Rest In Peace Friend

What me worry?

Good grief!  There is so much doom and gloom in the world today.  Isn't it time to look on the bright side?

Have you written your "bucket list" yet? ( You know, the things you want to do or see before you kick the bucket).  Why not?

It can be a lot of fun to think about this, and besides it will definitely take your mind off things that worry or concern you like the economy, the job market, or real estate values, etc., etc., etc.

Instead, take time every single day to "reprogram" your mind with more positive thoughts.  We get fed so much garbage on a daily basis - you know the saying - garbage in, garbage out!  How about good stuff in -good stuff out?

Do you know it actually takes less facial muscles working to smile than it does to frown?

Your list doesn't have to be exotic or expensive.  How about writing your memoirs, cataloguing your recipes, starting a botanical garden?  ever thought about painting?  Take a class. Missed your chance to be a movie star?  Enroll in an acting workshop.  Start a charity, become a mentor.  Learn to salsa!

Life is so short.  Let's try living it with all the vim and vigor and passion we can muster and throw all the "junk" away.  If you're a procrastinator or excuse maker, go visit a cemetery.  You'll realize you need to get busy.  Tomorrow may never come.

Don't be afraid of living your life.  It's much better than the alternative-even if it's not all perfect.

-Lady Fi

Kathy

Five Forces Affecting Your Retirement

Imagine sitting down on the day of your retirement to plan your financial future.  You know what your annual expenses have been and you want to maintain your current standard of living.  So, you consult a recent mortality table and find that if you've made it to your 65th birthday, you can expect to live to 85 years old.  You perform a little calculation and find that, together with your Social Security monthly payments, you have just enough savings to maintain your current standard of living and spend all of your savings and future expected earnings by the time you die at the age of 85.  But, what if you live longer?   Will you be reduced to eking out an existence on Social Security alone?  Where will the additional money come from?  What if future investment returns are not what you anticipated at the start of your retirement?  These questions are increasingly urgent in America today, as forces are combining to make planning for outliving your resources more important than it has been in the past.  Old rules of thumb for spending your assets in retirement, called decumulation, need to be reconsidered.

Retirees must take strategic action in the deployment of their accumulated savings and funds as they begin retirement.  Five forces are converging upon Americans in what some have called the Perfect Storm - others the Tsunami Wave - that is about to engulf us from all sides.  The best we can do is to organize our own finances in such a way that we can provide for ourselves, because there isn't anything we can do to stop these converging forces.  These five forces are:

1. The decreasing levels and importance of Social Security benefits: Relative to the benefits provided to our parents, people currently in their working years will receive a much lower return on their Social Security contributions.
2. The demise of defined benefit (DB) pensions: Over the past 15 years, there has been only one new pension program of any size initiated in the U.S.  The number of pension plans in the U.S. peaked at 175,000 in 1983, and has since declined to less than 25,000.
3. The aging of the Baby Boom generation: Beginning last year, the first members of the largest generation in American history turned 60, leaving their jobs and entering the retirement force.
4. The emergence of post-boomers: Generations X (born between 1965-1979) and Generation Y (born between 1980-2001) will be burdened not only with the responsibility of providing for their own future retirement and health needs, but also with supporting the Social Security and Medicare costs of the boomers.
5. The increasing longevity of the American population: Since Social Security began monthly payments in 1940, the number of months we can expect to receive benefits for those of us who reach age 65 has increased by roughly 50% for men and women.  Coupled with the fact that when Social Security was instituted, the average person did not live to age 65. 

These are the facts folks, and it should be very concerning for anyone about to retire.  An analysis of your holdings can provide you with the tools you need.

Call our office at (732) 364-5462 for your complimentary consulation.

Tom

Should You Pay Off Your Mortgage?

Contrary to popular opinion, as I usually am, I'm not always a big fan of paying off a mortgage.  Truly, it is one of the few tax deductions you have left once your kids have grown up and left the nest.  When you reach your 70's you also have the additional income to declare from IRA distributions, and very little in the way of deductions.

Is it wise to tie up significant liquidity in a house that you have no access to until you either sell your home or take a home equity loan and PAY interest on your own money.  How is that smart?

Why not have a manageable mortgage that fits your retirement income budget and enjoy your money living your life.  If the money invested conservatively, you have access to it immediately if you need it and you can always choose to pay off the mortgage if it's really bugging you.

Also, it is important to consider that if either partner should need long term health care someday, the house could be included in the spend down to qualify for Medicaid if one spouse has already passed.

