 |
October 2005 |
Capital Retirement Strategies, Inc.
Specializing in retirement plans
and personal investment management
In This Issue
Greetings! Fall is a beautiful time here in New England, but we also know that October can be the cruelest of all months. Red Sox fans remember October 1978 as the year Bucky Dent hit one over the Green Monster to beat Boston in a one game playoff. In October 1986, it was Bill Buckner who broke our hearts, and only two years ago, it was Aaron Boone’s extra-inning home run that again sent the Sox home for the winter. In the stock market, October has also been a cruel month historically. The crash of 1987 commonly referred to as “Black Monday” occurred in October. The crash of 1929 which ushered in The Great Depression also took place in October. While the 4th quarter in general, and October in particular, have historically spelled bad news for Red Sox fans and investors alike, our more recent history has been significantly more promising. In 2003, the U.S. stock market surged 11.64% in the 4th quarter, putting an exclamation point on the end of the three-year bear market of 2000-2002. In 2004, not only did the Red Sox finally break their curse and win the World Series, but the market finished up over 9% in the 4th quarter, giving us two consecutive years of solid returns. While we’d have to have quite an impressive finish to record another double digit return in the market, it’s certainly not out of the question. Here’s hoping for another strong October for the Red Sox and the stock market! My first article this month discusses divorce financial planning and the CDFA designation I recently earned. If you know someone going through a divorce, I hope you’ll pass this along to them. Our guest contribution is from Tobe Gerard, an expert in the field of long term care insurance. I have known Tobe for several years, and her diligence in educating clients about this type of insurance and finding the right product for their needs is unsurpassed. In our second article, she answers some common questions about this important and often misunderstood financial planning tool. The final story outlines some of the key benefits of a relatively new retirement plan for self-employed people, the individual 401(k). If you have ideas for future stories, please send an email to dave@capretirement.com. I also welcome your comments, feedback and questions. Thanks for reading!
Best regards,
What in the World is a Certified Divorce Financial Analyst? It’s no shock to anyone that over 50% of marriages now end in divorce. In addition to the emotional and legal issues surrounding separation and divorce, financial decisions are often a source of great anxiety during this difficult time. While couples going through a divorce will often seek the professional assistance of attorneys, mediators and counselors, financial advisors were often consulted only after the divorce was finalized. While post-divorce financial planning can be instrumental, especially for a spouse who has never managed their own finances before, getting a qualified financial professional involved early can often lead to a more equitable distribution of marital assets. For over twelve years, the Institute for Divorce Financial Analysts has been the nation’s premier organization dedicated to the certification, education and promotion of the use of financial professionals in the divorce arena. The financial issues inherent to every divorce case are often times the ones that are most often overlooked. Who should keep the house? How can retirement accounts be split and the money accessed? How much alimony will there be and for how long? Certified Divorce Financial Analysts (CDFA) are trained to answer these questions and more for men and women in the process of divorce. Over the past several years, I have had the opportunity to assist dozens of newly divorced clients with their financial affairs. While this experience has served me well, I felt that enrolling in the CDFA program would give me the additional education and training that would truly establish me as an expert in this niche area of financial planning. After taking three separate courses and passing exams after each, I recently completed my final exam, a comprehensive case study, involving tax, legal and investment issues of divorce cases. On September 2nd, I was awarded the CDFA designation. I see a tremendous need in the local community for the services that CDFAs are trained to offer. In searching the IDFA website (www.institutedfa.com) for other local advisors who are certified, I found only 23 in Massachusetts, and none in Acton, Concord, Lincoln, Sudbury, Carlisle, Maynard, Littleton, Groton or Westford- all the towns that most of my clients live in! (None, except for me, that is!) If you know anyone who has recently divorced or is in the process of divorce, ask them if they’ve consulted a Certified Divorce Financial Analyst. I can help them with income and expense planning, savings, college funding, retirement planning, investment management and more. Divorce is often a most difficult time for everyone involved, but the peace of mind that comes with knowing your financial affairs are in order can be the first step in moving ahead.
