What Exactly Is The Fiscal Cliff?

Money Matters Corner:  by Kenneth D. Stephenson

What Exactly Is The Fiscal Cliff?

  1. The expiration of almost every tax cut enacted since 2001.
  2. A reduction in government spending first proposed during the 2011 Debt Ceiling Crisis called the Budget Control Act of 2011.

These measures were designed to help balance our budget deficit; however, if enacted, they will more than likely begin to slow the U.S. economy.

The Federal Reserve Board Chairman Ben Bernanke defines the Fiscal Cliff as the many major fiscal events that could happen simultaneously at the close of 2012 and the dawning of 2013.

The Tax Provisions that will expire on Dec. 31st, 2012, should we fall over the Fiscal Cliff include:

 Changing the current individual tax rate brackets (10%-15%-25%-28%-33% and 35%) to the pre-2001 rates of 15%-28%-31%-36% and 39.6%.

 Returning the tax on Long term capital gains and Qualified dividends from 15% to 20% and 39.6%, respectively, and the return of the limitation on itemized deductions and phase out of personal exemptions.

 On January 1, 2013, several provisions that benefit the lower classes, including the increased Child tax and earned income credits and the expanded education credits, should expire.

 The Estate tax exemption and tax rate are currently at $5,120,000 and 35%, respectively. Come January, they will return to $1,000,000 and 55%.

 The AMT exemption for 2011 of $74,450 for married couples filing jointly will reset to $45,000, pulling tens of millions of taxpayers into AMT.

 For 2011 and 2012, the employee’s share of Social Security tax was cut from 6.2% to 4.2%. This rate cut expires at year end.

 Starting in 2013, taxpayers earning more than $250,000 will pay an additional 0.9% tax on their wages and 3.8% on their unearned income (interest, dividends and capital gains).

If all these tax increases and spending cuts take effect; the grand total being in the region of $7 trillion over a decade, the government could save nearly $600 billion starting next year. However, the same measures would reduce U.S. GDP by an amount which may plunge the economy into recession. As a result, the slow but steady economic growth of the last three years may be replaced by contraction.

Kenneth D. Stephenson owns and independent financial advisory firm, Complete Financial Solutions, Inc. He can be reached at 919-552-4286 or you can email him at Please feel free to send in questions for future columns.



We all have choices. Choose poorly and you find yourself back at the drawing board forced to make new often harder choices. Don’t choose at all and you’ve just made a choice to be the passive receiver of whatever comes your way.  In essence, you make your choices and then your choices make you. Every decision, no matter how slight, alters the trajectory of your life. Whether or not you go to college, who you marry, every choice has an impact on the compound effect of your life. An excerpt from Darren Hardy’s “The Compound Effect”.

Last week, I had a candid conversation with a recently retired NFL player regarding his current financial advisor. He said he kept firing his advisors because when he questioned them about his investments they simply shrugged him off as an idiot athlete saying “you just continue to play football and I’ll handle the money, don’t you worry”. Finally, someone smartened up and chose to answer his questions thus making this player a knowledgeable investor.  An advisor’s fiduciary responsibility is to educate their clients and ensure they understand exactly where their hard earned money is invested. Athletes are just like the rest of us, but they have a shorter amount of time to make the money they’ll use the rest of the their life.  How they handle this money after retirement is key, much like the average joe. We all have a choice as to which financial advisor best fits our needs. Thankfully, this guy didn’t sit passively by and let someone take advantage of him and his family.  Be inquisitive, be a smart investor. Dave Ramsey says “personal finance is about 80% behavior. We all know what to do, you have to be intentional.” Be intentional about your retirement, start today, don’t wait until tomorrow.



Cutting Thru The Confusion (Part 1)

I’ve had people tell me that my profession is complex, and not understood by the average consumer.  I would agree that it can be confusing and it could be simplified. That my friend is unfortunate and in my opinion the reason people have bad experiences.  In my next several blogs, my goal is to simplify the choices you can make when it comes to picking a financial advisor or investment.

There are many things that confuses people in the financial advisory world. I’m going to try and cover each one and make it easy to understand. The investing public need to know the differences. Many advisors and their firms had rather for you not to understand. Why?….. because if people did understand what was going on, they would be making changes without hesitation.