If you're not retired yet, what if you needed the extra liquidity to get you through a job loss or a major medical expense.  Sure, it's nice not to have a mortgage payment to make, but that fact is not going to put food on the table or gas in the car.  Making extra payments to get rid of your mortgage is like burying money in the backyard.  It won't reduce the interest rate you are paying and the bank just gets to have more of your money now. I'd rather they have it later.

Don't go hogwild and saddle yourself with ridiculous mortgage payments - that's gotten a lot of people in trouble already as we well know.  But a modest mortgage at today's interest rates, may be something to consider.

-Lady Fi

Kathy

NO-FAIL DIET!!

Don't worry about trimming your waistline by cutting down on food consumption.  U.S. food prices have been steadily rising in the past year, and it's only the beginning.  Soon you won't be able to afford to overeat - maybe that's a good thing.  Americans as a whole are far too overweight anyway.  Going out to dinner at many restaurants means you probably have enough food left on your plate for two more meals at home - or we should anyway.

Ladies, if you are chocaholics, bad news.  Hershey recently announced a 10% increase for most of its' sweet treats.  What is a girl to do?  We absolutely need that stuff.  "Real" chocolate actually increases serotonin levels which keep us sane and happy.  Oooops, here I was supposed to talk about a no-fail diet, and I'm talking about chocolate.  Well, everything in moderation, right?

Higher wheat costs will begin to affect cereal and bakery products to the tune of a 3.5 to 4.5% increase.  Tropicana has been hit by a series of prolonged frosts to its' orange juice crop and so citrus prices went up 11.5%.  The costs of manufacturing lumber products, like paper towels and toilet paper have been hit as well by an 80% jump in lumber futures.  According to the USDA, the wholesale cost of tomatoes more than tripled last year compared to the previous year.  What, French Fries with no ketchup?  Guess we'll be giving up those as well!

And needless to say the cost of gasoline to transport all of the food commodities that we need to consume is not helping matters either.

A common practice by many food and staples companies is to trick the consumer into believing that prices are not increasing by "short sizing."  For instance, boxes of cereal have about 2.5 less ounces in them.  The half gallon carton of OJ is now 59 ounces - 5 full ounces less!  And, oh my, Haagen Dasz ice cream pints are 14 ounces instead of 16 - for shame- they kept the lid on the carton the same size so you don't notice and tapered the carton down in the middle.  A 5.5% increase in the prices is expected as well.

So get ready to eat less for the same or more money.  A no-fail diet plan for sure.

-Lady Fi


Kathy

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Estate Planning

One underutilized tool in the wealth transfer process is the survivorship life insurance plan.  Often referred to as second-to-die insurance, survivorship life provides clients with an economical solution for covering costs associated with asset transfer and settlement fees at the time of death.  These costs can include those associated with transferring property to heirs, state inheritance taxes on estates, probate, administrative fees, unpaid taxes, funeral costs, unreimbursed medical expenses and more.

Unlike traditional life insurance, the death benefit featured in a survivorship policy isn't paid out until the second insured dies.  Since the premium is based on joint life expectancy of the insureds, survivorship life insurance is usually less expensive per thousand dollar of death benefits than traditional single-insured insurance.  Additionally, since the death benefit isn't paid until after the second death, the insurance company is less concerned is one of the two individuals is not in ideal health.  Many carriers will issue this type of policy even if one person is uninsurable.  Of course, each carrier has their own definition of "uninsurable" and for clients of older ages, the carrier may require that the insurable person's health be no worse than the standard or a low table rating.

Obviously tax planning is an integral part of the overall process, but the value that a properly designed estate plan brings to clients is not measured in tax benefits alone.  Estate creation and preservation is often the most important overriding concern of clients.  A survivorship life insurance policy can accomplish both goals.

In many business situations, one child of the owner is active in the business while one or more of the owner's other children are not.  In these instances, the business is often left to the child who is involved in the day-to-day operations.  But what about the other children?  Should a business owner expect the involved child to provide them with income from the business?  A life insurance policy naming the other children as beneficiaries is a useful tool in equalizing the inheritance.

Even though federal estate tax is not an issue for the majority, 21 states and Washington, D.C. currently have their own estate or inheritance taxes in place for 2011.  The exempt amounts allowed by these states vary from $0 to $5 million with $1 million being the average.  With many states experiencing financial distress, it seems logical that more states may seize the opportunity to generate revenue by decoupling from the federal estate tax and adopting a state estate tax.

