March 6, 2009
Vol 2, Issue 3
Jean Keener
Jean Keener
Good morning, and happy Friday.  We certainly are living in interesting times, aren't we?  I suppose that in a couple of years the current dismal condition of the market and our economy may make for a good story about how we lived through these chaotic and challenging times, but right now it feels pretty painful.  Eventually the bottom will come, but the frustrating part now is not knowing when or how low.  As of end of day yesterday, the S&P 500 is down 24% year to date on top of last year's 37% decline.
I would encourage each of you that if owning stocks made sense as part of your long-term goals before this started and you haven't gotten out of the market yet that you not give up now.  Instead, focus on the fundamentals of your financial situation ... spend less than you earn, have an emergency fund, get out of debt, continue investing for your long-term and short-term goals, make sure you have appropriate insurance protection, and please find time to enjoy life.
In this newsletter, I've tried to focus on issues relevant to today's economic conditions.  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 Live Well.
In This Issue
Build Your Own Guaranteed Returns
Making Work Pay Tax Credit
Insurance Company Safety
Can You Convert to Roth Now?
Free Retirement Planning Seminar
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Quick Links
Our Services
Build Your Own Equity Indexed Annuity
Man with a Good IdeaSalespeople are out in force right now selling equity indexed annuities.  They are products that can be very tempting on the surface because they promise the upside of the stock market with downside protection.  And who isn't enticed by that promise right now?
However, there are typically lots of issues when you dig into equity indexed annuities that make them less than ideal ... high commissions (ranging to 9%), high investing expenses, high charges on surrender during the initial years of your investment, and big limits on the upside you can realize. 
But the purpose of this article is not go into details on the problems of equity indexed annuities.  It's to show you how you can create your own version of this at a very low cost.  I can't take credit for the specific details of this idea, but I am happy to pass it along to you.  It comes from the Money Magazine columnist "The Mole." I like his approach because of its simplicity, and it definitely shows that you don't have to pay high fees to get a guarantee.   You can read the full article on their website, but here's the gist of it:
"Let's say you have $10,000 to invest for 10 years. You don't want to lose it under any circumstances, yet you want to profit if stocks go up.
First find a high-yielding 10-year CD that's insured by the FDIC or the NCUA. Recently you could buy a 10-year CD from Capital One Bank through Costco that paid 5.55%. Buy the CD in your IRA, if you can, and you'll re-create an EIA's much-hyped tax break. At 5.55% you need to invest about $5,850 now to have $10,000 in 10 years. (To do this math, use a present-value calculator like the one at Take what's left and buy the low-cost Vanguard Total Stock Index exchange-traded fund (VTI). 
You get $10,000 back, guaranteed. Even if the market goes nowhere, you end up with about $14,150. And if stocks earn 8% annually, you'll have nearly $19,000."
Of course, if you were happy to live without a guarantee and had put the entire $10,000 in the market and received that average 8% annual return, you'd have $21,589.  However, with recent market performance we're all keenly aware that there's no guarantee of 8% average returns in the market.  Which option is right for you just depends on your level of risk tolerance, goals, and time-frame.
Who Qualifies for the Making Work Pay Tax Credit
Working Mom with childIf you received my email update after the stimulus act was signed into law, the Making Work Pay Tax Credit was included as part of a long list of provisions.  In case you missed the original list, you can still access it on my website.  Here's some more detail on who qualifies for the Making Work Pay Tax Credit and how it will work.

Do you qualify?
Most working Americans will, but nonresident aliens and individuals who can be claimed as a dependent by someone else aren't eligible (estates and trusts aren't eligible, either). And to claim the credit, you've got to include a valid Social Security number on your tax return; married couples filing jointly have to include at least one valid Social Security number. Assuming that you make it past these initial hurdles, whether you benefit from the credit depends on your income level.

If your modified adjusted gross income (MAGI) is greater than $75,000 ($150,000 if you're married and file a joint return), the credit that you're eligible for is reduced. If your MAGI is $95,000 ($190,000 if you're married and file a joint return) or more, you don't qualify for the credit at all. And there's one more factor--if you receive a $250 economic recovery payment under the American Recovery and Reinvestment Act because you were eligible for Social Security, Railroad Retirement, or veterans benefits, the amount of the Making Work Pay credit you'd otherwise be entitled to is reduced by that amount.

If you qualify for the credit, you don't really have to do anything. The IRS has issued new federal income tax withholding tables that reflect the Making Work Pay credit. When your employer begins using the new tables, you'll see an increase in your take-home pay. Don't expect to see the full amount of the credit in one paycheck, though. The credit is effectively being paid to you evenly over the balance of the year. (If you're self-employed, qualify for the credit, and don't want to wait until you file your federal income tax return, you'll have to adjust your quarterly estimated tax payments.)
Is Your Insurance Company Safe?
Mature Business WomanThe recent financial difficulties of some of the largest and oldest insurance companies may have you wondering about the financial strength of your insurer. Here are some sources of information that you can use to help you determine whether your insurance policy is safe, and what happens when an insurance company is unable to pay claims.

