Having enough cash to make it through an illness, injury, job loss, or other financial emergency can help you avoid taking on debt or tapping your retirement assets. However, given the relatively low interest rates offered on cash instruments, having more cash in your portfolio than would be necessary to cover three to six months of expenses could actually say something about your long-term outlook.

If you have been increasing your cash position, it’s a good idea to be honest with yourself about your motives. Ask yourself some critical questions.

What am I saving for? Building up a cash reserve to help defend against the unexpected is a smart move. But are you working to accumulate a particular sum, or is there no end in sight? You run the risk of not reaching long-term financial goals when your portfolio is too heavily allocated to cash.

Am I increasing my cash position because of fear? It’s usually not a good idea to keep the bulk of your wealth and/or retirement assets on the sidelines, in low-yielding cash instruments, just because you fear market volatility. Of course, as retirement approaches, it’s a good idea to begin shifting assets into more conservative positions. But this process should be based on a forward-looking strategy that takes into account your time horizon and risk tolerance, rather than on an emotional reaction to market fluctuations. As you can see in the chart above, trying to pick the right moment to flee and the right moment to reinvest is a costly practice that can cause you to miss out on market gains.

What’s my real rate of return? Despite the fact that inflation has been fairly low over the past few years, it is still growing at a faster rate than most cash instruments. For example, in 2009 the rate of inflation was 2.72% and the annual yield on six-month certificates of deposit was 0.81%.² What this means is that the combined principal and interest that was returned to the CD owner on the maturity date had less spending power than the principal that was invested six months earlier. When you also consider the effects of income taxes on the interest earned, it’s easy to see how expensive “safety” can be.

The FDIC insures bank savings accounts and CDs, which generally provide a fixed rate of return, up to $250,000 (per depositor, per institution). The return and principal value of an investment in stocks and bonds fluctuate with changes in market conditions. When sold, these securities may be worth more or less than the original investment amount.

There’s a big difference between being prepared for unexpected expenses and stockpiling cash because of fear. We can help you evaluate the role that cash plays in your portfolio.

1) Journal of Financial Planning, March 2010
2) Thomson Reuters, 2010, for the period 12/31/2008 to 12/31/2009. Inflation is represented by the U.S. Consumer Price Index. CDs are represented by the 180-Day Certificate of Deposit Index. The performance of an unmanaged index is not indicative of the performance of any particular investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Actual results will vary.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

Of course, you still have to fill out the right forms, but the process is nowhere near as complicated as writing a will. In fact, your retirement assets, life insurance, and some other account types should convey to whomever you named as a beneficiary, regardless of what it says in your will or whether you even have a will.

However, be advised that failing to designate your beneficiaries correctly can create problems for your heirs that will make probate seem like a Caribbean cruise.

Don’t Default to Default Beneficiaries

Generally, when you set up a retirement account or purchase a life insurance policy, you are given an opportunity to name primary and secondary beneficiaries. Although it would be unlikely for someone to buy life insurance without designating a beneficiary, it’s not uncommon for people to leave their retirement account beneficiary forms blank.

Most people assume that their IRAs and employer-sponsored retirement plans will go to their spouses. It’s true that these types of accounts have provisions for default beneficiaries, but who exactly qualifies as a default beneficiary can vary based on the account type and custodian — and there’s no guarantee that it will be your spouse.

It can be dangerous to assume that the default beneficiary is the person whom you want to inherit your assets. If it isn’t, the person who was expecting to inherit your retirement assets may have to mount a legal challenge to attempt to change the outcome. If the default beneficiary turns out to be your estate, your intended heirs could lose valuable tax benefits.

Although it’s still important to have a current will in place, a will won’t settle all estate conservation matters. It’s a good idea to review your beneficiary designations on a regular basis to help ensure there is no debate over who will inherit your retirement assets and receive your life insurance benefits.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

The appropriate way to appraise a person’s entire life after he or she is gone is a topic that has been debated by philosophers throughout the ages. Certainly, there are as many factors as there are ways to approach them. One measure of a life is the effect that the person’s death has on those close to him or her. For those with dependents, this effect can be substantial.

