Make a Plan to Reduce Your Debt

January, 2012

The recession—and subsequent slow recovery—has caused millions of Americans to focus even more closely on living within their means. If you are ready to face up to your own financial realities, one crucial step is to set out a plan of action. Here are some key considerations to keep in mind.

Keep Track of Your Spending

It’s hard to reduce your spending if you don’t have a good idea of how much you are spending. Keep track of your typical monthly expenses for three months to find out where your money is going. To get an even more realistic idea, factor in some unexpected expenses—such as auto and home repairs. Once you have a record of your spending, compare your average monthly outlay with your monthly income. If you have a surplus, this is the amount you can apply each month to paying down debt and building savings. If you have a shortfall, you’ll need to examine your expenses more closely to see what you can potentially cut back or cut out.

Keep Saving

One way to establish good saving habits is to make saving even easier than spending. A handy tip is to set up separate savings accounts with separate goals attached to them. Here are three suggestions that can help you better allocate your savings.

• Emergency Account: Your goal for this account should be to build up at least three to six months of living expenses. This way, if you lose your job or need a lump sum to pay for a significant expense, you may not have to tap into your other savings or ring up more debt.
• Family Account: This account can help fund your children’s school expenses (such as class trips and team uniforms) or vacations.
• Investment Account: This account should be reserved for general or long-term saving goals. Hopefully, you already have a retirement savings account (either through your workplace or on your own) and perhaps a college savings plan. But having another account to save for other longer-term goals—maybe to start your own business or remodel your home—can be a smart move.

Keep a Tight Watch on Your Credit Cards

If you’ve accumulated significant credit card debt, you’ve first got to stop the bad behavior. Paying off debt is easier once you stop using your credit cards.
• Pay off your highest interest credit card debt first, making sure you avoid the “minimum balance trap.” Paying more than the minimum can make a big difference.
• Consolidate your debt by transferring outstanding balances to lower-rate cards. If you don’t want to transfer your balances, you may be able to get your current credit card company to match the interest rate of a competitor.
• Cancel all cards except for the one that offers the lowest interest rate.
• Finally, set up a realistic payment timetable and stick with it. If you have trouble keeping pace, talk to a professional. The counselors at the nonprofit National Foundation for Credit Counseling can help develop a more structured plan for you. To find the nearest location, call 800-388-2227 or visit http://www.nfcc.org.

Because of the possibility of human or mechanical error by McGraw-Hill Financial Communications or its sources, neither McGraw-Hill Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall McGraw-Hill Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

January 2012 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Strategies for Smart Retirement Planning - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2012

Strategies for Smart Retirement Planning

A study conducted by the Employee Benefit Research Institute estimated that the average American worker will face a retirement savings shortfall of more than $47,000. (1) How can you avoid a similar fate?

Some factors that influence your retirement savings results, such as the types of investments available to you through your plan and the performance of the financial markets, can’t always be controlled. But there are some factors you can influence that can help keep your portfolio on track.

Step 1: Stay invested.
It’s not easy to see your account value decrease after a decline in the stock market, particularly after a steep, sudden drop of 10% or more. But one of the dangers of cashing out is missing a potential market rebound. Trying to “time” the market is a strategy even the most-seasoned financial professionals have difficulty mastering. It can also lead investors into the trap of “chasing gains”; that is, moving your money from one investment that’s lagging into another one that’s currently achieving better performance.

Step 2: Regularly monitor your investment mix.

One of the benefits of a diversified portfolio is balance. If one type of investment is experiencing losses, another type may be earning gains. Over time, these gains and losses may cause your asset allocation to skew away from your target mix. (2) Or your tolerance for risk may evolve over time. Lifestyle changes can also necessitate a readjustment to your allocation. That’s why it’s important to monitor your mix and make adjustments when necessary.

Step 3: Increase your savings rate.

Perhaps the most important way to help fund your future is to sock away as much as possible. Finding the extra money to invest can be tough—you’ve got plenty of expenses to worry about today without the added anxiety of worrying about tomorrow. But every dollar you can spare can make a difference. Whether retirement is just around the corner or 30 to 40 years away, regularly setting money aside—particularly in a tax-deferred vehicle such as a 401(k) or tax-exempt account like a Roth IRA—can often be the smartest move you can make.

2011 Retirement Plan Account Limits
Maximum contribution limit for 401(k), 403(b), and 457 plan participants: $16,500
Maximum additional “catch-up” contributions for 401(k), 403(b), and 457 plan participants age 50 and older: $5,500
Maximum traditional IRA contribution: $5,000
Maximum additional “catch-up” contributions for traditional IRA account holders age 50 and older: $1,000
Maximum contribution limit for SIMPLE retirement accounts: $11,500
Maximum contribution limit for Roth IRAs: $5,000
(See note #3)

1 - Source: Employee Benefit Research Institute, EBRI Notes, October 2010.
2 - Diversification and asset allocation do not ensure a profit or protect against a loss in a declining market.
3 - Roth IRA contributions may be made only by single taxpayers with modified adjusted gross incomes (MAGIs) of less than $122,000 and married joint filers with MAGIs of under $179,000. Phase-out limits for partial contributions also apply. If your MAGI is close to or over these limits, talk to your financial or tax professional before contributing to a Roth IRA.

As Stocks Continue to Roil, Alternative Investments Gain Appeal - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2012

As Stocks Continue to Roil, Alternative Investments Gain Appeal

Prolonged stock market volatility has caused many investors to question how much of their portfolios should be allocated to equities. If the stock market is making you nervous, it’s important to understand that there are alternatives, which, when used along with stocks, may increase diversification and potentially lessen volatility. (1) However, it’s just as important to understand that alternative investments also come with risks.

Alternative Investments Defined

Alternative investments take many forms. Here is a look at several common investment types.

• Real estate investment trusts (REITs). REITs invest in groups of professionally managed properties such as office buildings, apartments, warehouses, or health care facilities. To qualify as a REIT, a company must invest at least 75% of its total assets in real estate, must derive at least 75% of gross income from rents or mortgage interest, and must pay at least 90% of its taxable income in the form of shareholder dividends. REITs trade on major exchanges and can be bought or sold as you would trade a stock.

• Commodities. (2) These investments include metals such as gold or silver, oil, and agricultural products. In the case of gold or silver, there are dealers who trade these precious metals. If you take physical possession of gold or silver, you will need to arrange for storage and insurance. Because many investors do not want to make these arrangements, exchange-traded funds (ETFs) have become a popular way to access commodities.

• Private equity. Major categories of private equity include venture capital, leveraged buyouts, and mezzanine financing. Investors participate in private markets through collective vehicles such as partnerships that actively manage the investment assets on the investors’ behalf. Successful investing in this area requires the ability to assess complex financial structures, assume outsized risk in pursuit of superior reward, and tolerate extended periods of illiquidity. Private equity firms frequently require investors to make commitments ranging from $5 million to $10 million or more.

• Hedge funds. (3) The term hedge fund is a catch-all phrase describing funds that follow aggressive investment strategies such as intensive use of derivatives and proprietary computerized trading. Hedge funds typically are engineered to seek a more favorable risk-adjusted return than their investors might obtain from a fund that follows a standard market benchmark. These funds are typically offered to investors whose portfolios include more than $1 million in financial assets.

All investing involves risk, including loss of principal; and alternative investments by themselves can be highly volatile. But when used in combination with stocks or other assets, they may help to smooth out long-term returns and provide an alternative when stock returns are choppy. Be sure to consult with your financial professional before investing.

1 - There is no guarantee that a diversified portfolio will enhance overall returns or outperform a nondiversified portfolio. Diversification does not ensure a profit or protect against a loss in a declining market.
2 - Exposure to the commodities market may subject investors to greater volatility as commodity-linked investments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity.
3 - Hedge funds often engage in speculative investment practices that may increase the risk of investment loss. Hedge funds can be highly illiquid; are not required to provide periodic pricing or valuation information to investors; may involve complex tax structures and delays in distributing important tax information; are not subject to the same regulatory requirements as mutual funds; and often charge high fees.

Market Volatility Could Make Roth IRA Conversion Appealing - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2012

Market Volatility Could Make Roth IRA Conversion Appealing

As a volatile stock market continues its ups and downs, many investors facing losses are searching for strategies to help them cope with the situation. Retirement investors may want to examine converting a traditional IRA to Roth IRA, with the understanding that the conversion can be reversed if needed.

Why Now

Thanks to legislation that took effect in 2010, investors at any level of income can convert a traditional IRA to a Roth IRA. A choppy market can be an excellent time for those considering a conversion to take the plunge. Here are a few reasons why it could make sense.

• Smaller balance = small tax bite: A conversion triggers a tax bill on the amount of money that is converted, so a smaller account balance results in a smaller tax bite.
• Hedge against future tax rate increases: Many observers believe that federal taxes are likely to increase in the years ahead as the federal government grapples with budget problems. Currently, qualified withdrawals from Roth IRAs after age 59½ are tax free, which presents an important benefit for retirement investors. (1)

Before deciding whether a conversion makes sense for you, make sure you understand the differences between a traditional IRA and a Roth IRA. You can learn more details by referencing IRS Publication 590.

If you are considering a conversion, be sure to consult a tax professional to help you calculate the corresponding tax bill. Financial advisors usually recommend that taxes associated with a Roth IRA conversion be paid from assets outside of the Roth IRA account so as not to disrupt retirement savings.

You Can Change Your Mind

If you convert from a traditional IRA to a Roth IRA and you subsequently change your mind, there is a redo known as recharacterization. In effect, recharacterization is reversing the conversion and moving the assets back to a traditional IRA. Your financial institution can handle this transaction for you, and you are required to file an amended tax return. There are several reasons why investors may want to consider a recharacterization:

• The conversion from a traditional IRA to Roth IRA increases your marginal tax rate. (Consulting a tax advisor in advance could potentially help you avoid this situation.)
• You do not have enough cash on hand to pay the taxes.
• Note that these reasons are not specified by the IRS. According to current tax rules, you do not need to present a reason for recharacterizing.

Recharacterization needs to be complete by the last date when federal taxes, including extensions, are due. This date is usually in mid-October for the prior tax year. (For example, a Roth IRA conversion for the 2011 tax year needs to be recharacterized and an amended tax return filed by mid-October 2012.)

1 - Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

FAQs for Near-Retirees - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

December, 2011

FAQs for Near-Retirees

After years of saving and investing, you can finally see your retirement on the horizon. But before kicking back, you still have some important planning to do. The following frequently asked questions about retirement income should help you begin the final stages of retirement planning on the right foot.

1. When should I begin thinking about tapping my retirement assets and how should I go about doing so?

The answer to this question depends on when you expect to retire. Assuming you expect to retire between the ages of 62 and 67, you may want to begin the planning process in your mid to late 50s. A series of meetings with a financial consultant may help you make important decisions such as how your portfolio should be invested, when you can afford to retire, and how much you will be able to withdraw annually for living expenses. If you anticipate retiring earlier, or enjoying a longer working life, you may need to alter your planning threshold accordingly.

2. How much annual income am I likely to need?

While studies indicate that many people are likely to need between 60% and 80% of their final working year’s income to maintain their lifestyle after retiring, low-income and wealthy retirees may need closer to 90%. Because of the declining availability of traditional pensions and increasing financial stresses on Social Security, future retirees may have to rely more on income generated by personal investments than today’s retirees.

3. How much can I afford to withdraw from my assets for annual living expenses?

As you age, your financial affairs won’t remain static: Changes in inflation, investment returns, your desired lifestyle, and your life expectancy are important contributing factors. You may want to err on the side of caution and choose an annual withdrawal rate somewhat below 5%; of course, this depends on how much you have in your overall portfolio and how much you will need on a regular basis. The best way to target a withdrawal rate is to meet one-on-one with a qualified financial consultant and review your personal situation.

4. When planning portfolio withdrawals, is there a preferred strategy for which accounts are tapped first?

You may want to consider tapping taxable accounts first to maintain the tax benefits of your tax-deferred retirement accounts. If your expected dividends and interest payments from taxable accounts are not enough to meet your cash flow needs, you may want to consider liquidating certain assets. Selling losing positions in taxable accounts may allow you to offset current or future gains for tax purposes. Also, to maintain your target asset allocation, consider whether you should liquidate overweighted asset classes. Another potential strategy may be to consider withdrawing assets from tax-deferred accounts to which nondeductible contributions have been made, such as after-tax contributions to a 401(k) plan.

If you maintain a traditional IRA or a 401(k), 403(b), or 457 plan, in most cases, you must begin required minimum distributions (RMDs) after age 70 1/2. The amount of the annual distribution is determined by your life expectancy and, potentially, the life expectancy of a beneficiary. RMDs don’t apply to Roth IRAs.

5. Are there other ways of getting income from investments besides liquidating assets?

One such strategy that uses fixed-income investments is bond laddering. A bond ladder is a portfolio of bonds with maturity dates that are evenly staggered so that a constant proportion of the bonds can potentially be redeemed at par value each year. As a portfolio management strategy, bond laddering may help you maintain a relatively consistent stream of income while limiting your exposure to risk. (1)

When crafting a retirement portfolio, you need to make sure it generates enough growth to prevent running out of money during your later years. You may want to maintain an investment mix with the goal of earning returns that exceed the rate of inflation.

1 - Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and changes in price.

December 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Searching for Value in a Down Market - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

December, 2011

Searching for Value in a Down Market

As volatility in the stock market continues, some investors may be tempted to buy on the dips. But this desire raises an important question: Is a low price by itself a true measure of a value stock? If an investor plans to hold a stock for the long term, how can an investor gauge its future potential compared with the broader market?

Value Investing Defined

Value stocks are those that have fallen out of favor in the marketplace and are considered bargain-priced compared with book value, replacement value, or liquidation value. Value fund managers typically invest only when they believe the underlying company has good fundamentals. Many value investors think that a majority of value stocks are created because investors overreact to negative events, which can include:

• Disappointing earnings.
• A negative outlook for the industry.
• A regulatory setback.
• Substantive litigation.

The idea behind value investing is that stocks of good companies will bounce back in time when a company overcomes a short-term obstacle and investors ultimately recognize fair value. But this recognition may take time or, in some instances, may never materialize.

Comparative Analysis

Investors looking to avoid a value mistake may want to compare a stock’s recent trend with a peer group or with a broad market index. Here are some other suggestions:

• Consider whether a stock has dropped more than the average stock in the S&P 500 during the past three months.
• Examine whether earnings estimates are being revised downward faster when compared with a peer group.
• Compare analyst estimates of future profit margins to historical margins. If expectations for future profits exceed past earnings, the company could end up disappointing investors.

Another technique for potentially avoiding a value mistake is to look for stocks paying dividends. Dividends historically have been seen as a sign of management’s confidence in healthy cash flow over the long term, as well as an indicator that management’s interests align with shareholders. Even if a stock price languishes for a period of time, a dividend provides an investor with something in the way of a return. Note that dividends are not guaranteed, and a company can reduce or eliminate a dividend at any time.

Perhaps the best strategy for avoiding a value mistake is to combine value stocks with growth stocks, international stocks, and other types of equities to pursue diversification. Although there are no guarantees, owning some of each could help to balance an equity portfolio over the long term. (1)

Source:
1 - Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, and may not be suitable for all investors. Investing in stocks involves risks, including loss of principal.

How Much Will That Little Bundle of Joy Cost You? Try $163,000 - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

December, 2011

How Much Will That Little Bundle of Joy Cost You? Try $163,000

While many financial studies focus solely on college costs, research by the U.S. Department of Agriculture (USDA) provides parents and prospective parents with a general idea of the cumulative expenses for a child before college kicks in.

The results are sobering. The average total child-rearing costs for a child born in 2010 and living at home through age 17 range from $163,440 to $377,040, depending on the family’s income level. The USDA calculations include a wide variety of expenses, including housing, child care and education, health care, clothing, transportation, food, personal care, and entertainment.

Estimated Cumulative Child-Rearing Expenditures, 2010-2027

Lowest Income Group (<$57,600) $163,440
Middle Income Group (between $57,600-$99,730) $226,920
Highest Income Group (>$99,730) $377,040

Source: USDA, Expenditures on Children by Families, 2010; June 2011. All figures are in 2010 dollars.

Households in the lowest income group (those earning under $57,600 per year) are estimated to spend 25% of their before-tax income on a child, while those in the highest income group (earning more than $99,730 annually) are estimated to spend just 12%.

For a middle-income family with two children, the largest expenditures are:
• Housing, at an average of 31% of total expenses.
• Child care/education, 17%.
• Food, 16%.
• Transportation, 14%.
• Health care, 8%.

Total annual costs for that middle-income, two-child family range from $8,480 to $9,630 per child on average. For those couples with only one child, costs tend to be as much as 25% higher. Overall, costs for single parent households average about 7% less.

Not surprisingly, geography matters. Parents in the “Urban Northeast” had the highest average expenses, while those in “Rural” areas had the lowest. It also should come as no surprise to parents that it is generally more expensive to raise a child today than it was when they were children. Average child-rearing expenses for a middle-class family have climbed nearly 25% since 1960.

The USDA website has a free calculator that can help parents estimate their child care costs. The Cost of Raising a Child Calculator factors in geography, single or two-parent status, and the costs of additional children. The tool is available here: http://www.cnpp.usda.gov/calculator.htm.

Getting Ready for Tax Season: Changes for 2012 - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

December, 2011

Getting Ready for Tax Season: Changes for 2012

Although most Americans will not have to worry about 2012 taxes until early 2013 when 2012 tax returns are due, self-employed individuals or anyone who must pay quarterly tax payments will want to plan ahead.

And there’s good news for those that do. The IRS recently announced cost-of-living adjustments for the 2012 tax year that bump up brackets, deductions, and other thresholds for inflation.

The following is a summary of the key changes for 2012.

• Exemptions are up: The personal and dependent exemption increases to $3,800, up $100 from 2011.

• Standard deductions have increased: The 2012 standard deduction increases to $11,900 for married couples filing a joint return, $5,950 for singles and married individuals filing separately, and $8,700 for heads of household.

• Tax-bracket adjustments: Tax-bracket thresholds have increased for each filing status.

• Estate tax exclusion has increased: The estate tax exclusion increases to $5,120,000, up from $5,000,000 for 2011. The annual exclusion for gifts will remain at $13,000.

• Earned income credits rise: The maximum earned income tax credit (EITC) rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC increases to $50,270, up from $49,078 in 2011.

• Transportation benefits adjusted: The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.

Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains at $1,150 for married individuals and $1,450 for singles and heads of household.

Details on these and other inflation adjustments can be found in Revenue Procedure 2011-52.

“Full Nest” Finances: Considerations When Supporting Adult Children - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2011

“Full Nest” Finances: Considerations When Supporting Adult Children

Say so-long to the days of “empty nesters,” when parents would make life changes once their children had moved out and moved on. It is more likely that parents today are dealing with a “full nest.”

It is estimated that 85% of this year’s college graduates are planning to head back to live with mom and dad. (1) And a study in 2010 by researchers at Columbia University using the U.S. Current Population Survey found that 52.8% of 18- to 24-year-olds were living at home, up from 47.3% in 1970. The study also showed that one-in-seven young adults is emerging from their teenage years with no pathway to financial and economic independence. (2)

For parents it can be trying. While it’s important to respect the independence of full-grown children, it’s not that easy when they are exercising that independence under your roof. What’s more, it can also be a drain financially. Food, heating, gas, electricity, and many other daily expenses can be a lot higher when they include another mouth or two.

If you find yourself with a full nest, here are a few tips to help make ends meet:

• Make a budget. Tracking what you spend and comparing it with a monthly plan will help you to identify where the money is going, and where you can cut back. It can also show what costs are truly shared and what ones relate to specific family members.
• Share the common costs. Most live-at-home adult children are there for a reason, often due to lack of a job or inability to afford a place of their own. But that does not mean they should not shoulder a portion of household expenses. Work out a realistic rent or cost-sharing arrangement and stick with it.
• Separate the individual costs. Is your live-at-home son or daughter a finicky eater? Do they demand certain foods or sundries that you would not buy otherwise? Then let them pay for them. They’ll learn to appreciate what their tastes are actually costing, and avoid resentments on your part.
• Share the chores. Assigning chores and responsibilities may seem obvious, but often it’s overlooked, leaving mom and dad to do all the work. Garbage, lawn, housework—make it clear to all who is responsible for what task.
• Don’t make it too comfortable. If your goal is to eventually nudge your fledglings out of the nest, you need to provide incentive. That means not treating them as permanent guests, but as temporary live-at-home adult children, with obligations and responsibilities of their own. In the end, they will appreciate it as much as you.

