2011 06 ViewPoint Newsletter for June 2011
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The document discusses retirement income planning using an endowment spending strategy, emphasizing the importance of balancing withdrawals with portfolio performance to avoid premature depletion. It also highlights the value of dividend-paying stocks in retirement portfolios and outlines tax implications for selling a home during divorce, particularly around first-time homebuyer credits. Clear View Wealth Advisors provide fee-only financial planning services and resources for various financial needs.
![Page 3 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 June 2011
Selling Your Home & Paying the Tax Man (by Steve Stanganelli,, CFP®)
Tax Tips for Handling Real Estate in Divorce
Special points of interest:
You can exclude up to $250,000 in gain from the sale if you are singe and Case Study: First-Time Buyer Credit & Divorce
up to $500,000 if you are married filing jointly.
Your gain or loss depends on your adjusted basis. In 2008, Chris and Jenny purchased a home that qualified
for the $7,500 first-time homebuyer credit.
Your adjusted basis is calculated by adding the cost to buy plus any costs
for improvements so keep good records.
They were married at the time of purchase and applied for
If you use any part of your home for a business deduction, an adjustment the credit on a joint return.
will be needed for recapturing depreciation.
Call the Clear View Financial Planning Helpline for help in preparing your In 2009, they divorced and Jenny received the house.
income taxes at 978-388-0020 or 617-398-7494. Chris gave up ownership in 2009 and filed Form 5405 stat-
ing that he transferred the house to Jenny incident to the
divorce [Form 5405, Line 13(e)].
You may be able to exclude from income any gain up to
$250,000 for a single taxpayer and $500,000 for a joint re- In 2010, Jenny sold the house at a gain of $9,300.
turn. To exclude the gain, you must have owned and lived in
the property as your main home for two of the five years pri- Who repays the credit and how much?
or to the date of the sale. If you lose money on a sale, the
loss is not tax deductible. Since Jenny received the home in the divorce, she has to
repay the credit. In this example she must repay the entire
Your Adjusted Basis $7,500 because her gain from the sale was $9,300.
A dollar amount known as your adjusted basis determines wheth-
er you experience a gain or a loss. If you purchased or built your
home, your initial cost basis typically is the cost to you at the time The $9,300 gain was calculated by reducing the basis of
of purchase. If you inherit a home, the cost basis is the fair market the home by the $7,500 credit. If the gain had been less
value on the date of the decedent's death or a later valuation se- than the $7,500 her repayment would be limited to the
lected by a representative of the estate.
amount of the gain.
The formula for determining your gain or loss is as follows:
If she sold it for a loss then none of the credit would have
Selling price - Selling expenses = Amount realized
to be repaid.
Amount realized - Adjusted basis = Gain or loss
According to the instructions to Form 5405, Line 13(e), the
The cost basis may be adjusted over time due to the following spouse who owns the residence after the divorce is
conditions:
Additions and other improvements that have a useful life of responsible for the repayment, if any, of the entire first
more than one year and that add to the value of your -time homebuyer credit.
home. These can include a garage, decks, landscaping, a
swimming pool, storm windows and doors, heating and
air conditioning systems, plumbing, interior improve-
Jenny will file the Form 5405 in 2010 and fill out Parts III
ments and insulation. Note that repairs that keep your and IV to repay the credit.
house in good condition but do not significantly enhance
value, such as fixing gutters, repainting, or plastering, do
not affect the cost basis.
Special assessments paid for local improvements. TAX HELPLINE: 978-388-0020 or 978-416-4107
Amounts spent to restore damaged property.
Payments for granting an easement or right-or-way.
Depreciation if the home was used for business or rental pur-
poses.
Others as determined by the Internal Revenue Service (See
Publication 523 Selling Your Home).
