WILL SOCIAL SECURITY BE THERE WHEN I RETIRE?

Social Security's future solvency has become one of the most commonly-discussed issues in retirement planning-and for good reason. Gallup polls show that an estimated 57% of retirees rely on Social Security as a major source of retirement income-a number that has held steady since the early 2000s. But when Generation X and Y individuals plan for their future retirement, they'll often ask their advisor to assume that Social Security won't be there for them 20 or 30 years down the road.

However, if you look closely at the numbers, you see a very different story. Up until 2011, the Social Security system actually collected more revenues from workers'FICA payments than it paid out-and that has been generally true since the 1940s. Most of the Social Security benefits that people receive today are simply a transfer; that is, the money is collected from worker paychecks (and, of course, employer matches), spends a few days at the U.S. Treasury and then is paid out to recipients. The surplus has been used to pay government operating expenses, and for seven decades, the government issued "special issue federal securities"(essentially fancy IOUs that pay interest) to the Social Security trust fund.

In 2011, the program crossed that threshold where benefit payments slightly exceeded the amount collected. Why? Because the number of beneficiaries, compared to the number of workers, has steadily increased. In 1955, there were more than eight workers paying into Social Security for every beneficiary. Today, that number is closer to three workers for every beneficiary, and by 2031, if current estimates are correct, that ratio will fall to just over two workers supporting every retired beneficiary.

When Social Security Administration actuaries crunch the numbers, they have to take into account the shifting demographics, and then make estimates of fertility and immigration rates, longevity, labor force participation rates, the growth of real wages and growth of the economy every year between now and 2078. After adding in the value of the government IOUs, they estimate that if nothing is done to fix the system, the trust fund IOUs will run out in the year 2033. At that time, only the FICA money collected from workers would be available to pay Social Security beneficiaries. In real terms, that means the beneficiaries would, in 2034, see their payments drop to 77% of what they were promised.

In other words, the money being transferred from current workers to beneficiaries through the FICA payroll program, assuming no course corrections between now and 2033, will be enough to pay retirees 77% of the benefits they were otherwise expecting.

The government actuaries say that if nothing is done to fix the problem over the next 63 years, this percentage will gradually decline to 72% by the year 2078.

So the first takeaway from these analyses is that today's workers are looking at a worst-case scenario of only receiving about 75% of the benefits that they would otherwise have expected to receive. This is far different from the zero figure that they're asking their advisors to use in retirement projections.

How likely is it that there will be no course corrections? There are two possible ways that this 75% figure could go up. One lies in the assumptions themselves. The Social Security Administration actuaries have tended to err on the side of conservatism, presumably because they would rather be pleasantly surprised than discover that they were too optimistic. But what if the future doesn't look as gloomy as their assumptions make it out to be?

To take just one of the variables, the actuaries are projecting that labor force participation rates for men will fall from 75.5% of the population in 1997 to 74% by 2075, while the growth in female workers will stop their long climb and peter out around 60%. If male labor force participation rates don't fall, and if female rates continue to rise, some of the funding gap will be eliminated.

Similarly, the projections assume the U.S. economy's productivity gains (which drive wage increases) will grow 1.3% a year, well below long-term U.S. averages and certainly below the assumptions of economists who believe that biotech and information age revolutions will spur unprecedented growth. If real wages were to grow at something closer to the post-Great Recession rate of 2% a year, then more than half of the funding gap would be eliminated. If the current slump in immigration (due to tighter immigration policies) is reversed, and the economy grows faster than the anemic 2% rates the Social Security Administration is projecting (compared to 2.5% recently), then the "bankrupt"system begins to look surprisingly solvent.

A second possibility is that Congress will tweak the numbers and bring Social Security's long-term finances back in balance, as it has done 21 times since the program originated in 1937. The financial press often cites the fact that the total future Social Security funding shortfall amounts to $13.6 trillion, but they seldom add that this represents just 3.5% of future taxable payrolls through 2081. Small tweaks-like extending the age to collect full retirement benefits from 67 to 68, raising the FICA tax rate by 3.5 percentage points or making the current 12.4% rate (employee plus employer match) apply to all taxable income rather than the $118,500 current limit-would restore solvency far enough into the future that today's workers would be comfortable adding back 100% of their anticipated benefits into their retirement projections.