One way to help mitigate the financial blow of the loss of a head of household is through life insurance. Yet in a recent survey, even though most people agreed that everyone should have some form of life insurance, only 20% felt that it should go beyond just covering bills and funeral costs and should replace the income of the deceased in order to support dependent family members.¹

However, if you have dependents, the loss of your income could put your family in the difficult position of trying to maintain its standard of living on a much smaller budget. Life insurance can be a tool to help replace the lost income. But how much insurance is enough?

No Rule of Thumb

Some people recommend that life insurance be high enough to replace an equivalent of seven or eight times the annual salary of the insured. Yet this old rule of thumb may not be the best guidepost for someone with no children.

To determine how much life insurance coverage may be appropriate for your family, consider your dependents and their ages. How long would they be expected to need support? Would there be enough funds for college? Would you want the mortgage to be paid off?

Don’t forget about other benefits that might be lost along with your salary. For example, if your health insurance is provided by your employer, your family may need replacement coverage.

Remember that the cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable and to consult a tax professional.

As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

1) U.S. News & World Report, March 31, 2009

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2009 Emerald.

Even as the economy stumbles, the price of a college education keeps on climbing. Average tuition and fees at public four-year colleges and universities rose 6.4% in the 2008–09 academic year, while costs at private four-year institutions rose 5.9%.¹

Higher college costs and trying economic conditions have interrupted the education plans of many aspiring students. In a recent survey, 57% of high-school seniors lamented that they were considering less prestigious and less expensive college options, and 16% were putting their searches on hold because they didn’t think their families could afford to foot the bill.²

It’s likely that admission to the nation’s top colleges and universities will remain competitive, but adequate college savings can help ensure that a student’s opportunity to attend his or her school of choice is not compromised by the lack of resources. Fortunately, Section 529 plans are designed to help families save for future higher-education costs.

Study This Strategy

With a 529 savings plan, investment earnings accumulate on a tax-deferred basis. Contributions and earnings can be withdrawn tax-free if they are spent on qualified higher-education expenses such as tuition, fees, room and board, books, and other school supplies.

Family members can contribute up to $13,000 ($26,000 for married couples) to a 529 plan each year per student without triggering gift taxes, and there are no donor income limits. Contributions up to $65,000 ($130,000 for married couples) are also allowed in a single year as long as no other gifts are given to the student by the same contributor(s) for five years.

As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also a risk that the plan investments may lose money or not perform well enough to cover college costs as anticipated.

The tax implications of a 529 plan should be discussed with your legal and tax advisors because the plans can vary significantly from state to state. Also note that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.

Before investing in a 529 savings plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options and underlying investments, can be obtained by contacting your financial professional. You should read this material carefully before investing.

The average debt for college graduates who borrowed money for college has reached $22,700, with many owing much more.³ For parents who worry about the financial future of their children, it can be worth the investment to support worthy students in their pursuit of a higher education.

1, 3) The College Board, 2008
2) The Wall Street Journal, October 30, 2008

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by StoneRiver–Emerald. © 2009 StoneRiver, Inc.

Americans are more likely to have employer-sponsored life insurance coverage than to own their own life insurance policies.¹ Unfortunately, the major problem with employer-sponsored group insurance is that you usually lose coverage after you leave your job or retire (unless the policy is portable).

Owning your own life insurance policy is one way to help keep your family protected, regardless of whether your employment situation changes. Fortunately, owning your own policy may offer some other attractive benefits as well.

Term Policies

Individual term life insurance policies remain in effect for a specific period and pay a death benefit if the insured dies within that term. The death benefit paid to beneficiaries is generally not taxable as income. Term policies do not accumulate cash value and have no residual value if allowed to lapse.

