Issue 50.09

Don’t ignore it; look forward to the chance to get things in order.

Here’s the scenario … you get a card in the mail, one of those little reminders that tells you it’s time for your annual financial checkup.  Your reaction: I’ll take care of that later.  Here’s why you should look forward to it.

Why do I need an annual review?  Because things change, and during the course of the last 12 months, you may have … changed jobs, made major purchases, welcomed a new child, retired, bought or sold a residence, decided upon new goals.  These developments can change your financial objectives.

Also, it is just sensible to measure your financial progress.  If you are not making progress in accumulating assets, or if you are assuming too much risk as a result of your current portfolio or financial decisions, it’s time for change.  

A chance to … stop putting it off.  Imagine just letting your investments go for five or ten years, assuming that they’re doing okay while you wonder what the quarterly statements mean.  Imagine being a few years from retirement only to find you have less than a year’s salary in savings.  Imagine passing away and leaving unresolved money issues for your loved ones, or subjecting them to a contentious probate process.  If they had only reviewed what was happening with their lives financially, they could have planned to avoid these issues in advance.  Putting things off can be dangerous.

Why not start the year right?  January is not only the start of a new year, but an ideal time to take a look under the hood financially.  During your annual review, you can estimate your net worth, and also possibly learn about any tax changes that might affect your investments, business or estate.  It’s also a good time to make voluntary IRA contributions, and get college funding and financial aid applications underway.

Hopefully, you have a qualified financial advisor who you have an existing relationship with.  If you don’t, contact one today.  Financial planning is not an event you do once in your lifetime.  Financial planning should be a priority for you – it can help you manage your money, and allow you to plan for your goals and for the lifestyle you want for the future.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement Specialist^SM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

These views are those of the author and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Issue 48.09

Now is a good time to examine what’s in your portfolio.

The stock market is unsettled … and perhaps its fluctuations are unsettling you. It’s a stressful time for the economy and Wall Street, and you may be concerned about your portfolio given what’s going on with oil prices, the real estate market, and rising unemployment figures.  It may be a good time to review how your assets are invested.

Is your portfolio balanced?  A balanced portfolio may help you ride out stock market turbulence.  Stocks and mutual funds aren’t the only asset allocation choices you have, and you won’t be alone this winter if you decide to examine other investment options.

Fixed annuities and Treasuries become attractive to investors when the market turns volatile.  Bonds tend to maintain their strength when stocks perform poorly; fixed annuities are simply contracts with insurance firms, not correlated to stock market performance (though certain types of annuities may enable you to take advantage of stock market gains while maintaining your principal).  Fixed-income mutual funds, dividend income funds and bond funds also have their adherents.

Last but not least, you have cash, though cash holdings haven’t traditionally performed anywhere near the level of the stock markets.

Are you retired, or retiring?  If you are, this is all the more reason to review and possibly even revise your portfolio.  

Often, people in their fifties and sixties feel they need to accumulate more money for retirement, and that feeling leads them to accept more risk in their portfolio than they should. In the absence of a salary, however, you’ll likely want consistent income and growth, and therein lies the appeal of a balanced investment approach designed to manage risk while encouraging an adequate return.

Why not take a look into your portfolio?  Ask your financial advisor to assist you.  You may find that you have a mix of investments that matches your risk tolerance.  Or, your portfolio may need minor or major adjustments.  The right balance may help you insulate your assets to a greater degree against financial ups and downs.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement Specialist^SM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Issue 46.09

Six things you can do to get in shape financially.

Have you looked at your finances lately?  There’s no wrong time to take a closer look at your financial health.  Why not start today?  Here are several things you may want to do:

Define your goals, set a budget.  The goal setting will motivate you, and the budget (created with your goals in mind) can be reviewed and adjusted.  Changes in your life may prompt you to save, spend and invest differently.

Look at your debts.  What is your monthly debt vs. your monthly income?  Would you benefit from refinancing your home?  Could you improve your credit score?  Set a plan in motion.  Consider making today the day you take care of any nagging, lingering debt – once and for all.

Max out your 401(k) or IRA contributions.  Consider making a bigger investment in your future today.

If your tax status has changed, revise your W-2.  Did you get married or divorced recently?  Is there a new addition to the family?  Did you buy a house, or get a big raise or tax refund last year?  If so, you need to update your withholding status.  

Put all your tax information in one place as it comes in.  Put your W-2, your 1099-INT, your 1099-DIV, and all forms in one folder for your preparer (or yourself).  

