The Markets

Concerns about whether Greece would fulfill the conditions
necessary to obtain a second bailout brought on the first down week of 2012 for the domestic equities indices (except for the Dow, which had a down week in late January). Meanwhile, 10-year Treasury yields remained relatively stable as investors continued to seek out bonds.

Last Week’s Headlines

•Greece’s coalition government reached an agreement on
austerity measures needed to receive the second bailout from its peers, and at
the insistence of the eurozone’s finance ministers, the agreement was approved by the full Greek parliament. To protest the measures, Greece’s unions called a 48-hour strike over the weekend and demonstrators took to the streets.

•Five major banks will pay $26 billion to settle a suit by
49 state attorneys general and federal officials over faulty foreclosure
procedures, and nine other financial institutions are also in negotiations over
the same issue. According to the agreement, $17 billion will be used over the
next three years to assist homeowners, and 60% of that amount will help reduce principal on qualifying mortgages.

•According to the Commerce Department, higher imports of
autos, auto parts, and industrial machinery helped push the U.S. trade deficit
to $48.8 billion, the highest level since June. Imports rose 1.3% while exports
were up 0.7%.

Eye on the Week Ahead

European economic growth data and Wednesday’s meeting of
eurozone finance ministers, when final approval of the newest Greek bailout is expected in the wake of last weekend’s parliamentary vote, will be a focus of attention. Domestic data on inflation, manufacturing, and housing also will be watched.

Key dates and data releases: retail sales, business
inventories (2/14); Empire State manufacturing survey, industrial production, Federal Open Market Committee minutes, international capital flows (2/15); housing starts, wholesale inflation, Philadelphia Fed survey (2/16); consumer inflation, index of leading economic indicators, options expiration (2/17).

Data sources: Includes data provided by Brounes &
Associates. All information is based on sources deemed reliable, but no
warranty or guarantee is made as to its accuracy or completeness. Neither the
information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial
advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted
index composed of 30 widely traded blue-chip U.S. common stocks. The S&P
500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named
representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.  

The Retirement Group is not affiliated with nor endorsed by fidelity.com,
netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at www.theretirementgroup.com.

WEEKLY ECONOMIC UPDATE February 13, 2012

WILL THE MORTGAGE ACCORD BRING MUCH RELIEF?

While the $25+ billion settlement reached last week between
five large mortgage servicers and 49 states was momentous, it may not help many borrowers in trouble. Only about 1 million of the estimated 11 million
underwater homeowners will see relief as loans sold to Fannie Mae and Freddie Mac aren’t included in the deal. Much of the settlement money will go toward mortgage modification. Roughly 750,000 homeowners are slated to receive financial compensation from the accord (an average of about $2,000 per household). The lenders involved are JPMorgan Chase, Bank of America, Ally Financial, Citigroup and Wells Fargo; other banks could join them. (The state of Oklahoma forged its own agreement with the five lenders.)1,2

CONSUMER CONFIDENCE TAKES A DIP

The University of Michigan’s initial February consumer
sentiment survey fell to 72.5 from its one-year peak of 75.0 at the end of
January. Economists polled by Bloomberg News had expected a 74.8 reading.
However, the percentage of consumers who felt the jobless rate would fall in
future months was at the highest level the survey had seen in 28 years.3

GOLD SLIPS, OIL GAINS

Gold futures pulled back $14.60 last week, settling at
$1,723.30 on the COMEX Friday; that left gold up 10.06% YTD. Oil is still
hovering around $100: NYMEX crude finished Friday at $98.67, advancing 0.85% for the week.4

STOCKS RETREAT FOR THE WEEK ON FRIDAY LOSSES

When the Dow’s worst day of 2012 brings only an 89-point
loss, it seems the year is off to a good start. That loss occurred Friday after
another stall in the Greek debt negotiations. On the week, the major U.S.
indices pulled back a bit: DJIA, -0.47% to 12,801.23; S&P 500, -0.17% to
1,342.64; NASDAQ, -0.06% to 2,903.88.5,6

THIS WEEK: Monday, President Obama submits his 2013 fiscal
budget proposal to Congress. Tuesday, the Census Bureau publishes January
retail sales figures and MetLife issues Q4 earnings. Wednesday, the Fed issues the 1/25 FOMC minutes, the federal government comes out with figures on January industrial output and Q4 results arrive from Comcast, Deere, CBS, Abercrombie & Fitch and Nvidia. On Thursday, General Motors, Nordstrom and Baidu come out with earnings and new initial jobless claims are announced; January’s PPI is also released plus data on January housing starts, and Fed chairman Ben Bernanke speaks at an FDIC hearing. Friday, January’s CPI comes out along with the Conference Board’s newest leading economic indicator index; Q4 results come in from Heinz and Campbell’s Soup.

