Watch Out On Loan Consolidations
Preparing for retirement, you may consider consolidating your loans for ease of payments. You may just want to make one payment per month and minimize that amount. Your intention may be to pay off your debts or reduce payments to free up income for daily living. But beware you do not end up paying more financing fees than you would on your original loans.

Here, we are treating considerations of loan consolidation. These loans are directed at people with good credit ratings. Debt consolidation, on the other hand, is directed to people with serious debt problems. Debt consolidation may hurt your credit rating.

For consolidating your loans, you may be interested in lowering your monthly payment. But lower monthly

Interest Rate (%)	Term (yrs)	Monthly Payment	Financing Cost for $10,000 loan
7	5	$197	$1812
7	10	$115	$3852
5	5	$188	$1276
5	10	$106	$2675

payments are the result of increasing the number of payment months or a lower interest rate loan- or both. Even a higher interest rate consolidation loan can lower your monthly payment if you extend the loan time out far enough.

So what should you consider on a loan consolidation?

Generally, extending the months to pay your loans back will increase your overall financing charge. In this case you are paying for your lowered monthly payments!

If interest rates drop so that your consolidation loan rate is lower than your original loans, then if you maintain the same number of remaining payments you will truly reap both a lower overall finance charge and a lower monthly loan payment. If you double the remaining number of payments, your overall financing cost will go up considerably.

Referring to the table¹ (no fees included, only interest payments) the monthly payments for a 7%, $10,000 loan for five years decreases very little in going to a 5%, $10,000 loan for five years, but the total financing cost goes down about one third. Now, if you double the term from five years to seven years for the second loan, the payments almost halve, but the total financing costs increases by over one third.

If interest rates remain the same, then consolidation for a lower monthly payment can be quite costly. The table shows that doubling the term at the same interest rate reduces the payments considerably, but the total financing cost more than doubles!

Be very leery at extending the payment term. It is extremely costly. If you can work a little extra and save a little harder to pay off your original loan, then you may well be better off in the long run.

Give us a call or fill out the card so we can help clear up your debts in a way that's best for you.

¹ Created from Excel PMT function for monthly payments.

Need to Sell Your Home in a Down Market?
Retirees often sell the house they raised their children in to buy something more appropriate and affordable for the two of them. This 'buy-down' generally kicks out some equity to earn income as an investment. To get the most for your house in a 'down' market, you must 'earn it' by carrying out a few economical preparations.

You sell a house best by appealing to your buyer's eye and concerns. Doing so should not be costly.

Improve your house's view from the curb

Your home's external appearance and the yard that surrounds it are the first things your buyers see and judge. It makes a big impression on them. Your buyers will attribute it to themselves if they buy it.

So capitalize on having your property make a good impression by doing two things:

Give the house a fresh coat of paint all over or anywhere it needs it. Painting a house almost invariably pays for its cost-and can pay a lot more.

Spiff up the landscaping. Get the lawn nicely cut and trimmed. Put in some flowers and shrubs where it counts. And get rid of any yard junk that you have been meaning to do for years.

Clean and 'de-clutter' the internal house - for 'move-in' condition

The internal area of your house should be well cleaned. Get into the corners and behind the furniture so the cleanliness appears to be thorough.

Both the bathroom and kitchen should be spotless. These are the most important rooms in your house-and most used! Touch up whatever needs a little paint to give everything a 'fresh' appearance.

Take an objective view of your furniture and get rid of anything that clutters a room's appearance. Rooms should look spacious but comfortable-not cramped. That goes for the garage too. You may want to remove some of your family photos so buyers are not deterred from picturing themselves in your house.

Get a good feel for the 'going' price of a home like yours

Get two or three appraisals on a price for your home from realtors. You may do this before you begin your 'fix-up' work so you know what to expect. Ask them for ideas to enhance its selling value. Get knowledgeable about prices for houses and locations similar to yours.

Price it to sell

With your house 'ready', price it just above the price of comparable houses; you can always take a compromise offer. But first, be ready to help the deal by

Warranting some of your appliances for six months.

Offering help with homeowner's insurance for a year.

Offering to help with some of the closing costs.

These alleviate buyers' concerns about the house operation and its costs.

If you plan to sell and desire to invest the proceeds, contact us for a plan.

Which Pension Payout Option is Best for You?
You are just at retirement age and need to decide the best way to take your pension payout. At 65 years old, you have over two decades to live according to the IRS's Life Expectancy Table². This means that you may still have some long-term considerations in your investment plans.

Pensions often give you a choice of how to receive your benefits. You can choose between a monthly payout for life or an immediate lump sum distribution. You will want to make sure you discuss these issues with your company's Human Resources Department to clarify your options. Here we discuss a few considerations about each option.