Work on wealth protection.  Annually, you should

a) calculate your net worth,

b) review your will and estate plan, and

c) review your level of risk management.  Are you adequately insured?  Too much tax exposure? A professional opinion couldn’t hurt.

We all need a reminder every once in a while to give ourselves a financial “check-up”.  Consider this yours.  Take a closer look at where you’re at, where you’d like to be, and how you’ll get there.  Be sure to look at all the factors, and consider speaking with a Financial Advisor if you don’t already have one.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement Specialist^SM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

This article was written by Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer give tax or legal advice.   Please consult your Financial Advisor for further information.

Issue 44.09

Are you making mistakes with your money?  Many people do, because of inattention, a lack of knowledge or confidence, or relying of the advice of friends rather than professionals.  Here are some all-too-common money errors to avoid …

Putting off financial planning.  This may be the biggest mistake of all.  Procrastination does not help you save for retirement, and it will not help you reduce your taxes or transfer money to your heirs.  Some avoid planning out of fear – they simply don’t know where to begin.  Don’t let this stop you.  Decide today to do something about your financial future.

Putting all your eggs in one basket.  Too many people invest everything in just one place.  Try spreading your assets across multiple investments, and you’ll help to insulate them against the effects of economic ups and downs.

Buying more home than you can afford.  Interest-only loans, option adjustable-rate mortgages (option ARMs) and lease purchases still tantalize couples and families with small nest eggs, modest salaries and credit blemishes into taking on much more liability than they can bear.  The result is often foreclosure.  Speak to a professional to make sure the amount of home you purchase makes sense for you.

Making impulsive or emotional money decisions.  A decision that feels good (or exciting) may not be appropriate for you financially.  Avoid spur-of-the-moment financial choices, and the influences that may trigger them.  The next time you’re about to make a snap decision, stop and think.  Consider and compare whenever possible.

Living above your means.  In the acclaimed book The Millionaire Next Door, authors Thomas Stanley and William Danko found that most millionaires drive used American cars and shun a champagne-and-caviar lifestyle.  It is the middle class that is generally seduced by big-debt, big-ticket luxury items … sometimes all the way into bankruptcy.  Make wise decisions about money, take the time to consider big purchases, and be mindful of what effect they’ll have on finances down the road.

Avoiding all risk.  Caution is good, but being extremely risk-averse (for example, refraining from investment and just putting your money in an FDIC-insured bank account) may cost you in terms of the growth of your retirement savings and assets.  If you’re holding back because you’re unsure, speak with a financial advisor.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement Specialist^SM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

This article was written by Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice.  Please consult your Financial Advisor for further information.

Issue 42.09

Most Young Adults Aren’t … And They Could Pay A Painful Price.

How bad is financial illiteracy today?  So bad that your adult children may be at risk of making some serious financial mistakes.  Recent surveys have shown that many young adults are not only wayward financially, but also pessimistic about ever becoming wealthy. Young women at particular risk.  A 2006 OppenheimerFunds survey of women aged 26-39 found that 62% of respondents had no investment accounts at all, and that 67% were living paycheck-to-paycheck.  In a 2005 Consumer Federation of America/VISA USA survey, 55% of the women polled between ages 25-34 had emergency savings of less than $500.

Surprising cynicism.  In 2005, the CFA and the Financial Planning Association undertook joint surveys that illustrated a startling expectations gap.  In the FPA survey, most of the financial planners contacted felt that more than 80% of young adults could amass $250,000 in net worth over a 30-year period, and that about 50% could accumulate $1 million of net worth in the same time span.  But only 26% of the young consumers the CFA surveyed believed they could amass $200,000 at any point in their lives, and only 9% felt they could someday accumulate $1 million.

A little knowledge can be dangerous.  Don Blandin, CEO of the non-profit Investor Protection Trust, commented that “the entry of most Americans to the securities market is by buying a product rather than understanding the process.”  Too many young investors elect to fly solo into the stock market through the Internet; too many young homebuyers know just enough (but not enough) about mortgage and lease options.

Prescriptions in progress. The Ad Council and the American Institute of Certified Public Accountants have started a national campaign, Feed the Pig™, to try and correct this dilemma (learn more by visiting www.feedthepig.org). The National Council on Economic Education has also helped launch www.TheMint.org to provide young adults with vital financial principles.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement Specialist^SM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

This article was written by Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Issue 40.09

When it comes to 401(k), what are your options?

