Faith Based Investing

It only makes sense – yet many retirees live without one.

You won’t be able to withdraw an unlimited amount of money in retirement. So a retirement budget is a necessity. Some retirees forego one, only to regret it later.

Run the numbers before you retire. Often people need about 70-80% of their end salaries in retirement, but this can vary. So years before you leave work, sit down for an hour or so (perhaps with the financial professional you know and trust) and take a look at your probable monthly expenses. Online calculators can help.

The closer you get to your retirement date, the more exact you will need to be about your income needs. You first want to look for changing expenses: housing costs that might decrease or increase, health care costs, certain taxes, travel expenses and so on. Next, look at your probable income sources: Social Security (the longer you wait, the more income you can potentially receive), your assorted IRAs and 401(k)s, your portfolio, possibly a reverse mortgage or even a pension or buyout package.

While selling your home might leave you with more money for retirement, there are less dramatic ways to increase your retirement funds. You could realize a little more money through tax savings and tax-efficient withdrawals from retirement savings accounts, through reducing your investment fees, and getting your phone, internet and TV services from one provider.

If you have just retired or are about to, you will enter 2012 with some financial breaks. Social Security benefits will increase by 3.6% next year, Medicare Part B premiums will only rise $3.50 instead of the $10 that Medicare projected, and the Part B deductible will be $22 cheaper in 2012 ($140).

Budget-wreckers to avoid. There are a few factors that can cause you to stray from a retirement budget. You can’t do much about some of them (sudden health crises, for example), but you can try to mitigate others.

• Supporting your kids, grandkids or relatives with gifts or loans.
• Withdrawing more than your portfolio can easily return.
• Dragging big debts into retirement that will nibble at your savings.

Budget well & live wisely. These are times of low interest rates and modest Wall Street gains. Given those factors, creating a retirement budget makes a lot of sense. A budget – and the discipline to stick with it – may make a financial difference.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Coming your way: some of the most significant changes in 30 years.

The Department of Labor is following through on its promise to update the retirement plan landscape. Three major rule changes are scheduled for the near future. All retirement plan fiduciaries and administrators should be aware of them.

#1: “Covered” service providers must fully describe their services & fees. This rule will take effect on April 1, 2012. It requires “covered” service providers (financial advisors, financial consultants or third-party administrators who expect to receive $1,000 or more in direct or indirect compensation for their services) to detail their compensation and/or fee structure to fiduciaries. (CSPs also include financial advisors or TPAs who act as fiduciaries or Registered Investment Advisors for plan sponsors.) If applicable, the CSP must detail any fees charged for recordkeeping along with recordkeeping methods.^1,2

#2: Fiduciaries must detail fees (and more) to plan participants. If participant-level fee disclosures aren’t provided to plan participants after May 31, 2012, then a plan participant or beneficiary may claim a violation of fiduciary duty on the part of the plan sponsor. For calendar year plans, initial quarterly disclosures must be furnished by August 14, 2012. The new regulations require fiduciaries to disclose (and update)

• Rules related to the dissemination of investment instructions for the plan
• Plan fees and expenses paid from participant accounts (plus a breakdown of these fees, i.e., investment management fees, admin fees, cost-of-advice fees)
• Any other specific fees or charges that may be drawn from a plan participant’s account.^3,6

#3: The DOL is redrafting its fiduciary rule. It intends to come forth with a new rule early in 2012, under which the definition of “fiduciary” could be expanded to include anyone who provides advice to a retirement plan or to IRA owners. A group of nearly 30 Congressional Democrats protested expanding the definition of “fiduciary” in a letter to Labor Secretary Hilda Solis last May, contending that it would backfire and eventually reduce access to investment education and information for plan participants. Nearly 50 House Republicans followed suit with a letter to Secretary Solis in November, urging that the new rule not encompass IRAs. However, Assistant Labor Secretary Phyllis Borzi has indicated that IRAs will be included under the redrafted fiduciary duty rule. The concern among legislators and financial services professionals is that the definition of “fiduciary” will become so vague that even the most basic education and advice could fall under ERISA status, leading to possible headaches for plan providers and plan participants.^4,5

The goal? The DOL wants to make these plans more transparent. This is an occasion for plan advisors to reconnect with plan sponsors, fiduciaries and participants.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

COULD BIG CHANGES BE COMING TO 401(k)s?

Two federal tax reform proposals could make them less attractive.

Massive deficit – and among the many revenue-generating ideas being discussed in Congress, two in particular could have disturbing consequences for employees saving for retirement.

There is no need to panic yet – these ideas are a long way from law. Still, a new report from the nonpartisan Employee Benefit Research Institute (EBRI) indicates that the bipartisan “super committee” of 12 legislators assigned to slash the deficit may be giving them at least a casual look.

