Saving for a Large Purchase

September, 2016

The Mathematics of Investing

Tracking the performance of your investments can get confusing, due to the various ways of calculating returns. Whether you prefer to use a calculator or spreadsheet software, the following discussion will help you use and calculate common measurements of investment performance to truly judge your investment results.

Determining Rate of Return 

Probably the most basic calculation for investors is return on investment. Total return includes capital appreciation and income components, and assumes all income distributions are reinvested. If you automatically reinvest distributions such as interest or dividends, total return is calculated by taking the difference in an investment portfolio’s ending and beginning balance, and dividing that difference by the beginning balance. In formula format, it would look like this:

 

Total Return:
(Calculator or Spreadsheet:)
(Ending Balance [EB] – Beginning Balance [BB])
Beginning Balance

 

For example, Joe started with an investment of $10,000. After five years, his portfolio’s value increased to $12,000. He can determine his portfolio’s total return as follows: ($12,000 – $10,000) / $10,000 = 0.20, or 20%. Therefore, Joe can say his $10,000 has increased by 20%.

To annualize this total return, you’ll need to calculate the compound annual return.

For example, Jane also originally invested $10,000. However, it took her portfolio only two years to grow to $12,000. If you measure the performances of both Joe’s and Jane’s portfolios by using the formula above, both increased by 20%. To take the difference in time into consideration, calculate the compound annualized rate of return (you will need a calculator that can raise to powers to calculate this).

 

Compound Annualized Rate of Return =
Calculator: [(EB / BB)^(1 / # of years) – 1]
Spreadsheet: [(EB/BB)^(1/# of years)] – 1

 

Using this formula to calculate Joe’s annual compound return, we take $12,000 / $10,000 = 1.2. Then, we raise 1.2 to the 1/5 (or 0.20) power, giving us 1.03714. Subtract out 1, and we have 0.03714, or 3.714%, which is Joe’s annualized return. Jane’s portfolio, on the other hand, performed much better, earning 9.54% on average every year. Of course, two different investments should not be judged solely on performance results for short periods of time or for different time periods. The risk of the portfolio must also be considered.

10% Plus 10% Doesn’t Equal 20% 

You might think that Jane’s annualized return should have been 10%, and not 9.54%, since she invested her money for two years and 10% + 10% = 20%, which was her total rate of return. However, here’s where the math can get tricky.

Let’s just say that Jane’s $10,000 did grow 10% each year for two years. At the end of the first year, Jane would have accumulated $11,000. In year one, $10,000 x (1 + 0.10) = $11,000. In year two, if Jane’s $11,000 grows by another 10%, this gives us $11,000 x (1 + 0.10) = $12,100, which is more than the $12,000 Jane actually accumulated. This $100 discrepancy explains why Jane only earned a 9.54%, and not a 10%, compound annual return.

Similarly, the math doesn’t intuitively make sense when you’re losing money. If Jane’s $10,000 investment had lost 10% the first year, she would have $9,000 left. In year two, if Jane’s investment rebounds by exactly the same amount – 10% – Jane would not break even, as you might expect. In fact, a 10% increase in $9,000 results in only $9,900. Therefore, you need a greater percentage gain after a losing year in order to break even on your investment.

The Rule of 72 

If you need an approximation of how your nest egg might grow, you might want to use the Rule of 72. The Rule of 72 can reveal how long it could take your money to double at a particular rate of return. Use the following formula:

Rule of 72
72 / Annual Rate of Return = Number of years it will take for your money to double at a particular rate of return

 

For example, Jane and Joe want to figure out how long it will take their $10,000 investments to double to $20,000. They use their compound annual rates of return (as figured previously) to estimate how many years it will take to double their money. Joe estimates it will take over 19 years (72 / 3.71% = 19.4 years). However, Jane’s portfolio could grow to $20,000 in less than eight years (72 / 9.54% = 7.55 years). It is important to note that the Rule of 72 does not guarantee investment results or function as a predictor of how your investment will perform. It is simply an approximation of the impact a targeted rate of return would have. Investments are subject to fluctuating returns, and there can never be a guarantee that any investment will double in value.

Remember Taxes and Inflation

You should always take into consideration the effects of taxes and inflation when constructing an investment plan to meet your financial objectives. After all, even though Jane earned an average 9.54% on her investments every year, her “real” rate of return will be reduced by taxes and increases in the cost of living.

Depending on Jane’s situation and income tax bracket, as much as 39.6% of her 9.54% compound annual return could be paid in federal taxes, leaving her with [9.54% x (1 – 0.396)], or 5.76%.

Then, Jane must figure in the effects of inflation on her earnings. For example, assume inflation averaged 3% over the two years that Jane invested her $10,000, and that she earned a 5.76% compound annual return after taxes, but before inflation. Now, Jane must adjust her after-tax return for the loss of purchasing power caused by inflation. To determine an inflation-adjusted rate of return, use the following formula:

Inflation-Adjusted Return:
(Calculator or Spreadsheet:)
[(1+Rate of Return)/(1+Inflation Rate) – 1] x 100

 

Jane’s inflation-adjusted, after-tax rate of return is [(1.0576) / (1.03) – 1] x 100, or 2.68%. Keep in mind that we’ve assumed the highest federal income tax bracket (which does not apply to every investor); however, the example does show the impact that taxes and inflation can have on your return.

Bond Yields 

Bond investors generally receive periodic income from their investment. The amount of income paid to the holder of the bond is based on the bond’s coupon rate. For instance, Jane buys a $1,000 bond that pays a 7% coupon rate and therefore receives $70 a year ($1,000 x 0.07) for as long as she owns the bond. She can determine the income return (or yield) on this bond by taking the coupon dollar amount and dividing it by the purchase price of the bond, or $70 / $1,000 = 7.00%. In this example, the yield and the coupon rate are the same because Jane purchased the bond at its original (or “face”) value of $1,000.

However, that yield can fluctuate depending on how much an investor pays for a bond. Let’s say Jane’s bond cost $1,200. Its current yield is now only ($70 / $1,200), or 5.83%.

Bond prices and yields may change over time with changes in interest rates. As the price of a bond increases, its yield decreases. Conversely, as bond prices decrease, yields increase. If Jane’s bond increases in value, her total return (income plus price appreciation) on the investment would be higher than the 7% coupon rate. However, as the yield on her bond changes, the dollar income she receives does not.

Taxable-Equivalent Yield 

Municipal bond investors generally receive income that is free from federal and in some cases state and local taxation. As a result, the stated yields on taxable bonds tend to be higher than yields on municipal bonds in order to compensate investors for their tax liability. When comparing bond yields, bond investors must use a taxable-equivalent yield to compare the rate of return on a tax-free municipal bond with that of a taxable bond.

The taxable-equivalent yield on a tax-free bond can be determined as follows:

Taxable-Equivalent Yield :
(Calculator or Spreadsheet:)
Tax-free yield /(1 – investor’s marginal income tax rate)

 

For an investor in a 28% income tax bracket, the taxable equivalent yield for a municipal bond yielding 5% would be 5% / (1 – 0.28), or 6.94%.

No Substitute for Understanding 

A financial planner can help you gauge your investments’ performance, so you don’t have to do the calculations yourself. But it is still your responsibility to understand what it all means. Without that knowledge, you could make potentially unfavorable financial decisions. With a fundamental understanding of the information presented above, you’ll be better able to realistically judge your investments.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

September 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Buying Life Insurance: What Kind and How Much? – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

September, 2016

Buying Life Insurance: What Kind and How Much?

You are likely to need life insurance if others depend on you for financial support, if you provide your family with such services as child care, if you need to consider protecting a surviving spouse or if you have accumulated substantial assets. There are several types of life insurance that you may want to consider. 

Types of Insurance

  • Term insurance is the most basic, and generally least expensive, form of life insurance for people under age 50. A term policy is written for a specific period of time, typically between one and 10 years, and may be renewable at the end of each term. Premiums increase at the end of each term and can become prohibitively expensive for older individuals. A level term policy locks in the annual premium for periods up to 30 years.
  • Whole life combines payment protection with a savings component. As long as you continue to pay the premiums, you are able to lock in coverage at a level premium rate. Part of that premium accrues as cash value. As the policy gains value, you may be able to borrow up to 90% of your policy’s cash value tax-free.
  • Universal life is similar to whole life with the added benefit of potentially higher earnings on the savings component. Universal life policies are also highly flexible in regard to premiums and face value. Premiums can be increased, decreased or deferred, and cash values can be withdrawn. You may also have the option to change face values. Universal life policies typically offer a guaranteed return on cash value, usually at least 4%. You’ll receive an annual statement that details cash value, total protection, earnings, and fees. Drawbacks include higher fees and interest rate sensitivity — your premiums may increase when interest rates rise.
  • Variable life generally offers fixed premiums and control over your policy’s cash value, which is invested in your choice of stocks, bond, or mutual fund options. Cash values and death benefits can rise and fall based on the performance of your investment choices. Although death benefits usually have a floor, there is no guarantee on cash values. Fees for these policies may be higher than for universal life, and investment options can be volatile. On the plus side, capital gains and other investment earnings accrue tax deferred as long as the funds remain invested in the insurance contract. 

How Much Insurance Do I Need?

A popular approach to buying insurance is based on income replacement. In this approach, a formula of between five and 10 times your annual salary is often used to calculate how much coverage you need. Another approach is to purchase insurance based on your individual needs and preferences. In this instance, the first step is to determine how much income you need to replace.

 

Start by determining your net earnings after taxes (insurance benefits are generally income tax free). Then add up your personal expenses (food, clothing, transportation, etc.) This will provide an idea of the annual income that your insurance will need to replace. You’ll want a death benefit which, when invested, will provide income annually to cover this amount. Remember to add amounts needed to fund one-time expenses such as college tuition or paying down your mortgage.

 

Purchasing the right type of insurance in an amount that is suitable for your family’s needs is an important element in financial planning. You may want to consult an advisor who can help you implement the details.

 

Source/Disclaimer:

© 2008 Standard & Poor’s Financial Communications. All rights reserved.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

September 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

College Planning—It’s About More Than Money – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

September, 2016

College Planning—It’s About More Than Money

Choosing a way to save for your child’s education expenses may be your family’s first college planning decision, but it certainly won’t be the last. From making that first deposit, to selecting a college, to choosing a course of study, you and your child will be making choices that can have a financial impact for years to come.

How Will You Save Enough?

Starting to save for college when your child is young may give you the best chance for accumulating a significant amount of money. Section 529 plans — prepaid tuition plans designed to lock in today’s tuition rates at eligible institutions — and college savings plans, which permit contributions to an investment account set up to pay qualified education expenses, are popular tax-favored options. 1Coverdell Education Savings Accounts also offer tax advantages, although contribution limits are relatively low.2 Custodial accounts set up under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) are another option to consider.

The Financial Aid Game

By the time college gets close, your family’s life may seem to be ruled by deadlines. There are different deadlines for college applications, scholarship applications, and the FAFSA (Free Application for Federal Student Aid) submissions. Applying well in advance of the deadlines can boost your child’s chances of getting accepted to the school of his or her choice and receiving a favorable financial aid package. If you wait too long, spots may already be filled and aid money given to students who applied earlier.

Dissecting Aid Packages

Typically, aid packages consist of grants, loans, work study, and an expected family contribution. When reviewing aid offers, compare apples to apples. Start with the cost of tuition at each school. Then look at how much of the aid package consists of loans that will have to be repaid. Make sure non-tuition costs, such as room and board, books, equipment, transportation, and fees, are included in the school’s cost estimates. It’s a good idea to do your own cost estimate and use that as your basis for comparing offers.

The Right Fit

As important as it is, money shouldn’t be the only criterion used when choosing a college. Lower cost of attendance or generous financial aid is most valuable if the college is a good fit for your child’s abilities, personality, and goals. Choosing the wrong college could cost a bundle in lost opportunities if your child is unhappy or doesn’t feel sufficiently challenged by the curriculum.

Look Toward the Future

A college education is an investment in the future, so parents may want to discuss choosing a course of study that will lead to a career. Talk to your child about the importance of preparing for life beyond college by obtaining the practical skills and knowledge needed to land a job after graduation. By planning ahead, your child may turn his or her interests into a successful career.

 

 

Source/Disclaimer:

1Certain benefits may not be available unless specific requirements (e.g., residency) are met. There also may be restrictions on the timing of distributions and how they may be used.

2Internal Revenue Service. The annual contribution limit is $2,000. Taxpayers with modified adjusted gross incomes (MAGIs) of more than $220,000 (for married couples filing a joint tax return) and $110,000 (for singles) may not contribute. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

September 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Income Inequality and Its Impact on Women’s Retirement – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

September, 2016

Income Inequality and Its Impact on Women’s Retirement

Here are the facts. Generally speaking, women earn less than men, live longer than men, and often take time out of the workforce to have children and/or to care for an aging parent or sick loved one. The potential consequence of these realities? While most U.S. workers are facing a retirement savings deficit, for women, the effect is compounded: Lower pay translates into reduced Social Security benefits, smaller pensions, and less retirement savings.

Just the Facts

You needn’t look far to find evidence of the gender retirement gap. Consider the following facts:

Many women will need to make their retirement nest eggs last longer than men’s. According to the latest data from the Society of Actuaries, among females age 65, overall longevity has risen 2.4 years from 86.4 in 2000 to 88.8 in 2014. Similarly, among 65-year-old men, longevity has risen two years during the same timeframe, from 84.6 to 86.6 in 2014.1

The gender wage gap has a ripple effect over a woman’s entire career. The National Women’s Law Center has found that a woman starting her career now will lose more than $430,480 over a 40-year career; for Latinas, this wage gap could total $1,007,080 over a career, and for an African American woman, the total wage deficit could reach $877,480.2 Put another way, a woman would have to work 51 years to earn what a man earns in 40 years.2

Family caregiving causes career interruptions that can have significant monetary consequences over time. Research conducted by the AARP revealed that family caregivers who are at least 50 years old and leave the workforce to care for a parent forgo, on average, $304,000 in salary and benefits over their lifetime. These estimates range from $283,716 for men to $324,044 for women.3

The retirement income gap is very real. The average Social Security benefit for women older than 65 was $14,234 annually in 2014, compared with $18,113 for men, according to Social Security Administration data.4 Research shows that women also receive about a third less income in retirement from defined benefit pension plans and have accumulated about a third fewer assets in defined contribution retirement accounts than their male counterparts.5

Progress: Slow but Steady

While the evidence is compelling and points out the continuing challenge women face in attaining a secure financial future, there are also signs of improvement for women and their outlook for retirement. For instance, according to the National Institute on Retirement Security’s recent study, women are working for more years now than ever before, which helps to enhance their Social Security benefits, pension income, and retirement savings. Specifically, the study found that the workforce participation of women age 55 to 64 has climbed from 53.2% in 2000 to 59.2% in 2015.5 And today as many women as men participate in workplace retirement plans.

More broad-based measures, such as legislative action to eliminate the gender pay gap would go far toward leveling the playing field for women when it comes to retirement readiness, yet such policy matters are complicated and outcomes are impossible to predict.

Beating the Odds

Despite these challenges, many women retire with enough money to relax and enjoy their later years. Here’s how they do it:

·         Saving as much as they can: This year you can save up to $18,000 in an employer-sponsored retirement plan, plus a $6,000 “catch-up” contribution if you are age 50 or older. Your contributions are made on pretax income, which means you’re paying taxes on a lower amount.6

·         Becoming educated about other sources of retirement income. No matter how committed you are to saving, chances are your employer-sponsored plan won’t provide all of the money you’ll need once you retire. Find out as much as you can about Social Security — and strategies for optimizing your benefits — as well as IRAs and other investments that can help fill in the gaps.7

·         Make the connection between life expectancy and income needs. Even if you already have a healthy nest egg, it’s important to continue saving because you could end up spending 20 or 30 years in retirement, which means you’ll have to save that much more.

Regardless of your personal challenges, you can take charge of your financial future — starting today.

 

Source/Disclaimer:

1Society of Actuaries, “Society of Actuaries Releases New Mortality Tables and an Updated Mortality Improvement Scale to Improve Accuracy of Private Pension Plan Estimates,” October 27, 2014.

2The National Women’s Law Center, “Wage Gap Costs Women More Than $430,000 Over a Career, NWLC Analysis Shows,” April 4, 2016.           

3AARP: Understanding the Impact of Family Caregiving on Work, Fact Sheet 271, October, 2012 and MetLife Mature Market Institute, “The MetLife Study of Caregiving: Costs to Work Caregivers: Double Jeopardy for Baby Boomers Caring For Their Parents,” 2011.

4Morningstar, “Retirement: The Other Economic Gender Gap,” June 7, 2016.

5National Institute on Retirement Security, “Shortchanged in Retirement: Continuing Challenges to Women’s Financial Future,” March 2016.

6To make the catch-up contribution, you are first required to save the annual maximum of $18,000.

7Distributions from a traditional IRA will be subject to taxation upon withdrawal at then-current rates. Distributions taken prior to age 59½ may be subject to an additional 10% federal tax.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

September 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Why More Americans Don’t Own Life Insurance – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

August, 2016

Why More Americans Don’t Own Life Insurance

It is well documented that Americans in general are underprepared financially for retirement. Yet less attention is given to the fact that life insurance — a standard supplemental vehicle to retirement accounts and other investments — is underutilized by all generations of retirement savers.

Recent research conducted by Life Insurance and Market Research Association (LIMRA) and the nonprofit Life Happens found that 43% of U.S. consumers have no life insurance coverage, even though the same percentage said that they would feel a financial impact within six months if a primary wage earner died.1

The chief obstacle to purchasing a life insurance policy — or purchasing more coverage — cited by survey participants of all ages was cost.1 Yet the vast majority of those polled (80%) overestimated the price of a simple 20-year term life insurance policy by wide margins.1 For instance, Millennials miscalculated the cost by more than 213%, while Gen Xers missed the mark by 119%.2

Cost Unconscious

One key driver of “cost confusion” among consumers may be a lack of knowledge about how insurance policies are priced and the many factors that influence how much an individual may pay for coverage. While most of those surveyed realized that their age and health status affect the cost of insurance, fewer realized that their credit history, driving record, occupation, and even hobbies are all factored into the mix when arriving at a purchase price.1

There is also a fair amount of resistance/anxiety around the process itself — with 40% of consumers stating they didn’t know what type of insurance to buy and how much coverage they might need.2 Further, the survey revealed that competing financial priorities — such as paying mortgages and rent, building savings, and paying down debt — particularly among the Millennial and Gen-X populations add to the hesitation around purchasing life insurance.1

Developing a better understanding about the various types of life insurance and how they work might help built confidence in consumers who know they need insurance but don’t know where to begin.

Life Insurance: The Basics

In general there are two main types of life insurance — term life insurance, and permanent life insurance. Term life provides coverage for a predetermined period of time, known as the term. Permanent life insurance provides open-ended, or “permanent” coverage.

Term life insurance is the most basic, and generally least expensive, form of life insurance for people under age 50. A term policy is written for a specific period of time, typically one to 10 years, and may be renewable at the end of each term. The premiums increase at the end of each term and can become prohibitively expensive for older individuals. A level term policy locks in the annual premium for periods of up to 30 years.

Unlike many other policies, term insurance has no cash value. Benefits are paid only if you die during the policy’s term. After the term ends, your coverage expires unless you choose to renew the policy. When buying term insurance, you might look for a policy that is renewable up to age 70 and convertible to permanent insurance without a medical exam.

Permanent life insurance combines death benefit protection with a tax-deferred savings component. With permanent life insurance, as long as you continue to pay the premiums, you are able to lock in coverage at a level premium rate for the life of the contract.

Part of that premium accrues as a tax-deferred cash value. As the policy’s value increases, you may be able to borrow against the balance at attractive interest rates. If you do not repay the borrowed money, however, it may be taxable as income at then-current rates. And if you’re younger than age 59½, you may also be subject to an additional 10% early withdrawal tax.

There are a number of different types of permanent life insurance. The three most common are whole life, variable life, anduniversal life, the specific details of which can be complicated.

That’s why it’s important to seek out the help of a financial planner who understands insurance products. Together you can determine how much coverage you need and what kind might make the most sense for you.

