Monthly Archives March 2012

THE TOP 10 REASONS NOT TO PLAN FOR RETIREMENT

A different kind of Top Ten list.

Provided by Mike Bonacorsi, CFP ®

You probably read or hear about some “Top Ten” list nearly every day. But take a moment to read this one. This list is different, and probably not the kind of list you’d expect someone to write.

Reason #10: “I’m too busy”
I can’t tell you how often I hear this excuse. So many people want to plan for a better retirement, but they don’t have time. They think they’ll take care of it tomorrow, or the day after that … and before they know it, several years have gone by. The best advice I can give you is to stop procrastinating and start planning today.

Reason #9: “It’s too soon”
I don’t know how this happened, but many people have adopted the notion that you don’t have to start planning for your retirement until you’re almost there. This is totally incorrect. The truth is, the sooner you start planning, the better chance you stand of having the kind of retirement you want. It’s never too soon. Many people start planning in their early twenties!

Reason #8: “It’s too late”
If you’re already near or past your retirement eligibility date, you may think that whatever you’ve got is what you’re stuck with and it’s too late to do anything about it. Think again. If you’re unsure of what your options are, speak to a professional. Even if you’ve already retired, it’s important to consider how you’re receiving income and how long it will last. It’s never too late to revise your income distribution strategy.

Reason #7: “I don’t need to”
I’ve heard this excuse many times and it always baffles me. Many people think that because they’ve been diligent about contributing to a savings account, they’re all set. While saving for retirement is good, you also need a plan for income distribution once you enter retirement. Are you certain that what you’re saving will be enough? Have you considered your distribution plan? What about taxes? What about inflation? And are you sure your money will be properly invested? There may be other, better options for you and it may prove worthwhile to look into them.

Reason #6: “I don’t have enough money to get started”
This excuse seems marginal at first glance, but there is some truth behind it. You need to have money to save or invest money. However, unless your bills are exactly equal to or greater than your net income, you DO have enough to get started. Starting small is better than not starting at all, and if you plan well, you’ll eventually have more to work with.

Reason #5: “My finances are a mess”
This is all the more reason to seek out an advisor who can help you sort through and understand your assets. Perhaps you have a 401(k) from a former employer that has not been rolled over, a couple of savings accounts, a trust from a deceased relative, some stocks that your parents bought in your name when you were younger … a circumstance like this can be confusing, but leaving it as it is won’t improve the situation. Consider speaking with an advisor who can look at your complete financial picture, help you to understand it, and help you to develop a plan to make your “financial mess” work for you.

Reason #4: “The Government will take care of me”
The bottom line is this … there’s a chance Social Security may not be available when you retire, and even presuming it is, it may not be enough to provide your ideal retirement income. If you’re planning to retire on Social Security alone, I would advise you to create a back-up plan at the very least.

Reason #3: “Between my savings and my 401(k), I’ll be fine”
Saving for retirement without an income distribution plan can be a mistake. How will you use that money once you have it? And while you may think you’ll have everything you’re going to need, have you considered inflation? Taxes? And furthermore, some people are living past 90. Will your assets last that long? If you outlive your income, what then? It’s a good idea to look ahead and plan lifelong income.

Reason #2: “I don’t want to think about it”
Many people procrastinate simply because the thought of discussing financial matters (or growing old) is unappealing. I can certainly understand that. But consider this … if you bite the bullet now and put a firm plan in motion, you may not have to think about it again for quite some time.

Reason #1: “I don’t know how”
If you knew everything there was to know about retirement planning, you’d probably be a financial advisor yourself. While it is possible to do everything on your own, that generally involves a great deal of research and a huge time commitment. If you’re putting off retirement planning because you don’t know how, consider speaking to a professional who does.

These are just some of the reasons why people don’t plan for retirement … but these are reasons, and not excuses. If you have retirement goals you want to reach, I would recommend you speak to a qualified advisor and set up an action plan. The sooner the better.

