Theresa A. Harzelak, CFP

With two young active sons, I spend a lot of time at the baseball field.  The truth is I love the game as much as they do. A deeper truth–I find that the game of baseball and the strategies to winning the game offer us many life lessons 

What does a winning baseball strategy have to do with investments? Well, in the last 20 years, I have seen two kinds of investment managers—those that swing for the fences at every at bat looking for the home run and those that patiently, methodically put a man on every base, take the home runs when they happen, but strategically look for ways to win the game. 

At one of my son’s practices, every boy that got up to bat was swinging for the fences.  They hit a lot of fly balls and the outfielders were there to catch all of them.  Every boy wanted to hit a home run.  

I remember coach, Jeff telling them, “Boys, unless that ball goes over the fence, all you have is a loooooooooooooooooooong OUT!”   

Too many investment managers go for only those home runs.  They drift from their style, change their investment philosophy or take on too much risk to show their clients that “home run” performance. The problem with this investment philosophy is that these managers strike out more often than they hit the ball. Even more important, it is the client that loses the game.  

My investment philosophy is to put a winning strategy in place.  If you consistently hit singles and doubles, you’ll score enough points to win the game.  I’ll take the home runs, but I’d much rather have the bases loaded when I hit one. That way, my clients will be the winners at the end of the game and it will have been a much more enjoyable game to watch. 

Enjoy your summer and maybe, go see a terrific baseball game.

Health care—it’s on everyone’s mind these days. Even the presidential candidates have moved health care to the top of their platforms. As we struggle to find the best ways to insure all Americans, most of us still have to address the rising costs of healthcare and rising costs of healthcare premiums.

In the absence of a clear cut solution, High Deductible Health Plans (HDHP) with Health Savings Accounts (HSAs) are gaining in popularity. Some frequently asked questions:

What is a Health Savings Account? 

An HSA is like a 401(k) for healthcare.  It is a tax-advantaged personal savings or investment account that individuals can use to save and pay for qualified health expenses now or in the future. These accounts exist in conjunction with High Deductible Health Plans. 

However, unlike other financial saving vehicles such as an IRA or 401(k), an HSA has the unique potential to offer triple tax savings. 

• Contributions to an HSA account are tax-deductible.  They are considered “above the line” deductions and thus can be taken even if you do not itemize.
• Any HSA funds not used each year remain in the account, and earn interest tax-free. 
•  Distributions are tax free when they are used for qualified medical expenses.  You do not need to get an approval from the HSA administrator and you do not need to submit receipts, although you should save them just as you keep receipts for other items that are deducted from your taxes.

How much can I contribute to an HSA account? 

Individuals can contribute up to $2,900 each year or $5,800 for a family.  If you are between the ages of 55 and 65, you can make an additional annual “catch up” contribution of up to $900.  These are the 2008 contributions and the contribution levels are indexed annually. 

Who is eligible for an HSA? 

Any individual covered by a High Deductible Health Plan and not covered by any other health insurance can set up an HSA.  You cannot be enrolled in Medicare or be claimed as a dependent on someone else’s tax return.  There are no income limits and no earned income requirements to be eligible to contribute to an HSA.

What is a High Deductible Health Plan? 

A High Deductible Health Plan is a type of insurance plan that typically has a high deductible.  Because of the high deductible, the premiums you pay for that insurance coverage are usually lower than other insurance programs.  To qualify as an HDHP, the health insurance plan must have an annual deductible of at least $1,100 for individuals and at least $2,200 for families.  The annual out of pocket expenses (deductibles, co-payments and other expenses) can not exceed $5,600 for individual plans or $11,200 for family plans. 

For more information on HSA accounts, visit www.treas.gov and search HSA.

My sister Lynette was diagnosed with breast cancer three weeks after discovering she was pregnant. I remember the uncertainty of the time and the sheer panic within my entire family at having to confront cancer and mortality with someone so young.  My sister was 34 years old. 

She was given a very slim chance at long-term survival by 6 of the 8 medical opinions she sought.  Those 6 physicians told her she’d be lucky if she survived three years. 

