A Broader Perspective

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Our blog is updated regularly with timely news and commentary, as well as highlights of the latest in-depth investing and financial planning articles featured in the www.MoneyAZ.com library.  It's a great way to keep in touch and stay abreast of the latest topics that affect your bottom line. 

Retirement: The beginning or the end?

By Bob Burger, CFP^®, CDFA^TM

 

Is retirement a beginning or an end? Perhaps the answer is some of both.

 

When considering retirement do you have visions of a new stage in your life in which “work” is an option, while relaxation and enjoyment of what really matters – spending time with grandchildren, enjoying hobbies or traveling – is the priority. This would imply the ability to live the desired life on your terms. Whether you choose to work because you enjoy it or want a few extras is your choice, not mandatory. You may have worked up to 40 years to gain this status. You deserve to enjoy it.

 

Our role as financial planners/advisors is to help you achieve financial freedom. We do not believe that simply putting together a portfolio of stocks, bonds and mutual funds is our fiduciary duty. Our role is to review all choices available to you and help create a personal success story. The financial choices available to most are far greater than simply putting together an investment portfolio.

 

Recession's Effect on College Students

By Mike McCann, CFP^®, AIF^®

 

The natural instinct in tough economic times is to pull back from the principles of sound financial planning and allow one's emotions to take over. This instinct apparently affects young adults as much as older adults, according to a recent survey of college students. Yet, in a recession more than ever, it's critical to set emotions aside and stay the course with sound financial decisions.

 

Arizona Pathways to Life Success in University Students (APLUS) is a study conducted by the University of Arizona and funded by the National Endowment for Financial Education. It reports 95 percent of students surveyed said they had changed their personal money management in response to the recession.

 

While some changes were positive (for example, budgeting rose about 3 percent), the overwhelming changes were in behaviors the study categorizes as high risk. Such behaviors include taking a "leave of absences from school" (106 percent increase), using one credit card to pay off another (26 percent increase), and overall increase in debt (60 percent increase for credit cards and 85 percent increase in education loan debt).

 

For minorities, the rates of increase were sometimes double and triple those of the overall group, which suggests the economic crisis has hit certain ethnic groups and women harder than their white and/or male peers. The crisis ultimately has affected all students’ confidence, behavior, trust in financial institutions and overall well-being, according to the study.

 

One bright spot in the study showed that direct teaching by parents had the most influence on students' financial knowledge - more than work experience and high school financial education combined. This is an important responsibility and opportunity for parents. Don’t let your kids figure it out on their own simply through trial and error. Make sure they have proper guidance and access to accurate information to make good financial decisions.

 

If you'd like to learn more about the study, click the following links:

Executive Summary

Full Report

 

To learn about teaching your children the importance of money management, read this article from our www.MoneyAz.com library.

 

Book Review: Retirement planning gem

Yes, You Can Still Retire Comfortably, by Ben Stein and Phil DeMuth

 

Review by Mike McCann, CFP, AIF

 

Racing toward retirement? You don’t have to out run the bear.

 

There’s an old joke about two hikers who encounter a man-eating Grizzly bear deep in the forest. The bear catches sight of the men from some distance and begins to charge. The first man kicks of his hiking boots and quickly dons a pair of running shoes. Stunned, the second hiker blurts, “Do you really think you can outrun the bear in those shoes?”  “I don’t need to outrun the bear,” the first replies calmly. “I just need to outrun you.”

 

Best-selling authors Ben Stein and Phil DeMuth reference this joke in their book, Yes, You Can Still Retire Comfortably. Their point – you don’t have to outrun the bear to retire successfully; you just have to outrun your peers.

The book opens with “The 21 Basic Rules of Retirement,” starting with self-discipline and closing with the advice that, “No matter what, you don’t want to be old, weak, ill, and poor.”  Included in their list is often-overlooked advice, including the idea that planning for your retirement is more important than providing a lavish life for your kids.

 

Using a baseball analogy, they also address the most common mistake I run across with those who seek out my advice.

 

“Don’t swing for the fences,” the authors write. “You’ll get in good retirement shape with singles and walks – in other words, don’t try for something brilliant. Just stay even with the market and you’ll do great.”

 

One of the most useful features of the book is a series of easy-to-follow tables that can guide you in answering how much money you will need, how much you should be saving, and whether you are on track.

 

If you’ve ever asked yourself the question, “Am I on track with my retirement planning?” this book is worth your time. It provides a practical, common sense approach to retirement planning, while maintaining a fast-paced read.

Managing Financial Strain During a Health Crisis

The American Journal of Medicine reported that medical bills are behind more than 60 percent of U.S. personal bankruptcies. What's more, more than 75 percent of these bankrupt families had health insurance, but still were overwhelmed by their medical debts. The article, based on research from Harvard Law School, Harvard Medical School and Ohio University, underscores how a single health crisis can financially destroy both individuals and families.

 

Planning ahead is crucial, especially when known risk factors exist in a family. A financial expert such as a Certified Financial Planner™ professional can help individuals determine if their insurance and savings options are adequate to handle the possibility of any future health crisis.

 

But if you’re suddenly faced with a frightening, expensive and potentially life-threatening diagnosis without such preparation, there are some basic steps to take.

Timely Tax Tips

By Patrick Eng

 

With the tax date looming on the horizon, it is a good idea to start collecting your tax documents and make sure you have all the things needed to make the tax prep process as painless as possible. As the U.S. government racks up the largest deficits in our nation’s history, you better believe that they will be looking closely at our tax returns to make sure they get every dollar in taxes they can grab.

