Are you a parent with investment dollars to spare in deflated, college-area real estate markets? If so, there's never been a better time to invest in condos or single-family homes to house a student during their undergraduate or graduate years. This is an investment that will provide tax breaks and potential investment appreciation.

An estimate by the National Association of Realtors concludes there are approximately 3 million campus houses and condos in America today. These are properties that were purchased primarily for the owners' college-bound students. This number represents about 8 percent of the nation's 37.4 million investment properties. However, it excludes 6.8 million vacation homes, which don't tend to be near college campuses.

It is very important to consider pros and cons because the potential rewards of buying housing for a student carries many risks. Over the past decade, the once-galloping real estate market made condo and home purchases in college areas attractive to parents looking for an actual return on the room and board expenses they would otherwise throw away to their kids' schools. With the double-digit home appreciation of the 1990s, parents looked at buying property as a way to essentially house their kids for free.

Today, in most markets, home values have fallen, which makes for a better investment proposition. But it's critical to talk to tax and financial experts such as a Certified Financial Planner professional. As a starting point, parents need to consider the following:

How responsible is your kid?
If your kid thinks you're buying them a crash pad or party palace, you're already in trouble. He or she will have to be responsible enough to act as an onsite landlord making sure the interior and exterior of the property stay in livable and salable condition. That's not a job that every child can handle, so unless you can afford housekeeping and maintenance help, any doubts on your part should dissuade you from such a purchase. Also, if you have ANY suspicions that your child might drop out, take a break or transfer from his/her chosen school, do you want to risk becoming a landlord yourself or paying for an empty property?

How's your cash flow?
If you are already a homeowner, you know what owning a home costs -- mortgage payments, property taxes, insurance, homeowners or condo association dues, maintenance costs -- can you cover these things in a remote residence (including emergencies) without batting an eye? And keep in mind that those costs are going to be considerably higher for your kid's property in downtown Chicago than they would be in Omaha. Also, keep in mind that it will cost considerably more to insure this property because even though it's your kid, you'll essentially need to be insured as a landlord based on the damage that can occur in rental properties.

When would you have to sell?
Most people think in terms of owning a kiddie condo for four years -- the term of a standard degree. A decade ago, that was a relatively easy commitment to make as housing prices were skyrocketing and buyers always seemed to be circling. Today, however, owners have to consider that it may take them considerably longer to sell the property at a profit with necessary investments in maintenance along the way, and a big 5 to 6 percent slice off the top to pay a selling broker.

Location, location, location:
Buying a property in the immediate vicinity of campus might be great for your kid who rolls out of bed late for class, but bad for you if you're expecting your property to appreciate. In most markets, on-campus real estate is notoriously low on appreciation (think how you'd feel buying next door to Animal House). This is why investors do better buying in established, off-campus residential areas or developments that are near but not on campus. Your child will have to miss the experience of living with their peers, though, and that's a big consideration.

Can the property do double duty?
Students are pretty possessive about their space and privacy in college, which is why you don't see many parents crashing in their kids' dorm rooms for the weekend. But if you have regular business or vacation plans in the city where your kid goes to school, see if that might be one more incentive to invest as long as it doesn't cramp your style or your kid's.

Might your investment become your kid's investment?
Again, this requires sensible planning and the full cooperation of a responsible child. However, if your child is planning to stay in the city where they've graduated, parents might consider a plan to sell the property to their kids at graduation. This could give the grad a great start on their finances during their first earning years.

Is buying a Kiddie Condo the right approach for you and your family? Before you pull the trigger, follow that advice parents are always giving their kids: Do your homework!

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

As our nation's lawmakers continue to arm wrestle over fixes to the U.S. health care system, it's important to realize that health care -- and, specifically, a health crisis involving a member of one's family, can have overwhelming financial implications. For example, a June 2009 article in the American Journal of Medicine reported that medical bills are behind more than 60 percent of U.S. personal bankruptcies, adding that more than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts.

The article, based on research from Harvard Law School, Harvard Medical School and Ohio University, underscores how a single health crisis can financially destroy both individuals and families. It also clearly demonstrates the need for adequate planning ahead of any health crisis, particularly when known risk factors exist in a family. A financial expert such as a Certified Financial Planner professional can help individuals determine if their insurance and savings options are adequate to handle the possibility of any future health crisis.

If you have time to prepare, most financial planners will advise you to:
* Create an adequate emergency fund to cover several months (usually a minimum of three months and, even better, up to a year) of family expenses if a patient can't work during their treatment; * Purchase separate disability insurance to pay everyday expenses since company-bought disability coverage will likely be limited - the benefits on any individual policy need to be coordinated with the group policy;
* Create health care advance directives, health care powers of attorney and financial powers of attorney, health care proxies;
* Build lists of critical phone numbers, major assets and where information on each can be found on investment accounts and other key information in case the person is incapacitated;
* Communicate funeral plans to family members in writing so that wishes can be implemented in the event of death. Even better, complete a personal death awareness document that covers both the practical aspects of death and the interior emotional aspects of death.

But what if you don't have time to prepare? What if you're suddenly faced with a frightening, expensive and potentially life-threatening diagnosis? Here are some basic steps to take:

Start by realizing it's not all about the money: If you or someone you love is sick, obtain the best care possible, not what your bank account and health insurance can buy. A CFP® professional with experience in dealing with healthcare issues can help you assess your financial situation against various goals for retirement, your expenses, your children's education and other matters.

Grill the patient's insurance agent or HR person: If you or family members have bought health insurance through an agent or your employer, insist that they explain exactly what the plan covers and where your deductibles do and don't apply. Generally, a serious illness will quickly use up the deductible (this is where your emergency fund is important). Pay attention to how much the insurance will pay and how much you'll pay out of pocket once the deductible is exhausted.

Check on experimental treatment and see how it will affect coverage: If the diagnosis is cancer or some other potentially life-threatening illness, in addition to tried and true treatments, research medical centers offer clinical trials. And, keep in mind that some insurance plans might not approve certain treatments that could potentially lead to other health issues. Err toward caution in these matters, but if the insurer approves, see if such experimental treatment can get you a break on costs.

Get those directives in order: A health care advance directive is a formal, preferably notarized instruction sheet for doctors to follow in case you or family members are incapacitated. The most commonly known health care directive is a do-not-resuscitate (DNR) order. A health care power of attorney designates a particular individual — a spouse, a friend, an adult child — to carry out your medical wishes if you are incapacitated. Meanwhile, financial powers of attorney designate an individual to handle financial affairs if the sick or deceased are single or did not designate joint tenants for certain assets. Again, each state follows a particular set of documents.

If there isn't a will or a complete estate plan, make one: A will doesn't have to be enormously detailed to relieve problems for survivors, but it can create enormous problems if it doesn't exist. If there is no executed will, the estate is intestate, which means that property is distributed by state laws. Yet it makes even more sense to review all of a patient's assets to determine if more detailed directives are necessary and most important, to make sure beneficiaries on insurance, retirement accounts and other investments are up to date.

Consider whether you can make monetary support a gift: It's good to get tax and financial advice on making a one-time gift to support the patient. Would the potential loss of money injure you, and worse, will it injure the relationship? If you don't think you will be repaid would you be willing to consider it a gift?

Ask for generics and samples: Many physicians are willing to recommend a generic substitute or at least supply you with a few samples of the drug they're already prescribing. While doctors can't get away with passing sample drugs to all their patients, always ask. As long as they are prescribing the medication, samples with the proper dosage can provide cost savings to patients.

Begin negotiations before there's a financial problem: The best time to speak with hospital bean counters isn't when you're behind on your payments. Once a diagnosis is made, either you or someone you designate as your agent needs to contact the hospital business office to check on payment schedules and possible discount plans if you are uninsured or fear your insurance may not cover a significant portion of costs. Any creditor appreciates a customer who's willing to come to the table first.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

As we trudge our way through the heart of the winter season, many couples are thinking about more than just springtime and warmer weather. They're considering marriage. That includes older couples with kids, accumulated assets and debts and previous marriages behind them.

That's why marriages for older individuals require a specific sort of planning. For couples making another effort at marriage, a prenuptial agreement can either set the groundwork for a new and trusting relationship or reveal that money issues may prevent the marriage from working well.

It's actually not the agreement by itself that makes the difference -- it's the way the couple gets the agreement down on paper. When two parties sit down to formalize a prenuptial agreement with their respective mediators or attorneys, it requires both sides to make full disclosure of their current financial situation and long-term money goals.

