Retirement Intelligence®

What's In Your Portfolio?

2010-02-10T10:17:00.001-05:00

The stock market is unsettled … and perhaps its fluctuations are unsettling you. It’s a stressful time for the economy and Wall Street, and you may be concerned about your portfolio given what’s going on with oil prices, the real estate market, and rising unemployment figures. It may be a good time to review how your assets are invested.

Is your portfolio balanced? A balanced portfolio may help you ride out stock market turbulence. Stocks and mutual funds aren’t the only asset allocation choices you have, and you won’t be alone this winter if you decide to examine other investment options.

Fixed annuities and Treasuries become attractive to investors when the market turns volatile. Bonds tend to maintain their strength when stocks perform poorly; fixed annuities are simply contracts with insurance firms, not correlated to stock market performance (though certain types of annuities may enable you to take advantage of stock market gains while maintaining your principal). Fixed-income mutual funds, dividend income funds and bond funds also have their adherents.

Last but not least, you have cash, though cash holdings haven’t traditionally performed anywhere near the level of the stock markets.

Are you retired, or retiring? If you are, this is all the more reason to review and possibly even revise your portfolio. Frequently, people approach or enter retirement with portfolios that haven’t been reviewed in years. The asset allocation that seemed wise ten years ago may seem foolhardy today.

Often, people in their fifties and sixties feel they need to accumulate more money for retirement, and that feeling leads them to accept more risk in their portfolio than they should. In the absence of a salary, however, you’ll likely want consistent income and growth, and therein lies the appeal of a balanced investment approach designed to manage risk while encouraging an adequate return.

Why not take a look into your portfolio? Ask your financial advisor to assist you. You may find that you have a mix of investments that matches your risk tolerance. Or, your portfolio may need minor or major adjustments. The right balance may help you insulate your assets to a greater degree against financial ups and downs.

Financial New Year's Resolutions

2010-01-03T16:17:00.002-05:00

Okay. It’s that time of year - the time for new year’s resolutions. They can include financial resolutions. Here are some possibilities for 2010.

Control non-mortgage debt. Experian says the average American carries about $17,000 in debt unrelated to home loans. Too much of this is simply credit card debt. So how about paying down, paying off and maybe getting rid of some cards?

How much financial ground can you lose to plastic? Well, if you have a credit card with a $17,000 balance and 10% APR and you pay $200 monthly on it, it will take you 12 years to pay it off.

You may have so-called “good debts” as a consequence of your business or your professional career. Yet ultimately, debt is debt. You can certainly plan to build wealth and control debt at the same time, and why not plan to do both?

Play catch-up if you’re older than 50. All of us over 50 have the chance to make a catch-up contribution to our IRAs and 401(k)s. If you have a 401(k), you can defer up to $22,000 of your 2010 salary into it if you’re over 50 (an extra $5,500 above the usual limit). You also have the chance to contribute an extra $1,000 to your IRA (or among multiple IRAs if you have more than one). And if you’ve got an IRA, there’s no point in waiting until April 15, 2011 to make your 2010 contribution – if you wait that long, you’ll potentially lose 15 months of interest.

Look into the possibility of a Roth IRA conversion. 2010 presents investors with a prime opportunity to convert traditional IRAs into Roths. The IRS has removed the income limitations on Roth conversions this year, and it will let you spread the taxes due on a 2010 Roth conversion across 2011 and 2012. However, you should definitely talk to a tax professional before you make this move. As income tax rates could be raised for 2011 or 2012, you may want to take the tax hit on a Roth conversion in 2010 instead.

Keep important documents where you can access them. Tax returns, wills, trust documents, deeds, insurance policies – you don’t want to have to hunt for this stuff, and neither should your heirs in a crisis. You may not want to keep these documents out in the open, but you should know where they are. Resolve to put them all together in a central place in 2010. Another option: you may want to store copies online. Some financial advisors offer their clients firewall-protected, password-only “web vaults” for this purpose, so you can take a look at these items away from home if needed.

Understand how your portfolio assets are allocated. A new FINRA survey finds that 79% of Americans regularly contribute to retirement savings plans. That’s the good news. The bad news? About a fifth of those people had no idea how those assets were invested.

When stocks do well, it is easy to become less vigilant about your investments. It is also easy for your portfolio to get out of whack and become over weighted in this or that asset class. So the first part of 2010 is a very good time to check in with your financial advisor. After all the volatility in the market the last couple of years, it is prudent to review your investments and see if your portfolio needs rebalancing to bring it back in line with your risk tolerance and investment horizon.

More people abide by financial resolutions than you might think. In late 2009, Fidelity surveyed a group of about 1,000 Americans and found that 60% of them had kept financial resolutions they made at the start of the year. So it can be done. Resolve to change your financial habits for the better – and follow through on it.

Dollar Cost Averaging Explained

2009-12-13T19:00:00.003-05:00

Are you investing inconsistently...or not at all? Inconsistent investment can sabotage your retirement savings efforts. There’s a way to avoid that problem: a strategy called Dollar Cost Averaging.

By investing equal dollar amounts on a regular monthly basis, you can plan to build wealth in a way you can afford today.

DCA to the rescue. Many people think they can’t afford to invest – their budgets won’t allow them to do so. DCA makes it easier. Arranging a monthly salary deferral of even $100 into your 401(k), for example, can help you plan to build wealth in a tax-advantaged way.

Remember, you won’t retire on the dollars you put aside today for retirement; you’ll retire on the assets accumulated from those early dollars as a result of investment and compounding. Most retirement accounts feature tax-deferred contributions and tax-deferred growth – why should you wait to take consistent advantage of that?

Look at it this way: you can't make retroactive contributions to a 401(k), so each dollar you didn’t contribute last year is an opportunity you've lost forever. Not to mention the opportunity for tax-deferred growth of those assets.

That’s one compelling reason to adopt the DCA approach.

Additionally, DCA ensures a constant flow of new money into the retirement account. That factor alone may help you exploit current market conditions.

The DCA strategy is designed to lower cost per share. When you practice Dollar Cost Averaging, you buy more shares when prices are low and fewer shares when prices are high. So with time, you end up with a lower overall cost for shares purchased.

In last year’s market downturn, there were some great buys – quality companies whose share prices had fallen to amazing lows. Through DCA, investors had a way to exploit this buying opportunity and pick up more shares. For example, on February 20, 2009, you could have picked up 107 shares of General Electric for $1,000. A year earlier, the same $1K would have bought you 29 shares.

In the downturn, the DCA strategy by no means guaranteed a great return in the future – but it did offer investors a chance to position their assets for the market rebound. And boy, has the market rebounded!

Speaking of market downturns and rebounds, Ibbotson Associates did some research and found that a hypothetical investor who would have invested $100 a month in Wall Street for 30 years starting in September 1929 would have seen that total investment of $36,000 grow into a $411,000 nest egg by September 1959. Yes, the crash of 1929 was an extraordinary circumstance – but didn’t the Great Recession feel pretty extraordinary to you? This is a good argument for DCA for the long-run stock market investor.

The DCA strategy makes sense for many. Right now, many Americans would be hard-pressed to come up with a lump sum of say, $4,000 or $10,000 to invest. DCA allows people to contribute equivalent amounts toward retirement savings a little at a time.

The really great thing about it is how “automatic” it all is. By arranging, say, regular salary deferrals into a employer-sponsored retirement plan or regular monthly contributions to an IRA, you can go out and live your life and simply get that quarterly statement showing your ongoing contributions to the account. It is “off your plate” but never neglected.

Are you saving for the future using a Dollar Cost Averaging method? Talk to a financial advisor today and see how convenient it can be for you. If you have any questions or concerns, please call me toll-free at 1-866-786-2521.

6 Steps To Get Out Of Debt

2009-12-09T09:11:00.002-05:00

Every day, people draw on money they don’t actually have – via credit cards, payday loans, home equity lines of credit, and even their 401(k)s. Many of them end up making minimum payments on these high-interest loans – a sure way to stay indebted forever. If this is your situation, you may be wondering: how do I get out of debt?
Let me give you some ideas.

1) Make a budget. “Where does all the money go?” If you are asking that question, here is where you learn the answer. You might find that you’re spending $80 a month on energy drinks, or $100 a week on lousy movies. Cable, eating out, buying retail – costs like these can really eat at your finances. Set a budget, and you can stop frivolous expenses and redirect the money you save to pay down debt.

2) Get another job. I know, this doesn’t sound like fun. But having more money will aid you to reduce debt more quickly. A family member who isn’t working can work to help reduce a shared family problem.

3) Sell stuff. The Internet has proven that everything is worth something. Go to eBay, craigslist or Kijiji – you’ll be amazed at the market (and the asking prices) for this and that. What people collect, want and buy may surprise you. Don’t be surprised if you have a few hundred dollars – or more – sitting around your house or in your garage. You might be able to pay off a couple of credit cards – or even a loan – with what you sell.

4) Ditch the big car payment and drive a cheaper car that gets good MPG. Say goodbye to the monster SUV (or the overpriced sports coupe). Get a car that makes sense instead of a statement. Your wallet will thank you.

5) Pay off all debts smallest to largest. The benefits are psychological as well as financial. Knock off even a small debt, and you have an accomplishment to build on – encouragement to erase bigger debts. Also, every debt you have incurs its own interest charge. One less debt means one less interest charge you have to pay.

6) Or, pay off your highest-interest debts first. Take a minute to figure out which of your debts hits you with the highest interest rate. Pay the minimum amounts toward each of your other debts, and apply all the extra money you can toward paying off the debt with the highest interest. This will have a cumulative effect. Your highest-interest debt will become smaller, meaning you will be saving some dollars on interest charges on the balance because the balance is lower. If the balance is lower, you should be able to pay off the debt faster. When you say goodbye to that debt, you can start paying down the debt with the next highest interest, and so on.

Keep the real goal in mind. Building wealth, not reducing debt, should be your ultimate objective. Some debt reduction and debt consolidation planners obsess on getting you out of debt, but that is only half the story. Minimizing debt is great, but maximizing wealth is even better.

You can plan to build wealth and reduce debt at the same time. If you have a relationship with a financial advisor, you might be able to do it in the same unified process. Why just keep debt at bay when you can leave it behind? Do yourself a favor and talk with a good financial advisor who can show you ways toward financial freedom.

Money & Your Happiness

2009-11-30T13:49:00.003-05:00

Does money actually buy a degree of happiness? In this recessionary holiday season, it is worth thinking about the effect money has on our lives. What role does money play in your happiness? Is that role overrated?

Most psychologists and sociologists will tell you that our happiness comes largely from social interaction. But studies indicate that there is a direct correlation between wealth and a kind of mental health.

As Pearl Bailey immortally quipped, “Honey, I been poor, and I been rich. And let me tell you, rich is better.” Having a well-paying job, being successful at what you do – these are definite cornerstones of self-esteem and contribute to happiness.

So is Warren Buffett happier than we are? The math is not quite that simple. American wealth grew remarkably in the late 20th century, but surveys found that Americans on average weren’t any happier than they’d been decades before.

A 2002 study by psychologists Edward Diener, Ph.D., and David Myers, Ph.D. documented greater happiness among residents of wealthy countries versus poor countries. But they found that once individuals in both types of nations gained the money to pay for basic creature comforts, happiness did not markedly increase along with wealth thereafter. A second 2002 survey by psychologist Tim Kasser, Ph.D., showed lower personal well-being in individuals who “bought into” messages of materialism and consumerism.

Does spending money make people happy? It depends on the purpose. Perhaps you’ve heard of the “hedonic treadmill” theory, an economic theory which holds that the middle-class and the affluent exhaust themselves and diminish their happiness through endless pursuit of the latest material goods. Americans are proudly competitive, and can’t help but measure their wealth in relation to their friends and neighbors. We have to have more than the next guy.

Does spending money on others make people happy? Yes, according to the results of a study published in March in Science Magazine. Researchers took a sample of 600 Americans. They instructed 46 to spend a $5 or $20 bill on a particular day. Some were told to spend the money on others, and the study found that they were happier at the end of the day than the ones who spent the money on themselves. The study also tracked 16 workers who got profit-sharing bonuses, and observed that employees who gave a majority of their bonus to others ended up happier than those who spent it on themselves. In fact, the main forecaster of happiness was not the size of the bonus, but how it was spent. The Science study also discovered that spending more money on gifts and charity correlated with increased happiness.

Are we ultimately only as happy as we want to be? Perhaps. Researchers now increasingly feel that people have a genetic “baseline” or “set point” of happiness, and deviations from this norm are temporary. In other words, how the stock market does doesn’t rattle our basic level of happiness. Even life-altering tragedies or seeming miracles don’t ultimately budge us much from the norm. (Studies of the brain indicate that people with more activity in their left prefrontal cortexes seem to be happier than some others.)

Recently, University of Virginia psychology professor Jonathan Haidt wrote a classically-rooted book called The Happiness Hypothesis. Haidt observed that within a year of their life-changing experiences, “lottery winners and paraplegics, have both, on average, returned most of the way to their baseline levels of happiness.” He feels that happiness can grow from “vital engagement” with other people and one’s passions, and from a spiritual and moral “coherence” in yourself and your life.

How about some Gross Domestic Happiness (GDH)? No joke: since 1972, the government of Bhutan has dedicated itself to boosting GDH, Gross Domestic Happiness, via a platform of equitable and sustainable economic growth, cultural preservation in the face of the West, good government, and environmentalism. Other nations have studied Bhutan’s example; in fact, conferences have been held on the concept in Bhutan, Mongolia and the Netherlands.

Wishing you a great Christmas and holiday season. May it be warm, wonderful, and bright; may 2010 be a year of great things for you. And may you know great happiness. Let’s vow to retain our optimism through the financial challenges ahead.

Year-End Financial Moves to Think About

2009-11-15T15:51:00.001-05:00

Fall is the time to consider some year-end financial moves – little and not-so-little things you might do to plan to improve your financial position. Before 2009 ends, some things you might want to consider.

You could put more in your 401(k) before they play “Auld Lang Syne”. As you only get one chance to save for retirement and an annual deadline to make retirement plan contributions, you could increase your final retirement plan deferrals of 2009 to the maximum allowed by your plan, assuming your finances permit you to do so. Contributions to traditional IRAs and 401(k)s are usually made with pre-tax dollars and thereby could help you reduce your tax bill.

If you haven’t contributed to your IRA or Roth IRA for 2009, you have until April 15, 2010 to make that move. You can contribute up to $5,000 to an IRA (or spread up to $5,000 of contributions across multiple IRAs) for tax year 2009; those over age 50 may contribute up to $6,000 to their IRAs for 2009. If your modified adjusted gross income (MAGI) is into six figures, this may reduce or even prohibit Roth IRA contributions depending on your filing status.

You could try to harvest some losses. You might want to sell some losers to offset some winners (not every security was a winner this year) and counterbalance capital gains. Keep in mind that if you are in the 10% or 15% federal income tax bracket for 2009, you won’t have to pay capital gains tax – that break extends into the 2010 tax year as well. If you want to sell, sell carefully – you don’t want to generate so much income that you creep into a higher tax bracket.

You could try to pick up some tax credits. Are you thinking about buying a home? The up-to-$8,000 first-time homebuyer credit has been extended to the end of April and complemented by its new variant, the up-to-$6,500 credit for move-up buyers.

Remember, the phase-out limits on that credit just rose – they are now $125,000 for single filers, and $225,000 for joint filers. The home has to have a price tag of $800,000 or less and it must be your primary residence. A first-time homebuyer is defined as someone who hasn’t owned a home within the past three years; a move-up buyer is defined as a buyer who has lived in the same primary residence for a stretch of five consecutive years or longer.

How about some energy credits? If you make your principal residence more energy-efficient or purchase solar hot water heaters, geothermal heat pumps, wind turbines or other qualifying alternative energy equipment to heat or cool your home, you can qualify for a tax credit for up to 30% of the cost of the improvements. There is a maximum tax credit limit to $1,500 for improvements put in service in 2009.

Do you have sons or daughters in college? The Hope Credit has become the American Opportunity Tax Credit, a credit of up to $2,500 toward qualifying college expenses. Phase-outs kick in at $80,000 MAGI for single filers, $160,000 MAGI for joint filers. Additionally, you could contribute a little more to a 529 plan before the year ends.

Prepay some deductible expenses. If you are pretty sure you will be in the same tax bracket or a lower one in 2010, think about making a thirteenth payment on your home loan in 2009 to boost your mortgage interest deduction, or prepaying your property taxes if your financial situation lets you do so.

Spend that FSA money. Do you have a Flexible Savings Account for your healthcare expenses? Think about getting some new glasses or braces, or find some way to use that money – money you might lose after December 31, unless your employer allows you the extended-access option to your 2009 FSA funds (in which case you’ll still have to use them by March 15 of next year).

Sit down with your financial advisor for a portfolio review. See how (well) you’ve done this year. Think about next year, and what you might do as the economic recovery progresses. Discuss some of the different aspects of your financial situation. If you want a better understanding of where you are at financially, this is the chance to gain it.

Losey: House Passes Healthcare Reform Bill

2009-11-10T09:34:00.003-05:00

A narrow victory for the President in one branch of Congress. The Affordable Health Care for America Act (H.R. 3962) passed 220-215 in the House of Representatives on the night of November 7, with 39 Democrats voting no and a lone Republican (Rep. Anh Cao of Louisiana) voting yes. While President Obama lauded passage of the House version of the bill as “historic” and “courageous”, it is still questionable whether any consensus reform bill will land on the President’s desk by the end of 2009.

A tough fight ahead in another. Right now, the Democratic caucus has the 60 votes needed in the Senate to get past a Republican filibuster. However, Sen. Joseph Lieberman (I-Connecticut) says he will readily break away and join the Republican filibuster if the Senate version of the bill includes a public option. Senate Majority Leader Harry Reid (D-NV) says it will.

“The House bill is dead on arrival in the Senate,” in the opinion of Sen. Lindsey Graham (R-SC). In early November, Sen. Reid hinted that the Senate may take until 2010 to resolve the debate over the public option.

What the House approved. H.R. 3692 includes the public option in its effort to revamp and extend health care to more Americans. Under the bill, most Americans would need to have insurance coverage; subsidies would help the poor insure themselves. Medicaid would expand: for example, individuals with incomes of $16,245 or less and a family of four earning $33,075 or less would qualify. About 15 million more Americans would be eligible for Medicaid coverage. Big businesses would have to provide health insurance to their workers; small businesses would get federal subsidies to help them absorb the cost.

H.R. 3692 would create a new nationwide insurance market with private insurers competing with the federal government (the private insurers would be selling coverage that meets federally required benefit levels). Insurance companies have decried the public option, saying there is no way they could compete with Uncle Sam.

A key concession. Before H.R. 3692 was approved in the house, a controversial amendment to the bill was passed 238-194. Introduced by Rep. Bart Stupak (D-MI), Rep. Brad Ellsworth (D-IN) and other Democrats, the amendment would prohibit the use of federal monies for abortion services if the planned health reforms become law, except in cases of rape, incest or if the mother’s life is in danger.

Pro-choice voices are outraged, arguing that the amendment would virtually prohibit private insurance companies entering the new system to offer abortion coverage to women. Rep. Anthony Weiner (D-NY) pointed out to MSNBC that even if someone wants to purchase an insurance policy covering abortion after the proposed reforms, few if any private insurers might offer one. Rev. Patrick J. Mahoney, Director of the Christian Defense Coalition, hailed the amendment “the beginning of the end for Roe v. Wade.”

Little publicized, but notable. One of the provisions of the just-passed House bill would change the IRS treatment of healthcare benefits for same-sex couples. Essentially, these benefits are treated as taxable income today; if the health care reforms envisioned and approved by the House were to become law, those benefits would be provided to gay and lesbian couples tax-free. Rep. Jim McDermott (D-WA) proposed this change to “correct a longstanding injustice, end a blatant inequity in the tax code, and help make health care coverage more affordable for more Americans.” In another unpublicized wrinkle, anyone who owns or operates 20 or more vending machines would have to provide nutritional labels on said machines, and any chain restaurant with more than 20 locations in America would have to provide menu calorie counts.

Progress, or a morass? The House bill certainly faced stiff opposition, and many Capitol Hill watchers are wondering if the legislation will make it through the Senate. A consensus version of the bill might not emerge for weeks or even many months.

Extended Homebuyer Credits and Jobless Benefits

2009-11-08T17:37:00.002-05:00

After unanimous passage in the Senate and a 403-12 passage in the House of Representatives, President Obama signed H.R. 3548 into law on November 6. The bill extends and expands a key tax credit for homebuyers while also offering more help for those out of work.

The $8,000 credit for “first-time” homebuyers continues. This tax break is now extended until May 1, 2010. If you have never owned a home or haven’t owned a home in the previous three years, you are considered a “first-time” buyer and therefore eligible for the credit (it is a credit of up to $8,000, by the way). You must sign your purchase agreement before May 1, 2010 and close the transaction before July 1, 2010 to qualify for this tax break.

The $6,500 tax break for move-up buyers. Okay, maybe you aren’t a “first-time” buyer. You may still qualify for this new real estate credit. Have you lived in your current home for more than five consecutive years? You may be eligible for a credit of up to $6,500 if you move out of that home and buy another. Again, you have to sign your purchase agreement before May 1 and close before July 1 to get the tax break.

Worth noting: BusinessWeek.com contacted Sen. Chris Dodd’s office (the Connecticut lawmaker chairs the Senate Banking Committee) and received word that move-up buyers can qualify for this $6,500 credit even if they have signed a purchase contract prior to November 6, provided the purchase closes before July 1.

Does everyone qualify for these credits? Not quite. They phase out for individuals with adjusted gross incomes of more than $125,000 a year and couples with AGI of more than $225,000 a year. (The old phase-outs respectively kicked in at $75,000 and $150,000. These higher phase-outs mean that the credit can now help an additional segment of the housing market.)

You can’t buy a vacation home and claim one of these credits – they only apply to principal residences. In fact, the home you buy has to have a sale price of $800,000 or lower.

What will this do for the economy? “Every economist will tell you we have to steady the housing market before the economy will turn around,” Sen. Dodd expressed on November 5. “We can't afford to let this tax credit expire now.” Respected Moodys.com economist Mark Zandi agrees, saying that “from a macroeconomic perspective, nothing is more important than stabilizing housing values.” Zandi thinks that the $8,000 credit has led to 400,000 additional home sales in 2009. On the other hand, Dean Baker, the co-director of the Center for Economic and Policy and Research, questions why the extension is necessary: “For the most part, you're just giving people money for something they would have done otherwise.” The Joint Committee on Taxation estimates that extending these credits into 2010 will cost $10.8 billion across the next decade.

An extension of unemployment benefits. H.R. 3548 – sponsored by Rep. James McDermott (D-WA) – additionally extends state jobless benefits by up to 20 weeks. This will happen as a result of another extension – an extension of the federal unemployment tax on employers until June 30, 2011.

If you are one of nearly two million Americans whose jobless benefits are set to run out at the end of 2009, this extension will help you. Your benefits will last at least another 14 weeks into the new year – in fact, they will last for another 20 weeks if you live in a state where the unemployment rate exceeds 8.5%. Have your unemployment checks already stopped? You may reapply for benefits.

A chance for companies to convert losses into cash. What? Really? Yes. There is one provision of the new legislation that many have overlooked: it widens the window of time on the net-operating loss carryback. It lets all businesses apply losses from either 2009 or 2008 to any five years prior to 2008. So business owners, by virtue of the new legislation, have the potential for an IRS refund on the taxes they paid for the five years prior to 2008. There are two asterisks here. One, refunds for taxes in the fifth year of the carry back shrink by 50%. Two, any business that received TARP funds can’t take advantage of this tax break.

Your 2009-2010 Financial To-Do List

2009-10-27T13:37:00.005-04:00

The end of the year is a good time to review your personal finances. What are your financial, business or life priorities for 2010? Try to specify the goals you want to accomplish. Think about the consistent investing, saving or budgeting methods you could use to realize them. Also, consider these year-end moves.

Think about adjusting or timing your income and tax deductions. If you earn a lot of money and have the option of postponing a portion of the taxable income you will make in 2009 until 2010, this decision can bring you some tax savings. You might also consider accelerating payment of deductible expenses if you are close to the line on itemized deductions – another way to potentially save some bucks.

Max out your IRA contribution at the start of 2010. If you can do it, do it early. The sooner you make your contribution, the more interest those assets will earn. For 2010, the contribution limits are unchanged for both traditional and Roth IRAs: $5,000 if you are age 49 and below, $6,000 if you are age 50 and above. Remember that you can still make an IRA contribution for the 2009 tax year through April 15, 2010.

While we’re talking about maxing things out, don’t forget your 401(k), 403(b) or Thrift Savings Plan if you are still working. You can contribute up to $16,500 to these plans in 2010, with a $5,500 catch-up contribution also allowed if you are age 50 or older.

Consider a Roth IRA conversion for 2010. Next year, anyone may convert a Roth IRA. The $100,000 modified adjusted gross income (MAGI) ceiling that often prevented that move will be gone - forever. The MAGI phase-out limits for contributing to Roth IRAs will be $167,000 for joint filers and $105,000 for single filers in 2010, but if your MAGI will exceed those limits, you may still contribute to a traditional IRA in 2010 and immediately roll it over to a Roth.

More good news: if you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns. This nice opportunity won’t be available if you make a Roth conversion in 2011.

Another detail to remember: in 2009, withdrawals from a traditional IRA may be used to fund a Roth IRA. (This relates to the 2009 suspension of Required Minimum Distributions.) So even if you don’t want to convert a traditional IRA to a Roth account, you may still fund a Roth IRA using a withdrawal from a traditional IRA through the end of this year (provided your 2009 MAGI is $100,000 or less).

Be sure to consult a tax or financial advisor before you arrange a Roth conversion or make any IRA moves. You will want see how it may affect your overall financial picture. The tax consequences of a Roth conversion can get sticky if you own multiple traditional IRAs.

Should you take a distribution from your IRA this year? It’s an interesting question. Barring an act of Congress, RMDs will be back for 2010. If you think taxes will be higher next year, you could opt to take a distribution before the end of this year to lower your IRA balance as of the end of 2009. As RMDs are based on an IRA’s value as of Dec. 31 of the previous year, taking a distribution in 2009 will reduce a 2010 RMD.5

If you are age 70½ or older, you may want to make an IRA charitable rollover. It will lower your 2009 IRA balance and your 2010 RMD. The sun is setting on this tax break: the IRA charitable rollover option is currently set to expire at the end of 2009.

You may wish to make a charitable gift before New Year’s Day. If you make a charitable contribution this year, you can claim the deduction on your 2009 return.

You could make December the “13th month”. Can you make a January mortgage payment in December, or make a lump sum payment on your mortgage balance? If you have a fixed-rate mortgage, a lump sum payment can reduce the home loan amount and the total interest paid on the loan by that much more. In a sense, paying down a debt is almost like getting a risk-free return.

Are you marrying next year, or do you know someone who is? The top of 2010 is a good time to review (and possibly change) beneficiaries to your 401(k) or 403(b) account, your IRA, your insurance policy and other assets. You may want to change beneficiaries in your will. It is also wise to take a look at your insurance coverage. If your last name is changing, you will need a new Social Security card. Lastly, assess your debts and the merits of your existing financial plans.

Are you returning from active duty? If so, go ahead and check the status of your credit, and the state of any tax and legal proceedings that might have been preempted by your orders. Review the status of your employee health insurance, and revoke any power of attorney you may have granted to another person.

Don’t delay – get it done. Talk with a qualified financial or tax professional today, so you can focus on being healthy and wealthy in the New Year. As always, if I can help you in any way, please feel free to call me personally at 1-866-786-2521 or visit me online at www.MyRetirementSuccess.com.

Retirement Readiness Survey Results

2009-10-18T14:24:00.003-04:00

What is your gender?
50% - Male
50% - Female

What is your age?
15% - 49 or younger
45% - 50-59
35% - 60-69
5% - 70+

Which word/statement best describes your status?
16% - Retired
17% - Retiring within 12 months
39% - Retiring within 2-9 years
22% - Retiring within 10+ years
6% - I never see myself retiring

Do you have a relationship with a trusted financial advisor?
36% - Yes, and I’m staying with him/her
7% - Yes, but I’ve lost confidence and am seeking a new advisor
21% - No, I’m a do-it-yourselfer and will never work with an advisor
36% - No, but I’d like a relationship with a trusted advisor

My current investment portfolio size (401l, 403b, IRAs, mutual funds, stocks, savings, etc.) is?
37% - Less than 250k
23% - 250k-500k
27% - 500k-1 million
11% - 1 million-2million
2% - Would rather not answer

Which statement best describes your current feelings about your retirement readiness?
9% - I am already retired, loving it, and confident about my finances
7% - I am already retired but very nervous about my finances
57% - I am still working, saving, and confident I’ll be able to retire someday
16% - I am still working and am NOT confident I’ll ever be able to retire
2% - I love my work and have no intention of ever retiring
9% - Other

Losey: No Social Security Increase For 2010!

2009-10-18T09:30:00.003-04:00

SSI will remain flat for the first year since 1975. Social Security benefits are keyed to inflation. So what happens when year-over-year inflation becomes negative? No cost-of-living adjustment (COLA) occurs to increase your Social Security income. On October 15, the Social Security Administration announced that there would be no COLA for 2010. (The 2009 SSI COLA was 5.8%, the largest boost since 1992.)

“What do you mean, negative inflation?” That’s the question some SSI recipients are asking. Aren’t prices seemingly going up at the grocery store every day – and going up everywhere else?

Unfortunately, the federal government doesn’t measure consumer inflation with a price check on aisle six. It uses the Consumer Price Index (CPI), which is really an estimation of the average prices of consumer products we buy. There is also core CPI, which excludes food and energy costs.

From September 2008 to September 2009, overall CPI fell by 1.3%. Across that span, overall food prices actually fell 0.2% and prices on dairy products and fruits and vegetables respectively dropped 9.5% and 6.4%. Food prices only account for about a seventh of CPI, and rents actually constitute about 40% of the “prices” measured by core CPI. In September, rents fell in the United States for the first time since 1992. (We also have a decline in retail gasoline prices from last fall to this fall.)

With year-over-year inflation negative, the SSA has no logical reason for a COLA. Yet roughly two-thirds of America’s seniors live on less than $20,000 a year, some entirely on SSI.

Another stimulus check? President Obama is urging Congress to authorize one-time $250 stimulus payments to Social Security and Supplemental Security income recipients, veterans, railroad retirees and government retirees. That $250 would equal about 2% of the average annual SSI benefit for a retiree. These checks would be mailed sometime in 2010 to about 57 million people. Recipients could not qualify for multiple checks.

Retirement plan contribution limits will stay the same. These are also inflation-indexed. On October 15, the Internal Revenue Service chimed in with a statement that 401(k) contribution limits will remain at $16,500 for 2010. The maximum contribution limits for other types of defined-contribution and defined-benefit retirement plans will also remain the same for 2010.

