Four Steps to Get Your Finances Ready for the New Year

About one year ago, 63% of Americans told pollsters they had resolved to improve their personal finances in 2010. In fact, saving money beat the usual self-improvements: exercising more, eating less, losing weight. The only resolution that rated higher than personal financial improvement was finding ways to relax and reduce stress.¹

It’s not clear how well Americans fared with saving more money (the personal saving rate remained fairly level for the first half of the year).² But these steps may help improve your financial situation and reduce stress before the new year arrives.

Rebalance and Reallocate

It’s likely that some of your investments have performed at different rates over the past year, possibly leaving your portfolio overexposed to one asset class and underexposed to another. The process of rebalancing involves buying and selling securities to restore your portfolio to your target asset allocation. And if its been a while since you reviewed your asset allocation, now might be a good time to determine whether you need to shift your strategy. Asset allocation does not guarantee against loss; it is a method to help manage investment risk.

Revisit Your Beneficiaries

Are the people you have designated as the beneficiaries on your life insurance policies and retirement accounts still the ones you would like to see inherit these assets? Reviewing your beneficiary designations can help ensure that your intended heirs receive these assets. It’s especially important to revisit your beneficiary designations after a marriage, birth, divorce, or death in the family.

Check Your Credit Report

Because identity theft is a growth industry, it’s wise to check your credit report for evidence of fraud or any inaccuracies that may affect your creditworthiness. The three major credit reporting agencies are required by law to provide you with a free credit report once a year. Log on to www.annualcreditreport.com.

Consider Your Taxes

Reductions in tax rates on income, capital gains, dividends, and inherited assets (adopted by Congress in 2001 and 2003) had a December 31, 2010, expiration date. Because of the ever-changing tax landscape, this is a good time to reconsider some of your financial decisions, such as whether to realize capital gains, reevaluate the role of dividend-paying stocks in your portfolio, boost your contributions to tax-deferred accounts, and alter the timing of bonuses and tax payments.

You may not be able to perform these tasks on your own. We can help.

1) U.S. News & World Report, December 24, 2009
2) Haver Analytics, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

Consider the Risks of Relying on Social Security

The 58 million Americans who currently receive Social Security benefits will not receive a cost-of-living adjustment (COLA) in 2011. This is the second consecutive year in which payments were frozen because the Consumer Price Index measured little or no inflation.¹

Although the decision to freeze benefits in 2011 is not directly related to the social insurance program’s projected funding shortfall, consider it a lesson in the risk of relying too heavily on a program that has a potentially uncertain future. Millions of Americans who rely on Social Security just found out that they won’t receive an anticipated benefit increase — and they learned this only a few months in advance, too late for them to do much about it.
Given that nothing like this has happened before, the disappointment among Social Security beneficiaries may have been compounded by an element of surprise: 2010 was the first year since 1975, when Social Security instituted automatic COLAs tied to the rate of inflation, in which benefits did not increase year-over-year.² It’s likely that many retirees believed that the lack of a COLA in 2010 meant that one would be virtually guaranteed in 2011 because it would be unheard of for the government to go two years without increasing benefits. But that is exactly what has happened.
Going forward, it might be prudent to expect more surprises from Social Security. The program’s already fragile situation has deteriorated further in the face of widespread unemployment and a significant reduction in the payroll tax receipts that fund the government’s largest program. The Congressional Budget Office now expects that in 2010, Social Security outlays will exceed tax revenues for the first time since Social Security was amended in 1983. Although the CBO expects that revenues will generally equal outlays over the next few years, growing numbers of retiring baby boomers will eventually overwhelm the system and cause outlays to regularly exceed tax revenues by 2016. The CBO also projects that Social Security’s so-called trust funds, which are actually IOUs issued by Congress for borrowing Social Security’s surplus revenues in years past, will be exhausted by 2039 if no changes are made to current laws.³

What if It Happened to You?

