Kim 7/29/12 Kim 7/29/12

Can we avert the "fiscal cliff"?

Recently, you may have heard about the “looming fiscal cliff”, the “coming fiscal cliff” and so forth. What exactly is it? Briefly stated, the “fiscal cliff” is a potential $7 trillion dilemma facing Congress this fall – a Congress not known for ready cooperation. If America goes over it, our economy could stumble.¹

Will Congress act before 2013? Federal Reserve Chairman Ben Bernanke introduced the phrase, referring to an economic downfall he fears will result from a potential 2013 combination of federal budget cuts, the expiration of the Bush-era tax cuts, the end of the payroll tax holiday and extended jobless benefits and other recent stimulus measures. Bernanke told Congress that together, these changes could send the U.S. over a “fiscal cliff” and into another recession.²

How bad might the potential downturn be? Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, thinks the U.S. could see a recession “immediately”. Moody’s economist Mark Zandi thinks it could shave 3% of off America’s inflation-adjusted GDP next year (read: zero growth).¹

The hope is that Congress will come together and help the economy avoid the cliff. It won’t be easy. Remember the big fight over the debt ceiling in Congress? Imagine it expanded to other issues, its magnitude amplified to a new level.

What happens after the election? It will likely be November before Congress really starts to knuckle down and address this dilemma. Legislators have some options:

*They could punt again. The punt wouldn’t be as embarrassing as the one chosen by the ill-fated “super committee” that couldn’t agree how to reduce the deficit in 2011. It would be more like a handoff: the outgoing Congress could simply extend certain tax cuts or stimulus measures and leave the big and painful decisions for the new Congress. Many journalists and analysts believe that this is exactly what will happen in Washington. Some think a credit downgrade could result.^2,3

*They could extend the Bush-era tax cuts again. If any political change in November is momentous, the stage could be set for another EGTRRA/JGTRRA extension and the planned cuts to defense spending and other key programs might be undone. That would certainly boost the morale of Wall Street and the taxpayer. The consequence? The nation could really pay for it later. Extending the Bush-era cuts would cost the federal government anywhere from $5.35 trillion to over $7 trillion over the next decade, the Congressional Budget Office believes.^1,3

*They could do nothing. Even if the waning days of the 112th Congress aren’t as fractious as feared, some analysts think that lawmakers will likely let the Bush-era tax cuts, the 2% payroll tax cut and long-term unemployment benefits sunset, as the need for revenue on Capitol Hill has simply become too great.²

What can the Fed do? In Ben Bernanke’s assessment: basically nothing. In fact, that is more or less what he told Congress this spring: “If no action were to be taken, the size of the fiscal cliff is such that there's, I think, absolutely no chance that the Federal Reserve ... could or would have any ability whatsoever to offset ... that effect on the economy.”³

What could happen economically before we get to the edge? A June report from analysts at Bank of America expressed some fears: “As the cliff approaches, we expect first firms and then households to start postponing decisions, weakening the economy in advance of the cliff. When you are approaching a cliff, in a deep fog of uncertainty, you slow down.” This spring, Bernanke reminded Congress that “the brinkmanship last summer over the debt limit had very significant adverse effects for financial markets and for our economy” and “knocked down consumer confidence quite noticeably.” He urged lawmakers not to “push us to the 12th hour.”²

Expect a pitched battle on Capitol Hill. Alan Simpson, who for many years served Wyoming in the Senate, recently told CNNMoney that this lame-duck session of Congress could wrap up with seven weeks of “chaos”. Yes, just seven weeks; if lawmakers wait to tackle this in earnest after the election, that is all the time they will have to consider what could be some of the most pivotal political decisions they will ever make.³

Some political theatre seems to be ahead – a drama with an uncertain ending, with the near-term fate of economy parked at the edge of a cliff.

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600. This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - money.cnn.com/2012/04/30/news/economy/fiscal_cliff/index.htm [4/30/12]

2 – articles.latimes.com/2012/jun/07/business/la-fi-bernanke-economy-20120608 [6/7/12]

3 – money.cnn.com/2012/05/16/news/economy/fiscal-cliff/index.htm [5/25/12]

Kim 7/23/12 Kim 7/23/12

The retirement reality check - little things to keep in mind after work

Decades ago, there was a popular book entitled What They Don’t Teach You at Harvard Business School. Perhaps someday, another book will appear to discuss certain aspects of the retirement experience that go unrecognized - the “fine print”, if you will. Here are some little things that can be frequently overlooked. How will you save in retirement? More and more baby boomers are retiring with the hope that they can become centenarians. That may prove true thanks to healthcare advances and generally healthier lifestyles.

We all save for retirement; with our increasing longevity, we will also need to save in retirement for the (presumed) decades ahead. That means more than budgeting; it means investing with growth and tax efficiency in mind year after year.

Could your cash flow be more important than your savings? While the #1 retirement fear is someday running out of money, your income stream may actually prove more important than your retirement nest egg. How great will the income stream be from your accumulated wealth?

There’s a longstanding belief that retirees should withdraw about 4% of their savings annually. This “4% rule” became popular back in the 1990s, thanks to an influential article written by a financial advisor named Bill Bengen in the Journal of Financial Planning. While the “4% rule” has its followers, the respected economist William Sharpe (one of the minds behind Modern Portfolio Theory) dismissed it as simplistic and an open door to retirement income shortfalls in a widely cited 2009 essay in the Journal of Investment Management.^1,2

Volatility is pronounced in today’s financial markets, and the relative calm we knew prior to the last recession may take years to return. Because of this volatility, it is hard to imagine sticking to a hard-and-fast withdrawal rate in retirement – your annual withdrawal percentage may need to vary due to life and market factors.

What will you begin doing in retirement? In the classic retirement dream, every day feels like a Saturday. Your reward for decades of work is 24/7 freedom. But might all that freedom leave you bored?

Impossible, you say? It happens. Some people retire with only a vague idea of “what’s next”. After a few months or years, they find themselves in the doldrums. Shouldn’t they be doing something with all that time on their hands?

A goal-oriented retirement has its virtues. Purpose leads to objectives, objectives lead to plans, and plans can impart some structure and order to your days and weeks – and that can help cure retirement listlessness.

Will your spouse want to live the way that you live? Many couples retire with shared goals, but they find that their ambitions and day-to-day routines differ. Over time, this dissonance can be aggravating. A conversation or two may help you iron out potential conflicts. While your spouse’s “picture” of retirement will not simply be a mental photocopy of your own, the variance in retirement visions may surprise you.

When should you (and your spouse) claim Social Security benefits? “As soon as possible” may not be the wisest answer. An analysis is needed. Talk with the financial professional you trust and run the numbers. If you can wait and apply for Social Security strategically, you might realize as much as hundreds of thousands of dollars more in benefits over your lifetimes.

Kim Bolker can be reached at 616-942-8600 or kbolker@sigmarep.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – www.forbes.com/forbes/2011/0523/investing-retirement-bill-bengen-savings-spending-solution.html [5/23/11]

2 – articles.marketwatch.com/2010-05-19/finance/30729568_1_retirement-period-retiree-spending [5/19/10]

Kim 7/16/12 Kim 7/16/12

The financial impact of the Affordable Care Act

A look at the ripples from the Supreme Court decision.

