YOUR YEAR-END FINANCIAL CHECKLIST

Seven aspects of your financial life to review as the year draws to a close.

                       

The end of a year makes us think about last-minute things we need to address and good habits we want to start keeping. To that end, here are seven aspects of your financial life to think about as this year leads into the next...

  

Your investments. Review your approach to investing and make sure it suits your objectives. Look over your portfolio positions and revisit your asset allocation.

Your retirement planning strategy. Does it seem as practical as it did a few years ago? Are you able to max out contributions to IRAs and workplace retirement plans like 401(k)s? Is it time to make catch-up contributions? Finally, consider Roth IRA conversion scenarios, and whether the potential tax-free retirement distributions tomorrow seem worth the taxes you may incur today. Be sure to take your Required Minimum Distribution (RMD) from your traditional IRA(s) by December 31. If you don't, the IRS will assess a penalty of 50% of the RMD amount on top of the taxes you will already pay on that income. (While you can postpone your very first IRA RMD until April 1, 2015, that forces you into taking two RMDs next year, both taxable events.)1

  

Your tax situation. How many potential credits and/or deductions can you and your accountant find before the year ends? Have your CPA craft a year-end projection including Alternative Minimum Tax (AMT). The rise in the top marginal tax bracket for 2014 made fewer high-earning executives and business owners subject to the AMT, as their ordinary income tax liabilities grew. That calls for a fresh look at accelerated depreciation, R&D credits, the Work Opportunity Tax Credit, incentive stock options and certain types of tax-advantaged investments.2

  

Review any sales of appreciated property and both realized and unrealized losses and gains. Take a look back at last year's loss carry-forwards. If you've sold securities, gather up cost-basis information. Look for any transactions that could potentially enhance your circumstances.

Your charitable gifting goals. Plan charitable contributions or contributions to education accounts, and make any desired cash gifts to family members. The annual federal gift tax exclusion is $14,000 per individual for 2014 and 2015, meaning a taxpayer can gift as much as $14,000 to as many individuals as you like in each year without tax consequences. A married couple can gift up to $28,000 tax-free to as many individuals as they prefer. The gifts do count against the lifetime estate tax exemption amount, which climbs to $5.43 million per individual and $10.86 per married couple for 2015.3

    

You could also gift appreciated stocks to a charity. If you have owned them for more than a year, you can deduct 100% of their fair market value and legally avoid capital gains tax you would normally incur from selling them.4

Besides outright gifts, you can plan other financial moves on behalf of your family - you can create and fund trusts, for example. The end of the year is a good time to review any trusts you have in place.

Your life insurance coverage. Are your policies and beneficiaries up-to-date? Review premium costs, beneficiaries, and any and all life events that may have altered your coverage needs.

Speaking of life events...did you happen to get married or divorced in 2014?Did you move or change jobs?Buy a home or business? Did you lose a family member, or see a severe illness or ailment affect a loved one? Did you reach the point at which Mom or Dad needed assisted living? Was there a new addition to your family this year? Did you receive an inheritance or a gift? All of these circumstances can have a financial impact on your life, and even the way you invest and plan for retirement and wind down your career or business. They are worth discussing with the financial or tax professional you know and trust.

 

Lastly, did you reach any of these financially important ages in 2014? If so, act accordingly.

Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).

Did you turn 62 this year? If so, you're now eligible to apply for Social Security benefits.

Did you turn 59½ this year? If so, you may take IRA distributions without a 10% penalty.

Did you turn 55 this year? If so, and you retired during this year, you may now take distributions from your 401(k) account without penalty.

Did you turn 50 this year? If so, "catch-up" contributions may now be made to IRAs (and certain qualified retirement plans).1,5,6

The end of the year is a key time to review your financial well-being. If you feel you need to address any of the items above, please feel free to give me a call.

Citations. 1 - irs.gov/Retirement-Plans/RMD-Comparison-Chart-%28IRAs-vs.-Defined-Contribution-Plans%29 [4/30/14] 2 - tinyurl.com/o7wqk7z [3/27/14] 3 - forbes.com/sites/ashleaebeling/2014/10/30/irs-announces-2015-estate-and-gift-tax-limits/ [10/30/14] 4 - philanthropy.com/article/Donors-Often-Overlook-Benefits/148561/ [8/29/14] 5 - nolo.com/legal-encyclopedia/getting-retirement-money-early-without-30168.html [12/2/14] 6 - turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Tax-Tips-After-January-1--2015/INF12070.html [12/2/14]

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO INC.

ACCENTUATING THE POSITIVE

Retiring? Saving for retirement? Here's some good news.

Are 90% of articles written about retirement pessimistic? Sometimes it seems that way. Repeatedly, we are reminded that most baby boomers haven't saved enough for the future.

There's no denying this, but the media is giving short shrift to other, more positive developments that may be improving the economic and retirement outlook for many Americans. Here are a few worth noting.

401(k) savings have rebounded tremendously from Great Recession lows. For older savers, the recovery is especially pronounced. Fidelity just released its latest Quarterly Retirement Snapshot. Looking over account data from its retirement plans, it says that the average Q3 401(k) balance for employees who had contributed to their accounts for at least ten straight years was $241,800, compared to just $130,700 in Q1 2009 when the recession was ending. That's an 85% increase.1,2

Data from Principal Financial Group points out similar gains. Earlier this year, it noted that the average balance in its 401(k) plans had risen nearly 70% since the market trough of 2008. Also, new research from the Investment Company Institute shows that if an employee made consistent per-paycheck contributions to a 401(k) during 2007-12, the balance on such accounts increased an average of 6.8% annually (and this is not even considering the great year the market had in 2013).3,4

Incomes finally seem to be rising. This recovery has been marked by a lack of wage growth - a factor that has made it shallower than many analysts expected. That may be changing at last, as the Census Bureau's employment cost index increased 0.7% for Q2. That is solid, in fact it is the biggest quarterly boost seen in six years.4

