Archive for March, 2011

Economic Rebounding: Use the Rule of 72

Thursday, March 17th, 2011


The economy is slowing turning around, albeit much slower than most of us would like to see. Rebounding from devalued investment, savings and/or retirement accounts  continues to be a challenge. Learning The Rule of 72 is one of the best tools you can embrace for help in putting a rebound plan together.


Simply put, The Rule of 72 is a quick and easy formula that will give you the number of years it will take to double your money. Using a simple interest rate of 1%, which varies above and below the current bank rates being paid on savings accounts, it would take you approximately 72 years to double your money using the Rule of 72: 72 divided by the rate of return; 1%. Accordingly, a 2% return rate would double your money in 36 years.


A Googled search du jour on CDs, provides for the current average interest rate somewhere between 1.06% for one year CDs on the low end, leveling off at 1.86% for three year CDs. At 1.86%, it will take 38.7 years to double your money. FYI: IRA CD returns were even less.


Discover and Capital One are currently offering a ten year CD at 3% for minimums of $2,500 and $5,000 respectively. It will take 24 years to double your money in this case. Conversely, an invested mix of stocks and bonds with a hypothetical return of 6% would cut that time period in half to 12 years: 72/6 = 12. It is a simple formula to wrap your head around.


The chart to the right (double click to enlarge) further illustrates the relationship between the hypothetical rates of return and the number of years it takes to double an initial investment with  all earnings reinvested.


While CD rates are fixed and may be insured by the FDIC, they offer relatively low returns. On the other hand, stocks and bonds tend to offer higher rates of return, but come with higher risks of loss. Similarly, fund yields and returns may fluctuate and fund shares are not insured. Still, you may be risking the possibility of NOT reaching your goals if you strictly stick to low yielding investments such as CDs.


Consider further, the current annual rate of inflation; 2.11% last month. Economic rebounding is slowed when inflation rates are higher than invested rates of return. The Rule of 72 may provide that a mix of investment vehicles tailored to your own return thresholds and timing needs could be the best plan to work toward.


Kurt Rusch, CLU, ChFC


Retirement Confidence Survey

Tuesday, March 8th, 2011


Up three percentage points up from an all time low in 2009, the percentage of American workers who feel “very confident” that they will have enough money for a comfortable retirement is 16%.

Not to play Devil’s Advocate, but we really need to rephrase that: 84% of the American workforce doesn’t think they’re going to have enough money to retire comfortably.

When the Employee Benefit Research Institute (EBRI) sent out a press release on the 20th Annual Retirement Confidence Survey last week, the headline read “New Research from EBRI”: Between 4–14% More U.S. Households “At Risk” of Running Short of Money in Retirement Due to 2008–2009 Recession.


Choosing their copy wisely, EBRI notes that: the likelihood of becoming “at risk” because of the economic crisis depends to a large extent on the size of the retirement account balances the household had in 401(k)-type plans and/or individual retirement accounts, as well as their relative exposure to fluctuations in the housing market.


No matter how you slice it, way more than the majority of us working folk have little confidence life will be grand after we stop working. This is not a good thing. Further workforce results provide:

Covering Basic Expenses 29% are very confident they will be able to cover their basic needs

Unaware of  Goals 46% don’t know how much money they will need to retire comfortably

Not Enough Savings 54% say the total value of their savings and investments excluding their home and any defined benefit plans is currently less than $25,000

No Savings At All 27% say they have less than $1,000 in savings (up from 20% in 2009)


In 2010, 33% workers were polled as saying they expect to retire after the age of 65. For workers who fall into some of the categories above, the amount of money they will need to save from unpreparedness and unawareness will be overwhelming to say the least. But what of the people who did/do have good plans in place? How much will these workers need to save to recoup their losses from the economic crisis?


“Early Boomer households, will generally need to save between 1 and 4 percent of compensation  more each year between now and retirement age”,  provides EBRI. (These amounts will vary to the personal and market profile of each worker.) While another 1-4% may not sound that bad, it may become quite challenging in a climate of increased taxes, higher employee benefit deductions and every changing inflation rates.


When it comes to providing for retirement, overall confidence may not be high, but it is changeable. Decide what you would like to have, try out some online tools such as, retirement calculators, to get a feel for your  goals and sit down with a professional advisor to construct the best plan for you.


Kurt Rusch  CLU, ChFC







Travel Safety: Express Kidnappings

Wednesday, March 2nd, 2011


If you haven’t heard about express kidnappings take heed if you plan to travel outside of the country for business or pleasure.