Sources: online.wsj.com, bigcharts.com, treasury.gov,
treasurydirect.gov – 2/10/126,7,8,9

Indices are unmanaged, do not incur fees or expenses, and
cannot be invested into directly.

These returns do not include dividends.

This
material was prepared by Peter Montoya Inc, and does not necessarily represent
the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito,
Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The
Retirement Group or FSC Financial Corp. This information should not be
construed as investment advice. Neither the named Representatives nor
Broker/Dealer gives tax or legal advice. All information is believed to be from
reliable sources; however, we make no representation as to its completeness or
accuracy. The publisher is not engaged in rendering legal, accounting or other
professional services. If other expert assistance is needed, the reader is
advised to engage the services of a competent professional. Please consult your
Financial Advisor for further information or call 800-900-5867.  

The
Retirement Group is not affiliated with nor endorsed by fidelity.com,
netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING
Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon,
ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America,
Alcatel-Lucent or by your employer. We are an independent financial advisory
group that specializes in transition planning and lump sum distribution. Please
call our office at 800-900-5867 if you have additional questions or need help
in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at www.theretirementgroup.com.

WEEKLY ECONOMIC UPDATE February 3, 2012

JOBLESS RATE DOWN TO 8.3%

Are we seeing a trend here? The unemployment rate has now
fallen 0.8% in the last six months. We haven’t seen a descent this sharp and swift since 1984. January hiring blew away forecasts: the Labor Department said the economy added 243,000 jobs last month, while economists polled by
Briefing.com expected non-farm payrolls to grow by 155,000 positions. The labor force hasn’t grown so much in a month since last April, and the numbers are making analysts wonder if the Federal Reserve will tinker with interest rates months ahead of expectations.1,2

HOUSEHOLDS SAVE FIRST, SPEND SECOND

Consumer spending was flat in December after gains of just
0.1% in November and October. More significantly, consumer incomes rose 0.5% for December and so did the personal savings rate. People essentially put the extra money in the bank. In related news, the federal government estimated 2011 GDP at 1.7%, about half of the economic growth seen in 2010.3

BOTH ISM INDEXES RISE

The Institute for Supply Management’s closely watched
purchasing manager indexes signaled expanding service and manufacturing sectors in January. ISM’s service sector PMI improved 3.8% to 56.8. Its manufacturing PMI advanced 1.0% to 54.1.4

CASE-SHILLER INDEX DECLINES AGAIN

This was the third straight monthly dip for the 20-city
roundup of residential home prices. The latest available edition (November)
showed a 1.3% monthly retreat in prices with a 3.7% year-over-year drop.5

NASDAQ TOPS 2,900

The tech-heavy index closed at an 11-year high Friday:
2,905.66. The Dow settled at 12, 862.23 at week’s end, its best close since May 2008. The S&P 500 finished Friday at 1,344.90. The weekly gains: DJIA,
1.59%; S&P, 2.17%; NASDAQ, 3.16%.1,6

THIS WEEK: Earnings take center stage in a stretch without
much economic data. Monday brings Q4 results from Yum Brands, Humana and Hasbro. Tuesday, earnings arrive from Disney, UBS, Toyota, BP, Coca-Cola and Hartford Financial. Wednesday, Groupon, VISA, CVS, Sprint Nextel, Time Warner and Cisco join in. Thursday, the Bank of England and ECB wrap up policy meetings; new initial claims figures complement earnings reports from Expedia, PepsiCo, Dunkin’ Brands, Sirius XM Radio, Rio Tinto and Credit Suisse. Friday, the University of Michigan’s initial February consumer sentiment survey comes out plus Q4 results from Barclays.

Sources: money.msn.com, bigcharts.com, treasury.gov,
treasurydirect.gov – 2/3/121,7,8,9

Indices are unmanaged, do not incur fees or expenses, and
cannot be invested into directly. These returns do not include dividends.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com,
netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon,ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at www.theretirementgroup.com.