Hiring has picked up in some crucial industries. ADP's latest employment change report shows October payrolls swelling by 28,000 workers in the construction industry and 15,000 in the factory sector. There were 5,000 new hires at businesses with more than 500 workers, 102,000 new hires at small firms and 122,000 fresh hires at medium-sized companies.5

Americans aren't living on margin as much as they once were. In 2008, total U.S. credit card debt reached $866 billion. In 2013, that fell to $660 billion.4

Fewer Americans are letting consumer debt linger. The Federal Reserve Bank of New York says the latest debt delinquency rates are the lowest in more than six years - the 90-day-plus delinquency rate was at 4.8% in Q2. During 2010, it reached 8.7%. Additionally, overall household debt declined $18 billion in the second quarter, and mortgage debt decreased $69 billion.4,6

Medicare spending didn't rise in the last federal budget year. It was flat for FY 2012-13 and while that may not hold true in successive years, it is certainly interesting. According to Medicare actuaries, fewer Medicare recipients than forecast went to hospitals for care during that budget year, and many of those who did used cheaper services. (Per-beneficiary Part A spending fell for a second consecutive year in FY 2012-13; enrollment in Part C plans expanded.)7

This lack of an annual spending increase led Medicare's trustees to adjust their forecast of when Medicare's main trust fund might run dry. It is now projected to do so in 2030, four years later than previously estimated.7

Baby boomers may be in for a more enjoyable retirement than the media assumes. This summer, T. Rowe Price surveyed recent U.S. retirees and found that 89% were somewhat or very satisfied with their quality of life. This level of retirement satisfaction surfaced even though the average respondent was now living on 66% of his or her pre-retirement income, with 85% of respondents saying that they didn't require as much money as they once did to maintain their standard of living.8

There you have it: a roundup of good news about the economy and the outlook for retirement. Stay positive and plan actively for your future.

Citations. 1 - istockanalyst.com/business/news/7063858/fidelity-s-quarterly-retirement-snapshot-average-balances-increase-year-over-year-record-contributions [4/29/14] 2 - blogs.marketwatch.com/encore/2014/04/29/older-savers-pull-ahead-in-the-401k-race/tab/print/ [4/29/14] 3 - blogs.marketwatch.com/encore/2014/06/03/survey-401k-savings-rates-spiked-in-2013/ [6/3/14] 4 - bloomberg.com/news/2014-08-05/how-to-stay-optimistic-about-retirement-read-this-article.html [8/5/14] 5 - thestreet.com/story/12941709/1/adp-report-shows-hiring-picking-up-job-growth-in-right-places.html/ [11/5/14] 6 - newyorkfed.org/microeconomics/hhdc.html#2014/q2 [11/4/14] 7 - bloomberg.com/news/2014-07-28/medicare-s-financial-condition-improves-on-reduced-costs.html [7/28/14] 8 - news.investors.com/investing/073014-711065-people-adjust-to-lower-income-in-retirement.htm [7/30/14]

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

 

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO INC.

GOOD NEWS FOR A CHANGE

One leading candidate for the "most under-reported story" of 2014 is the remarkable drop in the U.S. government's budget shortfall. The final numbers announced by the U.S. Treasury for fiscal 2014 (ending September 30) shows a $483 billion deficit. That's about $1 trillion lower than the record $1.4 trillion deficit recorded in 2009. As a percentage of the U.S. Gross Domestic Product, the deficit came in at 2.8%--below the average of the last 40 years.

Digging into the numbers a bit, the government collected just over $3 trillion in the past 12 months, which comes to 17.5% of America's total GDP. That's up from $2.8 trillion last year, largely the result of a stronger economy, but also reflecting higher tax rates on higher-income Americans. Meanwhile, spending was essentially flat; rising from $3.45 trillion to $3.50 trillion, reflecting decreased defense spending and cuts in the unemployment insurance program, flood insurance and disaster relief, crop insurance, the Supplemental Nutrition Assistance Program and a variety of housing programs.

If there is bad news in this picture, it's that Social Security, Medicare and Medicaid are taking over an ever-larger share of the budget, and these costs have been rising much faster than inflation. "Entitlement" expenses are not discretionary; they are basically written contracts with the American people. Medicaid in particular is worrisome; while discretionary expenditures are down almost totally across the board, Medicaid spending growth came in at 10.2% in 2014, and is projected to rise 14.3% next fiscal year.

How does all this affect you? Notice that the partisan budget bickering has quietly faded away. Congress has extended government funding several times without fanfare, and is expected to do so again during the lame duck session after the elections. This might induce the rating agencies to give American bonds back their A+ credit rating.

We may see a tax reform bill sometime next year, which will certainly lower the U.S. corporate tax rate, and may address America's tangled individual tax code. Earlier this year, a House bill proposed to repeal dozens of tax credits, deductions and tax preferences, including the mortgage interest exemption and deductions for charitable contributions. The legislation would create two individual income tax brackets at 10% and 25%. Another proposal would replace most current federal taxes with a 23% national retail sales tax.

And you may hear more about reforming Social Security, Medicare and Medicaid. The Social Security fix is relatively straightforward; for persons under the age of 50 today, full benefits would be deferred a year or two, to reflect the fact that people are living (and capable of working) longer. Medicare proposals have ranged from giving total discretionary control to states, to creating a voucher system that would cap benefits for each participant.

Finally, all of us who are recommending Roth conversions have to pause when we see proposals that would replace income taxes with a sales tax. The premise of a Roth conversion is that you are paying, today, equal or lower taxes on the converted retirement dollars than you would be paying in the future. If future marginal tax rates go down to zero, and all government revenues are shifted to a sales tax, that dramatically changes the Roth equation. Yes, this is unlikely, but even the unlikely contingencies have to be factored into today's financial decisions. After all, who thought the budget deficits would fall below 3% of GDP so quickly?

