Utah Business Magazine - What to Look For in a Financial Advisor

I was honored to have the opportunity to write an article for Utah Business Magazine focusing on what you should look for in a financial planner. The article, titled "Adding it Up: Advisors Help You Get the Most for Your Money," appeared in the February 2010 issue and advises people to focus on a couple key issues:

• Look for a fee-only financial advisor
• Make sure your advisor is a Certified Financial Planner
  
• Your planner should accept a fiduciary responsibility to act in your best interest. No exceptions!
  
• Your advisor should provide you with a written comprehensive financial plan
• You should be meeting with your advisor at least once a year to update your plan, review performance, and ensure your actions reflect your changing goals
  

Swing by a news stand and check it out.

Retirement Planning Workshop at LaCaille on February 25th

Net Worth Advisory Group will be teaching a retirement and financial planning seminar at LaCaille on Thursday, February 25th at 7:00 pm. Both those who are retired and individuals who will be retiring in the next 12 months are welcome.

We will be covering many of the topics outlined in Ray LeVitre’s book (The Retiring Boomer’s Financial Handbook) and each guest will receive a complimentary copy of the book. Mr. LeVitre, our firm’s managing partner, will be available to address questions after the presentation. Here are the details.

Date: Thursday, February 25, 2010

Location: LaCaille
9565 Wasatch Blvd.
Sandy, UT 84092

Time: Dinner at 7:00, Presentation at 8:00

RSVP to Lon Jefferies at (801) 566-0740, or lon@networthadvice.com.

Thanks for your continued confidence. Please let us know if there is anything we can do to enhance the services we provide. We love our jobs, and appreciate your business.

Ten Common Tax Mistakes (Part Two)

Today we get to the remaining most common tax mistakes:

6. Under withholding - Common and costly, under withholding sometimes occurs with very little tax payer changes. If you are uncertain on your amount owed, attempt to confirm you have at least paid in 110% of your prior years taxes as this will help you avoid penalties.

7. Not filing soon after extension - Even though an extension is easy to file, if you owe taxes the extension does not stop penalties. Thus, it is always a good idea to file soon after your extension in order to lessen those penalties.

8. Forgetting to carry over losses - Losses from prior years are often left out and the tax payer doesn't receive full benefit. Be sure to carry those losses forward.

9. Filing too quickly - Some people actually file too soon and then receive a corrected statement of some type. Completing your taxes in late February is fine, but it might be best to wait until late March.

10. Missing Interest - Perhaps the most common mistake is to miss interest on a tax return. This is caused by an incorrect address change, forgotten account, or even a closed account that generated tax reporting early in the prior tax year. It's an easy fix, but most times results in tax penalties and additional payments.

Chart of the Day -- Earnings

With fourth-quarter earnings largely in the books (over 79% of S&P 500 companies have reported for Q4 2009), today's chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% from its Q3 2007 peak to Q1 2009 low -- the largest decline on record (the data goes back to 1936). Since its Q1 2009 low, S&P 500 earnings have surged (up over 600%) and currently come in at a level that has only been exceeded during the latter years of the dot-com and credit bubbles.

Now the question is: how much of the recovery in earnings is due to an economic recovery versus massive corporate cost cutting versus economic stimulus. It may take until Q1 2010 data is released but it is clear stimulus has been cut back and there isn't much cost cutting that can still take place. If next quarter earnings are still strong we can be more confident we have an economic recovery.

Financial Planning Webinar TODAY!

One last reminder about my financial planning webinar that will be taking place tonight at 7:00 MT. The webinar will contain great information concerning what should and should not be included in a comprehensive financial plan, how to utilize the written financial plan to boost your wealth and maximize the probability of obtaining your retirement and other financial goals, and how to ensure your financial plan is frequently updated to reflect your changing situation.

The webinar can be viewed from the comfort of your home. Simply click the "Register Now" link below, and you will be provided with a web address to visit tonight. Once you arrive at that site at the appropriate time, the webinar will take place right on your screen. Please let me know if anyone has questions. Of course, all are welcome to the educational session.

Space is limited.
Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/815413008

Ten Common Tax Mistakes (Part One)

As my business card states, I am a fee-only financial planner. An independent financial advisor is very different from an accountant, so this posting should not be construed as tax advice. However, in my efforts to help my clients with their financial planning, I frequently speak to accountants and attorneys. Based on my experience there are many mistakes people make when tax season comes around, and I wanted to draw your attention to those that are most common. (Special credit should be given to my fee-only financial planning associate, John Kvale, Certified Financial Planner.)

