Posts Tagged ‘ Retirement ’

When the market failed the blame game started.  Workers were laid off and they blamed their employers. The government blamed the big banks.  Citizens blamed the government.

And clients blamed their financial advisors.  After all wasn’t it the advisor who laid out the financial plan that was suppose to provide the retiree a solid foundation? In many cases yes.  In other cases it depends.

There are basically 2 methods of retirement planning;

Dictation

• Some advisors dictate all of the investments their clients buy.  In some cases the advisor has personal preferences, the things they like and feel good about. Or they simply use their company’s computer models to make recommendations.  Usually these recommendations are based on set preconceived personality and risk tolerance assessments.  The client is then “type cast” into a certain group and instructed what to buy based on the group.

Collaboration

• These are advisors who operate more like coaches and work in collaboration with their clients to make decisions.  They present a variety of concepts for the client and avoid “type casting” them into certain risk tolerant groups.   In this method the client is making the decision about what is best in their situation at any given point in their life.
• In this model retirees are free seek the advice and do business with more than one planner.

Which advisor model are you more comfortable with?

Government regulations dictate senior’s retirement income plans.  The question; Is this government “retirement plan” the best option?

If they have a traditional IRA, 401(k) and/or any other qualified retirement plan they must take Required Minimum Distributions (RMD) upon reaching age 70- 1/2.  If they do not take RMD as required the penalty is a harsh 50%.  Most seniors follow the RMD plan so it must be the optimal way to receive retirement income… Right?

The new reality is nothing could be further from the truth.  Expected longevity continues to increase well past the I.R.S. life tables used to calculate RMD withdrawals.  This could  set up a dangerous financial situation later in life.

The alternative solution and one most seniors have not considered  is a Life Income Annuity.  Rollovers from IRAs and 401(k)s are easy and there are no taxes due or 10% penalty even if income is started before age 59.

Advantages of Life Income Annuities are significant and perform better than RMD plans:

1. After enduring a decade of sub economic performance, low interest rates,  disappearing pensions and a decreasing Social Security trust fund seniors need protection from steep market swings. Income annuities eliminate market risk by providing a steady monthly pay check.
2. Saves the golden decade of retirement; the 10 years from age 70 – 80.  RMDs are scheduled to be lower during this time and increase later.  The lifetime annuity has on average a 60% higher payout  during the golden decade and guarantees these payments for life with any remaining principal paid to beneficiaries.
3. Prevents the RMD crash.   A typical life income annuity starts payments at age 70 about 60% higher than RMD withdrawals.  It is true RMDs increase with age but assuming a 3% growth rate at their peak they  will provide an income 15% lower than the annuity.  After the RMD’s peak withdrawal years the  annual income begins decreasing until the money runs out.

Lifetime annuities take the RMD drop off  and longevity risk away while offering a higher payout.

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

Despite Growing Status as Primary Breadwinner and Household CFO, Women Still Fear Becoming “Bag Lady” a new  2013 Allianz Life Women, Money & Power Study Reveals.  

This is a surprise considering 60% of women say they are the primary breadwinner in their household

• 54% of respondents describe themselves as the household CFO.
• 49% sometimes fear becoming a “bag lady”.
• 27% of those earning more than $200,000 per year share that fear.

Inside the study

• More than 2,200 women ages 25-75
• Minimum household income of $30,000 a year
• “Bag Lady” fear extends to all corners of life and affluence
• Was highest among single respondents at 56%
• Significant concern for divorced women 54%
• Widows 47%
• Married women 43%

Despite feeling more empowered about financial planning

•  Forty-two percent said they believe financially independent women are intimidating to men and often end up alone
• (31%) said those women are hard to relate to and often don’t have many friends.
•  This feeling was even higher among single women at 47% and 32%, respectively.

Allianz Life Vice President of Consumer Insights Katie Libbe comments-

“When Allianz Life conducted the initial wave of the Women, Money & Power Study seven years ago, we discovered that women everywhere – even well-educated, successful, financially independent women – have major gaps and unmet needs when it comes to achieving comfort and confidence with money,”  “Today, women clearly feel more invested in financial planning, however, fears of fiscal failure still persist. The real message here is that the financial services industry needs to help women learn about money and prepare for their retirement.”

