1. Market-Moving Indicators for Monitoring Europe
Ameriprise Financial If you've struggled to make sense of the However, investor reaction also can be
ongoing European debt debacle, you're not unpredictable. For example, Standard & Poor's
Greg Younger, CRPC®
alone. It's difficult even to keep track of all the January downgrade of nine sovereign nations
Financial Advisor pieces of this financial Rube Goldberg puzzle, and the European Financial Stability Fund was
300 First Executive Ave let alone understand how they can influence largely met with a shrug by investors. There's
Suite D one another. been so much pessimism about Europe for so
St. Peter's, MO 63376 Though new aspects of the situation seem to long that in some cases, markets may already
have priced in much of the bad news.
636-405-5004 crop up every month, here are some of the
gregory.d.younger@ampf.com most common factors that either reflect or affect Monitor credit default swap costs
www.ameripriseadvisors.com/gregory.d.younger sentiment about what's happening in Europe.
A credit default swap (CDS) is a form of
Knowing about them might help you understand
insurance against the possibility that a bond
why markets react to a seemingly obscure
issuer might default or fail to make a payment
headline. After all, one of the few things that
on its obligations. Bondholders buy a CDS from
almost everyone seems to agree on is that the
a financial institution or insurance company that
situation isn't likely to be solved overnight.
promises to reimburse the bondholder for any
Take an interest in interest rates losses sustained in the event of a default. The
Interest rates on sovereign debt are perhaps cost of that insurance is seen as a proxy for the
the most closely watched indicator. When perceived risk involved in investing in a
demand for a country's bonds is low because particular country's bonds. The higher the cost
investors are concerned about the possibility of a CDS on, say, Italian sovereign debt, the
that they might not be repaid in full and on time, greater the anxiety about whether the bond
that country must offer a higher interest rate in issuer will default and the CDS issuer will have
order to borrow money to finance its day-to-day to pay.
operations. Follow the money
Interest rates become particularly worrisome To prevent credit markets from seizing up, the
when they reach or exceed 7%. That's the level European Central Bank late last year provided
that prompted Greece, Ireland, and Portugal to almost €500 billion in three-year loans to
seek bailouts from their European peers, and European banks, making it easier for them to
it's widely seen as unsustainable. When a refinance their debt. The level of borrowing at
country must pay that much simply to service the ECB is seen as one indicator of how banks
its debt, investors become concerned that high are being affected by their holdings of
borrowing costs will make a country's financial sovereign debt. The greater the need to borrow
situation even worse. from the ECB, the greater the banks' perceived
Watch credit ratings level of vulnerability.
Troubled European countries are struggling to Bailouts: Nein nein nein?
deal with a devilish Catch-22. In many cases, U.S. voters aren't the only ones who are
unsustainable debt burdens have led to sensitive about bailouts; so are Germans. As
stringent austerity measures; however, such Europe's most powerful economy and the one
May 2012 measures also can hamper economic growth, with the best credit rating, Germany is the
Market-Moving Indicators for Monitoring which reduces tax revenue and can potentially tentpole upon which European financial stability
Europe increase deficits. Higher deficits can lead to a hangs. However, by the end of 2011, the
lower credit rating that in turn can mean higher German economy had begun to slow. Any
Retirement Rules of Thumb borrowing costs, bringing on the problems indications that economic pressure could
Of Taxes Past, Present, and Future discussed above and potentially launching a threaten Germany's ability and willingness to
What happens to my retirement benefits new downward economic cycle. Thus, a remain strong in its support of the eurozone can
if my employer goes out of business? downgrade to a country's credit rating tends to spook anxious investors.
raise concerns.
Page 1 of 4
See disclaimer on final page

2. Retirement Rules of Thumb
Because retirement rules of thumb are rule of thumb has critics, and there are other
guidelines designed for the average situation, strategies and models that are used to
they'll tend to be "wrong" for a particular retiree calculate sustainable withdrawal rates. For
as often as they're "right." However, rules of example, some experts suggest withdrawing a
thumb are usually based on a sound financial lesser or higher fixed percentage each year;
principle, and can provide a good starting point some promote a rate based on your investment
for assessing your retirement needs. Here are performance each year; and some recommend
four common retirement rules of thumb. a withdrawal rate based on age. Factors to
consider include the value of your savings, the
The percentage of stock in a portfolio
amount of income you anticipate needing, your
should equal 100 minus your age life expectancy, the rate of return you anticipate
Financial professionals often advise that if from your investments, inflation, taxes, and
you're saving for retirement, the younger you whether you're planning for one or two retired
are, the more money you should put in stocks. lives.