Talk the Talk

Some criteria you should keep in mind while evaluating any life insurance policy include the following:

·         Face Value — the death benefit amount

·         Convertibility — the option to convert from one type of policy (term) to another (permanent), usually without a physical examination

·         Cash Value — the tax-deferred savings portion of a permanent policy that can be borrowed against or cashed in

  • Premiums — the monthly, quarterly, or yearly payments required to maintain coverage

 

Source/Disclaimer:

1Life Happens and LIMRA, “2015 Insurance Barometer Study,” April 14, 2015.

2LIMRA, “2015 Insurance Barometer Study Finds Americans Continue to Overestimate Cost of Life Insurance,” April 14, 2015.

August 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Tips for Avoiding an Early Withdrawal Penalty – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

August, 2016

Tips for Avoiding an Early Withdrawal Penalty

If you take a taxable distribution from your IRA before age 59½, you generally will be required to pay a 10% additional federal tax. However, in certain situations, you may be able to avoid the imposition of the added tax. One little-known penalty exception is available to IRA owners who take substantially equal periodic payments (SEPPs) from their IRA accounts.

A financial hardship, or perhaps an early retirement, may cause you to consider taking an early distribution from your IRA. Whatever the case, before tapping into your account, you should think about how it might affect your future retirement income — as well as the income taxes you may potentially owe.

All About SEPPs

SEPPs might be an appropriate strategy if you need to supplement your income — perhaps while you are starting a new business venture. Once you start taking SEPPs, you’ll have to continue for a minimum of five years or until you reach age 59½, whichever comes later. So, if you begin a SEPP program at age 45, you’ll have to continue making withdrawals for 14½ years — until you turn 59½. If you begin taking SEPPs at age 58, you’ll have to take withdrawals for five years, or until you reach age 63.

At the end of the required SEPP period, you can modify your withdrawal program or discontinue withdrawals (until you reach age 70½ and have to begin taking annual required minimum distributions from your IRA). If you want to stop taking SEPPs before the end of the required SEPP period, you’ll generally have to pay a 10% penalty plus interest on the amounts you withdrew under the SEPP arrangement before reaching age 59½.

The IRS has several “safe harbor” methods for calculating the required SEPP amount. Payments must be taken at least annually and are either fixed or recalculated annually, depending on which method you use.

IRA distribution planning can be complex. Understanding the tax rules can help you make the most of your retirement assets.

This communication is not intended to be tax advice and should not be treated as such. Each individual’s — and business’s — tax situation is different. You should contact your tax professional to discuss your own situation.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part 

August 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Sell Your Employer Match – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

August, 2016

Sell Your Employer Match

Most 401(k) plan sponsors offer their employees some type of matching contributions. The most common match, according to the Plan Sponsor Council of America, is 50 cents for every dollar an employee contributes to the plan, up to 6% of compensation.1 The reason for offering this benefit is simple: The availability of matching contributions encourages employees to participate in their employer’s plan and, in many cases, to contribute more to the plan — both of which can help at annual nondiscrimination testing time.

But many employees, particularly lower paid employees, fail to take full advantage of this important benefit. By some estimates, as many as two-thirds of the lowest paid employees may not be contributing enough to receive the full company match. What can you do to get all of your employees on board?

Show Them the Money

To start, look at your enrollment and educational materials to see how matching contributions are explained. Many employers find that a “free money” approach is effective, pointing out that the employer is giving employees extra money for retirement. Also helpful are illustrations showing the difference matching contributions can potentially make in their plan account balance at retirement.

Target Education

Consider reviewing your plan data to determine which participants are not taking full advantage of your matching contributions. You might want to target these employees with payroll stuffers or e-mail communications pointing out the benefits of matching contributions. Or, if employees who are not taking advantage of your match seem to be concentrated in certain departments, you may want to post matching contribution posters in those areas. Another idea is to briefly talk about your 401(k) plan and your match program at the performance/pay reviews of select — or perhaps all — employees.

 

Source/Disclaimer:

1Plan Sponsor Council of America, “58th Annual Survey of Profit Sharing and 401(k) Plans,” 2015 (2014 plan experience).

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

August 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Buying a Car – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

August, 2016

Buying a Car

A new car could be the most expensive purchase you make apart from housing. Before you go off with the first vehicle that catches your eye, you should think about how you plan to use and pay for the car. Here’s a checklist.

The basics

  • Determine how many passengers you may carry on a regular basis. The typical new sedan seats four or five adults. Larger vans, crossovers and SUVs typically seat seven adults. Some smaller crossovers, SUVs and station wagons can seat four or five adults and two or three children.
  • Assess how much power you’ll need. Generally speaking, a vehicle’s standard engine should be adequate for most normal driving. However, if you routinely carry a full load of passengers or cargo, or drive in hilly areas, you may want to consider larger engines, if available. Keep in mind that larger engines typically cost more and aren’t as fuel efficient as smaller engines.
  • Estimate potential yearly fuel cost. In a world of high fuel prices, a car that gets 40 miles per gallon on the highway could save thousands per year over an SUV that gets 20 miles per gallon. Hybrid and clean diesel models often burn less fuel than their conventional counterparts, but they may also cost more up front.
  • Determine your needs for carrying things in addition to people. Crossovers, SUVs, station wagons and hatchbacks tend to be easier to load and generally carry more than sedans of similar size. Fold-down rear seats can expand storage space considerably.
  • Plan for your boat or camping trailer. Manufacturers often promote towing packages on vehicles they think might be especially suitable for towing. They often also designate models they think are unsuitable for towing. Check the vehicle manual or ask the sales representative about the capabilities of any vehicle you might be considering. Also be sure that any vehicle you consider is properly equipped for towing.
  • Consider how frequently you might need to drive in mud, sand and snow. All-wheel drive and four-wheel drive systems are popular but potentially costly features. If you don’t live in areas with significant snowfall and don’t drive on dirt roads, you may not benefit much from these systems.

Features you may want to include

  • Collision mitigation braking, adaptive cruise control, cross-traffic and lane-departure warning, and blind-spot monitoring can warn of hazards and even sometimes apply the brakes automatically in an emergency. The Insurance Institute for Highway Safety’s list of top safety picks offers a list of cars with active front crash prevention systems.
  • GPS navigation is a common but potentially costly option. Weigh the convenience of a built-in system against less costly portable GPS units and smartphone apps. Consider the costs and procedures for updating the maps stored in built-in units.
  • Roof racks or rails are common options or built-ins for crossovers, SUVs, station wagons and hatchbacks. Consider whether the original equipment racks will accommodate your needs; they may not be compatible with bicycle and kayak carriers or those extra-large boxes used for skis and other cargo.
  • Other common convenience features include power door lifts for rear doors, convertible seats that can be readily switched between child and adult use, and built-in rear-seat entertainment systems.
  • Antilock brakes, traction control, power windows, Bluetooth connectivity, parking assist and backup cameras have become more common; expect a new vehicle to have some or most of these features.

Financing

  • Leasing generally gives you the use of a new car over a limited period of time for a relatively small monthly payment. But over the long haul, leasing tends to cost significantly more than outright ownership in many cases. Make sure your lease realistically anticipates the number of miles you expect to drive during the term of the lease. Excess mileage charges can raise the final cost of the lease significantly.
  • Buying may require a larger down payment and a higher monthly outlay up front, if you plan to finance your car. But the payments generally end while the car is still usable, potentially offering many additional years of service. As a result, buying tends to be significantly less expensive over time if you hold on to the car and drive it to the limits of its useful service life.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

August 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Own a Retirement Account? Keep Your Beneficiary Designations Up to Date – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

August, 2016

Own a Retirement Account? Keep Your Beneficiary Designations Up to Date

Many investors have taken advantage of pretax contributions to their company’s employer-sponsored retirement plan and/or make annual contributions to an IRA. If you participate in a qualified plan program you may be overlooking an important housekeeping issue: beneficiary designations.

An improper designation could make life difficult for your family in the event of your untimely death by putting assets out of reach of those you had hoped to provide for and possibly increasing their tax burdens. Further, if you have switched jobs, become a new parent, been divorced, or survived a spouse or even a child, your current beneficiary designations may need to be updated.

Consider the “What Ifs”

In the heat of divorce proceedings, for example, the task of revising one’s beneficiary designations has been known to fall through the cracks. While (depending on the state of residence and other factors) a court decree that ends a marriage may potentially terminate the provisions of a will that would otherwise leave estate proceeds to a now-former spouse, it may not automatically revise that former spouse’s beneficiary status on separate documents such as employer-sponsored retirement accounts and IRAs.

Many qualified retirement plan owners may not be aware that after their death, the primary beneficiary — usually the surviving spouse — may have the right to transfer part or all of the account assets into another tax-deferred account. Take the case of the retirement plan owner who has children from a previous marriage. If, after the owner’s death, the surviving spouse moved those assets into his or her own IRA and named his or her biological children as beneficiaries, the original IRA owner’s children could legally be shut out of any benefits.

Also keep in mind that the law requires that a spouse be the primary beneficiary of a 401(k) or a profit-sharing account unless he/she waives that right in writing. A waiver may make sense in a second marriage — if a new spouse is already financially set or if children from a first marriage are more likely to need the money. Single people can name whomever they choose. And nonspouse beneficiaries are now eligible for a tax-free transfer to an IRA.

The IRS has also issued regulations that dramatically simplify the way certain distributions affect IRA owners and their beneficiaries. Consult your tax advisor on how these rule changes may affect your situation.

To Simplify, Consolidate

Elsewhere, in today’s workplace, it is not uncommon to switch employers every few years. If you have changed jobs and left your assets in your former employers’ plans, you may want to consider moving these assets into a rollover IRA or your current employer’s plan, if allowed. Consolidating multiple retirement plans into a single tax-advantaged account can make it easier to track your investment performance and streamline your records, including beneficiary designations.

Review Your Current Situation

If you are currently contributing to an employer-sponsored retirement plan and/or an IRA contact your benefits administrator — or, in the case of the IRA, the financial institution — and request to review your current beneficiary designations. You may want to do this with the help of your tax advisor or estate planning professional to ensure that these documents are in synch with other aspects of your estate plan. Ask your estate planner/attorney about the proper use of such terms as “per stirpes” and “per capita” as well as about the proper use of trusts to achieve certain estate planning goals. Your planning professional can help you focus on many important issues, including percentage breakdowns, especially when minor children and those with special needs are involved.

Finally, be sure to keep copies of all your designation forms in a safe place and let family members know where they can be found.

This communication is not intended to be tax or legal advice and should not be treated as such. Each individual’s situation is different. You should contact your tax or legal professional to discuss your personal situation.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

August 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Will Debt Hinder Your Retirement Outlook? – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

August, 2016

Will Debt Hinder Your Retirement Outlook?

The number of Americans in or nearing retirement who are still holding significant mortgage, auto, even student loan debt has been rising in recent years. According to recent data released by the Federal Reserve Bank of New York, the average 65-year-old borrower has 47% more mortgage debt and 29% more auto debt than 65-year-olds had in 2003, after adjusting for inflation.1

One key takeaway from the trend, as cited by a Federal Reserve economist, is that since the Great Recession there has been a significant shift in the allocation of debt away from younger consumers with weaker repayment records to older individuals with strong repayment histories.2

While on the surface, this shift should not be cause for concern, if debt levels were to rise to the point where older Americans were struggling to repay debt as they entered retirement, the story could play out quite differently.

Is Debt an Obstacle to Your Retirement Readiness?

The Employee Benefit Research Institute’s annual Retirement Confidence Survey has consistently made a connection between the level of debt and retirement confidence. For instance, citing reasons why they are not saving (or not saving more) for retirement, workers pointed to their current level of debt as a key obstacle. Just 6% of workers who describe their debt as a “major problem” say they are very confident about having enough money to live comfortably throughout retirement, compared with 35% of workers who indicate debt is not a problem. Overall, 51% of workers and 31% of retirees reported having issues with debt.3

Types of Debt Held by Workers and Retirees

Type of Debt

Workers

Retirees

Home mortgage

46%

23%

Car loan

38%

17%

Credit card

37%

27%

Student loan

23%

3%

Health/medical

21%

14%

Home equity line of credit

15%

17%

Loan from workplace retirement plan

5%

1%

Home improvement loan

4%

4%

Other

17%

9%

Source: Employee Benefit Research Institute and Greenwald & Associates, 2015 Retirement Confidence Survey.

If you are concerned with the impact your current debt load may have on your ability to save for retirement or on the quality of your lifestyle once you retire, speak with a financial advisor now. Together you can craft a plan to lower and/or eliminate your lingering debt.

 

Source/Disclaimer:

1,2The Wall Street Journal, “People Over 50 Carrying More Debt Than in the Past,” February 12, 2016.

3Employee Benefit Research Institute and Greenwald & Associates, 2015 Retirement Confidence Survey.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

August 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Analyzing a Company’s Stock – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

August, 2016

Analyzing a Company’s Stock

What makes a company a good investment? Investment professionals consider several factors when they’re selecting companies to include in a stock portfolio. Here are some of the criteria they’re likely to use.

A Company’s Finances

A strong financial position on the part of the issuing company can make a stock attractive to investors. Analysts typically look at the company’s cash flow to evaluate how much money the company spends, how much it brings in, and how much “free” cash is left after the bills are paid. Reviewing revenues, net income, and earnings per share helps analysts assess the company’s history of sales and earnings growth. Another gauge of financial health is the amount of debt the company has compared to equity.

A Look at the Business

Stocks of companies that are leaders in their industries generally are desirable choices for a portfolio. Analysts look for profitable companies with limited competition whose products or services are valuable to customers. Keeping an eye on earnings estimates helps analysts determine whether the company is likely to experience rising profits or unexpected slowdowns in the future.

Valuing Stock

Analysts use different calculations to assess a stock’s relative value. Some of the most common include:

Price-to-earnings ratio (P/E) shows the relationship between the current stock price and the company’s projected earnings. The P/E is one of the most widely used ratios, and it is used to compare the financial performance of different companies, industries, and markets. The company’s forecast P/E (its P/E for the upcoming year) is generally considered more important than its historical P/E.

Price-to-book ratio (P/B) is a stock’s current price divided by its book value (i.e., total assets minus total liabilities) per share. Both can help identify potentially undervalued stocks and also may be reliable indicators of investor sentiment. Like most ratios, it’s best to compare P/B ratios within industries. For example, tech stocks often trade above book value, while financial stocks often trade below book value.

Return on equity (ROE) is calculated by dividing a company’s earnings per share by its book value per share. The ROE is a measure of how well the company is utilizing its assets to make money. Understanding the trend of ROE is important because it indicates whether the company is improving its financial position or not.

Dividend payout ratio is calculated by dividing the dividends paid by a company by its earnings. The dividend payout ratio can also be calculated as dividends per share divided by earnings per share. A high dividend payout ratio indicates that the company is returning a large percentage of company profits back to the shareholders. A low dividend payout ratio indicates that the company is retaining most of its profits for internal growth.

The Personal Factor

While metrics are critical to analyzing a company’s stock and whether it may be a good addition to an investor’s portfolio, personal circumstances — e.g., an investor’s other portfolio holdings, goals, time frame, and risk tolerance — should always be considered when determining whether a stock is right for a particular portfolio.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

August 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Transferring Assets to a 529 Plan – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

August, 2016

Transferring Assets to a 529 Plan

By now most Americans who are saving and investing to pay for college costs have probably heard that so-called 529 college savings plans allow tax-free distributions for qualified education expenses, potentially making them even more attractive and effective than in the past, when they were only tax deferred. Add that tax benefit to other benefits of 529 plans, including high contribution limits, and many families may want to consider taking advantage of the plans.

But don’t despair if you have already committed college-earmarked assets to another type of financial vehicle, such as a Coverdell Education Savings Account (formerly Education IRA) or a custodial account for a minor beneficiary. You may be able to transfer assets from either type of account into a 529 plan without triggering taxes or penalties. In addition, the proceeds from the redemption of certain types of U.S. savings bonds can also be transferred to a 529 plan tax free, as a result of the Treasury Department’s “Education Bond Program.”

Making the Move From a Coverdell

The IRS makes clear in Publication 970, Tax Benefits for Higher Education, that amounts transferred from a Coverdell account to a “qualified tuition program” (IRS lingo for a 529 plan) are viewed as qualified education expenses and are therefore tax free — as long as the amount of the withdrawal is not more than the designated beneficiary’s qualified education expenses.

There are several reasons a college saver may want to take this course of action. For example, to consolidate college assets into a single account with a more generous contribution limit. Whereas Coverdell accounts limit contributions to just $2,000 per beneficiary per year, 529 plans typically allow much higher lifetime contribution limits — in excess of $200,000 per beneficiary in many states. And unlike Coverdells, 529 plans generally do not impose income limits that restrict the ability of higher-income taxpayers to contribute.

As you take other variables into account, keep in mind that Coverdells and 529 plans are still relatively new, so the legal and procedural precedents for specific strategies may not be well established yet. For example, there is the question of the ownership and control of any money that is transferred from a Coverdell to a 529 plan. By declaring in Publication 970 that “the designated beneficiary of a Coverdell can take withdrawals at any time,” the IRS effectively states that the funds in a Coverdell are owned by the beneficiary. If those assets were moved to a 529 plan owned by a parent, however, it could be construed as a transfer of ownership from the beneficiary to the parent. In theory, at least, that could raise legal issues down the road if the parent eventually uses the money for personal reasons or changes the beneficiary of the 529 plan.

It’s also important to remember that Coverdells can be used to pay for primary or secondary school costs, whereas 529 plans are limited to college expenses. Consequently, you might want to contribute to a Coverdell and a 529 plan if you need to pay for a primary or secondary education in addition to college.

Relocating UGMA/UTMA Assets

Many 529 plans also accept rollovers from custodial accounts established for minor beneficiaries, such as those created under the provisions of the Uniform Gifts/Uniform Transfers to Minors Act (UGMA/UTMA). Keep in mind, though, that the money in an UGMA/UTMA account belongs to the minor, so any subsequent withdrawals of those assets after a transfer to a 529 plan may only be used for that minor.

Therefore, you are generally prohibited from changing the beneficiary of a 529 plan after assets from that beneficiary’s UGMA/UTMA account have been transferred to the 529 plan. Also, the minor will gain full control of the UGMA/UTMA money at age 18 or 21 (depending on the state), which is not normally the case with 529 plans. Keep in mind, too, that contributions to 529 plans must be in cash. As a result, UGMA/UTMA assets would first need to be liquidated, with any capital gains being taxable to the minor.

Back to Basics: An Overview of 529 Plans, Coverdell Education Savings Accounts, and Custodial Accounts

As you begin your search for tax-efficient strategies to pay for college costs, keep in mind that 529 plans, Coverdell Education Savings Accounts, and UGMA/UTMA accounts each offer unique benefits. It’s critical that you understand all of them before making a final decision.

Section 529 college savings plans are named after the section of IRS code that created them. They are college- or state-sponsored, tax-advantaged plans that allow individuals to invest in portfolios of stocks, bonds, and cash equivalents. Contribution limits for 529 plans vary from state to state. Distributions made to pay qualified education expenses are tax free. Prepaid tuition plans also fall under Section 529, but for the purposes of this article, the phrase 529 plan refers only to a college savings plan.

Coverdell Education Savings Accounts (formerly known as Education IRAs) allow tax-free earnings on nondeductible contributions of up to $2,000 per year, per student. Coverdells can generally hold a variety of investments. They can only be established for a child younger than 18, and the money must be distributed for educational costs before the beneficiary turns 30. Income limits apply: Single filers with modified adjusted gross incomes (MAGI) of more than $110,000 and joint filers with MAGI in excess of $220,000 are not eligible. Qualified withdrawals may be used to fund a primary, secondary, or college education.

An UGMA/UTMA custodial account allows you to establish a savings or investment account in a child’s name, with one adult named as custodian. Each parent can contribute up to $14,000 in 2016 without triggering mandatory filing of IRS Gift Tax Form 706 and possible payment of gift taxes. With an UGMA/UTMA account, the first $1,050 per year of unearned income is tax free. For children under 19 (and for children under 24 who are full-time students and whose earned income does not exceed half of the annual expenses for their support), the next $1,050 is taxed at the child’s rate. Beyond $2,100, the income is taxed at the parent’s or child’s rate, whichever is higher.

 

A Better Bond Strategy?

The third option you may have for a transfer involves cashing in qualified U.S. savings bonds and contributing the proceeds to a 529 plan, in accordance with the guidelines established by the IRS and the Treasury Department’s “Education Bond Program.” This strategy allows you to avoid the normal taxation of interest earned on U.S. savings bonds.

