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Oak Tree WealthManagementDiane L. Woodward, CFP®3180 Crow Canyon PlaceSuite 220San Ramon, CA 94583925-275-9400888-965-9550 [email protected]
January 2013What is new for 2013?
Compounding Can Add Fuel to Your Portfolio
Real-life Financial Tips for DifferentGenerations
What health-care provisions are effective in2013?
What is new for 2013?
See disclaimer on final page
Happy New Year! Over the holidayswe were busy moving our office.Please make a note of our newaddress and phone numbers. Welook forward to welcoming you to ournew office.
What's new in 2013?
We have a new office address and newphone numbers, please take note.
January Events:1/22/2013 AAUW Meeting : Diane will be theguest speaker, the topic will be Women andFinance . Today, more women than ever areresponsible for their financial well-being, andthe financial well-being of their families. Butwomen often face unique financial challengesthat can impact their ability to achieve financialsecurity. That's why it's so important that nomatter what life stage they're in, women knowhow to save, invest, and plan for their future.Please contact our office for more information.
1/31/2013 , The same presentation as above,Women and Finance , will come directly to youat your desk at noon via the web. Pleasecontact [email protected] fordirections on attendance.
February Events:2/26/2013 Savvy Social Security Webinar atnoon, at your desk. Social Security is morecomplex than most people realize. By attendingthis workshop you will have a betterunderstanding of the Social Security systemand what you need to know to maximize yourbenefits before you apply. What is the best ageto apply for benefits? • How does earlyretirement affect your lifetime benefits? •Spousal Benefits - Learn about little knownstrategies for couples, that may boost acouple's income, (these strategies can work fordivorced or surviving spouses too) • Learn thequestions to ask to help make informed choices• Please contact [email protected] directions on attendance.
What else are we working on behind thescenes?
We have created a completely new websitethat is working its way through compliance.Once it is approved, you will find it at the usualwww.oaktreewealth.com address. We haveupgraded the look and the content to betterprovide learning tools for you.
I have passed the first test of the RICP™, orRetirement Income Certified Professional® ,designation. My final grade was an “A”! I havetwo more exams that will take meapproximately 8 more months to complete. Ibelieve it is worth investing my time and moneyso that my clients receive the most up to dateand accurate information regarding retirementstrategies.
Well, that is enough news for now. We sendyou our best wishes for a happy and healthyNew Year!
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Compounding Can Add Fuel to Your PortfolioIf you enter the terms "Albert Einstein" and"compounding" into an Internet search engine,you'll discover a wide variety of quotesattributed to the great inventor. Some resultssay Einstein called compounding the "greatestmathematical discovery of all time," whileothers say he called it the "most powerful forcein the universe." Despite the many variations,Einstein's point is valid: compounding can addfuel to your portfolio's growth. The key is toallow enough time to let it go to work.
Time and money can work togetherThe premise behind compounding is fairlysimple. If an investment's earnings arereinvested back into a portfolio, those earningsmay themselves earn returns. Then thosereturns earn returns, and so on. For instance,say you invest $1,000 and earn a return of6%--or $60--in one year. If you reinvest,combining that $60 with your $1,000 principal,and earn the same 6% the following year, yourearnings in year two would increase to $63.60.Over time, compounding can snowball andreally add up.
Say at age 45 you begin investing $3,000annually in an account that earns 6% per year,with earnings reinvested. At age 65, your$60,000 principal investment would be worthalmost twice as much--about $117,000. That'snot bad, right?
Now consider what happens if you begininvesting at age 35, using the sameassumptions. By 65, your $90,000 principalwould nearly triple to just over $250,000.
Finally, consider the results if you start at age20: your $135,000 investment would be worth ajaw-dropping five times as much--$676,524.That's the power of compounding at work.
But how long do I have to wait?If you'd like to estimate how long it might takefor your investment to double, you can use aprinciple known in investment circles as the"Rule of 72." To use the rule, simply divide 72by the expected rate of return. For example, ifyou expect to earn an average of 8% over time,the Rule of 72 gauges that your investmentwould double in approximately nine years. (Thisrule applies to lump-sum investments, notperiodic investment plans such as those givenas examples in this article.)
