Most Recent Articles | Haisman Wealth Management

Improving Your Credit Score

By admin | Published: January 25, 2012

Your credit score is a number that lenders use to gauge how likely you are to repay debts on time. It is derived from information compiled in a credit report, including your payment history (whether you have missed or been late with any payments for bills or loans), the amount you owe creditors compared with the amount of credit that is available to you, and the extent of your credit history (how long various accounts have been open).

Know Your Number

Before launching a campaign to raise your credit score, know what you are shooting for. Get a current copy of your credit report and review it for accuracy. All U.S. consumers are entitled to free annual credit reports from the major credit reporting agencies, which are Experian, Equifax, and TransUnion. You can request all three reports at www.AnnualCreditReport.com. Unlike credit reports, your credit score is not free. You can purchase your score from one of the above-mentioned agencies or from www.myFICO.com. A typical credit score will range between 300 and 850 points. Although all lenders make decisions based on the particulars of the lending situation, generally speaking, the higher your score, the lower the perceived risk to the lender, and the more attractive the interest rate you will be offered.

Room for Improvement

A few tips for raising or maintaining a higher credit score include:

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

• Being conservative in the amount of available credit you use at any given time. About 30% of your score is determined by what the industry refers to as your "utilization ratio," which is the amount you owe in relation to the amount of credit available to you. If that percentage is more than 50%, your score will be lower.

• Holding on to older, unused accounts. The longer an account has been open and managed successfully, the higher your score will be.

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

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Overestimating Retirement Income Withdrawal Needs

By admin | Published: January 16, 2012

Many preretirees have unrealistic ideas about how much they will be able to withdraw for living expenses after entering retirement.

As retirees shift their focus from accumulating assets to creating an ongoing stream of income, many are not prepared to start planning from a new vantage point. This lack of perspective may explain why, according to a recent survey, many retirees anticipate making annual withdrawals that are too large, and run the risk of outliving their assets.

How Much to Withdraw

Historically, financial advisors have recommended that retirees limit annual withdrawals to a maximum of 3% to 5% of assets, adjusted for inflation, to limit the chances of running out of money. Yet a recent survey indicated the following:¹

Nearly one-third of respondents believed they could withdraw between 7% and 10% annually.
Just over 10% anticipated that they could withdraw between 11% and 15%.

Many respondents also underestimated the percentage of their preretirement income they would need annually to pay for living expenses. Only 45% of respondents understood that retirees typically need between 80% and 90% of preretirement income to maintain their preretirement standard of living. Contact us for a complimentary appointment at 239-939-3235 to review your retirement income needs.

Factors Affecting Retirement Income

If your retirement assets are running short, a variety of factors are likely to influence how much you will need during your later years:

Your retirement age. Collecting Social Security at your earliest opportunity, which for most people is age 62, results in a permanent reduction of between 20% and 30% in the amount of your monthly benefit.

Medical expenses. It’s no secret that Medicare is experiencing financial stress and employer-sponsored health care

plans for retirees are less generous than they formerly were. The Employee Benefit Research Institute has estimated that a couple retiring at age 65 with median drug expenses would need to accumulate $271,000 to ensure a 90% probability that they will have enough to pay for medical care. This amount does not include the cost of long-term care, which would make the estimate even higher.
- Housing. A large mortgage or other indebtedness limits financial flexibility. If you live in spacious quarters, consider how you will be able to finance mortgage payments, taxes, maintenance, utilities, condo fees, and other expenses.
- Discretionary costs of living. It can be difficult to control expenses for necessities such as utilities and health care. But variable costs, such as restaurant meals and vacations, are a different matter. Review how you may be able to trim variable costs before you retire without leading a Spartan lifestyle. Getting used to a more efficient mode of living may help you in your transition to retirement.

Source /Disclaimer:

1Source: MetLife, Met Life

Mature Market Survey,

October 2011.

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How Can We Teach Our Children the Value of a Dollar?

By admin | Published: December 16, 2011

Start teaching your children at a young age that money is earned by working and that you should spend less than you earn. To help them understand what it’s like to get paid on a schedule, you may want to begin paying an allowance. Then help your children set goals for how they spend and save their allowance. It’s important, however, to make sure that you stick to the payment schedule; otherwise your lessons about financial responsibility may be undermined.