Sources:
http://www.treasury.gov/press-center/press-releases/Pages/jl2664.aspx
http://www.forbes.com/sites/stancollender/2014/10/16/stop-and-smell-the-roses-final-2014-federal-deficit-fell-big-time/
http://kff.org/medicaid/issue-brief/implementing-the-aca-medicaid-spending-enrollment-growth-for-fy-2014-and-fy-2015/
https://www.scribd.com/fullscreen/63596104?access_key=key-16dzhu6py6idfkjml8it&allow_share=true&escape=false&view_mode=scroll
http://fas.org/sgp/crs/misc/R43060.pdf

Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

WHY LOSSES REALLY DO MATTER

Everybody who told us that the steep market drops earlier this month wouldn't last can rightly claim they're right. When the S&P 500 was down 7.4% during a two-week selloff, there was no way to know whether we'd have to endure more of the same. Staying the course turned out to be exactly the right strategy, but that doesn't mean that we shouldn't be concerned about downside risk. In fact, during the downturn, all of us should have been working hard to keep our portfolios from falling as far and as fast as the American indices.

Isn't this a contradiction? There is no contradiction between holding on during market downturns and building portfolios that are unlikely to keep pace with a bear market free-fall. You hold on because no living person knows when the stock markets will recover, but history tells us that they always do seem to recover and eventually deliver returns that are higher, on average, than the returns you get when the money is safely stored under your mattress.

But you also pay attention to downturns because the further your portfolio falls, the harder it is to recover. There's actually a rational reason why you tend to fear losses more than you enjoy your gains.

The mathematics show the asymmetrical effect of losses vs. gains. If your $1 million portfolio loses 10%, falling to $900,000, then it requires an 11.11% gain to get you back where you started. It doesn't seem fair, but that's how it is. A 20% loss requires a 25% gain, and if your portfolio were to drop 40%, you'd need a subsequent 66.67% gain to climb back to your original $1 million nest egg.

Chances are, you know how we fortify portfolios against losses: we include a variety of different types of assets--including bonds which, against every single market prediction at the start of the year, are actually delivering positive returns almost all the way across the maturity spectrum. We include foreign stocks, which haven't exactly been knocking the lights out this year, but which will, someday, offer strong gains when the U.S. markets are weakening. All of these different movements tend to have a calming effect on the portfolio's returns, not always in every circumstance, but fairly reliably over time.

The result? A smoother ride puts more money in your pocket. If an investor experienced returns of +20% and -10% in alternate years over the next 20 years, a $100,000 portfolio would grow to just under $216,000. If a more diversified investor experienced a smoother ride of 10% a year, her portfolio would grow to just under $673,000. The power of steady compounding is a marvelous thing to see. The drag of losses can be debilitating to a portfolio's growth.

You won't experience either of those trajectories, of course. But if you can somehow avoid the worst of the market's falls, even if it means never beating the market during the up-cycles, you raise your chances of long-term success. If you can do this and remain invested through a lot of uncertainty, like we experienced earlier this month, chances are you'll enjoy better long-term returns than a lot of the "experts" you see screaming at you to buy or sell on the cable finance channels.

Oh, and that 7.4% drop? The S&P 500 will have to go up 7.99% to recover the ground it lost in that two-week period.

Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

HOW IS HEALTH CARE REFORM AFFECTING THE FEDERAL DEFICIT?

Some analysts think it is helping reduce the deficit; but others wholeheartedly disagree.

Has the Affordable Care Act actually cut Medicare spending? The numbers from the Congressional Budget Office make a pretty good argument for that, and suggest that the ACA has had a distinct hand in the recent drop in the federal deficit. Detractors of the ACA say that statistical argument doesn't tell the whole story.

Medicare has been a major factor in the deficit's expansion. Its cumulative cash flow deficits came to $1.5 trillion in the first decade of this century, according to the Congressional Budget Office; across the current decade, those cumulative cash flow deficits are projected to hit $6.2 trillion as more and more baby boomers become eligible.1

Admirers of the ACA contend that its technical changes (reductions in payments to some providers, simplified payment systems geared to holistic care, discouragement of hospital readmissions and greater use of generic drugs) are holding Medicare costs in check. These changes have led the CBO to hack 12% off its estimate for Medicare spending across 2011-20. In 2014 dollars, the federal government spent about $12,700 on Medicare per recipient in 2010; the CBO sees that declining to about $11,300 in 2019.2

In the big picture, the savings projects to $95 billion in Medicare's 2019 budget. That is more than the projected 2019 federal outlay for welfare, unemployment insurance and Amtrak combined. It also means Medicare's trust fund will now last until at least 2030 according to the Medicare Trustees.1,3

Does the ACA deserve all the credit? Not really, say its detractors. They argue that while health care spending and Medicare spending have slowed in the past few years, it isn't because of the ACA's changes. The counterargument posits that Medicare spending lessened as a consequence of the recession (and the shallow recovery that followed) and higher-deductible health plans that meant greater out-of-pocket costs for consumers.1

Another contention: lawmakers could have done much more to reduce Medicare spending all along, but backed off of that opportunity. When Congress passed the Balanced Budget Agreement in 1997, it authorized cuts in federal payments to doctors who treat Medicare patients. These cuts (which would have significantly reduced Medicare spending) were supposed to occur in 2003, but Congress has postponed them 17 times since that date.1

Hasn't the federal deficit declined anyway? It has, and it is also about to grow again. By the CBO's estimate, the federal deficit for the current fiscal year will be $506 billion, equivalent to 2.9% of U.S. gross domestic product. At the turn of the decade, the deficit was above $1 trillion, corresponding to 9.8% of GDP. The CBO thinks that the deficit will rise again in two years, however, as an effect of increasing federal spending. As for the federal debt held by the public, it has risen 103% during the current administration.4

The deficit aside, the self-insured may pay cheaper premiums in 2015. Preliminary research from the non-profit Kaiser Family Foundation estimates that the mean premium on "silver" plans (the popular and second-cheapest choice among standard plans) will decline 0.8% next year. The KFF's per-city projections vary greatly, though. For example, it forecasts "silver" plan premiums dropping 15.6% in Denver next year and rising 8.7% in Nashville.4

Bottom line, the CBO sees less Medicare spending ahead. That will contribute to a reduction in the federal deficit, and whether the projected decline is attributable to economic or demographic factors or the changes stemming from the ACA, that is a good thing.

