According to some recent statistics, many North Carolina baby boomers in the 55 – 64 age bracket are not in good shape, both physically and financially. 

Overall Health

Researchers say that NC residents in this age bracket exercise less than younger groups, with more than a third of them being obese.  85% of this group admit to getting no exercise at all.  One in six has been told by a doctor that diabetes has affected their kidneys.

“My sense is that we are in denial about aging,” said Joan Pellettier, director os the Triangle J Area Agency on Aging, a group that coordinates programs for older people in central North Carolina counties.  Pelletier also urges boomers to start thinking about long-term care insurance, coverage that’s been made more accessible through recent state and federal legislation.  Pelletier wants to get the word out about the things people have to learn before they get to retirement.  “I am thinking of moving our focus from people who are 60 to people that are 50 and older” she said.

Financial Health

The financial health of baby boomers in general is not so good, and that’s not just in North Carolina.  About three-quarters of baby boomers nationally say their retirement plans have been negatively affected by the current financial downturn, which is no surprise.

Mauricio Soto, a researcher at the Urban Institute, has estimated that nationally retirement accounts initially lost $2.8 trillion, or about a third of their value, in the stock market, although some of that ground has been recovered (but not all).

There is a great majority of baby boomers in the country who have not saved enough towards retirement.  These people need assistance, but many are reluctant to ask for it.  If you feel like you might be in trouble financially, then there’s a good chance you are.  Now is the time to get your finances in order and start catching up.  Working with a Certified Financial Planner professional will ensure that you develop a realistic plan to get you on track.  You want to work with an advisor who is not afraid to give you bad news.  You need to be realistic about your future.  If you don’t have enough money saved, and you’re spending too much, the last thing you need is an advisor who tells you that you’re doing a great job.  That’s a recipe that will end up with you living in your kids basement one day.

Call us today to set up an appointment for a financial health check-up.  We will tell you if you are on track for success, or disaster.  Call us at 1-800-983-4222 today.

For more information on state health statistics visit http://tinyurl/34ncww8

Health insurance companies make you fill out very detailed applications that ask you for details about your complete medical history.  And the questions are getting tougher these days.  Most companies used to ask if you had been diagnosed or treated for conditions in the last 5 or 10 years.  Now, many are asking if you have EVER had those conditions.  If you have had something (depending on the condition), there’s a good chance you’re going to be declined for coverage.  This is making it harder and harder for many people to obtain health insurance.

I recently had a client who applied for coverage for the whole family:  mom, dad & two kids ages 9 and 6.  The mother had a mild complication during her son’s pregnancy 10 years ago, but no other problems since then, and was on no medications.  The 9 year old son had a short period of time about a year ago where he was feeling dizzy and they didn’t know why.  They did an MRI and it was normal.  He was told by the doctor that it was some kind of vertigo.  He had no other health conditions before or since then, and was on no medications.  The dad and daughter were approved for coverage, but the son and mom were declined.  Both the family and I were shocked.

Many states now have Insurance Risk Pools that provide somewhat affordable, individual health insurance coverage.  In North Carolina it’s called Inclusive Health, also know as the North Carolina Health Insurance Risk Pool (NCHIRP), created in 2007.  If you are someone who doesn’t have access to a employer-based plan, or you’ve been declined for coverage, or you’ve been quoted a rate that is too expensive due to an existing medical condition, then you can apply to your state’s health insurance risk pool.  Many of these plans also offer coverage to people who have lost their jobs due to the effects of international trade and are eligible for the health coverage tax credit under the Trade Adjustment Assistance (TAA) program.

Keep in mind that not all states have a health insurance risk pool such as this.  You can call your state’s insurance commisson to find out.  If you would like to learn more about North Carolina’s program, you can find it at www.inclusivehealth.org or just give us a call today at 866-983-4222, and we can help you apply.

Health insurance is a very important part of your personal financial plan.  If you have a story about someone who has been declined for health insurance, I’d like to hear about it in the comments section below.  Maybe if enough people hear about this problem we can get it fixed.

Small businesses that provide health insurance to their employees now qualify for a
special tax credit (up to 35%), due to recent health care reform legislation.  The
credit, provided under the Patient Protection and Affordable Care Act, is designed to
encourage small employers to offer health insurance for the first time, or maintain
coverage they already have.

Who is eligible?

