By Mark Ford

I consider myself to be an expert of sorts on retirement. Not because I’ve studied the subject, but because I’ve retired three times.

Yes, I’m a three-time failure at retiring. But I’ve learned from my mistakes. Today, I’d like to tell you about the worst mistake retirees make.

It’s a common mistake… Yet, I’ve never heard it mentioned by retirement experts. Nor have I read a word about it in retirement books…

The biggest mistake retired people make is giving up all their active income.

When I say active income, I mean the money you make through your labor or through a business you own. Passive income refers to the income you get from Social Security, a pension, or from a retirement account. You can increase your active income by working more. But the only way you can increase your passive income is by getting higher rates of return on your investment.

When you give up your active income, two bad things happen:

First, your connection to your active income is cut off. With every month that passes, it becomes more difficult to get it back.

Second, your ability to make smart investment decisions drops because of your dependence on passive income.

Retirement is a wonderful idea: put a portion of your income into an investment account for 40 years and then withdraw from it for the rest of your life. Once you retire, you won’t have to work anymore. Instead, you will fill your days with fun activities: traveling, golfing, going to the movies, and visiting the kids and grandkids.

But consider this: A retirement lifestyle for two, like the one I described above, would cost about $75,000 a year, or $100,000 before taxes.

How big of a retirement account do you need to fund that?

Let’s assume that you and your spouse could count on $25,000 a year from Social Security and another $25,000 from a pension plan (two big “ifs”). To earn the $50,000 balance in the safest way possible (from a savings account), you’d need about $5 million, because savings accounts only pay 1% right now.

If you were willing to take a bit more risk and invest in tax-free municipal bonds (this is the safety level I like), you’d need about $1.25 million, assuming you could get 4% interest.

But middle-class American couples my age are trying to retire with an account in the $250,000 to $300,000 range. And that’s where the trouble begins. To achieve an annual return of $50,000 on $300,000, you’d need to make 17% a year.

Getting 17% consistently over, say, 20 years may not be impossible, but it’s very risky – too risky for my tastes.

I retired for the first time when I was 39. I put my money into ultra-safe municipal bonds. I soon realized, however, that to maintain the lifestyle I wanted, I would have to get a greater return on my investments – I would have to take greater risks with my money by investing in stocks. But when I studied the history of yearly stock market performance, I came to the conclusion that I couldn’t confidently expect to get the return I needed, year after year.

So what did I do? I went back to work.

I went back to earning an active income because I didn’t want to spend my days studying the market and my evenings worrying about my investments. And do you know what happened? The moment I started earning money again, I started to feel better.

Retirement isn’t supposed to be filled with money worries. And yet, that is exactly what you will get if you try to get above-par returns on your investments.

As I write this, millions of Americans my age are quitting their jobs and selling their businesses. They are reading financial magazines and subscribing to newsletters. They are hoping to find a stock selection system that will give them the 30% and 40% returns they need. But they will soon find out that such systems don’t exist. They will have good months and bad years, and they will compensate for those bad years by taking on more risk. The situation will go from bad to worse.

It doesn’t have to be this way. Let’s go back to the example of the couple with the $300,000 retirement fund and the $100,000-a-year retirement dream. To generate the $50,000 they need, they would have to earn about 17% a year in stocks. As I said, that is highly improbable. But if they each earned only $15,000 in active income, they would need a return of only about 7% on their retirement account, which is doable.

There are many ways for a retired person to earn a part-time, active income. You could do some consulting, start your own Web business, or earn money doing any sort of purposeful work.

I am not saying that you should give up on the idea of retirement. On the contrary, I’m saying that retirement might be more possible than you think.

But you must replace the old, defective idea that retirement means living off passive income only. Paint a new mental picture of what retirement can be: a life free from financial worry that includes lots of travel, fun, and leisure, funded in part by active income from doing some sort of meaningful work.

The first benefit of including an active income in your retirement planning is that you will be able to generate more money when you need to. But the other benefit – the one that no one talks about – is that it will allow you to make wiser investment decisions because you won’t be a slave to your investments.

If you – or one of your kids – are about to graduate from college or high school, congratulations on successfully navigating the twists and turns of the education system. You don’t need me to tell you what a challenging, rewarding and expensive road it has been.

But, as someone who’s learned a few financial lessons the hard way, I would like to share a few steps you can take now to ensure you’ll start the next chapter of life on sound economic footing.

First, live within your means. Unless you sailed through college on a full scholarship, you’re probably already saddled with thousands of dollars in student loan debt. (If you’re about to enter college, avoiding future loan debt is something to keep in mind.)

Add in rent, car payments, credit card and personal loan balances and other monthly bills – not to mention payroll taxes – and your new salary may not go as far as you’d hoped.

If you don’t already have a budget, start one now. Many free budgeting tools are available online at sites such as MyMoney.gov (www.mymoney.gov), the National Foundation for Credit Counseling (www.nfcc.org), and Practical Money Skills for Life (www.practicalmoneyskills.com/budgeting), a free personal financial management program run by Visa Inc.