Citations.
1 - forbes.com/sites/gracemarieturner/2014/10/07/its-time-to-end-the-doc-fix-dance-and-move-on-to-real-reform/ [10/7/14]
2 - nytimes.com/2014/08/28/upshot/medicare-not-such-a-budget-buster-anymore.html [8/28/14]
3 - washingtonpost.com/blogs/plum-line/wp/2014/08/27/yes-obamacare-is-cutting-the-deficit/ [8/27/14]
4 - msn.com/en-us/news/politics/obama%E2%80%99s-numbers-october-2014-update/ar-BB7PQFw [10/6/14]

Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO INC.

THE MARKET'S WILD SWINGS

A hugely volatile week concludes. What's next as earnings season gets underway?

During this past trading week, volatility ruled Wall Street. In fact, stocks either fell or rose 1.5% or more on three consecutive trading days. That had happened only 54 times since 1928.1

What prompted these ups & downs? Several factors. The International Monetary Fund just cut its global and Asia growth forecasts for 2015 and stated that the eurozone could soon slide into another recession. European Central Bank president Mario Draghi wants easing to stimulate the eurozone economy, yet German finance minister Wolfgang Schäuble doesn't. The DAX and CAC 40 (the benchmark indices of Germany and France) have both corrected since spring.2

So has the Russell 2000, which wrapped up last week down 13% from its peak in early March. Oil entered a bear market Thursday. Finally, the end of the month will presumably see the end of the Federal Reserve's quantitative easing effort - which has played a big role in the market's bull run. The S&P 500 ended Friday down more than 5% from its September 18 record close, and Friday actually saw a rare 100-point drop for the Nasdaq Composite (102.10, to be precise).2,3

Where might things go from here? Stocks could fall further - keep in mind that the S&P has gone more than two years without a correction, definitely an abnormality. On the other hand, fall earnings seasons have tended to give stocks a lift throughout history, so let's hope history repeats. Bespoke Investments cites some encouraging data: in instances where the market sees 1.5% or greater swings on three straight trading days, the S&P has averaged a gain of 0.55% on the next trading day and 1.13% during the following trading week.1

How big a drag will Europe continue to exert on the market? Agreement between EU finance ministers would give domestic and foreign stocks a lift. If that isn't there, perhaps earnings - the "mother's milk" of stocks - will help guide the market back to equilibrium and gains.2

Perhaps the wisest words came from Cornerstone Wealth Management CIO Alan Skrainka, who told USA TODAY Friday: "The market was overdue for a correction. Not every correction develops into a bear market. Every economic slowdown is not a recession. Look for opportunities and maintain a long-term perspective."3

Citations.
1 - tinyurl.com/k9nfbxc [10/10/14]
2 - bloomberg.com/news/2014-10-09/index-futures-slip-as-stocks-slump-while-oil-extends-drop.html [10/10/14]
3 - usatoday.com/story/money/markets/2014/10/10/stocks-friday/17022819/ [10/10/14]

Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
www.soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO INC.

THE NEWEST LARGEST IPO IN HISTORY

Last fall it was Twitter. Before that, it was Facebook. Now it's Alibaba, the huge Chinese e-commerce company that just became the largest tech IPO in history, after raising $21.8 billion in its initial public offering on September 18.

As it turns out, Facebook and Twitter turned out to be decent investments at their IPO price. Post-IPO buyers purchased Twitter shares at roughly $45 a share, and over the nearly 12 months since, the stock has climbed to around $50--an 11% return that is below what the market as a whole has delivered, but above the negative returns most investors experience in the first year after a public offering. Facebook has done better, starting life at $38 a share in May of 2012, following a very bumpy path that saw investors deeply under water for months, and then recovering so that shares are now trading around $75.

Will Alibaba continue the streak? Amid all the hype, one voice to listen to is veteran emerging markets analyst/manager Mark Mobius, of Franklin Templeton Investments. Mobius acknowledges that Alibaba has some interesting fundamentals--including a return on equity of 24%, operating margins of 26% and revenue of $1.02 billion, making it by far the biggest e-commerce engine in China.

But he also notes that the company has an unusual corporate structure that could lead to problems for investors down the road. He warns that the company's ownership team controls the board of directors, which means that if shareholders are concerned about the direction of the company, or if the owners decide to loot the assets and put the money in their own pockets, well, there isn't much shareholders could do about it.

What, exactly, did investors buy in this IPO? In most cases, IPO investors are purchasing direct ownership shares of the company. But Alibaba is listed as a variable interest entity, which creates a somewhat more complicated ownership structure. The bottom line is that shareholders, in this public offering, are actually buying a stake in a company registered in the Cayman Islands, which has a contract to share in Alibaba's profits. If shareholders ever became concerned about Alibaba's management decisions, they would have to go to a Chinese court to get redress. It is hard to imagine a positive outcome for American investors.

Along this line, it is interesting to note that the original plan was for Alibaba to go public on the Hong Kong stock exchange, but the Hong Kong regulators declined to allow it, citing concerns about (you guessed it!) the ownership structure and fairness to Hong Kong investors. The New York Stock Exchange may have been more focused on a big payday than on consumer protection when it allowed the company to list in the U.S.