Mike Bonacorsi a Registered Representative with, and securities are offered through, LPL Financial, Member FINRA/SIPC Mike Bonacorsi may be reached at 603-769-3111 or mike.bonacorsi@lpl.com. www.mikebonacorsi.com

This was prepared by Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

THE SOLO 401(k)

A retirement savings vehicle designed for the smallest businesses.

Presented by Mike Bonacorsi, CFP ®

The solo 401(k), or solo (k) as it is sometimes called, allows a self-employed individual to set up a 401(k) plan combined with a profit-sharing plan. You can set up one of these if you work for yourself or own a small business with just 1-2 full-time employees including yourself (the second FTE must be your spouse).1

You & your business can save for the future at the same time. Imagine nearly tripling your retirement savings potential. With a solo 401(k), that is a possibility. Here is how it works:

• As an employee, you can defer up to $17,000 of your compensation into a solo 401(k) in 2012.
• As an employer, you can have your business make a tax-deductible contribution of up to 25% of your compensation to the plan in 2012.
• Total employer and employee contributions to a solo 401(k) are capped at $50,000 this year; if you are 50 or older, in which case you can also make a $5,500 employee catch-up contribution.1,2,3

The dollar-figure contribution limits stated above are subject to annual COLAs, of course. If you aren’t incorporated or are simply a sole proprietor, the 25% annual employer contribution limit is slightly reduced.1

If you are 50 or older and self-employed, you could potentially put as much as $55,500 into a solo 401(k) in 2012. Now add your spouse to the mix. Is he or she age 50 or older and a full-time employee of your business? Then the two of you could contribute up to $110,000 to the plan this year.1,2

You can skip contributions in a lean year. Employer and employee contributions to a solo 401(k) are wholly discretionary. You determine how much goes in (or doesn’t) each year.3

You can create a Roth solo (k). The Roth version of a solo 401(k) is just like any other Roth account: you contribute after-tax dollars in exchange for tax-free growth and eventual tax-free withdrawal. If you don’t want to go Roth, you can simply have a traditional solo 401(k) with pre-tax dollars going in, tax-deferred growth and eventual taxed withdrawals.2

Loans from the plan & rollovers into the plan are allowed. You can borrow up to $50,000 from a solo 401(k) or up to 50% of the total account balance (whichever is smaller). In certain cases, hardship withdrawals are permitted prior to age 59½. If you have money in a SEP, an IRA or an old 401(k) somewhere, those assets may be rolled over into a solo 401(k).1,4

There are some demerits to the solo 401(k). As you are setting up and administering a 401(k) plan for your business, you have to see that it stays current with ERISA and IRC regulations. Obviously, it is much easier to oversee a solo 401(k) plan than a 401(k) program for a company with 15 or 20 FTEs, but you still have some plan administration on your plate. You may not want that, and if so, a solo 401(k) may have less merit than a SEP or traditional profit-sharing plan. The plan administration duties are relatively light, however. If the assets in your solo (k) exceed $250,000, you will need to file Form 5500-EZ annually with the IRS. If they don’t, no such annual filing is necessary.1,4

What if you hire more employees? If that occurs, your solo 401(k) will be redefined under the IRC as two plans: a standard 401(k) plan and a profit-sharing plan. This makes retirement plan administration more complicated.

One other detail worth mentioning: the passage of EGTRRA made solo (k)s much more attractive for small business owners. Prior to EGTRRA, the contributions had to count toward the maximum profit-sharing contribution for the business, which was typically 15%. If the Bush-era cuts really do sunset in 2013, their expiration could theoretically affect solo 401(k)s.1

On the whole, solo 401(k)s give SBOs increased retirement savings potential. If that is what you need, then take a good look at this option. These plans are very easy to create, their annual contribution limits far surpass those of IRAs and stand-alone 401(k)s, and some custodians for solo 401(k)s even give you “checkbook control” – they let you serve as trustee for your plan and permit you to invest the funds across a variety of different asset classes.4