In the Age of the Financially Empowered Woman

•  57% of all women surveyed said they both “have more earning power than ever before” and also “handle major investment decisions and retirement planning.”
• 55%  noted they take the lead in suggesting new investing or retirement ideas.
•  60% said they were responsible for handling tax preparation and planning.
• 90%  of women surveyed agreed that in today’s world, women need to be significantly more involved in financial planning than in the past
• 96% of divorced women felt this way.
• 67% of women surveyed said that becoming more knowledgeable and involved in managing their finances has improved the quality of their life, 71% of  single women agreed.

“Allianz Life is dedicated to the mission of achieving financial literacy and independence for every American, so we’re especially keen to design solutions that are relevant, responsive, and sensitive to helping women accomplish greater financial security,” noted Libbe.

Financial Crisis of 2008-2009 Drives Behavior Change

•  68% say they have increased their financial involvement since the crisis
• Women ages 45-54 (72%) and widows (75%).
•  43% of women surveyed said they don’t feel any smarter about how to manage their money than before the crash. That feeling was shared by 36% of women with the highest income (household income of $200,000+).

When asked what key issues will have the greatest effect on their retirement outlook

• “lack of adequate retirement savings”
•  ”the future of Social Security,”
•  ”rising health care costs,”
•  ”unemployment,”
• “tax changes.”

Retirement is the worry that keeps most women up at night.

Second only to loss of spouse/significant other. “Running out of money in retirement” is a worry that keeps 57% of women up at night and is the number one worry for single and divorced women.

 Full study available here.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

Smart retirement planning has become all about the income, as in how much and for how long.  Last year the Journal of Financial Planning conducted extensive research into retirement portfolio withdrawal rates. They concluded the traditional 4% rule was too risky because it leaves a retiree with an 18% chance of portfolio failure; that’s about a one in five failure rate.

Portfolio failure is another way saying “sorry your money is all gone”.  Very bad news to someone in their 70’s potentially looking at many more years of life by surviving only on Social Security each month.

What is the problem with money in a 401 (k)?

It must be withdrawn and a safe withdrawal rate must be determined.

What is the new safe withdrawal rate?

• 2.52% According to the Journal of Financial Planning.

Retirement income  money that is invested in equities; stock market, mutual funds, ETF, variable annuity etc. has an 18% chance of failure if the retiree withdraws more than 2.52% per year.

What is the solution?

With interest rates hovering around 1% certainly not bonds or certificates of deposit.

That leaves fixed annuities because they can insure a retirement income for life.  But their rates are also low and the income is sometimes level with no chance of increase.

Enter the time tested fixed index annuity with income options.  An indexed annuity can offer a guaranteed withdrawal percentage increase, meaning each year you own an indexed annuity the percentage you can withdraw goes up; some as high as 7%.

Let’s compare the recommended 2.52% equity withdrawal and 7% index annuity withdrawal using a nice round figure like $100,000.

2.52% of $100,000  provides a safe income of $2520 per year.

Whereas the annuity’s 7% withdrawal is $7000 per year guaranteed for life  and this $7000 could go up each year if there is an index interest credit and once it goes up, it is guaranteed to stay up.

3 choices are:

• Unsafe withdrawal using the antiquated 4% rule and risk running out of money 1 out of 5 times. ($4000 per year)
• The new “safe” 2.52% rule ($2520 per year)
• The insured, guaranteed 7% index annuity ($7000 per year)

Which choice do you prefer?

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

Americans in retirement and those soon to be retirees have serious concerns. According to the Reclaiming the Future Study conducted in 2011-2012 by Allianz Life:

Fear # 1 - American Retirement Crisis/Unprepared:

• 92% of Americans believe there is a retirement crisis and fear they are unprepared

When asked “Do you believe there is a retirement crisis in this country?”

• 92% answered absolutely or somewhat.

In the age group 44-54

• 54% said they feel unprepared for retirement.
• 57% of all respondents worry about their nest egg safety and it may not be large enough.
• 47% fear they will not be able to cover basic living expenses.

 Fear #2 – Americans fear outliving money more than they fear death

• Increasing longevity mean more people are spending more years in retirement.  
• 77% of all age groups worry about living too long.  So much so a shocking 61% feared outliving their assets more than they feared death. 

