Homecare Service Contracts are not LTC

Living in your home while recovering from an illness or injury is certainly preferable to sitting in a nursing home. And homecare service companies can often provide the care needed. Unfortunately, there have been cases where homecare firms offered contracts that caused some seniors with poor health to think that they were getting much more.

A homecare provider’s services may include visiting aides who cook, clean, bathe, and help with other activities. Or the company might give you access to special care by a registered nurse or physical therapist. And for an upfront fee, the contracts promise discounted, quality care when you need it without any medical underwriting.

The contracts do not, however, include provisions for care in a nursing facility. And when the agreements are sold by insurance agents, seniors may get the wrong impression that they are buying long-term care insurance policies. Then by the time they need nursing home care, it’s too late to obtain the proper protection.

If you or your spouse has been turned down for long-term care insurance because of advanced age or poor health, I might be able to help find a policy. In addition, there may be alternative solutions, such as a medically-underwritten annuity that could possibly provide higher than normal payouts, to meet your long-term care needs.

For an appointment to review your options on how to plan for the cost of long-term care, please check off and return the enclosed coupon or call my office.

Funds that seek to make money in rising and falling markets

Making money whether the market goes up or down almost sounds too good to be true, nevertheless, there are investment managers that have been able to do exactly that. Furthermore, several financial institutions have recently made it easier for the average individual to invest with these managers.

Hedge funds are private partnerships that invest primarily in publicly traded securities or financial derivatives. Since the goal of a hedge fund is to make money in all market environments, its managers have wide latitude to invest in options, short stocks, or employ other hedging strategies. On the hand, mutual fund managers are often limited in their ability to use such aggressive techniques, therefore may have difficulty showing gains when markets are down.

Over the past 15-years (through 2002), overall hedge fund gains have been impressive: 17% compounded annual return compared to 11.5% for the S&P 500.v And for the shorter term, they have gained an average of 11.2% for the last three years, whereas the average U.S. diversified stock mutual fund fell 11.7%.v

How can you invest in hedge funds, and would you even want to? SEC regulations limit hedge funds to 99 investors, and at least 65 of them must be accredited ($1 million net worth). Therefore, hedge funds were out of reach for average investors. Now though, mutual funds companies have registered hedge funds that invest in unregistered, private hedge funds. These funds of hedge funds can have lower minimum investment requirements than the typical hedge fund and a higher number of investors.

Yet despite the attractive returns and new products aimed at smaller investors, such investments are not without shortcomings. For example, there is very little SEC regulation, disclosure of investments held is not required, and daily fund prices are not available.

For more information on hedge funds and the new products that make them available to the average investor, return the enclosed coupon. Note: Investing in funds of hedge funds may involve high fees and risks, including loss of principal. Carefully read the prospectus before investing.

GMP Rider

People invest in variable annuities for many reasons including the tax-deferral of earnings, the ability to name beneficiaries and avoid probate, and the growth potential of the managed sub-accounts. Variable Annuities are sold by prospectus only. Please carefully consider investment objectives, risks, charges, and expenses before investing in any variable annuity and its underlying sub accounts. For this and other information please call to request a prospectus. Please read it carefully before you invest.

Then whenever they are ready to withdraw an income from their annuity, they have the opportunity to select lifetime income payments. However, with a variable annuity you do not know what that income will be when you open the account since the future value can vary depending on the investment’s performance. Sometimes though, investors overlook an important option that may help them plan for a predictable income.

The Guaranteed Minimum Payment (GMP) option assures that you will receive no less than a specific amount of income each month, no matter what the markets do.v And if the investments go up, your future monthly income goes up too.

How the GMP is determined varies among annuity companies. One example is to base it on the greater of:

1) The value of your purchase compounded at 6% a year, or

2) The highest account balance reached on any contract anniversary date

Another version of the GMP promises that future payouts will never be less than a certain percentage, say 80%, of your first payment. For instance if your first check is for $1,000, future distributions will be no less than $800, regardless of what happens to the markets.

