The Retirement Blog

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2011-08-01T14:51:00.000-07:00

I will no longer be blogging on this site anymore. If you would like to continue following me, check me out on Google+ where I will be adding new blogs, posting articles, comments, etc. going forward.

My Google+ link can be found here: www.gplus.to/mcmchenry

Carleton McHenry
McHenry Capital, LLC
August 1, 2011

7 Financial Steps to Start the New Year

2011-01-12T13:27:00.000-08:00

Welcome to 2011 or should I say Happy New Year! While most people this time of year set goals for getting into better physical shape, very few focus on steps they could take to get into better financial shape. Here are 7 steps you can take today to get your financial new year off to a great start!

1.) 2011 IRA Contribution - why wait until the end of the year to make a financial contribution that can grow either tax-deferred or tax-free? Many expect this year to be a good one in the markets and so why not take advantage of this potential early growth? You can make a 2011 contribution of $5,000 today into your IRA (or Roth IRA if you qualify) and see your assets grow over the next 3 months if we do indeed have a strong first quarter.

2.) 2010 IRA Contribution - if you forgot to make a contribution last year, you have until April 15, 2011 to make up for this. Same rules and restrictions apply but you could add an additional $5,000 into you IRA on top of what you've already contributed for this year.

3.) Reallocate - now that 2010 is gone, take a look at your portfolio and see how everything is allocated. Are you overweight in some areas and underweight in others? Now may be a good time to sell the things in your portfolio that have done well to bring them back into equilibrium with your allocation guidelines. It may also be a very good time to take the proceeds and put them into the investments that you still like but did not do as well. If you have come to the conclusion that these poorly performing investments should be sold outright, make the sells and invest in other things that you have a strong belief in for 2011.

4.) Update Beneficiary Designations - do all your accounts have updated beneficiary information? Did a family member, loved one, friend, or relative move on last year? Perhaps it is now time to name a different beneficiary in their place? It is critical to make sure your accounts are all designated with up to date and accurate beneficiaries. This not only affects qualified accounts like your 401(k) and individual retirement accounts but can also include TOD or Transfer on Death designations as well as all insurance you own.

5.) Gain/Loss Reports - now is a good time to collect (or ask your advisor) for your 2010 investment tax reports. These would include reports that show all interest/dividend income you earned from your investments in 2010 as well as all capital gains (or losses) you incurred. You may have to wait for a month or two to get this information from your custodian (where your assets are held) but your advisor should be able to produce their own internal reports which will give you a good approximation. Send this information over to your CPA as soon as possible so they will know what these numbers are going to be. This may help your CPA do a more effective job in tax planning going forward.

6.) Budget - now that 2010 is over, do you know how much money you made and where it was all spent? What areas did you spend the most on? Can you cut back in these areas this year? Did you max out all the areas where you could potentially save? Most software programs these days allow you to look at all your financial data from last year in lots of different ways. You can compare last year to 2009 - how did things differ? If you don't know the answer to these questions now is the time to start - go buy a program like Quicken and start tracking all of your financial data. You will look back a year from now and be glad that you did. You have to know your past before you can plan the future!

7.) Password Storage Keeper - how many passwords do you have to keep track of all your financial data? Do you know where to find them in case you forget? If you are like most people who pay their bills online and look at other financial data, you will most likely have multiple passwords to access all your data. Create a list of all of these and store it somewhere electronically as well as in hard copy format in a protected online and offline vault. Make sure your entire family knows how to access this in case something happens to you. Many times we need this information in emergencies and we can't find it. Be proactive and do this today.

Take these 7 steps and you will have gotten yourself off to a great financial start to the new year!

QE2 - The Movie

2010-11-19T07:54:00.000-08:00

In case you want to know what's really been happening lately with the Fed and its latest round of "Quantitative Easing", check out this video that tells the whole story!

http://video.godlikeproductions.com/video/Quantitative_Easing_Explained?id=435bb317755ac0e1df7

Lessons about Retirement

2010-09-17T11:30:00.000-07:00

Great new article written by Vanguard titled Lessons about retirement - learned in retirement. They interviewed Stan Hinden who used to work for The Washington Post but at age 83 has now been retired for a number of years. Some of the takeaways from this piece:

- Make sure you have a steady flow of income that will allow you to maintain a comfortable standard of living for the rest of your life.

- Maximize your Social Security by waiting to receive full benefits at age 70 versus taking early.

- Consider buying an annuity - can help you mitigate longevity risk and risk of long term market underperformance.

- Only take RMDs from your tax-deferred accounts if possible or else taxes will eat you alive.