The market meltdown of 2008-2009 caused a profound financial rethinking for Americans. 

• 53% reported their net worth was significantly eroded in a very short period of time.
• 43% had their home values drop
• 41% realized they were not “in control” of their financial futures as they’d thought.

 As a result of this financial turmoil many research participants said they changed their behaviors.

• Cut back on spending
• More interest in financial news and studying the markets

The majority agreed- “That the safety of my money matters more.” 

“Asked to consider the features that would be most important to them if they could build the ideal financial product?”

• 69% of survey respondents said they would prefer a product that was “guaranteed not to lose value”
• Only 31% would choose a product that is not guaranteed with the goal of “providing a high return.”

Annuity-like solutions are gaining relevance and appeal.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

As we move forward into tax season, we wanted to take a moment to remind you of some unique benefits that are available to the brave men and women serving in our Armed Services

Heroes Earned Retirement Opportunities (HERO) Act:

On May 29, 2006 President Bush signed into law the Heroes Earned Retirement Opportunities (HERO) Act. The HERO Act allows members of the Armed Forces serving in a combat zone to include nontaxable combat pay as compensation for purposes of determining traditional IRA or Roth IRA contribution amounts.

Prior to this act, because combat pay is nontaxable and excluded from gross income, a serviceman or servicewoman with only combat pay was unable to make an IRA contribution.

Additional time to make traditional IRA or Roth IRA contributions:

Generally, traditional IRA or Roth IRA contributions are due by the tax filing deadline (April 15, 2013 for the 2012 tax season), not including extensions. However, military members and their spouses may qualify for a deadline extension of up to 180 days after the last day served in a combat zone, hazardous duty area, or certain other deployments, plus the number of days that were left to make the IRA contribution at the time service in the combat zone began. The extension doesn’t just apply to traditional IRA or Roth IRA contributions, but also to filing tax returns, paying taxes, and claiming a tax refund.

Heroes Earnings Assistance and Relief Tax Act (HEART) Act:

On June 17, 2008 President Bush signed into law the Heroes Earnings Assistance and Relief Tax (HEART) Act. One of the major provisions of the HEART Act relates to the ability to roll over Servicemembers’ Group Life Insurance (SGLI) payments to a Roth IRA or a Coverdell ESA.

The Act permits an individual who receives a military death gratuity or SGLI to contribute the funds to a Roth IRA and/or one or more Coverdell education savings accounts. In addition, the contributions would be treated as rollover contributions and not subject to normal income or contribution limits. The contribution must be made within one year from the date the taxpayer receives the military death gratuity or SGLI payment. This provision is generally effective for payments made on accounts of deaths from injuries occurring on or after June 17, 2008.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

Reprinted with permission- Allianz

You’ve probably heard about the problem our country faces with “Social Security, corporate pensions, state pensions, county pensions, municipal pensions…virtually all defined benefit pensions.” The following are abstracts from an industry publication.

OUR COUNTRY’S PENSION CRISIS IN A NUTSHELL – Pension plans that promise a specific benefit in the future are essentially a contract between current and future generations, and those future generations aren’t represented at the bargaining table.

PENSION PLAN PRESS – With IBM freezing its pension plan, a plethora of articles on the dim future of the defined benefit pension plan concept have hit the press. Here is a summation of what you need to know.

Brief history - The corporate pension has been around since the 19th century, but really came into its own in the U.S. in the years just after World War II. The defined benefit plans assumed lifetime jobs with a company, which seemed reasonable at the time, but has long since ceased being the American norm.

Why is it happening? – Companies are trying to become more competitive and adapt to changing times. They must compete with younger companies that never made pension promises or foreign companies where the government provides retirement benefits or there are no benefits at all. IBM is paying about $270 million to make the change but will save $2.5 billion over the next 5 years.

Why now? – Pension crises at steelmakers and airlines have brought the issue to a head, but arcane accounting rules and low, long-term interest rates mean the accounting benefit for freezing a pension is higher than it would be if long-term rates rise.

Who’s most vulnerable? – Salaried employees since companies have to negotiate to cut benefits for workers covered by collective bargaining.