How likely is it that Congress will take these measures, in light of recent partisan budget battles? It's helpful to remember that older Americans tend to vote with more consistency than younger citizens. The more you've paid into the system, the more you expect to at least get back the money you were promised.

The bottom line here is that if you're skeptical about Social Security's future solvency, then you should pencil in 75% of the benefits you would otherwise expect-rather than $0. Meanwhile, as you approach the age when you're eligible for benefits, watch for signs that immigration restrictions are loosening, the economy is growing faster than the SSA actuaries'gloomy projections, more people are working during traditional retirement years or yet another round of tweaks from our elected representatives.

Sources: http://economix.blogs.nytimes.com/2014/03/05/another-way-to-do-the-math-for-social-security-reform/?_r=0 http://www.treasury.gov/resource-center/economic-policy/ss-medicare/Documents/ssissuebriefno.%205%20no%20cover.pdf http://www.treasury.gov/resource-center/economic-policy/ss-medicare/Documents/post.pdf http://www.wsj.com/articles/how-social-security-benefits-are-calculated-when-you-wait-to-start-taking-them-1421726460 http://www.usatoday.com/story/money/personalfinance/2013/11/25/nine-surprising-social-security-statistics/3698005/ http://www.huffingtonpost.com/2013/02/18/change-social-security_n_2708000.html http://www.therubins.com/socsec/solvency.htm http://www.encyclopedia.com/topic/social_security.aspx http://fdlaction.firedoglake.com/2012/04/30/growing-number-of-americans-expect-to-rely-mostly-on-social-security/

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

THE OTHER DIMENSION OF RISK

When it comes to investing in the stock market, the risk that everybody talks about is the ups and particularly the downs, the bearish periods when the market falls dramatically and keeps falling for months or even years. (Think: 2000-2002 or 2008)

The real damage isn't the fall itself, but the fact that many investors watch the ongoing free-fall with increasing horror until they can't stand the pain any more, sell out of the market at or near the bottom, and then lick their wounds on the sidelines and miss the recovery. Over the course of this round trip, they lose real money, while those who had the fortitude to hang on recovered their losses.

Recently, professional advisors have begun talking about a different dimension of risk, which is just as insidious, just as potentially damaging to the wealth of their clients, but much-less-widely discussed. It's called "frame-of-reference"risk.

Frame-of-reference risk can be defined as the risk that people will look at the performance statement of their diversified investment portfolio and notice that its return is falling short (sometimes far short) of the market index they're most familiar with-typically the Dow or the S&P 500. They abandon the diversified investment approach and concentrate their holdings in the local market right as the other investments they sold are about to take the performance lead.

To see why this is a risk at all, consider the bull market in tech stocks in the late 1990s. Let's compare the rate of return in the late 1990s and early 2000s of U.S. stocks compared with an ABCD portfolio consisting of equal parts U.S. stocks, foreign stocks, commodity-linked equities and real estate investment trusts-a diversified mix of risk assets, rebalanced each year.

In 1995, the diversified portfolio got walloped by the U.S. market-a difference of more than 16 percentage points. In 1997 and 1998, the differences were even more pronounced: almost 23% and just under 30%. This was a time when many investors were telling their advisors that the rules of investing had changed, that technology, clicks and eyeballs were the new standard by which stock values should be measured.

If they abandoned their diversified ABCD strategy at or near the bottom, in late 1999, these investors would have been concentrated in U.S. stocks in 2000, when the diversified approach beat the U.S. market by more than 22 percentage points. They would have missed the great return of a diversified portfolio in 2002, when it outperformed U.S. stocks by 21%. The next three years also saw the diversified portfolio beat a concentrated U.S. stock holding, as commodities, real estate and foreign stocks delivered solid returns.

The advantages of buy and hold are relatively straightforward-even if they're not easy to appreciate during a market downturn. But what, exactly, are the advantages of hanging onto a diversified portfolio?

One answer lies in the mathematics of returns. Gains and losses are not symmetrical, and the differences become greater with magnitude. A loss of 10% requires a modest 11% gain to get back to the original portfolio value. But a 20% loss requires a 25% gain, a 30% loss doesn't recover until the portfolio has achieved a subsequent 43% gain and a 50% loss doesn't get back to even until the battered portfolio has gone up 100%.

