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Don't miss this month's timely story ideas, direct dial phone numbers, and E-mail addresses of these accessible experts! RETIREMENT AND PENSION PLANNING • What Executives Need to Know About Managed Accounts for their Company’s 401(k) Plans. • Decisions Now on Pension Income Can Greatly Impact the Spouse Left Behind. • What Does a “Guaranteed Income for Life” Mean When You Have Poor Investment Performance in Your Annuity. • Real Estate Downsizing Strategies for the Current Market, • Unmarrieds Put Their Social Service Benefits in Jeopardy Every Day. They Just Don't Know. NEW BOOK "MONEY WITHOUT MATRIMONY: The
Unmarried Couple's Guide to Financial Security." • Advisors Must Prepare for Questions about Looming Changes to Medicare Part D. • Open Source Keeps Getting Better and Doesn’t Bust Your Budget. Trends from Ink&Air, Editor: Lisbeth Wiley Chapman, beth_chapman@inkair.com , 508-479-1033 RETIREMENT AND PENSION PLANNING What Executives Need to Know About Managed accounts for 401(k) plan participants are not new. What is new are the startling differences in participant’s choices when confronted with the reality of investment risk and market risk and how that plays out in managed accounts. Even more startling, many company executives don’t understand this either. Diversified passive model portfolio services that include “rebalancing” assets quarterly or annually, claim to be able to protect participants from investment risks. However, that presumes that the participant will use the model portfolio correctly. Take lifestyle mutual funds for example. Each individual lifestyle fund is well-diversified to achieve its objectives. However, most participants do not use lifestyle funds correctly. Rather than picking one fund that matches their long-term objectives, many are found to be putting 10% of their monthly deferral into ten different lifestyle fund choices available in their plan. All the education and advice in the world doesn’t stop participants from using lifestyle funds incorrectly. More importantly, lifestyle funds, even when used correctly, do not protect against market risk in any way. The market goes up and down, and the funds go up and down. Participants do understand market risk. When offered a choice of having their 401(k) assets professionally managed for them by a firm that practices tactical or active asset allocation to protect participant assets, 10% of employee groups are opting for this choice.* No one can manage market risk perfectly, 100% of the time, but offering to focus on protection when the market is down and participation in the market when it is on the upswing makes sense to those participants who emphatically do not want to manage their money, no matter how fine the education program offered by the employer. Executives charged with understanding and taking action steps about their company’s 401(k) plans should be sure to include both passive and active management choices in their plan. Passive management is outperforming active management at this time, but executives need to be aware that many employees will still choose active management because of its increased safety over the long term. For example, 401k Toolbox is a risk-controlled strategy that lowers equity exposure during times of market downturn. 401kToolbox.com/PMFM, Inc, Athens, Georgia has $711 million in assets under management. The firm provides tactical asset allocation money management services for its own clients, for assets held by 401(k) plan participants, and for other asset managers' clients. PMFM has a lengthy history of good risk-adjusted performance, preserving the value of client accounts in uncertain markets, posting positive returns in each of their investment strategy composites every calendar year since inception. Decisions Now on Pension Income Can Greatly Impact the Spouse Left Behind. If you are living on, or plan to live on, your spouse's pension income, you may be shocked to discover that such income can disappear after your spouse dies. Every year, women and men are left impoverished by a decision at retirement by the working spouse to take a larger payout during his or her lifetime, rather than a smaller payout that will continue to support their spouse after death. The standard option is to pay out the full pension to the retiree until his death. Choosing the joint survivor option reduces the monthly payout but assures the survivor of continuing income. It's heady stuff. The difference in monthly income by taking a full payout for the working spouse's life can be substantial. The bad news is that most women outlive their husbands by five to eight years. Alone and grieving is not the time to come to terms with a drastically reduced lifestyle because of the unexpected loss of pension income.. Pearson Financial Services, Dennis, MA, is the author of "The Million Dollar Gift: Dynasty Trusts. Why Leave Your Assets Any Other Way", written for his clients, their families, and his own family. He offers a fully integrated wealth management process, incorporating investment, retirement, financial and estate planning specialists under one roof, serving clients as their family's office, designing and implementing strategies to protect and distribute their wealth and highly appreciated property. Seth Pearson, CFP 800-385-7925 What Does a “Guaranteed Income for Life” Mean When You Have Poor Investment Performance in Your Annuity. Pitched as “powerful retirement vehicles that generate an income you won’t outlive,” annuity product providers are making an unprecedented marketing push to the 77-million throng of baby boomers hurtling toward retirement. While the guaranteed-income-for-life claims made in the heat in of the marketing moment hold strong appeal for the under-saved baby boom generation, this is one instance in which the steak may definitely not live up to the sizzle. The reason is the lackluster investment performance of the mutual funds underlying many annuity products. Paula Chauncey, CFA, Managing Partner, être llc, 617-716-0257 works with individuals, and their closely held businesses, to develop and execute wealth-building strategies. pchauncey@etrellc.com.