Prenuptial agreements can be considerably more complex for couples making a repeat trip down the aisle. Money issues are not just a matter of full disclosure between two people. In remarriage, they can affect a much wider audience including aging parents, siblings and children and ex-spouses from previous marriages. In some cases, there are sizable business and personal assets gathered before the upcoming wedding day that must be protected.

It is always wise to consult a financial advisor such as a Certified Financial Planner professional to set the ground rules for this process, though legal documents that hold up in court generally need review by respective family law and estate attorneys.

So -- thinking about heading down the aisle one more time? Here are the primary issues any remarrying couple should discuss ahead of a formal engagement:

Families first
Blended families bring their own financial complications. Indeed, if couples are bringing children from previous marriages into a blended family, it's necessary to establish not only how they will be supported and educated, but also what percentage of the family assets they will be entitled to in case their biological parent dies. There may be alimony and other support arrangements already in place for ex-spouses and children from earlier marriages as well as elderly parents to support. All of these financial requirements need to be understood and spelled out beforehand.

Is there debt? And if so, how much?
The first money conversation should take place at a table with both sides showing their credit reports, savings, investments and debt figures -- every dime. Both should start the process of talking about how that debt should be paid off, by the person who accrued it, or by both potential spouses. Couples also need to decide how they will handle debt going forward -- jointly or separately.

What about investments?
If so, how will they be handled once the couple is married? Will these investments be held after the marriage is in joint tenancy? Are some of the investments promised to children, ex-spouses or other family members? From a tax or estate perspective, does it make sense to do anything specific with those assets before the wedding? And after the wedding -- assuming debt is being dealt with -- how will you maximize those investments?

What about company assets?
If one or both spouses run their own companies or partnerships, it's a huge planning priority. That's particularly true if other family members work for their respective companies. Depending on the size and complexity of the operation, some advisors might encourage couples to go through a formal valuation process of those assets to establish a base of wealth going into the marriage. A pre-nup could spell out who will get future percentages of those assets if the couple splits. This is particularly necessary if the goal is to keep the company in the hands of the founding family.

Handling daily expenses
This is a universal question in any marriage, the first or the sixth. Couples need to agree on how they'll share accounts and pay bills. The most common option is to create one joint account. Others work with three accounts -- one joint and then one for each individual.

What about insurance?
Life, health, home, and disability -- all coverage that singles hold separately needs to be reviewed and consolidated to make sure the couples and their families have adequate coverage after the wedding.

What about our estates?
Blended families with means produce a surprisingly complex estate picture. Engaged couples need to begin addressing this need before the wedding. A qualified estate attorney who understands the variety of estate issues affecting the assets, business issues and philanthropic commitments of blended families is a particularly good investment and can work with financial planners, tax attorneys and accountants to create an estate plan for the couple that makes sense and minimizes conflict among heirs.

What about retirement?
Retirement discussions go beyond money. Couples should decide how they want to live in retirement, whether they'll continue to work and what will happen if one or both get sick. This is a particularly important discussion if one spouse is significantly older than the other and may retire years ahead. There needs to be a close look at what retirement assets have been accumulated by both parties and how they'll be shared during the marriage and after the death of one or both of the spouses.

What about our tax status?
It makes sense for couples to consider their tax status before they marry, particularly if there are sizable business or personal assets being brought into the marriage or past tax liabilities. In any event, remarrying couples should involve a tax expert in all pre-marital financial planning.

Before you say, "I do," make sure your financial house is in order!

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

By now, most people are aware that 2010 is a special year for Roth IRA conversions. Previously, only those with Modified Adjusted Gross Income (MAGI) below $100,000 were allowed to convert IRA assets to Roth IRAs. In 2010, the income ceiling for Roth conversions is permanently repealed. High income earners have a new planning opportunity available to them.

A Roth conversion is a complex financial planning issue that requires a detailed look at each individual's situation, along with making judgments regarding future taxable income, and future tax rates when distributions might occur. Before examining the pros and cons of a conversion, let's step back and examine the characteristics that go with Roth IRAs and conversions.

Roth IRAs have been around for 12 years, allowing individuals to contribute after-tax money into these accounts. Once in the accounts, assets grow tax deferred like traditional retirement accounts. The difference, however, is that qualified Roth IRA distributions are tax-free, whereas distributions from other tax deferred accounts (401ks, IRAs, Annuities) are taxable.

Individuals in higher income brackets are prohibited from contributing to Roth IRAs, forcing them to direct savings into tax deferred accounts. As tax deferred account balances grow, the challenge for individuals without Roth IRAs is revealed as they near retirement. Not only are distributions from traditional IRA and 401k plans taxable, but the distributions frequently push individuals into higher tax brackets, increase the taxability of Social Security benefits, and reduce available deductions or exemptions. Lastly, at age 70 1/2, traditional IRA account owners are forced to take Required Minimum Distributions (RMDs), increasing their tax liability.

Wisconsin residents should know that the state has not adopted P.L.109 222 to recognize Roth conversions. Unless Wisconsin adopts this law, taxpayers under age 59 1/2 with income over $100,000 will be faced with an early withdrawal penalty of 3.33% and an excess contribution penalty of 2% annually. Fear not, as a technique known as a "Roth Re-characterization" allows us to reverse a Roth conversion as if it never happened. Therefore, this current rule should not prohibit us from leveraging this technique.

The tax resulting from Roth conversions can be deferred, and split between your 2011 and 2012 tax returns. Pushing the tax into these years can be a smart decision if you are confident you will be in a similar or lower tax bracket than you are in 2010. With tax rates slated to rise in 2011 for those in the 25% income tax bracket and above, paying the tax in 2010 may be the right option.

The following are several reasons why someone might convert to a Roth IRA. This list is a starting point as you discuss your overall financial plan and goals. Please consult with your financial advisor or CPA before proceeding with a conversion.

Reasons to Convert to a Roth IRA

1. Liquidity: A Roth conversion will generate income taxes. To maximize the benefit of the conversion, you should have liquid assets available outside of the IRAs to pay the conversion tax.

2. No Need for your IRA Money: If you have sufficient assets outside of your retirement accounts and won't need your IRA assets, converting to a Roth IRA is a strong consideration. Roth IRAs do not have Required Minimum Distributions (RMDs) like traditional IRA accounts. This gives more tax control to individuals who may not need to access IRA assets until after age 70 1/2.

3. Tax Control: Income stacking occurs when you begin adding up all of your income sources in retirement. It is not uncommon for individuals to have earned income, social security income, pension income, interest income, dividend income, passive income from real estate investments, and short term and long term capital gains. If you need to take a distribution from an IRA, or are forced to take an RMD, this income is added to your other income sources and could push you into a higher tax bracket or simply increase your tax liability. You have less control of your income tax liability when you have assets in an IRA relative to a Roth IRA.

4. Inheritance: In relation to #2 and #3 above, if your children are likely to inherit your IRA, Roth IRAs are a fantastic asset to pass to the next generation as distributions are tax-free. Forecasting the tax-free growth of this asset over two generations will demonstrate a huge advantage of Roth IRAs over traditional retirement accounts. If your children are likely to be in a similar to higher tax bracket than you, consider a conversion.

5. Future Tax Rates: By converting your IRA to a Roth IRA in 2010, you can pay tax at a known rate (2010 tax rates if you choose), and a rate that is low relative to historical tax rates. In addition to potentially rising tax rates, keep in mind that certain deductions, exemptions, and credits may be reduced moving forward, further increasing your tax liability. If you think you will be in a similar or higher tax bracket in retirement, a conversion today can make sense.

6. Tax Diversification: Most individuals have after-tax accounts (savings accounts, investment accounts, etc.) and tax deferred accounts (IRAs, 401ks, Annuities) but don't have a tax-free Roth IRA account. By converting some or all of your IRA assets into a Roth IRA, you can choose which accounts to draw from in retirement to best maximize your situation and to diversify some of your assets against future tax changes.

7. Reduced Market Values: Given the low returns of the last decade, many retirement accounts are at low levels. Converting accounts now, while values are low, moves an asset to a tax preferred account with minimum tax liability. Conversions early in 2010 are recommended.

8. Favorable Tax Attributes: Charitable deduction carryovers, investment tax credits, or low current income in 2010 are all incentives to do Roth conversions in 2010.

9. Income Tax Bracket Filling: If you have room within your current income tax bracket to incur more income, than a partial Roth conversion is a great way to maximize your current bracket.

10. Estate Planning: Although Roth IRAs are included in your taxable estate, a Roth conversion helps to reduce the value of your estate (via the income tax -- which is lower than estate tax). In addition, Roth IRAs are not subject to estate and income taxes when withdrawn by your beneficiaries.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

When we hear the words "estate planning," it's probably natural to believe that's a task that can be put off until we get older. In fact, the best estate planning begins early and is usually sparked or adjusted by major transitions in life. Such life transitions include marriage, divorce, the birth of a child, death of a loved one, a major health event, a major career change, or even an inheritance.

