Hard Choices - Tackling the National Debt

“Hard Choices- Tackling the National Debt”

President Obama appointed a bipartisan National Commission on Fiscal Responsibility and Reform with instructions to develop recommendations to balance the budget, excluding interest on the national debt, by the year 2015. That commission issued its preliminary report earlier this month and what is painfully obvious is that there are no painless solutions. Proposals include:
• Raising the age of full Social Security eligibility from sixty-six to age sixty-eight by 2050 and sixty-nine by 2075.
• Cutting defense spending by $100 billion.
• Eliminating interest deductions on mortgages over $500,000.
• Limiting future Medicare benefits.
• Slashing the federal workforce by ten percent.
• Eliminating $3 billion in federal farm subsidies.
• Making more workers subject to income taxes while reducing the number of tax brackets to three: 9%, 15%, and 24%.
• Increase the gas tax by fifteen cents.
• Tax dividends and capital gains as ordinary income.

Just how big is the problem? Our national debt is currently $13.7 trillion and climbing at a pace of $1.3 trillion per year. Of the $3.5 trillion our federal government spends each year, more than 60% goes to Medicare/Medicaid benefits, Social Security benefits and defense spending. An additional 12% goes to welfare programs; 5% goes for interest on the national debt and another 5% for government pension payments. The total of all these items is more than 80%. I think you can see where this is headed. You are not going to solve this problem without significant cuts to many programs for which many Americans now feel that they are entitled.

I recently returned from a vacation in France where citizens held violent protests over the government’s plan to raise the minimum retirement age from sixty to sixty-two. How are American’s going to react to the massive cuts that will be required to solve the growing crisis of our growing national debt? You can bet it’s not going to be a celebration. The final decision will be made by a relatively small group of career politicians, most of whom have never had to meet a payroll and who have voted special benefits for themselves. They have their own pension plan versus Social Security and their own health insurance plan versus the one they want us to accept. Unfortunately, many career politicians see their primary job is to get re-elected. How do you get re-elected? You need to be popular with the voters. What makes you popular with the voters? You become popular by giving stuff away, not taking it away. My best guess is that, collectively, they lack the will and courage to make these difficult decisions until they are faced with a crisis that demands action.

We all know something must be done to solve our national debt problem before it turns into a disaster. Too often we want our congressional representatives to do what is necessary as long as it doesn’t affect our wallets. We too, need to muster the courage and be willing to make financial sacrifices while holding the politicians’ feet to the fire for the way they manage our money. It’s a job that must be done and the time is now.

Stewart Welch: Protecting Your Assets - Part 1

Protecting Your Assets from Lawsuit - Part 1 - Stewart Welch III

There is a litigation crisis in America where the mantra is, “Sue everybody and we’ll sort it out later’. It is estimated that there are over 1 million lawyers in America…one for every 300 citizens. So what are the chances of you getting sued sometime during your lifetime? Turns out they’re pretty good. In fact, some research suggests that you’ll be involved in an average of five lawsuits during your lifetime. So if we can agree that there is at least a risk of you getting sued, wouldn’t it make sense to develop an asset protection strategy?

Over the next few weeks, I’ll cover a wide range of strategies that discusses lifestyle; insurance; titling of property; trusts; and estate documents.

Monitor your lifestyle. At the most basic level, your lifestyle can either minimize or elevate your risks of a lawsuit. Some of the obvious things would include not drinking and driving; observing the speed limits; securing a fence around your pool; etc. For example, research proves that talking on the phone while driving is the equivalent of driving while slightly intoxicated. Driving while texting on your phone is the equivalent of driving while drunk. I was recently sitting at a red light when a young lady whose attention was momentarily diverted scraped my bumper. No one was hurt but the damage to my scraped bumper was still $1200 and the costs of repairing her car, I suspect, was much more.
To Do: Take a moment to think about how you could reduce lawsuit risks related to your lifestyle.

Insurance as your first line of defense. A number of years ago, a client and his family were driving to the airport in Denver, Colorado after a week of snow skiing. It was a beautiful sunny day with clear roads. Suddenly, he hit a patch of ice and his car slid into the oncoming lane. Fortunately, he and his family had buckled up and were not injured. Unfortunately, the two young ladies in the other car had not buckled up and both came through the windshield causing severe facial lacerations. They sued and won a judgment in excess of $700,000. If my client’s auto liability coverage had been, say $50,000, where would the young ladies’ attorney gone to satisfy the balance of the judgment? Answer: His personal assets. Fortunately, we had wrapped his auto and homeowners insurance with a $1 million Umbrella Liability policy.

In my experience, most people do not carry umbrella liability coverage, yet it’s perhaps the least expensive and most effective way to shield your assets from lawsuit. An umbrella liability policy typically has a very large deductible, say $300,000 or $500,000, but then covers any liability that arises from an auto or homeowners claim up to $1 million above your deductible. In order to avoid having a ‘gap’ in coverage, you’ll need to make certain that your auto and homeowner’s coverage limits are equal to your umbrella deductible.
To Do: Meet with your property and casualty agent and have him or her add an umbrella liability policy for a minimum of $1 million. This policy often costs less than $300 per year but you may have to increase coverage for your auto and homeowners insurance.