Source:
1 - Source: Harper’s Magazine, August 2011.
2 - Source: Columbia University, National Center for Children in Poverty, “A Profile of Disconnected Young Adults in 2010,” December 2010.

November 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

How Closely Correlated Is Your Portfolio? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2011

How Closely Correlated Is Your Portfolio?

Investors hear a lot about the benefits of asset allocation, that is, spreading your assets among different types of investments to help reduce risk. (1) But less discussed is an equally important measurement: correlation, which is a way to measure how closely related two types of investments are. In theory, you could be invested in multiple securities of differing types and classes, but if they are all closely correlated, your portfolio may not be as diverse as you think—and could open you up to more risk than you intended.

Correlation is expressed as a number between 1.00 and -1.00.

• A “1.00” indicates an absolute positive correlation (that is, the assets under comparison always move together in the same direction).
• A “0” correlation indicates there is no relationship between the assets.
• A “-1.00” indicates an absolute negative correlation (the assets always move together in opposite directions of each other).

Very few assets have a pure 1.00 to 1.00 or -1.00 to -1.00 relationship. Generally, most experts consider a correlation value between 0 and 0.50 as a weak correlation, while a value of 0.50 and higher is progressively stronger. The farther from a 1.00 correlation two investments are, the more diversification you may realize.

If you’d like to determine the correlation of your portfolio, the easiest way may be to contact your financial professional. You can also search the Web for an investment correlation calculator—a number of brokerage firms and other financial sites have tools, but few are free to use.

The Markets March in Unison

One important consideration for investors to keep in mind is that the financial markets are increasingly marching in unison, making correlating your investments increasingly difficult. A variety of factors are causing this trend, including:

• Globalized economies: The growth of global trade and the proliferation of worldwide investment firms mean that the fortunes of both large corporations and the investors who own their stock are tied together as never before.
• Reliance on U.S. dollars: Many foreign governments and global financial institutions rely on U.S. dollars as a reserve currency to pay debts or to influence exchange rates. Given this situation, the health of the U.S. economy and the actions of the Federal Reserve reverberate globally, as do events in Europe and beyond.

What Investors Can Do

If climbing correlations concern you, consider the strategies that may help you balance risk and return, including:
• Combining stocks with other types of assets. Adding exposure to bonds, real estate, and commodities may help you to balance returns over the long term. (2)
• Considering investments that generate income. Dividend-paying stocks, bonds, and REITs are popular with investors searching for income. When stock returns are uncertain, dividends provide something in the way of a return. Dividends are not guaranteed.

Be sure to remember that alternative investments and commodities are risky, too. REITs are subject to the ups and downs of the real estate market, and the volatility of gold during the past 10 years is close to that of stocks. The returns of these investments do not always track the U.S. stock market. (3)

1 - Asset allocation does not ensure a profit or protect against a loss in a declining market.
2 - Investing in stocks involves risk, including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. Exposure to the commodities market may subject investors to greater volatility as commodity-linked investments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity.
3 - Sources: Standard & Poor’s; 4 p.m. closing spot price of gold on the London fix. Returns are for the 10-year period ending December 31, 2010. Volatility is measured by standard deviation.

Stay or Roll Over? What to Do With Your Old Retirement Accounts? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2011

Stay or Roll Over? What to Do With Your Old Retirement Accounts?

How many retirement accounts do you have? If you’ve changed jobs a few times over the years, you could have several accounts housed in different employers’ plans.

While it is certainly acceptable to leave money in an old plan, in some instances it may be a better idea to consolidate your assets. (If your account value is less than $5,000, your old employer can cash you out of the plan, making it imperative to have a backup destination for those assets.) Having your retirement portfolio in one place can make it easier to track performance, ensure proper asset allocation, and make changes. (1)

Initiating a rollover isn’t difficult. If you are planning to roll over your assets into an IRA, you simply need to contact the financial institution that will house your account. They will either have you fill out a form or have a representative help you through the process.

If you are planning to roll over your assets into your current employer’s plan:

• First check your current plan rules to confirm that rollovers are permissible (the vast majority of workplace retirement plans accommodate rollovers).
• Check with your new plan’s administrator to see if they offer a rollover service. If not, contact the adminstrator of your old plan(s) (you can find this information on your statements) to start the process.

Comparison Shop

Before you initiate a rollover, be sure to compare the investment options of your old and new plans—and/or any IRA option you are considering—and their associated fees.

• Diversification: Were you able to properly diversify your assets in your old plan?1 If your investment choices were limited, you may want to move your money.
• Fees: Are the investment fees in your old plan higher or lower than in your new plan? If you were paying more for the investments in your old plan, it could help save you money to move your assets.

Distributions: A Last Resort

Be sure to understand the difference between a rollover and a distribution. A rollover allows you to transfer your money from one qualified retirement account to another without incurring any tax consequences. A “qualified” account can be either your new employer’s plan or a rollover IRA.

A distribution is essentially a withdrawal from your account. If you request a distribution, the account adminstrator is required by law to withhold 20% of your account balance to pay federal taxes. State taxes, if applicable, are also due. If you are under age 59½, you could be subject to an additional 10% federal early withdrawal penalty. You can roll over assets from a distribution within 60 days of receipt and reclaim those tax withholdings. If you wait longer than 60 days, a rollover is not permissible.

1 - Asset allocation and diversification do not ensure a profit or protect against a loss in a declining market.

Does It Pay to Pay Off Your Mortgage? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2011

Does It Pay to Pay Off Your Mortgage?

Most financial experts agree that reducing debt whenever and wherever possible is a good thing. But paying off your mortgage as you grow older may not always be in your best interest.

The idea of no monthly mortgage payment and outright ownership of your home is indeed an appealing prospect, especially if you’re depending on Social Security or a fixed pension for income. But does it make financial sense?

Factors to Consider

To answer this question, you need to consider two factors: opportunity cost and flexibility. The opportunity cost is what else you could be doing with the money you use to pay off your mortgage. If, for example, you’re looking to pay off a $100,000 mortgage, you should first consider where you could invest that money instead—and what rate of return you could get. In general, if the rate you could earn is higher than your mortgage rate, you may be better off keeping the mortgage. For example, if you have a conventional 30-year fixed-rate mortgage with a 4.5% annual percentage rate (APR), but you could earn 5% on a fixed-rate bond, you’d might be better off investing the money in the bond.

This general rule applies even after tax is factored in. The interest portion of your mortgage payment is tax deductible, which reduces the effective interest rate on the mortgage and adds incentive to investing your money elsewhere. But income derived from any alternative investment is taxable, reducing its effective yield, so it’s basically a wash.

The other factor to consider is flexibility. Money tied up in real estate is not liquid. If you want to tap into that money, you will either need to take out a mortgage or sell the property. Money held in a traded investment, however, is much more liquid. In the case of stocks or mutual funds, you can convert it to cash within days. And, should you need to draw down this money to pay for living expenses, it’s fairly easy to do so if it’s held in liquid investments.

Is Refinancing a Better Option?

Given today’s historically low mortgage rates, you might want to consider refinancing rather than paying down the principal, especially if you currently have a mortgage with an APR of 6% or higher. If you are thinking of refinancing, be sure to compare rates and estimated closing costs. Also, keep in mind that although current bond yields may be low, long-term returns on more stable investments such as long-term U.S. government bonds have averaged 10.1% for the 30 years ended December 31, 2010. (1)

So if you’re thinking of paying off that mortgage, make sure you first check out the alternatives and consider what kind of cash cushion you may need in the years ahead.

Source
1 - Source: Barclays Long-Term Government Bond Index. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

Heightened Volatility: The New Normal? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2011

Heightened Volatility: The New Normal?

It’s not your imagination: The stock market is bumpier than normal. The U.S. economy can’t find its footing—and every piece of bad news, whether at home or abroad, has the potential to send the markets reeling. All that volatility can make it tough on investors to stay the course.

Historically speaking, the market today is about three times more volatile than it has been in the past. Specifically, the S&P 500 rose or fell by 2% or more an average of 5 times per year from 1950 until 1999. Since 2000, however, that average jumped to 12.5 times per year for advances and more than 14 times for declines. (1) What’s more, 10 of the 20 largest daily upswings and 11 of the 20 largest daily drops since the beginning of 1980 have occurred within the last three years. (2)

Who or what deserves the blame for heightened market volatility is difficult to say. On the economic side, uncertainty about when and how fully the economy will recover is a major factor. So are factors such as the heightened reliance on government monetary policy, unsustainable fiscal trends, and the apparent lack of collaboration among legislators in Washington. On the investment side, high-frequency trading, hedge funds, and inverse and leveraged ETFs all contribute to the volatility.

What Can You Do?
Regardless of the drivers, heightened volatility requires individual investors and their advisors to exercise specific investment strategies. While many of these strategies are basic investing concepts that can be applied at any time, they are particularly important in a volatile environment.

• Don’t follow the herd. Don’t sell into a rapidly declining market and don’t buy into a rapidly rising market. You’ll just be following the herd and locking in losses. Panic selling also runs the risk of missing the market’s best-performing days. For example, missing just the 5 top-performing days of the 20 years ended December 31, 2010, would have cost you more than $19,000 based on an original investment of $10,000 in the S&P 500. Missing the top 20 days would have reduced your average annual return from 9.14% to 3.00%. (3)

• Keep a long-term perspective. It is all too easy to get caught up in the stock market’s daily roller-coaster ride. This type of behavior is natural, but can easily lead to bad decisions. Instead, focus on whether your long-term performance objectives, i.e., your average returns over time, are meeting your goals.

• Take advantage of asset allocation. During volatile times, more risky asset classes such as stocks tend to fluctuate more, while lower-risk assets such as bonds or cash tend to be more stable. By allocating your investments among these different asset classes, you can help smooth out the short-term ups and downs.

• Consider buying opportunities. Although you may be rightfully gun shy in the wake of the recent market turmoil, one strategy you should seriously consider is selectively adding to your portfolio. This is especially true when prices are low versus historical averages.

1 - Source: Standard & Poor’s Equity Research Services, “Shaken and Stirred,” August 29, 2011.

2 - Source: The New York Times, “Market Swings Are Becoming New Standard,” September 11, 2011.

3 - Source: Standard & Poor’s. For the period indicated. Stocks are represented by the S&P 500, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance is not a guarantee of future results.

October 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

What You Need to Know About Currency Risk - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2011

What You Need to Know About Currency Risk

The U.S. dollar continues to fall against other major world currencies—and the consensus among economists and analysts is that the greenback’s downward spiral may likely continue over the long term.

General investment wisdom states that to hedge a portfolio against the falling dollar, investors should diversify into foreign currency holdings. One of the easiest ways to do that is to acquire shares of U.S. companies with multinational operations, such as Microsoft and Exxon. Yet recent research suggests that this strategy may not be as effective at providing adequate currency diversification as many investors think. A study found that roughly 80% of the international income of multinational companies is hedged back to U.S. dollars. (1) Furthermore, the larger the company, the more completely hedged those earnings tend to be.

So where does this leave investors who think they are gaining global currency exposure through purchases of global U.S. firms? According to the study, many investors are getting only about one-fifth the diversification effect they assume—perhaps much less.

Given the current weakness of the U.S. dollar, it is critical that U.S. investors understand the risks (and potential rewards) involved in foreign currency diversification—and take steps to protect their portfolios.

Currency Risk 101

Strategies for managing a portfolio’s foreign currency exposure fall into three broad categories.

1. No hedge. The simplest approach used by international portfolio managers and investors is to not hedge the currency risks at all. Proponents of this approach say that not hedging foreign currency exposure helps diversify a portfolio. Others believe that currency fluctuations tend to wash out over an extended period of time.

2. 100% hedge. Some go to the other extreme and hedge 100% of their currency exposures. This group believes that foreign exchange rates are highly unpredictable and that currency risks in non-dollar securities should always be fully hedged. But hedging costs tend to reduce overall returns over time, compared with an unhedged portfolio.

3. Actively managed hedging. The third strategy falls somewhere in between. Those who use an actively managed hedging approach hedge selectively: sometimes no hedge, sometimes a partial hedge, and sometimes a full hedge. The selective approach is gaining in popularity. Most investment firms now offer some kind of currency service, and some firms with substantial international investments even appoint a separate manager to handle currency as a distinct asset class.

Currency risk is an essential element of international investing and is only one risk of investing across borders. Others include possible increased taxation as well as political uncertainties. Your financial advisor can explain the pros and cons of international investing in more detail.

1 - Source: Merk Investments LLC, “U.S. Investors Overexposed to U.S. Dollar Risk,” June 2011.

The Pros and Cons of Health Savings Accounts - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2011

The Pros and Cons of Health Savings Accounts

As health care costs continue to rise, consumers must find ways to ensure that they have the funds to pay for medical expenses not covered through their insurance. One way to save specifically for health care costs is to fund a health savings account, or HSA.

HSAs are tax-advantaged savings accounts set up in conjunction with high-deductible health insurance policies. Enrollees or their employers make tax-free contributions to an HSA and typically use the funds to pay for qualified medical care until they reach their policy’s deductible.

HSAs are not for everyone, and it is important to understand how they work before considering them to help fund health care costs.

Understanding HSAs

You are eligible for an HSA if you meet all four of the following qualifying criteria:
1. You are enrolled in a qualified high-deductible health insurance plan (known as a “HDHP").
2. You are not covered by another health plan (whether insurance or an uninsured health plan).
3. You are not eligible for Medicare benefits.
4. You are not a dependent of another person for tax purposes.

HSAs are generally available through insurance companies that offer HDHPs. Many employer-sponsored health care plans also offer HSA options. Although most major insurance companies and large employers now offer an HSA option under their health plan, it’s important to remember that most health insurance policies are not considered HSA-qualified HDHPs, so you should check with your insurance company or employer to see how an HSA plan might differ from your current plan.

The maximum contribution to an HSA for 2011 is $3,050 for single coverage or $6,150 for family coverage. If you are over age 55 then you can contribute an additional $1,000 regardless of whether you have single or family coverage. Contributions are made on a before-tax basis, meaning they reduce your taxable income. Note that unlike IRAs and certain other tax-deferred investment vehicles, no income limits apply to HSAs.

HSAs offer investment options that differ from plan to plan, depending upon the provider, and allow users to carry account balances over from year to year. Earnings on HSAs are not subject to income taxes.
Any medical, dental, or ordinary health care expense that would qualify as a tax-deductible item under IRS rules can be covered by an HSA. A doctor’s bill, dental procedure, and most prescriptions are examples of covered items. See IRS Publication 502 for a definitive guide of covered costs. If funds are withdrawn for any purposes other than qualifying health care expenses, you will be required to pay taxes on amounts withdrawn plus a 10% penalty.

Here are some pros and cons of this product.

Pros

• HSAs offer a significant annual tax deduction (up to $7,150 in 2011 for an individual over 55 who opts for family coverage), making them particularly appealing to individuals in higher tax brackets.

• Withdrawals for qualifying health care costs (including long-term care insurance) are tax free.

• Investment income in HSAs is also tax free.

Cons

• Since HSAs must be tied to HDHPs, their ultimate savings must be weighed against how such plans stack up against more traditional plans, which may offer significantly better coverage.

• HSAs may not offer the flexibility and transportability that today’s mobile American family requires, especially given that health plan offerings differ significantly from employer to employer and many smaller institutions have yet to offer an HSA option.

For more information on HSAs, see the U.S. Treasury’s website at http://www.treas.gov (click on “Health Savings Accounts").

Do You Have Enough Disability Insurance? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2011

Do You Have Enough Disability Insurance?

The statistics are alarming: Nearly one-in-three Americans will become disabled for more than 90 days at some point during their working careers. (1) Yet most workers don’t give a second thought to the need for disability insurance.

Many think they are covered through their employer’s benefit plans or sick leave policy, but this is often not the case. In fact, less than 40% of private-industry workers are covered by short-term disability insurance, while only 31% are covered by long-term disability insurance. (2)

Even if you have insurance through an employer-provided plan, you may not be getting all the coverage you need. Typically, workplace group plans are structured to replace only about 60% of your salary for a set period of time. Could you and your family live on essentially half of your salary for a prolonged time frame? If you think you need more coverage, you may need to purchase a supplemental plan that will boost that replacement rate to 70% or 80% and increase the length of the payouts.

Finding the Right Coverage

What should you look for in a disability insurance policy? Here are some tips to help you find the right one.

• Understand the various definitions of disability. Some policies will cover you in the event you can no longer perform your “own occupation.” Others will cover you only if you can no longer do “any occupation.” Both tend to be expensive policies. A more wallet-friendly option will cover you for a “loss of earnings” disability. It is designed to make up the shortfall between what you earned before you were disabled and what you earn after.

• Define your time period. The average long-term disability claim is 31.2 months, or just under three years. (3) Policies can be purchased for various time horizons, including up to your normal Social Security retirement age or for life. Bottom line: The longer your desired horizon, the larger the premiums.

• Premiums will go up with age. The older you are, the more you can expect to pay for your policy. Looking into disability coverage while you are younger could save you in the long run.

• Shop around. The coverage, riders, and premiums can vary widely from company to company. If you are shopping without the help of an independent agent, be sure to check out the policies from several firms and compare them carefully. You should also carefully review the strength ratings of the various insurers you consult—if the company you choose gets into financial trouble, you could find yourself holding a policy that pays out far less than you were promised.

1 - Source: Social Security Administration, Fact Sheet, March 2011.
2 - Source: American Council of Life Insurers, 2010 Life Insurers Fact Book, November 2010.
3 - Source: Gen Re, 2010 Gen Re Disability Fact Book, December 2010.

Three Keys to Surviving Market Turbulence - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

September, 2011

Three Keys to Surviving Market Turbulence

Most stock market investors are looking for the same result: strong and steady gains of their investments. Dealing with a period of sustained falling stock prices is not easy. All too often, investors react to a sharp drop in prices by panic selling or digging in their heels despite deteriorating fundamentals. But more thoughtful investors see a correction or downturn as an opportunity to review the risks in their portfolios and make adjustments where necessary.

When confronted with any adverse market event—whether it is a one-day blip, a more lengthy market correction (a decline of between 10% to 20%), or a prolonged bear market (a decline of more than 20%)—take time to review your portfolio. Dealing with volatility can be difficult. Here are three suggestions to help you and your portfolio survive market turbulence.

1. Talk with a professional. A financial professional can help you separate emotionally driven decisions from those based on your goals, time horizon, and risk tolerance. Researchers in the field of behavioral finance have found that emotions often lead investors to read too much into recent events even though those events may not reflect long-term realities. With the aid of a financial professional, you can sort through these distinctions, and you’ll likely find that if your investment strategy made sense before the crisis, it will still make sense afterward.

2. Organize and review your financial records. Crisis events highlight the importance of knowing where your assets are and maintaining organized financial records. Following the September 11, 2001, terrorist attacks, markets closed for several days and many records in the heart of New York City’s financial district were destroyed. Yet the nation’s financial systems were up and running in a matter of days, and your securities accounts were safe even when the stock exchanges were closed. While you cannot trade investments or access your assets during a market shutdown, securities firms maintain backup facilities and have contingency plans to help them service customers when trading resumes.