Permanent Policies

Like term policies, the death benefit from a permanent policy is generally income tax–free. But unlike term policies, certain types of permanent life insurance policies remain in force throughout the insured’s lifetime as long as the premiums are paid.

Permanent insurance not only provides a death benefit, it also offers a living benefit. Part of each premium goes into a cash-reserve account that accumulates earnings on a tax-deferred basis. Once you have built up significant cash value, you can access it for any purpose, such as college tuition for your loved ones or retirement income. Because you have already paid income taxes on the funds used to pay the premiums, that portion of the cash value will not be taxed (any interest withdrawn, however, is taxable). Remember that access to cash value through loans or partial surrenders will reduce the policy’s cash value and death benefit, and it may result in a tax liability if the policy terminates before you pass away.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.

As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Any guarantees are contingent on the claims-paying ability of the issuing insurance company. Before you take any specific action, be sure to consult with your tax professional.

1) LIMRA International, 2008

This material was written and prepared by StoneRiver–Emerald.
© 2009 StoneRiver, Inc.

Shift Your Retirement Risks Away from the Business

Each year more than 500,000 small businesses close their doors, including 20,000 to 40,000 that are shuttered by bankruptcy.¹

Whether you are building a small business or are at the helm of an established, successful enterprise, you know that it can take everything you have in terms of time and money to survive the competition while also turning a profit.

However, allocating too much of your investment capital to one company — even your own — is a risky proposition. Obviously, it would be unwise to devote your entire retirement portfolio to a single investment, but this is exactly what you are doing if you invest in your company to the exclusion of all else.

One way to help insulate your retirement from the risks associated with surviving in business is by investing outside of your company. Sometimes it might seem that your only option is to reinvest profits back in the business in order to keep it growing. But by investing away from the business, you may be able to help insulate your financial situation from fluctuations in the market in which you conduct business.

There are some potential benefits of building wealth outside the business:

Greater bargaining power when you eventually sell the business because you may be able to wait for the best terms rather than accepting the first offer.

Possible alternative source of income to help bridge the gap if the company enters a lean period.

Defense against a reduced retirement lifestyle in the event that your firm pays you less retirement income or fetches a lower sales price than you had expected.

It’s natural to want to put everything toward the success of your business. We can help you evaluate potential investment opportunities and decide whether now is a good time to begin building wealth outside your company.

1) U.S. Small Business Administration, 2008

This material was written and prepared by StoneRiver–Emerald.
© 2009 StoneRiver, Inc.

Although 75% of Americans surveyed in the first quarter of 2008 thought the economic situation was “poor” at the time, 60% thought economic conditions in 2009 would be “good.”¹ Considering the market volatility over the past few months, will we see an improvement in 2009 economic conditions? What will this situation mean for you and your money?

Housing

The housing sector has taken a significant tumble recently. Although some
economists forecast another year of falling home prices, the decline is
projected to be less than half that of 2008.² Former Federal Reserve
Chairman Alan Greenspan speculated that home prices may start to stabilize or
touch bottom sometime in the first half of 2009, but could continue to fall
through 2009 and beyond.³

Interest Rates and Inflation

On October 29, 2008, the Federal Reserve lowered the federal funds rate from
1.5% to 1% and expressed a weaker economic outlook related to worries over the
financial and credit-market crisis. The Federal Open Market Committee said it
“expects inflation to moderate in coming quarters to levels consistent with
price stability….Nevertheless, downside risks to growth remain.”⁴

Before the rate cut, some economists believed that the Fed would have to
raise interest rates in the first six months of 2009.⁵

In a retirement poll conducted early last year, before their retirement
accounts and stock investments plummeted, many Americans already had a gloomy
outlook on the long-term future. In fact, only 29% of respondents were “very
confident” about saving enough to live comfortably in retirement; just 44%
thought they would be able to retire when they want to.⁶

When examining prospects for the near future, it is important to consider
your long-term financial goals. Economies and markets fluctuate constantly. It
can be tempting for investors to make decisions based on short-term fluctuations
without fully considering the long-term consequences.

