Ameriprise Abney Associates

Ameriprise Abney Associates

Are you looking for ways to reach your financial goals in today's volatile market? We'll help you build a plan to get back on track toward reaching them. Working together, we will work to find investing opportunities in today’s uncertain market that are aligned with your financial goals. Together, we can bring your dreams more within reach.

TABLE-Japanese insurers' investment plans in 2014/15

A financial advisory practice of Ameriprise Financial Services, Inc.

 

(Reuters) - Japanese life insurers, which have combined assets of more than 180 trillion yen ($1.84 trillion) under management, are planning to shift some of their funds from domestic bonds to foreign bonds, as the Bank of Japan's massive easing has suppressed domestic bond yields.

 

Below is a summary of the investment plans of Japan's biggest life insurance companies for financial year to March 2015, as obtained by Reuters in interviews and at news conferences this month.

 

FOREIGN BONDS

 

 Nippon Life to keep hedged bonds steady or trim them, to buy unhedged bonds if yen rises Dai-ichi to allocate more funds than past, both those with and without FX hedging Meiji Yasuda to increase holdings Sumitomo to increase holdings by less than Y500 bln, reduce hedging Mitsui plans to increase holdings by Y50 bln, including FX-hedged/unhedged bonds Taiyo to maintain current holdings, might reduce hedge ratio Daido to increase holdings after buying Y100 billion last FY Fukoku to increase Y30 bln after having bought Y20 bln more than planned Asahi to increase holdings, may reduce hedging on dollar bonds slightly.

 

JAPAN BONDS

 

Nippon Life to increase holdings but closely eyeing yield levels Dai-ichi will not buy at current yield levels, may reduce holdings Meiji Yasuda to increase holdings but be prepared for potential yield spike Sumitomo to increase holding, but reduce buying in super-long JGBs Mitsui to increase holdings by around Y100 billion Taiyo to maintain holdings after selling Y80 billion last FY Daido to maintain holdings after selling Y110 billion last FY Fukoku to mildly increase to Y10 bln Asahi to maintain holdings flat after increasing Y90 bln last .

 

FY JAPAN STOCKS

 

Nippon Life to keep holdings steady Dai-ichi to look for chances to buy on dips Meiji Yasuda to cut holdings Sumitomo to keep holdings steady Mitsui has almost finished long-term objective of reducing Japanese stocks Taiyo no plans to increase after selling Y10 billion last FY Daido to maintain holdings after buying Y5 billion last FY Fukoku increase Y10 bln, increase is 1st time in 6 years Asahi to maintain holdings steady.

 

FOREIGN SHARES

 

 Nippon Life to keep foreing share holdings steady, see opportunity in loans Dai-ichi to increase holdings in foreign shares, invest in growth areas Meiji Yasuda to increase investment in shares, keep alternatives steady Sumitomo to invest up to around Y50 bln in growth areas in infrastructure, Asia Mitsui n/a Taiyo n/a Daido to maintain holdings Fukoku n/a Asahi to slightly increase alternative investments.

 

EXPECTED MARKET RANGES

 

Dollar/yen Euro/yen NIKKEI JGB 10-yr US 10-yr Nippon Life Y105 - 115 Y133 - 147 15,500 - 19,000 0.6 - 1.2% n/a Dai-ichi Y98 - 113 Y130 - 155 13,500 - 18,500 0.55- 1.20% 2.5 - 3.75% Meiji Yasuda Y98 - 110 Y130 - 150 13,000 - 18,500 0.5 - 1.1% 2.4 - 3.4% Sumitomo Y95 - 120 Y130 - 150 13,300 - 18,600 0.4 - 1.0% 2.4 - 3.7% Mitsui Y102 - 112 Y141 - 153 15,500 - 18,500 0.4 - 1.0% 2.5 - 3.9% Taiyo Y95 - 110 Y130 - 150 13,000 - 17,000 0.5 - 1.2% 2.5 - 3.5% Daido Y95 - 120 Y125 - 160 13,000 - 18,000 0.5 - 1.0% 2.3 - 3.8% Fukoku Y95 - 110 Y135 - 155 13,000 - 17,500 0.55 - 1.0% 2.3 - 3.5% Asahi Y97 - 115 Y132 - 154 12,500 - 17,500 0.5 - 0.9% 2.4 - 3.7% (Reporting by Tokyo Markets Team; Editing by Anand Basu).

Ameriprise Financial in Asia: Tokyo retreats in wake of Wall Street sell-off

Stocks in Tokyo came under pressure on Monday after negative cues from Wall Street while investors turned cautious as the earnings season kicks off.

 

The benchmark Nikkei 225 fell 141 points or 0.98% at 14,288 while the broader Topic closed down nine points at 1,160. The Hang Seng lost 91 points at 22,132.

 

There was also some caution ahead of key economic data including China manufacturing data April, due out Thursday. In the US, the Federal Reserve's policy meeting will conclude on Wednesday while Friday will see the release of monthly US labour data.

 

Markets were also reacting to Japanese retail sales data which showed that growth came in at a 17-year high in March as shoppers rushed to stores ahead of the planned increase in the national sales tax which began at the start of April.

 

Sales rose at an annual rate of 11% last month, up from 3.6% the month before and in line with forecasts. However, analysts are now concerned that the strong sales growth acceleration in March will lead to a decline in consumer spending in April.

 

In earnings news, car giant Honda Motor tumbled 4.5% after it gave a disappointing earnings outlook on Friday. It expects full-year net profit to come in well below forecasts at ¥595bn. Peer Mazda Motor fell ahead of its results, due out on Friday.

 

Elsewhere shares of Japan Display sank 16% after it reduced its earnings outlook by 15% only a month after its initial public offering.

 

Meanwhile nerves about escalating tensions in Ukraine drove demand for the yen, sending a string of Japanese exporters lower.

 

A sell-off among US tech stocks on Friday rippled into Monday's session in Hong Kong with shares of internet heavyweight Tencent dragging a further 2.6% on the market.

 

Among financials, Construction Bank shrugged off an otherwise lacklustre session, after it said first-quarter net profit climbed 10% from the same time a year earlier following growth in fees and commissions.

 

However Hong Kong real estate stocks were friendless with shares of Evergrade Real Estate off 2.3% while Agile Property lost 2%.

 

Are you looking for ways to reach your financial goals in today's volatile market? Working together, Ameriprise Financial Abney Associates Team will work to find investing opportunities in today’s uncertain market that are aligned with your financial goals. Together, we can bring your dreams more within reach.

Abney Associates Financial Advisory: Confidence key to emerging markets

At the beginning of the year, there were three potential areas of asset allocation that very few global portfolio managers wanted to consider seriously. As I travelled around the United States and elsewhere in the world, almost none of our clients wanted to hear about Japan, commodities or emerging markets, Ameriprise Financial Abney Associates Team.

 

So far they have been wrong about commodities, which are a part of my radical asset allocation and have broken out of their trading range and headed higher. The standard of living continues to improve in the developing world, and one of the first things consumers do when their income increases is start to eat better. This means more meat and poultry where grains are used for feed as well as more consumption of grains by individuals. As a result of continuing growth in the developing world and flat to uneven agricultural production because of variable weather, prices for corn, wheat and soybeans have risen.

 

As for the other two areas of investor disinterest – Japan and emerging markets (both also in my radical asset allocation) – performance this year has been poor. Japan has been hurt by the increase in its sales tax to 8 per cent from 5 per cent in April as well as concern about a weakening Chinese economy.

 

During March, I travelled to Chile and Colombia in Latin America. In April, I flew to Sydney and Melbourne and Kuala Lumpur, Singapore, Hong Kong, Beijing, Seoul and Tokyo. I talked to our clients and knowledgeable observers in these areas. While each region faces challenges, I believe the emerging markets generally present opportunities but it is unclear when investors will start to appreciate them.

 

Emerging markets have suffered for two reasons. The first is the belief that continued Federal Reserve tapering will cause interest rates in the US to rise and the dollar to strengthen. This would be bad for those whose assets are in emerging market currencies. As a result there has been selling of equities in Asia and Latin America by local and global investors in spite of the fact that growth in those areas is considerably above that in the developed world.

 

The Russia/Ukraine situation has also had a broad influence in the emerging markets because it has highlighted the second reason for investor concern, the issue of political risk. The governments in many of these countries have only a tenuous hold on the power to influence the future course of economic growth. While Ukraine was never an area of investor interest, Russia’s action there caused concern throughout the developing world.

 

KOREAN UNIFICATION

 

At this point, I do not believe Putin will move further toward strong military action, although there is much informed opinion on the other side. The new presence in Ukraine of armed gunmen in unmarked uniforms occupying government buildings replicates the situation in Crimea prior to the referendum. If Putin moves to take over eastern Ukraine, I think it would be a strategic mistake for him. The response from the West would be a strong, and the sanctions already imposed have had a negative impact on Russia.

 

He would be much better off waiting until later or moving very slowly now. Some of Putin’s closest advisors are for cooling the situation down but Russia’s leader is both ambitious and unpredictable. One would be wrong to be complacent about the situation. Ukraine has revived concerns about political instability in the developing world hurting emerging market equities across the board.

 

During my trip I had an email exchange with my former Morgan Stanley colleague Steve Roach, who was in Asia discussing his book on the rebalancing of the Chinese economy. He and I have been in a dialogue over the last few months about how much the Chinese economy will slow down if the consumer segment becomes the dominant driver of growth rather than credit-driven spending on state-owned enterprises and infrastructure.

 

Roach believes the economy may not weaken as much as I fear because the service sector is becoming more important and each service sector percentage point of growth generates 30 per cent more jobs than a point of growth in the manufacturing sector. He thinks growth will moderate very gradually and a considerable number of new jobs will still be created each year, reducing the likelihood of social unrest.

 

One investor I discussed this with pointed out that it may be true that a percentage point of service sector growth produces more jobs than one in manufacturing, but many pay low wages and may not do a lot to increase the importance of the consumer in the economy.

 

CHINA’S POLLUTION PROBLEM

 

Several discussions in Beijing yielded insights worth passing on. One investor was concerned about similarities between China now and Japan in the 1980s. During the 1980s numerous books were written about how Japan was doing everything right, with robotics increasing productivity, very strong export growth and soaring real estate values. Japanese technology and consumer electronics stocks were US sharemarket favorites back then. Suddenly it was all over and the Nikkei 225 declined 75 per cent, and today it is trading at 35 per cent of its peak level.