For more information on how an immediate variable annuity with the GMP rider can give you a lifetime income that can possibly avoid market volatility, please return the enclosed coupon.

Fixed Immediate Annuities Can Offer Flexibility for Your Future

Stability and safety are important to many seniors. And these are only two of the reasons why immediate annuities are popular investments. A check arrives every month and part of the income is considered a tax-free return of your principal. Additionally, as long as the annuity company is financially sound, the payments will continue for the life of the contract. (Annuities are guaranteed by the claims paying ability of the annuity company and not by the Federal Government.) However, consumers sometimes believe that immediate annuities are illiquid, irreversible investments and cannot provide for future lifestyle changes. Nonetheless there are some immediate annuities with options that may add flexibility to your financial plan.

Fixed Immediate annuities can possibly include an option (subject to additional fees and charges) that would allow you to receive extra cash at specific anniversary dates. For example, this might be at the 5th, 10th, or 15th anniversary of your investment. Exercising this option will reduce your future payments. (The distribution may be fully taxable, so consult with your tax professional.)

And suppose you needed money to cover an emergency, for instance paying for caregivers or a home repair? Some annuity companies will let you take up to up to six payments all at once. You would not, however, receive checks for the following six months. (Payments may be fully taxable so consult with your tax professional.)

You may also have the ability to provide a cash benefit from your immediate annuity to your heirs. This would be a predetermined percentage, such as 25% or 50%, of the amount of your initial investment. Selecting this option though, will reduce your monthly annuity checks, and may have tax consequences.

A Fixed Annuity Offers More Control over Your Taxes

A study concluded that high tax-bracket investors who had held taxable mutual funds were losing 25% of their returns to taxes each year. And bond funds’ returns were shown to have lost almost 40% in 2002.

This loss to taxes can be attributed in part to how portfolio managers control the tax liability that is passed on to shareholders. Because every time the fund manager declares a distribution, such as an interest payment or a short-or longterm capital gain, it flows through to your taxable income. And this happens even if you never withdraw any money. Therefore, if you presently don’t need the income from an investment, why pay taxes on its earnings?

Based on the above study’s findings, if you invest $100,000 in a bond fund that yields 6%, you would lose up to 40% to taxes. And you will end up with a 3.6% after-tax return. After five years, your account would be worth $119,344. On the other hand, an investment that allows interest to accumulate tax-deferred, such as a fixed annuity, with a five-year 5% rate would grow to $127,628.

All of this doesn’t mean that bond funds are bad investments. But depending on your present and future needs, a fixed annuity can be good alternative. The interest rate is locked in for a term that you choose, your principal is guaranteed by the claims paying ability of the issuing company, and you control when to pay income taxes.

Fixed Immediate Annuity Can Eliminate the RMD Calculation Each Year

Do you own an IRA, hold a Keogh, or still have assets in a qualified retirement plan that was offered by a previous employer? Then perhaps now you have to think about the best way to withdraw the funds, as the IRS requires, while making sure that you don’t outlive your income.

One choice is to just remove the money all at once and pay the tax. However, that step may put you in a higher tax bracket. Another option is to go along with the government’s guidelines and calculate the Required Minimum Distribution (RMD) that you must withdraw each year after you turn 70½. But what if there was a way to not have to do those calculations and also not worry about tax law changes and market fluctuations that could affect retirement accounts every year?

A tax-qualified, fixed immediate annuity will spread the tax liability over your projected lifetime and automatically satisfies the IRS’s requirements. Therefore, you will never have to calculate the RMD. A check will arrive every month, or whichever schedule you select, for the rest of your life—no matter how many years that might be (guarantee is based on the claims-paying ability of the annuity company). Then all you will have to do is pay the income tax and spend the balance of the money as you wish.

After-tax contributions may not apply. See your tax professional.

