Processing Yourself into Your Retirement
Ongoing accomplishments of a type meaningful to you make for a happy retirement. But you need to get through the emotional process beginning with finishing your work life to fitting comfortably into an ongoing happy retirement. Here are some phases you will transition through – some fast or slow – depending on your preparation and efforts.

1. The five years before you retire

Work generally keeps you on a busy schedule. You have handled children growing up, mortgage payments, and all sorts of crises. It is during these years that you should think seriously about how you will handle retirement. It is great to relax but there has to be some ‘doing’ that will be worth doing. But often, it is just too easy to put this off ‘til retirement.

2. The retirement honeymoon

Your last work day finally passes. Perhaps you have a party. Then, you begin a period where you do all the things that you (and your spouse) wanted to do once work stopped. You have set aside money for doing some traveling, trying some new activities, visiting relatives, and playing golf.

3. Coming to terms

Now, with some trips traveled and friends visited, you come to terms with your retirement. Retirement is not a permanent vacation after all. Vacations are a temporary relaxation from working. So what are you to do that makes it worth what ‘working’ gave you. Unprepared – or even prepared – retirement can bring loneliness, boredom, feelings of uselessness, and disillusionment. This is often a tough stage.

4. Creating a meaningful living

You may need to do some soul searching... “Who am I, now?”, “What is my purpose at this point?” and “Am I still useful in some capacity?” If you never got around to developing your identity apart from your job, this is when you must do it.

Most likely you will recognize something that gives you a reason to get up and get going. But many retirees cannot achieve this and never truly escape this stage – make sure you do!

One thing that may help in this stage is seeing the larger picture of your life. Undertaking your estate planning can help you see how far you have come, and what you have to offer others for having lived your life. So often this is in large part &lsqou;financial’. But there is more to life than only supplying financial help.

With so many years to go, you have plenty of time to accomplish other things – financial and otherwise – for yourself and as a legacy to your loved ones... which you can enjoy.

Give us a call or fill out the reply coupon, so we can get you started on accomplishing your estate plans.

Should You Diversify Your Investments Beyond the US?
If you think you will have enough income for most of your retirement, you can guarantee your unexpected longevity with ‘longevity insurance’. This product is a repackaged deferred annuity, which guarantees an income stream starting at a predetermined future time. It warrants your consideration. (Note that guarantees are based on the claims-paying ability of the insurance company).

Diversification seeks to minimize overall market risk by mixing a wide variety of investments within your portfolio. Positive performance of some investment sectors can neutralize negative performance of others if they are not perfectly correlated. The diversified portfolio – on average – can yield a higher return, yet pose a lower risk than any individual investment found in it. Diversification does not ensure a profit or protect against a loss. Investments are subject to market risk, including possible loss of principal.

A country as a whole presents its own country-specific risk to investments associated with it. Perhaps a country sector cannot live up to its financial commitments. This can harm the performance of all other financial instruments in that country. Similarly, a country‘s central bank may take an action which weakens its currency – hurting its foreign exchange rate. As an example, the United States' lowering of interest rates – in response to the subprime debacle – undermined the dollar value in terms of other currencies.

Accordingly, you may choose to further diversify your investments by investing in certain foreign securities that are less closely related to your domestic investments. An economic downturn in the U.S. economy may not affect Japan's economy in the same way. So, having Japanese investments allows you a small cushion of protection against losses due to an American economic downturn.

Buying mutual funds that invest in foreign countries’ companies help you achieve some foreign diversification without having to research and buy many foreign stocks to diversify against company risk. You do this by buying ‘global’ funds or ‘international’ funds. Both types of funds have completely different investment goals, and provide investors with different kinds of investing opportunities.

A global fund is a type of mutual fund, closed-end fund, or exchange-traded fund, that can invest in companies located anywhere in the world, including the U.S. These funds provide more global opportunities for diversification and act as a hedge against inflation and currency risks.

An international fund – often called a foreign fund – is a mutual fund that invests in companies located anywhere outside of the U.S. If you have mainly domestic investments, you may choose an international fund to help diversify against country-specific risk.