President Obama’s health care law has held up in the Supreme Court. So what impact might this have on the stock market, businesses, and investors in the coming months?

How will Wall Street take this? After the June 28 ruling, stocks of key managed care companies fell while hospital stocks and Medicaid-related stocks rallied. Was this a reaction confined to a market day, or an indicator? Opinions differ.

In the view of Leerink Swann health care analyst Jason Gurda, the high court ruling was “largely a neutral” financially and “what the market has mostly expected for the last two years.” Barry Knapp, head of equity strategy at Barclays Capital, called the Supreme Court’s decision “a pretty clear negative” that would weigh on business confidence and therefore the markets. Charles Boorady, a top health-care analyst for Credit Suisse, saw an upside: “As a country, we’re going to spend about $2 trillion more on health care with this law and that’s all money coming into [that sector], which will ultimately be good for the managed health care stocks.”^1,2

Right now, the market has plenty of things on its mind (European debt issues, job creation, China’s economic health, and our November elections) and the impact of this ruling might fall far down the list.

How much more tax will we pay? In the Supreme Court’s majority opinion, Chief Justice John G. Roberts, Jr. portrayed the Affordable Care Act’s individual insurance mandate as a tax. This was a key argument for the constitutionality of the reforms.³

The greatest financial impact from the Affordable Care Act may be felt in tax terms. Here are some related taxes/penalties poised to arrive in 2013, 2014 and beyond that could affect solopreneurs, businesses and the wealthy.

*Medicare surtaxes in 2013. There are actually two such taxes. Individuals earning more than $200,000 a year and married couples earning more than $250,000 would pay a 3.8% “Medicare contribution tax” on all or part of their net investment income. Medicare taxes on salary and self-employment would rise 0.9% for such taxpayers.⁴

*Penalties for individual non-compliance. The typical American who goes without health insurance coverage in 2014 will have to pay a penalty - $95 or 1% of annual income, whichever is greater. In 2015, the penalty will be $325 or 2% of annual income. The dollar amounts of these penalties are tripled for uninsured families.³

*Penalties for business non-compliance. In 2014, a business with 50 or more FTEs must start providing health coverage or face fines once an employee turns to the government for a health care tax credit or a subsidy on the exchanges. The minimum fine will be $40,000. All this may drive larger companies to shop for cheaper health coverage on the state exchanges. Yet some firms may run the numbers, consider the penalties and find it more cost-effective to drop their health plans and direct employees (and early retirees) to buy insurance individually.⁵

*A major excise tax looms for “Cadillac” plans. In 2018, active health plans of large employers (self-insured or not) will face a 40% excise tax if plan costs exceed $10,200 for individual coverage and $27,500 for family coverage.⁶

How surprised are business owners? Some quarters of the small business community were shocked by the Supreme Court’s decision. The National Federation of Independent Businesses (NFIB), which lobbied against the reforms for two years, will now seek to mount legal challenges to the ACA.⁷

As Shawn Cochran of website marketing firm Branches PSP told Fox Business, the rule that requires companies with more than 50 FTEs to provide health insurance “will be a huge factor in who and how we hire – whether we bring on full-time employees or individual contractors. This directly affects the business decisions we make and the way companies will move forward.” Jim Amos, CEO of frozen yogurt chain Tasti D-Lite, thinks the ACA will slow franchise growth. “It’s going to force franchisees to shift workers to part-time to avoid the 50-employee threshold,” he told CNBC. “It will keep new owners and new openings on the sideline.” John Arensmeyer, CEO of the Small Business Majority, saw a win all around: “The law will significantly rein in costs while providing more health coverage options for entrepreneurs.”^7,8

While the financial impact of the ACA may be subtler than that of the EU debt crisis or the potential end of the Bush-era tax cuts, it could prove considerable indeed.

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600

Citations.

1 – www.nytimes.com/2012/06/29/business/insurance-stocks-flag-hospital-shares-gain.html [6/28/12]

2 – www.cnbc.com/id/47994090 [6/28/12]

3 - money.cnn.com/2012/06/28/pf/taxes/health_reform_new_taxes/index.htm [6/28/12]

4 - www.smartmoney.com/taxes/income/what-obamacare-may-mean-for-taxes-1335896160486/ [6/28/12]

5 – money.cnn.com/2012/06/28/smallbusiness/supreme-court-health-reform/index.htm [6/28/12]

6 - www.foxbusiness.com/personal-finance/2012/06/28/health-reform-is-constitutional-here-are-tax-implications/ [6/28/12]

7 - smallbusiness.foxbusiness.com/legal-hr/2012/06/28/obamacare-upheld-small-business-community-divided/ [6/28/12]

8 - www.cnbc.com/id/48000806 [6/28/12]

Kim 6/18/12 Kim 6/18/12

IRA dates & milestones to remember

IRAs come with complex rules and regulations. As these rules and regulations are occasionally forgotten or misinterpreted by IRA owners, here is a refresher. Age 70½: Required Minimum Distributions (RMDs). Once you reach age 70½, you are required to make withdrawals from any traditional (“regular”) IRAs that you have established. (Original owners of Roth IRAs never have to take RMDs.)¹

**You must take your initial RMD from a traditional IRA by April 1 of the year following the year during which you turn 70½. You may not want to wait that long, however.

**If you do wait that long and choose to take your first RMD in the year after you turn 70½ rather than the year during which you turn 70½, you have to take two RMDs in that year after you turn 70½ - one by April 1, and another by December 31.

**In all succeeding years, you must take your annual RMD by December 31.¹

Age 59½: option to make penalty-free IRA withdrawals. With few exceptions (see below), original owners of Roth and traditional IRAs must wait until age 59½ to take money out of their IRA without a 10% early withdrawal penalty. The IRS defines “age 59½” as the point at which you are midway through your 59th year.²

Age 59½: option to donate IRA funds to charity. While the IRA charitable rollover is no more, IRA owners aged 59½ and older can still distribute IRA assets to a qualified charity. The deadline to do so for a particular tax year is December 31. One problem: your gift to charity will also boost your adjusted gross income (AGI). As with an RMD, this type of IRA distribution qualifies as taxable income. You can claim a charitable deduction as you report the distribution as income to the IRS.³

The timeline for 72(t) payments. These are the special periodic payments by which you can exempt yourself from the 10% early withdrawal penalty normally due on IRA withdrawals prior to age 59½. In the 72(t) option, equal payments (distributions) from your IRA are scheduled for five or more years or until you hit age 59½, whichever time frame is longer. The time frame reaches its limit when a) you are exactly 59 years and six months old or b) exactly five years have passed since the first of the periodic payments.²

The 12-month limit on IRA-to-IRA rollovers. There is no annual deadline for these rollovers, but there is a 12-month time limit affecting how many you can make. You can only make one IRA-to-IRA rollover per IRA account per year, whether the IRA is a traditional IRA or a Roth. So if you have three IRAs, you can make a total of three rollovers (one per IRA) in a 12-month period, be they IRA-to-IRA rollovers or Roth-to-Roth rollovers.⁴

