine Arts degree from the University of Connecticut. He served two years on the Board of Directors for the Financial Planning Association of the National Capital Area as co-chair of the Pro Bono Committee and has long been involved with pro bono financial planning efforts and local volunteerism for many organizations.

Bernhardt Wealth Management’s advisory business has a demonstrated record of excellence and performance, recently being named among the country’s Top Registered Investment Advisory Firms by Financial Advisor magazine’s RIA Ranking of 2016 and Northern Virginia Magazine’s annual Top Financial Professionals list of 2016.

About Bernhardt Wealth Management
Bernhardt Wealth Management was established in 1994 by Gordon J. Bernhardt, CPA, PFS, CFP®, AIF®. The firm provides financial planning and wealth management services to affluent individuals, families and business-owners throughout the Washington, D.C. area. The Bernhardt team is focused on providing high-quality service and independent financial advice to help clients make informed decisions about their money. For more information, visit BernhardtWealth.com.

Disclosure Statement: Past results are not indicative of future results. Bernhardt Wealth Management, Inc. (BWM) is a registered investment advisor with the Securities & Exchange Commission. BWM may only transact business or render personalized investment advice in those states and international jurisdictions where we are registered/filed notice or otherwise excluded or exempted from registration requirements. Any communications with prospective clients residing in states or international jurisdictions where BWM and its advisory affiliates are not registered or licensed shall be limited so as not to trigger registration or licensing requirements.

Media Contact:
Karen Embry, Impact Communications
913-649-5009
karenembry@impactcommunications.org

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The IRS’ Top 400

The recent presidential campaign featured quite a bit of debate on taxes, focusing especially on whether top earners were paying their fair share. Last month, the Internal Revenue Service (IRS) published what it says will be its final report on the taxes paid by the 400 taxpayers with the highest adjusted gross income (AGI). The IRS has been keeping data on the top 400 back to 1992.

According to the IRS, our nation’s top earners paid an average effective federal income tax rate of 23.13% on AGI averaging $318 million in 2014 (the most current year studied). That’s an increase over their effective tax rate of 16.72% on average AGI of $336 million in 2012. Remember, though, that in 2012 the highest tax rate for long term capital gains was just 15%. In 2013, that rate jumped to 23.8% for many taxpayers, thanks to a 20% top rate on long-term capital gains and the additional 3.8% Medicare surcharge imposed by Obamacare.

How might those percentages change? President-elect Donald Trump and the Republican Congress have pledged to repeal Obamacare’s 3.8% surcharge, which would reduce the top long-term capital gains rate to 20%. And, as reported in a pre-election Forbes article, top earners will get a tax break from the Trump administration. Drawing on data from the Tax Policy Institute, Forbes reported that under the Trump tax plan, members of the 1% would receive an average $214,690 tax cut in 2017, boosting their after-tax income by 13.5%.

Here are some additional highlights from the IRS report highlighted in the Wall Street Journal article, The Really Rich Got Richer, According to IRS’s Top 400:

  • Between 1992 and 2014, 4,585 different taxpayers made the top 400 earners list, and 3,262 of that group appeared for just one year.
  • The minimum income needed to make the IRS’ 2014 list was $126.8 million.
  • Total income reported on the top 400 individual tax returns rose 20% in 2014 over the previous year.
  • Out of nearly 150 million tax returns in 2014, this group of 400 earned 1.3% of all income and accounted for 10% of all capital gains.
  • The top 400 paid 2.13% of all individual income taxes paid, their highest share since 1992.
  • The top 400 claimed 6.9% of all deductions for charitable contributions.

Going forward, instead of reporting on the top 400, the IRS said that it will focus on the top 0.001% earners. In terms of 2014 numbers, that would have meant reporting on 1,396 taxpayers.

