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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! • Shrinking
Portfolios Result in Withdrawal Rates Above Sustainable Levels
in Some Retirement Accounts • Solutions
for Six Common Estate Planning Mistakes • Exchange Traded Funds (ETFs) Are An Excellent Way to Invest in International Equities • Strategies
for Reaching the New Financial Consumer
Shrinking Portfolios Result in Withdrawal Rates Above Sustainable Levels in Some Retirement Accounts. Problem: The bear market has created shrinking portfolios. Many people living in retirement taking fixed dollar amounts from their investment portfolio have effectively increased their withdrawal rate above sustainable levels. For example, a $50,000 distribution is only 5% of a $ 1 million dollar portfolio, an acceptable rate depending on the retiree's investment style. After the bear market. that same distribution is 8.3% of a $600,000 portfolio, an unrealistically high distribution rate. If the markets simply step back into a pattern of normal equity returns, the retiree may face serious problems later in life as the compounded effect of the unsustainable withdrawal rate begins to show itself as a premature liquidation of retirement assets. The solution is not to wait until the market rebounds dramatically. Review retirement projections using post bear market valuations and reasonable assumptions concerning the future. Assume a sustainable withdrawal rate between four and six percent depending on the asset allocation you are comfortable with. Essentially, this will depend on how much investment risk you are willing to take. Remember: From a big picture perspective, only three things affect theaccumulation of money: 1. The amount you save or spend. Save more, spend less to improve
your
retirement wealth. Michael T. Hengehold, CPA, MST, PFS, Hengehold Capital Mgmt.877-598-5120 hcminvest@fuse.net Hengehold Capital, a Cincinnati, Ohio-based investment advisory firm and registered investment advisor, specializes in the creation and management of long term portfolios of stocks, bonds and no-load mutual funds for those in and planning for retirement.
Debt Means Missed Opportunity for Gen X'ers Debt is no small matter at any age, but excessive debt and debt service expenses eliminate many choices for Generation X (those born between 1961 to 1981. Landlords look at your credit history before renting apartments to young people. Large debt loads, even if you are making the monthly payments, means possibly not getting your apartment. For the same reason, you may not qualify for a mortgage when you are ready for your first home. Monthly payments may make it impossible to return to school to finish undergraduate or graduate degrees. You are limited from taking a risk such as moving and spending time looking for a job. Significant debt usually means not much saving, so you may not sustain a period of joblessness very well either. Primarily, however, large amounts of debt mean, usually, that you can't save for retirement. The prime time to begin that saving plan is between the time of your first job and age 35. This gives you about 35 years for compounding of your retirement savings to occur. It is essential to give yourself time to save for a secure retirement. Dee
Lee, CFP, Harvard (Mass.) Financial Educators 978-456-3778
Divorce: Navigating a Capital Transition of Life-Changing Proportion Divorce is a window-of potential opportunity or potential disaster. Statistics show that a woman's standard of living declines 45% on average in the year following a divorce, while a man's standard of living rises 15% on average in the year following a divorce. Divorced women are most likely to be impoverished in retirement, a fact leading one family law attorney to describe divorce courts as "poverty machines." One thing is for certain: how you plan for and manage your capital within the context of this transition will bear critically upon the future you create for yourself. To successfully navigate this capital transition, a woman must acquire the information, expertise and resources to undertake appropriate capital planning. This planning is necessary to: 1) Define the amount of capital necessary to sustain a newly single lifestyle; 2) Create an effective transition budget incorporating new capital expenditures triggered by the divorce such as buying a home; 3) Outline and quantify retirement planning needs to provide for long-term financial security. In the absence of such planning, a woman is ill equipped to enter into financial settlement discussions and risks underestimating, to a material degree, the capital needs associated with creating a new life. Paula
Chauncey, CFA, Managing Partner of Redwood Group LLC, 617-818-5514,
Qualifying for Medicaid Usually Slashes Retirement Income of Spouse Left Alone At Home Couples may not realize that to qualify for Medicaid, retirement income is often slashed. Most people focus on asset guidelines to qualify for Medicaid. There are also income guidelines, putting the non-working spouse in a particularly vulnerable position regarding her ability to live comfortably when the ill spouse goes into a nursing home and they must qualify for Medicaid. To qualify, not only will the couple be required to spend down their assets to $90,000 on ill spouse's care, but income will also be attached. Assume a retired engineer and his elderly wife were receiving $4000 every month from his pension. Suddenly, he requires nursing home care and there is no long term care insurance policy to pick up the cost. In most states, her monthly income is reduced to a maximum of about $2000, because to qualify for Medicaid, you must be poor from an income level as well as an asset level. For couples