When a portfolio holds different asset classes, which move up or down out of sequence with each other (which, in the vernacular, are "not highly-correlated"), it tends to smooth out yearly investment performance. Portfolios that deliver smoother returns don't have to experience extreme recovery to stay in positive territory. As a result, they will have higher terminal values than choppier portfolios, even if the average yearly return is the same.

Another answer lies in the idea of reversion to the mean. When one asset class (like U.S. stocks) is soaring, and everything else is lagging, that means the soaring asset class is getting relatively more expensive than the others. Eventually, prices will return to normal in both directions, and the other investments will have their day in the sun. So when someone abandons a diversified investment approach after years of underperformance, she loses twice. She has already paid the "penalty"(so to speak) for being diversified when diversified was losing to U.S. stocks. Then, when she goes all-in on U.S. stocks, she loses the "benefits"that eventually follow when those other asset classes go up faster than the Dow. The late 1990s and early 2000s were a perfect example of this.

This can be summed up neatly by looking back at the investor's dilemma during the tech bubble. People who held a diversified mix of the four asset classes-U.S. stocks, foreign stocks, commodity-linked investments and real estate-enjoyed a 13.05% average yearly return from 1994 through 1999. They achieved a 9.96% return in the subsequent five years, from 2000 through 2005.

Were they happier with their higher return in the first five years? No. They were firing their advisors, because the U.S. stock market happened to be gaining 23.55% a year, and they felt like losers. Were they unhappy with the lower 9.96% yearly returns the diversified portfolio delivered in the subsequent five years? No; in fact, they were ecstatic, because their portfolios were outperforming at a time when the U.S. market was losing value.

Of course, many investors today are facing this frame-of-reference risk head-on. The U.S. market has been booming since the bottoming out in March of 2009, while the rest of the world has been mired in a recessionary hangover. Commodities-most notably oil, but also gold-have been retreating lately. Real estate had a bad stretch after the Great Recession. It's easy to question the value of those other assets in a portfolio with the benefit of hindsight. But with the benefit of historical perspective, the underperformance of broad asset classes usually reverses itself, and we never know exactly when that will happen.

At times like we are experiencing today, when the U.S. markets are enjoying a long uninterrupted run of good fortune, frame-of-reference risk starts to come out of the closet and threaten your financial health.   All we know about frame-of-reference risk is that, just like the more well-known volatility risks, it lures investors to abandon their long-term strategy at the wrong time-and when people give in to it, it becomes a net destroyer of wealth.

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

WHAT IS A "CURRENCY WAR" AND HOW DOES ONE WAGE IT?

Forget world wars, fought with tanks, bomb and missiles.  The new form of global conflict is the currency war, which is fought with increasingly vicious keystrokes.  We read in the papers that this or that country is engaged in a currency war with some other set of countries.  But what does that really mean?  And is the U.S. currently engaged on one of these economic battlefields?

Currency wars are fought over exports and foreign trade-which affects the relative prosperity of one country compared with the people living on the other side of the border.  At the heart of the "conflict" is the idea that whenever our dollar can buy more of their euros, yen or yuan (when, in other words, our currency is strong and theirs is weak), their companies are able to sell their manufactured exports at lower prices in the U.S. market and still collect the same number of euros, yen or yuan.  This gives those foreign exporters a golden opportunity to increase market share and profits at the same time.

When sales and profits rise, their stock market goes up, and they can pay their workers more.  Meanwhile, our companies, whose goods and services suddenly look more expensive, lose top-line sales, profits and stock market value.

Of course, when the dollar is weak, the reverse is true.  These same general dynamics hold true for any two countries and their currencies, which helps explain why the Swiss central bank fought for five years to hold the value of the Swiss franc down to 1.2 francs to the euro for a number of years, and why it was so shocking when it abruptly gave up the battle.  When the bank let the Swiss franc rise to its fair market level, Swiss manufacturers complained that overnight their products were suddenly 12% more expensive than they had been the day before.  Many faced the choice of seeing sales diminish to zero or lose money on everything they sold in the Eurozone.  Companies all over the country are cutting jobs, asking workers to work longer or requesting government subsidies.

So the bottom line is that the "winners" of a currency war weaken their currency compared with others, while the "losers" end up with a strong currency that can buy more imports for less.