It's important to coordinate financial planning with estate planning because what you do with your money today will have a direct impact on the estate your heirs will receive years from now. It all starts with basic spending and planning goals.

Let's take a closer look. Here's a general road map to that process:

Start with a trained financial planner

Whether you plan to stay single, re-marry or move in with a new partner, it's good to get a baseline look at your finances as early as possible before estate planning can begin. A CERTIFIED FINANCIAL PLANNER™ professional can help you review your new current spending and savings needs, compare strategies to achieve long-term goals, such as college and retirement and give you critical tools to protect your assets and loved ones if you should happen to die suddenly.

Talk with a trained estate attorney about wills and other critical documents

True, there are software programs and other kit solutions available for writing basic wills, powers of attorney and certain simple trust agreements. The good news is that these packages offer short-term savings. However, the bad news is they have the potential for greater costs in the long run if you choose the wrong package or if you fail to follow all instructions to the letter. It makes more sense to coordinate your financial planner's activities with an estate attorney who can tailor an overall estate plan that is specific to your needs. Even if you are very young with few assets, get some solid advice in this area so you'll be able to manage and adapt such planning as you age and your finances get more complex. It's usually a good idea to revisit your estate plan every five years or whenever you have a major life change.

Make a guardianship game plan for your kids

It's not enough to plan how money and assets will go to your children if you or your spouse die suddenly or are incapacitated. If your children are minors, it's particularly important to make sure you and your spouse have a guardianship plan for their upbringing as well as any assets they may inherit. You should give your chosen guardians a road map on how to handle the assets you leave behind. You should also ask your proposed guardians before you name them. This way, you still have the chance to name someone else if your first choice is unable or unwilling to carry out that responsibility. If there are any trust or wealth issues that will become effective for your children once they reach adulthood, it's important to establish an efficient legal structure, such as a trust created under your will for distributing those assets. A trust under your will would name a trustee who can train and guide your kids through that financial transition.

Plan for kids who have special needs

If one of your children is disabled and is expected to need lifetime assistance of some type, you should consult a qualified attorney to help you create a special needs trust. It will help protect your child from having to give up any public or social financial assistance. It will also preserve access to special doctors, medical help, specific prescriptions or treatments that could be taken away if they were to personally inherit assets that would disqualify them for these programs. When such assets are held in a properly designed special needs trust, they are not counted as the child's assets. The advantage is that those trust assets may still be used to support their housing or other personal living needs.

Get solid insurance protection in place

If you are married or are single with a child to care for, you really should consider purchasing insurance that will cover any eventuality. Not only will adequate life insurance benefit your family, but you and your family will also benefit from adequate health, property/casualty and disability insurance. If you're newly single, you certainly need the best health coverage you can afford for yourself and your kids. However, life, property, liability and disability insurance become doubly important, particularly if you failed to address those needs during the divorce. Even if your ex-spouse is cooperative with financial support, it's wise to insure yourself as if they weren't. A qualified financial planner should be able to review those options in detail.

Review all your investments for primary ownership and beneficiary information

While you are married, appropriate designation of property as separate, joint, or (if applicable) community property can provide legal, tax and asset protection advantages. In a divorce situation, even if you were advised correctly to change the names on assets you and your spouse were dividing between yourselves, you should perform a post-divorce to review that the ownership names and beneficiary designations are indeed correct on those assets. And most importantly, to make sure all beneficiary information is correct.

Plan for multigenerational issues

For individuals and couples with elderly parents and/or young kids starting out on their own, it might be smart to do a multi-generational estate checkup at the same time. Why? Because, in families with significant assets or other pressing financial issues involving businesses or dependents, each generation's wishes for the dispersal of shared or personal assets should be documented legally and shared with all the relevant parties. In some families, this may mean the future of a multigenerational family business, perhaps one of the most complex estate issues any family will face. For other families, the assets may consist mainly of cash, property and other investments but similar problems can occur when all the parties aren't on the same page about who will get what, how and when they will get it, and who is in charge during the process.

Activate trusts and other estate transfer mechanisms

It is surprising how often estate attorneys and other people in the advisory process fail to get their clients to actually title assets in the name of living trusts and other mechanisms to transfer wealth. It's not enough to set these mechanisms up. Get step-by-step instructions on what needs to be done to make them effective.

Make sure your health and financial representatives know your wishes

Oftentimes, people tell a close friend or relative that they have been given power of attorney over health and financial decisions of a loved one, but there's no further effort to share those wishes or show them what their legal documents specifically instruct them to do. Both sides should go over this information as soon as the person agrees to be the other's representative.

Remember: it's never too early to get the estate planning wheels into motion.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

Some opportunities come along only once in a lifetime. If you hesitate, they're gone forever. Other opportunities, however, come along more frequently and we get plenty of chances to take advantage of them.

Take New Year's Resolutions, for example. They afford us an opportunity every year to set goals and to realize the potential that lies within each of us. You know the story. January rolls around and we make promises to ourselves to do things differently, to do things better, to be smarter.

But how often have you reached December only to realize, much to your chagrin, that last year's resolutions have become nothing more than a series of broken promises? That's where setting firm and realistic goals becomes so important, especially when it comes to financial planning.

If you're serious about achieving financial independence for your family and meeting all of your objectives, setting goals is a MUST. Over the last 15 years, we have assembled a list of the Top 5 most important goals that people need to address regarding their finances. If you can achieve these five goals, you are ahead of the curve in managing your wealth and reaching financial independence.

Here, then, is our Top 5 list, along with suggestions for achieving these goals:

5. Pay Yourself First: If you wait until the end of the month, after all of your monthly bills are paid, to save for your retirement or other goals, you are limiting your potential for success. By paying yourself first, you will keep your savings plan on track and your consumption habits will change to reflect available cash flow. Once people begin saving consistently, it becomes an addictively positive habit that creates additional financial opportunities. To increase your probability for success, utilize payroll deductions into 401k or 403b accounts, or simply authorize automatic deductions from your bank account towards your savings account. This savings plan must be set-up to occur automatically, on a consistent and frequent basis.

4. Get Organized: How often do you receive financial statements in the mail, and simply set them in the ever-growing pile on your desk? Financially successful individuals organize their information, throwing away the material that is easily retrievable electronically or that is not important. Get a simple filing system to save important statements, and other financial documents. In the event of your incapacity or death, your loved ones should be able to easily find and understand your records. With good organization, you will be able to review what is important and make better decisions.

3 Damage Control: Accidents happen, and the loss of your income, coupled with high health expenses, is a major cause of bankruptcy. Having proper insurance coverage is critical to ensuring your financial independence. We have seen way too many families suffer financially because of inadequate insurance. Anticipate the unexpected, and take immediate steps to protect your family from a financially devastating accident or situation. Review all of your insurance policies, including: life, health, automobile, disability, and home owners' policies. Going through financially challenging times is difficult. However, knowing that you put your family into that situation when you could have avoided it is devastating.

2. Investment Check-up: Take an inventory of your investments to find out how your money is allocated. Be certain that the mixture between stocks, bonds, real estate, international, and cash investments suits your situation. Frequently, people take on too much risk, or too little risk, and reduce their probability for growing their assets at an optimal rate. If a security has grown to become a large component of your portfolio, consider reducing or hedging the position. If a significant amount of your assets are sitting in money market or CD instruments, consider equity investments that historically outpace inflation. Be certain you know what you own and why. Review it when those statements come in every month.

1. Cut the Fat: We live in the wealthiest country in the world and the media is constantly telling us to consume, consume, consume. The sizes of our houses have increased as the sizes of our families have decreased. Certain necessities of today such as cell phones, cable television, computers, Game Boys, heated car seats, GPS, iPods, etc. weren't even luxuries 20 years ago because they didn't exist or weren't prevalent.

When thinking about retirement, many people are quick to realize that it isn't how much money one makes or the size of their assets that is most important. What really matters is the amount they spend relative to their income or assets. Identify what is truly important to you, and leave everything else behind.

Now that you have the Top 5 list, let's get serious about accomplishing your goals! Sit down and write out your goals. Share those goals with your family, friends, and advisors. By writing down our goals, and sharing them with others, we are creating a support network that will help us accomplish those goals.

Plan on reviewing these goals every month at home, and meet with your advisor every quarter to receive feedback. Circle July 4, Independence Day, on your calendar. This marks the halfway point of the year. If you aren't on track to accomplish your goals, re-double your efforts to get back on course.

