Take Charge of Your Retirement Income and Expenses
To get the most for your buck, you need to take charge of your income and expenses - maximize the former and minimize the latter. In retirement, many estimate that you can probably live on about 75% of your pre-retirement income comfortably. This assumes that some 25% of your pre-retirement income went to work and its associated taxes, transportation and clothes - and savings toward retirement.

The three retirement income sources are social security, pension, and your savings. With so many of us underfunded for retirement, we may want to do some part time work to supplement our 'retirement' income. According to the Social Security Administration, more than 9 out of 10 individuals age 65 and older receive Social Security benefits, but most retirees also rely on other sources of retirement income -see the pie chart.

Your defined benefit pension may give you a fixed income; perhaps yours has a cost of living adjustment (COLA).

The maximum possible social security income for 2007 is $2,116 per month if you start receiving it at your full retirement age (FRA). However, whatever your FRA benefit is, it will be reduced if you retire early-between age 62 and your FRA. It will also be reduced if you earn above a threshold income while you are under your FRA.

Your savings are composed of your savings accounts and your defined contribution plans-401(k), IRAs, etc. You will want to choose the best way to convert these to income. Possibilities include converting them to an annuity, another form such as an IRA, or Roth IRA, and devising your own withdrawal procedure that ensures that your savings will last as long as you.

Controlling your expenses helps prevent them from robbing needed income. You can categorize your expenses under essentials, debts, taxes, and enjoyment. Essentials cover your food, housing, and transportation. Housing and transportation may have more inexpensive alternatives you can choose from.

Debts such as mortgage, car, and credit card payments should be reduced as much as possible. Paying off these loans is often the best way to handle them. Downsizing your material possessions is important in these first two expense categories.

Taxes are pretty much dependent on how you choose to handle your distributions from savings and what tax category your savings are in-tax deferred, taxable or tax free (such as a Roth IRA). Part-time work can produce a very high penalty on your efforts if they diminish your social security benefits-under your FRA.

With your expenses minimized, you can better plan on the travel and enjoyments that you have set aside for your retirement years.

Give us a call so we can help your convert your savings into an income.

Will You Be Subject to the Alternative Minimum Tax?
Back in 1969, there was a lot of flack about high earnings people paying very little tax by using a lot of tax deductions and credits. The government's response was to prevent 'over use' of certain deductions and credits if your income was very high. It did this by creating an additional federal taxing system-with different rates and exemption levels-for certain high earners. That system applies through the Alternative Minimum Tax (AMT).

What's made AMT a problem now is that the 'exemption income levels' that triggered AMT issues have never been adequately indexed for inflation. As a result, the 'high earner incomes' back then were closer to average incomes now. For instance, in 1982, the exemption for married couples filing jointly was $40,000. Adjusted for inflation, that would be $82,000 today. But currently, the exemptions are only $58,000 for married couples filing jointly and $40,250 for singles. And they would be even lower if Congress had not voted through a "patch" on this.

The Urban-Brookings Tax Policy Center says the AMT hit 3.6 million out of the nation's 131 million taxpayers filing for tax year 2005 (filed in early 2006), and could affect 31 million by 2010 if nothing is done.

Understanding the AMT system is a little confusing. Basically, under the regular IRS system, you start with your gross income and subtract deductions like state taxes you paid, and exemptions like child credits-and eventually arrive at your taxable income. But under the AMT system, you still start with your gross income, but many of the usual deductions and exemptions are disallowed. Suddenly, your taxable income is a lot higher. So even though the highest tax rate under AMT is 28 percent as opposed to 35 percent in the regular tax system, AMT victims are paying more because they are paying on a higher of taxable income.

Even though some deductions still stand--including those for mortgage-interest and charitable donations--some key breaks are lost under AMT. They include:

• state and local income taxes and property taxes
• unreimbursed business expenses
• child-tax credits
• tax-preparation fees
• legal fees
• " home-equity loan interes

• Have significant itemized deductions for state and local taxes, home equity loan interest, deductible medical expenses, or other miscellaneous deductions.
• Exercised incentive stock options (ISOs) during the year.
• Had a large capital gain.