While we’re referencing the IRS, some other important figures aren’t changing next year. The standard deduction will remain at $11,400 and $5,700 for joint and single filers; it will go up $50 to $8,400 next year for heads of household. The yearly gift tax exclusion will stay at $13,000 for 2010, and the value of a personal exemption will remain at $3,650.

No COLA … but more purchasing power? A former deputy Social Security commissioner who now works for the conservative American Enterprise Institute contends that the average retiree will actually have $725 more in purchasing power in 2010 thanks to falling prices and the freeze in Medicare Part B premiums (which will not increase in 2010 for most Social Security recipients). A senior policy analyst for the non-partisan Center on Budget and Policy Priorities told the Christian Science Monitor that if Social Security income was wholly determined by consumer prices, SSI recipients would have their checks cut by 2.1% next year.

What can you do in response here? Even if you are really wealthy, your SSI is a big chunk of money. If you were hoping for a COLA and want and need to have more money on hand for 2010, this is the time of year to meet with a financial advisor or tax advisor who may work with you and help you plan to find it.

As always, if I can help you in any way, please feel free to call me personally at 1-866-786-2521.

Are You Prepared to Retire?

2009-10-11T17:58:00.000-04:00

Most Americans have no financial strategy at all. That’s right – no plan whatsoever to build wealth or keep it. That finding comes from the 2009 National Consumer Survey on Personal Finance conducted by the Certified Financial Planner Board of Standards, Inc. (The survey collected data from 1,700+ U.S. residents.)

Why don’t more people have a financial plan? After all, Americans of all incomes and savings levels certainly are free to set financial goals. In the survey, the reasons varied. Some cited the expense of engaging a financial advisor; some said they get along just fine without a financial plan, and others felt their finances weren’t complicated enough to warrant one. Others were hazy about financial services industry qualifications - 40% of respondents had no idea that there were professional credentials or designations for financial advisors.

Syndicated financial columnist Humberto Cruz recently noted that when he told some fellow vacationers in Orlando that he wrote about financial planning, they all asked him if he gave stock tips. He had to explain that he was simply a journalist, not a financial planner.

Defined goals lead to definite plans. If you set financial objectives and plan for them, you vault ahead of most Americans – at least according to the CFP Board’s findings. A written financial plan does not imply or guarantee wealth, of course; nor does it ensure that you will reach your goals. Yet that financial plan does give you an understanding of the distance between your current financial situation (where you are) and where you want to be. Too many Americans, it seems, have little comprehension of their financial situation or their financial potential.

How much planning have you done? Retiring without a financial plan is an enormous risk; retiring with a financial plan that hasn’t been reviewed in several years is also chancy. A relationship with a financial advisor can help to bring you up to date about what you need to do, and provide you with more clarity and confidence when it comes to the financial future. As always, if you have any questions or concerns, please call me toll-free at 1-866-786-2521.

Breaking Bad Money Habits

2009-10-07T11:35:00.004-04:00

BREAKING BAD MONEY HABITS
Changing your behavior may help you improve your financial picture.

Many of us plan thoughtfully for all kinds of life goals. Yet many of us spend impulsively, using our money on the moment rather than saving or investing it for the future. This last recession caused us to take a second look at where our dollars go. If you seem to be making adequate money and yet dollars still appear to be slipping away from you, maybe it is time to break some budgeting and spending habits.

First of all, have a budget. Many people live without one – and that includes many affluent people. This exercise is starkly simple, but might be illuminating: make a two-column chart, with the left column listing your monthly income and the right column detailing your expenses. Detail them as best as you can, type and monthly amount. Include your credit card expenses. This little exercise shows you how much you are spending on essentials and how much of your income you are assigning to comparative frivolities. Perhaps you will find some dollars you could reassign to planning for your financial future.

Distinguish needs from desires. Do you need that material item or merely want it? Slick marketing and advertising leaves many consumers unable to tell the difference. They run up debts to buy what they want, rather than what they need. How many of them understand that by borrowing, they are actually spending away future earnings?

Discern the difference between good & bad debt. Do you know the difference? A bad debt is a debt you incur on a disposable item or a durable good that will depreciate. It is a debt on something that has no potential to gain value. You want to avoid as many bad debts as you can. Of course, there is also good debt – for example, a mortgage, a business loan or a student loan. These are so-called “investment debts” that can potentially create value down the road.

Educate yourself. Some people are very cavalier when it comes to spending and saving money. Others are convinced that they will never be able to build wealth, so they spend their days addressing short-term financial needs and give no thought to the wealth and income they will need in maturity. In both cases, the root problem is a lack of education. Those who spend money like water don’t understand its value; those who shun financial planning and investing don’t understand its potential. People with greater degrees of financial education tend to be more rational when it comes to financial decisions. (Not always, but often.)

Set financial goals and take them seriously. When people educate themselves about money – the ways to potentially make it, the ways to plan to protect it – they start to see how the financial world “works” and they tend to explore their own financial potential. This exploration may lead them to meet with a financial advisor. That conversation can inspire them to set and plan for specific objectives, and get a relationship going - a shared commitment to wealth building.

If you haven’t had such a conversation, today is as good as any day for that to happen. As always, please feel free to call me at 1-866-786-2521 if I can be of any assistance.

Don't Forget These 2009 Tax Breaks

2009-09-20T14:22:00.003-04:00

The year goes by, you get busy...and tax-saving opportunities slip away. So as a reminder, this article is here to reacquaint you with some of the notable federal tax breaks offered this year.

The first-time homebuyer credit. This is the up-to-$8,000 credit available in 2009 to anyone who hasn’t owned a home during the previous three years. (It is subject to phase-outs at certain income levels.) The home you buy has to be your principal residence, and you have to buy it before December 1, 2009. The credit does not have to be paid back.

The IRA charitable rollover. This is the move that lets your IRA trustee make a tax-free direct transfer of up to $100,000 from your IRA to a charitable organization. This option is scheduled to go away in 2010. You must be age 70½ or older to do this.

3 don’t-miss deductions for businesses. When it comes to new cars and light trucks used for business means, the maximum first-year depreciation deduction has been increased by $8,000 for cars placed in service before 2010. The Section 179 deduction (that’s the one that lets you write off the costs of certain new and used business assets during their first year of use) is still at $250,000 for 2009, instead of the prior $133,000. The first-year bonus depreciation break of $50,000 is still in place for 2009, and even the biggest businesses can take advantage of it.

The new car sales tax deduction. Okay, “cash for clunkers” is over, but you still may be able to deduct state and local sales and excise taxes if you buy a car, motorhome, motorbike or light truck. You can itemize the deduction or just add it to the amount of your standard deduction.

A major tuition tax break. In 2009, you can claim an above-the-line deduction for “qualified tuition and related expenses” relating to the enrollment or attendance of you, your spouse or your dependent at an eligible college or university. While it is subject to phase-outs at higher income levels, the deduction can be as large as $4,000.

The classroom teacher credit. Are you a primary or secondary school teacher? If you were an educator who worked more than 900 hours on campus in 2009, you can claim an above-the-line deduction for up to $250 of personal expenses for schoolbooks and school supplies that see classroom use. You don’t even have to itemize.

COBRA continuation. Did you get laid off this year? Were you insured under an employer-sponsored health plan? Well, you may qualify for up to nine months of (COBRA) coverage. As for the company where you worked, it can claim a credit for the COBRA subsidy it extends to you.

$2,400 in unemployment income tax-free. That’s right: this year, the first $2,400 of federal unemployment compensation benefits you receive are excluded from gross income.

An extra deduction for state and local property taxes. Do you usually claim the standard federal deduction? If that’s your plan, this year you can take an additional deduction for state and local property taxes. The ceiling is $500, $1,000 if you are filing jointly.

The capital gains tax break. If you are in the 10% or 15% tax bracket, note that the current tax rate for long-term capital gains is 0% - and it is slated to stay at 0% through 2010.

The homebuilder tax credit. Do you build homes? If so, you may claim a credit of up to $2,000 for each qualified energy-efficient home constructed and acquired from you for use as a residence. This credit is set to expire December 31, 2009; President Bush’s signature extended it into this year.

And of course, the exemption from required IRA distributions. The federal tax mandate requiring IRA owners age 70½ to take Required Minimum Distributions (RMDs) was suspended for 2009, but it will be reinstated for 2010. Worth noting: in 2010, anyone will be able to convert a traditional IRA into a Roth IRA.

This is just a sampling. There are other tax breaks out there during this unusual year for the federal tax code. If you have any questions, please feel free to call me personally at 1-866-786-2521.

5 Rules To Saving For Retirement

2009-09-16T15:30:00.003-04:00

The Automatic Rule
Start saving money today. Even if it’s only a buck or two each pay period, savings is a habit you must start and stick with for the rest of your life. To improve your chance of savings success, automate the process. Have money withdrawn automatically from your paycheck or directly from your checking account each month. If you don’t want to think about saving, automation can take care of it for you.

The 1% Rule
At a minimum save 1% of your earnings each payroll period. When you get a salary increase, add an extra percent to your savings and spend the rest. For example, when you get a 3% increase at work, save 1% and spend the other 2%. This way you’ll continually increase your savings rate while enjoying a higher standard of living.

The Time Rule
When I meet with people in their 50’s and 60’s, one regret many have is that they had wished they’d starting earlier in life. It’s never too early or too late to start saving for retirement. Time is your friend. It can work for you or against you. It’s your choice. Choose wisely.

The Spending Rule
The less money you take out, the lower inflation is, and the higher return you earn on your money, the longer it will last. Conversely, the more money you take out, the higher inflation is, and the lower your return is, the shorter your nest egg will last.

The Most Important Rule
The government and your company will not take care of you. Read, listen and learn about personal finance, investments and strategies. In the end, your financial well-being is your personal responsibility. Control what you can control.

The Big 401(k) Rollover

2009-09-08T13:31:00.003-04:00

Options, options, options...There are many misconceptions about what must be done with a 401(k) when someone leaves a company. Some people think they have to cash out their 401(k) upon leaving a job. Others think they must “roll it over” into a new 401(k). Still others believe that they must leave the 401(k) where it is. None of these are true...and none are false. These aren’t “musts”, they are options. The big question is, which option is the right option for YOU?

Leaving it where it is...If you have enough money in your current 401(k) to meet the minimum requirement, you could leave your money where it is. Should you? Well, it depends. If you feel the plan has good investment choices and the annual fees are reasonable, leaving your money there to mature could be a good option for you.

Direct rollover into a new 401(k)...If your new employer offers a 401(k), you could choose to “roll” your money into that plan, but then you will be limited to the new plan’s investment options. So should you? Once again, it depends. You’ll want to look into the structure of the new plan, the fees and the investment options.

Moving the money into an IRA rollover account...If managing where your account is held and how it is invested is important to you, this option gives you a great deal of flexibility. It also offers you more distribution options, once you are eligible. Additionally, you could open a brokerage account or purchase a CD, provided the account is titled as your IRA Rollover Account.

Cashing out your 401(k)...The temptation to get a lump sum of money can be too great for some, especially if they have just lost their job or feel that they are in some sort of financial bind. They may choose to cash out their 401(k) upon leaving a job. But what are they giving up? Well, 10% for starters. If they are younger than 59 ½ years old and cash out their 401(k), most of them will incur a 10% penalty. Additionally, they will owe taxes on the amount they cash out. But here’s what really hurts: they are giving up part of their retirement fund or (in many cases) starting over from zero.

Fighting temptation now could lead to big rewards later...For example, let’s say a 35-year-old leaves a job and rolls over $15,000 from a 401(k) into an IRA earning an average of 7% annually, letting the money mature over 30 years...by the time of retirement, that money could potentially grow to over $100,000.

Making a decision...If you’re unsure which choice is best for you, or if you’d like to learn more about your options, I would recommend speaking with a qualified financial advisor. As always, if I can help you in anyway, please call me personally at 1-866-786-2521.

HOW MUCH RETIREMENT INCOME WILL YOU REALLY NEED?

2009-09-01T14:02:00.002-04:00

What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.

You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.

That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.

Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently, one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs –up about 7.5% from 2006.

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.

Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.

Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.

Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits. This is all presuming Social Security is still around in 2030.

So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need. As always, if I can help you in any way, please feel free to call me at 1-866-786-2521.

Is The Real Estate Downturn Done?

2009-08-31T19:40:00.003-04:00

Signs point to a rebound. As this recession emerged, many economists felt that it would only fade away when the sector where it all began healed itself. It was in late 2006 when the U.S. real estate bubble began to pop, setting off a chain reaction of shocks that hurt homeowners, lenders, and the entire U.S. economy. Three years later, we have new hope in the real estate sector – and the numbers to support it.

Existing home sales rose 7.2% in July. This was not only the largest monthly gain ever recorded, but the fourth consecutive monthly gain. As the National Association of Realtors noted, the last time residential resales increased for four straight months was in June 2004. Additionally, the number of existing home sales in July 2009 was greater than a year earlier – and that hasn’t happened since November 2005.

Existing home prices seem to be moving north. In late August, the S&P/Case-Shiller Home Price Index brought more good news. Prices in 18 of 20 major U.S. housing markets improved in June. On top of that, the Federal Housing Finance Agency’s home price index gained 0.5% in June, on the heels of a revised 0.6% May gain.

Wellesley College economics professor Karl E. Case (the Case in Case-Shiller) was delighted. “When I saw these numbers, I danced a jig,” he told the New York Times. “It appears that the housing market is stabilizing quicker than people thought it would.”

New home sales jumped an amazing 9.6% in July. Guess what: that was the fourth straight monthly increase. The Commerce Department put the seasonally adjusted annual sales rate at 433,000 – the strongest sales pace since September 2008. New home sales increased by an astonishing 16.2% in the South in July. When you lower prices enough, someone will buy.

Not only that, equilibrium is slowly being restored in terms of supply and demand. At the end of July, the Commerce Department estimated that 271,000 new homes were for sale in the U.S. – the smallest number since March 1993. At the end of June, there was an 8.5-month supply of new homes on the market; in January, there was a 12.4-month supply.3 So inventory is being cleared out. That would seem to warrant a revival in home construction.

The statistics on housing starts bear this out. Single-family housing starts increased for the fifth consecutive month in July.

Mortgage rates are still low. On August 27, interest rates on conventional 30-year fixed-rate mortgages were averaging 5.14%, according to Freddie Mac’s weekly nationwide survey. Contrast that with 2006-2007, when rates on a 30-year FRM averaged more than 6.3%.

The real leading indicators may be in real estate. David Berson, chief economist at California mortgage insurer PMI Group, has tracked real estate market recoveries in relation to the seven American recessions since 1960. He has concluded that all of these recoveries were characterized by – or driven by – gains in housing starts and home sales. On average, his findings indicate that residential resales start improving four months prior to the end of a recession. In the average recovery, single-family housing starts improved for seven months in a row, and new home sales improved for eight straight months.

Here in late August, new and existing home sales have both increased for four straight months, and single-family housing starts have improved for the last five months.

As Zip Realty’s Patrick Lashinsky told Voice of America, “Affordability is at an all-time high. You have home prices that have dropped 25-30%. You have interest rates at very low amounts and you have consumers who have been waiting to buy. Combine that with the $8,000 tax credit you get if you're a first-time buyer, and it's creating a solid demand.” Here’s hoping that demand brings about a great and prompt economic recovery.

How To Get A Mortgage Today

2009-08-25T10:33:00.002-04:00

Remember when getting a mortgage was easy? Now, you need pre-approval. So how can you increase your chances of passing that all-important test? What can you do to help yourself get pre-approved?

You want a lender in your corner. Sellers and agents don’t want to waste their time working with a buyer who isn’t pre-approved. Why should they contend with uncertainty?

A buyer with a pre-approved loan gets respect when a seller gets multiple offers. A pre-approval shows the seller the size and terms of the loan the bank is ready to greenlight. Commonly, a pre-approval is good for 90-120 days.

Pre-approval is a whole different level than pre-qualification. You can supply very basic financial information to a bank or lender and walk out with an estimate of how much mortgage you might be able to carry. However, that is no promise. Pre-approval is an actual commitment from the lender to you.

So what can you do to earn that commitment?

Test the waters well before you test the housing market. Visit more than one lender, and see what you can borrow, just how much home you can afford, and what kind of mortgage options you have. Keep in mind that a pre-approval is a pledge that a mortgage lender makes to you, not a contract. Should some other bank or mortgage company make you a more attractive pledge, you are free to switch horses.

Make your case. Don’t skimp on the documentation you bring to the appointment. Usually, a mortgage lender will want to see the hard data of your financial life over the last couple of years: the bank statements, the federal tax returns, the W2s, the pay stubs. If you earn investment income, bring paperwork showing that you do. If you deposited any big sums into your bank account recently, you’ll probably be asked what that deposit represents.

The amount you are pre-approved for typically reflects three factors: how much you have saved up for a down payment, your FICO score and your current address. It should only take a few business days for a lender to get back to you and let you know how much mortgage it will pre-approve for you.

Aim to get pre-approved within 30 days. This way, you don’t risk harming your FICO score so much. The majority of credit-scoring paradigms out there don’t penalize your credit rating for home loan, student loan and car loan inquiries made 1-30 days prior to the score calculation.

Don’t expect all the details right away. When you apply for a loan, your lender is using that day’s mortgage rates to calculate costs and payments, and rates move. So the pre-approval may be light on particulars about the interest rate or the loan type.

Avoid fly-by-night lenders. The seller and the seller’s agent want to see that a reliable, “name” lender is issuing its stamp of approval here, not an obscure Johnny-come-lately. Credibility counts.

Can’t get a standard loan? Don’t forget about the Federal Housing Administration, through which you might be able to arrange a mortgage with as little as 3.5% down. Most lenders can process an FHA loan like a standard loan, and commonly the rates are about an eighth of a point higher than a standard mortgage. Also, remember that first-time buyers have until the end of 2009 to qualify for an $8,000 federal tax credit which can be put toward the down payment and closing costs.

As always, if I can help you out in any way, please feel free to call me personally at 1-866-786-2521.

Clearing Up The Health Care Debate

2009-08-17T17:16:00.002-04:00

Who would fund the reforms? Would there really be a “death list”? Let me sort out the possibilities, facts and misconceptions.

The town hall debates over health care reform have ignited Americans like few recent issues. Discourses have become shouting matches. Away from the noise, here is a roundup of where things currently stand.

Who would pay for all this? Over the next 10 years, the federal government will need (by President Obama’s estimation) $950 billion to fund its health care programs. As planned, roughly a third of the money will be raised through increased revenues (i.e., limiting tax deductions for the wealthiest Americans) and two-thirds of it is supposed to come from reallocations of taxpayer money the federal government is already scheduled to receive. A coalition of pharmaceutical industry CEOs met with the President in July and have since pledged $80 billion in cost savings over the coming decade to help pay for the reform.

Would Medicare be cut? Republicans and Democrats disagree. “Nobody is talking about trying to change Medicare benefits,” President Obama stated during a July AARP teleconference. “What we want to do is to eliminate some of the waste that is being paid for out of the Medicare trust fund.” The non-partisan Congressional Budget Office figures that the House of Representatives version of the bill would trim Medicare spending by $500 billion across the next decade with no impact on Medicare benefits. AARP claims that “none of the health care reform proposals being considered by Congress would cut Medicare benefits or increase your out-of-pocket costs for Medicare services.” However, in an August 15 Republican Party radio address, Sen. Orrin Hatch contended that “hundreds of billions of dollars” will be cut from Medicare and used to “expand a financially-strapped Medicaid program and create another government-run plan.”

Would this run up the deficit further? The Congressional Budget Office says yes. It forecasts that President Obama’s reforms would add $239 billion to the federal deficit. Few on Capitol Hill think the reform effort could pay for itself.

Would health care be rationed? That’s what ex-Alaska Governor Sarah Palin contended in a Facebook post. The potential Republican presidential candidate stated that the reforms would lead to a system that would “refuse to allocate medical resources to the elderly, the infirm, and the disabled who have less economic potential.” Democrats and other supporters of the reforms counter her claim by saying that the current health care system already features “rationed” care dictated by health insurance company bureaucrats.

Would there really be “death panels”? Earlier this month, Palin contended that the President’s health care reform proposals included “death panels” that would decide if seriously ill patients would live or die. In the eyes of many legislators, Palin was wildly misinterpreting a provision in the health care reform bill that would allow doctors to offer voluntary consultations about living wills, hospice care, health care directives and pain medication to patients and loved ones facing end-of-life decisions. (If the reforms pass, Medicare would pay physicians to provide this consulting.) The Senate Finance Committee has dropped this idea from its version of the proposed legislation; it remains in the House version.

Would the government (and taxpayer dollars) pay for abortions? It is uncertain. In one variant of the health care reform bill, abortions would have to be available via at least one insurance plan; however, Democrats say any abortions would be paid through patient premiums.

Would undocumented immigrants get free health care? On the CBS Evening News, Sen. Ben Cardin (D-MD) was heard stating, “Illegal aliens will not be in this bill, period, the end.” As currently written, the legislation states that only those lawfully present in the United States can qualify for health coverage. Yet what if one family member is in America legally, but others aren’t? Could his or her relatives become eligible? Republicans say that the proposed legislation offers no way to effectively stop undocumented immigrants from applying for health care benefits.

The debate rages on. Politically, the health care reform effort seems poised to end up being the story of the year – and the contention and negotiation will certainly last into fall or beyond. Stay tuned.

As always, if I can help you in any way, please feel free to call me personally at 1-866-786-2521.

Pre-Retirement 401k & Asset Allocation Advice

2009-08-11T16:11:00.002-04:00

Question: I plan on retiring in 15 years (at age 60) and currently have 85% of my money in stocks. I’ve been maxing out my 401(K) since I was 21, and in the last year, I have seen some frightening drops in my funds. Should I be making any kind of changes to prevent more losses? Larry, Texas

Answer: Larry, you’re the poster child for retirement. Congratulations for maxing out your 401k since your first started work. Starting early, maxing out your contribution, and having many decades for your money to grow tax deferred are keys to your ultimate retirement success.

Let me answer your question by putting this economic crisis in perspective with your goals. Although many American’s panicked and have sold their stocks to cash, I’m glad you haven’t. You will retire in 15 years but could live another 25-35 years beyond that so your actual time horizon for needing these funds is potentially over a 15-50 year time frame. Consequently, with decades of life ahead of you, I do not feel you need to bail on your current investment strategy.

To make you sleep better at night, assuming recent declines are bothering you, you may wish to consider starting to allocate a higher percentage of your current 401k contribution to bonds/fixed income investments; so by age 60 for example, you have an allocation that is more defensive such as half stocks, half bonds.

Another alternative to consider would be to continue investing 85% of your money to stocks. If you go this route, you should set a benchmark on your 401k so that every time your equities increase by 5-10%, you sell the profits and rebalance to bonds/fixed income. Again, the goal would be to get you to a more defensive allocation by the time age 60 rolls around.

Bill’s Bottom-line: Start saving money early. If you can, max out your 401k. Diversify your account and rebalance it at least annually. If you have any questions or concerns, please feel free to call me at 1-866-786-2521.

Time to Rethink Retirement?

2009-08-04T09:48:00.002-04:00

Is 70 the new 65? It may be, for many Americans are electing to postpone retirement as an effect of the recent volatility in the financial markets. If 70 is the new 65, some workplace changes are worth noting – these trends may be affecting you, your employer, and your financial future.

Retirement will increasingly be a process, not an event. In the years ahead, more and more people will probably leave the workplace gradually. For baby boomers that want to stay active and engaged, this isn’t necessarily a bad thing. A vice-president who worked 50 hours a week may become a consultant or a coach working three days a week. Or he or she might simply want to work less, for less pay, or make a lateral move within a company that would allow an exit on his or her terms.

Boomers will have the opportunity to shape their exit. If gradual retirement becomes more common (and today’s financial pressures would seem to make it so), expect more and more mature employees to negotiate the terms of their retirement – how many hours they will work on their way out, how accessible they will be, if they will work from home or the office, and who will take the reins in their hands someday. If a boomer offers a personal exit plan of sorts that will help a business to cut labor costs without losing a valued employee, isn’t that a favor to management?

Businesses and non-profits face a tough question. The 2009 Retirement Survey from the Employee Benefit Research Institute found that 51% of Americans age 25 and older now think they will retire at age 66 or older. In June 2009, the Bureau of Labor Statistics estimated that 23% of Americans employed or seeking work were age 55-64. This is problematic for businesses, who in this economy might want to pay older workers to retire so that they can stay profitable. Universities, state and local governments and public agencies will probably not see the same kind of retirement turnover they did in the past. Should they stop recruiting new managers, new faculty, or new administrators for the near future? Organizationally, what is the economic value of retaining wisdom and experience?

Will we see a wave of “rehirement”? In the EBRI survey, 20% of the roughly 1,200 respondents felt they would never retire, compared to 11% in the 2007 poll. Part of that increase obviously reflects what happened in the stock market, but it also may represent a perception shift in progress. Baby boomers are doers, proud contributors to society who are tearing up the old retirement template. It could be that two distinct phases of American life are emerging – one in which you work for a living, followed by another in which you work for meaning. It may lead to a wave of mature employees, professionals and entrepreneurs – a zeitgeist of sorts, the likes of which this country has never seen.

As always, if I can help you in any way, please call me personally at 1-866-786-2521.

The Phased Retirement Alternative

2009-07-27T12:51:00.001-04:00

Question: I’m turning 60 next year. While I don’t want to continue working full-time anymore, I don’t have the desire (or nest egg) to retire completely. What do you suggest? Doris, PA

Answer: Doris, how about a phased retirement? Instead of working 40 hours per week, talk with your employer about a reduced workload with a corresponding pay cut. The result could be just the answer you’re looking for.

Phased retirement is a new phrase being tossed around corporate America in recent years. While there are some really progressive employers with structured phased retirement programs, many employers have informal programs that most employees don’t even know exist.

Some employers allow workers over age 50 to work half-time at half-salary for up to three or five years while collecting partial pension benefits, if applicable. Often times, a half-time salary combined with a small pension or a monthly supplement from your own investment portfolio will result in a drop to a lower tax bracket.

Phased retirement is an attractive option for older workers because you continue earning an income while getting more free time for yourself. Your employer benefits by retaining a valued employee at a reduced cost. Often times an employer will free up those financial resources to hire an additional employee and improve productivity. It’s a win-win for everyone.

Unfortunately, many pension plans will not allow a company to employ an individual and distribute a full or partial pension benefit after they reach retirement age. What this normally means is that if you want your pension benefit, you’d have to retire and work somewhere else (which raises a whole new set of challenges). Will you like your new employer? Can you work for them part-time? Will the part-time pay be enough to let you live your life and maintain your standard of living?

Bill’s Bottom-line: Do your homework. Talk with your employer and other colleagues who have successfully navigated a phased retirement. Know your options before you leap. As always, if I can help you in any way, please call me personally at 1-866-786-2521.

Happiness is a Currency More Valuable Than Money

2009-07-19T12:23:00.003-04:00

Question: Lately, after hearing all the concerns of people who can't afford this or that, I've been wondering if I should just save every penny I can get and not spend money on unnecessary things, even though from the retirement calculators I can afford it (according to yesterday's chart, I've got $300K extra that I won't use). I have no debt, no children, no spouse and no pets even (although I would like a dog). Should I just save, save, save or is it OK to spend some on wants not needs? - Monica, NJ

Answer: Monica, the dismal econominc news of the past year has put personal financial responsibility in the spotlight. It also has illustrated how we can all live on less and demonstrated what's truly important in our lives - our family, friends, health and relationships.

I'm a firm believer that your life should be about playing and fun. The activities you particpate in, including your work, should provide satisafction and fulfillment. More importantly, the activities you participate in should be things you're passionate about and things that energize you.

If you just save, save, save, you'll probably live a very dull, dull, dull existence. Since you've crunched the numbers and appear to be in excellent financial shape, why not blow a little money on wants?

Bill's Bottom-Line: Your happiness is a currency more valuable than money.

Are the Markets & My 401(k) Heading for Another Freefall?

2009-07-13T17:53:00.002-04:00

Dear Bill: I’m 60 years old, divorced, and was forced into early retirement two weeks ago. My 401(k) is still down 25% from its all-time high and I’m real nervous. Now that I don’t have a paycheck and since I won’t become eligible for Social Security for two more years, I have to live on this! How should my account be allocated? What’s an appropriate allocation for someone in my situation? I was also wondering what you think about the possibility of another market freefall? Christine, R.I.

Answer: Christine, let me start with your last question first. Despite the recent market rally and leading economic indicators looking more positive, I have absolutely no doubt in my mind that at some point again in the future we will have another period where the markets experience a significant decline. The problem is no one, and I mean no one, ever knows when the next freefall will happen and what will trigger it. Personally and professionally, I have no clue whether the next 20% market move will be up or down but I remain a focused and disciplined advisor because the next 100% move has always been up. In short, you’ve got to have some money in the market in order to have the potential to achieve a higher rate of return to keep pace with inflation over your lifetime.

Stock prices are totally random and unpredictable but one way you can mitigate this risk is to broadly diversify your investments through asset allocation. Asset allocation refers to how you divvy up your money among the three major asset classes which are stocks, bonds, and cash. While it (asset allocation) can minimize the risk to your investment portfolio it cannot prevent declines.

For my private clients (usually women and couples between ages 50-65), depending on their goals, debts, health and appetite for risk, I usually will suggest a broadly diversified investment portfolio of low cost index funds, enhanced index funds or ETFs, with somewhere between 40-60% in stocks. Your portfolio should include both domestic and foreign investments, on both the stock and bond side, with perhaps 10-15 holdings overall.

One issue I see that could prevent you from broadly diversifying your 401(k) is the limited fund choices you have available. A better alternative may be to consider rolling over your 401(k) to an IRA. Your money will continue to grow tax deferred until you take it out, you control access to your savings, you have the potential to convert some or all of these assets to a Roth IRA in the future, but the big benefit is that you will have additional investment options and the ability to control your own costs.

Bill’s Bottom-line: Consider keeping two to five years worth of anticipated income needs in safe investments such as CDs, money markets, and t-bills at all times. This will prevent you from having to liquidate and spend your stock holdings when they could be down in value due to a temporary market decline. Catch a sneak peek of my free DVD, "The 10 Biggest Mistakes People Make When Retiring & How YOU can Avoid Them", at www.RetireinaWeekend.com. If I can help you in any way, please call me toll-free at 1-866-786-2521.

Coping With a Layoff

2009-07-05T15:17:00.003-04:00

You go to work and get the word … you’re being laid off. Maybe it’s no surprise. Maybe it comes as a shock. The question becomes: what now?

Basically, you have three quick to-dos: leaving work with as much money as possible, securing health insurance for the interim, and arranging unemployment benefits. Beyond these items, stay calm and stay in the hunt – or alternatively, work for yourself.

