Stock Market Madness

Stock Market High
Buy or Sell?

The stock markets are at an all time high! Should you buy or sell? Many believe the markets are literally on edge…

What is causing the stock market madness?

The excitement associated with stock market rallies is perpetuated by the media’s enthusiasm. And, though they have been on the sidelines since the Presidential election, now they can’t seem to get enough of this current run.

Recently CNN/Money reported “No worries on Wall Street” insinuating that fear and greed were responsible for the run. But, others are running scared, stating that a meltdown is imminent.

Last month the Census Bureau released its annual report on household income data for 2016. In 2016 the median average household income rose over 2015 and a record high.

household income

Real Median Household Income

So… People are making more money after a near 20 year decline? Most people I know with regular W2 income jobs are glad just to have a job. Fortunately, things are looking up and people are cautiously optimistic. But, as the main indexes continue to hit record highs, is this faithfulness justified?

The negative side to all of this is that the average investor has their entire retirement savings invested in the stock markets. Whether it be individual stocks, mutual funds or ETF’s, that is risky behavior.

And even worse, the retirement vehicle of choice for most Americans, the 401k is almost entirely invested in stock market mutual funds. Even the creator of the 401k, Ted Benna, has noted… he created a “monster”.

The 401k has morphed into a retirement vehicle where millions of Americans follow the herd into investing into something they neither understand nor control.

Read what Bloomberg posted in the article, The 401(k) Is Wreaking Havoc on Retirementhttp://www.bloomberg.com/news/articles/2016-08-24/the-401-k-is-wreaking-havoc-on-retirement 

Studies show that most participants in 401(k) plans have no idea that the plans have hidden fees or about the individual expenses. Prompting CNBC to report, “What you don’t know about 401(k) fees can cost you plenty”

401k Alternative

There are plenty of alternatives to the 401k and investing in the stock markets. Unfortunately, there are greater forces that do not want you to know about these alternatives them because they are a threat to them.
Bank On Yourself author, Pamela Yellen, has created an entire following teaching people how to combat the effects of the stock markets and the 401k on your personal finances. On her website, Yellen states “If your money is invested in the market, you could lose some or all of your money and have no way of predicting the value of your plan when you hope to tap into it.”
It all boils down to who you trust with your money. Would you rather remain in control, or turn your money over to someone else to manage?
Trust is the engine that drives the markets and our investments. There’s economic trust in the financial institutions that safeguard our money and our privacy.
Trust operates in all sorts of ways, from saving money to investing money. Money that could be spent on security could also be spent on gambling. We have choices and along with that comes responsibility.
But, who can you trust? The WSJ reports: “stocks riding a bull market in corruption”  http://www.marketwatch.com/story/us-stocks-riding-a-bull-market-in-corruption-2017-01-02 

Wall Street Predictions

Just pick up any Wall Street publication and you’ll see they are eagerly waiting a correction… Wall Street strategists are beginning to get nervous as U.S. stocks reach all times. And, they are getting more cautious about what’s in store for the future.

Bank of America Merrill Lynch Head of U.S. Equity and Quantitative Strategy, Savita Subramanian, believes U.S. equities are at an “elevated risk of correction.”

The great UNTOLD story of this market is the severe DROP in interest rates and the Fed’s insistence on leaving them there. While the stock market seems to have recovered, the bond market interest rates continue to PLUNGE! The 30 year US Govt Bond rate is below 2.87%! The bond market is very, very nervous!

Analysts at Bank of America Merril Lynch, recently noted that sell-side optimism levels—a contrarian indicator—remained at six-year highs by the end of September.
Stock Market Indicator

Stock Market Indicator

TheStreet says “The Biggest Bull on Wall Street Is Forecasting a Stock Market Pullback. ” In the article, Wall Street’s, biggest bull, Morgan Stanley strategist Michael J. Wilson says the S&P 500 will soar to as high as 2,700 points… and then a “pullback or consolidation” is about to hit the equities market as earnings season gets into full swing.

The Federal Reserve and Federal Open Market Committee (FOMC)

The Federal Reserve has also weighed in on the exuberance in the market. Recent announcements showing their confidence in the markets have pushed the indexes higher. But, is that confidence merited?
Have you ever considered who benefits from the Federal Reserve and their outlook on the economy?  Or how the regular FOMC meetings effect the markets?
Business Insider recently reported “No area of the stock market benefited more than financials following the Federal Reserve’s most recent comments.” Also stating, “Bank stocks are on fire and traders are lining up bets for more to come.”

If you haven’t put 2 and 2 together yet, the banks win. Just like with the casinos, the deck is stacked.