- Health care will most likely cost a lot more than you expect.

- Prescription drug costs could be substantial if you are heavily dependent on them.

- Have a budget with a clear view of what your income/expenses are going to be.

- Find a well-qualified financial planner - don't do this yourself.

- Wait until age 70 at earliest before you retire.

- Have children/family nearby.

- Stay healthy well before you retire.

- Don't negelect your friends.

Stan makes lots of great points here! He has also written a book "How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire" which should be work checking out as well.

Carleton

McHenry Capital, LLC helps Baby Boomers on the verge of retirement overcome all their financial fears, worries, and anxieties they have and associate with retirement. We help our clients get crystal clear about envisioning the kind of retirement they want, and we create a real strategy to help them accomplish this. We work with our clients in a Fee-Only, Fiduciary, Product Neutral approach to ensure their best interests always come first. For more information, please contact us at 888-968-9815 or visit us on the web at http://www.mchenrycapital.com/.

Employer Tax Breaks for Your Kids?

2010-05-24T08:50:00.000-07:00

Good article in the WSJ over the weekend which talks about getting tax incentives for employers who hire their relatives. The article is Hire Your Kids, Get a Tax Break, by Laura Saunders.

Congress this past March passed the HIRE (Hiring Incentives to Restore Employment) Act. It gives employers incentive to hire and not have to pay FICA taxes on the worker's wages from 3/19 until the end of 2010. It also gives the employer a dollar for dollar tax credit up to $1,000 for 2011 if the employee stays with the company and is on the payroll next year.

The restrictions are pretty lax in that qualified employees are considered those who have not worked for more than 40 hours in the prior 60 days before being hired. No restriction on size or type of company and no limit to the number of new hires. The act also states firms can rehire laid-off workers with no set period that this rehire has to work for the firm again. Eligible hires can be either full or part time but they can't be independent contractors. These new employees are still responsible for their own payroll taxes and Medicare. They must also provide the employer with a form certifying they meet all of the conditions as outlined above.

How does HIRE apply to relatives such as your kids or your spouse? This is where there are restrictions based on the type of business entity you have:

- Sole Proprietor - you can claim HIRE benefits on your spouse but no other relatives.

- Partnerships (LLC, LLP) - if partners are husband/wife only - you can't get benefits from hiring relatives. You can't get the benefit either if you hire a relative who has more than a 50% interest in the partnership. If the partners are completely unrelated, full HIRE benefits apply to any relative hired.

- Subchapter S and C corporations - no benefits for either directly or indirectly greater than 50% shareholders. Any related owners must add their interests together and if greater than 50% no benefits allowed for these owners.

If you are a small business owner, you should consider taking advantage of these HIRE benefits. Put your kids to work for you and get a tax break for yourself and allow your kids the ability to earn some income this summer. If you are really smart (and lucky), you should get your kids to save their earned income and contribute to a Roth IRA to be invested for their future.

Take advantage of the HIRE Act!

Carleton

5 Traits to Seek for Financial Advice

2010-04-15T09:18:00.000-07:00

I get asked on a fairly regular basis how does one go about finding good, quality financial advice? This is a tough question for me to answer without coming across as sounding too biased or too self serving. However I truly believe in my personal opinion the best advisors out there operate as such:

1.) Fee-Only - what this means is the advisor is solely compensated by fees paid directly to him by the client. The advisor does not earn a commission for buying/selling investments for the client. The advisor does not get paid a % up front for buying a particular mutual fund for the client. The advisor does not get financial kickbacks from a broker-dealer or mutual fund company for doing business with them. The advisor does not collect referral fees for sending the client to another service provider. The only revenue generated to the advisor is from the fees the client pays him or her for providing advice to them.

2.) Certified Financial Planner (CFP) - the advisor should have CFP after their name. This designation is given by the Certified Financial Planner Board of Standards to those who have successfully passed a two day, 10 hour exam that covers a wide range of topics such as financial planning, insurance, retirement planning, investments, estate planning, and tax. I know from personal experience that this is a very challenging exam that tests your ability to understand all of these concepts and how they interrelate with one another as it pertains to a person's total financial picture. Being able to use this designation after passing the exam also requires having at least 3 years of relevant work experience. Working with a CFP practitioner should be essential for anyone who is serious about having someone look over their complete financial affairs.

3.) Experience - finding someone who has at least 10 years of experience in the field will help you weed out career changers and newcomers who have not been through a number of different market cycles. This is very important because it gives the advisor a better historical perspective especially when things seem really bad like what has happened recently. Even though we preach to our clients that we can help them take emotion out of the game, newer advisors have never been through the emotional roller coaster the markets can bring. Many prognosticators expect this roller coaster ride to get even bumpier going forward into the future.

