THE 2 BIGGEST RETIREMENT MISCONCEPTIONS

While the idea of retirement has changed, certain financial assumptions haven't.

We've all heard about the "new retirement", the mix of work and play that many of us assume we will have in our lives one day. We do not expect "retirement" to be all leisure. While this is becoming cultural assumption among baby boomers, it is interesting to see that certain financial assumptions haven't really changed with the times.

In particular, there are two financial misconceptions that baby boomers can fall prey to - assumptions that could prove financially harmful for their future.

#1) Assuming retirement will last 10-15 years. Historically, retirement has lasted about 10-15 years for most Americans. The key word here is "historically". When Social Security was created in 1933, the average American could anticipate living to age 61. By 2005, life expectancy for the average American had increased to 78.

However, some of us may live much longer. The population of centenarians in the U.S. is growing rapidly - the Census Bureau estimated 71,000 of them in 2005 and projects 114,000 for 2010 and 241,000 in 2020. It also believes that 7.3 million Americans will be 85 or older in 2020, up from 5.1 million 15 years earlier.

If you're reading this article, chances are you might be wealthy or as least "affluent". And if you are, you likely have good health insurance and access to excellent health care. You may be poised to live longer because of these two factors. Given the landmark health care reforms of the Obama administration, we could see another boost in overall American longevity in the generation ahead.

Here's the bottom line: every year, the possibility is increasing that your retirement could last 20 or 30 years... or longer. So assuming you'll only need 10 or 15 years worth of retirement money could be a big mistake.

In 2010, the American Academy of Actuaries says that the average 65-year-old American male can expect to live to 84, with a 30% chance of living past 90. The average 65-year-old American female has an average life expectancy of 87, with a 40% chance of living past 90.

Most people don't realize how much retirement money they may need. There is a relationship between Misconception #1 and Misconception #2...

#2) Assuming too little risk. Our appetite for risk declines as we get older, and rightfully so. Yet there may be a danger in becoming too risk-averse.

Holding onto your retirement money is certainly important; so is your retirement income and quality of life. There are three financial issues that can affect your quality of life and/or income over time: taxes, health care costs and inflation.

Will the minimal inflation we've seen at the start of the 2010s continue for years to come? Don't count on it. Over the last few decades, we have had moderate inflation (and sometimes worse, think 1980). What happens is that over time, even 3-4% inflation gradually saps your purchasing power. You dollar buys less and less.

Here's a hypothetical challenge for you: for the rest of this year, you have to live on the income you earned in 1999. Could you manage that?

This is an extreme example, but that's what can happen if your income doesn't keep up with inflation - essentially, you end up living on yesterday's money.

Taxes will likely be higher in the coming decade. So tax reduction and tax-advantaged investing have taken on even more importance whether you are 20, 40 or 60. Health care costs are climbing - we need to be prepared financially for the cost of acute, chronic and long-term care.

As you retire, you may assume that an extremely conservative approach to investing is mandatory. But given how long we may live - and how long retirement may last - growth investing is extremely important.

No one wants the "Rip Van Winkle" experience in retirement. No one should "wake up" 20 years from now only to find that the comfort of yesterday is gone. Retirees who retreat from growth investing may risk having this experience.

How are you envisioning retirement right now? Has your vision of retirement changed? Is retiring becoming more and more of a priority? Are you retired and looking to improve your finances? Regardless of where you're at, it is vital to avoid the common misconceptions and proceed with clarity.

Stephanie Shinn is an Investment Advisor Representative with KMS Financial Services, Inc. and may be reached at 253.882.6475 or Stephanie.Shinn@KMSFinancial.com.

This material was prepared by Peter Montoya, Inc. and does not necessarily represent the views of the presenting Representative's Broker/Dealer. This information should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The published is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

ASSET ALLOCATION IN “STORMY WEATHER”

Diversification has the potential to help portfolios in rough times.

In any stock market climate, proper asset allocation matters. In a down market, you could argue that it matters more than anything else.
Did you have a well-diversified portfolio during the fall of 2008? That was a time when the importance of having a bond allocation and proper equity diversification really hit home. Nearly all investors were hit hard, but some were his harder than others. What percentage of your portfolio was held in Treasuries (or cash) at that time?