New York Stock Exchange Wall St Banks

New York Stock Exchange

From Wikipedia: “Irrational exuberance” is a phrase used by the then-Federal Reserve Board chairman, Alan Greenspan, in a speech given at the American Enterprise Institute during the dot-com bubble of the 1990s. The phrase was interpreted as a warning that the market might be overvalued.

Irrational Exuberance

Many believe that we are in fact exhibiting irrational exuberance with the stock market highs of recent time. In other words, investor enthusiasm that drives asset prices up to levels that aren’t supported by fundamentals.

Economist Robert Shiller wrote a book, Irrational Exuberance, that analyzes the stock market boom that lasted from 1982 through the dotcom years. In his book, Shiller’s presents 12 factors that created this boom and suggests policy changes for better managing irrational exuberance.

And, just recently another economist, Richard Thaler, won a Nobel Prize for his study of Behavioral Economics. Thaler said the most important impact of his work is “the recognition that economic agents are humans.”

These studies seem to indicate that “we” are responsible for whatever happens to our investments. That our behavior and attitude should be corralled. If we just listen to the all knowing banks and follow their lead we will be okay. And, of course we have the full support and backing of the United States Government if things go wrong… Or do we?

“My friends, there is good news and bad news. The good news is that the full faith and credit of the FDIC and the U.S. Government stand behind your money in your bank. The bad news for you, my fellow taxpayers, is you stand behind the U.S. Government.” –L. William Seidman, former head of the Federal Deposit Insurance Corp. (FDIC)

Are Banks Too BIG to Fail?

Would you support another bailout for the BIG Banks? Banks have little risk because we the taxpayers support them.

AIG is no longer too big to fail, at least according to the Federal Reserve. Chair, Janet L. Yellen, has decided to rescind the designation of American International Group (AIG) as a “systemic nonbank financial company.” And, thanks to Dodd/Frank (wink wink), we are protected. https://www.federalreserve.gov/newsevents/pressreleases/other20171002a.htm

The New York Times is weighing in, reporting: Ten years on from the financial crisis, it’s hard not to have a sense of déjà vu. Financial scandal and wrangles over financial rule-making still dominate the headlines.

It’s not just the banks… According to the article, “Nonfinancial firms as a whole now get five times the revenue from purely financial activities as they did in the 1980s. Stock buybacks artificially drive up the price of corporate shares, enriching the C-suite. Airlines can make more hedging oil prices than selling coach seats. Drug companies spend as much time tax optimizing as they do worrying about which new compound to research. The largest Silicon Valley firms now use a good chunk of their spare cash to underwrite bond offerings the same way Goldman Sachs might.”

Forbes wrote this, Big Banks and Derivatives: Why Another Financial Crisis Is Inevitable

The derivatives market is the financial market for derivatives, futures, options and contracts which are derived from other forms of assets. Derivatives are tradable products that are based upon another market known as the underlying market.

The market can be divided into two, exchange-traded derivatives and over-the-counter derivatives. Some have estimated the derivatives market at more that $1.2 QUADRILLION.

Buy or Sell?

Is now a time to buy or sell? If you listen to the media pundits and financial entertainers, they all have their own advice for you to buy or sell your stocks and investments. Anyone can read the headlines or skim the finance section of any publication to make an educated guess. This post will not encourage you to do either.

A better question would be, will there be another stock market crash?  And, if there is can we do about it? The answer is YES!

You don’t have to participate in the Wall Street shenanigans! The majority of people that are wealthy in this country did not make their money in the stock markets. Successful people invest their time, resources, energy, and money into improving themselves.

Perhaps the world’s greatest investor, Warren Buffett, said “There’s one investment that supersedes all others: Invest in yourself.”

Invest In Yourself

Invest In Yourself

And, that would be my best advice for you, invest in yourself. You can now get the equivalent of a college degree for free online. If you want to learn the secrets of the rich, study the success stories of the people you admire.

We provide a full spectrum of books, videos and articles from successful people that you can learn from in our financial resources library. If you’d like to learn more about investing in yourself, just follow the link and subscribe to our ezine, Financial Intelligence.

Until next time, Invest in Yourself!
Barry Page, RFC

Barry Page

Barry Page is a Registered Financial Consultant, Managing General Agent and Founder of Legacy Insurance Agency, PLLC. He helps clients with tax-advantaged investment alternatives, and specializes in showing families how to take control of their finances and create financial independence.

Subscribe to our YouTube channel: https://www.youtube.com/user/legacymoney

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The Great 401k Myth

The Great 401k Myth
Six Reasons Why The 401(k) May Not Be in Your Best Interest

The great 401k myth has been perpetuated over the last 30+ years from good intending radio entertainers to trusted advisors. Unfortunately this utopian, politically motivated, economic view of your financial future originates from the government and big banks, and the 401k myth has been propagated to the point of epic proportions.