John Jastremski Presents:

Monthly Economic Update                          February 2012

THE MONTH IN BRIEF

In recent stock market history, there have been many peaks and valleys. January 2012 represented a peak; it was the best January for U.S. stocks since 1997, with the S&P 500 rising 4.36%. It was also the S&P’s best month overall since October. Wall Street seemed to worry a little less about Europe during the month and a little more about subpar stateside indicators like consumer spending and home sales. Still, the mood was definitely bullish.^1,2

DOMESTIC ECONOMIC HEALTH 

Consumers were earning more – and apparently saving more of what they earned. Personal incomes rose 0.5% in December, and so did the personal saving rate, yet personal spending was flat for the month. After consumer spending increases of only 0.1% in October and November, this seemed to hint at a slowing economy in the last quarter of 2011. However, the jobless rate was at 8.3% in January, the lowest level in three years, thanks to the addition of 243,000 jobs.^{3, 24}

Was consumer confidence wavering? It depended on which barometer you checked. The Conference Board’s January survey fell to 61.1 from December’s 64.8 final revised mark, in the previous month, according to the Conference Board. Economists polled by Reuters had thought it would climb to 68.0. The University of Michigan’s consumer sentiment survey made a major advance in January, going to 75.0 from the year-end mark of 69.9.^2,4

The initial estimate of Q4 2011 GDP arrived in late January; a growth of 2.8%, the best in six quarters, was still below the expectations of some analysts. Speaking of growth, our manufacturing sector grew for a thirtieth straight month in January, according the PMI index of the Institute for Supply Management, rising a full percentage point to 54.1. ISM’s service sector index had also posted a December advance to 52.6 from 52.0. Not surprisingly, durable goods orders improved 3.0% in December, the third consecutive monthly gain for the indicator; orders for hard goods increased 10.0% across 2011.^4,5,6,7

As for consumer and wholesale inflation, the threat was mild to say the least. In fact, the Consumer Price Index didn’t budge in December and the Producer Price Index retreated 0.1% (with import prices falling for the fourth month in five). So, 2011 goes in the books with 3.0% consumer inflation and 2.2% core inflation; the most since 2007, but hardly remarkable.⁸

GLOBAL ECONOMIC HEALTH

Efforts to restructure Greece’s debt fell apart at mid-month, but picked up some momentum. At the end of January, a deal looked imminent, but in the eyes of some analysts, investors would have to accept as much as a 70% haircut on Greekut yes of some analysts, banks would have to accept as muchce Index didn’obernsumer spending and home sales (both less than bonds to take Greece’s debt-to-GDP ratio down to a sustainable 120% or so. Last month, Standard & Poor’s downgraded credit ratings of nine EU nations: it cut ratings for France, Austria, Slovakia, Slovenia and Malta by a notch and Italy, Portugal, Spain and Cyprus by two notches, commenting that the European Union’s debt reduction plan was not of “sufficient size or scope”.^9,10

Manufacturing did pick up in some key economies in January. Our key PMI (the ISM survey) improved for the seventh straight month, and China’s official PMI improved 0.2% to 50.5 with new orders at a three-month peak. The U.K.’s PMI climbed above 50 again to 52.1. Germany’s manufacturing index advanced for the first time since September, and that helped the EU’s Markit PMI rise to 48.8 last month, but the Markit PMI has been below 50 (read: contraction) since last July. Overall, JPMorgan’s global manufacturing index rose to 51.2 last month.¹¹

WORLD MARKETS

Broadly speaking, it was a very good month for equities. Three of the BRICs posted outstanding gains: Sensex, +11.2%; RTSI, +14.1%, Bovespa, +11.1%. (The Shanghai Composite went +4.2% last month.) Argentina’s Merval pulled off a 13.2% gain and the Hang Seng rose 10.6%; the MSCI Emerging Markets Index climbed 11.2%. Other notable indices and their January performances: Dow Jones Asia Pacific Index, +8.1%; MSCI World Index, +4.9%; Nikkei 225, +4.1%; DAX, +9.5%; CAC 40, +4.4%; FTSE 100, +2.0%; KOSPI, +7.1%; All Ordinaries, +5.2%; TSX Composite, +4.2%. At the back of the pack among indices of consequence: Spain’s IBEX (-0.7%) and Malaysia’s Kuala Lumpur Composite (-0.6%).^12,13

COMMODITIES MARKETS 

Metals set the pace in the sector last month. Gold fully rebounded from a poor December with a 10.91% monthly gain. Copper futures gained 10.30% and silver futures soared 19.15%. RBOB gasoline futures rose 8.79% on the NYMEX last month; retail pump prices went up 5.32%. Oil (-0.35%) and natural gas (-16.26%) retreated thanks to lessening demand and warmer weather. Key crop futures rose and fell, with coffee going -5.07% on the month, corn going -1.16%, cotton +3.09% and wheat +2.03%. The U.S. Dollar Index fell 1.37%.¹⁴

REAL ESTATE

The bad news seemed to outweigh the good news in this sector. The National Association of Realtors said that existing home sales improved 5.0% in December; in mid-January, Freddie Mac reported another record-low average interest rate for the 30-year FRM (3.88%, and a new record low would be set in early February). On the other hand, NAR reported a 3.5% dip in pending home sales in December and the November Case-Shiller Home Price Index slipped for October, its third straight monthly descent. While the Commerce Department noted that single-family home starts hit their highest level since April 2010 in December, overall housing starts dropped 4.1% for the month and new home sales slipped 2.2% to an annual rate of just 307,000. The annual new home sales pace is around 750,000 in a decent year.^8,14,15,16