3. Keep a long-term perspective. The only certainty about the stock market is this: It will always experience ups and downs. That’s why it’s important to keep emotions in check and stay focused on your financial goals. A buy-and-hold strategy—making an investment and then holding on to it despite short-term market moves—can help. The opposite of buy-and-hold investing is market timing—buying and selling investments based on what you think the market will do next. Market timing, as most investment professionals will tell you, is risky. If your predictions are wrong, you could invest when the market is on its way down or sell when it’s on its way up. In other words, you risk locking in a loss or missing the market’s best days.
It’s important to remember that periods of falling prices are a natural part of investing in the stock market. While some investors will use a variety of trading tools, including individual stock and stock index options, to hedge their portfolios against a sudden drop in the market, perhaps the best move you can make is reevaluating and limiting your overall risk position.

September 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

When Should You Collect Social Security? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

September, 2011

When Should You Collect Social Security?

A growing number of Americans have been forced to delay their planned retirement date due to job and savings losses suffered during the past five years. According to a survey, 40% of U.S. workers said they have resolved to retire later due to concerns about outliving their savings and fears of rising health care costs.(1) Postponing retirement not only means working longer, but also delaying when you start collecting Social Security. Currently, workers can begin collecting Social Security as early as age 62 and as late as age 70. The longer you wait to start collecting, the higher your monthly payment will be. Your Social Security monthly payment is based on your earnings history and the age at which you begin collecting compared with your normal retirement age. This normal retirement age depends on the year you were born. The highest normal retirement age under current law, for those born in 1960 or later, is 67.

Those choosing to collect before their normal retirement age face a reduction in monthly payments by as much as 30%. What’s more, there is a stiff penalty for anyone who collects early and earns wages in excess of an annual earnings limit ($14,160 in 2011).

For those opting to delay collecting until after their normal retirement age, monthly payments increase by an amount that varies based on the year you were born. For each month you delay retirement past your normal retirement age, your monthly benefit will increase between 0.29% per month for someone born in 1925, to 0.67% for someone born after 1942.

Which is right for you will depend upon your financial situation as well as your anticipated life expectancy. Anyone with a good pension or substantial savings may want to delay a bit. Similarly, if you’re in no hurry to retire, you may want to continue working longer and collect later.

Likewise, those with a family history of longevity who expect to live a long time stand to gain more by delaying. If you think it unlikely to survive beyond age 78, you may want to start collecting at age 62. And if you expect to survive beyond age 82, you might consider a delayed collection.

Whenever you decide to begin collecting, keep in mind that Social Security represents only 38% of the average retiree’s income. (2) So you’ll need to save and plan ahead—regardless of whether you collect sooner or later.

1 - Source: Towers Watson, October 2010.
2 - Source: Social Security Administration, ”Fast Facts & Figures About Social Security,” August 2011.

Understanding Employee Stock Option Plans - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

September, 2011

Understanding Employee Stock Option Plans

In the dot-com boom years of the 1990s and early 2000s, many companies made liberal use of employee stock option plans (ESOPs) to both reward and retain valued staff, from executives to temporary administrative help. While the current economic climate has produced fewer “company stock millionaires” these days, stock option programs continue to be popular with public and private companies. And employees certainly can benefit from them, if they take some time to learn the basics.

What Is a Stock Option?

If you’ve been granted stock options, you’ve been given the right to purchase shares of your company’s stock at a certain price under certain conditions set by company management.

• If you have immediate options, you can purchase your alloted shares at any time.
• If your options are vested, you can only purchase a set number of shares after you’ve worked at the company a certain period of time.
• If your options are performance-based, they will vest once certain goals are met.

The two most common types of ESOPs are incentive stock option (ISO) and nonqualified stock option (NSO) plans. Usually, key executives are granted ISOs, while less senior employees are given NSOs. The chief difference between the two is tax treatment.

• An ISO can be taxed under long-term capital gains, assuming the employee holds the stock for at least two years from the option grant date and one year from the exercise date. They are also taxed only when the stock is sold, making them tax-deferred plans. Note that ISOs can trigger the alternative minimum tax (AMT).

• NSOs are taxed as both income and capital gains—and the tax is owed once the options are exercised. This is an important consideration to anyone who is thinking of exercising options. If you don’t have enough cash on hand to cover the tax bill, you may need to sell shares you’ve just purchased to cover the costs.

Exercising Options

Most stock options have an exercise period of 10 years; that is, you have 10 years from the time you receive the options to actually purchase the stock. You are not obligated to buy any shares, particularly if your company’s stock price is trading below your set exercise price. If you don’t make a purchase during the exercise period, your options will expire worthless.

Companies have the flexibility to exchange option grants if its stock has been negatively affected by market activity. For example, if your stock options are priced at $25 a share and your company stock has been trading at only $20 a share for a prolonged period, the company may exchange your $25 strike price options for a new set that gives you a lower strike price.

If you are participating in an ESOP, be sure to consult with a financial and/or tax professional who can help you decide when to exercise your shares and how to deal with the tax consequences.

How Do You Know When It’s Time to Sell? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

September, 2011

How Do You Know When It’s Time to Sell?

Most investors have a process for purchasing an investment. It usually involves performing research, comparing similar investments or investment types, and considering a number of more personal factors, including time horizon, risk tolerance, and goals.

Few investors, however, have a tried-and-true process for selling an investment. Yet knowing when to sell can be every bit as important as knowing what to buy. Here are some guidelines that can help you decide whether it is time to let an investment go.

• You’re concerned with performance. If you are thinking of selling a holding simply due to a recent drop in price, take a deep breath and reconsider. Ask yourself these questions: Is my investment truly performing badly, or is it a consequence of larger economic and market conditions? How has the investment performed relative to similar investments over the last 1-, 3-, and 5-year periods? Have there been changes in management or ownership that have directly impacted its performance? If your investment has been a perennial underperformer, it may be time to move on. But it’s never advisable to sell solely on impulse. Extreme market swings can make even the most seasoned investors nervous. Think of your long-term goals and remember that trying to time the market can often bring disastrous results.

• You experience changes in your overall risk tolerance, time horizon, or goals. An investment that made perfect sense for you while you were in your 30s and 40s may no longer be as suitable as you get older. If you are no longer comfortable with an investment’s degree of volatility—particularly as you near retirement age—it may be time to sell.

• You need to rebalance or diversify.(1) Financial experts recommend rebalancing your portfolio at least annually. To do so means selling a portion of some of your winners to reallocate among investments that may not have performed as strongly. The goal here is to make sure that your portfolio is properly diversified. Being too heavily invested in one security or one type of asset class can expose you to a higher-than-intended level of risk.

• You made a bad decision. It can be tough to buck the “herd mentality.” If you bought an investment because it was the hot ticket at the time and now realize that it’s not suitable for you, it’s probably best to let it go.

• You find a better and/or cheaper alternative. Sometimes it may be practical to move from one investment to another. For example, you may be happy with your mutual fund’s performance, but not its fees. If you can find a similar investment with a similar track record that minimizes the costs to you, it may be wise to switch.

• You need the cash. Sometimes you have to part with an investment even though you’d rather not do so. But should you sell an investment that’s currently experiencing a run-up, or one that’s been battered? It may be worthwhile to consult with your tax professional. Selling an investment that has lost value can pay dividends at tax time by allowing you to use the deduction to offset other gains.

Footnote 1 - Asset allocation and diversification do not ensure a profit or protect against a loss in a declining market.

The Three-Step Retirement Plan Tune-Up - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

August, 2011

The Three-Step Retirement Plan Tune-Up

Conducting an annual review of your retirement goals and strategy is a great way to help ensure that your plans for your financial future remain realistic and on track. With that in mind, taking the three easy steps outlined below will help you conduct your retirement tune-up.

Step 1: Review Your Retirement Goals
Your first step should be to review your retirement savings goals and assess whether anything significant has occurred during the past year that might affect either your outlook for retirement or your current strategies to prepare for it.

For example, have you decided to change the date when you’ll retire? Or have you experienced any new milestones such as getting married, divorced, or having a child? Any of these events may affect how much you will want to save to fund the retirement you envision.

Step 2: Take a Fresh Look at Your Retirement Strategy
Your portfolio’s specific mix of stocks, bonds, and cash, known as your asset allocation, should complement your financial goals, risk tolerance, and time horizon. (1) If you haven’t taken a fresh look at your investments in a while, don’t assume that your old asset allocation is still appropriate for your current needs.

Even if your personal outlook hasn’t changed, keep in mind that uneven returns provided by different investments may have caused your portfolio to shift from your intended asset allocation. Given the market volatility that has occurred since 2007, if you have not reviewed your asset allocation since that time, there may be a good chance that uneven returns have caused it to change. If your asset allocation needs to be rebalanced, now may be the time for action.

Step 3: Consider Saving More
None of us know what the future may hold. A good way to improve the odds that you have saved enough for retirement is to save more, no matter how prepared you may already be.
If you have not already done so, consider funding an IRA. For the 2011 tax year, you can contribute a maximum of $5,000 and those aged 50 and older can make an additional catch-up contribution of $1,000. These limits are set annually by the IRS. More information can be obtained at http://www.irs.gov.

If you participate in a workplace-sponsored retirement plan—such as a 401(k), 403(b), or 457—you can contribute up to $16,500 for 2011. Those aged 50 and over can add up to another $5,500. If you are eligible for a plan at work, but haven’t enrolled yet, what are you waiting for?

Conducting a retirement tune-up is always a great idea, but don’t forget to consult with your financial advisor to discuss what else you can do to help achieve retirement security.

1-Asset allocation does not assure a profit or protect against a loss in a declining market.

August 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

How to Be a Good Financial Role Model for Your Child - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

August, 2011

How to Be a Good Financial Role Model for Your Child

Parents overwhelmingly believe that they—not the schools, the government, or any other third party—should provide financial education to their children. Yet most don’t practice what they preach. (1)

Less than one-third of parents (29%) believe they are “excellent” financial role models for their minor children. The ability to communicate about money appears to be a major obstacle to education within the family: A greater number of parents say they are more prepared to talk about drugs and alcohol (32%) or sex and dating (28%) than money and finances (26%). (2)

Teaching the Basics and Beyond
The benefits of teaching your children about money early on can pay dividends both immediately and longer term. In the short term, children may develop strong saving habits, learn how to make smart purchases, begin to understand the true meaning of “investment,” and perhaps even learn why they can’t immediately get everything they want. In the long term, educating children about money now can help them avoid debt as adults. And by teaching children the value of saving for the future at a young age, you can help them establish the groundwork for a lifetime of financial security.

Tips to Help You and Your Child
Even very young children can begin to understand the concept of earning money. Here are some tips.

• Explain to your children that money is earned by working, and that you can only spend what you earn.
• Bring them shopping with you and point out the differences in prices for various necessities, such as food and clothing.
• Begin paying them an allowance for chores completed to help them understand what it’s like to get paid on a fixed schedule for doing regular work.
• Help them set goals for how they spend and save their allowance. It’s important, however, to make sure that you stick to the payment schedule; otherwise the lesson may be lost.
• Open a savings account in their name and make a point to sit down with them to review their account balance every month.

Regardless of their age, encourage your children to set aside a portion of their allowance or earnings for their financial goals. As they save money, you might reward them with a small additional amount, just like a bank pays interest. At the end of each month, calculate how much they have saved and then chip in a certain percentage as interest.

As your children get older, their savings will likely amass at a quicker rate. That presents an ideal opportunity to review the lesson of compounding, or the ability of earnings to build upon themselves. Explain how compounding can be more dramatic over time. The longer money is left alone, the greater the effect may be. This can lead into a discussion about investing and how certain investments can have a greater ability to compound over time.

Teaching your children about money may seem daunting, but it can help put them on the right track by encouraging smart habits.

1-Source: T. Rowe Price, “Parents, Kids and Money Survey,” April 2011.
2-Source: ING Direct, April 2011.

A New World Order: Investing Internationally - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

August, 2011

A New World Order: Investing Internationally

As the United States economy continues to sputter, investors in search of better returns and greater diversification are casting their nets elsewhere around the world. (1) Looking for growth abroad could be a smart move: Foreign markets currently represent nearly 60% of the world’s investment opportunities—and that number is only expected to grow. (2)

But investing internationally adds a different set of risks that typically do not affect investors in the domestic markets, such as higher taxation, less liquidity, political instability, and currency fluctuations. If you are thinking about expanding your horizons to include international investments, be sure to take the time to learn about various global markets and their unique characteristics.

Separating Emerging Nations From Developed Nations
When categorizing the world markets outside of the United States, countries are typically grouped into one of two types: developed markets and emerging markets. Developed markets include nations with more traditionally stable economies, such as Germany, England, France, and Japan. Emerging markets are typically those nations that are moving toward becoming more established, but still demonstrate higher-than-average volatility, such as the “BRIC” nations: Brazil, Russia, India, and China.

Investing in Foreign Equities
One way you can include international exposure in your portfolio is to invest in stocks of U.S. companies that derive a large portion of their annual revenue from overseas markets. Examples of such companies are Coca-Cola, Microsoft, and McDonald’s.

You can also buy stocks of foreign companies through American Depositary Receipts (ADRs)—traded on the New York Stock Exchange—and through mutual funds that invest in foreign companies. ADRs are negotiable certificates that represent the shares of a publicly traded foreign company. ADRs are issued in the United States, and their underlying shares are held in U.S. banks.

But familiarizing yourself with international markets (including the regulatory, political, and economic environments) is time consuming, and access to company information can be difficult to obtain. One simpler way to invest internationally is to buy shares of broadly diversified international mutual funds or exchange-traded funds that may buy a mix of foreign and U.S. stocks. These types of funds offer instant diversification through an array of foreign market stocks. (3)

For more experienced and more aggressive investors wishing to target stocks in particular regions or countries, regional or country funds are also available. These funds are designed to take advantage of specific opportunities in the world’s developed and emerging markets, but they do carry an increased risk of volatility.

Currency Value: A Special Risk of International Investing
International investing does present unique risks and considerations. A U.S. investor’s foreign-investment return depends on both the local currency’s exchange value against the U.S. dollar and the stock price in the local currency. For example, falling currency values and plummeting stock prices in Asian nations in 1998 not only drove down stock prices for international investors in Asia, but also in the United States, because many American companies depend on Asia for customers. For U.S. investors, currency losses could also stem from a rise in the dollar’s value against the currency of the foreign country they are investing in. Maintaining a long-term perspective and diversifying international investments can help minimize these risks.

1-Diversification does not ensure a profit or protect against a loss in a declining market.
2-Source: Morgan Stanley Capital International.
3-Investors should carefully consider the fund’s investment objectives, risks, charges, and expenses before investing. To obtain a prospectus or, if available, a summary prospectus containing this and other information, contact the appropriate fund company or view the fund prospectus on the website of the appropriate fund company. Please carefully read the prospectus or summary prospectus before investing. Current performance may be higher or lower than in the past, which cannot guarantee future results.

Taking Required Distributions From Your Retirement Plan - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2011

Taking Required Distributions From Your Retirement Plan

Getting your money out of a retirement account is not as easy as putting it in. During retirement, when it should be easy to spend your retirement savings, it can be complicated, as you consider tax issues, required annual withdrawals, and a beneficiary’s ability to access your plan.

The IRS requires that you start distributions from non-Roth retirement plans by April 1 following the year you turn 70 1/2. These are called required minimum distributions—or RMDs. For example:
• If your 70th birthday is between January 1 and June 30, you will reach age 70 1/2 that year, and you must take a distribution by April 1 of the following year. This is called your required beginning date (RBD).
• If you were born between July 1 and December 31, you won’t reach age 70 1/2 until the next year, and you must take the first withdrawal in the following year. For subsequent years, you must take your distribution by December 31.

Computing Your Required Minimum Distribution
While you may always withdraw larger amounts, the IRS computes a required minimum withdrawal figure using either your life expectancy number or the joint life expectancy of you and your beneficiary. The withdrawal factor is applied to your retirement plans as valued on December 31 of the year prior to the distribution.

Your Life Expectancy
If your beneficiary is anyone other than a spouse who is more than 10 years younger than you, you will use the IRS Uniform Withdrawal Factor Table, which can be found on the IRS website (http://www.irs.gov), to compute your required distribution. Find the applicable divisor for your age and divide your account balance by this number to compute your required distribution.

If your beneficiary is a spouse who is more than 10 years younger, you may use the IRS Joint Life and Last Survivor Expectancy Table, also on the IRS website. Find your age and your spouse’s age on your birthdays in the distribution year, and use the factor where the column and row intersect. Then divide your account balance by that factor.

More Than One Retirement Account
If you have more than one retirement account, start by computing the required distribution for each (the factor may differ if you have different beneficiaries). For employer plans, you must take the required amount out of each plan. However for IRAs, you may add up the required distributions for several IRAs and take the total out of whichever account you choose, as long as you take at least the required total. You may also aggregate required distributions from tax-deferred annuities (TDAs) in the same way, but you cannot mix IRAs and TDAs, nor may you aggregate inherited IRAs or TDAs with your own IRAs and TDAs.

Penalties for Noncompliance
You will not receive any notification of your required beginning date or your required minimum distribution. It is up to you to know the rules and comply. If you do not comply, Uncle Sam will penalize you 50% of the amount you should have removed plus any income taxes that would have been due on the required withdrawal. Because the distribution rules are complex, you may want to consult a financial advisor who can help you understand the details.

Rules regarding retirement plans are subject to change and it’s important to pay attention to changes in the law as they occur. In many cases, mailings that arrive with your IRA or employer plan statements will give you good explanations of any changes in retirement plan laws and how they may affect you.

July 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

ARMs Making a Comeback - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2011

ARMs Making a Comeback

During the financial crisis and subprime mortgage meltdown, adjustable-rate mortgages (ARMs) earned a reputation as a dubious way for prospective homebuyers to finance the purchase of a home. Yet just a few years after the meltdown, a new breed of conservative, “no gimmick” ARMs are starting to make a comeback in popularity.

New ARM products making the most inroads with consumers are the “5/1” and “7/1” varieties in which the interest rate is fixed for the first five or seven years and then adjusts up annually toward a maximum rate, which is reported to cap at about 6% above the initial rate.(1)

Mortgage rates in general are at historic lows and a historic glut of homes has made it a buyer’s market. According to Moody’s Analytics, buying a home is cheaper than renting in a number of major metropolitan areas, including Chicago, Cleveland, Detroit, and Orlando.

Comparison Shop
When weighing a fixed-rate vs. a variable-rate mortgage, consider your financial situation, priorities, and longer-term outlook.

With a fixed-rate mortgage, the interest rate on your debt stays the same over the life of the loan. Generally speaking, the shorter the term of a fixed-rate mortgage, the lower the interest rate will be. But shorter terms also increase monthly payments.

Fixed-rate mortgages often attract buyers who value stability and who plan to stay in their homes for many years. One major drawback: the risk that interest rates could decline over the term of the loan. In that scenario, a homeowner could end up paying an interest rate that exceeds the market average. However, if your credit history is sound and you have sufficient income, you may be able to refinance your mortgage if rates decline.

As for ARMs, many home buyers are attracted by their affordability, particularly during the initial period of the loan. If you plan to stay in a home for a relatively short time—say, no more than three years—you might want to consider an adjustable-rate mortgage.

However, since rates on ARMs reset and are subject to increases, you should ensure that your future income will be sufficient if interest rates (and your monthly payments) go up. In the past, some homeowners started with variable-rate mortgages in the belief that they could refinance to a fixed rate when the mortgage rate was due to increase. Keep in mind that in certain circumstances, market conditions may limit the ability to refinance.

(1) Source: The New York Times, “More Borrowers Are Opting for Adjustable-Rate Mortgages,” March 17, 2011.

Four Tips for Improving Your Credit Score - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2011

Four Tips for Improving Your Credit Score

Repairing bad credit is not quite as simple as repairing your car or a broken vase. It can take years for your credit score to bounce back from a delinquency or default. And without a good credit score, you can find yourself fielding rejection notices when you apply for a loan or credit card. Or you could have to pay a significantly higher interest rate to borrow than someone with a higher score.

Why is your credit score so important? It’s the number (usually between 300 and 850) that lenders use to gauge how likely you are to repay debts on time. It is derived from information compiled in a credit report—including your payment history, the amount you owe creditors compared with the amount of credit that is available to you, and the extent of your credit history. Generally speaking, the higher your score, the lower your perceived risk to lenders.

