Dream a Little Dream: Know where you want to go

July 10, 2012

People often think defining an investment strategy is the first step in creating a solid financial plan. Slow down. Before you even begin to gather all the information you’ll need to form an investment strategy, sit down on the porch or patio or in front of the fireplace (with your spouse or partner if you have one) and let your mind roam.

What do you really want from life? If you could do anything you want, what would you do? Don’t put financial restrictions on yourself now. Dream. Stretch a little. Once you have that dream defined and you know roughly where you want to go, you can begin to determine what role a financial plan can have in helping you live that dream. 

A good investment strategy begins by identifying your specific individual goals and the time you have to achieve them. Those highly personal decisions, very often driven by your love of others, will suggest your strategy. Your strategy may include shorter- and longer-term objectives.

Are you investing to buy a house, pay for college or to retire with sufficient income to support the lifestyle you desire? How much money will you want for each objective? When will you need it? How can you get there? Will you have to make trade-offs to achieve those goals? Which take the highest priority?

The answers to all of those questions will help you determine your individual strategy. Without that strategy it is nearly impossible to know how to invest.


Don’t Forget These Five Retirement Challenges

March 13, 2012

People who are approaching retirement tend to ask themselves certain questions, sometimes repeatedly:

Am I investing enough?
Am I investing aggressively enough?
Am I making the most of my tax-saving opportunities?

You can greatly increase your peace of mind concerning your retirement nest egg by following your financial advisor’s guidelines for generating income in retirement. As you plan, there are five major risks to keep in mind.

1. Longevity. Thanks to improvements in diet and medicine, we’re all living longer. Your money will have to last longer, too. While your life expectancy at age 65 is about 20 years, life expectancy is an average. Half of us will spend more than 20 years in retirement and half won’t. It is prudent to plan for more than 20 years of retirement income.

2. Rising prices. Inflation doesn’t disappear from your life after you retire. Assuming you are no longer working but want to keep your lifestyle intact, you will have to give yourself a raise from your retirement savings. Some people plan to spend less money in retirement, but that may not be the best thinking. True, you may spend less on things like housing and transportation. But health care and long-term care—services that you are likely to use quite a bit as you get older—is expensive and costs are rising by approximately 8 percent annually.

3. Medical and long-term care costs. Statistically, people tend to spend a great deal of money on health care in their later years. Total health care spending can easily rise into the six-figure range if you do not have employer-sponsored post-retirement medical insurance. And today’s employers are increasingly unlikely to provide retiree health benefits. Long-term care costs also are high and rising. According to AARP, nursing home care costs approximately $75,000 a year, on average. To help mitigate these risks, your retirement income planning might include life insurance or long-term care insurance products.

4. Taxes. During the past 50 years, tax rates have been at current levels or lower only 10 percent of the time. The current economic and political climate is increasing the odds of tax rates reverting to pre-1980s levels. This means the tax savings that investors enjoyed during their working years could be more than offset by higher taxes in retirement.

5. Investment risk. Finally, we can plan for the impact of the stock and bond markets. It’s essential—but not easy—to find the right balance between bonds that preserve capital and investing aggressively enough to ensure that your portfolio growth keeps up with inflation. Otherwise, your assets and income might not support your standard of living as inflation erodes your purchasing power. In retirement, stocks should continue to be a significant part of your portfolio. The stock market’s rate of return and volatility may help you generate a sustainable income over a long period of time.

The only thing that’s a given about the retirement landscape is that it will keep changing. It’s critical for investors to prepare for certain (and uncertain!) risks. A thoughtful income strategy and comprehensive financial plan can help you address the five key challenges while working toward the retirement lifestyle you desire.

Wealth Enhancement Group

Be It Resolved: Meet Your 2012 Money Goals

January 4, 2012

The time for those New Year’s resolutions is upon us.