But my sister kept searching because her instincts told her to seek out a place that truly believed in and practiced integrative health care–one where the entire person–physical, mental and spiritual—is treated under one roof. She found that place and concentrated on creating the optimal environment to regain her health through cancer treatment, diet, exercise and many other lifestyle changes. 

This year, 2008, is one where our family is celebrating her 10th year of survival and her son’s 10th birthday. We believe that the integrative approach that she found has been the key to her survival. 

I tell you this story because the integrative approach works.  It also works when talking about your financial wealth.  It’s called Integrative Wealth Management (IWM). 

This philosophy recognizes that your total “wealth” extends beyond financial issues and is also made up of human, intellectual, and social factors. IWM is comprehensive in nature and incorporates your financial plan, estate plan, life plan, vision, and investment strategy. 

Integrative Wealth Management (IWM) emphasizes the importance of addressing both your personal and financial needs. There are four main components of IWM all working in concert. 

PLANNING: Includes financial planning, estate planning, cash flow planning, philanthropic planning, retirement planning, educational planning, risk management (insurance), and tax planning.  

INVESTMENTS: Creating an ideal portfolio based on an individual or family’s asset allocation. Integrating the proper blend of stocks (domestic and international), bonds, REITs, and commodities. 

TAX MANAGEMENT: Arranging your investment planning strategies as to minimize the present value of the future tax liability over your life or in some cases multiple generations. 

PERSONAL CFO: Coordinating and managing your team of advisors so your strategies are implemented effectively, simply, and efficiently. Your team of advisors often includes: bankers, accountants, attorneys, insurance providers, investment advisors, and other professionals. 

Integrative healthcare and Integrative Wealth Management are not too terribly different in their philosophies. Both are customer-centered. Both understand that the customer brings to every situation a unique set of circumstances that must be addressed through individualized planning and both focus on agreed upon goals, dreams and desires of the client.  

When seeking care or advice in any arena, I would encourage anyone to partner with the team that is going to consider the whole person, not just that person’s investments or in the case of my sister, her breast only. 

Congratulations Lynn on 10 years!

  Brian P. Conroy, CFP®

Fixed income (bond) strategies alone can be a disaster in a rising cost world.  Here is a quick quiz: pick one:  

A) Your money will outlive you

B) You will outlive your money

C) There is no C Plan on A or you might inadvertently find yourself defaulting to B, and B stinks!     

When determining your retirement nest-egg investment strategy the most critical choice of investment allocation is typically a choice between growth and preservation.  Said differently, it’s often a choice between bond oriented strategies, and stock oriented strategies. 

I work with retirees and I can attest to the fact that many retirees do not believe they will live as long as they are actually likely to live.  The result is that many choose a very conservative “sleep better” preservation oriented bond strategy, and avoid the “eat better” growth oriented stock strategy.  The result is a great and very real risk of depleting the portfolio before the end of the rainbow.  They avoid the volatility of stocks, but accept the very real risk that bond returns alone will result in their running out of money if they only live an average life expectancy.  Remember that 50% of retirees will live longer than the “average.”  Most retirees need to balance growth and preservation due to the inevitability of inflation.   This means that  assets staying ahead of inflation must be part of the plan, and this means stocks will be part of the plan.  Don’t shoot the messenger!  You will VERY likely need to invest for both growth and preservation, and own both stocks and bonds.  Yellow bananas=bonds, green bananas=stocks.  