Experts differ on whether or not allowances should be tied to household chores. Although many people say children will learn more about personal responsibility if they are not paid for pitching in around the home, others feel it teaches them valuable lessons about working and earning.

Instill the Saving Habit

You should also encourage your children to save a portion of their allowance for a special goal, even if they’re just putting money in a piggy bank each week. As they save money, you might reward them with a small additional amount, just like a bank pays interest. At the end of each month, calculate how much your children have saved and then chip in a certain percentage as interest.

To reinforce your discussions about saving, you might also consider plotting a visual chart of their savings so they can easily monitor their financial progress.

Most community banks will allow children to open first accounts with low minimum deposits. Some even have accounts especially marketed to kids to make the learning process fun. Make sure that your children receive an online or printed statement so they can see the progress of their savings efforts, as well as the interest that accrues.

Borrowing and Compounding

When your children want something that they can’t quite afford, discuss the value of saving versus borrowing. If you do extend credit, use a written IOU, establish a repayment schedule, and charge interest. By doing this, you’ll be teaching them about financial responsibility.

As your children get older and perhaps take on part-time jobs to earn more money, their savings will likely amass at a quicker rate. This is an ideal time to review the lesson of compounding, or the ability of earnings to build upon themselves over time. Explain how compounding can be more dramatic over time; the longer money is left alone, the greater the effect. This can lead into a discussion about investing and risk — how certain investments with a greater ability to compound over time may also entail greater short-term risks.

As Benjamin Franklin once said, "An investment in knowledge always pays the best interest." So remember that answering your children’s questions honestly and in terms they’ll understand can help them begin life on sound financial footing.

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Don’t Gamble With Your Golden Years

By admin | Published: December 8, 2011

Will you have enough money for retirement? That question may keep you up at night. Or you may avoid thinking about it altogether.
“What scares me for this country, especially for the baby boomer generation, is that many people will have to rely on their investment smarts in managing retirement funds,” says economist Steven Weisbart of the Insurance Information Institute. “Many have no training, or interest, in managing money.”

One possible solution? Annuities – contracts sold by life insurance companies that offer a guaranteed stream of income for those golden years.

Fixed savings annuities, also known as deferred annuities, have guaranteed interest rates and tax-deferred benefits. And immediate income annuities offer guaranteed income for life. Most important, they both promise peace of mind. Both are popular during market downturns. At USAA Life Insurance Co., one of five life insurers that is AAA rated, total annuity sales grew 26 percent from 2008 to 2009. And the company says it anticipates annuity growth will increase as baby boomers get further into retirement.

“Annuities come up in conversation when people are concerned about market turmoil, or when they do a retirement income plan and are worried about running out of money,” says J.J. Montanaro, a certified financial planner practitioner with USAA.

Now more than ever

With a draining Social Security reserve, traditional pensions on the wane, a volatile stock market and homes losing value, retirees should be thinking harder than ever about protecting and growing retirement assets. Longer life spans mean retirees may have to amass more money and preserve it many more years than previous generations.
Having a portion of retirement money in a fixed savings annuity with a fixed interest rate offers certainty in an uncertain investment market, Montanaro says. And using a portion of your savings to buy an income annuity can offer a pension-like stream of monthly payments to help pay your bills. “Whether you’re talking about creating income or building a retirement portfolio, an annuity can work well as a tool in your retirement toolkit,” says Montanaro.

Fighting misperceptions

Weisbart says annuities in general get an unfair rap, often from people who sell competing investment products on commission. But fixed savings annuities and fixed immediate income annuities are fairly straightforward, says Montanaro. And their fees are very competitive to other retirement products. In some instances, fees can be waived altogether. You can also name a beneficiary so any money remaining goes to someone you love.

Finally, some point out interest rates on annuities aren’t as high as they were a few years back. But annuities with fixed rates can still be a good deal if you’re looking for a secure place to put your money. “Relative to other safe investments, such as certificates of deposit or treasury bills with even lower rates, they are still attractive,” Montanaro says.