Wise asset allocation may help you as the market recovers. Yes, even diversified portfolios lost money at the end of 2008 and the start of 2009. Yet with rebalancing, these same portfolios may be poised to take advantage of a rebounding market.
You might say there are two schools of thought when it comes to diversification and asset allocation - hands off, and hands on.

Modern Portfolio Theory. In 1952, a University of Chicago Ph.D. candidate names Harry Markowitz published a thesis - a brief, provocative paper that called for investors and money managers to see risk with new eyes. That was the start of Modern Portfolio Theory, which still has many advocates today.
Before MPT, money managers and investors tended to look at investments in isolation: if a stock had performed will in 1948, it was a good stock and it would probably perform well in 1949. They analyzed a stock almost like they would analyze a business.
In his paper, Markowitz basically said "You guys are going about this the wrong way." He first assumed that all investors wanted to avoid risk (which he defined as standard deviation from expected portfolio returns). He then contended that you should measure the risk level of a whole portfolio instead of individual securities. (In other words, if you want to include a security in your portfolio, you should think about how that will alter the risk level of your entire portfolio, rather than simply consider the risk of the security.)
MPT asserts that for every portfolio, there exists an "efficient frontier" - an ideal asset allocation among diversified asset classes that should efficiently balance maximum return and minimum risk. Markowitz further developed the theory with economists Merton Miller and William Sharpe, and it eventually won a Nobel Prize in economics.

MPT has its fans - but also its critics. In the last 20 years or so, many investment advisors and money managers have practiced a buy-and-hold style of portfolio management using the diversification principles of MPT. But as the markets dropped in 2008-09, critics pointed out the danger of buying and holding - you can "hold" positions too long. In the crisis, some investment advisors took more of a hands-on approach to portfolio management - others has always done so.

How long is the long run? If history is any guide (and it may not be), the longer your investment horizon, the more sense buy-and-hold can make - at least when it comes to stocks. For example, $1 invested in stocks in 1929 would be worth $759 in 2009, whereas $1 invested in bonds in 1929 would only be worth $74 today. The critics counter that argument with the fact that the S&P 500 traded at the same level in mid-2009 as it did in summer 1997. Stretch or contract different windows of time and you can reach all kinds of conclusions.

The bottom line. The buy-and-hold adherents and critics certainly agree on one thing: diversification is hugely important. If your assets are allocated across 10 or 12 "baskets" instead of one or two, for example, you are theoretically less affected by the whims of the financial markets.

So what is "proper" asset allocation for you? Only you and your financial advisor can determine that. Your time horizon, preferred investment style, accumulated assets, life goals and financial objectives - these all have to be taken into consideration. It's worth a conversation, today.

Stephanie Shinn is an Investment Advisor Representative with KMS Financial Services, Inc. and may be reached at 253.882.6475 or Stephanie.Shinn@KMSFinancial.com

These are the views of Peter Montoya, Inc., and not the named representative or broker/dealer, and should not be construed as investment advice. Neither the named representative nor broker/dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your financial advisor for further information.

IS IT TIME TO MOVE CASH INTO EQUITIES?

The market has rebounded … is it poised to keep rising?
provided by Stephanie Shinn

Remember when people were getting out of stocks? In the last quarter of 2008 and the first quarter of 2009, some people made the decision to move money into forms of investment with low or no stock market correlation. The recession was going full blast; the Dow was falling. But recessions are temporary, and markets improve.

The recent recovery wowed even the most jaded market analysts. From the March 9, 2009 market lows to the end of the year, the S&P 500 shot up 64.83%, the DJIA gained 59.28%, the NASDAQ 78.87% and the Russell 2000 82.19%. The CBOE VIX, the so-called fear index, dropped 56.14% in that stretch.

Was March 9, 2009 the point of capitulation? Have you heard of that term? It references a point of “surrender” or maximum exodus from stocks to CDs and Treasuries in a bear market. The theory goes that when that point of capitulation is reached, a measured, rational market recovery will begin leading to either a cyclical bull market or (fingers crossed) a new long-term bull market.

The rebound off the March 9 lows wasn’t measured, it was phenomenal. On August 6, 2009, the head of Goldman Sachs’ investment policy committee declared that “the new bull market has begun.” On CNBC, Abby Joseph Cohen shared her belief that the S&P 500 would finish 2009 in the 1,050-1,100 range, up from a March 9 trough of 666.79. It exceeded her expectations, ending the year at 1,115.10.