But how, exactly, do you wage a currency war?  One way is to create or eliminate free currency.  The U.S. Federal Reserve can create more dollars by simply keystroking more of them into bank reserve accounts.  (It could theoretically do the same thing for your account, but don't hold your breath.)  Or the U.S. Treasury could issue more bonds.  Alternatively, the Fed can keep its Fed funds rate at zero, which tends to raise the amount of money that banks loan to their customers and therefore the overall money supply in circulation.

Other countries, meanwhile, can "fight back" by issuing more government debt and using the money to buy Treasuries for their government account, raising the amount of their currency on the market and decreasing the number of dollars.  This is how China has managed to keep the yuan on par with the dollar.  In fact the Chinese government has been so active in buying up Treasury bonds that the government gave it a direct computer link to Treasury auctions, the only country with such access.  The Chinese central banking system owns an estimated $1.25 trillion (face amount) of Treasuries, in an intervention program that has helped make Chinese exports inexpensive in the U.S.  Japan, the second-most-active currency warrior, now holds $1.24 trillion worth of Treasuries.

Meanwhile, the Federal Reserve's various QE programs, which had one arm of the government buying the bonds of another arm of the government, have been described as frontal attacks in the currency wars.

So whenever you read that a central bank has lowered its reserve rate or is buying the bonds of its own country-as the European Central Bank did recently in an effort to revive the euro economies-it is on the attack in the global currency battlefield.   Whenever you read about a strong dollar, you know that the U.S. is losing the currency wars.  The weaker the dollar, the more competitive U.S. exports will be on the world markets, and the more inclined people in the U.S. will be to purchase products made in America.

But how, exactly, do these wars affect you?  When the dollar is strong-as it is now, relatively speaking, against the euro-it means that your trip to Paris or Stockholm will be cheaper, and so will the meals and cab rides you pay for over there.  So if you're planning to travel abroad, it isn't so terrible if the U.S. is temporarily losing the currency battles.

In addition, when the dollar is strong, your cost of living tends to be lower, because the cost of foreign products-of which the U.S. bought an estimated $2.6 trillion worth last year-are cheaper.  And of course if you buy American, it doesn't really matter to you who happens to be winning this round of the currency wars.  Unlike the bloodier kind of war, the impact of winning or losing on the currency battlefield aren't threatening your personal-or financial-survival. 

Sources: http://www.tradingeconomics.com/united-states/imports http://internationalinvest.about.com/od/foreigncurrencies/a/Currency-Wars-And-How-They-Start.htm http://useconomy.about.com/od/tradepolicy/g/Currency-Wars.htm http://useconomy.about.com/od/criticalssues/p/dollar_collapse.htm http://theeconomiccollapseblog.com/archives/currency-war http://www.bloomberg.com/news/articles/2015-01-16/china-s-treasury-holdings-decline-as-japan-s-rise-to-record

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

WILL YOU HAVE TO PAY BACK HEALTH INSURANCE CREDITS?

Millions of taxpayers may end up doing so in 2015.

If you received a 2014 health insurance subsidy, you may get an unpleasant surprise. When the Health Insurance Marketplace (HIM) went online in late 2013, Americans shopping for coverage were asked to see if they qualified for a subsidy called the Premium Tax Credit. Millions of Americans did receive this federal assistance, which made it easier for them to pay health insurance premiums. PTCs were awarded based on household size and estimated 2014 household income.1

Of course, estimates don't always match reality. Some households earned more than they thought they would in 2014. Others experienced life events like divorces, births or deaths. Because of these developments, certain households ended up receiving PTCs that were too large for their incomes and family size.

Is yours among them? If it turns out that way, you may have to pay a percentage of that federal credit back.

How will you know if the 2014 health insurance credit you received was too large? Two new federal forms will help you find out.

Form 1095-A, akin to a health insurance W-2, is being sent out to you from the health exchange where you purchased your coverage. Form 1095-A shows you the total Premium Tax Credit that was paid to the insurer by the government on your behalf in 2014. Form 1095-A will help you (or your tax professional) fill out Form 8962, which is used to calculate the proper size of your 2014 Premium Tax Credit in light of your family size and actual 2014 modified adjusted gross income (MAGI).2

If you ended up receiving a smaller PTC than you should have in 2014, then the IRS will send you a refund representing the difference. If you received a PTC that was disproportionately large, then you are looking at repayment of a percentage of that credit.2