Only Series EE bonds issued since 1990 and Series I bonds can be used in this manner. To qualify, you need to have been at least 24 years old on the first day of the month in which you purchased the bonds. If the bonds are to be used for your child’s education, they must be registered in your name and/or your spouse’s name. (The child can be listed as a beneficiary of the bonds, but not as owner or co-owner.) If the bonds are to be used for your own education, they must be registered in your name. If you are married, you must file a joint tax return to reap the benefits of this program.

Work With a Pro

Which 529 transfer strategy makes the most sense in light of your unique situation? Will there be tax benefits or consequences? Before you decide, you should speak with financial and tax advisors who have the knowledge and experience to help assess your entire range of options.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

August 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

The Saver’s Credit: Don’t Leave This Tax Break on the Table – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

August, 2016

The Saver’s Credit: Don’t Leave This Tax Break on the Table

You probably know about the benefits of tax-deferred investment accounts. But did you know that there is a special IRS provision that potentially allows you to save money just for being a retirement saver? The so-called “saver’s credit,” formally known as the Retirement Savings Contributions Credit, permits certain low- to middle-income workers to claim a tax credit for making eligible contributions to an IRA or most qualified workplace retirement plans.

But this tax break is currently going largely untapped. According to a study by the nonprofit Transamerica Center for Retirement Studies, only about a third of U.S. workers are aware of the saver’s credit.1

The IRS Says …2

Here is a rundown on the basic rules governing the credit.

In order to claim the credit, the IRS requires that you:

  • Are at least 18 years old;
  • Are not a full-time student; AND
  • Cannot be claimed as a dependent on another person’s tax return.

Retirement plans eligible for the credit include:

  • Traditional or Roth IRAs
  • 401(k)s and 403(b)s
  • SIMPLE IRAs
  • SARSEPs
  • 501(c)(18) or governmental 457(b) plans
  • Voluntary after-tax employee contributions to qualified retirement and 403(b) plans.

The Amount You Can Claim

According to the IRS, “The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A).”

Here’s a breakdown for tax year 2016:

 

Credit rate

Married filing jointly

Head of household

All other filers*

50% of contribution

AGI not more than $37,000

AGI not more than $27,750

AGI not more than $18,500

20% of contribution

$37,001-$40,000

$27,751-$30,000

$18,501-$20,000

10% of contribution

$40,001-$61,500

$30,001-$46,125

$20,001-$30,750

0% of contribution

more than $61,500

more than $46,125

more than $30,750

*Single, married filing separately, or qualifying widow(er).

 

To learn more about the saver’s credit visit the IRS website. For help shaping up your retirement planning and/or tax planning strategy contact your financial advisor.

 

 

Source/Disclaimer:

1Source: Transamerica Center for Retirement Studies, “Retirement Throughout the Ages: Expectations and Preparations of American Workers,” May 2015.

2Source: IRS, “Retirement Savings Contributions Credit,” updated February 22, 2016.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

August 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Avoid These Financial Traps—They May Be Hazardous to Your Wealth – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

July, 2016

Avoid These Financial Traps—They May Be Hazardous to Your Wealth

Money. It’s hard to get and easy to lose. It doesn’t take long for the wealth you’ve accumulated to disappear if you don’t manage your money well or have a plan to protect your assets from sudden calamity.

Snares like the ones mentioned below could easily threaten your financial security. Planning ahead can protect you and your loved ones from getting caught.

Undisciplined Spending

The more you have, the more you spend — or so the saying goes. But not paying close attention to your cash flow may prevent you from saving enough money for your future. Manage your income by creating a spending plan that includes saving and investing a portion of your pay. Your financial professional can help identify planning strategies that will maximize your savings and minimize your taxes.

High Debt

With the easy availability of credit, it isn’t hard to understand how many people rack up high credit card balances and other debt. Short-term debt will become long-term debt if you’re paying only the minimum amount toward your balances. If you can’t pay off your credit card debt all at once, consider transferring the balances to a card with a lower interest rate.

Unprotected Assets

Your life, your property, and your ability to work should all be protected. Life insurance can provide income for your family if you die. Homeowners and automobile insurance can help protect you if your home or car is damaged or destroyed and provide liability coverage if someone is injured. Disability insurance can protect your income if you’re unable to work.

Unmanaged Inheritance

A financial windfall is great, but it also can be dangerous. Without solid advice on managing and investing the money, you could find that your inheritance is gone in a much shorter time than you would have thought possible. Your financial professional can help you come up with a plan for managing your wealth. Setting aside a portion of the money to spend on a trip or other luxury while investing the rest may be one way to reward yourself and still preserve the bulk of your assets.

Neglected Investments

Reviewing your investments to make sure they’re performing as you expected — and making changes in your portfolio if they’re not — is essential. But it’s also essential to periodically review your investment strategy. You may find that your tolerance for risk has changed over time. You’ll also want to assess the tax implications of any changes you plan to make to help minimize their impact.

Retirement Shortfall

If you’re not contributing the maximum amount to your employer’s retirement savings plan, you’re giving up the benefits of pretax contributions and potential tax-deferred growth. Maximizing your plan contributions can start you on your way to a comfortable retirement — hopefully with no traps along the route.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

July 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

The DOL Revisits Conflict of Interest Rules – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

July, 2016

The DOL Revisits Conflict of Interest Rules

Over the past several decades, there has been a significant shift in the retirement savings landscape away from employer-sponsored defined benefit pension plans to defined contribution plans, such as 401(k)s. At the same time, there has been widespread growth in assets in IRAs and annuities.

One consequence of this change, according to the U.S. Department of Labor — the governmental body that oversees pensions and other retirement accounts — is the increased need for sound investment advice for workers and their families.

The DOL says its so-called “conflict of interest” rules are intended to require that all who provide retirement investment advice to employer-sponsored plans and IRAs abide by a “fiduciary” standard — putting their clients’ best interest before their own profit.

Originally proposed more than a year ago, the “final” rules — introduced in April 2016 — have been revised to reflect input from consumer advocates, industry stakeholders, and others. Following are some of the key takeaways from the DOL’s final regulatory package.

The Role of the Fiduciary

According to the DOL’s definition, “a person is a fiduciary if he or she receives compensation for providing advice with the understanding that it is based on a particular need of the person being advised or that it is directed to a specific plan sponsor, plan participant, or IRA owner. Such decisions can include, but are not limited to, what assets to purchase or sell and whether to roll over from an employment-based plan to an IRA. 1 In this capacity, a fiduciary could be a broker, registered investment adviser, or other type of adviser.

The Best Interest Contract Exemption

The DOL’s final rules include a provision called the Best Interest Contract Exemption (BICE). This exemption is intended to allow firms to continue to use certain compensation methods provided that they “commit to putting their client’s best interest first, adopt anti-conflict policies and procedures, and disclose any conflicts of interest that could affect their best judgment as a fiduciary rendering advice” — among other conditions.2

How does the BICE affect you? The contract provisions of the BICE are slated to go into effect January 1, 2018. At that time, IRA clients entering into a new advisory relationship should expect to sign the contract either before or at the time that a new recommended transaction is executed. IRA clients already working with an investment adviser as of January 1, 2018, may receive a notice from their adviser describing their new rights, but they should not be required to take any action unless they object to the terms of the notice.

Clients receiving advice about investments in an employer-sponsored retirement plan should receive the same general protections and disclosure, but should not expect to receive a contract to sign.

Education vs. Advice

The DOL’s final rules clarify its position that education about retirement savings is beneficial to plan sponsors, plan participants, and IRA owners. As such, the DOL said that plan sponsors and service providers can offer investment education without becoming investment advice fiduciaries.

Further, the DOL stated that communications from plans that identify specific investment alternatives can be considered “education” and not a “recommendation” because plans have a fiduciary who is responsible for making sure the investment offerings in the plan are prudent. Since there is no such responsible fiduciary in the IRA context, references to specific investment alternatives are treated as fiduciary recommendations and not merely education.

Time to Get on Board

The new regulations are expected to take effect in the spring of 2017 (at the earliest) to allow all affected parties to adapt to and incorporate the changes.

To learn more about the new regulations and how they may affect you, visit the Department of Labor website.

 

 

Source/Disclaimer:

United States Department of Labor, “FAQs About Conflicts of Interest Rulemaking.”

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

July 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Retirement Confidence Leveled Off in 2016 – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

July, 2016

Retirement Confidence Leveled Off in 2016

Americans’ confidence in their ability to retire in financial comfort has rebounded considerably since the Great Recession, but worker optimism leveled off in 2016. According to the 26th annual Retirement Confidence Survey — the longest-running study of its kind conducted by Employee Benefit Research Institute in cooperation with Greenwald & Associates — worker confidence stagnated in the past year due largely to subpar market performance.

The percentage of workers who reported being “very confident” about their retirement prospects hit a low of 13% between 2009 and 2013, recovered to 22% in 2015, and stabilized at 21% in 2016. However, significant improvement was reported among workers who said they were “not at all” confident about retirement, as their numbers shrank from 24% in 2015 to 19% this year. Curiously, the attitude shift away from being not at all confident came from those respondents who reported no access to a retirement plan.

It’s All in the Plan

The data clearly shows a strong relationship between the level of retirement confidence among workers and retirees and participation in a retirement plan — be it a defined contribution (DC) plan, a defined benefit (DB) pension plan, or an IRA. Workers reporting they and or their spouse have money in some type of retirement plan — from either a current or former employer — are more than twice as likely as those with no plan access to be very confident about retirement.

Still Not Preparing

Underlying the generally positive trend in the 2016 survey was the persistent fact that most Americans are woefully unprepared for retirement, having little or no money earmarked for retirement. For instance, among today’s workers, 54% said that the total value of their savings and investments (excluding the value of their home and any defined benefit plan assets) is less than $25,000. This includes 26% who have less than $1,000 in savings.

Retirement Plan Dynamics

Not only do workers and retirees that own retirement accounts have substantially more in savings and investments than those without such accounts, on a household level, these individuals tend to have assets stored in multiple savings vehicles. For instance, according to the 2016 RCS, about two-thirds of those with money in an employer-sponsored plan also report that they or a spouse have an IRA. Further, 90% of survey respondents with access to a defined benefit pension plan either through their current or former employer also have money in a defined contribution plan.

Retirement Age

Perhaps as an antidote to their lack of savings, some workers are adjusting their expectations about when they will retire. In 2016, 17% of workers said the age at which they expect to retire has changed — of those, more than three out of four said their expected retirement age has increased. Longer-term trends show that the percentage of workers who expect to retire past the age of 65 has consistently crept higher — from 11% in 1991 to 37% in 2016.

For more retirement trends among workers and retirees or to review the 2016 Retirement Confidence Survey in its entirety, visit EBRI’s website.

 

Source/Disclaimer:

Employee Benefit Research Institute and Greenwald & Associates, 2016 Retirement Confidence Survey, March 2016.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

July 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Consider the “Autopilot” Option for Your Plan – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

July, 2016

Consider the “Autopilot” Option for Your Plan

These days, it is vitally important for individuals to set money aside for retirement during their working years. Unfortunately, not every employee thinks so. Which explains why some employer-sponsored retirement plans have low participation rates. If your company’s retirement plan participation rate disappoints you, there may be an easy fix. Why not put your plan on autopilot?

The Nuts and Bolts

Putting a retirement plan on autopilot simply means introducing an automatic enrollment feature. In other words, employees are automatically enrolled in the retirement plan unless they elect otherwise. A specific percentage of the employee’s wages will be automatically deducted from each paycheck for contribution to the plan unless the employee opts out.

Once enrolled in the plan, employees can change their contribution rate and choose how to invest their contributions from the plan’s investment menu. If they don’t make their own investment selections, their contributions are automatically directed to a qualified default investment alternative (QDIA), which is typically a target date fund, a balanced fund, or an account managed by an ERISA-qualified investment manager. Employees whose contributions are invested in the default option can later switch into another plan investment, if desired.

Does It Work?

According to recent research, approximately 75% of employees participate in their employer’s retirement plan.1 The same study found that 62% of plan sponsors offer an auto-enrollment feature, 97% of those offering auto enrollment are satisfied with their program, and that 88% of sponsors believe auto enrollment has had a positive impact on their plan participation rates.2

A Win-Win

Many employees are confused about retirement planning. Many want guidance. Automatic enrollment makes the tough decisions for them and starts them on the path to a more secure financial future. Having a robust retirement plan usually helps businesses attract and keep talented employees. Automatic enrollment may be just the enhancement you need to get more employees to participate in — and appreciate — the benefits of working for you.

 

 

Source/Disclaimer:

1,2Deloitte Consulting, LLP, the International Foundation of Employee Benefit Plans, the International Society of Certified Employee Benefit Specialists, “Annual Defined Contribution Benchmarking Survey, 2015 Edition.”

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

July 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Buying Your First Home – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

July, 2016

Buying Your First Home

Home ownership is the cornerstone of the American Dream. But before you start looking, consider a number of things.

First, look at buying a home as a lifestyle investment and only secondly as a financial investment. Over time, buying a home can be a good way to build equity. But as recent history has shown, house prices can go down as well as up. Like many other investments, real estate prices can fluctuate considerably. If you aren’t ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you’ll need to determine how much you can spend and where you want to live.

How Much House Can You Afford?

Most people, especially first-time buyers, must take out a mortgage to buy a home. To qualify for a mortgage, the borrower generally needs to meet two ratio requirements that are industry standards: the housing expense ratio and the total obligations ratio.

  • The housing expense ratio compares basic monthly housing costs to the buyer’s gross monthly income (before taxes and other deductions). Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.
  • The total obligations ratio is the percentage of income required to service all your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.

In addition to qualifying for a mortgage, you will likely need a down payment. Down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate and exempt you from buying private mortgage insurance.

Closing Costs

Closing costs vary considerably, but typically add between 3% and 8% to your purchase price. Such costs include home inspection costs, loan origination fees, up-front “points” (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month’s homeowner’s insurance, recording fees, and attorney’s fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs.

Home Buying Costs

Down Payment

0%-20% of purchase price

Home Inspection

$200-$500

Points

$1,000 and up for 1%-3%

Closing Costs

3%-8% of purchase price

 

Operating Costs

In addition to mortgage payments, there are other costs associated with home ownership. Home association fees, utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Check the actual expenses of the previous owners and make sure you understand how much you are willing and able to spend on such items.

Once you’ve determined a price range and location, you’re ready to look at individual homes. Remember that much of a home’s value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you. The more research you do today, the better your decision will look in the years to come.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

July 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Tips for Running a Successful Seasonal Business – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

July, 2016

Tips for Running a Successful Seasonal Business

If you have a seasonal business, you most likely face some challenges that year-round businesses don’t. After all, trying to squeeze a year’s worth of business into a far shorter period can get pretty hectic. Here are some tips that may help.

Cash Control

All small-business owners have to be careful cash managers. Strict management is particularly critical when cash flows in over a relatively short period of time. One very important lesson to learn: Control the temptation to overspend when cash is plentiful.

Arming yourself with a realistic budget and sound financial projections — including next season’s start-up costs — will help you maintain control. And you may want to establish a line of credit just in case.

In the Off-season

It’s difficult to maintain visibility when you aren’t in business year round. But there’s no reason why you can’t send your customers periodic updates via e-mail or snail mail. You’ll certainly want to announce your reopening date well ahead of time. You can also spend time developing new leads and lining up new business.

Time for R and R

You deserve it, so take some time for rest and relaxation. But you’ll also want to put the off-season to good use by making necessary repairs and taking care of any sprucing up you’d like to do. You can also use the off-season to shop around for deals on items you keep in stock and/or equipment you need to buy or replace.

Expansion Plans

If you’re thinking of making the transition from “closed for the season” to “open all year,” start investigating new product lines or services. If you diversify in ways that are complementary to and compatible with your core business, your current customer base may provide support right away. A well-thought-out expansion can be the key to a successful transition into a year-round business.

Being the owner of any type of business has its rewards — and its challenges. Contact your business advisor, consultant, or small business banker for help. These individuals have experience dealing with the unique challenges of operating small businesses.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

July 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

When Protection Matters: Consider a QTIP Trust – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

July, 2016

When Protection Matters: Consider a QTIP Trust

Several years ago, Jack’s father died. Jack grieved not only for his father’s passing, but also for his widowed mother who had been married to Jack’s father for 35 years. In due course, Jack’s mother remarried. However, when she eventually passed away, Jack suffered a double loss: Jack not only lost his mother, but also most of his inheritance. Just the year before, she had given her second husband a substantial sum to start a new business.

Jack’s father could have preserved Jack’s inheritance, while at the same time providing for Jack’s mother, with a qualified terminable interest property (QTIP) trust.

How It Works

With a QTIP trust, rather than simply leaving your assets to your spouse outright in your will, you specify that all or a portion of your assets should be transferred to the trust upon your death. The trustee you choose is legally responsible for holding and investing the assets as you provide. The QTIP trust pays your spouse a life income. After your spouse dies, your children (or anyone else you choose) will receive the trust principal. With a QTIP trust, your spouse cannot prevent the trustee from transferring the assets to your intended beneficiaries.

Current federal estate-tax law allows an unlimited marital deduction for assets that pass from one spouse to the other. To secure the deduction, assets generally must pass to the surviving spouse directly or through a qualifying trust. Thus, it’s important to structure your QTIP trust so that the trust assets qualify for the marital deduction. This will allow your estate to avoid paying taxes on the trust property. The trust assets will be included in your spouse’s gross estate for estate-tax purposes. However, your spouse’s estate will be entitled to a unified credit that could eliminate some — or perhaps all — of the estate tax.

Problem Solver

Many estate planning decisions that are simple for traditional families can prove very complicated in today’s age of multiple marriages and “blended families.” There are many scenarios in which a QTIP trust can be used to prevent future problems. Consider a remarriage involving children from a former marriage. In this case, a QTIP trust can help control the ultimate disposition of assets. The trust also can be used when professional management of assets is desirable for the surviving spouse. After all, placing assets directly in the hands of a spouse who may lack investment or financial experience can be a costly mistake.

Inheritance Insurance

By setting up a QTIP trust, you make sure that your trust assets will eventually go to the individuals you choose to receive them. The result will be the same even if your spouse remarries, drafts a new will, or experiences investment losses. You’ll be able to provide for your spouse and preserve assets for your children or other beneficiaries, regardless of how your family’s circumstances may change.

Experience Is Essential

A problem-free QTIP trust requires an experienced professional trustee who can manage the trust for your surviving spouse and children in accordance with your wishes. Your financial advisor can help you secure the services of a qualified professional with experience administering QTIP trusts. Together, they can help to ensure that your assets are well cared for throughout the term of the trust.

This communication is not intended to be legal/estate planning advice and should not be treated as such. Each individual’s situation is different. You should contact a qualified legal/estate planning professional to discuss your personal situation.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

July 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

The Lowdown on Robo-Advisors – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

July, 2016

The Lowdown on Robo-Advisors

The trend toward online investing and advisory services, also known as robo-investing and robo-advice is gaining momentum, but industry participants are struggling to get a handle on how retail investors view and/or use robo-services to conduct their financial affairs.

Studies Abound

Recent research conducted by major asset management firms has gleaned insight, yet often their findings turn up contradictory information. For instance, one study conducted by State Street Center for Applied Research found that 65% of retail investors believe that technology will do a better job at meeting their needs than human advisors.1 Other research conducted by Allianz Life®, which focused on generational approaches to investing and managing finances, revealed more complex attitudes.

Case in point: When baby boomers and Generation Xers were asked about using robo-advisors, a significant majority (69%) from both demographic groups said they “don’t really trust online advice.” Further, 76% opined that “there is so much selling online that it’s hard to trust the financial advice.”2

The same study revealed that while more than a third of respondents expressed some interest in working with a robo-advisor, just one in 10 would be comfortable having a relationship with an advisor that existed solely online.2

Yet as technology evolves and financial information proliferates online, investors are spending more time on financial websites, with 40% saying they visit such sites regularly, 13% go to financial sites daily, and 22% do some trading online. Among this group there appears to be a growing comfort level with the robo-experience, as 42% stated that “there’s nothing a financial advisor can tell me that I can’t find out online.”2

A Push-Pull Message

Indeed, study after study on the emerging impact of digital advice is finding widespread ambivalence on the part of investors. On one hand, they are increasingly comfortable with getting their financial information and conducting more business through digital channels, while on the other, they still gravitate toward human relationships when dealing with complex “big picture” planning issues such as meeting their income needs in retirement and setting and managing other long-term financial goals.