Groups with fewer than 25 full-time equivalent employees are eligible.  The employer
must pay for at least half of the employees health insurance premiums (can include
dental and vision coverage) and must pay out less than $50,000 in average annual
wages to employees.  The total number of employees does not include the business
owner or family members.

Can an employer with 25 or more employees qualify for the credit of some of
the employees are part-time?

Yes.  Because the limitation on the number of employees is based on Full-Time
Employees, and employer with 25 or more employees could qualify for the credit if
some of its employees work part-time.  For example, an employer with 46 half-time
employees (meaning they are paid wages for 1,040 hours) has the equivalent of 23
Full-Time Employees and therefore may qualify for the credit.

How does the employer claim the credit?

The credit is claimed on the employer’s annual income tax return.

Where can an employer find out more?

Beginning in early June 2010, anyone can call Turning Point Benefits Group at 704-
887-4984 to find out more information and see if they qualify for this credit.  You can
also visit www.irs.gov to get more details.

How long will this tax credit be available to small businesses?

The tax credit is effective for the 2010 tax year, and is currently scheduled to run
through 2014.  In 2014 the tax credit increases from 35% to 50% for qualifying
businesses.

Can other organizations qualify for the credit?

Tax exempt organizations can also qualify for the tax credit.  Those organizations can
earn up to a 25% credit for the same guidelines as the small business.  That rate
increases to 35% on Jan. 1, 2014.

How would the tax credit look in real dollar amounts?

The Internal Revenue Service provided the following fictional business as an example:

Main Street Mechanic, an automobile repair shop with 10 employees, can get
$24,500 in tax credits for 2010.

Here’s how:

Tax Credit for 2014:  $35,000

Financial Flies

So I’ve been thinking about how we all have financial black flies in our lives that buzz around our homes and annoy us.  One or two of them may not seem like a big deal.  But the wrong fly on your food can spread disease and make you sick.  Some financial flies are much more dangerous and deadly than a disease carrying house fly.  Some financial flies are so small we may not even realize they are there.  But often these are the worst kind. 

Here’s some examples of financial flies that really need to be swatted down:

• incorrect beneficiary names on IRA’s, 401K’s, and life insurance policies.
• incorrect titling of accounts.
• paying too much in taxes.
• paying too much in investment fees
• too much credit card debt
• improperly diversified portfolio
• no identity theft protection plan
• too much exposure to one company’s stock
• too much exposure to rising interest rates
• out-dated or non-existant estate planning documents
• spending too much money
• no retirement income plan

Financial flies like these are much like the black house flies buzzing around your kitchen.  If you ignore them for too long they seem to multiply.  Keeping up on swatting them down as you find them makes your life and your personal financial planning a lot easier.

What Can You Do?

If you recognize that some of these financial pests are bothering you, or you’re not sure about a few of them, then it would be a good idea to have a conversation with a Certified Financial Planner professional about your situation.  Call us today at 1-866-983-4222, and we’ll help you forever swat down the financial flies that are harassing you.  And don’t be surprised if we discover you have more flies in your house than you knew about.   :)

Beginning January 1, 2013,  a new Medicare surtax of 3.8% will be assessed if you have income over a “threshold amount”.  The new surtax will be assessed on the lesser of:

1. “Net Investment Income” OR
2. Any “Modified Adjusted Gross Income” over the “threshold amount”

Investment Income

OK, so what the heck does that mean?  First, investment income comes from a lot of sources.  Here’s what’s included in “investment income” for purposes of the 3.8% surtax:

• Interest
• Dividends
• Capital Gains
• Annuities
• Rents
• Royalties
• Passive activity income

“Investment income” does not include:

• Active trade and/or business income
• Distributions from IRAs or other qualified retirement plans
• Any income taken into account for self-employment tax purposes

Threshold Amount

The “threshold amount” is as follows:

1. Married taxpayers filing jointly – $250,000
2. Married taxpayers filing separately – $125,000
3. All other individual taxpayers – $200,000
4. Trusts and estates – $11,200

So if your MAGI is over the “threshold amount”, you will pay the 3.8% surtax on the lesser of all your investment income or on your income that in excess of the “threshold amount”.

Here’s what your new tax rates will most likely look like for Married Taxpayers Filing Jointly:

I know, clear as mud.  If this still does not make sense, and you think that you are pretty sure that your income is going to be close to or over the “threshold amounts” mentioned above, then you probably need to talk to a good Certified Financial Planner certificant, and also a good CPA.