Be aware that qualified plans may restrict investments to U.S. companies.

Give us a call so we can show you a suitable way for you to invest in global or international funds.

Note: If you are considering an investment in any type of mutual fund please carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information about any mutual fund investment, always obtain a prospectus and read it carefully before you invest. Investing abroad entails additional risks such as political instability and currency fluctuations.

Qualified Plans Give You Asset Protection from Creditors
One benefit that your qualified plans give you is a certain amount of protection from creditors. The government created the tax deductable and tax-deferred attributes of qualified plans as an incentive for people to save for their retirement years. Protection of these accounts from creditors is also a benefit - and one that may be quite important

The U.S. is a litigious society. Awards in lawsuits can be enormous and easily wipe out the savings of the average American. Choosing to invest your savings in qualified plans may pay off in protection from creditors more so than from the tax sheltering they provide.

It is the Bankruptcy Abuse Protection and Consumer Protection Act of 2005 (BABCPA) that became effective in October of 2005 that finalized some of the protection attributes. Some of its key determinations are:

• SEP (Simplified Employee Pension) IRAs, SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) IRAs, and all defined-benefit and defined-contribution employer retirement plans have unlimited creditor protection in bankruptcy.


• Distributions from all defined-benefit and defined-contribution employer retirement plans retain creditor protection if they are rolled over to an IRA


• Traditional and Roth IRAs not created from rollovers from qualified plans are subject to creditors, but only to the extent that these accounts exceed $1 million.


• Employer retirement plan protection (including SEP and SIMPLE IRAs, and non-ERISA retirement plans such as individual 401(k)s now receive unlimited creditor protection during bankruptcy, regardless of ERISA.

Due to specific details in the act, you should remember that:

1. Traditional and Roth IRAs are exempt up to $1 million.


2. SEP and SIMPLE IRAs are exempt for an unlimited amount, but rollovers¹ from them into other IRAs are exempt only up to $1 million.


3. All other types of tax-deferred retirement accounts, or rollovers from them now held in IRAs, are exempt for an unlimited amount.

To maintain the greatest protection from creditors, be sure you keep good records on all your rollovers from qualified plans, and keep separate IRA accounts for rollovers from SEP and SIMPLE IRAs (see #2 on previous page) versus rollovers from other types of tax-deferred retirement accounts (see #3 on previous page).

Give us a call so we can help you set up the correct IRA accounts for your plans.

Retirement Planning Considerations When Taking That Lump Sum
You have decided to retire now. You know how much you are due from social security and any pension too. Then there is the lump sum from your defined contribution plan at work. What should you consider about that?

Do a direct rollover of the lump sum into a new IRA. This will prevent paying any tax while distributing it to you, keeps your earnings growing tax-deferred, and preserves protection of the funds from creditor claims.

Do not commit these funds to any particular investment until you determine how much of it you will need each year. Put it in a money market account until you decide. When considering specific investment options, look closely at the fund fees; they can eat away at your compound return benefits

Since “your age” gives you a life expectancy of over 20 years, you should realize that at least 40% of your money needs to go into growth-type investments to beat out inflation. You will diversify your holding to include growth as well as income-producing investments. And be sure you maintain some of it in a money market account for emergencies.

If you want its income but do not want to deplete your money, you should consider annual withdrawals of 3 to 4% per year. Of course, you must make the IRS's minimum required distributions after turning 70½. If you do have funds outside a tax-deferred plan, it is more tax beneficial to use those up first, so that your tax-deferred funds can keep growing at the higher compound rate that tax-deferring allows.

If you are worried about assuring yourself – and your spouse – a lifetime income beyond what social security (and any pension) is giving you, you might consider using all or a portion of your IRA to purchase an annuity. This can ensure a lifetime income that is either fixed or variable, according to your choice.

Since there is a good chance that you may need long-term care in the future, you may want to purchase a long-term care insurance policy now. It can be expensive – so purchase it as early as possible. Direct costs of long-term care can devastate your savings.