Still in its infancy, the world of Web-based financial services will no doubt evolve and present exciting new developments in the future.

This communication is not intended to be investment advice and should not be treated as such. Each individual’s situation is different. You should contact your financial professional to discuss your personal situation.

 

Source/Disclaimer:

1financial-planning.com, “Can Advisors Rebuff Challenge of Automated Investing?” February 25, 2016.

2Allianz Life®, ‘ “Robo” Financial Advising on the Rise, But Gen Xers and Boomers Still Prefer the Human Touch,’ February 16, 2016.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

July 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

The Charitable IRA Transfer: Permanent at Last – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

June, 2016

The Charitable IRA Transfer: Permanent at Last

In December 2015, President Obama signed into law the “Protecting Americans From Tax Hikes Act of 2015.” This new ruling made permanent many tax breaks that had been dubbed “extenders” as taxpayers would have to wait — typically until the last minute — for lawmakers to reinstate them for another year. Among the most popular of the bunch is the IRA charitable transfer provision. So if you are age 70½ or older and charitably minded to boot, consider tapping your IRA.

The qualified charitable distribution (QCD), also known as an IRA charitable rollover, allows you to donate up to $100,000 per year to qualified charities. A QCD can be made tax free, can help minimize your taxable estate, and can help fulfill your philanthropic desires — all while satisfying your annual required minimum distribution (RMD).

Benefits of a QCD

Without this provision, withdrawals from traditional IRAs and certain Roth IRAs (including those held for less than five years) would be taxed as income, even if they were directed immediately to a charity. While the donor would receive a tax deduction for his or her donation, various other federal and state tax rules would prevent the deduction from fully offsetting this taxable income. As a result, many donors have chosen not to use IRA assets for lifetime gifts. Now, the qualified charitable distribution permanently eliminates this problem. While there is no tax deduction allowed for the donated assets, they don’t count as income either.

You may benefit most from implementing the QCD strategy if you:

·         Do not need all of the income from your RMD.

·         Want to avoid being taxed on your RMDs.

·         Have significant assets in your IRA.

·         Make charitable gifts, but don’t itemize deductions. Generally, only taxpayers who itemize get federal income tax-saving benefits from charitable donations.

·         Make a gift that is large, relative to your income. A QCD is not included in taxable income, therefore it does not count against the usual percentage limitations on using charitable deductions. In addition, by lowering your income, a QCD may potentially help you to lower your tax bracket and avoid higher taxes on Social Security benefits or tax surcharges such as the 3.8% net investment income tax.

Limitations of a QCD

There are limitations to making a QCD from your IRA, including the following:

·         You must be at least 70½ years of age when the gift is transferred.

·         Total gifts cannot exceed $100,000 per year, per IRA owner or beneficiary. Married taxpayers with separate IRAs can give up to $200,000 total, but no more than $100,000 may be distributed from each spouse’s IRA.

·         Gifts must be made directly from your IRA to a public charity. Private foundations, supporting organizations, and donor-advised funds are not eligible. You also cannot use the distribution to establish a charitable gift annuity or fund a charitable remainder trust.

·         You can only make a donation from your traditional or Roth IRA. They cannot come from other employer-sponsored accounts, such as 401(k)s, 403(b)s, SEP-IRAs, or SIMPLE IRAs. You can, however, roll over funds from your 401(k) or 403(b) to an IRA to contribute to a charity.

This communication is not intended to be tax advice and should not be treated as such. Each individual’s tax situation is different. You should contact your tax professional to discuss your personal situation.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

June 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Get in the Habit—Smart Investing Habits to Adopt This Year – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

June, 2016

Get in the Habit—Smart Investing Habits to Adopt This Year

Daily Investment Habits

Simple day-to-day routines may be the key to your investment success. It’s important for you to know where your investments stand and to learn from past mistakes. Taking the time each day to gather and record this information may help you throughout the year.

Develop a regular reading and research routine — Set aside a small part of each day to read about investments. Perhaps a good time for you is while you’re having your morning coffee. While there is a plethora of financial literature available, you don’t need to read everything that is printed. Instead, carefully choose those publications or websites that give you a clear idea of how the market is performing. You should also read about your particular investments.

Keep a daily journal — Jot down notes on trades you make, what happened in the market that day, and your perspective on the investment climate. Over time, your diary entries may reveal patterns and provide you with insight. Recognizing past investment mistakes is the first step in learning from them and modifying future behavior.

Monthly or Quarterly Investment Habits

Get in the habit of evaluating your investments on a monthly or quarterly basis. More frequent assessment isn’t recommended because you may be tempted to make changes based on short-term fluctuations in your investment values.

Evaluate everything — Take a look at how everything is doing — not just your retirement accounts or your stock holdings — to get an indication of overall performance.1 Gains in one holding might be offset by declines in another, so you need to see the big picture.

Start keeping score — Pick appropriate yardsticks to measure the performance of your investments. For example, choose benchmark indexes that track the returns of the types of securities in which you are invested. Once you’ve established your yardsticks, start keeping score.

Yearly Investment Habits

Once a year, take the time to do a complete review of your investment strategies. Since it may be hard to stick to an annual habit, tie it to another yearly task, such as preparing your income taxes, spring cleaning, or end-of-the-year organizing.

Review your results — Your routine investment habits may come in handy at the end of the year. Reading your investment diary should help you analyze your successes and failures throughout the year. Your scorecard may help you determine the effectiveness of your investment strategy.

Your financial professional can help you invest to meet your goals.

 

Source/Disclaimer:

1Investing in stocks involves risks, including loss of principal.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

June 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Getting Value in a Vacation Home – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

June, 2016

Getting Value in a Vacation Home

There are two great reasons for buying a vacation home: You want one and you can afford to buy it. Buying a vacation home as an investment, however, should not be your primary motivation.

Some vacation properties can also be good investments. Others aren’t. As recent history has shown, real estate prices can go down as well as up, and there are no guarantees.

There are, however, some guidelines that can help you find a vacation home that will provide value along with pleasure.

The Rules Have Changed

Consider first whether you want to buy or rent and, if you choose to buy, where and how. There was a time, back before tax-reform legislation in the 1980s, when there were compelling tax advantages to financing a second home. You’re still able to deduct mortgage interest on one such home; but, unless it is income-producing property with its attendant complications, the once-valuable depreciation write-offs are gone. To help decide whether buying a vacation home is right for you, consider the following.

How Often Would You Use the Property?

If you plan to spend just one week, or even two, out of every 52 at a vacation home you purchase, you would probably be spending a lot of money for each day there. Mortgage payments continue all year long, as do payments for insurance, taxes, and necessary regular maintenance. If you’d be paying full price but getting only part-time use, consider renting.

There are good reasons for buying a vacation home, not the least of which is a simple desire to own the place and do what you want with it. But renting lets you experience vacation life in different places, and is relatively affordable. Rents can run from $500 to $2,000 a week or more, depending on location and amenities. At the end of your stay you close the door and forget about the place. Financial planners say that if you’re just looking for a few weeks of vacation a year, it’s probably cheaper in the long run to rent. An extra attraction to renting is that it gives you a chance to test different locations before settling on one to buy.

How Desirable Is the Location?

The old real estate saying goes like this: “What are the three most important things about selling a house? Location. Location. Location.” The same holds true for a vacation home. Are you looking at a simple cabin in the backwoods or a comfortable house or condo in or near an attractive resort area? A rural hideaway may be great for hunting, hiking, or just getting close to nature, but don’t expect its value to appreciate as fast as a more comfortable place located near amenities.

With the graying of the Baby Boom generation, some analysts predict an increasing demand for country getaways in the future. That great population bulge is rapidly approaching an age when many can be expected to spend the money they’ve been working for and take life a bit easier.

Keeping that in mind, the best investment for future resale would probably be a fully equipped getaway that could double as a second home, perhaps on waterfront property or with privacy-protecting acreage. Amenities are important. Younger people often don’t mind minor inconvenience, but older people look for microwaves, dishwashers, and even hot tubs. That condominium on the ski slopes should not be “bare bones.”

Mortgage Tips

  • A 20% or greater down payment may be required.
  • Smaller down payments may mean paying more in private mortgage insurance than with a primary residence.
  • The property must be a single-unit dwelling or condominium that is occupied by the owner for a portion of the year and unencumbered by a time-sharing ownership agreement.
  • Borrowers cannot currently own rental property in the location of the vacation home.
  • The property must be suitable for year-round occupancy.

 

You Don’t Have to Be Rich

The vacation home doesn’t have to be a stand-alone house. A condominium purchase can let you have a home in a terrific location that would be otherwise unaffordable.

For value today, look for that house, condo, or timeshare in a location that has activities in more than one season. Keep in mind, too, that vacation properties often become retirement homes. So safety, taxes, and the availability of cultural opportunities should be considered. With those things in mind, look for bargains in lesser-known places; investigate upswing markets, places that haven’t yet become overrun or overpriced.

Look for areas where the local economy is strong and taxes are low. You don’t have to be near a city, but you should be within a reasonable distance of populated areas to have access to services like quality medical care.

Another reason for being near more populated areas is that such a location allows you the opportunity to try to rent out your property when you’re not using it to help cover mortgage payments and, perhaps, sell at a profit later on. With the right choices, returns can exceed the future payoff from stocks.

Tax Considerations

If you rent your home for 14 days or less a year, you do not need to report the rent. Beyond that, however, the IRS considers the rent taxable income. But you may then be able to deduct all of your rental expenses if you had a net profit on the property (deductions are limited if you report a loss). These are guidelines only; your specific tax obligations should be discussed with a qualified tax advisor.

Tax Considerations

  • You can deduct mortgage interest on two houses, to a limit of $1 million.
  • You can rent your vacation home for up to 14 days without having to report the rent as income; if you rent for more than 14 days, the home is considered investment property and rent must be reported as income.
  • Rental deductions are based on the portion of the year the property is rented.
  • You can use the property for the greater of 14 days or 10% of the total days it is rented and maintain your tax advantages. Maintenance days do not count as personal-use days but should be documented. Use by in-laws or other part-owners counts as personal use even if rent is charged.

Source: Internal Revenue Service.

 

Location Winners

Florida is, as it has been for years, a number one location for vacation homes. While Florida’s east coast has been traditionally the most popular (and expensive), the west coast has also grown in popularity in recent years. Elsewhere, properties within driving distance of popular resort areas have a good chance of healthy appreciation while giving you the realistic option of renting when you’re not there. Although prices are generally higher on the west coast, other winners include Oregon’s northern coast and Colorado’s ski resort areas.

But the best location for you is one where you feel at ease and that is convenient to get to from your primary residence. Depending on how you live, that could mean a three-hour drive or a five-hour airplane flight.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

June 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

What to Know About Annuities – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

June, 2016

What to Know About Annuities

Are you retiring soon and looking into your options to start drawing down your savings from your employer-sponsored plan? Are you also concerned about making sure your money lasts as long as you need it to? If so, annuities may make sense for you.1 Annuities, simply put, reduce the risk that you will outlive your savings. Here is how to decide whether an annuity is right for you.
Understanding Annuities
Annuities are contracts offered by insurance companies that pay a stream of monthly payments in exchange for a premium. An immediate annuity is one in which you receive payments right away. A deferred annuity is one where you purchase a contract, but don’t receive payments until after a set period of time.
While annuities reduce the risk that you will outlive your savings (and suffer a drop in your standard of living), they do so at a cost. They are not liquid — once you have purchased one, it can be expensive or impossible to change your mind later. For this reason, using a portion of your savings to purchase an annuity may be most attractive when:
• You (and your spouse) expect to live for many more years.
• You have relatively low income from other sources (e.g., from Social Security or defined benefit pension plans).
• You are relatively more averse to risk.
Which One Is Right for You?
Whether the amount of the annuity is right for you — or even if you should annuitize — involves a lot of issues, such as your other assets, savings, income, and taxes. If you’re only taking care of yourself, the lifetime payment option might be a good choice. If there are other people counting on the income, you’ll want to look into the other options.
Another issue for you to think about is today’s low interest rates. One way to deal with this is to “ladder” smaller investments in immediate annuities over several years to take advantage of potentially higher interest rates.
Regardless of your decision, here are three key factors to keep in mind.
• Comparison shop. Payment rates will differ significantly from insurer to insurer. Look carefully at the fees and expenses. Examine the rates and terms they offer.
• Find a reputable company. Investigate the stability and financial strength of the companies you are thinking of purchasing an annuity from. Be sure to include the main insurance company rating agencies — A.M. Best, Moody’s, Fitch, Standard & Poor’s, and Weiss — as part of your due diligence process. And don’t forget to ask your agent for a current listing of COMDEX scores for insurance carriers. COMDEX is a service that compiles scores from a range of ratings agencies and assigns a score to each company from 0 to 100 — 100 being perfect.
• Watch for additional costs. At their core, immediate annuities are a very simple product, but extra features come with additional costs. Be sure to read the fine print.

Source/Disclaimer:
1Variable annuities are long-term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They are sold only by prospectus. Guarantees are based on the claims-paying ability of the issuer and do not apply to a variable annuity’s separate account or its underlying investments. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor’s unit, when redeemed, may be worth more or less than their original value. Withdrawals made prior to age 59½ may be subject to a 10% additional tax. Surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

June 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Health Savings Accounts: Get to Know These Versatile Savings Tools – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

June, 2016

Health Savings Accounts: Get to Know These Versatile Savings Tools

The number of Americans covered by high-deductible health plans (HDHPs)/health savings accounts (HSAs) rose to about 19.7 million in 2015 — up from 17.4 million in 2014. On average, enrollment in HDHPs/HSAs has risen nearly 22% over the past two years.1 If you are new to HSAs and eager to take advantage of all the potential benefits they have to offer, keep the following in mind as you familiarize yourself with your account this year.

For Immediate Use. HSAs help to cushion the effect of high upfront medical costs, but in order to take advantage of your account it must be funded. According to industry experts, having an open account is not enough. You must have money in the account — even a few dollars — in order for it to be considered a valid source of tax-advantaged funding. If you wait until a medical bill arrives to fund your HSA for the first time, you may well miss out on its key benefit.

Triple Tax Savings. HSAs are typically offered in conjunction with high-deductible health plans to help offset the burden of out-of-pocket medical expenses that must be incurred before the deductible is met and the insurance policy kicks in. They do this by offering tax savings three ways:

·         Contributions made to the account are tax deductible up to certain limits or, if they are made through an employer program, they are made with pretax dollars.

·         Any interest or investment earnings accrued on the money in the account is tax free.

·         When withdrawals are used for qualifying medical expenses they are tax free.

An Investment Vehicle, Too. Not all HSAs are created equal. Some are simple savings accounts that offer a minimal rate of interest. Others allow you to invest your contributions as you would in a 401(k) or IRA. This potential investment feature, coupled with the fact that HSAs are not a “use it or lose it” vehicle, opens the door to viewing HSAs as another tool in an individual’s retirement funding arsenal.

For instance, because money can accumulate in the account indefinitely, it could be earmarked for future health care costs incurred in retirement. What’s more, if money in the account is not used by age 65, it can be withdrawn for any reason with no penalty, although taxes will be owed at then-current rates.2 For those who can afford to contribute money to an HSA and leave it to grow (electing instead to use non-HSA monies to pay for medical costs) an HSA has the potential to be a sound addition to a retirement savings strategy. Contribution limits for 2016 are $3,350 for an individual plan and $6,750 for a family plan. In either case, an extra $1,000 contribution is allowed for those over age 55.

Employer Perks. Akin to the 401(k) match, some employers contribute money to HSAs on behalf of their employees. Find out what your employer’s policy is with regard to HSA contributions and whether there is a Wellness Program in place that may offer additional savings incentives.

Shop Around for a Better Plan. If you are enrolled in an HDHP at work, chances are your employer also enrolled you in an HSA. But you need not stick with that HSA if you find another one that better suits your needs. You can essentially “roll over” your HSA assets to another plan by filling out the requisite paperwork and following the rules that are comparable to those governing 401(k) or IRA rollovers — i.e., a direct trustee-to-trustee HSA transfer. Similarly, if you withdraw the money and deposit it in a non-HSA account you will pay regular income tax on the amount plus a 20% additional federal tax.

This communication is not intended to be tax advice and should not be treated as such. Each individual’s tax situation is different. You should contact your tax professional to discuss your personal situation.

 

Source/Disclaimer:

1America’s Health Insurance Plans (AHIP), “2015 Census of Health Savings Account – High Deductible Health Plans,” November 2015.

2U.S.News.com, “10 Ways to Maximize Your HSA in 2016,” Feb. 4, 2016.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

June 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Turning the Page: Five Things Baby Boomers Need to Know About RMDs – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

June, 2016

Turning the Page: Five Things Baby Boomers Need to Know About RMDs

The times they are a changin’ for baby boomers. The generation that lived through and influenced the revolution in the retirement industry is now poised to begin withdrawing money from their retirement-saving vehicles — namely IRAs and/or employer-sponsored retirement plans.

If you were born in the first half of 1946 — you are among the first baby boomers who will turn 70½ this year. That’s the magic age at which the Internal Revenue Service requires individuals to begin tapping their qualified retirement savings accounts. While first-timers officially have until April 1 of the following year to take their first annual required minimum distribution (RMD), doing so means you’ll have to take two distributions in 2017. And that could potentially push you into a higher tax bracket.

This is just one of the tricky details you’ll have to navigate as you enter the “distribution” phase of your investing life. Here are five more RMD considerations that you may want to discuss with a qualified tax and/or financial advisor.

1.     RMD rules differ depending on the type of account. For all non-Roth IRAs, including traditional IRAs, SEP IRAs, and SIMPLE IRAs, RMDs must be taken by December 31 each year whether you have retired or not. (The exception is the first year, described above.) For defined contribution plans, including 401(k)s and 403(b)s, you can defer taking RMDs if you are still working when you reach age 70½ provided your employer’s plan allows you to do so AND you do not own more than 5% of the company that sponsors the plan.

2.     You can craft your own withdrawal strategy. If you have more than one of the same type of retirement account — such as multiple traditional IRAs — you can either take individual RMDs from each account or aggregate your total account values and withdraw this amount from one account. As long as your total RMD value is withdrawn, you will have satisfied the IRS requirement. Note that the same rule does not apply to defined contribution plans. If you have more than one account, you must calculate separate RMDs for each then withdraw the appropriate amount from each.

3.     Taxes are still due upon withdrawal. You will probably face a full or partial tax bite for your IRA distributions, depending on whether your IRA was funded with nondeductible contributions. Note that it is up to you — not the IRS or the IRA custodian — to keep a record of which contributions may have been nondeductible. For defined contribution plans, which are generally funded with pretax money, you’ll likely be taxed on the entire distribution at your income tax rate. Also note that the amount you are required to withdraw may bump you up into a higher tax bracket.

4.     Penalties for noncompliance can be severe. If you fail to take your full RMD by the December 31 deadline on a given year or if you miscalculate the amount of the RMD and withdraw too little, the IRS may assess an excise tax of up to 50% on the amount you should have withdrawn — and you’ll still have to take the distribution. Note that there are certain situations in which the IRS may waive this penalty. For instance, if you were involved in a natural disaster, became seriously ill at the time the RMD was due, or if you received faulty advice from a financial professional or your IRA custodian regarding your RMD, the IRS might be willing to cut you a break.

5.     Roth accounts are exempt. If you own a Roth IRA, you don’t need to take an RMD. If, however, you own a Roth 401(k) the same RMD rules apply as for non-Roth 401(k)s, the difference being that distributions from the Roth account will be tax free. One way to avoid having to take RMDs from a Roth 401(k) is to roll the balance over into a Roth IRA.

For More Information

Everything you need to know about retirement account RMDs can be found in IRS Publication 590-B, including the life expectancy tables you’ll need to figure out your RMD amount. Your financial and tax professionals can also help you determine your RMD.

 

The information in this communication is not intended to be tax advice. Each individual’s tax situation is different. You should consult with your tax professional to discuss your personal situation.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

June 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Investing Long Term? Don’t Overlook the Inflation Factor! – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

May, 2016

Investing Long Term? Don’t Overlook the Inflation Factor!

A penny saved is a penny earned, right? Not necessarily. Thanks to inflation, over time that penny could be worth less than when it was first dropped into the piggy bank. That’s why if you’re investing — especially for major goals years away, such as retirement — you can’t afford to ignore the corrosive effect rising prices can have on the value of your assets.

