Canon Capital in the Community

 

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Indian Creek Foundation 2015 Roll and Stroll

Our very own Amanda Spengler, CPA, joined 500 other participants on June 20, 2015 in the 24th Annual Indian Creek Foundation Roll & Stroll, a bike/run/walk event. The largest of Indian Creek Foundation’s fundraisers, the proceeds help further their mission of providing services for children and adults with intellectual and developmental disabilities. Thanks for representing Canon Capital, Amanda!

 

MatthewWitter

Matthew Witter Named to Board of Pregnancy Resource Clinic of North Penn

Matthew Witter, an Investment Advisor in our Wealth Management unit, recently joined the board of the Pregnancy Resource Clinic of North Penn.

 

New Trustees Reports Show Continuing Financial Challenges for Social Security and Medicare

Every year, the Trustees of the Social Security and Medicare trust funds release reports to Congress on the current financial condition and projected financial outlook of these programs. The 2015 reports, released on July 22, 2015, show that, despite some encouraging signs, both programs continue to face financial challenges that should be addressed as soon as possible, with the Disability Insurance Trust Fund needing the most urgent attention.

What are the Social Security trust funds?
The Social Security program consists of two parts. Retired workers, their families, and survivors of workers receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program. The combined programs are referred to as OASDI. Each program has a financial account (a trust fund) that holds the Social Security payroll taxes that are collected to pay Social Security benefits. Other income (reimbursements from the General Fund of the Treasury and income tax revenue from benefit taxation) is also deposited in these accounts. Money that is not needed in the current year to pay benefits and administrative costs is invested (by law) in special Treasury bonds that are guaranteed by the U.S. government and earn interest. As a result, the Social Security trust funds have built up reserves that can be used to cover benefit obligations if payroll tax income is insufficient to pay full benefits.

(Note that the Trustees provide certain projections based on the combined OASI and DI (OASDI) trust funds. However, these projections are theoretical, because the trusts are separate, and one program’s taxes and reserves cannot be used to fund the other program.)

Trustees report highlights: Social Security

  • The combined trust fund reserves (OASDI) are still increasing and will continue to do so through 2019 (asset reserves increased by $25 billion in 2014, with year-end reserves totalling $2.8 trillion). Not until 2020, when annual program costs are projected to exceed total income, will the U.S. Treasury need to start withdrawing from the reserves to help pay benefits. Absent congressional action, the combined trust fund reserves will be depleted in 2034, one year later than projected in last year’s report.
  • Once the combined trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 79% of scheduled benefits in 2034, with the percentage falling gradually to 73% by 2089. This means that 20 years from now, if no changes are made, beneficiaries could receive a benefit that is about 20% less than expected.
  • The OASI Trust Fund, when considered separately, is projected to be depleted in 2035 (one year later than projected in last year’s report). At that time, payroll tax revenue alone would be sufficient to pay 77% of scheduled OASI benefits.
  • The DI Trust Fund is in worse shape and will be depleted in late 2016 (the same as projected last year). The Trustees noted that the DI Trust Fund “now faces an urgent threat of reserve depletion, requiring prompt corrective action by lawmakers if suddent reductions or interruptions in benefit payments are to be avoided.” Once the DI Trust Fund is depleted, payroll tax revenue alone would be sufficient to pay just 81% of scheduled benefits.
  • Based on the “intermediate” assumptions in this year’s Trustee’s report, the Social Security Administration is projecting that there will be no cost-of-living adjustment (COLA) for calendar year 2016.

What are the Medicare trust funds?
There are two Medicare trust funds. The Hospital Insurance (HI) Trust Fund pays for inpatient and hospital care (Medicare Part A costs). The Supplementary Medical Insurance (SMI) Trust Fund comprises two separate accounts, one covering Medicare Part B (which helps pay for physician and outpatient costs) and one covering Medicare Part D (which helps cover the prescription drug benefit).

