YOUR FINANCIAL FUTURE

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1 YOUR FINANCIAL FUTURE October 2011 In This Issue Three Steps to Help Save for Short-Term Goals Pursuing short-term financial goals can require a different strategy than pursuing long-term goals. Here are some steps to help you save and invest when you're going to need your money sooner rather than later. Budgeting for Health Care in Retirement We hope this educational resource proves helpful. We believe an educated investor is a better investor. Please call us if you have questions. Paul Winkler Focused 401(k) Partners Retirement Plan Consultant 642 Kreag Rd Suite 107 Pittsford, NY paul.winkler@lpl.com While the status of Social Security gets the lion's share of attention, Medicare's future is just as precarious. When projecting retirement costs, it is prudent to factor in significant health care expenses. Viewing Your Home as Part of Your Retirement Portfolio Many baby boomers are looking to capitalize on home equity to enhance their retirement savings. This article addresses the pros and cons of strategies designed to tap into your home's worth. Strategies for Managing Retirement Assets in the Event of a Layoff If you get caught in a corporate downsizing and you are not immediately moving to a new employer, you generally have three options for your retirement plan assets. This article spells them out. Benefits of Dollar Cost Averaging Dollar cost averaging is a well-known investment strategy designed to help reduce volatility by purchasing securities in fixed dollar amounts at regular intervals, regardless of what direction the market is moving and regardless of the share price.

2 2 Three Steps to Help Save for Short-Term Goals Safety and liquidity will be priorities if you need the money within a few years. Pursuing short-term financial goals -- those that you'd like to achieve within one to five years, such as a down payment on a home or car -- can require a different strategy than pursuing long-term goals. Here are some steps to help you save and invest when you're going to need your money sooner rather than later. Step 1: Be specific about your goal. Setting a specific short-term goal will help you to evaluate your progress toward meeting it. For instance, the vague objective "I want to save money to buy a house" becomes "I want to save $25,000 over five years to put toward the down payment of a house in (town/city)." Step 2: Take steps to free up extra cash. How will you save the money that you need? Eating out less often, canceling a gym membership that you don't use, or downgrading your cable from a premium to a basic plan could easily free up $100 per month or more toward your goal. There are probably many areas where you can save a few bucks. Make a detailed list of what you spend in an average month and see where you could afford to trim. Step 3: Match your investments or savings vehicles with your goal. Safety and liquidity will be priorities if you need the money within a few years. Stocks can experience extreme fluctuations over short-term periods. You don't want to be forced to sell your assets when the value of your investment has dropped. More appropriate choices for short-term needs may be conservative instruments that offer a more stable return, such as short-term bond funds and money market funds. Federally insured savings vehicles, such as certificates of deposit, could also play a role. Understanding Short-Term Investments Short-term bond funds primarily invest in U.S. government or corporate debt with maturities that range from one to three years. Money market funds pool investors' dollars to buy money market instruments. These types of securities aim to produce current income, offer liquidity (how quickly you can sell an asset), and usually aren't subject to the dramatic ups and downs of stocks. Certificates of deposit are interest-bearing debt instruments with a wide range of maturities. In exchange for purchasing a certificate of deposit, the investor will receive the return of principal plus interest at the maturity date. Finally, remember that short-term financial objectives should not take away from investing for long-term goals. Investors should carefully consider the fund's investment objectives, risks, charges and expenses before investing. To obtain a prospectus, or if available, a summary prospectus containing this and other information, contact the appropriate fund company or view the fund prospectus on the Web site of the appropriate fund company. Please carefully read the prospectus or the summary prospectus before investing. Your investment is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Current performance maybe higher or lower than the past, which cannot guarantee future results. Share price, principal value, yield, and return will vary and you may have a gain or loss when you sell you shares. An investment in money market funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds. Bonds are subject to interest and market rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. Certificates of deposit offer a guaranteed rate of return, guaranteed principal and interest and are generally insured by the FDIC (see for additional information). Early withdrawal of certificates of deposit may be subject to penalty McGraw-Hill Financial Communications. All rights reserved. #732769