What about earned benefits? – Companies can’t cut pension benefits already earned, but the earned benefits in a defined benefit plan may be a lot less than expected.

Who gets hurt the most? – Workers in their 40s and 50s who have been at the company many years. Benefits build up fastest in an employee’s final years at a company…50% of a person’s pension may be earned in the last five years on the job. Even with bigger 401(k) contributions, these workers may never catch up.

Who isn’t hurt? – Current retirees, younger workers and those who switch jobs frequently.

Freezing versus terminating – Freezing locks the pension in place where it currently stands actuarially and the company is obligated to pay in the future. When employers terminate a pension, they must pay out all of the benefits immediately, either in lump sums or by buying each worker an annuity. Most terminations are due to bankruptcy.

Companies at risk – Those with a large percentage of older, longtime employees; those with employees not covered by a collective-bargaining agreement; those have already cut some retiree benefits in the past.

GOOD RIDDANCE TO DEFINED BENEFITS? – Fortune magazine sees the IBM pension plan freeze as the beginning of the end of traditional pensions in the U. S. and editorializes that “corporate pensions are an unstable, unfair and economically perverse means of paying for retirement.”

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

Taxes are inevitable.  You know that part.  Each April 15, you tally up all of your 1099 forms that you have received and pay taxes on your investments, even if you haven’t actually spent a penny of those dividends and interest earnings.  Unfortunately, the money lost to taxes will never be available to you again.  But if you use the principles of tax diversification, you could benefit by paying taxes on what you spend – Not on what you earn. 

Tax diversification is as important as investment diversification when it comes to managing retirement saving risks.  With the proper advice you can create flexibility by selecting the best tax situation for your specific needs and time horizon.

Think about your financial goals for today, the next 10-15 years and down the road as you near retirement and answer these questions:

• What investments do you currently hold?
• What is the intent for that money?
• Can it be allocated more tax efficiently?
• How many years until you retire?  If you are retired how much and long do need your income?
• Are you planning a major purchase?
• What do you pay in taxes on each year- as reflected in IRS Form 1099

Now divide your investments into these three categories:

1. Money that is taxed now
2. Money that is taxed later (tax deferred/taxed when withdrawn)
3. Money that is never taxed (paid in with after tax dollars and tax free during accumulation and at withdrawal)

Reallocate your investments into the appropriate category, if necessary.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

Outliving one’s assets is a major concern for today’s retirees. One common approach to address this concern has been the “4% rule,” which is a generally accepted rule of thumb in financial planning for retirement income. It says to withdraw no more than 4% of an asset in retirement annually, and then increase the withdrawn amount by 3% each year to help offset the effects of inflation. Many believe the 4% rule provides a strong likelihood for retirement assets to last 30 or more years.

One problem with the 4% rule is that it does NOT GUARANTEE you won’t run out of money. In fact, with today’s historic market volatility and longer life expectancies, it’s predicted that up to 18 out of 100 people WILL RUN OUT OF MONEY in retirement using the 4% rule.

What if there was a different strategy that could provide the same amount of retirement income as the 4% rule and might even require fewer assets to do so? Additionally, this strategy would protect your income from market loss and GUARANTEE that income would last throughout your lifetime.

This strategy exists today and can be implemented using a fixed index annuity with a guaranteed lifetime income benefit or a secure lifetime retirement income annuity.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

Once upon a time retirement was simple you could count on money from a pension and Social Security with bit of personal savings.  Not any more.  Pensions have mostly gone away causing you to depend on Social Security and personal savings more than in previous generations.

Personal savings

• 401(k)
• IRA
• Stocks

In the last few years people have found these to be risky and have lost a significant portion of their retirement savings forcing them to postpone retirement and work longer.

Retirement Realities

• Save more you may need to save more than you think because we are living longer than ever before you may live 20 years or more in retirement. So you have to make sure your money lasts as long as you do.
• You may need to retire earlier than you plan due to a job loss or poor health.

Longer retirement means higher living expenses

• More leisure expenses
• Increased medical cost
• Inflation

Active money management is required

• Seek clarity determine how much money you have saved and how much money you’ll need each month
• Access your comfort level.  How worried are you about thought of losing money?  If it keeps you awake consider protecting part of it.
• Think about the cost of living and how increases over time.
• Plan for certainty make sure you will not run out of money no matter how long you live.