The 5-year rule on Roth IRA conversions. You may know about the five-year rule here – when you convert a traditional IRA to a Roth IRA, you have to wait until you either a) turn 59 1/2 or b) five years have passed before you can take a penalty-free distribution of a Roth IRA conversion. The asterisk comes in terms of measuring those five years. It isn’t five years from the day you complete the Roth conversion; the five-year measurement actually starts on January 1 of the year in which the funds are first deposited in the Roth IRA.²

The 5-year rule for Roth IRA qualified distributions. Here we have a slightly different circumstance, and a slightly different five-year rule. You may know that once your first Roth IRA is five years old, you can start taking tax-free and penalty-free withdrawals from it under the following circumstances: a) you are age 59½ or older, b) you are disabled, or c) you are a first-time homebuyer using Roth IRA assets for that purpose.²

With regard to qualified distributions, when is your Roth IRA judged to have turned five? It depends on which calendar year you earmarked your first Roth IRA contribution for – for example, you can make a 2012 Roth IRA contribution up until April 15, 2013. The five-year time frame starts on January 1 of the calendar year for which the contribution is designated. An interesting wrinkle: if you open additional Roth IRAs in the future, that initial five-year time frame also applies to them; there is no reset per new Roth IRA.²

The deadline(s) for RMDs made by non-spouse beneficiaries. If you are a non-spouse beneficiary of someone else’s IRA, you usually have to start taking RMDs from that IRA by December 31 of the year after the death of that IRA owner. In other words, you have from 12-24 months to take that first RMD. One exception comes if an IRA accountholder dies after age 70½ without taking his or her initial RMD. If that is the case, then the non-spouse beneficiary of the IRA will end up having to take the initial RMD from that IRA by the end of the calendar year in which the deceased IRA owner has passed away.²

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com

Citations.

1 - www.irs.gov/retirement/article/0,,id=96989,00.html#2 [1/5/12]

2 – www.smartmoney.com/retirement/planning/iras-5-timing-rules-you-need-to-understand-1337271033972/ [3/5/12]

3 - counselprotect.com/making-charitable-ira-donations-in-2012/ [4/23/12]

4 - www.theslottreport.com/2012/05/one-ira-rollover-per-year-per-ira.html [5/4/12]

Kim 6/11/12 Kim 6/11/12

What happens here if Greece exits the Euro?

If Greece leaves the eurozone in the coming months, what kind of financial ripples could reach America? Nobody can predict the endgame yet; Greece may even stay in the euro, although that is looking less and less likely. The big concern isn’t what happens in Greece – it is about what could happen in Spain or Italy as a result of what happens in Greece.

The effects from a Greek default (and eurozone exit) would likely be felt on four fronts in America – but first, an economic chain reaction would almost certainly play out in Europe.

A Greek default could imperil Spain & Italy. If Greece leaves the euro, then Greek bondholders lose their money. A crisis of confidence in the euro could prompt institutional investors to either walk away or demand even higher interest rates on Italian and Spanish bonds. The European Central Bank could then step up and provide emergency lending, bond buying and recapitalization efforts. If those efforts were to fall short, the worst-case scenario would be a default in Italy and/or Spain.

It could also hurt U.S. banks that aren’t sensibly hedged. If Italy and/or Spain default, a severe downturn could hit EU economies and U.S. lenders would be looking at a huge potential problem. If they are capably hedged against the turmoil in the EU, they could possibly ride through it without a lot of damage. If it turns out they have made foolishly speculative bets (cf. Lehman Brothers, JPMorgan), you could have a big wave of fear, which in the worst scenario would foster a credit freeze reminiscent of 2008. Would the Fed step in again to unfreeze things? Presumably so. Without its intervention, you could have a Darwinian scenario play out in the U.S. banking sector, and few economists and investors would see benefit in that.

The good news (relatively speaking) is that U.S. banks have cut their exposure to Greece by more than 40% as that country’s sovereign debt crisis has unfolded. Pension funds and insurers have joined them.¹

Stocks could fall sharply & the dollar could soar. The greenback would become a premier “safe haven” if foreign investors lose faith in the euro. At the same time, a crisis of confidence would imply big losses for equities (and by extension, the retirement savings accounts and portfolios of retail investors).

U.S. companies could be hurt by fewer exports to Europe. Right now, 19% of U.S. exports are shipped to EU nations. If a deep EU recession occurs, demand presumably lessens for those exports and that would hurt our factories. If institutional investors run from the euro, it would also make U.S. exports more costly for Europeans. Additionally, the EU is the top trading partner to both the U.S. and China; as Deutsche Bank notes, the EU accounts for 25% of global trade.²

Our recovery could be hindered. Picture higher gas prices, a markedly lower Dow, the jobless rate increasing again. In other words: a double dip.

In mid-May, economists polled by Reuters forecast 2.3% growth for the U.S. economy in 2012 and 2.4% growth in 2013. These economists also believe that were the fate of Greece not on the table, U.S. GDP might prove to be .1-.5% higher.²

If politicians play their cards right, we may see better outcomes. For example, Greece could elect a new government that decides to abide by the requested austerity cuts linked to EU/IMF bailout money. Greece could remain in the EU and banks in Spain, Italy, Germany and France could ride through the storm thanks to sufficient capital injections. Global stocks would be pressured, but maybe on the level of 2011 rather than 2008. (Maybe the impact wouldn’t even be that bad.)

In a rockier storyline, Greece becomes the brat of the EU – a newly radical government rejects the bailout terms set by the EU and IMF, Greece leaves the EU and starts printing drachmas again. The EU, IMF and maybe even the Federal Reserve act rapidly to stabilize the EU banking sector. Early firefighting by central banks results in containment of the crisis after several days of shock, with U.S. markets recovering in decent time (yet with investors still nervous about Italy and Spain).

Containment may be the key. If a Greek default can be averted or made orderly by the EU and the IMF, then the impact on Wall Street may not be as major as some analysts fear – and who knows, the U.S. markets might even end up pricing it in. Greece only represents 2% of eurozone GDP; our exports and credit exposure to Greece are minimal at this juncture. Our money market funds have mostly stopped investing in Europe. So with diplomacy and contingency planning afoot, a “Grexit” might do less damage to the world economy than some analysts believe.²

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com

Citations.

1 - www.csmonitor.com/USA/Latest-News-Wires/2012/0514/Greece-s-economic-woes-may-hurt-US [5/14/12]

2 - www.cnbc.com/id/47562567 [5/25/12]

Kim 5/21/12 Kim 5/21/12

You can't hide in fixed income. Investing timidly may shield you against risk...but not inflation.

When is being risk-averse too risky for the sake of your retirement? After you conclude your career or sell your company, you have a right to be financially cautious. At the same time, you can risk being a little too cautious - some retirees invest so timidly that their portfolios barely yield any return. For years, financial institutions pitched CDs, money market funds and interest checking accounts as risk-devoid places to put your dollars. That sounded good when interest rates were tangible. As the benchmark interest rate is now negligible, these conservative options offer minimal potential to grow your money.