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4 4 Budgeting for Health Care in Retirement EBRI estimates that a 55-year-old man needs to save in the range of $109,000-$354,000, while a 55-year-old woman should set aside $147,000-$406,000. While the precarious long-term financial health of the Social Security system gets most of the press, the Medicare system is on an equally uneven footing. According to the latest report from the Social Security and Medicare Boards of Trustees, Medicare is projected to exhaust its assets by In 2007, the latest year data is available, Medicare covered less than two-thirds (64%) of the health care services for beneficiaries age 65 and older. The rest of the costs were paid by the recipient, either out-of-pocket, via private insurance, or from other sources. 2 And those costs can really add up. The Employee Benefit Research Institute (EBRI), a nonprofit organization that studies employee benefits issues and trends, has estimated that a 65-year-old couple who retired in 2010 needs to have saved at least $158,000 to have a 50% chance of having enough money to cover their out-of-pocket health care expenses and health insurance premiums in retirement. To have a 90% chance of meeting those costs, the total rises to a staggering $271,000. The projections for those nearing retirement are sobering. EBRI estimates that a 55-year-old man needs to save in the range of $109,000-$354,000, while a 55-year-old woman should set aside $147,000-$406,000. How much you will need depends on a variety of factors, many of which may be out of your control. They include: Your retirement age, Your health status and life expectancy (women on average live longer than men and thus need to set more aside for health care costs), The availability of coverage you can obtain to supplement Medicare, and The rate at which health costs increase. While currently 90% of all Medicare recipients receive some form of insurance coverage to supplement Parts A and B, employers are increasingly phasing out coverage for retirees. And Medicare costs continue to rise. Over the past decade, Medicare Part B premiums have averaged an annual increase of about 10%. Premiums are projected to increase by 8.7% in While future forecasts call for increases in a more reasonable 4%-4.5% range, at that rate, costs would double in about 15 years. 2 When doing any retirement needs assessment, be sure to include potential health care costs in your budgeting. A little preparation today can help reduce unpleasant surprises tomorrow. 1 Source: Social Security Administration, 2010 Social Security and Medicare Trust Fund Reports, August Source: Employee Benefit Research Institute, Issue Brief, December McGraw-Hill Financial Communications. All rights reserved. LPL Compliance #

5 5 Viewing Your Home as Part of Your Retirement Portfolio There are a growing number of firms who are heavily publicizing the advantages of reverse mortgages. Reverse mortgages are not for everyone and they are not as simple as those sales pitches make them sound. Many of today's baby boomers are looking to capitalize on home equity to enhance their retirement savings. Popular strategies include downsizing to a smaller residence, relocating to an area where the cost of living is more affordable, and taking out a reverse mortgage. Regardless of which strategy you choose, understand that relying too much on your house to fund your retirement could work against you when the real estate market cools, as it has in recent years. Making a Move Selling your existing home and relocating to a more affordable residence may be a reasonable option if you have considerable home equity and the shift won't negatively affect your lifestyle. As part of your research, remember to investigate the overall housing costs within your desired area. Real estate values typically vary considerably by locale, even within the same state. Finally, when selling your home, consider that the first $250,000 in capital gains ($500,000 if you sell jointly with a spouse) is not subject to federal taxation if you have lived in the house for two years or more. A Reverse Mortgage: Do Your Homework Before Committing Tapping home equity doesn't necessarily require relocating. A reverse mortgage may be a solution if you have significant home equity and a desire to stay in your existing home. With a reverse mortgage, you receive a source of income by borrowing against your home's equity. Payouts are tax free and may be taken as a lump sum, a line of credit, or an annuity-like payment schedule. To qualify, you must be at least 62 years of age. You must own your home outright, or be able to retire an existing mortgage with the proceeds from the reverse mortgage. As long as the reverse mortgage is in effect, you are responsible for maintaining your home, and for paying taxes and insurance. The loan plus accrued interest is due when you die or sell the house. However, when evaluating whether a reverse mortgage is right for you, be aware of a number of caveats. First, be sure to consider the fees, which may be substantial. Also keep in mind that the amount you owe tends to grow over time, as interest accrues on amounts that are gradually paid out. Should you live in a home with a reverse mortgage for a considerable period of time, your heirs may be left with little or no home equity at the time of your death. Beware the Sales Pitch Lastly, be sure to beware the sales pitch. There are a growing number of firms who are heavily publicizing the advantages of reverse mortgages with splashy TV commercials and advertisements in magazines targeted to seniors. Reverse mortgages are not for everyone, and they are not as simple as those pitches make them sound. They are highly technical transactions and require a high level of understanding and sophistication. You must conduct appropriate due diligence prior to trusting anyone with this transaction. Reverse mortgages are not securities and are not regulated as such. Additionally, you should never consider using the proceeds from selling your real estate to purchase securities and should be wary of those who suggest doing so. Marketing information sometimes can be misleading. Remember, an offer that sounds too good to be true probably is. Before making any major decisions regarding your home and your finances, it is advisable to consult with a real estate professional and your investment advisor to help determine the best strategies to allow you to pursue your personal and financial goals during retirement McGraw-Hill Financial Communications. All rights reserved. Compliance Tracking # LPL Compliance # This article was prepared by Standard & Poor's Financial Communications Tracking # Exp. 11/16/2011