 

I pointed out some significant differences. China has a population 10 times that of Japan. Its per capita income is one-tenth of that of the US, and by improving its standard of living, China can hope to see its economy grow for a long time, especially if it is successful in shifting the components of growth toward the consumer. Also, China has a centralised government structure that can make decisions quickly and implement them without delay. This is in sharp contrast to the Japanese Diet, where the legislative process can drag on endlessly in a manner similar to the US Congress.

 

What China must do is deal with its enormous pollution problem. My eyes burned and my throat was sore while I was in Beijing. It was worse on this trip than in previous years. There are reports that 280 million people do not have access to safe drinking water, resulting in high cancer rates. Ground pollution from industrial waste is also a serious problem. The pollution condition must be faced if China expects to have an increasingly important role in the world economy and geopolitics.

 

Another investor asked me what I would do to get Chinese consumers to spend more. I told him that improving the social safety net would help. The Chinese save for the after-school education of their children, healthcare and their retirement. If the government played a greater role in providing services in these areas, perhaps the Chinese would spend more time at the malls.

 

That change is not likely to come quickly. Some investors are also concerned that the economy is slowing because of a lack of both domestic and export demand, which could reduce job creation, causing problems for the authoritarian government. Most Chinese would want to have a lot of cash on hand if that happened.

 

WIDE-RANGING GEOPOLITICAL CONCERNS

 

Everywhere I went in Asia, investors were sceptical about their home markets, but Japan was extreme in this respect. Perhaps it was because the Nikkei 225 had a difficult first quarter and is down 14 per cent in yen and 11 per cent in dollars so far this year. In the longer term, the ageing population will cause the work force to peak in the next few years and this would make growth difficult. The country has initiated a guest worker program to mitigate this.

 

Prime Minister Shinzo Abe’s first two arrows, fiscal and monetary expansion, have produced growth of 1.5 per cent and inflation approaching 2 per cent, achieving two of his objectives. The third arrow, regulatory reform and sustainable growth, requires legislative action and that will be harder to achieve.

 

Investors wondered why my asset allocation had a 5 per cent position in Japan in the face of all of these problems. My response was Japan was clearly out of favour, few institutions held positions, the economy was finally growing and recent data was quite positive. Finally, there were a number of reasonably valued stocks available. I thought the risk of a further decline was low and there was an opportunity to make money from these levels if and when investors turned constructive.

 

While monetary growth and bank loans have slowed recently, and this may have dampened the enthusiasm of some investors, I believe there is no chance that Prime Minister Abe will let the country slip back into a deflationary recession and another round of stimulus is ahead if it is needed.

 

In discussions with Asian investors, I addressed their geopolitical concerns, which focused on Russia and Ukraine, Israel and Palestine, the Iran nuclear threat and, particularly, the disputes between Japan and China over islands and fishing rights in the South China Sea. The thrust of their questions was whether the world is on the brink of armed conflict in a number of different places and this would destabilise the markets.

 

My views on Russia/Ukraine were described earlier. Regarding Iran, I think the sanctions are working and I probably would have demanded that Iran dismantle its centrifuges before offering any relief, but that may have been diplomatically impossible. Now we have to hope that Iran is serious about reducing its nuclear effort; we should have the answer to that in a few months.

 

Everyone I talk to who is close to the situation is sceptical and reluctant to trust the Iranian government’s commitment, but the people of Iran feel they have been repressed for too long. They want the sanctions lifted so they can participate in the economic opportunity that should emanate from their vast oil resources. The new government in Iran appears ready to respond to the demands of its constituents.

 

REASONABLE VALUATIONS

 

The Israel/Palestine conflict seems unresolvable. Neither a one-state nor a two-state solution appears possible. The Arab world refuses to acknowledge Israel’s right to exist and Israel refuses to reduce the settlements in territory it feels is legitimately part of Israel. Even US Secretary of State John Kerry is frustrated by his inability to make progress there.

 

As for the South China Sea, which is so important to that region, I am hopeful that a diplomatic solution can be reached. China is very proud of its military progress, but is more concerned with the growth of its economy and not anxious to be distracted by armed conflict with anyone at this time, in my opinion. Perhaps I am naïve in thinking hostilities are not going to take place in any of the major trouble spots in the near term, but over the past decade I think everyone has learned how little has been gained by going to war.

 

Investors were concerned that the recent sharp decline in the technology, social media and biotechnology stocks signaled the end of the bull market or even the bursting of a bubble in equity prices that began with the market’s rise in 2009. After all, they reasoned, stocks have been rising for most of the past five years and that is the usual duration of a positive cycle. I pointed out that valuations were still reasonable at 16 times forward operating earnings and the US economy was expected to pick up momentum after the brutal weather of the first quarter.

 

The present multiple of the market is about equal to the long-term median. The previous bull market that ended in 2007 reached a multiple in excess of 20 times and the frothy dot.com market which ended in 1999 had a peak multiple in excess of 30 times.

 

I still believe the US economy will move toward real growth of 3 per cent and the S&P 500 will turn in a strong performance before year-end. The stocks that have been hit hardest are the big winners of the past year where investors did not want to see their profits melt away. This has been true of the exchange-traded funds of the favoured sectors where selling has been particularly furious, resulting in sharp liquidation of the underlying stocks.

 

Asian investors were focused on the tapering by the Federal Reserve, which has hurt the emerging markets and many wonder if it will continue. My response was that it will as long as the US economy is growing above 2 per cent, but it might be suspended for a while if the pace falters. As for Europe, there was concern about deflation, but I said that it looked like growth in the euro zone would be 1 per cent in 2014 and that diminished the deflation threat.

 

The mood in Asia was clearly subdued even though the economies there seem to be doing reasonably well. The International Monetary Fund estimates world growth for 2014 at 3.6 per cent, the US at 2.8 per cent, the euro zone at 1.2 per cent and emerging markets at 4.8 per cent. With the developing world growing so much faster than its mature brethren, you would think there would be opportunities there.

 

What is needed is renewed confidence on the part of local investors and a willingness to put money into their home market. Right now they are pulling money out. One attitudinal difference between Asian investors I talked with and their American counterparts is their fear that a geopolitical event will send equities tumbling everywhere. American investors are more complacent. I certainly hope the Asians are wrong.

Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc. : Understanding investment terms and concepts

Below are summaries of some basic principles you should understand when evaluating an investment opportunity or making an investment decision. Rest assured, this is not rocket science. In fact, you'll see that the most important principle on which to base your investment education is simply good common sense. You've decided to start investing. If you've had little or no experience, you're probably apprehensive about how to begin. It's always wise to understand what you're investing in. The better you understand the information you receive, the more comfortable you will be with the course you've chosen.

 

DON'T BE INTIMIDATED BY JARGON

 

Don't worry if you can't understand the experts in the financial media right away. Much of what they say is jargon that is actually less complicated than it sounds. Don't hesitate to ask questions; when it comes to your money, the only dumb question is the one you don't ask. Don't wait to invest until you feel you know everything.

 

UNDERSTAND STOCKS AND BONDS

 

Almost every portfolio contains one or both of these kinds of assets.

 

If you buy stock in a company, you are literally buying a share of the company's earnings. You become an owner, or shareholder, of the company. As such, you take a stake in the company's future; you are said to have equity in the company. If the company prospers, there's no limit to how much your share can increase in value. If the company fails, you can lose every dollar of your investment.

 

If you buy bonds, you're lending money to the company (or governmental body) that issued the bonds. You become a creditor, not an owner, of the bond issuer. The bond is in effect the issuer's IOU. You can lose the amount of the loan (your investment) if the company or governmental body fails, but the risk of loss to creditors (bondholders) is generally less than the risk for owners (shareholders). This is because, to stay in business and continue to finance its growth, a company must maintain as good a credit rating as possible, so creditors will usually pay on time if there is any way at all to do so. In addition, the law favors a company's bondholders over its shareholders if it goes bankrupt.

 

Stocks are often referred to as equity investments, while bonds are considered debt instruments or income investments. A mutual fund may invest in stocks, bonds, or a combination.

 

Don't confuse investments such as mutual funds with savings vehicles such as a 401(k) or other retirement savings plans. A 401(k) isn't an investment itself but simply a container that holds investments and has special tax advantages; the same is true of an individual retirement account (IRA).

 

Note: Before investing in a mutual fund, carefully consider its investment objectives, risks, fees, and expenses, which can be found in the prospectus available from the fund. Read it carefully before investing.

 

DON'T PUT ALL YOUR EGGS IN ONE BASKET

 

This is one of the most important of all investment principles, as well as the most familiar and sensible.

 

Consider including several different types of investments in your portfolio. Examples of investment types (sometimes called asset classes) include stocks, bonds, commodities such as oil, and precious metals. Cash also is considered an asset class, and includes not only currency but cash alternatives such as money market instruments (for example, very short-term loans). Individual asset classes are often further broken down according to more precise investment characteristics (e.g., stocks of small companies, stocks of large companies, bonds issued by corporations, or bonds issued by the U.S. Treasury).

 

Investment classes often rise and fall at different rates and times. Ideally, in a diversified portfolio of investments, if some are losing value during a particular period, others will be gaining value at the same time. The gainers may help offset the losers, which can help minimize the impact of loss from a single type of investment. The goal is to find the right balance of different assets for your portfolio given your investing goals, risk tolerance and time horizon. This process is called asset allocation.

 

Within each class you choose, consider diversifying further among several individual investment options within that class. For example, if you've decided to invest in the drug industry, investing in several companies rather than just one can reduce the impact your portfolio might suffer from problems with any single company. A mutual fund offers automatic diversification among many individual investments, and sometimes even among multiple asset classes. Diversification alone can't guarantee a profit or ensure against the possibility of loss, but it can help you manage the types and level of risk you take.

 

RECOGNIZE THE TRADEOFF BETWEEN AN INVESTMENT'S RISK AND RETURN

 

For present purposes, we define risk as the possibility that you might lose money, or that your investments will produce lower returns than expected. Return, of course, is your reward for making the investment. Return can be measured by an increase in the value of your initial investment principal, by cash payments directly to you during the life of the investment, or by a combination of the two.

 

There is a direct relationship between investment risk and return. The lowest-risk investments --for example, U.S. Treasury bills--typically offer the lowest return at any given time The highest-risk investments will generally offer the chance for the highest returns (e.g., stock in an Internet start-up company that may go from $12 per share to $150, then down to $3). A higher return is your potential reward for taking greater risk.

 

UNDERSTAND THE DIFFERENCE BETWEEN INVESTING FOR GROWTH AND INVESTING FOR INCOME

 

As you seek to increase your net worth, you face an immediate choice: Do you want growth in the value of your original investment over time, or is your goal to produce predictable, spendable current income--or a little of both?