In my opinion, making financial resolutions doesn’t have to be painful. If you follow some simple guidelines, financial and other resolutions don’t have to be overwhelming. Remember that the key to reaching any goal is to make it specific, achievable and measurable. Celebrate and reward yourself once you get there. And realize that it’s perfectly acceptable – and smart – to ask for a little help when needed.

Be it resolved: Health first
Before getting into financial resolutions, I want to mention how important it is to consider your health and make it a priority. This is a great place to start with resolutions because there are so many ways to improve health without spending much money. You can go for more walks, which are absolutely free. Or take an exercise class or buy (and use!) a cookbook that focuses on healthy foods. Try a healthy new activity and see if it gives you some extra energy and enthusiasm for your financial resolutions.

Be it resolved: Save and invest more
Based on my conversations with clients, family members and friends, saving more and spending less always seem to be the most popular financial resolutions. The two things go hand in hand and may sound simple, but many people find it difficult to build their savings to the level they desire. You need the right perspective and a specific, achievable savings goal in order to succeed.

Saving really boils down to paying yourself first. For most people, a realistic goal is to save 10 percent of your income. If your employer offers a retirement savings plan with matching contributions, resolve to make the most of it and contribute as much as you can. It is one of the best ways of boosting your savings. You may also want to open and begin making regular contributions to a Roth IRA, which allows you to make tax-free withdrawals of your direct contributions at any time.

Be it resolved: Pay off inefficient debt
If you are one of the many people who want to dump a debt burden this year, you need to know that not all debt is created equal.

Efficient debt isn’t so bad, but you will want to get rid of inefficient debt as soon as possible. Efficient debt works for you because it is tax-deductible and/or appreciates in value. Examples include a home mortgage or an investment in education that can increase your earning power. Inefficient debt includes high-interest credit card debt and debt used to buy things that depreciate and are not deductible, like automobiles and many other consumer goods. Resolve to pay off inefficient debt first.

Be it resolved: Consult a financial advisor
If you feel overwhelmed just thinking about financial resolutions, it’s the perfect time to consult with a financial advisor. A professional can help you get organized, identify goals, save time and find ways for you to maximize your financial efficiency this year.

Best wishes for a healthy and prosperous 2012!

Wealth Enhancement Group

Money Strategies for Mr. Mom

June 7, 2011

Kelly Greene (2011, May 14). Money Strategies for Mr. Mom. Wall Street Journal.

Husbands and wives increasingly are switching the traditional roles of breadwinner and household manager. But many of them haven’t followed through with an appropriate financial tune-up.

In recent decades, women have outpaced men in education and earnings growth. According to the U.S. Census Bureau, some 29% of wives in dual-earner couples brought home more pay than their husbands in 2009, the most recent data available. That’s almost double the 16% figure in 1988, when many of today’s 40-year-olds were finishing high school.

With that shift in income, financial planners say they see more husbands supervising the home front. It’s part of a long-term trend that appears to have been hastened by the recession. Although there is less social stigma than there once was—with “daddy play groups” proliferating—it is triggering money problems for some couples.

Given that employers in recent years have shifted management of most benefits—from retirement savings to health insurance—onto workers’ shoulders, it is critical that couples recognize areas where adjustments might be needed. Among the most important:

• Life insurance. Even in families where the husband is no longer the top earner, or where both spouses have similar incomes, the husband often carries more life insurance.

The wife probably needs just as much.

Michael Terrio, an investment adviser in Port St. Lucie, Fla., recently worked with a retired couple whose pensions and Social Security benefits were nearly the same. But the husband had $250,000 in term-life insurance, which is coverage at a fixed premium for a set time period, while the wife had only $75,000 in coverage.

“If she were to die, he’d be in trouble,” Mr. Terrio says.

To fix the problem, he had the couple shop for a new life-insurance policy that also could be used to pay for long-term care for either spouse. He also helped the wife select a fixed annuity that would replenish most of the husband’s income if he were to die first. The husband, not a fan of annuities, invested in a portfolio composed of exchange-traded funds and, to limit downside risk, options.