Here are some of the topics that I will cover in my coming blogs.  Independent advisor or Non-Independent, Fee based or Commission Based, Broker or RIA/IAR, Designations and what they mean, Trading Costs, Institutional or Retail, Fiduciary Duty or Suitable. What does ALL this mean?

After I’m done with this subject I hope each one of you that reads this blog can at the very least say you’ve learned a lot.  I hope these blogs can make these areas of confusion clear for you in the future so you can make good financial decisions.




Bad Advice = Vanishing Retirement Plan

Here’s a rule of thumb that I’ve heard ever since I’ve been in this business that can surely lead you to financial ruins. Here it is… ” Take 4% out of your account per year at retirement age and you will never run out of money and your account balance should stay about the same.”  I back tested this rule personally starting in 2000 using the popular Vanguard Index 500 fund. You know the one that many tout for low fees. That’s a subject for a future blog. My back test used an account balance of 1,000,000.00 on January 1st 2000. Lets say you retired and now you want to take the 4% out of your account or 40,000 per year for your yearly income needs. The problem with this is something called sequence of returns. The last 12 years there were some good years but there were also some pretty bad down years in the market. Keep in mind that you still need that 40,000 per year for your retirement income needs. We are not even accounting for inflation here. Anyway on January 1, 2012 you would be left with 437, 436.88.  If you retired at age 62 now you are only 74 years old and a couple more bad years in the market is going to practically wipe out your account.  This is exactly why this old rule is not the way to go. There’s too many variables and there’s no way you can tell in this economy what the sequence of returns will be over the next few years.  It  may have worked in the 90′s but not now.

This is exactly the reason you need to see a retirement planning specialist. I’m not talking about any stockbroker or the guy that your neighbor says gave them a great stock tip. I’m talking about a retirement planning specialist that works on these types of cases everyday. A 2011 Smart Money Magazine article stated that the person that helps you accumulate those assets is probably not the best person to help you get thru retirement. It’s a whole different ball game once you reach those retirement years. Asset allocation becomes much more important than the latest stock market daily moves and what the hottest stock of the month is. Smart Money says even if you like your current financial planner you should still seek out one that specializes in setting up retirement income plans that will last thru your lifetime. It’s not just a simple….”take 4% per year and you’ll be o.k.” No at retirement you cannot afford to make a mistake. You can’t gamble on your neighbor’s stock market tip or that the new Facebook stock will make everything be o.k.

I hope that you will think about this beginning 5-10 years before you retire and begin to meet with the financial planner that works on these cases everyday. If you’re already retired it’s not too late. You can still tilt the odds in your favor and get on the right course so you can have the peace of mind that everything will be o.k. And isn’t that what everyone wants in retirement…..PEACE OF MIND!



Why you need your own Pension Plan

Workers are now retiring at older ages because the incentives to retire have changed. Since the mid-1990s, the average retirement age has risen from 62 to 64 for men and from 60 to 62 for women, according to a new Center for Retirement Research at Boston College analysis of Census Bureau data. The trend toward later retirement has been driven by declines in traditional pensions and retiree health benefits offered by employers, changes in the way Social Security benefits are calculated, better education and health, and less strenuous jobs that people are able to perform at older ages.

Fewer workplace benefits. The shift from traditional pensions to 401(k)s made retirement a more risky prospect because retirees must manage their investments and control spending on their own. The decline of employer-provided retiree health insurance gives employees an additional incentive to keep working until they qualify for Medicare at age 65.

Greater longevity. Individuals are now living longer, which is more years of retirement that need to be financed. Working a few years longer gives workers more time to save and shortens the period of time they need to pay for. Many people in their 60s are also healthy and able to work, especially now that many American jobs are knowledge-based rather than manufacturing positions. People with more
education tend to work longer. Recent studies show in 2011, nursing home care topped more than $87,000 per year and home health care was even more. Thankfully there are alternatives to traditional long term care policies that bundles this coverage with annuities.  If you’re at the point in your life and you’re unable to qualify for long term care insurance, annuities with a built in long term care option are probably a great option for you.