To help learn and think about the new retirement realities watch this short educational video.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

How and when is a Roth IRA taxed?  This is one of the frequently asked questions of the 2013 tax season.   Many are wondering if the “Fiscal Cliff Tax Fix” had any effect on Roth IRAs.  Here is a  Roth IRA Taxation Chart to help you understand how a Roth IRA is taxed and how it avoids income taxes.

Due to the continuing low interest/yield environment we find yourselves in cutting edge Retirement Income Planners are recommending their clients purchase  a Roth fixed index annuity with one of the new generation lifetime income riders attached.  The idea is to hold the annuity for 5 years or until age 59 1/2 whichever is longer then start the guaranteed tax free lifetime withdrawal.  During the holding period the annuity owner earns a guaranteed income base roll-up rate, typically 5-7%.

By starting the Roth lifetime income payments early in retirement or even before retirement they would likely receive all their Roth funds plus interest in about 15 years and then they would continue receiving “company money” for the rest of their lives.   Some of these plans have cost of living increases built in so the potential for a large sum of tax free income is certainly available.

In many cases it is not wise to leave your Roth Funds – just “sit” there.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

The Social Security Administration estimates that 96% of American workers are covered by Social Security. Many Americans, however, don’t have a full understanding of Social Security and the benefits it provides.

For example, many people are not aware that:

• Social Security is currently the largest social insurance program in the U.S., funded through dedicated payroll taxes called Federal Insurance Contributions Act (FICA).
• The Social Security retirement benefit is designed to replace a percentage of earnings at retirement and the amount received will depend primarily on two factors…lifetime earnings history and retirement age.
• Depending on year of birth, taking Social Security retirement benefits early can result in as much as a 30% reduction in the retirement benefit that would be payable at full retirement age.
• On the other hand, deferring Social Security retirement benefits to age 70 can result in as much as a 32% higher retirement benefit as compared to the benefit available at full retirement age.
• A portion of the Social Security retirement benefit may be subject to income tax.
• There are a variety of strategies that can be used to enhance the value of Social Security retirement benefits.

For most people, their monthly Social Security check will form an important part of their retirement income.

 My free “Retirement and Social Security” Life Guide can help you understand what you can expect to receive from Social Security when you retire. To have a copy emailed to you  contact me privately here: Tim Barton Chartered Financial Consultant and request “Retirement and Social Security” in the message section.

Even those who are retired have concerns about the amount of income taxes they are required to pay. So being it is now “tax” season some tax saving information may be helpful.

Once total or gross income from all sources has been determined, certain adjustments to income are available.  These adjustments amount to a reduction in gross income and generally are granted to achieve tax fairness or in recognition of a desirable social objective. Adjustments to income are available regardless of whether a taxpayer itemizes deductions or takes the standard deduction.

The available adjustments to income include:

One-Half of Self-Employment Tax

Self-employed taxpayers generally deduct one-half of their self-employment tax, as determined on Schedule SE.

Self-Employed Health Insurance Deduction

Self-employed taxpayers can deduct 100 percent of the health insurance premiums (including long-term care insurance premiums) they pay for themselves, their spouses and dependents.

Health Savings Account Deduction

Contributions to a Health Savings Account, up to specified maximums, may be deducted.

IRA Contributions

Eligible individuals can contribute and deduct up to $5,500 to an IRA; $10,000 for an eligible married couple, even if one spouse has no earned income. For workers age 50 and older, the IRA contribution limit is $6,500 for 2013.

Education Savings Account Contributions

Subject to income limitations, up to $2,000 per beneficiary (generally a child under age 18) per year may be contributed to an Education Savings Account and deducted; subject to income limitations.

Student Loan Interest Deduction

Up to $2,500 of the interest paid in 2013 on a loan for qualified higher education expenses may be deducted, subject to income limitations.

Qualified Tuition and Related Expenses Deduction

Up to $4,000 of qualified tuition and related expenses paid in 2013 may be deducted, subject to income limitations.