Mike Bonacorsi a Registered Representative with, and securities are offered through, LPL Financial, Member FINRA/SIPC Mike Bonacorsi may be reached at 603-769-3111 or mike.bonacorsi@lpl.com. www.mikebonacorsi.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.axa-equitable.com/plan/business/understanding-individual-401k-plans.html [12/09]
2 – www.irs.gov/newsroom/article/0,,id=248482,00.html [10/20/11]
3 – money.cnn.com/retirement/guide/selfemployment_individual401k.moneymag/index.htm [2/14/12]
4 – news.yahoo.com/think-going-solo-401-k-183425759.html [7/15/11]

THE LANDMARK MORTGAGE SETTLEMENT

What kind of relief will it offer?

Presented by Mike Bonacorsi, CFP ®

Big news, but will it make a big difference? On February 9, the Justice Department announced it had struck a settlement approaching $26 billion with the major U.S. mortgage servicers. This is the biggest multistate settlement of any kind since the Big Tobacco payout of 1998, with five big banks (Bank of America, JPMorgan Chase, Citigroup, Ally Financial and Wells Fargo) agreeing to make amends for robo-signing and other consumer abuses. Other lenders may join them in the deal.1,2

While this is all well and good, Housing and Urban Development Secretary Shaun Donovan conceded to the press on February 9 that the accord “doesn’t solve everything.” Indeed, with trillions of household wealth lost in the foreclosure crisis, even a settlement of this magnitude can seem relatively puny.3

Just 9% of homeowners will have mortgages modified. About $10 billion of the settlement will be used to rework home loans, but if your mortgage is owned by Fannie Mae or Freddie Mac, you’re out of luck; those loans aren’t included in the deal. Therefore, only about 1 million homeowners will get loan modifications out of the 11 million with underwater mortgages nationwide. These 1 million borrowers could see principal reductions of up to $20,000.1,2,3

What about cash payouts? About 750,000 borrowers who lost homes to foreclosure are in line for some monetary compensation: about $2,000 in cash each. To qualify, you must have lost your home sometime between January 1, 2008 and December 31, 2011. These payments will be sent out by state governments.2

Here’s a breakdown of how the settlement funds will be distributed:

• $10 billion for principal reductions on underwater mortgages
• $7 billion for “other forms of relief” (unspecified; could include short sales, neighborhood blight reduction efforts and principal forbearance)
• $4.25 billion to 49 states (all except Oklahoma, which reached its own settlement with the five big mortgage servicers)
• $3 billion toward refis of underwater mortgages
• $1 billion to the Federal Housing Administration
• $750 million in cash to the U.S. government2

On top of that $26 billion, Bank of America will pay out another $1 billion to settle a separate federal investigation into mortgage fraud at Countrywide Financial, which it bought in 2008.2

The settlement amount could approach $45 billion if other major mortgage servicers sign on to the agreement. That could presently happen.1

When do you find out if relief is coming your way? It will likely take you from 6-9 months to determine if you are eligible for any benefits from the settlement. The federal government says you will get a claims form if you are eligible to get some money as a result of all this. If you have any doubts that the claims form will reach you at your current address, you are directed to contact your state attorney general’s office.2

To learn more, you can visit NationalMortgageSettlement.com, a new website providing yet more details.1

Mike Bonacorsi a Registered Representative with, and securities are offered through, LPL Financial, Member FINRA/SIPC Mike Bonacorsi may be reached at 603-769-3111 or mike.bonacorsi@lpl.com. www.mikebonacorsi.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – abcnews.go.com/Business/feds-announce-25b-foreclosure-deal/story?id=15545458#.TzWEzOSX1c4 [2/9/12]
2 – www.thefiscaltimes.com/Articles/2012/02/10/What-the-$26-Billion-Bank-Deal-Means-to-You.aspx#page1 [2/10/12]
3 – www.kansascity.com/2012/02/10/3421011/finally-real-mortgage-relief-for.html [2/10/12]

THE FACEBOOK IPO

The frenzy is building. Should you care?