Speaking of student loans, here are a few repayment tips:

• Most federal loans offer grace periods before repayment must begin, but many private loans do not. Carefully review your loan documents to see where you stand.
• Ask if your lender will reduce the interest rate if you agree to automatic monthly payments or after you’ve made a certain number of on-time payments.
• If you anticipate repayment difficulties, contact your lender immediately to try and work out an agreement to defer payments, extend the loan’s term or refinance at a lower rate.
• Many people with federal loans who are low-income, unemployed or working at low-paying, “public service” jobs in education, government or non-profits qualify for income-based repayment, where monthly payments are capped relative to adjusted gross income, family size and state of residence. To learn more, visit www.studentaid.ed.gov/ibr.

Many people don’t realize the impact their credit score has on their financial future until after it’s been seriously damaged from making late payments, bouncing checks, opening too many accounts or exceeding credit limits. This can haunt you later when you try to borrow money for a house or car, rent an apartment or apply for a job.

Find out where you stand by ordering credit reports from each major credit bureau – Equifax, Experian and TransUnion. You can order one free credit report per year from each bureau from www.annualcreditreport.com; otherwise you’ll pay a small fee.

To learn more about the importance of understanding and improving your credit score, visit What’s My Score (www.whatsmyscore.org), a financial literacy program for young adults run by Visa Inc. It features a free, downloadable workbook called Money 101: A Crash Course in Better Money Management, a free tool to estimate your FICO credit score and “Welcome to the Real World” money guides on topics such as student loan repayment, finding a job and budgeting.

You’ve worked hard to earn your degree; now put it to work for you. Just make sure you don’t sabotage your efforts by starting out on the wrong financial footing.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.

Jason Alderman

Corporate Relations, Visa Inc.

Jason Alderman is a senior director at Visa Inc. and runs the company’s global financial literacy initiative, which includes the award-winning Practical Money Skills for Life and What’s My Score? programs. As part of his work at Visa, Mr. Alderman writes a weekly personal finance column that is carried in 400 community newspapers throughout the U.S.

Prior to joining Visa at the start of 2006, Mr. Alderman handled communications for Pacific Gas and Electric Company, one of America’s largest utilities. Mr. Alderman’s career also included service as a Congressional staffer in Washington, D.C. on the House Appropriations Committee and as the legislative director for the late Rep. Sidney Yates of Illinois. In that post, he helped oversee the multi-billion dollar budgets for the U.S. Department of the Interior and the Smithsonian Institution.

Mr. Alderman sits on the board of the JumpStart Coalition for Personal Financial Literacy and is the founder of the Bay Area Center for Voting Research.

Barry Moltz

On Presidents’ Day, we honor our nation’s presidents, but we typically don’t look to them for business help and advice (unless it’s extending more government loans or incentives). But, there is actually a lot we can learn from two of our most well-known leaders.

As small business owners, we are especially familiar with George Washington and Abraham Lincoln since they appear on our money. And here are four lessons business owners can learn from these two presidents:

1. Solve customers’ problems. Washington was a marijuana farmer. In the late 1700s, pot was actually grown for hemp and soil stabilization (at least, this is what Washington told everyone). Hemp was used for textiles, paper, and medicine. In fact, the Declaration of Independence was written on hemp paper. Washington also ran many other businesses including a large fishery and one of the biggest whiskey distilleries in the country. Lincoln owned a general store. In the 1830s, these stores were the only places that offered a wide variety of goods for farms and homes. Stores would also offer the farmers credit based on how good the next year’s crop was projected to be. (Note: Do not follow this last piece of advice since Lincoln went out of business.)

Want more from Barry Moltz? Check these out:

• 5 Business Lessons from a Netflix and Blockbuster Addict
• Groundhog Day: 10 Mistakes that Small Businesses Make Over and Over
• The Only 5 Numbers Your Business Needs to Know

2. Be an innovator. Washington introduced the mule to America for farming. Utilizing mules gave farmers many advantages over horses including the ability to work the animals harder, longer, and with less feed. They were particularly popular in the south since their hooves were better suited for crops like cotton, tobacco and sugar. Lincoln was also an innovator. He received patent No. 6469 for a device called “Buoying Vessels Over Shoals” on May 22, 1849. It was supposed to lift riverboats off of sandbars. He whittled the original device out of wood. Unfortunately, the product was never marketed because the extra weight on the boat actually increased the chances of it running aground. Lincoln was more innovative as a lawyer and politician. He created the first transcontinental railroad and established a national currency.

3. Failure is part of the journey. In Washington’s first battle, he was ambushed and forced to surrender at Fort Necessity in Pennsylvania. In 1755, Washington had to assume command from a dying General Edward Braddock. He led the surviving Colonial soldiers on a “successful retreat.” Washington always talked about how “99 percent of failures come from people who make excuses.” Lincoln lost the first time he ran for state legislature and U.S. Congress; he won the second time around for each. He lost both times when he ran for U.S. Senate, but was later elected president.