Monthly Payout Considerations:

In choosing a monthly payout, find out if your company will be making the monthly payments itself, or will it be paying a lump sum to an annuity company to handle the payments. If the company will be making the payments, but it goes bankrupt down the line, it may not be able to pay you. In this case, the government's insurance company-the Pension Benefits Guarantee Corporation (PBGC)-would take over the payments.

However, the PBGC has restrictions on the size of its monthly pension payout, and will not guarantee health benefits. You can check out restrictions at the PBGC website³. So if you are very well paid, you may lose some amount of your monthly payout.

Will your company include a cost of living adjustment in your monthly payments? Inflation at an annual rate of just 3% would half the buying power of your payments in 24 years. That's a significant reduction.

Will your employer supply health benefits along with the monthly payments? As we age, our health eventually deteriorates; and the older we get, the more we need to rely on inexpensive health benefits. Such benefits may help considerably to reduce your health costs in the future.

Lump Sum Payout Considerations:

If in fact your company is in poor health, you may be better off taking a lump sum now. That way you are free and clear of company problems. And if you are highly paid, you will side step any shortcomings of the PBGC payouts if your company would be making its own monthly payouts to you

You can roll your lump sum into an IRA or anything else and use it for whatever purpose suits you. You might see if you can purchase an annuity plan that pays better than the company's monthly payout. Contact us or fill out the card so we can help you find a choice suitable to you.

² IRS publication 590 appendix C – Single Life Expectancy Table.

³ www.PBGC.gov

Potential Pitfalls with Self-directed IRAs
With a self-directed Individual Retirement Account (IRA), you can invest your IRA assets in just about anything-real estate, gold bullion, even oil and gas royalty interests. But when investing in alternative assets, it may be wise to watch out for two potential pitfalls.

Avoid prohibited transaction rules

First, it is important to avoid the IRS's "prohibited transaction rules." These rules are intended to prevent "self-dealing," which occurs when an IRA holder uses the money in the IRA to meet personal financial objectives considered to be inconsistent with the IRA's status as a tax-favored retirement account.

What exactly does that mean? Here is where things get murky. The rules are open to some interpretation. Essentially, you should not use your IRA funds to invest in an enterprise in which you have or will have some other relationship-i.e., in which you are an owner, co-investor, employee, creditor, director, or officer.

Some examples of potentially prohibited transactions include using your IRA to:

1. buy stock in a corporation in which you have a controlling interest;

2. lend to yourself or borrow from yourself;

3. engage in transactions with certain related parties (such as family members);

4. buy stock or other assets from yourself or sell them to yourself; and

5. lease assets from yourself or to yourself.

So, why avoid prohibited transactions? Because if you engage in them, you could lose your IRA's tax-deferred status. That means your entire IRA balance would become taxable (and subject to a 10% penalty tax if you are under age 59½).

Avoid triggering unrelated business taxable income

The other pitfall you will want to avoid with a self-directed IRA is triggering unrelated business taxable income (UBTI) which, formally defined, is income regularly generated by a tax-exempt entity by means of taxable activities.

For example, you might generate UBTI by investing in income-producing businesses, either directly or via partial ownership of a pass-through entity (essentially, a partnership or a limited liability company) which produces or sells goods or provides services. Leveraged assets can also generate UBTI, so investing in a partnership that acquires any assets through loans or on margin could also be a problem.

Why is this type of income prohibited in IRAs? Because when your IRA investments generate UBTI, your IRA may owe federal income tax, which defeats the purpose of having an IRA.

Now there are ways you can avoid UBTI. For example, structuring a company as a C corporation can avoid UBTI, although the company then will be subject to corporate income tax. That is why it is so important to have a self-directed IRA custodian that knows the rules.

Call me or complete the attached reply coupon to request some additional information.

Note that all of the above mentioned alternative investments in self directed IRAs entail risk and may result in gain or loss. Self directed IRAs may carry annual fees, handling fees for certain investments, or transactions fees. Each selection incurs transaction expenses and commissions and potential other costs, including management fees or liquidation costs. Additionally, investments such as real estate or loans will be illiquid and could create problems if distributions are required. Withdrawals from IRAs are taxed as ordinary income and will incur a 10% penalty if made prior to age 59½. This article is not intended to provide tax or legal advice and should not be relied upon as such. It is a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax advisor for advice and information concerning their particular circumstances.

Retirement Years Have Changing Phases
People often expect retirement to be about 20 years. But the average retirement may last much longer. Half of those currently aged 65 will live to be older than 83 years, according to the National Center for Health Statistics. In fact the latest U.S. Census found that the fastest-growing segment of our senior population (those at least 65 years old) is the 85 years and older group. What effect does this have on your retirement income?

Living longer means making your retirement income last longer. But our interests and capabilities change during our retirement years. These, in turn, prompt different expense choices.