Negotiate your exit. While no law requires your employer to give you a severance package, some employers do provide them. Severance package or not, you may very well receive two weeks pay and perhaps compensation for unused vacation or sick days.

Don’t be meek here. If you’ve been a key employee or simply a good employee, make the case for your company to extend your health coverage a little longer or give you a true severance package. They may see the merit if you have proven yours.

In tax terms, it may be better to receive your severance pay in the form of recurring checks rather than a lump sum. If you get a lump sum, it’s quite possible you could have too much withheld.

If you know you are getting laid off in the next few months, you can request to reduce the amount of withholding taxes on your last few paychecks to give yourself more take-home pay. And if it looks like you are going to receive a lump sum severance before December 31, think about deferring that payment until 2010 so you don’t have to include it on your 2009 tax return.

Keep yourself insured. If you can sign up as a spouse for the plan offered by your spouse’s employer, it makes sense to do it as soon as you can. If that doesn’t describe your situation, then the options are extending coverage through COBRA or keeping up the payments on private life or disability insurance that your company provided.

If you sign up for COBRA at the moment, the federal government will subsidize 65% of the cost for nine months as a result of the federal stimulus. In COBRA, you will have to pay the entire premium on your health insurance plus a 2% administrative fee.

Sign up for unemployment benefits. As few of us have bank accounts equal to six months or a year of salary, it is wise (not demeaning) to sign up for these benefits. You will want to do so ASAP, because it may take a few weeks for that first check to arrive. In some states, you can receive unemployment checks even if you have been given a severance package – although you may have to wait until the entirety of the severance is issued to you before jobless benefits can follow.

Remember that the federal government is pulling out all the stops right now. Take advantage of the federal economic stimulus effort, which is directing $500 million toward helping the jobless find jobs. New search assistance, education, and retraining programs are available. The government is also boosting unemployment payments a bit and elongating parameters of eligibility. Currently, the average weekly unemployment check in America is about $300. Jobseekers can receive unemployment benefits for up to 46 weeks – up to 59 weeks in states where the unemployment rate tops 6% for more than three months in a row, which would be just about everywhere right now. Under the stimulus, weekly unemployment checks will increase by $20 – and the first $2,400 of unemployment payments will be tax-exempt.

Press flesh, not just keys. Despite the buzz surrounding job boards like Monster.com, Dice.com and CareerBuilder.com, an article this winter in the San Francisco Chronicle noted that only about 2-3% of new hires find their jobs through such resources. About 15% of new hires find work directly by applying at a company’s web site, and about 65% find new jobs through that old standby – networking.

Older employees may actually cope with layoffs better. That’s what a collaborative study coming from the Federal Reserve Bank of Chicago and Columbia University has just concluded. It found that laid-off workers younger than 55 experience a much greater increase in “mortality hazards” than their older counterparts – stress and health risks, addictions, and negative personal behaviors. Perhaps this is because workers over 55 are somewhat less likely to deal with making ends meet and the pressures of raising a family; they may have already thought about (and planned for) a retirement transition and they have the options of Medicare and Social Security now or in the near future.

Have you been given a gift? That’s one way to look at it: one door closes, another opens. If you have an entrepreneurial ambition, or just suspect that like many Americans you will one day have to be your own boss, then maybe now is the time to talk over your options with a potential mentor – a friend who owns a business or makes a living as an independent professional in your industry. If you are mature and want or need to keep working, you might even think about a life or career coach – someone who can help you see the full range of possibilities, including those that you may not have considered five or ten years ago. As always, if I can help you in any way, please call me toll free at 1-866-786-2521.

Obama's Plan to Overhaul the Financial System

2009-06-22T12:27:00.001-04:00

Since September 2008, the federal government has committed $10.5 trillion to fixing the economy – bailing out Citigroup, Bank of America, AIG, Freddie Mac, Fannie Mae, Chrysler and General Motors in the process. To try to prevent further economic nightmares, President Obama is proposing a “sweeping overhaul” of the U.S. financial system on a level unseen since the 1930s.

An answer to “an absence of oversight.” If enacted, Obama’s plan would hand more power to the Federal Reserve, the Treasury and the Federal Deposit Insurance Corporation, fuse two federal agencies into a single regulator of the nation’s largest banks, create a new agency to regulate consumer financial products, police hedge funds and private equity funds, and rein in the use of mortgage-backed securities.

The Fed’s role. Under the plan, the Federal Reserve would become the top watchdog of the U.S. financial system. It would regulate the banks, brokerages, insurers and hedge funds deemed too big to fail, see that they are keeping enough capital in reserve, and respond quickly in a crisis. The goal is to avoid another Bear Stearns or Lehman Bros. debacle, and the system-wide shock that could follow.

The Treasury could get veto power. Treasury Secretary Timothy Geithner would chair a regulatory council to work side-by-side with the Fed as it monitors the biggest financial firms. This council could potentially veto emergency loans made by the Fed to financial companies.

The FDIC could expand its reach. It would gain the ability to seize and unwind not only banks, but other kinds of financial firms.

The OTS dies. If Obama has his way, the much-criticized Office of Thrift Supervision would merge with the Office of the Comptroller of the Currency. This revamp would create a new entity, a National Bank Supervisor to monitor all deposit-taking thrifts. Under current rules, some banks may essentially select their regulator.

The CFPA would be born. That’s the Consumer Financial Protection Agency. This new office would regulate credit cards, mortgages and other consumer-marketed financial products. If would set guidelines for banks and bank holding companies, and if they got out of line, it would punish them with penalties and fines.

More scrutiny over hedge funds & private equity funds. Under the plan, all private equity and hedge funds would have to register with the Securities and Exchange Commission, and throw open their books when regulators demand.

A tighter rein on securities and derivatives. Banks that package and sell mortgage-linked securities (and other debt-linked securities) would have to keep at least 5% of those securities on their books. In fact, all financial firms that originate a security would have to retain 5% of the “securitized exposure” and maintain an investment interest in that security even if it is resold. The idea here is to discourage the promotion of exotic home loans and other complex financial products that were half-understood by investors and borrowers.

Will all this change really take place? It will likely take several months for any version of the Obama proposal to become law. The plan notes that the Fed has “the most experience to regulate systemically significant institutions.” But some Capitol Hill opinion leaders are especially concerned about expanding the Fed’s powers. As always, if you have any questions, I am here to help. Please call me toll free at 1-866-786-2521.

Asset Allocation in "Stormy Weather"

2009-06-15T12:33:00.003-04:00

In any stock market climate, proper asset allocation matters. In a down market, you could argue that it matters more than anything else.

Did you have a well-diversified portfolio during the fall of 2008? That was a time when the importance of having a bond allocation and proper equity diversification really hit home. Nearly all investors were hit hard, but some were hit harder than others.

Wise asset allocation may help you as the market recovers. Yes, even diversified portfolios lost money at the end of 2008 and the start of 2009. Yet with rebalancing, these same portfolios may be poised to take advantage of a rebounding
market.

You might say there are two schools of thought when it comes to diversification and asset allocation – hands off, and hands on.

Modern Portfolio Theory. In 1952, a University of Chicago Ph.D. candidate named Harry Markowitz published a thesis - a brief, provocative paper that called for investors and money managers to see risk with new eyes. That was the start of Modern Portfolio Theory, which still has many advocates today.

Before MPT, money managers and investors tended to look at investments in isolation: if a stock had performed well in 1948, it was a good stock and it would probably perform well in 1949. They analyzed a stock almost like they would analyze a business.

In his paper, Markowitz basically said “You guys are going about this the wrong way.” He first assumed that all investors wanted to avoid risk (which he defined as standard deviation from expected portfolio returns). He then contended that you should measure the risk level of a whole portfolio instead of individual securities. (In other words, if you want to include a security in your portfolio, you should think about how that will alter the risk level of your entire portfolio, rather than simply consider the risk of the security.)

MPT asserts that for every portfolio, there exists an “efficient frontier” – an ideal asset allocation among diversified asset classes that should efficiently balance maximum return and minimum risk. Markowitz further developed the theory with economists Merton Miller and William Sharpe, and it eventually won a Nobel Prize in economics.

MPT has its fans – but also its critics. In the last 20 years or so, many investment advisors and money managers have practiced a buy-and-hold style of portfolio management using the diversification principles of MPT. But as the markets dropped in 2008-09, critics pointed out the danger of buying and holding - you can “hold” positions too long. In the crisis, some investment advisors took more of a hands-on approach to portfolio management – others had always done so.

How long is the long run? If history is any guide (and it may not be), the longer your investment horizon, the more sense buy-and-hold can make – at least when it comes to stocks. For example, $1 invested in stocks in 1929 would be worth $759 in 2009, whereas $1 invested in bonds in 1929 would only be worth $74 today. The critics counter that argument with the fact that the S&P 500 traded at the same level in mid-2009 as it did in summer 1997. Stretch or contract different windows of time and you can reach all kinds of conclusions.

The bottom line. The buy-and-hold adherents and critics certainly agree on one thing: diversification is hugely important. If your assets are allocated across 10 or 12 “baskets” instead of one or two, for example, you are theoretically less affected by the whims of the financial markets.

So what is “proper” asset allocation for you? Only you and your financial advisor can determine that. Your time horizon, preferred investment style, accumulated assets, life goals and financial objectives – these all have to be taken into consideration. It’s worth a conversation, today. As always, please call me toll free at 1-866-786-2521 if you have any questions.

To Roth or Not to Roth? That is the Question

2009-06-08T19:19:00.003-04:00

In 2010, anyone may convert a traditional IRA to a Roth IRA. No income limits will stand in the way of the conversion. Should you do it? Here’s why it may (or may not) make sense for you to go Roth next year.

Why you might want to consider it. A Roth IRA permits tax-free growth and tax-free income distributions in retirement (assuming you are age 59½ or older and have held your Roth account for 5 years or longer). You can contribute to a Roth IRA after age 70½, without having to take mandatory withdrawals. While contributions to a Roth IRA aren’t tax-deductible, the younger you are, the more attractive a Roth IRA may seem.

However, older investors have reason to go Roth as well – especially if they don’t really need to withdraw IRA assets. Under present tax law, converting an untapped traditional IRA to a Roth will shrink the size of your taxable estate, and careful estate planning could foster decades of tax-free growth for those IRA assets.

Currently, if you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals. So those Roth IRA assets can keep compounding untaxed across the rest of your spouse’s life.

If your spouse then names a son or daughter as a beneficiary, that heir has the choice to make minimum withdrawals according to his or her life expectancy, all while the assets continue to compound tax-free. Currently, withdrawals from an inherited Roth IRA are not subject to income tax.

Why you may want to think twice about it. The IRS regards a traditional IRA-to-Roth IRA conversion as a distribution from a traditional IRA – a taxable event. You’ll need to pay taxes on the entire amount of the conversion. Do you have the money to do that?

Keep in mind, however: with the market down, many IRA values are lower than they have been for years. That translates to paying less tax on gains. It is also worth remembering that tax rates could increase in the years ahead – another reason why now may be a good time to convert. (You could simply do a partial Roth IRA conversion if converting the full amount would send you into a higher tax bracket.)

You may be tempted to use the current IRA assets to pay the conversion tax, but should you? If you’re younger than 59½, you’re looking at a 10% penalty on the amount you withdraw, and you’ll lose the chance for tax-free compounding of those assets within the Roth IRA.

A potential tax break for those who convert in 2010. If you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns.

Be sure to consult your tax advisor before you convert. This is a very good idea before you arrange any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets. In any year, you should fully understand the potential tax impact of a Roth conversion on your finances and your estate. Also, remember that while the income limit on Roth IRA conversions will go away in 2010, the income limits on Roth IRA contributions still apply next year and for the foreseeable future. If you have any questions about Roth IRA's, or anything else, please feel free to call me at 1-866-786-2521.

The Importance of Asset Allocation

2009-06-02T17:28:00.001-04:00

Question: I’m reading more and more about asset allocation. How important is it?

Answer: What would you say if I told you that the return you earn on your money has little to do with your ability to pick good investments (security selection)? What would you say if I told you that the return you earn on your money has little to do with knowing when to buy or sell certain investments (market timing)? What would you say if I told you that the vast majority of the return you earn on your money can be attributed to how well you divide up your money among the major asset classes – stocks, bonds and cash (asset allocation)?

When you realize that whether or not you achieve your financial goals will depend, in large part, on how well you position your assets, I’d have to say it’s one of the most important decisions an investor can ever make.

According to Ibbotson & Associates, asset allocation accounts for nearly 92% of your overall portfolio performance, with investment selection accounting for only 4% and market timing accounting for less than 2%. All other factors account for less than 2%.

This clearly shows that how you allocate your money may actually be more important than the individual investments you choose.

Many people are led to believe that trying to “time” the market and picking the next “hot” investment are the keys to success in reaching their goals. They are sorely mistaken. The ultimate goal, of course, is a secure retirement. How soon you retire, how long the money will last, and in what style you retire can be greatly affected by your decision on asset allocation.

Bill’s Bottom-line: Normal market fluctuation will make your asset allocation change. Remember to rebalance your portfolio back to its target allocation at least annually. If you have any questions for me, please call my toll free number 1-866-786-2521.

Retirement Intelligence: GM Files For Bankruptcy

2009-06-01T17:43:00.002-04:00

It finally happenened. What does it mean?

Today, June 1, 2009, was a sad day for General Motors: the venerable automaker, now financially vulnerable, filed for Chapter 11 bankruptcy (and was kicked out of the Dow Jones Industrial Average).

This shocked no one, and the stock market didn’t suffer. The Dow gained more than 2% today, pushing past the 8,700 mark. But GM’s bankruptcy will have a huge impact on lives and communities in Southeast Michigan and across the nation.

What’s the goal here? The goal is for GM to arrange financing so that it can leave Chapter 11 as a viable, albeit leaner, company. GM is still in business, although it is closing or idling two (eventually, perhaps four) assembly plants, three stamping plants, five powertrain manufacturing plants, and three service and parts warehouses. It is also aiming to cut 21,000 of 54,000 factory positions held by members of the United Auto Workers. It plans to reduce its dealerships by 1,100 or more within the next 18 months. It is projected that Oakland County, MI alone will lose 6,600 jobs.

The government-supervised reorganization will leave a new GM with new owners, at least for the time being: under the plan, the U.S. government will hold 60% of GM, the UAW 17.5%, the Canadian government 12% and GM bondholders 10%. If GM can’t viably reorganize, a Chapter 7 bankruptcy (liquidation) would be the next option – but GM is likely “too big to fail” in the eyes of the Obama administration.

What about employees and their pensions? The most depressing aspect of the bankruptcy is the many non-union GM employees who now have no job security. Pay cuts, job cuts, office closings – GM can request permission to do any of this from the presiding bankruptcy judge. (Whether it would make such a request is anyone’s guess.) While GM is supposed to honor new contracts forged with the UAW, it also legally has the option to ask a bankruptcy judge if it can void them and renegotiate terms with the union.

As for pensions and healthcare benefits, the White House said May 31 that pensions and health care benefits of GM workers would simply transfer to the new GM. While GM could legally request the bankruptcy judge to reduce or terminate pensions and health benefits for non-union workers, no one is saying it will. Terminating pensions would require a trial, and even if the judge ruled in GM’s favor, pension plan participants would still get about one-third of their benefits via arrangement with the Pension Benefit Guaranty Corporation. If GM’s non-union retirees were to lose healthcare benefits, they would be covered by Medicare.

Could the GM bankruptcy be as quick as Chrysler’s? So everyone hopes. It appears Chrysler might be out of bankruptcy this summer, if Fiat purchases the bulk of its assets as planned. Of course, Chrysler has a buyer. GM is trying to restructure without a buyer – and with a lot of help from Washington and Ottawa. The U.S. government has loaned GM $19.4 billion and could commit up to $30 billion more. The Canadian federal government and the Ontario provincial government are collectively directing $9.5 billion to GM.

What might the new GM look like? As widely discussed, GM will likely restructure itself around its strongest assets and liquidate or sell the rest. Pontiac is out of the picture, and Saturn may be out of the picture also if GM can’t get a buyer. Saab has a for-sale tag on it. Hummer looks to have a buyer, and most of Opel is supposed to be sold to a Canadian supplier (Magna) and a Russian car maker (GAZ). Any fuel-efficient vehicles aside, GM’s days of dominance appear long gone. In fact, the forecasting firm IHS Global Insight thinks that the new GM will be about a third smaller, and capture only about 15-16% North American market share in the next few years.

Credit Cards: The New Rules

2009-05-26T19:44:00.003-04:00

With the stroke of a pen on May 22, President Obama authorized major changes to the way American credit card issuers do business. In the President’s view, these are “common-sense reforms designed to protect consumers.” Consumer advocates are rejoicing, but banks are already contending that the reforms might be bad for cardholders in the long term.

Here is a rundown of the notable changes within the Credit Card Accountability, Responsibility and Disclosure Act (CARD). Some of these changes will happen in 2010; others will occur within 90 days.

No surprise interest rate increases. If your credit card company wants to hike interest rates, it will now have to inform you at least 45 days beforehand and tell you why in writing.

New restrictions on retroactive rate increases. Under the new law, the interest rate on an existing balance cannot increase unless the customer is more than 60 days behind on a payment. Get this, though: even if that happens, the credit card company will have to restore the prior, lower interest rate if you pay the minimum balance on time for the six months that follow.

Statements mailed 21 days in advance. The new rules say that your monthly bill has to be mailed to you by the credit card company at least 21 days prior to the payment due date.

Pay before 5:00pm EST and you are on time. That’s right: all credit card payments made before 5:00pm Eastern Standard Time will be considered paid on that day. If your payment due date falls on a holiday, a weekend, or any day on which the credit card issuer is closed for business, your payment cannot be subject to late fees.

You can choose to attack the highest interest rates. Do you pay different rates for different kinds of credit card transactions? Under the new law, you will be able to apply any payment above the minimum to your highest-rate balance.

More protection for teens and young adults. The new legislation bars companies from issuing cards to most people under age 21. Those younger than 21 will only be able to use a credit card under one of the following conditions:

• They can prove they have the means to pay the debt (or their parent or guardian promises to pay it off if they default)

• They are emancipated minors

• They are designated secondary cardholders on a parent or legal guardian’s account.

No exploitation of college students. College-age Americans will still be able to get credit, but within reason. Account limits will be either 20% of their annual income or $500, whichever is greater. So this market will grow less attractive for credit card companies.

An end to universal default. If you make a late payment to one credit card issuer, other issuers will not be able to hike your rate as a consequence.

Cardholder permission for over-limit fees. Credit card companies now have to get your OK before they can process a transaction that would put your account over its limit.

Why are credit card companies crying? Cut out all the nickel-and-diming, and credit card issuers will be left with lower revenues. So where are they going to get the money back? Think reduced rewards for cardholders. Think new and inventive annual fees.

Edward Yingling, president and CEO of the American Bankers Association, fears that now “less credit will be available generally, which means some consumers and small businesses will not be able to obtain credit cards at all, particularly younger people and start-up small businesses.” But Sen. Chris Dodd (D-Conn.), the driver behind CARD in Congress, thinks such claims sound “a little like Chicken Little.” As usual, I am here to help. If you have any questions or concerns please call me toll free at 1-866-786-2521.

Retirement Intelligence - Subscriber Survey Results

2009-05-19T09:58:00.003-04:00

In my May 14th issue of Retirement Intelligence I mentioned how earlier in that week a subscriber wrote me an email saying she didn't want me to talk about my singing anymore. She also didn't want me to include jokes, casual photos of myself, of info on improving your health, wellness, or sex life. She wanted me to be serious, always wear a tie and a jacket on TV, cut out the corniess and make this a "serious" financial newsletter. So...I asked for your feedback and here's a sampling of what you had to say. Thanks for your support and comments. Based upon your kind words, I will continue RI as is! Warmly, Bill

***READ SUBSCRIBER COMMENTS BELOW***

Bill - Tell your subscriber to untwist her panties. Life is too short to be serious and straight laced all the time. Adding a personal touch to advice shows you’re human too. Makes what you are saying more believable, achievable. Wendy
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If it weren’t for the entertainment you provide, in the casual welcoming way, most of us would never stick around to get the invaluable, thought-provoking, and meaningful information you put out. It is not just Retirement Intelligence, its Living Intelligent! I have truly been inspired by you. I cannot sing but I will be running a marathon in a few months and I laugh as often as I possibly can….Take care…and laugh (and sing) all you want, just include us along the way….no tie required! In all seriousness, Claudia
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Being “serious” is how financial planners are “supposed to” be, which makes all serious financial planners the same. I don’t want an ordinary financial planner…I want a real person, who I can identify with, like, and trust! – Lin
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Don't change anything Bill, life is not about the way a person dresses it is about how Human they are, I get a lot of newsletters and yours is one I enjoy and read most of, stay well. – Brian
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As for the "serious" newsletter - I say no way! I like it just the way it is. Having a more relaxed, but still professional attitude like you do makes me trust you more. – Jessa
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It is BECAUSE you make your newsletters fun, entertaining, personal, and with information I can understand (layman's language), that I read your newsletters! You are the only financial person I subscribe to and I appreciate you keeping me on your e-mail list. Paula
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Don't go changing to try and please her, we love you just the way you are! Your reader doesn't sound like she has much fun in life and no wonder! Life is not fun when it's humorless. It's very nice of you and like you, to query your internet audience and not tell that reader to go pound salt! Sincerely, Patricia
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I love and look forward to your newsletters ... I love the way you put it together and really like your personal touches...It lets everyone know you are not a stuffy shirt like some business people can be. Please do not change anything about your newsletter, I love it.... – Shelley
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Keep on doing what you’re doing. This is a fun, yet very informative newsletter. Anyone who thinks otherwise needs to get a life! Gayle
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Keep up the genuine “Bill” I’ve already come to like in this short time. – Karen
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Bill - I DON'T agree with the reader who wants you to be more serious. I like your emails just the way they are. Life these days is serious enough. We need to laugh. Judy
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I love the casual look and talk about your life and family. I love the joke of the week!! It always makes me laugh. As a financial advisor, your articles and newsletter come across as very professional and knowledgeable. I can’t imagine anyone questioning your expertise when they read them. Jen
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I truly appreciate the advice that you give in your Retirement Intelligence emails and do not think your showing your personal side and sending other non-financial info detracts in the slightest from the good financial and retirement advice that you send. Keep up the good work - just as you are doing it now. – Beverly
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Life is all too serious and when you need to be serious about the issues of financial planning you are a perfect professional. Tie and jacket? Lady must assume that everyone wearing this garb automatically are more intelligent and more professional. She should have seen Howard Hughes and his sneakers! And, folks that are planning towards retirement or are already there should be and need be concerned about their health. So you offer more than the basis financial planner. Let her contact someone who offers less than a personal touch to this important topic. Okay, gotta get off the soap box. Please, do NOT change for someone who has difficulty in seeing a full side of life! Russell
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Thanks for being who you are, Rich and Carol
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PLEASE do not wear a (stuffy) jacket and tie and PLEASE continue the jokes, family news and banter! Nothing worse than a stuffy robotic person, regardless of profession! Carolyn
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Keep up you fun and good work. Don't change what you have been doing. Life is serious, but lets not make it Un-Fun. Be authentic! Sam
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Love the style of your newsletter! Keep the jokes, the links, the pictures, et al. Retirement is not just about money...it is about lifestyle. - Rosemary
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Just continue being your enlightening self, full of tremendously good counsel and with a good voice and sense of humor. – J.J.
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Do not change who you are or how you choose to act because of others. I like your email just the way it is. Bill & Cathy
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I love your newsletter just the way it is. You come across as a "real" human, with more interests than simply money – Roberta
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Life is serious enough ……………. Humor goes much further is having a well-balanced, enjoyable, healthy life. Keep it going! Carole
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Keep the "fun stuff" in. There are way too many "serious" financial newsletters. If that "serious" woman doesn't like your newsletter, she can just stop reading it. I like to know that my financial advisor is a "real" person, not just someone who spits out facts like an automaton. Keep up the good work and don't take yourself too seriously. Regards, Eric
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Thank you for your positive newsletter and all your funny jokes, casual pics and helpful tidbits. Valerie
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Keep up the good work! I have learned a lot from this newsletter. – Gayle
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Keep your newsletter just as it is. Nothing wrong with informal and light mixed with the serious. – William
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If you were just suit and tie, I would have no interest in getting to know you and working with you . . . NONE. As you know, there are enough commoditized people in this commoditized world providing commoditized services - especially financial advice and advisors. John
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I think the jokes and the casual photos are fine as they are not the main thrust of your newsletter.- James
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No, no, no! Don’t change the newsletter. The jokes, pictures, and personal info make you seem a friend as well as an advisor. I enjoy the links to sites on improving my life and you’ve saved me a lot of time by prescreening them for me. If there’s anything I’m not interested in I just don’t go there. Martha
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Keep up the humor. I think we all need humor every day. Thanks, Pat
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I think that your newsletter's banner sums it up nicely : "Dedicated to your health, wealth & happiness", which informs the subscriber to expect a balanced approach regarding contents. There are plenty of other "wealth only" publications out there for folks with an all business bent. – Linda
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Bill - life's way too short to take ourselves seriously. I enjoy the light hearted approach. – Leanne
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Hello, Bill! Please leave it just as it is! The jokes are great! I love jokes. That lady has to be in the minority. Thanks. Sylvia
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Retain the human touch. Let the quality of your knowledge and advice be what dictates your credibility not your dress sense. I might draw the line if you appear in a Big Bird costume, but I'm comfortable with jeans and a T-shirt. – Paul
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Dear Bill, I cannot believe a subscriber told you how to act. Were they possibly joking? Being funny and casual neither adds nor detracts from your credibility. It is who you are. There are many financial advisors out there for your subscriber to choose from. He/She should find an advisor that is the right fit for them. Of course you already knew this was the correct response, didn't you. :) Cheers, Sue
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Please stay the way you are. If all you had was the serious financial information then it would not be you. It would be boring. People like to get to know other people and with computers we would know even less if you did not include personal information, family information, etc. If we met would we not ask questions about each others lives? Thanks. Frank
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Dont change a thing, except maybe leave out the sex life stuff. I'm 46 female and not a prude or religious, just think we can always find sex life info, and it's not relevant. – Jeannie
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You might want to let up a little bit talking about the singing, but other than that, I think everything is fine the way it is. – Linda
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I AGREE I DON'T THINKS YOU HAVE COVERED ANYTHING IMPORTANT IN MONTHS. I don't care where you are or what you are doing! – Dick

3 Ways To Ruin Your Dream Retirement

2009-05-11T15:22:00.002-04:00

Question: Bill, I love your blog posts and always find a good idea each week. Tell me, what would you say are the biggest mistakes people make with their retirement? --Lori, RI

Answer: Lori, thanks for the positive feedback! I appreciate it. Here are the three biggies.

Mistake #1: Retiring when what you really needed was a break. All too often I see people in their fifties and sixties who retire or take an early incentive offer because they think they’re ready to stop working. After a few months or a few years they find themselves bored and restless and wanting to work again. Unfortunately by then many of their business connections may have vanished or the economy turned sour and they can’t find meaningful work. Before you decide to retire fully, discuss a phased retirement or flexible work schedule with your employer. Explore all of your options before retiring.

Mistake #2: Spending your retirement money too quickly. Monitoring how much money you take out of your portfolio each year is crucial to you not outliving your money. 4% is the magic number that you could take out of your saving each year ($4,000 for every hundred thousand you have invested) and put yourself in a position for your money to last 30 years. Take out more than that and you could run out of money before three decades are up. Retire in a bear market and take money out when your portfolio is going down and you could run out of money in less than 15 years. Retire in a bull market and your money could last forever.

Mistake #3: Not paying attention to your investments. Most people have no idea what they’re invested in, what they can expect to earn, and how much risk they’re taking with their portfolio. This can all be quantified. Do you know how much risk you’re taking? What's your asset allocation?

Bill’s Bottom Line: As a regular reader of my blog posts, you’re probably well aware of my popular free 30-page report, The 10 Biggest Mistakes People Make When Retiring & How YOU Can Avoid Them. You can download it free at MyRetirementSuccess.com.

The Results of the Bank Stress-Tests

2009-05-07T19:43:00.003-04:00

Which banks did well? Which didn’t?

The worst-kept secret in Washington goes public. Federal regulators have now released their “stress test” evaluations of America’s 19 largest banks. So how many of the 19 thrifts are adequately capitalized? Which banks will be directed to boost their capital, and where might that capital come from? Information has been leaking for days. Now we have the official report and the Federal Reserve’s opinion.

Nine banks don’t need more capital. The banks in the best shape: American Express Co., BB&T Corp., Bank of New York Mellon Corp., Capital One Financial Corp., Goldman Sachs Group Inc., JPMorgan Chase & Co., MetLife Inc., State Street Corp. and US Bancorp. The government says these banks do not need to beef up their balance sheets.

Ten others do. The government says these banks need to raise new capital or bolster capital reserves by the following amounts: Bank of America ($33.9 billion), Citigroup ($5.5 billion), Fifth Third Bancorp ($1.1 billion), GMAC LLC ($11.5 billion), KeyCorp ($1.8 billion), Morgan Stanley ($1.8 billion), PNC Financial Services Group Inc. ($0.6 billion), Regions Financial Corp. ($2.5 billion), SunTrust Banks Inc. ($2.2 billion) and Wells Fargo ($13.7 billion).

The deadlines. The government has given the banks that do need capital up to six months to raise it – and one month to come up with a plan to do so. June 8 is the plan deadline and November 9 is the deadline for raising money. Some may raise all the capital they need by converting government debt into private stock.

The crucial test. The Fed wanted to check and see if these banks would have at least 6% of their assets in Tier 1 capital and at least 4% in common equity by 2010 under the two economic scenarios posed. Tier 1 capital includes common shares, most types of preferred stock, and TARP funds.

The options. Banks that need to thicken their capital cushion can do so by 1) selling selected assets, 2) raising new common equity from current shareholders or new investors, 3) applying any earnings that top analyst expectations toward their capital bases, or 4) converting preferred shares into common stock. Step 4 is actually a cash conservation move – converting the preferred shares wouldn’t actually boost overall capital, but it would allow banks to eliminate preferred stock dividends.

Consolidation is also a possibility. Some analysts wonder if the smaller banks among the 19 – thrifts such as SunTrust, Fifth Third, Regions Financial and KeyCorp – could end up merging with larger banks.

The Treasury is the lender of last resort. The government has instructed the banks to go to the private sector first before asking for any more federal money. Treasury Secretary Tim Geithner thinks that the “vast bulk” of thrifts needing more capital can capably find it “through private sources” in coming months. The still-developing Public-Private Investment Program (PPIP) could offer a way.