1. Missing extension deadline - Do not forget to file an extension if you are not able to make the filing deadline. Extensions are easy but very costly should you forget.
2. Not recording basis - Under current tax law you most likely have a basis on every item you own. Be sure to include it on your reporting records, otherwise the IRS will assume it has a zero basis, subjecting the assets complete value to capital gains tax.
   
3. Not filing when needing to - When someone becomes deceased it is a good idea to file a final return to notify the IRS. Additionally, even if your income falls under the limits for filing, often times it is necessary to file a return if there were investment or expense events during the tax year.
4. Not keeping medical records - Medical deductions are frequently not deductible due to the limitations of inclusion. However, occasionally medical expenses drift over the inclusion areas, and tax laws change frequently; it is a good practice to keep all medical records.
   
5. Rounding deductions - Be exact on all items because rounding deductions is a sure way to raise a red flag. The IRS wants and expects exact numbers.

Coming soon, we will complete the list and also offer a few tips and resources to help in this year’s federal filing requirements.

Educational Financial Planning Webinar: 2/18/10

Join us for a Webinar on February 18

Space is limited.
Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/815413008

According to the SEC, individuals with a written financial plan have twice the money in savings and investments as those who don’t. Investors with a comprehensive plan are twice as likely to take actions that lead to financial success, such as saving enough to meet their retirement goals, rebalancing their portfolio, and selecting low-cost investments. In addition, 88% of those with a financial plan feel they have a clear financial direction, twice the percentage of those without professional support.

During this educational web seminar, an industry expert will discuss how a comprehensive financial plan:

• Will identify the amount you need save and the return your investments must achieve to enjoy the lifestyle you’ve envisioned.
• Ensures your investment portfolio is customized to achieve your retirement goals and reflect your risk tolerance.
• Can determine the best strategy for managing Social Security, 401(k)s, and pensions.
• Allows you to accurately assess your insurance coverage, ability to fund a child’s education, and estate planning efforts.
• Will identify potential liabilities that can decimate your nest egg, such as an undiversified portfolio and long-term care costs.

Don’t miss this opportunity to learn how to construct a financial tool that will benefit you for the rest of your life. REGISTER TODAY!

Title: Using a Financial Plan to Boost Your Wealth
Date: Thursday, February 18, 2010
Time: 7:00 PM - 8:00 PM MST

After registering you will receive a confirmation email containing information about joining the Webinar.

Financial Planning Benefits -- Life Insurance

It is vital to ensure your financial plan identifies and defines your current financial situation and your financial goals, and provides a comprehensive path between the two. Most importantly, a holistic financial plan should not include a sales presentation. Unfortunately, many insurance and annuity salespeople commonly develop "financial plans" for their potential clients, but these documents are little more than a step-by-step explanation of why the product they're selling is a perfect fit for that individual.

Insurance agents frequently come up with incredibly detailed (and confusing) documents to illustrate why their product is great for a potential purchaser. They have many "rules of thumb" to estimate how much life insurance a client needs. However, remember that an insurance agent's compensation is a function of how much life insurance he can sell. Consequently, individuals are frequently sold more life insurance than they need.

How much life insurance would a fee-only financial planner, someone who doesn't even have the ability to sell insurance, suggest you need? Likely, the fee-only planner would have a simple methodology that would enable the client to easily determine whether they are under or over-insured. Here is an example:

Suppose a couple determines that if the primary wage earner were to pass away, the other spouse would need $75,000 per year to maintain their standard of living. This non-wage earning spouse is 60 years old, and would like to have enough funds to support their lifestyle until reaching age 100. If we assume 3% inflation, the survivor will need approximately $2,147,778 to provide for themselves throughout their lifetime. In addition, we'd want to make sure this individual's final expenses are taken care of, so we'll add in $29,000, and we'll also include enough funds to pay off the families debts - in this case $23,041 of credit card debt - bringing us to a total need of $2,176,778.

From this figure, we can subtract the sources of income the surviving spouse anticipates. For instance, this individual expects a lifetime total Social Security benefit of $361,066, and this person could also continue their part-time job, which is expected to produce another $71,314 of income over the survivor's lifetime. Thus, after subtracting our anticipated sources of income we are left with a net estimated survivor needs shortage of $1,744,398.

Now, we can subtract out the assets we already have available to meet this shortage, such as retirement and bank accounts. We'll suppose this couple has accrued $923,500 of assets to cover their retirement. After subtracted our accumulated assets from our survivor need, we come up with a figure of $820,898. This is the shortage that the couple will look to fill with life insurance. In this particular instance, the individual in question had a $1,000,000 term life insurance. As this analysis indicates, this individual is over insured by approximately $180,000.