Though past performance is no guarantee of
You need 70% of your preretirement
future results, over the long term, stocks have
historically provided higher returns and capital income during retirement
Rules of thumb are usually
based on a sound financial appreciation than other commonly held You've probably heard this many times before,
principle, and can provide a securities. As you age, you have less time to and the number may have been 60%, 80%,
good starting point for recover from downturns in the stock market. 90%, or even 100%, depending on who you're
assessing your retirement Therefore, many professionals suggest that as talking to. But using a rule of thumb like this
needs.
you approach and enter retirement, you should one, while easy, really isn't very helpful
begin converting more of your volatile because it doesn't take into consideration your
growth-oriented investments to fixed-income unique circumstances, expectations, and goals.
securities such as bonds. Instead of basing an estimate of your annual
A simple rule of thumb is to subtract your age income needs on a percentage of your current
from 100. The difference represents the income, focus instead on your actual expenses
percentage of stocks you should keep in your today and think about whether they'll stay the
portfolio. For example, if you followed this rule same, increase, decrease, or even disappear
at age 40, 60% (100 minus 40) of your portfolio by the time you retire. While some expenses
would consist of stock. However, this estimate may disappear, like a mortgage or costs for
is not a substitute for a comprehensive transportation to and from work, new expenses
investment plan, and many experts suggest may arise, like yard care services, snow
modifying the result after considering other removal, or home maintenance--things that you
factors, such as your risk tolerance, financial might currently take care of yourself but may
goals, the fact that bond yields are at historic not want to (or be able to) do in the future.
lows, and the fact that individuals are now living Additionally, if travel or hobby activities are
longer and may have fewer safety nets to rely going to be part of your retirement, be sure to
on than in the past. factor these costs into your retirement
expenses. This approach can help you
A "safe" withdrawal rate is 4%
determine a more realistic forecast of how
Your retirement income plan depends not only much income you'll need during retirement.
upon your asset allocation and investment
choices, but also on how quickly you draw Save 10% of your pay for retirement
down your personal savings. Basically, you While this seems like a perfectly reasonable
want to withdraw at least enough to provide the rule of thumb, again, it's not for everyone. For
current income you need, but not so much that example, if you've started saving for retirement
you run out too quickly, leaving nothing for later in your later years, 10% may not provide you
retirement years. The percentage you withdraw with a large enough nest egg for a comfortable
annually from your savings and investments is retirement, simply because you have fewer
called your withdrawal rate. The maximum years to save.
percentage that you can withdraw each year However, a related rule of thumb, that you
and still reasonably expect not to deplete your should direct your savings first into a 401(k)
savings is referred to as your "sustainable plan or other plan that provides employer
withdrawal rate." matching contributions, is almost universally
A common rule of thumb is that withdrawal of a true. Employer matching contributions are
dollar amount each year equal to 4% of your essentially "free money," even though you'll pay
savings at retirement (adjusted for inflation) will taxes when you ultimately withdraw them from
be a sustainable withdrawal rate. However, this the plan.
Page 2 of 4, see disclaimer on final page

3. Of Taxes Past, Present, and Future
With the 2011 tax filing season behind us, gains are generally taxed at a maximum rate of
much attention is being paid to the expiring 15%. And, if you're in the 10% or 15% marginal
"Bush tax cuts"--the reduced federal income tax income tax bracket, a special 0% rate generally
rates, and benefits, that will expire at the end of
applies. Starting in 2013, however, the
2012 unless additional legislation is passed. In maximum rate on long-term capital gains will
fact, though, several important federal income generally increase to 20%, with a 10% rate
tax provisions already expired at the end of applying to those in the lowest (15%) tax
2011. Here's a quick rundown of where things bracket (though slightly lower rates might apply
stand today. to qualifying property held for five or more
years). And while the current lower long-term
What's already expired?
capital gain rates now apply to qualifying
A series of temporary legislative "patches" over dividends, starting in 2013, dividends will be
the last several years has prevented a dramatic taxed at ordinary income tax rates.