Although each of us is different, we should view retirement as a progression of phases, such as early, middle, and late. This involves taking a fresh look at retiree expenses and income, as well as withdrawal and estate planning strategies. We must build flexibility into planning our retirement years.

Because we are living longer, we are more ambitious as we move into and through our 55 to 74 years. The desire to remain active means many people are continuing to work part time or starting new businesses in retirement. Many do not want to retire completely, but reinvent themselves through a mixture of work and leisure. This often means earning income by working part-time in something we enjoy.

In fact during our 55 to 64 phase, we should be transitioning from our main job into what we want to spend time doing. This will help maintain earned income that puts off using typical retirement income until later. Withdrawals need not be as high as originally thought.

Through the 64 to 74 phase, we can blend our part-time working income and our retirement income.

In the last phase, our capabilities and ambitions tend to wane. We truly retire from working. But our expenses go down considerably, so our retirement income can more easily service our needs and longevity.

Give us a call or fill out the card so we can help you create the retirement income you need based on the historical trend of expenses in retirement.

What Happens to Bondholders When a Company Goes Bankrupt?
Seniors like bonds because they can possibly provide a steady income, diversify a stock portfolio, and are backed by the insurer's financial strength. But things do not always go as planned. Companies occasionally have financial problems and must file for bankruptcy.

Investors holding bonds in bankrupt companies can at least have the comfort in knowing that, as unsecured creditors, they are second in line for payment. Secured creditors, those with claims backed by collateral, such as equipment or real estate, are paid first. Stockholders come last, and that is only if there is any money left after the creditors have been paid.

There are two general forms of bankruptcy: Chapter 7 and Chapter 11. With Chapter 7, the company is liquidated and bondholders should file a claim to receive a portion of the value of their bonds. In Chapter 11 proceedings, however, the process is quite different.

Chapter 11 allows the corporation to reorganize. Its bonds might continue to trade, but holders will not receive principal and interest payments. As a result, a default could occur, and the value of the bonds might decline significantly, or the court may approve an exchange of the old bonds for new ones (which could have a lower value).

How can you find out if a company that you lent money to by purchasing a bond has filed for bankruptcy? TV reports, newspapers, and financial magazines often give an account of companies that recently declared bankruptcy. The company will also send you information on the reorganization plan and ask you to vote on it. If a financial institution holds the bond for you, it should forward everything from the company.

If you would like a free credit report on bonds you currently own, include the CUSIP numbers and issuers' names on the enclosed coupon and mail it to my office.

Along with the report, I will provide a list of investment-grade bonds that I am currently recommending.

TIPS to Fight Inflation during Retirement
Perhaps no word is scarier to a fixed income investor than inflation-especially for those who depend on the yields from bond investments for their retirement income needs. For example, inflation can reduce the payout rate of bonds over the long-term, as the higher costs of living can often weaken the purchasing power of the bond's return over time.

However, retirement investors can factor in the effects of inflation in their investment portfolios. You can also help protect your portfolio and your cash flow from inflation by adding Treasury inflation-protected securities (or TIPS) to the bond portion of a diversified investment portfolio.

TIPS were introduced a few years ago by the U.S. Treasury to offer investors a means to protect assets from inflation. TIPS help to protect against inflation by adjusting the principal amount by a rate equal to the Consumer Price Index (CPI)-the primary barometer of inflation on the consumer level. When the bond reaches maturity, the TIPS investor receives either the principal value of the bond adjusted for the CPI rate over the term of the bond or the bond's original par value, whichever is greater upon maturity. The TIPS investor also receives the interest amount on the bond. Because the principal amount of the TIPS bond rises over time, this helps to protect the purchasing power of the bond

TIPS can also be a suitable choice for a diversified portfolio, because they have a low correlation with stocks and other bond securities. That means they often react differently than stocks and other bonds to market and interest rate risks, and can potentially reduce the volatility of your overall portfolio.

However, TIPS are not a risk-proof investment. To receive the full inflation-protection potential of a TIPS holding, it must be held for the term of the bond. Also, TIPS may underperform regular Treasury bonds, should inflation remain low. In a deflationary environment, TIPS could also lose value, although investors would be guaranteed to receive at least the par value of the security upon maturity.

TIPS may also provide you with some tax benefits. Like other Treasury notes and bonds, TIPS are exempt from state and local income taxes, but interest payments are subject to federal income tax. However, gains from inflation adjustments to the value of the TIPS' principal are taxable in the year they occur, even though you will not get the cash until maturity.

A complete evaluation of your current investment portfolio and income needs can help you determine whether TIPS would be appropriate for you. Call my office to schedule an appointment to learn more, or simply complete the enclosed reply coupon to have information on TIPS mailed to you.

