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The Advisory Firm Newsletter:  October 2012

THIS MONTH IN PERSONAL FINANCE: State tax breaks for Retirees & Brushing up on your Monetary and Fiscal jargon in time for the Elections.


This month we dive into the Georgia House Bill 1055 that was implemented in 2010. The bill gives some nice tax perks to retirees to entice them to move to or stay in Georgia. For all those that receive this newsletter in other parts of the country, I am not ignoring you and and have put a link so that you can check on your State's tax breaks as well. Also, just for fun we will also define some basic economic terminology to get you ready for your political discussions around the office.


State of Georgia tax breaks for Retirees:

Back in 2010 the State of Georgia passed House Bill 1055 that gives some nice tax perks to retirees. This was of course in an effort to compete with the surrounding tax friendly states here in the South.

The tax break specifically exempts a certain amount of "retirement" income from state taxes (which are 6%). How does the state define retirement income? Here is what is included: IRA distributions, Interest, Dividends, rent & royalty income, Capital gains, pensions and annuities.

Below is a quick rundown of the ages and specific tax break:

Age 62 to 64:

For you early retirees, the state exempts the first $35,000 of retirement income.

Age 65 and up:

For those age 65 and up the tax breaks get a whole lot better. Here is the rundown:

  • 2012 : $65,000 of retirement income is exempt
  • 2013 : $100,000 of retirement income is exempt
  • 2014 : $150,000 of retirement income is exempt
  • 2015 : $200,000 of retirement income is exempt
  • 2016: all retirement income exempt from state income tax

What about Social Security?:

The State of Georgia does not tax Social Security benefits.

Is there any other perks?:

Glad you asked, yes and it comes in the form of property taxes as levied by each county. For you retirees the tax breaks just keep coming. Many metro counties will exempt the "school tax" portion of your property taxes which can save you on average about $1000/annually. (using average home values)

Here is a sample list:

  • Forsyth: age 65 and over exempt
  • Cobb: age 62 and over exempt
  • Fulton: age 65 exempt if under $30k in income
  • Gwinnett: age 65 exempt if under $25k in income
  • Cherokee: age 62 and over exempt


How about perks for us readers in other states?:

Kiplinger magazine has an interactive online map so that you can look at the retiree tax perks in each state: Click Here




GDP, Monetary Stimulus, Leading Indicators?

There is a lot of economic jargon out there as we lead up to the election. To keep you informed and ready to debate your co-workers or golf buddies, here is a quick primer on what it all means:

GDP: Gross Domestic Product, is the total market value of goods and services we produce in this country. (reported on a quarterly basis) This is a number that everyone looks at as the overall health of the economy. Unfortunately it is a lagging indicator as we don't find out we are in or out of a recession until several quarters later. (technically 2 consecutive quarters of declining GDP is a recession). GDP = Consumption + Investment + Gov Purchases + (exports - imports).

CPI: Consumer Price Index, which is the measure of average prices paid for a fixed basket of goods and services. (since you asked here is the "basket": housing, transportation, food, medical, recreation, education, apparel and other)

The change in the CPI is how the inflation rate is calculated. The inflation rate is then used to determine cost of living increases in social security benefits and some pension plans.

Monetary Tools: The Federal Reserve has several monetary tools at their disposal to smooth out economic ups and downs. Their official mandate is to promote price stability (low inflation) and full employment.

Fed Monetary Tools:

- Discount Rate, also known as the Fed Funds Rate. They can raise or lower this to try and slow down or accelerate the economy.

- Reserve Requirement: this is the % of deposits that the Fed makes banks keep in reserve. In a fractional banking system banks are only required to hold a small percentage of assets and can loan out the rest.

- Open Market Operations: The Fed buying and selling securities (treasuries) with banks.

Fiscal Policy:

Fiscal Policy: this is the governments role in the economy. They do this with spending and revenue legislation. A quick summary of Fiscal Policy goals:

- influence level of economic activity and Aggregate demand

- redistribution of wealth and income (not a political statement, simply part of the definition)

- allocating resources among sectors in economy

The government does this through payments such as SS and Unemployement and also through Government purchases of goods and services. On the revenue side fiscal policy is directed toward direct taxes (income, cap gain, estate) and indirect taxes (sales, excise, etc).

And lastly Employment. Full employment does not mean "0" unemployment. The Fed looks at 3 types of unemployment: Frictional, Structural and Cyclical. There will always be frictional and structural unemployment. These involve normal people entering and leaving the workforce and long run changes in economy due to technology advancements or international trade. It is the cyclical unemployment that the Fed and Politicians worry about.


Investing in Cycles:

Now that we just discussed a bit of Economics, if you are really good at predicting business cycles here would be the typical portfolio changes you would make for the different phases:

Expecting an increase in Demand (growth phase of business cycle):

- increase: cyclical stocks, commodities and high yield bonds

- decrease: long maturity government bonds

Expecting a decrease in Demand (recession phase of business cycle):

- increase: defensive stocks, Investment Grade and Gov Bond and longer maturity bond

- decrease: cyclical stocks, high yield bond, commodities

Expecting Stagflation:

- increase: commodity

- decrease: everything else....


I hope you enjoyed the newsletter. If you have any questions about planning or investing feel free to drop me an email:

James A. Daniel, CFP


© 2011 The Advisory Firm. All Rights Reserved.


The Advisory Firm, LLC provides fee-only financial planning services for clients throughout metro Atlanta and North Georgia including the communities
of Alpharetta, Canton, Cumming, Dawsonville, Duluth, Dunwoody, Marietta, Midtown, Roswell, and Woodstock.

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation
for financial services. Consult with your financial professional if you have any questions. The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.