It's in the ratings
There are several rating services that review, evaluate, and rank insurance companies based on their financial strength and claims-paying ability. The primary players in the ratings game are A.M. Best (, Standard & Poor's (, Fitch (, Moody's (, and The Street.Com (formerly Weiss,

The standards used by each ratings service differ, and the ratings ultimately reflect the service's opinion of the financial strength and claims-paying ability of the insurer--it is not a guarantee of future performance. So you should consider your insurer's ratings from at least two or more services to determine its financial strength.

State regulation

Insurance companies are heavily regulated by the states in which they are headquartered. Generally, each state requires that an insurer has sufficient reserves to pay all of its claims. In addition, states require that companies file updated financial reports that often are available to the public through the state's insurance department. For information about companies doing business in Texas, visit

While financial ratings are important, there are other sources that provide financial information about your insurer. For instance, the National Association of Insurance Commissioners (NAIC) is an organization representing the insurance departments of all 50 states. You can access their information by going to An important statistic contained in the NAIC's financial report of each company is the assets to liabilities ratio. This statistic compares the insurer's total assets to its total liabilities. For example, a favorable assets to liabilities ratio may be $108 of assets for each $100 of liabilities.

Comparing companies

Many insurers subscribe to the Standard Analytical Service, Inc., an independent organization that compares insurance companies based on financial statements filed with state departments of insurance. Many insurers publish the Standard's reports on their websites.  The reports compare insurers based on a few important statistics. One such statistic compares the ratio of an insurer's bonds, stocks, cash, and short-term investments to liabilities. A higher ratio of liquid assets to liabilities may indicate the company's ability to cover unforeseen emergency cash requirements if they arise.
Another statistic compares an insurer's surplus assets to life insurance in force. A high ratio of surplus to life insurance in force provides evidence of a company's ability to meet its claims obligations.

If you claim benefits from your policy during a period of extraordinary claims activity, will your insurer be able to satisfy your claim? The chances are better if the insurer has a high ratio of assets, including capital, to policy reserve liabilities. A high surplus ratio may indicate a company's ability to meet its claims obligations even during a period of high volume.

If the worst happens ...
If your company experiences severe financial difficulties, it might be taken over by the state's insurance department. Generally, claims continue to be honored as long as premiums are current. If the company lacks sufficient assets and reserves to pay all claims, the state's guaranty association will either pay claims directly or transfer the policies to a financially stable insurance company that will honor the claims. The National Organization of Life and Health Insurance Guaranty Association (NOLHGA) provides information on state guaranty associations and insurance companies that have failed or are in danger of failing (
Can you Convert your IRA this year?
mature coupleI know many of you are sick of hearing me talk about Roth IRA conversions.  But with the market continuing to fall, converting now becomes a better and better deal if you're eligible.  For many, the tax cost of converting has dropped significantly, making this a more attractive option.

You can convert your traditional IRA to a Roth IRA in 2009 if your modified adjusted gross income (MAGI) is $100,000 or less. If you file a joint federal tax return with your spouse, the $100,000 limit applies to your combined income. If you're married filing separately, you're not allowed to convert at all in 2009.  You generally have to include the amount you convert in your gross income for the year of conversion, but any nondeductible contributions you've made to your traditional IRA won't be taxed.

If you're not eligible to convert in 2009, there's always next year--literally, in this case. Starting in 2010 anyone can convert, regardless of income level or marital status. Plus, if you convert in 2010, you're allowed to spread the income tax hit over two years: you report half the taxable income from the conversion in 2011, and half in 2012. So, even if you're eligible to convert in 2009, you should discuss with your financial professional whether it makes sense in your particular case to wait until 2010 to convert in order to take advantage of this special tax rule.

If you're eligible, converting is easy. Simply notify your IRA provider that you want to convert your existing IRA to a Roth IRA, and they'll provide you with the necessary paperwork to complete. You can also transfer or roll your assets over to a new IRA provider.

Remember that you can also convert SEP IRAs (and SIMPLE IRAs that are at least two years old) to Roth IRAs. And, if you're eligible for a distribution from your employer retirement plan (for example, a 401(k) or 403(b) plan), you may also be eligible to transfer or roll over those distributions to a Roth IRA, subject to these same conversion rules.
Free Retirement Planning Seminar
 senior coupleI'm holding a free seminar on planning for retirement on March 30.  This is a working session where we will actually walk through calculating how much you need to have saved for retirement and what you can start doing now to achieve your goals.  We will also talk about different retirement savings and funding vehicles.  It may seem like a depressing time to look at your retirement savings status, but you may be surprised and encouraged to realize all of the things that are within your control to make a difference in your future now.
A free copy of Investing in an Uncertain Economy for Dummies will also be given away to one of the attendees.  This will be the last seminar we get to have at the library for awhile because of their upcoming very cool rennovation.  Would love to see you there.

Keller Public Library
640 Johnson Drive, Keller, TX
March 30, 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 initial consultation 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.