 

Consistent with this investor choice, investments are frequently classified or marketed as either growth or income oriented. Bonds, for example, generally provide regular interest payments, but the value of your original investment will typically change less than an investment in, for example, a new software company, which will typically produce no immediate income. New companies generally reinvest any income in the business to make it grow. However, if a company is successful, the value of your stake in the company should likewise grow over time; this is known as capital appreciation.

 

There is no right or wrong answer to the "growth or income" question. Your decision should depend on your individual circumstances and needs (for example, your need, if any, for income today, or your need to accumulate retirement savings that you don't plan to tap for 15 years). Also, each type may have its own role to play in your portfolio, for different reasons.

 

UNDERSTAND THE POWER OF COMPOUNDING ON YOUR INVESTMENT RETURNS

 

Compounding occurs when you "let your money ride." When you reinvest your investment returns, you begin to earn a "return on the returns."

 

A simple example of compounding occurs when interest earned in one period becomes part of the investment itself during the next period, and earns interest in subsequent periods. In the early years of an investment, the benefit of compounding on overall return is not exciting. As the years go by, however, a "rolling snowball" effect kicks in, and compounding's long-term boost to the value of your investment becomes dramatic.

 

 

Abney Associates Team Ameriprise Financial: Sudden wealth

What would you do with an extra $10,000? Maybe you'd pay off some debt, get rid of some college loans, or take a much-needed vacation. What if you suddenly had an extra million or 10 million or more? Whether you picked the right six numbers in your state's lottery or your dear Aunt Sally left you her condo in Boca Raton, you have some issues to deal with. You'll need to evaluate your new financial position and consider how your sudden wealth will affect your financial goals.

 

EVALUATE YOUR NEW FINANCIAL POSITION

 

Just how wealthy are you? You'll want to figure that out before you make any major life decisions (e.g., to retire). Your first impulse may be to go out and buy things, but that may not be in your best interest. Even if you're used to handling your own finances, now's the time to watch your spending habits carefully. Sudden wealth can turn even the most cautious person into an impulse buyer. Of course, you'll want your current wealth to last, so you'll need to consider your future needs, not just your current desires.

 

Answering these questions may help you evaluate your short- and long-term needs and goals:

 

-          Do you have outstanding debt that you'd like to pay off?

 

-          Do you need more current income?

 

-          Do you plan to pay for your children's education?

 

-          Do you need to bolster your retirement savings?

 

-          Are you planning to buy a first or second home?

 

-          Are you considering giving to loved ones or a favorite charity?

 

-          Are there ways to minimize any upcoming income and estate taxes?

 

Note: Experts are available to help you with all of your planning needs. If you don't already have a financial planner, insurance agent, accountant, or attorney, now would be a good time to find professionals to guide you through this new experience.

 

IMPACT ON INVESTING

 

What will you do with your new assets? Consider these questions:

 

-          Do you have enough money to pay your bills and your taxes?

 

-          How might investing increase or decrease your taxes?

 

-          Do you have assets that you could quickly sell if you needed cash in an emergency?

 

-          Are your investments growing quickly enough to keep up with or beat inflation?

 

-          Will you have enough money to meet your retirement needs and other long-term goals?

 

-          How much risk can you tolerate when investing?

 

-          How diversified are your investments?

 

The answers to these questions may help you formulate a new investment plan. Remember, though, there's no rush. You can put your funds in an accessible interest-bearing account such as a savings account, money market account, or short-term certificate of deposit until you have time to plan and think things through. You may wish to meet with an investment advisor for help with these decisions.

 

Once you've taken care of these basics, set aside some money to treat yourself to something you wouldn't have bought or done before--it's OK to have fun with some of your new money!

 

IMPACT ON INSURANCE

 

It's sad to say, but being wealthy may make you more vulnerable to lawsuits. Although you may be able to pay for any damage (to yourself or others) that you cause, you may want to re-evaluate your current insurance policies and consider purchasing an umbrella liability policy. If you plan on buying expensive items such as jewelry or artwork, you may need more property/casualty insurance to cover these items in case of loss or theft. Finally, it may be the right time to re-examine your life insurance needs. More life insurance may be necessary to cover your estate tax bill so your beneficiaries receive more of your estate after taxes.

 

IMPACT ON ESTATE PLANNING

 

Now that your wealth has increased, it's time to re-evaluate your estate plan. Estate planning involves conserving your money and putting it to work so that it best fulfills your goals. It also means minimizing your taxes and creating financial security for your family.

 

Is your will up to date? A will is the document that determines how your worldly possessions will be distributed after your death. You'll want to make sure that your current will accurately reflects your wishes. If your newfound wealth is significant, you should meet with your attorney as soon as possible. You may want to make a new will and destroy the old one instead of simply making changes by adding a codicil.

 

GIVING IT ALL AWAY--OR MAYBE JUST SOME OF IT

 

Is gift giving part of your overall plan? You may want to give gifts of cash or property to your loved ones or to your favorite charities. It's a good idea to wait until you've come up with a financial plan before giving or lending money to anyone, even family members. If you decide to give or lend any money, put everything in writing. This will protect your rights and avoid hurt feelings down the road. In particular, keep in mind that:

 

-          If you forgive a debt owed by a family member, you may owe gift tax on the transaction

-          You can make individual gifts of up to $14,000 (2013 limit) each calendar year without incurring any gift tax liability ($28,000 for 2013 if you are married, and you and your spouse can split the gift)

 

-          If you pay the school directly, you can give an unlimited amount to pay for someone's education without having to pay gift tax (you can do the same with medical bills)

 

-          If you make a gift to charity during your lifetime, you may be able to deduct the amount of the gift on your income tax return, within certain limits, based on your adjusted gross income

 

Note: Because the tax implications are complex, you should consult a tax professional for more information before making sizable gifts.

 

Are you looking for ways to reach your financial goals in today's volatile market? Whether you’re saving for retirement, college for your kids or other needs, you may be unsure about what to do next or whether you can do anything at all. That's where we can help. We'll take the time to listen to you and understand your goals and dreams. We'll help you build a plan to get back on track toward reaching them. Working together, we will work to find investing opportunities in today’s uncertain market that are aligned with your financial goals. Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc. can bring your dreams more within reach.

 

Financial Advisory Abney Associates: Life insurance at various life stages

Your need for life insurance changes as your life changes. When you're young, you typically have less need for life insurance, but that changes as you take on more responsibility and your family grows. Then, as your responsibilities once again begin to diminish, your need for life insurance may decrease. Let's look at how your life insurance needs change throughout your lifetime.

 

FOOTLOOSE AND FANCY-FREE

 

As a young adult, you become more independent and self-sufficient. You no longer depend on others for your financial well-being. But in most cases, your death would still not create a financial hardship for others. For most young singles, life insurance is not a priority.

 

Some would argue that you should buy life insurance now, while you're healthy and the rates are low. This may be a valid argument if you are at a high risk for developing a medical condition (such as diabetes) later in life. But you should also consider the earnings you could realize by investing the money now instead of spending it on insurance premiums.

 

If you have a mortgage or other loans that are jointly held with a cosigner, your death would leave the cosigner responsible for the entire debt. You might consider purchasing enough life insurance to cover these debts in the event of your death. Funeral expenses are also a concern for young singles, but it is typically not advisable to purchase a life insurance policy just for this purpose, unless paying for your funeral would burden your parents or whomever would be responsible for funeral expenses. Instead, consider investing the money you would have spent on life insurance premiums.

 

Your life insurance needs increase significantly if you are supporting a parent or grandparent, or if you have a child before marriage. In these situations, life insurance could provide continued support for your dependent(s) if you were to die.

 

GOING TO THE CHAPEL

 

Married couples without children typically still have little need for life insurance. If both spouses contribute equally to household finances and do not yet own a home, the death of one spouse will usually not be financially catastrophic for the other.

 

To make sure either spouse could carry on financially after the death of the other, both of you should probably purchase a modest amount of life insurance. At a minimum, it will provide peace of mind knowing that both you and your spouse are protected.

 

Again, your life insurance needs increase significantly if you are caring for an aging parent, or if you have children before marriage. Life insurance becomes extremely important in these situations, because these dependents must be provided for in the event of your death.

 

YOUR GROWING FAMILY

 

When you have young children, your life insurance needs reach a climax. In most situations, life insurance for both parents is appropriate.

 

Single-income families are completely dependent on the income of the breadwinner. If he or she dies without life insurance, the consequences could be disastrous. The death of the stay-at-home spouse would necessitate costly day-care and housekeeping expenses. Both spouses should carry enough life insurance to cover the lost income or the economic value of lost services that would result from their deaths.

 

Dual-income families need life insurance, too. If one spouse dies, it is unlikely that the surviving spouse will be able to keep up with the household expenses and pay for child care with the remaining income.

 

MOVING UP THE LADDER

 

For many people, career advancement means starting a new job with a new company. At some point, you might even decide to be your own boss and start your own business. It's important to review your life insurance coverage any time you leave an employer.

 

Keep in mind that when you leave your job, your employer-sponsored group life insurance coverage will usually end, so find out if you will be eligible for group coverage through your new employer, or look into purchasing life insurance coverage on your own. You may also have the option of converting your group coverage to an individual policy. This may cost significantly more, but may be wise if you have a pre-existing medical condition that may prevent you from buying life insurance coverage elsewhere.

 

Make sure that the amount of your coverage is up-to-date, as well. The policy you purchased right after you got married might not be adequate anymore, especially if you have kids, a mortgage, and college expenses to consider. Business owners may also have business debt to consider. If your business is not incorporated, your family could be responsible for those bills if you die.

 

SINGLE AGAIN

 

If you and your spouse divorce, you'll have to decide what to do about your life insurance. Divorce raises both beneficiary issues and coverage issues. And if you have children, these issues become even more complex.

 

If you and your spouse have no children, it may be as simple as changing the beneficiary on your policy and adjusting your coverage to reflect your newly single status. However, if you have kids, you'll want to make sure that they, and not your former spouse, are provided for in the event of your death. This may involve purchasing a new policy if your spouse owns the existing policy, or simply changing the beneficiary from your spouse to your children. The custodial and noncustodial parent will need to work out the details of this complicated situation. If you can't come to terms, the court will make the decisions for you.

 

YOU’RE RETIREMENT YEARS

 

Once you retire, and your priorities shift, your life insurance needs may change. If fewer people are depending on you financially, your mortgage and other debts have been repaid, and you have substantial financial assets, you may need less life insurance protection than before. But it's also possible that your need for life insurance will remain strong even after you retire. For example, the proceeds of a life insurance policy can be used to pay your final expenses or to replace any income lost to your spouse as a result of your death (e.g., from a pension or Social Security). Life insurance can be used to pay estate taxes or leave money to charity.