Know Your Number

Before launching a campaign to raise your credit score, know what you are shooting for. Get a current copy of your credit report and review it for accuracy. All consumers are entitled to free annual credit reports from the major credit reporting agencies, Experian, Equifax, and TransUnion. You can request all three reports at AnnualCreditReport.com.

Unlike credit reports, your credit score is not free. You can purchase your score from one of the above-mentioned agencies or from myFICO.com.

Room for Improvement
Here are four tips for raising or maintaining a higher credit score:

1. Pay your accounts on time and keep your monthly balances low. Lenders are looking for a proven track record of making timely payments. Payment history determines about 35% of your credit score.

2. Be conservative in the amount of available credit you use at any given time. About 30% of your score is determined by what the industry refers to as your “utilization ratio,” which is the amount you owe in relation to the amount of credit available to you. If that percentage is more than 50%, it will have a negative impact on your score.

3. Hold on to older, unused accounts. While it seems counterintuitive to hold on to accounts you no longer use, keeping an older credit card or bank account open actually can work to your advantage. The longer an account has been open and managed successfully, the higher your score will be.

4. Maintain a diversified credit mix. If you hold an auto loan, a home mortgage, and credit cards that are well managed, you will generally have a higher credit score than someone whose credit consists mainly of finance companies.

Understanding 529 Plan Distributions - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2011

Understanding 529 Plan Distributions

Parents looking to take advantage of the many benefits of saving for college with a 529 plan will want to know the full details on which educational expenses qualify for tax-free distribution status, and which do not. (1) In Publication 970, the IRS gives detailed guidance on qualified expenses. Here are a few important points.

What’s Covered

• Tuition and fees are covered in full.
• Room and board, if the student is enrolled at least half time. But such expense must be not more than the greater of (1) the allowance for room and board, as determined by the school, that was included in the cost of attendance; or (2) the actual amount charged if the student is residing in housing owned or operated by the school.
• Food. If you spend a certain amount for a meal plan, that entire amount can be deducted, even if used for coffee or ice cream and not a full meal. Weekend meals can also be included if the dining halls are not open.
• Books and supplies. Any fees associated with purchasing school textbooks are considered qualified, as are required equipment or supplies such as notebooks and writing tools.
• Computers/laptops, but only if required by the school. If required, Internet fees and PDAs or “smartphones” may also qualify. The Savings Enhancement for Education in College Act (H.R. 529) that is currently being considered by Congress would expand this definition to apply to all computer technology used by the student.
• Special needs services required by special-needs students that are incurred in connection with enrollment or attendance at school.

What’s Not Covered

• Student loans. Interest on or repayment of student loans is not considered a qualified expense by the IRS.
• Insurance, sports or club activity fees, and many other types of fees that may be charged to students but are not required as a condition of enrollment.
• Transportation to and from school.
• Concert tickets or other entertainment costs, unless attendance is requisite to a course or curriculum.

Note that expenses must apply to a qualified college, university, or vocational school for post-secondary educational expenses. Also keep in mind that taxes and a possible 10% penalty will apply to all distributions that are not considered qualified educational expenses by the IRS, so be sure to check first.

(1) By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state’s plan. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.

June 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

New CDs Could Offer Advantages if Interest Rates Rise - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2011

New CDs Could Offer Advantages if Interest Rates Rise

With interest rates at historic lows and the markets on a roller coaster ride, investors who seek stability haven’t had many options available to them lately. But that is starting to change. According to a recent study by Bankrate.com, banks are increasingly adding “rising rate” CDs to their menus.

These certificates of deposit are designed to increase their rate of return as interest rates rise, giving investors some upside flexibility to offset the risks of locking their money away for a specified period of time, which can be up to five years. The CDs come in three varieties: bump-up, step-up, and liquid:

• A bump-up CD allows investors to raise their rates a specified number of times during the course of the CD’s term.
• A step-up CD will rise at predetermined intervals—the investor has no say in when this will happen.
• A liquid CD allows an investor to transfer money out of the CD to reinvest into another CD with a higher rate.

All three of these products come with caveats and restrictions—and the penalties can be heavy. Among the issues to watch out for:

• Low initial rates. Perhaps the biggest sacrifice potential investors will have to make is in the initial rate the CD will pay. Banks are taking on certain risks by allowing investors to change their rates if they rise, so expect the initial yield on these CDs to be far less competitive and appealing than regular CDs.

• Widely variable yields. While the initial yields will often be lower than regular CDs, it pays to shop around. In April 2011, Bankrate.com found that the spread varied from a low of 0.15% to a high of 1.36%, a fairly significant difference.

• Variable terms. Some banks will allow only one bump-up per term, while others allow investors to change their rate twice or more. Some liquid CDs cap the amount investors can withdraw to reinvest in another CD at 50% or less. As with any type of investment, be sure to read all the fine print carefully before investing.

“There’s one consistency and that’s if you’re going to have the benefit of higher rates later, you’re going to have to give up something on the front end,” said Greg McBride, Bankrate.com senior financial analyst. “There’s a trade-off.”

Rollover IRAs Offer a Wide Range of Benefits - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2011

Rollover IRAs Offer a Wide Range of Benefits

As compared with employer-sponsored retirement accounts, a rollover IRA can provide you with the broadest range of investment choices and the greatest flexibility for distribution planning. Also, a rollover IRA can typically be operated with fewer restrictions. This brief overview highlights some of the key benefits of a rollover IRA compared with an employer-sponsored plan.

• More control: As the IRA account owner, you make the key decisions that affect management and administrative costs, overall level of service, investment direction, and asset allocation. You can develop the precise mixture of investments that best reflects your own personal risk tolerance, investment philosophy, and financial goals. You can create IRAs that access the investment expertise of any available fund complex, and can hire and fire your investment managers by buying or selling their funds. You also control account administration through your choice of IRA custodians.

• More flexibility: IRAs can be more useful in estate planning than employer-sponsored plans. IRA assets can generally be divided among multiple beneficiaries in an estate plan. Each of those beneficiaries can make use of planning structures such as the Stretch IRA concept to maintain tax-advantaged investment management during their lifetimes. Beneficiary distributions from employer-sponsored plans, in contrast, are generally taken in lump sums as cash payments. Also, except in states with explicit community property laws, IRA account holders have sole control over their beneficiary designations.

Efficient Rollovers Require Careful Planning

One common goal of planning for a lump-sum distribution is averting unnecessary tax withholding. Under federal tax rules, any lump-sum distribution that is not transferred directly from one retirement account to another is subject to a special withholding of 20%. This withholding will apply as long as the employer’s check is made out to you—even if you plan to place equivalent cash in an IRA immediately. To avert the withholding, you must first create your rollover IRA, and then request that your employer transfer your assets directly to the custodian of that IRA.

Keep in mind that the 20% withholding is not your ultimate tax liability. If you spend the lump-sum distribution rather than reinvest it in another tax-qualified retirement account, you’ll have to declare the full value of the lump sum as income and pay the full tax at filing time. In addition, the IRS generally imposes a 10% penalty tax on withdrawals taken before age 59 1/2.

Also, if you plan to roll over the entire sum, but have the check made out to you rather than your new IRA custodian, your employer will be required to withhold the 20%. In that event, you can get the 20% refunded if you complete the rollover within 60 days. You must deposit the full amount of your distribution in your new IRA, making up the withheld 20% out of other resources. When you file your tax return for the year, you can then include a request for refund of the lump-sum withholding.

If you have after-tax contributions in your employer plan, you may opt to withdraw them without penalty when you roll over your assets. However, if you wish to leave those funds in your retirement account in order to continue tax deferral, you can include them in your rollover. When you begin regular distributions from your IRA, a prorated portion will be deemed nontaxable to reimburse you for the after-tax contributions.

Potential Downsides of IRA Rollovers

While there are many advantages to consolidated IRA rollovers, there are some potential drawbacks to keep in mind. Assets greater than $1 million in an IRA may be taken to satisfy your debts in certain personal bankruptcy scenarios. Assets in an employer-sponsored plan cannot be readily taken in many circumstances. Also, you must begin taking distributions from an IRA by April 1 of the year after you reach 70 1/2 whether or not you continue working, but employer-sponsored plans do not require distributions if you continue working past that age.

Remember, the laws governing retirement assets and taxation are complex. In addition, there are many exceptions and limitations that may apply to your situation. Therefore, you should obtain qualified professional advice before taking any action.

The Pros and Cons of Custodial Accounts - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2011

The Pros and Cons of Custodial Accounts

Setting up a custodial account can be a savvy move for adults who want to gift their assets and help their children become financially independent. But there are many considerations—and consequences—to weigh before opening an account. Here are some key points to keep in mind:

1. The account options: UGMA and UTMA. The two types of accounts you can use to gift assets to your youngster are called a Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). Which one you use will depend on your state of residence. Most states—with the exception of Vermont and South Carolina—have phased out UGMA accounts and now only offer UTMA accounts. UTMA accounts allow the donor to gift most security types, including bank deposits, individual securities, and real estate. UGMA accounts limit gifts to bank deposits, individual securities, and insurance policies.

2. There are no contribution limits. Parents, grandparents, other relatives, and even non-related adults can contribute any amount to an UGMA/UTMA at any time. Note that the federal gift tax exclusion is currently $13,000 per year ($26,000 for married couples). Gifts up to this limit do not reduce the $1 million federal gift tax exemption.

3. The assets gifted are irrevocable. Once you establish an UGMA or UTMA, the assets you gift cannot be retrieved. Parents can set themselves up as the account’s custodian(s), but any money they take from the account can only be used for the benefit of the custodial child. Note that basic “parental obligations,” such as food, clothing, shelter, and medical care cannot be considered as viable expenses to be deducted from the account.

4. Taxes are due—potentially for both you and your child. Some parents may initially find custodial accounts appealing to help them reduce their tax burden. But it’s not that simple. The first $950 of unearned income is tax exempt from the minor child. The second $950 of unearned income is taxable at the child’s tax rate, which could trigger the need for you to file a separate tax return for your child. Any amounts over $1,900 are taxable at either the child’s or the adult’s tax rate, whichever is higher. Note that state income taxes are also due, where applicable.

5. Your child will eventually gain complete control. Once your child reaches the age of trust termination recognized by your state of residence (usually 18 or 21), he or she will have full access to the funds in the account. Be warned that your child could have different priorities for the assets in the account than you do. Money that parents had earmarked as paying for college tuition could instead be used to purchase a sports car or fund a suspect business venture.

6. It could impact financial aid considerations. For financial aid purposes, custodial assets are considered the assets of the student. If the assets in the account could jeopardize your child’s chances of receiving financial aid, speak to your tax and/or financial professional. One of your options could involve liquidating the UGMA/UTMA and establishing a 529 account.

Before making any decisions about establishing a custodial account, be sure to talk to your tax and financial professionals.

This communication is not intended to be tax advice and should not be treated as such. Each individual’s tax situation is different. You should contact your tax professional to discuss your personal situation.

Three-Step Retirement Planning Strategy for Couples - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

May, 2011

Three-Step Retirement Planning Strategy for Couples

Communication is one of the foundations of a successful relationship. It also can help you and your partner structure a solid retirement planning strategy. It’s important for you and your partner to evaluate all of your portfolios at the same time to see whether the overall investment mix is well diversified.

Planning for two can be more complex than planning for one. It’s not unusual for two individuals to have very different plans and financial resources—for example, one may have more money set aside or may be eligible to collect retirement benefits significantly earlier than the other.

If you’re part of a dual-income couple, be sure to review the following considerations.

Step One: Talk About the Future
If you and your partner expect to retire at different times or need to negotiate priorities regarding how you’ll spend time and money during retirement, it’s important to start talking about the future now.
First, make sure your planned retirement dates are realistic. Next, estimate your combined retirement income needs as well as the amount of money you’re each likely to have accumulated by retirement. If it looks like you may be facing a shortfall, try to contribute as much as possible to your employer-sponsored retirement plan while you still can.

Step Two: Make Sure You Are Properly Diversified
Within a single portfolio, diversification involves spreading your money among different types of investment options so that any losses in one area may be offset by potential gains elsewhere.1 With two or more retirement accounts, the same theory applies. It’s important for you and your partner to evaluate all of your portfolios at the same time to see whether the overall investment mix is well diversified. For example, if you and your spouse have similar investment portfolios, your overall level of risk could be higher than you realize, since a decline in one portfolio would likely be accompanied by a similar decline in the other. If that’s the case, you might want to rebalance your asset allocation by shifting money that’s already in your accounts to different asset classes (stock funds, bond funds, or cash investments) or by directing future contributions to the under-represented asset classes.1

Step Three: Get on the Same Page
When laying the groundwork for a financial future that includes your significant other, ask yourselves the following questions:

• Do you understand each other’s “financial personality”? It’s never too late to have an honest discussion about financial habits and objectives. Try to look past your differences and focus on shared goals.

• Have you calculated how much money you are likely to need to fund a financially secure retirement? Do both of you think this amount is realistic? It’s tough to work together toward a shared goal if the two of you have different ideas about what exactly that goal is.

• Have you consulted a financial professional? Making a date to discuss your entire range of goals may put you in a stronger position financially to survive unforeseen circumstances.

Regardless of your particular situation, a little advance planning can make the transition to retirement much more pleasant for both you and your better half.

(1) Diversification and asset allocation do not ensure a profit or protect against a loss in a declining market.

May 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Understanding Plan and Investment Fees: A Glossary of Key Terms - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

May, 2011

Understanding Plan and Investment Fees: A Glossary of Key Terms

New fee disclosure rules will make it easier for participants in employer-sponsored retirement plans to find out how much they are paying to participate in their plan. But the terminology can be confusing. Below is a handy glossary that can help you interpret all those items on your quarterly account statement, fund fact sheet, or fee disclosure statement.

12b-1 Fee—A charge assessed to mutual fund shareholders to cover that fund’s shareholder servicing, distribution, and marketing costs.

Administration/Recordkeeping Fees—Costs for providing recordkeeping and other plan participant administrative-type services.

Advisor Fees—Paid to an advisor for services provided to the plan, including selection of investment options and any participant advice or guidance.

Basis Point (bps)—A unit of value that is equal to 1/100 of 1%. For example, 10 basis points is equal to 0.10%.

Benchmark—A standard by which a particular security or mutual fund can be measured. For mutual funds, the benchmark is typically a broad market index, such as the S&P 500, for a fund that invests primarily in large U.S. equities.

Brokerage Fees—Charges for the administration and maintenance of a self-directed brokerage account.

Commission—A fee paid to a broker or other intermediary for executing a trade.

Contract Administration Fee—A charge for costs of administering an insurance or annuity contract. This charge can include costs associated with the maintenance of participant accounts and all investment-related transactions initiated by participants.

Distribution Fees—The costs typically associated with processing paperwork and issuing a check for a separation-of-service distribution, retirement distribution, hardship withdrawal, or other in-service withdrawal.

Expense Ratio—The cost of investing and administering assets, including management fees, in a mutual fund or other collective fund. This fee is expressed as a percentage of total assets.

Loan Fees—Separate fees may be assessed for the origination, processing, and maintenance of a loan.

Management Fee—Fee charged for the management of pooled investments such as collective investment funds, insurance/annuity products, mutual funds, and individually managed accounts.

NAV (net asset value)—The per-share value of an investment, such as a mutual fund or exchange-traded fund.

QDRO (qualified domestic relations order)—A legally binding order that creates or recognizes an alternate payee’s (such as former spouse or a dependent child) right to receive all or a portion of a participant’s retirement plan benefits.

Sales (Load) Charge—A front-end load is a charge assessed when an investment in a mutual fund is made. A back-end load is a charge that is due upon the sale or transfer of the investment. A back-end load may be reduced and/or eliminated over time.

Separate Account—An asset account established by a life insurance company, separate from other funds of the life insurance company, offering investment funding options for pension plans.Surrender/Transfer Charges—Fees an insurance company may charge when either an employer terminates a contract (in other words, withdraws the plan’s investment) before the term of the contract expires or a participant withdraws an amount from the contract

Wrap Fee—An inclusive fee generally based on the percentage of assets in an investment program, which typically provides asset allocation, execution of transactions, and other administrative services.

Calculating Your Retirement Needs - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

May, 2011

Calculating Your Retirement Needs

Calculating a retirement savings goal is one of the most important steps investors can take to help determine if they are on pace to meet that goal. However, less than half of American workers have tried to figure out how much money they will need to accumulate for retirement (1); and the majority of these individuals admit that they either guessed or did their own calculations. What about you?

Planning Matters
What’s important to realize is that the exercise of calculating a retirement savings goal does more than simply provide you with a dollars and cents estimate of how much you’ll need for the future. It also requires you to visualize the specific details of your retirement dreams and to assess whether your current financial plans are realistic, comprehensive, and up-to-date.

Action Plans
The following four strategies will help you do a better job of identifying and pursuing your retirement savings goals.

1. Double-check your assumptions. Before you do anything else, answer these important questions: When do you plan to retire? How much money will you need each year? Where and when do you plan to get your retirement income? Are your investment expectations in line with the performance potential of the investments you own?

2. Use a proper “calculator.” The best way to calculate your goal is by using one of the many interactive worksheets now available free of charge online and in print. Each type features questions about your financial situation as well as blank spaces for you to provide answers. An online version will perform the calculation automatically and respond almost instantly with an estimate of how much you may need for retirement and how much more you should try to save to pursue that goal. If you do the calculation on a paper worksheet, however, you might want to have a traditional calculator on hand to help with the math. Remember that your ultimate goal is to save as much money as possible for retirement regardless of what any calculator might suggest.

3. Contribute more. Do you think you could manage to save another $10 or $20 extra each pay period? If so, here’s some motivation to actually do it: Contributing an extra $20 each week to your plan could provide you with an additional $130,237 after 30 years, assuming 8% annual investment returns.(2) At the very least, you should try to contribute at least enough to receive the full amount of your employer’s matching contribution (if offered). It’s also a good idea to increase contributions annually, such as after a pay raise.

4. Meet with an advisor. A financial professional can help you determine a strategy—and help you stick to it.
Retirement will likely be one of the biggest expenses in your life, so it’s important to maintain an accurate price estimate and financial plan. Make it a priority to calculate your savings goal at least once a year.

(1)Source: Employee Benefit Research Institute, 2011 Retirement Confidence Survey, March 2011.
(2) This example is hypothetical and for illustrative purposes only. Your results will vary. Investment returns cannot be guaranteed.

Three Steps to Help Save for Short-Term Goals - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

April, 2011

Three Steps to Help Save for Short-Term Goals

Pursuing short-term financial goals—those that you’d like to achieve within one to five years, such as a down payment on a home or car—can require a different strategy than pursuing long-term goals. Here are some steps to help you save and invest when you’re going to need your money sooner rather than later.

Step 1: Be specific about your goal. Setting a specific short-term goal will help you to evaluate your progress toward meeting it. For instance, the vague objective “I want to save money to buy a house” becomes “I want to save $25,000 over five years to put toward the down payment of a house in (town/city).”

Step 2: Take steps to free up extra cash. How will you save the money that you need? Eating out less often, canceling a gym membership that you don’t use, or downgrading your cable from a premium to a basic plan could easily free up $100 per month or more toward your goal. There are probably many areas where you can save a few bucks. Make a detailed list of what you spend in an average month and see where you could afford to trim.

Step 3: Match your investments or savings vehicles with your goal. Safety and liquidity will be priorities if you need the money within a few years. Stocks can experience extreme fluctuations over short-term periods. You don’t want to be forced to sell your assets when the value of your investment has dropped. More appropriate choices for short-term needs may be conservative instruments that offer a more stable return, such as short-term bond funds and money market funds. Federally insured savings vehicles, such as certificates of deposit, could also play a role.

Understanding Short-Term Investments
Short-term bond funds primarily invest in U.S. government or corporate debt with maturities that range from one to three years. Money market funds pool investors’ dollars to buy money market instruments. These types of securities aim to produce current income, offer liquidity (how quickly you can sell an asset), and usually aren’t subject to the dramatic ups and downs of stocks. Certificates of deposit are interest-bearing debt instruments with a wide range of maturities. In exchange for purchasing a certificate of deposit, the investor will receive the return of principal plus interest at the maturity date.

