QE3 has undeniably boosted the stock market and assisted the real estate recovery. Yet at some point, the Fed will decide to let the economy stand on its own and stop its aggressive easing of monetary policy. Wall Street is beginning to wonder how and when that will occur.

Will the Fed wind down QE3 in early 2014? Quite possibly – but it could happen sooner. Bloomberg recently polled 47 economists for their opinions, and 61% of them felt that the Fed would wrap up QE3 in the first half of 2014. Another 11% thought the central bank would halt its bond purchases in the fourth quarter.

What will the Fed’s first step be? Abruptly ending QE3 could be foolhardy. The median estimate in Bloomberg’s poll was for an initial cut to $50 billion in purchases per month, evenly split between mortgage-linked securities and Treasuries.

Does anyone think the Fed might increase its bond buying? That possibility is on the table. On May 1, the Fed said that it “is prepared to increase or reduce the pace of its purchases” depending on how “the outlook for the labor market or inflation changes.”

As the New York Times notes, Fed officials don’t see a whole lot of merit in increasing bond purchases. In the first quarter, the central bank already bought an amount of securities roughly equivalent to the volume of new mortgage bond issuance.

The latest indicators haven’t been great by any means: the jobless rate is still closer to 8% than 6.5% (the point at which the Fed would consider raising interest rates), the pace of manufacturing seems to have slowed this spring (the Institute for Supply Management’s factory index came in at 50.7 for March), and Q1 GDP was estimated at 2.5%. Is all this just another spring swoon, or should the Fed buy more assets in response to these indicators?

If the sequester truly damages the recovery and the Fed elects to buy more bonds instead of less, it certainly has the leeway to pull it off. The annual core inflation rate, as measured by the Commerce Department’s personal consumption expenditures (PCE) index, was just 1.1% in March. The central bank has an inflation target of 2.0%.

The status quo may prevail into winter. The Fed has no compelling reason to stop buying securities in the near term. By gradually reducing its asset purchases, it could try to engineer a soft landing for the stock and real estate markets – and considering that the Dow pulled back about 2,000 points shortly after the end of both QE1 and QE2, there is every reason to strive for that outcome.

As JPMorgan Chase’s chief U.S. economist Michael Feroli noted last week, “In effect, the Fed signaled that the pace of asset purchases would be data-dependent in both directions, but that right now the data gives them little reason to change in either direction.”

As baby boomers leave their careers behind, long term care insurance will become very important in their financial strategies. The reasons to get an LTC policy are very compelling.

Your premium payments buy you access to a large pool of money which can be used to pay for long term care costs. By paying for LTC out of that pool of money, you can preserve your retirement savings and income.

The cost of assisted living or nursing home care alone could motivate you to pay the premiums. Genworth Financial conducts a respected annual Cost of Care Survey to gauge the price of long term care in the U.S. Here is a summary of the 2013 survey’s key findings:

*In 2013, the median annual cost of a private room in a nursing home was $83,950 or $230 per day – up 3.6% from 2012. In the past five years, the cost has risen about 4.5% annually.

*A private one-bedroom unit in an assisted living facility has a median cost of $3,450 a month, or $41,400 annually. It was 4.5% cheaper last year.

*The median payment to a non-Medicare certified, state-licensed home health aide is $19 an hour in 2013, up 2.3% from 2012.

Can you imagine spending an extra $40-85K out of your retirement savings in a year? What if you had to do it for more than one year?

The U.S. Department of Health & Human Services estimates that about 70% of Americans will need some kind of long term care during their lifetimes. Additionally, 69% of Americans older than 90 have some form of disability – often a direct cause for long term care.

Why procrastinate? The earlier you opt for LTC coverage, the cheaper the premiums. This is why many people purchase it before they retire. Those in poor health or over the age of 80 are frequently ineligible for coverage.

What does it pay for? Some people think LTC coverage just pays for nursing home care. That’s inaccurate. It can pay for a wide variety of nursing, social, and rehabilitative services at home and away from home, for people with a chronic illness or disability or people who just need assistance bathing, eating or dressing.

How much will your DBA be? DBA stands for Daily Benefit Amount – the maximum amount that your LTC plan will pay per day for care in a nursing home facility. You can choose a Daily Benefit Amount when you pay for your LTC coverage, and you can also choose the length of time that you may receive the full DBA on a daily basis. The DBA typically ranges from a few dozen dollars to hundreds of dollars. Many plans offer you “inflation protection” at enrollment, meaning that every year your policy benefit will increase (usually up to 5%) – so your pool of money can grow.

Medicare is not long term care insurance. Some people think Medicare will pick up the cost of long term care. That is a misconception. Medicare will only pay for the first 100 days of nursing home care, and only if 1) you are getting skilled care and 2) you go into the nursing home right after a hospital stay of at least 3 days. Medicare also covers limited home visits for skilled care, and some hospice services for the terminally ill. That’s all.

Now, Medicaid can actually pay for long term care – if you are destitute. Are you willing to wait until you are broke for a way to fund long term care? Of course not. LTC insurance provides a way to do it.

Why not look into this? You may have heard that LTC insurance is expensive compared with some other forms of coverage. But the annual premiums – in the vicinity of $2,000-2,500 for the typical policy right now, depending on your age – are cheap compared to real-world LTC costs.

Ask an insurance or financial professional about some of the LTC choices you can explore. While many Americans have life, health and disability insurance, that’s not the same thing as long term care coverage.

If you fear probate, consider a living trust. If you worry about your will being contested or your heirs fighting over your assets, a revocable living trust may be your best option.

You fund a revocable living trust with all, or largely all, of your assets during your lifetime. The trust owns the assets, yet you can still use these assets while you live. Once you die, the revocable living trust becomes irrevocable and the trust assets are distributed according to your wishes by designated successor trustees, exempt from probate.

In addition to giving you more control and privacy, a living trust may save your heirs time and money. An AARP survey finds that it takes roughly 18 months to distribute the typical estate because of probate. Settlement costs from probate may eat up as much as 5% of an estate.

Living trusts do not reduce taxes. Assets within a living trust are fully taxable at the federal and (generally) state level. Unless someone has drafted the trust to include tax-saving provisions, it will offer no particular estate or income tax advantages to the grantor or the beneficiaries.

Living trusts lead to a lot of paperwork. As the trust has to become the legal owner of your assets to be effective, the title needs to be changed on those assets. That means filling out myriad forms and revising others. Expenses may be incurred along the way.

Living trusts do not relieve trustees of their duties. When a grantor of a living trust passes away, the language in the trust document will not magically “do all the work” for the successor trustee. While a successor trustee will usually not have to deal with probate, other responsibilities remain. Titles will need to be changed and appraisals may be necessary.

A living trust is not necessarily inexpensive. A lawyer may charge you $1,500 or more to create one. If you have significant assets and fear a dispute over your will, it may be worth it.

There are living trust solutions available on the Internet, or via books or software. However, when cutting and pasting boilerplate language and filling in some names here and there, what kinds of legal and financial risks are you taking?

While having a living trust drawn up with the help of an attorney is certainly advisable, paying a fee is no guarantee of competence; amending simple errors could cost you another $300-500.

A living trust is not a will. You still need a will when you have a living trust. In fact, you are probably going to need a “pour-over” will down the road, assuming you will keep accumulating assets after the trust is drawn up. A pour-over will place these stray assets into the trust.

Additionally, you need a will if you want to make charitable bequests or gifts to friends or relatives upon your passing. A living trust cannot carry out these gifts on your behalf, nor can it name a guardian for any minor children.

A living trust is not a living will, either. A living trust does not function as a health care directive or a power of attorney. These are separate estate planning documents. While some families ask attorneys to create them concurrently with a living trust, a living trust won’t stand in for them.

While living trusts are highly touted and can be highly useful, that does not mean every family should get one.

You may not need a living trust to begin with. If your financial life has been largely free of “creditors and predators” and your estate isn’t complex, a thoughtfully drafted, well-executed will could prove sufficient when the time comes. For some middle-class families, a living trust can be like a fifth wheel on a car, seeming to provide stability, but actually unnecessary.

After all, not all assets are subject to probate when someone passes away: IRA, Keogh and pension plan savings, life insurance death benefits, checking and savings accounts that have POD beneficiaries, Treasury bonds, and property owned jointly with the right of survivorship.

In terms of time, often there isn’t much difference between distributing assets via probate and through a living trust. In terms of savings, the filing and court fees that come with a probated will may not be that onerous. While the fees may total a small percentage of the value of the estate, the executor may decline a commission if he or she is a family member and require only hourly legal advice.

A living trust isn’t the only type of trust out there. Some families opt for the testamentary trust. Assets move into this basic, irrevocable trust as directed in a grantor’s will. As the grantor’s will directs the assets, the estate still proceeds through probate but more expediently than usual. Other families opt for more complex and specialized trusts.

As a reminder, this article is intended as an overview of living trusts, and not any kind of legal advice. If you are considering a living trust or another kind of estate planning vehicle, the best “first step” is to talk to an estate planning attorney before you proceed further.

No matter what your age, here are some things you may want to accomplish this year with regard to estate planning.

Create a will if you don’t have one. Many people never get around to creating a will, even to the point of buying a will-in-a-box at a stationery store or setting one up online.

A solid will drafted with the guidance of an estate planning attorney may cost you more than a will-in-a-box, and it may prove to be some of the best money you ever spend. A valid will may save your heirs from some expensive headaches linked to probate and ambiguity.

Complement your will with related documents. Depending on your estate planning needs, this could include some kind of trust (or multiple trusts), durable financial and medical powers of attorney, a living will and other items.

You should know that a living will is not the same thing as a durable medical power of attorney. A living will makes your wishes known when it comes to life-prolonging medical treatments, and it takes the form of a directive. A durable medical power of attorney authorizes another party to make medical decisions for you (including end-of-life decisions) if you become incapacitated or otherwise unable to make these decisions.

Review your beneficiary designations. Who is the beneficiary of your IRA? How about your 401(k)? How about your annuity or life insurance policy? If your answer is along the lines of “Mm … you know … I’m pretty sure it’s…” or “It’s been a while since …”, then be sure to check the documents and verify who the designated beneficiary is.

When it comes to retirement accounts and life insurance, many people don’t know that beneficiary designations take priority over bequests made in wills and living trusts. If you long ago named a child now estranged from you as the beneficiary of your life insurance policy, he or she will receive the death benefit when you die – regardless of what your will states.

Time has a way of altering our beneficiary decisions. This is why some estate planners recommend that you review your beneficiaries every two years.

In some states, you can authorize transfer-on-death designations. This is a tactic against probate: TOD designations may permit the ownership transfer of securities (and in a few states, forms of real property, vehicles and other assets) immediately at your death to the person designated. TOD designations are sometimes referred to as “will substitutes” but they usually pertain only to securities.