“Divorce & Your Money”
The definition of a "main home," according to the Internal Reve-
FREE Booklet
nue Service, includes a private residence, condominium, coopera-
tive apartment, mobile home or houseboat. It is to your advantage
to maintain records of a home's purchase price, purchase expens-
es, improvements, additions, and other issues that may affect the
adjusted basis. Clear View Wealth Advisors, LLC
Amesbury * Wilmington * Woburn
###
Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not
act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View
Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email: Steve@ClearViewWealthAdvisors.com](https://image.slidesharecdn.com/201106viewpointnewsletterforjune2011-110531140322-phpapp01/85/2011-06-ViewPoint-Newsletter-for-June-2011-3-320.jpg)
2011 06 ViewPoint Newsletter for June 2011
- 1. V IEWPOINT Creating a Paycheck for Retirement (Third in a Series) June 2011 Investing and Managing Retirement Income Using an Endowment Strategy By Steve Stanganelli, CFP® Balancing Retirement Spending with Portfolio Performance One of the biggest concerns for any retiree is running out of money. Considering that a cou- ple reaching the age of 65 has a high likelihood of at least one spouse living into their 90s, it is important to have a thoughtfully prepared spending plan in place. The Lifestyle Approach: The typical rule of thumb is to peg portfolio withdrawals at a set percentage somewhere be- tween 4% and 5% each year. Generally, each year the retiree gives himself a “raise” by in- creasing the amount withdrawn by the rate of inflation. Steve Stanganelli, CFP®, CRPC® The downfall of this approach is that it does not tie spending to the actual performance level of the investment portfolio. And in periods of high inflation, the amounts withdrawn may in- crease too rapidly. And if there is an extended bear market coupled with significant inflation About Clear View as occurred during the 1970s, then there is a risk of premature depletion—ending up broke in retirement. Clear View Wealth Advisors, LLC Endowment Spending: Pretend You’re Like Harvard or Yale is an independent Registered In- vestment Advisor providing finan- To help minimize the risk of outliving your money, consider a different approach used by cial planning, tax preparation, and large organizations and endowments. They plan on being around a long time so they target investment advisory services to individuals and couples throughout a spending rate that allows the organization to sustain itself. This approach combines the Massachusetts. previous year’s spending amount with a percentage of the portfolio’s performance. This approach is designed to “tighten the belt” when market performance has been down so that the portfolio can be sustained over the long term. Clear View works on a FEE ON- LY/FEE-for-SERVICE basis. To use this approach, a retiree works with his adviser to determine what the first year spending is expected to be. Then you can determine the initial withdrawal rate between 3% and 4% to use. The next factor needed is the “smoothing rule” to be used which determines www.ClearViewWealthAdvisors.com how quickly to increase or decrease annual spending based on portfolio performance. For example, a 90/10 rule would mean that 90% of the current year spending will be based on the total for the prior year plus 10% of the portfolio’s performance. So if the portfolio has gone up 10%, then the amount allowed to be withdrawn will be another 1% on top of the original spending target. If the portfolio has stayed flat or gone down, then the spending will be held in check requiring a bit of belt tightening in the near term. Using this approach com- pared to a simple “lifestyle” rule of thumb has shown the retiree’s portfolio can outlast by several years and even have extra wealth to pass on with- out any dramatic change in “Using Convertibles to Protect & Grow Wealth” asset allocation. Free Rollover Helpline er FREE White Pap To improve the portfolio’s 978-388-0020 odds, there is a strong case Call for Your Free Guide for using dividend-paying in- Clear View Wealth Advisors, LLC “Six Best & Worst IRA Rollover vestments such as stocks and Amesbury * Wilmington * Woburn Decisions” convertible bonds.
- 2. Page 2 June 2011 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 INVESTMENT RESEARCH CORNER 2. Historically higher total returns compared to bonds be- Should Investors Worry? Low Stock Dividend cause of the stock appreciation potential of the dividend- Yields & The Future of Stock Prices payers. by Steve Stanganelli, CFP® from 3. Higher income, capital appreciation and total return www.moneylinkpro.wordpress.com on May 25, 2011 compared to the S&P 500 Index in almost all of the pe- riods noted above and a near 20-year annualized total How to Use Dividends in Your Portfolio return of nearly 11% versus 8.4%. Using dividend-paying stock is something that makes sense in retirement portfolios. To provide tax efficiency, it Dividend-paying stocks are probably not as sexy as most makes sense to include these in your qualified accounts aspects of the stock market. They are part of "value invest- (like IRAs). And to boost income, it makes sense to add ing," the stuff of "conservative" portfolios built for "widows global dividend-paying stocks which tend to have higher and orphans." They are the basic building blocks used by yields and payouts. Warren Buffet of Berkshire-Hathaway