What if you couldn’t deduct 401(k) contributions?

In September, representatives from the Brookings Institution proposed a remodel of current 401(k) plan rules at a Senate Finance Committee hearing. The big idea: end tax-deductible contributions to 401(k)s. Both employee salary deferrals and employer matches would be taxed. (Traditional IRA contributions would also be rendered taxable by this proposal.)

So by this concept, you would be taxed twice: once on your 401(k) contributions and once again on your 401(k) withdrawals.

Click here to read more »

CHANGES IN IRA & 401(K)s for 2012

A recap of contribution limit and phase-out adjustments.

The IRS has announced cost-of-living adjustments to IRAs and employer-sponsored retirement plans for 2012, so here is what you need to know about the newly altered contribution limits and phase-outs for these plans.

401(k) & IRA yearly contribution limits. In 2012, these are the annual contribution limits for some popular retirement savings vehicles:

• 401(k)s, 403(b)s, most 457 plans, Thrift Savings Plan (TSP) – $17,000 with an additional $5,500 catch-up contribution allowed for those 50 or older. (2012 COLA: $500.)
• Traditional & Roth IRAs - $5,000 with an additional $1,000 catch-up contribution allowed for those 50 or older. (No 2012 COLA.)
• Simple IRAs - $11,500 with an additional $2,500 catch-up contribution allowed for those 50 or older. (No 2012 COLA.)
• SEP IRAs - $50,000 or 25% of an employee’s compensation, whichever is lesser. (2012 COLA: $1,000.)
• 415(b) defined benefit plans – the limitation on annual benefits under a defined benefit plan is increased to $200,000. (2012 COLA: $5,000.)

Traditional IRA phase-outs. The new MAGI limits affecting deductions for traditional IRA contributions are:

• Singles & heads of household covered by a workplace retirement plan: $58,000-68,000. (2012 COLA: $2,000.)
• Married filing jointly, with spouse making the IRA contribution covered by a workplace retirement plan: $92,000-112,000. (2012 COLA: $2,000.)
• Married filing jointly, IRA contributor not covered by a workplace retirement plan but married to someone who is: $173,000-183,000. That MAGI range is for a couple rather than an individual. (2012 COLA: $4,000.)

Roth IRA phase-outs. The MAGI limits affecting deductions for Roth IRA contributions are set as follows for 2012:

• Singles & heads of household covered by a workplace retirement plan: $110,000-125,000. (2012 COLA: $3,000.)
• Married filing jointly: $173,000-183,000. (2012 COLA: $4,000.)
• Married filing separately, with the Roth IRA contributor covered by a workplace retirement plan: $0-10,000. (No 2012 COLA.)

Lastly, a couple of notes for employers. When it comes to defining “key employees” in a top-heavy plan, the determination limit goes up $5,000 to $165,000 in 2012. The maximum taxable earnings amount for Social Security increases to $110,100 from $106,800 next year.`

Steps to take before the end of 2010

What has changed for you in 2010? Did you start a new job – or leave a job behind? Did you retire? Did you start a family? If some notable changes occurred in your personal or professional life, then you will want to review your finances before this year ends and the next one begins.

Even if your 2010 has been comparatively uneventful, the end of the year is still a good time to get cracking and see where you can plan to save some taxes and/or build a little more wealth.

Here are eight questions to review before the ball drops in 2010.

1. When was your last portfolio review?

Many investors fail to incorporate their faith and values into their financial plan. Many also take too little or too much risk. During volatile times like this, would it be great to have peace of mind knowing your portfolio is exactly where it should be – morally and financially sound.

2. Did you practice tax loss harvesting?

That is the art of taking capital losses (selling securities worth less than what you first paid for them) to offset your short-term capital gains. You might want to consider this move, which should be made with the guidance of a financial professional you trust.

In fact, you could even take it a step further. Consider that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income, and and remaining capital losses above that can be carried forward to offset capital gains in upcoming years.

There is still the risk that if Congress doesn’t act soon, long-term capital gains will be taxed at 10% for those in the 15% bracket and 20% for those in the higher brackets beginning in 2011. President Obama has himself proposed a 20% top tax rate for capital gains.2 So you might think of triggering excess capital losses in 2010 and using the losses to shelter future long-term capital gains that could be taxed at a higher rate.

If you are in the 10% or 15% brackets (taxable income of $34,000 or less for an individual, $68,000 or less for a married couple), 2010 could be the final year in which you can cash in capital gains without triggering a tax.3

3. Do you itemize deductions?

If you do, great. Now would be a good time to get the receipts and assorted paperwork together. Besides a possible mortgage interest deduction, you might be able to take a state sales tax deduction, a student-loan interest deduction, a military-related deduction, a deduction for the amount of estate tax paid on inherited IRA assets, an energy-saving deduction, a homebuyer credit … there are so many deductions you can potentially claim, and now is the time to meet with your tax professional so that you can strategize to claim as many as you can.