Will stocks keep advancing in 2010? There’s an old phrase people like to cite: past performance is no indication of future success. That disclaimer aside, many analysts think that the stock market will realize at least moderate gains in 2010. The mood is certainly more optimistic and the economy seems to be improving.

Will investors be patient? Good question. In late 2008, you had people swearing off stocks. In 2009, some of those same people changed their mind and ran back to stocks. If 2010 brings a correction, will these investors ditch stocks again? History suggests that these short-term shifts may be damaging.

DALBAR, that goldmine of investment research, looked at the behavior of the average mutual fund investor over a 20-year period ending December 31, 2007. The 20-year survey found that while the broad stock market (S&P 500) returned an average of 11.82% over those 20 years, the average mutual fund investor bailed out at times, missed out on great market days, and only realized an average return of 4.48%. This is a really compelling argument for patience and sustained investment. In late 2008, both Warren Buffett and John Bogle made the case that investors should stay in the market, as some major values were available as a result of the downturn.

How are you invested these days? We’ve seen a lot of change in the last three years, and many people have really changed up their portfolios. How about yours? Is your asset allocation still appropriate for your long-term objectives? You might want to talk to a qualified financial advisor today to review where you are at and how you might position yourself for the years ahead.

Stephanie Shinn is an Investment Advisor Representative with KMS Financial Services, Inc. and may be reached at 253.882.6475 or Stephanie.Shinn@KMSFinancial.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

SOME FINANCIAL NEW YEAR’S RESOLUTIONS

Things you might want to consider doing in 2010

Okay. It’s that time of year - the time for new year’s resolutions. They can include financial resolutions. Here are some possibilities for 2010.

Control non-mortgage debt. Experian says the average American carries about $17,000 in debt unrelated to home loans. Too much of this is simply credit card debt. So how about paying down, paying off and maybe getting rid of some cards?
How much financial ground can you lose to plastic? Well, if you have a credit card with a $17,000 balance and 10% APR and you pay $200 monthly on it, it will take you 12 years to pay it off.
You may have so-called “good debts” as a consequence of your business or your professional career. Yet ultimately, debt is debt. You can certainly plan to build wealth and control debt at the same time, and why not plan to do both?

Play catch-up if you’re older than 50. All of us over 50 have the chance to make a catch-up contribution to our IRAs and 401(k)s. If you have a 401(k), you can defer up to $22,000 of your 2010 salary into it if you’re over 50 (an extra $5,500 above the usual limit). You also have the chance to contribute an extra $1,000 to your IRA (or among multiple IRAs if you have more than one). And if you’ve got an IRA, there’s no point in waiting until April 15, 2011 to make your 2010 contribution – if you wait that long, you’ll potentially lose 15 months of interest.

Look into the possibility of a Roth IRA conversion. 2010 presents investors with a prime opportunity to convert traditional IRAs into Roths. The IRS has removed the income limitations on Roth conversions this year, and it will let you spread the taxes due on a 2010 Roth conversion across 2011 and 2012. However, you should definitely talk to a tax professional before you make this move. As income tax rates could be raised for 2011 or 2012, you may want to take the tax hit on a Roth conversion in 2010 instead.

Keep important documents where you can access them. Tax returns, wills, trust documents, deeds, insurance policies – you don’t want to have to hunt for this stuff, and neither should your heirs in a crisis. You may not want to keep these documents out in the open, but you should know where they are. Resolve to put them all together in a central place in 2010. Another option: you may want to store copies online. Some financial advisors offer their clients firewall-protected, password-only “web vaults” for this purpose, so you can take a look at these items away from home if needed.

Understand how your portfolio assets are allocated. A new FINRA survey finds that 79% of Americans regularly contribute to retirement savings plans. That’s the good news. The bad news? About a fifth of those people had no idea how those assets were invested.
When stocks do well, it is easy to become less vigilant about your investments. It is also easy for your portfolio to get out of whack and become overweighted in this or that asset class. So the first part of 2010 is a very good time to check in with your financial advisor. After all the volatility in the market the last couple of years, it is prudent to review your investments and see if your portfolio needs rebalancing to bring it back in line with your risk tolerance and investment horizon.