Sources:
http://money.cnn.com/2014/09/17/investing/mark-mobius-alibaba-ipo/index.html?iid=SF_INV_River
http://www.marketwatch.com/story/alibabas-structure-is-dangerous-mark-mobius-2014-09-18
http://www.macroaxis.com/invest/market/1688.HK--fundamentals--Alibabacom_Limited

Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
www.soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

BOND KING'S MESSY EXIT

Financial advisors and the investment community were shocked this past Friday when Bill Gross, sometimes referred to as "the bond king" resigned from Pimco, a firm he founded in 1971 that rose to become one of the largest mutual fund management firms in the world. Gross also served as fund manager for the $221.6 billion Pimco Total Return fund, and made frequent television appearances.

Although the move was surprising, it was not hard to find reasons for the departure. The Total Return Fund had seen investor redemptions totaling $68 billion in the past 16 months, and more recently, Gross has been under investigation by the Securities and Exchange Commission on a charge that an exchange-traded fund he was managing had illegally inflated its performance numbers. Prior to that, Gross publicly feuded with the man regarded as his successor, Mohammed El Erian, who had become a public face of Pimco with his book outlining a "New Normal" in the investment landscape.

Gross has taken a new position at Janus Capital Group, where he will manage a new fund called Janus Global Unconstrained Bond Fund in a new Janus office to be opened near his home in Newport Beach, CA. Some have speculated that investors will pull more money out of the Total Return Fund and follow Gross over to the new fund, where Gross will have the total control that he sought, and was denied, in his later years at Pimco.

Meanwhile, Pimco seems to be in good hands, with Gross succeeded by Daniel J. Ivascyn, formerly deputy chief investment officer. The Total Return Fund will be managed by longtime Gross associates Mark Kiesel, Scott Mather and Mihir Worah.

What are we to make of all this? Today's mutual funds are typically managed under a team approach. Gross was a throwback to an era when one manager would call all the shots and be rewarded (or not) according to whether his performance exceeded the market. Over time, it became obvious that he was impatient with consensus decision-making, which simply means he was out of step with modern fund management styles. It will be interesting to see if he is able to reproduce his (generally excellent) long-term track record in a more competitive market, particularly during this time period when the bond market has been dependent on Federal Reserve stimulus, which is winding down going into next year. Many advisors benefited from Gross's investment talents, but some are also undoubtedly happy to see Pimco Total Return managed in a more collaborative atmosphere.

Sources:

http://www.investmentnews.com/article/20140926/FREE/140929923/little-known-insider-ivascyn-takes-investment-helm-at-challenged?utm_source=BreakingNews-20140926&utm_medium=in-newsletter&utm_campaign=investmentnews&utm_term=text

http://dealbook.nytimes.com/2014/09/26/william-gross-leaves-pimco-to-join-janus/?_php=true&_type=blogs&_r=0

Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

SECESSION OUT OF THE BOTTLE?

Scotland has voted--for now--to remain a part of the United Kingdom, a move which avoids such huge and thorny decisions as: how much of Britain's national debt would belong to the newly-independent Scottish nation? Would Scotland have to create its own army and navy, or enter into a contract with the UK for mutual defense? What currency would Scottish citizens use--the euro, the pound or some new currency that hasn't been created yet? Would other countries have to set up embassies in the new nation, and would the country have to create its own embassies around the world? And the most interesting question of all: if Scotland leaves the UK, would Ireland follow? And Wales? And Cornwall?

The vote has put the spotlight on a lot of other separatist initiatives around the world. Prominent among these are the French-speaking citizens of Quebec in Canada, the citizens of Spain's Catalonia (who speak a different language, and whose capitol would be Barcelona), Uighurs and Tibetans in China, the Flemish in Belgium, the Istrian Italians in Croatia, the Moravians in the Czech Republic (which is itself a breakaway part of the former Czechoslovakia), the Savoyans in France, the Bavarians and Frisians in Germany, the Punjabi, Tamils and Manipuri in India, the South Moluccans in Indonesia, the Sardinians and Venetians in Italy, the Sami and Kven in Norway, the Kurds and Armenians in Turkey, Upper Silesians in Poland, and at least twenty different ethnic regions of Russia, famously including the Chechnyans. Myanmar/Burma has 12 ongoing separatist movements. The war in the Ukraine, a long-term history of violence in Northern Ireland, the Chechnyan terrorist attacks and the rise of an islamic state in Syria and Iraq illustrate some of the trauma associated with separatist efforts.

Nor is the concept totally foreign to the U.S. Texas Governor Rick Perry started his own separatist movement by publicly talked about the possibility that his state could exit the U.S., and a Texas secession petition garnered 125,000 signatures in 2012. Its backers hope to make Texas what it was for ten years in the 1800s--a sovereign nation.

In case you were wondering, the Scottish nation would have been the world's 42nd largest, behind Finland and ahead of Israel, and secession would have knocked the UK's GDP down a rung from 6th to 7th in the world, behind Brazil. An independent Quebec's GDP would rank 33rd among the world's nations, behind Colombia, comfortably ahead of Denmark. The sovereign nation of Texas would instantly become the world's 12th largest economy, larger than Mexico or Spain. The states 27 million people would qualify Texas as the world's 44th most populous, behind Venezuela and ahead of Ghana.

Constitutional experts note that, unlike Quebec and Scotland, Texas doesn't actually have the right to vote itself out of its national affiliation. Polls show that 80% of Texas voters prefer to remain American, just as Scottish voters have preferred to remain English and, so far, the Quebecois and Catalonians have voted to stay in their respective countries. But as these votes become increasingly common, it's possible that the world is entering a new era where secession initiatives are becoming more thinkable. Thirty or 50 years from now, the global map--and perhaps the American one as well--might look very different than it does today.