fame. Dividends are a critical part of any diversified portfolio and For any investor looking at ways to manage retirement in- especially for an income-oriented investor. come, they should not be overlooked. In fact,recent re- search reveals that those companies that pay out higher The total return from stocks is derived from two key compo- dividends also tend to have higher stock prices because nents: price appreciation and the cash flow from dividends. they also have higher earnings growth, another key compo- nent in valuing stocks. This research indicates this as a The Value of Dividends to an Investor global tendency. Below is a chart of various recent periods of stock market performance compiled by Thornburg Investment. Searching for Yield Unfortunately, seeking out high dividend-paying companies The "Dividend Aristocrats Index" refers to an index of com- in the US is not so easy. Unlike managements of Euro- panies that consistently lead the market in paying dividends based companies where paying dividends is a sort of and regularly increasing their dividends. badge of honor, US companies tend to be much more stin- Annualized Total Dividend Aristocrats S&P 500 gy in paying back earnings to owners of the company (the Return Period Index stockholders). 1990-94 12.58% 10.4% 1995-99 19.48% 28.54% A research note by Vanguard (May 2011) shows a clear 2000-04 9.79% -2.29% declining trend in dividend yields. From 1928 through 2005 – 9/2009 2.32% -0.08% 1945, the average dividend yield was around 5.6% and divi- 1990 – 9/2009 10.97% 8.41% dends represented about 67% of company earnings (aka dividend payout ratio). From 1945 to 1982 the average yields dropped to 4.2% and the payout ratio to 53%. In the Dividend-paying stocks have shown these positive attrib- more recent period (1983 through 2010), the average yield utes over this period: has dropped to 2.5% with a payout ratio of about 46%. 1. Historically higher yields than bonds Do Lower Dividends Mean Lower Stock Prices? The question that investors may be asking themselves now is "will these lower dividend yields (historically and com- Special Offers & Coupons pared to Europe) be an indicator of lower stock prices?" Call or go to Google Placestm, search for Clear View Wealth Advisors in Wilmington or Amesbury While the stock market is certainly not without bubbles and crashes, it is unlikely that lower dividend yields are an indi- Save $75 on Focused Plan cator of lower total returns. 2-Hour Brain Drain Strategy Session. 2-Hour focused There are other reasons that are more likely the cause of strategy session to answer any questions on ANY finan- this trend toward lower yield payouts. Part of this is based cial question you have. on US tax policy. Another is the culture of US corporate management that has opted toward share repurchases in- 20% Off Advisor On Call stead. Peace of Mind Help When You Need It. Phone and Email support throughout the year to help you with In the US, there is a bias in favor of long-term capital gains over receiving dividends and paying income taxes. ANY financial planning questions. Flat rate. When management opts for a "share repurchase" program, only those who tender their shares are paid out. So this Program details: www.hotfrog.com/Companies/Clear-View- may be more agreeable to investors who are trying to man- Wealth-Advisors_24556279 age their tax bill from investing. Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email: Steve@ClearViewWealthAdvisors.com
- 3. Page 3 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 June 2011 Selling Your Home & Paying the Tax Man (by Steve Stanganelli,, CFP®) Tax Tips for Handling Real Estate in Divorce Special points of interest: You can exclude up to $250,000 in gain from the sale if you are singe and Case Study: First-Time Buyer Credit & Divorce up to $500,000 if you are married filing jointly. Your gain or loss depends on your adjusted basis. In 2008, Chris and Jenny purchased a home that qualified for the $7,500 first-time homebuyer credit. Your adjusted basis is calculated by adding the cost to buy plus any costs for improvements so keep good records. They were married at the time of purchase and applied for If you use any part of your home for a business deduction, an adjustment the credit on a joint return. will be needed for recapturing depreciation. Call the Clear View Financial Planning Helpline for help in preparing your In 2009, they divorced and Jenny received the house. income taxes at 978-388-0020 or 617-398-7494. Chris gave up ownership in 2009 and filed Form 5405 stat- ing that he transferred the house to Jenny incident to the divorce [Form 5405, Line 13(e)]. You may be able to exclude from income any gain up to $250,000 for a single taxpayer and $500,000 for a joint re- In 2010, Jenny sold the house at a gain of $9,300. turn. To exclude the gain, you must have owned and lived in the property as your main home for two of the five years pri- Who repays the credit and how much? or to the date of the sale. If you lose money on a sale, the loss is not tax deductible. Since Jenny received the home in the divorce, she has to repay the credit. In this example she must repay the entire Your Adjusted Basis $7,500 because her gain from the sale was $9,300. A dollar amount known as your adjusted basis determines wheth- er you experience a gain or a loss. If you purchased or built your home, your initial cost basis typically is the cost to you