How to choose

Deciding which of these kinds of annuities could benefit you is easy, says Joe Montminy, assistant vice president of the annuity research program at LIMRA. Just ask, “Do you need the money now or later for your retirement needs?”
If you need it now, consider the immediate income annuity. If your retirement is a few years away and you want to increase your assets, go with a fixed savings annuity.

Here’s how each works:

Savings annuity

Savings annuities earn either a fixed rate for a period of time, say five or 10 years, or a flexible rate that changes over time within an established range. All fixed savings annuities have a guaranteed minimum interest rate, the interest is not taxed until you take the money out, and is guaranteed against loss by the insurer.

“Think of the fixed savings annuity as a safe harbor,” Montanaro says. “It can only go in one direction: up.”
Because taxes are deferred, withdrawals before age 59 1/2 could be subject to penalties. But remember the annuity is really for retirement, so you should try not to touch it anyway.

Immediate income annuity

This kind of annuity helps cover basic living expenses in retirement. To find out if you need one, add up monthly, non-negotiable bills — utilities, food, property taxes, etc. If your guaranteed income from Social Security and military or corporate pensions can’t cover the tab, an immediate income annuity can help fill the gap.

You’ll feel secure not having to pay bills with your investment income, which can plunge during market downturns, notes Montminy. Weisbart agrees: “If you have to cancel a vacation because the market’s down, that’s fine. But if you can’t buy medicine or food, that’s a problem.”

Though immediate annuities require a sizable one-time premium, you’ll have the security of knowing essential expenses are covered – immediately. That’s what makes them worth considering. “It’s the insurance factor — the peace of mind — that people are looking for,” says Montminy. “By having that guaranteed payment for life, you know you have some protection on your overall portfolio.”

Experts emphasize that the lump sum you use to buy an income annuity should be just a portion of your retirement assets. You want to diversify your retirement portfolio to also provide liquidity and to protect against inflation.

Bottom line

There are only five life insurers that are AAA rated, so make sure the company you buy from has high marks from the insurance rating agencies. You want to make sure the company is around as you age. And review the fine print on your contract with a financial adviser.

“The goal is to understand what you’re buying and approve the terms,” Weisbart says.

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Finding Value in a Beaten-Down Market

By admin | Published: November 10, 2011

With Wall Street’s recent seismic shifts, true stock jockeys may be tempted to buy on the dips. But this desire raises an important question: Is a low price by itself a true measure of a value stock? If an investor plans to hold a stock for the long term, how can an investor gauge its future potential compared with the broader market?

Value Investing Defined

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

• Disappointing earnings

• A negative outlook for the industry

• A regulatory setback

• Substantive litigation

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

Comparative Analysis

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

• Consider whether a stock has dropped more than the average stock in the S&P 500 during the past three months.

• Examine whether earnings estimates are being revised downward faster when compared with a peer group.

• Compare analyst estimates of future profit margins to historical margins. If expectations for future profits exceed past earnings, the company could end up disappointing investors.

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

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

Source/Disclaimer:

¹Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, and may not be suitable for all investors. Investing in stocks involves risks, including loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market.

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Consider Dividend-Paying Funds as a Source of Income

By admin | Published: October 26, 2011

Key Points

Profitable companies traditionally have rewarded their shareholders one of two ways: by reinvesting corporate profits in the company with the long-term goal of increasing the stock price or by paying shareholders a regular dividend. While the stock price may or may not increase over the long term, dividends, typically paid quarterly, offer investors more immediate income. Many large, well-established companies historically have paid dividends.

Mutual funds that invest in dividend-paying stocks may enhance your portfolio in the following ways:

• A source of supplemental income. For investors with an appropriate risk tolerance, funds that pass along equity dividends offer another choice for potential income.

• A track record of strong returns. Past performance is no guarantee of future returns, but history shows that dividend-paying stocks have the potential to generate average annual returns that are higher than those generated by non-dividend payers.

• A potential cushion against market volatility. The prices of dividend-paying stocks historically may experience fewer ups and downs compared with equities that have not paid dividends. Dividends provide a regular return even when stock prices are in a slump.