 

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Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc.: Deciding what to do with your 401(k) plan when you change jobs

 

When you change jobs, you need to decide what to do with the money in your 401(k) plan. Should you leave it where it is, or take it with you? Should you roll the money over into an IRA or into your new employer's retirement plan?

 

As you consider your options, keep in mind that one of the greatest advantages of a 401(k) plan is that it allows you to save for retirement on a tax-deferred basis. When changing jobs, it's essential to consider the continued tax-deferral of these retirement funds, and, if possible, to avoid current taxes and penalties that can eat into the amount of money you've saved.

 

TAKE THE MONEY AND RUN

 

When you leave your current employer, you can withdraw your 401(k) funds in a lump sum. To do this, simply instruct your 401(k) plan administrator to cut you a check. Then you're free to do whatever you please with those funds. You can use them to meet expenses (e.g., medical bills, college tuition), put them toward a large purchase (e.g., a home or car), or invest them elsewhere.

 

While cashing out is certainly tempting, it's almost never a good idea. Taking a lump sum distribution from your 401(k) can significantly reduce your retirement savings, and is generally not advisable unless you urgently need money and have no other alternatives. Not only will you miss out on the continued tax-deferral of your 401(k) funds, but you'll also face an immediate tax bite.

 

Working together, Ameriprise Financial Abney Associates Team will work to find investing opportunities in today’s uncertain market that are aligned with your financial goals. Together, we can bring your dreams more within reach.

 

First, you'll have to pay federal (and possibly state) income tax on the money you withdraw (except for the amount of any after-tax contributions you've made). If the amount is large enough, you could even be pushed into a higher tax bracket for the year. If you're under age 59½, you'll generally have to pay a 10 percent premature distribution penalty tax in addition to regular income tax, unless you qualify for an exception. (For instance, you're generally exempt from this penalty if you're 55 or older when you leave your job.) And, because your employer is also required to withhold 20 percent of your distribution for federal taxes, the amount of cash you get may be significantly less than you expect.

 

Note: Because lump-sum distributions from 401(k) plans involve complex tax issues, especially for individuals born before 1936, consult a tax professional for more information.

 

Note: If your 401(k) plan allows Roth contributions, qualified distributions of your Roth contributions and earnings will be free from federal income tax. If you receive a nonqualified distribution from a Roth 401(k) account only the earnings (not your original Roth contributions) will be subject to income tax and potential early distribution penalties.

 

LEAVE THE FUNDS WHERE THEY ARE

 

One option when you change jobs is simply to leave the funds in your old employer's 401(k) plan where they will continue to grow tax deferred.

 

However, you may not always have this opportunity. If your vested 401(k) balance is $5,000 or less, your employer can require you to take your money out of the plan when you leave the company. (Your vested 401(k) balance consists of anything you've contributed to the plan, as well as any employer contributions you have the right to receive.)

 

TRANSFER THE FUNDS DIRECTLY TO YOUR NEW EMPLOYER'S RETIREMENT PLAN OR TO AN IRA (A DIRECT ROLLOVER)

 

Just as you can always withdraw the funds from your 401(k) when you leave your job, you can always roll over your 401(k) funds to your new employer's retirement plan if the new plan allows it. You can also roll over your funds to a traditional IRA. You can either transfer the funds to a traditional IRA that you already have, or open a new IRA to receive the funds. There's no dollar limit on how much 401(k) money you can transfer to an IRA.

 

You can also roll over ("convert") your non-Roth 401(k) money to a Roth IRA. The taxable portion of your distribution from the 401(k) plan will be included in your income at the time of the rollover.

 

If you've made Roth contributions to your 401(k) plan you can only roll those funds over into another Roth 401(k) plan or Roth 403(b) plan (if your new employer's plan accepts rollovers) or to a Roth IRA.

 

Note: In some cases, your old plan may mail you a check made payable to the trustee or custodian of your employer-sponsored retirement plan or IRA. If that happens, don't be concerned. This is still considered to be a direct rollover. Bring or mail the check to the institution acting as trustee or custodian of your retirement plan or IRA.

 

HAVE THE DISTRIBUTION CHECK MADE OUT TO YOU, THEN DEPOSIT THE FUNDS IN YOUR NEW EMPLOYER'S RETIREMENT PLAN OR IN AN IRA (AN INDIRECT ROLLOVER)

 

You can also roll over funds to an IRA or another employer-sponsored retirement plan (if that plan accepts rollover contributions) by having your 401(k) distribution check made out to you and depositing the funds to your new retirement savings vehicle yourself within 60 days. This is sometimes referred to as an indirect rollover.

 

However, think twice before choosing this option. Because you effectively have use of this money until you redeposit it, your 401(k) plan is required to withhold 20 percent for federal income taxes on the taxable portion of your distribution (you get credit for this withholding when you file your federal income tax return for the year). Unless you make up this 20 percent with out-of-pocket funds when you make your rollover deposit, the 20 percent withheld will be considered a taxable distribution, subject to regular income tax and generally a 10 percent premature distribution penalty (if you're under age 59½).

 

WHICH OPTION IS APPROPRIATE?

 

Assuming that your new employer offers a retirement plan that will accept rollover contributions, is it better to roll over your traditional 401(k) funds to the new plan or to a traditional IRA?

 

Each retirement savings vehicle has advantages and disadvantages. Here are some points to consider:

 

-         A traditional IRA can offer almost unlimited investment options; a 401(k) plan limits you to the investment options offered by the plan

 

-         A traditional IRA can be converted to a Roth IRA if you qualify

 

-         A 401(k) may offer a higher level of protection from creditors

 

-         A 401(k) may allow you to borrow against the value of your account, depending on plan rules

 

-         A 401(k) offers more flexibility if you want to contribute to the plan in the future

 

Finally, no matter which option you choose, you may want to discuss your particular situation with a tax professional (as well as your plan administrator) before deciding what to do with the funds in your 401(k).

Ameriprise Financial Abney Associates Team: Teaching your child about money

Ask you’re five-year old where money comes from, and the answer you'll probably get is "From a machine!" Even though children don't always understand where money really comes from, they realize at a young age that they can use it to buy the things they want. So as soon as your child becomes interested in money, start teaching him or her how to handle it wisely. The simple lessons you teach today will give your child a solid foundation for making a lifetime of financial decisions Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc..

 

LESSON 1: LEARNING TO HANDLE AN ALLOWANCE

 

An allowance is often a child's first brush with financial independence. With allowance money in hand, your child can begin saving and budgeting for the things he or she wants.

 

It's up to you to decide how much to give your child based on your values and family budget, but a rule of thumb used by many parents is to give a child 50 cents or 1 dollar for every year of age. To come up with the right amount, you might also want to consider what your child will need to pay for out of his or her allowance, and how much of it will go into savings.

 

Whether you’re saving for retirement, college for your kids or other needs, you may be unsure about what to do next or whether you can do anything at all. That's where we can help. We'll take the time to listen to you and understand your goals and dreams. We'll help you build a plan to get back on track toward reaching them. Working together, Ameriprise Financial Abney Associates Team will work to find investing opportunities in today’s uncertain market that are aligned with your financial goals. Together, we can bring your dreams more within reach.

 

 

Some parents ask their child to earn an allowance by doing chores around the house, while others give their child an allowance with no strings attached. If you're not sure which approach is better, you might want to compromise. Pay your child a small allowance, and then give him or her chance to earn extra money by doing chores that fall outside of his or her normal household responsibilities.

 

If you decide to give your child an allowance, here are some things to keep in mind:

 

-          Set some parameters. Sit down and talk to your child about the types of purchases you expect him or her to make, and how much of the allowance should go towards savings.

 

-          Stick to a regular schedule. Give your child the same amount of money on the same day each week.

 

-          Consider giving an allowance "raise" to reward your child for handling his or her allowance well.

 

LESSON 2: OPENING A BANK ACCOUNT

 

Taking your child to the bank to open an account is a simple way to introduce the concept of saving money. Your child will learn how savings accounts work, and will enjoy trips to the bank to make deposits.

 

Many banks have programs that provide activities and incentives designed to help children learn financial basics. Here are some other ways you can help your child develop good savings habits:

 

-          Help your child understand how interest compounds by showing him or her how much "free money" has been earned on deposits.

 

-          Offer to match whatever your child saves towards a long-term goal.

 

-          Let your child take a few dollars out of the account occasionally. Young children who see money going into the account but never coming out may quickly lose interest in saving.

 

LESSON 3: SETTING AND SAVING FOR FINANCIAL GOALS

 

When your children get money from relatives, you want them to save it for college, but they'd rather spend it now. Let's face it: children don't always see the value of putting money away for the future. So how can you get your child excited about setting and saving for financial goals? Here are a few ideas:

 

-          Let your child set his or her own goals (within reason). This will give your child some incentive to save.

 

-          Encourage your child to divide his or her money up. For instance, your child might want to save some of it towards a long-term goal, share some of it with a charity, and spend some of it right away.

 

-          Write down each goal, and the amount that must be saved each day, week, or month to reach it. This will help your child learn the difference between short-term and long-term goals.

 

-          Tape a picture of an item your child wants to a goal chart, bank, or jar. This helps a young child make the connection between setting a goal and saving for it.

 

Finally, don't expect a young child to set long-term goals. Young children may lose interest in goals that take longer than a week or two to reach. And if your child fails to reach a goal, chalk it up to experience. Over time, your child will learn to become a more disciplined saver.

 

LESSON 4: BECOMING A SMART CONSUMER

 

Commercials. Peer pressure. The mall. Children are constantly tempted to spend money but aren't born with the ability to spend it wisely. Your child needs guidance from you to make good buying decisions. Here are a few things you can do to help your child become a smart consumer:

 

-          Set aside one day a month to take your child shopping. This will encourage your child to save up for something he or she really wants rather than buying something on impulse.

 

-          Just say no. You can teach your child to think carefully about purchases by explaining that you will not buy him or her something every time you go shopping. Instead, suggest that your child try items out in the store, then put them on a birthday or holiday wish list.

 

-          Show your child how to compare items based on price and quality. For instance, when you go grocery shopping, teach him or her to find the prices on the items or on the shelves, and explain why you're choosing to buy one brand rather than another.

 

-          Let your child make mistakes. If the toy your child insists on buying breaks, or turns out to be less fun than it looked on the commercials, eventually your child will learn to make good choices even when you're not there to give advice.