Fortunately, if you have had to pay excess tax under the AMT the previous year, you can often get a tax credit for it in the following year, if the circumstances that triggered the AMT no longer apply.

Take Advantage of Your Catch-up Contributions
Whether you are approaching retirement or just beginning it, realize your benefit for contributing the maximum you can to your qualified plan. In 2009, your contribution limits to traditional and Roth IRAs is $5,000, to which you can add another $1,000 as a catch-up contribution if you are 50 or older.

Those of you in the 55 to 65 age bracket have five to 15 years to contribute before reaching 70. The tax-deferred contributions and earnings make qualified plans to help your savings grow. And do not think turning 65 does not still make it worthwhile. You still have a life expectancy of about 18 years to let tax-deferred money compound.

Let's see how much each additional $1,000 contributed yearly can enhance your savings in your qualified plan over the 5, 10 or 15 years-that will bring you to 70 years old. The table above shows the amount each $1,000-contributed annually-to your qualified plan will grow in 5, 10, or 15 years at three hypothetical annual growth rates of 5, 7, and 10%.

If you are contributing to a traditional IRA or other deductible qualified plan, your $1,000 contribution comes off your gross income. If, on the other hand, you decide not to contribute that $1,000 to a deductible qualified plan, you would only have $720 of it to save after tax at the 28% rate, in a taxable account that would grow at only 72% of whatever growth rate you invest it at due to yearly taxation of its earnings.

If the amounts in the table are before tax amounts, as they would be for a traditional IRA, the benefit of your annual contribution deduction along with the tax-deferred growth would more than offset the loss to taxes if you withdrew it even under the same tax rate you contributed it.

As an example, the $14,784 (in the table above) for the 10 years term at 7% growth rate gives--after 28% taxation--$10,644. This is over $1,000 more than the $9,530 you would have saved investing $720 annually, with its earnings taxed yearly. If you are able to get a higher growth rate for your IRA, and then eventually withdraw it at a lower tax rate than you contributed it at, your tax-sheltering benefit becomes quite impressive.

Realize also, that the tax sheltering that a qualified plan gives you allows you to reap a higher effective growth rate for your investment than in a taxable account. To increase the return in your taxable account you would have to deal with the increased market risk typical of an increased return. That makes your tax-sheltered qualified plan 'senior friendly' to those who feel they cannot afford too much risk.

²IRS Publication 17 - Figuring AMT at http://www.irs.gov/publications/p17/ch30.html#d0e68811.
³Center of Disease Control (CDC) U.S. health for 2006 report.
⁴The 28% tax rate applies to singles with taxable income between $82,250 and $171,550 and married filing joint with taxable income between $137,050 and $208,850 per IRS 2009 tax tables.

Will Your Beneficiaries be Able to Manage the Wealth They Receive from Your Estate?
No one likes to think about it, but it is an important decision that all individuals should make: how to plan for the transfer of your assets when you die. Wills and trusts are critical tools for this function, designed to pass your wealth along to a surviving spouse or another generation as efficiently as possible. But do your beneficiaries have a plan as to how they will manage the assets they will receive?

It is a good idea not only to plan for the transfer of your wealth but also to consider how that wealth will be managed once it is placed in your beneficiaries' hands. In some cases the designated beneficiary might not have the wherewithal to manage a large sum of money on their own. Therefore, you may want to establish instructions for the management of your inherited assets while you are alive. That way you can help ensure that your surviving spouse or other beneficiary will have financial support for the rest of his or her life.

One strategy you might consider for your beneficiaries: have the inherited IRA assets placed in a fixed immediate annuity. This could provide a lifetime guaranteed income for your surviving spouse or other beneficiary. Assets from an IRA can be transferred into an annuity tax-free, although income taxes will be due on distributions and are required to begin according to the beneficiary's life expectancy.