Trustees report highlights: Medicare

  • Annual costs for the Medicare program have exceeded tax income annually since 2008, and will continue to do so this year and next, before turning positive for four years (2017-2020) and then turning negative again in 2021.
  • The HI Trust Fund is projected to be depleted in 2030 (unchanged from last year, but with an improved long-term outlook from last year’s report). Once the HI Trust Fund is depleted, tax and premium income would still cover 86% of program costs under current law. The Centers for Medicare & Medicaid Services (CMS) has noted that, under this year’s projection, the HI Trust Fund will remain solvent 13 years longer than the Trustees predicted in 2009, before passage of the Affordable Care Act.
  • Due to increasing costs, a Part B premium increase is likely in 2016. However, about 70% of Medicare beneficiaries will escape the increase because of a so-called “hold harmless” provision in the law that prohibits a premium increase for certain beneficiaries if there is no corresponding cost-of-living increase in Social Security benefits. If there is no COLA for 2016, the increased costs may be passed alng only to the remaining 30% not eligible for this hold-harmless provision – generally, new enrollees, wealthier beneficiaries, and those who choose not to have their premiums deducted from their Social Security benefit. If so, these individuals could see the base premium rise to $159.30 in 2016, up sharply from $104.90 in 2015.

Why are Social Security and Medicare facing financial challenges?
Social Security and Medicare accounted for 42% of federal program expenditures in fiscal year 2014. These programs are funded primarily through the collection of payroll taxes. Partly because of demographics and partly because of economic factors, fewer workers are paying into Social Security and Medicare than in the past, resulting in decreasing income from the payroll tax. The strain on ths trust funds is also worsening as large numbers of baby boomers reach retirement age, Americans live longer, and health-care costs rise.

What is being done to address these challenges?
Both reports urge Congress to address the financial challenges facing these programs in the near future, so that solutions will be less drastic and may be implemented gradually, lessening the impact on the public. As the Social Security Board of Trustees report states, “Social Security’s and Medicare’s projected long-range costs are not sustainable with currently scheduled financing and will require legislative action to avoid disruptive consequences for beneficiaries and taxpayers.”

Some long-term Social Security reform proposals on the table are:

  • Raising the current Social Security payroll tax rate (according to this year’s report, an immediate and permanent payroll tax increase of 2.62 percentage points would be necessary to address the revenue shortfall)
  • Raising the ceiling on wages currently subject to Social Security payroll taxes ($118,500 in 2015)
  • Raising the full retirement age beyond the currently scheduled age of 67 (for anyone born in 1960 or later)
  • Reducing future benefits, especially for wealthier beneficiaries
  • Changing the benefit formula that is used to calculate benefits
  • Changing how the annual cost-of-living adjustment for benefits is calculated

Regardless of the long-term solutions, Congress needs to act quickly to address the DI program’s imminent reserve depletion. According to this year’s report, in the short term, lawmakers may reaollocate the payroll tax rate between OASI and DI (as they did in 1994). However, this may only serve to delay DI and OASI reforms.

You can view a combined summary of the 2015 Social Security and Medicare Trustees reports here, where you can also access a full copy of the Social Security report. You can find the full Medicare report here.

Our Wealth Management team is glad to answer any questions you may have about these reports. Call 215-723-4881 or contact us here.

 

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable – we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communications Solutions, Inc. Copyright 2015

 

Save with a Cash Balance Plan

Are you a business owner paying too much in taxes?

With year-end approaching, here’s a great way to save.

You’re in one of the highest tax brackets and already maxing out 401(k) and HSA contributions. You may even be making non-deductible IRA contributions to squeeze out a little more tax-deferred benefit. What if you’ve run out of options to shelter taxes, but you can afford to sock away more than your 401(k) plan allows every year?

Cash Balance Plan to the Rescue

A cash balance plan may be the perfect fit for you. It is ideal for business owners who: are 35 years of age or older, have 0-25 employees, already have a 401(k) profit sharing plan with the new comparability feature, and can afford to contribute more than $50,000 annually. A cash balance plan has a flexible benefit design and allows owners to potentially contribute substantial amounts of earned income with lower and more controlled costs to employees. Contributions reduce ordinary income taxes dollar for dollar, which means the effects of compound interest in a cash balance plan are nothing to walk away from.