Finally, remember that short-term financial objectives should not take away from investing for long-term goals.

Investors should carefully consider the fund’s investment objectives, risks, charges and expenses before investing. To obtain a prospectus, or if available, a summary prospectus containing this and other information, contact the appropriate fund company or view the fund prospectus on the Web site of the appropriate fund company.
Please carefully read the prospectus or the summary prospectus before investing.

Your investment is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Current performance maybe higher or lower than the past, which cannot guarantee future results.

Share price, principal value, yield, and return will vary and you may have a gain or loss when you sell you shares.

An investment in money market funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds.

Bonds are subject to interest and market rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.

Certificates of deposit offer a guaranteed rate of return, guaranteed principal and interest and are generally insured by the FDIC (see http://www.fdic.gov/consumers/consumer/information/fdiciorn.html for additional information).
Early withdrawal of certificates of deposit may be subject to penalty.

April 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Navigating Medicare and Medigap - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

April, 2011

Navigating Medicare and Medigap

Most adults become eligible for Medicare on the first day of the month they turn age 65. Whether you need to sign up, and how to go about doing so, depends on the type of coverage you select and whether you collect Social Security benefits prior to becoming eligible for Medicare.

Medicare Eligibility
If you have already started receiving Social Security benefits before your 65th birthday, you don’t have to sign up for Medicare Part A or Part B. Part A is basic hospital insurance; Part B helps to pay for medically necessary services such as doctor visits or outpatient care. You automatically become eligible on the first day of the month you turn age 65. Premiums for Part B (there is no premium for Part A) will be deducted automatically from your Social Security check.

If you are not receiving Social Security benefits, you will be required to sign up for Part A and Part B. Contact your local Social Security office three months in advance of your 65th birthday to start the process.

If you still receive medical insurance from another provider (such as your employer or your spouse’s employer), you can wait to sign up for Medicare. To avoid paying a higher premium, you will be required to enroll during the eight-month period that begins during the month your employment ends or the group health coverage ends, whichever is first. Note also that you may be assessed with higher premiums if your modified gross adjusted income is over $85,000 for single filers and $170,000 for married couples filing jointly.

Medicare Part C and Part D
Both Medicare Part C (Medicare Advantage) and Part D, which is prescription drug coverage, are provided by private insurers whose plans are approved by Medicare. You can get information on these providers on the Medicare Web site (http://www.medicare.gov).

You can sign up for both Part C and Part D when you first become eligible for Medicare. You can also sign up between January 1 and March 31 or between November 15 and December 31 each year. Even if you don’t currently have many prescriptions, you may want to consider signing up for Part D as soon as you become eligible. If you wait and try to sign up during a subsequent enrollment period, you may be charged a late enrollment penalty and be forced to pay higher premiums.

Supplementing With Medigap
Many retirees supplement their Medicare coverage with Medigap plans, which are sold by private insurers. The state where you live may determine the type of plan available to you. It’s important to note that these policies do not cover long-term care, vision care, dental care, hearing aids, eyeglasses, prescription drugs, and private-duty nursing. If you anticipate ongoing use of these services, you may need to obtain another form of insurance or pay out of pocket.
When you sign a contract for Medigap insurance, you usually permit the insurer to access your Medicare Part B claim information directly from Medicare and to bill your health care providers directly. In certain instances, Medigap providers will manage claims for Medicare Part A as well.

Your Rights as a Medigap Beneficiary
Medigap policies cover only one individual, which means that for couples, each partner needs to purchase a separate policy. The best time to purchase a Medigap policy is during the Medigap open enrollment period, which lasts for six months after you are both age 65 or older and enrolled in Medicare Part B. During this period, an insurer cannot refuse to sell you a Medigap policy or impose a surcharge because of your health status.

A standardized Medigap policy typically is guaranteed renewable, which means that, as long as you continue paying premiums, an insurer cannot use your health status as a rationale for cancelling the policy. If you were diagnosed or treated for a pre-existing medical condition within six months prior to a Medigap policy taking effect, an insurer can make you wait up to six months before providing coverage for the condition. In certain instances, if you had health insurance coverage during the six-month period before the Medigap policy takes effect, the waiting period may be eliminated or shortened.

Money Market Funds: A Port in the Storm? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

April, 2011

Money Market Funds: A Port in the Storm?

Since the start of the year, money market funds have reported net outflows, as investors turn elsewhere for higher yields (footnote 1). It’s no wonder: As of February 28, 2011, money market funds were paying a paltry 0.67% on average, according to BankRate.com.

Despite their current low yields, however, money market funds still offer the stability and liquidity that many investors seek when markets get choppy. Given the escalating crisis in the Middle East and the tragic situation in Japan, leery investors might want to consider parking some money in a money market fund until the storm blows over.

Money market funds are pools of short-term money market instruments that usually mature within one year. Unlike a bank savings account, they are not FDIC guaranteed and can lose value. They seek to maintain a stable net asset value of $1. Money market funds invest in short-term debt instruments such as bank certificates of deposit, commercial paper, repurchase agreements, and government-agency obligations. Money market instruments generally have a high credit quality, which implies that they have lower risk, versus other debt instruments, that their issuers will not be able to repay their debt. Because of this high quality, they are considered low-risk, conservative investments.

The Benefits of Money Market Funds
In addition to providing stability and low risk, money market funds also offer:

• Liquidity—Money markets do not require you to invest your money for set amounts of time. You can access your money whenever you need it, without penalty.
• Low fees—Because fund management is not as complex as it can be for other types of mutual funds, these funds can charge lower fees and expenses.
• Daily valuation—Dividends are credited to your account daily, which ensures that your earnings are always up-to-date and available.
• Low minimum investments—Money market mutual funds generally offer lower initial investment minimums than other investments.
• Check writing abilities—Many money market funds allow you to write checks against the balance, although there can be limits on this privilege.

But keep in mind that investing too heavily in money market funds can hurt your potential for long-term growth. Because money market returns tend to just keep pace with inflation before taking taxes into account, investments in money market mutual funds can actually lose purchasing power after income taxes once annual returns are factored in. So if you do shift assets into money markets until markets calm down, make sure you consider the opportunity cost and regularly reassess their place in your portfolio.

Investors should carefully consider the fund’s investment objectives, risks, charges and expenses before investing. To obtain a prospectus, or if available, a summary prospectus containing this and other information, contact the appropriate fund company or view the fund prospectus on the Web site of the appropriate fund company. Please carefully read the prospectus or the summary prospectus before investing.

Current performance maybe higher or lower than the past, which cannot guarantee future results.

1-Source: Investment Company Institute, March 2011.

Four Risks to Your Retirement Future - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

April, 2011

Four Risks to Your Retirement Future

As Americans live longer, the task of managing money after retirement gets more complex. A retiree in his or her mid-60s typically has a different risk profile than an individual approaching 90. It may be helpful to look at various types of risk from the vantage point of how they affect retirees at different life stages. Here are four key risks to consider.

1. Investment Risk—Balancing risk and return takes on a different meaning for individuals as they age. A negative rate of return during the early years of retirement could leave an individual with a significantly smaller nest egg when compared with negative returns later in the retirement life cycle. Your financial advisor can help you craft an investment mix with the goal of smoothing out returns over the long term and increasing the chances that your assets will last throughout your lifetime.

2. Longevity Risk—Withdrawing too much from a portfolio during the early years of retirement may heighten the chance of depleting your assets during your later years. For this reason, many financial advisors recommend limiting annual withdrawals to 5% or less of a portfolio’s value, adjusted for inflation, to make assets last as long as possible.

3. Inflation Risk—Because younger retirees typically are planning for a time horizon of 20 years or more, it is important that their portfolios include a source of growth that is likely to exceed inflation over the long term. To complement this potential growth, many retirees rely on more conservative investments that may generate income and help to balance risk and potential return.

4. Health Care Risk—It is not unusual for medical costs to increase as retirees age, and it may be prudent to plan for these costs before the need is immediate. Preretirees and younger retirees may want to explore options for medical insurance that supplements Medicare, as well as long-term care insurance, to reduce the possibility of dipping into personal assets to finance illness- or accident-related expenses. Also, remember that those who retire before age 65 need to find an alternate source of medical insurance prior to becoming eligible for Medicare.

Reviewing these and other challenges associated with retirement planning with your financial advisor may increase your confidence that you have considered all scenarios. While it may not be possible to prepare for every situation, planning ahead may help you cope with financial issues that come your way.

Four Tips for Tax Smart Investing - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

March, 2011

Four Tips for Tax Smart Investing

Savvy investors have long realized that what their investments earn after taxes is what really counts. After factoring in federal income and capital gains taxes, the alternative minimum tax (AMT), and potential state and local taxes, your investment returns in any given year may be reduced by 40% or more. Luckily, there are tools and tactics to help you manage taxes and your investments. Here are four tips to help you become a more tax-savvy investor.

Tip #1: Invest in Tax-Deferred and Tax-Free AccountsTax-deferred investments include company-sponsored retirement savings accounts such as traditional 401(k) and 403(b) plans and traditional individual retirement accounts (IRAs). In some cases, contributions to these accounts may be made on a pre-tax basis or may be tax deductible. More important, investment earnings compound tax-deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket.
Contributions to Roth IRAs and Roth 401(k) savings plans are not deductible. Earnings that accumulate in Roth accounts can be withdrawn tax free if you are over age 59 1/2, have held the account for at least five years, and meet the requirements for a qualified distribution.

Tip #2: Manage Investments for Tax EfficiencyTax-managed investment accounts are managed in ways that can help reduce their taxable distributions. Your investment professional can employ a combination of tactics, such as minimizing portfolio turnover, investing in stocks that do not pay dividends, and selectively selling stocks that have become less attractive at a loss to counterbalance taxable gains elsewhere in the portfolio. In years when returns on the broader market are flat or negative, investors tend to become more aware of capital gains generated by portfolio turnover, since the resulting tax liability can offset any gain or exacerbate a negative return on the investment.

Tip #3: Put Losses to WorkAt times, you may be able to use losses in your investment portfolio to help offset realized gains. It’s a good idea to evaluate your holdings periodically to assess whether an investment still offers the long-term potential you anticipated when you purchased it. Your realized losses in a given tax year must first be used to offset realized capital gains. If you have “leftover” losses, you can offset up to $3,000 against ordinary income. Any remainder can be carried forward to offset gains or income in future years.

Tip #4: Keep Good RecordsKeep records of purchases, sales, distributions, and dividend reinvestments so that you can properly calculate the basis of shares you own and choose the most preferential tax treatment for shares you sell.

Keeping an eye on how taxes can affect your investments is one of the easiest ways to help enhance your returns over time. For more information about the tax aspects of investing, consult your tax professional.

The information in this article is not intended to be tax advice and should not be treated as such. You should consult with your tax advisor to discuss your personal situation before making any decisions.

March 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Five Reasons to Make an IRA Part of Your Planning Strategy - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

March, 2011

Five Reasons to Make an IRA Part of Your Planning Strategy

There could be an important tool already in your portfolio that can help you save more for retirement. It’s your IRA.

Nearly 50 million American households own an IRA, but it is often an overlooked component of most investors’ financial planning strategies. In fact, over the past two years, only 15% of households that were eligible to contribute to an IRA did so. (1)

Have you forgotten your IRA? If you don’t have one, should it be part of your overall investment plan? Here are some compelling reasons why this vehicle can help you plan for your future.

1. Tax deferral: Traditional IRAs allow your investment earnings to grow tax-deferred until withdrawn, typically at retirement. For 2011, the maximum contribution is $5,000, but for those aged 50 and over, the limit is $6,000. The limits are the same for a Roth IRA, but to be eligible to fully contribute, an investor must have a 2011 modified adjusted gross income of less than $107,000 for singles and $169,000 for married couples filing jointly. Singles earning up to $122,000 and couples earning up to $179,000 are eligible for partial contributions.
2. Deductibility: If you are a single taxpayer who doesn’t participate in an employer-sponsored plan and you earn less than $56,000 in 2011, you can deduct your contributions to a traditional IRA off your income taxes. Couples earning under $90,000 are also eligible for a full deduction. Partial deduction limits also apply, up to $66,000 for singles and $110,000 for couples. Note that Roth IRA contributions are not deductible.
3. Investment flexibility: IRAs typically give investors access to a wider range of investment options than workplace-sponsored plans, such as a 401(k). Depending on the financial institution you use to open your account, you can invest in a broad array of mutual funds, ETFs, individual stocks and bonds, CDs, annuities, even commodities and real estate.
4. Convertibility: Traditional IRA holders can convert to a Roth IRA to enjoy some of the additional benefits listed below. But before you decide make a switch, be sure to investigate the tax consequences of such a move.
5. Portability: If you have assets in an employer-sponsored plan and you leave your job, you can easily roll over those assets into an IRA. Rolling over your assets can make sense, particularly if you change jobs frequently and don’t want to devote too much time to coordinating and tracking your accounts.

Additional Benefits of Roth IRAs
• Qualified tax-free withdrawals: Since Roth IRAs are funded with after-tax dollars, your withdrawals are tax free, as long as you have held the account for at least five years and are over age 59 1/2.
• No RMDs: Unlike traditional IRAs, Roth IRAs are not subject to required minimum distributions (RMDs) once the accountholder reaches age 70 1/2.

Contact your financial professional to discuss a strategy for your IRA or to see if investing in an IRA makes sense for you.

1-Source: Investment Company Institute, The Role of IRAs in U.S. Households’ Saving for Retirement, December 2010

Government Stepping In to Help Americans Pay for LTC Costs - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

February, 2011

Government Stepping In to Help Americans Pay for LTC Costs

The federal government is concerned about the rising costs of long-term health care for senior citizens and the disabled. And it is actually taking action.

The Community Living Assistance Services and Support Act (CLASS Act), part of the health reform legislation signed into law by President Obama in 2010, will establish the nation’s first government-run, long-term care (LTC) insurance program. Long-term care insurance is designed to cover costs associated with cognitive impairment, a chronic illness, a disability, or help with daily needs such as bathing and getting dressed.

One of the primary goals of the CLASS Act is to reign in the role Medicaid plays in long-term care. Currently, Medicaid spends one-third of its budget on LTC costs—and with a rapidly aging population, those costs are only expected to skyrocket over the next few decades.

The Act does not yet specify premium levels or the full scope of what services will be covered. The Department of Health and Human Services is responsible for determining the parameters of the program. While the program became effective as of January 1, 2011, the full details won’t be finalized until October 2012.

Here is a summary of what is known so far.

• The program will be voluntary and not funded by tax dollars.
• Employers can include the program as part of their benefits offerings and may fund all or part of the costs. Their employees will be automatically enrolled, but will have the ability to opt out.
• Eligible employees can pay their monthly premiums through direct payroll deductions, similar to traditional workplace health insurance plans.
• Participants earn eligibility for their LTC needs after at least five years of participation.
• These plans will be tax-advantaged, allowing participants to deduct their premiums and out-of-pocket expenses on their tax returns.
• Those who are currently retired are not eligible for the program. Also not eligible are the unemployed and nonworking spouses.

A Need for Supplemental Coverage?The program’s benefits won’t be capped, but the amount paid will probably not cover 100% of all LTC costs. The law stipulates a daily benefit minimum of at least $50, and many experts believe the program will launch with a $75 daily stipend. Currently, the median cost of “adult day health care” is $60 a day, while a semi-private room in a nursing home runs $185. (Footnote 1)

Given the rising costs of care, it is likely that supplemental insurance still may be a necessity for many who have not yet retired. Standalone LTC insurance can be pricey. In 2009, premiums for a policy with a three-year benefit period averaged $1,590 annually for a single 55-year-old. (Footnote 2)

In addition to their costs, LTC insurance policies are complicated. If you are considering purchasing a policy before the government plan is launched, be sure to consult with your financial professional.

(1) Source: Genworth Financial, Genworth 2010 Cost of Care Survey, April 2010.
(2) Source: American Association for Long-Term Care Insurance, 2009 Long-Term Care Insurance Price Index.

February 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Estate Planning: The Rules Change Again - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

February, 2011

Estate Planning: The Rules Change Again

The federal government isn’t making it easy for Americans to feel confident about their estate plans. In the past four years, the estate tax exemption has performed a jitterbug—jumping from $2 million with a 45% top tax rate in 2008, disappearing completely in 2010, and ratcheting up to $5 million with a 35% top rate in 2011.

The $5 million/35% threshold will remain in place through 2012, but after that, all bets are off. The current law expires at the end of 2012, and unless Congress acts again to extend or change it, the exemption may revert down to just $1 million, while the top tax rate could rise to 55%.

With so many changes over the years and so much uncertainty for the future, it’s a good idea for anyone with an estate in excess of $1 million (both individuals and couples) to meet with a financial and tax professionals to map out their estate planning needs.

Gift Tax Exemption: Act Before It’s Gone?As part of the new tax act, the gift tax exemption has increased from $1 million to $5 million. Couples can transfer $10 million. But, as with the estate tax exemption, this “gift” is set to expire at the end of 2012.

One important item of note: While the current estate and gift tax exemptions render certain trust arrangements redundant for many, be sure to consider state tax considerations when drawing up your estate plan. Currently, nearly 20 states impose their own estate tax exemptions that can differ widely from federal law. For example, New Jersey allows an exemption of only $675,000. Be sure to check with your advisors to see if your state imposes taxes on estates and if a trust may still be applicable to your situation.

When you do meet with your estate planning professional, you should also ensure your overall plan includes the following pieces:

• Durable power of attorney—This document allows you to designate to one or more individuals access and control over your financial assets in the event you are incapacitated or unavailable.

• Living will and health care proxy—A living will spells out your wishes in the event you need life-sustaining medical treatment. A health care proxy is similar to a durable power of attorney, but in this case, it allows your designee(s) to make medical decisions for you when you are unable to do so.

• Business succession plan—Business owners should leave clear instructions as to the transfer of ownership of their entities upon their death or incapacitation. If you have a trust, be sure your succession plan complements your trust provisions.

The information in this article is not intended to be tax advice and may not be applicable to your situation. Please contact your tax advisor for information relevant to your own situation.

New Fee Disclosure Rules Help Make Costs More Transparent - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

February, 2011

New Fee Disclosure Rules Help Make Costs More Transparent

Ask most retirement plan participants how much they pay to participate in their workplace plan, and answer will probably be, “Nothing.”

But your retirement plan isn’t really free. While employees typically aren’t charged any out-of-pocket costs to participate in their plans, participants do pay expenses, many of which are difficult to find and even more difficult to calculate. New regulations from the Department of Labor (DOL), which oversees qualified workplace retirement plans, should make it easier for participants to locate and comprehend how much they are paying for the services and benefits they receive.

The regulations take effect for plan years beginning on or after November 1, 2011, so most participants won’t start receiving the new information until the beginning of 2012, probably with their 2011 year-end statements. The DOL will now require your employer and any other provider to the plan (such as the plan’s financial advisor and recordkeeper) to ensure the distribution of the following information to you:

1. Investment-related information, including information on each investment’s performance, expense ratios, and fees charged directly to participant accounts. These fees and expenses are typically deducted from your investment returns before the returns (loss or gain) are posted to your account. Previously, they were not itemized on your statement.

2. Plan administrative expenses, including an explanation of fees or expenses not included in the investment fees charged to the participant. These charges can include legal, recordkeeping, or consulting expenses.

3. Individual participant expenses, which details fees charged for services such as loans and investment advice. The new disclosure would also alert participants to charges for any redemption or transfer fees.

4. General plan information, including information regarding the investments in the plan and the participant’s ability to manage their investments. Most of this information is already included in a document called the Summary Plan Description (SPD). Your plan was required to send you a SPD once every five years. Beginning in 2012, you will receive one annually.

The new regulations have been hailed by many industry experts as a much-needed step toward helping participants better understand investing in their company-sponsored retirement plans. Why should you take the time to learn more about fees? One very important reason: Understanding expenses could save you thousands of dollars over the long term.