Create asset and debt lists. Does this sound like a lot of work? It may not be. You should provide your heirs with an asset and debt “map” they can follow should you pass away, so that they will be aware of the little details of your wealth.

* One list should detail your real property and personal property assets. It should list any real estate you own, and its worth; it should also list personal property items in your home, garage, backyard, warehouse, storage unit or small business that have notable monetary worth.

* Another list should detail your bank and brokerage accounts, your retirement accounts, and any other forms of investment plus any insurance policies.

* A third list should detail your credit card debts, your mortgage and/or HELOC, and any other outstanding consumer loans.

Think about consolidating your “stray” IRAs and bank accounts. This could make one of your lists a little shorter. Consolidation means fewer account statements, less paperwork for your heirs and fewer administrative fees to bear.

Let your heirs know the causes and charities that mean the most to you. Have you ever seen the phrase, “In lieu of flowers, donations may be made to …” Well, perhaps you would like to suggest donations to this or that charity when you pass. Write down the associations you belong to and the organizations you support. Some non-profits do offer accidental life insurance benefits to heirs of members.

Select a reliable executor. Who have you chosen to administer your estate when the time comes? The choice may seem obvious, but consider a few factors. Is there a stark possibility that your named executor might die before you do? How well does he or she comprehend financial matters or the basic principles of estate law? What if you change your mind about the way you want your assets distributed – can you easily communicate those wishes to that person?

Your executor should have copies of your will, forms of power of attorney, any kind of healthcare proxy or living will, and any trusts you create. In fact, any of your loved ones referenced in these documents should also receive copies of them.

Talk to the professionals. Do-it-yourself estate planning is not recommended, especially if your estate is complex enough to trigger financial, legal and emotional issues among your heirs upon your passing.

Many people have the idea that they don’t need an estate plan because their net worth is less than X dollars. Keep in mind, money isn’t the only reason for an estate plan. You may not be a multimillionaire yet, but if you own a business, have a blended family, have kids with special needs, worry about dementia, or can’t stand the thought of probate delays plus probate fees whittling away at assets you have amassed … well, these are all good reasons to create and maintain an estate planning strategy.

With that in mind, here are some things to think about.

What do you absolutely need to accomplish? If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a “short list” of life goals, and while they may have nothing to do with money, the financial decisions you make may be integral to achieving them. (This may be the most exciting aspect of retirement planning.)

What would revitalize you? Some people retire with no particular goals at all, and others retire burnt out. After weeks or months of respite, ambition inevitably returns. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will follow … and yet, when the time to follow them arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.

In retirement, time is really your most valuable asset. With more free time and opportunity for reflection, you might find your old dreams giving way to new ones. You may find yourself called to volunteer as never before, or motivated to work again but in a new context.

Who should you share your time with? Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family”. Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family. You may define it as you wish and allocate more or less of your time to your family as you wish (some people do want less family time when they retire).

Regardless of how you define “family” or whether or not you want more “family time” in retirement, you probably don’t want to spend your time around “dream stealers”. They do exist. If you have a grand dream in mind for retirement, you may meet people who try to thwart it and urge you not to pursue it. (Hopefully, they are not in close proximity to you.) Reducing their psychological impact on your retirement may increase your happiness.

How much will you spend? We can’t control all retirement expenses, but we can control some of them. The thought of downsizing may have crossed your mind. While only about 10% of people older than 60 sell homes and move following retirement, it can potentially bring you a substantial lump sum or lead to smaller mortgage payments. You could also lose one or more cars (and the insurance that goes with them) and live in a neighborhood with extensive, efficient public transit. Ditching land lines and premium cable TV (or maybe all cable TV) can bring more savings. Garage sales and donations can have financial benefits as well as helping you get rid of clutter, with either cash or a federal tax deduction that may be as great as 30-50% of your adjusted gross income provided you carefully itemize and donate the goods to a 501(c)(3) non-profit.¹

Could you leave a legacy? Many of us would like to give our kids or grandkids a good start in life, or help charities or schools – but given the economic realities of retiring today, there is no shame in putting your priorities first.

Consider a baby boomer couple with, for example, $285,000 in retirement savings. If that couple follows the 4% rule, the old maxim that you should withdraw about 4% of your retirement savings per year, subsequently adjusted for inflation – then you are talking about $11,400 withdrawn to start. When you combine that $11,400 with Social Security and assorted investment income, that couple isn’t exactly rich. Sustaining and enhancing income becomes the priority, and legacy planning may have to take a backseat. In Merrill Lynch’s 2012 Affluent Insights Survey, just 26% of households polled (all with investable assets of $250,000 or more) felt assured that they could leave their children an inheritance; not too surprising given what the economy and the stock market have been through these past several years.²

How are you planning for retirement? This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing plan in light of changes in your life, then confer with a financial professional experienced in retirement planning.

The answers may surprise you. While 15% of the survey respondents indicated they would spend their refunds on discretionary purchases, 47% said they would save the money and 44% indicated they would use some or all of it to whittle away some debt. Just 15% said they would invest it, and only 6% said they would direct it to a charity.

Besides deposit accounts, consider other destinations. Putting your refund into your savings or checking account is sensible enough – but with the interest rates most bank accounts earn today, you may be wondering about alternatives. Here are some other options.

Your refund could let you put more money into your workplace retirement plan. Does your employer offer to match your retirement plan contributions? If so, you might want to think about contacting your plan administrator or human resources officer and increasing your elective salary deferrals into the retirement plan this year by the same amount as the refund. If you deposit those refund dollars in a checking or savings account, you can offset the increase in the amount of salary you defer by distributing the refund dollars from the bank account to yourself. Hopefully, that checking or savings account generates at least some interest on those deposited funds as well.

It could help you increase your 2012 (or 2013) IRA contribution. If you didn’t make the maximum allowable IRA contribution for 2012 – $5,000 across all of your traditional and Roth IRAs, $6,000 for those 50 or older – you could boost that contribution as a byproduct of your refund.

Assuming you haven’t sent your 2012 federal return to the IRS yet, you can redo your taxes to show your 2012 IRA contribution(s) raised by the amount of the refund you will be getting. As the deadline for 2012 contributions is April 15, 2013, you could either make your additional 2012 IRA contribution using your refund (if you file early and get your refund back nice and early) or with equivalent cash from your savings or checking account, knowing that you will then use the refund to reimburse yourself. Whatever way you choose, please make sure that you earmark your additional contribution for the year 2012; otherwise, the IRA custodian will interpret it as a contribution for this year. (If you’ve already sent your 2012 taxes to the IRS, you could still pull this off with the help of a 1040X form to amend your return).

Another option: use the refund you get from your 2012 taxes to increase your 2013 IRA contribution.

You could tell the IRS to put the money in bonds. Starting in 2011, the IRS gave taxpayers who received refunds a third option: in addition to a direct deposit or a check in the mail, their refunds could be redirected into U.S. Series I Savings Bonds. Up to $5,000 of refund dollars can be invested this way (in multiples of $50).

You could use the dollars for home improvement. If you want to go green (or even greener) and you have the time, initiative and patience to tackle an energy-efficient home improvement project, here is another option. You could get as much as a $500 tax credit for your effort.

You could make an additional mortgage payment or pay property tax. Assuming your home isn’t underwater, you may want to use the refund dollars to reduce mortgage principal. Also, mortgage companies often keep a few thousand bucks in escrow to pay various tax and insurance expenses linked to your home, and some of them will actually let a borrower’s savings account stand in for their escrow account. If they permit, you could make such payments out of an account of your own while it earns a (tiny) bit of interest.

Lastly, think about avoiding a refund in 2013. In figurative terms, your federal tax refund amounts to an interest-free loan to Uncle Sam. If you don’t particularly want to make that “loan” again, see if your W-4 can be tweaked to decrease that possibility this year.
]]> http://www.billlosey.com/articles/simple-ways-to-put-your-tax-refund-to-work.php/feed 0 http://www.billlosey.com/articles/10-things-you-your-beneficiaries-need-to-know.php http://www.billlosey.com/articles/10-things-you-your-beneficiaries-need-to-know.php#comments Wed, 06 Feb 2013 17:45:58 +0000 admin http://www.billlosey.com/?p=2218 If your loved ones have invested, saved or insured themselves to any degree, you may be named as a beneficiary to one or more of their accounts, policies or assets in the event of their deaths. While we all hope “that day” never comes, we do need to know what to do financially if and when it does.

Legally, just who is a beneficiary? IRAs, annuities, life insurance policies and qualified retirement plans such as 401(k)s and 403(b)s are set up so that the accounts, policies or assets are payable or transferrable on the death of the owner to a beneficiary, usually an individual named on a contractual document that is filled out when the account or policy is first created.

In addition to the primary beneficiary, the account or policy owner is asked to name a contingent (secondary) beneficiary. The contingent beneficiary will receive the asset if the primary beneficiary is deceased.

Some retirement accounts and policies may have multiple beneficiaries. Charities are also occasionally named as beneficiaries. If you have individually listed one (or more) of your kids or grandkids as designated beneficiaries of your 401(k) or IRA, that designation will usually override any charitable bequest you have stated in a trust or will.

A will is NOT a beneficiary form. When it comes to 401(k)s and IRAs, beneficiary designations are commonly considered first and wills second. Be mindful of who you select. If you willed your IRA assets to your son in 2008 but named the man who is now your ex-husband as the beneficiary of your IRA back in 1996, those IRA assets are set up to transfer to your ex-husband in the event of your death.

If a retirement account owner passes away, what steps need to be taken? First, the beneficiary form must be found, either with the IRA or retirement plan custodian (the financial firm overseeing the account) or within the financial records of the person deceased. Beyond that, the financial institution holding the IRA or retirement plan assets should also ask you to supply:

• A certified copy of the account owner’s death certificate
• A notarized affidavit of domicile (a document certifying his or her place of residence at the time of death)

If the named beneficiary is a minor, a birth certificate for that person will be requested. If the beneficiary is a trust, the custodian will want to see a W-9 form and a copy of the trust agreement.

If you are named as the primary beneficiary, you usually have three options for claiming the assets, regardless of what kind of retirement savings account you have inherited:

1. Open an inherited IRA and transfer or roll over the funds into it.
2. Roll over or transfer the assets to your own, existing IRA.
3. Withdraw the assets as a lump sum (liquidate the account, get a check).

Before you make ANY choice, you should welcome the input of a tax advisor, and discuss any limitations or consequences that may apply to your situation.

What if you are a spousal beneficiary? If that is the case, you may elect to:

• Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA or SIMPLE IRA into your own traditional or Roth IRA, or an inherited traditional or Roth IRA
• Withdraw the assets as a lump sum
• Roll over or transfer qualified retirement plan assets from a 401(k), 403(b), etc. into your own retirement account, or take them as a lump sum.

What if you are a non-spousal beneficiary? If this is so, you may elect to:

• Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an inherited IRA
• Withdraw the assets as a lump sum.