Survivorship policies generally insure married couples.  However they can be designed to insure business partners protecting families against their premature death, or to provide an efficient wealth transfer vehicle from parent to child.  The more you know!!


Tom

Prepaid Funeral Expense Trusts - Protecting Assets from Medicaid Spenddown

Do you want to work your entire life, only to see your retirement funds devastated by healthcare costs? There is no question that the cost of healthcare is going up, along with the cost of everything else.  With thousands of Baby Boomers aging into retirement every day for the next 20 years, the social support structure in place to supplement medical care will feel an even greater strain than it already does.  It is more important than ever to plan for your potential future healthcare costs, and, most importantly, safeguard your hard-earned assets against Medicaid spend down.

1. What is Medicaid?- Medicaid is a state and federally funded health insurance program intended for those people with low income and a dire need for medical care.  The program provides funds for hospital and doctor visits, prescriptions, nursing home care as well as other care that may not be covered by Medicare or Medicare supplement policies.  The cost of Medicaid is paid directly to health care providers
2. Who Qualifies for Medicaid?- Eligibility requirements vary slightly for the groups that qualify: this includes those ages 65 or older, Families in Poverty, Pregnant Women and the Disabled.  Each state has its' own limit on how much income and assets a person can have. For adults in NJ income limits are between 133% and 185% of the Federal Poverty Level.  If you are taking SSI Income: the limit is $2,000 for an individual, $3,000 for couples.  If your assets are more than allowed, you will be required to either spend them down or move some assets into types of assets that are considered exempt.                                                                                                                                           Countable assets, or those vulnerable to Medicaid spend down, are, not limited to, property other than your principal residence, stocks, bonds, CDs, annuities, and cash surrender of life insurance with a face value of $1,500 or more.                                                                                                       Excludable resources, or those assets safe from Medicaid spend down, include, but are not limited to, your principal residence, life insurance cash value up to  $1,500, burial spaces, burial funds not exceeding $1,500*, one automobile (market value under $4,500) and one wedding and engagement ring.                                                                                                                                    *Important* Moving or transferring assets incorrectly can result in a penalty period or total ineligibility for Medicaid.  States can look back at transfers of up to 60 months (5 years) before you apply for coverage. Always speak to a qualified advisor before spending down or transferring assets to qualify for Medicaid.*

One Simple Way To Protect Your Assets - Prepay Your Funeral Expenses

If prepared properly, prepaying your funeral can be a lawful way to reduce your assets and help you become eligible for health care assistance at the time you need it.  This is accomplished by purchasing a life insurance policy that has been designed to cover final expenses.  Ownership of the policy is then irrevocably assigned to a trust that will pay out at time of passing, or possibly directly to a funeral service provider of your choosing.

Taking this step both alleviates the burden of final expenses on your heirs at the time of your passing, and ensures that there will be sufficient funds to provide the kind of services you would like for yourself, in remembrance.

There are many benefits to structuring your final expense plan this way.  By irrevocably assigning the policy to the trust, the added benefits include:

1. Eligibility - the Trust will exclude the policy as an asset to qualify for Medicaid and Supplemental Social Security Income (SSI).
2. Easily paid to heirs - the policy is paid to the Trust, which pays for your final expenses; any excess funds go to your estate.
3. Protects funds - funds for final expenses are not vulnerable to creditors or collections, such as nursing homes, doctors, hospitals, etc.
4. Peace of mind - death proceeds avoid probate costs and delays when used for final expenses.
5. Growth - the benefit will INCREASE over time with simple growth.
6. Savings- these benefits are received income tax-free, ref. IRS Code Sec 101(a).

If you would like to find out more information about Funeral Expense Trusts and Funeral Estate Trusts to protect your hard-earned money in the future, call Family Focus Financial Today! 


Why not knock out three birds with one stone and take care of your Final Expenses, protect some of your assets, and make your time of passing a time to grieve and remember your life, without a financial burden on your loved ones.  What are you waiting for?


Ashley 

An Article to Share - "The Case for Income Annuities"

An article I would like to share with you taken from the Wall Street Journal...
Click here for original article link.

By JEFF D. OPDYKE

Strategies outlined in a new study could sharply lengthen the amount of time a nest egg survives in retirement.

The study, soon to be released by the University of Pennsylvania's Wharton Financial Institutions Center, finds that so-called income annuities can assure retirees of an income stream for life at a cost as much as 40% less than a traditional stock, bond and cash mix. The study was co-sponsored by New York Life Insurance Co., which sells annuities.