Calculating Fees and Their Impact on Your Account
While fees shouldn’t be your only determinant when selecting investments, costs should be a key consideration of any potential investment opportunity. For example, consider two similar mutual funds. Fund A has an expense ratio of 0.99%, while Fund B has an expense ratio of 1.34%. At first look, a difference of 0.35% doesn’t seem like a big deal. Over time, however, that small sum can add up.

Consider what happens with an initial investment of $100,000, and assume an annual return of 7% in both cases. Over a 20-year time period, Fund B would be $11,161 more expensive than Fund A. You can perform actual fund-to-fund comparisons for your investments using the FINRA Fund Analyzer.

If you have questions about the fees charged by the investments available through your workplace retirement plan, speak to your plan administrator or your financial professional.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so you may lose money. Past performance is no guarantee of future results. For more complete information about any mutual fund, including risk, changes and expenses, please obtain a prospectus. Please read the prospectus carefully before you invest. Call the appropriate mutual fund company for the most recent month-end performance results. Current performance may be lower or higher than the hypothetical performance data quoted. The hypothetical data quoted is for illustrational purposes only and is not indicative of the performance of any actual investments. Investment return and principal value will fluctuate, and shares when redeemed, may be worth more or less than their original cost.

Simple Steps to Help Reduce Credit Card Debt - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

February, 2011

Simple Steps to Help Reduce Credit Card Debt

The U.S. has a cumulative revolving debt of more than $850 billion, according to the Federal Reserve. A whopping 98% of that figure is comprised of credit card debt—with 54 million households in arrears for an average balance of $15,788. (1)

If you are contributing to staggering sum of outstanding credit card debt in America, you need to start digging your way out, and the sooner the better. Debt can stand between you and your financial goals, such as buying a home and being able to fund your retirement. Here are some simple steps to help you start paying down those charges.

Step 1: Consolidate and pay aggressively. The best approach to paying off debt is to become systematic and aggressive. If possible, try to consolidate your balances into one card with the lowest interest rate. Then cut out some of your indulgences—lay off the morning coffee fix and brown bag your lunch. The $50-$200 a month you can save by making a few small sacrifices should go right into your credit card payment. If you can’t consolidate your debt, start with the card with the highest interest rate, and double or triple your monthly payments until you eliminate your balance. Then do the same thing with the next highest interest rate card, and so forth.

Step 2: Pay debt first, invest later. Conventional wisdom states that if you can earn a higher after-tax return on your investments than the interest rate you are paying on your debt, you should invest. Otherwise you should pay off your debt.
As an example, say you have a credit card balance of $8,000 with a 14% interest rate. Given current market performance, paying off the card before investing is a no-brainer. But even if the stock market was experiencing an annual gain between 8% and 9%, paying off debt would still be your better bet.

Step 3: Ask for a lower rate. You can accelerate the pay-down process by calling your card issuer and asking for a reduced interest rate. According to a survey conducted by the U.S. Public Interest Research Group, more than half (57%) of those who called and requested a lower interest rate were successful. On average, the rate was lowered between seven and 10 percentage points.
It may take months or even years, but becoming debt free is your first step to true financial freedom. It is also a prudent move for individuals who are nearing retirement.

1 - Source: Federal Reserve, G-9 Report on Consumer Credit, March 2010.

Buying Used is Smart in Any Economy - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2011

Buying Used is Smart in Any Economy

Even with hopes for a better economy in 2011, some habits learned in tough times could stand to become permanent ones. A good one might be continuing – or starting – to buy particular categories of merchandise that are used but still in good condition.
If it makes you feel better to use the term “pre-owned,” by all means do so. Expertise in a particular product category can matter a little or a lot. But here are some types of merchandise where buying used can be a very good idea:

Cars: Granted, used cars are not for everybody. Mechanical skills are a plus if you have to evaluate whether your driving habits would be best-served by an older model with some mystery under the hood. But a low-mileage, well-maintained car coupled with dealer guarantees or access to car knowledge (or at least a really good, honest mechanic), can pay big dividends in the long run. First, depending on the model and age, you might be able to pay cash. Second, the right used car can be an extraordinary value when compared to a new car treated with similar kid gloves. Third, as second vehicles primarily used for short trips, a good used car can’t be beat.

Books: Granted, the world is moving into the age of the e-book, but there’s plenty of old-fashioned reading material that can be had for a song. Public libraries often sell both donated hardback and softcover books to raise funds at extraordinarily low prices, and retail chains have surfaced that actually sell used books at a fraction of the cover price. Certain Internet retailers also carry used books right alongside new copies of the same title.

Recorded music: Whether you prefer your music in CD or vinyl form, you can scout Internet retailers, flea markets and half-price stores for titles to add to your shelves or your Mp3 player. As long as you’re willing to wait a few weeks or months for a desired title to come out, you’ll find great bargains, and if you’re simply looking to replace favorite old albums that have gone to their reward, used is always a good idea.

Furniture for the home and office (particularly the office): Solidly built furniture is always an attraction – you can always call it an antique. But one of the best deals you can get in a down economy is office furniture, particularly if you check local resale shops or classified listings in print newspapers and online. It’s also easy to post specific requests for dimensions and features online as well. And even if you end up buying scuffed-up or dusty chairs, you’ll be stunned at what a little automotive tire cleaner can do to renew the look of office furniture made from rubber or plastic.

Toys and clothes for infants and toddlers: As long as you can clean them properly, these two categories of must-haves for kids are just fine bought second-hand. First, kids of any age outgrow clothes quickly, but used toys can work particularly well for younger kids simply because they haven’t become totally hooked on commercials. Until the pull of consumerism takes over – and for as long as you can manage afterward – buy used as long as the items are safe and can be thoroughly cleaned. Also, buying used is not a bad first money lesson for kids to adopt – encourage them to buy used toys and games as a way to get more out of their chore and allowance money. That’s a good habit that can last a lifetime.

Precious jewelry: Most of us don’t own the kinds of precious metals and stones that increase in value. In fact, most retail jewelry is sold at huge markups that rarely come back to the owner when they sell. The smart thing is to buy used and to get over any aversion you might have to shopping pawnshops or resale shops. Ask the vendor if they will return your money in 24 hours if a certified appraisal doesn’t satisfy you. Keep in mind you can buy used stones and settings as well.

Sports equipment and musical instruments: Whether your kid is learning to golf or play guitar at 10—or if you’re trying it for the first time at 40 – always start with used equipment that can last a year. If you or your son or daughter proves to be the next big rock star or champion of the PGA Tour, you can always upgrade to newer, high-quality equipment later. But lots of money can go down the drain between the words “I want this!” and “I hate this!” – so by all means, buy used first.

Game consoles and electronics: Doesn’t it seem like the latest camera, game system or other hot gadget becomes obsolete every few months? Depending on your interest, that can be very true. So the trick is to consider whether you can live with a year-old Wii or a digital camera with last year’s technology. A lot of people can’t and put nearly-new equipment up for sale. Their addiction to the newest and hottest can work out very well for you.

January 2011 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

If Rates Are Heading Up, Should You Refinance Now? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2011

If Rates Are Heading Up, Should You Refinance Now?

As the economy recovers, homeowners are faced with the good news/bad news prospect of a better real estate market with the likelihood of higher mortgage interest rates. For many, that leaves three choices – sell, refinance or sit tight with the mortgage they have now.

Despite the average 30-year mortgage rate that stood at 4.8 percent in late December, the decision to refinance isn’t always a great idea. In fact, it should be considered as part of an overall financial plan that is as individual as you are.

It makes sense to confer with financial and tax experts before you make such a move because there are more questions to consider beyond “How do I get that low rate!” Among them:

What are your current financial goals? If you’re planning to stay in your home for the next 20 years, your outlook is far different than someone who wants to retire and move in the next five. Many people focus on paying off their mortgage instead of planning for retirement or education savings for their children. It’s important to get advice on this question that fits your overall lifestyle and financial needs. The important question is when you’ll get to breakeven on the cost of the refinance – generally 3 to 6 percent of the total loan amount. If your breakeven is at 12 months and you plan to stay in the home five years or longer, it will probably be worth doing.

What’s your current debt load? If you’re swimming in debt, don’t expect to get the lowest, most attractive rate available on the market. While the credit crunch is loosening, many mortgage lenders are being quite picky about whom they’ll offer their most affordable loans to and many are still turning away borrowers in significant trouble. It’s best to try and cut your level of credit card and other consumer debt before applying for any loan.

When was the last time you checked your credit reports and credit score? You have the right to get all three of your credit reports – from Experian, TransUnion and Equifax – once a year for free. You can do so by ordering them at http://www.annualcreditreport.com/. Yet don’t order all three at the same time. By staggering receipt of each of your credit reports at different points in the year, you’ll get a continuous picture of how your credit picture looks. Also, you’ll have the opportunity to focus on possible errors in a single report, which will give the other two credit agencies time to update their files.

Consider biweekly payments on your current loan… Your current lender might have sent you an offer for a biweekly mortgage loan program that will save you considerable money over the life of that loan. Discard their offer – many lenders make big fees off these programs – and see if you can do it yourself. Some lenders won’t allow it, but see if you can break up your payments in a way that will equally divide the principal and interest payments so you’re whole by the end of the month. Otherwise, they might apply the first half-payment to principal and still insist on the full monthly payment by the due date.

…or consider adding a 13th payment for the year: Either by adding the equivalent of 1/12th of what you typically pay per month to principal or simply double-paying your mortgage one month a year when you’re flush, you’ll pay your loan off faster.
Fixed or variable? Given the recent uncertainty in the mortgage market and the current loan environment, it makes sense to try and go for a fixed rate since rates remain at historic lows. Higher rates mean higher payments if rates go higher.

Second mortgages can be problematic: As many lenders have gotten stricter about doing business, they may not be as willing to take second-fiddle status behind an older second mortgage, which happens in a refinancing process if not addressed. If the borrower can’t roll the two loans into a single loan during the refinancing process, it may delay or kill the deal based on what the two lenders are willing to do.

Are you on top of your tax issues? Remember that lenders are looking as broadly as they can these days for signs of financial trouble. If you have any late payments of current property taxes or any other potential disputes with state or federal tax authorities, those issues can complicate matters. Make sure you’re current.

Essential Financial Planning for Returning or Deploying Military Personnel and their Families - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2011

Essential Financial Planning for Returning or Deploying Military Personnel and their Families

As the United States goes into its ninth year of military action in Afghanistan and Iraq, financial planning for military personnel and their families has taken on unprecedented importance. Multiple deployments during the longest wartime period of U.S. history has added considerable strain to military family budgets already shaken by the worst economic downturn in 70 years.

One of the smartest moves military personnel can make is a visit to a qualified financial, tax or estate planner before or after a deployment—no matter how small their assets or how deep their current financial problems are. To find a qualified financial planner familiar with military personal finance, individuals can type in where they live and check the box marked “Government and Military” at the FPA’s PlannerSearch website.

Here are some personal finance starting points for military personnel and their families:

Important laws and programs to know: After the 9/11 attacks, the federal government acted to boost benefits and protections for military families. One of the first was the Servicemembers Civil Relief Act of 2003, an update of longstanding financial protections for active military and their families. The act provides stays on civil litigation including bankruptcy and divorce and prevents wage attachments while military personnel are away. Coverage requires active duty confirmation from a commanding officer but expires 90 days after that status has been terminated. The law also makes it tougher – but not impossible – for landlords to evict military families for nonpayment of rent. A second major source of assistance for military families came in 2008 with changes to the Servicemen’s Group Life Insurance plan, raising the total death benefit limit from $250,000 to $400,000. And the Caregivers and Veterans Omnibus Health Services Act of 2010 provides families of severely wounded veterans of Iraq and Afghanistan with coordinated financial and caregiving support.

Special safeguards needed against identity theft: Single military personnel need to keep a special lookout for identity theft that can happen while they’re deployed. It’s important to register an “active duty alert” with the three major credit reporting companies (Transunion, Experian and Equifax) every year. The alerts automatically stop all credit offers from being mailed to their homes. A call to any one of the credit bureaus will automatically put an alert on an individual’s file with all three agencies. It’s also a good idea to authorize a spouse or other trusted friend or family member to access credit reporting data to check for fraud during the service person’s deployment or in case of injury or death.

Note credit protections: The 2003 act also freezes credit card, mortgage and some student loan interest at 6 percent if military personnel were approved for the loans before they were called to active duty. On student loans, reservists and active duty members of the military assigned away from their permanent-duty stations may receive a deferment for up to three years on student-loan payments as well as a break on accruing interest on missed payments. Finally, deployed military away for at least six months can terminate a car, truck or other vehicle lease without penalty.

Understand tax issues: Activated and deployed military personnel receive special tax breaks at the federal and sometimes state level. Military income earned by soldiers in combat zones is tax-free and they don’t have to file taxes until 180 days after their return. Activated military personnel also are entitled to an extension on the period of time allowed for a tax break on the profits from the sale of a home. They’re also entitled to tax breaks on childcare assistance and certain travel. Nontaxable combat pay can also be considered for the Earned Income Credit.

Plan ahead for lump-sum earnings: For returning military receiving accumulated military pay or compensation from civilian employment, it’s good to sit down with financial and tax planners before the money is frittered away.

Don’t forget retirement: Military service counts toward vesting for all civilian retirement plans—even though employers may not always be required to give you your job back when you return. Also, the Heroes Earned Retirement Opportunities (HERO) Act allows tax-free combat pay to be considered as earned income for determining the contribution amount for traditional and Roth IRAs.

A One-Year Checklist to Retirement - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2011

A One-Year Checklist to Retirement

The amount of money, investments and government support you’ll need to retire comfortably is as individual as you are. Some people plan to work in retirement. Others have health issues or other financial responsibilities – kids’ college bills, financial support for a senior relative—to juggle with the everyday living expenses they’ll face in retirement.

However, one thing is true for every potential retiree. It makes sense to get customized advice from qualified financial, tax and estate planning professionals at least one year before a retirement date is set. Here are some preparatory steps to take before you seek that advice and finally set a retirement date.

Figure out where the money is: The days of single-employer careers have been over for decades. And nearly 30 years into the world of widespread IRAs, 401(k) and other self-directed retirement plans, many potential retirees can’t reliably state where all their retirement resources are. Start pulling together all available paperwork tracking personal, government and employer-based retirement assets get them into order. It’s OK if you don’t know immediately whether you have enough to retire – experts can help you with that. What’s important right now is to identify everything you have so you can properly evaluate alternatives.

Identify debt: If you have significant home or consumer debt, that’s a tough burden to take into retirement because most retirees find their income will be somewhat or significantly lower. That also goes for big car payments, tuition debt, medical debt or elder support. Debt is the first major reality check on retirement for most people.

Adopt a downsizing budget: Too many people wait until retirement to learn how to live like retirees. If you have a budget, review it for unnecessary spending that could mean anything from cutting back on lattes to selling a bigger, more expensive car and going with public transit or a used vehicle. If you’ve never made a budget, now’s the time. Budgeting for retirement doesn’t mean cutting out every treat and luxury – it simply means extinguishing debt, setting priorities and determining which current expenses can be cut or eliminated. As the real estate market recovers, you may want to plan to sell your current home in favor of a smaller one that can be bought for cash or minimally financed, or possibly you might decide to rent. You might want to try “going smaller” with vacations, cars, clothes and other needs or wants that can move to a lower price point. Do this while you’re working, bank the money you save and you’ll have excellent training wheels for retirement.

Evaluate your support from the government: A good rule of thumb is, “If you need Social Security or Medicare to retire, it’s best to keep working.” While both of these programs remain enormous help to many retirees, there’s always a chance of significant change in these programs, not to mention the continued discussion of moving the official retirement age well past 65. Definitely evaluate your government benefits, but do so in the context of what you’ve accumulated privately so you can maximize your government benefits when you need them.

Consider healthcare and long-term care NOW: If you’re lucky, your health is in great shape. But family history and events out of the blue may change that. If you retire before age 65, you won’t qualify for Medicare unless you are officially disabled. That means that you’ll have the responsibility to maintain private insurance that adequately meets your needs without huge financial risks that can come from uninsured care or procedures. Even as healthcare reform adds certain protections for under-65 policyholders, it’s more important now than ever to give attention to health matters and whether your current insurance strategy is adequate. As for long-term care, many Americans still forget that the bulk of home-based and nursing home care must be paid out of pocket. While long-term care insurance exists, age and health needs can potentially make it very expensive, so this is another important financial planning issue.

Find out if your dream retirement really works: It’s important to test your retirement dream. While many people dream of moving to a particular place, it’s important to vet that choice for financial and lifestyle repercussions. A particular location might have cheap housing and great healthcare options, but what about cultural attributes and tax issues? There are literally dozens of factors that should enter into your post-retirement lifestyle decision, and to jog your thought process.

What’s Your Risk Tolerance? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

December, 2010

What’s Your Risk Tolerance?

Going into a New Year with hopefully better economic and market prospects, it’s a good time to start researching investments. With that, it’s also a good time to review how much risk you’re willing to take on when making those critical decisions. It’s reasonable to assume your risk tolerance has changed in recent years.

Assessing one’s risk tolerance goes beyond your instinctive willingness to say “yes” or “no” on a particular financial move. It goes beyond one’s instincts. It means re-examining the realities of what you need in life and how you’re going to serve those who depend on you. It also means taking into account the economic turmoil of the past few years to determine what an effect those pressures have had on you.

There’s been plenty of theoretical work done on risk tolerance and what kind of people choose various investments or simply choose not to participate at all. In 2008, TransAmerica released its CURE retirement study (CURE standing for Change, Uncertainty, Risk and Expectations) in which it revealed four basic investing personalities:

• Venturers take a “nothing ventured, nothing gained” attitude with their money, but their potential pitfall is that they’re overconfident in their level of preparedness.
• Anchored individuals always “stay on the safe side,” but extreme risk aversion might leave them unprepared.
• Pursuers will “try anything once” but their continual efforts to grab at new directions might leave them without a clear plan.
• Adapters take investment situations “as they come” but may not be realizing their full potential as investors.

Whether one of those personalities resonates with you or not, the best way to start planning your finances or to revisit your current financial plan is to meet with a qualified financial expert. If you’ve never worked with a financial planner before, one of the first steps in the process will be reviewing or filling out a risk analysis questionnaire.

Why is risk analysis important before you make decisions with your money? Risk tolerance is an important part of investing – everyone knows that. But the real value of answering a lot of questions about your risk tolerance is to tell you what you don’t know – how the sources of your money, the way you made it, how outside forces have shaped your view of it and how you’re handling it now will inform every decision you make about it in the future.

Here are some of the questions you might be asked as a formal starting point with a planner:

1. What’s important about money?
2. What do you do with your money?
3. If money was absolutely not an issue, what would you do with your life?
4. Has the way you’ve made your money – through work, marriage or inheritance – affected the way you think about it in a particular way?
5. How much debt do you have and how do you feel about it?
6. Are you more concerned about maintaining the value of your initial investment or making a profit from it?
7. Are you willing to give up that stability for the chance at long-term growth?
8. What are you most likely to enjoy spending money on?
9. How would you feel if the value of your investment dropped for several months?
10. How would you feel if the value of your investment dropped for several years?
11. If I had to list three things you really wanted to do with my money, what would they be?
12. What does retirement mean to you? Does it mean quitting work entirely and doing whatever you want to do or working in a new career full- or part-time?
13. Do you want kids? Do you understand the financial commitment?
14. If you have kids, do you expect them to pay their own way through college or will you pay all or part of it? What kind of shape are you in to afford their college education?
15. How does your spouse, fiancé or future partner feel about money and how do those views echo or differ from your own?
16. Are there other people in your life who might become financially dependent on you? If so, what might their needs be?
17. How’s your overall health and your health insurance coverage?
18. What kind of physical and financial shape are your parents in?

Risk tolerance is not so much about dreams and whim as it is about how all the day-to-day lifestyle and money issues affect your perceptions. Some of us need a reality check more than others. A financial professional will understand this challenge and can help you think through your choices. Your resulting portfolio should feel like a perfect fit for you.