Is Washington simply managing expectations? Stress tests have occurred for years in the banking world; the findings of such tests are commonly kept private. The government revealed these results with the goal of maintaining the public’s faith in the banking system – as if to say, “Here is the open book and here is how we are directing the banks to make things better.”

Some analysts wonder how credible the results are. After all, what would the government have to gain by saying a big bank was in big trouble? Investors would flee, and the Treasury would have to shell out more TARP money. Other analysts note that generating capital and bettering the balance sheet doesn’t address the problem of removing toxic assets from the books of these banks.

On the other hand, the announcement of the stress tests did lessen the anxiety among investors this winter, when Wall Street fretted about the possibility of bank nationalization. The announced results do not look as negative as some investors had expected. Interviewed May 6 on Charlie Rose’s PBS program, Secretary Geithner noted that there are “very significant [capital] cushions in these institutions today, and all Americans should be confident that these institutions are going to be viable institutions going forward.” Additionally, a growing number of analysts see the economy improving by 2010, which will hopefully help to reduce stress for banks.

The Value of a Fee-Based Advisor

2009-05-03T16:02:00.003-04:00

Why are more and more financial advisors fee-based? It comes down to philosophy. Advisors are increasingly choosing a business model that promotes a trusted, ongoing relationship with a client, rather than just a sale.

Would you rather meet with an advisor, or a salesman? A fee-based advisor has every motivation to be your financial consultant and help you manage the investments you have chosen. Does a transaction-based advisor have similar motivation?

The transaction-based business model is built on selling you a product. When a client buys an investment, the broker gets paid a commission upfront. So this model inherently encourages an investment broker to hunt down the next sale. What if you don’t buy any more investment products? Will the broker still stick around and financially consult you for years to come? Maybe – but that’s not what the business model is about.

My interests are aligned with yours. The fee-based business model focuses on a relationship – the ongoing supervision of the client’s assets under management (AUM).

In the fee-based business model, when you do well, the advisor does well. This encourages a sense of partnership and collaboration in planning your financial future, as opposed to just selling you an investment product here and now.

As a fee-based advisor, I have the same goal you have – the goal of growing and protecting your assets. We both succeed when that happens.

In the bear market downturn, as the value of client assets declined, so did advisor fees: financial advisors lost some of their own personal wealth and income.

I feel fee-based is better. I offer my clients the option of a fee-based relationship because I feel better about advising them in this way. My conscience and my ethics have guided me toward this business model – and through it, I can provide what I believe to be better guidance for my clients. If I can be of service, please feel free to call me at 1-866-786-2521.

Retire Early & Happy? It's Possible!

2009-04-29T16:21:00.003-04:00

Question: Your "Non-Retirement Retirement" post really resonated with me. Thanks! I have been thinking for some time that maybe a traditional retirement wasn´t in the cards for me. Now I know it isn´t. What are some suggestions you have for pointing me toward a happier, more fulfilling, less financially-driven retirement lifestyle? Barbara, NYC

Answer: Barbara, as I mentioned in a previous post, many baby boomers do not wish to retire in the traditional sense. The notion of never working again is a nice one, however I´ve found that what most people want is to have the choice and freedom to never work again - although many continue to work to feel connected and make a difference (and because so many need the money).

There has been a tremendous shift in the past few months. American´s are realizing that they can be just as happy or happier when they participate in activities which cost little or no money. Sure it´d be nice to have a nice shiny car or the big flat screen TV but people recognize that those "things" don´t cause their happiness. Earning an income from doing what you love and connecting with people you care about is key!

So what can you do to have a happier, more fulfilling, less financially-driven retirement lifestyle? It´s simple. As Retirement Coach Ann Fry (www.ItsBoomerTime.com) says:

1. Stop doing what you DON´T want to do.

2. Start doing what you DO want to do.

3. Don´t let anyone else tell you what you CAN´T or SHOULDN´T do.

My wish for you is that the next phase of your life is meaningful, filled with fun and stimulating activities, exploration, passion, happiness, good health and true financial freedom. Remember, your happiness is a currency more valuable than money.

Bill´s Bottom-line: Life is too long not to be doing those things that are fun and rewarding. Go for what you REALLY want. Start now!

How Do I Pick a Financial Planner?

2009-04-19T14:36:00.003-04:00

My husband and I have made the decision to start working with a financial planner this year. The problem is there are so many to choose from. How do I know who I can trust and who is a good fit for me? -Sally, IL

Sally, the term “financial advisor” is a very broad term so you should begin to narrow your focus by determining what you need – a generalist, or a specialist in areas such as retirement, tax, investments, or estate planning, etc.

Anyone can call themselves a financial planner or financial advisor; at this point there is no minimum experience or education required by law. To protect yourself, I suggest you only work with a person who has attained the CFP or Certified Financial Planner designation, and has a minimum of 5-10 years experience counseling individuals. This credential demonstrates a base level of knowledge, a degree of integrity, adherence to a strict code of ethics, and a continuing education requirement. While there are millions of “financial planners” nationwide only 55,000-60,000 of those individuals have completed the coursework to become a CFP professional. This should be a starting point for you.

Next, I’d start my search by asking friends, family, colleagues who they know, like and trust. At a minimum you should interview 2-3 professionals before deciding on a choice. Ask the advisor how he charges (hourly, flat fee, percentage of assets, or commission), what his experience is, how he’d handle certain situations, how many clients he serves, his philosophy, how often he’ll communicate and will meet with you, how long it takes for him to returns calls/emails, and ask to speak with at least three of his existing clients as a reference.

Finally, be wary of advisors who have switched firms a lot, have less than 5 years experience, only can offer insurance products as solutions to your problems, push proprietary products, and someone with high client turnover. Make sure there are no complaints or violations against him. Be sure to check out your potential advisor on the web sites of the SEC, FINRA and EthicsCheck.com.

Bill’s Bottom Line: Don’t rush into a relationship with an advisor. Take your time. Do your homework. Trust your gut. Make an informed decision. If you have any questions, please call me toll free at 1-866-786-2521.

The “Real” Financial Crisis in America

2009-04-12T13:02:00.001-04:00

We have a big financial crisis in America.

It’s not the weak housing market, rising unemployment, inflation, the collapse of Bear Stearns, fall-out from the sub-prime mortgage fiasco, declining home prices, stock market volatility or geo-political unrest in the Middle East. Sure they have made front page news; however they’re not the real issue. They are symptoms of the “spending crisis” in America. They are symptoms of the real issue… we are a country of financially illiterate people.

In the June 2008 issue of the Journal of Financial Planning, Elisabeth Donati, Founder of Creative Wealth International said “The statistics on financial well-being and young people are alarming. There’s a rise in college suicides because of credit card and student loan debt, young adults under 25 are now the fastest-growing age group filing bankruptcies, and more kids now see their parents file for bankruptcy than file for divorce. Less than 10% of our high school graduates take any courses on money management or wealth creation. Most of our country’s social problems stem from financial problems”.

The issues are easy to identify: the government and millions of consumers alike spend more money then they bring in or make. When the government needs more money they raise taxes or go further into debt. When Americans need more money, they charge it or take out more of their home equity.

The solution is also easy to identify: financial literacy. Unless and until basic financial literacy education becomes mainstream and required in our schools and businesses, American’s will continue to rack up lots of debt, fall behind on their bills, lose their homes, and have to work themselves to death to try to keep afloat.

Spending less money than you earn is fundamental to your basic financial health. Having written financial goals and understanding your options and timeframes are keys to financial success. Differentiating between needs and wants is critical in your financial goal-setting process.

Setting money aside from each paycheck, which American’s are finally waking up to, is basic and necessary. It is the medicine that will treat our symptoms; but fundamentally ignored by millions of American’s who are either living paycheck to paycheck, delaying retirement, or spending out of control to garner immediate gratification. Something’s got to give.

How uncomplicated would it make our lives if we (and the government) just spent less than we made and saved/invested the difference for our future? How great would it be if every American knew, understood, and was able to articulate the difference between positive and negative cash flow? (I recently conducted a brief survey with ten people at random and asked them to explain how their net worth is calculated. Only one person out of the ten could answer the question with any authority.) How much brighter would our future look if we saved even a little more money today?

So, what do you get when you combine a weak housing market, rising unemployment, inflation, the collapse of Bear Stearns, fall-out from the sub-prime mortgage fiasco, declining home prices, stock market volatility and geo-political unrest in the Middle East? The opportunity of a lifetime to promote financial literacy and potentially save a life. Maybe, just maybe, financial literacy could be the solution to many of our country’s social problems. If you have any questions, please feel free to call me a t 1-866-786-2521.

Should YOU Retire Early?

2009-03-31T14:44:00.003-04:00

While it may be possible, it is not always advisable.

Do you dream of retiring before you turn 60? How about before you turn 50? Well if you do, you might want to think twice before you make the move. If your heart is set on leaving work early, you want to be sure to leave with the right mindset and the right estimation of your financial potential.

Retire with a realistic picture of your income needs. In late 2006, the Center for Retirement Research at Boston College surveyed 400 private sector employers. Those employers estimated that one-fourth of their employees between 50 and 60 years old lacked the financial resources to retire even at the traditional retirement age. If you’re like most Americans, your retirement expenses will be roughly 75-80% of your pre-retirement expenses. So you need to determine if the income derived from your 401(k), 403(b), pension or other sources can generate that. Remember that you can’t receive any Social Security benefits before age 62.

Retire with the idea that you’ll live to be 100. With recent advances in health care, you might become a centenarian. Your income streams may need to last 20, 30, even 40 or 50 years. Any income streams that you have today may soon need to be supplemented or adjusted due to unforeseen needs and inflation. Many new retirees make the mistake of withdrawing income at too high a rate in the first few years after leaving work. They live “high on the hog” for a while, and find out to their chagrin than their retirement nest egg is shrinking, because they are spending more than their portfolios can earn back. Additionally, you may also have to pay for health insurance if you retire before age 65. All of this may point you in the direction of part-time employment, a flexible work schedule, or a phased retirement rather than total retirement.

Retire with purpose. Leaving work behind can be exhilarating. But after the first few months of fun, there can also be a “now what?” Any early retirement becomes better with a plan for purposeful and meaningful living, irrespective of your finances. A coach can help you make that transition.

Actually, if you do a Google or Yahoo! search with the right keywords, you’ll come across a number of articles about people who have chosen to retire late. They keep working out of passion or necessity. If that’s not for you and you don’t want to work much longer, talk to me and we’ll take a look and see if you are financially prepared to retire. I’ll share my professional insight and talk to you about your options. As always, I can be reached at 1-866-786-2521.

How Can You Help Stimulate the Economy?

2009-03-22T11:18:00.003-04:00

While President Obama’s stimulus plan may significantly aid the U.S. economy in future months, some economists are seeing notable potential in the private sector. There are little things we may do, in unison as Americans, that could help heal regional and local economies.

Start up a business. Nothing huge, perhaps, but a cottage industry outpost of your own: a way to make some extra money, or a new way to capitalize on a new opportunity. Where do you learn to start a business? From a mentor, friend or parent. From free or low-cost workshops held in your community. Don’t discount the relevant information you might find online or at the library. If you think you have a good idea in mind, why not act on it and do your part to stimulate the economy?

Spend your dollars locally. Frequent local stores, and remember that this goes beyond mere retail shopping. If you have a need – if you need a service provider, or a vendor – hire a local business that needs the work. Your Chamber of Commerce, your local newspaper and the local chapter of the Better Business Bureau can alert you to worthy local businesses you may not have known about.

Don’t cut back unnecessarily; just spend your dollars wisely. Set a budget and try to abide by it. Go out and do what you love to do, but keep moderation in mind – do it a little less frequently, or a little less expensively.

Buy American. This is the time to do it. Why turn away from the American worker and business owner now? Look at labels and look online for U.S.-based firms.

Invest. Some companies have held up well in the recession, and shares of many other companies are priced quite low right now – so why not take advantage of the opportunities?

Finally, stay positive. A recession is temporary by definition. At some point, perhaps sooner than we all think, the economy will take a turn for the better. If you need help coping with the recession, by all means ask for it – people want to help you. Churches and temples, local non-profits, the friends and loved ones you count on and even businesses are ready to give you an assist if you need it. Ask around, and look forward to a brighter day. If you have any questions or concerns, please call me toll free at 1-866-786-2521.

Watching Every Penny!

2009-03-15T13:05:00.002-04:00

If you’re unemployed or underemployed as a result of this recession, you’ve no doubt given some thought to budgeting. Establishing that budget is the next step.

See where your money goes. You know the amount of your mortgage or rent payment, but do you know how much you’re spending on food, gas, entertainment, or clothing? This is how hard-earned or long-saved money leaks away.

Track every buck. That’s right: for a month or a week, make a note of where every dollar you spend goes. That’s every dollar that leaves your bank account. Specify every expense you can. (Don’t forget to include the fractional cost of your annual expenses per month or per week.)

Where the savings are. You might be relieved to see how much you can save per month if you cut back in five areas or creature comforts – comforts you might be quite comfortable without.

1) Eating out. A morning coffee … a fast-food lunch … a takeout meal or dinner in a restaurant … what does this all add up to? Possibly $20-25 a day, 5-7 days a week. Cutting back on some or all of this could save you hundreds of dollars a month. While these purchases may have been habit when you worked, you can avoid or limit them now.

2) Entertainment. This means movies, concerts, plays, and other social events and amusements. You don’t have to deprive yourself altogether here, but consider how expensive some of these costs (concert and theatre tickets) can be. You might easily save $100 or more per month.

3) Autos. You can find families in this country that own three or four cars. (Three or four SUVs, even.) Gas may be cheaper at the moment, but auto repairs are never cheap. What if you sold a car and cut back to one car? It might require a little rescheduling on the part of your spouse or family, but you could gain some cash and lose some expenses (and possibly some repair bills you would otherwise pay down the road).

4 & 5) Cable and Internet service. Do you really need a high-speed connection? Do you need 1000 channels? These are other areas where you can cut back and save big.

Do not stop investing. You still need to do that if at all possible. Keep contributing to the accounts poised to compound over time, so that you may use them to fund part of your retirement someday and pursue your long-term financial goals. As always, if there is anything you think I can help you with, please call me toll-free at 1-866-786-2521.

Could You Raise Your Social Security By $1,000 A Month?

2009-03-11T10:20:00.004-04:00

How filling out Form SSA-521 could help you put more money in your mailbox.

A couple of years ago, Boston University economics professor Laurence Kotlikoff publicized a mindblowing discovery: retirees could dramatically increase their Social Security checks by reapplying for Social Security benefits.

It was entirely legal; it was an opportunity that had lay unnoticed for years. It was soon discussed on National Public Radio and PBS, and in USA Today and a number of in financial magazines. Let’s discuss it here.

Hit “restart” and reset your SSI. Everyone eventually applies for Social Security, but few people reapply – and that’s the key to this strategy, which can potentially bring retired couples $1,000 or more in additional SSI per month. Kotlikoff calls it “restarting the Social Security clock”. If you have retired within the last few years, it is a move worth considering.

You can start collecting Social Security benefits when you’re first eligible, and then restart your payments at a higher rate later. You simply file Form SSA-521 (www.ssa.gov/online/ssa-521.pdf) to request a withdrawal of your Social Security application. After the SSA processes that form, you reapply for Social Security – and since you are older now than when you first applied, this time you will receive much higher payments.

For example, a 63-year-old individual who started Social Security benefits in 2008 at age 62 would have received a payout of $18,794 a year; waiting until age 66 or age 70 would have meant $25,732 or $35,250 annually for that person. So if you feel you applied for Social Security too soon, this presents you with a remedy. As Kotlikoff noted in USA Today in 2008, a 70-year-old receiving $11,556 as a result of claiming early retirement benefits could reapply for Social Security benefits at age 70 and boost her standard of living by 14%. It would be like having an inflation-indexed annuity for about 40% less than the cost of a similar investment from an annuity provider.

What’s the catch? You have to repay the Social Security benefits you have already received. But you don’t have to pay interest on that money. Basically, you’re repaying an interest-free loan from Uncle Sam.

Now if enough people do this, there is the risk that the federal government may say, “Wait a minute – look at all these people exploiting this opportunity.” But very few retirees do.

If you do reapply, there’s nothing fishy about it. Visit your local Social Security office (make an appointment by calling 1-800-772-1213). Bring Form SSA-521 with you, or ask for it and fill it out while you are there. Don’t be surprised if the person on the other side of the desk doesn’t know what you’re talking about when you mention reapplying for benefits. So bring a copy of the formal SSA explanation (www.ssa.gov/OP_Home/handbook/handbook.15/handbook-1515.html ) with you.

Once you repay your benefits, you can restart them whenever you want. If you fill out Form SSA-521 and hand over a check repaying the money you’ve received, you can reapply for benefits right then and there – the request is routinely approved.

For the record, Form SSA-521 only allows you to check one of two boxes for why you want to reapply for benefits. The first is “I intend to continue working” and the other is “Other (please explain fully)”. Mickie Douglas, a spokeswoman with the Social Security Administration, told Financial Advisor Magazine that it is entirely legitimate to write down that you are reapplying because it is “financially better for you".

What risks do I run by doing this? The big risk is that you could die soon after you repay your benefits – you could be out, say, $50,000 or $60,000 without living long enough to enjoy much of the additional income. But survivor benefits would be larger for your spouse, of course. Speaking of spouses, widows and widowers cannot employ this strategy to reapply for a deceased spouse’s benefits.

Is this a good move for you? It might be. In case you are wondering, Kotlikoff is no hack - he holds a Harvard Ph.D. in economics and is a former member of the President's Council of Economic Advisors. He knows his stuff, and so should you. If you have the money to repay a lump sum equivalent to the benefits you have received, this may be a great move – but talk with your financial or tax advisor to see how this decision affects your overall financial strategy. As always, if I can help you in any way, please call me toll-free at 1-866-786-2521.

IRA Contribution Deadline

2009-03-01T13:06:00.002-05:00

Don’t miss the IRA contribution deadline! Make sure you make your 2008 IRA contribution before April 15! With share prices at historic lows, fully funding your IRA for 2008 (and 2009) could mean a tremendous boost toward saving for retirement.

Times are tough, but remember: the goal is to buy low and sell high! Anyone with an IRA should use this opportunity to fully fund it.

If you’ve been contributing $50 or $100 to an IRA each month, there’s room to contribute a lot more. Putting $600 or $1,200 in your IRA annually is nice, but you can direct up to $5,000 into your IRAs for tax year 2008, and up to $6,000 if you turn 50 in 2008. (These limits apply whether you have one IRA or 21 IRAs – they represent the total amount an individual may contribute to one or more IRAs for
2008. If your modified adjusted gross income, or MAGI, is really high, then you may have to contribute less.)

As for your 2009 contribution...You have until April 15, 2010 to make that one, but you can also make it during 2009 and cross it off your to-do list. Again, with stock prices so low, a lot of amazing values are available. This recession will not last forever; looking back years from now, chances are you will be very glad you contributed what you did when you did. If you need my assistance or advice, as always please call me toll free at 1-866-786-2521.

America Fights Foreclosures

2009-02-22T12:03:00.002-05:00

A day after signing his massive stimulus plan into law, President Barack Obama unveiled a strategy to stem the tide of American foreclosures. Some borrowers and lenders cheered; some housing industry analysts were unimpressed.

When does it take effect? The program officially begins on March 4, when specific terms of homeowner eligibility become available. The strategy has three parts.

Part 1: Helping homeowners without equity. Is your mortgage underwater? Do you have a conventional mortgage arranged after a sizable down payment? Have you made payments consistently? You could be among the 4-5 million Americans eligible to refinance into lower-rate mortgages under this relief plan.

Part 2: Helping homeowners who can’t make their monthly payments. Could you make the payments if they were reduced? Do you have an adjustable rate mortgage (ARM) that has reset? Are your mortgage payments more than 38% of your monthly income? If so, you could be among the 3-4 million Americans eligible for a new loan modification program. It would lower the interest rate on your mortgage for five years or longer.

Part 3: Helping Fannie Mae and Freddie Mac. While $75 billion of federal funds go toward parts 1 and 2, the greatest chunk of money in the plan - $200 billion – will be used to buy preferred stock in FNMA and FHLMC. This will encourage mortgage availability and make refinancing easier for homeowners.

How would home loans be modified? If you have a mortgage guaranteed or owned by Freddie Mac or Fannie Mae, the plan will allow you to apply to refinance them. You have to meet the terms of the program (again, full terms become public on March 4). You have to be able to document your income and show that you live in the home in question. If you meet the terms, your lender could potentially arrange a mortgage with lower interest rates backed by the GSEs.

If your home loan payments are greater than 38% of your monthly income and you are having a hard time making them, the Obama program gives your lender an incentive to lower the interest rate or reduce the principal amount to bring the payment to 38% of your income. And if the lender does that, the government will pay 50% of the additional cost to that lender to cut your mortgage payment to 31% of your income.

More help for more people. You needn’t face foreclosure to get assistance from this program. You don’t even have to be behind on your payments. In fact, if a loan servicer modifies a mortgage before it defaults, it gets a higher incentive payment ($1,500 instead of $1,000). If you are already in foreclosure, your lender has the option of participating in the program … or not.

Who does this not help? Speculators and flippers. People who arranged jumbo mortgages or other seemingly insurmountable home loans. In fact, if a mortgage exceeds the limits on so-called conforming loans, that mortgage holder is ineligible for help through the program.

Homeowners who have successfully and diligently made mortgage payments despite economic pressures may feel a bit of resentment. Audible grumbling has been heard from people who feel the plan is essentially rewarding borrowers who lacked fiscal responsibility in the first place.

Will this work? Obama thinks so. FDIC chairman Sheila Bair thinks so. “I believe you'll start seeing a real impact in March, with meaningful, long-term sustainable progress,” she told ABC-TV’s “Good Morning America”. On the other hand, Bruce Marks, CEO of the Neighborhood Assistance Corporation of America, believes the plan will have “minimal impact”, noting that “they haven't even agreed to underwriting criteria.”

Howard Glaser, a former HUD official during the Clinton administration, applauded the plan: “For the last two years, the government has been employing a squirt gun to put out the forest fire in the housing market,” he told National Public Radio’s Morning Edition. “The Obama plan is a howitzer aimed at the problem … it flips the calculation, and in the vast majority of cases will make it a better deal for the investor to modify the loan than seek foreclosure.”

Hopefully, the President’s bold strategy will help heal a root problem of the recession.

Obama's Stimulus Plan

2009-02-18T10:07:00.002-05:00

On February 17, President Obama signed the 1,071-page American Recovery and Reinvestment Act (H.R. 1) into law. Here are some of the routes the money will take.

$287 billion in tax breaks include…

$116 billion in refundable tax credits for individuals & families. Is your adjusted gross income (AGI) $75,000 or less? You will get a refundable tax credit of up to $400. Families who earn less than $150,000 in AGI can get a refundable tax credit of up to $800. You won’t get a check in the mail. Instead, withholding tax on your paycheck will be lessened by about $8 per week across the remainder of 2009 and also in 2010.

$70 billion to patch the Alternative Minimum Tax. The AMT exemption has been raised to $46,700 for individuals and $70,950 for couples.

$14 billion to expand the child tax credit. This will help low-income families.

$13.9 billion toward Pell grants & education tax credits. Pell grants will increase to $5,350 per student for the 2009-2010 year. Also, if you earn less than $80,000, or if your family earns less than $160,000, tax credits of up to $2,500 will be available for college tuition. Up to 40% of that credit is refundable (as much as $1,000).

$6.63 billion to aid homebuyers. Specifically, “first-time” homebuyers. The bill defines a “first-time” homebuyer as someone who hasn’t owned a home for the past three years. If you fall into that category and you buy a home in 2009, you are eligible for an $8,000 tax credit – and you don’t have to pay it back. Some “first-time” buyers will not be eligible – the credit phases out at $75,000 AGI (individual taxpayers) and $150,000 AGI (joint filers).

$1.7 billion to help new car buyers. If you buy a new car in 2009, you can deduct the sales tax on it if your AGI is below $125,000 (individuals) or $250,000 (joint filers). No Bentleys: the car can’t cost more than $49,500.

$23 billion to states. $18 billion of it goes to financing for public schools, and for investments in economically downtrodden neighborhoods.

$21 billion for energy projects. $4 billion of that goes to incentives to encourage more energy-efficient homes and more hybrid car purchases.

$10 billion in business tax breaks. That includes $5 billion via accelerating depreciation of certain capital assets by 50%, and $3 billion for General Motors.

$192 billion in direct aid includes…

$94 billion to states. $87 billion of that goes to Medicaid.

$78 billion to the jobless. That includes a one-time $250 check to Social Security, veterans’ benefits and Supplemental Security Income recipients ($14 billion). $9 billion will be spent to boost unemployment checks by $25 a week and allow extended benefits for the long-term unemployed through 2009. $25 billion subsidizes continued group health coverage for people who lost their jobs between 9/1/08 and 12/31/09; their income must not exceed $125,000 (individuals) and $250,000 (families).

$20 billion for healthcare. $17 billion of this represents incentives for Medicaid and Medicare to adopt new, digital health information technologies.

$308 billion in discretionary spending includes…

$106 billion for job training & education. $54 billion of this is designed to help states ward off cutbacks and layoffs, mostly in school systems.

$48 billion for transportation projects. $28 billion goes to road and bridge building; $8 billion goes to inner-city and high-speed rail projects.

$44 billion to energy projects. $11 million will update the U.S. electric power grid.

$41 for infrastructure, environment & water projects. The biggest expense here is $7 billion to expand rural America’s broadband capability.

$29 billion in health & science funding/research. $10 billion of this heads to the National Institutes of Health, a world-respected medical research center.

$40 million for other projects. Out of this, $20 billion will extend food stamp benefits, and $13 billion will go to housing programs.

No scandalous spending. Specific language in H.R. 1 prohibits any use of the stimulus money “for any casino, or other gambling establishment, aquarium, zoo, golf course, or swimming pool.”

Let’s hope all the money stimulates the economy.

How Long Should You Keep Your Statements?

2009-02-04T18:20:00.001-05:00

You have probably heard that you should retain copies of your federal tax returns for 7 years. Is that true, or a just myth? How long should you keep those quarterly and annual statements you get about your investment accounts? And how long should you keep bank statements before throwing them away?

Tax returns? The Internal Revenue Service urges you to keep federal tax returns until the period of limitations runs out – that is, the time frame you have to claim a credit or refund, or the time frame in which the IRS can levy additional taxes on you. (This is a good guideline for state returns as well.)

If you file a claim for a credit or refund after you file your tax return, the IRS would like you to keep the relevant tax records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.

If you claim a loss from worthless securities or bad debt deduction, you are advised to hang onto those records for 7 years. If you … uh … filed a fraudulent return or no return, you should keep related/relevant documents for 7 years. The IRS also advises you to retain employment tax records for at least 4 years after the date that the tax becomes due or is paid – again, whichever is later.

Some tax and financial consultants advise people to keep their tax returns forever, but concede that canceled checks, receipts and other documents supplemental to returns can usually be safely discarded after 3 years. (The standard IRS audit goes back three years.)

Tax records relating to real property or “real assets” should be kept for as long as you hold the asset (and for at least 7 years after you sell, exchange or liquidate the asset). These records can help you figure appreciation, depreciation, amortization, or depletion of assets with regard to the property. You also might want to keep receipts and tax records related to major home improvements – if you sell your home, you can show tomorrow’s buyer how much you put into the house.

Mutual fund statements? The annual statement is the one that counts. When you get your yearly statement, you can toss quarterly or monthly statements (unless you really want to keep them). You might want to quickly glance and make sure your annual statement truly reflects changes of the past four quarters.

You want to keep any records showing your original investment in a fund or a stock, for capital gain or loss purposes. Your annual statement will tell you the dividend or capital gains distribution from your fund or stock; as you may be reinvesting that money, you have a good reason to keep that statement.

IRA and 401(k) statements? You get a new one each month or quarter; how many do you really need? The annual statement is the most relevant. Additionally, you want to hang onto your Form 8606, your Form 5498, and your Form 1099-R.

Form 8606 is the one you use to report nondeductible contributions to traditional IRAs. Form 5498 is the one your IRA custodian sends to you – it is sometimes called the “IRA Contribution Information” or “Fair Market Value Information” form, and it usually arrives in May. It details a) contributions to your traditional or Roth IRA and b) the fair-market value of that IRA at the end of the previous year. Form 1099-R, of course, is the one you get from your IRA custodian showing your withdrawals (income distributions).

If you are 59½ or older and have owned a Roth IRA for 5 years or more, the assets in your account become tax-free, lessening your need to save these forms. However, you will want to keep a paper trail before then – if you somehow need to make early or tax-free withdrawals or write off a loss, you need the documentation.

Bank statements? The rule of thumb is 3 years, just in case you are audited. But some people shred them after a year, or immediately, fearing that such information could be stolen. In certain cases, it may be wise to hang onto them longer - in case of a divorce, for example. If someone tries to take you to court in the future, or if a creditor comes knocking, you may want to refer to them. Your bank may provide you with archived statements online or on paper (but there is sometimes a fee for supplying you with hard copies).

Payroll documents? Most financial and tax consultants advise you to retain these for 7 years or longer if you are a small business owner or sole proprietor. The IRS would like you to keep them around at least that long. Again, should there be a lawsuit or a divorce or any kind of potential legal dispute involving your company or one of its employees, a detailed financial history can prove very useful.

Credit card statements? You don’t need each and every monthly statement, but you may want to keep credit card statements that contain tax-related purchases for up to 7 years.

Mortgage statements? The really crucial records are most likely on file at the County Recorder’s office, but it is recommended that you retain your statements for up to 7 years after you sell or pay off the mortgaged property.

Life insurance? Keep policy information for the life of the policy plus 3 years.

Medical records and medical insurance? The consensus is 5 years from the time treatment ends (or from the time medical services are rendered, with regards to insurance). If you think you can claim medical expenses on your tax return, then follow the IRS suggestion and retain records for 7 years following the end of the year in which they are claimed.

As always, please call me toll free at 1-866-786-2521 if you have any questions I could help you with.

No Mandatory IRA Withdrawals In 2009

2009-02-01T16:41:00.002-05:00

You don’t have to take RMDs from your traditional IRA this year. On December 23, President Bush signed the Worker, Retiree, and Employer Recovery Act of 2008 into law, suspending all Required Minimum Distributions (RMDs) from IRAs, 401(k)s and 403(b)s for 2009.

This is sweet relief for people 70½ or older, especially people that don’t really need the IRA income. After all, no retiree wanted the “injury” of having to withdraw IRA assets already hurt by the recession plus the “insult” of having to pay taxes on the RMD. You can leave that money in your IRA in 2009 without incurring a tax penalty – and if the markets recover in 2009, those invested assets can grow and compound.

So what if you turned 70½ in 2008? You still have to take your 2008 RMD by April 1, 2009. It should be calculated using your account balance as of Dec. 31, 2007. (This is assuming you haven’t taken it already.)