More people abide by financial resolutions than you might think. In late 2009, Fidelity surveyed a group of about 1,000 Americans and found that 60% of them had kept financial resolutions they made at the start of the year. So it can be done. Resolve to change your financial habits for the better – and follow through on it.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.882.6475 or sjs@purcellas.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

DON’T FORGET THESE 2009 TAX BREAKS

The year goes by, you get busy … and tax-saving opportunities slip away. So as a reminder, this article is here to reacquaint you with some of the notable federal tax breaks offered this year.

The first-time homebuyer credit. This is the up-to-$8,000 credit available in 2009 to anyone who hasn’t owned a home during the previous three years. (It is subject to phase-outs at certain income levels.) The home you buy has to be your principal residence, and you have to buy it before December 1, 2009. The credit does not have to be paid back.

The IRA charitable rollover. This is the move that lets your IRA trustee make a tax-free direct transfer of up to $100,000 from your IRA to a charitable organization. This option is scheduled to go away in 2010. You must be age 70½ or older to do this.

3 don’t-miss deductions for businesses. When it comes to new cars and light trucks used for business means, the maximum first-year depreciation deduction has been increased by $8,000 for cars placed in service before 2010. The Section 179 deduction (that’s the one that lets you write off the costs of certain new and used business assets during their first year of use) is still at $250,000 for 2009, instead of the prior $133,000. The first-year bonus depreciation break of $50,000 is still in place for 2009, and even the biggest businesses can take advantage of it.

The new car sales tax deduction. Okay, “cash for clunkers” is over, but you still may be able to deduct state and local sales and excise taxes if you buy a car, motorhome, motorbike or light truck. You can itemize the deduction or just add it to the amount of your standard deduction.

A major tuition tax break. In 2009, you can claim an above-the-line deduction for “qualified tuition and related expenses” relating to the enrollment or attendance of you, your spouse or your dependent at an eligible college or university. While it is subject to phase-outs at higher income levels, the deduction can be as large as $4,000.

The classroom teacher credit. Are you a primary or secondary school teacher? If you were an educator who worked more than 900 hours on campus in 2009, you can claim an above-the-line deduction for up to $250 of personal expenses for schoolbooks and school supplies that see classroom use. You don’t even have to itemize.

COBRA continuation. Did you get laid off this year? Were you insured under an employer-sponsored health plan? Well, you may qualify for up to nine months of (COBRA) coverage. As for the company where you worked, it can claim a credit for the COBRA subsidy it extends to you.

$2,400 in unemployment income tax-free. That’s right: this year, the first $2,400 of federal unemployment compensation benefits you receive are excluded from gross income.

An extra deduction for state and local property taxes. Do you usually claim the standard federal deduction? If that’s your plan, this year you can take an additional deduction for state and local property taxes. The ceiling is $500, $1,000 if you are filing jointly.

The capital gains tax break. If you are in the 10% or 15% tax bracket, note that the current tax rate for long-term capital gains is 0% - and it is slated to stay at 0% through 2010.

The homebuilder tax credit. Do you build homes? If so, you may claim a credit of up to $2,000 for each qualified energy-efficient home constructed and acquired from you for use as a residence. This credit is set to expire December 31, 2009; President Bush’s signature extended it into this year.

And of course, the exemption from required IRA distributions. The federal tax mandate requiring IRA owners age 70½ to take Required Minimum Distributions (RMDs) was suspended for 2009, but it will be reinstated for 2010. Worth noting: in 2010, anyone will be able to convert a traditional IRA into a Roth IRA.

This is just a sampling. There are other tax breaks out there during this unusual year for the federal tax code, and it is worth asking your accountant or advisor to do some research and/or collaborate to find you as many as possible.

Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

IS YOUR ADVISOR PROACTIVE?

Here’s hoping your financial consultant has kept up with the times.

The memory is indelible: in the last two quarters of 2008, investors with short- to mid-range time horizons cringed as their portfolios lost 20%, 30%, even 40% of value. This bear market was not only a test of investors … it was also a test of financial advisors.

Did your advisor respond to the changing environment? When the market corrects, a good financial advisor stays on top of things. As things turned bearish in fall 2008, many portfolios went the way of the market, with numerous investors moving to the money market for cover. Yet other investors found themselves making money during the downturn. Was it luck? Or simply the right strategy?

Some market conditions demand a change. In late 2008, was your advisor sharp enough to meet with you and alter your financial strategy to one appropriate to the bear market? Did he or she offer you an approach that could exploit opportunities in that market with your goals in mind? An astute advisor recognizes that being proactive in a changing market can potentially change the client outcome – for the better.