However, a planner can help you do much more than control risk on the investment side. You can also work to develop an emergency fund that will support you in case you lose a job or go through a protracted leave of absence due to health or caregiving issues – a significant way to manage risk.

A planner can also make sure you have a disaster plan in place in case you’re disabled or your home is hit by a natural disaster. Financial risk can take many forms, and a planner can help you work through those issues key to your lifestyle.

December 2010 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Premiums Increasing and a Major Carrier Exiting the Market: Should You Still Consider LTC Insurance? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

December, 2010

Premiums Increasing and a Major Carrier Exiting the Market: Should You Still Consider LTC Insurance?

On Nov. 11, insurance giant MetLife said it would sell no new long-term care (LTC) insurance policies after Dec. 30 though it would continue to service its 600,000 insured customers. The reason? “Financial challenges” in the long-term care insurance industry.

What does that mean?

In short, that long-term care costs have proven unpredictable in the insurance industry, a world that definitely likes predictability. According to Genworth Financial, a marketer of LTC insurance, the cost of assisted living has climbed at an annual rate of 6.7 percent over the past five years and the price for a private room in a nursing home jumped 4.5 percent annually over that timeframe. Insurers have been increasing LTC premiums to combat this cost rise, making recession-battered 2009 one of the worst years for policy sales.

It’s unclear whether other major carriers might join MetLife, but their decision adds some uncertainty to the picture for long-term care planning, one of the most important ways to protect retirement funds.

For some needed perspective, it makes sense to visit a qualified financial planning expert who can look at your complete financial picture and make a recommendation.
Here are some of the questions you need to answer before investing in long-term care insurance or other options:

What resources do you have?
We’re not just talking about money here. While caregiving puts a strain on family, it’s important to consider whether family and friends are truly willing and able to help with your care, which can provide a considerable financial and emotional benefit. Also, if you live in a community with reliable volunteer resources to help, that’s something to note, though today’s services may not be there tomorrow.

How old are you and your spouse and what’s your health history?
People in good health purchasing long-term care insurance at the age of 55 usually get the most affordable deal in LTC insurance. But an individual’s family health history and current health status are the real determinants of what your LTC insurance policy will cost – or if you’ll qualify for coverage at all. Also, it’s important to note that 40 percent of long-term care is provided to individuals between the ages of 19 and 65, so the need for care can strike at any time.

Are you a single female?
Again, personal and family resources come into play here, but since women typically live longer than men – and they still earn less on average than men – women should take a heightened interest in providing for their long-term care safety net. Long-term care insurance might be a good solution given their other investments and their health history.

What types of services are covered?
Over the course of time, long-term care policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to recover or live out their last days in a familiar environment. A basic LTC insurance policy pays for assistance with activities of daily living including eating, dressing, bathing, toileting, incontinence, and transferring (bed to chair, etc.). Each policy lists the types of services that are covered under nursing home care and under home health care. Homemaker services are generally covered and other services as listed in the policy.

What triggers coverage?
A qualified LTC policy won’t go into effect until the covered individual can’t perform two tasks of daily living for a period, typically 90 days, or when that person needs substantial supervision related to cognitive impairment. This is where you have to read the fine print since some policies are more restrictive than others. More affordable policies generally take longer to kick in. See if coverage for other physical ailments is available as part of the policy and what per-diem or monthly allowances are offered.

How healthy is the insurance company?
While it’s impossible to tell the future – or when a major carrier wants out of a particular line of business – it’s generally better to go with a larger, higher-rated company.

How affordable will the policy be if your premium increases?
If you can barely afford LTC coverage now, it’s going to be much tougher to afford premiums if they go up over time. Talk with a planner about other options if that’s the case.

What about an annuity?
There are hybrid annuities that also carry long-term care coverage. These products allow policyholders to use the proceeds for LTC coverage, for income or for both. The proceeds that go to pay for long-term care costs for the policyholder would not be subject to federal tax. These long-term care annuities can generate tax-deferred gains, which works particularly well for those in high tax brackets who believe they will be in a lower bracket by the time they would need to draw on that coverage.

Getting Ready to Sell Your House - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

December, 2010

Getting Ready to Sell Your House

While most experts see little good news in 2011’s housing market, economic downturn is no reason to neglect maintenance on a home or lose sight of future plans to relocate.

The critical issue is planning intelligently for what spending you do now to make sure it’s worth your money later. And even if your plan to sell your property is more than a year away, it’s not a bad idea to get your finances in order as well. In the coming months, you’ll be addressing tax issues, so it’s a good time to look at your overall financial picture with a qualified financial planner as well as a trained tax expert.

The October MacroMarkets Home Price Expectations Survey doesn’t see a meaningful increase in home prices until 2012, though appreciation is expected to go up on average more than 14 percent through 2014.

As you wait for your opportunity, here are some ideas to incorporate in your planning:

Check your credit report and score: If you plan to finance a new property once you sell, it makes ample sense to lower your debt and clean up any discrepancies in your credit data well in advance of any move into the market. Remember, you are entitled to one free copy of each of the major credit reports in any given year, and you can obtain them from one resource – http://www.annualcreditreport.com. Avoid all the services with expensive TV commercials calling themselves “free” – if they ask for a credit card number, you are not getting a free report. Also, so you can spot discrepancies and keep a watchful eye on the possibility of ID theft throughout the year, stagger your receipt of your reports from Equifax, Experian and TransUnion (the major credit ratings agencies) at different points during the year.

Get a home inspection: Go through local channels – lenders, friends, real estate professionals you trust – to find a licensed home inspector who can look over your property and help you develop a list of potential repairs and upgrades that you can do economically given that you’ll have months before you put the property up for sale. Checking your home’s structure – roof, foundation, windows, etc., as well as its mechanical parts – heating/AC, installed appliances, plumbing – can give you an early warning system for expensive repairs that a prospective buyer’s inspector would find anyway. Try now to make sure there are no problems that will kill a deal later.

Ask a trusted broker for advice: Structural experts can determine whether your home is working properly – real estate brokers may or may not be equally expert at spotting these flaws. But generally, they can be trusted on matters of appearance – whether the grounds around the home are well maintained as well as whether the home’s interior is inviting to the eye of potential buyers.

Don’t overinvest in improvements: In the 1990s, spending $40,000 on a kitchen in many neighborhoods could recover that amount of money and more in the final sales price. In today’s market, those payoffs are a distant memory. Experienced brokers generally do a good job steering you away from overpaying for improvements, but there are other resources to doublecheck the spending you’re planning to do. Remodeling Magazine’s latest Cost vs. Value report provides estimates on specific projects by region, including projections on cost recoupment.

Appeal your property taxes: If you’ve never appealed your property taxes before or have not done so in many years, do so when your appeals period is open. Lowering your taxes as much as possible may help make your property more salable.

Declutter and don’t re-clutter: Start making a list of items you might donate – furniture, clothing, household items, etc. Make sure they’re in good condition and if you’re having trouble setting a value, check on eBay or other auction sites to see if you’re being fair to yourself while not drawing the attention of the taxman.

Tax Planning for 2010 Down to the Wire - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

December, 2010

Tax Planning for 2010 Down to the Wire

As a changing power base in Washington wrangles over tax policy in the waning days of Congress’ lame duck session, millions of families and investors are reluctantly awaiting the return of the estate tax and presumably much more stringent rules on gifting.

Already it’s been a strange year for taxes. At this writing, the estate tax remained repealed in 2010, meaning that individuals dying during 2010 will be free to pass down their estates to heirs without any estate tax at all. However, as of Jan. 1, 2011, that picture will change drastically without any form of Congressional action – the estate tax will roar back with a vengeance with a low $1 million exemption per individual, down from $3.5 million in 2009, and a 55 percent top rate, up from 45 percent.

Also, the generation-skipping transfer (GST) tax – which also was repealed in 2010 – is also expected to return in 2011. It will carry a similar $1 million exemption in 2011, down from $3.5 million in 2009. While not as well known as the estate tax, the GST was written to prevent wealthy families from gifting assets to grandchildren as a strategy to cut their tax liability. In short, without any significant changes in tax policy, starting in 2011, individuals might see such gifts become subject to double taxation – the GST or either the estate or gift tax.

While there may be solutions even at this late date, the best choice is to seek out trained advice from both qualified tax, legal and financial planners, preferably in tandem. For wealthy taxpayers with a few years to go until retirement – or even until grandchildren arrive – it’s also not a bad time to be thinking about your individual estate plans and how you’ll manage assets as you get older.

In the meantime, consider the following strategies on gifting:

Start with the basics: Grandparents – and parents, for that matter – can avoid the gift tax by giving up to $13,000 per recipient per year to each child or grandchild. Above that amount, remember that the gift tax stands at 35 percent in 2010 but is scheduled to rise to 55 percent in 2011.

You can go farther: You can gift an additional $1 million all at once or over an extended period on top of each $13,000 gift by borrowing from the amount you’ll be able to shelter from the estate tax.

Opt to pay medical or tuition bills: If you pay a family member’s school or hospital directly, you may give an unlimited amount. It’s also important to know that you can do that on behalf of anyone, not just family members.

Don’t forget charity: Charitable giving is not something that’s done only in someone’s will. You can donate assets to a charitable gift fund or community foundation where your investment grows tax-free and you can designate charities you plan to give to before and after you die.

And keep in mind some general last-minute tax planning advice:

Max out your retirement contributions: For 401(k)s, you have until Dec. 31 to make your 2010 contributions. The limit per employee is $16,500 with an extra $5,500 allowed to taxpayers 50 and older. IRAs have later deadlines.

Empty your flexible savings accounts: Flex accounts must be emptied out by yearend (or by the end of your company’s standard grace period) or the money must be forfeited. Double-check the many items that qualify, because that list will get smaller last year – no over-the-counter medicines can qualify for Flex spending without a prescription.

Take advantage of energy credits: The Residential Energy Property Credit expires Dec. 31. Taxpayers spending for qualified improvements ranging from roofs to insulation and water heaters can qualify for a credit up to $1,500.

Ways to Control What You’ll Spend on a Funeral - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2010

Ways to Control What You’ll Spend on a Funeral

It doesn’t matter whether a loved one dies suddenly or with warning – funeral costs can be daunting. According to the National Funeral Directors Association, which bills itself as the world’s leading funeral service association, the average cost of an adult funeral in 2010 stood at $7,755, and that amount doesn’t include the price of a gravesite, monuments or flowers – not even the cost of an obituary.

As with most money issues, planning almost always saves money. But particularly with the subject of death, planning can reduce or eliminate a huge source of worry, anguish and conflict among loved ones. So while death is never easy to talk about, it makes considerable financial and personal sense to talk about funeral issues with loved ones before anyone actually needs to.

Here are some key questions to ask:

What do you and your loved ones really want? It makes sense to talk with your parents, your spouse or partner or your children about what your wishes and theirs are for your funeral. Of course, many people ask this question without any real warning and deservedly get an answer with a dismissive wave or a flippant remark. But this needs to be a real conversation. There’s real value in talking about exact wishes and even more value in putting those thoughts on paper for formal inclusion with wills and powers of attorney (more on that below). There are many interlocking issues that come into play in this discussion – religion, relationships, and of course, money. Whether the discussion is face-to-face or within a family meeting, detailed discussion and note-taking is the first important step to making sure your wishes or the wishes of a loved one are recorded and followed.

Consider the alternatives: One of the biggest stories in the funeral industry in the last 25 years has been the growth in cremation as a more affordable and acceptable alternative to traditional burial. On average, cremation can cut the price of a traditional funeral by half or more. According to the Cremation Association of North America (CANA), in 1985, nearly 15 percent of deaths resulted in cremation, but by 2007, that number stood at 34.3 percent. By 2025, CANA expects cremations to reach more than half of all funeral services performed. Also, many individuals now consider donating their bodies to science for the study of disease or organ donation, often at little or no cost whatsoever. This allows friends and families to focus spending on a memorial or other financial needs. To investigate this option, the official terminology is “willed body program,” and many universities with medical schools have them.

Do a cost comparison: It’s not the easiest decision, but if it’s your funeral or the funeral for a loved one, it makes sense to plan ahead and to shop smart. A trusted funeral director will follow state guidelines on price lists and answer your questions thoughtfully. Keep in mind that many states do not require you to buy big-ticket items like coffins from the funeral director, and in some cases, expensive processes like embalming are not even required. It makes sense to visit the website of whatever state agency supervises funeral directors where you live to get an overview of what you may or may not be required to pay for at a funeral home and other alternatives that might save you money. You will also have an outlet for any complaints should they arise. Another good resource is the U.S. Federal Trade Commission’s website which describes the 1984 Funeral Rule that has defined disclosure, pricing and other consumer rights in the funeral industry for the past three decades.

Make funeral planning part of overall end-of-life planning: Whether death comes suddenly or after an extended disability or illness, adults of any age should have proper asset planning and documents in place designating their wishes for their estate, their families and yes, the way they want to say goodbye. It makes sense to consult an expert financial planning professional as well as tax and estate experts to coordinate both financial and end-of-life planning in a way that fits the individual. Commonly, that means having finances in place and a legally written will and specific health, financial and family directives exist to guide survivors through the funeral and beyond.

November 2010 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Financial Issues for Long-Distance Caregivers - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2010

Financial Issues for Long-Distance Caregivers

As older friends and relatives increasingly need our help, it’s not always possible for us to move back to personally oversee their care. The same goes for younger loved ones who face sudden illness or injury that robs them of their ability to care for themselves.

How can we best be in charge when we can’t be onsite?

It takes a plan, one best made well ahead of the time when there’s a real need. In reality, caregiving issues should be part of any person’s long-term financial plan if there’s even the remotest chance that a spouse, partner, parent, child aunt or uncle, sibling or friend may end up needing our care.

However, statistics suggest that possibility may not be all that remote, particularly as Americans live longer. In a 2009 report, The National Alliance for Caregivers, in collaboration with AARP and the MetLife Foundation, reported that currently 29 percent of the U.S. adult population, or 65.7 million people, are caregivers, including 31 percent of all households. Those numbers are expected to grow due largely to the aging Baby Boomer demographic.

Where to start? A good first stop is a qualified financial planner who can look at your overall financial picture and the financial picture for your loved one. Then you can determine how much help you can offer from a money perspective, either in direct care, travel expenses or expenses for third parties offering direct assistance onsite. It’s important to get one-to-one advice on these matters because a caregiving plan needs to fit you and the person you’re trying to help. Here are some questions that can help you focus your thinking:

Do you know your loved one’s care preferences? Before you even get to money issues, understand what your loved one wants. The best-case scenario is to have a conversation with that person long before they need care, but even in a transitional situation, addressing their care preferences and overall dignity is paramount. You need to make sure your loved one understands your situation too, particularly if your work, your family situation or other issues prevent you from caring for them personally. Before making a plan, understand each other. A family meeting might be a good idea so everyone understands these needs and wants.

Are their legal documents in place? Does this parent, relative or friend have a will and necessary health directives in place? Health directives name a single individual to manage all key health decisions if a patient cannot make them; a will depending on their assets and lifestyle situation – if they have kids to raise or a business to run, for example – check to see what detailed legal instructions they have in place to manage their finances or run their business if they are incapacitated. And if those plans have not been made, they need to be made immediately with the help of financial planning, tax and estate experts to fit those documents to your loved one’s needs. An individual who is ill or disabled needs to designate people whom they trust to handle health and personal finance decisions. But if they have not planned for the future of their business, that is a third and very detailed step that needs to be addressed in collaboration with other family members as well as key co-workers or executives.

Do you know their financial situation? It’s rarely easy to talk about money even in the closest relationships. But once care preferences are known, then it’s time to discuss the loved one’s own financial preparations because one of the biggest misperceptions about long-term care is that the government provides financial support for nursing or home-based care. (Outside of medical care for those who qualify under Medicare or Medicaid, it doesn’t.) A qualified financial planner can be an important mediator in this very detailed discussion, asking both sides critical questions to illuminate what financial resources are available and which ones might be needed. And keep in mind that the questions go well beyond what’s necessary to provide care – loved ones may need to address omnibus issues like real estate and estate planning but even minute lifestyle issues like making sure monthly bills get paid. Expect a very wide-ranging and detailed conversation that could take weeks, not hours.

Who should handle what? Bigger families and groups can share responsibilities, and that can make the caregiving job easier. But if you are soloing as the financial and health power of attorney, it’s important to devise ways to do remote tasks efficiently and bring in help when necessary so you can supervise effectively from afar:

• Consider a geriatric care manager: The National Association of Professional Geriatric Care Managers [www.caremanager.org] is an organization of on-the-ground caregivers and caregiving coordinators with skills that include nursing, gerontology, social work and psychology. For caregivers with limited time to address their loved one’s day-to-day issues but who have the resources to pay for help, it might be wise to consult with experts after checking their references and qualifications.

• Take full advantage of the Internet: Older relatives tend to trust traditional means of paying bills, but automatic bill pay and other online financial tools provide an extraordinary benefit for caregivers or relatives charged with managing someone else’s finances. By gathering all bills that need to be paid and programming in their payment dates, there’s little or no risk that any regular bills will be paid late. Automatic bill payment should be one of the first decisions made if an elderly relative establishes a joint checking account with a caregiver or whoever holds their financial power of attorney. Also, if a relative wants to continue a regular savings or investment plan while they are incapacitated, those payments can be made as well. Most important – once those automatic transactions are set up, all the security codes and passwords must be kept in a safe place for both to access.

• Set up a home maintenance schedule: If the relative is hoping to return to the home or if it must be sold at a later date to pay bills or to settle the estate, it must be maintained to assure its value at the time it needs to be reoccupied or sold.

• Develop a paperwork system: the sheer amount of paperwork associated with caring for a sick or disabled person can shake the most organized individual. A trained financial expert can help you set up a system for collecting and sorting all the medical and care-based paperwork that will accumulate during your loved one’s care. This is a particular priority for those who are managing this situation remotely. If the house is unoccupied, it’s also important that there is a way to keep mail secure to avoid identity theft – buy a shredder for all mailed materials that don’t need to be filed. Also ask your loved one for permission to pull their credit reports annually so you can confirm all accounts are current and they haven’t been targeted by identity thieves.

What if I need to move? Never say never – this is the reality of a caregiver’s life. Particularly as loved ones get to the end stage of their lives or suffer emergencies and other setbacks, supervising caregivers need to plan for anything. The need to relocate, even temporarily, should always stay in the back of your mind, and the best time to coordinate with family and employers is always before the need arises.

Is Paying Extra on Your Monthly Mortgage Always a Good Idea? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2010

Is Paying Extra on Your Monthly Mortgage Always a Good Idea?

As Americans become more conscious about the damage debt can do to their finances, there’s always a question of whether it makes sense to pay down first mortgages and home equity lines so they can direct more money to retirement or other goals.

Like so many questions in financial planning, the initial answer is always the same: It depends on your individual financial circumstances and goals. Enlisting the help of a qualified financial planner is a good first step because they have the tools to look over your entire financial situation – your overall debt, your household budgetary needs and your long-term financial objectives including retirement. From there, you can establish a plan to follow that fits you.

Here are some general questions you should ask first:

Why do you think paying off this particular debt is a good idea? Most of us would love to pay off a mortgage, but is it really a good idea for you at this time based on all your financial priorities? It might make you sleep better at night, but could it have an adverse effect on your tax situation because you would lose the ability to deduct the interest? Also, are there other obligations that should be addressed first? Do you have a plan for what you’d do with the money you’d save if you were finally free and clear of all debt? Owning a home free and clear is an attractive idea, but it’s important to fully understand what this decision would mean for you.

Do you have a budget? Until you understand what you’re spending – and what you can cut – you’ll have no idea how to address this or any other financial issue. Work independently or with a planner to track your spending down to the penny and then plan your attack for spending, investing and savings issues from that point on. Basic budgeting tools are online – Mint.com is a good free resource. Generally, budgets are built this way:
• Set a time period (one or two months, just to get a baseline) of how long you will track every penny you spend.
• Review those results and determine which expenses are mandatory and optional.
• Once the optional expenses are identified, make cuts and determine where those savings will go – in most cases, that extra money needs to go toward higher-rate debt first, then eventually towards savings.
• Put the finalized budget in writing and check performance every month. At the one-year mark, re-evaluate and reset the budget, and then repeat the process.