Consider adding a few years to the average life expectancy when you do your long term planning.  Follow the link for a fun little illustrated calculator that will give you some perspective about your personal potential longevity.http://www.nmfn.com/tn/learnctr–lifeevents–longevity_game  

  Brian P. Conroy, CFP®

I often talk to clients about investing for the “long term.”    Often the response is some version of “I’m retired, I don’t have a long term.”  Or, “I can’t take the risk of stocks, I can’t wait for challenging markets to recover- I’m retired.”  My response is, “don’t bet your life on a having a short one!”  Sharp penciled actuaries at the IRS suggest you may very well live longer than you think.  See the IRA tables to get a glimpse of how long you might live: 

http://www.finance.cch.com/tools/lifeexpectables_m.asp  

See table III.  This is the IRS table used to calculate required IRA distributions after age 70 ½. It suggests that according to the IRS a 70 year old might have a life expectancy of in excess of 26 years.  Now if you think that’s crazy, let me ask you this.  Don’t you think the IRS would like you to take your IRA distribution faster, if there wasn’t a strong actuarial reason for them to suggest a smaller required distribution?  If you distribute faster, they collect taxes faster! 

Why do I bring this up?  Because many follow a saving or investing plan that will work if they live a short life.   I suggest you bet on having a long life.  The consequence of being wrong means you might leave behind more money than you intended.  The consequences of betting on a short life and being wrong (and investing in saving accordingly) are unthinkable.  Think long term or take up smoking (just kidding).  Live Long and Prosper!  Next time-How to invest for a LONG retirement.

  Brian J. Knabe, MD

Why include a series about health and wellness in a financial publication?  With close examination of any retirement plan, the connection is apparent.  Healthcare expenses consume an increasing portion of a retiree’s savings.  One reason is the double-digit yearly rise in the overall cost of healthcare in the
US.  Additionally, longer life expectancies increase the length of time that an individual will need to pay for the care.

An examination of healthcare for retirees often begins with Medicare.  Dire warnings about the impending insolvency of the system continue to be an annual occurrence on Capital Hill.  Currently it is estimated that Medicare will be broke as of 2018 or 2019 if the current system is kept in place.  Medicare continues to act as a “safety net” for those over 65 years old.  But the cost to the individual beneficiary continues to rise as well.  Yearly premium increases charged to retirees has been in the double digits as of late.  Medicare expenses for the government are rising just as large numbers of Baby Boomers are poised to retire over the next couple of decades when they will stop contributing to the system.

Should an investor planning for retirement count on Medicare being available and providing for healthcare needs?  The answer is yes and no.  There are only a couple options the government has to rectify the shortfall – decrease benefits or increase premiums and co-pays.  The solution will probably be a combination of these.  Premiums will undoubtedly continue to rise, and benefits for the individual will decrease, either in the form of less treatment options or the exclusion of wealthier individuals from the system altogether.  One good option to help make up for this shortfall is a Health Savings Account, or HSA.  The contribution limit for 2008 is $2,900 for an individual and $5,800 for families.  Those over 55 can also make a catch-up contribution.  Making the maximum contribution each year will help you build a medical retirement fund that can be used to pay future medical expenses, tax-free.  Ask your financial advisor if an HSA is a good option for your individual situation.  Whether through the use of an HSA or another savings vehicle, it is prudent to include healthcare expenditures in the retirement planning process.

  Thomas A. Muldowney, MSFS, ChFC, CLU, CFP®, CRC, CMP®, AIF®

You have probably heard of folks who looked like the paragon of fitness…you know the type, they run in marathons, work out every day, have a treadmill with a remote hooked up to the TV with earphones so they can run, watch TV, talk on the phone, and sip cappuccinos all at the same time. They look fit and have endurance that everyone envies.   

To make it more challenging, they go to the doctor for regular yearly exams and are often told that ”everything looks good…keep up the good work.”   

Next, you hear that they ended up in the hospital with a heart attack or some dreaded disease…and upon check in to the hospital, the medical staff says: “we checked your cholesterol, triglycerides, HDL and LDL, looked at the HDL/LDL ratio, measured the homocysteines, lipoproteins, the apolipoprotein and the c-reactive protein.   While we were testing your blood we also looked at your leptin and your adiponectin, your Alpha Fetoprotein and your Carcinoembryonic Antigens.  Turns out that not one measure was out of range, however WHEN WE STACK THEM ALL TOGETHER, they indicate a strong tendency for a heart attack…and by gosh, you had a heart attack and look, NOW we can see it…you were headed for a heart attack all the time!”  