4. Learn from the bottom up. Washington’s father died when he was 11 and left no money or formal education. So Washington became an apprentice in order to learn business. Lincoln also had no formal legal education. He learned from books until the Supreme Court of Illinois licensed him. When he became a lawyer, he traveled around Illinois to learn his craft until he became one of the most successful lawyers in the state.

What other presidents can we learn from?

Barry Moltz gets business owners growing again by unlocking their long forgotten potential.  With decades of entrepreneurial experience in his own businesses ventures as well as consulting countless other entrepreneurs, Barry has discovered the formula to get stuck business owners out of their funk and marching forward.  Barry applies simple, strategic steps to facilitate change for entrepreneurs, and get’s them growing their business once again. Barry Moltz has founded and run small businesses with a great deal of success and failure for more than 15 years. http://barrymoltz.com/contact-barry/

Qubes. StreetTracks. HOLDRs. Names of popular rock groups? Not even close. They’re all investments called exchange-traded funds (ETFs) and many people use them to build a diversified portfolio. Maybe you should, too — if you understand the risk/reward trade-offs.

An ETF is a basket of securities, shares of which are sold on an exchange, such as the American Stock Exchange. They combine features and potential benefits of stocks, mutual funds, or bonds. Like individual stocks, ETF shares are traded throughout the day at prices that change based on supply and demand. Like mutual fund shares, ETF shares represent partial ownership of a portfolio that’s assembled by professional managers.

Types of ETFs

There are a number of ETFs, each with a different investment focus. Following are some common types of ETFs.

• Diamonds follow the 30 large-cap companies that make up the Dow Jones Industrial Average.

• Standard & Poor’s Depositary Receipts (Spiders) mirror the S&P 500, an index of 500 of the largest companies in the United States. They also track select sectors of the S&P 500.

• iShares hold baskets of stocks in specific regions of the world, select countries, or sectors, or follow U.S. corporate or government bond securities.¹

• Qubes track the 100 largest businesses of the technology-driven Nasdaq Composite Index.

• StreetTracks replicate various indexes focused on sectors, countries, or investment style.¹

• Holding Company Depositary Receipts (HOLDRs) are ETFs with a twist. They usually focus on narrow, emerging sectors — companies building the Internet infrastructure, for example — and their baskets hold only about 20 stocks to begin with. Stocks will never be added, and over time a HOLDR’s basket can become even more concentrated, as stocks that are lost due to mergers aren’t replaced. HOLDRs also differ from most ETFs in that they only trade in lots of 100 shares and shareholders can exchange their shares for the underlying stocks at any time by paying a fee.

Investors should note that because many HOLDRs are narrowly focused, they can be more volatile than other types of ETFs. Also, HOLDR investors will receive annual reports and other investment-related information for each of the 20 stocks in their HOLDR basket. On the other hand, they’ll only pay one brokerage commission instead of 20.

Different Structures

Originally ETFs were organized as unit investment trusts (UITs). In a UIT, an investment company buys a fixed portfolio of securities and then sells shares of that portfolio to investors. This type of structure results in dividends being held in an interest-bearing account, which are deposited into the ETF once each quarter. The delay in investing dividends can have a slightly negative effect on the total return of the ETF because the dividends are held as cash instead of being invested. Spiders, Diamonds, and Qubes are all organized as unit investment trusts.

Other ETFs, such as iShares, Select Sector Spiders, and StreetTracks, are structured as open-end funds. This arrangement follows the typical mutual fund structure in that new shares are continually offered and redeemed by the investment company. An open-end structure allows dividends to be reinvested immediately.

Evaluating ETFs

These investments offer a number of potential advantages, including:

Tax efficiency – ETFs may be more tax efficient than some traditional mutual funds. A mutual fund manager may trade stocks to satisfy investor redemptions or to pursue the fund’s objectives. Selling shares may create taxable gains for the fund’s shareholders. Because ETFs are like stocks, redemptions aren’t an issue. In addition, managers of index-based ETFs only make trades to match changes in their index, which may mean greater tax efficiency.

Low expenses — ETFs that are passively managed (managers usually only trade shares to mirror underlying benchmarks) may have lower annual expenses than actively managed funds.

Flexible trading — Like stocks, ETFs are sold at real-time prices and trade throughout the day. Mutual funds, on the other hand, do not have this flexibility: Their pricing is based on end-of-day trading prices.

Can be sold short and bought on margin — Because ETFs trade like stocks, investors can use them in certain investment strategies, such as selling short and buying on margin. Traditional mutual funds do not allow shorting of stock or margin trading.

No minimum investment — Most mutual funds require a minimum investment, whereas an investor can usually purchase as few shares of most ETFs as desired.

Diversfication — An ETF may be a good way to add diversification to your portfolio. Buying shares of a technology sector ETF, for example, could potentially be less risky than purchasing shares of one technology stock — an ETF may own shares of many different technology companies.

Of course, as with all investments, ETFs may involve risks and other potential drawbacks. Consider these factors before investing:

The trading flexibility of ETFs may encourage frequent trading. That could lead to the possibility of mistiming the market (moving stocks in and out of the market at the wrong times).

