Issue: #  14
FEBRUARY 2010
Bautis Financial
Dear ,
 
Welcome to the February 2010 issue of The Wealth Chronicle.  This month's edition contains articles on the Social Security earnings test, 2010 Roth Conversion, Mutual Fund Ratings,  Business Referrals through LeTip, and a Company Sportlight on Beyond Time Square. 
 

Social Security - The Earnings Test

Social Security Card 
 
One of the negative byproducts of the recession that started a couple of years ago is that many retirees saw their retirement nest eggs take a beating to the point where they had to re-enter the workforce.  There is nothing wrong with working past your 62nd birthday, but if you started taking social security benefits when you hit 62 you may have a slight problem called the Social Security earnings test.   There is a law on the books that says you may start taking Social Security benefits starting at age 62, however you cannot keep the money if you are working.  Once you hit your full retirement age (66 for a worker born in 1943 to 1954) you are allowed to make any amount of money and still keep all of your Social Security benefits.

This law is not just impacting a small percentage of people.  The earnings test affected 250,000 workers costing them $757 million dollars in the first half of 2009.  The way the earnings test works is that in 2010, for every $2 you earn in income over $14,160 you will lose $1 in Social Security benefits.  When you fill out your Social Security application you have to estimate the amount of money for the year you will earn.  For example, let's say you expect to earn $40,000.  $40,000 is $25,840 over the limit; you would lose half of the excess, or $12,920.  To further throw salt in the wound, your Social Security check is not trimmed proportionally.  Your benefits are withheld completely until the $12,920 is covered.

Because of the complexity around Social Security rules deciding when to your benefits should be planned out to maximize the amount of money you receive.  I will be having seminars on Social Security planning in March and April that will go into details not only on Social Security rules, but on what tools you can use to help you make your decision. 

2010 Roth Conversions
The Pros and Cons
 
You may have heard about the 2010 changes to the Roth IRA allowing conversions into a Roth IRA regardless of the amount of income you make.  As an investment vehicle the Roth IRA is one of the best retirement and estate planning vehicles that exists.  You can read one of my previous articles about the benefits of the Roth at http://bit.ly/cEWXrs.
 
Converting to a Roth IRA in 2010 takes some careful consideration.  The following are some of the pros, cons and things to consider before converting your traditional IRA into a Roth:
 
Pros
  • Tax-free income in retirement
  • Removes the uncertainty of what future tax rates might be
  • Great Estate Planning Vehicle
  • No RMD
  • Beneficiaries inherit the account tax-free
  • Taxes can be spread out over 2011 and 2012
  • The conversion can be undone if the value of the account goes down
 
Cons
  • Conversion can have an impact on Income Taxes
  • You may be in a lower tax bracket in retirement when you take money out of your traditional IRA
  • Only makes sense to convert if you can pay the taxes with money outside your IRA
  • The government may change the tax-free status of the Roth IRA
There are various calculators out there to help you make your decision on whether to convert or not.  It is great that the Roth IRA is being open to people having all income levels, however it is important that you understand the implications of your conversion.
 
Mutual Fund Ratings
 
Morningstar 
 

Standard and Poors (S&P) and Moody's rule the roost when it comes to providing credit rankings on bonds.  They have a scale with letters ranging from AAA  to D.  The letters are to denote the credit worthiness of a corporation on how likely they are to pay interest on their bonds along with the probably that you will receive your principal back once the bond matures.  The recent recession exposed some faults with this process.  For one there is a conflict of interest as the ratings agencies (S&P and Moody's) collect fees from the corporations they are rating.  We also saw corporations that had the highest of credit ratings fold up like cheap suits during the recession.  They were late to lower their ratings on companies like Bear Stearns, Lehman brothers, and AIG as they were all on the brink of collapse.

The mutual fund industry also has a ranking system where Morningstar is the king of providing ratings.  They rate funds on a scale of 1-5 stars and while Morningstar's rankings do not suffer the same conflict of interest that their debt counterparts do, there rankings cannot be taken too seriously either.   Smart Money magazine did a study where they found that there are a lot of funds with a 1 star ranking that actually outperform funds in the same class that have 5 stars. 

What it boils down to is that past performance is not a predictor of future performance.  One way to get away from the rankings of actively managed funds is to use index funds for the majority of your portfolio.  They are almost always cheaper in terms of annual fees and also have a tendency to beat the funds and their big shot managers.

Building your Business through Referrals 
 
 

LeTip

 In you are an entrepreneur or in a sales position there are many ways to increase your prospects and leads. You can advertise via television or print, try your hand at social media through sites such as facebook, twitter, or linkedin. There is also cold calling, which is dreaded by most people, but loved by others. Another option is through referral networking. I am not talking about going to a networking event and passing out as many business cards as possible, but trying to increase your leads and prospects by building relationships with other people interested in building their business. Survey after survey indicates that referral networking is the most cost-effective part of the marketing mix.

LeTip is an organization that has put a program in place to help entrepreneurs put more dollars in their pockets. LeTip is the world's largest, privately owned, professional business leads organization. Since 1978, LeTip programs have helped over 50,000 members build business success through personal referrals.


LeTip's structure sets the standard in the word-of-mouth referral industry. Chapters meet weekly to exchange qualified leads, build solid business relationships, develop strong presentation skills and become proficient networkers. Only one representative of any given profession is accepted into a chapter, and members are chosen for their occupational expertise.

I have recently joined the LeTip of Hoboken Chapter. We meet weekly on Tuesday's at 7:00 AM. You are welcome to come to a meeting to see if it is something you think can help you build your business. To register for a meeting please go to: http://www.meetup.com/LeTip-of-Hoboken/ or send me an email at [email protected].

Company Spotlight
Beyond Times Square 

Beyond Times Square

 

Who better to demonstrate to you the diversity, culture, history and excitement of New York City than a local?  The specialists at Beyond Times Square show you that there is more than meets the eye when it comes to exploring the real New York City besides Broadway shows and traditional tourist spots. 

 

Beyond Time Square is the key to unlocking the authentic New York City.  Immersive experiences include exclusive "behind the scenes" tours of landmarks like Yankee Stadium, the Apollo Theatre and Lincoln Center as well as walking tours of historic neighborhoods like Harlem and the Lower East Side.  Eat and breathe the city with food tours of Chinatown and pub crawls of Greenwich Village guided by experience guides.

 

Beyond Times Square is the expert on everything that is New York City.  They create unique experiences and stories to tell your friends and family.

 

http://www.btsq.com

212.564.1001

 

Sincerely,
Marc Bautis
Wealth Manager
tel: 201-221-6895
fax: 201-754-9760
Disclaimer:The information contained in this newsletter is for information purposes only and may not be suitable for your specific financial situation.  You should consult a financial advisor before making any investment decisions relating to the information contained in this newsletter

Table of Contents
Social Security
2010 Roth Conversion
Mutual Fund Ratings
LeTip
Beyond Times Square
BautisFinancial Logo
About Marc

Marc Bautis is an Independent Investment Adviser specializing in working with retirees and those nearing retirement who want to protect their principal and ensure their money lasts.  He is proud to deliver independent advice, always in his clients best interest.

Marc is a Bergen County native. He is a graduate of Lyndhurst High School and Seton Hall University. He, his wife Katie, and puppy Winnie live in Hasbrouck Heights.
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