What if a qualified (i.e., irrevocable) trust is named as the beneficiary? If that is the circumstance, the trustee has two choices:

• Transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an inherited IRA
• Withdraw the assets as a lump sum.

The next calendar year will be very important. Inheritors of retirement accounts have until September 30 of the year following the original account owner’s death to review and remove beneficiaries, and until December 31 of that year to divide the IRA assets among multiple beneficiaries. Usually, December 31 of the year after the original retirement plan owner’s passing is the deadline for the first RMD (Required Minimum Distribution) from an inherited traditional or Roth IRA.

Now, how about U.S. Savings Bonds? If you are named as the primary beneficiary of a U.S. Treasury Bond, you have three options:

• Redeem it at a financial institution (you will need your personal I.D. for this)
• Get the security reissued in your name or the names of multiple beneficiaries. You do this via Treasury Department Form 4000, which you must sign before a certifying officer at a bank (not a notary). Then you send that signed form and a certified copy of the death certificate to a Savings Bond Processing Site.
• Do nothing at all, as the primary beneficiary automatically becomes the bond owner when the original bond owner passes away.

What about savings & checking accounts? Bank accounts are often payable-on-death (POD) assets or “Totten trusts.” All a beneficiary needs to claim the assets is his or her personal identification and a certified copy of the death certificate of the original account holder. There is no need for probate. (Some states limit charities and non-profits from being POD beneficiaries of bank accounts.)

How about real estate? Lastly, it is worth noting that about a dozen states use transfer-on-death (TOD) deeds for real property. If you live in such a state, you have to go to the county recorder or registrar, usually with a certified copy of the death certificate and a notarized affidavit which informs the recorder or registrar that ownership of the property has changed. If the deed names multiple beneficiaries and some are dead, the surviving beneficiaries must present the recorder or registrar with certified copies of the death certificates of the deceased beneficiaries.

Q: How will caregiving affect your own financial picture? Try to estimate a budget, either before you begin or after a representative interval of caregiving. How much of the elder’s finances will be devoted to care costs compared with your finances? If you are thinking about quitting a job to focus on eldercare, think about the resulting loss of income, the probable loss of your own health care coverage, and your prospects for reentering the workforce in the future.

Q: How much will “aging in place” cost? Growing old at home (rather than in a nursing home) has many advantages. Unfortunately, over time, the cost of care provided in the home can greatly exceed nursing home services. So you must weigh how long you can manage with home health aide services versus adult day care or nursing home care.

Q: How much do you know about your loved one’s financial life? Caring for a parent, grandparent or sibling may eventually mean making financial decisions on their behalf. So you may have a learning curve ahead of you. Specifically, you may have to learn, if you don’t already know:

• Where your loved one’s income comes from (SSI, pensions, investments, etc.)
• Where wills, deeds and trust documents are located
• Who the beneficiaries are on various policies and accounts
• Who has advised your loved one about financial matters in the past (financial consultants, CPAs, insurance agents, etc.)
• Assorted PIN numbers for accounts and of course Social Security numbers

Q: Is it time for a power of attorney? If a loved one has been diagnosed with Alzheimer’s or any form of disease which will eventually impair judgment, a power of attorney will likely be needed in the future. In fact, if you try to handle money matters for another person without a valid power of attorney, the financial institution involved could reject your efforts.

When a power of attorney is in effect, it authorizes an “agent” or “attorney-in-fact” to handle financial transactions for another person. A durable power of attorney lets you handle the financial matters of another person immediately. A springing power of attorney only lets you do this after a medical diagnosis confirms a person’s mental incompetence. (As no doctor wants a lawsuit, such diagnoses are harder to obtain than you might think.)

You want to obtain a power of attorney before your loved one is unable to make financial decisions. Many investment firms will only permit a second party access to an account owner’s invested assets if the original account owner signs a form allowing it. Copies of the durable power of attorney should be sent to any financial institution at which your parents have accounts or policies. Whoever becomes the agent should be given a certified copy of the power of attorney and be told where the original document is located.

Q: Is it time for a conservatorship? A conservatorship gives a guardian the control to manage the assets and financial affairs of a “protected” person. If a loved one becomes incapacitated, a conservator can assume control of some or all of the protected party’s income and assets if a probate court allows.

To create a conservatorship, you must either request or petition a probate court, preferably with assistance from a family law attorney. A probate court will only grant conservatorship after interviews and background check on the proposed conservator and only after documentation is provided to the court showing financial and mental incompetence on the part of the individual to be protected.

A conservatorship implies more vigilance than a power of attorney. With a power of attorney, there is no ongoing accountability to a court of law. (The same goes for a living trust.) There is little to prevent an attorney-in-fact from abusing or neglecting the protected person. On the other hand, a conservator must report an ongoing accounting to the probate court.

Q: If a trust is created, who will serve as trustee? As some carereceivers acknowledge their physical and mental decline, they decide to transfer ownership of certain assets from themselves to a revocable or irrevocable trust. A settlor (or grantor) creates a trust, a trustee manages it and the assets go to one or more beneficiaries. (The trustee can be a relative; it can also be a bank or an attorney, for that matter.) At the settlor’s death, the trustee distributes the settlor’s assets according to the instructions written in the trust document. Probate of the trust assets is avoided – so long as the assets have been transferred into the trust during the settlor’s lifetime.

A trustee has a fiduciary responsibility to watch over the financial legacy of the settlor. Practically speaking, a trustee needs to have sufficient financial literacy to understand tax law, the managing of investments and the long-range goals noted in the trust document. Some families consider all this and opt to manage trusts themselves; others seek the services of financial professionals.

If the carereceiver has a living trust or another form of trust already, you may still need a power of attorney as percentages of his or her assets or income may not end up in the trust. (There is nothing from preventing a trustee from also being the agent in a power of attorney.) Additionally, while a living trust is essentially a will substitute, you will still need a pour-over will to supplement it. That is because in all probability, some of the settlor’s assets won’t be transferred into the trust during his or her lifetime. A pour-over will is the legal mechanism that “pours” those stray assets into the trust when the settlor passes away. If 100% of the settlor’s assets are transferred into the trust during the settlor’s lifetime, a pour-over will becomes superfluous.

Q: Finally, do you understand the potential for liability? As a caregiver, you have a physical, psychological and legal duty to the carereceiver. If you neglect that duty, you could be held liable as many states have laws demanding that caregiving meets certain standards.

These laws are basically similar: a caregiver must not abuse the carereceiver in any conceivable way, and any incidents of such abuse must be reported (there are often state and local “hotlines” set up for this). The elder must have adequate nutrition, clothing and bedding, and the environment must be clean and not pose health hazards.

If you have obtained a power of attorney for finances, then appropriate amounts of the elder’s money must be spent on necessary health services and other services on behalf of his/her well-being. Failure to do so could be interpreted in court as a form of abuse or neglect.

When abuse and neglect occur, they may have roots in caregiver burnout – the caregiver is constantly cross and irritable with the carereceiver, or stress defines the experience, or an overwhelming sense of duty or anxiety prevents the caregiver from having a life of his/her own. If you ever feel you are approaching this point, it is time to call for assistance or to assign caregiving to professionals.

Useful URLs. Some good websites can help you connect to great resources: try the U.S. Administration on Aging’s Eldercare Locator (eldercare.gov), the National Council on Aging’s online benefits checklist service (benefitscheckup.org) and the National Association of Area Agencies on Aging (n4a.org/about-n4a/?fa=aaa-title-VI).

Is that the path to making money in stocks? Some people have made money that way, but others do not. Many people eventually tire of the stress involved, and come to regret the emotional decisions that a) invite financial losses, b) stifle the potential for long-term gains.

We all want a terrific ROI, but risk management matters just as much in investing, perhaps more. That is why diversification is so important. There are two great reasons to invest across a range of asset classes, even when some are clearly outperforming others.

#1: You have the potential to capture gains in different market climates. If you allocate your invested assets across the breadth of asset classes, you will at least have some percentage of your portfolio assigned to the market’s best-performing sectors on any given trading day. If your portfolio is too heavily weighted in one asset class, or in one stock, its return is riding too heavily on its performance.

So is diversification just a synonym for playing not to lose? No. It isn’t about timidity, but wisdom. While thoughtful diversification doesn’t let you “put it all on black” when shares in a particular sector or asset class soar, it guards against the associated risk of doing so. This leads directly to reason number two…

#2: You are in a position to suffer less financial pain if stocks tank. If you have a lot of money in growth stocks and aggressive growth funds (and some people do), what happens to your portfolio in a correction or a bear market? You’ve got a bunch of losers on your hands. Tax loss harvesting can ease the pain only so much.

Diversification gives your portfolio a kind of “buffer” against market volatility and drawdowns. Without it, your exposure to risk is magnified.

What impact can diversification have on your return? Let’s refer to the infamous “lost decade” for stocks, or more specifically, the performance of the S&P 500 during the 2000s. As a USA Today article notes, the S&P’s annual return was averaging only +1.4% between January 1, 2001 and Nov. 30, 2011. Yet an investor with a diversified portfolio featuring a 40% weighting in bonds would have realized a +5.7% average annual return during that stretch.

If a 5.7% annual gain doesn’t sound that hot, consider the alternatives. As T. Rowe Price vice president Stuart Ritter noted in the USA TODAY piece, an investor who bought the hottest stocks of 2007 would have lost more than 60% on his or her investment in the 2008 market crash. Investments that were merely indexed to the S&P 500 sank 37% in the same time frame.

Asset management styles can also influence portfolio performance. Passive asset management and active (or tactical) asset management both have their virtues. In the wake of the stock market collapse of late 2008, many investors lost faith in passive asset management, but it still has fans. Other investors see merit in a style that is more responsive to shifting conditions on Wall Street, one that fine-tunes asset allocations in light of current valuation and economic factors with an eye toward exploiting the parts of market that are really performing well. The downside to active portfolio management is the cost; it can prove more expensive for the investor than traditional portfolio management.

Believe the cliché: don’t put all your eggs in one basket. Wall Street is hardly uneventful and the behavior of the market sometimes leaves even seasoned analysts scratching their heads. We can’t predict how the market will perform; we can diversify to address the challenges presented by its ups and downs.

#1: Lending money to family & friends. You may know someone who has lent a few thousand to a sister or brother, a few hundred to an old buddy, and so on. Generosity is a virtue, but personal loans can easily transform into personal financial losses for the lender. If you must loan money to a friend or family member, mention that you will charge interest and set a repayment plan with deadlines. Better yet, don’t do it at all. If your friends or relatives can’t learn to budget, why should you bail them out?

#2: Spending more than you make. Living beyond your means, living on margin, whatever you wish to call it, it is a path toward significant debt. Wealth is seldom made by buying possessions. Today’s flashy material items may become the garage sale junk of 2025. Yet, the trend continues: a 2012 Federal Reserve Survey of Consumer Finances calculated that just 52% of American households earn more money than they spend.