America saw 3.0% inflation in 2011; the annualized inflation rate was down to 2.7% in March. Today, the yield on many CDs, money market funds and interest checking accounts can’t even keep up with that. Moreover, the Consumer Price Index doesn’t tell the whole story of inflation pressures – retail gasoline prices rose 9.9% during 2011, for example.^1,2

With the federal funds rate at 0%-0.25%, a short-term CD might earn 0.5% interest today. On average, those who put money in long-term CDs at the end of 2007 (the start of the Great Recession) saw the income off those CDs dwindle by two-thirds by the end of 2011.³

Retirees shouldn’t give up on growth investing. In the 1990s and 2000s, the common philosophy was to invest for growth in your thirties and forties and then focus on wealth preservation as you neared retirement. (Of course, another common belief back then was that you could pencil in stock market gains of 10% per year.)

After the stock market malaise of the 2000s, attitudes changed – out of necessity. Many people in their fifties, sixties and seventies still need to accumulate wealth for retirement even as they need to withdraw retirement savings.

Because of that reality, many retirees can’t refrain from growth investing. They need their portfolios to yield at least 3% and preferably much more. If their portfolios bring home an inadequate yield, they risk losing purchasing power as consumer prices increase at a faster rate than their incomes.

Do you really want to live on yesterday’s money? Could you live today on the income you earned in 2004 or 1996? You wouldn’t dare try, right? Well, this is the essentially the dilemma many retirees find themselves in: they realize that a) their CDs and money market accounts are yielding almost nothing, b) they are withdrawing more than they are earning, c) their retirement fund is shrinking, d) they must live on less.

In recent U.S. history, inflation has averaged 2-4%. What if that holds true for the next 20 years?⁴

For the sake of argument, let’s say that consumer prices rise 4% annually for the next 20 years. That doesn’t sound so bad – you can probably live with that. Or can you?

At 4% inflation for 20 years, today’s dollar will be worth 44 cents in 2032. Today’s $1,000 king or queen bed will cost about $2,200 in 2032. Today’s $23,000 sedan will run more than $50,000.⁴

Beyond prices for durable goods, think of the cost of health care. Think of the income taxes you pay. When you add those factors into the mix, growth investing looks absolutely essential. There is certainly a role for fixed income investments in a diversified portfolio – you just don’t want to tilt your portfolio wholly away from risk.

Accepting some risk may lead to greater reward. As many equities can potentially achieve greater returns than fixed income investments, they may prove less vulnerable to inflation. This is especially worth remembering given the history of the CPI and how jumps in the inflation rate come without much warning.

From 1900-1970, inflation averaged about 2.5% in America. Starting in 1970, the annualized inflation rate began spiking toward 6% and by 1979 it was at 13.3%; it didn’t moderate until 1982, when it fell to 3.8%. U.S. consumer prices rose by an average of 7.4% annually in the 1970s and 5.1% annually in the 1980s compared to 2.2% in the 1950s and 2.5% in the 1960s.^4,5

All this should tell you one thing: you can’t hide in fixed income. Inflation has a powerful cumulative affect no matter how conservatively or aggressively you invest – so you might as well strive to keep pace with it or outpace it altogether.

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com

Citations.

1 - money.cnn.com/2012/01/19/news/economy/inflation_cpi/index.htm [1/19/12]

2 - www.bls.gov/news.release/pdf/cpi.pdf [4/13/12]

3 - www.chicagotribune.com/business/sns-201203141400--tms--retiresmctnrs-a20120314mar14,0,1100086.story [3/14/12]

4 - www.axa-equitable.com/retirement/inflation-and-long-term-investing.html [2011]

5 - bls.gov/mlr/1990/08/art3full.pdf [8/90]

Kim 5/14/12 Kim 5/14/12

Why don't you have disability income insurance?

If you can’t work and pay your bills, how are you going to cope? Let’s say an injury or illness prevents you from doing your job. How do you deal with the lost income? Disability income insurance provides an answer. Few of us opt for such coverage, even though it may help us maintain our income (and quality of life) in a crisis.

A case in point: the non-profit Consumer Federation of America just polled 1,200 private-sector U.S. workers and found that two-thirds of them had no such coverage.¹

Mention that to most employees, and they may just shrug. Who cares, who wants to buy more insurance, especially coverage you don’t think you’ll need?

The skepticism is understandable, because we never believe we will be disabled. We don’t dare think about it. Additionally, few of us comprehend the varieties of “disability” that we could end up experiencing.

The non-profit Council of Disability Awareness notes that 90% of disability claims in the U.S. are unrelated to workplace injury. Rather, they are filed for acute or chronic illnesses or health conditions. Musculoskeletal disorders (such as arthritis, spine and joint disorders, fibromytis and back pain) represent the largest percentage of disability claims, more than any other condition.^1,2

Do you think you don’t need disability coverage? Think again. It may shock you how little of your wages you can replace. You can only get workers compensation if your injury or illness is job-related – but less than 5% of disabling illnesses or injuries are. Social Security disability benefits typically provide about $1,100 per month – not exactly the income you want. Additionally, it might take a year or more for you to get your first check. In 2009 (the midst of the Great Recession), the SSA denied 65% of initial SSDI claim applications.^1,3,4

This is why disability income insurance can be so useful. Some of these policies allow payments to start just a week after an employee stops working, and many of them will provide coverage in the neighborhood of 60% of a worker’s salary.¹

What are your chances of becoming disabled during your working years? As a 2011 Social Security Administration Fact Sheet notes, just over 25% of today’s 20-year-olds are projected to become disabled before they retire. More than 5% of U.S. wage earners – 8.3 million people – were getting SSDI in 2011.⁴

The Society of Actuaries finds that once someone is disabled for 90 days, the average length of disability is two years. The CDA reports that the average long-term disability claim has a duration of 31.2 months.^1,4

If your income drops, your stress level could soar. Do you know someone who has had to quit their job or walk away from their profession due to a disability? Then you’ve seen the financial stress that can result.

Even if you don’t know someone facing such financial pressure, you have probably read stories that touched your heart, stories of economic hardship that can be traced back to a disability. A hard-working man or woman loses a home to foreclosure; a couple separates or divorces under economically trying circumstances; a single parent with children has to accept charity from a food bank or becomes homeless. In too many of these stories, a sudden disability is an underlying cause.

If you die, your income stops and so do your expenses. If you are disabled and can’t work, your income stops ... but your expenses keep piling up. In fact, with the cost of medical treatment, your expenses may balloon.

It’s time to start thinking about disability insurance. We’d all like to believe that we’ll never be disabled. But the reality is ... it could happen to you. If it does, how will your family manage? Are you prepared?

May is Disability Income Insurance Awareness Month – a good time to make people aware of this coverage. If your employer doesn’t offer or provide you with disability income insurance, take some time to look at some of the options available. You don’t always know what the future holds; if you become disabled, this insurance may give you added economic stability.

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com

Citations.

1 - bucks.blogs.nytimes.com/2012/05/01/most-workers-lack-disability-insurance-survey-finds/ [5/1/12]

2 - www.disabilitycanhappen.org/chances_disability/causes.asp [5/2/12]

3 - www.nytimes.com/2010/02/06/your-money/life-and-disability-insurance/06money.html?_r=1 [2/6/10]

4 - www.disabilitycanhappen.org/chances_disability/disability_stats.asp [5/2/12]

Kim 5/7/12 Kim 5/7/12

SELL IN MAY ... GO AWAY?