There are a number of strategies you can use in your presonal financial planning to reduce or eliminate this excess surtax if you are someone who will be exposed to it.  If you are one of these people, you need to contact us as soon as possible to start planning ahead.  As I like to say, these are “high class” problems to have.

In a similar way, investing in the stock market is pretty simple too.  Buy stocks or stock funds and hold onto them for 20 years.  History has shown that if you just do that, you’ll make money and be successful.  Well if its that easy, then why do so many people end up with investment returns far below the overall market?

Maybe the answer to both questions is about the same.  The answer is, “It’s not as easy as it sounds.” 

When it comes to weight loss, there are a lot of road blocks that make it hard to be successful.  Just to name a few:  chocolate, oreos, ice cream, enormous serving sizes at most restaurants, and a busy schedule that makes it hard to find time to exercise.

When it comes to investing, there are just as many road blocks that keep most people from staying ahead of the market.  Here are a few of the main things that stand in investors way:

1.  Emotions.  Emotions are one of the main drivers of stock market prices.  But your emotions can also be one of your biggest road blocks.  The specific emotions I’m talking about are fear and greed.  When the market is up 70% like it’s been in the last year, people’s greed leads them to buying more and more, even at sky high prices.  This additional buying can push the market higher for a time, but eventually the steam runs out and it goes back down.  Then when the market it way down and people are losing money, their fear kicks in and tells them to sell before they lose it all.  All the selling pushes prices down further and faster until the selling runs out of steam, and then it heads back up again.  I can’t tell you how many people have said to me, “When I buy something it goes down, and when I sell something, it goes up.”  If this seems to happen to you a lot, then your emotions may be getting the best of your investments.

2.  Conflicts of Interest.  Many of you have heard me talk about this before, but I feel that it’s a big enough road block that I’m going to keep talking about it, sorry. :)  Investors out there are getting a lot of advice from commission driven brokers and insurance sales people.  Most people want to believe that others are honest and will in turn trust the advice they are given, especially when it’s coming from “an expert”.  But what they don’t realize is that “expert” may have a sales manager looking over his or her shoulder making sure that he or she is meeting the company’s sales goals.  Often, the pressure to sell, and the commissions that are paid, are too much for an advisor to resist when it comes to giving advice.  What ends up happening is the client gets “sold” something that is in the best interest of the broker/advisor, and not in the best interest of the client.  For this reason, it’s EXTREMELY important that as an investor, you ask for full disclosure of potential conflicts of interest your advisor may have.  Is he getting a commission from the sale?  Is there an incentive trip involved with the sale of this product?  Is he or she required to meet certain sales goals each quarter or year?  I’m not saying these things are bad.  I’m just saying that if you are aware that there are possible conflicts of interest, you will be more inclined to do some more homework or ask for a second opinion before you make a decision.

People can lose weight, and they do.  Studies have shown that people are more successful at losing weight when a close friend, family member or coach is helping to remove the obstacles in your way.  People can also be successful investors in the stock market.  Having a trusted advisor who can help you control your emotions, and who has your best interest in mind will help eliminate the road blocks that stop you from achieving your goals.

SEC Chairwoman Mary Schapiro

Lawmakers and regulators are jumping on the fiduciary-duty bandwagon after the Securities and Exchange Commission’s fraud charges against Goldman Sachs and subsequent hearings. Several senators have or plan to introduce amendments to the financial overhaul legislation, and SEC Chairman Mary Schapiro has backed the standard. “I believe that broker-dealers and investment advisers providing the same services, especially to retail investors, should meet that same high fiduciary standard,” Schapiro said.

Many of the firms who bought investments from Goldman Sachs and other broker-dealers could have avoided huge losses had their been a fiduciary standard in place at the time.  A fiduciary is required to act in the best interest of their clients.  They also have to fully disclose sources of compensation and any possible conflicts of interest.  This way the client knows more fully what they are getting into, and why the advice or recommendation is being made.

This is the standard that investment advisors and Certified Financial Planner certificants are held to, and it protects the client. 

I don’t agree with everything that the SEC does.  They totally ignored the Madoff scandall even though they were given many clear warnings, tips and documentation about what was going on.  But I do have to agree with them on this point, that anyone giving investment advice should have to act as a fiduciary to their clients.  There are too many ways that financial companies and brokers can take advantage of consumers, and many of them do.  Sure, if an investment is a registered mutual fund, the fees and expenses are all disclosed in the perspectus.  But most people won’t read them, or if they do read them it’s too confusing to understand.