Here was the change in average home loan interest rates between Freddie Mac’s December 29 and February 2 Primary Mortgage Market Surveys: 30-year FRMs, 3.95% down to 3.87%, 15-year FRMs, 3.24% down to 3.14%; 5/1-year ARMs, 2.88% down to 2.80%; 1-year ARMs, 2.78% down to 2.76%.^17,18

LOOKING BACK…LOOKING FORWARD 

January was the best month for all three headline U.S. stock indices since October. The DJIA ended January at 12,632.91, the S&P 500 at 1,312.41 and the NASDAQ at 2,813.84. The CBOE VIX (the so-called “fear index”) was near 19 at month’s end.^1,2,19

Sources: online.wsj.com, bigcharts.com, treasury.gov – 1/31/12^{1,20,21,22,23}

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 We had a very nice January, and while you can’t gauge tomorrow’s market behavior off history, it is encouraging to note that the S&P 500 advanced an average of 23% during the last five years in which it gained 4% or more for January. Another nice tidbit: when the Dow has had a positive January, it has finished that year in the black 82% of the time.^1,2

Manufacturing seems to have picked up around the globe, and our manufacturing sector might be among the world’s healthiest. We still seem to be in a slow recovery, and the chance of a recession in the European Union (along with its sovereign debt morass) may exert a drag on our markets in February and beyond. Still, it looks like Greece is in line for a second IMF bailout and an actual “solution” toward its debt problem, so institutional investors might be less troubled by the EU debt crisis. If our economy goes to stall speed, the Fed could even opt for a QE3 in the coming months (a possibility in the opinion of some Wall Street analysts). February holds a lot of promise; for the first month in many, world markets may turn on headlines from America instead of Europe.

UPCOMING ECONOMIC RELEASES:

Here is the schedule for the rest of the month: the initial University of Michigan consumer sentiment survey for February (2/10), January retail sales and December business inventories (2/14), January industrial output and the January 25 FOMC minutes (2/15), the January PPI and January housing starts and building permits (2/16), the January CPI and the Conference Board’s Leading Economic Indicators index for February (2/17), January existing home sales (2/22), January new home sales and the final University of Michigan consumer sentiment survey for the month (2/24), January pending home sales (2/27), January durable goods orders, the December Case-Shiller home price index and the Conference Board’s February consumer confidence poll (2/28), and the second estimate of Q4 GDP plus a new Beige Book from the Fed (2/29). The January consumer spending numbers come out on March 1.

Citations.

1 – blogs.wsj.com/marketbeat/2012/01/31/data-points-u-s-markets-77/ [1/31/12]
2 – www.cnbc.com/id/46203174/ [1/31/12]

3 – www.nytimes.com/2012/01/31/business/economy/incomes-rise-but-spending-is-flat.html [1/30/12]

4 – www.cnbc.com/id/46162429 [1/27/12]

5 – www.ism.ws/ISMReport/MfgROB.cfm [2/1/12]

6 – www.ism.ws/ISMReport/NonMfgROB.cfm [1/5/12]

7 – www.marketwatch.com/story/durable-goods-orders-up-strong-30-in-december-2012-01-26-92200 [1/26/12]

8 – www.businessweek.com/news/2012-01-20/consumer-prices-in-u-s-little-changed-as-fuel-costs-fall.html [1/20/12]

9 – blogs.wsj.com/marketbeat/2012/02/01/how-to-read-a-greek-debt-deal/ [2/1/12]

10 – money.msn.com/market-news/post.aspx?post=a677f0ec-38f9-432c-bbc1-fb98c5362013 [1/13/12]

11 – www.reuters.com/article/2012/02/01/us-global-economy-idUSTRE8101C520120201 [2/1/12]

12 – online.wsj.com/mdc/public/page/2_3022-intlstkidx.html [1/31/12]

13 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [1/31/12]

14- money.msn.com/market-news/post.aspx?post=cb1f3e7e-3c74-45b7-9f9a-4cccd825c584 [1/31/12]

15 – www.businessweek.com/news/2012-01-26/contracts-to-buy-u-s-homes-near-19-month-high-economy.html [1/26/12]

16 – www.foxbusiness.com/news/2012/01/26/us-new-homes-sales-drop-22-prices-fall/ [1/26/12]

17 – www.freddiemac.com/pmms/ [2/2/12]

18 – www.freddiemac.com/pmms/index.html?year=2011 [2/2/12]