Does the old stock market cliché have any credibility in 2012?

An old stock market dictum says that spring is for profit-taking, or at least a time to reduce your exposure to equities.

In the classic market psychology, you “sell in May and go away” with the belief that stock prices will plateau or retreat in spring and summer, and then you return to stocks in the fall, taking advantage of bargains and factors that will encourage a hot fourth quarter.

In the last several years, we have seen all kinds of stock market behavior, some of it extraordinary. So is there any credence to this approach now?

The argument for “going away”. Over the last 12 months, investors who held to this belief made out pretty well. From May 1-November 1, 2011, the Dow lost 6.7%. From November 2011 through April 27, 2012, it gained 10.7%.^1,2

If we open a historical window – specifically, The Stock Trader’s Almanac – back to 1926, we see the S&P 500 rising 4.3% on average during May-October and gaining an average of 7.1% from November-April.³

Unsurprisingly, STA editor-in-chief Jeff Hirsch is an advocate of the “sell in May” approach. So is Sam Stovall, who is of course the chief equity strategist at S&P Capital IQ. As Stovall just noted to Forbes, since 1945 the S&P 500 has gained just 1.2% during the average May-October run yet advanced 6.9% during the average November-April period.^1,3

While these numbers are pretty compelling, you know what they say about statistics.

Is the argument principally flawed? If you do sell in May, where do you put your money after dumping those stocks? The strategy assumes you know of a better place – an alternative to equities offering greater yield and less risk.

Larry Swedroe, director of research for Buckingham Asset Management, recently told CBS MoneyWatch that the “sell in May” approach amounted to “pure randomness”. He made his claim by running numbers in calendar years from 1950-2007 with the hypothesis of reinvesting money pulled out of equities into 30-year Treasuries during the assumed 6-month market lull. According to his research, the “buy and hold” crowd would have outperformed the “sell in May” crowd in the time frames 1950-2007, 1980-2007 and 1990-2007, with the “sell in May” adherents triumphing in the time frames of 1960-2007, 1970-2007 and 2000-2007.^3,4

The case for staying in the market. Even if the performance numbers mentioned in the fourth, fifth and sixth paragraphs of this article were absolutely predictable annually, what would the compelling argument be for ditching stocks? Gains would still occur in spring and summer; they would just be lesser gains.

Let’s go from hypothesis to reality, specifically what is occurring right now. An investor wanting a divorce from risk for the next six months could decide to bail from stocks and put the assets into short-term Treasuries and money market accounts. Would it be worth it? Maybe not. According to Bankrate.com, 6-month Treasuries were yielding 0.14% as of April 27 and money market accounts were yielding 0.46%. Throw in brokerage charges and taxes you might incur from selling, and getting in and out of equities may look less attractive.¹

Once you’re out, when do you get back in? What if mid-October brings a rally? Do you jump in and buy? What if the bears show up at the start of November? How long do you wait for what might be the market low?

Moreover ... who’s to say that U.S. economic indicators (or even global ones) might be better than expected this summer? What if the EU arranges a manageable fix for Spain’s debt dilemma? What if the real estate market shows signs of heating up in the coming quarters? What if the Fed opts for more easing?

If the “sell in May” strategy sounds more like market timing to you than anything else, it does have some history supporting it – history worth considering. The fact remains, however, that history is no barometer of future stock market performance.

Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - www.forbes.com/sites/investor/2012/04/27/stay-in-stocks-or-sell-in-may/ [4/27/12]

2 - money.cnn.com/data/markets/dow/ [4/27/12]

3 - www.cbsnews.com/8301-32778_162-57423130/why-sell-in-may-doesnt-work-for-investors/ [4/27/12]

4 - montoyaregistry.com/Financial-Market.aspx?financial-market=common-financial-mistakes-and-how-to-avoid-them&category=29 [4/27/12]

Kim 4/26/12 Kim 4/26/12

What to do financially when a spouse dies

When a spouse passes away, the emotion and magnitude of the loss can send our lives reeling. This profound change can also affect our finances. All at once, we have a to-do list before us, and the responsibility of it can make us feel pressured. With that in mind, this article is intended as a kind of checklist – a list of some of the key financial matters to address following the death of a spouse. The first steps. These actions should come first. Some of these steps do require locating some documentation. Hopefully, your spouse kept these documents where you can easily find them – either at home, in a safe deposit box or in an online vault.

*Contact family members, friends and your spouse’s employer to tell them of your spouse’s passing. (As a courtesy, your spouse’s employer should put you in touch with the person overseeing its employee benefits plan or human resources department.)

*If your spouse owned a business, check to see what plans are in place for its short-term continuation. Will a partner or key employee take the reins for the time being (or for the long term) as a result of a defined succession plan?

*Arrange payment for funeral expenses.

*Gather/request as many records as you can find to document your spouse’s life and passing – birth and death certificates, a marriage certificate or divorce decree (if applicable), military service records, investment, insurance and tax records, and employee benefit information (if applicable).

The next steps. Subsequently, it is time to talk with the legal, tax, insurance and financial professionals you trust.

*Consult your attorney. Assuming your spouse left a will and did not die intestate (i.e., without one), that will should be looked at as a prelude to the distribution of any assets and the settlement of the estate. His or her written wishes should be reviewed.

*Locate your spouse’s insurance policy and talk to your insurance agent. Notify that agent of your spouse’s passing; he or she will work with you to a) get the claims process going, b) help you reevaluate your own insurance needs, and c) review and perhaps alter beneficiary designations.

*Notify your spouse’s financial advisor and by extension, the financial custodians (i.e., the banks or investment firms) through which your spouse opened his or her IRAs, money market funds, mutual funds, brokerage accounts, or qualified retirement plan. They must be notified so that these funds may be properly distributed according to the beneficiary forms for these accounts. Please note that the beneficiary forms commonly take precedence over bequests made in a will. (This is why it is important to periodically review beneficiary designations for these accounts.) If there is no beneficiary form on file with the account custodian, the assets will be distributed according to the custodian’s default policy, which often directs assets either to a surviving spouse or the deceased spouse’s estate.¹

Survivor/spousal benefits. These important benefits may help you to maintain your standard of living after a loss.

*Contact your local Social Security office regarding Social Security spousal and survivor benefits. Also, visit www.ssa.gov/pgm/survivors.htm online.

*If your spouse worked in a civil service job or was in the armed forces, contact the state or federal government branch or armed services branch about how to file for survivor benefits.

Your spouse’s estate. To settle an estate, several orderly steps should be taken.

*You and/or your attorney need to contact the executor, trustee(s), guardians and heirs relevant to the estate and access the appropriate estate planning documents.

*Your attorney can also let you know about the possibility of probate. A revocable living trust (or other estate planning mechanisms) may allow you to avoid this process. Joint tenancy and community property laws in many states also help.²

*The executor for the estate should obtain an Employer Identification Number (EIN) from the IRS. Visit: www.irs.gov/businesses/small/article/0,,id=102767,00.html

*Any banks, credit unions and financial firms your spouse had a financial relationship with should be notified of his or her death.

*Your spouse’s creditors will also need to be informed. Any debts will need to be addressed, and separate credit may need to be established for you.

Your own taxes & investments. How does all this affect your own financial life?