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Read “Rejection Proof”

This holiday season my firm distributed its nineteenth annual holiday book–Rejection Proof: How I Beat Fear and Became Invincible Through 100 Days of Rejection–to clients. I had an opportunity to listen to the author Jia Jiang speak in 2014. As an entrepreneur and app developer, Jiang’s confidence had been rocked when he was turned down by an investor. To conquer his fear of rejection, every day for 100 days, he challenged his fear of “no” by asking a stranger to say “yes” to an outside-the-box request. For example, he asked a stranger to borrow $100 (no), a homeowner if he could play soccer in his yard (yes), pleaded for a haircut at Petco (no) and asked a Krispy Kreme employee to make doughnuts in the colors and shape of Olympic rings (yes). That doughnut interaction went viral.20170103-rejectionproof

Jiang’s book chronicles the simple power lessons he learned during those 100 days. In fact, he closes each chapter with a summation of key points and actionable advice to inspire readers. Rather than turn and run from the “no” as he did after asking to borrow $100, Jiang insists it is better to engage with the person rejecting you and seek to understand their point of view. Above all, don’t take the “no” personally because it reflects only the opinion of the rejecter and is heavily influenced by historical, cultural and psychological factors.

He also insists that “every rejection has a number.” That is, a no could eventually turn into a yes. Also, simply asking “why” after you are rejected can sustain the conversation in a useful way and help you gain some information that could get you to “yes.” For example, in his 15-minute TED talk, Jiang describes asking a stranger if he could plant a flower in his backyard. The man says, “No,” but his answer to Jiang’s “Why” is illuminating. It turns out the man has a dog who digs up everything in his backyard. In fact, the man suggests Jiang ask his neighbor who loves flowers and she agrees. This illustrates Jiang’s belief that collaboration leads to success. As the TED promo reads, “Jiang desensitized himself to the pain and shame that rejection often brings and, in the process, discovered that simply asking for what you want can open up possibilities where you expect to find dead ends.”

Let’s all incorporate a little bit of that into 2017. Ask yourself: What would you do if you knew you would not fail? That question gets to our core goals and big dreams, but for many of us it also will illuminate the extent that fear of rejection and failure play a part in our decision-making.

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BWM 2016 Holiday Traditions

The Holidays are a time of tradition and giving. For 14 consecutive years, we have offered to make contributions to charities in honor of our clients instead of sending gift baskets during the Holiday Season. The response from our clients has been overwhelmingly positive, and we appreciate participating in the spirit of giving — which is part of what the holidays are all about.

At Bernhardt Wealth Management, we embrace our responsibility to giving back to our community. Therefore, we are proud to have contributed $8,730 to 38 local and national charities and $25,270 to the following five local charities in honor of our clients:

CollegeTracks

Homes for Our Troops

PRS/CrisisLink

ServiceSource

YouthQuest Foundation

The response we get from each charity is that we are “part of a compassionate community” and “we are grateful for your generosity and hope you take great pride in the important difference that your gift makes.”

Without our clients, we would not be able to help the charities that our clients identified. And just as important, we thank our clients for allowing us to serve them. Thank you!

May your new year be blessed with peace, love, and joy and may 2017 be a prosperous year for you!

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HSAs Gain in Popularity

Health Savings Accounts (HSAs) were established by federal law in December 2003 when President Bush signed the Medicare Prescription Drug Improvement and Modernization Act of 2003. HSAs are tax-free financial accounts that offer another way to help individuals save for future health care expenses. To open an HSA, you must have a high deductible health plan (HDHP). To qualify as a HDHP in 2017, a plan must have a minimum annual deductible of $1,300 for self-only coverage (the same as for 2016), or $2,600 for family coverage (also the same as for 2016). The maximum out-of-pocket expenses permitted for a HDHP is $6,550 for self-only coverage and $13,100 for family coverage.

Employers looking to lower their health care costs encouraged employees to sign up for a HDHP paired with an HSA, but many were Papers with Health Savings Account HSA on a table.initially reluctant to try something new. However, it seems folks have come to appreciate the HSA for the triple tax break it offers. Contributions are sheltered from income taxes, assets grow tax-deferred and funds can be withdrawn tax-free for qualified medical expenses.

Now, according to a study by the 401(k)-provider Ascensus, the number of assets in HSAs has risen to $30.3 billion, a 16.7 percent increase over last year. If such growth continues, assets could reach $50 billion by 2018. The number of HSAs also increased 22 percent in 2015, with 16.7 million open accounts.

Notably, Ascensus finds that employees over age 55 account for 34 percent of HSA assets on the Ascensus platform. This suggests that employees see the accounts as they were intended, as tools to boost overall retirement savings. Fidelity estimates that a 65-year-old couple retiring in 2016 will need $260,000 to cover health care costs in retirement, in addition to expenses covered by Medicare. The HSA can be a tax-free source for these expenses.