Now, what if you turn 70½ in 2009? Well, you can wait until the end of 2010 to take your first RMD, but the IRS will consider it to be your second RMD.

The IRS says that if you turn 70½ in 2009, you have the option of delaying your first RMD until April of 2010. If you decide to do that, you will have to take two

RMDs in 2010: one by April 1, 2010 for the 2009 tax year and one by December 31, 2010for the 2010 tax year.

But … since nobody has to take an RMD for 2009, those turning 70½ won’t be required to take a 2009 RMD by April 1, 2010. However, you will still have to take a 2010 RMD by December 31, 2010, which the IRS will count as your “second” RMD, even though you didn’t take a “first” one for 2009.

How does this affect me if I have an inherited IRA? You may get a break. If the original IRA owner passed away before his or her Required Beginning Date (RBD) – which is generally April 1 of the year after turning 70½ – you face the pesky five-year rule, which requires distribution of all assets in the inherited IRA no later than December 31st of the fifth year after the original IRA owner’s death. If you are in that situation, you can forego a mandatory withdrawal in 2009 and effectively give yourself an extra year toward that five-year deadline. (If the original IRA owner died after his or her RBD, the timetable of withdrawals is longer; if the initial IRA owner designated a beneficiary, the IRA custodian may permit stretch IRA planning, whereby the beneficiary could receive payments based on their own life expectancy.)

What does this mean for IRA charitable rollovers? Suddenly, they’ve become less attractive for 2009 because of the RMD suspension. (After all, the amount of the charitable rollover counted toward your RMD.) But you can still directly donate to a charity from your IRA this year without incurring income taxes.

And what about Roth conversions? We might as well mention this piece of good news: in 2009, any withdrawals from a traditional IRA can be used to fund a Roth IRA. To convert a traditional IRA into a Roth IRA, your MAGI for 2009 (not including the converted IRA income) has to be $100,000 or lower.

Any chance of no RMDs in 2010? Well, who knows – with 2010 being such an experimental year for the federal tax code, Congress may decide to give older Americans another annual exemption from RMDs. But the odds of that happening seem pretty long. Most likely, traditional IRA owners who are 70½ or older and those who have inherited IRAs or 401(k)s will have to take mandatory withdrawals in 2010.

What does this mean for you? Do you need to take a withdrawal from your IRA, 401(k) or 403(b) in 2009? Should you leave the assets untouched this year? Should they be invested in a slightly different way? What could you do in 2009 to position yourself for 2010, when a horde of taxes will be waived and big tax breaks are available? It’s a good time to chat with a financial or tax advisor. Please call me if you have any questions or concerns at 1-866-786-2521.

6 Steps to Get Out of Debt

2009-01-25T12:22:00.002-05:00

Positive moves to counteract negative cash flow. In July, a New York Times article mentioned that half of American families were carrying more than $25,000 in debt. Of course, some of this can be attributed to mortgages. But the borrowing doesn’t stop there.

Every day, people draw on money they don’t actually have – via credit cards, payday loans, home equity lines of credit, and even their 401(k)s. Many of them end up making minimum payments on these high-interest loans – a sure way to stay indebted forever.

If this is your situation, you may be wondering: how do I get out of debt?

Let me give you some ideas.

1) Make a budget. “Where does all the money go?” If you are asking that question, here is where you learn the answer. You might find that you’re spending $80 a month on energy drinks, or $100 a week on lousy movies. Cable, eating out, buying retail – costs like these can really eat at your finances. Set a budget, and you can stop frivolous expenses and redirect the money you save to pay down debt.

2) Get another job. I know, this doesn’t sound like fun. But having more money will aid you to reduce debt more quickly. A family member who isn’t working can work to help reduce a shared family problem.

3) Sell stuff. The Internet has proven that everything is worth something. Go to eBay, craigslist or Kijiji – you’ll be amazed at the market (and the asking prices) for this and that. What people collect, want and buy may surprise you. Don’t be surprised if you have a few hundred dollars – or more – sitting around your house or in your garage. You might be able to pay off a couple of credit cards – or even a loan – with what you sell.

4) Ditch the big car payment and drive a cheaper car that gets good MPG. Say goodbye to the monster SUV (or the overpriced sports coupe). Get a car that makes sense instead of a statement. Your wallet will thank you.

5) Pay off all debts smallest to largest. The benefits are psychological as well as financial. Knock off even a small debt, and you have an accomplishment to build on – encouragement to erase bigger debts. Also, every debt you have incurs its own interest charge. One less debt means one less interest charge you have to pay.

6) Or, pay off your highest-interest debts first. Take a minute to figure out which of your debts hits you with the highest interest rate. Pay the minimum amounts toward each of your other debts, and apply all the extra money you can toward paying off the debt with the highest interest. This will have a cumulative effect. Your highest-interest debt will become smaller, meaning you will be saving some dollars on interest charges on the balance because the balance is lower. If the balance is lower, you should be able to pay off the debt faster. When you say goodbye to that debt, you can start paying down the debt with the next highest interest, and so on.

Keep the real goal in mind. Building wealth, not reducing debt, should be your ultimate objective. Some debt reduction and debt consolidation planners obsess on getting you out of debt, but that is only half the story. Minimizing debt is great, but maximizing wealth is even better.

You can plan to build wealth and reduce debt at the same time. If you have a relationship with a financial advisor, you might be able to do it in the same unified process. Why just keep debt at bay when you can leave it behind? Do yourself a favor and talk with a good financial advisor who can show you ways toward financial freedom. As always, I am here to help. Please call me toll-free at 1-866-786-2521 if you have any questions.

Little Ways To Improve Your Financial Life

2009-01-18T18:19:00.002-05:00

This is the year! Yes, you can make 2009 the year you alter your financial life for a better financial future. Let’s look at some steps you might think of taking with the goal of financial freedom in mind.

No, we’re not talking about those ridiculously obvious steps the usual articles recommend, like “write your goals down” and “set a budget”. Let’s go past the clichés and get into the real issues.

Look at your income source, your expenses and your debt. How do you earn income? If you earn it from one source, is there effectively a ceiling on it, or is there real potential for your income to rise in the next few years? Now look at your core living expenses, the ones you can’t avoid (such as a mortgage payment, car payment, etc.). Can any core expenses be reduced? Investing aside, you position yourself to gain ground financially when income rises, debt diminishes and expenses stay (relatively) the same.

Maybe you should pay your debt first, maybe not. If you are a business owner or a professional, for example, you’ll likely always have some debt. Your ultimate goal should be to build wealth – and you can plan to build wealth and minimize debt at the same time.

Some debt is “good” debt. A debt is “good” if it brings you income. If you buy a rental property, you’re paying a mortgage, but that’s considered a “good” debt because you’re getting passive income from the rent payments. Credit cards are “bad” debts.

If you’ll be carrying a debt for a while, put it to a test. Weigh the interest rate on that specific debt against your potential income growth rate and your potential investment returns over the term of the debt. If the interest rate on that debt looks like it will outpace your income growth and investment returns, then you should really think about paying that debt down fast, because you can’t afford that interest rate.

Of course, paying off your debts, paying down balances and restricting new debts all works toward improving your FICO score, another tool you can use in pursuit of financial freedom (we’re talking “good” debts).

Implement or refine an investment strategy. You can’t refrain from investing, even when the bears are out. You’re not going to retire on the relatively small elective deferrals from your paycheck; you’re going retire on the interest that those accumulated assets earn over time, plus the power of compounding. Investing can also potentially bring you passive income. Consistent investing, this year and in years to come, has the potential to help you improve your financial life.

Manage the money you make on your way to financial freedom. It’s amusing: all these Internet gurus tell you they have a method to make you “financially free” or “debt free”, but few tell you how to manage the money you make. Their not-so-subtle message seems to be “succeed and live lavishly” – if you make it financially, you’ve earned the freedom to blow it all on cars, boats and luxuries.

This is a classic nouveau riche mistake. If you simply accumulate unmanaged assets, you have money just sitting there open to risk – inflation risk, market risk, even legal risks. Don’t forget taxes – while not technically a “risk”, they are a threat to your money. The greater your wealth, the more long-range potential you have to accomplish some profound things – provided your wealth is directed.

If you want to build more wealth this year or in the near future, don’t neglect the risk management strategy that could be instrumental in helping you retain it. Your after-tax return matters even more than your investment return, so risk management should be part of your overall financial picture.

Request professional guidance for the wealth you are growing. A good financial advisor will really help to educate you about the principles of wealth building. You can draw on that professional knowledge and guidance this year – and for years to come. As always, please feel free to call me at 1-866-786-2521 if I can help you in any way.

Diversification Isn't Just About Market Risk

2009-01-10T19:10:00.003-05:00

When an investor or financial advisor thinks about diversification, it is generally with market risk in mind. It’s worth remembering that there are other potential risks to your money – and diversification can be valuable in helping you cope with them.

Business risk. Even today, there are people who have worked for one company for many years and who own great amounts of corporate stock, perhaps as a significant portion of their 401(k) investments or overall portfolio. Are you one of them? Here’s a word for you: Enron. It is risky to link your financial future to the health and viability of one company.

Investment advisor risk. We can be thankful, as investors and as a society, that Bernie Madoff represents an unfortunate aberration in the financial services industry. Financial advisors, investment advisors, money managers – hundreds of thousands of them work by strict legal, ethical, and moral standards. If they don’t, they risk losing their livelihoods, or worse. But, very rarely, you do read stories of financial services professionals who have proved charlatans. One way to combat this risk is to check out the advisor. You can do it through the free Broker Check record search offered by the Financial Industry Regulatory Authority (finra.org/brokercheck), and through your state securities administrator. This risk, although thankfully rare, does give one pause to think about the value of having a strong cash position and diversification beyond the standard investment vehicles.

Brokerage risk. At mid-decade, if you had walked around Manhattan saying Lehman Brothers would go bankrupt, few would have paid you any mind. But it happened – not just because of the financial climate, but because of decisions management made.

Of course, brokerages only handle your investments; they are prohibited from tapping into your assets or lending them out when they get in a jam. The Securities Investor Protection Corporation protects up to $500,000 of your assets at a brokerage – including stocks, bonds, money market funds, and cash up to $100,000. In the 39-year history of the SIPC, just 349 brokerage account holders have failed to get their entire portfolios back. But SIPC coverage doesn’t cover everything - fixed annuity contracts, commodity futures contracts, and certain investment contracts such as limited partnerships aren’t protected. Additionally, there have been a few brokerages that have lost their SIPC membership, for a variety of reasons. Again, it pays to be vigilant, and to diversify.

Political risk. Americans don’t always link politics and financial pressures, except when it comes to oil and gas prices. Yet earlier this decade - I don’t have to tell you the date - the financial markets were rocked by an unimaginable human tragedy and a new kind of global threat. The plunge was temporary, and it was a bear market at the time. But the DJIA fell 685 points in a day and 14.26% across the succeeding week. These risks, too, make you think about the value of diversification.

Currency risk. Many investors don’t incorporate this factor into risk assumptions. But fluctuating exchange rates do present a risk element. If you have stocks in Canada that gain 6% but the Canadian dollar loses 6% of its value relative to the U.S. dollar, so much for that return.

Inflation risk. Inflation – even moderate inflation - effectively reduces your purchasing power over time. This is why growth investing is a priority in retirement.

Bottom line: be diversified. Have many baskets, not one. Speak to a qualified financial advisor to examine the financial options before you. There may be many more ways to invest your assets than you realize. As always, if you have any questions, please call me toll free at 1-866-786-2521.

401K Match Suspended

2009-01-06T17:44:00.008-05:00

Question: My company recently sent out a memo saying they were going to suspend their matching 401k contributions for 2009 and maybe 2010 as well. This could dramatically affect my ability to retire. Are they allowed to do this? Christine, Wilton, NY

Answer: Christine, each company has their own 401k plan document which contains its own set of rules that normally allow for the suspension, reduction, increase or termination of matching contributions. Companies include this clause to protect themselves from having to make contributions when profits are slim and to reward employees when profits are abundant.

In late 2008 and early 2009, some companies, like yours, have either reduced or suspended their 401k matching contributions. Major industries being affected now include auto, health care, newspaper, gaming, and construction - but many more are considering.

The upside of this cutback/reduction, if you can call it that, is that the alternative was most likely an employee layoff so people are staying employed when their companies cut back on their fringe benefits. So be thankful you have a job.

The downside of this cutback/reduction to you and your coworkers is the loss of many years of tax-deferred compounding and growth on the contribution the company would have made. This could be the equivalent of tens of thousands or hundreds of thousands of dollars over 1-2 decades.

Let’s hope your company can reinstate the company match in 2010. In the meantime, consider saving a higher percentage of your salary or invest more aggressively to offset this reduction/decline. If you’re getting a raise this year, consider putting that raise directly into your 401k rather than your pocket.

Bill’s Bottom-line: Don’t count on your company or the government to take care of you in retirement.

Retirement Resolutions

2008-12-24T13:09:00.000-05:00

Question: My husband and I (age 62 and 57) want to make some resolutions to shore up our retirement picture in 2009. Any thoughts you could provide would be greatly appreciated. Bea, Stamford, CT

Answer: Bea, here’s a checklist to get you on track in 2009!

1. If you haven’t maxed out your 401k/403b contributions at work, you are eligible to take advantage of what is known as the catch-up provision. In essence, if you haven’t saved as much as legally possible every year you’ve been working, you are able to contribute an extra $5,500 per year (over and above the legal limit - $16,500) into your retirement plan in 2009.

2. If you have a spouse, family and assets to protect, I think you should investigate long-term care insurance. Long-term care protects you and your family from the emotional, physical and financial pain that a health issue can have on them. Take advantage of 10-pay plans which allows you to pay the entire cost of the policy off in 10 years, while you still have earned income, a job.

3. Start paying down your non-deductible debt such as credit cards and auto loans. Try to be debt free, perhaps with your mortgage being the only exception, by the time you retire. If you can pay off your mortgage too, more power to you. This can free up a lot of cash flow and keep your expenses low in retirement.

4. Review your investments and asset allocation. Make sure you're NOT too heavily invested in equities (no more than 50% to 60%) or your own company stock (no more than 10%).

5. Consider accumulating up to three years worth of income in savings, CDs, money markets or treasury bills. This is where you should start taking money from when you retire. I use this “safe-money” benchmark strategy with my retired client so the money they need is in the safest yet lowest yielding investments where their principal is protected. It helps to weather the ups and downs of the stock/bond markets where the rest of their long-term money is allocated and diversified properly.

6. Finally, review your estate plans with an estate planning attorney and consider reducing and eliminating unnecessary insurance coverage to free up cash flow for income in retirement.

Bill’s Bottom-line: Take action today AND Happy New Year!

Will Mandatory IRA Withdrawals Be Deferred in 2009?

2008-12-14T14:23:00.001-05:00

Imagine not having to take your RMD next year. On December 11, H.R. 7327 was approved by Congress – and if President Bush signs it into law, it will temporarily suspend Required Minimum Distributions (RMD) for IRAs and 401(k) and 403(b) plans. H.R. 7327 would let people age 70½ or older defer withdrawals from these accounts in 2009 without triggering a penalty.

Earlier this year, advocacy groups like AARP had cringed at the thought of retired Americans having to take mandatory, taxable withdrawals from retirement savings accounts already reduced in the recession. Some older Americans need the money, but some don’t. Rep. Charles Rangel (D-NY) introduced this bill to address that dilemma. By not taking your RMD in 2009, you could retain the assets without being subjected to the 50% tax penalty on the minimum withdrawal amount.

Any help for 2008? Most retirees have already taken their 2008 RMD by now. But the U.S. Treasury could pursue an option to help retirees this year. That would be allowing retirees to calculate their withdrawals according to the value of their IRAs at the end of 2008, rather than the account value at the end of 2007. This would translate to smaller withdrawals. At this point, however, it is only a remote possibility.

Some “relief” for traditional pension plans. H.R. 7327 would also ease corporate obligations to immediately and fully fund pension plans if benchmarks aren’t met. It rolls back the funding obligations of the Pension Protection Act of 2006. With the downturn in many stocks, some companies are having a hard time fully funding their pension programs. For 2008, companies have to set aside money to cover 92% or more of projected pension liabilities. If they don’t meet that threshold, then they must fully fund pension plans immediately according to the PPA. Hundreds of companies lobbied Congress this year to ease this rule, so that they would not be at risk of having to freeze pension programs.

What might this mean for you? What if you aren’t required to take an RMD in 2009? If President Bush signs H.R. 7327 into law, you will have that option. Talk to your financial advisor to discuss the financial implications and the financial possibilities that this legislation may bring. As always, if I can help you in any way, please call me toll free at 1-866-786-2521.

The Optimist, The Pessimist & The Realist

2008-12-07T12:11:00.001-05:00

We certainly live in interesting times. No, I did not foresee the extent of the financial and economic turmoil that has resulted from difficulties in the real estate, credit and derivative markets. Since September, the world seems to have been turned on its head. The pessimistic outlook so commonly held today will not be reversed until there are reasons to be optimistic. Capitalism depends on confidence. Without it, transactions cannot take place. And confidence is in very short supply today.

No, the world is not coming to an end… But it is changing, in profound and necessary and positive ways. Our journey to this new land has some tough challenges along the way. The biggest challenge is your perception of what’s happening and your interpretation of what it all means. There continues to be a massive amount of information/opinion/perceptions flying around these days – almost all negative. As I see the media frenzy (emails, on-line news blogs, television, newspapers etc.) I am reminded that information is not knowledge. Some people confuse the two.

The stock market is a reflection of investor confidence in future profits. In that sense, it is a leading indicator of economic activity. Some investors anticipating declining profits will sell stocks and attempt to buy them back when their confidence in future profits returns. I have concluded that attempting to time the short-term swings in the market is a loser's game, and this has been backed by considerable research. Few can play that game profitably.

It is my belief that the current decline in the stock market is being driven by two other types of sellers as well: those who are forced to sell to meet cash needs or liquidation requests, and those investors who are driven to sell out of fear or a sense of panic. Forced or panicked sellers are not selling with economic justification. Therefore, they push prices down to such an extent that they actually set the stage for a significant price recovery. Expected returns from this point forward are a lot higher than they have been in many years.

As you know, I’m a ‘bottom line’ person. I like to gather all the facts, then sort and analyze, to get to the essence/core/seed of the subject or issue. It gives me a platform to stand upon, from which to view the activity around me. The core of our current reality is that rumor and fear have created a situation wherein normally sane and rational people are doing really dumb things, like selling their investments at really low prices. Thankfully, you aren’t.

I continue to study the best ways to deploy your portfolios, in order to help you live out your life the way you have planned, and to protect your assets. My investment recommendations for you started with a determination of a reasonable asset allocation based upon your own unique set of facts and circumstances. We took into consideration your objectives, age, cash flow needs, whether you are working or not, and the extent of your non-portfolio income such as compensation, Social Security and pension income. This careful asset allocation is meant as a guide to avoid overreactions during particularly volatile market climates, like the one we are experiencing today.

Your ability to participate in a recovery of asset prices depends upon your financial and emotional ability to wait out the tough times. Clients who follow my recommendations of an appropriate spending level and asset allocation are in a position to ride out these difficult times and see substantial price recovery in the years ahead. Financially, I know you can do it. Emotionally, I know you can too; you just may need my help.

In the meantime, I want you to lead your life in as normal a fashion as possible. None of us knows how long our stay on this earth will be. I encourage you to continue to spend money on things or services that increase the quality of your life or the lives of loved ones within reasonable spending limits. However, if I have cautioned you about your spending level being higher than what would be prudent given your portfolio size, recent investment declines will only magnify the importance of a spending reduction.

It is very important for you to be mentally prepared for additional bad economic news as the nation and the world work through this. There will be no quick solutions. As dark as it is, it could, and probably will, get worse. If the markets decline from here, they will only be that much closer to recovery. In addition, cutting market exposure at this point would be imprudent given the prospect for generous average returns moving forward.

Sometimes, during the winter months, it seems as if spring will never arrive, but arrive it does. As surely as we know that the seasons change, we know that optimism will follow pessimism; that fear of being out of the market will replace the fear of being in the market. Do not live your days sunk in the gloom and doom of the moment. Be an agent for change--in attitude. Think of what is right about your family, your friends, this country and this beautiful earth. These are the things we should all be grateful for. Remember that money is just a tool to help you get what you want; ultimately, however, your happiness is a currency more valuable than money.

Thank you in advance for your courage and patience during these difficult times. I take nothing for granted, and am honored and humbled by your decision to retain me as your trusted financial counsel. As always, I am here if you need me. Please call toll-free at 1-866-786-2521 if I can be of assistance.

It's Different This Time...NOT!

2008-12-01T12:06:00.001-05:00

Question: Despite the recent market comeback this past week, there are still a lot of people who are saying “it’s different this time”. Everywhere you turn it seems there’s just more bad news and I’m thinking I should sell my mutual funds and put everything in government bonds and cash like so many others. Is it really different this time? Michelle, Boston, MA

Answer: Michelle, each time we have a bad market the media starts saying “it’s different this time” and we all buy into it. The reality is they’re partly right because the circumstances surrounding each drop are rarely the same. However, I attended a conference last week and was shown how in each of the last 12 bear markets since the Great Depression, the decline IS actually the same.

First, after each decline, the stock markets have always come back and often very dramatically. I want to stress the word “always” here.

Second, during each decline no one could predict whether the next 20% move would be up or down, but the next 100% move was always up.

Third, we know that only people who panicked and sold actually locked in losses. The rest were just temporarily down in value.

Fourth, we know that “if it bleeds, it leads” in the news. The media can create both fear and panic by the words they choose to put in their headlines such as “plunge” or “surge”. Notice the sensationalism each time the markets go up and down a percent. The reality is market volatility is normal and an expected part of owning stocks.

Finally, even if you invested money at the very beginning of each bear market, stocks have always subsequently outperformed bonds.

Bill’s Bottom-line: When you’re in a market down draft and you begin to feels like it will never end, it does. Bad times and good times don’t last forever. The reality is somewhere in between. Remember that market prices are random and unpredictable. If you have a sound allocation, stick with it. As always, if I can assist you in away, please call me toll-free at 1-866-786-2521.

Spend Less or Earn More?

2008-11-17T15:30:00.001-05:00

Prizes, investments and inheritances aside, there are just two basic ways to increase your personal wealth: spend less or earn more. Ironically, spending less may be your most immediate route to having “more” – more affluence, more confidence.

Will earning more make things easier? Earning more money might alleviate your current financial pressures, but it might also invite new ones. More money gives you more license to “live it up” and lose a bit of financial rationality. As MSN Money columnist M.P. Dunleavey notes, instead of the reduced debt and increased savings you might expect after a jump in income, “the more typical pattern is that you end up spending a little more on living and not so much on your goals.” In the earn-more school of thinking, your career is your most important asset. You strive for a six-figure salary to advance economically, with investments and home equity as “gravy on the side.”

How about spending less and paying yourself first? Ever hear the saying, “A dollar saved is worth more than a dollar earned”? Actually, a dollar saved is more like two dollars earned. For example, if you get a $5,000 raise this year from your employer, it will likely amount to a $2,500-3,000 increase in actual disposable income, after income taxes, Social Security taxes and 401(k) contributions. Economically, a $2,500-3,000 personal savings is about the same as receiving a $5,000 raise. Also, making more money at work usually involves spending more time at work. You could work overtime or on weekends to make an extra $5,000, but how much time does it take to save money?

Many Americans pay lenders first, but you can pay yourself first through direct deposit into savings accounts and automatic withdrawals into investment accounts. Tossing spare change into a jar can give you hundreds of dollars to invest annually. And if you see something you want to buy, wait 24 hours; you may not end up buying it at all.

The simplest step toward prosperity? Spending less and saving more certainly puts you above the norm: on average, Americans now spend $1.22 for every $1.00 they earn, according to the U.S. Department of Commerce Bureau of Economic Analysis. The personal savings rate is at its lowest level since the depths of the Great Depression.

As always, if you have any questions or if I can help you in any way, please feel free to call me at 1-866-786-2521 or send me an email at bill@myretirementsuccess.com .

Four Words You Shouldn't Believe

2008-11-02T11:25:00.003-05:00

“This time is different.” Beware of those four little words. They are perhaps the most dangerous words an investor can believe in. If you believe “this time is different,” you are mentally positioning yourself to exit the stock market and make impulsive, short-sighted decisions with your money. This is the belief that has made too many investors miss out on the best market days, and scramble to catch up with stock market recoveries.

Stock market investing is a long-term proposition – which is true for most forms of investing. Any form of long-range investing requires a certain temperament. You must be patient, you must be dedicated to realizing your objectives, and you can’t let short-term headlines deter you from your long-term quest.

But wait – isn’t this time different? Well, it is unusual. We are seeing a level of government intervention in the financial markets that we haven’t seen since the 1930s. We’ve also seen banks, insurers and brokerages seized or rescued. So when headlines say “bank failure” and “government bailout”, and media outlets conduct “man on the street” interviews, you are going to get a sound byte or two of someone – not an economist – wondering aloud about a second Great Depression. (In every recession, some news story inevitably appears weighing how the current economic situation stacks up against the 1930s.)

But you know what? This time is different. Today, the federal government is able to intervene in the financial markets in a way it couldn’t then. When the Bank of the United States (one of the bigger private banks of that time) collapsed in 1930, the Federal Reserve lacked the power to rescue it. It was an event that gravely wounded the banking system and aggravated the Depression.

Today, by contrast, the U.S. government has pulled out all the stops. You have $700+ billion assigned to mop up bad debt and ease a credit squeeze. You have the Treasury taking stakes in banks and the Fed issuing loans and helping to engineer bank mergers. You have economic stimulus packages and federal government efforts to stem foreclosures. Yes, this is different – and welcome.

What happens when investors believe those four little words. It’s called panic. In early October, we all saw it. And yes, the potential for panic still exists – witness the morning of October 24, when index futures declined so fast that “circuit breakers” had to be enacted to halt selling on Wall Street. The silver lining here is that recently, the market has begun to move in response to standard indicators again - earnings reports, economic releases from the federal government, news from the housing sector, etc. – rather than fear. The news hasn’t been great, but investors have shifted their attention from credit market concerns (inspiring panic) to economic concerns (resulting in more predictable behavior).

Look at the good news we’re getting. No kidding, there really is some. As of Friday, the overnight LIBOR rate (the interest rate banks charge each other for loans) was 1.28% - below the benchmark U.S. interest rate of 1.5%, well below the high of 4.82% reached on October 10. Existing home sales increased 5.5% in September, as a result of a buyer’s market - and by the way, year-over-year sales were up 1.4%. The average rate on a 30-year fixed mortgage fell to 6.04% this week, down from 6.46% last week. Remember when oil prices were $147 a barrel? On October 24, they settled at $64.22 per barrel (56% lower). The Treasury Department may soon move to shore up more than 20 financial companies through cash injections, according to Bloomberg; PNC Financial Services Group announced Friday that it would use Treasury funds to buy National City Corporation, effectively creating one of the larger banks in the U.S.

This is the time to stay in the market. Withdrawing money from a retirement savings account (and the investment funds within it) might feel rational in the short term, but it can be hazardous for the long term – especially since many Americans haven’t saved enough for retirement to start with. We’re looking at a turbulent stock market right now, and the market may fall a bit further before a recovery builds momentum. The key is to remember that a recession is a few quarters long, not the length of your retirement. As always, if you have questions about your money, feel free to call me toll free at 1-866-786-2521.

Am I OK?

2008-10-19T13:55:00.002-04:00

One thing that we have learned from this market is that we all want certainty. We want answers. But we live in a world that is, at times, too complex to be predictable. The one certainty is that there will be uncertainty, and we have to prepare carefully and thoughtfully.

So that is a big part of my job: to be strong and steady, thoughtful and rational. I feel a deep obligation to you and am working hard to deserve your respect and trust.

You are most certainly asking: “Am I OK?” Is there anything we should do now? Should we have done something different? Here are my thoughts:

“Am I OK”?

In the big picture of things: you are all going to be OK. We live in the wealthiest society in the history of the world and in times like this I try to remind myself to be grateful for what I do have rather than focusing on what I may have lost.

I think most of you are going to better off than what it may feel like right now. There should be no need to sell any of the investments that have the largest losses any time soon (unless we can utilize those losses for future tax advantage), so what matters is not what happened this month or this year, but what happens over many years.

And I will be here to help.

Is there anything we should do now?

The prevailing emotion is fear of losing more money. This is not a time to make decisions based on emotion.

The rational side of my brain says that we are nearer to the bottom than to the top. Everything that I have ever read says these are the times to be investing: at the time when everyone else is selling, when emotions are running high, “when blood is running in the streets”. It is kind of bloody out there. Even though nobody knows what will happen next, especially in the short term, my recommendation is to stick with your existing strategy.

Should we have done something different?

Here are some of the things that I feel we did right:

In the past year or two, I have moved almost all of my clients into some more conservative investment portfolios positions than what we had prior. While they are down in value, I feel very good that these investments have held up better than the stock market averages.

We have income reserves of more safe, secure funds set aside for clients who are taking money out of their investments, and moved more funds to conservative positions for clients who are nearing retirement.

Here are some of things that we can improve on:

Determining how much risk to assume for each individual client involves hypothetical situations and is an art rather than a science. We can use this current experience to better determine a balance between your need for investment growth and your tolerance for volatility.

We can have a greater respect for the severity of uncertain events, rather than just the likelihood. Even if something is very unlikely to occur, if the impact is large, we will try to be better prepared.

As always, please give me a call toll-free at 1-866-786-2521 if you have any questions or simply want to talk about your investments.

Dollar Cost Averaging In a Down Market

2008-10-12T19:53:00.003-04:00

The central idea: buy low, and sell high. It’s the oldest stock market adage, and in the wake of the recent selloff, dollar cost averaging may give you a method to capture lower prices today and come out ahead tomorrow.

How it works. Dollar cost averaging is a long-term investment strategy. It means investing in small increments. Through scheduled investments of as little as $50 or $100 per month, you buy investment shares over time, as opposed to pouring a big lump sum into the market. The method is often recommended to younger investors with longer time horizons, and investors who don’t yet have great wealth.

Why it is worthwhile in a bear market. First of all, when the market drops, the investor practicing dollar cost averaging isn’t hurt as much as the lump sum investor – as the lump sum investor holds many more shares of the declining fund or stock.

Second, a stock market downturn produces a kind of “clearance sale” environment. Picture Wall Street as a department store, with signs everywhere announcing 20% or 30% off. You have a chance to buy into some top-quality companies “on sale”. As a consequence of dollar cost averaging, you can now buy in at a lower price – and buy more shares for your money.