For example, if a 45-year-old business owner contributed $150,000 in 2015 and it grows 5% per year for 20 years, it would be worth $397,995 when he/she is ready to retire at age 65. Not to mention the fact that a business owner in the 33% tax bracket would have saved approximately $50,000 in federal income taxes. The future value would be significantly less if the original amount was invested with after-tax dollars and taxes were paid on earnings every year.

Why Now?

Many business owners pay themselves a lower salary during the year and are looking for ways to shelter taxes on large bonus payouts before year-end. The fall season typically brings these planning questions to light since owners are getting the general feel for their year-end projections.

Why Canon Capital?

We act as your fiduciary, which means that we have a legal obligation to act in your best interests. We have the ability to work with the most reputable plan administrators in the industry. The implementation costs and recurring annual costs are typically far less than the amount of federal taxes saved every year, which makes the cash balance plan very attractive as a wealth accumulation tool. We will customize a model targeting up to 6% per year based on your risk and return objectives. The platforms that we use have access to thousands of investment choices, and our role is to narrow down the choices and invest the monies for you. The account grows annually in two ways: 1) contributions and 2) interest credits, which are guaranteed. It’s an effective way to accelerate retirement savings, and worst case scenario — if the plan terminates prematurely — each participant can roll their balance into an IRA and manage it themselves or have it professionally managed.

It’s easy to get started. Feel free to give us a call today at 215-723-4881 and ask to speak with one of our investment advisors. We look forward to the opportunity to work with you!

 

Memorial Day Holiday Observance

Canon Capital’s offices will be closed in observance of Memorial Day on Monday, May 30th. Our regular business hours will resume on Tuesday, May 31st.

We wish you a safe and happy holiday!

Canon Capital Wealth Management Welcomes Bradley Barnhorst, CFA

We are pleased to announce that Bradley Barnhorst, CFA, has joined Canon Capital’s Wealth Management group as Investment Committee Counsel. Brad’s expertise and experience – particularly in the area of investment and portfolio risk and volatility reduction — will enhance our ability to offer favorable investment solutions to our clients.

Before joining Canon Capital, Brad worked on Wall Street as an Associate Director with Bear, Stearns & Co., where he specialized in structured equity products and derivatives geared to mitigating investment risk. He is a recognized expert in investment portfolio risk and volatility reduction, with numerous published works in both scholarly and professional journals.

Brad also serves as the Chair of the Finance Major program for both the undergraduate and graduate divisions at DeSales University, a position he will retain along with his professor duties. Brad’s passion for research has led to the publishing of his finance-related work in both scholarly and professional journals.

Brad holds the Chartered Financial Analyst (CFA) designation and is a member of the CFA Institute, the Northeastern Association of Business, Economics, and Technology (NABET) where he serves on the Executive Board as Recording Secretary and the New York Society of Security Analysts.

Brad earned a Bachelor of Arts in Computer Science from Harvard University and a Master of Business Administration (MBA) with a concentration in Corporate Finance and Investment Management from Penn State University. Brad lives in Bath, PA with his wife and two daughters.

Canon Capital Wealth Management serves individuals, retirement plans, trustees, and institutions. If you or someone you know would like to find out more about the benefits of a relationship with our Wealth Management group, we encourage you to contact us.

Canon Capital Wealth Management Presents: Best Year-End Tax Strategies and Tips – A Financial Literacy Seminar

You are cordially invited to attend our fourth Financial Literacy seminar of the year on Thursday, November 10, 2016, from 3:00 to 4:00 pm eastern time at our Hatfield location. We’ve saved the best for last – this final Financial Literacy seminar of the year will cover Best Year-End Tax Strategies and Tips. This seminar will once again take place at our Hatfield location from 3:00-4:00 pm.

This seminar is geared toward individuals who wish to learn about and make use of tax savings strategies for the current year.

During this seminar, you’ll learn:

• Strategies to minimize taxes for the 2016 calendar year
• Tax law changes affecting 2016 returns
• Possible changes based on political party taxation policies

We expect this event will be both educational and informative so please feel free to bring a relative or friend who might benefit from the topic. Refreshments will be available.

Please RSVP by Monday, November 7, to Jen Norman via email, or by phone at 215-723-4881, ext. 207, to let us know that you would like to attend.

We look forward to seeing you at the event!