Sources:
http://www.dailysabah.com/opinion/2014/09/17/the-consequences-of-scottish-dependence
http://en.wikipedia.org/wiki/List_of_active_separatist_movements_in_Europe
http://www.huffingtonpost.com/2013/11/05/texas-secede_n_4213506.html
http://theweek.com/article/index/236871/what-would-happen-if-texas-actually-seceded
http://www.star-telegram.com/2013/03/24/4724519/what-if-texas-really-did-secede.html
http://en.wikipedia.org/wiki/List_of_active_separatist_movements_in_Asia

Sincerely,
Bill Morrissey and Tammy Prouty
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
info@soundfinancialplanning.net
soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

IMPULSE TRAVEL APPS

If you make your travel plans at the last minute, you'll pay a lot for the privilege. Right?

Not necessarily. A new, free iPhone app called Flight Tonight identifies all plane flights leaving within 24 hours from your home city, and shows you which airlines are willing to sell the unfilled seats at significant discounts. It sorts all flights by cheapest price. A small number of those flights will be cheaper or the same price as those booked 30 to 50 days in advance.

The spontaneous traveler can then turn to Hotel Tonight or Hotel Quickly, which shows rooms available at a discount for the same night. Recently, Groupon also launched Getaway Tonight, which shows same-day hotel deals in the U.S. The services are ideal for people who want to travel, who have very flexible schedules, and can pack and get ready for a travel adventure within 24 hours.

Citations
http://www.reuters.com/article/2014/08/04/us-apps-travel-idUSKBN0G41BP20140804?feedType=RSS&feedName=technologyNews

Sincerely,
Bill Morrissey and Tammy Prouty
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
info@soundfinancialplanning.net
soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

DEBUNKING A FEW POPULAR RETIREMENT MYTHS

Certain misconceptions ignore the realities of retirement.

Generalizations about money & retirement linger. Some have been around for decades, and some new clichés have recently joined their ranks. Let's examine a few.

"When I'm retired, I won't really have to invest anymore." Many people see retirement as an end instead of a beginning - a finish line for a career. In reality, retirement can be the start of a new and promising phase of life that could last a few decades. If you stop investing entirely, you can risk losing purchasing power; even moderate inflation can devalue the dollars you've saved.1

"My taxes will be lower when I retire." You may earn less, and that could put you in a lower tax bracket. On the other hand, you may end up waving goodbye to some of the deductions and exemptions you enjoyed while working, and state and local taxes will almost certainly rise with time. So while your earned income may decrease, you may end up losing a comparatively larger percentage of it to taxes after you retire.1

"I started saving too late, I have no hope of retiring - I'll have to work until I'm 85." If your nest egg is less than six figures, working longer may be the best thing you can do. You will have X fewer years of retirement to plan for, so you can keep earning a salary, and your savings can compound longer. Don't lose hope: remember that you can make larger, catch-up contributions to IRAs after 50. If you are 50 or older this year, you can put as much as $23,000 into a 401(k) plan. Some participants in 403(b) or 457(b) plans are also allowed that privilege. You can downsize and reduce debts and expenses to effectively give you more retirement money. You can also stay invested (see above).1,2

"I should help my kids with college costs before I retire." That's a nice thought, but you don't have to follow through on it. Remember, there is no retiree "financial aid." Your student can work, save or borrow to pay for the cost of college, with decades ahead to pay back any loans. You can't go to the bank and get a "retirement loan." Moreover, if you outlive your money your kids may end up taking you in and you will be a financial burden to them. So putting your financial needs above theirs is fair and smart as you approach retirement.

"I'll live on less when I'm retired." We all have the cliché in our minds of a retired couple in their seventies or eighties living modestly, hardly eating out and asking about senior discounts. In the later phase of retirement, couples often choose to live on less, sometimes out of necessity. The initial phase of retirement may be a different story. For many, the first few years of retirement mean traveling, new adventures, and "living it up" a little - all of which may mean new retirees may actually "live on more" out of the retirement gate.

"No one really retires anymore." Well, it is true than many baby boomers will probably keep working to some degree. Some people love to work and want to work as long as they can. What if you can't, though? What if your employer shocks you and suddenly lets you go? What if your health won't let you work 40 hours or even 10 hours a week? You could retire more abruptly than you believe you will. This is why even workaholics need a solid retirement plan.

There is no "generic" retirement experience, and therefore, there is no one-size-fits-all retirement plan. Each individual, couple or family needs a strategy tailored to their particular money situation and life and financial objectives.

Sincerely,
Bill Morrissey and Tammy Prouty
Sound Financial Planning, Inc.

Citations.

1 - tiaa-cref.org/public/advice-guidance/education/financial-ed/empowering_women/retirement-myths [8/29/14]
2 - 401k.fidelity.com/public/content/401k/Home/HowmuchcanIcontrib [8/29/14]

Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
info@soundfinancialplanning.net
soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO INC.

ADJUSTING TO RETIREMENT

What people don't always realize about life after work.

If you have saved and invested consistently for retirement, you may find yourself ready to leave work on your terms - with abundant free time, new opportunities, and wonderful adventures ahead of you. The thing to keep in mind is that the reality of your retirement may not always correspond to your conception of retirement. There will inevitably be a degree of difference.

Some new retirees are better prepared for that difference than others. They learn things after leaving work that they wished they could have learned about years earlier. So with that in mind, here are a few of the little things people tend to realize after settling into retirement.

Your kids may see your retirement differently than you do. Some couples retire and figure on spending more time with kids and grandkids - they hang onto that five-bedroom home even though two people are living in it because they figure on regular family gatherings, or they move to another state to be closer to their kids. Then they find out that their children didn't really count on being such frequent company.