Inflation Under the Microscope

Just what is inflation, this ravenous beast that eats away at the value of every dollar you earn? It is essentially the increase in the price of any good or service. The most commonly referenced measure of that increase is the Consumer Price Index (CPI), which is based on a monthly survey by the U.S. Bureau of Labor Statistics. The CPI compares current and past prices of a sample “market basket” of goods from a variety of categories including housing, food, transportation, and apparel. The CPI does have shortcomings, according to economists — it does not take taxes into account or consider that as the price of one product rises, consumers may react by purchasing a cheaper substitute (name brand vs. generic, for example). Nonetheless, it is widely considered a useful way to measure prices over time.

Inflation has been a very consistent fact of life in the U.S. economy. Dating back to 1945, the purchasing power of the dollar has declined in value every year but two — 1949 and 1954. Still, inflation rates were generally considered moderate until the 1970s. The average annual rate from 1900 to 1970 was approximately 2.5%. From 1970 to 1990, however, the average rate increased to around 6%, hitting a high of 13.3% in 1979.1 Recently, rates have been closer to the 1% to 3% range; the inflation rate was only 0.73% in 2015.

What It Means to Your Wallet

In today’s economy, it’s easy to overlook inflation when preparing for your financial future. An inflation rate of 4% might not seem to be worth a second thought — until you consider the impact it can have on the purchasing power of your money over the long term. For example, in just 20 years, 4% inflation annually would drive the value of a dollar down to $0.44.

The Cost of the Future

Item

Price in 2016

Price in 2035

Refrigerator

$1,000

$2,191

Automobile

$23,000

$50,396

Based on an average annual inflation rate of 4%.

 

Or look at it another way: If the price of a $1,000 refrigerator rises by 4% over 20 years, it will more than double to almost $2,200. A larger-ticket item, such as a $23,000 automobile, would soar to more than $50,000 given the same inflation rate and time period.

Inflation also works against your investments. When you calculate the return on an investment, you’ll need to consider not just the interest rate you receive but also the real rate of return, which is determined by figuring in the effects of inflation. Your financial advisor can help you calculate your real rate of return.

Clearly, if you plan to achieve long-term financial goals, from college savings for your children to your own retirement, you’ll need to create a portfolio of investments that will provide sufficient returns after factoring in the rate of inflation.

Investing to Beat Inflation

Bulletproofing your portfolio against the threat of inflation might begin with a review of the investments most likely to provide returns that outpace inflation.

Over the long run — 10, 20, 30 years, or more — stocks may provide the best potential for returns that exceed inflation. While past performance is no guarantee of future results, stocks have historically provided higher returns than other asset classes.

Consider these findings from a study of Standard & Poor’s data: An analysis of holding periods between 1926 and December 31, 2015, found that the annualized return for a portfolio composed exclusively of stocks in Standard & Poor’s Composite Index of 500 Stocks was 10.07% — well above the average inflation rate of 2.91% for the same period. The annualized return for long-term government bonds, on the other hand, was only 5.64%.2

There are many ways to include stocks in your long-term plan in whatever proportion you decide is appropriate. You and your professional financial planner could create a diversified portfolio of shares from companies you select.3 Another option is a stock mutual fund, which offers the benefit of professional management. Stock mutual funds have demonstrated the same long-term growth potential as individual stocks.

Total Annual Returns for Stocks, Bonds, and Inflation

This chart tracks inflation versus U.S. stocks and U.S. bonds for the period from January 1, 1986, through December 31, 2016. Stocks are represented by the S&P 500 index. Bonds are represented by the Barclays Aggregate index. Inflation is represented by the change in the Consumer Price Index.

Source: ChartSource®, DST Systems, Inc. Past performance is not a guarantee of future results. It is not possible to invest directly in an index. Copyright © 2016, DST Systems, Inc. All rights reserved. Not responsible for any errors or omissions. (CS000169)

 

A Balancing Act

Keep in mind that stocks do involve greater risk of short-term fluctuations than other asset classes. Unlike a bond, which guarantees a fixed return if you hold it until maturity, a stock can rise or fall in value based on daily events in the stock market, trends in the economy, or problems at the issuing company. But if you have a long investment time frame and are willing to hold your ground during short-term ups and downs, you may find that stocks offer the best chance to beat inflation.

The key is to consider your time frame, your anticipated income needs, and how much volatility you are willing to accept, and then construct a portfolio with the mix of stocks and other investments with which you are comfortable. For instance, if you have just embarked on your career and have 30 or 40 years until you plan to retire, a mix of 70% stocks and 30% bonds might be suitable.4 But even if you are approaching retirement, you may still need to maintain some growth-oriented investments as a hedge against inflation. After all, your retirement assets may need to last for 30 years or more, and inflation will continue to work against you throughout.

Take Steps to Tame Inflation

Whatever your investor profile — from first-time investor to experienced retiree — you need to keep inflation in your sights. Stocks may be your best weapon, and there are many ways to include them. Consult your financial planner to discuss your specific needs and options.

 

Source/Disclaimer:

1Source: U.S. Bureau of Labor Statistics.

2Source: Wealth Management Systems Inc. Stocks are represented by the S&P 500 index. Bonds are represented by a composite of returns derived from yields on long-term government bonds, published by the Federal Reserve, and the Barclays Long-Term Government Bond index. Inflation is represented by the change in the Consumer Price Index.

3Diversification does not ensure against loss.

4These allocations are presented only as examples and are not intended as investment advice. Please consult a financial advisor if you have questions about these examples and how they relate to your own financial situation. The investor profile is hypothetical.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

May 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Paying Off Student Loans – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

May, 2016

Paying Off Student Loans
  • Choose a federal loan repayment plan that fits your circumstances:

o    The Standard Repayment Plan requires a fixed payment of at least $50 per month and is offered for terms up to 10 years. Borrowers are likely to pay less interest for this repayment plan than for others.

o    The Graduated Repayment Plan starts with a reduced payment that is fixed for a set period, and then is increased on a predetermined schedule. Compared to the standard plan, a borrower is likely to end up paying more in interest over the life of the loan.

  • The Extended Repayment Plan allows loans to be repaid over a period of up to 25 years. Payments may be fixed or graduated. In both cases, payments will be lower than the comparable 10-year programs, but total costs could be higher. This program is complex and has specific eligibility requirements. See the Extended Repayment Plan page on the U.S. Department of Education website for details.
  • The Income-Based Repayment Plan (IBR), the Pay as You Earn Repayment Plan, the Income-Contingent Repayment Plan (ICR) and the Income-Sensitive Repayment Plan offer different combinations of payment deferral and debt forgiveness based on your income and other factors. You may be asked to document financial hardship and meet other eligibility requirements. See the U.S. Department of Education’s pages on income-driven repayment plans and income-sensitive repayment plans for more information.
  • Take an inventory of your debt. How much do you owe on bank and store credit cards? On your home mortgage and home equity credit lines? On car loans? Any other loans? Consider paying extra each month to reduce the loans with the highest interest rates first, followed by those with the largest balances.
  • Free up resources by cutting costs. Consider eating out less, reducing snacks on the go, and carpooling or using mass transit instead of driving to work. You may also be able to cut your housing costs, put off vacations and reduce clothing purchases.
  • Think about enhancing your income. A second job? A part-time business opportunity?

·         Consider jobs that offer opportunities for subsidies or debt forgiveness.

  • Sign up for automatic loan payments. Many loans offer discounted interest rates for setting up automatic electronic payments on a predetermined schedule. A reduction of 0.25% per year may look small, but over the life of a 20-year loan, it can reduce your total interest cost by hundreds or even thousands of dollars.
  • A last resort is seeking loan deferment or forbearance. Students facing significant financial hardship may be able to put off loan interest or principal payments. To see whether you might qualify, look to the U.S. Department of Education’s information on Deferment and Forbearance.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

May 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Understanding Medicare: Parts A, B, C, and D – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

March, 2016

Understanding Medicare: Parts A, B, C, and D

Medicare contains many rules that beneficiaries and their caregivers are required to learn. Perhaps the best way to grasp the program’s details is to review the major components of the Medicare program: Parts A, B, C, and D.

Medicare Part A: Hospital Insurance

This insurance is designed to help cover the following:

·         Inpatient care in hospitals, including rehabilitation facilities

·         Care provided in a skilled nursing facility or hospice for a limited period

·         Home health care

For inpatient hospital care, Medicare typically covers a semi-private room, meals, general nursing, drugs, and other hospital services and supplies. Medicare typically does not cover long-term care or custodial care in a skilled nursing facility, although under limited circumstances, it may cover a maximum of 100 days during a benefit period if a doctor certifies that a patient needs daily skilled care.

Medicare Part B: Medical Insurance

Part B helps to cover physician services, outpatient care, preventive services, durable medical equipment, and certain home health care. Although the scope of Part B is extensive, there are many services — such as dental care, routine eye exams, hearing aids, and others — that are not covered as part of this program.

Medicare Part C: Offered by Private Insurers

Also known as Medicare Advantage plans, Part C consists of insurance plans provided by private carriers. For beneficiaries with Part C, Medicare pays a fixed amount every month to a private insurer for their care. Many Medicare Advantage plans include Medicare drug coverage, and all cover emergency and urgent care. In addition, certain plans may cover services that are not covered by Medicare, which may result in lower out-of-pocket fees for beneficiaries.

You can sign up for Medicare Part C when you first become eligible for Medicare. You can also sign up between January 1 and March 31 or between October 15 and December 7 each year. If you sign up at the beginning of the year, you can’t join or switch to a plan with prescription drug coverage unless you already had Medicare Part D. If you sign up toward the end of the year, your coverage will begin January 1 of the following year.

Medicare Part D: Prescription Drugs

There are generally two ways to obtain Medicare prescription drug coverage. If you have Original Medicare (Part A plus Part B), you can add drug coverage by obtaining it from an insurer approved by Medicare through Part D. Or if you have a Medicare Advantage plan, find out whether your plan includes prescription coverage as part of its program. Even if you don’t take many prescriptions, you may want to consider signing up for Part D as soon as you become eligible. If you wait and try to sign up during a subsequent enrollment period, you may be charged a late enrollment penalty and be forced to pay higher premiums.

You can join Medicare Part D when you initially become eligible for Medicare or between October 15 and December 7 of each calendar year.

Infographic: Out of Pocket

Medical coverage from Medicare is far from a freebie. The following are costs that you may encounter.

  • Part A: No premium if you or your spouse paid Medicare taxes while you were working. For 2015, there is a deductible of $1,260 before coverage begins. You may expect to pay a portion of the cost for a hospital stay of more than 60 days during a benefit period.
  • Part B: A deductible of $147 for 2015 plus 20% of Medicare-approved amounts for medical services. The amount of additional monthly premiums depends on whether you are enrolled in Original Medicare or in Part C. With Original Medicare, the standard 2015 premium is $104.90 per month. Single beneficiaries with incomes above $85,000 and couples earning more than $170,000 pay higher premiums.
  • Part C: Costs and levels of coverage vary according to the plan. Contact plans that interest you to learn the details and to compare the costs and levels of coverage with Medicare Part A and Part B.
  • Part D: Pricing for prescription drug coverage is complex. For those who add Part D to Original Medicare, there is a monthly premium, an annual deductible, and copayments. There is a “coverage gap” that works as follows: After a beneficiary and the insurer pay $2,860 for prescription drugs during a benefit period, the beneficiary will pay 47.5% of the plan’s covered brand-name perscription drugs until out-of-pocket expenses total $4,700, at which point catastrophic coverage takes effect. Effective the following calendar year, a new benefit period begins with applicable premiums, copayments, and other costs.

Medicare’s rules can be confusing for many people. The Medicare website can be a valuable resource. Every year, Medicare also mails Medicare & You to beneficiaries and makes this fact-filled publication available online. You may want to review it to make sure you have an cost structure accurate understanding of the Medicare program.

Points to Remember

1.     Medicare consists of four components: Parts A, B, C, and D.

2.     Part A is hospital insurance designed to help cover care in a hospital or rehabilitation center. In addition, Part A may cover a limited amount of care in a skilled nursing facility or hospice.

3.     Part B is medical insurance that helps to cover physician services, outpatient care, preventive services, durable medical equipment, and certain home health care.

4.     Part C, also known as Medicare Advantage, consists of insurance plans provided by private carriers. For beneficiaries with Part C, Medicare pays a fixed amount every month to a private insurer for their care.

5.     Part D, which is prescription drug coverage, may be available as part of a Medicare Advantage plan or may be purchased in addition to Part A and Part B (also known as “Original Medicare”).

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

March 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Fixed-Income Investing: The ETF Approach – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

March, 2016

Fixed-Income Investing: The ETF Approach

Fixed-income exchange-traded funds (ETFs) are bond index funds that are listed on a stock exchange and trade throughout the day. There are fixed-income ETFs that focus on corporate, government, municipal, international, and global debt, as well as funds that track the broader Barclays Aggregate Bond Index.1 In addition, investors may purchase bond ETFs that focus on specific maturities or sections of the yield curve.

Like mutual funds, fixed-income ETFs provide a convenient way to diversify; instead of purchasing a series of individual bonds, an investor may enhance fixed-income holdings with one transaction. Another similarity is that bond ETFs often pay regular interest but do not have a specific maturity date. Investors do not own the underlying securities but instead hold shares in a pooled investment.

Fixed-Income ETFs vs. Mutual Funds

Despite their similarities, there are also key differences between bond ETFs and mutual funds. When investors purchase or sell shares in an ETF, they are required to go through a broker and pay a commission as they would when trading a security. With a fixed-income mutual fund, depending on how a particular fund is marketed, investors may purchase or redeem shares by contacting a fund firm directly or by working with a financial advisor.

 
 
 

Fixed-Income ETF

Fixed-Income Mutual Fund

     

Net Asset Value

May be higher or lower than the price at which the fund trades.

Is identical to the share price.

Trading and Pricing

Traded and priced throughout the day, like a stock.

Priced once a day after market close.

Management

Most are passively managed, tracking an index.

Most are actively managed.

Shareholder Reporting

Holdings are disclosed daily online.

Rules require holdings to be reported semiannually, although many firms disclose them more often.

Liquidity

May be traded throughout the day. May use margin, sell short, and trade options.

Although customers may place orders throughout the day, the orders are not filled until after the 4 p.m. market close. Most funds have rules prohibiting frequent trading.

Expenses

Investors pay brokerage commissions when buying or selling shares. Annual expense ratio typically is less than that of a mutual fund.2

Many firms impose redemption fees, 12b-1 fees, or sales loads.

 

Fixed-Income ETFs vs. Individual Bonds

Like mutual funds, fixed-income ETFs differ from individual bonds in that they are pooled investments and offer diversification. Other differences include:

 
 
 

Fixed-Income ETF

Individual Bonds

     

Structure

Pooled investment of multiple bonds, offering diversification.

Single security tied to specific issuer.

Trading and Pricing

Traded and priced throughout the day, like a stock.

Bought and sold through broker bond desk. Secondary markets generally less liquid.

Interest Rate Sensitivity

Prices vary inversely to changes in market rates.

If held to maturity, no interest rate risk. If sold prior to maturity, prices will vary with changes in rates.

Expenses

Investors pay brokerage commissions when buying or selling, and annual fund expenses apply.

Brokerage commissions are included in bond price.

Whether used as the core of a fixed-income portfolio or in combination with mutual funds and individual securities, bond ETFs offer many benefits for fixed-income investors. Talk to your financial advisor to learn more about how fixed-income ETFs might work in your portfolio.

Source/Disclaimer:

1Investors in international securities are sometimes subject to somewhat higher taxation and higher currency risk, as well as less liquidity, compared with investors in domestic securities. Holdings in municipal bond funds may be subject to the federal alternative minimum tax. Capital gains on the sale of fixed-income securities are taxable for federal and in many cases, state purposes.

2Source: NYSE Alternext US (formerly American Stock Exchange).

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

March 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Put Savings (and Yourself) First With a Budget – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

March, 2016

Put Savings (and Yourself) First With a Budget

Americans, it seems, are spenders. Although personal savings rates have increased recently, they remain low by historical standards, as many people continue to spend beyond their means.

If you’re among those Americans who can’t seem to save, it might be time to create a budget. A budget allows you to understand where the money goes and may help you free up cash for important savings goals, such as college and retirement.

Getting Started

Setting up a budget will require some work, but the benefits more than offset the time invested. How you create your budget is up to you. You may choose a piece of financial planning software such as Quicken, or you may choose the paper and pencil route. The worksheet below is a simple yet inclusive budget that you can use to get started.

The first element of any budget is your income, or how much money you receive each month. This can include paychecks, legal settlements, alimony, royalties, fees, and dividends from investments that you do not reinvest. Once you know what your monthly income is, you can use a budget to make sure you don’t spend more than you earn, thus helping to reduce debt and freeing up cash for savings.

Next, you need to know how you spend your money. Start by tracking your spending for a month. Gather bills and receipts, and don’t forget to include newspapers from the corner store and trips to the soda machine. Don’t assume any expense is too small to record.

Write down your expenses and break them into categories. Using the budget worksheet as an example, we find Fixed Committed Expenses — mortgage, loan, and insurance payments that stay the same from month to month; Other Committed Expenses — things you can’t live without, like food, utilities, and clothing; and Discretionary Expenses — things you like but don’t necessarily need.

Less Spending = More Savings

Once you know where the money goes, it’s time to analyze your expenses. There probably isn’t much you can do about Fixed Committed Expenses without moving or getting rid of the family car. However, if these expenses are greater than your monthly income, you are probably carrying too much debt to effectively save.

You may find some room to economize in Other Committed Expenses, but look at Discretionary Expenses first. This is typically the easiest place to reduce spending. Begin by canceling magazine subscriptions to titles you don’t read. Eat fewer meals out, or choose less expensive restaurants. Across much of the country, you can rent two videos for the price of a single adult ticket to a movie and throw in some microwave popcorn for a dollar more.

Digging Deeper

Once you’ve reduced discretionary spending, look at those Other Committed Expenses. Can you reduce the grocery bill with coupons or more economical meals? How about taking public transportation instead of cabs?

One area to closely examine is credit card debt. If a high balance is keeping you from saving, you need to find ways to trim those monthly payments. Call your credit card company and ask them for an interest-rate reduction, or shop around for a card with a lower rate. You can find lists of low-rate cards through sites such as CardTrak and Bankrate. Beware of low introductory “teaser” rates that increase to much higher rates after six months.

You could also consider a home equity loan, which may offer a tax deduction, or a consolidation loan. Make sure that you’ll be able to afford the monthly payments before you take the loan. Banks can foreclose on a home equity loan within 90 days if you miss payments.

If your savings are still being crushed under the weight of debt, or if you’re having trouble making minimum monthly payments and covering necessary expenses, consider getting some help. The nonprofit National Foundation for Credit Counseling can help you set up a budget and negotiate payment schedules with lenders for a modest fee. Once you start paying off your credit cards, the extra money can be used to build savings.

The Goal: More Savings

Once you’ve figured out where to economize, you can enter amounts in the Expected column of the budget. Notice that Savings and Children’s Education appear under Fixed Committed Expenses. This is to encourage you to pay yourself first, a key rule of saving. By setting aside a certain amount each month for savings, you can build toward your goal without missing the money. You may be able to set up a payroll savings plan through your bank or credit union. Also look into any employer-sponsored retirement plans you may have at work, which potentially offer tax benefits along with savings for the future.

It might also help to set a savings goal, both for short- and long-term needs. Studies have revealed that families with savings goals tend to save more.

Remember that your budget is a living document. As your circumstances change, so will your goals and needs. Review your budget every few months to make sure it reflects your goals and to see if you are saving as much as you possibly can.

Points to Remember

  1. You can use computer software or pencil and paper to create a budget.
  2. Analyze your spending for a month to see where your income goes. If your living expenses are greater than your income, you’ll need to find ways to economize.
  3. Your spending can be broken down into three categories: Fixed Committed Expenses, Other Committed Expenses, and Discretionary Expenses.
  4. To free up cash for savings, begin by reducing Discretionary Expenses, then look at Other Committed Expenses.
  5. Pay down credit-card debt aggressively. Once the debt is paid off, direct the extra money to savings.
  6. Set aside some of each paycheck for savings goals. Ask your bank or credit union about payroll savings plans and investigate your employer-sponsored retirement plan.
  7. Review your budget periodically to make sure it is still in line with your needs and goals.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

March 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Your Second Wind — Starting Up a New Business in Retirement – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

March, 2016

Your Second Wind — Starting Up a New Business in Retirement

Not that long ago, retirement meant being put out to pasture, with long days punctuated by occasional games of golf and bridge. But today, with lengthening life expectancies and dwindling pensions, many Americans are looking to retirement as an opportunity to start a new business. “We’ve never before seen so many seniors who are this active and doing so many things,” says Lisa Gundry, a professor of management at DePaul University’s Kellstadt Graduate School, who has worked with seniors in DePaul’s business incubator program. “They’ve accumulated enough financial security so that they are better able to take a risk on a business than someone who is younger and has a mortgage and small children.”