401k myth

The Great 401k Myth

“Myths which are believed in tend to become true.” ~George Orwell

What makes the 401k myth so destructive is that it is based on a scarcity mindset and it is being perpetuated from generation to generation. When we embrace the scarcity mindset we are buying into the belief that our resources are limited.

In order to achieve our maximum economic potential we must break away from the boundaries of traditional financial thinking and challenge our minds to live a life of abundance. An abundant life is developed through action and practicing our God given talents and abilities. Our actions are produced when our confidence and thoughts  in our minds are based on truth and specific knowledge in that area. As we increase our specialized knowledge we increase our ability, and we are free to make our own decisions and choices.

In this blog we’ve enlisted the specialized knowledge, opinions and talents of 2 bestselling authors, financial expert Pamela Yellen and CPA, Bryan Bloom. Yellen developed Bank On Yourself® website and authored the book of the same name. Bloom authored the book series, Confessions of a CPA.

The 401k Myth

Here are Six Reasons Why 401(k)s May Not Be in The Best Interest of Your Financial Future

Reason #1: The Tax-Deferral Myth

In our immediate-gratification society, deferring your taxes by funding your 401(k) sounds so good.

But when the tax man eventually comes calling, he won’t ask you to pay what your tax liability would have been if you’d been paying taxes all along. He’ll tell you what your tax liability is at the time your taxes are due.

So we ask our clients a question: Can you tell me what your tax rate will be 30 years from now? Didn’t think so.

And 89% of the people surveyed believe tax rates can only go up over the long term, due to our country’s unsustainable debt and aging demographics. Unfortunately, if tax rates do go up and you’re successful in growing your nest-egg, you’ll only be paying higher taxes on a bigger number.

That destroys the whole “tax-deferral” argument.

Reason #2: The “Free Money” Myth

Who doesn’t love getting “free money” in the form of the 401(k) employer match? Do you really believe your employer is giving you something for nothing?

The Center for Retirement Research did a study based on tax data and found that for every dollar an employer contributes to your 401(k) match, they pay 90 to 99 cents less salary on average. Whoa! Doesn’t sound like such a good deal now, does it?

Plus, you don’t even get all of the employer match during the first 4-6 years you work for the company – you need to be “vested” first. If you leave your job before that, you typically don’t get the full match.

And according to the Bureau of Labor Statistics, the average time a person stays on the job is only 4.6 years.

If you accept the employer match, even if you have elected the Roth 401(k) option, the employer match is taxable in the future. What if that match results in your Social Security being taxed, when without it your Social Security would have been tax free? Perhaps a quarter of a million dollar mistake on top of the taxes due on the match distributions!

Oops! There goes the employer match “carrot.”

Reason #3: Fees that Devour Your Hard-Earned Money

In spite of the rules passed a few years ago requiring better 401(k) fee disclosure, surveys show most participants still have NO clue how much they’re actually paying.

But according to Brightscope, participants in small plans pay 1.9% in fees annually, and participants in large plans pay 1.08% per year. If those fees sound like “small change” to you, then here’s a wake-up call: Fees of only 1% per year can slash the value of your savings by 28% over the next 35 years, according to the Department of Labor.

Poof! There goes nearly one-third of your hard-earned dollars. I can assure you somebody is getting rich on this, but it’s not you!

Reason #4: Funding a 401(k) is Like Putting Your Money in Prison

It’s like a trade with the devil: Give me all your savings in return for tax-deferral (a scam as we’ve seen) and an employer match (another scam), and I’ll keep it under lock and key for you until you’re 59.5 years old.

You have to beg for permission to use your own money! There are all kinds of restrictions and penalties for accessing your own money.

This is one of the biggest reasons people have large credit card balances exceeding 18% interest costs. Hope those 401(k) dollars are earning at least 18% after fees!

Reason #5: The Myth of Market Returns

You’re told that over the long term, you can do well in the stock market. But over the last three decades, the average equity mutual fund investor has earned only 3.98% per year, beating inflation by only 1.3% per year, according to the DALBAR studies.

Yet Wall Street has brainwashed us into believing we have to risk our money in order to get any kind of decent returns. And so we continue to blindly fund our 401(k)s like lemmings following each other off a cliff.

Our strategies reveal you don’t have to risk your money to get a decent equivalent return. You can reach your financial goals and dreams without taking any unnecessary risk.

Reason #6: After Decades of Being Lab Rats in the Great 401(k) Experiment, Most Pre-Retirees Still Don’t Have Enough Saved

Even the “father” of the 401(k), Ted Benna, has called it an “out of control monster” that should be blown up.