Presented by Mike Bonacorsi, CFP ®

Anticipation is high. Facebook filed an S-1 form with the Securities and Exchange Commission on February 1, taking its first big step toward going public. It aims to raise $5 billion through its upcoming IPO. Some of the details from the S-1 form:

• Facebook’s revenue climbed from $777 million in 2009 to $3.71 billion in 2011.
• Its annual profits went from $229 million (2009) to $1 billion (2011).
• Its profits grew by 65% last year alone.
• Its top source of revenue is advertising. (12% of Facebook’s 2011 revenues came from Zynga, a social network gaming company.)

The Google IPO raised $1.9 billion, and this IPO could potentially dwarf that.1

Will this IPO live up to all the hype? It might; it might not. Let’s examine some other key tech IPOs and see how those shares have done since.

• Google. The IPO set the share price at $85. Here in early February 2012, the share price is now around $580. A home run by any definition.
• LinkedIn. On the day of the IPO, the share price climbed from $45 to a peak of $122.70 and settled at $94.25. At the start of February, LinkedIn was trading for about $72.
• Pandora. Shares were offered at $16 in June 2011; eight months later, they were trading at $13.
• Zillow. Shares were offered at $20 in July 2011 and ended at $35.77 on the day of the IPO; in early February, Zillow traded at around $30.2,3

All in all, these numbers look pretty good, right? Sure they do, to institutional investors. Keep in mind that the little guy gets there second. It is the institutional investor – not the small investor – who gets first dibs on the stock and who frequently realizes the terrific upside. The individual investors get to get in after the shares take off; sometimes they pay a price.

Lessons from the dot-com (and dot-bomb) years. The 1990s may seem like ancient history, yet there are examples from the past worth noting when it comes to IPOs.

• University of Florida finance professor Jay Ritter has maintained a huge database on IPOs for decades. He did a study of 1,006 IPOs from 1988-1993 (these were all IPOs that raised $20 million or more) and found that the median IPO underperformed the Russell 3000 by 30% in the first three years after going public, and that 46% of the IPOs produced negative returns.
• In 1999, 555 firms went public and the median share price gain for these issues on the day of the IPO was 30%. But what if you bought after the first day? If you did, the median gain after three months averaged 0%. Additionally, almost 75% of all U.S. Internet-related IPOs from mid-1995 to 1999 traded underneath their offering price at the moment of publication.2

Should Mom & Pop dive in? As MarketWatch columnist Mark Hulbert pointed out, Facebook’s IPO will be three times as expensive as Google’s and about 40 times as expensive as the average large IPO since 1975. As Hulbert found in the wake of a chat with Professor Ritter, Facebook’s price-to-sales ratio (PSR) looks to be about 26, with 2011 revenues of $3.71 billion and a reported IPO valuation of circa $100 billion. Google’s PSR was 8.7 at the time of its IPO. 1,3

Looking back, Ritter found 76 companies since 1975 with trailing 12-month sales from the date of their IPOs of $3 billion or more (in 2011 dollars), firms with more or less reliable revenue streams. Their average PSR: 1.0. AT&T Wireless was the highest of them at 8.9, and that was a 2000 IPO.3

So in other words, Facebook would need staggeringly high revenues (or a consistently remarkable profit margin) for its shares to behave as well as Google shares did in those first few years out of the gate.

Could the tech sector see a “Facebook effect”? Yes, remember the “wealth effect” of the Google IPO? Some of the “best and the brightest” in the tech sector became overnight millionaires and went off and founded their own profitable firms. That sort of thing could happen again; there are tens of thousands of start-ups now generating revenues off of Facebook’s platform, so you have a whole ecosystem of smaller firms that are anticipating the IPO as much as institutional investors.4

Caution might be in order for those awaiting Facebook’s IPO. Individual investors have swung for the fences many times in situations like this, only to strike out.