19 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [11/2/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F31%2F11&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F31%2F11&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F31%2F11&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F31%2F02&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F31%2F02&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F31%2F02&x=0&y=0 [1/31/12]

21 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [1/31/12]

22 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [1/31/12]

23 – treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm10902.pdf [1/9/02]

24 – washingtonpost.com/business/economy/us-adds-243k-jobs-in-january-unemployment-rate-drops-to-83percent/2012/02/03/gIQAhV3mmQ_story.html [2/3/12]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

]]> http://johnjastremski.com/monthly-economic-update-february-2012/feed/ 0 http://johnjastremski.com/financial-aid-101/ http://johnjastremski.com/financial-aid-101/#comments Fri, 03 Feb 2012 19:59:12 +0000 admin http://johnjastremski.com/?p=5410 Continue reading →]]> Financial Aid 101

Many parents pay for college with a combination of savings
and financial aid. By learning the basics, you’ll be able to understand how the
financial aid process works, properly fill out aid applications, and compare
the aid awards your child receives.

What is financial aid?

Financial aid is money distributed primarily by the federal
government and colleges in the form of student loans, grants, scholarships, and work-study jobs. Loans and work-study must be repaid (through monetary or work obligations), while grants and scholarships do not. A student can receive bothfederal and college aid.

Financial aid can be further broken down into two
categories: need-based, which is dependent on your child’s financial need, and merit-based, which is awarded according to your child’s academic, athletic, musical, or artistic merit. Most financial aid is need-based.

How is financial need determined?

The federal government’s aid application, the FAFSA, uses a
formula known as the federal methodology. A detailed analysis of the formula is beyond the scope of this discussion, but generally speaking, parent and child income and assets are tallied and assessed at certain rates. There are certain deductions and allowances against income, and certain assets are excluded from consideration, specifically, home equity, retirement plans, annuities, and cash value life insurance. The result is a figure known as your expected family contribution, or EFC. This is the amount of money you must contribute to college costs to be eligible for aid. Your EFC remains constant, no matter which college your child applies to.

Your EFC is not the same as your child’s financial need. To
calculate financial need, subtract your EFC from the cost at a given college.
Because tuition, fees, and room-and-board expenses are different at each
college, your child’s financial need will vary depending on the cost of a
particular college.

Example:   You fill out the FAFSA and your EFC is calculated at $5,000. College A costs $20,000 per year and College B costs $40,000 per year. Your child’s financial need at College A is $15,000 and $35,000 at College B.

Colleges have their own way of determining financial aid.
Basically, the process works the same way as with the federal government,
except that the institutional methodology embodied in the standard college
PROFILE application typically takes a more in-depth look at your income and
assets to determine how “needy” your child really is. For example,
colleges often consider your home equity and retirement accounts in assessing your ability to pay college costs.

Tip: Just because your child has financial need doesn’t necessarily mean that colleges will meet 100% of that need. In fact, it’s not uncommon for colleges to meet only a portion of that need, a phenomenon known as getting “gapped.” If this happens to you, you’ll have to make up the shortfall, in addition to paying your EFC. College guidebooks compare how well colleges meet their students’ financial need under the entry “average percentage of need met” or something similar.

How do I apply and when?

The FAFSA can be completed manually and mailed to the
regional processor listed on the form, but the better option is to complete and
file it online at www.fafsa.ed.gov. The online version flags suspected mistakes
immediately and takes only one week to process (compared to two to four weeks for paper FAFSAs).

The FAFSA relies on information from your previous year’s
tax return, so it can’t be filed before January 1 in the year that your child
will be attending college (the official federal deadline for filing the FAFSA
is June 30, but many colleges have an earlier deadline). Parents should try to
submit the FAFSA as close to January 1 as possible because some financial aid programs operate on a first-come, first-served basis. Even if you haven’t
completed your federal income tax return, Uncle Sam lets you base your FAFSA answers on an estimated return, though you will have to provide a copy of your final income tax return later.

After your FAFSA is processed, your child will receive a
Student Aid Report either in the mail or electronically (depending on how you filed the FAFSA), which highlights your EFC. Colleges that you list on the
FAFSA will also get a copy of the report. Then, the financial aid administrator
at each school will try to craft an aid package to meet your child’s financial
need.

Comparing aid awards

Sometime in early spring, your child will receive financial
aid award letters that detail the specific amount and type of financial aid
that each college is offering. When comparing awards, first check to see if
each college is meeting all of your child’s financial need. Then, look at the
loan component of each award and compare actual out-of-pocket costs. Remember, grants and scholarships don’t have to be repaid and so don’t count toward out-of-pocket costs.