How much more evidence do we need that 401(k)s are not the solution they’re touted to be? The more accurate name for a 401(k) is a hope and pray plan.

So are there any good alternatives to the 401(k)? The answer is YES, but of course you won’t hear about it from Wall Street.

Here Are 8 Reasons Why the BreakAway Approach Makes an Excellent Alternative to Conventional Retirement Plans…

1. Guaranteed, predictable growth and retirement income – with no luck, skill, or guesswork required.

2. No volatility. Your plan doesn’t go backward when the markets tumble. Your principal and growth are locked in. It’s not subject to market risks.

3. You’re in control. You have control of your money without government penalties or restrictions on how much income you can take or when you can take it.

4. Tax advantages. You can access your principal and growth with no taxes due, under current tax law.

5. Liquidity. Your cash value can easily and immediately be tapped for any purpose at all, and your plan can continue growing as though you never touched a dime of it.

6. Fees don’t compound against you. Studies show that the fees in traditional retirement plans can consume as much as one-third to one-half of your savings over time. With our plan, all fees have already been deducted from the bottom-line numbers and results you’ll get.

7. Income tax-free legacy. The death benefit is likely to be many times larger than the total amount you’ve paid into your policy. This passes to your loved ones and/or favorite charities income tax-free and without going through probate. If you die prematurely, the death benefit allows your plan to finish funding itself. That won’t happen with traditional retirement plans.

8. Peace of mind. Perhaps the best reason of all: You’ll know the minimum guaranteed value of your plan on the day you plan to tap into it – and at every point along the way!

So, there you have it, why the 401k is a scam and how it has been propagated into the great 401k myth.

Bryan S. Bloom, CPA. Adapted and Updated from the original work done by Pamela Yellen, published as an e-mail titled “Is your 401(k) a Scam?” on July 11, 2017

If you’d like to reexamine your 401k or schedule a meeting, request a financial consultation.

Until next time,
Barry Page, RFC
Barry Page

Barry Page is a Registered Financial Consultant, Managing General Agent and Founder of Legacy Insurance Agency, PLLC. He helps clients with tax-advantaged investment alternatives, and specializes in showing families how to protect their assets, income and lives unique financial approach to planning.

401k qualified plans are government retirement plans administered by the Internal Revenue Service (IRS).

“A qualified plan must satisfy the Internal Revenue Code in both form and operation.” https://www.irs.gov

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Declare Independence

Declare Independence

Declare independence by taking control of your freedoms and finances. Our Independence Day, more commonly known as the 4th of July, is when we commemorate the United States adopting the Declaration of Independence and when we declared our independence from the Kingdom of Great Britain.

Traditionally, Independence Day is associated with fireworks, BBQ’s and family. As we celebrate our Independence Day, let’s remember what our independence really means… The colonists rebelled against the British Crown and taxation.

Today, some 241 years later, our country faces a similar situation that would have our founding fathers rolling in their graves. Our federal government is destroying our freedoms and is larger and more oppressive than ever.

declare independence

The Declaration of Independence

When you consider the FBI, CIA, NSA, TSA and other US Intelligence agencies, they are not protecting us from foreign insurgents, they are stealing our privacy. We’ve become addicted to technology while our every move is being tracked and recorded.

The Internal Revenue Service taxes our earnings and the government machine spends the proceeds with reckless abandon. Tax revenue is squandered and necessary obligations go unfunded.

Then there’s the Federal Reserve. Since it’s creation in 1913 our dollar has lost 98% of its value. This alone is tyranny stealing from the citizens. Inflation is a stealth tax that robs us

It’s time to declare our independence from an oppressive government and take control of our lives and finances. This revolution can be peaceful and begins with love and a simple message.

Declare Independence

  • We must reclaim our liberty and educate others.
  • We must find the spirit of independence again and unite in our efforts.
  • We must stand up against an oppressive government by getting involved.
  • We must declare our financial independence by taking control of our finances.

To learn more about what you can do now to protect your freedoms, request a consultation.

Until next time, Declare Independence!
Barry Page, RFC

Barry Page

Barry Page is a Registered Financial Consultant, Managing General Agent and Founder of Legacy Insurance Agency, PLLC. He helps clients with tax-advantaged investment alternatives, and specializes in showing families how to protect their assets, income and lives using a unique financial approach to planning.