Imagine what your own financial situation might look like if Social Security announced shortly before your anticipated retirement date that, because of underfunding, it would cut benefits and raise eligibility requirements.
Although these measures have not been adopted, it’s worth noting that they are being considered. The Congressional Budget Office has studied policy options that include reducing benefits, raising the retirement age, limiting future COLAs, and increasing payroll taxes.⁴ Because there is little consensus among lawmakers or the public, a solution reached by political negotiation could combine several different measures.
Fortunately, Social Security’s precarious financial situation has not gone unnoticed. Seventy-seven percent of Americans now believe the enormous cost associated with entitlement programs like Social Security and Medicare will eventually create major economic problems for the nation if they are left unchecked.⁵ Fifty-six percent of retirees believe they will eventually suffer a cut in their benefits, and 60% of workers have expressed doubt they will ever receive Social Security payments.⁶
It seems clear that, at the very least, Social Security will not be able survive without making some adjustments. The good news is that you are already aware of the likelihood, so it might be wise to prepare for your own retirement on the assumption that Social Security won’t be able to provide the same level of benefits that you might currently be expecting. Better to make such an assumption now, and begin seeking ways to offset the potential shortfall, than wait until it’s too late to do anything about it.

1–2) Social Security Administration, 2010
3–4) Congressional Budget Office, 2010
5–6) Gallup, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

What Is the Most Tax-Efficient Way to Take a Distribution from a Retirement Plan?

 If you receive a distribution from a qualified retirement plan, such as a 401(k), you need to consider whether to pay taxes now or to roll over the account to another tax-deferred plan. A correctly implemented rollover can avoid current taxes and allow the funds to continue accumulating tax deferred.

 

Paying Current Taxes with a Lump-Sum Distribution

 

If you decide to take a lump-sum distribution, income taxes are due on the total amount of the distribution and are due in the year in which you cash out. Employers are required to withhold 20 percent automatically from the check and apply it toward federal income taxes, so you will receive only 80 percent of your total vested value in the plan.

 

The advantage of a lump-sum distribution is that you can spend or invest the balance as you wish. The problem with this approach is parting with all those tax dollars. Income taxes on the total distribution are taxed at your marginal income tax rate. If the distribution is large, it could easily move you into a higher tax bracket. Distributions taken prior to age 59½ are subject to an additional 10% federal income tax penalty.

 

If you were born prior to 1936, there are two special options that can help reduce your tax burden on a lump sum.

 

The first special option, 10-year averaging, enables you to treat the distribution as if it were received in equal installments over a 10-year period. You then calculate your tax liability using the 1986 tax tables for a single filer.

 

The second option, capital gains tax treatment, allows you to have the pre-1974 portion of your distribution taxed at a flat rate of 20 percent. The balance can be taxed under 10-year averaging, if you qualify.

 

To qualify for either of these special options, you must have participated in the retirement plan for at least five years and you must be receiving a total distribution of your retirement account.

 

Note that these special tax treatments are one-time propositions for those born prior to 1936. Once you elect to use a special option, future distributions will be subject to ordinary income taxes.

 

Deferring Taxes with a Rollover

 

If you don’t qualify for the above options or don’t want to pay current taxes on your lump-sum distribution, you can roll the money into a traditional IRA.

 

If instead you choose a rollover from a tax-deferred plan to a Roth IRA, you must pay income taxes on the total amount converted in that tax year. However, future withdrawals of earnings from a Roth IRA are free of federal income tax as long as the account has been held for at least five tax years.

 

If you elect to use an IRA rollover, you can avoid potential tax and penalty problems by electing a direct trustee-to-trustee transfer; in other words, the money never passes through your hands. IRA rollovers must be completed within 60 days of the distribution to avoid current taxes and penalties.

 

An IRA rollover allows your retirement nest egg to continue compounding tax deferred. Remember that you must begin taking annual required minimum distributions (RMDs) from tax-deferred retirement plans after you turn 70½ (the first distribution must be taken no later than April 1 of the year after the year in which you reach age 70½). Failure to take RMDs subjects the funds that should have been withdrawn to a 50 percent federal income tax penalty.  