Senior Start-ups: Common Characteristics

Older entrepreneurs differ from their younger brethren in several critical ways. For one, seniors are usually in a much better financial position than younger entrepreneurs. Their bigger financial cushion — retirement packages, nest eggs, or home ownership — affords them flexibility in the initial stages of a start-up, where funding is often critical. Because they can often rely on other sources for current income, they are in a better position to take greater entrepreneurial risks. Start-up funding may also be easier to come by for seniors, who can draw from personal savings and a lifetime of business and professional contacts. Senior start-ups may also be looked on more favorably by lenders, who often associate older entrepreneurs with a lower risk of default.

Creativity and business acumen are also key characteristics of elder entrepreneurs. Older entrepreneurs bring “an invaluable network of contacts, credibility, and investment acumen,” says Barry Merkin, a professor at Northwestern University’s Kellogg School of Management. Having been tested again and again in their lives, they’re not afraid of failure or worried about what others will think. Instead of that urgency to “make it,” they get their satisfaction from the process of building their companies.

The type of businesses typically started by seniors varies widely. Consultancies, small retail businesses, and bed-and-breakfast establishments are perennial favorites. A growing number of late-life start-ups also involve Internet-based businesses which, even after the dot-com bust, remain a popular type of new business start-up. For many, Web-based business start-ups offer particular appeal, since they can be operated right out of your home in the early stages, often requiring no more than a high-speed Internet connection and a phone line. While most senior start-ups are related to an individual’s former career, some break into completely new territory. This is often the case with “serial” entrepreneurs — those who have started up many different businesses over their lives and are experts at the start-up process itself. Whatever business you might consider, make sure you first do your homework. Talk to owners of similar businesses and scope out the market for such products or services in your area. Then, take the time to draft a formal business plan.

Not For Everybody

As attractive as starting a new business in retirement may sound, there are several considerations you should bear in mind before taking the leap. Start-ups can be physically and emotionally draining for a retiree. Seniors tend to work fewer hours and take more vacations than their younger counterparts. Ask yourself: Are you willing or able to work the long hours that may be required in a fledgling business? There is also the matter of elder health concerns. For seniors, health problems can come at any time. Even if you are in top shape, you should factor in contingencies for unexpected health issues for yourself and your spouse.

Then there’s financial vulnerability. “Failing at 60 is not like failing at 30, when you have lots of time to build up your assets,” says Martin Nissenbaum, national director of retirement planning for Ernst & Young International. Seniors also rely much more on personal investments to supply a portion of their income. For these reasons, seniors are advised not to sink too great a portion of their investment portfolio into a new business and should avoid pledging as loan collateral personal assets such as a home.

Successful post-retirement start-up tips:

  • Build on already established contacts and expertise. Seniors have a distinct advantage over younger entrepreneurs in their experience and long-established business network, which can give them a competitive advantage in virtually any business.
  • Start small. When starting up a new business in retirement, many begin with a small consultancy and gradually work their way into a full-blown business. This will give you time to assess whether you’re willing or able to take on another full-time career.
  • Don’t bet the farm. If you’re retired, you probably rely on personal investments for a portion of your income. Consider your income needs before investing a portion of your nest egg in a new business and think twice before taking on any personal debt.

 

Retirement Business Ideas

Some practical businesses that are popular among retirees.

  • ADULT DAY CARE
  • DRIVING SERVICE
  • HOME HANDYMAN
  • SALES
  • REAL ESTATE AGENT
  • BUSINESS CONSULTANT
  • HOME/PET SITTING
  • ARTS/CRAFTS
  • ELDERLY TRANSPORT

 

 

Points to Remember

  1. Today, with lengthening life expectancies and dwindling pensions, an increasing number of retirees are looking to retirement as an opportunity to start a new business.
  2. Older entrepreneurs differ from their younger brethren in several critical ways: They are usually in a much better financial position; they generally have easier access to funding; and they are able to tap into a lifetime of experience and connections.
  3. The type of businesses typically started by seniors varies widely. Consultancies, small retail businesses, and bed-and-breakfast establishments are perennial favorites.
  4. Before considering a senior start-up, you should weigh the physical and emotional pressures that a new business is likely to place on your life, and remember to factor in the heightened health considerations of elders.
  5. Seniors are advised not to sink too great a portion of their investment portfolio into a new business and should avoid pledging as loan collateral personal assets such as a home.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

March 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Mutual Funds and Taxes: A Primer to Help Lighten the Load – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

March, 2016

Mutual Funds and Taxes: A Primer to Help Lighten the Load

Filling out your tax return is like compiling the index of a book — the book is complete, but you have to rummage (sometimes painfully) through your work again, assuring accuracy and factual content, in order to make the book easier for someone else to read. If you’re a mutual fund investor trying to determine your taxable gain or loss for the past year, your tax return will entail additional work.

But if you’ve kept good records and understand some basic guidelines, the process can be relatively painless.

Tax Treatment of Mutual Funds

The first step in evaluating your tax liability is knowing which investment transactions require payment of taxes. In general, whenever you sell or exchange shares of a mutual fund, you may have a capital gain or loss that must be reported in the tax year of the transaction. In addition, most funds receive periodic dividend or interest income from stock or bond investments and incur capital gains or losses when selling securities in the fund during the year. The fund company passes these dividends, interest, and capital gains to you, the shareholder, either in a check or through reinvested distributions. You must pay taxes on dividends, interest, and capital gains that the fund company distributes to you, in addition to capital gains on sale or exchange of shares in your account. Reinvesting distributions in more shares of the fund does not relieve you from having to pay taxes on those distributions.

The next step is understanding the difference between short- and long-term capital gains. Short-term capital gains (assets held 12 months or less) are taxed at your regular income tax rate, whereas long-term capital gains (assets held for more than 12 months) are currently subject to federal tax at a rate of up to 20%.1 Remember that each dollar of capital loss can offset a dollar of capital gain. In other words, if you have $1,000 in long-term gains and $600 in long-term losses, you only have to pay tax on a net long-term gain of $400. Should your losses exceed your gains, you can offset up to $3,000 of excess capital losses against ordinary income. Losses beyond $3,000 can be carried over and deducted from income in future years.

How to Determine a Gain or Loss

In order to determine whether you have a gain or loss on a sale or exchange, you must first know your “adjusted cost basis.” That’s because you will be taxed on the difference between the cost basis of the fund shares and the amount you received when you sold them.

Under a federal law that took effect on January 1, 2011, financial institutions are now required to report cost basis for certain investments to investors, on Form 1099-B, which typically is made available to investors in January of the following year. The expanded Form 1099-B specifies whether a gain or loss was short term or long term. The new cost-basis reporting requirements took effect for certain securities in 2011, and apply to mutual fund shares purchased on or after January 1, 2012.

Previously, when an investor sold a position in a security or a fund, the investor’s financial firm was required to report only the gross sale proceeds to the investor and to the Internal Revenue Service (IRS). It was typically up to the investor to track the cost basis and to calculate the capital gain or loss, and the resulting tax liability, for income tax purposes. The IRS always gave you the choice of accounting methods to determine cost basis.

FIFO, which stands for “first in, first out,” means the shares you bought first are also the ones you sell first.

The specific identification method of selling shares demands more planning on your part, but also provides the most flexibility of any method for determining the amount of gain or loss on your shares. For example, if you want to select certain shares to sell in order to produce the best tax benefit for your situation, you have to specify the shares you want to sell in advance and in writing to your fund company. Then, you’ll receive confirmation of your request for your tax records. Therefore, if you’ve sold shares of a fund in the past year, and didn’t specify which shares, it’s too late to use this method for that particular fund. You can, however, use specific identification in the future, as long as you haven’t previously employed the single- or double-category average cost method.

The average cost method calculates your cost basis by simply averaging the purchase price of all your shares, regardless of how long you have held them. This method is particularly time-saving if you are redeeming or exchanging all shares of a fund account and have invested over many years and reinvested your dividends. But the tax result may not be advantageous if you’re only redeeming a portion of the account.

Ways to Determine Cost Basis

  1. FIFO (first in, first out) — Shares bought first will be sold first.
  2. Specific Identification Method — You specify shares to be sold to provide yourself with the best possible tax benefit.
  3. Single-Category Average Cost — Simply averages the purchase price of all shares bought.

 

Most financial institutions use average cost as the default tax lot identification method for mutual funds, but you should check before making this assumption. Note that you may still select the cost basis reporting method you prefer.

Other Factors to Consider

Keep in mind that you can’t change to another method at a future date without permission from the IRS once you’ve chosen single- or double-category averaging for a particular fund. Also, you must specifically state on your return if you are using one of the averaging methods. These restrictions are not placed on shareholders using either the FIFO or specific identification method of selling shares.

If you buy shares of a fund that has a front-end load, the sales charge is included in the cost basis of those shares. Therefore, if you send your fund company $1,000 to purchase shares that have a 5% load up front, your account would be worth $950. However, your cost basis would still be $1,000 for tax purposes. If your fund company charges a load when you sell your shares, the load should be deducted from your gain or added to your loss. For example, if you invested $1,000 in a fund and sold those shares later for $2,000 with a 2% back-end load, your gain on those shares would be $1,000 minus the load of $40 (2% of $2,000), or $960.

Also note that when you purchase additional shares as a result of reinvesting dividends and capital gains, such shares are included in your cost basis. And if you’re thinking about taking losses this year in order to offset other gains, keep in mind that you cannot sell shares at a loss and buy additional shares in the same or substantially identical mutual fund within 30 days before or after the date of sale. The applicable federal tax law treats that as a “wash sale.”

Some Helpful Hints

There’s no substitute for keeping careful records of all mutual fund investments. Especially important are year-end statements, which generally list the past year’s transactions, including dividends and capital gains distributions. If you’re missing records for any year, ask your fund company to supply them. They’ll be indispensable when preparing your tax return in future years when you sell those shares.

The above guidelines can provide you with some sense of direction as you plan to compile your “index” of taxable transactions from the past year. Of course, you may want to consult a tax advisor regarding your particular situation to ensure that you are making the decisions that are best for you. It can never hurt to have someone “edit” the masterpiece you’ve created.

Points to Remember

  1. Shareholders must pay taxes on dividends and capital gains distributions made to them during the year; reinvesting distributions does not relieve the shareholder from tax burdens.
  2. Short-term capital gains are monetary gains from assets sold within one year of their purchase. Long-term capital gains are monetary gains from assets sold more than one year after their purchase.
  3. Short-term capital gains are taxed at the investor’s ordinary income tax rate. Long-term capital gains are taxed up to the maximum capital gains rate.
  4. Under the FIFO method of calculating cost basis, the first shares purchased are the first shares sold.
  5. Under the specific identification method of determining cost basis, the shareholder chooses which shares to sell to obtain the maximum tax benefit. Prior written notification must be given to the fund company of the shares to be sold, and confirmation of that request should be obtained.
  6. Under the single-category average cost method of determining cost basis, shareholders average the purchase prices of all shares in the account, regardless of how long they’ve been held.
  7. A law that took effect in 2011 requires financial institutions to begin to report cost basis for certain investments to investors, on Form 1099-B, which typically is made available to investors in January of the following year. For mutual fund investors, the new rule applies to shares purchased on or after January 1, 2012.
  8. Sales loads must be considered when determining cost basis.
  9. “Wash sale” rules prohibit shareholders from claiming a loss on sold shares (or substantially similar shares) that are repurchased within 30 days before or after the date of sale.

Source/Disclaimer:

1An additional 3.8% Medicare contribution tax may also apply to certain capital gains.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

March 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Managing a Disability or Chronic Illness – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

February, 2016

Managing a Disability or Chronic Illness

Create a financial plan that can help you make the best of any circumstance. Here’s a checklist for financial preparedness.

Lay a secure foundation

Consider disability insurance to replace income that you may no longer receive if you become disabled by illness or injury. Some employers offer free or discounted disability insurance policies to their employees. Many insurance companies sell individual policies.

Some key points to consider for any disability insurance policy are:

·         Your policy cost and whether it might be offset in part by employer contributions or insurance policy dividends

·         Proportion of your income to be replaced (you may need a supplemental policy to ensure that you have sufficient funds)

·         Time you’d have to wait for benefits to be paid after becoming disabled

·         Any caps on total benefits

Look into long-term care insurance, which can provide you with care in the event that you cannot take care of yourself due to any physical or mental incapacity. Here are some key points to consider:

·         Be confident that you can make premium payments because coverage will generally lapse if you stop.

·         Assess the financial details of benefits. Some policies provide periodic fixed payments, some reimburse a percentage of the actual costs you incur and some pay all direct costs. Some policies may require you to use a specific provider or will only give you full reimbursement if you use the insurance company’s preferred provider. Some policies have an annual or lifetime benefit ceiling.

·         Understand the kinds of care being offered. Some policies may not cover in-home health aides, adult day care, assisted living facilities or nursing homes.

·         Determine whether the policy has any exclusions. Some policies, for example, may not cover mental health issues, disabilities resulting from substance abuse, injuries resulting from acts of war or attempted suicide.

Ask these questions before buying a policy

·         Are there automatic adjustments for increases in the cost of living? (Inflation can erode the value of fixed payments over time.)

·         Is the issuing company licensed in your state and financially sound? (Independent companies such as Standard & Poor’s and A.M. Best Company rate insurance companies based on their fiscal health.)

·         When do you want benefits to kick in? (Generally, the longer the waiting period, the lower the cost of a policy.)

·         Is there a guaranteed renewal clause, meaning the policy remains in force even if you become physically or mentally incapacitated?

Be sure you’ve created the documents that your loved ones will need to carry out your intentions

·         Wills, trust documents and letters of intent should detail your wishes for care and control of your affairs should you become unable to act for yourself.

·         Advanced directives, living wills and powers of attorney that you’ve created should address the potential consequences of your disability or incapacity.

Managing the effects of reduced capability

·         Assess your current situation

o    Can you effectively manage routine financial affairs such as paying bills and monitoring your assets?

o    Can you take care of personal needs such as food and hygiene?

o    Can you manage your daily medication and any medical devices may you need?

o    Have you made alternative arrangements for activities you cannot manage yourself?

·         Evaluate your prognosis and understand its implications

o    Can you reasonably expect to regain important capabilities at some future point?

o    Are you likely to remain stable at your new (albeit diminished) level of capability?

o    Should you prepare for increasing loss of capability? (Begin planning now for assisted living or custodial care for which you can foresee a need.)

·         Consider your future circumstances

o    Can you foresee returning to work at some point, and if so, will you need any accommodation? Discuss your future work potential with your employer.

o    Will you be taking any medication indefinitely, and if so, have you made any necessary financial or insurance arrangements? You should discuss the financial implications of medication choices with your physician; there may be lower-cost alternatives.

o    Can you remain in your home, and if so, can you manage with support from family and friends, or will you need in-home professional services? Discuss your needs with the people you plan to rely on for support.

o    Have you updated your estate plan (especially your will, trust documents, advanced directives and letters of intent) to reflect your new circumstances?

o    Do you see a time when you will not be able to make decisions for yourself? If so, you can work out arrangements in advance with those who would become your guardians.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

February 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Make the Most of Your 401(k) – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

February, 2016

Make the Most of Your 401(k)

As more Americans shoulder the responsibility of funding their own retirement, many rely increasingly on their 401(k) retirement plans to provide the means to pursue their investment goals. That’s because 401(k) plans offer a variety of attractive features that make investing for the future easy and potentially profitable.

What is a 401(k) plan?

A 401(k) plan is an employee-funded savings plan for retirement. For 2015, a 401(k) plan allows you to contribute up to $18,000 of your salary to a special account set up by your company, although individual plans may have lower limits on the amount you can contribute. Individuals aged 50 and older can contribute an additional $6,000 in 2015, so-called “catch up” contributions.

How are 401(k) plans taxed?

401(k) plans come in two varieties: traditional and Roth-style plans.

A traditional 401(k) plan allows you to defer taxes on the portion of your salary contributed to the plan until the funds are withdrawn in retirement, at which point contributions and earnings are taxed as ordinary income. In addition, because the amount of your pretax contribution is deducted directly from your paycheck, your taxable income is reduced, which in turn lowers your tax burden.

A Roth 401(k) plan features after-tax contributions, but tax-free withdrawals in retirement. Under a Roth plan, there is no immediate tax benefit. However, plan balances have the potential to grow tax free; you pay no taxes on qualified distributions.

Matching contributions

One of the biggest advantages of a 401(k) plan is that employers may match part or all of the contributions you make to your plan. Typically, an employer will match a portion of your contributions, for example, 50% of your first 6%. Under a Roth plan, matching contributions are maintained in a separate tax-deferred account, which, like a traditional 401(k) plan, is taxable when withdrawn. Total contributions, including employee and employer portions, cannot exceed $53,000 in 2015. Note that employer contributions may require a “vesting” period before you have full claim to the money and their investment earnings.

Distributions

Both traditional and Roth plans require that distributions be taken after 59½ (or age 55 if you are separating from service with the employer from whose plan the distributions are withdrawn), although there are certain exceptions for hardship withdrawals. If a distribution is not qualified, a 10% IRS additional federal tax will apply in addition to ordinary income taxes on all pretax contributions and earnings.

When you change jobs

When you change jobs or retire, you generally have four different options for your plan balance:

  1. Keep your account in your former employer’s plan, if permitted;
  2. Transfer balances to your new employer’s plan;
  3. Roll over the balance into an IRA;
  4. Take a cash distribution.

The first three options generally entail no immediate tax consequences; however, taking a cash distribution will usually trigger 20% withholding, a 10% additional federal tax if taken before age 59½, and ordinary income tax on pretax contributions and earnings.

Borrowing from your plan

One potential advantage of many 401(k) plans is that you can borrow as much as 50% of your vested account balance, up to $50,000. In most cases, if you systematically pay back the loan with interest within five years, there are no penalties assessed to you. If you leave the company, however, you may have to pay back the loan in full immediately, depending on your plan’s rules. In addition, loans not repaid to the plan within the stated time period are considered withdrawals and will be taxed and penalized accordingly.

Choosing investments

Most plans provide you with several options in which to invest your contributions. Such options may include stocks for growth, bonds for income, or cash equivalents for protection of principal. This flexibility allows you to spread out your contributions, or diversify, among different types of investments, which can help keep your retirement portfolio from being overly susceptible to different events that could affect the markets.

401(k) Advantages

  • Pretax contributions and tax-deferred earnings on traditional plans
  • Tax-free withdrawals for qualified distributions from Roth-style plans
  • Choice among different asset classes and investment vehicles
  • Potential for employer-matching contributions
  • Ability to borrow from your plan under certain circumstances

A 401(k) plan can become the cornerstone of your personal retirement savings program, providing the foundation for your financial future. Consult with your plan administrator or financial advisor to help you determine how your employer’s 401(k) plan could help make your financial future more confident.

Source/Disclaimer:

Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund may seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Diversification and asset allocation do not ensure a profit or protect against a loss.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

February 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Maintain a Good Credit Rating – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

February, 2016

Maintain a Good Credit Rating

Installment debt, in itself, is not a bad thing. It enables us to make major purchases that would be nearly impossible to finance up-front. The problem is, in this consumer society, we’re bombarded with advertisements for literally thousands of “must-have” products. The result is that while our parents tended to pay with cash and buy only what they could afford, we have the “buy now, pay later” mentality.

Unfortunately, our massive appetite for credit may be eroding our financial security, as more Americans continue to rely on borrowed money to maintain their existing lifestyles.

Why Credit Is Important

It is important to establish credit if you plan to buy a home or automobile some day. Credit cards also provide a means of reserving a hotel room or obtaining cash while you’re traveling.

If you are a college student, recent graduate, or a nonworking spouse, you can begin to establish credit by opening a savings or checking account in your own name. You can then apply for a department store and/or oil company credit card. Having someone else co-sign a loan for you will also get you started.

