After the fiscal cliff and debt ceiling negotiations, one would think that the drama in Washington would be minimal for the next few months. Contrary to that, you have more than likely heard something about the so-called “Sequester”. The 2013 Sequester refers to the reduction of government spending by roughly $85 billion in 2013 (This is simply a reduction in spending. Federal outlays will still increase by more than $200 billion annually). The effects of these cuts are a hot topic of debate between Republicans and Democrats.

The Sequester has been planned for nearly two years. It was enacted by the Budget Control Act of 2011 after tense debt ceiling negotiations. They were initially supposed to begin on January 1st of this year; however the date was postponed two months after fiscal cliff negotiations were resolved. The goal of Sequestration is to help decrease the current federal budget deficit which has been around $1 trillion annually in recent years.

One may argue that a reduction in federal spending is needed in order to make sure that our national debt does not spiral out of control, however it appears the across the board cuts could have been allocated differently in order to prevent the economy from slowing down. The CBO (Congressional Budget Office) estimates that the Sequester may cause the loss of roughly 700,000 jobs as well as a reduction of GDP (Gross Domestic Product) growth by .6%.

Depending on which channel you tune into, you will hear that one party or the other is to blame for how negotiations turned out. One thing is for certain; both sides had nearly two years to come up with a plan to make spending cuts in areas that are expendable. Unfortunately, as has been the case in recent times, a compromise was not reached.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Is Inflation Really That Bad?

When listening or watching commentary relating to finance, you are bound to hear tidbits on inflation and whether or not it is rising or stable. When inflation is discussed, it is certainly with a negative connotation, however is inflation as bad as analysts want us to believe?

Inflation, by definition, is the rise in prices of goods and services and/or fall in purchasing power. Generally speaking, inflation can be caused by an increase in money supply (which devalues currency) or an increase in aggregate demand (assuming demand is greater than supply) which will drive prices of goods higher. These are not the only causes; however they are considered the most prevalent reasons for inflation in an economy.

Inflation caused by an increase in money supply may be harmful to purchasing power in the long run since it is decreasing the value of one’s assets. In recent years, inflation levels have been steady, however with the increase in money supply caused by Federal Reserve bond purchasing of agency mortgage backed securities at a rate of $85 billion/month, it would be prudent to keep an eye on whether or not it will cause inflation to increase at a level that becomes malevolent to your savings.

On the other hand, inflation caused by an increase in aggregate demand is not necessarily a bad thing. Granted, the prices of goods will increase, however no economist will argue that high consumer demand is a bad thing. In fact, history shows us that a fall in demand, which may lead to deflation or a fall in the price of goods, is much more harmful to an economy that is based upon the purchasing of goods to sustain itself.

Economists agree that a moderate level of inflation caused by higher demand is good for economic growth. Problems may arise when inflation levels get too high, this may affect you since the purchasing power of your savings is eroding at a more rapid pace.

If you are concerned about the value of your retirement assets and whether or not they will last or be enough for you in the future, please contact Mitlin Financial for a free consultation.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Five Benefits of Having a Financial Plan

Having a financial plan is beneficial for all who wish to organize their finances and make sure that their investments, insurance and estate planning are tied hand in hand with their long term goals. We have outlined five reasons why a plan may bring stability to your financial situation.

Many investors may have a sizable portfolio due to quality decisions made in the past. However, without a financial plan, they may not know if their current asset allocation is in line with their long term financial goals. A plan will help determine based on age, capital needs and risk tolerance how one’s portfolio should be allocated. A conservative investor who is 2 years from retirement may want to allocate more of his/her money to fixed income and other money market instruments while someone who is 30 years from retirement may want to be weighted more heavily in equities. While these two cases may be the extremes, they both could receive significant assistance by having a financial plan in place. The plan will help outline how their assets should be invested and how much capital they will need in retirement to live the lifestyle they expect. Putting a plan together is not where it ends. You must make sure that it is executed and reviewed annually.

Insurance is a major part of financial planning that can protect one’s assets in case of disability, old age and even death. Many times, one may purchase Life, Disability, or Long Term Care insurance without knowing exactly how much is needed to protect themselves and their loved ones. A financial plan will give an accurate determination of how much insurance is necessary to ensure financial stability. Without adequate protection, assets can dwindle very quickly due to disability, home care assistance (whether it be for themselves or a parent), or die. While most may have life insurance, few have explored the benefits of long term care and disability insurance. The cost of not working in case of disability, and elderly care without LTC insurance can be devastating to your retirement nest egg.