Couples who are still working should consider term-life insurance—typically the cheapest type available, says Emily Sanders, a CPA and chief executive of Sanders Financial Management in Norcross, Ga.

Ideally, a couple should buy enough coverage to replace their income until their youngest child is out of college—and to pay off a mortgage and any other loans. That way, “someone struggling to raise young children by themselves isn’t strangled by debt,” she says.

Even if the father is earning nothing while raising children or starting a business, “he should be insured so Mom could continue working and afford a nanny,” Ms. Sanders says.

If you get life insurance through your employer, consider buying additional coverage elsewhere instead of getting it at work. “If you leave the company or are terminated, and something happens in the interim that makes you uninsurable, your family is in a hole,” she says.

• Retirement savings. A husband without a regular paycheck may be tempted to tap his retirement account early in order to continue to contribute to the household kitty. Try to avoid the temptation, even if it means swallowing your pride.

Ryan McKeown, a certified financial planner in Mankato, Minn., cites one couple he worked with recently in which the husband has retired, but the wife is still employed. The couple are in their 50s and have no mortgage or debt, and can live on the wife’s paycheck alone. She also has $92,000 in her savings account.

Despite this, the husband started taking early withdrawals from one of his retirement accounts, triggering taxes, because he felt he should still be contributing to the household’s income, Mr. McKeown says. To talk him out of it, Mr. McKeown says he put everything on one piece of paper so the husband could see how it was hurting them.

Another hazard: When a husband becomes the lower earner in his late 50s or early 60s, he may reflexively rebalance his retirement investments more conservatively—bulking up on bonds and selling off stocks, say—even if his wife is earning enough to meet the couple’s needs. “I warn them away from that as much as possible,” Mr. McKeown says. “You hate to give up growth potential too early on.”

• Child care. As obvious as it may seem, some families with out-of-work or underemployed fathers need to reassess their child-care needs and scale back.

If a mother quits work or shifts to a part-time job, the family typically sheds whatever child-care costs it can, Ms. Sanders says. But if a father is home, even if he isn’t working, the family tends to keep some—or all—of its child care in place. The same goes for housekeepers and other domestic help.

“If someone feels like they have to have a nanny, we aren’t going to tell them they can’t,” Ms. Sanders says. She tries to make her clients aware of the expense, which in many households rivals the mortgage payment. She suggests considering less-costly arrangements, such as sharing part-time care with a neighbor.

Ryan McKeown is a Registered Representative with and securities offered through LPL Financial, member FINRA/SIPC.

An investment in Exchange Traded Funds (EFT) structured as a mutual fund or unit investment trust involves the risk of losing money and should be considered as part of an overall program, not a complete investment program.  An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors.

Options are not suitable for all investors and certain options strategies may expose investors to significant potential losses such as losing entire amount paid for the option.

Top Ten Year End Tax Ideas – Part Two

December 28, 2010

1. Take some losses. Even though the stock market is up this year, you still might find that some of your portfolio holdings are at a loss. You can sell those assets and deduct up to $3,000 per year against ordinary income. The remainder carries forward for future use indefinitely. The assets must be held in a non-qualified or “taxable” account, as opposed to IRAs or other tax deferred or tax advantaged plans to deduct these losses.

2. Fund an IRA or Roth IRA (depending on which best fits your situation). Don’t wait, start the tax savings now. If you have funds in a savings account, more than likely you are earning a pitiful interest rate that is also taxable. You can put up to $5,000 ($6,000 if age 50 or older) into a Traditional or Roth IRA, which each have their own separate tax advantages until April 15. Certain income limits do apply.