#3: Saving little or nothing. Good savers build emergency funds, have money to invest and compound, and leave the stress of living paycheck-to-paycheck behind. If you can’t put extra money away, there is another way to get some: a second job. Even working 15-20 hours more per week could make a big difference. The problem is far too common: a CreditDonkey.com survey of 1,105 households last fall found that 41% of respondents had less than $500 in savings. In another disturbing detail, 54% of the respondents had no savings strategy.

#4: Living without a budget. You may make enough money that you don’t feel you need to budget. In truth, few of us are really that wealthy. In calculating a budget, you may find opportunities for savings and detect wasteful spending.

#5: Frivolous spending. Advertisers can make us feel as if we have sudden needs; needs we must respond to, needs that can only be met via the purchase of a product. See their ploys for what they are. Think twice before spending impulsively.

#6: Not using cash often enough. No one can deny that the world runs on credit, but that doesn’t mean your household should. Pay with cash as often as your budget allows.

#7: Gambling. Remember when people had to go to Atlantic City or Nevada to play blackjack or slots? Today, behemoth casinos are as common as major airports; most metro areas seem to have one or be within an hour’s drive of one. If you don’t like smoke and crowds, you can always play the lottery. There are many glamorous ways to lose money while having “fun”. The bottom line: losing money is not fun. All it takes is willpower to stop gambling. If an addiction has overruled your willpower, seek help.

#8: Inadequate financial literacy. Is the financial world boring? To many people, it is. The Wall Street Journal is not exactly Rolling Stone, and The Economist is hardly light reading. You don’t have to start there, however: great, readable and even entertaining websites filled with useful financial information abound. Reading an article per day on these websites could help you greatly increase your financial understanding if you feel it is lacking.

#9: Not contributing to IRAs or workplace retirement plans. Even with all the complaints about 401(k)s and the low annual limits on traditional and Roth IRA contributions, these retirement savings vehicles offer you remarkable wealth-building opportunities. The earlier you contribute to them, the better; the more you contribute to them, the more compounding of those invested assets you may potentially realize.

#10: DIY retirement planning. Those who plan for retirement without the help of professionals leave themselves open to abrupt, emotional investing mistakes and tax and estate planning oversights. Another common tendency is to vastly underestimate the amount of money needed for the future. Few people have the time to amass the knowledge and skill set possessed by a financial services professional with years of experience. Instead of flirting with trial and error, see a professional for insight.

Drawing retirement income without draining your savings is a challenge, and the response to it varies per individual. Today’s retirees will likely need to be more flexible and look at different withdrawal methods and tax and lifestyle factors.

1. Should you go by the 4% rule? For decades, retirees were cautioned to withdraw no more than 4% of their retirement balances annually (adjusted north for inflation as the years went by). This “rule” still has merit (although sometimes the percentage must be increased out of necessity). T. Rowe Price has estimated that someone retiring with a typical 60%/40% stock/bond ratio in their portfolio has just a 13% chance of depleting retirement assets across 30 years if he or she abides by the 4% rule. A 7% initial withdrawal rate invites an 81% chance of outliving your retirement assets in 30 years.

That sounds like a pretty good argument for the 4% rule in itself. However, while the 4% rule regulates your withdrawals, it doesn’t regulate portfolio performance. If the markets don’t do well, your portfolio may earn less than 4%, and if your investments repeatedly can’t make back the equivalent of what you withdraw, you will risk depleting your nest egg over time.

2. Or perhaps the portfolio percentage method? Some retirees elect to withdraw X% of their portfolio in a year, adjusting the percentage based on how well or poorly their investments perform. As this can produce greatly varying annual income even with responsive adjustments, some retirees take a second step and set upper and lower limits on the dollar amount they withdraw annually. This approach is more flexible than the 4% rule, and in theory you will never outlive your money.

3. Or maybe the spending floor approach? That’s another approach that has its fans. You estimate the amount of money you will need to spend in a year and then arrange your portfolio to generate it. This implies a laddered income strategy, with the portfolio heavily weighted towards bonds and away from stocks. This is a more conservative approach than the two methods above: with a low equity allocation in your portfolio, only a minority of those assets are exposed to stock market volatility, and yet they can still capture some upside with a foot in the market.

4. Attention has to be paid to tax efficiency. Many people have amassed sizable retirement savings, yet give little thought as to the order of their withdrawals. Generally speaking, there is wisdom in taking money out of taxable accounts first, then tax-deferred accounts and lastly tax-exempt accounts. This withdrawal order gives the assets in the tax-deferred and tax-exempt accounts some additional time to grow. A smartly conceived withdrawal sequence may help your retirement savings to last several years longer than they would in its absence.

5. Keeping healthy might help you save more in two ways. Increasingly, people want to work until age 70, or longer. Many assume they can, but their assumption may be flawed. The 2012 Retirement Confidence Survey from the Employee Benefit Research Institute found that 50% of current retirees had left the workforce earlier than they planned, with personal or spousal health concerns a major factor.

When you eat right, exercise consistently and see a doctor regularly, you may be bolstering your earning potential as well as your constitution. Health problems can hurt your income stream and reduce your chances to get a job, and medical treatments can eat up time that you could use in other ways. Good health can mean fewer ER visits, fewer treatments and fewer hospital stays, all saving you money that might otherwise come out of your retirement fund.

Fidelity figures that a couple retiring now at age 65 will spend $240,000 (in 2012 dollars) on retirement health expenses across their remaining years. That $240,000 doesn’t even include dental, over-the-counter drug and long term care costs (and as a reminder, many eye, ear and dental care costs are not even covered under Medicare or by Medigap policies). Every year you work may mean another year of health insurance coverage as well as income.

These factors aside, what if you have a choice? If you wait a few years to apply for Social Security, how much more income might you realize?

Could you wait until age 66? The Social Security Administration has made 66 the “full” retirement age for people born during 1943-1954. If you were born in this period and you apply for Social Security at age 62, you will reduce your retirement benefit by 25% and your spouse’s by 30%.

That alone might convince you to wait. In addition, there are claiming strategies that may bring spouses much greater cumulative lifetime Social Security income, and they depend on one spouse waiting until age 66 to apply for benefits.

That may be the time for a file & suspend strategy. This tactic positions a married couple to receive maximum Social Security benefits at age 70, with one spouse being able to claim some benefits at age 66.

An example: Terry was born in 1947 and Teresa was born in 1951, so full retirement age is 66 for both of them. Terry files his claim for Social Security benefits at age 66, but then he elects to suspend his $2,000 monthly retirement benefit. Doing that clears the way for Teresa to get a $1,000 monthly spousal benefit when she reaches 66; she can do this by filing a restricted claim for spousal benefits only at that time.

So while some spousal benefits are rolling in, Terry and Teresa have both elected to put off receiving their own Social Security benefits until age 70. That allows each of them to rack up delayed retirement credits (8% annually) between 66-70. So when Terry turns 70, he is eligible to collect an enhanced benefit: $2,640 per month instead of the $2,000 per month he would have received at age 66. At 70, Teresa can switch from receiving the $1,000 monthly spousal benefit to collecting her enhanced benefits.

Variations on file & suspend. There are other ways to do this. For example, 66-year-old Terry could initially apply for Teresa’s spousal benefits as Teresa applies for her own benefits at 62. Terry thereby gets $800 a month while Teresa receives her own reduced benefit of $1,200 a month. At 70, Terry foregoes getting the spousal benefit and switches to receiving his own enhanced benefit ($2,640 a month thanks to those delayed retirement credits). If Terry lives to age 83 and Teresa lives to age 90, their total lifetime Social Security benefits will be $1,043,520 under this strategy, as opposed to $840,600 if they each apply for benefits when they turn 62.

Widows can also use a variant on the file-and-suspend approach. As an example, Fran is set to receive $1,400 monthly from Social Security at age 66. Her husband dies when she is 60. She can get a widow’s benefit of $1,430 at 60, but instead she claims her own reduced benefit of $1,050 at age 62, then switches to a widow’s benefit of $2,000 at 66 (her husband would have received $2,000 monthly at age 66). By doing this, she positions herself to collect $112,000 more in lifetime benefits.

Postponement can also be used to enlarge survivor benefits. Let’s go back to Terry and Teresa: if they each start getting Social Security at 62, Teresa is looking at a $1,650 monthly survivor benefit if Bob passes away. But if Terry waits until 66 to claim his benefits, Teresa’s monthly survivor benefit would be $2,640.

Details to note. The file-and-suspend strategy is only allowable if one spouse has reached full retirement age. In order for you to claim a spousal benefit, your husband or wife has to be getting Social Security benefits. Applying for Social Security before full retirement age with the idea that your spouse can collect spousal benefits at 62 has a drawback: you are reducing both of your lifetime retirement benefits.

Only 29% of respondents in a 2012 AARP survey knew that waiting until age 70 to apply for Social Security would bring them their maximum monthly benefit. Congratulate yourself for being in that group, and consider the long-range financial merits of claiming your benefits years after age 62.

That plain home down the street with the older model sedan parked out front pales in comparison. A couple in their seventies lives there, and the front yard hasn’t been spruced up in a decade. Who knows, maybe they struggle just to get by.

If you could somehow look into the financial lives of those two households, you might be surprised. The couple with all the toys might not be as wealthy as the neighborhood perceives, while the vanilla exterior on that humble rancher might hide a multimillionaire next door.

Remember that affluence does not = net worth. When you look across the street at the house of that well-to-do family, you are not necessarily gazing at a portrait of wealth. You are seeing a portrait of their spending habits.

What are they spending their money on? Perhaps, quite literally, a façade; their house may be the best house in the neighborhood, but what of kind of mortgage payment are they grappling with? Are they making payments on that sports car? That vehicle is a depreciating asset (unless they keep it garaged for a few decades). The flat-screen, the pool, the home audio system … they have put their dollars into things that their neighbors can see. They may be engaging in all-too-common financial behavior: thinking of wealth in terms of material items, spending money on toys instead of their lives.

Real wealth may not be advertised. Perhaps the older couple down the street isn’t interested in the hottest new luxuries. Decades ago, they put extra money toward their mortgage; even with housing values currently depressed, their residence is still worth much more than they paid for it. Most importantly, it is paid off.

Maybe they are good savers, always have been. When they were the age of the flashy couple up the street, they directed money into things that their neighbors couldn’t see – their investments, their retirement accounts, their bank accounts.

Years ago, they could have lived ostentatiously like that high-earning couple up the street – but instead of living on margin, they chose to live within their means. They saw some of their friends ‘rent’ a luxury lifestyle for a few years, only to lose homes and cars they couldn’t really afford. Sometimes the economy or fate had a hand in it, but too often their friends simply made poor decisions.

It could be that it was just more important for them to think about the future rather than the moment. Parenting reinforced that philosophy. Their good financial habits kept their family away from a bunch of bad debts, and helped them build wealth slowly. Indirectly, it also helped their kids, who grew up in a household with less financial stress and with an appreciation and understanding of key financial principles. Now, they are applying those principles to build wealth in their own lives.