Brokerage commissions are incurred. For this reason ETFs may be better suited for a buy-and-hold investor or someone who is buying a large number of shares at one time, rather than for an investor who uses a systematic investment program.

There may be capital gain distributions. At times some ETFs have distributed taxable capital gains usually because the managers have needed to buy or sell stocks to match their underlying benchmarks. Additionally, government bond ETFs are subject to federal income tax.

You should carefully consider the risks of different ETFs. Many sector ETFs, for instance, will tend to be more volatile than an ETF that tracks the broader market. Check with a financial professional to be sure that you understand the risks and have the most up-to-date information before investing in an ETF.

Points to Remember

1. Exchange-traded funds (ETFs) offer potential benefits and risks of both mutual funds, stocks, or bonds.

2. ETFs have different types of structures: Some are set up as unit investment trusts. Others are structured like open-end mutual funds, and dividends are continually reinvested.

3. Advantages of ETFs include potential tax efficiency, low expense ratios, flexible trading, and portfolio diversification.

4. Disadvantages of ETFs include occasional distribution of capital gains, brokerage commissions, and the potential for frequent trading, which could lead to mistiming the market.

5. ETFs may be better for a lump-sum investor with a long time horizon than someone who trades frequently and/or invests at regular intervals.

Investors in international securities are sometimes subject to somewhat higher taxation and higher currency risk, as well as less liquidity, compared with investors in domestic securities. Sector funds are subject to increased volatility due to their limited diversification compared with other stock funds.

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© 2011 McGraw-Hill Financial Communications. All rights reserved.

April 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Martin V. Higgins, CFP, CLU, AEP , a local member of FPA.

Installment debt, in itself, is not a bad thing. It enables us to make major purchases that would be nearly impossible to finance up-front. The problem is, in this consumer society, we’re bombarded with advertisements for literally thousands of “must-have” products. The result is that while our parents tended to pay with cash and buy only what they could afford, we have the “buy now, pay later” mentality.

Unfortunately, our massive appetite for credit may be eroding our financial security, as more Americans continue to rely on borrowed money to maintain their existing lifestyles.

Why Credit Is Important

It is important to establish credit if you plan to buy a home or automobile some day. Credit cards also provide a means of reserving a hotel room or obtaining cash while you’re traveling.

If you are a college student, recent graduate, or a nonworking spouse, you can begin to establish credit by opening a savings or checking account in your own name. You can then apply for a department store and/or oil company credit card. Having someone else co-sign a loan for you will also get you started.

Creating a positive credit history for yourself requires using your credit card intelligently. Following are some dos and don’ts to help you manage credit effectively:

• DO NOT charge more than you can easily pay off in a month or two.
• DO NOT be fooled into paying just the low minimum amount listed on a bill. Credit card issuers make money on interest; there’s nothing they’d like more than to have you stretch out payments.
• DO consistently pay your bills by the due date.
• DO use credit for larger, durable purchases you really need, rather than non-durables, such as restaurant meals that are better paid in cash.

Missing Payments

When you miss a payment, the information immediately goes into your credit report and affects your credit rating. If you’re judged a poor credit risk, you may be refused a home mortgage or rejected for an apartment rental. In addition, a prospective employer looking for clues to your character may dismiss your job application if your credit report reflects an inability to manage your finances. In most states, an auto insurer may put you into its high-risk group and charge you 50% to 100% more if your credit record has been seriously blemished within the last five years. Many property insurers also review credit histories before they issue policies.

How Credit Reporting Works

Credit reporting agencies, also known as credit bureaus, gather detailed information about how consumers use credit. Businesses that grant credit regularly supply credit information to credit bureaus. Credit bureaus then compile this information into credit reports, which are sold to banks, credit card companies, retailers, and others who grant credit.

Your credit report helps others decide if you are a good credit risk. This information should be supplied only to those parties who have a legitimate interest in your credit affairs, including prospective employers, landlords, or insurance underwriters, as well as others who grant credit. The Fair Credit Reporting Act (FCRA), the federal statute that regulates credit bureaus, requires anyone who acquires your credit report to use it in a confidential manner.

The following information is most likely to appear in your credit report:

• Your name, address, social security number, and marital status. Your employer’s name and address, and an estimate of your income may also be included.
• A list of parties who have requested your credit history in the last six months.
• A list of the charge cards and mortgages you have, how long you’ve had them, and their repayment terms.
• The maximum you’re allowed to charge on each account; what you currently owe and when you last paid; how much is paid by the due date; the latest you’ve ever paid; and how many times you’ve been delinquent.
• Past accounts, paid in full, but are now closed.
• Repossessions, charge-offs for bills never paid, liens, bankruptcies, foreclosures, and court judgments against you for money owed.
• Who owes the debt — you alone, you and a joint borrower, or you as cosigner. (Debts that you co-sign become part of your credit history, the same as debts you incur yourself.)
• Bill disputes.
  Negative information can be kept in your file only for a limited time. Under the law, delinquent payments can be reported for no more than 7 years and bankruptcies for no longer than 10 years.