Remember, the more difficult the journey, the more rewarding is the finish line. We want you to sit back in December 2010 with a feeling of accomplishment and pride, knowing that you have taken the steps towards financial independence. It sure beats looking back at a string of broken promises!

For help in setting and tracking your financial goals, talk to your Financial Advisor.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

The window of opportunity for many tax-saving moves closes on December 31. Set aside time to evaluate your tax situation now, while there's still time to affect your bottom line for the 2009 tax year.

The basics: timing is everything

Year-end tax planning is as much about the 2010 tax year as it is about the 2009 tax year. There's a real opportunity for tax savings when you can predict that your income tax rate will be lower in one year than in the other. If that's the case, some simple year-end moves can pay off in a big way.

If you think your tax bracket next year will be the same or lower than your tax bracket this year, look for opportunities to defer income to 2010. For example, you may be able to defer a year-end bonus, or delay the collection of business debts, rents, and payments for services. Similarly, you may be able to accelerate deductions into 2009 by paying some deductible expenses such as medical expenses, interest, and state and local taxes before year-end.

AMT: what you don't know could hurt you

If you're subject to the alternative minimum tax (AMT), traditional year-end maneuvers, like deferring income and accelerating deductions, can actually hurt you. The AMT -- essentially a separate federal income tax system with its own rates and rules -- effectively disallows a number of itemized deductions, making it a significant consideration when it comes to year-end moves.

For example, if you're subject to the AMT in 2009, pre-paying 2010 state and local taxes won't help your 2009 tax situation, but could hurt your 2010 bottom line. Legislation earlier this year included the latest in a long series of temporary "fixes" for AMT, but this patch (which includes increased AMT exemption amounts) expires at the end of the year. While it's likely that additional legislation will be passed to address 2010, right now AMT exemption amounts for 2010 are scheduled to return to pre-2001 levels.

IRA and retirement plan contributions

Traditional IRAs (assuming that you qualify to make deductible contributions) and employer-sponsored retirement plans such as 401(k) plans allow you to contribute funds pretax, reducing your 2009 income. Contributions you make to a Roth IRA (assuming that you meet the income requirements) or a Roth 401(k) aren't deductible, so there's no tax benefit for 2009, but qualified Roth distributions are completely free from federal income tax--making these retirement savings vehicles very appealing.

For 2009, the maximum amount that you can contribute to a 401(k) plan is $16,500, and you can contribute up to $5,000 to an IRA. If you're age 50 or older, you can contribute up to $22,000 to a 401(k) and up to $6,000 to an IRA. The window to make 2009 contributions to your 401(k) closes at the end of the year, while you can generally make 2009 contributions to your IRA until April 15, 2010.

RMDs suspended for 2009

When you reach age 70 1/2, you're generally required to start taking required minimum distributions (RMDs) from any traditional IRAs or employer-sponsored retirement plans you own. RMD requirements, however, were suspended for 2009. This presents an opportunity for those normally required to take RMDs to postpone the receipt of taxable income. If you already took an RMD for 2009, you may be able to roll over the RMD to the same (or to a different) IRA or eligible retirement plan -- you generally have until the later of 60 days from the time you took the distribution or November 30, 2009.

Roth IRA 2010 conversions

It's worth looking ahead to 2010, when special rules will apply to Roth conversions. Current limitations based on income and filing status that prevent many individuals from converting a traditional IRA to a Roth IRA will be eliminated in 2010. Additionally, if you convert in 2010, half the income that results from the conversion can be reported on your 2011 federal income tax return and half on your 2012 return (you can choose to report the full conversion tax on your 2010 return, if you want).

This might influence the decisions you make now; for example, if you're currently working but aren't eligible to contribute to a Roth IRA, you might consider making a contribution to a traditional IRA for 2009 in anticipation of making a 2010 Roth conversion. Or, if you plan on making a 2010 Roth conversion and opting to pay the conversion tax on your 2010 return, you might consider trying to defer deductions until next year to offset that conversion tax.

Bonus depreciation and expensing

If you're self-employed or a small-business owner, you'll want to take note of the special depreciation rules that are scheduled to expire at the end of the year. Depreciation rules for 2009 allow an additional 50% first-year depreciation deduction for qualifying property purchased for use in your business on or before December 31

In lieu of depreciation, Section 179 deduction rules allow for the deduction, or "expensing," of up to $250,000 of the cost of qualifying property placed in service during 2009. Currently, that limit is scheduled to drop to $125,000 (adjusted for inflation) in 2010.

Also worth noting

* A tax credit of up to $8,000 is available in 2009 for qualified first-time homebuyers. A tax credit of up to $6,500 is available for qualified existing homeowners who purchase a new principal residence after November 6, 2009.

* The first $2,400 of unemployment compensation received in 2009 is excluded from income for federal income tax purposes.

* If you itemize deductions, 2009 is the last year you'll have the option to deduct state and local sales tax instead of state and local income tax.

* Individuals who do not itemize deductions are able to claim an additional standard deduction of up to $500 ($1,000 for married couples filing jointly) for real estate property taxes paid for 2009, the last year this deduction will be available.

* The temporary deduction for sales and excise tax relating to the purchase of a qualified new automobile, light truck, or motorcycle applies to vehicles purchased through December 31, 2009.

* The above-the-line (maximum $4,000) deduction for qualified tuition and related expenses expires at the end of 2009, as does the above-the-line deduction for up to $250 in out-of-pocket classroom expenses paid by educational professionals.

* Individuals age 70 1/2 or older have only until December 31, 2009, to make charitable contributions of up to $100,000 directly from an IRA to a qualified charity, without including the distribution in income.

Talk to a professional

When it comes to year-end planning, there's always a lot to think about. A financial professional can help you evaluate your situation and determine if any year-end moves make sense for you.

-- Reardon is a Fee-Only financial planner and is owner & president of Brookfield-based Shakespeare Wealth Management Inc. He can be reached at 262-814-1600 or Kevin@ShakespeareWealthManagement.com.

Labels: Kevin_Reardon

The Ewing Marion Kauffman Foundation released a study in June entitled "The Coming Entrepreneurship Boom" that credits entrepreneurship as a major force that will bring the current troubled economy back to health. The twist, however, is that Baby Boomers -- ranging in age from 45 to 63 -- are expected to be in the vanguard of this movement.

It's a particularly interesting demographic to be leading such a wave of startups, though not a complete surprise. After all, the oldest Boomers are on the cusp of retirement yet unable to retire due to shrunken portfolios. At the same time, they are not exactly the most attractive job candidates in the market due to age. So, many are exploring a third option -- starting their own companies.

Before any firm decisions are made, however, individuals not only need to examine their personal and potential business finances but also the considerable lifestyle changes entrepreneurship can bring. One of the first stops on that learning curve should be to financial and tax experts. A Certified Financial Planning™ professional can give any individual an overview of their financial and personal capacity to make such a new enterprise work. They can also help you understand how to work with tax, estate and investment experts to make sure a new business career is on a sound footing.

Here are some basic strategic and financial steps to follow in starting a business:

Start writing your business plan. There are some people who will tell you that a business plan is necessary for a new company only if you want to borrow or seek investors for a startup. The truth is that sitting down and writing a formal business plan is an excellent way for anyone to examine the idea, structure and money sources for their business concept and, most importantly, the potential of profit from the idea. One of the best places to get the basics of the business planning process is the U.S. Small Business Administration's Small Business Planner website.

Branch out for specific advice. You need not one, but two sets of financial advice when starting a business. The first involves the viability of your business concept. You should understand your business idea inside and out before you launch and what your new company's immediate and long-term cash needs will be. The second set of advice involves your own finances and how prepared you are for what will surely be a major lifestyle transition. Because new business owners frequently underestimate their new business's expenses starting out, they can find themselves funding those business needs out-of-pocket. That means less money for day-to-day living expenses as well as long-term planning for retirement. That's why it's critical to consult a tax advisor as well as a CFP® at the outset.

Get rid of your debts. With the possible exception of mortgage debt, there's very little "good debt" in the life of a businessperson. So while you're researching your business concept and putting together your own financial plan, start cutting back and erasing as much credit card and adjustable-rate debt from your personal life as possible. The continuing credit crisis is making it tough for any business owner -- even experienced ones -- to borrow money at attractive rates. You'll have the most flexibility when you owe as little as possible.

Work on your emergency fund. While it's wise for everyone to have 3 to 6 months of cash set aside for basic living expenses in case they lose their job or face a medical crisis, emergency funds are particularly necessary for new business owners. Startups can be particularly expensive and most businesses are not profitable from day one. Plan a more extensive emergency fund for yourself and for the business as well.