Call today to discuss ways to potentially capitalize on financial
opportunities in 2009 while keeping sight of your long-term strategy.

1, 6) CNNMoney, March 21, 2008

2, 5) Wall Street Journal Economic Forecasting Survey, September 2008

3) The Wall Street Journal, August 13, 2008

4) Federal Reserve, 2008

This material was written and prepared by Emerald Publications.

© 2009 Emerald Publications

A majority of Americans aged 55 to 80 have fears about investment risks that
are undermining their confidence to invest in the stock market.¹ But
with traditional pension plans becoming more rare and Social Security’s future
in question, many Americans may need to pursue stock market gains in order to
avoid a retirement income shortfall.

One way to pursue gains in the stock market while also limiting downside
risks is through the use of living benefit guarantees that are offered with some
variable annuities (for an additional cost).

Living Benefits

A variable annuity is a long-term financial vehicle designed for retirement
purposes. The contract holder makes one or more payments to an insurance company
in exchange for the promise of an income stream or lump-sum payment to be made
at a future date. During the accumulation period, the insurance company invests
some of the payments in subaccounts selected by the contract holder that pursue
investment gains in various asset classes, including stocks.

Because it is possible for these investment subaccounts to lose money, some
variable annuities offer living benefit guarantees at an additional cost to help
guard against specific losses. These benefits can ensure that the contract will
reach a minimum value, provide a minimum income amount, or provide an income for
a specified period in the event that the subaccounts underperform.

There are contract limitations, fees, and charges associated with variable
annuities, which can include mortality and expense risk charges, sales and
surrender charges, administrative fees, and charges for optional benefits.
Withdrawals reduce annuity contract benefits and values. Variable annuities are
not guaranteed by the FDIC or any other government agency; they are not deposits
of, nor are they guaranteed or endorsed by, any bank or savings association.

Withdrawals of annuity earnings are taxed as ordinary income and may be
subject to surrender charges plus a 10% federal income tax penalty if made prior
to age 59½. Any guarantees are contingent on the claims-paying ability of the
issuing company. Because variable annuity subaccounts fluctuate with changes in
market conditions, the principal may be worth more or less than the original
amount invested when the annuity is surrendered.

Variable annuities are sold only by prospectus. Please consider the
investment objectives, risks, charges, and expenses carefully before investing.
The prospectus, which contains this and other information about the investment
company, can be obtained from your financial professional. Be sure to read the
prospectus carefully before deciding whether to invest.

1) NAVA, 2007

This material was written and prepared by Emerald Publications.

© 2009 Emerald Publications

Preparing Not to Inherit

An unexpected windfall would certainly be
a welcome gift for many people, but counting on an
inheritance to fund your retirement years could be a grave
mistake. Surveys suggest that only about 2% of baby boomers
have inherited $100,000 or more. Half of the baby boomers
who did inherit funds received $48,000 or less.¹

Numbers like that make it clear that preparing for
retirement will require adequate saving and investing — not
just working hard to stay in the good graces of wealthy
relatives.

More Americans are spending down their retirement savings
while living longer, more active, and more expensive lives.
Volatile real estate values, an uncertain economy, and ups
and downs in the market have also affected many retirement
portfolios. All these factors, in addition to expensive
health-care costs and higher living expenses in general,
could actually result in aging family members having fewer
assets to leave behind.

You may have family members who would love to leave you a
tidy sum, but it could be disastrous to leave your financial
future to chance. Be prepared to fund your own secure
retirement. If a windfall should one day come, you just
might be in the enviable position of leaving a lasting
legacy yourself.

1) The Wall Street Journal, June
14, 2008

This material was written and prepared by
Emerald Publications.
© 2009 Emerald Publications