Give us a call so we can help you set up the correct IRA accounts for your plans.

Beware of Pension Offsets to Social Security Income
If you are like most people, you have worked hard all your life and want a comfortable retirement income. You may be counting on Social Security benefits to supplement other retirement income. But beware of two provisions of Title II of the Social Security Act, entitled The Windfall Elimination Provision and the Government Pension Offset. They can significantly reduce the Social Security benefit you may be counting on.

These provisions reduce the social security that certain employees and their spouses can get because of employment at non-Social Security paying government agencies. Here is more detail.

Employees - The Windfall Elimination Provision:

Some employees of federal, state, and local governments, as well as non-profit organizations are eligible for pensions. If you have worked for an employer who is not required to pay into Social Security, but pays into a pension plan, your Social Security benefits may be affected, because of the windfall elimination provision.

This provision primarily affects people who earned a pension while working for a government agency, and/or jobs that did not require the payment of Social Security taxes, but had other jobs too that did require the payment of Social Security taxes.

In that case, if you are eligible for a pension and Social Security benefits, your Social Security benefits will be reduced because of the windfall elimination provision. If you fall into this category, the formula used to figure your Social Security is modified to prevent a windfall from provisions aimed at low-income workers.

Spouses - The Government Pension Offset (GPO)

If you are eligible to receive a pension from work not covered by Social Security, any Social Security benefits you might be eligible to receive as a spouse or widow/widower on someone else's record could be reduced because of the government pension offset ruling. This offset will reduce your spousal or widow/widower's benefit by two-thirds of the amount of your non-Social Security pension.

As an example, if your non-Social Security pension is $600, two-thirds, or $400 will be used to offset your spousal or widow/widower&rsqou;s benefits. In other words, your Social Security benefit from your spouse's record will be reduced by $400.

To estimate your future spouse's, widow's or widower's benefits under GPO, the Social Security Administration has provided a GPO Calculator at www.ssa.gov/retire2/gpo-calc.htm.

Legislation under the name &lsqou;Social Security Fairness Act of 2007’ has been introduced to eliminate these provisions. So things may change for the better if you are affected.

Give us a call so we can help you maximize your retirement income to suit your needs.

An Efficient Fixed Income Strategy When Interest Rates Are Rising
Many expect interest rates to rise as the recession ends. Recent statements by the Federal Reserve tend to indicate their concern about inflation. Rising interest rates can mean bad news for fixed income investors, because as interest rates rise, bond values typically decline.

Is there anything a fixed income investor can do in a rising interest rate environment to preserve the value of their bond holdings?

One possible strategy that may be appropriate is to invest a part of your fixed income portfolio in short-term bond exchange-traded funds (ETF's). ETF's are liquid investment vehicles that are bought and sold on the major stock market exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ market. ETF's have grown in popularity among investors because of their relative costs.

But why invest in a short-term bond ETF? First of all, short-term bonds have an advantage over long-term bonds during periods when interest rates are rising. As the shorter-term bonds reach maturity in an investor's portfolio, they can be replaced with higher-yield bonds. Long-term bond investors might either have to wait until their bonds reach maturity before replacing them with higher-yield securities, or sell their bonds on the open market at a lower price.

Exchange-traded funds also differ from standard mutual funds in that ETF's are not actively managed. Rather than relying on the expertise of a professional portfolio manager to pick and choose the best bonds to own, a fixed income ETF typically seeks to mimic the entire market as a whole. This can be an efficient investment strategy in a less volatile market such as the short-term bond market. Plus, without the higher expenses for investment management fees, a fixed income ETF can sometimes return a greater share of any investment gains to its shareholders.

But ETF’s are not perfect for everyone. If you invest by regularly putting small amounts of money into the market at regular intervals – you can incur significant brokerage commissions – which you will have to pay every time you buy another set of ETF shares. That can reduce your returns, even if you trade online and pay less than $10 per transaction. It should also be remembered that like mutual funds, EFT’s are an investment that fluctuates with market conditions, and an investor's shares may be worth more or less than original cost upon redemption.