Income annuities are insurance contracts designed to pay back not only a return on investment, but also a portion of the original principal with each payment. The payout occurs over your life expectancy, but if you live longer, you continue to receive payments. Those who die earlier than their life expectancy effectively subsidize those who live longer.

What it means is that retirees who need a nest egg of, say, $1 million, can live the same lifestyle with as little as $600,000 in an income annuity. Looked at another way, $1 million in an annuity will currently generate about $86,000 a year in income for a healthy 65-year-old male, while the same amount invested in a traditional securities portfolio would currently generate between $40,000 and $50,000 annually, depending on the annual withdrawal rate.

That news could offer hope for the millions of workers about to retire with inadequate retirement savings.

"At 65 years old, you're going to need money, on average, until you're 85," says David F. Babbel, an insurance and risk-management professor at the Wharton School who co-wrote the paper with Craig B. Merrill, an insurance and finance professor at Brigham Young University. "But the problem is that 'on average' means half of the people will need continuing income between the ages of 86 and maybe past 100. That's where [retirement-income planning] breaks down."

To ensure that you have a stream of income that lasts for as long as you breathe generally requires an inordinately large beginning value -- and even then, there is no guarantee your account won't run dry, depending upon your ultimate spending needs in retirement.

An income annuity is the only asset class the two professors found that most effectively addresses the risk of outliving your nest egg, because it generates a permanent stream of income, unlike a typical nest egg of stocks, bonds and cash. Meanwhile, the study notes, investors who place retirement wealth in mutual funds "are subjected to greater risk, typically higher expenses, and returns that are unlikely to keep pace with annuity returns, when investment risk is taken into account."

Yet the study also found that consumers have been tepid buyers of income annuities to this point. Many worry about costs, illiquidity in a financial emergency and the bad reputation the industry as a whole is often saddled with because of well-chronicled and dubious sales tactics with some variable annuities.

Prof. Babbel says the insurance industry is addressing these issues by building new contracts that are inexpensive, allow access to cash and don't have the problems associated with other types of annuities. The best strategy, Prof. Babbel says, is to invest enough in an annuity early in retirement to cover basic fixed costs. That allows you to invest the remainder of your portfolio more aggressively.

As seen in the Wall Street Journal.

-Tom

IRAs Can Be the WORST Asset to Inherit

When I speak of IRA's, I am referring to any type of retirement account that has not been taxed.  This is referred to as "qualified money."

What confuses most people is that we have at least five kinds of taxes.  Most of you may only think of income taxes when we are discussing these accounts, and the rules are: by December of the year in which you turn 70 1/2, the IRS requires that you take a mandatory distribution based on a life expectancy factor each year from now on for the rest of your life.  Many grumble about this because if you have accumulated a significant amount (even if you have multiple "qualified" accounts), your required mandatory distribution can be significant, and may even push you into a higher tax bracket.  Hah, that was not the theory behind saving in these accounts in the first place.  The idea was, in retirement you should be in a lower tax bracket so the distribution would not affect you as much.  Many people find that with the combination of pensions, social security checks, investment income, and interest income coupled with the fact that you may no longer have deductions like mortgage interest, or dependents - your tax bracket has not gone down at all.  Some even may see an increase.

Well, this is only one area of concern that most of you are well aware of.  What is usually not stressed enough is the fact that many of these IRA accounts will not be spent down to zero, many even continue to grow even with required minimum distributions.  What is left when you die is a totally taxable account in your name that will now also be subject to Federal Estate Taxes & New Jersey Inheritance Tax (may be different for your state.  So you see, you have triple taxation.

Right now the Federal exemptions are $5 million for an individual and $10 million for a couple for the next two years only. No one thinks the exemptions will remain that high come 2013.  So If you don't plan on dying now, you don't have to ignore this.  NJ taxes can be 11-16%.  Often times your heirs escape the Federal but get creamed by the state.

There are several strategies that can be implemented to offset this rape of your retirement accounts.  It is imperative to do the proper planning to allow for the efficient transfer of these assets to your heirs.  "Stretching," also known as "Multi-generational IRAs" may soften the blow of the income tax problem, but this strategy does not eliminate or reduce the estate tax, both federal and state, problem.

Reach out to us if you'd like to have an independent analysis of your IRA and find out what may be an appropriate strategy to pass on this money in your individual circumstances.

Please don't pay more tax because you failed to plan for the inevitable.  You worked hard for that money!


"Lady Fi"

Kathy