with a non-working spouse without her own income stream, spending down for Medicaid and losing a significant portion of pension income can have a disastrous impact on quality of life. Marilee Driscoll is under contract to write the first mass-market long term care planning book to be published by a major brand: "The Complete Idiot's Guide to Long Term Care Planning" will be published this fall by Alpha Books, a division of Macmillan USA. She is President of the Long Term Care Learning Institute, Plymouth, Mass., speaks to national audiences (both consumer and financial services) on retirement planning and long term care. She also provides technical long term care training to financial advisors & accountants. She is the author of "Seminar Secrets: How to market to baby boomers & their parents," and speaks to financial professionals on marketing through seminars. mdriscoll@marileedriscoll.com 508-830-9975 or toll free at 866-627-4533
Solutions for Six Common Estate Planning Mistakes 1. Don't let a generalist do a specialist's job. Estate planning should be done by an estate planning attorney. An estate planning attorney will be up-to-date with new laws and will make sure that all important issues are covered. Usually, no one knows that your estate plan has problems until it is too late. 2. Choose successor trustees who are compatible. Don't choose your adult child from another marriage to work with your current spouse on estate matters. 3. Make provisions for your grandchildren outright in the trust. Don't leave 100% of your trust to your children if you ultimately want your grandchildren to be left with something. Leave a percentage directly to the grandchildren, even if they aren't adults. 4. Leave directions in the event that you do not die but are mentally incompetent. Choose a disability successor trustee to handle your financial affairs when two medical doctors deem you incompetent. 5. Do not omit terminology to communicate your desire to take maximum advantage of your unified credit for estate taxes. If you don't use it you could lose it. 6. You must fund the trust after it is created. Make sure that all property is transferred into the name of your trust. Otherwise, after you die, your estate might have to be probated in order to get your assets into the trust. Nancy
Coutu is Principal, Money Managers Advisory, 630-990-7174
Executives Look for Ways to Transfer Wealth Without Making Trust Fund Babies Out of Their Children and Grandchildren. You've had a great run and your executive portfolio suggests, after analysis and projections, that you can NEVER spend it all. From a financial and tax perspective, then, does it make sense to continue to invest those assets, continuing to take interest, market, credit, economic risk, only to have those assets, once built, diminished by 50% estate taxes or 25% income taxes? Perhaps it makes more sense to think about multi-generation trusts and how they can impact future generations of your family. Wealthy families all struggle with how to give inheritances without killing the motivation of the recipients to continue to learn how to earn a living on their own. The key question becomes "How can you continue to motivate your children?" Trusts can be structured so that money is inherited, but at five year increments, not all at the same time. Trustees can be assigned from an institution, a financial advisor, or trusted family friend, or a combination, who can use their discretion to make more of your child's inheritance available for business opportunities, a first home, or for special needs grandchildren. Executives can establish foundations and focus their children on running philanthropic organizations. Wealth can be managed and often, establishing trusts and teaching your children how they will work are the first two steps. Philip
J. Toffel, Jr., Esq., WestonFinancial 617-571-4255
Trusts Can Usually Protect Your Child's Assets from a Divorcing Spouse. You've worked hard and accumulated a legacy to pass down to your children. Like most people, you want to keep your assets in your biological family (or family of origin). But you are uneasy about leaving assets to your daughter or son in such a way that they become part of their marital property. One option is to put all of your money in a trust that should protect family assets in the event of a divorce. Such a trust will require that the child approach a trustee (preferably a family member) when he or she wants part of their inheritance to buy a new house or enroll a child or herself in an educational institution. Such a trust allows a daughter, for instance, to defer -- or hide behind -- the same trustee should a husband want to use trust assets to start a business or take an investment fling. In the event of a divorce, trust assets can often be counted when child support is being determined. However, it may be better to have your child in a position to forego child support or alimony, than to lose half of their inherited assets in a divorce settlement. It would be very unusual for a judge to order the break-up of a trust in divorce proceedings. Clearly, this strategy depends on selecting the right trustee, and successors, who can be counted on to help your children as life hands them difficult situations. Jane King, Fairfield Financial Advisors, Wellesley, Mass. 781-431-1119 or 1-800-486-4845 is a small fee-only advisory and investment management firm that provides sound, well-reasoned counsel to individuals, families and business owners. She consults on estate and retirement planning and has more than $75 million in assets under management. She has been named to the Worth Magazine list of the top financial advisors in the country every year since it began. jking@fairfieldfinadvisors.com.