Roughly every fortieth American is a millionaire. There are nearly 8 million people with a net worth of $1 million or more in the U.S., and their financial characteristics may differ slightly from what you expect.

Fidelity’s 2012 Millionaire Outlook survey (which polled 1,000 households with $1 million or more in investable assets) notes that 86% of millionaires are self-made. Not so amazing, perhaps, but here is a striking detail. Among the self-made millionaires, the top sources of assets were 1) investments and/or capital appreciation, 2) compensation and 3) employee stock options or profit sharing. Millionaires born into wealth were the most likely to cite entrepreneurship and real estate investing as key factors behind their fortunes.

According to the survey, the average U.S. millionaire is 61 years old with $3.05 million in investable assets. Fidelity also found that with regard to the financial future, more than (30%) of these millionaires were focused on preserving wealth, rather than growing it (20%).

What will you spend your money on, tomorrow or today? As Thomas J. Stanley and William D. Danko noted in their classic study The Millionaire Next Door, the typical millionaire lives on 7% of his or her wealth. That was in 1997; the percentage could be lower today. Call it frugal, call it boring, but such financial conservation may help promote lifetime wealth. Today, with so many enticements to spend your money as soon as you earn it, this mindset may have a lot of financial merit.

With General Motors and Ford offering lump sums to tens of thousands of former workers this year, pension buyouts are receiving more scrutiny in the media. Expect to see more of them: in an October 2011 poll of more than 500 human resources professionals, Aon Hewitt discovered that 35% intended to offer lump sums to vested pension participants in 2012.

GM & Ford offers grab the headlines. GM ended its Salaried Retirement Program this year and gave those salaried retirees and their surviving spouses a choice: take a lump sum, or a get a new form of monthly benefit courtesy of an insurance company.

GM retirees who rejected the lump-sum offer realized that their pension plan was being taken over by a major U.S. insurer. (U.S. News & World Report said that this transfer of pension plan assets and liabilities was projected to save GM around $26 billion.) Yet in the process, they lost pension protection coverage afforded through the Pension Benefit Guaranty Corporation, an independent agency of the federal government that provides insurance for a majority of traditional private-sector pension plans. Their pensions are now insured by State Guaranty Funds.

In April, Ford announced that it would offer its salaried retirees the option of a lump-sum pension payment instead of monthly payments. Some of them will have to decide whether to take a buyout by October 29, others by November 12. Yet others will be facing the decision in 2013.

Should you ignore a buyout offer? Your decision to reject or accept a buyout can only be made after looking at some key variables – and you should also consult the financial professional you know and trust.

*How large is your buyout offer? Stack it up against the estimated total pension payments you think you will receive over your lifetime. Run some numbers and weigh that lump sum offer against 20, 30 or 40 years of accumulated pension checks.

*How long do you think you will live? If your health is poor, taking the lump sum might be a better choice. You could access the money you need or want now. If you anticipate a long retirement, accepting a buyout could be risky. What if you spend or outlive that money? Consistent, lifelong monthly income is hard to abandon. Also, you may have set up a joint-and-survivor pension to provide your spouse with income after you are gone. This is another factor that may make you reject a buyout.

*Could you handle the taxes from taking the lump sum? The IRS views a lump-sum pension payout as taxable income. By “rolling over” the lump sum into an IRA or other qualified retirement account, you will not face the income taxes resulting from distribution of that money.

*What kind of return might you get if you invested the money? Could you invest a lump sum in such a way that it grows faster than inflation? Monthly pension payments aren’t usually inflation-indexed; could investing your buyout generate greater retirement savings and/or income for you in the long run?

*Who will help you invest a lump sum? Pension funds are overseen by professional money managers. Are you one of those? It will be wise to seek input from an investment professional if you want to grow that money. Consider also that you could lose money as a result of investing. You could see that lump sum diminish – and presumably, your fixed monthly pension payments will not.

*How long might that lump sum last? A lump sum is all too easily spent. Examples abound of lottery winners and plaintiffs who have exhausted six-figure or even seven-figure amounts in remarkably short time. Monthly pension payments help you avoid that possibility.

*Will a buyout change your lifestyle? Sometimes a “windfall” can subtly alter a retired couple’s financial outlook – they live it up, only to have financial regrets later. Even if your lifestyle will not change in the least upon getting a lump sum, you will still want to map out a long-range strategy to make the money last across the perceived length of your retirement.

If you elect to take a pension buyout, you can’t take that decision back. So the choice must be scrutinized, preferably with the input of a financial professional aware of the potential upsides and downsides.

That said, stock market historians have repeatedly analyzed market behavior in presidential election years, and what stocks do when different parties hold the reins of power in Washington. They have noticed some interesting patterns through the years which may or may not prove true for 2012.

The Dow hasn’t done that well when the presidency has changed hands. A new research report from MFS Investment Management details the history of the blue chips in presidential election years from 1900-2008. It notes that the DJIA has on average lost 4.4% in election years in which the incumbent party in the White House loses. On the other hand, in years when the status quo was maintained, the Dow gained an average of 15.1%. Of course, much of these yearly gains and losses could also be chalked up to macroeconomic factors having nothing to do with a presidential race.

Overall, election years have been good for the blue chips. On average, the Dow has advanced 7.6% in the 28 election years since 1900. When Republicans have won a presidential election, the average annual gain of the index has been 10.3%. When Democrats have won the White House, the average annual gain has been 3.9%.

Do stocks respond if a particular party has control of Congress? Many House and Senate seats will be decided in November as well, and so MFS also looked for any history of effect on the S&P 500 when a single party had or lacked a majority in Congress from 1961-2010.

In that period, MFS notes that when the White House and Congress were controlled by the same party, the S&P annually returned 12.1% on average. In years with a Democratic President and a Republican-controlled Congress, it returned an average of +21.3%. In years when a Republican President contended with a Democrat-controlled Congress, the annual return of the index averaged +4.5%. In years in which Congress was split – regardless of who was President – the S&P went 7.1%+ on average.

Could the Dow actually help determine who wins the White House? James Stack, president of InvesTech Research, chooses to look at this through the other end of the telescope. In his view, the performance of the Dow between Labor Day and Election Day exerts a powerful influence on who wins in November.

Stack notes that in 25 of the 28 presidential elections held since 1900, the incumbent party in the White House either a) lost the presidency when the Dow retreated within that time frame or b) retained the White House when the Dow advanced between Labor Day and Election Day. Of course, other factors may have been considerably more influential in these elections, such as a given president’s approval rating and the unemployment rate.

Bulls have run in many fourth quarters of election years. As the Stock Trader’s Almanac cites, the S&P 500 advanced in the last seven months of 15 out of the 18 election years from 1952-2008.

How much weight does history ultimately hold? Perhaps not much. It is intriguing, and some analysts would instruct you to pay more attention to it rather than less. Historical “norms” are easily upended, however. Take 2008, the election year that brought us a bear market disaster. The year 2000 also brought an S&P 500 loss. While a presidential election undoubtedly affects Wall Street every four years, it is just one of many factors in determining a year’s market performance.

Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. Yet whether they result from ignorance or fate, we need to be aware of them as we plan for and enter retirement.

1. Leaving work too early. The full retirement age for many baby boomers is 66. As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for greater retirement income.

Some of us are forced to make this “mistake”. Roughly 40% of us retire earlier than we want to; about half of us apply for Social Security before full retirement age. Still, any way that you can postpone applying for benefits will leave you with more SSI.

2. Underestimating medical expenses. Fidelity Investments says that the typical couple retiring at 65 today will need $240,000 to pay for their future health care costs (assuming one spouse lives to 82 and the other to 85). The Employee Benefit Research Institute says $231,000 might suffice for 75% of retirements, $287,000 for 90% of retirements. Prudent retirees explore ways to cover these costs – they do exist.

3. Taking the potential for longevity too lightly. Are you 65? If you are a man, you have a 40% chance of living to age 85; if you are a woman, a 53% chance. Those numbers are from the Social Security Administration. Planning for a 20- or 30-year retirement isn’t absurd; it may be wise. The Society of Actuaries recently published a report in which about half of the 1,600 respondents (aged 45-60) underestimated their projected life expectancy. We still have a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.

4. Withdrawing too much each year. You may have heard of the “4% rule”, a popular guideline stating that you should withdraw only about 4% of your retirement savings annually. The “4% rule” isn’t a rule, but many cautious retirees do try to abide by it.

So why do some retirees withdraw 7% or 8% a year? In the first phase of retirement, people tend to live it up; more free time naturally promotes new ventures and adventures, and an inclination to live a bit more lavishly.

5. Ignoring tax efficiency & fees. It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming that your retirement will be long, you may want to assign that or that investment to it “preferred domain” – that is, the taxable or tax-advantaged account that may be most appropriate for that investment in pursuit of the entire portfolio’s optimal after-tax return.

Many younger investors chase the return. Some retirees, however, find a shortfall when they try to live on portfolio income. In response, they move money into stocks offering significant dividends or high-yield bonds – which may be bad moves in the long run. Taking retirement income off both the principal and interest of a portfolio may give you a way to reduce ordinary income and income taxes.

Account fees must also be watched. The Department of Labor notes that a 401(k) plan with a 1.5% annual account fee would leave a plan participant with 28% less money than a 401(k) with a 0.5% annual fee.

6. Avoiding market risk. The return on many fixed-rate investments might seem pitiful in comparison to other options these days. Equity investment does invite risk, but the reward may be worth it.

7. Retiring with big debts. It is pretty hard to preserve (or accumulate) wealth when you are handing chunks of it to assorted creditors.

8. Putting college costs before retirement costs. There is no “financial aid” program for retirement. There are no “retirement loans”. Your children have their whole financial lives ahead of them. Try to refrain from touching your home equity or your IRA to pay for their education expenses.

9. Retiring with no plan or investment strategy. Many people do this – too many. An unplanned retirement may bring terrible financial surprises; retiring without an investment strategy leaves some people prone to market timing and day trading.

These are some of the classic retirement planning mistakes. Why not plan to avoid them? Take a little time to review and refine your retirement strategy in the company of the financial professional you know and trust.

Could you pay off your mortgage in the next few years? If your home is paid off, great. If you are close to paying it off, think about putting whatever extra cash you can spare toward your home loan. (Not money from your retirement accounts, of course – funds from other sources.) If your mortgage balance is just too big to pay down, you can always attempt to refinance. If you can, structure your loan so that you can pay it off in what will presumably be the first part of your retirement.

Are you paying too much in property taxes? Did you know that many cities and counties make an effort to lower property tax rates for homeowners older than 65? Call or visit the office of the assessor or recorder where you live. Ask about this, and see if you qualify. Even if you don’t, by doing some online research (or gently asking a neighbor or two) you might discern that your property tax rate is too high. You can officially appeal it on your own (there are commonly forms available at city halls and county offices) or with the assistance of a real estate professional.