An immediate annuity might work well for a beneficiary who is inexperienced in financial matters, or would prefer the security that the guaranteed stream of income from the annuity would provide. Payments could be set up to pay for health insurance or long-term care insurance premiums. And additional riders can cover specialized needs, such as, cost-of-living increases or a cash refund of the balance of the annuity to a designated beneficiary upon the death of the annuitant.

Please note that annuities are designed for long-term investing and ordinary federal income taxes and a 10% tax penalty will apply to withdrawals taken prior to age 59½.

Annuity benefits and guarantees are based upon the claims-paying ability and financial strength of the underlying insurance company and are not government insured. Additionally, one should remember that surrender charges could apply to early withdrawals and are often based upon the time the insured has been invested in the annuity. Annuity surrender schedules also vary from company to company.

If you have yet to develop a plan for your beneficiaries and would like an illustration on a fixed immediate annuity, please complete and return the enclosed reply coupon.

Minimize Your Expenses for More Income and Savings
In retirement, we often have to make our income stretch. But even if income is not that tight, saving money by eliminating unnecessary expenses is a way to pay for special treats-like trips and gifts--that can brighten up retirement.

Remember saving just one dollar a day gives you $365 more 'tax free' income to enjoy per year. Let's take a look at some categorized saving tips that can really add up and make you feel better too.

• Cigarettes–Wow! They are really expensive now with all those government taxes. Cut your smoking in half or 100%; you'll feel better and save a fortune. You do the math!
• Morning coffee–do not stop at the convenience store each morning. Brew some at home and fill an insulated cup for the drive.
• Drinking a lot of soda?--Switch to water or use water to dilute the soda. Buy spring water by the gallon and fill up a plastic bottle to drink out of.

• Make a list for grocery shopping and stick to it. Buy in bulk and freeze what you will not be using right away
• Buy the cheap detergent-with refills.
• Save your plastic grocery bags to use as garbage bags.

• Do not buy magazine subscriptions. Read them or check them out at the library. You can also look for any CDs or DVDs there too.
• Read books, magazines, and newspapers at your local bookstore coffee shop.

• Shop around for the best air fares if planning a trip. Go online and 'Google' airline fares. There are a lot of bargains.
• Check the visitor centers along interstates for coupon books giving discounts on lodging and meals.
• Ask for discounts at hotels/motels and on meals there.

• Take care of your car. A good maintenance schedule, regular cleaning, and sensible driving can make a car last for many years
• Unless there is a real need for a second automobile, keep only one. You will save on insurance, maintenance, and in some states--personal property tax. If you live in or near town, try walking or riding a bicycle in place of using that second car.

• Use your credit cards wisely. Do not purchase more than you can pay off each month.
• Better still, pay with an ATM card or cash so you will not ever have to consider making an interest payment.

You can easily save $1,000 per year using just a few of these suggestions and reap a healthier life too. Invest your savings to make it grow for something really special.

Minimizing Expenses is Not the Only Issue on Where to Retire
Once you know what your retirement income will be, you may choose to empower it by moving where living expenses are lower. Buying down to a much cheaper house in another state-or another country-where other expenses are lower too can do wonders for your net income. But be sure you come to terms with some other factors for you health and happiness.

Lifestyle

Your lifestyle is a big psychological factor. You might want to be near your family for frequent visits. Think long and hard about how you want to spend your time. Then make sure you can do what you want where you choose to live. If you enjoy art galleries and museums, a remote rural area would not be a wise choice.

Weather

Climate can really influence our state of mind. Tired of the cold, snow, and long dreary winters? Stay away from the northern states. If warm, sunny weather with ocean views makes you feel good, arrange to move where you can see plenty.

Sense of Community

If you move to another country, you need to find other expats to give you a sense of shared heritage and community. Otherwise, learn the language and integrate into the local community. Do not let yourself become isolated.

Health Care

If you have an existing condition, you will want to be sure there is a health care facility and physicians who can take care of your needs. Aging will bring more health problems too.

Give it a Dry Run

Plan to take a vacation (perhaps an extended one) at one or more of your possible retirement choices. Seeing firsthand what is there and how things work can be a great help in making your final decision.