The market is dynamic. More bull and bear markets will follow. What do you think your current financial advisor will do next time? Sit back and relax when conditions improve? Mysteriously ignore you when the markets slump?

The nonprofit National Bureau of Economic Research (NBER) has recorded five recessions since 1980 and three since 1990. If you are investing by a 20-year or 30-year financial plan, you may ride through a handful of recessions over the next two or three decades if history is any guide. If recessions and bear markets rear their heads, will your investment strategy be updated? What is the risk of having it set in stone?

Today, anyone frustrated with current portfolio values has reason to consider a new financial advisor. If you feel that inattention and misdirection characterize your relationship with your current advisor, perhaps it is time for a change. You are not forbidden from changing advisors. You may look back one day and realize that the change helped your portfolio.

Stephanie Shinn is a Representative with KMS Financial Services, LLC and may be reached at 253.627.8101 or sjs@purcellas.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Monthly Economic Update for September, 2009

Quote of the month. “We will either find a way, or make one.” – Hannibal

The month in brief. Pessimists thought the market would pull back; it didn’t. Stocks did well and there was mounting evidence of a real estate rebound. We got news of a decline in the jobless rate, and better news from the manufacturing and service sectors. The government’s health care reform effort met with rowdy public opposition. Consumer spending inched up, and new cars sold like mad. The commodities markets had a mixed month with oil futures hitting a 2009 peak.

Domestic economic health. The jobless rate went down to 9.4% in July from 9.5% in June; perhaps it was an aberration, or perhaps (could we hope?) the start of a trend. It was the first time that America’s unemployment rate had dropped since April 2008.
Consumers managed to spend just a little bit more. Consumer spending rose 0.4% in June and 0.2% in July (while personal incomes fell 1.3% for June and stayed flat in July). There will likely be a bump in the August consumer spending and durable goods orders – the C.A.R.S. program, although quickly replenished by Congress, went through its $3 billion allotment of rebates by August 24.
In July, factory orders rose by 0.4% (economists thought they would fall) and industrial production went north 0.5% (the first increase in nine months). Producer prices fell by 0.9%, and durable goods orders soared 4.9%, with an 18.4% leap in transportation orders. In the wake of the C.A.R.S. program, the Institute for Supply Management’s gauge of manufacturing activity went above 50 in August for the first time since January 2008, coming in at 52.9.
“The prospects for a return to growth in the near term appear good,” Federal Reserve Chairman Ben Bernanke said at the Kansas City Fed’s annual symposium in Wyoming. The Fed’s August policy meeting produced the opinions that “economic activity is leveling out” and that inflation will be “subdued for some time”. Public response to the government’s attempt to advance health care reform was not subdued at all, and the contention delayed any notion of progress until after the Congressional summer recess.

Global economic health. New Eurostat data gave us a look at how things were faring in the EU nations. The overall EU unemployment rate rose 0.1% in July to 9.5%. However, the jobless rate in its biggest economy (Germany) was just 8.3%. (Spain’s jobless rate for July: 18.5%.) A key purchasing managers survey had EU manufacturing output at a 14-month high in August.
In Asia, the big concern came late in August when the central bank of China issued an internal memo telling its branches to tighten lending practices. This hit stocks hard, but fresh data pointed to a nice recovery for some of the region’s economies. A pair of China’s PMI indexes stayed above 50 (indicating expansion). Hong Kong’s manufacturing pace increased for the first time since June 2008. South Korea had a surplus of $1.67 billion (U.S.) in August, compared to a $3.81 billion (U.S.) deficit in August 2008. Inflation in Indonesia had increased moderately to 2.75%, and consumer prices in Thailand had moderated their descent.

September outlook. Well, September started with a triple-digit hit to the Dow – you could hear bears growling, worrying about banks and wondering if the summer rally had been justified. Will everyone sell in September? Or will stocks defy expectations? Is this a cyclical bull market or a secular bull market? We do have some history to consider: on average, the Dow, S&P 500 and NASDAQ have declined a bit more than 1% during the typical September. Many eyes are on the jobs report coming out September 4, and whether the jobless rate climbs or descends. Any descent (for the second month in a row) would provide a strong hint of an ebbing recession and a shot of reassurance to Wall Street. Even pessimists have to concede that many indicators are improving and that the economy is definitely recovering.

Securities offered through KMS Financial Services, Inc.