4.) Fiduciary - in this day and age of Bernie Madoff, entrusting someone with all of your wealth can be a very scary undertaking. You need to find someone that you can put all of your faith in that they will do the right thing. But even this may not be enough as many advisors on the surface appear to be trustworthy people. Find someone who is willing to go beyond this and take on the added responsibility of being a Fiduciary. Check the wiki link out for what Fiduciary means by clicking here. The key part of this definition is to act at all times for the sole benefit and interest of another. Wouldn't you want your advisor to be a Fiduciary?

5.) Independent - the advisor is not tied to a broker-dealer which limits him to certain investment products to work with and tells him how he should operate his practice. Instead the advisor can work with any brokerage firm he chooses and pick and choose amongst any investment out there in the universe. Many of the larger brokerage firms have either gone under or merged with others in the last few years. A lot of these firms have been in the news for a lot of negative things which has caused quite a public backlash against them. You now see more and more brokers breaking away from these firms and starting their own companies as Fee-Only advisors. When you think about it, at the end of the day, the larger publicly traded firms have to do what's best for their shareholders which may or may not be in the complete best interest of the retail client. Look for someone who is totally independent and operates on their own as a Registered Investment Advisor (RIA).

If you are looking for someone to help you, I highly recommend finding someone who has these 5 traits. There are never any guarantees but working with someone who possesses these qualities should give you a comfort level that you've found someone competent, qualified, objective and who is truly looking out for your best interest at all times. Good luck!

Carleton

15 Money Rules

2010-03-30T09:24:00.000-07:00

There is a great article written by Jeff D. Opdyke in the WSJ this past Sunday called The 15 Money Rules Kids Should Learn. It gives a list of 15 rules kids should live by and you as a parent should teach them.

An interesting statistic that is pointed out is only 10% of 12th graders could answer correctly basic personal finance questions asked by the nonprofit JumpStart Coalition for Personal Finance. This seems to coincide with everything I've read on teenagers and finance. As mentioned in this article, most don't even know how to balance their own checkbook. Back when I was that age, there was very little in terms of financial education for kids. Now there are plenty of resources available to help your kids better understand the basics of personal finance.

Even though there are more resources available now than ever before, don't assume your kids are learning this on their own. You need to educate them early on yourself and instill in them the confidence to understand these principles. Jeff makes this same point which I believe is very important especially since you will have the biggest financial influence and impact on your children at a very young age.

As the list states - Teach Your Children Well.

Carleton

Dangerous Daily Aspirin?

2010-02-24T07:59:00.000-08:00

There is an article in the WSJ about the dangers of taking a daily aspirin. It states that many people have been following the guidelines to take a low dose or "baby" aspirin to reduce the chance of heart attack or stroke. It cites from IMS Health that 44 million packages of low dose aspirin were purchased over the previous 12 months ending this past September - a 12% increase from 2005.

New research suggests normal, healthy adults may be doing more harm than good by following this regimen. The risks are the side effects caused by aspirin which can cause a depletion of the stomach's protective lining which can lead to gastrointestinal bleeding, bleeding ulcers, and bleeding of the brain. There is also controversy over what is right for each sex.

What guidelines are you following? According to the U.S. Preventive Services Task Force, men age 45 to 79 with elevated heart-disease risk due to high cholesterol levels and who are smokers, should take a daily aspirin. Women, age 55 to 79 who are in danger of an ischemic stroke due to high blood pressure and diabetes, should take a daily aspirin. The best advice in my opinion is always to talk to your own doctor to determine what is right for you!

Carleton

McHenry Capital, LLC helps Baby Boomers on the verge of retirement overcome all their financial fears, worries, and anxieties they have and associate with retirement. We help our clients get crystal clear about envisioning the kind of retirement they want, and we create a real strategy to help them accomplish this. We work with our clients in a Fee-Only, Fiduciary, Product Neutral approach to ensure their best interests always come first. For more information, please contact us at 888-968-9815 or visit us on the web at www.mchenrycapital.com.

Welcome to the iPad

2010-01-29T08:23:00.000-08:00

In case you haven't heard, Apple announced its latest toy this week called the iPad. This device is 1/2 inch think and weighs 1 1/2 pounds. It has a 9.7 inch touch screen that works just like the iPhone.

After quite a lot of buildup and secrecy over this announcement, many people seemed to be disappointed over this new device from what I can tell. A lot of people are calling it a larger version of the iPod Touch.