*Review the beneficiary designations on the IRAs, workplace retirement plans and insurance policies that are in your name. With the death of a spouse, beneficiary designations will likely have to be revised.

*Consider your state and federal tax filing status. A change in status may significantly alter your tax picture.

*Speaking of taxes, there may be tax implications surrounding any charitable gifts you and your spouse have recently arranged or planned to make. (If a deceased spouse leaves property to a surviving spouse or a tax-exempt charity, that property is exempt from federal estate tax. Any property gifted by your late spouse during his or her life is not subject to probate.)^2,3

*Presuming you jointly owned some assets, it is time to retitle them. In addition to real estate, you may have jointly owned bank accounts, investments and vehicles.

Things to think about when you are ready to move forward. With the passage of time, you may give thought to the short-term and long-term financial and lifestyle consequences of your spouse’s passing.

*Some widowed spouses ponder selling a home or moving to be closer to adult children in such circumstances, but this is not always the clearest moment to make such decisions.

*Your own retirement planning needs. Certainly, you had an idea of what your retirement would be like together; to what degree does this life event change that idea? Will potential sources of retirement income need to be replaced?

*If you have minor children to take care of, will you be able to sustain the family lifestyle on a single income? How do your income sources compare to your fixed and variable expenses?

*Do you need to address college funding in a new way?

*If your spouse owned a business or professional practice, to what extent do you want (or need) to be involved in it in the future?

This article is intended as a checklist – a list of the important financial considerations to address in the event of a tragedy. If you find yourself referring to this article now or you decide to keep it in a drawer or on your computer for some unforeseen time in the future, please know that I am here to help you and assist you as you seek answers to your questions and a measure of financial equilibrium. Simply call or email me.

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com.

Citations.

1 - www.forbes.com/forbes/2010/0628/investment-guide-stretch-ira-beneficiary-five-rules-inherited-iras.html1 [6/28/10]

2 - www.nolo.com/legal-encyclopedia/avoid-probate-how-to-30235.html [4/9/12]

3 - www.nolo.com/legal-encyclopedia/estate-gift-tax-faq-29136.html [4/9/12]

Kim 4/2/12 Kim 4/2/12

Could gas prices harm the recovery?

What kind of drag are they exerting? Will they soon fall, or not?

By March 16, retail gas prices were up 16.94% YTD. This major climb is leading some economists to wonder if the leap in gas prices is powerful enough to stall our economic momentum.¹

In February, energy costs rose 6% for the American consumer. Gasoline prices accounted for 100% of that gain. In fact, gasoline prices were behind 80% of the overall 0.4% rise in the Consumer Price Index for February, meaning that last month brought the most consumer inflation of any month since April.^1,2

We’ve seen $4 gas. What if $5 gas becomes common? If that happens during the summer driving season, the Federal Reserve may find itself weighing which move to make. Higher energy costs could hurt the broad economy, and if that happened, you would almost certainly hear clamor for some kind of stimulus. On the other hand, if Wall Street and Main Street both fret that inflation is rising, the Fed would hardly want to ease.

How does these price hikes affect consumer psychology? One possible consequence of all this is that Main Street may be projecting greater inflationary pressures than really exist. In the University of Michigan’s mid-March consumer sentiment survey, the consensus one-year inflation expectation among respondents was 4.0%. Yet in February, actual yearly consumer inflation was just 2.9%.^1,3

Consumer expectations can have powerful influence. If consumers think inflation is rising, they may be inclined to ask employers for raises. The stores where they shop may try to take advantage of their perception by subtly raising prices. The assumption of inflation can actually have the power to foster inflation.

The Fed thinks the increase is temporary. If prices get too high, a point will come when demand for gas will lessen – and correspondingly, prices could decrease. On March 16, a gallon of regular unleaded was averaging $3.83 nationally – prices had risen $.08 in a week and about 9% in a month. Still, the Federal Reserve sees this wave of $4 retail gas as another short-term price fluctuation, ultimately unsustainable when drivers throw in the towel regardless of lingering worries over Iran’s budding nuclear program and oil supply concerns.^4,5

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - money.msn.com/market-news/post.aspx?post=7b65a645-53f2-4b26-8b37-7c9c88448197 [3/16/12]

2 - www.usatoday.com/money/economy/story/2012-03-16/February-inflation-consumer-price-index/53561880/1 [3/16/12]

3 – www.forexlive.com/blog/2012/03/16/univ-of-mich-prelim-mar-consumer-sentiment-74-3-vs-75-3-feb/ [3/16/12]

4 – www.latimes.com/business/money/la-fi-mo-gas-inflation-20120316,0,528931.story [3/16/12]

5 – www.cnbc.com/id/46760636 [3/16/12]

Kim 3/26/12 Kim 3/26/12

Ways to put a Refund to work - what could that money could do for you?

Is a tax refund coming your way? If you have already received your refund for 2012 or are about to receive it, you might want to think about the destiny of that money. Here are some possibilities.

Start (or add to) an emergency fund. Many people don’t have a dedicated rainy day fund, only the presumption that they might have enough cash in case of a financial tight spot.
Invest in yourself. You could put the money toward education, career training, personal improvement, or some sort of personal experience with the potential to enhance your life.
Use it for a down payment on a car or truck or real property. Real property represents the better financial choice, but updating your vehicle may have merit - cars do wear out, and while a truck also ages, it can help you make money.
Put it into an IRA or workplace retirement account. If you haven’t maxed out your IRA this year or have a chance to get an employer match, why not?
Help your child open up a Roth IRA. Has your under-18 son or daughter worked and earned money this year? He or she can open a Roth IRA. Your child’s contribution limit is $5,000 or the amount of his or her earned income for 2012 (whichever is lower). You can actually make this Roth IRA contribution with your own money if your child has spent his or her earnings.²
Buy some warehouse memberships. If you have a large family or own a small service business, why not sign up to save regularly?
Pay down debt. Always a smart choice.
Establish a financial strategy. Some financial advisors work on a fee-only basis. They can perform a review of your current financial situation and give you pointers for the future for roughly $1,000 with no further obligation.¹
Pay for that trip in advance. Instead of racking up a bigger credit card bill, consider pre-paying some costs or taking an all-inclusive trip (some are not as pricey as you might think).
Get your home ready for the market. A four-figure refund may give you the cash to spruce up the yard and/or exterior of your residence. Or, it could help you pay a professional who can assist you with staging it.
Improve your home with energy-saving appliances. Or windows, or weatherstripping, or solar panels – just to name a few options.
Create your own food bank. What if a hurricane or an earthquake hits? Where would your food and water come from? Worth thinking about.
Write a proper will. Your refund could pay the attorney fee, and the will you create might end up more ironclad.
See a doctor, optometrist, dentist or physical therapist. If you haven’t been able to see these professionals due to your insurance situation or your personal cash flow, the refund might provide a way.
Give yourself a de facto raise. Adjust your withholding to boost your take-home pay.
Pick up some more insurance coverage for cheap. The typical flood insurance policy in a low-to-medium risk area costs less than $1,000 (and sometimes less than $500). A $1 million personal liability umbrella policy can usually be bought for $400 or less.²
Pay it forward. Your refund could turn into a charitable contribution (deductible on your 2012 federal tax return if you itemize deductions).