 

Financial Advisory Abney Associates: Annuities and retirement planning

Annuities come in many different forms. There are immediate and deferred annuities, with both fixed and variable rates. However, whatever the type of annuity, all can be classified as either qualified or nonqualified annuities. And the distinction is easy.

 

Qualified annuities are used in connection with tax-advantaged retirement plans, such as defined benefit pension plans, Section 403(b) retirement plans (TSAs), or IRAs. Premiums for qualified annuities are generally paid with pretax dollars, as are any investments purchased for use in a qualified retirement plan.

 

By definition, any annuity not used to fund a tax-advantaged retirement plan or IRA is considered a nonqualified annuity. Contributions to nonqualified annuities are made with after-tax dollars--premiums are not deductible from gross income for income tax purposes. Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc.

 

In essence, then, the products are the same. It is the placement in or out of a retirement plan (and the resulting tax treatment) that distinguishes one from the other.

 

QUALIFIED ANNUITIES

 

As noted, contributions to a qualified annuity are deductible to the individual or employer (and/or excludable from the income of the individual) at the time of contribution, as would be any tax-advantaged retirement plan investment. When an annuity is in a retirement plan, the rules of the plan govern all tax matters. Specifically, the special tax-deferral advantages of annuities, and the unique tax penalties and tax treatment of annuities at distribution, are superseded when used in a retirement plan by the tax rules governing all investments in such plans. Ameriprise Financial Abney Associates Team, It is for this reason that many financial advisors question the use of deferred annuities in retirement plans.

 

Note: Although it is true that the tax-deferral advantage of annuities is redundant in a qualified plan, annuity products may offer other features, such as a guaranteed death benefit, that may make them a viable investment option for a portion of a qualified plan portfolio.

 

NONQUALIFIED ANNUITIES

 

The rules for nonqualified annuities are different in many respects, because these products are purchased with after-tax money.

 

If the nonqualified annuity is partially or fully surrendered, the first dollars out are considered earnings, and all of the earnings are taxed as ordinary income rates. After all of the earnings have been distributed, the remaining portion that represents the original investment in the annuity is received tax free.

 

If payments are taken in the form of an annuity payout (i.e., a distribution taken out over a predetermined period of time), a portion of each payment is considered a return of the original investment and is excludable from gross income, and a portion is considered earnings and taxed as ordinary income tax rates. The percentages that are earnings and return of investment are based on the type of payout at the age of the recipient. Note, too, that distributions taken before age 59½ are subject to a 10 percent early withdrawal penalty tax on earnings.

 

Note: Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk, including the possibility of loss of principal. Variable annuities are sold by prospectus, which contains information about the variable annuity, including a description of applicable fees and charges. These include, but are not limited to, mortality and expense risk charges, administrative fees, and charges for optional benefits and riders. The prospectus can be obtained from the insurance company offering the variable annuity or from your financial professional. Read it carefully before you invest.

Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc.: Closing a retirement income gap

Are you looking for ways to reach your financial goals in today's volatile market? Whether you’re saving for retirement, college for your kids or other needs, you may be unsure about what to do next or whether you can do anything at all. That's where we can help. We'll take the time to listen to you and understand your goals and dreams. We'll help you build a plan to get back on track toward reaching them. Working together, Ameriprise Financial Abney Associates Team will work to find investing opportunities in today’s uncertain market that are aligned with your financial goals. Together, we can bring your dreams more within reach.

 

When you determine how much income you'll need in retirement, you may base your projection on the type of lifestyle you plan to have and when you want to retire. However, as you grow closer to retirement, you may discover that your income won't be enough to meet your needs. If you find yourself in this situation, you'll need to adopt a plan to bridge this projected income gap.

 

DELAY RETIREMENT: 65 IS JUST A NUMBER

 

One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. This will allow you to continue supporting yourself with a salary rather than dipping into your retirement savings. Depending on your income, this could also increase your Social Security retirement benefit. You'll also be able to delay taking your Social Security benefit or distributions from retirement accounts.

 

At normal retirement age (which varies, depending on the year you were born), you will receive your full Social Security retirement benefit. You can elect to receive your Social Security retirement benefit as early as age 62, but if you begin receiving your benefit before your normal retirement age, your benefit will be reduced. Conversely, if you delay retirement, you can increase your Social Security benefit.

 

Remember, too, that income from a job may affect the amount of Social Security retirement benefit you receive if you are under normal retirement age. Your benefit will be reduced by $1 for every $2 you earn over a certain earnings limit ($15,120 in 2013, $14,640 in 2012). But once you reach normal retirement age, you can earn as much as you want without affecting your Social Security retirement benefit.

 

Another advantage of delaying retirement is that you can continue to build tax-deferred funds in your IRA or employer-sponsored retirement plan. Keep in mind, though, that you may be required to start taking minimum distributions from your qualified retirement plan or traditional IRA once you reach age 70½, if you want to avoid harsh penalties.

 

And if you're covered by a pension plan at work, you could also consider retiring and then seeking employment elsewhere. This way you can receive a salary and your pension benefit at the same time. Some employers, to avoid losing talented employees this way, are beginning to offer "phased retirement" programs that allow you to receive all or part of your pension benefit while you're still working. Make sure you understand your pension plan options.

 

SPEND LESS, SAVE MORE

 

You may be able to deal with an income shortfall by adjusting your spending habits. If you're still years away from retirement, you may be able to get by with a few minor changes. However, if retirement is just around the corner, you may need to drastically change your spending and saving habits. Saving even a little money can really add up if you do it consistently and earn a reasonable rate of return. Make permanent changes to your spending habits and you'll find that your savings will last even longer. Start by preparing a budget to see where your money is going. Here are some suggested ways to stretch your retirement dollars:

 

- Refinance your home mortgage if interest rates have dropped since you took the loan.

 

-Reduce your housing expenses by moving to a less expensive home or apartment.

 

-Sell one of your cars if you have two. When your remaining car needs to be replaced, consider buying a used one.

 

- Access the equity in your home. Use the proceeds from a second mortgage or home equity line of credit to pay off higher-interest-rate debts.

 

- Transfer credit card balances from higher-interest cards to a low- or no-interest card, and then cancel the old accounts.

 

-Ask about insurance discounts and review your insurance needs (e.g., your need for life insurance may have lessened).

 

-  Reduce discretionary expenses such as lunches and dinners out.

 

Earmark the money you save for retirement and invest it immediately. If you can take advantage of an IRA, 401(k), or other tax-deferred retirement plan, you should do so. Funds invested in a tax-deferred account will generally grow more rapidly than funds invested in a non-tax-deferred account.

 

REALLOCATE YOUR ASSETS: CONSIDER INVESTING MORE AGGRESSIVELY

 

Some people make the mistake of investing too conservatively to achieve their retirement goals. That's not surprising, because as you take on more risk, your potential for loss grows as well. But greater risk also generally entails greater reward. And with life expectancies rising and people retiring earlier, retirement funds need to last a long time.

 

That's why if you are facing a projected income shortfall, you should consider shifting some of your assets to investments that have the potential to substantially outpace inflation. The amount of investment dollars you should keep in growth-oriented investments depends on your time horizon (how long you have to save) and your tolerance for risk. In general, the longer you have until retirement, the more aggressive you can afford to be. Still, if you are at or near retirement, you may want to keep some of your funds in growth-oriented investments, even if you decide to keep the bulk of your funds in more conservative, fixed-income investments. Get advice from a financial professional if you need help deciding how your assets should be allocated.

 

And remember, no matter how you decide to allocate your money, rebalance your portfolio now and again. Your needs will change over time, and so should your investment strategy.

 

ACCEPT REALITY: LOWER YOUR STANDARD OF LIVING

 

If your projected income shortfall is severe enough or if you're already close to retirement, you may realize that no matter what measures you take, you will not be able to afford the retirement lifestyle you've dreamed of. In other words, you will have to lower your expectations and accept a lower standard of living.

 

Fortunately, this may be easier to do than when you were younger. Although some expenses, like health care, generally increase in retirement, other expenses, like housing costs and automobile expenses, tend to decrease. And it's likely that your days of paying college bills and growing-family expenses are over.

 

Once you are within a few years of retirement, you can prepare a realistic budget that will help you manage your money in retirement. Think long term: Retirees frequently get into budget trouble in the early years of retirement, when they are adjusting to their new lifestyles. Remember that when you are retired, every day is Saturday, so it's easy to start overspending.

Ameriprise Financial Abney Associates Team: Estimating your retirement income needs

You know how important it is to plan for your retirement, but where do you begin? One of your first steps should be to estimate how much income you'll need to fund your retirement, Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc.. That's not as easy as it sounds, because retirement planning is not an exact science. Your specific needs depend on your goals and many other factors.

 

USE YOUR CURRENT INCOME AS A STARTING POINT

 

It's common to discuss desired annual retirement income as a percentage of your current income. Depending on who you're talking to, that percentage could be anywhere from 60 to 90 percent, or even more.

 

The problem with this approach is that it doesn't account for your specific situation. If you intend to travel extensively in retirement, for example, you might easily need 100 percent (or more) of your current income to get by.

 

PROJECT YOUR RETIREMENT EXPENSES

 

Your annual income during retirement should be enough (or more than enough) to meet your retirement expenses. That's why estimating those expenses is a big piece of the retirement planning puzzle. But you may have a hard time identifying all of your expenses and projecting how much you'll be spending in each area, especially if retirement is still far off. To help you get started, here are some common retirement expenses:

 

-         Food and clothing

 

-         Housing: Rent or mortgage payments, property taxes, homeowners insurance, property upkeep and repairs

 

-         Utilities: Gas, electric, water, telephone, cable TV

 

-         Transportation: Car payments, auto insurance, gas, maintenance and repairs, public transportation

 

-         Insurance: Medical, dental, life, disability, long-term care

 

-         Health-care costs not covered by insurance: Deductibles, co-payments, prescription drugs

 

-         Taxes: Federal and state income tax, capital gains tax

 

-         Debts: Personal loans, business loans, credit card payments

 

-         Education: Children's or grandchildren's college expenses

 

-         Gifts: Charitable and personal

 

-         Savings and investments: Contributions to IRAs, annuities, and other investment accounts

 

-         Recreation: Travel, dining out, hobbies, leisure activities

 

-         Care for yourself, your parents, or others: Costs for a nursing home, home health aide, or other type of assisted living

 

-         Miscellaneous: Personal grooming, pets, club memberships

 

Don't forget that the cost of living will go up over time. The average annual rate of inflation over the past 20 years has been approximately 2.4 percent. (Source: Consumer price index (CPI-U) data published by the U.S. Department of Labor, 2012.) And keep in mind that your retirement expenses may change from year to year. For example, you may pay off your home mortgage or your children's education early in retirement. Other expenses, such as health care and insurance, may increase as you age. To protect against these variables, build a comfortable cushion into your estimates (it's always best to be conservative). Finally, have a financial professional help you with your estimates to make sure they're as accurate and realistic as possible.