I'm not so sure that this isn't another home run for Apple. The real success of Apple's turnaround years ago was the iPod. I can remember when I got my first iPod back in 2004 and was so blown away that I could put all of my music (which is a lot) on this one little device. It seemed like within a year all my friends had one and even the Baby Boomer generation started hopping on board!

Not long after the iPod, Apple introduced the iPhone. The iPhone has revolutionized the smart phone industry and created an entirely new industry with iPhone application software that never even existed before.

I sense the iPad is going to be more successful than many people think. Although there are already other devices out there such as Netbooks and Amazon's Kindle Book Reader, none of them have the captive audience that Apple has.

I think the real question will be can this product become another essential toy that we can't live without like our iPods and iPhones. Only time will tell.

The Struggling 2000's

2009-12-23T09:26:00.000-08:00

About 10 years ago, I remember a book came out by Harry Dent titled the Roaring 2000's. In it he predicted this new century was poised for tremendous growth, and he made some very bold market predictions like the Dow at 40,000. I believe he has since changed his tune a bit perhaps based on what has actually occurred in this first decade of the twenty first century.

A lot of negative things have happened this past decade with two major bear markets taking place. Stocks on the New York Stock Exchange have lost an average of 0.5% annually since the beginning of 2000. Compare that to an average 17.6% annual gain stocks achieved in the 1990's.

Where does that leave us today? How should you as a Baby Boomer invest in such uncertain times? Well if you study other assets during this same period you will see that not all of them fared the same as stocks. Bonds yielded between 5.6% to 8% depending upon the sector you were in. Gold outperformed everything else - up 15% annually this decade after losing 3% annually in the 1990's.

I believe everything is cyclical in nature and these trends will most likely continue. Some years stocks will do well while other years bonds may outperform. As someone nearing retirement, you have to be able to build a portfolio that will withstand the downs of the market. The best way to do this is to build a very well diversified portfolio that includes both stocks and bonds. Adding additional assets such as gold and other commodities to the portfolio makes a lot of sense as well. Look for traditional companies that continue to pay a healthy dividend to add to the mix. Lastly, pay attention to asset valuations and adjust your portfolio accordingly.

Make sure you have a strategy in place so when you do retire, your future retirement years will be insulated from the wild swings in the market. Let's hope 2010-2019 becomes the Roaring 2000's again!

Happy Holidays,

Carleton

Long Term Care for the Baby Boomer

2009-11-19T09:03:00.000-08:00

As we all know, health care has been in the news lately these days. Harry Reid has put together a 10 year plan in the Senate that would cost $848 billion dollars and would cover an additional 31 million Americans who do not currently have health insurance. Will it get the 60 votes to move forward? Who knows!

What I do know is Baby Boomers need to start planning ahead to ensure they get great health care coverage regardless of what happens in our government. The best way to plan for this is through long term care insurance (LTC). Before rushing into getting a LTC policy, decide for yourself if this is something you will need. Can you self insure? Do you have a family history of long life? How do you want to spend the latter part of your life? Do you have family that can take care of you? Will they really want to take care of you?

All of these questions are ones you need to ask yourself and your family. One thing we know for sure is health care costs are going to continue to go up. Are you prepared to handle this? Some interesting stats that you should think about:

* Over 60% of adults ages 50-64 who are working have been diagnosed with at least one chronic health condition - i.e. - arthritis, cancer, diabetes, heart disease, high cholesterol, or high blood pressure (Commonwealth Fund Report or CFR).

* About 6% of insured older adults in working families (1.8 million people) are underinsured (CFR).

* Nearly 23% said there was a time they went without needed medical care because of cost (CFR).

* 75% of older working adults with individual insurance coverage spent 5% or more of their annual income on premiums and out of pocket medical expenses (CFR).

These statistics are pointed out not to scare you but to get you to think about the role health care will play later on in your life. Although LTC insurance can initially appear to be an expensive option, it might be the difference between providing you with a more comfortable retirement or not!

Carleton

A Lurking Estate Trap?

2009-10-16T07:33:00.000-07:00

I have always preached about the value of keeping your estate current. An article in today's WSJ titled "Is There a Trap Lurking in the Language of Your Will?" just reinforces this.

Apparently many people have language spelled out in their wills that they created a number of years ago which directs the "full amount" of the estate tax exemption (currently $3.5 million today) to go into a bypass or credit shelter trust when the first spouse dies.

May of these wills were created or updated back in 2002 when the exemption was at $1 million. As the exemption has increased, the entitlement left over for the surviving spouse has drastically decreased for those families whose net worth is around $4 million.

