New Graduates – Start Thinking about Retirement
Congratulations to all the new graduates that are entering the work force now.  They have a tough slog ahead with a weak job market and a lot of debt. The good news is they can take small steps now that will reap tremendous returns down the road:

  • Plan on being a millionaire now.  By saving $303/month, by the time the recently minted graduate is 65 she should have $1,000,0001.
  • By delaying saving 10 years, $644/month needs to be saved, more than double.2
  • Keep investment costs as low as possible.  If your average investing costs are 1% higher, the $303/month saver would only accumulate $739,000, $261,000 less than the low cost investor. Stick to low-cost index funds!
  • Pay off college debt by all means, but don’t forget about saving for retirement.Retirement planning is a juggling act – you need to keep a few balls in the air all the time!
  • Obviously, to achieve your goals, live within your means.

Major Tax Changes Scheduled to Expire after 2012
This is a summary of some of the major tax changes that are scheduled to occur on January 1, 2013.  The way Washington is in gridlock, it is highly unlikely that any legislation will be enacted to resolve what is being termed the “Fiscal Cliff”:

  • Current income tax rates range from 10% to 35% will go up from 15% to 39.6%.
  • Capital gains rate will go up from 15% to 20%.
  • The maximum tax rate on dividends will increase from 15% to 39.6%.
  • The Child Tax Credit will be reduced from $1,000 to $500.
  • Estate Tax exemption which is currently $5,120,000 will revert back to $1,000,000.
  • Education tax breaks will expire. The 2% payroll tax cut for all employees expires.
  • $250 deduction for teachers for purchasing classroom supplies also disappears.

And the list goes on and on.  One of the things we can control is to possibly take capital gains in 2012 instead of next year.  Let me know if you need some assistance with this or consult your tax advisor.

Roth Option in 401ks, 403bs and Thrift Savings Plan
Recently the Federal Thrift Savings Plan,3 the University of New Mexico and UNM Hospital have all implemented a Roth option for employees’ retirement accounts.There are other employers that are adding the Roth option to their plans as well.  What this means is that employees can contribute any amount between zero and $17,000/year to these Roth accounts.  For those over 50, the upper limit is $22,500/year.Most individuals have been limited to Roth IRA contributions of $5,000/year (or$6,000/year for those 50 or over) or Roth Conversions until now.  With the prospect of higher taxes down the road, Roth accounts are looking more and more attractive.  The downside to Roth contributions is that they are not pre-tax.

Control Your Personal Economy
There is no shortage of news items that are keeping us worried about the future.  The upcoming election, Europe, healthcare reform and rising healthcare prices, possible tax hikes, high unemployment, depressed housing prices, Social Security insolvency and Iranian nukes.  There is enough negative news to keep us depressed for the rest of the decade.  What can we do about all of these issues – not much?  So we need to control what we can in our own personal economy.  Establish an emergency fund of between 3 to 12 months of regular expenses, reduce debt, keep saving for retirement and most important of all, live within your means.

Personal Notes
We have been busy.   Roberta and I completed the Run for the Zoo Half Marathon.  All I will say is that my personal record will never be broken.  Then we rode our bikes in the Santa Fe Half Century and we completed the Tri-The-Kenai Triathlon in Alaska (wow,competing at sea level is great!).  My men’s tennis team won the Northern NM playoffs, so we head off to El Paso for Sectionals in August.  We finished our running group training, and are now being chased around the city’s bike trails and pools with the triathlon training group (called Oxy-Gen Morons – go figure!). 

Our trip to Alaska was a great break from the NM heat.  We caught the Alaska Railroad from Anchorage up to Denali National Park, where we saw grizzly’s (including 2 cubs), a wolf kill and a lynx crossing the road.  We were treated to a snow storm in the middle of June!  We concluded our trip in Fairbanks – a really nice, small, college town.  We gorged ourselves on as much Alaskan seafood as possible.

Please contact me for a review meeting if needed. As I continue to welcome new clients, please feel free to pass this newsletter on as seems appropriate. Currently my new client schedule is booked up till the middle of September. My website at has information for those interested in my financial planning services.


1Assuming 43 years of saving, compounded at a rate of 7%.
2Same assumptions as above, except 33 years of saving.
3At this time, not all agencies and services are accepting elections for Roth contributions because they are still making the necessary technical and programmatic changes to their payroll systems.