Real Estate Downsizing Strategies for the Current Market. In many local real estate markets, high end homes are taking longer to sell, while more moderately priced homes or homes located in hot retirement and vacation areas are selling quickly. This presents a quandary for homeowners who are in the market to downsize or exchange their current home for a new retirement home. One strategy that these homeowners can consider is to cash out the equity in their current primary home via a larger interest-only mortgage before listing the home for sale. This allows the homeowner to cash out their equity now and purchase the new home prior to selling the old home. This strategy requires that the homeowner make two mortgage payments – one on the current home and one on the new home. In order for the double mortgage payments to be affordable, the homeowner needs to implement an effective financing plan from a cash flow perspective. Consider the following example:
On the other hand, assume the homeowner does not utilize this strategy and waits an entire year before purchasing the new home while waiting for the old home to sell. In that case, if the new home is located in a hot real estate market, the homeowner could expect to pay at least 10% - 15% more for the new home if they wait a year. In other words, they would be forced to pay more for the new home and they would miss out on a full year’s worth of home appreciation. In this example, assuming the new home is worth $1,000,000 and is located in a hot area with 10% annual home appreciation, the homeowner would literally lose $100,000 by not implementing this strategy. Although this is a non-traditional way to downsize, the numbers can make a lot of sense. Gibran Nicholas is the CEO and founder of Nicholas & Co. Mortgage Planners, a private mortgage brokerage and mortgage planning firm based in Ann Arbor, MI. Gibran is also President and co-founder of the CMPS Institute, a nationwide training and certifying organization created to help mortgage professionals integrate financial planning concepts into the mortgage process. Gibran has created Wealth Equity, an educational DVD course to help homeowners, home buyers and real estate investors transform real estate equity into wealth. Gibran serves on the board of directors of the Financial Planning Association of MI and frequently conducts continuing education workshops for Certified Financial Planners. Gibran has been featured and/or quoted in various national publications including AARP Magazine, the Wall Street Journal, Investor’s Business Daily, Investment News, Financial Advisor Magazine, National Underwriter Magazine, Builder Magazine, Mortgage Originator and Broker Magazine. Phone: 888.608.9800; Email: Gibran@WealthEquity.com; Web Site: WealthEquity.com
Unmarrieds Put Their Social Service Benefits in Jeopardy Every Day. They Just Don't Know. It is important, at any age, for Unmarrieds to carefully scrutinize the desire to own things jointly. If one partner receives, or expects to receive, a social service benefit that is contingent on income and assets, such as Medicaid, joint ownership can create too many assets for that partner. He or she could lose eligibility for the benefit. Janet was diagnosed with multiple sclerosis. Her partner, Larry,
wanted to add her name to the deed on the home they shared. He was
concerned that if something happened to him, and they did not have Also worth noting is that Medicaid has a "look back rule." The state will check records over the past three years -- and in some cases five years -- to determine if any gifts have been made or assets divested to allow an individual to be eligible for coverage. (There are certain exceptions.) If such an asset transfer has occurred, Medicaid slaps a penalty period on that individual during which time he or she is not eligible for Medicaid. The length of the penalty depends on the amount of the asset transfer. Every decision for Unmarrieds has consequences that are not as complicated for couples who are married. Larry could place the home's ownership in a trust and name Janet as beneficiary. However, if Larry dies before Janet, she would not be eligible for Medicaid benefits because of the the value of the home, now part of her net worth. A second choice, if Janet sees assisted living or a nursing home in her future because of the MS, is for Larry to leave life insurance in a special needs trust designed so that Janet would not become ineligible for Medicaid. She would not be able to stay in the home they shared, but she would have the proceeds of the special needs trust to support her. Debra Neiman, CFP®, Neiman & Associates Financial Services, LLC, Watertown, Mass., helps traditional and non-traditional couples and families make smarter financial decisions so that they can achieve peace of mind and pursue their life dreams. SHE IS THE CO-AUTHOR OF “MONEY WITHOUT MATRIMONY: THE UNMARRIED COUPLE'S GUIDE TO FINANCIAL SECURITY.” Neiman provides fee-only financial planning, tax preparation and investment advisory services. deb@neimanonline.com 617-744-1816. NEW BOOK "MONEY WITHOUT MATRIMONY: The