So what happens when the market recovers? As the market rebounds, you can pat yourself on the back. You were able to buy big at the bottom of the market, and as the market rises, you will have a lower cost basis and you can enjoy the associated gains. All the while, you continue contributing to a winning fund or stock. (Of course, the fact is that a lump sum investor may profit even more from a market rebound, as he or she may hold comparatively more shares than you.)

Perhaps most importantly, you stay invested. Dollar cost averaging gives you a regular, passive investment strategy as opposed to market timing. In a volatile market, the active investor can quickly become a frustrated casualty of his or her impulses – and foolishly “abandon ship”.

You might call this a tortoise-and-the-hare analogy. The active investor sprinting all over the place for spectacular gains is the hare; you, through dollar cost averaging, emulate the tortoise. It may not be the “sexiest” way to invest, but in a down market, it is a long-term approach well worth considering.

Learn more. We have witnessed a huge downturn in stocks. The question is … how are you positioning yourself to take advantage of the markets when things rebound? This is a good time to meet with a financial advisor – to review or rebalance your portfolio, to look past the headlines of the moment and toward your long-term objectives. As always, if you have any questions, please call me toll free at 1-866-786-2521.

What Does Warren Buffet Think?

2008-10-07T14:48:00.002-04:00

Did you see Charlie Rose’s interview with Warren Buffett? On October 1, they met in San Diego for a brief chat about the economy and the financial markets. Earlier that day Buffett had announced that his holding company, Berkshire Hathaway, would invest $3 billion in General Electric. The great investor was realistic about today’s economy – and also optimistic.

“It’s like a great athlete that’s had a cardiac arrest.” That’s Buffett’s view of the U.S. economy right now. What led to the heart attack? He puts it as simply as he can: “300 million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently. And that got billed into a $20 trillion residential home market.”

Everyone leveraged up, and when “you have a 20% fall in value of a $20 trillion asset, that’s $4 trillion. And when $4 trillion [in] losses lands in the wrong part of this economy, it can gum up the whole place.” Now, with major financial institutions deleveraging, “only one institution in the world that can leverage up in [a] countervailing force to that, and that’s the United States Treasury.”

“An economic Pearl Harbor.” Dire words? Well, in Buffett’s view, that was what the last month or so on Wall Street had meant for the country. “In my adult lifetime, I don’t think I’ve ever seen people as fearful economically as they are right now. They are not wrong to be worried.” When something like this hits, he added, “You better spring into action with the best people you have.” He praised the initiative and vision of Treasury Secretary Henry Paulson – and FDIC Chairman Sheila Bair, in his view the unsung hero of the crisis. For the next administration, “it’s more important who the Treasury Secretary is than who the Vice President is.”

Will taxpayers get their money back? “I would bet on it.” Buffett feels that the Treasury Department’s plan to purchase hundreds of billions of mortgage-related assets will turn a profit given that they will buy them at market, and also “because the United States government has staying power and it has a low cost of borrowing.” The Bush administration’s plan is, in short, “the kind of stuff I love to do.” He noted that “if I could take 1% of that $700 billion pot and take the gain or loss from it and be their partner, and they would buy the stuff at market, I’d make a lot of money.”

“Financial weapons of mass destruction.” Buffett is no fan of derivatives. “They destroyed AIG. They certainly contributed to the destruction of Bear Stearns and Lehman.” He feels that if AIG had resisted the temptation of derivatives, it “would be doing fine today.” He later added that the Federal Reserve structured its $85 billion loan to AIG “very, very well … they have put themselves in a position where they are very likely to get their money back, maybe more … I mean I want to hire the guy that made that deal. He’d fit in well at Berkshire.”

The “choice” America is making. In Buffett’s assessment, the U.S. is “to some extent, making a choice between future inflation and getting off the floor. And we’re likely to have more inflation in the future as a consequence of the things we do to fight the present situation.” He cautions that “unemployment’s going to go up under any circumstances.”

“You want to be greedy when others are fearful.” Personally, Buffett sees many attractive opportunities right now. Cash reserves are important, “but when people talk about cash being king, it’s not king if it just sits there and never does anything. There are times when cash buys more than other times, and this is one of [them].” In addition, Buffett reminds us of the inverse of his principle: “You want to be fearful when others are greedy. It’s that simple.”

“Oh, I think confidence will come back.” When Rose asked him what might “never be the same” about Wall Street or the American economy, Buffett replied optimistically. “We’ve got all the ingredients for a sensational future. It’s just that right now the athlete’s on the floor. But this is a super athlete.”

“I don’t want any viewer to [think] a magic wand exists in Congress,” he stated. “So they’re going to see some more bad news. But if we do this, we’re doing the right thing. And if [we do], the system will work over time.”

As always, if I can help you in any way, please call me toll-free at 1-866-786-2521.

Are Women Saving and Investing Enough?

2008-09-15T15:46:00.004-04:00

Taking control of your financial future may be even more important for women than it is for men. Here’s why women need to invest and save actively.

The earnings gap. Even today, men tend to earn more than women. A fresh 2008 survey of retirement savings trends conducted by Hewitt Associates, a global human resources consulting firm, found that the women worked they surveyed earned an average of $57,000 annually, compared to $84,000 for men. The average male employee in the study therefore had the chance to defer greater amounts of salary into a company retirement plan, while the average salary of the surveyed female employees sometimes wasn’t high enough to trigger a company match.

Time out of the workplace. Men don’t usually put their careers aside to care for young children (or family members with special needs). Traditionally, women have been the ones who have taken time out of the work force for these responsibilities.

If a woman relies on a company retirement plan to accumulate retirement savings, this time out from the workplace can amount to a financial setback. A male employee may contribute to a 401(k) plan year after year for 20 or 30 years or more, and his contribution levels may increase as his salary increases. If a woman leaves the workplace for a few years (or more), her retirement nest egg still compounds, but the steady salary deferrals to a 401(k) plan cease. When she retires, she may have less of a nest egg than her male counterpart if she just relies on the company retirement plan as her primary retirement savings vehicle.

This is a compelling reason for women to build their own investment portfolios, in addition to participating in employer-sponsored retirement plans. Divorce may mean that a woman has to “start over” financially. Many women find that a “fair and equal” settlement is not an equitable settlement. When the husband earns much more than the wife, all kinds of decisions ride on the stability of the husband’s salary – the neighborhood the couple or family can afford, what school the kids attend, and so on. When that big salary is gone, the woman faces a reduced lifestyle, and may dip into her savings to maintain financial equilibrium.

More importantly, she may not have the earnings potential her husband has. Things can get particularly tough when the wife is a key employee at a business or professional practice her husband started years before the marriage. After a divorce, the husband may retain the business and the bulk of the business assets, regardless of the integral role the wife played in growing and running the company. Will she want to work alongside her ex-husband? Probably not. So the stable job she had is a memory, and a career change and a move may be next.

This is why divorce financial planning is so important for many women. Women need to walk away from a divorce not just with an “equal” settlement, but with an investment portfolio and a financial plan personalized for their needs and goals, so that they can (re)build wealth on their own.

Women outlive men. On average, women live five years longer than men; in fact, the Labor Department estimates that almost 90% of women will outlive their husbands and spend a portion of their retirements managing their own finances. A woman who retires alone may face a very long retirement: if you leave work at 62, it may last 20 years or longer, with only about 30% of your income coming from Social Security.

The Hewitt Associates study estimated that women’s retirements will average 22 years, compared to 19 years for men. Factoring in projected increases in healthcare costs, it concluded that women need to save 2% more than men annually over 30 years to maintain their standard of living when they retire. If a woman earning $57,000 contributes 4% to her company retirement plan annually over 30 years instead of 2% (that’s $95 more a month), the study estimates that she’ll have an extra $81,000 at her retirement date.

Take control of your finances. The best antidote to worrying about the financial future is planning for it. Investing to build wealth apart from work – and working with a qualified financial advisor – is a great move. If you want to invest conservatively, you can find strong investment choices with the potential to outpace inflation. Whether your life is stable or changing, I am always available to answer any questions you may have. Call me toll free at 1-866-786-2521.

5 Ways to Make Retirement a Reality

2008-09-07T15:11:00.001-04:00

Question: The recent mood swings in the stock market and my declining 401k balance are making me feel like I’ll never be able to retire. Do you have any suggestions?

Answer: Yes – invest in Grecian Formula. The market gyrations are giving me more gray hairs every day and I’m gonna have to start buying it in bulk to keep my youthful looks. Seriously though, this market volatility is causing a lot of angst but there are some things you can consider.

1. Consider increasing your annual savings: This is one area you have direct control over. It may require that you reduce your current spending, but putting more away will allow you to buy more shares now at cheaper prices (since the market is lower). Also, every dollar you invest in your 401k plan today is one less dollar included in your income this year so you can lower your tax bite.

2. Consider reallocating your 401k to higher yielding investments: It’s counter-intuitive since the markets are declining but perhaps you should invest more aggressively. Every extra 1% you can earn on your money will go along way to helping you enjoy the retirement you envision sooner. Remember to manage your risks though.

3. Consider retiring later: Every year you earn an income is another year you defer money into your 401k, lower your tax bill and allow your savings to grow tax deferred. The longer you work the less you would need to accumulate to afford your desired lifestyle.

4. Consider lowering your investment costs: Review your 401k choices and see what the best performing investment choices are and choose those with the lowest costs. Again, every dollar you lower your costs by is another dollar in your pocket.

5. Consider reducing your retirement income needs: If you can reduce your expenses, live on less and/or work longer, you may feel more in control of your future.

Bill’s Bottom-line: Control what you can control. Market volatility is normal and expected. Learn to deal with it. As always, if you have any questions, I am available to assist you in anyway possible. Just call me toll free at 1-866-786-2521.

(Re)Considering CDs

2008-09-02T08:08:00.003-04:00

Respect for the humble CD. When the stock market turns bearish, people take a second look at fixed-rate investments, including certificates of deposit. In a bull market, the CD may seem like just about the most unattractive investment choice out there. But at the moment, those who own CDs can be thankful for their cautiousness.

A classic interim investment. Often, people choose to put money in a CD when they are “between investments” – that is, as they move a portion of their assets out of the market or a market sector for the short-term. While leaving the stock market altogether is a laughable and ill-advised idea for the serious, committed investor, most CDs are FDIC-insured and thereby offer safety of principal (up to $100,000) along with a guaranteed rate of return.

A CD is certainly a commitment: you can’t pull the money out of one until the end of the specified term. (If you need to withdraw your money, you’ll almost always pay an early withdrawal penalty.) You also want to find a CD that offers returns sizable enough to keep ahead of inflation. Since the inflation rate is just over 4% right now and since your gains will be taxed (assuming your CD is a short-term investment and not held inside a retirement account), it is therefore only logical to look for one that offers at least a 6% rate of return.

The tradeoff of a CD is easily expressed. We all want CDs with higher rates of return, but this usually means CDs with longer periods until maturity. The longer the wait, the longer the investor goes without access to those funds, and the greater the potential opportunity cost of not assigning those assets to an investment that might perform better.

Should you move money into a CD? For the short-term, given this challenging market, it is an option to consider. But before you make a move, be sure to speak to a qualified financial advisor about your financial direction – for today, and for the long term. As always, if you have any questions, please feel free to call me toll free at 1-866-786-2521.

6 Steps to Get Out of Debt

2008-08-24T17:01:00.003-04:00

Positive moves to counteract negative cash flow. In July, a New York Times article mentioned that half of American families were carrying more than $25,000 in debt. Of course, some of this can be attributed to mortgages. But the borrowing doesn’t stop there.

Every day, people draw on money they don’t actually have – via credit cards, payday loans, home equity lines of credit, and even their 401(k)s. Many of them end up making minimum payments on these high-interest loans – a sure way to stay indebted forever.

If this is your situation, you may be wondering: how do I get out of debt?

Let me give you some ideas.

1) Make a budget. “Where does all the money go?” If you are asking that question, here is where you learn the answer. You might find that you’re spending $80 a month on energy drinks, or $100 a week on lousy movies. Cable, eating out, buying retail – costs like these can really eat at your finances. Set a budget, and you can stop frivolous expenses and redirect the money you save to pay down debt.

2) Get another job. I know, this doesn’t sound like fun. But having more money will aid you to reduce debt more quickly. A family member who isn’t working can work to help reduce a shared family problem.

3) Sell stuff. The Internet has proven that everything is worth something. Go to eBay, craigslist or Kijiji – you’ll be amazed at the market (and the asking prices) for this and that. What people collect, want and buy may surprise you. Don’t be surprised if you have a few hundred dollars – or more – sitting around your house or in your garage. You might be able to pay off a couple of credit cards – or even a loan – with what you sell.

4) Ditch the big car payment and drive a cheaper car that gets good MPG. Say goodbye to the monster SUV (or the overpriced sports coupe). Get a car that makes sense instead of a statement. Your wallet will thank you.

5) Pay off all debts smallest to largest. The benefits are psychological as well as financial. Knock off even a small debt, and you have an accomplishment to build on – encouragement to erase bigger debts. Also, every debt you have incurs its own interest charge. One less debt means one less interest charge you have to pay.

6) Or, pay off your highest-interest debts first. Take a minute to figure out which of your debts hits you with the highest interest rate. Pay the minimum amounts toward each of your other debts, and apply all the extra money you can toward paying off the debt with the highest interest. This will have a cumulative effect. Your highest-interest debt will become smaller, meaning you will be saving some dollars on interest charges on the balance because the balance is lower. If the balance is lower, you should be able to pay off the debt faster. When you say goodbye to that debt, you can start paying down the debt with the next highest interest, and so on.

Keep the real goal in mind. Building wealth, not reducing debt, should be your ultimate objective. Some debt reduction and debt consolidation planners obsess on getting you out of debt, but that is only half the story. Minimizing debt is great, but maximizing wealth is even better.

You can plan to build wealth and reduce debt at the same time. If you have a relationship with a financial advisor, you might be able to do it in the same unified process. Why just keep debt at bay when you can leave it behind? As always, feel free to call me toll free at 1-866-786-2521 if you have any questions.

Long-Term Care Planning

2008-08-18T08:17:00.004-04:00

A helping hand for a pressing need. With the baby boom generation maturing, numerous studies and articles have pointed out the rising need for long term care. Some state governments have directly responded to it.

Now, many states have created partnership programs to encourage their residents to purchase LTC insurance coverage. It only makes sense: if more people opt to privately insure themselves, a state will face less of a burden and less liability when it comes to its own eldercare programs and eldercare costs.

How the partnership plans work. Essentially, these plans provide dollar-for-dollar asset protection when you buy an LTC policy. So for every dollar the policy pays out in benefits, you get an equal dollar amount in asset protection under a state’s Medicaid spend-down regulations.

What does this mean for you? It means that you are able to retain assets you would otherwise have to spend down before you could qualify for state Medicaid benefits.

These partnership plans let you protect an amount of funds equal to the amount the policy pays out in benefits and still qualify for state Medicaid assistance (as long as you have used up all policy benefits and still require long term care).

Typically, Medicaid kicks in only when you are destitute. But with these partnership programs, you don’t have to be destitute to receive state assistance, even if your need for care outlasts your LTC policy benefits.

With these programs in place, LTC insurance seems more and more attractive. That’s important, because it has never seemed as essential as it does today.

Does your LTC policy qualify for a partnership plan? You should find out if it does. Most LTC policies sold today do qualify for these partnership plans. A key factor is whether a policy has an age-related inflation protection benefit. In these policies, your daily or monthly LTC benefit amount is adjusted upward in response to inflation and increased cost of expenses. With these inflation-adjusted policies, your benefits typically go up each year, but your premiums may not.

There’s really not much incentive for state governments to partner with LTC policyholders whose policies aren’t inflation-adjusted. What would happen is that with each passing year, the odds would rise of the policyholder using up the whole LTC benefit and leaning on a state Medicaid program, so the state would be poised to pick up more and more of the cost of eldercare with the passage of time.

The Ohio example. Consider the State of Ohio’s Partnership for Long-Term Care Insurance, and the need it meets. In 2007, the average annual cost of a private or semi-private room in a nursing home exceeded $60,000 in Ohio, and the cost for a licensed, Medicare-certified home health aide was nearly $52,000 per year (for 50 hours of care per week).

Here’s the kind of difference the Ohio partnership plan could make for an Ohio resident. As an example, let’s say Mr. and Mrs. Jones in Toledo have a $100,000 LTC policy. Once they use up their $100,000 policy benefit, they have to spend down their assets to $2,250 before they can get state Medicaid benefits. But if they exhaust a $100,000 partnership policy, they can potentially qualify for Medicaid coverage and still hang on to $101,500 of their assets.

In Ohio, if you bought your current LTC policy after August 12, 2002, your insurer must offer you the choice of exchanging it for a partnership-compatible policy. You have 90 days to decide if you want to do that. Ohio also offers state residents free, in-home long term care consultations.

What kind of long term care coverage do you have? Do you have a policy that is eligible for a partnership plan? Do you have any LTC policy at all? It is wise to look into this. It may be essential for your long-range financial well-being. I urge you to speak with a qualified insurance advisor or financial advisor today about long term care coverage, and these remarkably useful partnership plans. As always, if I can help you, or you'd like to speak with my long term care strategist, please call me toll free at 1-866-786-2521.

Retirement Transitions

2008-08-11T09:14:00.005-04:00

Time passes … and priorities change. When you approach retirement, your investment mindset may have to be modified. If you are in your thirties or forties, the goal is accumulation – investing and saving to amass as much as possible for your retirement years. When you are older, the goal changes to wealth preservation – the objective of making assets last through a combination of conservative investing, sensible cash flow, risk management and tax reduction.

A subtle shift. Committed investors who work with a financial advisor often receive guidance to help them adjust their investment approach to new phases of life.

If you’re younger than 40, you will almost always be encouraged to invest for growth for two reasons. One, you probably have a very long time horizon until retirement (maybe as long as 40 years). Two, numerous studies have shown that the stock market has historically outperformed (in the long term) fixed-rate investments and savings accounts. Also, as your earnings increase, you can potentially defer greater and greater amounts of salary for retirement savings.

When people are in their forties, they usually begin to approach their maximum earnings potential. This is when many portfolios start to shift toward a mix of growth-oriented and preservation-oriented investments. For many people, this shift toward asset preservation gets more pronounced the older they get – though some growth investments usually remain in their portfolios, because their retirement capital may have to last for another 30 or 40 years.

In retirement, a financial advisor has to find an asset allocation that will encourage a regular income stream for you without discouraging your potential for growth. It must also be an allocation that you are comfortable with.

Still accumulating? Perhaps you started saving for retirement relatively late, or maybe you had a financial setback or two. This is not unusual: many people in their fifties or sixties are still in the accumulation phase out of necessity.

There are people in their forties or fifties who have no retirement savings. Many are predisposed to “make up for lost time” and adopt an aggressive investment strategy. This can be dangerous. People may be tempted to invest the bulk of their assets in a “hot” sector of the market, crossing their fingers and hoping for double-digit returns. But as we have seen with the real estate market, what seems “hot” may turn cold. Diversification is just as important for late savers.

The psychology of preservation. “Wealth preservation” is a broad term that can signify a number of financial steps. A good wealth preservation strategy addresses the things that have to be addressed for any mature couple or individual or maturing family.

It should outline how retirement plan savings will be reinvested and managed (asset allocation, investment objectives). It should establish a schedule of sensible income withdrawals. It should provide measures for tax efficiency (in investing) and tax reduction, to potentially increase the after-tax return.

It should NOT expose an individual, couple, or family to dangerous levels of risk with the mission of obsessively pursuing the best possible stock market returns.

Is preserving wealth on your mind? If not, it may need to be – particularly if you are in your forties, fifties or older. Now might be the right time to confer with a qualified financial advisor and discuss a shift in emphasis from wealth accumulation to wealth preservation. As always, I'm available to help you and can be reached at 1-866-786-2521.

What Do You Do With Sudden Wealth?

2008-08-04T08:27:00.009-04:00

What’s the plan when you have a windfall? Through luck, inheritance, talent, or legal decisions, some people receive “sudden wealth” – a lump sum of money that is at least several times their annual income. Sometimes people think that the money will solve all of their problems. But if they aren’t careful, it can create entirely new ones.

Sudden wealth often comes with emotional baggage attached to it. If you’re suddenly wealthy, you may experience degrees of fear, guilt, anxiety and even paranoia in the months following your good fortune. As Dennis Pearne, Ed.D., author of The Challenges of Wealth notes, sudden wealth “changes what you can do, what you no longer have to do, where you can live” and other aspects of your life that seem set in stone. “So much changes so fast that it can be terribly overwhelming, and some people go into money shock.”

We’ve all heard stories about people who won the lottery and ended up broke. In fact, you may have seen stories on TV or in magazines or newspapers about people who lost sudden fortunes in a matter of years, or let wealth wreck their families. It seems incredible, but it happens.

So, how does it happen? And how can you avoid it?

Rule #1: Get financial advice from a qualified source. You would think that anyone who receives a six-figure or seven-figure check would immediately talk to a financial advisor. But that is not always the case. Some people put it on their “to-do list” … and then go out and do other things with the money. Some never bother to seek qualified financial advice at all. Instead, they listen to relatives or neighbors.

The problem is, sometimes these relatives or neighbors...
• Have never had great money and do not understand the responsibilities that come with it
• Only see wealth in terms of material things and purchases
• Would like to vicariously live out their fantasies as a byproduct of your good fortune
• Urge you to take chances (risks) with your money
• Assume that you are “set for life”
• Want you to look at wealth from their mentality, or want you to associate with their shady lifestyle

While your relatives and neighbors may mean well, they are likely not financial advisors. In fact, some financial advisors aren’t well equipped to consult people with sudden wealth either.

Rule #2: Find a financial advisor familiar with the issues surrounding sudden wealth. Ideally, you want someone who has consulted people in a similar situation. This is because sudden wealth is truly a special circumstance. It’s not just a matter of putting more money in bank accounts or investment accounts. Sudden wealth can mean a whole lifestyle shift – a new address, a new reason to get up in the morning, or maybe new questions about what to do with your life. Your loved ones may not look at the money the same way you do, and there needs to be harmony.

If you come into sudden wealth, do yourself a favor and pause. Find a financial advisor who has consulted people who have come into money. Ask him or her to help you put together a team – because you may need one. Many millionaires and quasi-millionaires have financial planners, CPAs, and estate planning attorneys working for them – working in a unified effort to help them manage their money, reduce their taxes, make charitable gifts and arrange inheritances for their heirs.

Any new millionaire, or near-millionaire, should strive to make newfound wealth grow and last. To do that, you need an investment plan that makes sense in the long run and makes you feel comfortable. You also need to plan to defer or reduce taxes and risks to your wealth – and when you are a new millionaire, you’re looking at a level of taxation and potential risk most people will never experience.

So if you find yourself with sudden wealth, plan. Instead of acting on impulse, act with intent and purpose. Of course, if you have any questions or concerns, please feel free to call toll free at 1-866-786-2521.

How Much Retirement Income Should You Withdraw?

2008-07-28T08:34:00.005-04:00

The big question: how much is too much? In the first few years of retirement, some couples really “live it up” … and some of them risk spending down their retirement savings. Their portfolios aren’t earning enough to make back the income they’re withdrawing.

Some new retirees end up withdrawing as much as 7-10% of their retirement assets annually. A bull market tends to encourage this kind of exuberance. But what happens when the bulls don’t run? What if your portfolio only returns 1-2% this year? Can you see the potential problem?

Ultimately, the answer is highly personal. There is no “standard” retirement income withdrawal rate. Your withdrawal rate should be determined in consultation with your financial advisor, who can help you evaluate some very important matters: your risk tolerance, your age and health, and your lifestyle needs.

Many new retirees are told that a 4-5% annual withdrawal rate makes sense. If you withdraw 4-5% from your retirement nest egg annually and your investments steadily earn about 5-6% year-to-year, it is quite possible that your invested assets will last a quarter-century or longer given mild inflation. But that’s a rather stable scenario. Even more variables come into play.

Consumer costs. Over the past 50 years, consumer prices have increased (on average) about 4% annually. So you might assume that your portfolio should generate at least a 4% annual return just to help you keep up with the cost of living. But if you retire with that assumption and inflation should spike notably higher for some reason after you retire, you may need to adjust your withdrawal rate.

Now consider the price of health care. In recent years, health care costs have increased at a much greater rate than inflation. The same goes for nursing home care.
Market dips. When you are 35 or 40, your investments have time to rebound from a market downturn. When you are 70, things are different.

Let’s cite an example: let’s say you are 70 years old, and you have $250,000 in your portfolio. All of a sudden, your portfolio has two really bad years: you lose 12% in Year 1 and 7% in Year 2. So at 72, your portfolio is now worth $204,600. You want to get back to $250,000 or better. How long will that take? Well, your portfolio would have to gain almost 23% in Year 3 to get back to that $250,000 level. So if you suffer through a couple of bad years with ill-chosen investments or ill-advised asset allocations, your nest egg may be considerably smaller and your income withdrawal rate may have to change.

The merit of conservative withdrawals. With ongoing improvements in healthcare, today’s retirees stand a good chance of living into their eighties and nineties (and perhaps even longer). This is a good reason to exercise a little moderation when scheduling retirement income.

The wisdom of a retirement income plan. If you are in the need of a makeover on your retirement income plan, or have any general questions for me, I am always here to help. Please call me toll free at 1-866-786-2521.

Coping With Stock Market Volatility

2008-07-22T11:24:00.002-04:00

Question: The stock market is so volatile! It’s making me real nervous and my investments are going down. How do you deal with this for a living?

Answer: After nearly 20 years of helping retirees and pre-retirees manage their portfolios, I’ve actually gotten used to it. I deal with it by tuning out the white noise and controlling what I can control like my diversification, asset allocation, investment costs, and household expenses.

While we’ve probably never seen such a confluence of so many events at a given point in time – surging oil prices, inflation, housing bust, credit crisis, world economic slowdown, all in an election year – the markets have actually remained fairly resilient. The sky is not falling, despite what the pessimists would have you believe. Yes, the Dow Jones Industrial Average entered bear market territory in early July. Yes, oil prices are incredibly high. Yes, June was a really lousy month for stocks. We can’t change all this. But you might be surprised at how fast the stock market can change … for the better. Looking back, the market has recovered remarkably – and quickly – from some notable downturns. While it may seem trite to put it in such terms, it really could be much worse.

During this volatile period and every volatile period there is always a cycle of greed and fear. Greed and fear are the two things that move the market. We have periods where the markets get ahead of themselves and investors become too optimistic – and other periods where investors begin to panic, throw the baby out with the bath water, and become overly pessimistic. We are obviously in the throes, or very close to the latter scenario.

Bill’s Bottom-line: This volatile period will pass like all the others have.

The State of Fannie Mae, Feddie Mac and IndyMac

2008-07-21T09:02:00.001-04:00

Fannie Mae, Freddie Mac: stocks rise, concerns ease. Fannie Mae and Freddie Mac shares rose on July 17 and July 18 after falling 60% in the previous five trading days. Though their shares were still down more than 70% for 2008 through the end of last week, the federal government proposal to inject taxpayer money into both companies via the purchase of newly issued stock helped their fortunes in the market.

The concern last week was that Fannie Mae and Freddie Mac were heading toward collapse. Both government-sponsored firms convert mortgages sold by banks into bonds sold to investors, a process that brings liquidity to home loan companies. Last week, the Federal Reserve offered Fannie Mae and Freddie Mac access to its emergency cash, and on July 13, the Treasury Department said it would temporarily raise its line of credit to them and make an unprecedented equity investment in them if necessary. Both mortgage giants welcomed the assistance but publicly maintained that they were adequately capitalized.

As Fannie and Freddie guarantee about half of America’s residential mortgages, anything like failure would be disastrous for the housing market and the economy. Since July 2007, both firms have lost a total of $11 billion. But last week, things looked more optimistic. Securities and Exchange Commission chairman Christopher Cox pledged that the SEC would tighten regulations concerning short sales of major financial stocks. Consequently, the value of Fannie Mae shares had almost doubled by Friday, and Freddie Mac shares have risen 80%. Friday, Freddie Mac announced that it had registered its stock with the SEC in order to generate $5.5 billion through the sale of common and preferred shares. (Fannie Mae registered its stock with the SEC in 2003.)

IndyMac: the FDIC restores control. At the start of July, officials at the bank spun off from Countrywide Financial insisted it would not collapse, despite its specialty of originating (and selling) stated-income loans, jumbo mortgages and sub-prime loans. On July 11, federal regulators took IndyMac over. Over 200,000 IndyMac depositors were covered by federal insurance (up to $100,000 of their account balances); 10,000 more IndyMac clients had $1 billion of uninsured deposits, making them eligible to receive 50 cents on the dollar for deposits above $100,000, with the possibility of recouping more after IndyMac is sold. IndyMac clients with joint accounts or retirement accounts could immediately withdraw sums of greater than $100,000.

Last week, a few IndyMac customers found that other banks wouldn’t take their cashier’s checks, or were told the checks would take weeks to clear. That wasn’t true. Under federal law, other banks must make IndyMac cashier's check deposits of up to $5,000 available for withdrawal in one business day. But, cashier’s checks for more than $5,000 can be subject to a hold of as long as nine business days.

For the record, if you are an IndyMac customer and you are having problems with a check, you may contact the FDIC toll free at 1-866-806-5919. If you have other banking issues concerning IndyMac, you may call the Federal Office of Thrift Supervision at 1-800-842-6929.

A word about SIPC coverage. You know what the FDIC does for troubled banks, but as an investor, you may be wondering if there is any protection in case something happens with your investments. Did you know that the Securities Investor Protection Corporation (SIPC) offers coverage for your investment accounts?

Should a broker/dealer fail or have to liquidate assets, SIPC coverage kicks in (provided that broker/dealer is an SIPC member; nearly all are). The coverage doesn’t protect against market risk or market downturn; it simply covers the value of the securities. It is limited to $500,000 per client, including up to $100,000 for cash. General creditors of the broker/dealer cannot share in these distributions. Also, many investment broker/dealers have put what is termed “excess SIPC” coverage in place, for those statistically small chances in which the SIPC coverage would not be able to settle a claim against the broker/dealer.

SIPC coverage does not cover all types of investments. Coverage generally applies to stocks, bonds, mutual fund and other investment company shares, notes, and other registered securities. But it does not apply to commodity futures contracts, commodity options, currency or fixed annuity contracts.

Do you have some questions? Maybe this article made you think about the state of your investments and savings – where you have invested, where you have your money today. If you have questions regarding your finances, now is an excellent time to speak with a qualified financial advisor. I'd be happy to speak with you at 1-866-786-2521.

How Fast the Markets Recover

2008-07-14T09:38:00.007-04:00

The stock market is amazingly resilient. The sky is not falling, despite what the pessimists would have you believe. Yes, the Dow Jones Industrial Average entered bear market territory in early July. Yes, oil prices are incredibly high. Yes, June was a really lousy month for stocks. We can’t change all this. But you might be surprised at how fast the stock market can change … for the better. Looking back, the market has recovered remarkably – and quickly – from some notable downturns.