Educator Expenses

Professional educators can deduct up to $250 spent out-of-pocket for classroom expenses.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

The word “retirement” means different things to different people. Regardless of the vision you have for your retirement, it’s an event that can produce much satisfaction when you have a blueprint for what a successful retirement will mean to you.

Without a plan, however, including an assessment of your retirement readiness, retirement can become a period of anxiety, as you worry about whether your finances can sustain you through a potentially long retirement.

For example, let’s take a look at the top five financial risks you’ll face in retirement:

• Outliving Your Assets: The odds are that you’ll live a long time after retiring. That’s the good news… the bad news is that you’ll need sufficient assets to provide retirement income over a potentially long period of time. The alternative is to risk outliving your retirement income.
• Inflation: With inflation, the cost of goods and services increase over a period of time, meaning that you’ll need more retirement income in order to keep pace with inflation.
• Loss of a Spouse: With longer life expectancies and the tendency to marry men older than they are, women can face a dramatic decline in retirement income at a husband’s death.
• Healthcare Expenses: While Medicare covers many healthcare expenses, retirees need to be prepared to pay for Medicare-related premiums, as well as expenses Medicare doesn’t cover. If you’re planning to retire prior to age 65, you’ll need a way to pay for healthcare expenses until you become eligible for Medicare.
• Long-Term Care Expenses: While there are a variety of long-term care services, ranging from care in the home to assisted living facilities to nursing homes, all of them are expensive. If you or a spouse need long-term care, how will you pay for it?

Any assessment of your financial readiness to retire should take these risks into account, together with an evaluation of whether you can afford the type of retirement you want.

My  free “So, You’re Thinking About Retirement?” Life Guide can help you assess your retirement readiness and transition into a successful retirement.

Contact me for your free copy of the “So, You’re Thinking About Retirement?” Life Guide.

What to do with your money in an employer-sponsored retirement plan, such as a 401(k) plan. Since these funds were originally intended to help provide financial security during retirement, you need to carefully evaluate which of the following options will best ensure that these assets remain available to contribute to a financially-secure retirement.

Take the Funds: You can withdraw the funds in a lump sum and do what you please with them. This is, however, rarely a good idea unless you need the funds for an emergency.

Consider:
•A mandatory 20% federal income tax withholding will be subtracted from the lump sum you receive.
•You may have to pay additional federal (and possibly state) income tax on the lump sum distribution, depending on your tax bracket (and the distribution may put you in a higher bracket).
•Unless one of the exceptions is met, you may also have to pay a 10% premature distribution tax in addition to regular income tax.
•The funds will no longer benefit from the tax-deferred growth of a qualified retirement plan.

Leave the Funds:

You can leave the funds in your previous employer’s retirement plan, where they will continue to grow on a tax-deferred basis. If you’re satisfied with the investment performance/options available, this may be a good alternative. Leaving the funds temporarily while you explore the various options open to you may also be a good alternative. (Note: If your vested balance in the retirement plan is $5,000 or less, you may be required to take a lump-sum distribution.)

Roll the Funds Over:

You can take the funds from the plan and roll them over, either to your new employer’s retirement plan (assuming the plan accepts rollovers) or to a traditional IRA, where you have more control over investment decisions. This approach offers the advantages of preserving the funds for use in retirement, while enabling them to continue to grow on a tax-deferred basis.

Why Taking a Lump-Sum Distribution May Be a Bad Idea:

While a lump-sum distribution can be tempting, it can also cost you thousands of dollars in taxes, penalties and lost growth opportunities…money that will not be available for future use in retirement.

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

Where should I keep my important papers?  This is an important frequently asked question.  So as you organize your affairs in the coming New Year here are some time tested suggestions.

You should keep the following documents in a secure location in your home:
•Copies of wills and trusts
•Copies of living wills and powers of attorneys
•Insurance policies
•Income tax returns

These documents are best kept in a bank safety deposit box:
•Original wills, trusts and powers of attorney
•Marriage certificates, birth certificates, divorce decrees, death certificates
•Deeds and car titles
•Military discharge papers
•Any stock or bond certificates
•Citizenship papers

Consider giving these items to your attorney, executor and/or spouse:
•Living will/medical power of attorney (original should be given to the agent named in the document)
•Copies of wills, trust agreements, powers of attorney
•Inventory of insurance and investments
•List of professional advisers (attorney, accountant, insurance agent, etc.)
•Safety deposit box access information
•Funeral instructions

For help you may ask questions in the comments or contact me privately here:

Tim Barton Chartered Financial Consultant

There are a number of obstacles that you may face in planning for your retirement:

Longer Life Expectancies

• Longer life expectancies increase the risk of retirees outliving at least a portion of their retirement income. Those reaching age 100 are fastest growing population segment in the United States.