6 6 Strategies for Managing Retirement Assets in the Event of a Layoff The advantages of a direct rollover include simplicity and continued tax deferral on the full amount of your plan savings. Layoffs are a fact of corporate life as companies grapple with economic cycles and global competition. If you get caught in a corporate downsizing and you are not immediately moving to a new employer, you generally have three options for your retirement plan assets: Leave your money in the existing plan. Take a cash or "lump-sum" distribution. Transfer the money to another qualified retirement account such as an individual retirement account (IRA). Consider the merits of each option. Option #1: Stay Put You may be able to leave your savings in your existing plan if your account balance is more than $5, By doing so, you'll continue to enjoy tax-deferred or tax-free compounding potential and receive regular account statements and performance reports. Although you will no longer be allowed to contribute to the plan, you will still have control over how your money is invested among the plan's investment selections. Option #2: Cash Out You may elect to have your money paid to you in one lump sum or in installments over a set number of years. A lump-sum approach has a number of drawbacks, including a 20% withholding on the pre-tax contributions and earnings portion of the eligible rollover distribution, which the plan is obligated to pay the IRS to cover federal income taxes, and a 10% early withdrawal penalty if you separate from service before age 55. Depending on your tax bracket and state of residence, you may be liable for additional taxes. An installment approach, whereby distributions are made in substantially equal payments over the participant's or the participant's and spouse's life expectancy, is not subject to withholding or penalty. But this is a fairly complex option that may require the assistance of a financial advisor. Option #3: Roll Over You can move your retirement plan money into another qualified account, such as an IRA, using a "direct rollover" or an "indirect rollover." Note that traditional plan balances can only be rolled into traditional IRAs and new Roth-style plan balances can only be rolled into Roth IRAs. With a direct rollover, the money goes straight from your former employer's retirement plan to your IRA without you ever touching it. The advantages of a direct rollover include simplicity and continued tax deferral on the full amount of your plan savings. IRAs may also afford more investment choices than many employer-sponsored plans. In an indirect rollover, you take a cash distribution, less 20% withholding, but must redeposit your qualified plan assets into an IRA within 60 days of withdrawal to avoid paying taxes and penalties. With this approach, however, you'll have to make up the 20% withholding out of your own pocket when you invest the money in the new IRA, or else that amount will be considered a distribution and a 10% penalty will apply. Consider Other Short-Term Funding Sources During times of economic hardship, it may be tempting to take money intended for future needs and use it to supplement a temporary income shortfall. But remember that any funds you take out today will ultimately reduce your retirement nest egg tomorrow. Before choosing a cash distribution from a retirement plan, consider other potential sources to meet your current income needs. For example, savings accounts and money market accounts are easily liquidated. With short-term interest rates at historically low levels, the opportunity cost for using these funds is relatively low. 1 An employer must roll assets exceeding $1,000 into an IRA in your name, unless otherwise directed by you McGraw-Hill Financial Communications. All rights reserved. Compliance Tracking # This article was prepared by Standard & Poor's Financial Communications Tracking # Exp. 05/2013