Subscribe to our YouTube channel: https://www.youtube.com/user/legacymoney

Find us on Facebook: https://www.facebook.com/legacyinsuranceagency 

The Federal Reserve – The Creature from Jekyll Island

The Federal Reserve
The Creature from Jekyll Island
Book and Audio from G. Edward Griffin

The Creature from Jekyll Island-A Second Look at the Federal Reserve is a non-fiction book written by G. Edward Griffin. In this posting we will provide an opportunity for you to download a shortened audio version of the book to help you gain knowledge of how the Fed was created and what it stands for.

The Creature from Jekyll Island: A Second Look at the Federal Reserve

The Creature from Jekyll Island

Where does money come from? Where does it go? Who makes it? The money magicians’ secrets are unveiled. We get a close look at their mirrors and smoke machines, their pulleys, cogs, and wheels that create the grand illusion called money. A dry and boring subject? Just wait! You’ll be hooked in five minutes. Reads like a detective story – which it really is. But it’s all true. This book is about the most blatant scam of all history. It’s all here: the cause of wars, boom-bust cycles, inflation, depression, prosperity. Creature from Jekyll Island is a “must read.” Your world view will definitely change. You’ll never trust a politician again – or a banker. (from Amazon)

Federal Reserve – The Creature from Jekyll Island Audio

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Private Family Banking

Private Family Banking

Federal Reserve Banking

Federal Reserve Banking

In case you don’t know, The Federal Reserve is not ‘Federal’ and they do not have adequate ‘Reserves’. As Edward Griffin states in his book, they are a banking cartel.  You may also have figured out that the federal government is a poor steward of our money. Yet every day, good people turn their hard earned money over to the big banks through government retirement plans, leaving them vulnerable to theft and confiscation.

For our clients, financial independence means, ‘freedom’ and ‘liberty’ when it comes to finances. And, having a comfortable lifestyle today with the opportunity to create a predictable income in the future. If this sounds like the kind of financial independence you’d like to have, then you can learn more about the Infinite Banking Concept.

When you look at our current system for saving and accumulating wealth, it is heavily weighted in favor of the financial institutions. Our educational system, our accounting system and the financial advisors, are all dependent on the government and these same financial institutions. We have been held captive.

Quotes from others about the book: The Creature from Jekyll Island

“A superb analysis.” -Ron Paul

“This is a murder mystery about the financial ‘murder’ of the middle class.” -Robert Kiyosaki

This may be the most important book you’ll ever read…
But in case you don’t have time to read the over 500 pages, just download the shortened audio version from
The Creature from Jekyll Island: A Second Look at the Federal Reserve
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May is Disability Insurance Awareness Month

May is Disability Insurance Awareness Month

disability insurance awareness month

May is Disability Insurance Awareness Month

May is Disability Insurance Awareness Month. Disability insurance is the most overlooked of the major types of insurance.

That’s likely because many people think a disabling illness or injury will never happen to them. But according to a Life Happens survey, a person has a 3 in 10 chance of suffering a disabling illness or injury that would keep them out of work for three months or more during their career.

Each May, Life Happens coordinates Disability Insurance Awareness Month. This offers you the perfect opportunity to talk about your disability insurance needs.

No matter what you do for a living or where you are in life, there’s always an opportunity to better protect yourself and your loved ones. Think about it… What would happen if suddenly, due to an illness or injury, you were unable to work?

Without your paycheck, how long would you be able to make your mortgage or rent payment, buy groceries or pay your credit card bills without feeling the pinch? If you’re like most, it wouldn’t be long at all: Half of working Americans couldn’t make it a month before financial difficulties would set in, and almost one in four would have problems immediately, according to a Life Happens survey.¹

That’s where disability insurance comes in. Think of it as insurance for your paycheck. It ensures that if you are unable to work because of illness or injury, you will continue to receive an income and make ends meet until you’re able to return to work.

Follow this link to learn more and schedule a meeting; Disability Insurance

#disabilityinsurance #protectyourpaycheck #awareness #disabilityinsuranceawarenessmonth

¹The Disability Survey conducted by Kelton Research on behalf of Life Happens, April 2012

Until next time,
Barry Page

Barry Page

Barry Page is a Registered Financial Consultant, Managing General Agent and Founder of Legacy Insurance Agency, PLLC. He helps clients with tax-advantaged investment alternatives, and specializes in showing families how to protect their assets, income and lives using a unique financial approach to planning.

Subscribe to our YouTube channel: https://www.youtube.com/user/legacymoney

Find us on Facebook: https://www.facebook.com/legacyinsuranceagency 

Retirement Tax Bomb

RETIREMENT TAX BOMB
IRA/SEP/401k Tax Liability

Is your IRA/SEP/401k a retirement tax bomb? Don’t worry, you can parachute out safely using our custom designed whole life insurance plans.