 

DECIDE WHEN YOU'LL RETIRE

 

Financial Advisory Abney Associates to determine your total retirement needs, you can't just estimate how much annual income you need. You also have to estimate how long you'll be retired. Why? The longer your retirement, the more years of income you'll need to fund it. The length of your retirement will depend partly on when you plan to retire. This important decision typically revolves around your personal goals and financial situation. For example, you may see yourself retiring at 50 to get the most out of your retirement. Maybe a booming stock market or a generous early retirement package will make that possible. Although it's great to have the flexibility to choose when you'll retire, it's important to remember that retiring at 50 will end up costing you a lot more than retiring at 65.

 

ESTIMATE YOUR LIFE EXPECTANCY

 

The age at which you retire isn't the only factor that determines how long you'll be retired. The other important factor is your lifespan. We all hope to live to an old age, but a longer life means that you'll have even more years of retirement to fund. You may even run the risk of outliving your savings and other income sources. To guard against that risk, you'll need to estimate your life expectancy. You can use government statistics, life insurance tables, or a life expectancy calculator to get a reasonable estimate of how long you'll live. Experts base these estimates on your age, gender, race, health, lifestyle, occupation, and family history. But remember, these are just estimates. There's no way to predict how long you'll actually live, but with life expectancies on the rise, it's probably best to assume you'll live longer than you expect.

 

IDENTIFY YOUR SOURCES OF RETIREMENT INCOME

 

Once you have an idea of your retirement income needs, your next step is to assess how prepared you are to meet those needs. In other words, what sources of retirement income will be available to you? Your employer may offer a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide a portion of your retirement income. To get an estimate of your Social Security benefits, visit the Social Security Administration website (www.ssa.gov) and order a copy of your statement. Additional sources of retirement income may include a 401(k) or other retirement plan, IRAs, annuities, and other investments. The amount of income you receive from those sources will depend on the amount you invest, the rate of investment return, and other factors. Finally, if you plan to work during retirement, your job earnings will be another source of income.

 

MAKE UP ANY INCOME SHORTFALL

 

If you're lucky, your expected income sources will be more than enough to fund even a lengthy retirement. But what if it looks like you'll come up short? Don't panic--there are probably steps that you can take to bridge the gap. A financial professional can help you figure out the best ways to do that, but here are a few suggestions:

 

-         Try to cut current expenses so you'll have more money to save for retirement

 

-         Shift your assets to investments that have the potential to substantially outpace inflation (but keep in mind that investments that offer higher potential returns may involve greater risk of loss)

 

-         Lower your expectations for retirement so you won't need as much money (no beach house on the Riviera, for example)

 

-         Work part-time during retirement for extra income

 

-         Consider delaying your retirement for a few years (or longer)

 

 

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Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc.: Annuities and retirement planning

You may have heard that IRAs and employer-sponsored plans (e.g., 401(k)s) are the best ways to invest for retirement. That's true for many people, but what if you've maxed out your contributions to those accounts and want to save more? An annuity may be a good investment to look into.

 

John Tappan founded Ameriprise Financial in 1894 with a singular vision, to help ordinary Americans achieve their financial dreams and feel confident about their futures. Throughout our long history, we have remained steadfast to this vision of putting our clients’ needs first, always.

 

GET THE LAY OF THE LAND

 

An annuity is a tax-deferred insurance contract. The details on how it works vary, but here's the general idea. You invest your money (either a lump sum or a series of contributions) with a life insurance company Financial Advisory Abney Associates that sells annuities (the annuity issuer). The period when you are funding the annuity is known as the accumulation phase. In exchange for your investment, the annuity issuer promises to make payments to you or a named beneficiary at some point in the future. The period when you are receiving payments from the annuity is known as the distribution phase. Chances are, you'll start receiving payments after you retire. Annuities may be subject to certain charges and expenses, including mortality charges, surrender charges, administrative fees, and other charges.

 

UNDERSTAND YOUR PAYOUT OPTIONS

 

Understanding your annuity payout options is very important. Keep in mind that payments are based on the claims-paying ability of the issuer. You want to be sure that the payments you receive will meet your income needs during retirement. Here are some of the most common payout options:

 

-          You surrender the annuity and receive a lump-sum payment of all of the money you have accumulated.

 

-          You receive payments from the annuity over a specific number of years, typically between 5 and 20. If you die before this "period certain" is up, your beneficiary will receive the remaining payments.

 

-          You receive payments from the annuity for your entire lifetime. You can't outlive the payments (no matter how long you live), but there will typically be no survivor payments after you die.

 

-          You combine a lifetime annuity with a period certain annuity. This means that you receive payments for the longer of your lifetime or the time period chosen. Again, if you die before the period certain is up, your beneficiary will receive the remaining payments.

 

-          You elect a joint and survivor annuity so that payments last for the combined life of you and another person, usually your spouse. When one of you dies, the survivor receives payments for the rest of his or her life.

 

When you surrender the annuity for a lump sum, your tax bill on the investment earnings will be due all in one year. The other options on this list provide you with a guaranteed stream of income (subject to the claims-paying ability of the issuer). They're known as annuitization options because you've elected to spread payments over a period of years. Part of each payment is a return of your principal investment. The other part is taxable investment earnings. You typically receive payments at regular intervals throughout the year (usually monthly, but sometimes quarterly or yearly). The amount of each payment depends on the amount of your principal investment, the particular type of annuity, your selected payout option, the length of the payout period, and your age if payments are to be made over your lifetime.

 

CONSIDER THE PROS AND CONS

 

An annuity can often be a great addition to your retirement portfolio. Here are some reasons to consider investing in an annuity:

 

-          Your investment earnings are tax deferred as long as they remain in the annuity. You don't pay income tax on those earnings until they are paid out to you.

 

-          An annuity may be free from the claims of your creditors in some states.

 

-          If you die with an annuity, the annuity's death benefit will pass to your beneficiary without having to go through probate.

 

-          Your annuity can be a reliable source of retirement income, and you have some freedom to decide how you'll receive that income.

 

-          You don't have to meet income tests or other criteria to invest in an annuity.

 

-          You're not subject to an annual contribution limit, unlike IRAs and employer-sponsored plans. You can contribute as much or as little as you like in any given year.

 

-          You're not required to start taking distributions from an annuity at age 70½ (the required minimum distribution age for IRAs and employer-sponsored plans). You can typically postpone payments until you need the income.

 

But annuities aren't for everyone. Here are some potential drawbacks:

 

-          Contributions to nonqualified annuities are made with after-tax dollars and are not tax deductible.

 

-          Once you've elected to annuitize payments, you usually can't change them, but there are some exceptions.

 

-          You can take your money from an annuity before you start receiving payments, but your annuity issuer may impose a surrender charge if you withdraw your money within a certain number of years (e.g., seven) after your original investment.

 

-          You may have to pay other costs when you invest in an annuity (e.g., annual fees, investment management fees, insurance expenses).

 

-          You may be subject to a 10 percent federal penalty tax (in addition to any regular income tax) if you withdraw earnings from an annuity before age 59½, unless you meet one of the exceptions to this rule.

 

-          Investment gains are taxed atss ordinary income tax rates, not at the lower capital gains rate.

 

CHOOSE THE RIGHT TYPE OF ANNUITY

 

If you think that an annuity is right for you, your next step is to decide which type of annuity. Overwhelmed by all of the annuity products on the market today? Don't be. In fact, most annuities fit into a small handful of categories. Your choices basically revolve around two key questions.

 

First, how soon would you like annuity payments to begin? That probably depends on how close you are to retiring. If you're near retirement or already retired, an immediate annuity may be your best bet. These types of annuity starts making payments to you shortly after you buy the annuity, typically within a year or less. But what if you're younger and retirement is still a long-term goal? Then you're probably better off with a deferred annuity. As the name suggests, this type of annuity lets you postpone payments until a later time, even if that's many years down the road.

 

Second, how would you like your money invested? With a fixed annuity, the annuity issuer determines an interest rate to credit to your investment account. An immediate fixed annuity guarantees a particular rate, and your payment amount never varies. A deferred fixed annuity guarantees your rate for a certain number of years; your rate then fluctuates from year to year as market interest rates change. A variable annuity, whether immediate or deferred, gives you more control and the chance to earn a better rate of return (although with a greater potential for gain comes a greater potential for loss of principal). You select your own investments from the subaccounts that the annuity issuer offers. Your payment amount will vary based on how your investments perform.

 

Note: Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk including the possibility of loss of principal. Variable annuities contain fees and charges including, but not limited to mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees and charges for optional benefits and riders.

 

SHOP AROUND

 

It pays to shop around for the right annuity. In fact, doing a little homework could save you hundreds of dollars a year or more. Why? Rates of return and costs can vary widely between different annuities. You'll also want to shop around for a reputable, financially sound annuity issuer. There are firms that make a business of rating insurance companies based on their financial strength, investment performance, and other factors. Consider checking out these ratings.

 

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Ameriprise Financial Abney Associates Team: Choosing a beneficiary for your IRA or 401(k)

Selecting beneficiaries for retirement benefits is different from choosing beneficiaries for other assets such as life insurance. With retirement benefits, you need to know the impact of income tax and estate tax laws in order to select the right beneficiaries. Although taxes shouldn't be the sole determining factor in naming your beneficiaries, ignoring the impact of taxes could lead you to make an incorrect choice.

 

In addition, Ameriprise Financial Abney Associates Team if you're married, beneficiary designations may affect the size of minimum required distributions to you from your IRAs and retirement plans while you're alive.

 

PAYING INCOME TAX ON MOST RETIREMENT DISTRIBUTIONS

 

Most inherited assets such as bank accounts, stocks, and real estate pass to your beneficiaries without income tax being due. However, that's not usually the case with 401(k) plans and IRAs.

 

Beneficiaries pay ordinary income tax on distributions from 401(k) plans and traditional IRAs. With Roth IRAs and Roth 401(k)s, however, your beneficiaries can receive the benefits free from income tax if all of the tax requirements are met. That means you need to consider the impact of income taxes when designating beneficiaries for your 401(k) and IRA assets. Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc.