In the past year or so, we’ve seen some interesting options emerge for 401(k) account holders … “new wrinkles” that everyone with a 401(k) should be aware of, regardless of whether you’re contributing $50 a month or the maximum of $15,000 per year ($20,000 per year if you are 50 or older).

New help for do-it-yourselfers.  As a result of the 2006 Pension Protection Act, you can now get advice on managing your 401(k).  You can get it online from the financial company overseeing your account, or from the financial advisor who helped you set up your account.  Previously, employers refrained from connecting employees to professional management and advice – they didn’t want to be held responsible if an employee lost money.  Under the new Pension Protection Act, they won’t be.

The new Roth 401(k)s.  New in 2006, here through at least 2010 and likely to stay, the Roth 401(k) combines features of the traditional 401(k) with those of the Roth IRA.  The contributions come from after-tax dollars, the account grows tax-free, and you get income tax-free withdrawals during retirement (provided you’re at least 59 ½ and have had your account for at least five years).

Professionally managed 401(k)s.  You can now ask to have your 401(k) directed by a money manager, if your plan is serviced by one of the big investment firms such as Fidelity, Charles Schwab and others.  Your money manager will rebalance the investment mix of your 401(k) in order to manage risk.

Lifecycle funds.  Many of the major investment firms now offer these age-appropriate mutual funds that automatically put a suitable balance of stock and bond funds into your 401(k) at various ages of your life, up until your projected retirement date.

“Autopilot” 401(k)s.  Even if investing scares you, companies can now automatically enroll you in a 401(k) as soon they hire you.  An in-house employee benefits manager may pick the investment mix and contribution level for you if you decline to do so.

If you’re not sure which of these options is best for you, consider speaking with a professional who can help to guide you.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement Specialist^SM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

This piece was written by Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Issue 38.09

Create a pool of healthcare dollars that will grow in any market.

How will you pay for long term care?  The sad fact is that most people don’t know the answer to that question.  But a solution is available.

As baby boomers leave their careers behind, long term care insurance will become very important in their financial strategies.  

Your premium payments buy you access to a large pool of money which can be used to pay for long term care costs.  By paying for LTC out of that pool of money, you can preserve your retirement savings and income.

The cost of assisted living or nursing home care alone could motivate you to pay the premiums.  

The average annual payments to a non-Medicare certified, state-licensed home health aide are $43,884.¹

Can you imagine spending an extra $30-80K out of your retirement savings in a year?  What if you had to do it for more than one year?

AARP notes that approximately 60% of people over age 65 will require some kind of long term care during their lifetimes.²

What it pays for.  Some people think LTC coverage just pays for nursing home care.  Not true: it can pay for a wide variety of nursing, social, and rehabilitative services at home and away from home, for people with a chronic illness or disability or people who just need assistance bathing, eating or dressing.³

Choosing a DBA.  That stands for Daily Benefit Amount, which is the maximum amount your LTC plan will pay for one day’s care in a nursing home facility.  You can choose a Daily Benefit Amount when you pay for your LTC coverage, and you can also choose the length of time that you may receive the full DBA every day.  The DBA typically ranges from a few dozen dollars to hundreds of dollars.  

Too many people think Medicare will pick up the cost of long term care.  Medicare is not long term care insurance.  Medicare will only pay for the first 100 days of nursing home care, and only if 1) you are receiving skilled care and 2) you go into the nursing home right after a hospital stay of at least 3 days.  Medicare also covers limited home visits for skilled care, and some hospice services for the terminally ill.  That’s all.²

Now, Medicaid can actually pay for long term care – if you are destitute.  Are you willing to wait until you are broke for a way to fund long term care?  Of course not.  LTC insurance provides a way to do it.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement Specialist^SM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

This article should not be construed as investment advice.

Citations available.

Issue 36.09

A retirement transition might call for a shift in your investment approach.

Time passes … and priorities change.  When you approach retirement, your investment mindset may have to be modified.  If you are in your thirties or forties, the goal is accumulation – investing and saving to amass as much as possible for your retirement years.  When you are older, the goal changes to wealth preservation – the objective of making assets last through a combination of conservative investing, sensible cash flow, risk management and tax reduction.

A subtle shift.  Committed investors who work with a financial advisor often receive guidance to help them adjust their investment approach to new phases of life.

When people are in their forties, they usually begin to approach their maximum earnings potential.  This is when many portfolios start to shift toward a mix of growth-oriented and preservation-oriented investments.  

In retirement, a financial advisor has to find an asset allocation that will encourage a regular income stream for you without discouraging your potential for growth.  It must also be an allocation that you are comfortable with.