With compounding, the more patience youhave, the better off you may be over the longterm. The examples in this article assume asteady 6% rate of return each year; however, inreality, no investment return can beguaranteed. Your actual earnings will rise andfall with the changing economic and marketconditions. That's why it's so important to stayfocused on the long term. Over time, the upsand downs may average out, and your earningscan potentially go to work for you.
Perhaps that's why Einstein calledcompounding "man's greatest invention." Orwas it the "eighth wonder of the world"?Regardless ... you get the idea. When it comesto investing, time can be the power behind yourpotential success.
Note: The examples in thisarticle are hypothetical andfor illustrative purposesonly. They assume a steady6% annual rate of return,which does not representthe return on any actualinvestment and cannot beguaranteed. Moreover, theexamples do not take intoaccount fees and taxes,which would have loweredthe final results. Speak witha financial professionalabout how these examplesmight relate to your owninvesting circumstances.
Page 2 of 4, see disclaimer on final page
Real-life Financial Tips for Different GenerationsDo you remember The Game of Life®? InMilton Bradley's popular board game, playersprogress through life stages making decisionsthat affect their prosperity. Like those players,today's generations face financial decisionswith lasting effects. Here are some tips forstaying focused despite life's ups and downs.
Generation Z (teens to early 20s):Accustomed to instant gratification, the "DigitalGeneration" may need to recognize thatfinancial success takes diligence and patience.Consider sharing the following advice with theGen Zers in your life:
Live within your means. Your first paycheckprovides the chance to learn valuable lessons,such as creating a budget and spending lessthan you earn.
Build a saving habit. You have one powerfuladvantage over other generations--time. Whynot make saving automatic and direct a part ofyour paycheck into a savings or investmentaccount?
Understand credit and credit reports. A goodcredit history helps you get a car loan and amortgage, but a bad one can ruin yourborrowing chances for years. Reviewing yourcredit report regularly can help you manageyour finances and protect your identity.
Generation Y (20s and early 30s):In this group, you could be juggling your first"real" job, college loans, marriage, a first home,and young children. Three points for you:
Risk management isn't just for companies.Save 6 to 12 months' worth of living expensesin a savings account for unexpectedemergencies. Review your insurance, and at aminimum, have health and property coverage.Also consider disability insurance, which helpspay the bills during a health crisis.
Start saving for retirement ... Like GenerationZ, time is your strongest ally. Participate in aretirement savings plan at work, if offered, andif your employer offers a match (free money!),contribute enough to get all of it. If you don'thave a plan at work, open an individualretirement account (IRA) and invest what youcan (up to annual limits).
... And your children's college. In 18 years, afour-year degree could cost as much as severalhundred thousand dollars. Give your children ahead start by saving now.
Generation X (30s and 40s):Home ownership, older children, a career in fullswing--if you're in this group, your finances maytake a back seat to life's daily demands. To
help stay focused, consider the following:
Retirement savings trump college savings.Don't risk your future to pay for your children'sentire education. There's no financial aid officein retirement.
Don't neglect your health. Are youexperiencing new aches and pains? At this age,medical issues can begin to surface,demanding time, energy, and financialresources. Take care of yourself, and before anemergency arises, review your health anddisability coverage.
Create a will, if you don't already have one.This important document can help ensure yourchildren are cared for and your assets aredistributed according to your wishes. Medicaldirectives should also be established now.
Baby boomers (50s and 60s):If you're in this age group, you may have bothadult children and elderly parents who needassistance, as well as an impending or currentretirement. Pointers for you include:
Shift your retirement savings into high gear.People over 50 benefit from higher savingslimits on 401(k)s and IRAs. Strive for themaximum.
Visit a financial professional. When shouldyou tap Social Security and your retirementsavings? How should you invest your assets topotentially provide a lifetime of income? Afinancial professional can be a critical coach atthis time of your life.
Investigate long-term care insurance. Thesepolicies help protect your family's assets fromthe potentially devastating effects of long-termcare. The older you get, the more expensivethese policies can be.
Retirees:The Game of Life ends when players reachretirement, but not so in real life--you still haveyears ahead of you. Consider the following:
Review the basics. Whether you plan to travelto exotic locales or play board games with yourgrandchildren, a key to happiness is livingwithin your means. Develop a realistic budgetand don't exceed your spending limits.
Manage your income stream. A financialprofessional can help you choose vehicles anddetermine an investment strategy to helpensure you don't outlive your assets.