 

For example, if one of your children inherits $100,000 cash from you and another child receives your 401(k) account worth $100,000, they aren't receiving the same amount. The reason is that all distributions from the 401(k) plan will be subject to income tax at ordinary income tax rates, while the cash isn't subject to income tax when it passes to your child upon your death.

 

Similarly, if one of your children inherits your taxable traditional IRA and another child receives your income-tax-free Roth IRA, the bottom line is different for each of them.

 

NAMING OR CHANGING BENEFICIARIES

 

When you open up an IRA or begin participating in a 401(k), you are given a form to complete in order to name your beneficiaries. Changes are made in the same way--you complete a new beneficiary designation form. Financial Advisory Abney Associates A will or trust does not override your beneficiary designation form. However, spouses may have special rights under federal or state law.

 

It's a good idea to review your beneficiary designation form at least every two to three years. Also, be sure to update your form to reflect changes in financial circumstances. Beneficiary designations are important estate planning documents. Seek legal advice as needed.

 

DESIGNATING PRIMARY AND SECONDARY BENEFICIARIES

 

When it comes to beneficiary designation forms, you want to avoid gaps. If you don't have a named beneficiary who survives you, your estate may end up as the beneficiary, which is not always the best result.

 

Your primary beneficiary is your first choice to receive retirement benefits. You can name more than one person or entity as your primary beneficiary. If your primary beneficiary doesn't survive you or decides to decline the benefits (the tax term for this is a disclaimer), then your secondary (or "contingent") beneficiaries receive the benefits.

 

HAVING MULTIPLE BENEFICIARIES

 

You can name more than one beneficiary to share in the proceeds. You just need to specify the percentage each beneficiary will receive (the shares do not have to be equal). You should also state who will receive the proceeds should a beneficiary not survive you.

 

In some cases, you'll want to designate a different beneficiary for each account or have one account divided into subaccounts (with a beneficiary for each subaccount). You'd do this to allow each beneficiary to use his or her own life expectancy in calculating required distributions after your death. This, in turn, can permit greater tax deferral (delay) and flexibility for your beneficiaries in paying income tax on distributions.

 

AVOIDING GAPS OR NAMING YOUR ESTATE AS A BENEFICIARY

 

There are two ways your retirement benefits could end up in your probate estate. Probate is the court process by which assets are transferred from someone who has died to the heirs or beneficiaries entitled to those assets.

 

First, you might name your estate as the beneficiary. Second, if no named beneficiary survives you, your probate estate may end up as the beneficiary by default. If your probate estate is your beneficiary, several problems can arise.

 

If your estate receives your retirement benefits, the opportunity to maximize tax deferral by spreading out distributions may be lost. In addition, probate can mean paying attorney's and executor's fees and delaying the distribution of benefits.

 

NAMING YOUR SPOUSE AS A BENEFICIARY

 

When it comes to taxes, your spouse is usually the best choice for a primary beneficiary.

 

A spousal beneficiary has the greatest flexibility for delaying distributions that are subject to income tax. In addition to rolling over your 401(k) or IRA to his or her IRA, a surviving spouse can generally decide to treat your IRA as his or her own IRA. This can provide more tax and planning options.

 

If your spouse is more than 10 years younger than you, then naming your spouse can also reduce the size of any required taxable distributions to you from retirement assets while you're alive. This can allow more assets to stay in the retirement account longer and delay the payment of income tax on distributions.

 

Although naming a surviving spouse can produce the best income tax result, that isn't necessarily the case with death taxes. One possible downside to naming your spouse as the primary beneficiary is that it will increase the size of your spouse's estate for death tax purposes. That's because at your death, your spouse can inherit an unlimited amount of assets and defer federal death tax until both of you are deceased (note: special tax rules and requirements apply for a surviving spouse who is not a U.S. citizen). However, this may result in death tax or increased death tax when your spouse dies.

 

If your spouse's taxable estate for federal tax purposes at his or her death exceeds the applicable exclusion amount (formerly known as the unified credit), then federal death tax may be due at his or her death.

 

NAMING OTHER INDIVIDUALS AS BENEFICIARIES

 

You may have some limits on choosing beneficiaries other than your spouse. No matter where you live, federal law dictates that your surviving spouse be the primary beneficiary of your 401(k) plan benefit unless your spouse signs a timely, effective written waiver. And if you live in one of the community property states, your spouse may have rights related to your IRA regardless of whether he or she is named as the primary beneficiary.

 

NAMING A TRUST AS A BENEFICIARY

 

You must follow special tax rules when naming a trust as a beneficiary, and there may be income tax complications. Seek legal advice before designating a trust as a beneficiary.

 

NAMING A CHARITY AS A BENEFICIARY

 

In general, naming a charity as the primary beneficiary will not affect required distributions to you during your lifetime. However, after your death, having a charity named with other beneficiaries on the same asset could affect the tax-deferral possibilities of the noncharitable beneficiaries, depending on how soon after your death the charity receives its share of the benefits.

 

 

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Financial Advisory Abney Associates: Merging your money when you marry

Getting married is exciting, but it brings many challenges. One such challenge that you and your spouse will have to face is how to merge your finances. Planning carefully and communicating clearly are important, because the financial decisions that you make now can have a lasting impact on your future.

 

DISCUSS YOUR FINANCIAL GOALS

 

The first step in mapping out your financial future together is to discuss your financial goals Ameriprise Financial Abney Associates Team. Start by making a list of your short-term goals (e.g., paying off wedding debt, new car, vacation) and long-term goals (e.g., having children, your children's college education, retirement). Then, determine which goals are most important to you. Once you've identified the goals that are a priority, you can focus your energy on achieving them.

 

PREPARE A BUDGET

 

Next, you should prepare a budget that lists all of your income and expenses over a certain time period (e.g., monthly, annually). You can designate one spouse to be in charge of managing the budget, or you can take turns keeping records and paying the bills. If both you and your spouse are going to be involved, make sure that you develop a record-keeping system that both of you understand. And remember to keep your records in a joint filing system so that both of you can easily locate important documents.

 

BANK ACCOUNTS--SEPARATE OR JOINT?

 

At some point, you and your spouse will have to decide whether to combine your bank accounts or keep them separate. Maintaining a joint account does have advantages, such as easier record keeping and lower maintenance fees. However, it's sometimes more difficult to keep track of how much money is in a joint account when two individuals have access to it. Of course, you could avoid this problem by making sure that you tell each other every time you write a check or withdraw funds from the account Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc.. Or, you could always decide to maintain separate accounts.

 

CREDIT CARDS

 

If you're thinking about adding your name to your spouse's credit card accounts, think again. When you and your spouse have joint credit, both of you will become responsible for 100 percent of the credit card debt. In addition, if one of you has poor credit, it will negatively impact the credit rating of the other.

 

If you or your spouse does not qualify for a card because of poor credit, and you are willing to give your spouse account privileges anyway, you can make your spouse an authorized user of your credit card. An authorized user is not a joint cardholder and is therefore not liable for any amounts charged to the account. Also, the account activity won't show up on the authorized user's credit record. But remember, you remain responsible for the account.

 

INSURANCE

 

If you and your spouse have separate health insurance coverage, you'll want to do a cost/benefit analysis of each plan to see if you should continue to keep your health coverage separate. For example, if your spouse's health plan has a higher deductible and/or co-payments or fewer benefits than those offered by your plan, he or she may want to join your health plan instead. You'll also want to compare the rate for one family plan against the cost of two single plans.

 

It's a good idea to examine your auto insurance coverage, too. If you and your spouse own separate cars, you may have different auto insurance carriers. Consider pooling your auto insurance policies with one company; many insurance companies will give you a discount if you insure more than one car with them. If one of you has a poor driving record, however, make sure that changing companies won't mean paying a higher premium.

 

EMPLOYER-SPONSORED RETIREMENT PLANS

 

If both you and your spouse participate in an employer-sponsored retirement plan, you should be aware of each plan's characteristics. Review each plan together carefully and determine which plan provides the best benefits. If you can afford it, you should each participate to the maximum in your own plan. If your current cash flow is limited, you can make one plan the focus of your retirement strategy. Here are some helpful tips:

 

-         If both plans match contributions, determine which plan offers the best match and take full advantage of it.

 

-         Compare the vesting schedules for the employer's matching contributions.

 

-         Compare the investment options offered by each plan--the more options you have, the more likely you are to find an investment mix that suits your needs.

 

-         Find out whether the plans offer loans--if you plan to use any of your contributions for certain expenses (e.g., your children's college education, a down payment on a house), you may want to participate in the plan that has a loan provision.

 

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Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc.: Six keys to successful investing

A successful investor maximizes gain and minimizes loss. Though there can be no guarantee that any investment strategy will be successful and all investing involves risk, including the possible loss of principal, here are six basic principles that may help you invest more successfully.

 

LONG-TERM COMPOUNDING CAN HELP YOUR NEST EGG GROW

 

It's the "rolling snowball" effect. Put simply, compounding pays you earnings on your reinvested earnings. The longer you leave your money at work for you, the more exciting the numbers get. For example, imagine an investment of $10,000 at an annual rate of return of 8 percent. In 20 years, assuming no withdrawals, your $10,000 investment would grow to $46,610. In 25 years, it would grow to $68,485, a 47 percent gain over the 20-year figure. After 30 years, your account would total $100,627. (Of course, this is a hypothetical example that does not reflect the performance of any specific investment.)

 

This simple example also assumes that no taxes are paid along the way, so all money stays invested. That would be the case in a tax-deferred individual retirement account or qualified retirement plan. The compounded earnings of deferred tax dollars are the main reason experts recommend fully funding all tax-advantaged retirement accounts and plans available to you. Abney Associates Team A financial advisory practice of Ameriprise Financial Services, Inc.

 

While you should review your portfolio on a regular basis, the point is that money left alone in an investment offers the potential of a significant return over time. With time on your side, you don't have to go for investment "home runs" in order to be successful.

 

ENDURE SHORT-TERM PAIN FOR LONG-TERM GAIN

 

Riding out market volatility sounds simple, doesn't it? But what if you've invested $10,000 in the stock market and the price of the stock drops like a stone one day? On paper, you've lost a bundle, offsetting the value of compounding you're trying to achieve. It's tough to stand pat.

 

There's no denying it--the financial marketplace can be volatile. Ameriprise Financial Abney Associates Team, it's important to remember two things. First, the longer you stay with a diversified portfolio of investments, the more likely you are to reduce your risk and improve your opportunities for gain. Though past performance doesn't guarantee future results, the long-term direction of the stock market has historically been up. Take your time horizon into account when establishing your investment game plan. For assets you'll use soon, you may not have the time to wait out the market and should consider investments designed to protect your principal. Conversely, think long-term for goals that are many years away.