If you are working with a Certified Financial Planner Certificant, you know you have someone who is held to a higher standard.  Now that doesn’t mean that all CFP’s are honest, you should always check out someone’s backround and complaint history.  But if a CFP doesn’t act in the best interest of a client, he won’t be a CFP for long.  The CFP Board will strip someone of the designation if they are found to be acting dishonestly.  If you’re working with an independant CFP who doesn’t have sales goals that they have to meet, then you know they don’t have someone looking over their shoulder to make sure they’re selling enough of this or that.

This all comes down to doing the right thing for the client.  When you’re putting your faith and trust in an “expert”, you shouldn’t have to worry about someone lining their pockets for the “expert advice” they are giving you.  It’s definitely getting better out there, but we have a long way to go.

The biggest fear that we all face with regard to long-term care insurance is, if you end up not needing it (which you hope that you won’t) then all your insurance premiums have gone down the drain.  So when you buy long-term care insurance, you’re betting that something bad is going to happen to you, but at the same time hoping that it doesn’t.  But that’s the reality of buying any kind of insurance.  It’s protection against a risk that could potentially damage your financial well-being.

A New Way To Protect Yourself

A few years ago, insurance companies started developing a new type of protection against the risks of long-term care that eliminate the biggest fear people have about buying insurance for it.  That is, the fear that if you end up not needing long-term care, you’ve wasted your money.  This new type of protection is called “Asset-based” long-term care benefits.  The concept is very simple, and yet very different from paying traditional long-term care insurance premiums.

Asset Based Long-Term Care Benefits

This type of protection combines a deferred fixed annuity with build in long-term care benefits.  A deferred fixed rate annuity is a financial planning tool that can help you save more money for retirement.  It earns a fixed rate of interest and grows tax-deferred until you start taking income payments from it.  And, in addition to helping you save more money, it can provide you with up to three times the annuity value in long-term care benefits if you need them.  This will help preserve your other hard-earned assets while it pays for up to 6 years of long-term care.  It will also protect your spouse and children from the emotional, physical, and financial toll of caregiving.  And with it, you have a choice of care options which include in-home care, assisted living, adult day care, homemaker services, personal care, respite care, hospice care, and nursing home care.

What If You Don’t Need The Care?

If you end up not needing any of this type of care (which is a very good thing), your money is not gone or wasted.  In fact, this is the best part of this type of long-term care protection.  If you don’t need the care, you’ve still:

1.  Earned a guaranteed rate of interest on your savings

2.  Taken advantage of tax-deferred growth (this will be more important as tax rates go up)

3.  Had access to your principal through partial withdrawals or lifetime income options

4.  Had a death benefit for your beneficiaries that is equal to the annuity value at the time of death

5.  Avoided probate on these funds

The chances of a 65 year old person needing some type of long-term care during retirement is very high, above 50%.  And the cost of this care is very costly.  The average nursing home in our country today costs about $5000 – $6000 per month, depending on where you live.  This can eat up a retirement nest egg in no time at all.  But still, many people hesitate to pay the premiums each month for traditional long-term care insurance.  You can see that the benefits of asset-based long-term care are many.  You have the protection if you need it, and if you don’t need it, you get all your money back.  I think everyone should consider puting part of their “safe money” into one of these types of vehicles.

If you would like more information on this, and other types of asset-based long-term care protection, please contact us today.

Emotional Investing

Investing according to your gut is one of the most dangerous things you can do.  When the market it way up and you see double or triple digit returns, your gut tells you to buy.  When the market is tanking into the abyss and you’re losing lots of money, your guts tells you to sell.  So if you follow your gut, you’re buying HIGH and selling LOW!  I can’t tell you how many hundreds of people have told me they do just that!  A money manager can take some of the emotions out of the process, or talk you away from the ledge, and hopefully avoid this common trap.

Chasing Returns

This is really related to emotional investing, but it happens more often.  You look at your holdings and the Morningstar reports on the funds you own.  You see that you have some dogs (1, 2, or 3-star funds), and you decide it would be better to buy some 5-star funds.  So you sell your dogs and buy some hot funds that have been way up in the last year.  Seems like the right thing to do, right?  Wrong.  What you’re really doing here is once again, selling LOW and buying HIGH.  You’re selling something that has underperformed the market, and buying something that is already way up and has been outperforming the market.  Things go in cylces.  A money manager can help you construct an all-weather portfolio.