I can send you a no-obligation analysis on an fixed immediate annuity that will give you an income that you cannot outlive and also meets the RMD requirements of your plan so you don't have to worry about that. (Guarantee of income is based on the claims-paying ability of the annuity company.) Please fill out and return the enclosed coupon. Be sure to include your age, current tax bracket, and value of your IRA or other retirement plan.

Exactly How safe are fixed annuities?

Safety is a relative term because what is safe to one person is risky to another. For instance you may consider a U.S. Treasury bond one of the safest investments since it is backed by our government. But a true skeptic might say, “Suppose the U.S. government went belly-up? The bond could then be worthless.” Yes, he could have a valid point. However, putting the extremes aside, safety is one of the top reasons that people buy fixed annuities.

There are several independent rating agencies that regularly assess the financial strength of insurance and annuity companies. Included are A.M. Best, Duff & Phelps, Moody’s, Standard & Poor’s, and Weiss Research. These firms will give you an evaluation of a company’s balance sheet strength, operating performance, and ability to meet ongoing obligations. In addition, all companies must follow the “legal reserve system.” This is a set of rules on asset management, accounting, and reserve requirements.

The reserve requirements assure that funds are set aside specifically to protect against an insurance company’s portfolio losses. Furthermore, insurance companies are state regulated. And all 50 states, the District of Columbia, and Puerto Rico have guaranty associations to which licensed life and health insurers must belong. When states determine that an insurer is insolvent, a mechanism within the association protects the policyholders and can possibly help pay the claims against financially-troubled insurance companies.

I work with several financially-strong, well managed annuity companies. For free information on the safety of their products, check off and return the enclosed coupon.

Even with the New Tax Law, Munis can still look good.

Congress recently reduced the Federal income tax rates, and with an election coming up there’s always the possibility that other tax breaks may surface. So does this mean that you should forget about investing in tax-free municipal bonds? Before you answer that question, understand the budget problems facing state and local governments throughout the country. If you look close, there may be a silver lining for you hiding in their dark cloud.

Various states and municipalities have had to issue more bonds in order to generate badly needed revenue. This additional supply of new bonds has caused many prices to drop.

Furthermore, some issuers have had their credit quality downgraded, which forced them to offer higher yields. The increased supply, lower prices, and higher coupon rates have reduced the before-tax spread between municipal bonds and equivalent maturity Treasury bonds.

For example, in 1997, the average ten-year, AAA muni yielded 75% of that of a similar Treasury bond.v As of November 2003, the muni/treasury ratio had risen to 85%.v And when you consider the after-tax returns, individuals in higher tax brackets may find that tax-free municipal bonds may possibly be an attractive alternative to Treasury bonds.

I can send you a complementary evaluation of how a tax-free municipal investment might possibly provide you with a higher yield than a Treasury bond. Please indicate your tax bracket on the enclosed coupon and return to my office.

Don't let poor health keep you from protecting your assets

It's rare, but occasionally one spouse cannot qualify for long term care insurance because of poor health, such as hypertension, Alzheimer's, arthritis, diabetes, or frailty. Does this mean that the healthy spouse should forgo the coverage as well?

As you get older, the chances of needing long term care increases. Fortythree percent of individuals age 65 and older will spend time in a nursing home. And once they reach age 75, the likelihood rises to 60 percent.v Suppose you are healthy and your spouse is not. As long as you can maintain your good health, you will be able to care for him or her. But what will happen if you need care? Both of you could end up in a nursing home and may even be split up.

A long term care insurance policy could pay for the care that you need and also provide for a homemaker to help with your spouse. To finance this, you could possibly double your policy's daily benefit above the average per day cost in your area. The surplus income would then be available to help offset your spouse's care giving expenses while you recover.

Another idea is a life income annuity that could pay nursing home expenses for your spouse when long term care insurance is not available. You could invest a lump sum with an annuity company that would pay your spouse a set amount for his or her lifetime. Generally, normal life expectancies determine annuity payouts. This means that the longer the life expectancy, the small the payout.