What needs to be done to your residence? Wouldn’t it be nice to have a home with a yard requiring less upkeep as you age? How about a home you can safely get around in? Landscaping changes and the installation of certain senior safety features can be well worth the expense. It is wise to arrange home improvements while you are still salaried.

Should you sell your home? Some retirees are moving out of big homes into smaller quarters – yes, even in today’s market. Is that really worth doing?

While the answer to that question will vary per homeowner, some real estate analysts and financial industry professionals believe downsizing in this market may be worth it for many retirees. While home equity has diminished since 2006, they contend that it could take several more years for home values to return to anywhere near those levels – economic conditions in this decade may not create the kind of “sweet spot” the market benefited from in the 2000s.

If you wouldn’t buy your home today because of financial, neighborhood or family factors, that is a signal that you might want to consider downsizing.

Should you take in a renter? Let’s say you love your home and you are thinking about deriving more income from it. You could optionally rent a room, a furnished basement or a guest house to … your kids, or a graduate student, or a senior living alone. Income aside, do you have a mom or dad who requires help with everyday living? It may be emotionally and even financially appropriate for that parent to move in with you.

Should you get a reverse mortgage? While the Consumer Financial Protection Bureau released a dismissive report on reverse mortgages this summer, these financial instruments may come in handy for many retirees in the coming years.

You may be familiar with the arguments against them – their mechanics are too complex to readily understand, one spouse may not absorb all the details as well as the other spouse, people are increasingly taking them out at younger ages and sometimes using the funds for investment purposes. All that said, less than 3% of eligible homeowners arrange them.

The size of a reverse mortgage relates to three factors: the value of the home, the age of the borrower and the interest rate on the loan. HUD-insured reverse mortgages are available to homeowners older than 62 who have either paid off their primary residence or can easily do so via the loan.

An income stream can result from reverse mortgages (for as long as the borrower remains in the home, of course). A lump sum or a HELOC is also possible. While the marketing of these financial instruments still leaves much to be desired, you may want to examine the option as you retire.

The answer: June 29, 2006. On that day, the federal funds rate hit 5.25%. It has declined ever since, and it has stayed at 0%-0.25% since December 16, 2008. The Fed expects to hold interest rates at 0%-0.25% through late 2014, and some analysts think they will remain there into 2015.

All that noted … when should the Fed make a move with rates, and what might happen when rates approach something like historical norms?

Right now, the Fed has little incentive to make any moves. Our economy generated only 75,000 new jobs per month in the second quarter of 2012 compared to 226,000 a month in the first quarter. Unemployment is currently at 8.2% and we have housing and business sectors that are far from healed. Hiking the federal funds rate in such an environment would seem nonsensical. In fact, the Fed’s rationale for its current policy is that interest rates need to stay at or near these levels until we reach full employment (a 5-6% jobless rate). Low interest rates help to encourage business investment and big-ticket purchases, though they are no boon to retirees.

Does the economy warrant further easing? Maybe not. The federal government’s second estimate of Q2 GDP (+1.5%) exceeded the +1.2% consensus forecast of economists polled by Briefing.com. That might signal the Fed to hold off on QE3.

When might rates rise? It might be a while. Right now, we have very mild inflation: as of June, the Consumer Price Index was up just 1.7% across the past 12 months, within the Fed’s target. Demand for capital isn’t what it was before the recession, encouraging lenders to stay competitive. The Fed, the Bank of Japan and the European Central Bank have all printed more money, which encourages low interest rates in the short term.

Of course, bloating the money supply might stimulate inflation in the long run. Some see greater inflation on the horizon: a June Pimco analysis forecast inflation rates rising during the next 3-5 years, citing shifts in exchange rates and rising commodity prices as potential drivers. Earlier this year, Slate founder and Bloomberg View columnist Michael Kinsley warned of “a fierce storm of inflation sometime in the next few years” that will “wipe out a big chunk of the national debt, along with the debts of individual citizens, and the savings of others.”

Few economists feel that America is risking hyperinflation. Most see tame consumer inflation for years ahead, and the Congressional Budget Office’s 2012 edition of its Budget and Economic Outlook forecasts the government’s PCE price index advancing no more than 2.0% annually through 2022. Yet policymakers have been stung by macroeconomic forces before … and it may happen again.

What will bond investors do if they climb? If interest rates kick up, what investor will want to be stuck with a 1-2% TIPS return? He or she may end up selling that Treasury at market value. Think back to the 1970s, when long-term bond investors lent the government their money at 5-6%, then saw inflation go from 2-3% to almost 13%. This is a historically extreme example, but worth noting. If the federal funds rate rises 3%, a longer-term Treasury might lose as much as a third of its market value as a consequence. On June 12, 2007, the yield on the 10-year note was at 5.26%.

On the other hand, another argument is that Treasury yields could be low for years. More than a few economists see a well-worn path from eras of easy credit and poor lending practices to excessive debt, then asset bubbles, then sustained economic slumps with minimal yields on long-term bonds.

You don’t have to go back too far to find paybacks for years of high total public debt. Besides the credit crunch and downturn of 2007-09, you have the current examples of Greece, Italy, Spain, Ireland and France, the Latin American debt crisis of the early 1980s (with Mexico’s default), Japan’s 1989-90 crisis and our own Great Depression.

Why make money a little less cheap? Raising interest rates in the near future could actually accomplish some objectives. It could help to improve retiree income and retirement savings potential. It could encourage banks to loosen reins on their excess reserves. It could prompt those uncertain about homebuying to take the plunge.

Are the stock and commodities markets ready for an interest rate hike? Maybe not, but some notable voices – among them St. Louis Fed President James Bullard, Richmond Fed President Jeffrey Lacker and Charles Schwab – have publicly made the case for a rate hike before the jobless rate returns to normal levels. Should the economy heal at a faster pace, the federal funds rate might move north sooner than we think.

An Aon Hewitt analysis (The Real Deal: 2012 Retirement Income Adequacy at Large Companies) finds that the average corporate employee makes a pre-tax contribution equal to 7.2% of his or her pay to an employer-sponsored retirement plan. Aon Hewett has found this level of contribution to be pretty consistent across the past few years. The Employee Benefit Research Institute puts the number at 7.5%.

Hopefully, these employees are basing their contributions on math. Retirement savings calculators are everywhere online, and while often criticized for their simplicity, they can bring you a useful ballpark figure. If you try them out, you may decide to boost your retirement savings rate as a result.

As an example, using CNN Money’s What You Need to Save calculator, a 34-year-old with $20,000 in retirement savings who makes $78,000 annually would need to save $11,544 a year to hope to retire at age 65 at 80% of pre-retirement income. That $11,544 represents 14.8% of his or her yearly salary.

Our hypothetical 34-year-old is quite affluent and has gotten a decent start on retirement savings compared to many of his peers – yet according to this calculation, a 7.2% retirement savings rate won’t cut it. Of course, the calculator is ignorant of such factors as home equity, inherited wealth, profit from business enterprises and so forth – but even so, many people are not saving enough for their retirement target.

More to the point, many people are saving for retirement without a savings target.

One established approach. If you are approaching your retirement years, you may be asking “How much do I need to save?” In the eyes of financial services professionals, the answer is linked to the question, “How much do you plan to withdraw?”

In 1994, a financial advisor (and MIT grad) named Bill Bengen published a long and highly influential article in the Journal of Financial Planning advocating that retirees withdraw a little more than 4% of their retirement savings each year. Bengen’s suggestion was labeled the “4% rule”, and many financial services professionals paid attention to it when consulting their clients.

First, they helped their clients project how much would be needed to pay for planned annual retirement costs beyond what Social Security and pension benefits could absorb. Next, they asked clients to decide on a retirement savings withdrawal rate (4% or something else) in light of historical data. Then, they helped the client set a retirement savings target, roughly expressed as annual planned retirement expenses divided by the annual planned withdrawal rate, i.e., 45,000/.04 = 1,125,000, with $1.125 million being the target retirement savings goal. Lastly, a retirement savings rate was determined for the remainder of a client’s working years to him or her reach that goal (though the financial target could certainly be attained by other means).

There are even simpler approaches. Other financial services professionals simply suggest that you should estimate your planned retirement expenses and adopt a savings rate (taking historical data into account) that you feel comfortable with in order to reach them. After all, different people derive retirement savings from different sources beyond 401(k)s and IRAs, and make different asset allocation choices with their investments.

So what is that savings rate, and how then might it be reasonably figured? Some retirement planners suggest a simple rule of 12 – take your current salary, multiply it by 12, and what you get represents the minimum savings you need for retirement.

The simplest approach of all might work better than any other – just save as much as you can. The Center for Retirement Research at Boston College notes that the median U.S. income in the 2010 U.S. Census was $43,084. A 35-year-old with that income and $0 retirement savings would need to defer about 18% of his or her pay annually to have enough to retire at 80% of salary at age 68, with his or her portfolio returning a hypothetical 4% every year for 33 years.

CRR director Alicia Munnell claimed to U.S. News & World Report that staying on the job (and waiting longer to claim Social Security) can have a bigger impact on retirement saving than portfolio performance. “If people could work until they’re 70, they would have a much higher chance of having a secure retirement. Social Security is higher if you wait until age 70, and it gives your 401(k) assets a longer chance to grow, and it reduces the number of years you have to support yourself.”

Save now; save avidly; save consistently. As you do, remember that if you don’t yet have a huge IRA or 401(k), it isn’t the end of the world – retirement savings and retirement income can be generated from other sources, some less exposed to the volatility of the financial markets.d of the world – retirement savings and retirement income can be generated from other sources, some less exposed to the volatility of the financial markets.

If your goal is tax minimization, here are 20 “to-dos” you might want to accomplish before 2013 arrives; alone or in combination, they could save you some money. Just one note beforehand: consult the tax or financial professional you trust before you make these moves, so you can see how they fit within your overall financial picture.

1) Sell some stocks or funds before 2013 arrives. If you sell highly appreciated investments that you have held for at least a year during 2012, you can exploit the current 0-15% capital gains rates. In 2013, all but those in the 15% income tax bracket will face 20% capital gains taxes. On top of that, a potential 3.8% Medicare surtax could be levied on certain net investment income for individuals with MAGI of $200,000+ and married couples with MAGI of $250,000+. Just think: you could use your tax savings for tuition, mortgage payments or other priorities.

2) Think about taking some profits while 2012 is still here. The current 15% tax rate for qualified dividends could disappear in 2013. If the EGTRRA/JGTRRA cuts aren’t extended again, these dividends will be taxed as ordinary income next year (the maximum tax rate on them will jump to 39.6%).

