January 9, 2009
Vol 2, Issue 1
Jean Keener
Jean Keener
Happy new year!  If you're like me, you're still having trouble remembering to write 2009 instead of 2008, but the year is already well under way and we've even had a couple of single-day 40-degree temperature swings in North Texas.
We had a little improvement in the market in December, and 2009 so far is off to a decent start.  As of this writing, the S&P 500 is up 20% since it's low on November 20, and the Dow is up 16%.  But we can be sure that we haven't seen the last of the volatility as the markets continue to react to bad economic news.  This month's newsletter covers some information on investing, legislative updates, upcoming events, and other financial planning topics.

As always, feel free to e-mail me at [email protected] with requests for newsletter topics you'd like to see covered.  Thank you, and happy new year!
In This Issue
Cost of Investing Expenses
Legislative Updates
FDIC Insurance
Saving for Retirement
Social Security
Financial Prep for a Natural Disaster
Must-see IOUSA movie on CNN
Free Women & Money Seminar
Join Our E-Mail List!
Quick Links
Our Services
Investing Expenses: the Cost of Costs

happy couple at computerFor those of you familiar with my investing philosophy, you know that I'm a proponent of a passive investment strategy that uses a long-term buy and hold approach using primarily no-load, low-cost index funds.  It's also important to get the right asset allocation for you and to rebalance regularly because that creates better returns over time.

 I use this strategy because year in and year out there are very few actively managed funds that consistently beat the indexes when you factor in their expenses.  David Swenson, chief investment officer of the Yale University Endowment Fund says "When you look at the results on an after-fee, after-tax basis over reasonably long periods of time, there's almost no chance that you end up beating an index fund.  The odds are 100 to 1."  But you are guaranteed to incur higher costs by pursuing a non-index stragey, so you will be highly likely to end up earning less by trying to beat the market.  
Over the holidays, I had oportunity to finish a book that further reinforced this approach.  I highly recommend it to any of you with a little spare time on your hands.  It's called The Little Book of Common Sense Investing, and it's by John Bogle, the founder of Vanguard.  Bogle highlights a couple of stats that I think you'll find interesting. 
According to Bogle, the average actively managed fund's performance is 2.5% below the S&P 500 index after expenses.  Doesn't sound like much, does it?  But if you think about an initial hypothetical investment of $10,000 over a 50-year period with the index returning 8%, that would mean the average actively managed fund returned only 5.5%.  In 50 years, the simple investment in the stock market would grow to $469,000 while the investment earning only a 5.5% return grew to only $145,400.  Big difference, eh?
At this point, you're likely thinking, well, I'll pick the best actively managed fund with the best proven track record of market-beating returns.  Unfortunately, that's not easy to do.  Bogle studies a couple of different 20-year time periods and identifies the top 20 mutual funds.  Then, he looked at the next year following the 20-year time period, and how many of the top 20 were in the top 20 the next year?  You guessed it.  None.  Not very good odds of picking the winner, but 100% chance of incurring higher costs.
If you're not a current client and are wondering how your investments measure up in terms of costs and performance, you can give me a call to set up a complimentary, no-obligation get acquainted meeting.  I provide second opinions on your current portfolio, or we can just start from scratch in creating the right investment strategy for you.
Legislative Updates
Time is an issueRequired Minimum Distributions have been suspended for 2009.  This is good news for people that are 70 1/2 or older, have their IRAs invested in the market, and don't need to take money out this year for living expenses.  It allows more time for recovery of those balances instead of forcing a sale at a low point.  Tax-free distributions from an IRA to a charitable organization have also been extended to December 31, 2009. 