For someone who is ill, however, his or her life expectancy may not be normal. To accommodate these special situations, some companies offer medically underwritten annuities that factor the annuitant's illness into the life expectancy calculations and may provide higher than normal payouts. The payout numbers can help determine how much you would need to invest cover your spouse's long term care expenses.

For a free analysis that may show you how to protect you and your spouse from the rising costs of long-term care, return the enclosed coupon.

Do You Want to Hedge Your Bet?

Second-to-die life insurance policies are popular investments for people who want to create cash to pay estate taxes. The plans pay when the surviving spouse dies, and if structured properly; the benefits are kept out of the couple’s estate. And quite often, a second-to-die policy is less expensive and easier to obtain than two individual policies. However, with the federal estate tax set to disappear, you may not see the need to prepare for such an expense. But suppose it doesn’t go away? Where would your beneficiaries get the cash to cover the taxes?

The federal estate tax exemption for 2004 and 2005 is $1.5 million and in 2009 $3.5 million. Then in 2010, the tax goes away. Yet it is scheduled to return to the original 2002 level of $1 million in 2011. Whether there will be further changes is anyone’s guess and has been the subject of much speculation and debate. But do you really want to bet a substantial portion of your estate on the politicians’ whims?

If you are concerned about taxes eroding your estate, a small group of insurance companies has introduced an option that may be of interest to you. The estate tax repeal rider will allow you to terminate a policy without paying surrender charges as long as the estate tax is fully repealed in 2010. Thus you keep the protection if the tax remains, or you can get your money back if the tax is abolished, and the insurance is no longer needed.

For a no-obligation proposal on a policy that will ease the uncertainty over disappearing estate taxes, check off and return the enclosed coupon. Please include your and your spouse’s dates of birth.

Dividends Can Maximize your total return.

You may recall back when dividends were the main reason people owned stocks.

However, that changed over the last few decades and a stock’s growth rate was often the first thing investors wanted to know. Now dividends are making a comeback. And it’s understandable why. The interest rates on bonds hit a 45- year low, and CDs earn less than half the rate of inflation. In addition, the recent tax law revisions have dropped the rate on dividend income to a maximum of 15%. But what about the long-term outlook? Can dividend-paying stocks fit into your overall financial picture?

Examine the after-tax return on dividends as compared to interest bearing investments, such as bonds and CDs. For instance, assuming you are in the 35% tax bracket, a 3.5% dividend will net you 3% after-tax. Whereas, a bond that pays 4% will only leave you with 2.6%. Now this may not sound like much difference, but what can happen as time marches on and you need higher income?

When the economy expands and companies prosper, there is the possibility that dividends can rise along with the cost of living. Bonds and CDs don’t have that flexibility. Once you buy a fixed income investment, you are locked into its rate until maturity.

Furthermore, over the past 75 years, dividends have represented one-third of the total return on stocks.v And a recent study concluded that companies that pay high dividends grow faster than firms that reinvest all of their earnings.v The goal of most income investors is to earn predictable returns, have the option of receiving cash payouts, and know that their principal will remain relatively stable. These are three possible characteristics of dividend paying stocks. But it’s not quite as simple as just buying the highest paying stock or fund listed in the newspaper or financial magazine. Because a high dividend does not necessarily mean it is a good investment.

In the fall of 2003, one major firm cut its dividend by 70%. Then other corporation raised its dividend by 75%. And if you don’t time a mutual fund purchase properly, you could miss out on the new 15% tax rate and have to pay up to 35% on the dividend income.

If you would like a list of the dividend-paying investments that I am currently recommending, please return the enclosed coupon.

Could Prices Actually Come Down?