In the past two years, federal tax refunds have averaged about $3,000. That’s a nice chunk of change – and it could be used to bring some positive change to your financial life and the lives of others.²

Citations.

1 www.dailyfinance.com/2012/03/23/tax-refund-surprising-smart-ideas/#photo-1 [3/23/12]

2 www.kiplinger.com/slideshow/10usesforyourrefund/1.ht

Kim 3/12/12 Kim 3/12/12

The Facebook IPO: The frenzy is building. Should you care?

Anticipation is high. Facebook filed an S-1 form with the Securities and Exchange Commission on February 1, taking its first big step toward going public. It aims to raise $5 billion through its upcoming IPO. Some of the details from the S-1 form:

Facebook’s revenue climbed from $777 million in 2009 to $3.71 billion in 2011.
Its annual profits went from $229 million (2009) to $1 billion (2011).
Its profits grew by 65% last year alone.
Its top source of revenue is advertising. (12% of Facebook’s 2011 revenues came from Zynga, a social network gaming company.)

The Google IPO raised $1.9 billion, and this IPO could potentially dwarf that.¹

Will this IPO live up to all the hype? It might; it might not. Let’s examine some other key tech IPOs and see how those shares have done since.

Google. The IPO set the share price at $85. Here in early February 2012, the share price is now around $580. A home run by any definition.
LinkedIn. On the day of the IPO, the share price climbed from $45 to a peak of $122.70 and settled at $94.25. At the start of February, LinkedIn was trading for about $72.
Pandora. Shares were offered at $16 in June 2011; eight months later, they were trading at $13.
Zillow. Shares were offered at $20 in July 2011 and ended at $35.77 on the day of the IPO; in early February, Zillow traded at around $30.^2,3

All in all, these numbers look pretty good, right? Sure they do, to institutional investors. Keep in mind that the little guy gets there second. It is the institutional investor - not the small investor - who gets first dibs on the stock and who frequently realizes the terrific upside. The individual investors get to get in after the shares take off; sometimes they pay a price.

Lessons from the dot-com (and dot-bomb) years. The 1990s may seem like ancient history, yet there are examples from the past worth noting when it comes to IPOs.

University of Florida finance professor Jay Ritter has maintained a huge database on IPOs for decades. He did a study of 1,006 IPOs from 1988-1993 (these were all IPOs that raised $20 million or more) and found that the median IPO underperformed the Russell 3000 by 30% in the first three years after going public, and that 46% of the IPOs produced negative returns.
In 1999, 555 firms went public and the median share price gain for these issues on the day of the IPO was 30%. But what if you bought after the first day? If you did, the median gain after three months averaged 0%. Additionally, almost 75% of all U.S. Internet-related IPOs from mid-1995 to 1999 traded underneath their offering price at the moment of publication.²

Should Mom & Pop dive in? As MarketWatch columnist Mark Hulbert pointed out, Facebook’s IPO will be three times as expensive as Google’s and about 40 times as expensive as the average large IPO since 1975. As Hulbert found in the wake of a chat with Professor Ritter, Facebook’s price-to-sales ratio (PSR) looks to be about 26, with 2011 revenues of $3.71 billion and a reported IPO valuation of circa $100 billion. Google’s PSR was 8.7 at the time of its IPO. ^1,3

Looking back, Ritter found 76 companies since 1975 with trailing 12-month sales from the date of their IPOs of $3 billion or more (in 2011 dollars), firms with more or less reliable revenue streams. Their average PSR: 1.0. AT&T Wireless was the highest of them at 8.9, and that was a 2000 IPO.³

So in other words, Facebook would need staggeringly high revenues (or a consistently remarkable profit margin) for its shares to behave as well as Google shares did in those first few years out of the gate.

Could the tech sector see a “Facebook effect”? Yes, remember the “wealth effect” of the Google IPO? Some of the “best and the brightest” in the tech sector became overnight millionaires and went off and founded their own profitable firms. That sort of thing could happen again; there are tens of thousands of start-ups now generating revenues off of Facebook’s platform, so you have a whole ecosystem of smaller firms that are anticipating the IPO as much as institutional investors.⁴

Caution might be in order for those awaiting Facebook’s IPO. Individual investors have swung for the fences many times in situations like this, only to strike out.

Kim Bolker may be reached at 616-942-8600 or kbolker@sigmarep.com. This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 –www.cbsnews.com/8301-500395_162-57369966/facebook-files-to-go-public-plans-to-raise-$5b/ [2/1/12]

2 – cbsnews.com/8301-505123_162-57369940/why-facebooks-ipo-shouldnt-excite-you/ [2/2/12]

3 - www.marketwatch.com/story/facebooks-ipo-will-be-way-overvalued-2012-02-01 [2/1/12]

4 - www.mercurynews.com/business/ci_19881493 [2/2/12]

Kim 2/27/12 Kim 2/27/12

Insure Your Love

I have this poster hanging in my office. A constant reminder of how important life insurance is. Because he loved me,

He did the dishes

Rubbed my feet

Surprised me with tulips

Took me to musicals even though he didn’t like them

Carried my bags while I did the shopping

Held my hand.

He died of cancer four years ago.

Because he loved me,

I can stay in our home.

I can be here for our children.

I can afford to pay for their college education.

I can worry about the other things in my life besides money.

He still loves me. And he still shows it.

Kim 2/20/12 Kim 2/20/12

Life Insurance: Affordability

If there is one thing I have heard over and over again, it’s “I know I need life insurance, but it’s not something I can afford right now.” I heard on the radio the other day that the average family spends $37 per week eating out for lunch. That’s nearly $2000 a year! And that doesn’t even include the dinners out, happy hour, or the daily coffee run.

Life insurance is love insurance. You know you need it and I’m assuming you can live with the idea of packing a lunch once a week if it means taking care of your family once you’re gone. And if your budget is truly that tight, imagine what financial hardship your family would be in if they didn’t have you and your income anymore.

Make 2012 the year you take care of your life insurance.

Kim 2/13/12 Kim 2/13/12

Life Insurance: What types?

There’s basically two types of life insurance: term and permanent. I look at them like renting vs. owning. Term insurance is designed to meet temporary needs. It covers for a specific amount of time, and only provides the benefit if you die within the term. It is the most affordable type of insurance and gives the most benefit for your dollar. It’s like renting because you aren’t building any type of cash value with these policies. They cover a large benefit for an inexpensive amount, which is why they are so attractive to young families.

Permanent insurance is designed to provide lifetime coverage. It’s like owning because you can build cash value with most of these policies and as long as you pay your premium, they will provide a benefit to your family. The cash component acts like a savings: you can borrow or withdraw money from these policies in the future.

Which is better? It kind of depends on your situation but typically a combination of both works well. You should meet with a professional, such as myself, to design a plan that covers your family best within your budget.

Kim 2/6/12 Kim 2/6/12

Life Insurance: How much?