Plan your healthcare and other basic benefits. Automatic benefits are the plus side of working for someone else. When you're working for yourself, you become your own HR department and chances are you won't be able to match your old employer's buying power. If you support a family with these benefits or if you have particular health concerns, you need to price the out-of-pocket costs of such benefits before starting your own company. Depending on the business and the cost of those benefits, you might want to rethink your plans.

Price disability coverage now. You might have short-term disability coverage as part of your current employee benefits, but that will likely end once you quit your job. You should price long-term disability coverage based on your present working salary so you can qualify for the highest possible benefit. Disability coverage is critical for self-employed people since they're their own support system.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

Retirement planning 20 years ago was far different and easier than it is today. Back in the good old days, Mom and Dad added up their expected social security benefits, pension benefits, reliably strong dividend and interest income. Many found this number to be adequate to maintain their lifestyle, so they retired. On occasion, they would tap into their principal to buy a new car or take a special vacation but those instances were relatively infrequent. In addition, most retirees had little to no debt, having paid off their house and rarely having financed a car or made a non-cash purchase. Lastly, the 60 year-old client of 20 years ago typically had the choice to continue working a few extra years if they wanted to create a little extra surety in their financial plan or if they simply wanted to stay active.

Fast forward to today. Clients who are approaching their traditional retirement age have a far different scenario. Most pre-retirees today do not have the traditional pension plans of yesteryear which offered a lifetime of guaranteed income. Most of those defined benefit plans were replaced with 401k plans and the burden of saving for retirement was shifted from the employer to the employee. Many workers didn't properly anticipate the need to save on their own behalf or they underestimated the amount needed to provide adequately in the new paradigm. Adding to the problem is the fact that these plans have fallen under duress in the last decade as the equity markets have produced negative returns for the last 10 years. The sad result is that 401k account balances have not reached projected values.

As we examine pre-retirees' dividend and interest income, we see much lower amounts trickling in each year. Interest rates have plummeted to 50-year lows and many corporations have reduced or eliminated their dividend payments. Gone are the days of 8-10% CDs rates and 6-8% money market rates that we saw 20 years ago.

Social security, although still viable for older workers, replaces a smaller percentage of a retirees' income today than in years past. In addition, a portion of a client's social security benefits are taxable if their incomes exceed a relatively low amount, further taxing the client's retirement budget.

The wage growth we experienced in the 1980s and 1990s did not continue into the last decade, further hurting a client's ability to save. Add in the cost of living increases we saw in the last decade and it explains why many workers today are struggling to pay off auto loans, credit card debts, and other consumer loans.

The last component facing today's pre-retirees is the longer life expectancy they will experience compared to their parents and the added costs that go with it. Not only will today's retirees need more assets to sustain this longer life expectancy but they are more likely to face long term care issues the longer they live. The cost of a prolonged illness can be staggering and financially devastating to a surviving spouse, especially when he or she does not have pension income that continues to roll in month after month.

So what is a worker to do in this new paradigm? While certainly not easy, the answers are relatively straightforward. First, recognize that we are in a new paradigm and the greater responsibility that has been placed on your shoulders, relative to your parents, to prepare for retirement.

Align your expenses before retirement to match your expected income in retirement. This allows you to "test drive" your retirement budget and make adjustments where needed. It will also allow you to save a greater percentage of your income in the last few years of your career, helping to catch-up your retirement savings. No one likes to cut their budget but the alternative of outliving your money should be a sufficient motivator.

Understand that working past a traditional retirement age of 65 is needed but that you will need to be proactive with your employer in explaining the value you provide relative to a younger, lower-cost worker that could replace you. Replacing an older worker with a younger worker may not be right and it might not even be legal given the laws against age discrimination - but it is reality. Start now in freshening up your skill set or in acquiring a new skill set that will make you irreplaceable.

Although pay cuts are never desired, if you are willing to reduce your salary as you get older, it could 'buy' you additional years of employment that could greatly aid your financial plan. In addition, consider retirement jobs you would enjoy doing that will help supplement your income whether that is consulting in your chosen field, working at a hardware store or craft shop, tutoring children, giving music lessons, serving as a tour guide, etc.

As you address the rising costs of healthcare and the increased chance of suffering a long term illness, make a plan today for how you would address this issue. Will your children be able to take care of you? Can your financial plan withstand hundreds of thousands of dollars of end of life expenses? Do you have permanent life insurance in place that can replace existing assets upon your death? What ever you decide, make a plan and discuss it with your children so they understand your situation.

We have entered a new paradigm in retirement planning, one that pre-retirees need to quickly address. A good financial planner will have already brought these issues to your attention and helped you structure a plan of action to help you succeed. If not, don't waste time planning for tomorrow because it will be here after today!

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

Nike made the slogan 'Just Do It' famous in motivating athletes and couch potatoes around the globe to get out and exercise. The message was clear: we all offer excuses and rationales for not exercising, even though we understand the positive health benefits that come with an active lifestyle. Regardless of one's situation, constraints, or experiences, Nike encouraged us to just start exercising.

Many times we see well-intentioned people, even those who have had an extensive financial plan developed, sitting on the sidelines with plans that have not been implemented. There's a long list of planning areas to consider along with their corresponding benefits. Let's take a look at some of the key areas where we all need to 'Just Do It!'

Financial Plan

So often we deal with people who have never created a financial plan. The old adage that 'Failing to Plan' is equivalent to 'Planning to Fail' holds true. A financial plan doesn't need to be complex; it can be handwritten on a single sheet of paper. It simply needs to communicate the key areas of your financial life that need to be addressed. So, for those who haven't already, 'Just Do It' and schedule a meeting with a financial planner who can derive a plan that achieves your goals.

Savings Plan

We all know that we should be saving money for a rainy day and for retirement, but few of us do it in a regimented way. So often we 'buy first' and hope there is money left over at the end of the month to add to savings. This is no way to build wealth. Michael Jordan didn't shoot some baskets on occasion and then hope he was good enough when the game was on the line. He had a consistent and rigorous practice schedule. He visualized and practiced for situations that would enable him to make the big play to win the game.

We all should have a regimented savings plan, one in which money comes out of our paychecks or savings accounts before we have a chance to spend it. This quickly reigns in our spending habits so they are in line with our reduced budget. So, for those who don't save money on a regular basis and haven't accumulated a significant nest egg, 'Just Do It' and start saving money today. Even for those with unpaid bills, the time to save is now so you develop the discipline needed to succeed.

Insurance

Ah yes, the dirty word! We have all had the uncomfortable conversation with the insurance agent telling us of the benefits and necessities of owning insurance. The thought of paying for the 'What If' situations just isn't appealing because we would much rather spend those dollars on something enjoyable.

The reality is that we don't buy insurance for ourselves. Rather, we buy insurance for our loved ones who would be impacted when we die. Imagine your spouse or children trying to pay bills and get by financially for the rest of their lives if you were to get hit by the proverbial bus and die today. Insurance is one of the greatest financial instruments ever created. By pooling risk across a large segment of people, we can purchase an incredibly large amount of insurance
for a relatively small expense. For those who have been avoiding the discussion regarding insurance, 'Just Do It' and call your financial planner today to schedule a needs assessment. Buy the protection your family needs.

Investments

The last 10 years have been historically volatile and challenging in the equity markets. In addition, the financial news is magnified and dramatized by the emergence of financial columnists, the Internet, and TV programs like CNBC. The constant news barrage of our latest financial challenges has kept many new investors on the sidelines and forced many established investors out of the markets. This has thrown well-contrived investment programs into the garbage. So there investors sit, earning meager money market or CD rates, with no strategic plan for their savings. Recognizing that a portfolio 'invested' in 100% cash is not a viable long term strategy, it is time to deploy your capital into assets that can provide the investment returns you need to meet your financial goals. There are always opportunities for profit, so 'Just Do It' and get back to a long term plan of investing. You will profit when the markets do rise.

Estate Planning

A well-seasoned estate attorney recently commented that 'anyone who has a pulse needs an estate plan.' At first I chuckled, but looking at his gray hairs and wrinkles, I realized that he had seen many scenarios gone awry because people didn't take the time to spell out their intentions should they be rendered incapacitated or incompetent, and for the distribution of their assets upon death. Every person should have a will, a power of attorney for health care, and a power of attorney for financial assets. So often we see young parents unwilling to draft a will because of the financial outlay in working with an attorney or because they struggle in picking a guardian for their children.