This time of the year families and business owners are pressured into making decisions that they think will “save” them taxes. Accountants and CPA’s frequently recommend to people that they contribute to their qualified plans before they file their tax returns. But, do qualified plans save taxes?

Has your accountant told you that the you can save taxes by contributing to your IRA/SEP/401k? Ask him what will your tax liability be at retirement?

retirement-tax-bomb

Retirement Tax Bomb

Qualified Plans do 2 things…

  1. They postpone the tax.
  2. They postpone the tax calculation.

Contrary to popular belief, qualified plans do not save tax. Federal income taxes are levied at the distribution of most qualified plans. Analyze the numbers and compare qualified plans to non-qualified plan investments.

Qualified plans are government retirement plans administered by the Internal Revenue Service (IRS).

“A qualified plan must satisfy the Internal Revenue Code in both form and operation.” https://www.irs.gov

Retirement Tax Bomb

Questions to ask your tax advisor:
1. What tax bracket will you be in at retirement?
2. What deductions will you have when you retire?
3. What will your unpaid tax liability be to the IRS when you retire?

In a similar example comparing a qualified plan to whole life insurance, it meant $350,000 difference after 20 years of income. That’s not chump change… Assuming pre-tax investments to a qualified plan (IRA/SEP/401k). The premium to a whole life policy is post tax, and it grows tax-free. The death benefit and loans can be accessed tax free under current tax laws.

The good news is… You can parachute away from these ticking, retirement tax bombs. Learn how to secure your retirement and create tax-exempt income for you and your family. Retire with peace of mind, knowing that you have predictable income and that you are in control of your financial future. Follow this link, Retirement Planning

Are you comfortable having the IRS and the US Government in control of your retirement? All government qualified retirement plans are subject to the ever changing rules of the U.S. Treasury/IRS. If taxes increase your hard earned savings could be at risk, but even if taxes stay the same, do you want more cash-flow?

You don’t have to depend on the government to create wealth and financial independence. Get started today, schedule your personal consultation: https://legacyinsuranceagency.com/contact/consultation

Until next time,
Barry Page

Barry Page

Barry Page is a Registered Financial Consultant, Managing General Agent and Founder of Legacy Insurance Agency, PLLC. He helps clients with tax-advantaged investment alternatives, and specializes in showing families how to protect their assets, income and lives using a unique financial approach to planning.

Contact me and discover how to receive tax free income at retirement without using a 401k, IRA, SEP or ROTH.

Subscribe to our YouTube channel: https://www.youtube.com/user/legacymoney

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Disclaimer:
For educational use only. We do not provide tax or legal advice.

Will The Government Default or Raise The Debt Ceiling?

Government Default or Raise The Debt Ceiling?

Will the government default or raise the debt ceiling again? The U.S. Treasury Department is now calling on Congress to raise the debt ceiling once again to prevent a government default.

Officially, the current United States debt ceiling expired on March 15th, 2017. The following day, the outstanding debt of the United States was at the statutory debt limit. This means that lawmakers must now decide how to address the nation’s fiscal problems or face government default.

Treasury Secretary, Steven Mnuchin, recently sent a letter to House Speaker, Paul Ryan, on March 8 urging Congress to raise the debt ceiling as soon as possible. The Treasury will begin to take “extraordinary measures” to prevent the U.S. from defaulting on its debt, Mnuchin wrote.

Debt Ceiling - Government Default

Debt Ceiling – Government Default

What Is The Debt Ceiling?

The restraining factor on the amount of U.S. debt is called the debt ceiling. The U.S. Treasury defines the debt limit as the amount of money the U.S. government is authorized to borrow to meet its existing legal obligations.

The national debt is rapidly approaching $20 Trillion. You can check the current status here: http://usdebtclock.org

Major entitlement programs, including Social Security, Medicare and Medicaid, make up almost 50% of all federal spending and are only expected to increase in the future as more Americans retire. Entitlements and net interest are projected to consume 100% of the government’s tax revenue by 2030.

Future entitlements will exacerbate our nation’s growing debt problem. As government debt mushrooms it imposes the threat of higher taxes in the future. Currently, just the U.S. spends about $258 Billion, or 6 percent of the federal budget just to pay the interest on the debt.

Why The U.S. Treasury?

The U.S. Treasury was created in 1789, and is the government department responsible for issuing all Treasury bonds, notes and bills. Among the government departments operating under the U.S. Treasury umbrella are the Internal Revenue Service (IRS), the U.S. Mint, the Bureau of the Public Debt, the Alcohol and Tobacco Tax Bureau, and the Secret Service.