Hindsight is pretty much useless. It’s kind of like saying “I’ll tell you what you did wrong just as soon as it shows up in the results!”  I do not want to hear what I did that was wrong. I want someone to look at my health and my financial indicators and fast forward them into the future…then I can know what is wrong and make the necessary changes.  Knowledge, in advance of a potential calamity, helps me.  I can change.  I want to know if something is missing.  I want to know if my actions are wrong.  Let me know if there are steps that I can take that will enhance my health or my finances.  With just this little bit of knowledge, I have a chance to prevent the damage. 

Forensic Financial Analysis is like that.  Forensic Financial Analysis is like taking an X-Ray, a CAT scan, an MRI, and an exhaustive blood test, but it does this on your financial matters.  If your financial goals and your financial actions work in harmony, the chances are high that you will meet your financial goals…like college funding, saving for weddings, or even your own financial autonomy (retirement). 

Your plans are probably written down (they should be). You probably have also started an investment program (like 401(k) savings or IRAs).  Using Forensic Financial Analysis, you can find out the difference between what steps you have taken and whether you are on track to meet the goals that you have set out for yourself.  It is too often that we discover there is a disconnect between the goals that were set and the steps that were taken. These poor connections are called “Gaps.”  A gap is a hole in your plan.  Just like any other gap, it can be plugged.  Plugging the gaps in your financial plan and your financial activities makes your investment actions more efficient and increases your chances of success. 

Some people want to retire early, and everyone dislikes paying taxes. To meet their goals, (1) retire safely and 2) reduce taxes), they use Muni-bonds…looks smart because the interest is not taxable. Strangely, if they are in a mid-range tax bracket, they would actually be better off if they took taxable bonds and paid the tax…they would still have MORE after they paid the taxes than for using the Muni’s.    

Or how about this, they put stock funds inside their IRA and tax-free bonds in their regular account. The problem is that gains on a stock fund are taxed at capital gains rates and the tax-free bond earns a lower interest rate. Instead they should consider putting regular bonds inside the IRA (you get a higher interest rate than with tax-free bonds, so the interest rate that you earn just went up) and the stock funds in your regular account (partially tax deferred and dividends taxed at capital gains rates). This increases the efficiency of your portfolio…all due to Forensic Financial Analysis and a simple re-arranging of your investments. 

Forensic Financial Analysis should be done long before you can see the retirement event on the horizon.  Since it is like an exhaustive physical, you can find out steps that can be taken to improve your financial environment long before something goes wrong or long before you find out that you’re going to end up short. Ending up short means that you’ll probably have to work a bit longer or take up more risk…possibly two undesirable activities. 

Doing some Forensic Financial Analysis usually falls outside the parameters of regular financial planning, so you’ll have to do a little research to find financial advisors who can do this for you…it is well worth the asking. Look for an advisor that can help you with the intricacies of Forensic Financial Analysis.  

Good luck and may all your financial endeavors be successful!

  Kim Cady

Do you know who is listed as your beneficiary when it comes to your retirement account?  You should check this periodically, especially if you have had a life changing event, such as a marriage, divorce, or added children to your family.  There have been many cases where the designation was not what the deceased had wanted, but the documentation was never changed, resulting in legal battles for the survivors.  You certainly would not want your third child to have to take his/her two older siblings to court for a share of your account; or your spouse having to battle with your ex-spouse. 

For qualified plans such as a 401(k), Profit Sharing, or Money Purchase – federal regulations require the spouse be named as primary unless the spouse approves of another designation.  This approval must be documented and notarized. 

For IRAs – state law determines the treatment if no beneficiary designation is made.   

You can revoke your existing beneficiary designation simply by submitting a change-of-beneficiary form naming a new beneficiary. 

You should also consider naming a contingent (secondary) beneficiary in case of a simultaneous death.  If not named, state law will determine how your benefit will be distributed, again not necessarily as you would have desired. 

Here is a checklist to help make a proper beneficiary designation: 

Ø      Always check the default provisions in your account’s document to know what will occur if your beneficiary predeceases you and you fail to make subsequent changes. 