The flip side of not having an estate plan is that the state in which you live will make decisions for you if you die without a will or don't have the proper power of attorney documents. The thought of some bureaucrat making decisions for you or your family should be enough to 'Just Do It' and go meet with an estate planning attorney right away.

Nike inspired us to 'Just Do It' in referencing the need to exercise, even if we didn't know exactly how to do 'It.' The same holds true with finances. Even if you don't know exactly what you are supposed to do, chances are that you know you should be doing something. At Shakespeare, we suggest you 'Just Do It', and implement a well crafted financial plan right away!

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

As the government continues its efforts to right the ship of the struggling U.S. economy, now might be an excellent time to re-assess your retirement investment plans. Specifically, we're talking about the use of 401(k) savings plans.

A May survey by Hewitt Associates noted that despite record losses in their 401(k) savings in 2008, individuals stuck with their 401(k) plans. However, more people dealt with their worry about investment conditions by shifting money into more conservative investments. In addition, a significant number of companies either eliminated or seriously cut back on matching employee 401(k) contributions.

Hewitt's annual Universe Benchmarks study, which examines the saving and investment behaviors of more than 2.7 million employees eligible for 401(k) plans, showed that the average 401(k) balance dropped from $79,600 in 2007 to $57,200 at the end of 2008. 44 percent of employees lost 30 percent or more of their savings. Only 11 percent of employees were able to break even or see a gain in their 401(k) portfolios. Even still, 74 percent of employees participated in their 401(k) plans in 2008, about the same as in 2007.

However, the Hewitt survey stated that some workers are reacting to the market downfall by moving 401(k) assets into less risky investment funds to try and blunt their losses. In 2008, 19.6 percent of investors made trades in their 401(k) plans versus 18.7 percent in 2007. And the volume of money they transferred in 2008 was much higher. Nine of the 10 most active trading days were the day after a large downturn in the market, or days with an average return of negative 4 percent. Employees' average equity exposure dropped to just 59 percent in 2008 -- which is an all-time low since Hewitt began tracking it in 1997. Stable-value funds, which are considered less risky investments, experienced an 11 percent increase in asset allocation in 2008.

That's why it might be wise for investors to get a fresh start with 401(k) advice as the economy improves. For existing investors or those who have never begun to save or invest for retirement, it might be time to consult both financial and tax experts such as a Certified Financial Planner professional to make sure both personal and work-related retirement savings complement each other.

There are a number of key recommendations for you to consider, including:

Save even if your company fails to match: This is not the easiest thing to do, but even if your company cuts back on matching, it's important to try and put additional money into personal retirement investments outside of work. You will still realize the benefit of pre-tax contributions made to your traditional 401(k). And, when you have money automatically taken from your paycheck you are "dollar cost averaging". That means the fixed dollar amount that comes from your paycheck buys more shares when prices are low, and fewer when prices are high. Thus your average cost per share is lower than the average price per share.

Make sure you contribute to a plan: According to 2006 data from the Profit Sharing/401(k) Council of America, more than 22 percent of eligible workers don't participate in available 401(k) plans. For the companies that are still matching, that's like giving up free money.

Continue to save while you wait to join a plan: A significant number of companies don't let you join the 401(k) until you've been working there a year. If that's the case, get in the habit of putting money away for retirement anyway. Start an individual IRA with the funds you would put in the company plan, or set aside money in a savings account so you can supplement your cash flow and put the maximum amount into your 401(k) once you're allowed to join.

Contribute the maximum: Not every employee can afford to contribute the maximum allowed by the plan, but try. In 2009, the maximum 401(k) contribution will be $16,500, and those 50 and older can make an additional catch-up contribution of $5,500.

Don't let your company do all the work: More companies are automatically enrolling their workers in their 401(k) plans, but some workers fail to take charge afterward. They don't know how much they're allowed to contribute and they don't discuss or review the types of investments they have in relation to their age or retirement plans. It might make sense to bring an outside investment advisor such as a CFP professional to review those choices with you.

Avoid poor diversification over time: It's necessary to do a yearly checkup on all your retirement savings -- 401(k) s, individual IRAs and other investments fueling your retirement goals to make sure you're on track.

Don't rely on the 401(k) alone: Particularly if matching lags for awhile, 401(k) plans can't be relied upon as a single source of retirement dollars. You must invest outside your company plans.

Don't over-invest in company stock: Most financial planners advise that you put no more than 15 to 20 percent of your whole 401(k) portfolio in company stock.

Don't borrow from the 401(k): The Employee Benefit Research Institute reports that employees contribute more to plans that let them borrow. Don't be fooled. A 401(k) shouldn't be a house fund or a source of emergency cash. You're taking money out of the account that otherwise would grow tax-deferred, and if you fail to pay back the money, you could face income taxes and penalties. Instead, build an outside emergency fund of three to six months of living expenses you can draw from.

Don't cash out: Some workers think it's a great idea to treat a 401(k) as a windfall for when they quit a job. Don't do it. You'll pay huge penalties and lose your retirement savings momentum.

Don't "lose" your old 401(k) accounts: Maybe you've changed jobs several times and never got around to moving older, smaller 401(k) accounts from past employers to current ones or into a self-directed retirement account. Always get advice about 401(k) funds when you leave an employer.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

The great debate has begun pertaining the future direction of our healthcare system in the United States. Few would disagree that our healthcare system could be improved and that changes need to be made. However, rather than debate whether health coverage and patient care could be improved in a government controlled program, we instead would like to focus on the economics of nationalizing healthcare. Although the almighty dollar shouldn't always be our primary focus, we can't neglect the long term economic impacts of any legislation.

Right now, healthcare-related services consume over 15% of our Gross Domestic Product. Americans are spending a significant percentage of their family budgets to purchase health services. That number will continue to grow as the population ages and the cost of health services continues to go up.

Keep in mind that this significant outlay for healthcare isn't all negative. The dollars we spend on healthcare go to people working in the healthcare field and to companies who sell healthcare goods and services. Obviously doctors, nurses, and other workers earn a living from our healthcare expenditures and they, in turn, invest into our economy when they own a home, purchase goods and services, save money into their retirement accounts, etc.

As opportunists, we can earn a return on our investment by purchasing publicly traded companies in the healthcare field. The healthcare sector is split into various sub-industry categories, including pharmaceutical, biomedical, medical devices, services, insurance, hospitals, and many other sub-categories. Many of these companies provide life-saving medical devices, prescription drugs, prosthetics, medical equipment, and countless other valuable goods and services. These companies frequently produce positive earnings through their innovations, research and development as they strive to serve the greater population. If the companies produce a product or service that isn't desirable, or that is priced too high, we can choose not to buy it.

The Affordable Health Choices Act of 2009 would create a public health insurance alternative and require coverage for most Americans and from most employers.

In considering the nationalization of our healthcare sector, we begin to see what my grammar school English teacher called a 'double negative.' In order to pay for expanded coverage of healthcare for everyone, the government will have to impose higher taxes. One proposal is a mandatory tax on employers who don't offer credible healthcare benefits. Before we proceed, it is important to point out that individuals pay taxes, not "employers". Behind every company are individual owners or shareholders, and WE (you and me) will pay any tax that is imposed.

Higher taxes on "employers" result in less money available for wages, employee benefit plans, and other expenditures. Those other expenditures include less money to be spent with a company's vendors, building and maintenance expenses, research and development, capital equipment and improvements, legal and accounting services, marketing budgets, community outreach programs, charitable contributions, etc. The trickle down effect of higher taxes simply means that less money will be available for individuals.

The second negative of nationalizing healthcare will be the destruction of the private healthcare industry including companies and individuals involved in health insurance, pharmaceutical drugs, biotech research, medical devices, and more. First, imagine a private health insurance company competing against a government sponsored health insurance plan. The government sponsored health plan, as is true for most government sponsored programs, can and will operate at a loss. Individuals and corporations that operate at a loss eventually go bankrupt. The introduction of a government sponsored health insurance plan will lead to the destruction of private health insurance companies.

Now imagine a healthcare company trying to sell their product or service in an environment where the government is in control. What if the government won't pay the market price for a medical device, prescription drug, imaging system, etc.? The end result will be fewer profits for companies competing in the healthcare field and less incentive to create the next generation of products. Less profits trickles quickly down to the individuals (you and me) in the form of less opportunity, lower wages, and fewer jobs.

Are people willing to pay the double negative of higher taxes and fewer jobs for universal healthcare coverage? Some people are willing to pay that price, and others aren't. But we need to be clear that this will be one of the ramifications of nationalized healthcare.

So what is the best answer? It is up to ALL of us as Americans to make that decision, not just Congress and the President. Let's slow down the rush to pass a healthcare bill and start asking some tough questions, such as:

1. The Government is currently in the business of healthcare with the programs of Medicare and Medicaid, along with other government sponsored programs and agencies. Why?