Estate Planning
Now that you have been disciplined financially throughout your life, it is essential to make sure that it does not go places you do not wish it to go due to poor estate planning. A financial plan will help determine if your estate is currently in line to be handled properly. Through the planning process the wishes for your estate will be explored. You will then need to see if the estate planning you have done in the past, or you have yet to embark upon is going accomplish what you wish. A plan will make sure your estate will be handled the way you would like it to be and assets are passed on to those you wish to receive them.

Debt Management
A financial plan is also beneficial for those who wish to manage their debt and outline a way to pay off liabilities while coming up with realistic retirement goals. Without plugging in the numbers, one cannot determine if tools such as debt consolidation or refinancing can benefit them. Having a plan will help someone realize whether or not their current debt management techniques are as efficient as they can be.

Peace of Mind
Perhaps the most important reason for investing in a financial plan is the peace of mind that follows. Having a blueprint gives someone a path to follow in order to reach their financial destination. Without knowing which roads to travel in order to reach one’s financial goals, it can be very easy to stray off course which can delay retirement or put you on the path to chronic financial instability.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

What Is The Debt Ceiling?

During the fourth quarter of 2012, investors became preoccupied with fiscal cliff negotiations and how they would personally be taxed going forward. Now that an agreement has been reached, investor’s attention will soon be focused on the impending debt ceiling discussion in Washington that will commence shortly.

The debt ceiling is the legal limit on borrowing by the federal government. The limit includes debt owed to the public (US bond purchasers) and debt that is owed to government trust funds (i.e. Medicare and Social Security). Raising the debt ceiling is essential to paying off obligations that have already been approved by Congress. The debate between Republicans and Democrats is whether or not we should continue to increase the amount of legal debt in the U.S. which has skyrocketed in the last ten years under both party’s leadership. This has all transpired without finding a way to fix the large deficits that have accumulated annually.

By increasing the amount of debt held, the United States runs the risk of having their credit rating downgraded, which would mean domestic and foreign investors would demand higher interest rates for buying Treasury securities. The higher interest rates would put the country even deeper in debt and force the United States to come up with unfavorable ways of paying investors back.

In order to keep the value of the U.S. dollar strong and make our Treasury securities attractive to investors, Washington will need to eventually curb spending on both sides of the political spectrum. Although investor’s do not appear as tense with debt ceiling negotiations in 2013 compared to talks in the summer of 2011, it is a debate that should be monitored closely.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Estate Planning

Estate planning is an important financial planning tool that can ensure your assets are directed properly after death in the manner that you wish. An estate plan may include a will, power of attorney, health-care proxy, living will and/or a trust.

A will is used in estate planning to name one or more people as the executor of the decedent’s estate and specifies the transfer of property. Naming an executor is important because if you do not have a will that clearly states who you would like to administer your estate, the probate court will appoint an executor for you.

Establishing a power of attorney is essential in estate planning. A power of attorney nominates a person to make financial and legal decisions on behalf of someone else. In times of declining health, one may not be able to make rational decisions on their own, therefore it is imperative to name a trusted family member or friend as power of attorney.

In recent years, health-care proxies and living wills have been featured prominently in estate plans. A health care-proxy designates another person to make decisions on your medical treatment if you are not able to do so, while a living will is a set of instructions that outlines what actions should be taken for one’s health if they cannot make these decisions on their own due to illness.

Although there are many variations of trusts, the two main types are revocable and irrevocable trusts. A revocable trust allows the grantor to alter the trust at any time until death. It is used in case one has second thoughts about the provisions of the trust and may want to change certain terms in the future. It is considered part of the grantor’s estate and is subject to estate taxes. Once the grantor passes away, a revocable trust becomes irrevocable.

On the other hand, an irrevocable trust cannot be changed once established without the consent of the beneficiary. The grantor essentially transfers ownership of the assets to the trust, which may be an effective tool to lower the grantor’s estate tax liability.

If you do not have an estate plan or are worried that your current plan may need to be updated, please call Mitlin Financial Inc.


Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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