 

Of course, there is also the possibility that you may be able to keep the funds with your former employer, if allowed by your plan.

 

Before you decide which method to take for distributions from a qualified retirement plan, it would be prudent to consult with a professional tax advisor.

 

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

 

This material was written and prepared by Emerald.
© 2010 Emerald

 

An Estate is a Terrible Thing to Waste

If you have a current will, consider yourself ahead of most Americans when
it comes to estate planning. In fact, a recent survey found that an alarming
70% of Americans don't have this most basic estate conservation document.1

With a will, you can direct the probate courts that oversee the distribution of
your estate. You can also name legal guardians for minor children and their
inherited assets.

A will is certainly the best place to start. However, the goal of any estate
strategy should be a smooth transfer of wealth to your heirs, and it may
take more than simply having a current will.

Powers of Attorney

Powers of attorney are used to designate someone to make financial and/or
medical decisions on your behalf. Powers of attorney can be specific,
designating your agent to act for you only in certain circumstances, or they
can be general, giving your agent the authority to make any and all
decisions on your behalf. You may want to create separate powers of attorney
for finances and medical care.

Beneficiary Designations

It's a good idea to make sure that the beneficiary designation forms for
your retirement plans and life insurance policies are properly completed and
accurate. Retirement plan assets and life insurance proceeds are generally
exempt from the probate process and transfer directly to the designated
beneficiaries.

Trusts

A trust is a separate legal entity that holds your assets and distributes
them according to your wishes. Some trusts can help reduce estate taxes or
place conditions on heirs who inherit your property. Others can be used to
make charitable donations, to provide for family members with special needs,
and to help prevent posthumous challenges from disgruntled parties.

The use of trusts can involve a complex web of tax rules and regulations.
You should consider the counsel of an experienced estate planning
professional before implementing such strategies.

Even a comprehensive estate strategy may be of limited use if it is out of
date. You can help ensure the effectiveness of your strategy by periodically
reviewing your will, powers of attorney, and beneficiary designation forms
to verify that they are current.

1) LegalZoom.com, 2010

The information in this article is not intended as tax or legal advice, and
it may not be relied on for the purpose of avoiding any federal tax
penalties. You are encouraged to seek tax or legal advice from an
independent professional advisor. The content is derived from sources
believed to be accurate. Neither the information presented nor any opinion
expressed constitutes a solicitation for the purchase or sale of any
security.



This material was written and prepared by Emerald. C 2010 Emerald.

Don't Bank Your Retirement on Your Business

Investing in your own business makes sense. Many businesses achieve significant growth each year. However, when you consider that many small businesses fold every year, it becomes clear that banking your retirement solely on the success of your business might not be the best idea. There is no guarantee that your business will continue to grow or even maintain its current value. If your business is worth less than you were counting on at the time you planned to retire, you could be forced to continue working or sell it for less than what you were expecting.   Business owners often assume that their businesses will be their main source of retirement funds, but that strategy can be riskier than you think. It’s generally not wise to put all your eggs in one basket. Broadly diversifying your assets may help protect against risk.   Diversification involves dividing your assets among many types of investments. Putting all your money into a single investment is risky because you could lose everything if the investment performs poorly — even if that investment is your own business. Of course, diversification is a method used to help manage investment risk; it does not guarantee against the risk of investment loss.   Consider what would happen if you were planning to rely solely on the sale of your business to fund your retirement, only to have the U.S. economy fall into a recession about the time you planned to retire. If one occurred when you planned to retire, it could affect the sale of your business or the income it generates for you.   Likewise, there is no assurance that a larger competitor won’t overtake your market, or that demand for your business’s goods and services won’t weaken because of new technology, rising energy prices, consumer trends, or other variables over which you have no control.   Your business is almost certain to provide some of the money you need to retire. By building a portfolio outside your business, you are helping to insulate your retirement from the risks and market conditions that can affect your business.    This material was written and prepared by Emerald.