Qualified charitable increase in the number of individuals subject to
distributions
Other provisions expiring at the end of the year:
the alternative minimum tax (AMT)--essentially
A popular provision allowing a parallel federal income tax system with its • 2% payroll tax reduction-- The recently
individuals age 70½ or older to own rates and rules. The last such patch extended 2% reduction in the Social Security
make qualified charitable expired at the end of 2011. Unless new portion of the Federal Insurance
distributions of up to $100,000 legislation is passed, your odds of being caught Contributions Act (FICA) payroll tax expires at
from an IRA directly to a in the AMT net greatly increase in 2012, the end of 2012.
qualified charity expired at the because AMT exemption amounts will be
end of 2011. These charitable • Itemized deductions and personal
distributions were excluded
significantly lower, and you won't be able to exemptions-- Beginning in 2013, itemized
from income, and counted offset the AMT with most nonrefundable deductions and personal and dependency
towards satisfying any required personal tax credits. exemptions will once again be phased out for
minimum distributions that you Other provisions that have already expired: individuals with high adjusted gross incomes
would have had to take from (AGIs).
your IRA for the year. • Bonus depreciation and IRC Section 179
expense limits-- If you're a small business • Tax credits and deductions-- The earned
owner or self-employed individual, you were income tax credit, the child tax credit, and the
Return of the "marriage allowed a first-year depreciation deduction of American Opportunity (Hope) tax credit revert
penalty"? 100% of the cost of qualifying property to old, lower limits and (less generous) rules
Tax changes that were acquired and placed in service during 2011; of application. Also gone in 2013 is the ability
originally made to address a this "bonus" depreciation drops to 50% for to deduct interest on student loans after the
perceived "marriage penalty" property acquired and placed in service first 60 months of repayment.
expire at the end of 2012. If during 2012, and disappears altogether in
you're married and file a joint New Medicare taxes in 2013
return with your spouse, you'll
2013. For 2011, the maximum amount that
you could expense under IRC Section 179 New Medicare taxes created by the health-care
see the effect in the form of a reform legislation passed in 2010 take effect in
reduced 2013 standard was $500,000; in 2012, the maximum is
deduction amount, as well as in $139,000; and in 2013, the maximum will be just a few short months. Beginning in 2013, the
lower 2013 tax bracket $25,000. hospital insurance (HI) portion of the payroll
thresholds in the tax rate tables tax--commonly referred to as the Medicare
• State and local sales tax-- If you itemize your portion--increases by 0.9% for high-wage
(i.e., couples move into higher
rate brackets at lower levels of
deductions, 2011 was the last tax year for individuals. Also beginning in 2013, a new 3.8%
income). which you could elect to deduct state and Medicare contribution tax is imposed on the
local general sales tax in lieu of state and unearned income of high-income individuals.
local income tax.
Who is affected? The 0.9% payroll tax increase
• Education deductions-- The above-the-line affects those with wages exceeding $200,000
deduction (maximum $4,000 deduction) for ($250,000 for married couples filing a joint
qualified higher education expenses, and the federal income tax return, and $125,000 for
above-the-line deduction for up to $250 of married individuals filing separately). The 3.8%
out-of-pocket classroom expenses paid by contribution tax on unearned income generally
education professionals both expired at the applies to the net investment income of
end of 2011. individuals with modified adjusted gross income
What's expiring at the end of 2012? that exceeds $200,000 ($250,000 for married
couples filing a joint federal income tax return,
After December 31, 2012, we're scheduled to
and $125,000 for married individuals filing
go from six federal tax brackets (10%, 15%,
separately).
25%, 28%, 33%, and 35%) to five (15%, 28%,
31%, 36%, and 39.6%). The rates that apply to
long-term capital gains and dividends will
change as well. Currently, long-term capital
Page 3 of 4, see disclaimer on final page

4. Ameriprise Financial What happens to my retirement benefits if my employer
Greg Younger, CRPC® goes out of business?
Financial Advisor If your employer goes out of money to cover all benefits that participants
300 First Executive Ave business, any retirement plan have accrued up to the plan termination date,
your employer sponsored will then the PBGC will permit a "standard
Suite D
be terminated. If the plan is a termination," and your employer will either
St. Peter's, MO 63376 401(k) or other defined contribution plan, your purchase an annuity from an insurance
636-405-5004 benefits are held in trust, apart from your company (which will provide lifetime benefits
gregory.d.younger@ampf.com employer's assets, and you'll generally be when you retire) or, if your plan permits, let you
www.ameripriseadvisors.com/gregory.d.younger
entitled to receive your full account balance in a choose a lump-sum equivalent.