Social Security changes. The Social Security formula has been changed to make working longer a better deal. The earnings test, which temporarily withholds Social Security payments for people who earn above certain limits, was removed for workers above full retirement age. For most current workers, the full
retirement age is 66 or 67. There is also now a delayed retirement credit, which increases benefits for each year of delayed claiming between the full retirement age and age 70. A recent report of the social security system show that the funds will be exhausted by 2033, three years earlier than previously
forecasted.  Medicare trust funds is set to run out of money in 2024, after which they will be able to pay only 87% of scheduled hospital benefits to retirees. Even if Medicare is repaired, an average couple retiring at 65 will need to set aside from $230,000 to $271,000 just to pay for medical costs (this includes Medicare and MedSupp premiums). This is assuming a life expectancy of 85 for women and 82 for men.

How does one make up for that possible loss of retirement income? What type of plan do you need to ensure you have enough to cover your expenses?  These are important questions to consider, no matter what age you are.  With defined benefit pension plans falling by the wayside, more investors are turning to products that act as pension substitutes. We have products, similar to pension plans, which provide a lifetime of income or death benefit to your heirs, depending on your goals.

Contact us today to learn how you can take control of finances for a worry-free retirement.

If you need further assistance my firm, Complete Financial Solutions, Inc. specializes in retirement planning. We have locations in Raleigh, Fuquay-Varina, and Wilmington. Give us a call @ 1-888-316-6232.


Time To Rollover That Retirement Account

Rollover That Retirement Account

As Progress Energy and Cisco go thru the process of layoffs and severance packages you need to consider what you want to do with your 401-K or retirement account. You have a few options and you definitely need to know the consequences of each choice.

Option 1 would be to take a lump sum distribution. You’ve worked hard and you deserve that money right? The problem with this is the IRS will be waiting with open arms. Come next April your distribution would be counted as ordinary income along with any other earnings you have. That means you would probably lose over 35% to taxes. For most this is not a good choice.

Option 2 would be to leave the money in an employer-sponsored plan if they allow it. The negative to this is that you lose all flexibility and control. You have restricted access to your money and there will be a mandatory 20% withholding for future distributions. You are also limited to the investment choices that the company provides.

Option 3 if you continue working would be to roll your old plan into your new plan.

Option 4 is the most popular option of choice and that is to roll the account directly into an IRA. You will have continued tax-deferred growth. You also would have control over when you access the money without the employer restrictions. There would be no 20% federal mandatory tax withholding on distributions. You would retain complete flexibility in your investment choices whether you hire a financial advisor or do it alone. Lastly you would have the possibility of a future Roth conversion.

In summary you really need to think thru your choices and make the decisions that will help you meet your long term goals. I would suggest meeting with a financial advisor that specializes in retirement planning. (Caution they all will say they do.) If you are going to retire that is usually not the same advisor that has been managing the account. Retirement comes with it’s on special circumstances which is how to live off these accounts for the rest of your life. This should be handled totally different than an advisor just interested in growing your money. Risk becomes a huge issue at this stage. If you need further assistance my firm Complete Financial Solutions, Inc. specializes in retirement planning. We have locations in Raleigh, Fuquay-Varina, and Wilmington. Give us a call @ 1-888-316-6232 or visit our website


Dave Ramsey…The Good and Not So Good

As a Financial Advisor I have an obligation to confront this and tell you the truth. If you are a Dave Ramsey follower please read the whole blog and don’t jump to conclusions. I have met some of his followers and their attitude is if Dave says it then it’s always the truth and the only truth. This becomes a problem for me. Having said that I have no problem with Dave Ramsey the person and much of his advice is great. However there is some of his advice that I believe is off base.

Dave’s business and marketing plan has been a great success. If you think of all the people that sign up for his Financial Peace University every single month I think we can agree it’s a very profitable business plan. This does not count the books, tapes and live events that he sells out all the time. I think we can agree he has done a great job marketing his business. I admire him for this success.

Let’s take a look at what Dave teaches and break it down. His advice for getting out of debt is right on and he is great at motivating people to get out of debt and stay out of debt.  He calls his teachings the 7 baby steps.