Financial considerations come into play here as well. Keeping up a big home in retirement can cost big dollars, and if you move to another area, there is always the chance that a promotion or the right job offer could make your son or daughter relocate just a few years later. The average American worker spends 4.6 years at a given job, and less than 10% of U.S. workers in their twenties and thirties stay at the same job for a decade.1

Medicare falls short when it comes to dental, vision & hearing care. Original Medicare (Parts A & B) will pay for some things - cataract surgery and yearly glaucoma tests for people at risk for that disease, for example, as well as dental procedures that are deemed necessary prior to another medical procedure covered under Medicare. These are exceptions to the norm, however, and as people's sight, teeth and hearing become more problematic as they age, it can be frustrating to realize what Medicare won't cover.2

You may lose the impulse to work a little. These days, most retirees at least think about working part-time. Actually doing that may not be as easy as it first seems. It is a lot harder to get hired at age 65 than it is at age 45 - no one is denying that - and part-time work tends toward the mundane and unfulfilling. If you are able to earn income as a consultant or through other types of self-employment, you may be truly satisfied by the work you do and be able to set your own schedule, too.

Retirement income comes with income taxes. While retirees anticipate (and certainly appreciate) distributions from an IRA or an employer-sponsored retirement plan, few retirees map out a sequence or strategy intended to let them take distributions from retirement and investment accounts with the least tax impact. Generally speaking, you want to draw down your taxable accounts first, then the tax-advantaged accounts, and lastly your tax-free accounts. This way, you are giving the retirement money that is taxed least more time to compound.

Under the typical model withdrawal scenario, this sequencing a) offers the potential to reduce the tax bite from all these distributions, b) promotes greater longevity for retirement savings. The wealthier the retiree is and the higher the projected rate of return for his or her portfolio, the more sense the strategy usually makes. If a retiree has very low taxable income or large unrealized gains on taxable assets, it may not be wise to follow this rule of thumb. Health and longevity factors also influence withdrawal strategies, of course.3

Retirees also need to know something about the IRS rules for retirement accounts - if the assets are withdrawn too soon or used for an inappropriate purpose, penalties can result and tax advantages can be lost.

Retirement is a transition, but it isn't a solution. There are people that are really eager to retire, people that come to believe that retirement will wipe away all that is dull and restrictive from their lives. Retiring often leads to a rewarding new phase of life, but it won't solve health issues, family dilemmas or business or money problems.

You may have plenty of time on your hands. If you and/or your spouse have routinely worked 50-60 hours a week, it can be tough to come down from that once you are retired. Your urge to be productive will persist, and sooner or later, you will find ways to stay busy, contribute and make a difference. Thinking about how you will spend your time in retirement before retirement is wise, as you don't want to risk staring at (or climbing) the walls.

Adjusting to retired life takes a bit of time for everyone. Adjustment can become easier with a candid recognition of certain retirement realities.

Citations.
1 - marketwatch.com/story/americans-less-likely-to-change-jobs-now-than-in-1980s-2014-01-10 [1/10/14]
2 - ncoa.org/enhance-economic-security/benefits-access/how-to-get-help-for-dental.html [4/17/14]
3 - tiaa-crefinstitute.org/public/institute/research/trends_issues/ti_taxefficient_1006.html [10/06]

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO INC.

THE RETIREMENT MINDGAME

Your outlook may influence your financial outcome.

What kind of retirement do you think you'll have? An outstanding one? A depressing one? What if it all starts with your outlook? Qualitatively speaking, what if the success or failure of your retirement begins with your perception of retirement?

A whole field of study has emerged on the psychology of saving, spending and investing: behavioral finance. Since retirement saving is a behavior (and since other behaviors influence it), it is worth considering ways to adjust behavior and presumptions to encourage a better retirement.

Delayed gratification or instant gratification? Many people close to retirement age would take the latter over the former. Is that a good choice? Often, it isn't. Financially speaking, retiring earlier has its drawbacks and may lead you into the next phase of your life with less income and savings.

If you don't love what you do for a living, you may see only the downside of working longer rather than the potential boost it could provide to your retirement planning (i.e., claiming Social Security later, tapping retirement account balances later and letting them compound more). If you see work as a daily set of unfulfilling tasks and retirement as an endless Saturday, Saturday will win out and your mindset will lead you to retire earlier with less money.

On the other hand, if you change your outlook to associate working longer with retiring more comfortably, you may leave work later with a bigger retirement nest egg - and who wouldn't want that?

If you don't earmark 66 or 70 as your retirement year, you can become that much more susceptible to retiring as soon as possible. You're 62, you can get Social Security; who cares if you get less money than you get at 66 or 70, it's available now!

Resist that temptation if you can. While some retirees claim Social Security at age 62 out of necessity, others do out of inclination, perhaps not realizing that inflation pressures and long term care costs may render that a poor decision in the long run.

The good news is that Americans are waiting longer to claim Social Security than they once did. Increased longevity may be a factor in that trend, but the findings are encouraging nonetheless. The number of men claiming Social Security at age 62 increased 2.3% from 2007-09 to 35.8%, and the number of women claiming Social Security at age 62 increased 2.6% in that span to 38.9%. Still, these percentages fell short of those a generation before. From 1986-97, roughly half of all women claimed Social Security when they turned 62 and nearly half the men did; since 1997, the percentages have never approached those levels.1,2

Setting a target age for retirement - say, 65, 66, or even 70 - before you turn 60 can help mentally encourage you to keep working to that age. Providing your health and employment hold up and you can work longer, patience can lead you to have more Social Security income rather than less.

Take a step back from your own experience. For some perspective on what your retirement might be like, consider the lives of others. You undoubtedly know some retirees; think about how their retirements have gone. Who planned well and who didn't? What happened that was unexpected? Financial professionals and other consultants to retirees can also share input, as they have seen numerous retirements unfold.

Reduce your debt. Rather than assume new consumer debts that advertisers encourage us to take on commensurate with salary and career growth, pay down your debts as best you can with the outlook that you are leaving yourself more money for the future (or for unexpected situations).

Save and invest consistently. See if you can increase your savings rate en route to retirement. Don't look at it as stripping money out of your present. Look at it as paying yourself first, and investing for the comfort of your retirement.