Be Credit-Smart

Your credit history requires maintenance, just like other areas of your life. Even if you pay your debts on time, don’t assume that your credit rating is flawless. Mistakes do occur.

The FCRA entitles you to review information in your credit file. If you have been denied credit, the company denying credit must let you know and give you the name and address of the credit agency making the report. Once you have this information, you can send a letter to the agency and you will receive the information in your credit file, at no cost, within 30 days.

It’s a good idea to obtain a copy of your credit report to check it for accuracy. A new law entitles all consumers in the United States to one free online credit report every 12 months from each credit reporting agency. To do so, log on to annualcreditreport.com. (Keep in mind that other Web sites claiming to offer “free” credit reports may charge you for another product or service if you accept a “free” report.) If you wish to dispute any information in your file, simply write the agency and ask them to verify it. Under the law, they are required to do so within a “reasonable time,” usually 30 days. If the agency cannot verify the information, it must be deleted from your file.

Points to Remember

1. Installment credit, in itself, is not a bad thing; it can enable you to make major purchases that would otherwise be difficult to finance.
2. To establish a credit history, open a checking or savings account, then apply for an oil company or retail store credit card. Use your cards sparingly, charging only what you can pay off in a month or two, and make your payments by the due date.
3. Don’t be fooled into paying just the minimum balances. If you do, you’ll stretch your payments over months, even years, and incur interest charges in the process.
4. Missed or late payments will damage your credit rating, which can affect your ability to obtain a home mortgage or rental apartment, auto or property insurance, and maybe even a job.
5. Monitor your credit rating periodically to determine that all information is reported accurately.

© 2011 McGraw-Hill Financial Communications. All rights reserved.

April 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Martin V. Higgins, CFP, CLU, AEP, a local member of FPA.

For many seniors the equity in their home is their largest single asset, yet it is unavailable to use unless they use a home equity loan. But a conventional loan really doesn’t free up the equity because the money has to be paid back with interest.

A reverse mortgage is a risk-free way of tapping into home equity without creating monthly payments and without requiring the money to be paid back during a person’s lifetime. Instead of making payments the cash flow is reversed and the senior receives payments from the bank. Thus the title “reverse mortgage”.

Many seniors are finding they can use a reverse mortgage to pay off an existing conventional mortgage, to create money to pay off debt, make home repairs, or for remodeling.

For those seniors who are in need of long term care and want to stay in their home, a reverse mortgage can create the money needed to pay for in-home personal and medical care. They can also pay for needed medical equipment and handicap adaptation to their home.

There are no income, asset or credit requirements. It is the easiest loan to qualify for.

A reverse mortgage is similar to a conventional mortgage. As an example:

• The bank does not own the home but owns a lien on the property just as with any other mortgage
• You continue to hold title to the property as with any other mortgage
• The bank has no recourse to demand payment from any family member if there is not enough equity to cover paying off the loan
• There is no penalty to pay off the mortgage early
• The proceeds from a reverse mortgage are tax-free and can be used for any legal purpose you wish

False Beliefs Regarding Reverse Mortgages

• “The lender could take my house.” The homeowner retains full ownership. The Reverse Mortgage is just like any other mortgage; you own the title and the bank holds a lien. You can pay it off anytime you like.
• “I can be thrown out of my own home.” Homeowners can stay in the home as long as they live, with no payment requirement.
• “I could end up owing more than my house is worth.” The homeowner can never owe more than the value of the home at the time the loan is due.
• “My heirs will be against it.” Experience demonstrates heirs are in favor of Reverse Mortgages.

Virtually anyone can qualify. You must be at least 62, own and live in, as a primary residence, a home [1-4 family residence, condominium, co-op, permanent mobile home, or manufactured home] in order to qualify for a reverse mortgage.

The amount of reverse mortgage benefit for which you may qualify, will depend on

• your age at the time you apply for the loan
• the reverse mortgage program you choose
• the value of your home
• current interest rates
• and for some products, where you live

As a general rule, the older you are and the greater your equity, the larger the reverse mortgage benefit will be (up to certain limits, in some cases). The reverse mortgage must pay off any outstanding liens against your property before you can withdraw additional funds.

The loan is not due and payable until the borrower or borrowers no longer occupy the home as a principal residence (i.e. the borrower sells, moves out permanently or passes away). At that time, the balance of borrowed funds is due and payable, all additional equity in the property belongs to the owners or their beneficiaries.

The most popular reverse mortgages are the so-called HECM loans. HECM loans require that the applicant meet with a government approved counseling agency to be sure the applicant understands the reverse mortgage process.

The Federal Trade Commission states:

“Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. Some lenders offering proprietary reverse mortgages also require counseling. The counselor is required to explain the loan’s costs and financial implications, and possible alternatives to a HECM, like government and nonprofit programs or a single-purpose or proprietary reverse mortgage. The counselor also should be able to help you compare the costs of different types of reverse mortgages and tell you how different payment options, fees, and other costs affect the total cost of the loan over time. Most counseling agencies charge around $125 for their services. The fee can be paid from the loan proceeds, but you cannot be turned away if you can’t afford the fee.”