2. What part of the U.S Constitution and Bill of Rights talks about Life, Liberty, and the pursuit of Healthcare?

3. Are people happy with the way Medicare and Medicaid work? How about the VA Medical System? Based on how these government sponsored healthcare programs work, do we want to expand more power and control to the government?

4. How is it that Grandma and Grandpa lived their whole life without government run health insurance?

5. When Grandma and Grandpa incurred a medical bill, why did they feel compelled to pay their bills and while so many people today view that to be someone else's responsibility?

6. Why do we allow frivolous lawsuits, which drive up the cost of everything, from healthcare to car insurance?

7. If someone incurs significant medical bills, shouldn't they be expected to pay those bills over their lifetime? If they die owing medical bills, shouldn't they have to use remaining assets (home, retirement accounts, bank accounts) to pay those bills back before their assets are distributed?

8. Is health insurance more important than your cellular phone? If so, why is that many people without health insurance own a cellphone, have cable/satellite TV, own an automobile, or even own their own home? Health insurance must not be that important.

9. If you are comfortable having the government run the healthcare system, how about the government running our banking, insurance, and auto industries? How about government run utilities?

10. If healthcare is Right, and not a privilege, should owning a home also be considered a Right? Should we have government run housing?

We have started down the slippery slope of government intervening in key aspects of our private life. If this continues, imagine what life will be like in ten years. When you go to purchase a new car, you would be given a government financed and insured electric automobile. You can drive home to your government sponsored house and plug into an outlet with government produced electricity. Of course, when you get sick, the government ambulance will come pick you up and take you to the shiny new government hospital where government paid doctors and nurses will happily care for you.

Such utopia will never exist, not because government bureaucrats won't try to give it to us, but because the financial equation of government sponsored programs never works. Instead of asking if people want universal health coverage, we should be asking if people want high unemployment, high taxes, and an economy that doesn't grow.

One footnote: Having a safety net, like Medicaid or BadgerCare, for those who are truly poor and indigent or for those with preexisting conditions is important. We shouldn't do away with these programs. Catastrophic illnesses do happen, and after the individual has exhausted significant effort and assets trying to pay the bills, we should have programs that help people in these situations.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

No doubt about it. The U.S. economy has been an unpredictable roller coaster for many months. This unpredictability of the markets and the economy has reset plenty of retirement plans, and that's been especially true for business owners.

Business owners on the brink of retirement are facing potentially the worst conditions for selling or handing off a business in decades. But their circumstance should serve as a lesson to their younger and future business owners. You absolutely must build an exit plan that works under both sunny and stormy conditions.

Exit plans are essential in companies large and small, and not strictly for the purpose of letting the owner and founder retire. They certainly set in motion a series of triggering events for the owner to get his or her money out of the business at retirement. However, they also incorporate succession and other strategic moves a company might make to assure its future in family hands or in the hands of a new owner.

That being said, an exit plan isn't born in a day. In fact, many financial experts in investment, tax, valuation and estate planning disciplines think it's wise for business owners to come up with the first broad strokes of an exit plan when they start a company, if possible. If that's not realistic, the plan should be developed within 3-5 years of the date they'd like to exit. A Certified Financial Planner™ professional with specific business expertise can be a helpful liaison who works with other key professionals to help owners find answers to the broadest issues in any company's exit plan, including:

• The family's business legacy -- should a business be passed on to family or associates, or should it simply be sold or closed?
• The owner's own career goals -- does he or she want to do this for the rest of their life, or should they make way for other professional or personal directions?
• The company's overall creation of wealth -- too many people think of a business as a job and a paycheck instead of a creator of wealth that can support one or more generations of a family. A paycheck supports short-term goals; wealth is accumulated money that can either be invested smartly in the business or outside the business to support philanthropy, or family and personal goals.
• The owner's retirement strategy that allows them to do everything they've dreamed after they leave

Planners can help owners get to more specific questions based on the broader goals they've discussed with family members. Some of these questions include:

• How many more years does the owner want to run this business?
• What's the optimal way to get rid of the business when I'm ready to go -- sell it, transfer it to family or associates or just close it down?
• What's the value of the business now and how can it be made more valuable to potential buyers or for transition to the next generation?
• If the company is being transferred or sold to family members, is there a growth plan in place that they have contributed to and are therefore likely to follow?
• What happens if there's an unforeseen event or market downturn that threatens the business or the industry as a whole? Are there healthy relationships in place with potential acquirers?
• What if there was a great offer on the business tomorrow?
• If the business is sold, how do owners protect themselves from a personal and business tax standpoint?
• How does the owner communicate his or her ideas with spouses, children and other family members with a stake in the business?
• What about employees, clients and customers? How will they be protected if the owner dies or leaves the business?
• How much money does the owner want after leaving the business and how should it be handled?
• How should investors in the business be compensated if the owner leaves?
• Are there specific goals that should be met by the business before the owner leaves?

An exit plan allows an owner not only to move out of a business, but also to make a wholesale career change. No one has to stay in the same industry -- or company -- for life, and with an exit plan, owners leave open the possibility for an endpoint that will allow them to travel, become philanthropic or engage in any number of new activities in business or other walks of life.

While the economy is struggling back from the brink, many smart exit planners realize that there are ways to manage delayed transitions without losing valuable employees. For instance, many owners may elect to take a sabbatical while allowing next-generation leadership to get behind the wheel before an official transition takes place. Such a move lets the next generation steer the boat on the schedule they hoped for instead of standing in place while the owner found her best opportunity to go. The owner, meanwhile, benefits from the chance to step away from the day-to-day operation to better plan their future and the company's.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

Recently one of my kids asked one of the all-time great questions, "Dad, how much money do you make?" Reflecting back to a similar conversation I had with my father, I recall clearly his response. He said, "It's not what you make that matters, but rather what you keep that counts".

During my career as a financial advisor, the concept of keeping what you earn has proven to be one of the main objectives we strive to accomplish for clients, and it comes in several forms:

Taxes: Silently Depleting your Funds

With every dollar earned in the form of wages, we owe Uncle Sam, i.e. the Federal Government, a piece of our earnings. In addition, many of us pay state income taxes, unless you live in a state that doesn't impose such tax. Don't forget that every employee pays a 6.2% tax for Social Security (up to $106,800 in 2009) and 1.45% tax to Medicare (unlimited). Of course, most states impose sales taxes on every purchase we make, pulling more dollars out of our pockets. If you own a home, the property tax is a large annual expense that depletes our budget.

Savings

If you're seeking financial independence, having a consistent savings plan is a must. Saving money with a 401(k) or 403(b) employer-sponsored retirement plan is one of the best ways to keep what you earn. Contributions to these types of qualified retirement plans happen automatically and are done on a pre-tax basis. The automatic savings component of these plans is critical, as the dollars come out before you have a chance to spend them. The pre-tax nature of these contributions is important because the government does not tax the contributions going into the plan. Once the funds are inside a qualified retirement plan, the growth of the investments is not taxed until you pull the money out. This allows your funds to grow more quickly than other investments and to build a larger nest egg.

Money inside Roth IRAs not only grows tax deferred, but qualified withdrawals are not considered taxable income. In essence, once money is contributed to a Roth IRA, it is tax-free forever. In 2010, every individual, regardless of taxable income, will be allowed to convert IRA assets into Roth IRA accounts. You will pay income tax upon conversion, payable in 2011 and 2012, but then the funds will be tax-free.

Lifestyle

Many of us would cringe at the thought of living on only a few hundred dollars per month, but in some parts of the world that income would put you in the top 1% of all wage earners. Your financial independence relies less on your income level than it does on your lifestyle and expenses. Contrary to popular belief, we do have control of our lifestyle and spending patterns.

The United States has developed a culture of consumption in the last two decades that's eroding people's savings and preventing them from keeping what they earn. The biggest lifestyle budget busters are homes, automobiles, credit card usage, and children. As the size of the American family has shrunk in the last 30 years, the size of our homes has increased dramatically and at great expense. Not only is the purchase price substantially higher than a smaller home, but the annual maintenance, insurance, and property taxes are a larger financial burden. Smaller homes are cheaper and less costly to maintain and help us keep more of what we earn.

The automobile has been transformed in the last 30 years from a mode of transportation to that of a status symbol. The cost of a new luxury vehicle or SUV today may be more expensive than the homes we grew up in. With every additional dollar spent on a car, there are fewer dollars left over for savings. Consider driving your current car longer than you have in the past and consider a more affordable used car for your next purchase.