It is important to conduct this analysis frequently. For every year an individual survives, the insurance need is reduced in two ways. First, the survivor will now need one year less of survivor benefit, and second, the primary wage earner will have produced one additional year of income. Consequently, insurance needs can decrease rather quickly.

Educational Webinar: Using a Financial Plan to Boost Your Wealth

Join us for a Webinar on February 18

Space is limited.
Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/815413008

According to the SEC, individuals with a written financial plan have twice the money in savings and investments as those who don’t. Investors with a comprehensive plan are twice as likely to take actions that lead to financial success, such as saving enough to meet their retirement goals, rebalancing their portfolio, and selecting low-cost investments. In addition, 88% of those with a financial plan feel they have a clear financial direction, twice the percentage of those without professional support.

During this educational web seminar, an industry expert will discuss how a comprehensive financial plan:

• Will identify the amount you need save and the return your investments must achieve to enjoy the lifestyle you’ve envisioned.
• Ensures your investment portfolio is customized to achieve your retirement goals and reflect your risk tolerance.
• Can determine the best strategy for managing Social Security, 401(k)s, and pensions.
• Allows you to accurately assess your insurance coverage, ability to fund a child’s education, and estate planning efforts.
• Will identify potential liabilities that can decimate your nest egg, such as an undiversified portfolio and long-term care costs.

Don’t miss this opportunity to learn how to construct a financial tool that will benefit you for the rest of your life. REGISTER TODAY!

Title: Using a Financial Plan to Boost Your Wealth
Date: Thursday, February 18, 2010
Time: 7:00 PM - 8:00 PM MST

After registering you will receive a confirmation email containing information about joining the Webinar.

Financial Planning Benefits -- Retirement Planning

Retirement Projection
A key component of every financial plan is a retirement projection mapping out the type of lifestyle the client would like to enjoy, and how they are going to obtain their goals. This calculation depends on several key factors: the client's current age, size of their nest egg, expected retirement date, desired lifestyle during retirement, and a projected life expectancy. Other variables to consider are the rate of return the client's investments can achieve (both before and after retirement), how much the client can contribute to their nest egg before retiring, and the effects of inflation.

One term you should hear your financial advisor say frequently is "conservative." Being conservative when constructing a financial plan is critical -- after all, would you rather end up living a more lavish lifestyle than you anticipated and leaving a legacy to your heirs, or bankrupt and unable to pay for basic living materials such as food and health care? Consequently, the assumptions made in your plan should always be conservative and achievable.

Putting It All Together
How do these factors come together to create a valuable tool for the client? Let's assume the clients are 55 years old, plan to retire by 65, and would like to maintain their standard of living during retirement which requires $60,000 per year. The clients expect a total of approximately $40,000 per year in Social Security payments, so they will need the inflation-adjusted equivalent of $20,000 per year to meet their needs. These clients have a strong history of saving, and have already accumulated a nest egg of $300,000 between their IRAs and 401(k)s. These are the facts.

At this point, conservative assumptions need to be made. Even though the stock market has averaged a rate of return of 10% over the last 100 years, an experienced financial planner might assume the clients can achieve an 8% return until retirement, and a 6% return during retirement (as the clients age, the portfolio should become more conservative, lowing both the risk and return of the investment). Additionally, the planner might assume inflation will average 3% per year (average over the last 100 years). Finally, although the 55 year old clients are statistically likely to live until age 90, the planner will assume they will live to age 95 --after all, the goal is to not run out of money!

Using these inputs we run a Monte Carlo analysis which runs thousands of simulations to determine the chances the clients will have assets to support themselves until death. The analysis indicates that the clients only have a 35% chance of not outliving their money.

However, we can now create a schedule for retirement contributions that will increase the clients' odds of success. For instance, if the clients contribute $5,000 to an IRA each year until retirement, the chance of not outliving their assets increases to 87%. Moreover, we can now start asking questions such as "What if the clients wants to retire early?" Our retirement plan indicates that if the clients contribute $12,000 per year to their retirement accounts, they can successfully retire at age 63, or contribute $18,000 per year to retire at 62.

How We Can Help
This is an example of how Net Worth Advisory Group utilizes retirement planning tools to ensure our clients are on pace to live the retirement they envision. Together, the clients and planners can then follow the strategies and schedule determined to best accomplish the goal. This process is then repeated every six months to reflect changing circumstances in the market and changes in life. Frequently updating the financial plan maximizes the probability the client's goals will be achieved.