Everything seems to cost more than it did a few years ago. Remember when you could buy a new, full-sized car for under $5,000? Or when gasoline was under half-a-buck a gallon? But what about life insurance? Did you think about buying a new policy before you retired, but if you had health problems the cost was prohibitive? Perhaps now might be a good time to check it out again because the prices may have actually come down.

Insurance companies have taken notice on how medical advances have improved the life expectancy for people with certain conditions. And this can translate into cost savings for you in the form of lower premiums. In some cases you may now qualify for life insurance when you would not qualified before.

Do you have your medical problem under control? For instance, you may have been able to manage your high blood pressure or cholesterol levels with medication. And as long as the drug is doing its job, the insurance company might not classify you as a high risk as they would have before. The same may be said for people who use diet or oral medications to deal with diabetes, asthma, or heart disease.

Maybe you have lost weight, you’ve stopped smoking, or your illness hasn’t gotten worse since the last time you applied for life insurance. Or suppose that you had a disease, such as skin cancer, several years ago but it has not reoccurred. These are all points that an insurance company will consider when determining your rate classification.

If you want to provide additional money when you die for those whom you care about but were afraid that your health condition might make that impossible, return the enclosed coupon. I work with several insurance companies that offer competitive rates for individuals just like you.

Consider the Income Taxes When You Purchase a Fixed Immediate Annuity

Fixed Immediate annuities can provide a steady income for a specified period of time that may even surpass your natural life. And how long you choose to take these payments can depend on your present and future income needs as well as your survivors’ requirements. But there is one more point that you may want to look at when reviewing the various payout options available. And that is the tax implications to you and your beneficiaries.

A portion of the money you would receive each year is a tax-free return of your investment. The balance is taxable. And those amounts can vary among the different payment periods. For instance, suppose that you are a 65-year old male, the IRS gives you a life expectancy of 20 years, and you are offered the following choices for a $250,000 investment:

1) A life only payout ceases when you die and will give you approximately $20,000 per year. Of this amount, $12,500 (1/20th of $250,000) would be tax-free and the balance ($7,500) taxable. If you live longer than 20 years, all $20,000 will be taxable.

2) A life with 20-year certain pays for 20 years or your lifetime, whichever is longer. You would receive approximately $17,500 each year, $12,500 tax-free and $5,000 taxable. If you die before the 20 years has passed, your beneficiary will collect the remainder of the payments with the same tax treatment as you had.

3) A 10-year certain annuity will pay you approximately $28,500 per year for 10 years with $25,000 (1/10th of $250,000) tax-free and $3,500 taxable. If you die before the 10 years has passed, your beneficiary will receive the income for the balance of the term in a like manner.

The above numbers are strictly estimates and for illustrative purposes only. They do not imply any return on a specific investment and do not include the impact of fees and charges on the growth or the payout. In addition, other payout options are available. However, they do show how your investment decisions could affect your taxes.

A 0% Capital Gains Tax Could be in Your Future

The most recent major tax law change was passed in May 2003. Within the new rules several taxes phase out and then phase back in. For the alter investor who is willing to set up a plan, one provision in particular could mean significant tax savings.

The tax act reduced the long-term capital gains rate to 15% for anyone in the 25% or higher bracket and down to 5% for taxpayers in the 10%-15% brackets. These rates will remain effective through 2007. In 2008, however, another change emerges when the capital gains tax falls to 0% for individuals in the 10%-15% brackets. This presents some money saving opportunities for you if you are considering giving assets to anyone in a lower tax bracket, such as children or grandchildren.

For example, suppose you own a mutual fund that you want to use to help your grandson when he starts college in 2008. If you are in a high tax bracket, you will have to pay 15% on any gains that you realize on the fund’s sale.

The IRS specifies that when you give an appreciated asset, the donee receives the gift at your cost basis. Therefore, any untaxed profit is passed on with the asset and taxed based on the donee’s tax bracket when sold. So if your grandson sells any of the gifted shares between now and the end of 2007, he will have to pay at least 5% on the profits. On the other hand, you could hold off giving him the fund until 2007 and have him keep the account for at least one year. As long as he liquidates the fund in 2008, he will have a good chance of avoiding the capital gains tax. However, based on present law, if he does not sell out until 2009, he could face a 10% capital gains tax.