More Flexibility for Helping Grandkids With College
You may hear a lot about retirement planning. Estate planning is an essential part of retirement planning, although many people are not aware of all that it encompasses. So they put it off until it is often too late. Let's take a look at what estate planning addresses and why it is important to begin it ASAP.

Estate planning addresses these key questions:

• Do you want input into how you would like to be taken care of when you become incapacitated?
• Do you want to be sure that your assets go to the people you choose when you die?
• Would you like to eliminate or minimize needless loss of some or all of your assets when you need long-term care?
• Would you like to minimize excessive taxes on what you want to give your beneficiaries?
• Do you want to prevent public exposure, costs, and delays of probate?

These are important questions and virtually everyone will answer 'yes' to all of them. Making arrangements to satisfy each question is what estate planning is all about.

But what is especially important is making arrangements to address these questions ASAP because of these four circumstances:

1. You never know when you will die.
2. You never know when you will become mentally incapacitated.
3. You never know when you may need long-term care.
4. 4. Arranging satisfactory solutions to some of these questions requires three to five years lead time– at least–before these circumstances occur!

Consequences of not addressing these questions are:

Incapacitation: You are treated in a manner you would never wish to be. Someone other than your choice determines how your money is used and distributed.

Your assets go to someone not of your choice: With no will, your assets will be distributed according to state rules-not your wishes. Without a trust, you must trust your current spouse to give assets to your previous children.

Long-term care: Without long-term care insurance or a lot of wealth, paying direct long-term care costs can wipe out a small estate easily.

Gift and estate taxes: If your estate is worth some millions of dollars, estate and gift taxes above an uncertain exclusion level in years beyond 2010 can rob up to 45% of it.

Probate: Public exposure on who is getting what can trigger legal claims and hard feelings between potential beneficiaries and other relatives.

The table shows you tools to address each estate planning question.

You Can Disclaim Inherited Assets if You Wish
You can disclaim inherited assets if you are a beneficiary--even of an inherited retirement plan--for any reason. But be sure to understand the procedure you must follow to ensure that your disclaimer is considered qualified under federal and state law. Let's take a look at some examples of disclaiming an inheritance.

Disclaiming as an IRA beneficiary

Without naming any contingent beneficiaries for his IRA, Bill, a widower, designates his son, John, as the sole beneficiary of the IRA. Bill then marries Mary but dies not long after, forgetting to rename his wife as IRA beneficiary.

Suppose John knew that Bill wanted to leave the IRA to Mary and also learned that the IRA document had a default provision that provided that if the IRA owner failed to designate a beneficiary, the IRA owner's spouse becomes the designated beneficiary. So now, John can properly disclaim the IRA assets and be treated as if he was never a designated beneficiary. Mary, then, becomes the beneficiary of the IRA.

Note that if Bill had designated a contingent beneficiary, that individual--rather than Mary--would automatically become the successor beneficiary. Not all IRA plan documents have this default option. So, plans may default to the estate of the deceased.

Beneficiary by marriage

A common estate planning strategy for married couples is for each spouse to leave the other all his or her assets, in order to take advantage of the unlimited marital deduction with their children as secondary beneficiaries. So the first to die has no estate to be taxed, but loses the benefit of his estate exemption $3Million in 2008, to shield some of his estate from estate tax if passed to his children. The surviving spouse will then end up with a much larger estate that will be heavily taxed at her or his death. This second estate tax may cut deeply into what would go to their children.

To offset this situation, the surviving spouse may disclaim her inheritance if she has plenty to live on, and wishes to see some passed on to their children. She can refuse to accept part or all of the assets. Those disclaimed assets would then pass to the contingent beneficiary (the children), bypassing the estate of the first beneficiary (the surviving spouse), and be able to use the first decedent's estate exemption (above) to minimize or eliminate his estate tax.

In either case above, the refusing beneficiary must write a disclaimer irrefutably and irrevocably disclaiming the assets within nine months of the death, and before benefiting from the assets.

The disclaimer cannot influence or designate who shall receive the assets. The disclaimed assets will pass based on secondary beneficiaries or the state law of succession.