Discipline to Save

• Many people find it difficult to form the habit of “paying themselves first,” by making regular deposits to a savings plan.

Saving to Spend

• Money is saved for retirement purposes, but then is spent to make purchases.

Income Taxes

• Income taxes can erode the growth of your retirement savings and as I write this we do not know what the 2013 tax rates will be.

Inflation

• Longer life expectancies also increase the risk of inflation eroding the purchasing power of retirement income. For example, if inflation increases at 3.5% a year, it would require over $14,000 in 10 years in order to maintain the original purchasing power of $10,000.

Since Social Security and your company pension plan probably will not provide the income you need for a financially-secure retirement, how can you overcome the obstacles you face in planning for retirement?

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

Imagine there is a bank which credits your account with $86,400 each morning, carries over no cash balance from day to day, and every evening cancels whatever amount you have failed to use during the day.

What would you do? Draw out every cent, of course!

Well, everyone has such a bank. Its name is TIME. Every morning, it credits you with 86,400 seconds. Every night it writes off as lost whatever time you have failed to use to good purpose. It carries over no balance. It allows no overdraft.

Each day it opens a new account for you. Each night it erases the records of that day. If you fail to spend the day’s deposits wisely, the loss is yours. There is no going back. There is no drawing against the “tomorrow.”

You must live in the present on today’s deposits. Invest it so as to get from it the utmost in health, happiness and success! The clock is running. Make the most of today.

•To realize the value of ONE YEAR, ask the student who has failed his exam.
•To realize the value of ONE MONTH, ask the mother who has given birth to a premature baby.
•To realize the value of ONE WEEK, ask the editor of a weekly newspaper.
•To realize the value of ONE DAY, ask the daily wage laborer who has ten kids to feed.
•To realize the value of ONE HOUR, ask the lovers who are waiting to meet again.
•To realize the value of ONE MINUTE, ask the person who has just missed the train.
•To realize the value of ONE SECOND, ask the person who has survived an accident.
•To realize the value of a MILLI-SECOND, ask the person who has won a silver medal in the Olympics.

–Author Unknown

Whether or not we make, break or keep New Year’s resolutions this is an ageless parable worth remembering and reflecting on throughout the year.

Happy New Year.

–Tim Barton

The “Fiscal Cliff” is the description some economists have used to describe the potential situation at the end of 2012 when several U.S. tax and fiscal changes are scheduled to occur.  This “perfect storm” of change includes the expiration of the Bush income tax cuts at the end of 2012, and in January 2013 some new taxes plus scheduled increases in income and estate taxes. Some Federal spending cuts are also scheduled to occur as part of the automatic spending cuts Congress agreed to in the Budget Control Act of 2011. The concerns are that all of these changes could lead to a double-dip recession. In other words a recession followed by a short recovery, then another recession in 2013.
What is involved with the fiscal cliff?

Automatic spending cuts are set to begin in 2013 in the following areas:

•   Defense
•  Non-Defense areas such as education, food inspectors, air travel safety, etc

The Bush tax cuts expire including:

•  Income tax rate increases
•  Capital gains rates increase
•  Qualified dividend rates increase
•  Child tax credit is reduced
•  American Opportunity Tax Credit expires
•  Earned Income Tax Credit changes
•  Marriage penalty relief expires
•  Estate tax exemption decreases
•  Gift tax lifetime exemption decreases
•  Top estate and gift tax rates increase

 Other tax changes include:

•  Increase in the employee payroll tax withholding
•  No Alternative Minimum Tax patch
•  New 3.8% Medicare surtax
•  New .9% Medicare additional withholding

 Miscellaneous changes include:

•  Unemployment benefits extension expire
•  ”Doc Fix” which is a cut in reimbursement rates that physicians receive for treating Medicare patients is implemented.