I’m often asked how much life insurance does someone really need? It kind of depends on what their situation is, whether they are retired and just looking a final expense plan; or they are a young family. Here’s the main factors I use:

Immediate expenses (such as burial expenses, estate/probate costs, unpaid medical bills)
Outstanding debts (mortgage payments, credit card debts, car loans)
Future goals (such as college for kids, private school, spouse’s retirement)
Income replacement (how many years you want your income supplemented)

Depending on how you answer those questions, your insurance need could be between $100,000 and $1,000,000. That’s why it is beneficial to sit down with an insurance planner, such as myself, to determine the best way to cover these items within your budget.

Trust me. $250,000 may sound like a lot of money, but it goes really fast, especially if you have young kids.

Kim 2/2/12 Kim 2/2/12

Life Insurance is Love Insurance

Life insurance isn’t really about you; it’s about those you leave behind. And life insurance is an expression of love – you loved your family so much to make sure they were financially taken care of once you were gone. If someone depends on you financially, you need life insurance. Whether you a parent, business owner, married, or single. Losing someone you are close to is always difficult. I lost my Grandma last October, and I still miss her every day. But your emotional difficulties don’t need to be compounded by financial difficulties.

Life insurance provides cash to your family to help with whatever they need it for – final expenses, medical bills, groceries, rent/mortgage, etc.

Insure your love. Don’t live without life (insurance).

Kim 1/23/12 Kim 1/23/12

GETTING OFF ON THE RIGHT FOOT IN 2012

Every year brings some financial change, so here are some relevant changes relating to investment, tax and estate planning for 2012. Retirement plans. 401(k), 403(b) and 457 plan annual contribution limits rise slightly to $17,000, and you can contribute an additional $5,500 to these accounts if you are 50 or older this year. IRA contribution levels are unchanged from 2011: the ceiling is $5,000, $6,000 if you will be 50 or older in 2012.¹

As you strive to contribute as much as you comfortably can to these accounts this year, you will probably notice some changes with the retirement plan at your workplace. In 2012, retirement plan sponsors (i.e., employers) will have to note all of the fees and expenses linked to the funds in the plan to plan participants. So if you have a 401(k) or 403(b), you may notice some differences in the disclosures on your statements and you will probably notice more information coming your way about fees. There is also a push in Washington, D.C. to have financial companies provide lifetime income illustrations on retirement plan account statements, projections of your expected monthly benefit at retirement age.²

Income taxes. Wealthy Americans are set to face greater income tax burdens in 2013, so 2012 may be the last year to take advantage of certain factors. For example, the top tax bracket in 2013 is slated to be at 39.6% instead of the current 35%. This year, capital gains and dividends will be taxed at 15% or less for everyone, 0% for those in the 10% and 15% tax brackets. In 2013, the qualified capital gains tax rate is scheduled to rise to 20% and qualified dividends will be taxed as ordinary income. So taking a little more income in 2012 could be smart.³

In 2013, the wealthiest Americans are supposed to be hit with new Medicare taxes: a new 3.8% levy on unearned income (such as capital gains, income from real estate, dividends and interest) and a new 0.9% tax or earned income. So next year, the truly wealthy could effectively face in the neighborhood of 45% federal taxes.³

Additionally, the IRS is planning to limit itemized deductions for upper-income taxpayers in 2013. A phase-out will also apply for the personal exemption deduction.³

Estate & gift taxes. At the end of 2012, some very nice estate tax breaks could sunset. Barring action by Congress, 2013 could see a 20% leap in the federal estate tax rate from 35% to 55%. The individual estate tax exclusion (currently $5.12 million) is scheduled to be reduced to $1 million.³

As we have unified gift and estate tax rates, those numbers and percentages also apply to gift taxes. That is, from 2012 to 2013 top federal gift tax rate is set to go from 35% to 55% and the lifetime gift tax exemption amount is scheduled to fall $4,120,000 per individual to $1 million. The annual gift tax exemption is $13,000 per recipient in 2012; there is an exemption limit for qualifying educational and medical payments. If you want to gift relatives or friends, you may want to avoid procrastinating for another very good reason: when you make such a gift early in a year, the recipient will gain both the principal and any appreciation tied to the gifted asset in that year.^3,4

Speaking of gifts, we said goodbye to charitable IRA gifts in 2011. The IRA charitable rollover, a boon to non-profits and a handy tax deduction option for taxpayers older than age 70½, was not extended into 2012, not even temporarily as a sweetener to the payroll tax extension bill. There is hope it will be back. Two bills have been introduced in Congress with that goal, one sponsored by Sen. Olympia Snowe (R-ME) and Sen. Charles Schumer (D-NY) and another by Rep. Wally Herger (R-CA) and Rep. Earl Blumenauer (D-OR). The proposed legislation would let IRA owners start making charitable IRA gifts at age 59½ and remove the $100,000 limit on the rollovers.⁵

The limits on the generation-skipping transfer tax could change, too: assuming the Bush-era tax cuts do sunset, the GSTT rate would jump from 35% this year to 55% in 2013, with the GSTT exemption falling from $5,120,000 per person this year to roughly $1.3 million per person next year.³

So given all these changes, it might be wise to meet with the financial professional you know and trust early in 2012 as you strive to start the year off on the right foot. You have until April 17 to file your federal return, but you can plan now.

Citations.

1 - www.irs.gov/retirement/article/0,,id=96461,00.html [10/20/11]

2 - www.marketwatch.com/story/retirement-plan-changes-coming-in-2012-2011-12-29 [12/29/11]

3 - www.sbnonline.com/2012/01/how-to-approach-tax-and-estate-planning-opportunities-for-2012/?full=1 [1/3/12]

4 - advisorone.com/2012/01/06/10-tax-tips-for-advisors-in-2012 [1/6/12]

5 - www.northjersey.com/news/business/business_opinion/136217658_Payroll_tax_cut_benefits_charities.html [12/25/11]

Kim 1/17/12 Kim 1/17/12

Resolutions

I read a blog from a fitness guru that the first 12 days of a new year define how that year will play out. Maybe that’s true for your fitness and nutrition goals (and now that January is half over, how’s that going?!) Regardless of your resolutions for the year, procrastination is easy. I think the key to financial goals is like anything, to make them easy and attainable. Select one from list and once that’s tackled, select another.

Make 2012 the year you:

Become debt free
Start an emergency fund/savings account
Save more towards retirement: set up a Roth IRA or contribute more into your 401k
Not only look at life insurance but actually purchase it
Establish a will or trust and select powers of attorney

Kim 12/30/11 Kim 12/30/11

Feeling Generous?

Now is a good time to reflect on the blessings that 2011 brought, and to be mindful of those that are not as fortunate. There are so many causes here inWest Michigandedicated to helping keep people warm and fed this time of year. Most gifts to churches and charities are at least partly tax deductible, and those gifts can include cash, stock, or physical donations. You can gift up to $13,000 to as many people as you wish this year without paying federal or gift tax, keeping in mind your lifetime limit. Strategize with your tax and estate planner on ways to minimize your estate.

Need a gift idea? Why not fund a 529 college savings plan for your grandkids? Or purchase a juvenile life insurance policy? Starting an asset for the young ones you love can give them a great jump start as adults.

Whatever joys and challenges that came with 2011 and whatever is yet to come in 2012, make a resolution to have your financial house on track. Put in a little effort and you may be surprised at the results.

To you and yours, I wish you a happy holiday seasons and many blessings in 2012.

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