Ask us whether a dividend-producing fund provided by the investment is appropriate for your circumstances. As its name implies, an equity income fund may enable your portfolio to benefit from the best of both worlds: The long-term growth potential of stocks combined with a source of income.

Keep in mind, however, that a company’s track record of paying dividends in the past does not necessarily mean the company will remain profitable or continue to pay dividends in the future.

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

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Thwart Identity Theft Now

By admin | Published: October 17, 2011

With a combination of good decisions and some luck, you’ve managed to build a tidy little nest egg for retirement. Having enough saved for retirement can help ensure your golden years are the best they can be. But what are you doing right now to protect the nest egg that’s essential to your future financial well-being?

“Retirees are a favorite target for identity thieves,” says Jennifer Leuer, general manager of Experian’s ProtectMyID. “Seniors usually have more investments and cash reserves, and are less likely to check their credit regularly. Identity thieves target seniors in a number of ways, from phone scams in which they pose as a relative in need, to raiding 401(k) accounts.”

Your nest egg doesn’t have to be at risk from common types of identity theft. Be aware of the ways in which thieves can make use of your personal information, check your credit report regularly, and take these steps to thwart identity theft:

Monitor your credit
Your credit will be an important part of your financial health even after you retire. Just because you stop working doesn’t mean it’s safe to stop checking your credit report. Review your report regularly and consider enrolling in a protection product like ProtectMyID, which is designed to detect ID theft, protect against it and help resolve the situation if you’re a victim while enrolled. It works by monitoring your credit daily, performing daily Internet scans for your personal information, and alerting you when key changes occur.

Watch over your 401(k)
Employer-administered retirement accounts are becoming increasingly popular targets for thieves, who can defraud these funds of millions of dollars. Always thoroughly read your 401(k) statements. If you only get a quarterly statement, ask for more frequent account summaries and review them with a financial professional. Review your account online regularly so that you can quickly detect any activity that doesn’t look right. And once you retire, consider rolling your 401(k) into an IRA.

Take care of your Social Security
You probably protected your Social Security number throughout your professional life. Continue protective measures in retirement, including not carrying your Social Security card in your wallet, and being cautious about whom you give your SSN to. As a retiree, your SSN is particularly valuable to identity thieves, who can use it to pilfer your monthly Social Security payment, access your medical records or even falsify your tax return so that your refund goes to them instead of into your bank account.

Stay alert and educated

Identity thieves come up with new ways to scam people all the time. With seniors being a favorite target, it pays to keep abreast of the latest scams. Check online resources like IRS.gov, FTC.gov and IDtheftcenter.org, the website of the Identity Theft Resource Center, for updates on current identity theft scams.

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Retirement Financing Risks

By admin | Published: October 14, 2011

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

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

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

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

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

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

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

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What Are the Tax Issues Associated With a Gain or Loss on a Primary Residence?

By admin | Published: September 20, 2011

You may be able to exclude from income any gain up to $250,000 for a single taxpayer and $500,000 for a joint return. To exclude the gain, you must have owned and lived in the property as your main home for two of the five years prior to the date of the sale. If you lose money on a sale, the loss is not tax deductible.

Your Adjusted Basis

A dollar amount known as your adjusted basis determines whether you experience a gain or a loss. If you purchased or built your home, your initial cost basis typically is the cost to you at the time of purchase. If you inherit a home, the cost basis is the fair market value on the date of the decedent’s death or a later valuation selected by a representative of the estate.

The formula for determining your gain or loss is as follows:

Selling price – Selling expenses = Amount realized

Amount realized – Adjusted basis = Gain or loss

The cost basis may be adjusted over time due to the following conditions:

· Additions and other improvements that have a useful life of more than one year and that add to the value of your home. These can include a garage, decks, landscaping, a swimming pool, storm windows and doors, heating and air conditioning systems, plumbing, interior improvements and insulation. Note that repairs that keep your house in good condition but do not significantly enhance value, such as fixing gutters, repainting, or plastering, do not affect the cost basis.

· Special assessments paid for local improvements.

· Amounts spent to restore damaged property.

· Payments for granting an easement or right-or-way.

· Depreciation if the home was used for business or rental purposes.