3. Take a distribution from your retirement plan or convert your retirement plan to a Roth IRA. If your income is lower in 2010 than it will be in 2011, you could take a withdrawal and pay tax at a lower rate this year. You could also convert all or a part of a Traditional IRA or other qualified retirement plan to a Roth IRA now and never have to pay tax on those funds again! Restrictions, penalties and taxes may apply. Unless certain criteria is met, Roth IRA owners must be 59 ½ or older and have held the IRA for 5 years before tax-free withdrawals are permitted. Remember that for the funds you convert to a Roth IRA in 2010, you have the option of electing to spread the taxable income into 2011 and 2012.

4. Get educated! No matter what your age is, now is a good time to look at continuing your education. The American Opportunity Credit provides a tax credit as much $2,500 on the first $4,000 of qualifying tuition and other education expenses. Pay your spring semester tuition or purchase your books before December 31 and you could receive the benefit of extra tax credits (not a deduction!) for this year. This credit is scheduled to change to be less favorable in 2011, so try and maximize the benefits under this year’s rules if possible.

5. Fix-up your house. Making energy efficient improvements (windows, doors, furnaces and much more) and receive a 30 percent tax credit on the first $5,000 of qualifying property purchases (a $1,500 credit). These improvements must be installed by December 31 in order to count for the credit in 2010. Remember that if you already used up all of your credit in 2009, you are ineligible for tax benefits in 2010. If you only used part of the credit, you can still make improvements and take advantage of the unused portion yet this year.

These are simply brief overviews of some of the tax items that you should not only be thinking about, but also trying to take advantage of. There are many favorable tax provisions that will only be in place for a short while. Make sure to call your financial advisor.

Top Ten Year End Tax Ideas – Part One

December 23, 2010

1. Meet with your financial advisor or tax professional. They have a much better feel for your personal situation and can provide strategies for your circumstances. The following ideas, while they can provide significant tax benefits, may or may not make sense in your personal situation. There are so many variables to address that not all of the details can be covered in this article so remember to please consult a professional to maximize these ideas.

2. Be charitable. Make a donation to your favorite charity by December 31. If your charity accepts credit cards, you could charge your donation before year-end to have it count for this year’s tax return.

3. Bunch your itemized deductions. If you are close to being able to “itemize deductions,” but not quite yet over the standard deduction, you might want to make extra charitable deductions, pay state or property taxes, pay January’s mortgage payment or medical expenses in December 2010 to take advantage of tax benefits without doing a whole lot of things differently, just timing your deductions to maximize your tax benefits.

4. Buy something. If you were planning on it anyway, make your purchase in December 2010 instead of January 2011. If you own a business, you should think about purchasing equipment or taking an extra trip to the office supply store to get more deductions this year.

5. Take some gains. Currently, long-term capital gains rates are at historically low rates of zero to 15 percent. It is likely these rates will go up in the future, so it might be beneficial to take advantage of what is currently available.

These are simply brief overviews of some of the tax items that you should not only be thinking about, but also trying to take advantage of. There are many favorable tax provisions that will only be in place for a short while. Make sure to call your financial advisor.

Your Year End Financial Checkup – Part One

December 16, 2010

As 2010 comes to an end and 2011 gets underway, it’s a great time for a financial check-up and review of your financial situation. Following are some items to consider:

Take a look at your current budget and savings plan and make adjustments as necessary.

Review current IRS Guidelines, such as contributions to your employer retirement plans and other retirement accounts. The maximum contribution to a 401(k), 403(b) or 457 Plan in 2010 and 2011 is $16,500 and taxpayers age 50 and older may make “catch-up” contributions of an additional $5,500. The maximum contribution to a SIMPLE IRA Plan in 2010 2011 is $11,500 with a “catch-up” contribution of $2,500 for taxpayers age 50 and older. The maximum contribution to Traditional and Roth IRAs is $5,000 in 2010 and 2011, contributions are subject to eligibility requirement based on Adjusted Gross Income. Taxpayers age 50 and older may make “catch-up” contributions to Traditional and Roth IRAs of $1,000. Please note: You have until April 15th, 2011 to make a year 2010 contribution to your IRA or Roth IRA if you qualify.