The Test

I call this the money management T-I-R-E-D test, to help you decide if you’re tired of managing your own money.

T – Time.  Do you have the time it takes to properly manage your money?  Doing investment research, evaluating your holdings, calculating rebalancing changes, making the changes, keeping up with tax law changes, updating beneficiaries and account information, reviewing your insurance holdings…it all takes a lot of time, and time is money.

I – Inclination.  Do you really enjoy managing your investments?  Most people would rather eat shards of broken glass than read a mutual fund prospectus.  You really can’t blame them, they are written by attorneys.  But even if you do enjoy researching and reading about investment products, trends and strategies, is it really what you want to do with your free time?  Or would you rather be playing golf, working in the garden, watching your kid play a sport, or spending time with the grandkids?  No matter what it is, if you don’t like doing it, you probably won’t do it.  And your investments are something you really should not ignore.

R – Research.  Do you feel that you have access to the kinds of research that you need to manage your money most effectively?  Reports from Morningstar, Lipper, Standard & Poors can be costly and not easy to come by.  Professional money managers also have access get on conference calls with best mutual fund managers and ask them questions about thier funds.  Having all the right information can make a world of difference.

E – Expertise.  Do you have enough expertise in the investment world to effectively manage your money?  Everyone has an area of expertise, and it makes sense to leverage your own, and others areas of expertise.  You wouldn’t hire a plumber to fix your car.  Nor would you pay your dentist to put a pool in your backyard.  A good professional money manager will easily pay for himself with the money he can save you in taxes, fees, penalties, not to mention the extra returns he can put in your portfolio.

D – Discipline.  Do you have the discipline it takes to strategically manage your own money and stick to a plan?  This one relates in part to the emotional investing discussed earlier.  It’s easy to stick to a plan when the market it up.  But when things are crazy, having a level-headed money manager to stand by you and help you makes all the difference.  To become financially independant, it takes time  and the dedication to follow a disciplined strategy.  Having someone to keep you accountable and make sure you stick to your plan can really help.

If you answered NO to any of these questions, then it would be good idea for you to find a money manager whom you could work well with.  The annual fee that you would pay them to help you with this most important task will be well worth it.  I have found in my 15+ years of doing personal financial planning, that I can usually increase a clients returns by at least 2-3% even after my fee comes out.  But the best part for the client is that they no longer have to worry about it at all.

Currently the tax brackets are 10%, 15%, 25%, 28%, 33%, and 35%.  The new tax rates in 2011 will be 15%, 28%, 31%, 36%, and 39.6%.  So basically everyone will be paying more in taxes, no matter what your income will be.  We don’t know yet exactly where the income tax brackets will cut off, but if we use the 2010 rates and adjust for inflation, it will likely look like something this:

Capital gains taxes

Income tax rates are not the only thing that will be going up. Currently we pay 15% taxes on long term capital gains (held more than a year) or 0% if your income tax bracket is 15% or less.  Starting in 2011, the long term capital gains tax rate will be 20% instead of 15%, and those in the lowest tax bracket will pay 10%.

Stock dividends

Currently we are paying a 15% tax rates on qualified stock dividends.  Starting in 2011, stock dividends will be taxed at whatever your income tax rate is.  This will be a drastically higher rate for many people who rely on stock dividends for income.

What should you do?

There are a number of things you can do this year to help reduce your tax bill in 2011.  For starters, if you have the ability to take additional income in 2010 that you would normally take in 2011, you should do so.  This could be in the form of a bonus or deferred compensation.  Or, if you own your own business, you could pay yourself extra at the end of 2010 to cover some of your expenses in 2011.  This way you will pay much less in taxes on that income.

Second, if you are thinking about selling any stock, mutual fund, or bond positions, you should do it before the end of the year.  This will allow you to pay capital gains taxes at rates that are at least 33% less than they will be next year.

Third, if you would normally make a charitable donation at the end of 2010, and you can wait until January 1, 2011, it may benefit you to do so. 

And last, this would be the ideal year to consider making some tax efficient shifts to your investment portfolio.  This could include doing a Roth conversion of part of your IRA (at much lower tax rates this year), and/or shifting more of your money to tax deferred vehicles like annuities.

Talk to your personal financial planning advisor about things that you can do to prepare for these higher tax rates.  Doing so will help you pay less to Uncle Sam and put more in your pocket.  Of course you can call us for a free consultation about how to reduce your income tax exposure at 1-866-983-4222.