Praying on tourists and business people, the abduction lasts only a few hours for the purpose of taking victims by gunpoint to ATM machines to rob them for withdrawals. There was even a movie made about it in 2005 called, Secuestro Express – scary.


The origination of this crime is attributed to have started in Latin American countries. Last year, the Deccan Chronicle reported that Mexico is now #1 for reported kidnappings with over 8,000 abductions annually. Last weekend, the Washington Post reported that kidnappings for ransom are also now soaring in Mexico. A trend which is forcing employers and victim’s families to turn to the private sector for help due to a lack of support from Mexican police.


Now here’s the really scary part, Cancun, Mexico, is on the “Spring Break Top Ten” destination list. How can any parent feel confident of their children’s safety in these types of environments?


To be honest, I was unaware of the gravity of the situation until I received some industry literature on it. It was from a company in the ‘private sector’ who provides ransom reimbursement and “crisis response team” coverage to businesses, individuals and families. This type of coverage is also relatively inexpensive; please let me know if you’d like to know more about it.


If you have family or friends travelling to Mexico, please share this link with them: How To Avoid An Express Kidnapping on It is a great read for all travelers.


Kurt Rusch CLU,ChFC


TAX RETURNS: Do it yourself or not?

Tuesday, March 1st, 2011

Software programs, such as Turbo Tax, have unequivocally made tax returns easier to execute. While tax professionals have been using them for decades, consumers weren’t heavily marketed to buy until recently. Is it wise to do your own taxes? The answer to that question depends on what you are and aren’t willing to do.

If you shake in your boots at the mention of the IRS, then filing your own return is obviously not an option. If you’re the type of person who is willing to do some research, computer confident and isn’t facing a plethora of intricate tax situations, then you may want to take a crack at it.

Coming from a tax background, I am comfortable with doing returns and ecstatic with today’s technology. However, though the software leads me through a line by line order, it does not interrogate me about potential credits and deductions my clients may be able to take. I need to know what to look for on their behalf first. Capturing personalized and legitimate calculations is still something that can’t be categorically computerized.

Most recently, one of my clients did their own return using Turbo Tax and asked me to review it before they filed. They came up with a refund under $100; I came up with a refund of several thousand from legitimate tax credits they could take but were unaware of. This is definitely one of those moments where it absolutely does pay to do your homework. But where do you start?

My first suggestion would be to Google the current year tax and see what comes up. You need to know if there are new rules and law changes which will affect the return year, as well as any which may be expiring or have been extended for credits, allowances, deductions and so forth.

You don’t have to read the tax code, but you do need to be aware of what to look for. A great place to start is the IRS Newsroom. These websites pages are surprisingly easy to navigate via short categorical listings by tax year. Generally speaking, here are a few things to keep in mind when doing your return:

Consider Credit Basics

Make sure that you examine your situation for qualification/eligibility of Earned Income Credits and Child Tax Credits.

Pay Attention to Non Recurring Items

If you are going to be the recipient of non recurring income items such as inherited annuities, make sure that you account for the possibility of having your Social Security payments taxed at a higher rate. Changes to financial accounts, stock transactions, home sales, business ownerships and other such items should also be scrutinized.

Review Retirement Plans

Utilize deductible IRA’s if qualified. This could result in what amounts to up to a 30% subsidy from the Fed’s that can be saved tax deferred toward your retirement.

Know Your State Regs

In Illinois, contributions to eligible 529 Plans for education qualify to be deducted from taxable Illinois income. In 2009, Illinois started requiring the property tax ID number to be included on returns in order to qualify for the 5% credit for property taxes paid.

Backup, Backup, Backup

Though you may be a wiz at Quicken, you still need to substantiate those account entries with back up. Keep detailed records of itemized deductions such as charitable contributions, medical expenses, business expenses, etc. With regard to record retention, the rule of thumb is 3 years; some schools of thought say 7 years is better. The statue of limitations runs out in 10.

Check Filing Status

Make sure that you use the proper filing status. The difference in tax liability between filing Single vs. Head of Household can be substantial.

These are the basics of what you need to know and consider if you choose to do your own return. I will be posting more tax articles in the coming weeks as well. Please feel free to contact me if you have a question you’d like some help with.

As of today, there are 49 days left before the 2011 filing deadline falls on April 18th. Are you prepared?

Kurt Rusch CLU, ChFC