Mike Bonacorsi a Registered Representative with, and securities are offered through, LPL Financial, Member FINRA/SIPC Mike Bonacorsi may be reached at 603-769-3111 or mike.bonacorsi@lpl.com. www.mikebonacorsi.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 –www.cbsnews.com/8301-500395_162-57369966/facebook-files-to-go-public-plans-to-raise-$5b/ [2/1/12]
2 – cbsnews.com/8301-505123_162-57369940/why-facebooks-ipo-shouldnt-excite-you/ [2/2/12]
3 – www.marketwatch.com/story/facebooks-ipo-will-be-way-overvalued-2012-02-01 [2/1/12]
4 – www.mercurynews.com/business/ci_19881493 [2/2/12]

ARE PEOPLE REALLY RETIRING LATER?

A noted economist disputes that generalization.

Presented by Mike Bonacorsi, CFP ®

True or false? You may have heard this claim before (or something like it): “Many Americans are being forced to retire later because their savings and investments took a hit in the Great Recession.”

Recently, a big-name economist disputed that belief. In a commentary for Bloomberg, former White House budget director Peter Orszag wrote that some of the statistics don’t seem to back up this conventional wisdom, but perhaps it all depends on which statistics you cite.

A fact that can’t be ignored. In mid-January, a widely reprinted Washington Post article mentioned that since the start of the recession, the population of U.S. workers older than 55 has increased by 12% to 3.1million.1

Examining this Labor Department finding, the Post feature referenced longevity and the loss of traditional pension plans as contributing factors. It presented stories of older workers who didn’t think they could easily retire, and quoted respected commentators such as Alicia Munell, director of the Center for Retirement Research at Boston College, who remarked that “some of these people are just clinging by their fingernails to jobs.”1

But is there more to the story? It turns out that Americans were trending toward staying in the workforce longer even before the recession. In 1994, Orszag notes, 43% of Americans aged 60-64 were working; in 2006, it was 51%. Nearly half of 62-year-olds went and claimed Social Security benefits in 1994, but 12 years later, less than 40% of 62-year-olds followed suit.2

Orszag mentions another factor that may have kept older employees working during the recession: declining home equity. Put that alongside diminished IRA and 401(k) balances, and there was every reason to stay on the job these last few years.

However, just because older Americans wanted to keep working didn’t mean that they could.

In the 2011 edition of its respected Retirement Confidence Survey, the Employee Benefit Research Institute found that 45% of retirees ended their careers earlier than they wanted to, in many cases due to layoffs and health issues.3

The Post article noted that the jobless rate for workers older than 55 was just 3.2% in December 2007 when the downturn began. In December 2011, it was up to 6.2%.1

The percentage of employed Americans aged 60-64, which had steadily risen during the 1990s and early 2000s, has remained at roughly 51% for the past five years.2

That brings us to Orszag’s central point: “The bottom line is that people’s retirement decisions aren’t always entirely voluntary.”2

How about your retirement decision? Do you think you will retire when you want to retire? Are you prepared for retirement financially? A new year is a good time for a new look at the state of your finances and your retirement readiness. With astute planning, you might be able to retire sooner than you think.

Mike Bonacorsi a Registered Representative with, and securities are offered through, LPL Financial, Member FINRA/SIPC Mike Bonacorsi may be reached at 603-769-3111 or mike.bonacorsi@lpl.com. www.mikebonacorsi.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.usatoday.com/USCP/PNI/NEWS/2012-01-17-PNI0117biz-older-workersART_ST_U.htm [1/11/12]
2 – mobile.bloomberg.com/news/2012-01-18/look-at-jobs-before-leap-on-older-retirement-commentary-by-peter-orszag [1/18/12]
3 – www.ebri.org/pdf/briefspdf/EBRI_03-2011_No355_RCS-2011.pdf [3/15/11]