 This is not intended to be a complete list.

We cannot predict the future or how the President and Congress will act.  However, there are opportunities that are available before any potential changes occur.

Items to consider before 2012 year end:

•  Did a Roth conversion take place?
•  Capital Gains/Dividends:  Discuss the 0-15% rates with your tax advisor
•  Charitable donations: No itemized deduction phase-outs
•  Gifts:  $5.12 lifetime gift tax exemption and $13,000 annual gift tax exclusion
•  Nonqualified annuities: If appropriate for your situation, may provide income-tax deferral of earnings and retirement savings

 Items to consider after 2012 year end:
Get updates on current tax information; estate and gift tax information, see your tax advisor as needed.

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

It would be nice to believe that health care cost increases were a temporary phenomenon. Unfortunately, that’s not the case…the cost of medical care has outpaced inflation for the past 20 years and predictions are that medical and long-term care costs will continue to escalate as much as 10% to 15% per year into the future.

The decisions we make as to how and where we live in retirement are unique to each individual or couple. The options open to us, however, are frequently determined by our financial resources…our ability to pay. This review of the various ways to pay for health and long-term care costs during retirement is offered in the hope that it will be of assistance to you as you make decisions regarding your retirement plans.

The options available to pay for medical and long-term care costs in retirement include the following:

Retiree Health Insurance Plans:

• If your company provides retiree health care benefits, make sure you know how much of the premium you will be required to pay, as well as deductible and co-payment requirements. Retiree health insurance plans are generally designed to coordinate with Medicare benefits. Caution: Even if your employer currently provides retiree health care benefits, there is no guarantee those benefits will be available when you retire. The escalating costs of medical care, combined with the “Baby Boom effect”…a large “bubble” of people who will make a substantial contribution to the size of the aging population… are causing employers to rethink their retiree health care plans. Some companies are requiring that retirees pay a higher share of the premiums to cover themselves, their spouses and any dependents. Other companies are implementing higher co-payments and/or deductibles. Still other companies are discontinuing retiree health insurance plans altogether.

Medicare and “Medigap” Insurance:

• Most people qualify for Medicare insurance when they reach age 65. Medicare helps to protect you from the costs of medical care during retirement. One fact, however, is evident…there is no “free lunch.” You will have costs related to medical care and the likelihood is that those costs will continue to increase each year.

Medicaid:

•  Medicaid is a joint Federal and state program that helps with medical costs for some people with low incomes and limited assets. To qualify for Medicaid, federal poverty guidelines for income and assets must be met. In addition, there are state requirements for Medicaid eligibility. Medicaid is essentially a safety net for those who didn’t adequately plan for their financial needs in retirement, or who encountered unexpectedly large expenses that depleted their financial resources.

Long-Term Care Insurance:

• Long-term care insurance can put you in control, preserving your dignity and allowing you to select the type of facility and setting in which you want to receive long-term care services, if needed. Long-term care insurance also helps protect your personal assets, preserving them for your use or as an inheritance for your family. Suggestion: Check with your employer…your company may offer long-term care insurance as a voluntary or supplemental employee benefit!

Personal Savings:

• Review your retirement plan to make sure that it adequately takes into account the potential costs of medical care and long-term care in retirement. If you find a shortfall, you may want to increase your personal savings now in order to have sufficient funds available after you retire. Some experts suggest setting up a separate fund or account specifically to pay for health care needs in retirement. This approach adds focus to your plan and better enables you to assess your progress.

Home Equity:

• Many retired people have built up substantial equity in their homes. There are a variety of ways to tap that equity if needed to pay for health care costs in retirement, including selling the home, arranging a home equity loan or line of credit or using a reverse mortgage to supplement your retirement income.

Going Back to Work:

• When it comes to planning for health care needs as we age, it’s time for a reality check. It’s fine today, when our health is good, to state the intention to return to work if financial needs arise, but how many 70+-year-old people with health problems really want to be out looking for a job? In reality, planning to return to work in order to pay for health care needs during retirement isn’t so much a plan as it is a hope…a hope that we won’t face substantial health care costs as we age.

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

by  VSA LP ©2012