The IRS has set the mileage rate for 2009 at $.55 per mile.  This is down slightly from the $.585 per mile in the second half of 08, but still quite good given the low gas prices we're currently experiencing.
The SEC voted to regulate equity-indexed annuities as securities last month.  They had previously been exempt because they were considered an insurance product.  This change is good news because it should bring increased transparency to the fees and commissions associated with these products.
FDIC Insurance
FDIC insurance got a lot of visibility last fall when the limits were temporarily raised, but there are still a lot of questions out there.  If you want more details on what's covered and what's not, you can check out this post on my website.
Some are also still hesitant to place their savings in online banks because of perceptions that they may not be as stable as a brick and mortar bank.  But as long as those banks carry FDIC insurance, you should be ok.  And they are currently providing some of the highest interest rates in the market, so you might be missing out if you're not taking advantage of this opportunity.  Online banks can be great places to stash an emergency fund.
Saving for Retirement
Retirement Savings are Important With the new year, I hope you'll take a few moments to consider raising your employer retirement plan contribution if your organization offers one and you're not already maxing it out.  If your employer offers the Roth 401(k) or 403(b) option, I also suggest that you strongly consider doing at least part of your contribution as Roth instead of traditional.
Roth 401(k) programs don't give you a current tax deduction, but they provide the opportunity for all of your earnings on the contribution to grow tax-free.  In a traditional 401(k), all of your earnings will be taxed at regular income tax rates once withdrawn.  Which makes the Roth 401(k) a terrific deal in many situations.   There are of course things to watch out for, so this is a good financial planning opportunity to really run the numbers.
Should You Reapply for Social Security?
senior coupleEven if you've already started receiving social security payments, it's not too late to still receive the higher benefits available through later retirement.  If you're a few years into retirement and have realized that a higher Social Security benefit would help you increase or sustain your standard of living, you still have options.  The Social Security Administration (SSA) allows you to withdraw your benefit application and reapply later if that would be to your advantage.
Why reapply?

Increasing your monthly Social Security retirement benefit is one of the main reasons you might want to withdraw your application and reapply. According to the SSA, most retirees file for Social Security benefits early, often at age 62. But the drawback to claiming benefits early is that your monthly benefit will be substantially less than it would be if you wait until full retirement age, or longer, to collect. For example, if your full retirement age is 66, your monthly benefit at age 62 will be approximately 25% less than it will be if you wait until your full retirement age of 66 to collect, and 43% less than if you wait until age 70. (Source: SSA chart, Effect of Early or Delayed Retirement on Retirement Benefits)

Once you have a clearer picture of your retirement income needs, you may decide to withdraw your initial application and reapply when you're older, so that you may receive a higher monthly Social Security benefit (adjusted annually for inflation) for the rest of your life. In addition, if you're married, your spouse will generally receive the greater of his or her own retirement benefit or your monthly benefit (including any cost-of-living increases) in the event of your death, so increasing your retirement benefit may translate into more survivor protection for your spouse.

You may also wish to withdraw your Social Security application if you decide to work and your income is enough to reduce or even eliminate your Social Security benefit, or if your Social Security income is increasing your tax liability.

How do you do it?
You can withdraw your initial benefit application by filing Form SSA-521, "Request for Withdrawal of Application" at your local Social Security office. However, there is a pretty big catch. If you withdraw your application after you begin receiving benefits, you're required to return--in a lump sum--all of the money that Social Security has paid you over the years. But any interest or investment earnings you've received as a result of saving or investing those benefits is yours to keep. If you paid taxes on the benefits you're now paying back, you may be eligible for an income tax credit or a deduction. You can find more information about the tax consequences in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

There's so much to consider

Not everyone will come out ahead by withdrawing an application for retirement benefits, then reapplying--you'll need to consider your own financial circumstances. Obviously, the requirement to pay back benefits will limit the number of people who can take advantage of this opportunity. And even if you can afford to pay back your benefits, you must be willing to accept the risk that if you die, you or your spouse may not recoup the amount you've paid back. But reapplying for benefits may be worth considering if you need to maximize your lifetime income and provide higher survivor's benefits for your spouse.
Don't Let a Natural Disaster Demolish Your Finances
Natural DisasterIt seems as though there's always a hurricane, tornado, earthquake, flood, fire, ice storm, or mudslide happening somewhere in the United States. In North Texas, we're fortunate to be mostly out of the way of hurricanes, but we can still get hit by tornado and flood.  While a storm or other natural disaster could destroy your home, business, or workplace and put you in financial straits, there are things you can do both before and after the event to help you recover quickly.
Pre-Disaster: Create a financial emergency kit

Put together a kit that contains some cash and checks, a list of important contacts (e.g., your insurance agent), and copies of important documents, including identification cards, birth and marriage certificates, insurance policies and inventories, wills, trusts, and deeds. Make sure your kit is stored in a safe, secure place in your home, is easy to reach and carry, and is water and fire proof. You'll want to stash enough cash (or a credit card) to pay for immediate expenses such as gas, food, and lodging.