Plan for your family's well-being. A properlycrafted estate plan can help you ensure thatyour wishes are carried out--for both your andyour family's peace of mind.
Page 3 of 4, see disclaimer on final page
Oak Tree WealthManagementDiane L. Woodward, CFP®3180 Crow Canyon PlaceSuite 220San Ramon, CA 94583925-275-9400888-965-9550 [email protected]
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013
California Insurance License#0785820. Diane is a registeredrepresentative with and securities,advisory services and financialplanning offered through LPLFinancial, a Registered InvestmentAdvisor, Member FINRA/SIPC.
How does health-care reform affect women?The Patient Protection andAffordable Care Act (ACA)expands women's access tohealth insurance and addsseveral reforms to the existing
health-care system that are specificallybeneficial to women.
Access to care and affordability are importantissues for women. According to the U.S.Department of Health and Human Services,because almost twice as many women thanmen who receive employer-provided healthinsurance are covered as dependents, they aresusceptible to losing that coverage should theybecome widowed, divorced, or if their husbandslose their jobs.
In addition, the cost of coverage maysignificantly impact women. Women earn lessthan men, on average, and are more likely tobe out of the workforce to care for children,parents, or other dependents. Because of thistrend, out-of-pocket costs such as co-pays,deductibles, and premiums can pose aparticular threat to women's access toaffordable care.
The ACA provides for the creation of state-levelhealth insurance exchanges, available to small
businesses and uninsured individuals, that willserve as a marketplace of private and publichealth plans. Individuals and familiespurchasing insurance through insuranceexchanges may be eligible for subsidies or taxcredits (based on income) that can be appliedtowards the cost of insurance. According to theU.S. Census Bureau, 20% of women betweenthe ages of 18 and 64, or about 19 millionwomen, are uninsured. Of those, it is estimatedthat 36% will be eligible for tax credits andsubsidies.
ACA specifies essential health benefits forwomen that must be offered bynongrandfathered plans. These benefits includematernity and newborn care, including prenatalvisits and pediatric services. Several preventiveservices must be offered without co-paymentsor deductibles, including mammography exams;Pap tests; colonoscopies; type 2 diabetesscreening; obesity screening; severalimmunizations including hepatitis, influenza,and HPV; and alcohol and tobacco counseling.Specific coverage benefits will continue to beshaped by U.S. Health and Human Servicesregulations.
What health-care provisions are effective in 2013?With the Supreme Court'sfavorable ruling on theconstitutionality of the PatientProtection and Affordable CareAct (ACA), more of the law's
provisions will become effective in 2013. Hereare some of the new features that may beimportant to you.
Medicare Part D participants who reach a gapin their drug coverage (the "donut hole") arerequired to pay the entire cost of prescriptiondrugs out-of-pocket. In 2013, the ACA willcontinue to close this gap by increasingsubsidies to reduce the cost of brand-name andgeneric drugs to participants who reach thedonut hole. These subsidies will continue until2020, when the participant's maximumcontribution toward the cost of prescriptions willbe reduced to 25%.
The threshold for the itemized deduction formedical expenses increases from 7.5% to 10%of adjusted gross income, beginning in 2013.However, this increase is waived for taxpayersage 65 and older through 2016.
In 2013, the annual pretax employeecontribution to a Section 125 cafeteria planflexible spending account (FSA) is reduced to
$2,500, subject to annual increases forcost-of-living adjustments. The reduction doesnot apply to certain employer nonelectivecontributions (e.g., flex credits).
Beginning in 2013, the hospital insurance (HI)portion of the payroll tax, commonly referred toas the Medicare portion, increases by 0.9% forindividuals with wages exceeding $200,000($250,000 for married couples filing a jointfederal income tax return, and $125,000 formarried individuals filing separately).
In addition, 2013 marks the imposition of a new3.8% Medicare contribution tax on theunearned income of high-income individuals.This 3.8% contribution tax generally applies tothe net investment income of individuals withmodified adjusted gross income that exceeds$200,000 ($250,000 for married couples filing ajoint federal income tax return, and $125,000for married individuals filing separately).
Looking ahead, 2014 brings the implementationof the health insurance exchanges, premiumand cost-sharing subsidies, and therequirement that most individuals have healthinsurance.
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