4. Could you ramp up your 401(k) or 403(b) contributions?

If you can do this in November and December, that will lower your taxable income. Do it enough and you might be able to qualify for other tax credits or breaks available to those under certain income limits.

5. Are you thinking of gifting?

How about making a contribution to a charity or some other kind of 501(c)(3) non-profit organization before 2010 ends? In most cases, these gifts are partly tax-deductible. If you pour some money into a 529 plan on behalf of a child, you could get a deduction at the state level (depending on the state).

Of course, you can also reduce the value of your taxable estate with a gift or two. This year, the gift tax exclusion is $13,000 – so you can gift up to $13,000 to as many people as you wish this year, with the understanding that you have a $1 million lifetime limit before you are actually hit with gift taxes.

6. Have you reviewed your estate plan lately?

Take a moment to review the beneficiary designations for your IRA, your life insurance policy, and your retirement plan at work? If you haven’t reviewed them for a decade or more (which isn’t uncommon), double-check to see that these assets will go where you want them to go should you pass away. Lastly, take a look at your will to see that it remains valid and up to date.

7. Should you go Roth before 2010 ends?

The IRS has given you a little incentive to do so: if you convert a traditional IRA to a Roth in 2010, you can optionally split the income taxes stemming from the conversion across 2011 and 2012 – without increasing your 2010 taxable income. If you wait until 2011 to make the conversion, that choice won’t be there.

8. Do you have a student in college or a private K-12 school?

If you’re paying for private school with Coverdell ESA funds, here’s an alert: the annual contribution limit is dropping from $2,000 to $500 in 2011, and primary and secondary school tuition will no longer count as a qualified expense next year. In 2010, you can buy your college student computer hardware, computer software and Internet service with funds from a 529 account; you won’t be able to do that in 2011. You’ll also want to see if you can claim the American Opportunity Credit (which is as much as $2,500 per student) for qualified college expenses in 2010; it may or may not be extended for 2011.

What’s your next step?

People often ask me about coaching them on their business and in their personal finances.  Here is how I look at a person’s financial life analyzing ten key areas.

Analyzing the Ten Key Areas of  Your Faith-Based Financial Plan

1: Ownership. God Owns 100% of everything. This i the foundation of any plan determining who is the owner of all that is entrusted to you.

Key Verses:

Haggai 2:8 “The silver is mine and the gold is mine,” declares the Lord.

Psalm 24:1 “The earth is the Lord’s, and everything in it, the world and all who live in it.”

Key Coaching Areas:

• Assess attitudes & motives in your personal financial planning.

• Rather than, “How do I protect/use my money?” the question becomes, “How can I best look after/use God’s money?”

• To rely on God and his provision not on our wealth or our ability to create wealth.

Click here to read more »

Downsize your lifestyle?

You want to retire, and you own a large home that is nearly or fully paid off. The kids are gone, but the upkeep costs haven’t fallen. Should you retire and keep your home? Or sell your home and retire? Maybe it’s time to downsize.

Lower expenses could put more cash in your pocket. If your home isn’t paid off yet, have you considered how much money is going toward the home loan? The typical mortgage payment in the U.S. represents about 30% of gross income and about 50% of after-tax income. When you move to a smaller home, your mortgage expenses may diminish and your cash flow may greatly increase – and don’t forget about interest savings over the life of the loan.

Cut your taxes?

You might even be able to buy a smaller home with cash (if finances permit) and cut your tax liability. Optionally, that smaller home could also be in a region with lower income taxes and a lower cost of living. You could capitalize on some home equity. Why not convert some home equity into retirement income? If you were forced into early retirement by some corporate downsizing, you might have a sudden and pressing need for retirement capital – another reason to sell that home you bought decades ago and head for a smaller one.

The lifestyle reasons to downsize (or not). Maybe your home is too much to keep up, or maybe you don’t want to climb stairs anymore. Maybe a condo or an over-55 community appeals to you. Maybe you want to be where it seldom snows. On the other hand, you may want and need the familiarity of your current home and your immediate neighborhood (not to mention the friends attached).

If you decide to downsize, it may not pay to wait. Anyone who wants to retire in the current economy needs all the financial resources that can be mustered. Of course, the real estate market will eventually improve; it depends on how long you want to wait for improvement. Some people want to retire and then sell their home, but it may be wiser to sell a home and then retire since homes tend to sit on the market these days. If you sell sooner instead of later, you can always rent until you find a smaller house that could save you thousands (or tens of thousands) of dollars.