DOLLARS AND SEN$E: How the fiscal-cliff impacts you

BY CHRIS HANLY
Investment Consultant, Gary Goldberg Financial Services

A lot has been written about the looming fiscal-cliff and its expected impact on our economy and the stock market, but what does it all mean to the average American?

First let’s start with explaining that it’s not as much a “cliff” as a “mudslide”. The fiscal-cliff refers to the mandatory spending cuts and tax hikes the Federal Government will initiate on January 1st. However, it’s important to note that if no political compromise occurs between now and January 1, 2013 Americans won’t wake up with the country in a deep recession, nor will they face greater financial strains, at least not immediately. Rather, the “cliff” will slowly and surely start impacting peoples’ lives as monthly bills start coming in.

This is what is likely to happen to the “average” American family of four, whose household income is $80,000.

•         With the payroll tax holiday expiring, expect to see a $133 monthly reduction in net pay    (increased FICA taxes, not income taxes).

•         Income taxes would also rise, according to the Congressional Budget Office, by about $3,500 ($292 per month) for this family.

•         Healthcare costs will rise for most. Using the plan my employer, Gary Goldberg Financial Services, provides for our employees; expect to see a rise of $145 per month in premiums.

In addition to the above $570 of additional monthly costs, this family will also feel the impact of other cuts and tax increases. Looming cuts in education funding are likely to raise tuitions for State and Community College students across the country. Unemployed Americans will face further hardships as “emergency” unemployment benefits are set to expire. And, although Social Security and Medicare benefits will remain largely untouched, many seniors will be impacted by higher taxes on dividend income and capital gains, as well as cuts in Medicaid.

The fiscal “mudslide” as I prefer to call it will be messy and uneven, and will likely impact every American. However, there are solutions and compromises possible that will greatly ease the impact of this. Moreover, addressing our budget deficits and climbing national debt will improve America’s fiscal health, and could put this great nation back on the path to prosperity. From an investment perspective, these and other events will make it critical to use caution and receive expert advice to navigate what are likely to be very rough waters in 2013.

Christopher Hanly is an investment consultant with Gary Goldberg Financial Services in Suffern and can be reached at (845) 368-2900 ext. 247 or chris.hanly@garygoldberg.com.