How much could a taxpayer have to pay back? Fortunately, the IRS has capped the repayment amount. The most an individual taxpayer has to pay back is $1,250. The cap for households is $2,500.3

The IRS also just issued Notice 2015-09, which offers taxpayers facing financial hardships another break related to this issue. Under federal standard tax law, a taxpayer would owe a penalty for failing to repay the excess advance premium tax credits back to the federal government by April 15. A penalty would also be assessed for a taxpayer whose estimated tax payments fall short of the amount due. Well, Notice 2015-09 suspends these late-payment penalties for the 2014 tax year, provided you pay your 2014 federal taxes by April 15 (or October 15 with an extension). So if the IRS notifies you of the overpayment of credits, you can claim relief from the late payment penalty by responding by letter and relief from the estimated tax underpayment penalty via submitting Form 2210 along with your 1040.1,4

Did you buy your own health insurance even though your employer offered it? If you worked for a big employer that offered a health plan but opted to buy your own health coverage instead, you might be eligible to claim a Premium Tax Credit for 2014 (and get the resulting tax refund). Your employer may or may not send you Form 1095-C, which indicates the employee share of the health insurance premium for the most inexpensive plan that the employer sponsored. If that employee share exceeds 9.5% of your 2014 income and you went out and self-insured last year, you can claim a PTC for 2014. If your employer doesn't send you Form 1095-C, request it.2

Since household income estimates are used to determine advance Premium Tax Credits, it looks like low-income and moderate-income taxpayers who self-insure may have to continually reconcile health insurance subsidies received versus health insurance subsidies warranted.

As a last note, there is an outside chance that the Premium Tax Credit may disappear altogether. The Supreme Court will rule later this year (but probably not prior to April 15) on whether it should be offered in the 36 states that didn't set up their own health care marketplaces. If the SCOTUS decides that it shouldn't be offered (and therefore, shouldn't have been offered) in those 36 states, you will see a lot of amended 2014 returns and repayment of health insurance credits.5

Citations. 1 - irs.gov/Affordable-Care-Act/Individuals-and-Families/The-Premium-Tax-Credit [1/27/15] 2 - kiplinger.com/article/taxes/T027-C000-S004-health-law-breeds-new-tax-forms.html [10/15/14] 3 - bankrate.com/finance/taxes/premium-tax-credit.aspx [1/6/15] 4 - healthaffairs.org/blog/2015/01/27/implementing-health-reform-aca-related-tax-penalties-waived-high-court-turns-back-oklahoma-ag/ [1/27/15] 5 - forbes.com/sites/anthonynitti/2015/01/10/four-things-sure-to-destroy-your-tax-season/ [1/10/15]

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO, INC.

FINANCIAL HABITS AND NET WORTH

You already know that our financial habits determine our financial fate. If we avoid credit card debt, spend less than we earn and create a financial buffer against the unexpected, we tend to thrive financially. If we carry a lot of debt or live constantly on the edge, with little savings, then our financial future is much cloudier.

Recently, a paper published by the Federal Reserve Bank of St. Louis proved these truisms in the real world. For eight individual years between 1992 and 2013, the Fed's Survey of Consumer Finances has posted a series of financial questions to thousands of people in all walks of life, at all income levels and ages. Among them:

1) Did you save any money last year?

2) Did you miss any loan or mortgage payments in the last year?

3) Did you have a balance on your credit card after the last payment was due?

4) Do liquid assets make up at least 10% of the value of your total assets?

5) Is your total debt service-the cash you devote each month to paying principal and interest-less than 40% of your income?

The paper scored the answers, giving every positive answer (yes for 1, 4 and 5, no for 2 and 3) one point, assigning zero points to the "wrong"answers. Then they added up the scores for each household and looked at a financial health score taken from the same survey, and compared the two. They found what you would probably expect: that good financial habits are highly correlated with the accumulation of wealth. A small chart at the back of the study, which divided people according to age and ethnic profile, found that individuals who averaged a score of 2.63 had a median net worth of $25,199, while those who averaged a 3.79 score enjoyed a median net worth in excess of $800,000. The average score: 3.01, associated with a net worth somewhere in the $70,000 to $75,000 range, which happens to fall neatly in between the median for people age 35-44 ($51,575) and those age 45-54 ($98,350).  

Sources: http://www.stlouisfed.org/publications/itb/articles/?id=2575  

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.