The new law includes other income and estate tax-savings tactics. Just click on the "contact me" link, and I’ll be glad to meet to discuss them with you.

Dividends Can Maximize your total return.

Dividends Can Maximize your total return.

You may recall back when dividends were the main reason people owned stocks.

However, that changed over the last few decades and a stock’s growth rate was often the first thing investors wanted to know. Now dividends are making a comeback. And it’s understandable why. The interest rates on bonds hit a 45- year low, and CDs earn less than half the rate of inflation. In addition, the recent tax law revisions have dropped the rate on dividend income to a maximum of 15%. But what about the long-term outlook? Can dividend-paying stocks fit into your overall financial picture?

Examine the after-tax return on dividends as compared to interest bearing investments, such as bonds and CDs. For instance, assuming you are in the 35% tax bracket, a 3.5% dividend will net you 3% after-tax. Whereas, a bond that pays 4% will only leave you with 2.6%. Now this may not sound like much difference, but what can happen as time marches on and you need higher income?

When the economy expands and companies prosper, there is the possibility that dividends can rise along with the cost of living. Bonds and CDs don’t have that flexibility. Once you buy a fixed income investment, you are locked into its rate until maturity.

Furthermore, over the past 75 years, dividends have represented one-third of the total return on stocks.v And a recent study concluded that companies that pay high dividends grow faster than firms that reinvest all of their earnings.v The goal of most income investors is to earn predictable returns, have the option of receiving cash payouts, and know that their principal will remain relatively stable. These are three possible characteristics of dividend paying stocks. But it’s not quite as simple as just buying the highest paying stock or fund listed in the newspaper or financial magazine. Because a high dividend does not necessarily mean it is a good investment.

In the fall of 2003, one major firm cut its dividend by 70%. Then other corporation raised its dividend by 75%. And if you don’t time a mutual fund purchase properly, you could miss out on the new 15% tax rate and have to pay up to 35% on the dividend income.

If you would like a list of the dividend-paying investments that I am currently recommending, please return the enclosed coupon.

Consider the Income Taxes When You Purchase a Fixed Immediate Annuity

Fixed Immediate annuities can provide a steady income for a specified period of time that may even surpass your natural life. And how long you choose to take these payments can depend on your present and future income needs as well as your survivors’ requi rements. But there is one more point that you may want to look at when reviewing the various payout options available. And that is the tax implications to you and your beneficiaries.

A portion of the money you would receive each year is a tax-free return of your investment. The balance is taxable. And those amounts can vary among the different payment periods. For instance, suppose that you are a 65-year old male, the IRS gives you a l ife expectancy of 20 years, and you are offered the following choices for a $250,000 investment:

1) A life only payout ceases when you die and will give you approximately $20,000 per year. Of this amount, $12,500 (1/20th of $250,000) would be tax-free and the balance ($7,500) taxable. If you live longer than 20 years, all $20,000 will be taxable.

2) A life with 20-year certain pays for 20 years or your lifetime, whichever is longer. You would receive approximately $17,500 each year, $12,500 tax-free and $5,000 taxable. If you die before the 20 years has passed, your beneficiary will collect the rem ainder of the payments with the same tax treatment as you had.

3) A 10-year certain annuity will pay you approximately $28,500 per year for 10 years with $25,000 (1/10th of $250,000) tax-free and $3,500 taxable. If you die before the 10 years has passed, your beneficiary will receive the income for the balance of the term in a like manner.

The above numbers are strictly estimates and for illustrative purposes only. They do not imply any return on a specific investment and do not include the impact of fees and charges on the growth or the payout. In addition, other payout options are availab le. However, they do show how your investment decisions could affect your taxes.