1. Build a $1000 emergency fund

2. Pay of non-mortgage debt

3.Build a full emergency fund

4. Save 15% into tax advantaged accounts

5. College Funding for Children

6.Pay off  Home

7. Build Wealth and Give

This is all good advice. My problem with his advice is that it’s general advice and everyone has different circumstances. For example he says that you should payoff student loans before contributing to a retirement fund with a match. So if your student loan rate is 4% and you have an employer that matches 50% of 6% of your contributions then you are leaving money on the table. This makes no sense at all.

My next problem is with credit cards. He says everyone should not use credit cards. Again you cannot just give out general advice because it does not apply to everyone the same. Some people payoff their credit cards each month and get all kinds of benefits and cash back.

Then there’s the advice about investing. This is where Dave’s advice really makes no sense and is can be a recipe for disaster. First of all he says that you should invest into growth stock mutual funds and you will earn 12% on average. If you look at that category there are over 700 funds in that category and over the last 10 years only 1 is above 10% which is CGM Focus Fund. After loads come out this fund is below 10%. The 2nd best drops down to a little over 7%. Then it drops to 4%. The category average is a negative return over the last 10 years. Worst than the 12% return that Dave says you can get, is that he says you can draw out 8% at retirement. This is the most ridiculous advice he gives and it is just plain dangerous. Based upon the history of the stock market you have an 83% chance of failure using this advice of pulling out 8%.

Finally Dave advises to use loaded funs which usually charge a 5-6% load or commission the 1st year you buy the fund. Dave says “Instead of investing by himself he chooses to go with a pro.” These are called ELP’s. Endorsed Local Providers. This is another place Dave’s business makes money. ELP’s pay Dave to be listed and in return get referrals from Dave.

The last thing I will talk about is Dave saying to always buy term life insurance. Life Insurance is one of the best estate planning tools available to heirs of  large estates. Life Insurance and Roth IRAs are the only thing left to put money into that is paid out income TAX FREE. Most people do not understand the true power of using Advanced Strategy Life Insurance for their estate. Obviously Dave does not understand these strategies either. Dave endorses certain companies that sell term insurance and guess what this is another way Dave makes money. I wonder how many estate plans have been blown up because people cashed in their Tax Free Life Insurance plan because they heard Dave mention that permanent life insurance is not good.This is sad and since Dave himself  or Lampo Group his company is not licensed as an investment advisor (that I can find after much research) then the advice is not regulated.

In summary Dave is a great motivational speaker, radio host and helps people everyday get out of debt. However Dave’s advice is very general at times and does not apply to everyone. Then his investment advice is just plain dangerous and makes no sense at all. Finally Dave owns a great business and continues to market that business very well thru churches, radio, books and live events. In addition his name is so powerful that companies and ELP’s can have him endorse them and people will buy because Dave put his stamp of approval on it.

I hope everyone that reads this blog will consider the whole blog and not just pick out the things that I have a problem with. My advice is to be smart and remember every single person is unique and has different goals and plans for the future. Get advice from someone that knows your individual situation and will take the time to listen to your concerns. If you are a Dave Ramsey follower, remember much of his advice is really good so NO need to bash what I’m saying just because I have a problem with a few of the things that Dave says.










Today’s economic environment is more complex than ever before, and achieving financial success can be an incredibly confusing process to even the most experienced individuals. That’s exactly why we’ve created this blog – to provide a forum for discussion, a portal for helpful information and resources and an ongoing stream of expert insights to help you make informed decisions about your financial future.

What are your biggest financial concerns? If you’re like many individuals preparing for or actively enjoying retirement, you may be wrestling with any number of pressing issues that keep you up at night.  Many find themselves asking questions such as:

Have we really saved enough?
How do we make up what we’ve lost over the past 2-3 years?
What are the right moves to make in today’s uncertain economy?
What should we be doing with our IRA and 401(K)?
Are there ways to reduce what we’re paying in taxes each year?
How do we create the most meaningful legacy possible for our children and grandchildren?
Will we outlive our retirement savings?

We’ll use this blog to provide valuable insights into each of these areas and more, so take a look around, check out the most recent posts and be sure to offer feedback or post a question if there are topics you’d like to see addressed!

Prefer to have your particular situation reviewed in person? We’d love to meet you!  Simply call (919)552-4286 to schedule a complimentary consultation today!