Creating a positive credit history for yourself requires using your credit card intelligently. Following are some dos and don’ts to help you manage credit effectively:

  • DO NOT charge more than you can easily pay off in a month or two.
  • DO NOT be fooled into paying just the low minimum amount listed on a bill. Credit card issuers make money on interest; there’s nothing they’d like more than to have you stretch out payments.
  • DO consistently pay your bills by the due date.
  • DO use credit for larger, durable purchases you really need, rather than non-durables, such as restaurant meals that are better paid in cash.

Missing Payments

When you miss a payment, the information immediately goes into your credit report and affects your credit rating. If you’re judged a poor credit risk, you may be refused a home mortgage or rejected for an apartment rental. In addition, a prospective employer looking for clues to your character may dismiss your job application if your credit report reflects an inability to manage your finances. In most states, an auto insurer may put you into its high-risk group and charge you 50% to 100% more if your credit record has been seriously blemished within the last five years. Many property insurers also review credit histories before they issue policies.

How Credit Reporting Works

Credit reporting agencies, also known as credit bureaus, gather detailed information about how consumers use credit. Businesses that grant credit regularly supply credit information to credit bureaus. Credit bureaus then compile this information into credit reports, which are sold to banks, credit card companies, retailers, and others who grant credit.

Your credit report helps others decide if you are a good credit risk. This information should be supplied only to those parties who have a legitimate interest in your credit affairs, including prospective employers, landlords, or insurance underwriters, as well as others who grant credit. The Fair Credit Reporting Act (FCRA), the federal statute that regulates credit bureaus, requires anyone who acquires your credit report to use it in a confidential manner.

The following information is most likely to appear in your credit report:

  • Your name, address, social security number, and marital status. Your employer’s name and address, and an estimate of your income may also be included.
  • A list of parties who have requested your credit history in the last six months.
  • A list of the charge cards and mortgages you have, how long you’ve had them, and their repayment terms.
  • The maximum you’re allowed to charge on each account; what you currently owe and when you last paid; how much is paid by the due date; the latest you’ve ever paid; and how many times you’ve been delinquent.
  • Past accounts, paid in full, but are now closed.
  • Repossessions, charge-offs for bills never paid, liens, bankruptcies, foreclosures, and court judgments against you for money owed.
  • Who owes the debt — you alone, you and a joint borrower, or you as cosigner. (Debts that you co-sign become part of your credit history, the same as debts you incur yourself.)
  • Bill disputes.

Negative information can be kept in your file only for a limited time. Under the law, delinquent payments can be reported for no more than 7 years and bankruptcies for no longer than 10 years.

Signs of Credit Overextension

  1. You don’t know how much you owe.
  2. You borrow to buy items you used to purchase with cash.
  3. You have to juggle other bills just to pay the minimum charges on your cards each month.
  4. Each monthly credit balance is higher than the last, and you keep applying for more credit, using the cash advances to pay bills.
  5. You pay bills using money intended for other needs.
  6. Creditors are sending overdue notices.
  7. You have no savings or emergency funds to cover three to six months of living expenses.

 

 

Free Credit Reports

Under federal law, you are entitled to receive a free credit report from each of the three national credit reporting companies (Equifax, Experian, and TransUnion) once every 12 months. To get yours, visit www.annualcreditreport.com

 

Be Credit-Smart

Your credit history requires maintenance, just like other areas of your life. Even if you pay your debts on time, don’t assume that your credit rating is flawless. Mistakes do occur.

The FCRA entitles you to review information in your credit file. If you have been denied credit, the company denying credit must let you know and give you the name and address of the credit agency making the report. Once you have this information, you can send a letter to the agency and you will receive the information in your credit file, at no cost, within 30 days.

It’s a good idea to obtain a copy of your credit report to check it for accuracy. A new law entitles all consumers in the United States to one free online credit report every 12 months from each credit reporting agency. To do so, log on to www.annualcreditreport.com. (Keep in mind that other Web sites claiming to offer “free” credit reports may charge you for another product or service if you accept a “free” report.) If you wish to dispute any information in your file, simply write the agency and ask them to verify it. Under the law, they are required to do so within a “reasonable time,” usually 30 days. If the agency cannot verify the information, it must be deleted from your file.

Points to Remember

  1. Installment credit, in itself, is not a bad thing; it can enable you to make major purchases that would otherwise be difficult to finance.
  2. To establish a credit history, open a checking or savings account, then apply for an oil company or retail store credit card. Use your cards sparingly, charging only what you can pay off in a month or two, and make your payments by the due date.
  3. Don’t be fooled into paying just the minimum balances. If you do, you’ll stretch your payments over months, even years, and incur interest charges in the process.
  4. Missed or late payments will damage your credit rating, which can affect your ability to obtain a home mortgage or rental apartment, auto or property insurance, and maybe even a job.
  5. Monitor your credit rating periodically to determine that all information is reported accurately.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

February 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Helping to Care for Aging Parents – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

January, 2016

Helping to Care for Aging Parents

Many adults are finding that their aging parents are in need of health care assistance. Luckily, there are many options available today to help your parents grow old gracefully, either in their own home or in a facility, and several ways that you can finance the costs of the care.

Assisted Living If your parents are healthy seniors who can look after themselves, they generally are eligible to enter a continuing-care retirement community that allows them to buy or rent an apartment and ensures them lifetime nursing care when it is necessary. Another option for healthy seniors is private long-term care insurance, which can help cover nursing home costs or the cost of an in-home aide.

Living with Family Many families opt for moving an aging parent into their own home. If you are able to coexist peacefully with your parent, this may be a good idea because the arrangement frees you from worry about the upkeep of a second home. For parents with dementia or more serious health issues, adult day care is also an option and a good way to get your parent to socialize with other adults.

Living Alone When living together is not a workable plan, maintaining your parent in his or her own home is also an option. There are, however, several fairly expensive things that may be required to make a home environment safe and suitable for an aging person. Various safety features may be necessary, including first-floor bathrooms, grab bars in hallways and bathrooms, and a personal emergency response system in case your parent needs assistance while alone. If your parent is in need of daily assistance with meals or chores, he or she can apply for several services such as Meals on Wheels, which may be free for anyone over 60. If your parent needs more personal assistance, you may want to look into hiring an in-home aide at a skill level appropriate for the amount of help needed.

Nursing Home If sending your parent to a nursing home is inevitable, make sure you research each home extensively. Reservations at the home selected should be made at least a year ahead of the time that you expect your parent will need it, as waiting lists are typically long at well-respected facilities. Keep in mind, too, that the government offers limited financial help for those families paying for nursing home care.

Online Support for Eldercare

The federal government’s Administration on Aging offers a variety of print and online materials for elders, their families, and professionals regarding housing, medical, caregiving, and services for seniors.

ElderWeb has a rich collection of resources for the elderly and their caregivers on financial matters, health care, living arrangements, and social, mental, and legal issues.

There are other online support services, publications, and resources available that may meet your needs. Check your local library or senior services agency for information.

 

Financing Long-Term Care

One of the biggest worries of those caring for an aging parent is how to pay for the care needed.

Medicare will only pay the full cost of professional help if a physician certifies that your parent requires nursing care and if these services are provided by a Medicare-certified home health care agency. Medicare will only pay for nursing home care on a short-term basis, and benefits are restricted to low income individuals with very limited assets.

Tax Considerations If you provide more than half of a parent’s support and his or her gross income is less than $3,950, you can claim your parent as your dependent, giving you a tax exemption for each parent so cared for and allowing you to write off much of the medical expense. (Note: The dependent exemption phases out at higher income levels. Check with your tax advisor.) You may also be able to claim a federal tax credit that will enable you to take up to $3,000 off the cost of in-home care or day care. Another option is the flexible spending account (FSA), which lets you pay for a certain amount of care each year with pretax dollars.

With elder care costs continually on the rise, financial planning has become ever more crucial to the economic well-being of adult children responsible for the care of their elderly parents. Don’t wait until the last minute — start planning now to ensure the future care of your parents.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2015 Wealth Management Systems Inc. All rights reserved.

January 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Focus on Time in the Market, Not Market Timing – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

January, 2016

Focus on Time in the Market, Not Market Timing

Sports commentators often predict the big winners at the start of a season, only to see their forecasts fade away as their chosen teams lose. Similarly, market timers often try to predict big wins in the investment markets, only to be disappointed by the reality of unexpected turns in performance. It’s true that market timing sometimes can be beneficial for seasoned investing experts (or for those with a lucky rabbit’s foot); however, for those who do not wish to subject their money to such a potentially risky strategy, time — not timing — could be the best alternative.

What Is Market Timing?

Market timing is an investing strategy in which the investor tries to identify the best times to be in the market and when to get out. Relying heavily on forecasts and market analysis, market timing is often utilized by brokers, financial analysts, and mutual fund portfolio managers to attempt to reap the greatest rewards for their clients.

Proponents of market timing say that successfully forecasting the ebbs and flows of the market can result in higher returns than other strategies. Their specific tactics for pursuing success can range from what some have termed “pure timers” to “dynamic asset allocators.”

Pure timing requires the investor to determine when to move 100% in or 100% out of one of the three asset classes — stocks, bonds, and money markets. Investment in a money market fund is neither insured nor guaranteed by the U.S. government, and there can be no guarantee that the fund will maintain a stable $1 share price. The fund’s yield will vary. Perhaps the riskiest of market timing strategies, pure timing also calls for nearly 100% accurate forecasting, something nobody can claim.

On the other hand, dynamic asset allocators shift their portfolio’s weights (or redistribute their assets among the various classes) based on expected market movements and the probability of return vs. risk on each asset class. Professional mutual fund managers who manage asset allocation funds often use this strategy in attempting to meet their funds’ objectives.

Market Timing Has Its Risks

Although professionals may be able to use market timing to reap rewards, one of the biggest risks of this strategy is potentially missing the market’s best-performing cycles. This means that an investor, believing the market would go down, removes his investment dollars and places them in more conservative investments. While the money is out of stocks, the market instead enjoys its best-performing month(s). The investor has, therefore, incorrectly timed the market and missed those top months. Perhaps the best move for most individual investors — especially those striving toward long-term goals — might be to purchase shares and hold on to them throughout market cycles. This is commonly known as a “buy and hold” investment strategy.

As seen in the accompanying table, purchasing investments and then withstanding the market’s ups and downs can work to your advantage. Though past performance cannot guarantee future results, missing the top 20 months in the 30-year period ended December 31, 2014, would have cost you $20,546 in potential earnings on a $1,000 investment in Standard & Poor’s Composite Index of 500 Stocks (S&P 500). Similarly, a $1,000 investment made at the beginning of 1995 and left untouched through 2014 would have grown to $6,548; missing only the top 20 months in that span would have cut your accumulated wealth to $1,436.1

Though many debate the success of market timing vs. a buy-and-hold strategy, forecasting the market undoubtedly requires the kind of expertise that portfolio managers use on a daily basis. Individual investors might best leave market timing to the experts — and focus instead on their personal financial goals.

The Risk of Missing Out

 

1985-2014

1995-2014

2005-2014

[1]

Untouched

$25,109

$6,548

$2,094

[2]

Miss 10 Top-Performing Months

9,650

2,796

998

[3]

Miss 20 Top-Performing Months

4,563

1,436

639

Perhaps the most significant risk of market timing is missing out on the market’s best-performing cycles. The three columns represent the growth of a $1,000 investment beginning in 1985, 1995, and 2005, and ending December 31, 2014.

Row 1 shows the investment if left untouched for the entire period shown above; Row 2 shows the investment if it was pulled out during the 10 top-performing months; and Row 3 shows the investment if it was pulled out during the 20 top-performing months.

 

Use Time to Your Advantage

If you’re not a professional money manager, your best bet is probably to buy and hold. Through a buy-and-hold strategy, you take advantage of the power of compounding, or the ability of your invested money to make money. Compounding can also help lower risk over time: As your investment grows, the chance of losing the original principal declines.

Annual Return of the S&P 500

http://fc.standardandpoors.com/cms/Article/12592/img_1423763444836_28862.PNG

Source: ChartSource®, Wealth Management Systems Inc. For the period from January 1, 2005, through December 31, 2014. Average is calculated using full calendar years only. Past performance is not a guarantee of future results. It is not possible to invest directly in an index. Copyright © 2015, Wealth Management Systems Inc. All rights reserved. Not responsible for any errors or omissions. (CS000141)

 

Regular Evaluations Are Necessary

Buy and hold, however, doesn’t mean ignoring your investments. Remember to give your portfolio regular checkups, as your investment needs will change over time. Most experts say annual reviews are enough to ensure that the investments you select will keep you on track to meeting your goals.

Normally a young investor will probably begin investing for longer-term goals such as marriage, buying a house, and even retirement. The majority of his portfolio will likely be in stocks and stock funds, as history shows they have offered the best potential for growth over time, even though they have also experienced the widest short-term fluctuations. As the investor ages and gets closer to each goal, he or she will want to rebalance portfolio assets as financial needs warrant.

This hypothetical investor knows that how much time is available plays an important role when determining asset choice. Most experts agree that a portfolio made up primarily of the “riskier” stock funds (e.g., growth, small-cap) may be best for those saving for goals more than five years away; growth and income funds and bond funds might be the main focus for investors nearing retirement or saving for shorter-term goals; and investors who see a possible need for cash in the near future might consider a portfolio weighted toward money market instruments.2 Remember, though, that even those enjoying retirement should consider the historical inflation-beating benefits of stocks and stock mutual funds, as people often live 20 years or more beyond their last official paycheck.

Time Is Your Ally

Clearly, time can be a better ally than timing. The best approach to your portfolio is to arm yourself with all the necessary information, and then take your questions to a financial advisor to help with the final decision making. Above all, remember that both your long- and short-term investment decisions should be based on your financial needs and your ability to accept the risks that go along with each investment. Your financial advisor can help you determine which investments are right for you.

Points to Remember

  1. Historically, a buy-and-hold strategy has resulted in significantly higher gains over the long run, although past performance is not indicative of future results.
  2. A big risk of market timing is missing out on the best-performing market cycles.
  3. Missing even a few months can substantially affect portfolio earnings.
  4. Market timing strategies — which range from putting 100% of your assets in or out of one asset class to allocation among a variety of assets — are based on market performance expectations.
  5. Market timing is best left to professional money managers.
  6. Though buy-and-hold is a smart strategy, regular portfolio checkups are necessary.
  7. Time horizon is particularly important when determining asset choices.
  8. Riskier investments are more appropriate for longer-term goals, and as goals get closer, portfolios should be rebalanced.
  9. Even in retirement, portfolios should contain investments for earnings to keep pace with inflation.
  10. You should consult your financial advisor when making asset allocation decisions.

Source/Disclaimer:

1Source: Wealth Management Systems Inc. Stocks are represented by Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index generally considered representative of the U.S. stock market. Individuals cannot invest in indexes. Past performance is not a guarantee of future results.

2An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although most funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2015 Wealth Management Systems Inc. All rights reserved.

January 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

How Do I Pay for Health Care Costs While Living or Traveling Abroad? – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

January, 2016

How Do I Pay for Health Care Costs While Living or Traveling Abroad?

Generally speaking, public and private health insurance plans in the United States — including Medicare and most private policies — only pay for treatment and services provided to individuals while they are in this country. Therefore, as an American living, working, or traveling outside of the United States, you will typically be required to pay for any health care costs you incur while abroad.

Even though officials from a U.S. consulate may be able to help you by locating medical services, by informing family or friends of your predicament, and by assisting in the transfer of funds from the United States, the payment of all expenses remains your responsibility. (There are exceptions, however. For workers posted to a non-U.S. location, for example, insurance provided through employers usually does cover overseas medical costs.)

With that in mind, it’s almost always a good idea to purchase a special health insurance policy before you depart that will cover you during your travels — especially if you have a serious pre-existing condition (diabetes, HIV, etc.). A travel agent or insurance agent can help you find one that fits your time frame. For example, short-term health insurance policies for international travelers are available to cover brief trips overseas.

Without insurance, the financial implications of incurring health care costs in a foreign country can be significant. For example, a patient who undergoes major surgery and spends several weeks in intensive care in Mexico could receive a hospital bill for $30,000 or more. And a subsequent medical evacuation back to the United States could cost nearly as much.

Remember, too, that moving to a country with universal health coverage does not necessarily mean you will be immediately eligible for such coverage. In Canada, for example, you must be a legal resident of that country in order to fully benefit from its national health care system.

Although most trips abroad end without a visit to a doctor’s office or hospital emergency room, purchasing a health insurance policy to cover you during overseas travel could end up saving you thousands of dollars in unexpected expenses.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2015 Wealth Management Systems Inc. All rights reserved.

January 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Should I Have Separate Accounts for My Deductible and Nondeductible IRA Contributions? – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

January, 2016

Should I Have Separate Accounts for My Deductible and Nondeductible IRA Contributions?

While it is not required to hold separate IRAs for deductible and nondeductible contributions, many financial experts recommend that you do so. The chief reason? Tax planning.

If you “commingle” your funds — that is, create one account that has a mix of tax-deductible and non-tax-deductible contributions — it could get tricky for you when it comes time to withdraw those assets or roll them over into a different type of account (such as a Roth IRA).* You’ll have to keep good records handy to determine what amount was tax deductible — or spend a lot of time hunting for old account statements or tax returns. Those tax-deductible contributions, and any earnings, are taxed as ordinary income.

Keep in mind that your eligibility for a full or partial deduction depends on whether you (or your spouse, if applicable) participate in an employer-sponsored retirement plan. If you do, the income limits for a full deduction are $61,000 for single filers and $98,000 for joint filers for 2015.

Source/Disclaimer:

*Distributions prior to age 59½ may be subject to a 10% additional federal tax.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2015 Wealth Management Systems Inc. All rights reserved.

January 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Choosing the Right Benchmarks for Your Mutual Fund – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

January, 2016

Choosing the Right Benchmarks for Your Mutual Fund

Community school boards use standardized tests to gauge how their students perform in relation to national averages. On an even more basic level, your local weather forecasters can check the accuracy of their predictions by measuring temperatures and rainfall. As a mutual fund investor, you also have tools available to gauge the performance of your investments. Such tools are known as market benchmarks. The challenge, however, is choosing the tool that most accurately serves your purpose.

What Are Investment Benchmarks?

The dictionary defines a benchmark as “a point of reference for measurement.” Market benchmarks are used by individual investors, portfolio managers, and market researchers to determine how a particular market or market sector performs. Often cited in news reports, market indexes can be especially helpful to mutual fund investors by offering market “standards” to help them evaluate the risk and the return history of their own investments. However, investors should remember to compare their mutual fund to the index that best tracks securities comparable to the fund’s holdings, and to use an appropriate time frame.

What’s in a Name?

The appropriate index for your needs is not always easily identified by its name or popularity. For example, most people have heard of the Dow Jones Industrial Average, since its closing figures are quoted nightly on news broadcasts. However, many people may not be aware that the Dow tracks only 30 stocks of some of America’s largest companies — not a very reliable source for comparison if your fund’s holdings include small-capitalization or international companies.

To help you determine which index may be appropriate for your needs, following are descriptions of some of the more popular indexes, separated into mutual fund categories.

Money Market Funds1

  • IBC’s Money Fund Report Averages: These benchmarks track the averages of taxable and tax-free money market fund yields on a 7- and 30-day basis.

Bond Funds

  • Barclays Aggregate Bond Index: A combination of several bond indexes, Barclays indexes are among the most widely used benchmarks of bond market total returns.
  • 10-Year U.S. Treasury Bond: The yield on this long-term U.S. government bond is often looked to as the standard bond yield for long-term bond investments.

Equity Funds

  • Standard & Poor’s Composite Index of 500 Stocks (S&P 500): A broad-based, unmanaged measurement of the average performance of 500 widely held industrial, transportation, financial, and utility stocks. Many people believe that this, among the most often cited indexes, includes the 500 largest stocks on the New York Stock Exchange. Not true: In fact, it includes the stocks of companies that are or have been leaders in their respective industries and that are listed in the New York Stock Exchange and the NASDAQ Market System. The industry weightings in the S&P 500 are selected to reflect the components of gross domestic product.
  • The Nasdaq Composite Index: This large index (over 2,500 issues) was created in 1971 to measure all common stocks that are traded in the Nasdaq market.
  • Morgan Stanley Capital International’s Europe, Australasia, Far East (EAFE) Index: The most prominent of the indexes that track international stock markets, the EAFE is composed of companies considered representative of 21 European and Pacific Basin countries.
  • In addition to the above, other indexes are: the Value Line Composite Index (stocks); the Russell 2000 Index (small-cap stocks); the Citi-3-Month T-bill (money markets); the Dow Jones World Stock Market Index (major international markets, including the U.S. market); and the Barclays Global Aggregate Bond Index (global bond index).