Keep in mind that if you have an HSA, you still have until April 17, 2017, to make a contribution for 2016. If you had an HSA-eligible policy for the entire year, you can contribute up to $3,350 for individual coverage or $6,750 for family coverage (plus $1,000 if you were 55 or older in 2016). If you had an HSA-eligible policy for just the first few months of 2016, your contribution is limited based on the number of months you had the policy. However, if you had the policy on December 1, 2016, you can make the full year’s contribution even if you didn’t have the policy for the full year. But in that situation you must keep an HSA-eligible policy for all of 2017 to avoid a penalty.

In 2017, individuals will be able to contribute $3,400 to their HSA, a $50 increase from 2016. The family contribution did not change and will remain at $6,750.

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The Fed Finally Raises Interest Rates

The decision by Federal Reserve System to raise interest rates came as no surprise. Last week, the Federal Open Market Committee (FMOC) met and decided to increase its key Fed funds rate by 0.25 percent to a range from 0.50 to 0.75 percent.

This is only the second increase in eight years. The Fed funds rate is the interest rate that banks or similar institutions charge other banks for unsecured short-term loans (typically overnight) to help meet Federal Reserve requirements.20161219-federalreserve-bigstock

The move indicates that the Fed is confident in the health of the U.S. economy and believes the labor market and inflation are on the right track. Of course, because the market absolutely expected this rate hike the impact on your portfolio will likely be minimal. The market reacts to surprises and this was by no means a surprise. Rather, it was a step toward normalcy. After all, until all the quantitative easing in 2008, the Fed funds rate had never been below 1 percent!

Accordingly, we should also pay close attention to the Fed’s stated plans to raise rates three times next year to arrive at a “normal” 3 percent by the end of 2019. Interestingly, the FMOC’s “dot plot” only showed three hikes after the Fed’s September meeting. This trajectory for increases would be a little faster than some expected but, importantly, it is not set in stone. Remember that we expected multiple rate hikes this year and we did not see an increase until December.

But what does this move mean for your portfolio? First of all, the price of a bond typically decreases when interest rates increase. However, if you hold individual bonds to maturity, you typically will get all of your principal back. Furthermore, short-term bonds will fluctuate less in value than long-term bonds which means investors should only hold short- and intermediate-term bonds.

The impact of rising rates is less definitive for stocks. Some sectors actually perform better with rising interest rates. A higher Fed funds rate means you earn more interest in your saving accounts or money market accounts. For borrowers, higher rates can lead to higher borrowing costs. For example, if you have an adjustable rate mortgage tied to the prime rate, your monthly payments could increase with the increase.

The bottom line is that uncertainty in the market underscores the need for a diversified investment plan. In that way, you will be positioned to take advantage of emerging opportunities and to mitigate risk regardless of the direction interest rates take. And in addition to watching the Fed, there may be policy changes with the new Trump administration and even potential tax reform that could trigger moves in the market that make portfolio diversification all the more important.

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‘Tis the Season for Gift Giving, Not Budget Busting

The trick with holiday shopping is to let everyone know just how much they mean to you without going into debt and sabotaging your financial future. Surveys show that folks who take on debt during the holiday season generally take on a substantial amount, nearly $1,000. In addition to gifts, this average takes into account the cost of entertaining and travel.

It’s easy to get carried away. After all, you rationalize, everybody is doing it. Retailers lure us with terrific deals and promotions and our 20161212-itsawonderfullifeconversations with family, friends and colleagues revolve around shopping and holiday preparations. The National Retail Foundation’s (NRF) annual Thanksgiving weekend survey conducted by Prosper Insights found that 44 percent of Americans shopped online and 40 percent shopped in-stores. This holiday season, defined as November and December, NRF estimates that holiday sales will increase 3.7 percent, to $630.5 billion, compared to last year’s 4.1 percent growth. The average increase in holiday sales for the past 10 years is 2.5 percent.

In her article 6 Money Lessons To Remember In December That Will Keep You Financially Healthy In January, Maya Kachroo-Levine makes the excellent point that a “financially healthy new year can’t start on January 1, 2017.” She writes, “If you want to start your 2017 off with a clean financial slate, then planning for that needs to start now.”