If you’d like to lobby a particular school for more aid,
tread carefully. A polite letter to the financial aid administrator followed up
by a telephone call is appropriate. Your chances for getting more aid are best
if you can document a change in circumstances that affects your ability to pay, such as a recent job loss, unusually high medical bills, or some other
unforeseen event. Also, your chances improve if your child has been offered
more aid from a direct competitor college, because colleges generally don’t
like to lose a prospective student to a direct competitor. Remember, the fewer
loans, the better.

The most common federal aid programs

Here are some names you’ll be hearing as you navigate the
world of financial aid:

•Stafford Loan–The most common federal student loan for
college and graduate students. Interest may be subsidized (paid by the
government during school, the grace period and deferment periods) or
unsubsidized. The interest rate is fixed at 6.8% for unsubsidized loans and is
currently 3.4% for subsidized loans disbursed on or after July 1, 2011 and
before July 1, 2012.

•Perkins Loan–A federal student loan for college and
graduate students with the greatest financial need. The interest rate is fixed
at 5%.

•PLUS Loan–A federal education loan for parents of college
students and independent graduate students available through financial
institutions. A separate application is required, though filing the FAFSA first
is a prerequisite. Parents can borrow the full cost of their child’s education,
minus any financial aid received; the only criteria is a good credit history.
The interest rate is fixed at 7.9% for new loans.

•Pell Grant–The Pell Grant is available to undergraduates with
exceptional financial need.

A word about merit aid

In recent years, merit aid has been making a comeback as
colleges use favorable merit aid packages to attract certain students to their
campuses, regardless of their financial need. However, the availability of
college-sponsored merit aid tends to fluctuate from year to year as colleges
decide how much of their endowments to spend, as well as which specific
academic and extracurricular programs they want to target.

Besides colleges, a wide variety of groups offer merit
scholarships to students meeting certain criteria. There are several websites
where your child can input his or her background, abilities, and interests and
receive (free of charge) a matching list of potential scholarships.

How much should you rely on financial aid?

With all this talk of financial aid, it’s easy to assume
that it will do most of the heavy lifting when it comes time to paying the
college bills. But the reality is you shouldn’t rely too heavily on financial
aid. Although aid can certainly help cover your child’s college costs, student
loans make up the largest percentage of the typical aid package, not grants and scholarships.

As a general rule of thumb, plan on student loans covering
up to 50% of college expenses, grants and scholarships covering up to 15%, and work-study jobs covering a variable amount. But remember, parents and students who rely mainly on loans to finance college can end up with a considerable debt burden.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives
nor Broker/Dealer gives tax or legal advice. All information is believed to be
from reliable sources; however, we make no representation as to its
completeness or accuracy. The publisher is not engaged in rendering legal,
accounting or other professional services. If other expert assistance is
needed, the reader is advised to engage the services of a competent
professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if
you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

WEEKLY ECONOMIC UPDATE

January 30, 2012

ECONOMY GROWS 2.8% IN Q4

While this is the best GDP reading since Q2 2010, the
initial estimate from the Bureau of Economic Analysis still disappointed the
markets. Many economists and investors were looking for growth of 3.0% or
better. The majority of the growth actually came from increased inventories.
Consumer spending rose 2.0% last quarter, with auto sales being the biggest
factor. Durable goods orders did see 3.0% growth in December, putting them 45% above the recession low hit in April 2009.1,2,3

DIPS IN NEW & PENDING HOME SALES

The number of signed home sale contracts fell 3.5% in December, according to the National Association of Realtors. Separately, a Census Bureau report showed that new home sales declined 2.2% in December.4,5

MARQUEE SENTIMENT INDEX AT 11-MONTH PEAK

The Thomson Reuters/University of Michigan consumer
sentiment index ended January at 75.0. This was way up from December’s 69.9 mark, and it beat the 74.1 reading forecast by economists surveyed by
Reuters.6,7

PRECIOUS METALS GAIN ALLURE

At Friday’s COMEX close, gold was +10.56% YTD, copper +13.18% YTD and silver +21.05% YTD. Crude futures finished last week at $99.56 per barrel on the NYMEX, putting oil merely at +0.74% YTD. (Retail gas prices were +3.67% for the month as of Friday.)2

A STRONG MONTH COMES TO A CLOSE

With just a couple of trading days left, January is shaping
up to be the best month for U.S. equities since October (see the YTD numbers
below). Across last week, the S&P 500 rose 0.07% to 1,316.33 and the NASDAQ gained 1.07% to 2,816.55; the Dow slipped 0.47% to fall to 12,660.46.1

THIS WEEK: The December consumer spending report comes out
Monday. On Tuesday, earnings reports arrive from Amazon.com, Broadcom,
ExxonMobil, UPS, Pfizer and Eli Lilly – and we also get the latest
S&P/Case-Shiller home price index and the Conference Board’s January
consumer confidence poll. Wednesday, Q4 results roll in from Qualcomm,
Electronic Arts, Aetna and Marathon Oil and the latest ISM manufacturing index appears. Besides new initial claims figures, Thursday brings Q4 results from Unilever, Sony, Deutsche Bank, Merck and Beazer Homes. Friday, the January unemployment report is out along with ISM’s service sector index and data on December factory orders; Clorox also issues Q4 results.