3) Retired & wealthy? Consider withdrawing more from your IRA. Are you in the top tax bracket? You might end up paying as much as 43.4% in income taxes to Uncle Sam next year (projected 39.6% top tax rate + possible 3.8% Medicare surtax). This is assuming the EGTRRA/JGTRRA cuts expire in 2013 – and with the federal deficit and Social Security’s revenue issues, they may. The top tax rate for 2012 is just 35%, so if a sunset for the Bush-era tax cuts looks pretty certain, it may be worthwhile to withdraw some IRA assets in late 2012 for 2013 needs.

4) Consider going Roth. If tax brackets reset to 2001 levels and stay there for years to come, then converting a traditional IRA to a Roth IRA may be a really smart move (future tax-free withdrawals of earnings, assets passing tax-free to heirs).

5) Think about exploiting the current $5.12 million lifetime gift tax exemption. A 2010 law reset the lifetime federal gift, estate and GST tax exemptions at $5,120,000 through the end of 2012 and made the exemption portable between married spouses. This means a) you currently have the ability to gift up to $4.12 million more than the old $1 million lifetime limit and b) married couples can currently gift up to $10.24 million. This gives you an amazing opportunity to reduce the size of your taxable estate. On January 1, 2013 (barring Congressional action), the lifetime unified gift/estate/GST exemption will reset to $1 million and portability will be lost.

6) Consider a donation of appreciated stock to charity. Instead of a cash gift, you could do this and get 1) a charitable deduction for the full market value of donated shares and 2) a way to avoid tax on the unrealized gains of the security. The investors who can get the most out of this are those who itemize deductions and fall into the 15% tax bracket or higher. A reminder: you have to have owned the shares for at least a year. (Speaking of itemized deductions, take a look at #18 below.)

7) Arrange tuition payments to take advantage of the AOTC. The American Opportunity Tax Credit is set to expire in 2013. So it might be worth it to pay 2013 tuition during 2012, as the AOTC provides up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses. Even better, 40% of the credit (up to $1,000) is refundable – you will get that portion back even if you owe no taxes for 2012. Generally speaking, a single filer with MAGI of $80,000 or less or joint filers with MAGI of $160,000 or less can claim the AOTC for the qualified expenses of an eligible student. Phase-outs kick in at those levels; single filers with MAGI above $90,000 and joint filers with MAGI above $180,000 cannot claim the credit for 2012.

8 ) A huge tax credit is available in 2012 for adoptive parents. The federal adoption tax credit is up in the air for 2013; it may be renewed or made permanent, but such a move might come at the eleventh hour. For 2012, the adoption tax credit is $12,650. It isn’t refundable (so if your total tax bill is less than the credit, you won’t get additional money back from the IRS). It can be carried forward for up to five years – if you don’t end up using 100% of the credit for the 2012 tax year, you can use the remainder to offset some federal income taxes through 2017.

9) 50% business expensing is scheduled to be eliminated in 2012. The bonus depreciation limit that benefited large companies (50% for 2012) will be gone if the Bush-era tax cuts sunset. So next year, big businesses could lose a chance to take a 50% write-off on new capital equipment.

10) Section 179 limits could really drop in 2013. In 2012, the maximum Section 179 deduction allowance is $139,000. For 2013, it is slated to return to $25,000. The limit on capital purchases – $560,000 in 2012 – is scheduled to fall back to $200,000 in 2013.

11) You may want to roll over assets from a Coverdell ESA into a 529 plan. Should the Bush-era tax cuts expire, Coverdells will also be hit hard: the annual contribution limit for any one beneficiary will drop to $500 from $2,000, only college-related expenses will be considered “qualified spending”, and contributions to a Coverdell and a 529 plan will no longer be allowed in the same year (among other drawbacks). If the Bush-era cuts are extended for the middle class, Coverdell ESA benefits may not be so impacted – but no one knows at this point.

12) Before 2013 arrives, you might want to exercise some stock options. As the prospect of higher taxes looms, it may be a good time to weigh taxable hedging strategies and make 83(b) elections on restricted securities.

13) Think about municipal bonds. The potential tax hikes of 2013 have made them more attractive, as the interest on these securities is tax-exempt. Their yields might presently increase, as President Obama has talked of restricting the tax break on muni bond interest at 29% for single filers earning more than $200,000 and couples earning more than $250,000.

14) Take another look at REITs. Some publicly traded REITs have shown positive returns; if dividends are taxed as ordinary income starting in 2013, then investments paying dividends and taxable interest may be at par with each other.

15) Cash value insurance might prove handy. It may be worth it to run the numbers here: a whole life policy could be a nice source of funds if the projected tax savings will outweigh the policy costs.

16) An MLP might prove to be a useful business structure. Typically, around 80-90% of the distributions from a Master Limited Partnership (MLP) are tax-deferred and characterized as return of capital, reducing cost basis for the individual investor.

17) You may want to have that dental work or elective surgery done in 2012. Next year, you will only be able to deduct the medical expenses exceeding 10% of your AGI. For 2012, you can deduct medical expenses when they surpass 7.5% of your AGI.

18) Alert: phase-outs on itemized deductions may return in 2013. The phase-out on the personal exemption is also slated to come back. So it may be smart for higher-income families to fulfill pledges made to 501(c)(3) non-profits in 2012.

19) Pay attention to asset location. You may want to move income-producing assets into tax-deferred accounts or shift assets that generate capital gains into taxable accounts. Doing this may give you opportunities to defer those gains and practice tax-loss harvesting.

20) Lastly, beware portfolio churn. The reality is that some funds make frequent trades. These trades result in taxable gains (including short-term gains, which are taxed severely). Getting out of certain funds may save you some tax dollars.

Your choices. What are your options when it comes to helping a parent out with money management? Informally, you can “lend a helping hand” and check in with mom and dad to make sure that bills and premiums are paid, and deadlines are met. But if you elect to formally take the financial reins, you are looking at a two-phase process:

* You can get a power of attorney and assume some of the financial responsibilities. A power of attorney is a detailed and strictly constructed legal document that gives you explicitly stated measures of financial authority. If you try to handle financial matters for your parent(s) without a valid power of attorney, the financial institution involved may reject your efforts.

A durable power of attorney lets you handle the financial matters of another person immediately. The alternative – a springing power of attorney – only takes effect when a medical diagnosis confirms that person’s mental incompetence. Copies of thwhe power of attorney should be sent to any financial institution at which your parents have accounts or policies. It may be wise to get a durable power of attorney before your parent is unable to make financial decisions; many investment firms require the original account owner to sign a form to allow another party access to an account owner’s invested assets.

You are going to have to hunt for information, such as…

- Where mom or dad’s income comes from (SSI, pensions, investments, etc.)
- Where the wills, deeds and trust documents are located.
- Who the designated beneficiaries are on insurance policies, IRAs, etc.
- Who the members of mom or dad’s financial team or circle are. You need to talk with them; they need to talk with you.
- The crucial numbers: checking and savings accounts, investment accounts, insurance policies, PIN numbers and of course Social Security numbers.
- It will also help to learn about their medical history and prescriptions.

If the disease progresses to the point where your mom or dad can’t make competent financial decisions, then you are looking at a conservatorship. In that case…

*You can act to become your mom or dad’s conservator. This means going to probate court. You or your parent can initiate a request for conservatorship with a family law attorney; if the need is more immediate, you or your family’s attorney may petition the court. In either case, you will need to show documentation that your parent is no longer financially competent. You must provide medical documentation of his or her dementia to the court as well.

The court will interview the involved parties, look at the documentation and perform a background check on the proposed conservator. This is all pursuant to a hearing at which the court presents its decision. If conservatorship is granted, the conservator assumes control of some or all of the protected party’s income and assets.

How do conservatorships differ from guardianships? A guardianship gives a guardian control over many aspects of a protected person’s life. A conservatorship limits control to the management of the protected person’s assets and financial affairs.

What if I don’t want to assume this kind of responsibility? Some wealth management firms offer daily money management as an option in a “family office” suite of services. The firms make home visits to help with bill paying, filing medical claims and other recurring tasks; carefully scrutinize anyone offering this service. (Visit aadmm.com for the American Association of Daily Money Managers.)

The other choice is to give a relative, a financial services professional, or a family lawyer durable or springing power of attorney or limited or full conservatorship. Such a decision must not be made lightly.

Keep your parents away from unprincipled people. These steps may prove essential, yet they will not shield your family from scam artists. Be on the lookout for new friends and acquaintances. If your instincts tell you something is wrong, investigate.

Age 70½: Required Minimum Distributions (RMDs). Once you reach age 70½, you are required to make withdrawals from any traditional (“regular”) IRAs that you have established. (Original owners of Roth IRAs never have to take RMDs.)

**You must take your initial RMD from a traditional IRA by April 1 of the year following the year during which you turn 70½. You may not want to wait that long, however.

**If you do wait that long and choose to take your first RMD in the year after you turn 70½ rather than the year during which you turn 70½, you have to take two RMDs in that year after you turn 70½ – one by April 1, and another by December 31.

**In all succeeding years, you must take your annual RMD by December 31.

Age 59½: option to make penalty-free IRA withdrawals. With few exceptions (see below), original owners of Roth and traditional IRAs must wait until age 59½ to take money out of their IRA without a 10% early withdrawal penalty. The IRS defines “age 59½” as the point at which you are midway through your 59th year.

Age 59½: option to donate IRA funds to charity. While the IRA charitable rollover is no more, IRA owners aged 59½ and older can still distribute IRA assets to a qualified charity. The deadline to do so for a particular tax year is December 31. One problem: your gift to charity will also boost your adjusted gross income (AGI). As with an RMD, this type of IRA distribution qualifies as taxable income. You can claim a charitable deduction as you report the distribution as income to the IRS.

The timeline for 72(t) payments. These are the special periodic payments by which you can exempt yourself from the 10% early withdrawal penalty normally due on IRA withdrawals prior to age 59½. In the 72(t) option, equal payments (distributions) from your IRA are scheduled for five or more years or until you hit age 59½, whichever time frame is longer. The time frame reaches its limit when a) you are exactly 59 years and six months old or b) exactly five years have passed since the first of the periodic payments.

The 12-month limit on IRA-to-IRA rollovers. There is no annual deadline for these rollovers, but there is a 12-month time limit affecting how many you can make. You can only make one IRA-to-IRA rollover per IRA account per year, whether the IRA is a traditional IRA or a Roth. So if you have three IRAs, you can make a total of three rollovers (one per IRA) in a 12-month period, be they IRA-to-IRA rollovers or Roth-to-Roth rollovers.

The 5-year rule on Roth IRA conversions. You may know about the five-year rule here – when you convert a traditional IRA to a Roth IRA, you have to wait until you either a) turn 59 1/2 or b) five years have passed before you can take a penalty-free distribution of a Roth IRA conversion. The asterisk comes in terms of measuring those five years. It isn’t five years from the day you complete the Roth conversion; the five-year measurement actually starts on January 1 of the year in which the funds are first deposited in the Roth IRA.