Everything You've Always Wanted to Know About Long Term Care Insurance... but were afraid to ask! By Tobe Gerard What is Long Term Care? Long Term Care is the daily care required due to a chronic illness or disability. It is an ever changing array of services aimed at helping people compensate for limitations in their ability to live independently. It can range from assistance with household chores to highly skilled medical care. It can be delivered in your home, in an assisted living facility, in an adult day care center, in a nursing home, or in a variety of other settings. What is Long Term Care Insurance? Long Term Care Insurance is the kind of insurance that pays for Long Term Care. It funds many levels of care should you be unable to care for yourself. Is Long Term Care Insurance right for everyone? No, not everyone is a good candidate for Long Term Care Insurance. If you have limited assets, then Medicaid and community based programs may be better suited to meet your needs. If you have assets to protect, then Long Term Care Insurance is probably the best option for you to pursue. Long Term Care Insurance also allows you the freedom of choice so that you won’t have to rely upon the government for your Long Term Care. What do I really need to buy? There are 4 decisions that you must make regardless of what company you are considering: You need to select an adequate $/day. Many people select a $/day that corresponds with the cost of care in their city or state. You can consider amounts ranging from $50/day to $500/day with most companies. You need to select inflation so that the $/day will grow over time. Depending upon your age, you will decide if you want 5% Compound Inflation, 5% Simple Inflation, inflation that is tied in with the CPI, or possibly no inflation at all. You need to select a deductible, which we call an Elimination Period. Deductibles are based upon the number of days that you are willing to pay for care before your policy starts to pay you benefits. Deductibles can range from 0 days to 730 days, and the higher the deductible the lower the premium, and the lower the deductible the higher the premium. You need to select a benefit duration. This is the hardest of the 4 decisions to make because no one has a crystal ball! This is the period of time that your policy will actually pay benefits to you from the day you satisfy your deductible. You can select almost any benefit duration from 2 years to Lifetime. What if I’m not in the greatest health? Don’t assume that because you have diabetes, high blood pressure, depression, or arthritis that you will be declined. Don’t assume that because you had cancer in the past that you will be declined. The list of declinable conditions is a lot shorter than the list of insurable conditions! What if I have additional questions? I have no doubt that you are going to have a lot more questions. This article is very generic, very brief and very basic, and your questions will be unique to you and your situation. Please feel free to get in touch with me either by phone or by e-mail. I am licensed in the following states: AZ, CO, CT, FL, MA, ME, NH, NM, NY, OK, RI, TX, VT. Tobe Gerard, CSA, CLTC, MBA, MLS is a licensed insurance broker and the owner of Insuring Your Golden Years in Natick, MA. She specializes exclusively in long term care insurance and represents 12 different carriers, because she strongly believes that one size does not fit all. She can reached at tgerard@insuringyourgoldenyears.com or by calling (508) 653-8110.
Thanks to a recent change in the tax code, self-employed people can now have the same type of 401(k) plan that larger companies have offered for years. This new individual 401(k) plan or Single K, as some companies have nicknamed it, offers some compelling benefits not found in other small business retirement plans. Higher Contribution Limits- Most small businesses will be able to put more money into an individual 401(k) than they can in a SEP, SIMPLE IRA or profit-sharing plan. For example, an individual who earned $100,000 in 2004 could contribute up to $38,000 in a Single K, versus only $12,000 in a SIMPLE IRA and $25,000 in a SEP or profit-sharing plan. All contributions are tax-deductible and all interest, dividends and earnings are tax-deferred. Loan Provisions- In many individual 401(k) plans, you are eligible to borrow from plan assets. Typically you can borrow up to $50,000 or 50% of the account value, whichever is less. This benefit may give a small business owner the liquidity necessary when emergencies arise or when quick capital is needed for new equipment or other business needs. Loans cannot be taken from other retirement plans such as IRAs, SEP IRAs or SIMPLE plans. Consolidate Old Accounts- If you’re like many of the people I meet, you may have several IRA or SEP accounts, as well as old 401(k) plans from jobs you left years ago. There’s nothing wrong with having several different accounts, but it can sometimes make managing a diversified portfolio easier by combining smaller accounts into one larger account. When was the last time you made changes or rebalanced these old plans? It might be time to revisit those abandoned accounts. Not every small business owner would benefit from this new plan, but if you are self-employed with no employees, it might be worth exploring. Ideal candidates for this type of plan include real estate agents, contractors, consultants and other 1099 employees. For more information, call me or ask your tax advisor if a Single K would make sense for your business. The deadline for establishing an individual 401(k) plan for the 2005 tax year is December 31, 2005.
Securities offered through Investors Capital Corporation- Member NASD SIPC |