7 7 Benefits of Dollar Cost Averaging Using this strategy, more shares are purchased when prices are low, and fewer shares are bought when prices are high. The benefit of dollar cost averaging is highest when there is uncertainty in the market. Dollar cost averaging is easy to understand, eliminates timing difficulties, and removes emotions from decision-making. Dollar cost averaging does not protect investors against losses. It does result in the average cost per share being lower than the average price of the shares over time. Dollar cost averaging is a well-known investment strategy designed to help reduce volatility by purchasing securities in fixed dollar amounts at regular intervals, regardless of what direction the market is moving and regardless of the share price. Using this strategy, more shares are purchased when prices are low, and fewer shares are bought when prices are high. For example, an investor might choose to purchase $100 in shares of a mutual fund every month. When each share of the mutual fund has a higher price, the $100 will purchase fewer shares. However, when the price falls, the same dollar amount will purchase more shares. The investor pays a mix of higher and lower prices for the investment, rather than trying to pick the optimum day to make their investment into the fund. By investing a set amount over time, investors take advantage of the rise and fall of prices in the market to smooth returns. An investor should consider their ability to continue purchasing though periods of low price levels. Such a plan does not ensure a profit and does not protect against loss in declining markets. The benefit of dollar cost averaging is highest when there is uncertainty in the market. Poorly performing markets provide great entry points for investments. However, since a market bottom is a process, not a day, dollar cost averaging ensures that investors are purchasing at regular intervals and are thus able to take advantage of market slumps by automatically buying more of an investment for the same amount of money. Dollar cost averaging takes some of the guesswork out of investing and helps lessen the risk of investing a large amount in a single investment at the wrong time. The example illustrated below options an investor had at the start of 2008, to invest a lump sum of money into the ishares S&P 500 Index ETF (IVV) or to dollar cost average by purchasing a set amount each month. With the lump sum of $40,000, the investor would have bought 287 shares. However, by dollar cost averaging, the investor would have been better off, given the fact that the volatile markets provided opportunities to put money to work at both higher and lower price levels. The result in this case would have been an increase in the overall shares owned after eight months, and thus, an increase in the value of the portfolio. Implementing a Dollar Cost Averaging Strategy Dollar cost averaging is a relatively mechanical investment strategy that has much to offer the typical investor. It's easy to understand, eliminates timing difficulties, and removes emotions from decision-making. Best yet, it is the most effective means to put money to work under uncertain times for the market. This simple investment technique is defined by two directives: (1) invest the same amount of money (2) at regularly scheduled intervals. The amount of money and frequency are up to you, the investor. A key factor to the success of this approach is to select an amount you can stick with faithfully over time. This approach automatically results in buying more shares when prices fall and buying fewer shares when prices rise. In

8 8 effect, investors are buying more shares at lower, perhaps bargain prices and fewer shares at what might be considered high prices. Keep in mind that it is imperative to stay with the plan and ignore market fluctuations when employing this strategy. Dollar Cost Averaging in Uncertain Times While some investors will choose to look for shelter, others view a down market as an opportunity. Many investors are victims of their own emotions. In fact, it's often after stock prices have risen markedly that many investors get optimistic and buy shares. And those same investors often sell when they become fearful after prices have already dropped. The consequence is that investors buy at high prices and sell at low prices, the very opposite of what they should do to best work toward their goal. Investors must not let their emotions get the best of them, and must exercise the discipline of maintaining a systematic investment program. If investors want to avoid the "buy high, sell low" trap, then dollar cost averaging can be a valuable strategy in a down or uncertain market.keep in mind that dollar cost averaging does not protect investors against losses. While it does result in the average cost per share being lower than the average price of the shares over time, in a bear market an investor can have losses. Dollar cost averaging may also lower your potential profits, if done in a steadily rising market. If a stock's share price rises all year long, then an investor would have greater gains if they make a single large investment early in the year. Conclusion Dollar cost averaging is a great strategy for an investor who is uncertain about the future of the market to use. However, if you are confident of a bull market, the best strategy is likely to make a lump sum investment rather than dollar cost averaging in. If the latter description doesn't fit you or the current market conditions, the least risky way to take advantage of great entry points during a down market is to consider and implement a dollar cost averaging plan. Tracking # (Exp. 10/10) This research material has been prepared by LPL Financial. Principal risk: An investment in Exchange Traded Funds (ETFs), structured as a mutual fund or unit investment trust, involves the risk of losing money and should considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks: not diversified, the risks of price volatility, competitive industry pressure, international political and economic developments, possible trading halts, Index tracking error. Investing in mutual funds involve risk, including possible loss of principal. Investments in specialized industry sectors have additional risks, which are outlined in the prospectus. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Investors should consider the investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus contains this and other information about the investment company. You can obtain a prospectus from your financial representative. Read carefully before investing.

9 The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Paul Winkler is a Registered Representative with and Securities are offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Focused 401(k) Partners, a registered investment advisor and a separate entity from LPL Financial. This newsletter was created using Newsletter OnDemand, powered by McGraw-Hill Financial Communications.