Viewpoint Newsletter for November and December 2010
V IEWPOINT Creating a Paycheck for Retirement (First in a Series) Volume 1 Issue 4 Investing and Managing Cash Flow — What to Do When the Paycheck Stops By Steve Stanganelli, CFP® November/December Investing for retirement income can be different than investing during your working years. Whatever your retirement dreams, they can still be made a reality. It just depends on how you plan and manage your resources. On any journey it helps to have an idea where you’re going, how you plan to travel and what you want to do when you get there. If this sounds like a vacation, well, it should. Most people invest more time planning a vaca- tion than something like retirement. And if you think of retirement as the Next Act in your life and approach it properly, you won’t be so easily bored or run out of money to continue the journey or get lost and make poor money decisions along the way. It’s How You Manage It That Counts Steve Stanganelli, CFP®, CRPC® How much you need really depends on the lifestyle you expect to have. And it’s not neces- sarily true that your expenses drop in retirement. Assuming you have an idea of what your About Clear View annual expenses might be in today’s dollars, you now have a target to shoot for in your planning and investing.Clear View Wealth Advi- Add up the income from the sources you expect in retirement. This can include Social Se-sors, LLC is an independent curity benefits (the system is solvent for at least 25 years), any pensions (if you’re lucky toRegistered Investment Advisor have such an employer-sponsored plan) and any income from jobs or that new career.providing financial planning, tax (Continued on Page 2)consulting, and investment advi-sory services to individuals and Divorced spouses who have been marriedcouples throughout Massachusetts. Divorce for Seniors for at least ten years are eligible for bene- by Steve Stanganelli, CFP® fits based on the PIA of the other spouse.Clear View works on a FEEONLY/FEE-for-SERVICE basis. If you are divorced or thinking To begin receiving benefits, one has to be about it, you should know how at least age 62 and not remarried. If the ex- divorce will impact your eligibil- spouse remarries, then benefits will be cal- ity for Social Security benefits. culated and compared to the PIA of the new spouse. If that marriage ends by death 10 Year Rule. Benefits are calculated or divorce, the ex-spouse may be eligible based on the monthly average earnings of to PIA based on the prior marriage. the covered person. A spouse can receive benefits based on his or her own work re- The amount of benefits that an ex-spousewww.ClearViewWealthAdvisors.com cord or that of a spouse. For a spouse receives does not impact the benefit avail- who has not worked or had low wages, able to the other spouse. Free Rollover Helpline then the lower-earning spouse is entitled to as much as one-half of the retired worker’s Either spouse who is at least age 62 and 978-388-0020 full benefit referred to as the Primary Insur- been divorced for at least two years may Call for Your Free Guide ance Amount (PIA). begin to collect benefits even if not yet re-“Six Best & Worst IRA Rollover Decisions” tired. (Visit my blog for specific examples).
Page 2 V o lu m e 1 , I s s u e 4 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 ASK THE MONEY COACH ment program (DRiP) by buying a single share of What’s a Good Way to Invest a Gift for a Child so stock. When the company issues its dividends, the pro- They Have a Nest Egg When They Turn 18? ceeds will be used to buy shares (even fractional shares) in the company. Over time, this is a cost effective way to by Steve Stanganelli, CFP® build a stock position. And since most companies that offer such plans are ones with brand names that children may know, it’s a great way to help kids gain an interest in sav- I would suggest something that can be added to over time ings and investing. by you and other friends or relatives. In this category that would include the following: On a separate note for longer range thinking, you may also want to consider contributing to a Roth IRA once the child Uniform Gift to Minor/Uniform Trust for Minor Accounts gets older and starts earning his own money from odd jobs, 529 Savings Accounts paper routes or the local grocery. If the rules don’t change Zero-Coupon Bonds and the child has earned income, he can contribute some of his earnings (or parents can consider it as long as it EE Savings Bonds doesn’t exceed the total earnings). Individual Corporate or US Treasury Bonds Dividend Reinvestment Plan (DRiP) Roth IRA proceeds can be tapped to pay toward college or toward a house down payment and if not used can at least be great seed money for retirement. (Yes, the rules could 1.) UGMA/UTMAs can invest in a diversified fund or funds change but something to keep on the radar screen for when or use proceeds to buy shares of some large diversified the time comes). companies – Warren Buffet’s Berkshire Hathaway would work here; Now consider all of these as great ways for a gift to really have a long term impact. 2.) 