A Reverse Mortgage Specialist in your area can answer your questions, calculate the amount of loan you can receive and advise the type of loan for your needs.

The National Care Planning Council (http://longtermcarelink.net/a7reversemortgage.htm) has a list of Reverse Mortgage Specialists in your area.

Martin V. Higgins, CFP, CLU, AEP is a financial practitioner who specializes in helping people prepare financially retirement.

Family Wealth Management is a professional firm providing customized financial planning and wealth management solutions to our clientele of pre-retirees, retirees, widows and small business owners.

We invite you to visit our website @ http://www.familywealthadvisory.com to learn how Family Wealth Management may be the right choice for you, your family or business.

Martin Higgins is a registered representative and investment adviser representative of Mutual of Omaha Investor Services, a securities broker/dealer and registered investment adviser. Home Office: Mutual of Omaha Plaza, Omaha, NE 68175-1020 Member FINRA/SIPC. There is no contractual relationship between Family Wealth Management and Mutual of Omaha Investor Services, Inc. Martin Higgins can only do business in states in which he is registered. The information presented in this newsletter is intended for educational purposes only, and is not intended to replace the advice of an attorney or qualified tax professional.

By Mitchell E. Kauffman, MBA

If longevity is a race, then women are the winners: Women outlive men (Females 80.2 years and males 74.5 years); wives live 8-10 years longer than their husbands if they’re married at the same age; and over 75% of women are eventually widowed.

As a result, women must take hold of their financial futures.

The unexpected death of a husband or a recent divorce may mean that a woman is suddenly making all financial decisions. In some cases, they may have been doing this all along. But if not, the unanticipated responsibility can be overwhelming.

In addition, the consequences of poor planning can be devastating. Several studies conclude that after the death of a spouse, up to 80% of life insurance proceeds can be depleted—a lifetime building a nest egg could disappear within a matter of months.

Married or single, it can be beneficial for our clients to reflect on the top 10 financial challenges that women face with suggestions and solutions:

1. Putting the needs of others ahead of your own. A woman will often fund her child’s education before her own retirement, or she’ll loan money to relatives that may never be repaid. Solution: Pay herself first. I tell clients if they have ever flown, they have heard the flight attendant remind them to put the life vest and oxygen mask on themselves first, even before they help family members.
2. Spending money to compensate for emotional needs. Suggestion: Encourage clients to observe their behavior. Then create ways to get through difficult times that don’t require spending money.
3. Deciding whether to keep the mortgage or pay it off. Many advisors believe that for clients over 50 and plan to stay in their home then it makes sense to pay off the mortgage. It is important to be aware that women are often less comfortable with loans than men. As a result, they may decide to pay off the loan even if it’s not in their best interest. Suggestion: How we typically develop a plan depends on the following five factors: Tax bracket, the size of the client’s portfolio relative to the size of the loan, projected cash flow, the liquidity of assets, and what decision will be best for the client’s emotional situation.
4. Living in a home that is too large or expensive. Many women have a strong nesting instinct. As a result, women often place great importance on remaining in their homes. But sometimes there are better options. Suggestion: Similar to point 3, clients are advised to evaluate the five factors, and decide what is best for them.
5. Having an outdated or non-existent estate plan. Considering mortality is never easy. Suggestion: I tell my clients that one of the best gifts that they can provide loved ones is to have their finances in order after their death. Preparation means your estate can be settled more quickly with less cost and hopefully reduce some of the emotional burden on your heirs.  It can also help relatives avoid having to seek out court appointed guardianship, which can add more cost and even emotional trauma. Finally, it is always important to keep family members informed of financial decisions, the location of assets and estate planning documents, and make sure they have determined who will control asset matters should they become incapacitated.
6. Having an investment plan that doesn’t focus on the client’s individual needs. Does the client’s investment program reflect their income, growth, tax bracket, and estate? Suggestion: For clients fortunate enough to have more income than they need, consider income deferral and gifting programs. If their savings falls below the income they require, it may be time to review their expenditures and investment allocations.
7. Being too aggressive or too conservative with investments. Solution: Determine whether the client’s investment plan addresses their income needs and risk tolerance.  Seek objective input.
8. Holding investments too long. A common problem I see when meeting with clients is an attachment to their investments and an aversion to change. Solution: Part of the financial planning process involves creating investment benchmarks. It is a good idea to review and evaluate these with an independent advisor on a regular basis and make adjustments as necessary.
9. Seeking financial advice from someone other than an advisor who is certified in financial planning. Solution: Review an advisor’s experience and background, and request references.
10. Withdrawing too much or too little from a retirement plan. Suggestion: Deciding whether to take out more or less requires an objective outlook. Base the withdrawal amount on the client’s tax bracket and cash flow needs both this year and in the future.