By not updating their wills, this generic language that states the "full amount" has left many surviving spouses with little to nothing left over for them. The article goes on to state that the problem is usually far worse for blended families. Children from a different spouse typically don't get along with the surviving spouse. This can lead to some real animosity.

The moral of the story - keep your wills updated and make changes as necessary!

Letting Go of the Need to Win

2009-09-03T07:54:00.000-07:00

There was an article in Tuesday's WSJ titled When Winning isn't Everything that I thought was interesting even for us non-Baby Boomers.

The author mentions that his generation's competitive drive to achieve can actually be a dangerous thing! The context is in the world of physical fitness but I can't help but extrapolate this to other areas of our lives.

Many of the recent scandals from Bernie Madoff to Stanford to the Roger Clemens steroid story all seem to stem from that desire of wanting more or offering performance that seems too good to be true!

The ethics of this country seem to have gone out the window in favor of continuing to get or achieve more. I hope the younger generations such as mine can take heart as we lead this country into the future. There's a hefty price to pay for winning at all costs - whether it be financial pain or physical pain!

Thoughts?

Roth IRAs

2009-06-12T07:48:00.000-07:00

Roth IRAs are becoming a hot topic these days especially as we get closer and closer to next year. Right now in order to qualify to contribute to a Roth IRA, your modified adjusted gross income (MAGI) must be below $105,000 if your are single and below $166,000 if you are married filing jointly. There are phaseouts above those numbers of $105,000-$120,000 for singles and $166,000-$176,000 for married couples.

What about converting a regular IRA to a Roth? In order to convert a traditional IRA over to a Roth IRA, your MAGI must be less than $100,000 in the year of the conversion and you are not married filing separately.

When TIPRA (Tax Increase Prevention and Reconcilitation Act) was passed in 2005, it set for the income limits to convert a traditional IRA over to a Roth IRA to expire in 2010. This is a huge planning opportunity for those of you who have never been able to qualify for a Roth IRA but have built up a substantial amount of savings in an IRA.

Starting next year, you can convert your IRA over to a Roth IRA. You will have to pay taxes on the amount being converted based on your ordinary income tax rate. However the government is allowing you to pay these conversion taxes spread out over the next two years.

As a Baby Boomer, there are a number of advantages Roth IRAs will give you in retirement:

- Tax free growth for the rest of your life
- No RMD (required minimum distribution) like a regular IRA at age 70 1/2
- Shelter from expected tax increases over the next several years

Take a serious look at converting your IRA over to a Roth IRA next year in 2010. It may be the only chance you get!

Best of luck!

Carleton
McHenry Capital, LLC

McHenry Capital, LLC helps Baby Boomers on the verge of retirement overcome all their fears, worries, and anxieties they have and associate with retirement. We help our clients get crystal clear about envisioning the kind of retirement they want, and we create a real strategy to help them accomplish this. We work with our clients in what we believe is the fairest manner possible - a Fee-Only, Fiduciary, Product Neutral approach to ensure their best interests always come first. For more information, please contact us at 888-968-9815 or visit us on the web at www.mchenrycapital.com

Welcome to the Retirement Blog!

2009-04-20T11:05:00.000-07:00

Welcome to the Retirement Blog!

From time to time I will be commenting on various issues, topics, and articles as they relate to the world of retirement. My hope is to use this new medium to provide my opinion on all the information and misinformation that you may come across in main stream publications that may affect your thinking on retirement. There is a lot of information out there these days talking about various strategies, products, etc. to help you navigate your retirement. I will be commenting and giving you my general ideas in these areas. Please do not constitute this as specific advice for your situation. You must consult with your own financial, tax, estate, and insurance professionals as it relates to your unique situation. I will NOT ever be promoting investment performance on here, and always keep in mind that past performance on any investment is NOT indicative of future performance.

I look forward to this being an interactive forum so please provide your comments/feedback as you feel when they are warranted.

Best of luck to you in achieving your ideal retirement!

Carleton
McHenry Capital, LLC

McHenry Capital, LLC helps Baby Boomers on the verge of retirement overcome all their fears, worries, and anxieties they have and associate with retirement. We help our clients get crystal clear about envisioning the kind of retirement they want, and we create a real strategy to help them accomplish this. We work with our clients in what we believe is the fairest manner possible - a Fee-Only, Fiduciary, Product Neutral approach to ensure their best interests always come first. For more information, please contact us at 888-968-9815 or visit us on the web at www.mchenrycapital.com