529 savings account with a target date allocation tied to when the child is 18 years old and enters college; CAUTION: Giving the funds to a child when they reach a 3.) Zero-coupon bond with a target face amount equal to certain age without any strings could backfire. That’s why using a 529 or a UGMA account makes sense. Short of part of an expected year of college tuition expense for ex- paying for drafting a trust, at least these structures allow ample; you to place some restrictions on the use of the funds for the benefit of the child or for education specifically in the 4.) EE Savings Bonds: Taxes are zero when used for edu- case of a 529. So if opening up any type of mutual fund cation and you can always buy more of them in reasonable direct with a fund family or even a brokerage account to denominations; hold the stocks or bonds suggested, consider having it titled as a custodial type account. 5.) Specific company or US Government bonds would have maturities that are close to the time frames noted. TO SUBMIT YOUR OWN QUESTIONS, SEND AN EMAIL: steve@ClearViewWealthAdvisors.com or go to 6.) Participate in a company-sponsored dividend reinvest- www.MoneyLinkPro.Wordpress.com down, you have to tighten your belt. This works well inCreating Your Retirement Paycheck times of inflation to help you maintain your lifestyle.By Steve Stanganelli, CFP®Endowment Spending: Pretend You’re Like Harvard or Yale 3.Stay Invested: You may feel tempted to bail from the stock market. But despite the roller coaster we’ve had, it is stillConsider adopting the same approach that keeps large or- prudent to have a portion allocated to equities. Consideringganizations and endowments running. They plan on being that people are living longer, you may want to use this rulearound a long time so they target a spending rate that allows of thumb for your allocation to stocks: 128 minus your age.the organization to sustain itself. 4.Invest for Income: Don’t rely simply on bonds which have1.Figure Out Your Gap: Take your budget, subtract the ex- their own set of risks compared to stocks. Include dividend pected income sources and use the result as your target for -paying stocks or stock mutual funds in your mix. Large your withdrawals. Keep this number at no more than 4%- foreign firms are great sources of dividends. Balance this 5% of your total investment portfolio. out with hybrid investments like convertible bonds that pay interest and offer upside appreciation.2.Use a Blended Approach: Each year look at increasing or decreasing your withdrawals based on 90% of the prior 5. Build a Safety Net: To sleep well at night use a bucket ap- year rate and 10% on the investment portfolio’s perform- proach dipping into the investment bucket to refill the re- ance. If it goes up, you get a raise. If investment values go serve that should have 2 years of expenses in near cash investments: savings, laddered CDs and fixed annuities. Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email: Steve@ClearViewWealthAdvisors.com
Page 3 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 V o lu m e 1 , I s s u e 4PAYING FOR COLLEGE - STRATEGIES for GRANDPARENTS (continued from page 4) Tip #2: Establish a 529 Savings PlanSpecial points of interest: Avoid Cash Gifts to Students Applying for Financial Aid For grandparents who want to help out with college costs, a qualified tuition plan offers a great choice. Money set aside in Consider Paying the College Directly these plans can be used for eligible expenses like tuition, fees, Establish a 529 College Savings Plan books and equipment. Gift Appreciated Investments to Children or Grandchildren These accounts offer a variety of investment options that can be Set Up a Charitable Remainder Trust tailored to the time frame before funds are needed. The funds grow without any taxes and if used for qualified expenses can be Call the Clear View Financial Planning Helpline for a FREE copy of withdrawn tax free.“Pay for College Without Cracking the Retirement Nest Egg” Grandparents can transfer large amounts of cash into these ac-at 978-388-0020 or 617-398-7494. counts without triggering gift tax. Each grandparent can effec- tively deposit up to five years of annual gifts which right now is $65,000. The assets in these accounts remain in the control ofConsider Paying for Student Loans After Graduation the grandparent and are not countable assets for the student.Financial aid is based on various formulas to calculate the Tip #3: Gift Appreciated AssetsExpected Family Contribution (EFC). Most of this is basedon the information provided on a student financial aid form Assuming that the grandparent has long-held assets that haveabout parental and child assets and income. increased in value, one way to pay for college tuition and lower a potential tax bill is to gift these highly appreciated assets toThe financial aid forms do not ask about financial assets of someone in a lower tax bracket. This could be the child or theother relatives. parents.If you or a relative are in the fortunate position of having ex- This saves on the large capital gains tax bill that the grandpar-tra cash, you may be inclined to help. But providing a gift of ents would likely incur if they were to sell the appreciated assetcash directly to the parents or the student will result in an and use the proceeds to help pay for tuition or other expensesincrease of reportable assets which will reduce the calcu- directly.lated need, increase the EFC and, in turn, reduce