Advisors Must Prepare for Questions about Looming Changes to Medicare Part D Medicare Part D is finally upon us. Clients will be inundated with information from various insurance carriers all making various promises and offers about prescription drug coverage. The Medicare Part D prescription drug program starts on January 1, 2006. Your Clients will need answers, and they will turn to you as a trusted advisor. Right now the key concept to instill in Clients is patience. It will be easy for Clients to get confused and worried that they must make an immediate decision. They need to resist the temptation to make a quick decision. The Client (and the financial advisor on behalf of Clients) needs to collect information regarding the impact of Part D on their existing drug coverage, if they currently have any, and what other options they will have. At present, the insurers are still coming to terms with Part D themselves. Acting now without gathering all the needed information could lead to a critical mistake. November 15, 2005 through May 15, 2006 is the initial enrollment period for Part D. This lengthy time frame gives you and your Clients the opportunity investigate and review their options and to come to a rational decision. Please note that just as acting too quickly can lead to disaster, conversely, putting off the decision can have negative consequences. Enrolling after May 15, 2006 may lead to a late enrollment penalty. Donald L. McCoy, J.D., CMFC -- Planners Financial Services, Inc., 952-835-9000. Minneapolis, Minnesota. Registered investment adviser and subsidiary company Montgomery Investment Management, specialize in the management of no-load mutual fund portfolios for individuals and retirement plans designed to protect capital by reducing risk. pfshim@usinternet.com.
Open Source Keeps Getting Better and Doesn’t Bust Your Budget. Switching to “Open Source” software requires very little effort, and some of the best open source programs available today run on the computer you have now. One of my favorite examples of a simple way to try open source and look like a hero in your organization at the same time is to convince clients to try Open Office, a free program that replaces Microsoft Office. In an age where a new computer is being sold by Dell for less than $500, it hurts when you are asked for an additional $349 for the Microsoft Office software. This article is being written with Open Office Writer – I abandoned Word years ago and never looked back. One of the great things about Open Office is its full compatibility with all major office suites, including Microsoft. That means I can use this free software to open any “word” document you might send me, as well as Lotus, Works, WordPerfect, Star Writer, etc – and I can create “word” documents, as well. Some of the advanced features of Microsoft Office can occasionally justify the price – merging documents, drawing, stuff like that – but if you simply need to type like I do, why not save yourself some serious moola. If you download the program (and yes it has versions of Excel and PowerPoint as part of the program) and you don't like it, you've lost nothing – just stop using it. There are a wide array of open source programs that replace “standards” - like Adobe's Acrobat program. You probably are familiar with PDF files – the IRS uses them for forms, and lots of manuals come in this format. If you've ever wanted to create PDFs of your own, you probably priced Acrobat – it's $ 450. I'd like to introduce you to a free open source program called PDFCreator If you're using the most advanced features of Acrobat, this probably isn't the best replacement. But, if you are using it like 99% of us do - just to make PDFs out of documents already on our computer - this is a wonderful solution. Commercial software is a bit like a car with the hood welded shut. Open Source functionality is software that never says no. Anything is possible in this secure and scalable environment. It's like the difference between hiring an architect to design your home and buying a modular home unit – anything is possible with an architect. If you aren't happy with the way a particular program works, you can change it (or pay someone to do it for you). I'd encourage you to give it a try. What do you think the boss will say when you present your plan to reduce the software costs for every employee by 50%? And it's just getting better all the time. KISS Computing is full-service web strategy firm, providing design, implementation, long term evaluation, and action steps for change that keep web site profitability above $5000 a month for small and mid-size companies. Ross Lasley, KISS Computing, Eastham, Mass., 508-255-9550 x401, ross@kisscomputing.com. Trends from Ink&Air, Editor: Lisbeth Wiley Chapman, beth_chapman@inkair.com , 508-479-1033
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