lump sum. (You can take the cash, or roll your However, if the plan doesn't have enough
payout into an IRA or another employer's plan.) money to pay all promised benefits earned up
But if your employer sponsors a defined benefit until plan termination (that is, the plan is
The information contained in this material is being plan, it gets a little more complicated. A defined "underfunded"), the PBGC will take over the
provided for general education purposes and with the benefit plan promises to pay you a specific plan as trustee in a "distress termination," and
understanding that it is not intended to be used or
interpreted as specific legal, tax or investment monthly benefit at retirement. While defined assume the obligation to pay basic plan
advice. It does not address or account for your benefit plan assets are also held in trust (or benefits up to legal limits. For plans ending in
individual investor circumstances. Investment
decisions should always be made based on your
insurance contracts), apart from your 2012, the maximum annual benefit (payable as
specific financial needs and objectives, goals, time employer's assets, whether a particular plan a single life annuity) is $55,840 for a worker
horizon and risk tolerance. has enough cash to pay promised benefits who retires at age 65. If you begin receiving
depends on your employer's contributions and payments before age 65, or if your pension
The information contained in this communication,
including attachments, may be provided to support the plan's investment earnings and actuarial includes benefits for a survivor or other
the marketing of a particular product or service. You experience. beneficiary, or if your plan was adopted (or
cannot rely on this to avoid tax penalties that may be
imposed under the Internal Revenue Code. Consult When a defined benefit plan is about to amended to increase benefits) within five years
your tax advisor or attorney regarding tax issues
terminate, the Pension Benefit Guaranty of the termination, the maximum amount is
specific to your circumstances.
Corporation (PBGC), a federal agency created lower. According to the PBGC, only 16% of
Neither Ameriprise Financial Services, Inc. nor any of specifically to protect employees covered by retirees in recent years have seen their benefit
its employees or representatives are authorized to
these plans, is notified. If the plan has enough reduced because of the annual dollar limits.
give legal or tax advice. You are encouraged to seek
the guidance of your own personal legal or tax
counsel. Ameriprise Financial Services, Inc. Member
FINRA and SIPC. What is the Pension Benefit Guaranty Corporation?
The information in this document is provided by a
The Pension Benefit Guaranty plans ending in 2012, the maximum annual
third party and has been obtained from sources Corporation (PBGC) is a amount (based on a single life annuity) is
believed to be reliable, but accuracy and federal agency created by the $55,840.92 (or $4,653.41 per month) for a
completeness cannot be guaranteed by Ameriprise
Financial Services, Inc. While the publisher has been Employee Retirement Income worker who retires at age 65. According to the
diligent in attempting to provide accurate information, Security Act of 1974 (ERISA) PBGC, most people receive the full benefit they
the accuracy of the information cannot be
guaranteed. Laws and regulations change frequently, to help protect pension plan benefits. When a had earned before the plan terminated.
and are subject to differing legal interpretations. pension plan ends (a "plan termination") without However, this amount may be lower than the
Accordingly, neither the publisher nor any of its
licensees or their distributees shall be liable for any
enough money to pay all benefits owed to benefit you had counted on from your plan at
loss or damage caused, or alleged to have been participants, the PBGC takes over and retirement.
caused, by the use or reliance upon this service. assumes the obligation to pay those benefits. The PBGC maintains two insurance programs:
The PBGC only protects defined benefit the single-employer program protects about
plans--that is, qualified employer pension plans 33.6 million workers and retirees in about
that promise to pay a specific monthly benefit at 27,600 pension plans, and the multiemployer
retirement, based on your pay and years of program protects 10.4 million workers and
service with your employer. The PBGC doesn't retirees in about 1,500 pension plans.
protect 401(k) or other defined contribution (Multiemployer plans are set up by collectively
plans, plans not covered by ERISA (for bargained agreements involving more than one
example, governmental plans and certain unrelated employer, generally in one industry,
church plans), or plans offered by professional such as trucking or construction.)
service employers (such as doctors and The PBGC isn't funded by general tax
lawyers) with fewer than 26 employees. revenues. Rather, the PBGC collects insurance
The PBGC guarantees that you'll receive basic premiums from employers that sponsor insured
pension benefits up to a specified dollar pension plans, receives funds from the pension
amount. Basic benefits include normal and plans it takes over, and earns money on its
early retirement benefits, survivor annuities, investments. Employers are required by ERISA
and disability benefits. The maximum pension to pay insurance premiums to the PBGC.
benefit is set by law and adjusted yearly. For
Page 4 of 4
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012