February 7, 2011

The month of February and Valentines Day brings a celebration of love and stirs couples to rekindle feelings of romance and devotion. Not so different from young couples are aging seniors, celebrating memories of sweethearts and romance in days gone by. Sit a while with a senior couple and they will soon be telling you their romance story or listen to a widow or widower as they sing their favorite love song from their youth.

Dementia and Alzheimer’s can rob senior minds of many of these treasured memories, changing their personality and life style. Because of these and other illnesses, many seniors end up in nursing homes or care facilities where only their basic physical needs are cared for by the facility staff. To these seniors, Valentines Day becomes no different from every other day. They often find it difficult to relive memories of the past. In one care facility a sign placed lovingly over a patient’s bed reads, “I Am Somebody’s Sweetheart,” as if to say I once dreamed, lived and loved, please treat me kindly.

When asked how she relates to those she cares for, nurse assistant Karen W. replies that most of the time it’s those patients who are causing a disturbance or may be in danger of harming themselves who are the ones that get her attention. Even then she can only take care of the immediate problem. Very seldom has she time to personally get to know well all the elderly people she cares for.

Although this is true with many facilities, the need for more personalized care is, in some cases, being recognized. Assisted living facilities with specialized memory care programs — some using art, music and dance or physical activities — are finding great success with increasing the quality of life for those suffering from dementia and Alzheimer’s. Many care facilities across the nation are adding these programs to better serve their residents.

If you cannot find a facility in your area that provides this special attention, home care may be a better option.

Consider this real experience. When Nora would visit her father in the nursing home she would find him sitting, slumped over and disinterested in his surroundings. By the time she and her young children finished their visit, he was alert and talking to them. Feeling he would do better in her home environment, Nora enlisted the services of a Geriatric Care Manager to evaluate her father and determine what would be needed for his care at home so that he could get the social stimulation that he needed.

A Geriatric Care Manager can be a valuable asset to family members when it becomes necessary to look at alternatives for their loved one’s long term care. They work with all members of the family in educating about resources and making decisions. Some services provided are.

• Make an assessment about the type of care need
• Develop a care plan for care both current and future care
• Work with physicians in getting medical support
• Find home care services that work with the families needs
• Provide assistance with legal and financial issues

Appropriate home care services are also often necessary when a change in environment is called for. Home care services vary, depending on what is needed, and may change as caregiving requirements change in regards to the physical or mental health of the elderly person.

Types of Home Care are:

• Home health care companies: provide nurses, physical therapists, social workers and aides that assist with basic health care such as changing bandages, taking vital signs and helping with medication as well as a host of other skilled needs.
• Non-medical home providers: help with bathing, dressing, meals, ambulating, chores, errands, housekeeping and much, much more.

Home care personnel are skilled in working with the spouse and extended family members of their ailing loved one to provide needed services and support in the home. They add consistency in the care and are available in time of crisis or need to add additional services.

With help from her Geriatric Care Manager, Nora brought her father to her home for his care. The care manager worked with her father’s doctor, prescribing a physical therapist and nurse’s aid to come to the home. A non-medical home care company was employed to help with daily bathing and dressing.

Another resource available to families, which is not used as often as it should be, is hospice. Hospice care is provided in the home or in a hospice facility, hospital or nursing home. When illness is terminal, hospice service is provided by a team which includes doctors, nurses, grief counselors, aides and social workers as needed. These services can be provided at no out-of-pocket cost by Medicare.

In her internet article Naomi Naierman, President and CEO of the American Hospice Foundation states:

“As a Medicare beneficiary, you are entitled to the Medicare Hospice Benefit without additional premiums. If you are enrolled in a managed care organization (MCO) you have access to this benefit, even if the MCO does not cover hospice services.

The Medicare Hospice Benefit covers the following hospice services in full:

• Skilled nursing services
• Volunteer Services
• Physician visits
• Skilled therapy
• Home health aide visits
• Medical social services
• Spiritual counseling
• Nutrition counseling
• Bereavement support for the family”

There is a growing market for care providers throughout the nation to fill the need of senior care services.  Assisted living, home care and hospice care, geriatric care managers and geriatric clinics are all just part of these services.  The National Care Planning Council supports family caregivers with information and resources of all types of long term care services on its website: www.longtermcarelink.net.

“Somebody’s Sweetheart” may be in need of your loving care someday and help is available to reduce your burden and ease the journey.

Martin V. Higgins, CFP, CLU, AEP is a financial practitioner who specializes in helping people prepare financially for long term care.

Family Wealth Management is a professional firm providing customized financial planning and wealth management solutions to our clientele of pre-retirees, retirees, widows and small business owners.

We invite you to visit our website @ http://www.familywealthadvisory.com to learn how Family Wealth Management may be the right choice for you, your family or business.

Martin Higgins is a registered representative and investment adviser representative of Mutual of Omaha Investor Services, a securities broker/dealer and registered investment adviser. Home Office: Mutual of Omaha Plaza, Omaha, NE 68175-1020 Member FINRA/SIPC. There is no contractual relationship between Family Wealth Management and Mutual of Omaha Investor Services, Inc. Martin Higgins can only do business in states in which he is registered. The information presented in this newsletter is intended for educational purposes only, and is not intended to replace the advice of an attorney or qualified tax professional.