Credit cards have proven to be the demise of many family budgets, and eat away at our hard earned savings. Charging something on a credit card is easy to do, and allows us to lose sight of our spending habits. Humor your mother or grandmother, and try using an envelope system of budgeting for one month. This entails pulling out a predesigned amount of money from your checking account each month and segregating money into envelopes for various expenses during the month. Allocate a percentage for groceries, entertainment and eating out, kid's activities, gas & car maintenance, etc. When you deplete the envelopes, you are done spending money until your next check.

Children are the other major drain to family's finances. Rarely do we parents say 'No' to our children. Specifically, we don't say no to the cellular phones and the monthly bill that comes with them, the iPods and the cost of the countless downloads, cable TV, and expensive extracurricular events (select sports teams, dance & ballet lessons, school trips or foreign exchanges). Keep more money in your pocket. Teach your children fiscal responsibility, and just say 'No' next time a 'want' occurs.

Keep more of your earnings by clearly identifying your most important goals and recognizing that less important goals and desires need to be avoided. Keeping more of what you earn brings piece of mind as well as financial independence that will last a lifetime.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

Recently one of my kids asked one of the all-time great questions: "Dad, how much money do we have?" Reflecting back to a similar conversation I had with my father, I recall clearly his response. He said, "I would have lots more if Uncle Sam didn't keep taking what we earn".

My dad's take on the question was clear and very thought-provoking. During my career as a financial advisor, the concept of keeping what you earn has always been one of our primary objectives when counseling clients, and it comes in several forms.

With every dollar earned in the form of wages, we owe Uncle Sam, i.e. the Federal Government, a piece of our earnings. In addition, many of us pay state income taxes, unless you live in a state that doesn't impose such tax. Our tax code is considered 'Progressive,' which doesn't mean it has anything to do with progress or advancement. Rather, a progressive tax code means higher income earners pay a higher tax rate. In addition to these income taxes, don't forget that every employee pays a 6.2 percent tax for Social Security (up to $106,800 in 2009) and 1.45 percent tax to Medicare (unlimited). In the event you are a business owner or are self-employed, you also pay the matching employer contribution, which brings your total tax to 15.3 percent. Taxes are considered 'Silent' because most taxes come out automatically and without (real) discussion. I mention that government is our 'Partner' out of pure sarcasm.

Of course, there are a few ways to lower your income taxes. First, contributing to an employer sponsored retirement plan, such as a 401k or 403b, will lower your taxable income. This money comes out before taxes, allowing 100 percent of your contribution to flow into retirement accounts. In addition, the government doesn't tax the growth on your investments while it is in a 401k or IRA. Keep in mind that the government will be back to tax you when withdrawals occur, and if you tap into these funds before a designed retirement date, they will tack a penalty on top of the income tax.

Another common way to reduce your taxes is through various deductions allowed on your tax return, including charitable contributions, mortgage interest deductions, business expenses, etc. Remember that none of these deductions are free. You still need to give money to charity to receive the charitable deduction, carry a mortgage in order to deduct the interest, and be incurring and paying for business expenses in order to deduct them.

Once you have paid your income taxes, the money left over is yours to keep, right? With some of your hard-earned 'fortune,' you might consider buying things, like groceries, clothing, personal sundry items, or even shoes. Don't forget that you will pay sales tax every time you make a purchase. Again, the 'Silent' tax returns. This tax is collected automatically every time you make a purchase without negotiation or discussion. Not surprisingly, the onerous task of collecting this tax is placed on businesses ... further 'taxing' their operation.

Now that you have paid your income taxes and purchased essential items for survival, the remaining fortune is yours to keep, right? If you purchase a home, don't forget to budget for property taxes. Few first home buyers look at the total cost of maintaining a property before purchasing it and property taxes are usually a leading expense. Property taxes vary from state to state and from one municipality to another. All things being equal, smaller homes will be assessed less property tax than large ones. In addition, it is usually less expensive to maintain a smaller home than a larger home, leaving more money in your pocket.

Now that you have purchased essential items for survival and own a home, many people invest those proceeds hoping to grow their fortune. This is a wise move, but not without risk and cost. If you invest wisely and grow your assets, your 'Silent Partner' returns to claim a percentage of your growth in the form of a capital gains tax, without having taken risk or exerting effort.

In addition, countless taxes and user fees are assessed on us each and every day. Some of my favorites include: hotel taxes (also known as a pillow tax), rental car taxes, tax on your phone lines and utility bills, drivers license and fishing license fees, personal property taxes for business, stadium taxes, etc. (See the list below for additional items on which you're taxed.)

For the family who worked hard, saved money, invested wisely and accumulated wealth, the government created the ultimate tax - the inheritance tax, better named the Death Tax. For people who have accumulated a certain threshold of assets, this is a tax on the assets of those who have died. It is the ultimate tax because it is difficult for those paying the tax to object to the collection of the tax.

As you consider all of this, let me ask two rhetorical questions: First, how much money does government need to operate? Of course, we could be talking about the Federal Government, State Government, County Government, City Government, etc... The answer for all types of government is ironically, and unfortunately, the same: they need More, More, More!

Our second question is to ask, What is it that government does incredibly well, better than any individual or private enterprise could do? Please ponder this question and provide us with the long laundry list of items you come up with - our list is rather short.

Now that you're smiling, here's a little poem for your further amusement:

The Tax Poem

Tax his land, tax his wage,
Tax his bed in which he lays.

Tax his tractor, tax his mule,
Teach him taxes is the rule.

Tax his cow, tax his goat,
Tax his pants, tax his coat.

Tax his ties, tax his shirts,
Tax his work, tax his dirt.

Tax his tobacco, tax his drink,
Tax him if he tries to think.

Tax his booze, tax his beers,
If he cries, tax his tears.

Tax his bills, tax his gas,
Tax his notes, tax his cash

Tax him good and let him know
That after taxes, he has no dough

If he hollers, tax him more,
Tax him until he's good and sore.

Tax his coffin, tax his grave,
Tax the sod in which he lays.

Put these words upon his tomb,
"Taxes drove me to my doom!"

And when he's gone, we won't relax,
We'll still be after the inheritance TAX

- Author Unknown

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon

With all of the harsh economic news that's come our way, you might ask yourself: Why enlist the services of a financial planner when your holdings are down and you're facing a host of financial problems? The answer might surprise you: Because, as dark as times may seem, you're actually giving yourself a fresh start in building a stronger financial future.

Indeed, many people don't make that choice. A recent Financial Planning Association / Ameriprise Financial survey showed that many people try to go it alone when it comes to a financial plan -- and they suffer considerably worse performance in their investment and savings goals over time than those who seek financial guidance from a professional. The cost of a financial planner may not be prohibitive due to factors we'll mention below and young people have a particular advantage on their side when using one -- time.

Here are some things everyone should know about the financial planning process.

It's a collaboration and a learning experience.

A financial planner is not a substitute for your own final decision-making. Planners serve as guides, editors and strategists. They should begin by asking questions of you -- and plenty of them. Their purpose is to understand all of your goals and maybe determine a few you haven't thought of. Some of these dreams might include buying a home or business for yourself, saving for a college education for your children, taking a dream vacation, reducing taxes and retiring comfortably. Financial planning is the process of wisely managing your finances so that you can achieve your dreams and goals while, at the same time, helping you negotiate the financial barriers that inevitably arise in every stage of life.

Planners often specialize.

Planners, like all professionals, tend to specialize in certain areas of interest, and they may receive continuing education in more than a dozen areas of expertise. However, Certified Financial Planners (CFP®) alone can earn continuing education credits in asset management, employee benefits, commercial real estate, insurance, investment management, estate management, retirement planning, 401(k) administration and health topics, among others.

Ask about tackling specific problems.

If your problem is credit card debt or difficulty refinancing, a planner may have specific contacts or the ability to make certain recommendations on how to get yourself in a better position to plan for the future.

They charge based on specific services.

Planners charge for their services in a variety of ways -- always ask up front what they charge and how they expect to be paid. Some "fee only" planners charge for a consultation, plan development or investment management, and they may charge on an hourly or project basis depending on the client's needs or as a percentage of assets under management. Some charge commissions for the sale of financial products they are licensed to sell, and others have hybrid structures mixing fees and commissions. Discuss advisory services first before committing to buying any particular product.

They can talk about your personal investments as well as the ones at work.

One of the best advantages to working with a financial planner is the chance to have a second set of eyes look at your wages, investments and benefits at work vs. what you'll be investing on your own outside work-based retirement and other savings plans. Be prepared to bring all of your finances into the discussion.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

Labels: Kevin_Reardon