In summary, a short-term bond ETF can be an efficient way to gain exposure to the bond market and to help minimize your interest rate risk. Please carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information about any mutual fund investment, please call the funds provider to request a prospectus. Please read it carefully before you invest.

For information on short-term bond ETF's that may be suitable for your portfolio, please call my office.

Solutions to Deal with the Five-Year Transfer Rule in your Medicaid Planning
The term ‘Medicaid Planning’ often refers to transferring your assets to qualify for Medicaid coverage of your long-term care (LTC) costs. Yearly nursing home costs – about $75,000 nationwide² -can quickly deplete your savings, and just paying long-term care insurance premiums can be costly too. Those with assets below $1 million often do ‘Medicaid Planning’.

Medicaid has become the major source of financing for long-term care – paying nearly half of all nursing home bills after residents run out of money. Most states require nursing home residents to spend virtually all of their assets – down to as little as $2,000 – before they may qualify. Couples have a higher allowance if one spouse is healthy enough to remain at home.

But Medicaid was intended to provide health care for the poor. So, to frustrate Medicaid Planning, the government now requires that all asset transfers³ be completed five years (the ‘look-back’ period) before applying for Medicaid. Previously it was three years for transferring assets to others directly (and it has been grandfathered for such transfers made before February 8, 2006).

Violating the five-year look-back period will penalize you from immediately collecting Medicaid benefits. The penalty requires you to pay whatever Medicaid benefits you receive for a number of months that are equal to the value you transferred; divided by the monthly Medicaid benefit in the state you received them. So if you give $60,000 to family members in a state that pays $6,000 monthly in Medicaid benefits, you – or your family – will have to pay for the first 10 months of nursing care.

Possible solutions:

You may consider setting up an irrevocable trust to remove assets from your estate but ensure you earmark trust income – not principal – for living expenses to live at home. You can also leave some unprotected assets for your use and for initial long-term care costs.

If you require long-term care before the five-year look-back period passes, then the beneficiaries can take an advance on their trust inheritance or sell the house to raise cash for care costs. If you make it beyond the five-year look-back period, the trust principal is protected and you can receive Medicaid benefits as soon as any unprotected assets are spent down for Medicaid costs.

Even if you need help within the five-year period, you can draw up a caregiver agreement to pay a relative for care giving services – such as driving to medical appointments, helping with household chores, and coordinating or providing care. These ‘reasonable’ payments help draw down your assets closer to the point of Medicaid eligibility while passing cash on to a family member.

Give us a call or fill out the reply coupon so we can help you find a plan suitable to safeguarding your assets from long-term care costs.

Why Leave Your IRA to a Trust?
Ultimately, all IRAs must go to an individual. But using a trust to receive your IRA at your death for the benefit of one or more beneficiaries may be a better choice in your case.

Leaving your IRA in a trust can give you some control over how and to whom your IRA funds are eventually distributed. But, of course, the distributions must also adhere to the IRA distribution guidelines.

A couple of reasons to leave your IRA in a trust are:

1. To help prevent a beneficiary from wasting the funds quickly.


2. To keep the funds from a beneficiary&lsqouo;s spouse.

The trust⁴ cannot be a beneficiary even if it is a named beneficiary. But, the beneficiaries of a trust will be treated as having been designated as beneficiaries if all of the following are true:

• The trust is a valid trust under state law, or would be but for the fact that there is no corpus.


• The trust is irrevocable or will, by its terms, become irrevocable upon the death of the owner.


• The beneficiaries of the trust are identifiable from the trust instrument.

The IRA trustee, custodian, or issuer has been provided with either a copy of the trust instrument with the agreement that if the trust instrument is amended, the administrator will be provided with a copy of the amendment within a reasonable time.

The deadline for providing the beneficiary documentation to the IRA trustee, custodian, or issuer is October 31 of the year following the year of the owner's death.

Give us a call so we can help you decide if using a trust to receive your IRA is suitable in your case.