at the time The $9,300 gain was calculated by reducing the basis of of purchase. If you inherit a home, the cost basis is the fair market the home by the $7,500 credit. If the gain had been less value on the date of the decedent's death or a later valuation se- than the $7,500 her repayment would be limited to the lected by a representative of the estate. amount of the gain. The formula for determining your gain or loss is as follows: If she sold it for a loss then none of the credit would have Selling price - Selling expenses = Amount realized to be repaid. Amount realized - Adjusted basis = Gain or loss According to the instructions to Form 5405, Line 13(e), the The cost basis may be adjusted over time due to the following spouse who owns the residence after the divorce is conditions: Additions and other improvements that have a useful life of responsible for the repayment, if any, of the entire first more than one year and that add to the value of your -time homebuyer credit. home. These can include a garage, decks, landscaping, a swimming pool, storm windows and doors, heating and air conditioning systems, plumbing, interior improve- Jenny will file the Form 5405 in 2010 and fill out Parts III ments and insulation. Note that repairs that keep your and IV to repay the credit. house in good condition but do not significantly enhance value, such as fixing gutters, repainting, or plastering, do not affect the cost basis. Special assessments paid for local improvements. TAX HELPLINE: 978-388-0020 or 978-416-4107 Amounts spent to restore damaged property. Payments for granting an easement or right-or-way. Depreciation if the home was used for business or rental pur- poses. Others as determined by the Internal Revenue Service (See Publication 523 Selling Your Home). “Divorce & Your Money” The definition of a "main home," according to the Internal Reve- FREE Booklet nue Service, includes a private residence, condominium, coopera- tive apartment, mobile home or houseboat. It is to your advantage to maintain records of a home's purchase price, purchase expens- es, improvements, additions, and other issues that may affect the adjusted basis. Clear View Wealth Advisors, LLC Amesbury * Wilmington * Woburn ### Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email: Steve@ClearViewWealthAdvisors.com
- 4. Page 4 June 2011 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 About Clear View Wealth Advisors, LLC Clear View is a Registered Investment Advisor providing fee-only / fee-for-service financial planning, consulting and investment management services. Primary Business Address We help clients make smarter money choices. 12 Amidon Avenue Amesbury, MA 01913 THE BOTTOM LINE Convenient Meeting Locations From Merrimack Valley to Boston: When your life savings are at stake, you want advice you Newburyport Woburn Wilmington Lawrence Boston can trust and someone you can count on. You need a trusted advisor that is objective, an advisor that is not Phone: 978-388-0020 or 617-398-7494 Fax: 866-654-4301 paid more to sell you one product over another. You Email: steve@ClearViewWealthAdvisors.com need a relationship with a firm and an advisor that prom- ises to always put your interest first, a firm with proven Visit us on the Web! experience and the right professional credentials. More Financial Tools: www.ClearViewWealthAdvisors.com Divorce Help: www.DivorceFinancePros.com To explore how Clear View and Steve Stanganelli, CFP® College Funding Help: www.CollegeCashPros.com can help you, call 978-388-0020 today to schedule an FREE Road Map Tool: www.BabyBoomerRetirementPro.com exploratory meeting (via phone or in-person). There is no Our Blog: www.MoneyLinkPro.Wordpress.com charge or obligation. ———————————————— Visit our website to find out more about our approach and services. FREE 30-Minute Money Tune-Up Specials & Coupons Available Online at Yelp.com & Google.com/ + $100 Off Any Road Map Financial maps, Steve Stanganelli Plan Program Help with College Costs A Click Away Exclusive College Planning Service for Late Starters Available Offered by Steve Stanganelli, CFP® Steve Stanganelli and Clear View Paying for college while trying to save for retirement and deal with other elder specialize in the following services: parents can be a demanding challenge. Retirement Income Planning IRA Rollovers Help is now available online through Clear View Wealth Advisors and its ex- Roth IRA Conversion Analysis clusive college planning service. College Funding Strategies & 529 Plans This program helps parents with students of any age with saving, investing, Divorce Settlement Analysis cash flow and tax strategies that may help reduce the overall cost burden. Qualified Plans for Businesses One-to-One Money Coaching This program is especially ideal for late starters with kids in high school. Our Periodic or One-Time Invest- strategies go beyond 529 savings plans and include tax-wise cash flow strate- ment Advice gies that help parents save money while not neglecting retirement funding. On-Going Investment Manage- ment & Monitoring Visit www.ClearViewWealthAdvisors.com or www.CollegeCashPros.com . Financial Education Programs for Groups FREE Online Planning Tool “The Money Coach Road Map Series:” FREE Webinars Live on the 2nd Thursday Each Month Get Yours at www.SmartMoneyRoadMap.com Check the Clear View Site Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email: Steve@ClearViewWealthAdvisors.com