Some key functions of the U.S. Treasury include printing bills, postage and Federal Reserve notes, minting coins, collecting taxes, enforcing tax laws, managing all government accounts and debt issues, and overseeing U.S. banks in cooperation with the Federal Reserve.

The U.S. Treasury is spending on average about $2 Billion per day, and they have the ability to issue more new debt. Net redemptions of existing debt not held by the government are more than $100 Billion a month.

The Federal Reserve System was established in 1913, ironically the same year as the IRS. The Fed serves as the central bank for the U.S. and influences monetary policy.

Supposedly, The Department of the Treasury and Federal Reserve work together to maintain a stable economy.

Depending on who you listen to, as the US Treasury sells bonds this may increase or decrease inflation. But, make no mistake, as the Federal Reserve prints more money, this inflates the money supply which is in inflation.

Federal Reserve Inflation

Federal Reserve – Inflation

The negative effects of the debt not only accrue in over time, but they also create a burden on future generations and weaken our economy. Currently each US citizen owns roughly $61,000 of the government debt and each US taxpayer about $165,000.

The government borrows from the Government Securities Investment Fund (G Fund) to avoid running up against the debt ceiling limit. The G Fund is a government account that is used to fund the government on a short-term basis to make up for the deficit spending by the government. The Treasury has “suspended reinvestment” or taken assets out of the G Fund to pay for these other expenses.

Many federal employees are contributing to financing the operation of the federal government whether they know it or not. Assets within the Thrift Savings Plan (TSP) are used by the federal government to help meet expenses.

The TSP is similar to a 401(k) retirement fund. It is utilized by over 5 Million current and former government employees and service members. There are assets of about $480 Billion in the TSP, of which 38% is in the G fund.

History of United States Deb Ceiling

From Wikipedia:
The history of United States debt ceiling deals with movements in the United States debt ceiling since it was created in 1917… The debt ceiling is a limitation on the federal government’s ability to manage the economy and finance system.

  • Prior to 1917, the United States did not have a debt ceiling. In 1917, during World War I, Congress created the debt ceiling with the Second Liberty Bond Act of 1917, which allowed Treasury to issue bonds and take on other debt without specific Congressional approval, as long as the total debt fell under the statutory debt ceiling.
  • In 1939, Congress instituted the first limit on total accumulated debt over all kinds of instruments.The debt ceiling, in which an aggregate limit is applied to nearly all federal debt, was substantially established by Public Debt Acts passed in 1939 and 1941 and subsequently amended.
  • Subsequent Public Debt Acts amended the aggregate debt limit: the 1942, 1943, 1944, and 1945 acts raised the limit to $125 billion, $210 billion, $260 billion, and $300 billion respectively.In 1946, the Public Debt Act was amended to reduce the debt limit to $275 billion. The limit stayed unchanged until 1954, the Korean War being financed through taxation.

In practice, the debt ceiling has never been reduced, even though the public debt itself may have reduced.

Depending on who is doing the research, it is said that the US has raised its’ debt ceiling (in some form or other) at least 90 times in the 20th century.

What would a Government Default mean?

According to many, a government default would destroy the credit system of the United States. The benchmark of interest rates in our modern financial markets are the risk factor on government issued bonds. Therefore creating a high degree of risk around U.S. Treasuries and disrupting many private contracts and government programs.

The NEGATIVES of a Default:

  • Interest rates could rise, because “Treasuries represent the benchmark borrowing rate” for all other bonds. This could mean increased costs for corporations, state and local government, mortgages and consumer loans.
  • The value of the dollar could drop, as foreign investors flee the “safe-haven” of Treasuries. And, the dollar could lose its’ status as a global world currency.
  • The U.S. government may not be able to pay salaries or benefits for federal or military personnel and retirees. Social Security, Medicare, and Medicaid benefit payments might stop, as would student loan payments, tax refunds and payments to keep government facilities open. If this happens, it would be much worse than a government shutdown.

As recently as 2013 many government landmarks were shut down due to Congress delaying raising the debt ceiling.

Government Shutdown - Debt Ceiling

Government Shutdown – Debt Ceiling

A US default could also be catastrophic to the stock markets and disrupt the global economy. However most market analysts describe the risk of default as very unlikely.

To put into context the magnitude of a US default, consider that the U.S. dollar represents 75% of the more than $5 Trillion worth of daily global currency trading.

The POSITIVES of a Default:

Many think a government default is overdue and that we should wipe the slate clean. Just as a fire can destroy a forest while allowing for new growth, this could be a good thing according to some. President Trump has even indicated that a U.S. government default is inevitable. And, if this happens we will have no choice other than to tell our creditors that they are taking a big haircut

And, of course the Austrians have an entirely different outlook on the government debt. If you follow Austrian Economics, they advocate smaller government and less spending. Austrians have predicted a government default and a collapsing economy for years, even suggesting that we cease using fiat currency and return to a gold standard.