I agree with her #1 rule: Only take on credit card debt that you can pay back by the next cycle. That means setting a realistic budget and keeping track of your spending. Your family and friends do not want you to be in debt come January. How can you avoid overspending? Agree to a price limit with family members, decide that everyone will exchange something handmade, or choose to spend time together instead of exchanging gifts. Large families can consider drawing names or a Yankee Swap so each person has to buy just one gift. Ask anyone about their most memorable gift and I bet it was a gift from the heart.

The holidays should be about spending time together with loved ones, having fun, and creating special memories, not making another mad dash to the mall. If you have young children, now is the time to plant the seeds that the holidays do not demand expensive presents and extravagant celebrations. In fact, why not choose a worthy charity to support together and make a financial contribution and/or volunteer your time?

All of us at Bernhardt Wealth Management wish you a Happy Holiday Season! And while you are enjoying the company of family and friends and creating cherished memories, keep in mind that December 31st is the deadline to max out on your annual 401(k) contribution.

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Joy to the World (But Tax Time is Coming)!

In the midst of holiday celebrations with family and friends, it’s easy to forget that tax time is just a quarter away. There are steps you can take before the year ends to minimize your tax bill. If you have some down time, it’s never too early to gather receipts for tax deductible expenses and consider just what your upcoming tax picture might look like. The earlier you organize, the better positioned you will be to make the most effective decision on these tax-saving strategies:20161205-taxtime-bigstock

Defer income: If you will earn a year-end bonus, this extra money could bump you up to another tax bracket and increase your tax liability. Sometimes companies will agree to make these payments in January rather than December. If you have freelance income, you might decide to hold December invoices until January. Therefore, you need to check where you are in your bracket and take the appropriate action.

Accelerate deductions: If make an extra mortgage payment by December 31, you can claim that additional tax deduction on this year’s taxes, potentially reducing your tax liability.

Donate goods to charity: Clean out your closets and give clothes and household items giving to those in need. These donations are tax deductible, but you need a receipt for anything over $250. If you volunteer at a qualified charitable organization, you can’t charge for your time, but you can deduct your mileage. And if you make a donation by credit card by December 31, you can deduct that in 2016 even if you don’t pay the bill until January.

Max out your 401(k) contributions: Your pre-tax contributions to a traditional 401(k), 403(b), or similar workplace retirement plan reduce your taxes by the amount of your total contribution for the year, times your marginal tax rate. You have until December 30, 2016, to make the contribution count for this year and the maximum you can contribute for 2016 is $18,000. If you’re age 50 or older, you can contribute an extra $6,000 via the catch-up, for a maximum contribution of $24,000.

Individual Retirement Accounts (IRAs) and the Simplified Employee Pension (SEP) IRA for the self-employed offer similar tax breaks to a 401(k). However, you have until April 15, 2017, to make a contribution and apply it to your 2016 tax return. The maximum IRA contribution for 2016 is $5,500 for those under age 50 and $6,500 for those 50 and older. SEP contributions by self-employed individuals are limited to $53,000 or 25% of eligible income, whichever is less.

Harvest portfolio losses: If you have investments in your portfolio that have gone down in value, you can sell those positions and record those losses to offset investment gains elsewhere in your portfolio. If you have offset all gains and still have losses, you can offset $3,000 of your ordinary income. Losses beyond that can be carried over to the next tax year. Because this process is governed by the IRS’ Wash Sale Rule, it’s best to consult with your tax advisor before harvesting losses.

Consider a qualified charitable distribution (QCD): If you want to donate to charity and you’re 70½ or older, you can make a direct transfer of funds from your IRA custodian, payable to a qualified charity. This counts toward your RMD for the year, up to $100,000, but it is not included in your gross income and does not count against the limits on deductions for charitable contributions. Here, too, the rules are complex, so consult your tax advisor.

Plan ahead with a big picture view: Perhaps most importantly, whether you’re taking additional deductions, deferring income, or making charitable contributions, your 2016 tax strategy cannot exist in a vacuum. The best decisions are made with a multi-year view. For example, you need to factor in if your income will in increase or decrease next year, what expenses you have coming up and how far away you are from taking Required Minimum Distributions (RMDs) from your retirement accounts.

Happy Holidays and follow the advice of Judge Learned Hand who said “Anyone may arrange his affairs so that his taxes shall be as low as possible.”

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