 

Second, during any given period of market or economic turmoil, some asset categories and some individual investments historically have been less volatile than others. Bond price swings, for example, have generally been less dramatic than stock prices. Though diversification alone cannot guarantee a profit or ensure against the possibility of loss, you can minimize your risk somewhat by diversifying your holdings among various classes of assets, as well as different types of assets within each class.

 

SPREAD YOUR WEALTH THROUGH ASSET ALLOCATION

 

Asset allocation is the process by which you spread your dollars over several categories of investments, usually referred to as asset classes. These classes include stocks, bonds, cash (and cash alternatives), real estate, precious metals, collectibles, and in some cases, insurance products. You'll also see the term "asset classes" used to refer to subcategories, such as aggressive growth stocks, long-term growth stocks, international stocks, government bonds (U.S., state, and local), high-quality corporate bonds, low-quality corporate bonds, and tax-free municipal bonds. A basic asset allocation would likely include at least stocks, bonds (or mutual funds of stocks and bonds), Financial Advisory Abney Associates and cash or cash alternatives.

 

There are two main reasons why asset allocation is important. First, the mix of asset classes you own is a large factor--some say the biggest factor by far--in determining your overall investment portfolio performance. In other words, the basic decision about how to divide your money between stocks, bonds, and cash is probably more important than your subsequent decisions over exactly which companies to invest in, for example.

 

Second, by dividing your investment dollars among asset classes that do not respond to the same market forces in the same way at the same time, you can help minimize the effects of market volatility while maximizing your chances of return in the long term. Ideally, if your investments in one class are performing poorly, assets in another class may be doing better. Any gains in the latter can help offset the losses in the former and help minimize their overall impact on your portfolio.

 

CONSIDER LIQUIDITY IN YOUR INVESTMENT CHOICES

 

Liquidity refers to how quickly you can convert an investment into cash without loss of principal (your initial investment). Generally speaking, the sooner you'll need your money, the wiser it is to keep it in investments with comparatively less volatile price movements. You want to avoid a situation, for example, where you need to write a tuition check next Tuesday, but the money is tied up in an investment whose price is currently down.

 

Therefore, your liquidity needs should affect your investment choices. If you'll need the money within the next one to three years, you may want to consider certificates of deposit or a savings account, which are insured by the FDIC, or short-term bonds or a money market account, which are neither insured or guaranteed by the FDIC or any other governmental agency. Your rate of return will likely be lower than that possible with more volatile investments such as stocks, but you'll breathe easier knowing that the principal you invested is relatively safe and quickly available, without concern over market conditions on a given day.

 

Note: If you're considering a mutual fund, consider its investment objectives, risks, charges, and expenses, all of which are outlined in the prospectus, available from the fund. Consider the information carefully before investing.

 

DOLLAR COST AVERAGING: INVESTING CONSISTENTLY AND OFTEN

 

Dollar cost averaging is a method of accumulating shares of stock or a mutual fund by purchasing a fixed dollar amount of these securities at regularly scheduled intervals over an extended time. When the price is high, your fixed-dollar investment buys less; when prices are low, the same dollar investment will buy more shares. A regular, fixed-dollar investment should result in a lower average price per share than you would get buying a fixed number of shares at each investment interval.

 

Remember that, just as with any investment strategy, dollar cost averaging can't guarantee you a profit or protect you against a loss if the market is declining. To maximize the potential effects of dollar cost averaging, you should also assess your ability to keep investing even when the market is down.

 

An alternative to dollar cost averaging would be trying to "time the market," in an effort to predict how the price of the shares will fluctuate in the months ahead so you can make your full investment at the absolute lowest point. However, market timing is generally unprofitable guesswork. The discipline of regular investing is a much more manageable strategy, and it has the added benefit of automating the process.

 

BUY AND HOLD, DON'T BUY AND FORGET

 

Unless you plan to rely on luck, your portfolio's long-term success will depend on periodically reviewing it. Maybe your uncle's hot stock tip has frozen over. Maybe economic conditions have changed the prospects for a particular investment, or an entire asset class.

 

Even if nothing bad at all happens, your various investments will likely appreciate at different rates, which will alter your asset allocation without any action on your part. For example, if you initially decided on an 80 percent to 20 percent mix of stocks to bonds, you might find that after several years the total value of your portfolio has become divided 88 percent to 12 percent (conversely, if stocks haven't done well, you might have a 70-30 ratio of stocks to bonds in this hypothetical example). You need to review your portfolio periodically to see if you need to return to your original allocation. To rebalance your portfolio, you would buy more of the asset class that's lower than desired, possibly using some of the proceeds of the asset class that is now larger than you intended.

 

Another reason for periodic portfolio review: your circumstances change over time, and your asset allocation will need to reflect those changes. For example, as you get closer to retirement, you might decide to increase your allocation to less volatile investments, or those that can provide a steady stream of income.

 

Ameriprise Financial Abney Associates Team: Borrowing or withdrawing money from your 401(k) plan

If you have a 401(k) plan at work and need some cash, you might be tempted to borrow or withdraw money from it. But keep in mind that the purpose of a 401(k) is to save for retirement. Take money out of it now, and you'll risk running out of money during retirement. You may also face stiff tax consequences and penalties for withdrawing money before age 59½. Still, if you're facing a financial emergency--for instance, your child's college tuition is almost due and your 401(k) is your only source of available funds--borrowing or withdrawing money from your 401(k) may be your only option.

 

PLAN LOANS

 

To find out if you're allowed to borrow from your 401(k) plan and under what circumstances, check with your plan's administrator or read your summary plan description. Some employers allow 401(k) loans only in cases of financial hardship, but you may be able to borrow money to buy a car, to improve your home, or to use for other purposes.

 

Generally, obtaining a 401(k) loan is easy--there's little paperwork, and there's no credit check. The fees are limited too--you may be charged a small processing fee, but that's generally it.

 

HOW MUCH CAN YOU BORROW?

 

No matter how much you have in your 401(k) plan, you probably won't be able to borrow the entire sum. Generally, you can't borrow more than $50,000 or one-half of your vested plan benefits, whichever is less. (An exception applies if your account value is less than $20,000; in this case, you may be able to borrow up to $10,000, even if this is your entire balance.)

 

WHAT ARE THE REQUIREMENTS FOR REPAYING THE LOAN?

 

Typically, you have to repay money you've borrowed from your 401(k) within five years by making regular payments of principal and interest at least quarterly, often through payroll deduction. However, if you use the funds to purchase a primary residence, you may have a much longer period of time to repay the loan.

 

Make sure you follow to the letter the repayment requirements for your loan. If you don't repay the loan as required, the money you borrowed will be considered a taxable distribution. If you're under age 59½, you'll owe a 10 percent federal penalty tax, as well as regular income tax on the outstanding loan balance (other than the portion that represents any after-tax or Roth contributions you've made to the plan).

 

WHAT ARE THE ADVANTAGES OF BORROWING MONEY FROM YOUR 401(K)?

 

-         You won't pay taxes and penalties on the amount you borrow, as long as the loan is repaid on time.

 

-         Interest rates on 401(k) plan loans must be consistent with the rates charged by banks and other commercial institutions for similar loans.

 

-         In most cases, the interest you pay on borrowed funds is credited to your own plan account; you pay interest to yourself, not to a bank or other lender.

 

WHAT ARE THE DISADVANTAGES OF BORROWING MONEY FROM YOUR 401(K)?

 

-         If you don't repay your plan loan when required, it will generally be treated as a taxable distribution.

 

-         If you leave your employer's service (whether voluntarily or not) and still have an outstanding balance on a plan loan, you'll usually be required to repay the loan in full within 60 days. Otherwise, the outstanding balance will be treated as a taxable distribution, and you'll owe a 10 percent penalty tax in addition to regular income taxes if you're under age 59½.

 

-         Loan interest is generally not tax deductible (unless the loan is secured by your principal residence).

 

-         You'll lose out on any tax-deferred interest that may have accrued on the borrowed funds had they remained in your 401(k).

 

-         Loan payments are made with after-tax dollars.

 

HARDSHIP WITHDRAWALS

 

Your 401(k) plan may have a provision that allows you to withdraw money from the plan while you're still employed if you can demonstrate "heavy and immediate" financial need and you have no other resources you can use to meet that need (e.g., you can't borrow from a commercial lender or from a retirement account and you have no other available savings). It's up to your employer to determine which financial needs qualify. Many employers allow hardship withdrawals only for the following reasons:

 

-         To pay the medical expenses of you, your spouse, your children, your other dependents, or your plan beneficiary.

 

-         To pay the burial or funeral expenses of your parent, your spouse, your children, your other dependents, or your plan beneficiary.

 

-         To pay a maximum of 12 months worth of tuition and related educational expenses for post-secondary education for you, your spouse, your children, your other dependents, or your plan beneficiary.

 

-         To pay costs related to the purchase of your principal residence.

 

-         To make payments to prevent eviction from or foreclosure on your principal residence.

 

-         To pay expenses for the repair of damage to your principal residence after certain casualty losses.

 

Note: You may also be allowed to withdraw funds to pay income tax and/or penalties on the hardship withdrawal itself, if these are due.

 

Your employer will generally require that you submit your request for a hardship withdrawal in writing.

 

HOW MUCH CAN YOU WITHDRAW?

 

Generally, you can't withdraw more than the total amount you've contributed to the plan, minus the amount of any previous hardship withdrawals you've made. In some cases, though, you may be able to withdraw the earnings on contributions you've made. Check with your plan administrator for more information on the rules that apply to withdrawals from your 401(k) plan.

 

WHAT ARE THE ADVANTAGES OF WITHDRAWING MONEY FROM YOUR 401(K) IN CASES OF HARDSHIP?

 

The option to take a hardship withdrawal can come in very handy if you really need money and you have no other assets to draw on, and your plan does not allow loans (or if you can't afford to make loan payments).

 

WHAT ARE THE DISADVANTAGES OF WITHDRAWING MONEY FROM YOUR 401(K) IN CASES OF HARDSHIP?

 

Taking a hardship withdrawal will reduce the size of your retirement nest egg, and the funds you withdraw will no longer grow tax deferred.

 

WHAT ELSE DO I NEED TO KNOW?

 

If your employer makes contributions to your 401(k) plan (for example, matching contributions) you may be able to withdraw those dollars once you become vested (that is, once you own your employer's contributions). Check with your plan administrator for your plan's withdrawal rules.

 

If you are a qualified individual impacted by certain natural disasters, or if you are a reservist called to active duty after September 11, 2001, special rules may apply to you.