 

I recently ran across an AOL blogger who has some very timely posts and ideas. She is a tax attorney who calls herself “taxgirl” and writes for a blog called WalletPop. Two of her articles that recently caught my eye were “Top 10 Ways to Avoid a Tax Audit” and “10 Tax Tips for Seniors.” Check out taxgirl’s recent blog posts at the links below:

 

http://www.walletpop.com/blog/2010/01/28/top-10-ways-to-avoid-a-tax-audit/

 

http://www.walletpop.com/blog/2010/02/04/10-tax-tips-for-seniors/

 

Know the tax rules and know your situation, so that you can take advantage of all the things to which you are entitled. Working with a trusted CPA can also help.

 

2010 ROTH IRA Conversion - Caution is the Key

By Patrick Eng

 

A lot of interest has been generated about the ROTH IRA conversion opportunity available for all IRA account holders starting in 2010. As with most financial opportunities, there are several benefits to the conversion, as well as some potential pitfalls. It is important to remember that every situation is unique, and you should consult a knowledgeable financial professional if you are unsure if this strategy is right for you.

 

Up until this year, if you had a modified adjusted gross income greater than $100,000 or were married and filing taxes separately, you did not qualify to convert a Traditional IRA to a ROTH IRA. Some of the advantages being touted are that current tax rates are at historically very low levels and with the stock market down from historical highs, it is super attractive to convert. In addition, ROTH IRAs do not have a Required Minimum Distribution (RMD) requirement like Traditional IRAs and you withdraw the money tax free after 59.5 years of age (assuming you meet the required five-year holding period).

 

All of these benefits seem to make this opportunity too good to pass up. However, according to a recent Dow Jones article, there are a number of potential unintended tax traps that "may make you reconsider when to convert, how much to convert, or even if you should convert at all."

 

Click on the link below to read the article on the Financial Adviser magazine Web site.

Learn more: 12 Traps with ROTH IRA Conversions

 

 

How Do Americans Save, Borrow, Plan?

Understanding how and why people save, borrow and invest their money is the first step in helping individuals plan for their financial future and achieve their goals. A recent FINRA Investor Education Foundation survey sheds some light on this topic.

 

The National Financial Capability Survey was developed in consultation with the U.S. Department of the Treasury and the President's Advisory Council on Financial Literacy. The data it reveals appears to comes at a critical moment for many American families. For example, the survey found that:

• only 41 percent of parents have set aside money for their children's college education;
• the majority of Americans do not have a "rainy day" fund for unanticipated financial emergencies and are not adequately preparing for their children's college education and their own retirement;
• more than one in five survey respondents use high-cost, alternative borrowing methods, such as payday loans or pawn shops; and
• fewer than half (46 percent) of those surveyed correctly answered two basic questions about how interest rates and inflation work.

"These survey results highlight just how important it is to give people the information and resources they need to make sound financial decisions," said FINRA Foundation Chairman Rick Ketchum.

 

An executive summary, as well as a longer survey report, is available on the FINRA Foundation Web site. The Foundation will also make the survey data available to the public and to researchers.

Develop a Plan for Charitable Giving

By Mike McCann, CFP, AIF

 

The earthquake that hit Haiti last week prompted a flurry of charitable donations that vastly exceeded the amount raised for previous international catastrophes, according to The Chronicle of Philanthropy. Within a week, more than $150 million had been contributed to major U.S. relief groups.

 

It’s a shining testament to the generosity of Americans to give so much, especially in light of the financial strain many have endured themselves during the recent economic downturn and sluggish recovery. Historically, Americans give generously, in good times and in bad. A survey by Johns Hopkins Comparative Nonprofit Sector Project reported that three out of every four Americans give to charity, including families with household incomes of less than $10,000. Collectively, Americans give more than $210 billion to charitable organizations each year, according to the American Association of Fundraising Counsel.

 

Although many families and individuals give generously, however, the vast majority doesn’t give in a planned way. Most employ a charitable-giving strategy often referred to as checkbook philanthropy. This really isn’t a strategy, but rather the unplanned giving of small amounts to a variety of charities, commonly in cash and often in reaction to disasters such as the Haiti earthquake.

 

Yet, those who plan their charitable giving enjoy many tangible benefits, in addition to the satisfaction of assisting the charity of their choice.

 

Arizona Tax Credits: New Employer Withholding Law

By Mike McCann, CFP, AIF

 

As of January 1, 2010, Arizona taxpayers can now authorize their employers to reduce their state tax withholdings for certain tax credit donations. This does not reduce your tax liability, but it does allow you to make donations through your withholdings rather than out of pocket.

 

Tax credits impacted by the new law include the Working Poor Tax Credit for donations to qualified charitable organizations, the Extracurricular Activities Tax Credit for donations to public schools (including charter schools), and the Arizona Scholarship Fund for private school tuition tax credit donations.

 

You are permitted to take advantage of any or all of these tax credits each year, which can equate to hundreds of your tax dollars being donated to the worthy charities and schools of your choice.

 

How does it work? It’s pretty simple.

How Will You Achieve Your Financial Resolutions in 2010?

By Bob Burger, CFP, CDFA

 

Although it’s a good idea to make, review and monitor goals on a continuous basis, most people (myself included) often look at certain days as points of reference. Typical days tend to be one’s birthday and, of course, the New Year.

 

What are your resolutions for 2010? Maybe you want to get in better shape, both physical and mental. Perhaps you resolved “this is the year to get my finances in order.” As a fitness enthusiast and a financial professional, I can’t help but draw on the similarities of the two interests.