2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points (the biggest single-day drop ever) to 8920 on September 17. It kept falling, losing 14.26% in a week to close at 8,235 on September 21. But what happened next? A huge gain. The Dow closed 2001 at 10,021 – a 21% rebound in less than three months.

There were more challenges ahead. On October 9, 2002, the Dow had fallen to 7,286. But on Halloween, the Dow sat at 8,397 – a 10.6% gain in 22 days.
As for the people who panicked and bailed out of the stock market, they ended up kicking themselves: in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.

1987. October 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6% in one day, falling to 1,738, a 508-point loss. (That would be akin to a 2,300-point one-day drop today.) The S&P 500 lost 20.4%. By comparison, the initial “Black Monday”, the stock market crash of 1929, represented a 12.8% market loss.

Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points – and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year. By January 1990, the DJIA was at 2,800.
If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday and reinvested your dividends, you would have wound up with about $10,800 20 years later. If you had invested in the Dow stocks a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.

1974. With investors fretting over rising inflation and the energy crisis, the Dow loses 30% of its value during the first three quarters of the year. Suddenly, the Dow gains 16% in October. In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.

On August 12, 1982, the Dow was at 777. On January 14, 2000, it was at 11,722.98. That’s a 1,500% gain in 17½ years. This is why people stay in the market through the downturns. This is what the market is capable of achieving. There are periodic descents, but history is definitely on an investor’s side.

What should you do now? That’s a good question. If you would like to talk about how to invest in light of this recent market, and what financial moves you might make that could help you manage risk and take advantage of a rebound, feel free to call me toll-free at 1-866-786-2521.

Tax Efficiency - What it means, why it counts.

2008-06-25T15:26:00.004-04:00

Tax efficiency. A little phrase that may mean a big difference. When you read about investing and other financial topics, you occasionally see the phrase “tax efficiency” or a reference to a “tax-sensitive” way of investing. What does that really mean?

The after-tax return vs. the pre-tax return. Everyone wants their investment portfolio to perform well. But it is your after-tax return that really matters. If your portfolio earns you double-digit returns, those returns really aren’t so great if you end up losing 20% or 30% of them to taxes. In periods when the return on your investments is low, tax efficiency takes on even greater importance.

Tax-sensitive tactics. Some methods have emerged that are designed to improve after-tax returns. Money managers commonly consider these strategies when determining whether assets in an investor’s account should be bought or sold.

Holding onto assets. One possible method for realizing greater tax efficiency is simply to minimize buying and selling to reduce capital gains taxes. The idea is to pursue long-term gains, instead of seeking short-term gains through a series of steady transactions.

Tax-loss harvesting. This means selling certain securities at a loss to counterbalance capital gains. In this scenario, the capital losses you incur are applied against your capital gains to lower your personal tax liability. Basically, you’re making lemonade out of the lemons in your portfolio.

Assigning investments selectively to tax-deferred and taxable accounts. Here’s a rather basic tactic intended to work over the long run: tax-efficient investments are placed in taxable accounts, and less tax-efficient investments are held in tax-advantaged accounts. Of course, if you have 100% of your investment money in tax-deferred accounts such as 401(k)s or IRAs, then this isn’t a consideration.

How tax-efficient is your portfolio? It’s an excellent question, one you should consider. Learn more at http://www.myretirementsuccess.com/pages/hp_lostconfidence.asp. Of course, if I can help you in any way or you have any questions, please feel free to call me toll-free at 1-866-786-2521. Remember, it's not what you make, it's what you get to keep.

How The Dollar Affects Your Economy

2008-06-18T08:33:00.003-04:00

Recently, Federal Reserve Chairman Ben Bernanke has hinted that the U.S. is going to try to strengthen or at least stabilize the weak dollar. So what might happen to the economy with a stronger dollar? And how has the economy been affected by a weak one?

Effects of a weak dollar. The dollar has fallen more than 40% versus the euro and 26% versus the yen in the last six years. Its value has dropped 28% since 2001 compared to other benchmark currencies. This devaluation has meant boom times for U.S. corporations and companies that do business overseas, reflected in their earnings reports (and in their stocks on Wall Street). A weak dollar also helps to shrink the U.S. trade deficit, which has slimmed notably in the last couple of years.

On the other hand, a weak dollar breeds inflation and drives up the prices of imported goods. It also helps drive investors to the commodities markets, as they turn to oil, gold and other hard assets for a hedge against inflation. Witness the amazing ascent of oil and gold prices.

Effects of a strong dollar. If the Fed raises interest rates (and some economists feel there may be a rate increase before 2008 ends), that could strengthen the dollar, tame inflationary pressures, and help to weaken oil prices. But it also risks crimping the economy further, given that the housing market has yet to pull out of its slump and that consumer spending is already pinched due to high energy and food prices. The U.S. could also strengthen the greenback by buying dollars in the foreign exchange markets, something that hasn’t happened since 1995.

That was the year U.S. Treasury adopted a strong dollar policy. Between 1995 and 2001, the dollar gained 29% in value against a basket of other major currencies. However, because of that increase in valuation, demand for U.S. exports lessened, and that was a contributing factor to the 2001 recession.

Where are you putting your dollars? How is this economy affecting you, and where are you investing your money? A chat with a qualified financial advisor might be eye-opening - an advisor who is independent, and ready to work for your goals. Now is a good time to look ahead and plan for your objectives, with a financial strategy that will help you whether the dollar recovers or falters. Think about that today and feel free to call me at 1-866-786-2521 if you'd like to discuss your situation.

Should You Retire Early?

2008-06-04T18:28:00.003-04:00

Do you dream of retiring before you turn 60? How about before you turn 50? Well if you do, you might want to think twice before you make the move. If your heart is set on leaving work early, you want to be sure to leave with the right mindset and the right estimation of your financial potential.

Retire with a realistic picture of your income needs. In late 2006, the Center for Retirement Research at Boston College surveyed 400 private sector employers. Those employers estimated that one-fourth of their employees between 50 and 60 years old lacked the financial resources to retire even at the traditional retirement age. If you’re like most Americans, your retirement expenses will be roughly 75-80% of your pre-retirement expenses. So you need to determine if the income derived from your 401(k), 403(b), pension or other sources can generate that. Remember that you can’t receive any Social Security benefits before age 62.

Retire with the idea that you’ll live to be 100. With recent advances in health care, you might become a centenarian. Your income streams may need to last 20, 30, even 40 or 50 years. Any income streams that you have today may soon need to be supplemented or adjusted due to unforeseen needs and inflation. Many new retirees make the mistake of withdrawing income at too high a rate in the first few years after leaving work. They live “high on the hog” for a while, and find out to their chagrin that their retirement nest egg is shrinking, because they are spending more than their portfolios can earn back. Additionally, you may also have to pay for health insurance if you retire before age 65. All of this may point you in the direction of part-time employment rather than total retirement.

Retire with purpose. Leaving work behind can be exhilarating. But after the first few months of fun, there can also be a “now what?” Any early retirement becomes better with a plan for purposeful and meaningful living, irrespective of your finances.

Actually, if you do a Google or Yahoo! search with the right keywords, you’ll come across a number of articles about people who have chosen to retire late. They keep working out of passion or necessity. If that’s not for you and you don’t want to work much longer, talk to me and we’ll take a look and see if you are financially prepared to retire. I’ll share my professional insight and talk to you about your options. Please call me at 1-866-786-2521 or drop me an email at bill@myretirementsuccess.com

How Much Retirement Income Will You Really Need?

2008-05-26T08:22:00.002-04:00

Many people underestimate lifestyle costs, medical expenses and inflation.

What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.

You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.

That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.

Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently, one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5% from 2006.

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.

Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.

Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.

Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits. This is all presuming Social Security is still around in 2030.

So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need. Don't let luck and guess work form the foundation of your financial future. Call me at 1-866-786-2521 if I can help you in any way.

Why Are Oil & Gas Prices So High?

2008-05-20T06:12:00.003-04:00

When will they come down? What’s keeping them up?

What is going on? Before 2002, oil prices usually hovered around $20 a barrel. By early 2006, they were above $60 a barrel. They were at $62 a barrel in May 2007. One year later, oil prices have doubled. In October 2004, a gallon of regular unleaded gas averaged just under $2.00. Now it might cost you twice that.

Is this just a supply-and-demand story? Has demand for oil and gas doubled in the last four years? Have worldwide supplies shrunk notably over the same period? It’s a bit more complex than that. Let’s look at some of the factors analysts cite for the soaring prices.

The commodities market. We’ve seen a historic bull market in commodities recently, with oil, soybean, wheat, gold, and silver prices at record inflation-adjusted highs. It isn’t cooling down just yet. All the speculators investing in the commodities market have helped to drive prices higher.

The weak dollar. What fueled the commodities bull market? Many economists point to the dollar, which has declined about 35% in value against other benchmark currencies since February 2002. When the dollar weakens, investors tend to buy commodities like oil futures as a hedge against inflation. Also, when the dollar loses value against other currencies like the euro and the pound, it makes oil cheaper for overseas investors.

The Federal Reserve has signaled that it is through cutting interest rates for the near future, and many people think that this will boost the dollar’s value against other major currencies. (The dollar tends to slide when the Fed cuts the key interest rate.) So that may encourage a drop in oil prices, and in retail gas prices.

Sustained demand. If somebody told you to cut back on your driving, would you do it? Could you? Many Americans can’t. We complain about higher and higher gasoline prices, but we ultimately sigh and put up with them. In addition to ongoing American consumer demand for gasoline, industries worldwide demand crude oil. As the economies of China, India and other new major-league economic players have developed, their needs for oil and gas have correspondingly increased, raising demand a bit.

What will make prices fall? As mentioned, some analysts believe a recovering dollar will be the big factor. Others point to reduced worldwide demand for oil as an effect of record prices. OPEC has revised its demand forecasts downward twice in the last three months.

Industrial needs aside, the American driver might be a major factor here. Change is occurring; SUV and truck sales are declining; people are adjusting their driving habits, and driving less. The U.S. is a prime market for oil exporters, and if consumer demand for gasoline lessens, oil prices seemingly have to fall. So your consumer sacrifice might send a message to Big Oil.

How is your money? When you see headlines about the economy, it may make you think of your financial situation, and what you might be able to do to improve it. If you have any questions or concerns about your own situation, I'd be happy to help. Call me at 1-866-786-2521.

The Rush To Roth IRA Conversions In 2010

2008-05-06T06:31:00.003-04:00

Virtually anyone can take advantage of this tax law loophole.

2010 will be an extraordinary year for tax law, a tax year so potentially advantageous that we may never see its like again. One probable 2010 phenomenon: a wave of high-income and high net worth individuals converting traditional IRAs to Roth IRAs. Here’s why 2010 represents a great year to make that move.

Income limits: gone. Today, you have to pass an income test before you can convert a traditional IRA to a Roth. If your modified adjusted gross income (MAGI) is more than $100,000, you can’t do it. This limit has long frustrated high-income taxpayers.

In 2010, it’s a whole different story – there is NO income test. Anyone with any MAGI can make the conversion.

While you still can’t contribute to a Roth IRA if your 2007 MAGI exceeds $166,000 (joint filers) or $114,000 (most single filers), it is the conversion that is important.

Potential advantages: considerable. Many high-salaried people have rolled old 401(k) assets from old jobs into traditional IRAs. In 2010, they can convert them to Roths, which will mean:

· Tax-free growth of these assets

· Tax-free withdrawals of these assets someday (assuming they are 59½ or older and the Roth IRA is more than 5 years old)

· No minimum distribution requirements once you turn 70½

· An eventual reduction in their taxable estate

Taxes: deferred. Of course, you will pay taxes on a Roth IRA conversion. But if you do this in 2010, you don’t have to pay them right away. Unless you elect otherwise, the taxes on the conversion will be spread out over the 2011 and 2012 tax years. In effect, this gives taxpayers the ability to delay full payment of any tax due until 2013.

The non-deductible IRA option. Some high-income earners have opened non-deductible traditional IRAs with the intent of converting them to Roths in 2010.

While a traditional IRA has no contribution phase-outs due to income, high-income taxpayers can’t deduct their IRA contributions like the middle class can. For tax year 2007, for example, the deduction phase-outs (this is MAGI) start at $83,000 for joint filers and $52,000 for single filers and heads of households.

If you don’t qualify to make a deductible IRA contribution or a Roth contribution, the non-deductible IRA lets you make a permissible “end run” to build some assets that can “go Roth” in the near future. If the tax law changes taking effect in 2010 stay in place for years to come, you will be able to open a non-deductible IRA annually (as long as you keep earning income) and convert it to a Roth each year.

Why would Congress give IRA holders a break like this? The simple answer: quick revenue for the federal government. In 2010, a LOT of cash will be pumped into the Roth IRA program, and that will result in a LOT of taxes as a result of the conversions (a short-term revenue boost).

Ready for 2010? Whether you do or don’t convert a traditional IRA into a Roth in 2010, you will want to know about the changes in tax law affecting IRAs and other retirement savings vehicles, and your estate and your investments. Before you make a move with your IRA, talk to a qualified financial advisor or tax professional who understands the coming rules modifications.

If you have any questions or if I can help you in any way, please call me at 1-866-786-2521.

Is There Any Such Thing As A Free Lunch?

2008-04-28T19:02:00.004-04:00

Financial opportunity … or scam?

Here are a few tips to help you avoid making a costly mistake.

Legitimacy is in the eye of the beholder. When someone invites you to a lunch or dinner financial seminar, are they trying to sell you something? Probably. Is it a scam? Not necessarily. It all depends. Often someone (for example, an insurance agent) will sell a product via a seminar or an invite-only lunch or dinner gathering. Sometimes they will hold a “meeting” or even come to your house. This could be a very well-meaning person with ideas that could really help you, or it could be someone who just wants to make a quick buck. The products they try to sell you may be totally legitimate, but that doesn’t mean that buying that product is the right move for you.

What don’t you need? Often, the “scam” is simply pushing you to buy a genuine product that’s simply not right for you. For example, if you have hardwood floors, do you need a carpet cleaning device? No. But that doesn’t make the device defective. It could be a perfectly good carpet cleaner, you simply don’t need it. If the person trying to sell you that device knows you don’t have carpet, then they may be trying to swindle you in order to make a quick buck. The legitimacy of the product isn’t always the concern, it’s whether or not you need that product.

It may work for you, but how well? Sometimes the product being offered would work for you, but that doesn’t necessarily mean it’s the best fit. For example … let’s say your house is too hot during the summer months, and you’d like to cool down. Someone might encourage you to buy some lemonade. While that might cool you down in the short term, wouldn’t a fan work better? And to take it a step further, someone else could offer you a central air conditioning system. While this may keep your house much cooler than the fan, you’d want to be sure you fully understood the costs of installation, maintenance and any ongoing costs before making that purchase.

Ask questions. Many, many questions. A good rule of thumb with investing is … if something sounds too good to be true, it probably is. When it comes to financial products or vehicles, there is no such thing “easy” money. A scam artist might tell you an investment is “risk-free”, but that is often a stretch. For example, many “guaranteed” investments are not actually guaranteed by the FDIC, only by the company that is pitching them. Try to think rationally, maintain a healthy amount of skepticism, and ask any and all questions that may come to mind. Some important questions to ask may be … What are the specific risks involved? What are the actual costs? How long-term is the investment, and/or how long until you might see a return?

The fear factor. Often, skilled salesmen will use emotion as a tactic to help them sell something to you more quickly. The emotion can vary, but often it involves instilling a fear of some kind. Fear of financial ruin, for example, or fear of leaving loved ones unprotected. The fear can be very real and often very valid, but the solution they offer might not be. If you feel you’re being steered into something based on emotion, or if you feel a great deal of pressure, it may be best to wait and decide later. The next day, the next week … take your time. Someone looking out for your best interest shouldn’t be offended if you’d like to learn more or “sleep on it” before making a decision.

Speak with someone qualified. It’s not always wise to make decisions based on what a friend, relative or colleague has done. While that person may be very intelligent, and/or while the investment may be doing very well for THEM, it still may not be a wise move for YOU. Your friend may be well-meaning, but that doesn’t mean they are qualified to give you financial advice.

If you are unsure, or have any questions, please give me a call at 1-866-786-2521.

Why You Should Work With A CFP®

2008-04-21T15:22:00.002-04:00

Those three little letters signify some very high standards in financial planning.

“Certified Financial Planner” – what does that title really mean? When you search for a financial advisor, it means everything. Let me explain why the CFP® designation is so important.

Today, the financial world is full of credentials and designations. Some are respected, some aren’t. The CFP® designation is easily the most respected. You really have to earn it. (There are some financial credentials simply conveyed to people after the completion of a glorified sales course. The CFP® designation is not one of them.)

It denotes education. To become a Certified Financial Planner™ practitioner, you have to study financial planning at a college or university (or at the very least, through an educational program) that offers a comprehensive financial planning curriculum. You also have to pass a 10-hour exam administered over two days (kind of like a bar exam) which covers financial planning, tax planning, employee benefits and retirement planning, estate planning, investment management and insurance topics.

It reflects ethical and experiential standards. Before you can be certified as a CFP®, you must pass a strict ethics review and agree to work by the CFP Board's Code of Ethics and Professional Responsibility. As a CFP® practitioner, you must put the interests of the client first, and act “fairly and diligently” when providing financial planning advice and services. Those services must be based on the client’s needs, and delivered with objectivity and integrity. You must also have at least three years of experience working within the financial planning field before you can even earn the CFP® certification.

You must maintain these standards. As a CFP® certificant, you have to be recertified every two years. That requires at least 30 hours of continuing education, so that you may stay informed of the latest developments affecting the financial planning profession. Two of those 30+ hours must be spent studying the CFP Board's Code of Ethics and Professional Responsibility or Financial Planning Practice Standards.

This is why the CFP® designation is so respected. Knowing all this, would you settle for any less qualified financial advisor? I doubt it.

The critical difference. Many people today call themselves “financial planners” without having this kind of experience and knowledge. Many of them work with a sales-based mentality. Often, they will suggest an investment product as a financial solution. Quite often, they get a nice commission off the sale of that product.

On the other hand, CFP® practitioners know that investments are simply components in an overall financial plan, not financial solutions in themselves. We have the education and experience to create integrated financial plans using not only investments, but also strategies for tax reduction, wealth accumulation, wealth preservation and tax-efficient wealth transfer. We have the knowledge to plan for the long-term goals of our clients, and the experience to implement, oversee and revise these plans through the years.

Choose a CFP®. If you are searching for financial planning advice, you should first see a Certified Financial Planner™ practitioner. Talk to a CFP® practitioner today, and enjoy the confidence that comes from meeting with a truly educated and qualified financial advisor.

If you would like to schedule an exploratory phone meeting, please contact me at 1-866-786-2521.

The Right Beneficiary

2008-04-14T08:32:00.004-04:00

Who have you chosen to inherit your assets?
It may be wise to review your choices.

Here’s a simple financial question: who is the beneficiary of your IRA? How about your 401(k), life insurance policy, or annuity?

You may be able to answer such a question quickly and easily. Or you may be saying, “You know … I’m not totally sure.” Whatever your answer, it is smart to periodically review your beneficiary designations.

Your choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Was it back in the Eighties? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed a bit – perhaps more than a bit?

While your beneficiary choices may seem obvious and rock-solid when you initially make them, time has a way of altering things. In a stretch of five or ten years, some major changes can occur in your life – and they may warrant changes in your beneficiary decisions.

In fact, you might want to review them annually. Here’s why: companies frequently change custodians when it comes to retirement plans and insurance policies. When a new custodian comes on board, a beneficiary designation can get lost in the paper shuffle. (It has happened.) If you don’t have a designated beneficiary on your 401(k), the assets may go to the “default” beneficiary when you pass away, which might throw a wrench into your estate planning.

How your choices affect your loved ones. The beneficiary of your IRA, annuity, 401(k) or life insurance policy may be your spouse, your child, maybe another loved one or maybe even an institution. Naming a beneficiary helps to keep these assets out of probate when you pass away.

Many people do not realize that beneficiary designations take priority over bequests made in a will or living trust. For example, if you long ago named a son or daughter who is now estranged from you as the beneficiary of your life insurance policy, he or she will receive the death benefit when you die, regardless of what your will states.

You may have even chosen the “smartest financial mind” in your family as your beneficiary, thinking that he or she has the knowledge to carry out your financial wishes in the event of your death. But what if this person passes away before you do? What if you change your mind about the way you want your assets distributed, and are unable to communicate your intentions in time? And what if he or she inherits tax problems as a result of receiving your assets? (See below.)

How your choices affect your estate. Virtually any inheritance carries a tax consequence. (Of course, through careful estate planning, you can try to defer or even eliminate that consequence.)

If you are simply naming your spouse as your beneficiary, the tax consequences are less thorny. Assets you inherit from your spouse aren’t subject to estate tax, as long as you are a U.S. citizen. For example, a spouse can roll assets inherited from a 401(k) plan into an IRA without incurring taxes on the wealth transfer.

When the beneficiary isn’t your spouse, things get a little more complicated … for your estate, and for your beneficiary’s estate. If you name, for example, your son or your sister as the beneficiary of your retirement plan assets, the amount of those assets will be included in the value of your taxable estate. (This might mean a higher estate tax bill for your heirs.) And the problem will persist: when your non-spouse beneficiary inherits those retirement plan assets, those assets become part of his or her taxable estate, and his or her heirs might face higher estate taxes. Your non-spouse heir might also have to take required income distributions from that retirement plan someday, and pay the required taxes on that income.

As a result of the Pension Protection Act, surviving spouses from same-sex couples may be allowed by employers to convert inherited retirement plan assets into inherited, traditional or Roth IRAs, avoiding taxes until those assets are withdrawn. This requires a direct transfer, not a rollover distribution. Before the end of 2008, Congress may vote to make this option mandatory.

If you designate a charity or other 501(c)(3) non-profit organization as a beneficiary, the assets involved can pass to the charity without being taxed, and your estate can qualify for a charitable deduction.

Are your beneficiary designations up to date? Don’t assume. Don’t guess. Make sure your assets are set to transfer to the people or institutions you prefer. If you have any questions about your situation, please give me a call at 1-866-786-2521 or drop me an email at bill@myretirementsuccess.com .

A Review Of Recessions

2008-04-07T11:38:00.003-04:00

This economic slump could be just another “bump in the road.”

Economists widely agree: America seems to be in a recession. Important economic indicators show declining manufacturing, a constricting retail and service sector, and poor GDP. So is the sky falling? Is this the end of the world? No. Recessions have occurred throughout our history, and the economy has bounced back.

The National Bureau of Economic Research has identified ten American recessions since World War II; this would be the eleventh. Let’s take a look at some notable recessions in recent decades, and the way Wall Street reacted to them.

The 2001 recession. This one lasted eight months, by NBER’s estimation, and it followed the longest economic expansion in U.S. history (1991-2001). It accompanied the last bear market, which lasted roughly from mid-2000 to late 2002. In 2002, stocks tanked: the Dow Jones Industrial Average was down 16.8% for the year, the S&P 500 sank 23.4%, and the NASDAQ fell 31.5%. But in 2003, the market made a powerful comeback: the Dow gained 25.3% on the year, the S&P 500 26.4%, and the NASDAQ an amazing 50%. The bulls kept running right on through 2007.

The 1990-91 recession. Some trace the roots of this one back to Black Monday in 1987, others to the S&L failures and junk bond collapses of the late 1980s. The first three quarters of 1991 represented the depths of this recession, which did much to thwart the reelection of President George H.W. Bush. Interestingly, this one occurred in the middle of an 18-year bull market. Between the start of 1990 and the end of 1991, the Dow rose from 2,810 to 3,100.

The 1981-82 recession. This one was quite severe, lasting 16 months. Some historians blame this recession on the Federal Reserve, which tightened its monetary policy in response to the runaway inflation of the late 1970s. But economists see it differently, arguing that Fed chairman Paul Volcker had to do something – and something drastic – to get the economy back on its feet. The Fed ended up hiking interest rates all the way to 21.5% in December 1980 (the all-time record), and during this recession, the jobless rate was higher than at any time since the Great Depression. But the Fed’s tactic worked. By 1983, inflation was down from double digits to 3.2%. Between February 1983 and August 1987, the Dow climbed from the 1,100s to 2,700.

The 1973-75 recession. Ah, yes. Remember waiting in line for gas? Remember buying gas only on even or odd days according to your license plate? This one occurred not only due to the OPEC embargo, but also as a byproduct of the U.S., U.K., and other key nations going off the gold standard in the early 1970s. That move devalued the dollar and other benchmark currencies. So in October 1973, OPEC decided to price oil relative to the price of gold instead of the value of the dollar. Its member nations also cut production levels. Over the next few months, crude oil prices quadrupled. Commodities prices took off. The bull market in commodities lasted until the dawn of the 1980s. When the OPEC embargo hit, Wall Street was already in the middle of a bear market. Yet just a short time later, in July 1976, the Dow hit 1,011, its highest point between January 1973 and October 1982.

Some perspective. Until the last quarter-century or so, recessions commonly and cyclically occurred every few years. Only two post-WWII recessions have lasted longer than a year. Some analysts feel this is due to the evolution of the U.S. economy over the years: today, consumer spending and the service sector are huge drivers, not just manufacturing. While no one has a crystal ball, what is apparently the first recession in seven years may fall in line with recent economic examples, to have only brief and temporary effects.

If you have any questions or concerns please call me at 1-866-786-2521.

SCORE

2008-04-01T13:54:00.001-04:00

SCORE "Counselors to America's Small Business" announces a new section specifically for baby boomer and retirement-age entrepreneurs at the SCORE Web site, www.score.org. This new content area offers valuable information, statistics and mentoring to help those small business owners achieve success.

Visitors to www.score.org/50plus.html will find the following resources:

• Insights for 50-Plus Entrepreneurs offers key articles on transitioning to start a business, recognizing the value of mentors and evaluating your retirement situation.

• Resources for 50-Plus Entrepreneurs features a list of more than 20 organizations, groups and Web sites that offer news, strategies and advice.

• Stats on 50-Plus Entrepreneurs provides the latest research and facts on the growing number of small business owners age 50 or older.

• How SCORE Can Help You highlights SCORE's free online and face-to-face counseling, low-cost workshops and free eNewsletters.

For more information about starting or operating a small business, call 1-800-634-0245 for the SCORE chapter nearest you. Visit SCORE on the Web at www.score.org.

Five Savings Secrets

2008-03-24T08:52:00.002-04:00

How to increase your savings without significantly lowering your quality of life.

What’s the problem? In general, when it comes to a lack of savings, it is often not a question of low income, but a matter of high spending. While it’s very true that often we’re put into situations where we must spend money (due to loss of employment, health care bills, home repairs, etc.), for many of us our excessive spending is merely a habit we must learn to break … or at least control.

But … where do we begin? Many people would like to reduce their spending and increase their savings, but it seems like such a monumental task that they simply don’t take any steps in the right direction. Sound familiar? If so, don’t shrug it off any longer. Saving money can begin right now, and you can start in small ways. Here are several easy ways to increase your savings …

Secret #1: “Put it on the mantle”
My grandmother used to use that phrase when I was making a major decision, generally related to a purchase. She would say “put it on the mantle”, meaning that I should set it aside and think on it. That’s great advice, Gram! When you’re considering a large purchase (like a car) or even small (like a pair of designer shoes), try putting it aside, even for just a week or two. Allow yourself time to think it through. If, after that time, you still feel it’s a good idea, proceed … knowing it’s not just an impulse buy. If not, don’t. Most of us have made at least one (and probably more) purchases of this nature that we have later regretted. What if you had the money back for every such purchase? What if that money was collecting interest in your savings account? It could really add up.

Secret #2: Pay yourself first
When you get a paycheck, you likely pay your rent first, your car payment second, your insurance third, and so on and so on. Somewhere at the VERY BOTTOM of your list is YOU. Why are you at the bottom? Probably because you know YOU won’t penalize YOU if YOU don’t make a payment to YOU. My point is this … hold yourself accountable. Start by putting money into your savings account FIRST. Take care of YOU before anyone else, so there are no excuses at the end of the month. Unless your monthly bills are higher than your monthly income, you should be able to determine a set, comfortable amount that goes into savings every month … no ifs, ands, or buts. Stick to it!

Secret #3: Shop smarter
We’re all in a hurry, so it’s easy to grab items like snacks or coffee when convenient. But think about it … if you stop at a convenience store for a 12 oz. coffee every morning, that’s probably about $1.75 you’re spending every day … that adds up to over $600 every year! What if, instead, you bought a $10 coffee maker for your office and bought your coffee grounds in bulk? How much money could you save? And how could interest affect what you’re saving? If you saved just $600 per year in a basic savings account with a 5% rate of return, after 30 years you could potentially have more than $30,000 … and that’s after taxes! Start paying more attention to those “little” expenditures. They can really add up!

Secret #4: See your destination
They say that hindsight is 20/20. Think about this: if 10 years ago you began saving just $200 per month in a shoe box under your bed, then today that shoe box would have $24,000 in it! Unfortunately, you can’t go back in time. But you CAN look ahead. Use a financial calculator (there are free calculators available online) and start plugging in numbers … calculate where you could be in 20-30 years depending on how much you’re willing to save today. Once you know what you COULD achieve, saving money could become your favorite pastime. A competition (with yourself) to see how much you can increase your future net worth. Have fun with it!

Secret #5: Ditch the shoebox
Speaking of that hypothetical shoebox under your bed … the money in that box might collect dust, but it won’t collect interest. And while I seriously doubt that you keep money in a shoebox, take a moment to consider WHERE and HOW you save your money. While a traditional savings account can earn you interest, there are other options available to you that could potentially earn you more. Perhaps you’ve heard people speak about money market accounts or CDs, but you’re not sure what they are or if they’re right for you. It’s a good idea to learn all you can and make informed decisions about your money.

While saving money is important, where and how you choose retain and grow that money can have a significant impact on your net worth in the years to come. If I can help you in any way, please contact me at 1-866-786-2521 or at bill@myretirementsuccess.com

Automatic Rebalancing – What It Is, Why It Matters

2008-03-17T09:16:00.003-04:00

Why automatic asset reallocation may help your portfolio.

If you participate in a 401(k) plan, or if you have a variable annuity, an ETF, or an IRA mutual fund, you may have an option to automatically and periodically have your assets “rebalanced.” In fact, a 2007 survey by Hewitt & Associates found that 42% of large employers offered this option. Why might this be important?

An automatic check-up for your portfolio. Here’s why. When you first contributed to that retirement plan, ETF, IRA or variable annuity, there was a specific asset allocation in mind. Your assets were fractionally allocated across different investments – a certain percentage in this class, a certain percentage in that class, and so on. You did this in a way that suited your tolerance for risk.