Sources: cnbc.com, bigcharts.com, treasury.gov, treasurydirect.gov – 1/27/121,8,9,10 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.These returns do not include dividends.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional
services. If other expert assistance is needed, the reader is advised to engage
the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

The Markets

A rally in domestic equities in response to Wednesday’s Fed
announcement of plans to keep interest rates low couldn’t be sustained through the rest of the week. The Nasdaq and small-cap Russell 2000 saw the bulk of the week’s gains, demonstrating resilience in the face of uncertainty about Greece’s talks with its bondholders. The Fed’s announcement pushed
intermediate-term Treasury yields down but had little effect on longer
maturities.

*Equities data reflect price changes, not total
return

Last Week’s Headlines

•The exception becomes the rule: The Federal Reserve’s Open
Market Committee announced that interest rates will remain at today’s
exceptionally low levels longer than previously expected. Saying economic
expansion continues to be moderate, the Fed forecast low rates will last
through at least late 2014.

•Greece continued to negotiate with its private bondholders
over a planned writedown on its sovereign debt. The sticking point is
reportedly the interest rate on the bonds that will be exchanged for existing
bonds. Meanwhile, leaders attending the Davos World Economic Forum said that despite economic uncertainty, they believe the European debt crisis has begun to come under control.

•The U.S. economy grew 2.8% in the final quarter of 2011.
The initial estimate of gross domestic product is higher than the third
quarter’s 1.8% GDP, but according to the Bureau of Labor Statistics, higher
inventory levels were a major factor.

•Sales of new homes fell sharply in December, according to
the Commerce Department. The 2.2% monthly decline put sales 7.7% below December 2010, and the 302,000 homes sold in all of 2011 was 6.2% below 2010′s total.

•Demand for transportation-related equipment helped produce
a 1.8% increase in new orders from manufacturers in November. The Commerce Department said the strongest increase came in durable goods designed to last at least three years, which saw a 3.7% increase in orders. Even excluding  transportation, new durable goods orders were up 0.3%, and non-defense-related orders other than aircraft were up 1.8%.

•The International Monetary Fund cut its forecast for 2012
global growth to 3.3%, slightly lower than 2011′s 3.8%. Rising interest rates
on European sovereign debt and bank deleveraging could bring on a mild
recession there, the IMF said, but it also warned that overly aggressive
austerity programs could choke off growth.

•The Conference Board’s index of leading economic indicators
rose 0.4% in December to 94.3. The organization said the reading would have
been stronger except that the index included for the first time a measure of
credit conditions, which was negative and helped moderate positive
contributions from 7 of the index’s 10 indicators.

Eye on the Week Ahead

Believers in the January indicator will be eyeing the end of
the month on Tuesday for clues about how the rest of the year might go. A Greek bond agreement could produce euphoria, and a failure to come up with one could produce the opposite. Little change is anticipated in Friday’s unemployment figure, and data on the nation’s manufacturing and services sectors also will be watched.

Key dates and data releases: personal income/spending
(1/30); home prices (1/31); auto sales, U.S. manufacturing, construction
spending (2/1); weekly new jobless claims, business productivity and labor
costs (2/2); unemployment/payrolls, U.S. services sector, factory orders (2/3).

Data sources: Includes data provided by Brounes &
Associates. All information is based on sources deemed reliable, but no
warranty or guarantee is made as to its accuracy or completeness. Neither the
information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial
advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted
index composed of 30 widely traded blue-chip U.S. common stocks. The S&P
500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf,
Andy Starostecki and The Retirement Group or FSC Financial Corp. This
information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirementm planning process.

John Jastremski is a Representative with FSC Securities and may be reached atwww.theretirementgroup.com.

Deciding when to retire may not be one decision but a series of decisions and calculations. For example, you’ll need to estimate not only your anticipated expenses, but also what sources of retirement income you’ll have and how long you’ll need your retirement savings to last. You’ll need to take into account your life expectancy and health as well as when you want to start receiving Social Security or pension benefits, and when you’ll start to tap your retirement savings. Each of these factors may affect the others as part of an overall retirement income plan.

Thinking about early retirement?