Commonly Used Benchmarks

To compare…

You might refer to…

Money Market Funds

  • IBC’s Money Fund Report Averages
  • Barclays 3-Month Treasury Bills index

Bond Funds

  • Barclays Aggregate Bond Index
  • 10-Year U.S. Treasury Bond

Equity Funds

  • S&P 500 Index
  • Nasdaq Index
  • MSCI EAFE Index

 

Apples to Apples

As noted earlier, the key to navigating the maze of benchmarks is to know which one best tracks securities similar to the holdings in your fund. But remember that you don’t have to be an experienced market researcher to find out which benchmark is for you. Most mutual fund prospectuses, annual reports, and SAIs (statements of additional information) list the comparable index, usually right in the “investment objective” section. Often, a fund that tracks more than one sector or asset class may list more than one index to reference. For example, a balanced fund may reference both the Barclays Bond Index and the S&P 500 to measure its bond and stock holdings, respectively. Finding the right index is yet one more example of why it’s so important to read a prospectus carefully before investing in a fund.

Consider Appropriate Time Frames2

http://fc.standardandpoors.com/cms/Article/12579/img_1423762908909_11123.PNG

When evaluating a mutual fund in relation to its benchmark, remember to consider performance over a period of time that is similar to your investment time frame. This chart shows annualized returns for three popular benchmarks.

Source: ChartSource®, Wealth Management Systems Inc. For holding periods ending December 31, 2014. U.S. stocks are represented by the S&P 500 index. Bonds are represented by the Barclays Aggregate index. Foreign stocks are represented by the MSCI EAFE index. Past performance is not a guarantee of future results. It is not possible to invest directly in an index. Copyright © 2015, Wealth Management Systems Inc. All rights reserved. Not responsible for any errors or omissions. (CS000151)

 

Though benchmark indexes are not actively managed or available for investment purposes, some funds actually hold the same securities that are in the index (or otherwise strive to replicate the index returns). Known as index funds, these funds are managed with a “passive” style: The fund manager only needs to monitor the holdings in the benchmark index and make adjustments in the fund accordingly. Generally, the objective of an index fund is merely to maintain performance standards similar to the index that it tracks, whereas other funds often seek to outperform their benchmark indexes. Index funds often offer lower management fees because of their passive management style.

Benchmarks Should Be Resources — Not Deciding Factors

While indexes are good methods of gauging how a mutual fund performs in relation to the overall market, they shouldn’t be the deciding factor in determining if a fund may meet your needs and objectives. When evaluating a fund, ask yourself the following questions:

  • Does the fund’s objective seek to meet your investment needs?
  • How long will your money be invested in the fund? Though past performance cannot guarantee future results, consider the performance record of the fund over a similar time frame.
  • How well can you withstand fluctuations in the value of your investment over time?

The benchmark listed in your fund’s prospectus will give you a good idea of what to expect from your mutual fund. However, remember that standardized tests are just that — standardized. They are not meant to represent individuals and their needs and financial circumstances. Your investment representative can help you evaluate an investment in terms of your personal objectives and risk tolerance and can also show you how to use a benchmark index in the most effective way.

Points to Remember

  1. An investment benchmark is a tool used by investors and portfolio managers to gauge how an investment performed in relation to the overall market.
  2. The appropriate index for your mutual fund investing needs is not easily identified by its name or popularity level.
  3. Remember to compare “apples to apples”: choose the benchmark that most accurately reflects the holdings in your mutual fund.
  4. Most prospectuses, annual reports, and SAIs list the benchmark(s) most appropriate for your mutual fund.
  5. Benchmark indexes are not managed and do not reflect trading costs or fees, and investors cannot invest in them.
  6. Index funds sometimes offer investors close to market returns and seek to maintain performance standards similar to the indexes they track.
  7. Use benchmarks merely as resources, not deciding factors, when evaluating a mutual fund.
  8. Research mutual funds with your investment advisor, who can show you how to use benchmarks in the most effective manner.

Source/Disclaimer:

1An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although most funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a fund.

2The performance of any index is not indicative of the performance of any particular investment. Keep in mind that indexes do not take into account any fees and expenses of the individual investments that they track and that individuals cannot invest directly in any index. Past performance is no indication of future results. Investors in international securities are sometimes subject to somewhat higher taxation and higher currency risk, as well as less liquidity, compared with investors in domestic securities.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2015 Wealth Management Systems Inc. All rights reserved.

January 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

What Are the Tax Issues Associated With a Gain or Loss on a Primary Residence? – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

January, 2016

What Are the Tax Issues Associated With a Gain or Loss on a Primary Residence?

For U.S. federal income tax purposes, you may be able to exclude from income any gain up to $250,000 for a single taxpayer and $500,000 for a married couple filing a joint return. Generally, to exclude the gain, you must have owned and lived in the property as your main home for two of the five years prior to the date of the sale. If you lose money on a sale, the loss is not tax deductible.

Your Adjusted Basis

A dollar amount known as your adjusted basis determines whether you experience a gain or a loss. If you purchased or built your home, your initial cost basis typically is the cost to you at the time of purchase. If you inherit a home, the cost basis is the fair market value on the date of the decedent’s death or on a later valuation date selected by a representative of the estate.

The formula for determining your gain or loss is as follows:

Selling price – Selling expenses = Amount realized

Amount realized – Adjusted basis = Gain or loss

The cost basis may be adjusted over time due to the following conditions:

·         Additions and other improvements that have a useful life of more than one year and that add to the value of your home. These may include a garage, decks, landscaping, a swimming pool, storm windows and doors, heating and air conditioning systems, plumbing, interior improvements and insulation. Note that repairs that keep your house in good condition but do not significantly enhance value, such as fixing gutters, repainting, or plastering, do not affect the basis.

·         Special assessments paid for local improvements.

·         Amounts spent to restore damaged property.

·         Payments for granting an easement or right-or-way.

·         Depreciation if the home was used for business or rental purposes.

·         Others as determined by the Internal Revenue Service (See Publication 523 Selling Your Home).

The definition of a “main home,” according to the Internal Revenue Service, includes a private residence, condominium, cooperative apartment, mobile home or houseboat. It is to your advantage to maintain records of a home’s purchase price, purchase expenses, improvements, additions, and other issues that may affect the adjusted basis.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2015 Wealth Management Systems Inc. All rights reserved.

January 2016 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

What Happens to My Retirement Assets in the Event of a Divorce? – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

December, 2015

What Happens to My Retirement Assets in the Event of a Divorce?

Federal law requires that participants in employer-sponsored retirement plans designate their spouse as their beneficiary unless the spouse waives this right in writing. Assuming that you and your spouse adhered to this practice, a document known as a Qualified Domestic Relations Order (QDRO), which is part of a divorce settlement, specifies how retirement assets are divided.

A QDRO specifies the amount or portion of a plan participant’s benefits that are paid to a spouse, former spouse, child, or other party. A QDRO typically governs assets within a retirement plan such as a pension, profit-sharing plan, or a tax-sheltered annuity. Benefits paid to a former spouse typically are considered income for tax purposes. If you contributed to your retirement plan, a prorated share of your investment is used to determine the taxable amount.

Former spouses on the receiving end of a lump-sum distribution mandated by a QDRO may be able to roll over the money tax free to a traditional individual retirement account or to another qualified retirement plan. Following such a transfer, assets within the plan are subject to rules that would normally apply to the retirement plan. If you transfer assets within a traditional IRA to your spouse as part of a divorce decree, the transfer is not considered taxable and the assets are treated as your former spouse’s IRA.

Procedural Issues

QDROs are governed by rules established by the U.S. Department of Labor. In most instances, a judge must formally issue a judgment or approve a settlement agreement before it is considered a QDRO. The fact that you and your soon-to-be-former spouse have signed an agreement is not adequate for a QDRO to take effect. Also, following an order issued by a judge, the administrator of the retirement plan affected by the QDRO must determine whether the court order qualifies as a QDRO according to the rules of the labor department.

Note that retirement assets are part of a broader financial picture that may include your home, taxable investments, personal property, and other assets. It is not mandated that your spouse receive a portion of your retirement assets in the event of a divorce. You and your spouse may negotiate another type of arrangement that permits you to retain your retirement assets while granting other assets to your spouse. In addition, a prenuptial agreement, depending on its provisions, could potentially limit your spouse’s rights to your assets.

You may want to consult a divorce lawyer and your financial advisor to determine whether federal laws relating to retirement accounts apply to your situation.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

December 2015 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Constructing Dividend Strategies – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

November, 2015

Constructing Dividend Strategies

Passive Dividend Portfolios

In 2014, a portfolio composed of all stocks in the S&P 500 index would have paid dividends of approximately $39.44 in addition to any price appreciation. However, the portfolio itself can be divided into dividend-paying and non-dividend-paying stock portfolios. As of December 31, 2014, there were 423 dividend-paying stocks and 77 non-dividend-paying stocks in the index. An equal-weighted portfolio of the dividend-paying stocks would have returned an annualized 8.9% during the ten years that ended on that date, while the non-dividend-paying issues would have paid 9.7%1. Since a typical passive portfolio is constructed to mirror the composition and performance of a broad market benchmark such as the S&P 500, a passive investor can seek to harvest dividend income potential simply by focusing on the dividend-paying constituents of that index.

Active Buy-and-Hold Selection

Fundamental stock screens can be adapted by adding various dividend attributes to the screen criteria. One key question is whether or not the company has paid a regular dividend and, if so, how much and for how long? Another is whether the company has been able to increase the amount of the dividend over time and, if so, by what rate? Studies have shown that the buy-and-hold strategy of investing in companies that increase their dividends steadily over long periods of time can outperform. For example, the Standard & Poor’s Dividend Aristocrats portfolio is made up of the firms in the S&P 500 that have increased their dividends steadily for at least 25 years. Despite the very strong year for stocks overall, the Dividend Aristocrats portfolio nearly matched the broad index during the 12 months that ended December 31, 2014, and it outperformed over the trailing 5-year, 10-year, and 15-year periods. What is more, since the dividend portfolio has required the investor to assume less risk (as measured by standard deviation), it also offered superior risk-adjusted returns over these periods.

Active Traders

For active traders, on the other hand, dividends offer a unique overlay for anticipating changes in price action — days or weeks in advance. Consider the moment at which a share stops trading with dividend rights attached — a day known as the ex-dividend date.

The market price of that share will immediately fall by the precise value of the dividend. Dividend trading specialists can try to profit from that predictable price move through dividend capture strategies. (Keep in mind that direct dividend income may be treated more favorably than ordinary income when earned from shares held in a conventional taxable account. However, short-term trades designed to produce gains that are equivalent to dividend income may not qualify for favorable tax treatment.)

Dividend-related price swings may also create arbitrage potential between various financial markets where the values of cum-dividend and ex-dividend contracts might not accurately reflect the market values of the underlying securities. Active traders have created pricing models that factor the value of dividend cash flows into futures, options, and cash trade scenarios. Sometimes these analyses suggest that some markets may not appropriately reflect the value of dividend factors among all of the other components of a given trading price.

Technical Language

Investors seeking to specialize in dividend-paying stocks, should master the specific terminology of dividends:

  • Dividend Rate is expressed in dollars and cents per share for a particular period — usually quarterly, semiannually, or annually.
  • Dividend Yield is the annualized dividend payment divided by the current share price, expressed as a percentage.
  • Dividend Declaration is the formal vote by a company’s directors to pay a particular dividend.
  • Regular Dividend is the term used to denote an ongoing commitment (When a company uses the term “regular,” investors can infer a degree of constancy in the level of the dividend and the timing of the payments, keeping in mind that a dividend may be “omitted” by directors if the company’s profitability or liquidity conditions are not met).
  • Special Dividend describes a cash or stock distribution made in response to a unique circumstance and implies a one-time-only distribution.
  • Record Date is the last day that an investor can have his or her name recorded by the company registrar as a shareholder eligible to receive dividends (An equity trade must be fully settled by that date, not merely confirmed for settlement).
  • Ex-Dividend Date (ex-date for short) is the last day that a share trades with all rights to the next announced dividend.
  • Cum Dividend means that a share is traded with full dividend rights.

It is important to keep in mind that a number of market forces will shape a stock’s price at any given time. Sometimes, these forces could counteract any anticipated ex-dividend price drop. In addition, there are a number of tax considerations in addition to the reduced rate for dividend income, so traders should evaluate complex strategies for hidden tax implications.

Source/Disclaimer:

1Source: Wealth Management Systems Inc.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2015 Wealth Management Systems Inc. All rights reserved.

November 2015 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Investing in Stocks – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

November, 2015

Investing in Stocks

Shares of common stock play a role in just about every investment portfolio. This article is for those who’d like to know more about where their savings might be invested. Here are the basics:

·         Stock (sometimes called equity) represents ownership of a company, divided among the company’s shareholders.

·         While any company can issue stock, only companies that meet legal requirements can issue shares for trading on U.S. stock exchanges where they can be bought and sold by any member of the public.

·         The market value of publically traded stock can change at any time. When the value increases, the shareholder sees a capital gain, which can become part of the investor’s return.

·         Public companies generally seek to earn a profit. Profit may be distributed to shareholders as a dividend, which can become another part of the shareholder’s investment return.

Why Stocks? A Closer Look at Performance Potential

Stocks carry higher investment risks than bonds or money market investments, but historically, they also have realized higher rates of return over longer holding periods (see chart). While past performance doesn’t guarantee future results, the higher return potential of stocks can make them ideal investments for long-term investors seeking to build the value of their portfolios or to stay ahead of inflation. Both of these objectives are critical to investors with specific long-term goals in mind, such as saving for retirement.

Average Rates of Return for Four Types of Stock Compared with Bonds and Cash (1985-2014)1

Managing the Risks of Investing in Stocks

Stock investors must weigh the potential risk of loss of principal against the risk of not meeting their investment goals or of losing purchasing power to inflation. They can also manage risk by:

  • Diversifying among stocks of many different companies. Investing in just one or two stocks is generally much more risky than buying stocks of 15 or 20 companies. By holding stocks of different companies in multiple industries, you reduce your exposure to a substantial loss due to a price decline in just one stock. Remember, diversification does not eliminate risk.
  • Allocating assets appropriately. Asset allocation refers to how you spread your portfolio among different types of investments — such as stocks, bonds, and money market investments. An aggressive investor with a long-term horizon might choose to keep a large fraction of his or her portfolio in stocks, while an investor seeking less risk could have a smaller fraction. The balance in either case could be in bonds and money market funds. This adds yet another level of diversification to the portfolio and can further reduce investment risk. Your financial advisor can help you select an asset allocation that is appropriate for your goals and time frame.
  • Staying invested through periods of market turbulence can also help reduce risk of loss as the variability of returns tends to decrease over time.

The Mechanics of Investing in Stocks

Individuals can buy stocks directly through a full-service or discount brokerage. They can also gain investment exposure to stocks through equity mutual funds and other pooled investment products. Some employers offer their employees the opportunity to buy company stock through an employee stock ownership program or a retirement plan.

Because of their long-term potential, stocks may have a place in nearly every portfolio. Speak with your financial advisor about how you can use equity investing to help meet your financial goals.

 

Source/Disclaimer:

1Source: ChartSource®, Wealth Management Systems Inc. For the period January 1, 1985, through December 31, 2014. Large-cap stocks are represented by the S&P 500 index. Midcap stocks are represented by a composite of the CRSP 3rd-5th deciles and the S&P 400 index. Small-cap stocks are represented by a composite of the CRSP 6th-10th deciles and the S&P 600 index. Bonds are represented by the Barclays Aggregate index. Cash is represented by a composite of the yields of 3-month Treasury bills, published by the Federal Reserve, and the Barclays 3-Month Treasury Bills index. Foreign developed stocks are represented by the MSCI EAFE index. Different investments offer different levels of potential return and market risk. International investors are subject to higher taxation and currency risk, as well as less liquidity, compared with domestic investors. Midcap stocks and small-cap stocks are generally subject to greater price fluctuations than large-cap stocks. Bonds represent a contractual obligation for timely payment of principal and interest. Results assume reinvestment of dividends, interest and other proceeds. Individuals cannot invest directly in any index. Index performance does not reflect the performance of any actual investment and does not take account of the costs associated with investing. Past performance does not guarantee future results. © 2015, Wealth Management Systems Inc. All rights reserved. Not responsible for any errors or omissions. (CS000168)

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2015 Wealth Management Systems Inc. All rights reserved.

November 2015 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Money Management for a Single Parent – Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies Quantcast Fisher Financial Strategies logo Photos FFS BLOG...Updates, notes and thoughts on financial planning photo

November, 2015

Money Management for a Single Parent

As a single parent, you’re probably familiar with the dual challenges of managing a household and planning for the future on your own. But are you as familiar with the financial strategies that can stretch your income and help you get ahead? Consider the following lessons to help improve your family’s bottom line.

Lesson #1: Identify Your Goals

You can’t have a financial plan without first defining your financial goals. Start by recording all of your short-, medium-, and long-term goals.

For example, paying for a child’s education could be one of the biggest expenses in your future. During the 2014/2015 school year, the average total cost of one year in a private college was $42,419. At the average public college, it was $18,943. If expenses continue to rise at their current rate, a college education could exceed $300,000 (private) or $140,000 (public) by the year 2030.1

Retirement is another important goal. Most financial planners suggest accumulating enough of a nest egg so that — when combined with Social Security and pension payments — it will provide at least 80% of your final working year’s salary during each year of retirement. To determine how much you may need for retirement, consider using one of the many free, online retirement planning calculators.

Lesson #2: Be a Better Budgeter

To pursue your family’s goals, it’s necessary to manage your household’s cash flow. That involves tracking income and spending, eliminating unnecessary costs, and living within the confines of a realistic budget.

For example, if you spend $1.50 each day on a take-out coffee, that amounts to about $45 each month. By eliminating that minor expense from your budget, you could easily save an additional $500 per year.

Lesson #3: Say No to Debt

High-interest credit card debt can make it extremely difficult to get your budget in order. If you have an outstanding balance, consider paying it off as aggressively as possible. The savings in interest alone could allow you to address other important financial goals.

Consider this: The average credit card balance of U.S. adults is $5,596; interest rates typically average over 12%. If you made only the minimum monthly payments on such a debt at a 12% annual percentage rate, it would take years to pay it off, and you would spend thousands in interest in the process.2

It’s also a good idea to review your credit history — commonly referred to as your credit report — to make sure that the information it contains about your past use of credit is accurate.

 

 

Lesson #4: Learn About Savings and Investment Opportunities

Once you free up some cash, apply it toward your goals. But first, learn about the savings and investment opportunities available to you. Keep in mind that tax-deferred investment accounts may enable you to “grow” the value of your assets more significantly than taxable accounts. That’s because investment gains in taxable accounts are taxed every year, while those in tax-deferred accounts remain untaxed until you make withdrawals later in life.

  • Employer-sponsored plans, such as traditional 401(k) plans, allow workers to set aside a portion of their pretax income in a company-sponsored, tax-deferred retirement account. As an added benefit, some employers make a “matching contribution” to employees’ accounts each time employees contribute.3
  • Traditional individual retirement accounts (IRAs) may allow you to deduct a portion of annual contributions from your taxes (depending on your income) and offer tax-deferred investment growth. Roth IRAs do not offer a tax break for contributions, but investment earnings are untaxed and qualified withdrawals are tax free.3
  • Coverdell Education Savings Accounts (formerly known as Education IRAs) allow tax-free earnings on nondeductible contributions of up to $2,000 annually. Qualified withdrawals may be used to pay for college, as well as elementary and secondary schooling.3
  • Section 529 college savings plans are state-sponsored investment programs that allow tax-free withdrawals for college expenses. College savers who contribute to their home state’s 529 plan may be eligible for state tax breaks. If your state or your designated beneficiary’s state offers a 529 plan, you may want to consider what, if any, potential state income tax or other benefits it offers before investing.3

Once you’ve selected an appropriate investment account, you’ll then need to determine an appropriate investment strategy. In general, stocks have the most short-term risk, but they also have the potential to generate better long-term returns than money market or bond investments. Therefore, the longer your investment time frame, the more you may want to rely on stock investments to pursue your financial objectives.

Source