Exchange Traded Funds (ETFs) Are An Excellent Way To Invest in International Equities. ETFs make it possible for investors to buy or sell, cost efficiently, an entire portfolio of international stocks, as if they were buying or selling a share of stock. The ETF's represent shares of ownership in either a fund or unit investment trust that holds a portfolios of common stocks which are designed to generally correspond to the price and yield performance of their underlying portfolios of securities, functioning as an index. ETFs are listed and traded on stock exchanges which makes it easy for an investor or portfolio manager to buy or sell shares throughout the trading day while traditional index mutual funds can generally be purchased or redeemed only at an end-of-day closing price. Many U.S.-based International and Global Mutual Funds use ETF's. Wayne
Grzecki, Esq., is a portfolio manager with The New Century Portfolios,
a family of specialized mutual funds offering a unique, effective
option -- actively managed portfolios of mutual funds with with
marketwise diversification, superior performance histories and
reduced risk in balanced, small cap, aggressive and international
sectors. www.newcenturyportfolios.com,
Strategies for Reaching the New Financial Consumer In the past 20 years, the profile of the individual investor has changed. Today's technology provides investors with information that had previously only been available to financial professionals. These new investors are more knowledgeable, demanding, and price sensitive. More than 60 million people are using online banking and brokerage. Individual investors have now entered the financial markets because of 1. the ease of Internet access, 2. the unprecedented availability of investment information online as well as through television, print, and radio, and 3. reduced transaction costs. This "democratization" has given a new meaning to "full service." Brokers and advisors must give investors a myriad of effective, affordable choices -- online, in person, via U.S. Mail, and wireless, or be perceived as stodgy. Studies show that 52% of investors who use advisors also use the Internet at least once a month. Because so many independent investors have under-performed the markets, they are ripe for quality fee-based advice, but that advice must target the differences between investors in four categories: the validator, the independent, the relationship oriented and the partnership oriented. EAInvest subsidiary EAInvest Securities, Inc. is the service-oriented broker/dealer dedicated exclusively to independent financial advisors, offering custody services, a broad range of investment products, and managed accounts expertise. Along with E-Score, EAInvest offers powerful planning and practice tools, such as Advent Software's Axys ® portfolio accounting and reporting system at a reduced price to growing advisors. Contact Jamie Hammond. EAInvest, Inc., 415-932-1856, Jamie@eainvest.com, for a copy of an EAInvest white paper on this topic. Financial Advisors Must Have a Web site to Compete with Powerful Vendors Multi-million
dollar advertising budgets are conditioning consumers that a vendor
is far more important than the selection of a professional advisor.
To fight back, financial advisors need to get the message out that
personal financial decisions are best made as part of a process
of goal and data gathering, confirmation, analysis, recommendation
and implementation. Only then should product and vendor selections
be made. The
International Association of Registered Financial Consultants
(IARFC) has negotiated a very powerful Web site for its members
at a cost of less than $25 a month. It includes 30 features
that attract and inform visitors and opportunities to capture
visitors contact information and level of interest as a prospect.
The IARFC also provides its members with full color marketing
brochures that can be coordinated with a professional Web site
to properly orient the customer on the nature of the planning
process and the criteria that should be considered when selecting
a professional advisor. For additional information: 800 532
9060 or www.iarfc.org When the Going Gets Tough, Stay in Touch Don't underestimate the importance of meeting in person to give clients the bad news that they must reduce their withdrawals from their investment accounts to protect capital. Clients soon realize that this is why they pay fees for your advice. Cutting back is a unique situation for every family. When they realize they must cut back spending, overall, they find ways to trim, reduce and forego expenditures that will affect the long-term security of their retirement. Some may suggest they forego paying for investment advice. Be prepared for that question, because you will want to point out that the bond portfolio they are in now will not be a "safe" haven at some point and it is unlikely that they will know what to do to make changes. If you have shaped expectations correctly with your clients, a personal meeting to deliver bad news highlights your ability to counsel and advise. People are tougher than you may think. Don't put off calling for a meeting. Your expression of concern about their well being is really appreciated and they will often tell you this. Henry I. Montgomery, CFP -- 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 www.plannersfinancialservices.com.
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