How’s your “bad” debt? During the economic downturn, many Americans have struggled with large balances in credit card debt as well as car loans and other borrowings where they’re paying interest they can’t deduct. Unless you’re paying more than the minimum, these are the toughest obligations to get rid of. Most planners advise you attack the highest-rate balances first and work your way down. First, get some face-to-face advice on the debt issues directly in front of you.

What about advice? As mentioned, a financial planner takes a global view of all your spending, saving, investing and tax issues. Tax and estate experts are also good people to have in your corner. Before you make a move to erase mortgage debt, make a phone call or visit and see what they think first.

What about savings? One of the problems with going it alone on financial planning is the “40-car pileup” effect. So many problems to solve, so little idea about the order in which they should be solved. If you have an attractive retirement plan at work – one that matches all or part of your contributions – keep that going. It’s also important to build some form of emergency fund. But generally, attack your most detrimental debt first and then based on your time to retirement or reaching other goals, then you can make a clearer path.

Do you really need that property? As people lose sleep over mortgage debt and other financial worries, people rarely ask whether they actually need such a big house, an expensive car or other possessions that lead to debt concerns. These are questions that are as individual as you are. Enlisting the help of a qualified financial planner shouldn’t be all about solving problems and addressing emergencies. Financial experts can help you set a worry-free lifestyle that makes sense for you.

10 Things You Must Do to Baby-Proof Your Finances - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2010

10 Things You Must Do to Baby-Proof Your Finances

For most prospective parents, financial issues come fairly far down the list of wishes and hopes for their new baby. Health and happiness typically comes first, and by the time the subject turns to money, the discussion often begins and ends at saving for the baby’s education.

That’s where most families go wrong.

We’ll start with the latest frightening cost-of-raising-a-child statistic from the U.S. Department of Agriculture released this past June – based on 2009 figures, the average child will cost $222,360 to raise to the age of 17. Note that number doesn’t include the price of college tuition – the federal government counts only the basics like food, housing, clothing and health and child care.

In reality, proper financial planning for a family involves planning for the whole family, and that includes you, the parents. In reality, parents need to think as much about their retirement and estate planning as they do about sending their kids to college. While this makes the idea of planning more stressful, the good news is that help is easy to find, and best of all, planning early means parents will be able to make use of the best asset of all – time.

Here are 10 things prospective parents can do to baby-proof their finances:

1. Get money advice now: Even if you have zero debt and money in the bank, give yourself the gift of qualified financial advice, because as a new parent you’re going to be extremely busy and outside help can make a big difference. A qualified financial planner is a good first stop on the road to understanding any strengths and weaknesses you have in your current financial picture so you can build a sound financial future for yourself and the baby. That’s true whether you’re expecting a biological or adopted child.

2. Make sure your health insurance covers maternity expenses: One of the more problematic issues for individuals and couples having a baby now is making sure your health insurance plan adequately covers maternity benefits. According to Parenting Weekly, the average cost for an uneventful pregnancy can run between $7,000-$10,000 out-of-pocket and complications send the bill much higher. In October, the U.S. House Energy and Commerce Committee published a memorandum noting that “Women who are pregnant, expectant fathers, and families attempting to adopt children are generally unable to obtain health insurance in the individual market.” That’s why whether you are individually insured or insured through an employer it makes sense to check that coverage before you or your spouse or partner plan to start your family.

3. Start retirement planning now: If you’re consulting a financial expert, it’s critical to get a retirement plan in place, even if it’s only a few dollars a month into your company 401(k) or the start of individual retirement saving on your own. Because retirement planning often takes a back seat to planning for the needs of children, it’s best to start this process early so your retirement funds can compound over time.

4. Price child care now: According to 2010 figures from the National Association of Child Care Resource & Referral Agencies (NACCRA), the average annual cost of having a four-year-old child in a child care center ranged from $4,050 in Mississippi to over $13,000 in Massachusetts. While there are neighborhood and family options available that can save considerable money, working parents need to know that child care options are a huge drain on a family’s budget.

5. Learn to budget: A financial planner can help new parents budget for overall household costs, including specific costs for the baby. It will help parents save for retirement as well.

6. Get your baby a Social Security number: The sooner you can get your child a Social Security number, the sooner you’ll be able to qualify and document tax benefits that will help you defray some of your child-rearing costs.

7. Check your W-4: Increasing your allowances will boost your take-home pay, but go over this move with your tax expert first.

8. Get your will and life insurance in place: Estate issues are too complex to cover in detail here, but talk to financial, tax and estate experts about writing a proper will with specific health and financial directives and make sure you get adequate life insurance in place to support your spouse and your child if you die before they’re grown.

9. Start planning for college: Like retirement, parents need to save for college with a number of savings and investment vehicles, not just one. Get advice from an expert on choices regarding 529 college savings plans and other options to start salting away college savings.

10. Talk to family members who want to help: If your parents want to help financially with the new baby, there are ways to do this that will help with their tax and estate issues.

Specifically, they can also make contributions to a child’s tax-advantaged 529 plan and other educational savings vehicles and they can adopt tax-smart gifting strategies that lower the size of their estates over time. Parents, grandparents or other close relatives should get qualified advice on these matters so they can coordinate their efforts with the parents.

Creating a Personal Disaster Plan for Your Home, Your Loved Ones and Your Finances - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2010

Creating a Personal Disaster Plan for Your Home, Your Loved Ones and Your Finances

The idea of a personal disaster plan began circulating in the days after the September 11, 2001 attacks. They got a boost after Hurricane Katrina. Yet even when we experience a fortunate break between natural and man-made crises, it’s still a good idea to have a plan and review it annually.

Why? Because there is no such thing as a one-size-fits all disaster plan, nor should it begin and end with details on how you and your family would cope in the aftermath of a weather disaster or an attack with worldwide implications. Disaster planning is all about worst-case scenarios that might affect you directly.

Consider these examples that actually have nothing to do with storms or even national security. Do you or your spouse or partner travel extensively on the job? How prepared would you be if death, illness or unforeseen events kept you from coming home? Is there a child, friend or other close relative who would have special care interrupted if something were to happen to you? What about I.D. theft? Do you have a plan? These are only two of potential dozens that you might devise to address your own personal situation.

A qualified financial planner is a good source of feedback and can suggest ways to organize the various aspects of the plan. He or she can also advise you on ways to structure the report so it can be read and understood by others. Remember – a disaster plan is worthless if your loved ones, attorneys or financial experts don’t know it exists.

Here are some steps to get you started:

Develop a “what if” list. Don’t rule anything out and bring your most trusted family members, friends and colleagues in on this discussion, even to the meeting with your planner or other financial experts. Consider every possible event that could hurt you, your family, your home or your business – what hurts one automatically hurts the rest. The first question – what if you died or became disabled tomorrow? Could your family and business continue to function while they worked through the aftermath? A good way to make the list is to draw a line down the middle, and on the left side list every possible risk, while writing every possible remedy for those risks on the right side.

Check your insurance at home and work. Your “what if” list might help you focus this, but all home- and business based coverage should be double-checked with your agent once a year or when major changes occur in your life, such as marriages, divorces, new kids, business expansion or contraction. If you work for an employer, check with their human resources department on the right person your health power of attorney or advance directive designee would call if there were any question about your benefits if you died or were incapacitated. Make sure your coverage is adequate based on any of the emergency scenarios you’ve developed. If you had a huge medical bill, could you pay your deductible and any uncovered costs out of your own reserve funds? How’s your life insurance for you and your spouse? Is your home insurance based on the highest replacement value figures for your neighborhood? While you’re at it, see if your insurance will cover temporary relocation and car replacement if you need it.

Make sure your reserve fund is healthy. In any emergency, cash is king. If your family or colleagues had to pay the mortgage or rent, make payroll, buy groceries, temporarily relocate, pay your out-of-pocket costs for healthcare services, and even pay for your funeral, would they be able to access cash to do it? This goes beyond the creation of a typical emergency fund that pays three to six months of expenses if you lose a job; think bigger to make sure there’s more than enough in savings to cover the cash needs your worst-case scenarios reveal. If you have designated a financial power of attorney, they need to be aware of these assets and have access to them.

Create physical contingency plans: If your family was in different places when a natural or man-made disaster occurred, do you all know where you’d meet? If you had to relocate to a particular relative’s home, does that relative know you’d be knocking on his or her door? Close the loop with all friends, family and service providers you’d need for support if you had to rely on them – and set up an effective communications plan to go into effect the moment trouble happens.

Plan an escape kit. If you had to leave home within a very short period of time, what would you take? Key financial and insurance documents would be a must, so make sure that material is organized and in one place for speedy packing. Also, it might make sense for all family members to make a list of things they’d pack in a hurry as well – put a time on your calendar each year for everyone to update their list. If you have financial or work data on computers, it’s important to regularly back up that data on separate drives that could be packed up and downloaded to a portable laptop offsite. Also, don’t forget to plan for your pets if you have them – they’ll need their supply of food, toys and medication if necessary.

In business, protect yourself first and your employees second. A natural or man-made disaster cannot only wipe out your business, but your personal finances as well. Make sure you have appropriate legal structures, estate plans and insurance in place to shelter he financial health of your family from any disaster your business incurs. As for employees, make sure you’ve also made a “what if” plan for work and work through any physical and employment risk your staff could face in a disaster and see what safety nets are available. Also be aware of state laws that mandate specific forms of disaster planning for your city and state.

Protect your customers third. If you faced a lengthy business interruption, how would you serve the customers who are depending on you? Are there specific customer service and inventory procedures in place to keep them informed, supplied, and most important, loyal once you’re up and running again? Do you have options for alternate office and production space as well as resources for temporary workers? This is why business contingency planning should be a priority.

October 2010 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Ten Things to Know – and Ask—About Long-Term Care Insurance - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2010

Ten Things to Know – and Ask—About Long-Term Care Insurance

For Americans over the age of 50, the time to consider long-term care coverage is now. Whether to buy it is a separate question that’s as individual as you are.

Long-term care insurance (LTC) is generally recommended to anyone who has suitable income to pay premiums, significant assets (i.e. a home and assets valued at $70-100K minimum to multi-millions) to protect in the event of a chronic illness, a desire to maintain independence and personal choices of care in their senior years, as well as the peace of mind that might come from owning such a policy that fits their needs.

A 2010 Genworth Financial study reports that the cost of a private room in a nursing home is a national average of $206 a day, placing the national average expenditure at $75,190.

Those cost-of-care numbers tend to grow annually at a rate ahead of inflation. In 2006, Genworth put that cost at $194.28 a day, equal to $70,912.

It makes sense to discuss your situation with a qualified financial planner before you start wading through coverage options, of which there are many. It also makes sense to check with a tax expert before you buy because both the federal government and possibly your state might have particular tax incentives associated with owning a LTC insurance policy.

In general, here are 10 important things you should know and ask about this coverage before you buy.

1. The government doesn’t pay for long-term care: One of the greatest myths about Medicare is that it will pay for both nursing home care and extensive care options in the home. The facts are that Medicare requires that most care be received in a skilled nursing facility and that it pays only for the first 100 days of the illness as long as the patient is improving and must include a minimum 3-day hospitalization. In short, an extended care situation means you might use up your entire retirement nest egg, including any money you plan to leave your heirs.

2. Money is only one resource you need to consider: The average nursing home stay is somewhere between two to three years. So taking the above dollar figures into consideration, the out-of-pocket average cost of long-term care may go north of $200,000. In addition, at-home caregiving puts an enormous strain on family members who have their own obligations and life goals. So, you may be unable to count on your children or younger relatives to assist.

3. It’s not cheap, but pay smart: Unsubsidized premiums for LTC insurance may run into the thousands annually. Rate increases are always an option for an insurer if a state allows it, so check in with your state insurance commissioner’s office on those questions. Also, some insurers offer “shared benefits” policies for couples, providing the pool of money to either party.

4. How’s your health? People in good health at age 55 – the typical age for purchase – usually get the most affordable premiums. Your premium is based on your current health status and your age at the time you apply. Personal health habits and lifestyle such as obesity, tobacco use, and alcohol abuse might be serious considerations in underwriting your application. Keep in mind that your partner’s health matters, too. Caring for a sick spouse or partner can drain a family’s finances, compromise your caregiver partner’s health, and leave you drained of resources when it’s your turn. That’s why LTC insurance is also a valuable safeguard for surviving spouses and partners.

5. LTC isn’t just for old people: It’s important to know that people of all ages may need long-term care assistance. According to the Family Caregiver Alliance, 63 percent of Americans needing long-term care are age 65 and older, which means that a sizable eligible population of younger people may need long term care due to illness, accident or congenital issues.

6. Women might need LTC coverage more than men: Because women on average live longer than men – and because they generally earn less than their male counterparts—women should take a heightened interest in providing for their long-term care risk. A woman’s spouse may exhaust the couple’s assets receiving care in his final years leaving the surviving widow with a severely compromised lifestyle. Long-term care insurance not only provides for the surviving or single woman’s peace of mind during her final third of life, but also protects assets.

7. What LTC insurance covers: A basic LTC insurance policy pays for assistance with primary activities of daily living including eating, dressing, bathing, toileting, continence, and transferring (bed to chair, etc.). Each policy lists the types of services that are covered under nursing home and related facility care and under home health care. Homemaker services are generally covered with other services as listed in the policy.

8. A quicker startup of benefits will cost you: A qualified LTC benefit is not paid until the covered individual is unable to perform two of the 6 basic activities of daily living expected to last for a period, of at least 90 days, or if that person requires substantial supervision related to a cognitive impairment. Some policies are more restrictive than others paying a benefit for simple “stand-by” assistance while others require “hands on” caregiving. More affordable policies include a higher deductible or elimination period (the period when you pay for care out-of-pocket before the insurer pays a benefit). Be certain that the coverage provided on a daily or monthly basis is adequate to meet the costs of care in your area.

9. If you don’t want to leave your home, make sure home care and nursing home coverage options are provided at the same levels: The best-designed LTC policies pay the same or greater amount of benefit whether care is received in a long-term care facility, an assisted living facility, an adult day care center, or in the home. Some policies offer a smaller benefit for care received at home versus care received in a skilled nursing facility, but it’s a better idea to maximize the home health care benefit since most people would rather remain in their home while receiving care.

10. Evaluate companies carefully: Experience counts. Check the A.M. Best ratings of the various companies you are considering, but don’t stop with financial ratings. Before you settle on your policy, read all the up-to-date information you can about product offerings from various LTC insurers that have a track record. Read about how LTC costs are increasing and what insurers are changing their policies to deal with this risk. Finally, keep an eye peeled for any controversy about any company’s repeated efforts to reject justified claims or any other excessive complaints from policy holders The best LTC insurer is the one who is there to pay your claim.

Why Parents Should Give Their College Students the Gift of Professional Financial Planning - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2010

Why Parents Should Give Their College Students the Gift of Professional Financial Planning

In August, the Wall Street Journal reported that student-loan debt now surpasses credit card debt as the No. 1 source of outstanding consumer debt with some $829.8 billion in current federal and private school loans.

For some, those statistics are a good news story – that individuals are finally getting serious about paying off the plastic. For others, it’s more a sign that the rising cost of college is simply becoming a greater albatross around the necks of graduates for years to come.

Maybe the time for a financial education shouldn’t be the moment the new grad gets his first job or rents his first apartment. Maybe it should start earlier – like senior year of high school. Parents might consider introducing their 18-year-old to a financial planner who will instill some critical lessons about debt, savings, investing and planning before they’re off on their own on a campus far from home.

Why pay for advice parents can offer at home? The simple truth is that many parents are struggling trying to understand their own financial circumstances, particularly if they haven’t done much planning themselves. That’s why it might make sense for a parent who seeks out qualified financial advice to extend that planner’s assistance to children on the verge of adulthood. Here’s why:

The average college loan debt now tops $20,000: Whether your child has been forced to borrow heavily or not at the start of his college career, the simple fact is that in four years, a family’s financial circumstances can change substantially. News reports are filled with stories of college students signing their name to private loans that cost them heavily down the line. A financial planner and possibly a tax professional can act as advisors and tutors to teens and young adults so they won’t fall into financing traps that can damage the rest of their financial lives. There’s another reason that debt management for school loans alone is important – based on current bankruptcy law, student debt is virtually impossible to eliminate in a bankruptcy filing. Indeed, it’s another way of saying that student debt is forever.

Young people possess the most valuable asset of all – time: In college, most students are focused on one goal – graduating and getting a good job. But what if students put that goal in the context of affording a home, affording graduate school and eventually affording a solid retirement? A planner could help a student entertain the notion of smart savings and tax planning while they’re still in school so they can focus their thinking about goals and what it will take to pay for them.

Lifetime habits are best built in youth: Don’t you wish you started saving for retirement at age 18? Exactly. The 2010 contribution limit for taxpayers under 50 years of age to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for the year. The contribution can be split between a traditional or Roth IRA, but the combined limit is $5,000. Learning about the need to save independently for retirement is best delivered while someone is young. The moment a new graduate qualifies for an employer-sponsored 401(k) plan, they’ll know how attractive that option will be particularly if it offers matching. If this saving can be done while not accumulating significant debt, that’s obviously a goal.

Financial planning means professional training with budgets and spending decisions: The opportunity to interact with a trained adult on the subject of money – someone who is not the student’s parent – gives a student a chance to learn and ask questions on an adult-to-adult basis. Planner and student can work together to set and monitor savings, investing and spending goals with proper supervision. Parents and children can also decide how much information they’ll be sharing about each other’s financial situation.

Financial literacy can help students better evaluate career decisions: Students who understand money stand a better chance of choosing careers and employers who will meet their expectations in terms of work-based challenges and compensation. A financial planner can provide a good sounding board with regard to job offers and benefits offered at prospective employers. Students who get this training are destined to be better than many of their peers at negotiating with employers throughout their careers.

Renovating Smart in 2010: Looking for Tax Breaks, Anticipating What Will Bring Value in the Future - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2010

Renovating Smart in 2010: Looking for Tax Breaks, Anticipating What Will Bring Value in the Future

Though the housing market has yet to stabilize in many communities, homeowners can’t ignore property maintenance and other critical spending that will add to their home value in the future. Yet for most of us, the days of spending multiple thousands of dollars on a kitchen, bath or room addition expecting our market value will grow exponentially is much like the U.S. housing boom – over.

Simply put, as Americans have been forced to get more realistic about using their homes as piggy banks, it’s time for similar realism about what improvements and renovations will pay off in a housing market with years of inventory to sell. Here are some steps to consider when improving your property in today’s market.

Before you borrow or spend, get some advice on your overall financial picture: During the boom years of the housing market, people treated renovation as a financial fait accompli: Put in a $40,000 kitchen and add $60,000 to your selling price. Today, putting more money into your house requires a significant reality check. A financial planner can look at your overall savings and tax picture and give you an idea whether the dream kitchen you want is a worthwhile investment or if it’s time to downsize the job to a new sink.

Check current values on the payoff your chosen renovation will have: Remodeling magazine’s annual Cost vs. Value report breaks down average cost and market return for projects large and small based on your region of the country. Their website is http://www.remodeling.hw.net. The current 2009-2010 report reports that upscale projects like a bathroom addition returns only about 60 percent of its cost in the current market; adding an attic bedroom would return 83 percent of the cost. None of the projects in Remodeling’s annual survey currently break even.

Consult Uncle Sam: The American Recovery and Reinvestment Act is still allowing taxpayers certain deductions and credits for energy-smart renovations to their property. For example, the Residential Energy Property Credit applies to taxpayers who install insulations, energy-efficient exterior windows and energy-saving heating and air conditioning with a maximum credit limit of $1,500 for improvements put in place through the end of 2010. It’s smart to consult your tax professional before going ahead on any of the