Ø      Know the tax implications for the type of beneficiary you choose – a person such as a spouse or non-spouse; a trust; estate; or a charity. 

Ø      Obtain confirmation that your designation has been received and on record from your account administrator. 

Ø      Check with your account administrator periodically to review your beneficiary designation. 

  Kim Cady

 When I started working with retirement plans over 20 years ago, this was a common statement made by employees of newly developed employer sponsored retirement plans.  While it was certainly a reasonable and obtainable goal for saving-conscious plan participants back then, a million dollar retirement plan goal today might not be enough.  With costs, spending habits, and life expectancy increasing, our accumulation at retirement may need to be larger in order to last longer.   A more appropriate statement today would be “I want to be able to retire!”  What is that going to take?  Well, for married couples beginning their savings plan at age 35 they would need to save 10.4% of their annual income between now and age 65 in order to accumulate enough to provide a comfortable living for 20 years into retirement.   (Did you know that, according to statistics, being married adds a few years to your life expectancy!)  This accumulation amounts to $1,403,542* during that 30 year savings period.  What happens if they live into their 90s?  

One statement that has not changed over the years is “start saving as soon as you can.”  This requires a lot of discipline considering in our early years we are faced with many challenges – a home purchase; starting a family; career building; etc. but the payoff can be very rewarding.  If we changed the example above to a married couple starting their plan at age 25, they would only need to save 5% (less than half of the 35 year old neighbors) of their yearly income to accumulate a sufficient nest egg at age 65 ($1,897,119*).  This couple has almost 2 million in plan assets, but don’t forget, it’s only going to get them to age 85; they’ll need much more than that if they live longer. 

If you are fortunate to work for a company that matches a portion of your deferrals or provides other company contributions, your personal savings could be scaled back or you could enjoy greater spending in retirement.  However, you would never want to contribute less than what the company is willing to match; that’s like finding a twenty dollar bill on your doorstep each week and letting it blow away!    

* Household income of $70,000; anticipated inflation of 3%; income replacement at retirement = 75%; investment return during accumulation period of 10%; and an investment return during spending period of 8%.  The accumulation does not include social security benefits.

  Kim Cady

Many 401(k) plans today allow participants  the ability to borrow a portion of their plan balance.  Most participants consider this a valuable plan benefit.  But is it? A program that lets you pay yourself back sounds like a great deal, but remember, you are the one doing the payback, typically pulling cash out of your paycheck (on an after-tax basis) and putting it back into your plan (to be taxed again later!)   One may argue that these participants are just taking out of one pocket and putting it into their other pocket–virtually costing them nothing.  Let’s see if this holds true: 

A 45 year old participant borrows $5,000* with an interest rate of 6% to be paid back over a 3 year period.  The participant’s current plan investments would otherwise earn an average of 8% a year.   

The participant’s take home pay will be reduced by $152.11 per month; over the course of the 3 year period, total interest paid is $475.95 for a total repayment back to the plan of $5,475.95.   

Yes, the participant’s plan balance will have an additional $475.95 after the 3 year period, but remember this was paid by the participant.  The same $5,000 if left in the plan would have earned $1,298.56 (compounding annually) from the investment company.  The participant is out all of this income and the plan is short by $822.61.  Now let’s take this one step further.  What if this shortage had remained invested in the plan the remaining 22 years until the participant retires?  It would be worth $4,472.15!   Without doing any additional math, this seems to be a pretty costly loan.  (The same loan through a financial institution at a rate of 9.5% would cost the participant $765.93 in interest over the three year period.)    A better alternative would be taking a home equity loan which may allow the interest to be tax deductible.  Of course, if there is a financial emergency, it’s always better to borrow from your plan than take a hardship withdrawal (if under age 59.5).  You avoid the 10% penalty and at least the proceeds will be returned to the plan over time.   *The plan document and/or the plan’s loan policy may restrict the availability of the loan to specific purposes.  You should refer to your Summary Plan Description or your plan administrator for further information.