· Others as determined by the Internal Revenue Service (See Publication 523 Selling Your Home).

The definition of a "main home," according to the Internal Revenue Service, includes a private residence, condominium, cooperative apartment, mobile home or houseboat. It is to your advantage to maintain records of a home’s purchase price, purchase expenses, improvements, additions, and other issues that may affect the adjusted basis.

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Managing Cash Flow in Retirement

By admin | Published: September 6, 2011

Tools for the Task

If you are retired, or about to retire, you will need to gather and organize key information before you can tackle the ongoing tasks of monitoring and managing your cash flow in retirement. The purpose is to give you a clear and complete picture of your current financial situation, as well as of any significant changes you expect. Two sources will provide this information:

• An up-to-date net-worth statement, which provides a snapshot of your assets, debt, and cash reserves.

• Your monthly or annual budget, with itemized breakdowns of your income and expenses. If you haven’t retired yet, it’s a good idea to prepare a projected budget of your retirement income and expenses.

Be sure to account for all expenses, including those that occur infrequently, such as insurance bills, college tuition, membership fees, and investment management fees. They should be reflected in your monthly budget on a prorated basis. If you need assistance creating your net-worth statement and budget, you may want to consult HWM, a book on the subject, or resources that are available online – for example, the Financial Planning Toolkit at CCH Incorporated.

Analyzing this information will reveal any major problems that you need to overcome, such as insufficient cash reserves for an emergency or an income shortfall compared with current or projected expenses. It may also point up areas for improvement. For example, you may be able to free up cash by reducing debt or eliminating nonessential expenses.

Regular Monitoring

Plans and projections are always subject to change. Even with reasonable assumptions about investment returns, inflation, and retirement living costs, it’s likely you will encounter numerous changes to your cash flow over time. Frequent monitoring of your income and expenses will detect changes that you can address in a timely fashion to prevent significant problems down the road. Experts often recommend a monthly review of your budget, as well as a comprehensive annual review of your financial situation and goals. While you can keep track of your situation with paper and pen, specialized software may make the task easier, especially if your finances are relatively complex.

What to Look For

What should you look for as you monitor your finances? Following are potential developments that could affect your cash flow and require adjustments to your plan.

Interest rate trends and market moves may result in an increase or decrease in income from your savings and investments. For example, if interest rates decline, you may have to reduce your expenses if you are periodically withdrawing a fixed percentage from your investment assets. Alternatively, you might consider altering your investment mix to

• pursue other sources of income, aside from traditional fixed-income investments – equity dividend income investments, for instance.

• You may also encounter changes in federal, state, and local tax rates and regulations. This factor may come into play if you relocate after retiring. The state you move to may impose higher income or property taxes, for example. Other factors that could have a bearing on your retirement cash flow include changes in Social Security and Medicare benefits or eligibility, as well as those affecting employer-provided retiree benefits and private insurance coverage.

• Inflation and health care costs are two other variables that can have an impact on living costs and, hence, your retirement planning assumptions.

• Life events – such as marriage, the death of a spouse, and the addition or loss of a dependent – may also affect your cash flow. Cash flow is also a matter of personal preferences and decisions, and here you will be in control of the many small and large choices likely to be made over the course of retirement. How much you spend on travel, entertainment and recreation and whether you live in a lower or higher cost locale are examples of factors that can have a significant effect on cash flow – and how long your retirement assets are likely to last.

That’s why it’s worth paying close attention to cash flow, making sure you budget carefully, monitor income and expenses frequently, and take action whenever you see significant changes in income and expenses.

Points to Remember

1. Due to increasing longevity, managing cash flow has become a critical task for retirees seeking to ensure that they do not outlive their assets.

2. An up-to-date net-worth statement and monthly budget providing itemized breakdowns of income and expenses are the basic tools used to monitor and manage cash flow.

3. Interest rate trends and market moves may result in higher or lower income from savings and investments.

4. Other factors that can alter cash flow include changes in inflation, health care costs, tax rates and regulations, and Social Security and Medicare benefits.

5. Lifestyle choices – such as preferences for housing, travel, and entertainment – also affect cash flow.

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