There are people in their forties or fifties who have no retirement savings.  Many are predisposed to “make up for lost time” and adopt an aggressive investment strategy.  This can be dangerous.  People may be tempted to invest the bulk of their assets in a “hot” sector of the market, crossing their fingers and hoping for double-digit returns.  But as we have seen with the real estate market, what seems “hot” may turn cold.  Diversification is just as important for late savers.

The psychology of preservation.  “Wealth preservation” is a broad term that can signify a number of financial steps.  A good wealth preservation strategy addresses the things that have to be addressed for any mature couple or individual or maturing family.

It should outline how retirement plan savings will be reinvested and managed (asset allocation, investment objectives).  It should establish a schedule of sensible income withdrawals.  It should provide measures for tax efficiency (in investing) and tax reduction, to potentially increase the after-tax return.  It should incorporate an estate plan, to permit the tax-efficient transfer of assets to heirs and/or favorite causes.

Now might be the right time to confer with a qualified financial advisor and discuss a shift in emphasis from wealth accumulation to wealth preservation.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement Specialist^SM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

This article was written by Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice.  All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

Issue 34.09

Part 2

Why you might want to fund a Roth IRA this year. In 2009, any withdrawals from a traditional IRA can be used to fund a Roth IRA.  Interesting.  Why is this so?

In years past, mandatory withdrawals from a traditional IRA typically couldn’t be deposited into a Roth IRA.  But the federal government has suspended mandatory IRA withdrawals for 2009. Any IRA withdrawals made in 2009 are thereby elective withdrawals.  So, if your adjusted gross income (AGI) is $100,000 or less, you have an option to fund a Roth IRA with a withdrawal from a traditional IRA – at least through the end of 2009.

In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan.  This year, you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or less.  More good news: there is no limit to the conversion amount.

A potential tax break for those who convert in 2010.  If you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns.⁸

Be sure to consult your tax advisor before you convert.  This is a very good idea before you arrange any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets.  In any year, you should fully understand the potential tax impact of a Roth conversion on your finances and your estate.  Also, remember that while the income limit on Roth IRA conversions will go away in 2010, the income limits on Roth IRA contributions still apply next year and for the foreseeable future.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement Specialist^SM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

This article was written by Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice.  Neither the named Representative nor Broker/Dealer gives tax or legal advice.  All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.  If other expert assistance is needed, the reader is advised to engage the services of a competent professional.  Please consult your Financial Advisor for further information.

Citations available.

Issue 32.09

In 2010, anyone may convert a traditional IRA to a Roth IRA. No income limits will stand in the way of the conversion.  Should you do it? Here’s why it may (or may not) make sense for you to go Roth next year.

Why you might want to consider it.  A Roth IRA permits tax-free growth and tax-free income distributions in retirement (assuming you are age 59½ or older and have held your Roth account for 5 years or longer).  You can contribute to a Roth IRA after age 70½, without having to take mandatory withdrawals.  While contributions to a Roth IRA aren’t tax-deductible, the younger you are, the more attractive a Roth IRA may seem.

However, older investors have reason to go Roth as well – especially if they don’t really need to withdraw IRA assets.  Under present tax law, converting an untapped traditional IRA to a Roth will shrink the size of your taxable estate, and careful estate planning could foster decades of tax-free growth for those IRA assets.

Currently, if you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals.  So those Roth IRA assets can keep compounding untaxed across the rest of your spouse’s life.

If your spouse then names a son or daughter as a beneficiary, that heir has the choice to make minimum withdrawals according to his or her life expectancy, all while the assets continue to compound tax-free. Currently, withdrawals from an inherited Roth IRA are not subject to income tax.

Why you may want to think twice about it.  The IRS regards a traditional IRA-to-Roth IRA conversion as a distribution from a traditional IRA – a taxable event.  You’ll need to pay taxes on the entire amount of the conversion.  Do you have the money to do that?

Keep in mind, however: with the market down, many IRA values are lower than they have been for years.  That translates to paying less tax on gains.  It is also worth remembering that tax rates could increase in the years ahead – another reason why now may be a good time to convert.  (You could simply do a partial Roth IRA conversion if converting the full amount would send you into a higher tax bracket.)

You may be tempted to use the current IRA assets to pay the conversion tax, but should you?  If you’re younger than 59½, you’re looking at a 10% penalty on the amount you withdraw, and you’ll lose the chance for tax-free compounding of those assets within the Roth IRA.

In two weeks: Why you may want to fund your Roth.