Citations.
1 - ssa.gov/retirementpolicy/research/early-claiming.html [4/13]
2 - fool.com/retirement/general/2014/06/07/social-security-what-percent-of-americans-claim-be.aspx [6/7/14]

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO INC.

HIDING PROFITS FROM THE TAX MAN

On July 14, the Foreign Account Tax Compliance Act became effective, and instantly virtually all foreign banks were required to keep track of, and report on, all assets held by U.S. citizens. Individuals who don't report income on those assets and pay taxes to Uncle Sam face draconian penalties in excess of the actual money in the account.

But hiding income abroad is nothing more than business as usual for large American companies. Some are now ducking through a corporate tax loophole by relocating their tax base overseas. These so-called "inversions" hit the mainstream news media when medical device manufacturer Medtronic bought rival Covidien, which is domiciled in Ireland, and then began stripping income out of the U.S., where the top corporate rate is 35%. The merged firm is paying taxes on most of its net income in Ireland, at a 12.5% rate. This will save the company between $3.5 billion and $4.2 billion in overall taxes.

Others are following suit. Walgreens Co. is purchasing a Swiss company it partially owns, and pharmaceutical giant Pfizer Inc. openly pursued an inversion this year when it sought to purchase British drug maker AstraZeneca. Chicago-based pharmaceutical company AbbVie is buying Irish drug maker Shire, and two U.S.-based pharmaceuticals, Muylan Laboratories and Abbot Laboratories are planning to merge and reincorporate in the Netherlands. Overall, nearly 50 U.S. companies have used this tactic over the past decade. The net effect is to reduce U.S. tax revenues by an estimated $17 billion over the next decade.

Still others are assigning their valuable patents to a subsidiary in a more tax-friendly locale. For example, Apple, Inc. now generates 30% of its total net profits through an affiliated firm based in Ireland, saving an estimated $7.7 billion in U.S. taxes in 2011 alone. When the Wall Street Journal examined the books of 60 big U.S. companies, it found that they had shielded more than 40% of their annual profits from Uncle Sam.

An inversion works like this: A U.S. company buys or merges with a smaller company in the same business that happens to be located in a country where the corporate tax rate is lower than the maximum 35% federal rate here in the U.S.--plus, of course, state taxes. This covers a lot of territory. According to the latest update in Wikipedia, only the United Arab Emirates, Guyana, Japan and Cameroon assess higher corporate tax rates than the U.S.; their rates top out at 55%, 40%, 38% and 38.5% respectively.)

Next, the company is reincorporated, and its global headquarters is shifted to the foreign country. Operations continue exactly as they were before, which may mean that most of the sales and profits are still coming from the U.S. market. But the taxes are now paid at the lower rates of the overseas location.

The net result is to shift tax revenue to Ireland, the Netherlands, Switzerland and Canada, which offer a combination of low corporate tax rates and a territorial tax system, whereby income from foreign sources (like, for instance, the U.S.) isn't taxed at all.

How does this affect you? First of all, you will bear a slightly higher tax burden as the government seeks to recover lost revenues. The Journal report found that if just 19 of the 60 companies had to pay U.S. taxes on their earnings like you or me, the $98 billion in additional tax revenues would more than offset the $85 billion in automatic spending cuts that were triggered by the fiscal cliff negotiations. In addition, companies that are holding assets offshore for tax reasons have effectively made that money unavailable to invest in the U.S., which could lower economic growth and cost jobs for the U.S. economy.

More directly, that offshore money is no longer available to pay dividends to shareholders like you and me, or to buy back shares, which raises the value of our stock holdings.

Finally, an inversion could actually trigger higher taxes for its shareholders.

How? When the company inverts or reincorporates abroad, all current shareholders are required to pay capital gains taxes on their holdings in that year, as they are issued new stock in the new company. So if you happen to own $100,000 worth of Medtronic, and your shares originally cost you $20,000, you would get a 1099 in the mail saying that you have $80,000 in realized gains, subject to capital gains taxes immediately. If you had planned to hold those assets until death, and get a step-up in basis for your heirs, well, that strategy is preempted by the company's decision to invert. If you were holding the stock long-term to avoid annual taxation, or trying to shift tax obligations to next year, tough luck. You're paying taxes now, whether you like it or not.

Is there a way bring these assets back into the U.S. tax system? One obvious possibility is to lower our corporate tax rates below the rates of other countries. But there is no guarantee that those nations wouldn't lower their rates in turn, leading to a global race to the bottom, with the logical outcome that corporations would essentially be granted a 0% tax rate everywhere. And a lower corporate tax rate would, of course, mean higher individual tax rates, which is politically unlikely at the moment. Opponents would note that the share of federal revenues paid by corporations has already fallen from 32% in 1952 to just 8.9% today.

Another possibility is being explored in Congress. A recently proposed bill would require the foreign partner of any inversion tactic to be larger than the American merger partner; otherwise, the company is assumed, for tax purposes, to be domiciled in the U.S. The argument is a good one: these companies want to take advantage of U.S. laws and have full access to the U.S. consumer market, but not have to pay for it.

Sources:
http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx

http://www.azcentral.com/story/opinion/editorial/2014/07/31/corporate-headquarters-overseas-taxes/13439141/

http://dealbook.nytimes.com/2014/07/14/shire-and-abbvie-in-talks-over-53-billion-pharmaceutical-merger/?_php=true&_type=blogs&_r=0

http://www.usatoday.com/story/money/business/2014/07/21/stateline-tax-inversions-state-taxes/12941521/

http://www.latimes.com/business/la-fi-obama-offshore-tax-20140717-story.html

http://online.wsj.com/news/articles/SB10001424127887324034804578348131432634740

http://www.latimes.com/business/hiltzik/la-fi-mh-corporate-tax-scam-20140708-column.html#page=1

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.