Are You Taking Advanatge of Your Long- Term Care Benefits?
Congress passed HIPPA⁴as an incentive for people to take financial responsibility for their long-term care. It generally provides for deductibility of qualified long-term care expenses, and excludes from taxable income your qualified long-term care benefits.⁵Higher deduction limits for LTC premiums are geared to help seniors make payments. Let's see what this means.

You can add long-term care expenses, paid for both qualified long-term care services and premiums for qualified long-term care insurance products, to your medical expenses deduction on your Schedule A of your IRS form 1040.

Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services that are required by a chronically ill individual and provided through a plan of care prescribed by a licensed health practitioner. That is an IRS mouthful!

Someone is chronically ill (i.e. needing long-term care) when within the last 12 months, a licensed health practitioner has certified him or her as unable to perform at least two of the ADLs (activities of daily living-dressing, eating, toileting, transferring, bathing, and continence) without help for at least 90 days.

Qualified long-term care insurance contracts are those that provide only coverage of long-term care services. They must be guaranteed renewable and must not provide for a cash surrender value that can be paid, assigned, pledged, or borrowed. And lastly, it must not pay for expenses that would be reimbursed under Medicare, except as a secondary payer.

The amounts of these LTC premiums you can include in medical expenses are limited though. But they increase substantially with age. See the table for includible limits on LTC premiums.

Age	Limit of LTC premiums includible in medical expense, 2008
40 or under	$310
41 to 50	$580
51 to 60	$1,150
61 to 70	$3,080
71 or over	$3,850

Your LTC benefits are generally excludable from taxable income as long as they are used for qualified long-term care services (e.g. nursing home, home care, and personal care and maintenance services).

Give us a call or fill out the reply coupon so we can help you take advantage of your LTC tax circumstances and help you with LTC insurance choices.

⁴ The Health Insurance Portability and Accountability Act (HIPPA) of 1996

⁵ IRS Publication 502

A New Type of Trust May be Able to Solve Many Estate Planning Problems
Many wealthy Americans today are worried about what will happen to their estates after they are gone. Although many different types of trusts have been designed to help alleviate this problem, a new type of trust, called the "inheritor's trust" has a level of flexibility that is unmatched by other estate planning vehicles. This type of trust is a dynastic trust, similar to many other types of dynastic trusts, except that this trust is a "stand alone" trust that allows for changes in investment strategies, as long as the beneficiary is willing to discuss the situation with his or her grantors.

This type of trust can potentially provide substantial benefits for those seeking long-term, multigenerational planning, such as the type designed to avoid the generation-skipping transfer tax. It can also protect against divorce, creditors, and estate taxes. Any parent that is currently gifting assets to their children on any kind of regular basis should seriously consider establishing one of these trusts. The key difference between this type of trust and other trusts is that the beneficiaries must be willing to talk openly with their grantors regarding how they want the money invested or handled.

In order to establish an inheritor's trust, an irrevocable dynasty trust must be established first. The inheritor is more often than not the trustee, and must usually choose a close friend or confidant to be the distribution trustee. This trustee has absolute control over what kind of distributions are made from income and principal. However, this transference to a third-party trustee is exactly what makes the assets of the trust so secure from creditors. Beneficiaries have absolutely no legal right to force any kind of distribution from the trust, which renders creditors unable to force any type of distribution from the trust as well. It is important to select the correct state to create the trust in, as the validity of these trusts will vary according to state law.

If you are worried about your estate tax situation or whether your beneficiaries will be able to do what they want with your assets once you are gone, call us. We can review your situation and help you to determine whether you would benefit from an inheritor trust or another estate planning technique.

Contact us now for more information.

Would Your Survivors Spend It All?
Like most seniors, you have worked hard to get where you are financially, and you want to make sure that your heirs receive everything that you plan to leave them. To accomplish this, you may have even established a trust to reduce transfer costs and possibly shelter taxes. But what will happen once your loved ones receive their inheritance?

Will they invest it wisely for the future, quickly spend it all, or will angry creditors line up at their door to get paid? An additional special clause within your trust may possibly assure that the assets that you pass to your beneficiaries will last as long as you had wished.

A spendthrift clause prevents trust beneficiaries from voluntarily or involuntarily transferring current or future rights in the trust. Without this, beneficiaries have unrestricted ability to use the assets, and thus their creditors can attack those funds. State laws determine the exact language and the degree of creditor protection spendthrift trusts offer. Nevertheless, the concept restricts the beneficiaries' access to the trust's property.

The trustee whom you select is usually given the discretion to distribute money as needed to the beneficiaries. This may be an ideal choice for a beneficiary who is financially irresponsible, and likes to spend, or you may want to provide for a loved one who has special physical or mental needs.

If you worry about how your children, grandchildren, or other beneficiaries might spend the money you leave them, check off and return the enclosed coupon.

We can schedule an appointment to review your concerns, and if necessary, I will refer you to a local, estate-planning attorney to draft the documents.