theamount of possible financial aid. Tip #4: Set Up a Charitable Remainder TrustAnd if a helpful relative steps up and indicates that they will For those who are both charitably inclined as well as desiring tohelp, then the financial aid office will also reconsider the fi- help out a student, the grandparents can establish a trust.nancial need of the student. Money paid to the school onbehalf of the student could be considered to be like any A Charitable Remainder Trust can be funded with highly appre-other outside resource such as a private scholarship which ciated assets which can then be converted into income-reduces the aid offered by the school. producing assets. The income that is generated can be used for helping the student. Eventually, the remaining assets can thenA better way is to let the student qualify for the maximum aid be gifted to the charity. This strategy helps grandparents avoidwhile still in school and then helping out by contributing to- paying capital gains on the assets and removes the asset fromward paying off the loan balances. the taxable estate. While not an issue this year (no estate tax in 2010), this will change in 2011 with no congressional action.Family EFC Too High? For more tips and help, consider using a qualified college aidFor those who know that their EFC is too high to qualify for planner. Call Steve at Clear View Wealth Advisors for more de-aid, there are still options for grandparents who are still able tails and a personalized plan.to help out. These options at least offer some tax savings tothem. “Using Convertibles to Protect & Grow Wealth”Tip #1: Pay the College DirectlySince aid is not going to be affected, then simply pay theschool directly. Each grandparent can give up to the annual FREE e-Reportgift limit ($13,000 in 2010) to each student. This will help Clear View Wealth Advisors, LLCreduce the taxable estate of the grandparent and is an ex- Amesbury * Wilmington * Woburnempt gift to the student. Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email: Steve@ClearViewWealthAdvisors.com
Page 4 V o lu m e 1 , I s s u e 4 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 About Clear View Wealth Advisors, LLC Clear View is a Registered Investment Advisor providing fee-only / fee-for-service financial planning, consulting and investment management services.Primary Business Address Our Mission:12 Amidon AvenueAmesbury, MA 01913 Guiding individuals to better financial decisions through all of life’s transitions by planning well and investingBranch Offices: smart so that clients can live better.Woburn & Wilmington THE BOTTOM LINEPhone: 978-388-0020 or 617-398-7494Fax: 866-654-4301 When your life savings are at stake, you want advice youEmail: steve@ClearViewWealthAdvisors.com can trust and someone you can count on. You need a trusted advisor that is objective, an advisor that is notVisit us on the Web! paid more to sell you one product over another. You need a relationship with a firm and an advisor that prom-More Financial Tools: www.ClearViewWealthAdvisors.com ises to always put your interest first, a firm with provenFREE Road Map Tool: www.BabyBoomerRetirementPro.com experience and the right professional credentials.Our Blog: www.MoneyLinkPro.Wordpress.com To explore how Clear View and Steve Stanganelli, CFP®Visit our website to find out more about our approach and services. can help you, call 978-388-0020 today to schedule an exploratory meeting (via phone or in-person). There is no charge or obligation. Paying for College: A Gift That Keeps On Giving — Helpful Strategies for Grandparents to Lend a Hand By Steve Stanganelli, CFP®, CRPC® Steve Stanganelli and Clear View There is a saying that to raise a child takes a village. It also takes money. Some re- specialize in the following services: ports indicate that the cost of raising a child today through high school graduation for a dual-income family is just about $250,000 (http://moneycentral.msn.com/articles/ Retirement Income Planning family/kids/tlkidscost.asp). IRA Rollovers Roth IRA Conversion Analysis Adding in the cost of college tuition, fees and housing and this number can easily College Funding Strategies & double. But paying for college shouldn’t require winning the lottery. Careful coordi- 529 Plans nated planning by parents and grandparents with the help of a trusted financial ad- Divorce Settlement Analysis viser can help to reduce the burden on families and their kids. Qualified Plans for Businesses Before Grandma or Grandpa Writes a Check One-to-One Money Coaching Periodic or One-Time Invest- Having the help of a relative certainly will take off some of the pressure. But before ment Advice anyone writes a check, you should have a serious discussion about how best to help. On-Going Investment Manage- ment & Monitoring Providing help in the wrong way can be harmful to the student’s chances for getting Financial Education Programs financial aid. for Groups Consider these strategies that will help the student in a financial-aid friendly way. FREE Online Planning Tool (Continued on Page 3) “The Money Coach Road Map Series:” FREE Webinars Live on the 2nd Thursday Each Month Get Yours at www.SmartMoneyRoadMap.com Check the Clear View Site Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email: Steve@ClearViewWealthAdvisors.com