Tip: While you're at it, you might also keep your most precious items in the kit, such as your photo albums and family heirlooms.

Protect your assets

Take some commonsense precautions to safeguard your home, business, car, boat, and similar assets against damage from wind, water, fire, or other damage. For example, install an emergency generator and paperless drywall, keep loose objects (e.g., grills and patio furniture) secure, cut down overhanging tree limbs, park your car in the garage, and invest in storm windows, doors, and shutters.

Take inventory

Create and maintain an inventory of your valuables, including appliances, electronics, furniture, clothing, jewelry, and artwork. Record models and serial numbers, and take pictures or a video of the items. This will help when it comes time to file insurance claims and purchase replacements.

Check your insurance

Make sure your insurance policies (e.g., homeowners, auto) include all the coverage you need, and understand that damage caused by natural disasters may not be covered under these general types of policies. You may need to consider buying separate coverage for hurricanes, floods, earthquakes, or other disasters. Consult your insurance agent to determine whether you have adequate coverage given the likelihood of such events occurring in your area.

Post-Disaster: File insurance claims immediately
Contact your insurance agent and file claims as soon as possible. The quicker you do so, the sooner you can get back on your feet.

Protect your income

If you end up out of work, take advantage of any employee assistance programs that your employer may offer. Seek unemployment compensation from your state and ask about special job considerations for disaster victims. Find out if special unemployment benefits are available through the Department of Labor.

Get help from emergency sources ...

If you need immediate financial help, disaster relief funds and special programs (for example, housing assistance) may be available through the Federal Emergency Management Agency (FEMA) or your state and local governments, as well as the American Red Cross, United Way, Salvation Army, social services, and local churches.

... and from the federal government ...

Tax law allows taxpayers to deduct certain unreimbursed casualty losses in the year in which they are incurred, subject to certain limitations. In certain Presidentially declared disaster areas, individuals can claim the loss (again, subject to certain limitations) in the prior tax year by filing an amended return. Moreover, special relief (for example, bonus depreciation for business property) has been granted in the case of specific disaster events. Be sure to consult your tax professional about any tax relief that may be available to you.

... and get legal help, if necessary

If you experience legal difficulties, you may want to consider hiring an attorney who specializes in the complex area of natural disaster law.
IOUSA on CNN this weekend
IOUSA movieIOUSA is a must-see documentary about America's addiction to debt. 
It's on CNN this weekend. 
I'm going to be setting my DVR.  For showtimes, click here.
Free Women & Money Seminar
Business WomanWomen have unique opportunities and challenges when it comes to managing money.  Among the challenges, we tend to live longer and earn less than men and are sometimes hesitant to take ownership of our financial situation.   Among the opportunities, we tend to stick to a plan once we have it and get statistically better long-term investment results than men.  Attendees at this seminar will be educated on these trends so they can avoid pitfalls and plan to fund the life they desire.  A free copy of Investing in an Uncertain Economy for Dummies will also be given away to one of the attendees.

Keller Public Library
640 Johnson Drive, Keller, TX
March 2, 2009, 6:30 pm - 8:00 pm
Advance registration recommended: (817) 743-4840
I hope you found this newsletter informative.  KFP offers a free, no-obligation get-acquainted meeting to start the financial planning process.  To learn more or schedule a time, call 817-993-0401 or e-mail [email protected].
Jean Keener, CRPC (Chartered Retirement Planning Counselor)
Keener Financial Planning

Keener Financial Planning provides hourly, as-needed financial planning and advice on a commission-free basis to people at all financial levels.