By Doug Fendrick, Esquire

There are many reasons to establish a Trust in your estate planning documents.  One reason is to avoid estate taxes.  However, with the increase of the federal estate tax exemption over the past several years, the all out repeal of the federal estate tax in 2010 and now a $5 Million federal estate tax exemption for years 2011 and beyond, fewer clients need complex trusts in order to avoid federal estate taxes. (Note, however, that the New Jersey exemption is $675,000 and, if your estate exceeds that amount, tax planning trusts may still be appropriate and recommended to minimize your New Jersey estate tax exposure.)  That said, there are still many important non-tax reasons to establish a Trust in your estate planning documents.

I.            Family Protection Trusts.  One of the most important reasons to incorporate a trust into your estate plan is to keep your assets in your bloodlines.  Most parents want to leave their assets to their children, and many parents trust their adult children to properly manage the funds for their benefit and the further benefit of grandchildren.  Often, a parent’s Will provides that if a child predeceases the parent, that child’s share to pass to the deceased child’s children (the parent’s grandchildren).  However, this distribution scheme in a Will may not achieve the parent’s desired outcome.

For example, if a child survives you and your Will left that child his or her share of your estate, outright, then your Will no longer controls the inherited assets.  Once the child receives his or her inheritance, then the child’s Will controls where the inherited assets will pass upon the child’s subsequent death.  The child’s Will is likely to leave his or her assets (including the inherited assets) to the child’s spouse if he/she is married.  This may be inconsistent with your estate planning objectives if you want the assets to pass to your grandchildren, rather than to a daughter-in-law or son-in-law.

Also, by leaving your assets to your children in trust, rather than outright, you help to ensure that your assets ultimately pass to your grandchildren, and stay in your bloodlines.  The trust can specify that, upon your child’s death, any assets that remain in trust will pass to such child’s children.  Such a trust can also be established irrespective of a child’s age.  Parents often think about trusts for minor children, and think that by leaving assets to an adult child in trust suggests that the parent thinks the child is irresponsible.  However, the parent can designate the child as Trustee of his or her trust.  That way, the child can make his or her own investment and distribution decisions (subject to certain limitations in the trust).

Also, by leaving assets to your children in trust, rather than outright, you protect their inheritance from any creditors they may have now or in the future (including in the event of a divorce).

Lastly, when your child passes away, any assets then remaining in the trust will generally not be included in the child’s estate for death tax purposes.  If the child inherited the assets, outright, then the inherited assets would increase the size of the child’s estate and could result in an increased estate tax bill for your grandchildren.

In summary, some of the benefits of leaving your assets in a Trust for your children are as follows: (1) creditor protection; (2) divorce protection; (3) control the ultimate beneficiary(ies); and (4) estate tax savings upon child’s death.

II.       ASSET PROTECTION DURING LIFETIME. A large portion of our practice is dedicated to protecting assets for future nursing home costs.  As many of you know, nursing home costs can cost well in excess of $100,000 per year.  That expense can either be privately paid or the individual can try to qualify for Medicaid.  Medicaid is available to cover nursing home or assisted living expenses if the individual’s assets are less than $2,000 (or, $4,000, depending on the individual’s fixed monthly income).  If there is a spouse, the spouse can keep the lesser of one-half of the couple’s assets or $109,560 (which figure is indexed annually for inflation).  In order to qualify for Medicaid, any gifts made within the preceding five years must be disclosed and a penalty period will be assessed based upon the amount of the gift.  Accordingly, more and more of our clients are gifting assets to trusts for children in order to start that five year clock ticking.  If the assets are gifted to children directly (rather than n trust), the parents risk: (1) the child spending the money; (2) the child dying and leaving the money to a son-in-law/daughter-in-law; or (3) having the assets diminished by the child’s creditors (including in the event or a divorce).  By gifting assets to a trust, you start the five year look back period and do not have to worry that your assets will be dissipated by your children during your lifetime.

III.      OUT OF STATE REAL ESTATE.  Many of our clients are snowbirds and have winter homes in southern states, such as Florida.  Likewise, many of our Pennsylvania clients own summer homes at the Jersey shore.  If you die owning real estate in a state other than the state in which you live, your Executor will need to raise an “ancillary estate” in that jurisdiction.  That can be both time consuming and costly for the estate.  Accordingly, we often recommend that such out of state property be transferred to a Living Trust.  Such a trust does not remove the real estate from your taxable estate, but will save your estate the expense of an ancillary estate administration and will save your executor the time and aggravation of needing to run multiple administrations in multiple states.

If you are interested in learning more about these non-tax reasons a trust might make sense as part of your estate plan, please contact Douglas A. Fendrick , Esquire, at 856-489-8388, or www.Fendricklaw.com,   to schedule an appointment at his office in Voorhees, New Jersey ..

Don’t forget to tell him, Marty sent you!

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.

December 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V. Higgins, CFP, CLU, AEP , a local member of FPA.