Austrian Economist, Murray Rothbard, argued:

The government is an organization, so why not liquidate the assets of that organization and pay the creditors (the government bondholders) a pro-rata share of those assets? This solution would cost the taxpayer nothing, and, once again, relieve him of $200 billion in annual interest payments. The United States government should be forced to disgorge its assets, sell them at auction, and then pay off the creditors accordingly.

How could a Government Default affect you?

To put it simply, if you depend on the government in any way or if your savings are being held by the financial institutions, you will be affected in some way.

Banks will tighten credit and offset losses with higher interest rates on loans. Consumers may be dissuaded from purchasing a new car or a home and this will affect businesses that sell these items.

If you have money in the stock market, a default could be disastrous in the short term. However, just in any situation, many will also profit from the losses of others. So, it depends on how you respond and if you are liquid.

As of this writing, the US markets are down substantially. A one day drop of over 1% in all of the major markets represents substantial losses for all investors. What the future holds is uncertain, but rest assured, the government must get a hold on spending or risk collapsing our fragile economy.

Are you comfortable having the US Government in control of your financial future? All government qualified retirement plans are subject to confiscation by the Treasury/IRS. Whether it be through manipulation of interest rates by the Federal Reserve, or the raising of taxes by the IRS, your hard earned savings could be at risk.

The good news is… You don’t have to depend on the government or the banks to create wealth and financial independence. If you’d like to learn more about what you can do, contact me for a no obligation, financial review. Just follow this link to schedule your personal consultation: https://legacyinsuranceagency.com/contact/consultation

Until next time,
It’s your money, protect it!
Barry Page

Barry Page

Barry Page is a Registered Financial Consultant, Managing General Agent and Founder of Legacy Insurance Agency, PLLC. He helps clients with tax-advantaged investment alternatives, and specializes in showing families how to protect their assets, income and lives unique financial approach to planning.

Retirement Income Options

Retirement Income Options
Protect and Maximize Your Cash-Flow

Retirement income options are available to anyone who chooses to seek knowledge and plan ahead. Your options for how you distribute your retirement income are mostly up to you. It all starts with where you choose to store your money. We can’t control government rules such as taxes, but we can control how we save for the future, which will have a tremendous impact when distribute the income.

Assuming that you have accumulated a nest egg for retirement, you will then have choices for the distribution of that income. Traditional retirement planning suggests that you defer taxes for the future. This option may not always be in your best interest.

Do you know what your tax rate will be 30 years from now?

A whopping 89% of the people we’ve surveyed believe tax rates will go up in the future, due to our country’s unsustainable debt and aging demographics. Unfortunately, if tax rates do go up and you’re successful in growing your nest-egg, you’ll be paying more taxes on a larger balance.

In the example below, we’ve assumed that you’ve accumulated $1,000,000 in your nest egg. Regardless of how you got there, in this example it’s either stored in a government qualified plan such as an IRA or 401(k), or in cash-value, whole life insurance.

We are not suggesting that you could withdraw 7% out of your retirement plan that is invested in the stock market without the fear of running out of money, but we have to compare to something. And in most cases you can take a 7% withdrawal from a properly structured, dividend paying, whole life policy.

Retirement Income Options – IRA compared to Whole Life

Retirement Income Options

Retirement Income Options

As you can see, $70,000 of tax free income is much better than $70,000 of taxable income. But, that’s only part of the beauty of this retirement income option.

Other Benefits of Whole Life Insurance 

  • Mitigate the risks of longevity
  • Uncorelated to markets
  • Tax-Free withdrawals
  • Access to capital
  • Inflation hedge

Where you store your money is more important than what it earns. You can plan for your retirement income and maximize your cash flow, contact us to learn how: https://legacyinsuranceagency.com/retirement-planning

Sage Money Radio with Hollis Day Jr and Barry Page

Sage Money Radio with Hollis Day Jr and Barry Page
Alternative Investing – Infinite Banking and Financing Retirement
How to use you life insurance while your alive

This episode aired February 18, 2017
Radio Host and Financial Expert, Hollis Day, Jr, interviews Barry Page, RFC

Sage Money Radio

Alternative Investments “The Best Investments You’ve Never Heard Of”

Infinite Banking

How to use you life insurance while your alive for financing. Private family banking strategies.

Financing Retirement

How you can use you dividend paying, whole life insurance for tax free retirement income.

Create real wealth and leave a legacy.

Subscribe to our YouTube channel: https://www.youtube.com/user/legacymoney 

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