But over time, those percentages subtly change. Some investments outperform others, and as a result, the asset allocation may stray from the targets you once set.

Automatic rebalancing may remedy this.

A way to keep you on track. How does it work? Well, just as an example, let’s say you have assets initially allocated in a typical 60/40 ratio: 60% in stocks, 40% in non-stock market investments. If stocks do poorly and, say, bonds do well, that 60/40 balance may approach 50/50. You now have a greater percentage of your invested assets than you initially wanted in a certain investment sector.

Now you may be thinking, “If that investment sector is doing well, what’s the problem?” The problem is that you are drifting away from the guideposts you started investing with. If more and more of your assets end up in one investment class, your portfolio becomes less and less diverse and more heavily weighted in one category. So your risk exposure may increase, or conversely, your portfolio assets may not be poised to earn a large enough return to meet your goals.

The age-old idea behind automatic reallocation. Five words really sum it up: “buy low and sell high.” In the rebalancing process, some of the assets within an overachieving investment category are sold off and a bit more of the assets in an underachieving investment category are bought in order to regain the original asset allocation. This is the other important effect of automatic rebalancing.

Should you opt for automatic rebalancing? If you want a better understanding of the potential benefits of automatic asset reallocation, or if you just have questions about your retirement plan or investments, give me a call at 1-866-786-2521. I'll be happy to talk with you.

The Rules To Get Your Rebate

2008-03-10T09:16:00.002-04:00

Don’t miss out on the money the government wants to give to you.

This year, most married taxpayers (filing a joint return) are poised to receive a rebate of $600 or more as a result of the economic stimulus plan that President Bush signed into law. But getting this great rebate isn’t automatic. There are procedures to follow before you can find that check in your mailbox or those added funds in your bank account.

You must file a return. The key thing to remember is: you must file a 2007 federal income tax return to get a rebate.

If you are retired and your taxable income is very low, you may not have filed a federal tax return for years. Do it this year, or wave goodbye to your rebate.

If you are a low-income retiree … you may think your earned income is too low to qualify for a rebate. But if you received at least $3,000 in earned income, SSI or certain veterans' benefits in 2007, you qualify for the minimum rebates of $300 for singles and $600 for married couples – even if you aren’t projected to owe taxes for 2007.

Retirees with 2007 earned income of at least $3,000 in wages, Social Security benefits, certain veterans' benefit payments and railroad retirement benefits should report this amount on Line 20a on Form 1040 or Line 14a of Form 1040A. Aside from that, on your 2007 1040 or 1040A Form provide your name, address and Social Security number, and write the words "Stimulus Payment" at the top of the form. Follow these steps, mail it in, and you are eligible for a rebate. (If you’ve already filed a federal return stating that you earned less than $3,000 in 2007 but have since discovered that you qualify for a rebate, you can file an amended return using Form 1040X. )

If you are a middle-income retiree or a high-income retiree … file your federal tax return as usual. If you have earned more than $3,000 in qualifying income, the IRS will simply process your 1040 Form and issue a rebate. If your adjusted gross income is more than the caps of $75,000 for single filers and $150,000 for joint filers, you may get only a partial rebate or no rebate at all.

Make sure you file on time. The IRS will begin issuing these rebates in May, but if you file after April 15, your rebate check may arrive weeks or months later. If you owe back taxes or child support, the IRS may garnish part of your rebate as it sees fit.

In the coming weeks, the IRS will send you two notifications. The first will explain the rebate program, and the second will confirm the amount of your rebate. (The second mailing will probably arrive 7-10 days before you get your rebate check, or at about the same time a direct deposit rebate is made.)

Choose direct deposit. If you want your rebate faster, this may be the way to go. You’re probably aware that the IRS will be bogged down this spring trying to process returns and conventional tax refunds, a delay stemming from the well-publicized, last-minute “patch” of the Alternative Minimum Tax in December. The IRS estimates the direct deposit option will bring your rebate to you a week faster.

As always, if I can help you in anyway, please call me at 1-866-786-2521.

The Top 10 Reasons Not To Plan For Retirement

2008-03-03T13:17:00.002-05:00

A different kind of Top Ten list.

You probably read or hear about some “Top Ten” list nearly every day. But take a moment to read this one. This list is different, and probably not the kind of list you’d expect a Financial Advisor to write.

Reason #10: “I’m too busy”
I can’t tell you how often I hear this excuse. So many people want to plan for a better retirement, but they don’t have time. They think they’ll take care of it tomorrow, or the day after that … and before they know it, several years have gone by. The best advice I can give you is to stop procrastinating and start planning today.

Reason #9: “It’s too soon”
I don’t know how this happened, but many people have adopted the notion that you don’t have to start planning for your retirement until you’re almost there. This is totally incorrect. The truth is, the sooner you start planning, the better chance you stand of having the kind of retirement you want. It’s never too soon. Many people start planning in their early twenties!

Reason #8: “It’s too late”
If you’re already near or past your retirement eligibility date, you may think that whatever you’ve got is what you’re stuck with and it’s too late to do anything about it. Think again. If you’re unsure of what your options are, speak to a professional. Even if you’ve already retired, it’s important to consider how you’re receiving income and how long it will last. It’s never too late to revise your income distribution strategy.

Reason #7: “I don’t need to”
I’ve heard this excuse many times and it always baffles me. Many people think that because they’ve been diligent about contributing to a savings account, they’re all set. While saving for retirement is good, you also need a plan for income distribution once you enter retirement. Are you certain that what you’re saving will be enough? Have you considered your distribution plan? What about taxes? What about inflation? And are you sure your money will be properly invested? There may be other, better options for you and it may prove worthwhile to look into them.

Reason #6: “I don’t have enough money to get started”
This excuse seems marginal at first glance, but there is some truth behind it. You need to have money to save or invest money. However, unless your bills are exactly equal to or greater than your net income, you DO have enough to get started. Starting small is better than not starting at all, and if you plan well, you’ll eventually have more to work with.

Reason #5: “My finances are a mess”
This is all the more reason to seek out an advisor who can help you sort through and understand your assets. Perhaps you have a 401(k) from a former employer that has not been rolled over, a couple of savings accounts, a trust from a deceased relative, some stocks that your parents bought in your name when you were younger … a circumstance like this can be confusing, but leaving it as it is won’t improve the situation. Consider speaking with an advisor who can look at your complete financial picture, help you to understand it, and help you to develop a plan to make your “financial mess” work for you.

Reason #4: “The Government will take care of me”
The bottom line is this … there’s a chance Social Security may not be available when you retire, and even presuming it is, it may not be enough to provide your ideal retirement income. If you’re planning to retire on Social Security alone, I would advise you to create a back-up plan at the very least.

Reason #3: “Between my savings and my 401(k), I’ll be fine”
Saving for retirement without an income distribution plan can be a mistake. How will you use that money once you have it? And while you may think you’ll have everything you’re going to need, have you considered inflation? Taxes? And furthermore, some people are living past 90. Will your assets last that long? If you outlive your income, what then? It’s a good idea to look ahead and plan lifelong income.

Reason #2: “I don’t want to think about it”
Many people procrastinate simply because the thought of discussing financial matters (or growing old) is unappealing. I can certainly understand that. But consider this … if you bite the bullet now and put a firm plan in motion, you may not have to think about it again for quite some time.

Reason #1: “I don’t know how”
If you knew everything there was to know about financial planning, you’d probably be a financial advisor yourself. While it is possible to do everything on your own, that generally involves a great deal of research and a huge time commitment. If you’re putting off retirement planning because you don’t know how, consider speaking to a professional who does.

These are just some of the reasons why people don’t plan for retirement … but these are reasons, and not excuses. If you have retirement goals you want to reach, I can help. Call me at 1-866-786-2521. The sooner the better.

Are You Making These Mistakes?

2008-02-25T10:32:00.003-05:00

A few things you can’t afford to do.

There are many reasons people make mistakes with money – a lack of knowledge or confidence, inattention, relying on the advice of friends rather than professionals. Here are some all-too-common money errors to avoid …

Putting off financial planning. Procrastination does not help you save for retirement, and it will not help you reduce your taxes or transfer money to your heirs. Delaying necessary financial planning can be perilous.

Putting all your eggs in one basket. Spread your assets across multiple investments, and you help to insulate them against the effects of economic ups and downs.

Buying more home than you can afford. Interest-only loans, option adjustable-rate mortgages (option ARMs) and lease purchases have tantalized many couples and families with small nest eggs, modest salaries and credit blemishes into taking on much more liability than they can bear. This year, foreclosures have skyrocketed nationally.

Making impulsive or emotional money decisions. A decision that feels good (or exciting) may not be appropriate for you financially. Avoid spur-of-the-moment financial choices, and the influences that may trigger them.

Living above your means. In the acclaimed book The Millionaire Next Door, authors Thomas Stanley and William Danko found that most millionaires drive used American cars and shun a champagne-and-caviar lifestyle. It is the middle class that is generally seduced by big-debt, big-ticket luxury items … sometimes all the way into bankruptcy.

Avoiding all risk. Caution is good, but being extremely risk-averse (for example, refraining from investment and just putting your money in an FDIC-insured bank account) may cost you in terms of the growth of your retirement savings and assets.

If you think you might have made one or more of these mistakes or if I can help you in any way, please feel free to call me at 1-866-786-2521.

Should You Pay Off Your Mortgage?

2008-02-19T10:00:00.002-05:00

Maybe … maybe not.

To pay or not to pay … that is the question. It sounds good, right? Pay off the mortgage and suddenly you have no more monthly payments, better cash flow, and the opportunity to make other investments. After all, buying a home is an investment, but owning a home is the American Dream. Right?

While owning a home free and clear may seem like the obvious best scenario, there are valid reasons not to pay off your mortgage. For example …

Consider the taxes. If you’re still in the early stages of your loan and mostly paying off interest instead of principal, then paying it off could mean losing your mortgage interest deduction. More than likely, the largest tax write-off a homeowner will have in his lifetime will be mortgage interest. While some homeowners just want the security that may come from knowing a home is paid in full, others choose to retain that valuable tax break. Neither choice is incorrect, just bear in mind … when you stop making payments, you can no longer deduct your mortgage interest.

Past value = present reduction. Consider this … if you established your mortgage twenty years ago, the value of your home was also determined then. Right now you’re actually paying your mortgage, in essence, with dollars that are worth less (in today’s market in terms of purchasing power). Think of it this way: If twenty years ago you bought your house for $200,000 and today it is valued at $500,000, then today it’s as if you’re paying 40 cents on the dollar.

Money in the bank vs. money tied up. Money in a savings account offers easy access, and money in a home is tied up, right? Not necessarily. Today there are more options and opportunities for quick, if not immediate, access to home equity, including the popular HELOC. Remember, fundamentally equity is akin to money in the bank … whether you can withdraw it from an ATM or not.

So, should you pay off your mortgage? It depends on many factors, and no one answer is “the answer” for everyone. Before you decide, you should consider some very important factors … taxes, inflation, liquidity, and return on investment. To make an informed decision, you need to fully understand how these factors affect your finances. If you have questions, I can help you find answers. Give me a call at 1-866-786-2521.

Your Credit Score

2008-02-11T09:57:00.000-05:00

What it means, how it is calculated, and how to improve.

A good credit score can get you the best interest rates on all kinds of loans. A bad credit score can cost you thousands of dollars over the duration of a mortgage.

Do you need to improve yours? How can you?

How your score is determined.

When lenders reference your credit score, they’re most likely talking about your FICO score. (FICO stands for Fair Isaac Corporation, a leading monitor of consumer credit.) Your FICO score can range from 350 to 850, 850 being best. FICO scores are calculated from five factors: your payment history (which counts for 35% of your score), the amounts you owe (30%), the length of your credit history (15%), the types of loans and credit cards you have (10%), and any new credit (10%).

Good and bad breaks.

If your FICO score is 720 or higher, you’re in good shape. If it’s lower than that, be prepared for some frustration. Most mortgage lenders have firm “break points” – if your score is 699 and the break point is 700, that slight difference could mean half a point on a mortgage.

How can you raise your score?

You can bump up your score through certain tactics. Pay down your credit card debt to $0 and your score can go up by as much as 20 points in 60 days. Also, get a copy of your credit report and look for errors: “late” payments that you really paid on time, accounts that aren’t yours, old debts that shouldn't be on your report today (negatives are supposed to be taken off your report after seven years, bankruptcies after 10 years). Don’t just cut up credit cards without paying down the debts on the accounts. Having multiple credit cards can actually help you; it’s better to have four cards at 20-30% capacity than one card that’s maxed out.

Rapid rescoring. If you’re applying for a mortgage, ask your lender if they are a customer of a rapid rescoring service. You could have your credit score rescored in about 72 hours, and if you’ve recently improved it, rescoring could save you big money. Rescoring will cost you about $50 per credit account that needs to be scored.

If you have any questions or concerns, please feel free to give me a call at 1-866-786-2521.

A Retirement Planning Timeline

2008-02-05T10:10:00.000-05:00

20 ... 30 … 40 … 50 … as time goes by, make sure you accelerate your planning.

When should you start saving for retirement? When do you really need to get serious about planning your retirement transition? Well, it depends on many factors. But along the timeline of life, there are certain things you might consider doing at certain ages. Your retirement planning can begin early in life, and remember that today is never too late.

In your twenties & thirties. Hopefully, you joined the retirement plan at your workplace right after you were hired, and you’ve contributed to that plan consistently. If not, you can start doing so. If your employer matches employee contributions, then contribute enough to trigger that match. Think about contributing slightly higher percentages of your income to the plan each year. This is also a good time to think ahead and adopt a long-range investment strategy, with defined goals in mind.

In your forties. This is a time when too many people go on autopilot when it comes to saving and planning for the future. At some point in your forties, it will be wise to confer with a qualified financial advisor to measure your retirement planning progress. You may not be saving enough, and you may need to catch up.

In your fifties. Of course, the federal government will let you “catch up” when you hit 50 – at least in terms of IRA contributions. At 50, you can not only contribute the maximum annual amount to your IRA ($5,000 for 2008, with an April 15 postmark deadline to earmark your contribution for tax year 2007), you can add $1,000 more each year in “catch up” contributions. If you choose to retire in your fifties, you can pull distributions out of your IRA if you really need the liquidity (but those withdrawals are subject to income tax and can be subject to an IRS early withdrawal penalty). At 59.5, you can tap into your IRA and other retirement accounts without a 10% early withdrawal penalty (if you have a traditional IRA, your withdrawal will generally be subject to tax unless you are using the money to buy a first home or fund education expenses).

In your sixties. At 62, you can receive early Social Security benefits, but your SSI will be correspondingly cut by 25% or greater for the duration of your lifetime. You can receive full benefits between 65 and 67. You may also choose to review and modify your portfolio at this point, adjusting for risk. A retirement plan rollover will encourage further tax-deferred growth of your accumulated assets.

In your seventies. At 70, even those who work have to sign up for Social Security benefits. At 70½ comes the first mandatory IRA distribution. At this stage of life, you should also have a long-standing relationship with a retirement advisor you trust.

It's never too early or too late to start planning for your retirement. If you are ready to get started, give me a call toll-free at 1-866-786-2521 or send me an email at bill@myretirementsuccess.com.

Recession and Diversification

2008-01-28T11:30:00.000-05:00

Are we in a major recession, a mild recession, or just a slump?
Whatever you want to call it, diversification certainly counts.

Investments uncorrelated or indirectly correlated to the stock market – such as CDs, Treasuries and annuities – are getting another look these days. Here’s a look at some of the options before investors.

Banking on the future. Under recessionary conditions, short-term CDs, money market accounts and Treasury notes sometimes appeal to those who want to receive a competitive yield versus stocks and bonds over six months or a year with less risk. Treasuries are also free from state income tax, and some Treasuries are TIPS (Treasury Inflation Protected Securities), meaning they are hedged against inflation. The comparative certainty of all these investments appeals to people seeking diversification.

Bonding together. In this kind of economic climate, some investors may also be attracted to bonds and bond funds. Bonds, after all, offer the investor a reliable payment stream and repayment of principal. Besides municipal and government bonds, there are also corporate bonds, including fixed-rate capital securities offering predictable monthly, quarterly or semiannual income. Some investors like short-term bond funds, which typically invest in commercial paper, bills, and certificates of deposit. Often, bonds funds generate monthly income, and some allow check-writing so people can meet emergency cash needs. Some exchange-traded funds (ETFs) are bond ETFs, which tend to favor investment in inflation-protected bonds.

A contractual choice. Annuities are another type of investment with little or no correlation to the stock market. Under these contracts, you make payments to an insurance company which in turn agrees to make payments to you, immediately or in the near future. A fixed annuity offers “guaranteed” income payments and a “guaranteed” rate of return (“guaranteed” by the insurance company, that is, not the FDIC or SEC). A variable annuity usually allows you the choice of stock market participation (usually via mutual fund investment) with possible protection of your principal. An equity-indexed annuity offers returns tied to an equity index, but with a minimum rate of return “guaranteed” by the insurer.

Is it time to diversify? You may want to learn more about these investments, and others that may help you modify your portfolio for a recession or downturn. If you have any questions about your investments or diversification please contact me at 1-866-786-2521.

Are You Underfunding Your Retirement?

2008-01-21T09:46:00.000-05:00

Are there disadvantages to fixed returns?
Should you consider the potential of the stock market?

Many retirees and pre-retirees are drawn to fixed annuities and CDs because they do not want to assume much risk. After all, there is no stock market risk involved with these fixed-return investments. Some people use them as their only vehicles for retirement planning.

But stepping out of the stock market altogether may not be such a good idea. In fact, for some it could be a serious retirement planning mistake. Here’s why.

Risk-averse investing has risks of its own. Every investment has advantages and disadvantages. Fixed-rate investments are no exception. While you eliminate market risk with a fixed annuity or CD, in a sense you are trading one kind of risk for another. You now contend with opportunity risk (or opportunity cost) and inflation risk. The fixed return you get might be far less than the return that stock market investing could bring you (in the short term and the long term). That fixed return might also fail to match the rate of inflation, leaving you with less purchasing power.

Volatility is something many of us endure in order to try for the kind of returns that may help us reach our financial goals. In the last year, the stock market has been quite volatile. But through the years, some investors have built considerable wealth through long-term stock market investment.

Do you really want to ignore the potential of the stock market? While short-term market movements may make stocks and funds seem too risky, the big risk could be the possibility of severely underfunding your retirement by clinging to fixed-rate investments. The stock market offers opportunities for considerable financial gain – and the chance of returns exceeding those of most fixed-rate investments. While there is risk involved, there also exists a potential for considerable benefit.

If you say “no” to the market’s potential, you may regret your choice later in your retirement. In fact, you may find that you need long-term stock market investment to work toward certain retirement goals.

Explore the possibilities. If you’d like to learn more about investments positioned to take advantage of the market’s potential, please give me a call at 1-866-786-2521. I will be able to help you determine how much risk you’re willing to tolerate, and which investment opportunities are the closest fit with your tolerance level. What you learn might be very illuminating, and it might change your whole investment outlook.

Should You Delay Taking Social Security Benefits?

2008-01-13T22:15:00.000-05:00

When should you start collecting your hard-earned Social Security? Conventional wisdom says the longer you delay, the better off you are. Yet maximizing your payment through waiting is just one way to get the most out of this key retirement income source.

In essence, the government pays you to wait for Social Security, and docks you for taking benefits early. You’re allowed to begin collecting at age 62, but your monthly payment will be lower than your “full benefit,” and it will stay that way (see “The Cost Of Starting Early”). To get more, you must wait until you reach the Social Security Administration’s “full retirement age,” which used to be 65—and still is, if you were born in 1937 or earlier—but is now inching upward, depending on your birth year. If you delay taking benefits beyond your specified retirement age, your payment will increase an extra 8% for each year you postpone benefits until age 70.

If you opt to start Social Security payments at 62, you’ll lose up to 30% of the benefit you’d get by waiting until retirement age. Still, delaying payments may not always be possible or even desirable. You could need the money—if, say, you’ve been downsized at work, or your health has forced you to retire early. In such cases, starting Social Security at age 62 may be better than draining your savings while you wait several years.

If you have plenty of other income, starting benefits early could pay off if you invest the money. But there’s no guarantee you’d come out ahead with this strategy. Your success depends not only on your return, but also on how long you live. Receiving several extra years of payments undeniably puts money in your pocket, and if you start benefits at age 70 rather than at 62, for example, you’ll need to live a number of years before the higher monthly payments make up for the cash you gave up by waiting. On the other hand, investing your early benefits in anything but the most conservative assets could put some of your otherwise guaranteed retirement income at risk.

The lower your portfolio’s returns, the better off you may be spending down your savings while you wait for benefits to kick in at age 70, suggests John Marotta of MoneyNews.com. If your savings only keep pace with inflation—and if you live past the age of 83.4—waiting for the age 70 payout will be a better deal. But if you earn 2.5% a year above inflation, the “break-even” age is 87.25 years, according to Marotta.

These days, of course, achieving those milestones isn’t unusual. According to the American Society of Actuaries, a 65-year-old male now has a 50% chance of surviving until age 85, while the average 65-year-old woman has 50-50 odds of being alive at 88. For a couple in which both spouses are 65, there’s a 50% chance one will make it to age 92.

Ultimately, your decision about when to begin Social Security benefits may hinge on how that income affects your financial plan. If you’re nearing 62 and would like to discuss your options, please give us a call at 1-866-786-2521.

Do Your Investments Match Your Risk Tolerance?

2008-01-07T11:17:00.000-05:00

Now is a good time to examine what’s in your portfolio.

The stock market is unsettled … and perhaps its fluctuations are unsettling you. It’s a stressful time for the economy and Wall Street, and you may be concerned about your portfolio given what’s going on with oil prices, the real estate market, and rising unemployment figures. It may be a good time to review how your assets are invested.

Is your portfolio balanced? A balanced portfolio may help you ride out stock market turbulence. Stocks and mutual funds aren’t the only asset allocation choices you have, and you won’t be alone this winter if you decide to examine other investment options.

Fixed annuities and Treasuries become attractive to investors when the market turns volatile. Bonds tend to maintain their strength when stocks perform poorly; fixed annuities are simply contracts with insurance firms, not correlated to stock market performance (though certain types of annuities may enable you to take advantage of stock market gains while maintaining your principal). Fixed-income mutual funds, dividend income funds and bond funds also have their adherents.

Last but not least, you have cash, though cash holdings haven’t traditionally performed anywhere near the level of the stock markets.

Are you retired, or retiring? If you are, this is all the more reason to review and possibly even revise your portfolio. Frequently, people approach or enter retirement with portfolios that haven’t been reviewed in years. The asset allocation that seemed wise ten years ago may seem foolhardy today.

Often, people in their fifties and sixties feel they need to accumulate more money for retirement, and that feeling leads them to accept more risk in their portfolio than they should. In the absence of a salary, however, you’ll likely want consistent income and growth, and therein lies the appeal of a balanced investment approach designed to manage risk while encouraging an adequate return.

Why not take a look into your portfolio? Ask your financial advisor to assist you. You may find that you have a mix of investments that matches your risk tolerance. Or, your portfolio may need minor or major adjustments. The right balance may help you insulate your assets to a greater degree against financial ups and downs.

If you have any questions or concerns, please call me at 1-866-786-2521.

Your Annual Financial To-Do List

2007-12-17T08:59:00.000-05:00

Things to do before the New Year.

It’s about that time of year. The end of the year is a good time to review your personal finances, and to refocus your wealth-building efforts. How much financial progress did you make? What are your financial, business or life priorities for 2008?

Dust off your financial goals and take a good look at them. Have they changed? Do they read more like wishes, or are they specific objectives? Try to specify the goals you want to accomplish, and a timeframe. Think about the consistent investing, saving or budgeting methods you could use to realize them.

Max out your IRA contribution at the start of 2008. If you can do it, do it early. Remember that the contribution ceiling increases in 2008 to $5,000 per person/$10,000 per couple if you are under age 50 and $5,500 per person/$11,000 per couple if you are over age 50. The sooner you make your contribution, the more interest those assets will earn.

Before 2007 ends … think about making charitable contributions. If you make them this year, you can claim deductions on your 2007 tax return. Also, see if you can prepay next year’s property taxes this year; if your lender receives that payment before December 31, that’s also a 2007 deduction you can take.

Are you marrying next year, or do you know someone who is? The top of 2008 is a good time to review (and possibly change) your beneficiaries to your 401(k) or 403(b) account, your IRA, your insurance policy and other assets. You may want to change beneficiaries in your will. It is also wise to take a look at your insurance coverage to determine if you will be underinsured, to identify any coverage gaps, and to cancel duplicate policies. If your last name is changing, you will need a new Social Security card. Lastly, assess your debts and the merits of your existing financial plans.

Are you returning from active duty? If so, go ahead and check the status of your credit, and the state of any tax and legal proceedings that might have been preempted by your orders. Review the status of your employee health insurance, and be sure to revoke any power of attorney you may have granted to another person, even a family member.

Don’t delay – get it done. Talk with a qualified financial or tax professional today, so you can focus on being healthy and wealthy in the New Year.

If you have any questions, I'd love to talk with you. Please give me a call toll-free at 1-866-786-2521.

The “How” & “Why” Of The IRA Rollover

2007-12-10T10:06:00.000-05:00

A way to reinvest the lump sum you’ve saved for retirement.

As retirement approaches … money decisions become increasingly major. One big decision concerns what to do with the money in your company retirement plan.

… Consider a direct rollover. For most people, the most attractive option is an IRA rollover. In other words, you transfer the money from your 401(k), 403(b) or 457 plan into an IRA. It is not hard to accomplish, provided you have the guidance of a qualified financial advisor.

Basic steps. When you leave a company, you usually have three options with your retirement plan: you can leave the money in the plan, roll it over into a new plan (if you elect to keep working for a new employer), or do a direct rollover into an IRA.

A direct rollover is not the same thing as a direct payment to you. Yes, your employer can actually write you a check for the full amount of your 401(k) account, but 20% of that money will be withheld for taxes.

Do you want to avoid that 20% withholding? A direct rollover is the solution. It is a “trustee to trustee” rollover, which works like this: your employer writes a lump sum check not to you, but in the name of the trustee or custodian of the IRA that you are creating to hold the funds. You then let your company’s retirement plan administrator know that you’ll be doing a direct rollover. (There is almost always a form to be filled out, on which you can state the specific instructions for the distribution check.)

Your company sends you the check payable to the IRA trustee, with no withholding, and you have 60 days to deposit it in the IRA; day 1 is the day after you get the check. (Sometimes a wire transfer of assets occurs instead, between one investment custodian and another.) If you don’t complete the direct rollover in 60 days, you will pay tax on the entire amount. (There’s no grace period for weekends or holidays.)

If you want to leave work before age 59½ or you own shares of company stock, you should consider the tax implications created by those circumstances before attempting any kind of rollover.

What you can and can’t do. You can make unlimited direct rollovers of your retirement account assets, and you can add the money in your retirement plan to an IRA you already have, if you don’t intend to go back to work and put those assets into a new employer plan. Once your retirement plan assets are in an IRA, you can invest them in practically any way you choose – in mutual funds, CDs, stocks, money market funds, annuities, and even more possibilities. You can also set up your IRA to make systematic payments to you.

You can’t roll over the assets from your retirement plan directly into a Roth IRA. You have to put them in a Traditional IRA first, and then convert to a Roth IRA by paying tax on the assets you want to convert before you can realize that tax-free growth.

Is it time to roll over your retirement money? If that time is here or getting closer, you need to be very careful with what could possibly be the largest lump sum you ever receive. Give me a call at 1-866-786-2521 if you have any questions about your IRA rollover options.

Safe-Money Strategies For Retirees

2007-12-03T10:08:00.000-05:00

Question: In a recent column you mentioned how a pre-retiree could deal with the mood swings in the stock market. What about us folks who are already retired?

Answer: For pre-retirees and retirees alike, in my practice I developed and employ what I refer to as the “Safe-Money” Benchmark Strategy™. It’s a simple, yet powerful concept, but I’ve found that my clients sleep much better at night knowing this safe-money income strategy has been implemented on their behalf. Here’s how it works.

A few years before retiring, if possible, you should begin to accumulate an amount of money that’s equal to 1-5 years worth of cash withdrawals (based upon your expected income needs). This systematic accumulation of cash is done on purpose so that you have a safe-money source to pull from when the balance of your investment portfolio and the stock and bond markets may be declining in value. Some people want one year of cash on hand. Some people want five years of cash on hand. Everyone’s number is different and that’s okay. It all depends on your comfort level.

Each time your portfolio exceeds a pre-established benchmark; you should systematically harvest the excess money above the benchmark, and put it in cash or short-term bonds (money markets funds, CDs, and/or US Treasury bills). For example, let’s assume you have $250,000 in your IRA. You could establish $260,000 as your benchmark. Any time the value of your IRA reaches or exceeds $260,000, you could liquidate $10,000 and put those proceeds in a money market fund. The goal is to build up a cash cushion so when you want to take money out, it comes from an asset class (cash), a safe-money source, that isn’t subject to market fluctuation.

Bill’s Bottom-line: You can learn more about the “Safe-Money” Benchmark Strategy™ by investing in a copy of my book, Retire in a Weekend! Please visit www.RetireinaWeekend.com.

5 Ways To Make Retirement A Reality

2007-11-27T10:22:00.000-05:00

Question: The recent mood swings in the stock market and my declining 401k balance are making me feel like I’ll never be able to retire. Do you have any suggestions?

Answer: Yes – invest in Grecian Formula. The market gyrations are giving me more gray hairs every day and I’m gonna have to start buying it in bulk to keep my youthful looks. Seriously though, this market volatility is causing a lot of angst but there are some things you can consider.

Consider increasing your annual savings: This is one area you have direct control over. It may require that you reduce your current spending, but putting more away will allow you to buy more shares now at cheaper prices (since the market is lower). Also, every dollar you invest in your 401k plan today is one less dollar included in your income this year so you can lower your tax bite.

Consider reallocating your 401k to higher yielding investments: It’s counter-intuitive since the markets are declining but perhaps you should invest more aggressively. Every extra 1% you can earn on your money will go along way to helping you enjoy the retirement you envision sooner. Remember to manage your risks though.

Consider retiring later: Every year you earn an income is another year you defer money into your 401k, lower your tax bill and allow your savings to grow tax deferred. The longer you work the less you would need to accumulate to afford your desired lifestyle.

Consider lowering your investment costs: Review your 401k choices and see what the best performing investment choices are and choose those with the lowest costs. Again, every dollar you lower your costs by is another dollar in your pocket.

Consider reducing your retirement income needs: If you can reduce your expenses, live on less and/or work longer, you may feel more in control of your future.

Bill’s Bottom-line: Control what you can control. Market volatility is normal and expected. Learn to deal with it. If I can help you in any way, please give me a call at 1-866-786-2521 or email me at bill@myretirementsuccess.com .