The 5-year rule for Roth IRA qualified distributions. Here we have a slightly different circumstance, and a slightly different five-year rule. You may know that once your first Roth IRA is five years old, you can start taking tax-free and penalty-free withdrawals from it under the following circumstances: a) you are age 59½ or older, b) you are disabled, or c) you are a first-time homebuyer using Roth IRA assets for that purpose.

With regard to qualified distributions, when is your Roth IRA judged to have turned five? It depends on which calendar year you earmarked your first Roth IRA contribution for – for example, you can make a 2012 Roth IRA contribution up until April 15, 2013. The five-year time frame starts on January 1 of the calendar year for which the contribution is designated. An interesting wrinkle: if you open additional Roth IRAs in the future, that initial five-year time frame also applies to them; there is no reset per new Roth IRA.

The deadline(s) for RMDs made by non-spouse beneficiaries. If you are a non-spouse beneficiary of someone else’s IRA, you usually have to start taking RMDs from that IRA by December 31 of the year after the death of that IRA owner. In other words, you have from 12-24 months to take that first RMD. One exception comes if an IRA accountholder dies after age 70½ without taking his or her initial RMD. If that is the case, then the non-spouse beneficiary of the IRA will end up having to take the initial RMD from that IRA by the end of the calendar year in which the deceased IRA owner has passed away.

The first steps. These actions should come first. Some of these steps do require locating some documentation. Hopefully, your spouse kept these documents where you can easily find them – either at home, in a safe deposit box or in an online vault.

• Contact family members, friends and your spouse’s employer to tell them of your spouse’s passing. (As a courtesy, your spouse’s employer should put you in touch with the person overseeing its employee benefits plan or human resources department.)

• If your spouse owned a business, check to see what plans are in place for its short-term continuation. Will a partner or key employee take the reins for the time being (or for the long term) as a result of a defined succession plan?

• Arrange payment for funeral expenses.

• Gather/request as many records as you can find to document your spouse’s life and passing – birth and death certificates, a marriage certificate or divorce decree (if applicable), military service records, investment, insurance and tax records, and employee benefit information (if applicable).

The next steps. Subsequently, it is time to talk with the legal, tax, insurance and financial professionals you trust.

• Consult your attorney. Assuming your spouse left a will and did not die intestate (i.e., without one), that will should be looked at as a prelude to the distribution of any assets and the settlement of the estate. His or her written wishes should be reviewed.

• Locate your spouse’s insurance policy and talk to your insurance agent. Notify that agent of your spouse’s passing; he or she will work with you to a) get the claims process going, b) help you reevaluate your own insurance needs, and c) review and perhaps alter beneficiary designations.

• Notify your spouse’s financial advisor and by extension, the financial custodians (i.e., the banks or investment firms) through which your spouse opened his or her IRAs, money market funds, mutual funds, brokerage accounts, or qualified retirement plan. They must be notified so that these funds may be properly distributed according to the beneficiary forms for these accounts. Please note that the beneficiary forms commonly take precedence over bequests made in a will. (This is why it is important to periodically review beneficiary designations for these accounts.) If there is no beneficiary form on file with the account custodian, the assets will be distributed according to the custodian’s default policy, which often directs assets either to a surviving spouse or the deceased spouse’s estate.

Survivor/spousal benefits. These important benefits may help you to maintain your standard of living after a loss.

• Contact your local Social Security office regarding Social Security spousal and survivor benefits. Also, visit www.ssa.gov/pgm/survivors.htm online.

• If your spouse worked in a civil service job or was in the armed forces, contact the state or federal government branch or armed services branch about how to file for survivor benefits.

• Your spouse’s estate. To settle an estate, several orderly steps should be taken.

• You and/or your attorney need to contact the executor, trustee(s), guardians and heirs relevant to the estate and access the appropriate estate planning documents.

• Your attorney can also let you know about the possibility of probate. A revocable living trust (or other estate planning mechanisms) may allow you to avoid this process. Joint tenancy and community property laws in many states also help.

• The executor for the estate should obtain an Employer Identification Number (EIN) from the IRS. Visit: www.irs.gov/businesses/small/article/0,,id=102767,00.html

• Any banks, credit unions and financial firms your spouse had a financial relationship with should be notified of his or her death.

• Your spouse’s creditors will also need to be informed. Any debts will need to be addressed, and separate credit may need to be established for you.

Your own taxes & investments. How does all this affect your own financial life?

• Review the beneficiary designations on the IRAs, workplace retirement plans and insurance policies that are in your name. With the death of a spouse, beneficiary designations will likely have to be revised.

• Consider your state and federal tax filing status. A change in status may significantly alter your tax picture.

• Speaking of taxes, there may be tax implications surrounding any charitable gifts you and your spouse have recently arranged or planned to make. (If a deceased spouse leaves property to a surviving spouse or a tax-exempt charity, that property is exempt from federal estate tax. Any property gifted by your late spouse during his or her life is not subject to probate.)

• Presuming you jointly owned some assets, it is time to retitle them. In addition to real estate, you may have jointly owned bank accounts, investments and vehicles.

Things to think about when you are ready to move forward. With the passage of time, you may give thought to the short-term and long-term financial and lifestyle consequences of your spouse’s passing.

• Some widowed spouses ponder selling a home or moving to be closer to adult children in such circumstances, but this is not always the clearest moment to make such decisions.

• Your own retirement planning needs. Certainly, you had an idea of what your retirement would be like together; to what degree does this life event change that idea? Will potential sources of retirement income need to be replaced?

• If you have minor children to take care of, will you be able to sustain the family lifestyle on a single income? How do your income sources compare to your fixed and variable expenses?

• Do you need to address college funding in a new way?

• If your spouse owned a business or professional practice, to what extent do you want (or need) to be involved in it in the future?

This article is intended as a checklist – a list of the important financial considerations to address in the event of a tragedy. If you find yourself referring to this article now or you decide to keep it in a drawer or on your computer for some unforeseen time in the future, please know that I am here to help you and assist you as you seek answers to your questions and a measure of financial equilibrium. Simply call or email me.

Still, no one likes extra stress courtesy of the IRS. Self-employed individuals seem to be magnets for audits – in fact, IRS data indicates that people who work for themselves and earn from $100,000-$200,000 yearly are five times more likely to get a second look from the agency than the typical employee.

Let’s look at some red flags that might get you extra IRS scrutiny. (We’ll end on a positive note – you or someone you know might be eligible for an unexpected federal tax refund from 2008.)

A Schedule C that hints at some odd bookkeeping. Schedule Cs get a close look annually as the IRS seeks to remedy the tax gap (the difference between federal taxes owed and federal taxes paid). As Schedule Cs are often filled out by solopreneurs and small business owners themselves, the chances increase for claiming substantial deductions that may be hard to substantiate.

Taxable income of $1 million or more. Millionaires work with accountants for a reason – generally speaking, returns prepared by tax professionals raise far fewer red flags than DIY ones. If you will make around $1 million this year, look back at the first paragraph of this article and consider whether or not it might be wise to defer some potentially taxable income into 2013.

Bad math. Calculators are readily available and they can be as crucial as software when it comes to filing your federal return. The IRS does spot mediocre mathematics in returns. It has even recalculated taxes to save people money in years when special tax credits were available, such as the Making Work Pay credit. However, it also finds unreported and underreported taxable income through the same scrutiny. In fact, the IRS found 4.2 million math errors last year on tax returns for 2010.

Huge deductions. Is your money-losing small business venture truthfully just a hobby? Did you really donate $4,000 worth of office supplies to a charity, and do you have the receipts to back that up? The IRS routinely checks returns for deductions that seem outlandish.

Living large. Does the IRS peruse social media? Yes it does, just as many people do. The IRS has done good detective work for years; its investigators know to check out DMV and employment records to get a better picture of an errant taxpayer. Today, photos and posts on Facebook and MySpace and Twitter can telegraph potentially valuable nuggets of information, particularly about young taxpayers who have come into wealth that their returns don’t seem to show.

If you’re reading this, you’re paying more attention than many others. That claim really isn’t so grandiose – a staggering number of Americans pay scant attention to their federal taxes. According to the 2012 Taxes and Savings Survey from Capital One Bank, 11% of American taxpayers choose to file at the last minute. For that matter, about 5% of Americans (that’s 7 million people) don’t file federal returns at all – and in some cases, it isn’t just because they don’t earn enough taxable income.

A new Christian Science Monitor/TIPP survey of 900+ adults finds that the average American expects pump prices of around $4.75 a gallon come July. That’s about 20% above where prices are now.

Is that perception cynical, or realistic? It depends on whether you think the latest price spike will eventually moderate according to the historical pattern.

Will the classic pattern hold? Short-term price jumps in retail gasoline are often partly tempered by lessening demand. That is, the price of gas climbs to a certain point where consumers simply decide to cut back on their driving. As demand drops, prices finally follow.

This could easily happen; it may happen soon. Yet when we look at the macro view, we have not been following the classic pattern. American consumer demand for gasoline has declined slightly in every year since 2007. (Before the recession, sales of big SUVs represented 20% of U.S. auto buying; now they account for 5% of it.) In fact, the federal government’s Energy Information Administration (EIA) believes that U.S. gasoline consumption will drop by another 7% over the next 25 years.

Who is to blame for the soaring prices? The Christian Science Monitor/TIPP survey asked for opinions. Close to a quarter of those polled put the blame on the oil industry; about 20% pinned the blame on speculators in the commodities market. Coming in third and fourth: the Obama administration (14%) and Congress (9%).

As the world is a global village, our gas prices are most influenced by the world oil market. Recently, the factor exerting the biggest influence has been the threat of supply disruption in the Middle East – but that’s not the only factor weighing on the market. We are using less oil and gasoline, but China and India and other emerging economies are using more – in fact, 10 million more cars hit the roads in China during 2010 alone.

In addition, the U.S. has become a net gasoline exporter for the first time in more than five decades as a consequence of key oil refineries along the east coast and in the Caribbean ceasing production. Also, many of our refineries can now produce gasoline for less than it would cost at Latin American or European supply points.

Basically, we are competing with the world for our gasoline – and the world oil market causes the big ripples in the equilibrium. This is why boycotting gas stations in your area for a day has little more than symbolic effect.

What could America do? The Obama administration could try some quick fixes, but some might not be popular. Releasing some of the inventory in the Strategic Petroleum Reserve could help – and in fact, announcing the release after the fact could potentially affect oil prices more than publicizing it beforehand.

To crimp speculators, the government could request that the New York Mercantile Exchange and Intercontinental Exchange (on which NYMEX crude and Brent crude get traded daily) boost margin requirements, a regulatory move which would discourage speculators from working with borrowed money. It could ask states to strictly enforce a more fuel-efficient, 55-mph speed limit on our nation’s highways, which would not please the trucking industry or the typical driver.

It seems every year we are tested by spikes in gas prices. As we transition (however gradually) from fossil fuels to other forms of energy, we may still have several of these episodes in our lifetimes.