Income for the Risk-Averse

A Potential Income Source for the Risk-Averse

A survey of investors 65 and older found that 17% were unwilling to take on any investment risk.¹ Another 19% said they were willing to take only below-average risk, even though they knew it meant they were giving up the opportunity to pursue higher-than-average investment gains.²

Yet 58% of people in this same group also said their investment goals included generating current income.³ How is it possible to generate a retirement income without taking on too much risk? One way is by investing in fixed-income instruments, usually debt securities. But even these instruments pose some risks that investors may not be comfortable with.
An alternative is to purchase a long-term retirement income vehicle from an insurance company. Although no financial instrument is entirely without risk, the guarantees offered by a fixed annuity can help address the concerns of even the most risk-averse investors.

Fixed for Life

An annuity is a contract with an insurance company that provides a guaranteed income at some point in the future, after the contract has been funded with premium payments. If you are concerned about earning the highest possible investment return, an annuity may not be for you. But if you are interested in a guaranteed income or a guaranteed interest rate, you may want to consider the role an annuity could play in your portfolio.
Annuities are flexible and can be shaped to help meet your individual needs. For example, you could choose an income that lasts for a specified period, for the rest of your life, or for the lives of you and another person. Or you might choose to earn a specific rate of return for a guaranteed period, possibly with the opportunity to lock in a higher rate, depending on market performance.
The amount of income paid by an annuity depends on variables that include the amount paid in premiums, the contract’s rate of return, the age and gender of the contract holder, and the number of years over which income payments will be received.
Annuities have contract limitations, fees, and expenses. Any guarantees are contingent on the claims-paying ability of the issuing insurance company. Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty. The earnings portion of annuity withdrawals is subject to ordinary income tax.
A source of guaranteed income may help remove some of the uncertainty associated with volatility in the financial markets. It’s possible that annuitizing a portion of your savings may allow you to enjoy your retirement years with less concern that you might outlive your money.

1–3) Investment Company Institute, 2008

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

Legacy Retirement Advisors Celebrates 10 Years In Business

LEGACY RETIREMENT ADVISORS CELEBRATES 10 YEARS IN BUSINESS




PASO ROBLES, September 01, 2010 – Legacy Retirement Advisors, a retirement planning & investment services organization in the Paso Robles area, celebrates its 10 years of service for the community. The firm specializes in helping local residents meet their unique retirement needs, through comprehensive planning and investment recommendations. The Financial Advisors at Legacy Retirement Advisors are affiliated with LPL Financial, the nation’s largest independent broker/dealer*.

(As reported by Financial Planning magazine, June 1996-2010, based on total revenue.)

“We are pleased to be part of this community and look forward to continuing to support it with high standards of service and thoughtful, personalized financial advice,” says Jennifer Langstaff, LPL Registered Principal and co-owner. “We are celebrating the entire month of September with free retirement reviews, special educational workshops and client events. We will also have a special raffle of two (2) complimentary adult passes to Hearst Castle during the month of September.”

Legacy Retirement Advisors has several associates dedicated to helping retirees and pre-retirees achieve their financial goals for independence and protection. In addition to a broad range of skills and experience, many of the firm’s associates have earned advanced insurance and professional designations.

Jennifer Langstaff has been a member of the industry for over 18 years, with particular expertise in Retirement Planning. Active in industry organizations, she is a member of Paso Robles Chamber and president of a local chapter of Business Networking International. She has also been active in the community through the PRWCA, Paso Robles Children’s Museum, Quota Club International, Paso Robles Library and Trinity Lutheran School. A Graduate Estate Planning Consultant, Jennifer holds Series 6, 63, 65, 7, 24, & 36 securities registrations through LPL Financial and is registered to transact business in the states of CA, MI, UT, FL, HI, AR, TN.

In recognition of its exceptional service to clients and highly successful support of the company and production level, the Paso Robles office has been honored with LPL Financials Freedom Club recognition for the each of the past 10 years.

To schedule a complimentary financial planning consultation or to find out more about their September events, call 805-226-0445. To learn more about Legacy Retirement Advisors and how its members can help you with your financial goals, visit their web site at www.LegacyCentralCoast.com.