Retiring early means fewer earning years and less accumulated savings. Also, the earlier you retire, the more years you’ll need your retirement savings to produce income. And your retirement could last quite a while. According to a National Vital Statistics Report, people today can expect to live more than 30 years longer than they did a century ago.

Not only will you need your retirement savings to last longer, but inflation will have more time to eat away at your purchasing power. If inflation is 3% a year–its historical average since 1914–it will cut the purchasing power of a fixed annual income in half in roughly 23 years. Factoring inflation into the retirement equation, you’ll probably need your retirement income to increase each year just to cover the same expenses. Be sure to take this into account when considering how long you expect (or can afford) to be in retirement.

Source: National Vital Statistics Report, Vol. 59, No. 4, March 2011

There are other considerations as well. For example, if you expect to receive pension payments, early retirement may adversely affect them. Why? Because the greatest accrual of benefits generally occurs during your final years of employment, when your earning power is presumably highest. Early retirement could reduce your monthly benefits. It will affect your Social Security benefits too.

Also, don’t forget that if you hope to retire before you turn 59½ and plan to start using your 401(k) or IRA savings right away, you’ll generally pay a 10% early withdrawal penalty plus any regular income tax due (with some exceptions, including disability payments and distributions from employer plans such as 401(k)s after you reach age 55 and terminate employment).

Finally, you’re not eligible for Medicare until you turn 65. Unless you’ll be eligible for retiree health benefits through your employer or take a job that offers health insurance, you’ll need to calculate the cost of paying for insurance or health care out-of-pocket, at least until you can receive Medicare coverage.

Delaying retirement

Postponing retirement lets you continue to add to your retirement savings. That’s especially advantageous if you’re saving in tax-deferred accounts, and if you’re receiving employer contributions. For example, if you retire at age 65 instead of age 55, and manage to save an additional $20,000 per year at an 8% rate of return during that time, you can add an extra $312,909 to your retirement fund. (This is a hypothetical example and is not intended to reflect the actual performance of any specific investment.)

Even if you’re no longer adding to your retirement savings, delaying retirement postpones the date that you’ll need to start withdrawing from them. That could enhance your nest egg’s ability to last throughout your lifetime.

Postponing full retirement also gives you more transition time. If you hope to trade a full-time job for running your own small business or launching a new career after you “retire,” you might be able to lay the groundwork for a new life by taking classes at night or trying out your new role part-time. Testing your plans while you’re still employed can help you anticipate the challenges of your post-retirement role. Doing a reality check before relying on a new endeavor for retirement income can help you see how much income you can realistically expect from it. Also, you’ll learn whether it’s something you really want to do before you spend what might be a significant portion of your retirement savings on it.

Phased retirement: the best of both worlds

Some employers have begun to offer phased retirement programs, which allow you to receive all or part of your pension benefit once you’ve reached retirement age, while you continue to work part-time for the same employer.

Phased retirement programs are getting more attention as the baby boomer generation ages. In the past, pension law for private sector employers encouraged workers to retire early. Traditional pension plans generally weren’t allowed to pay benefits until an employee either stopped working completely or reached the plan’s normal retirement age (typically age 65). This frequently encouraged employees who wanted a reduced workload but hadn’t yet reached normal retirement age to take early retirement and go to work elsewhere (often for a competitor), allowing them to collect both a pension from the prior employer and a salary from the new employer.

However, pension plans now are allowed to pay benefits when an employee reaches age 62, even if the employee is still working and hasn’t yet reached the plan’s normal retirement age. Phased retirement can benefit both prospective retirees, who can enjoy a more flexible work schedule and a smoother transition into full retirement; and employers, who are able to retain an experienced worker. Employers aren’t required to offer a phased retirement program, but if yours does, it’s worth at least a review to see how it might affect your plans.

*Age 55 for distributions from employer plans upon termination of employment

Check your assumptions

The sooner you start to plan the timing of your retirement, the more time you’ll have to make adjustments that can help ensure those years are everything you hope for. If you’ve already made some tentative assumptions or choices, you may need to revisit them, especially if you’re considering taking retirement in stages. And as you move into retirement, you’ll want to monitor your retirement income plan to ensure that your initial assumptions are still valid, that new laws and regulations haven’t affected your situation, and that your savings and investments are performing as you need them to.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Whether you’re seeking to manage your own assets, control how your assets are distributed after your death, or plan for incapacity, trusts can help you accomplish your estate planning goals. Their power is in their versatility–many types of trusts exist, each designed for a specific purpose. Although trust law is complex and establishing a trust requires the services of an experienced attorney, mastering the basics isn’t hard.

What is a trust?

A trust is a legal entity that holds assets for the benefit of another. Basically, it’s like a container that holds money or property for somebody else. There are three parties in a trust arrangement:

• The grantor (also called a settlor or trustor): The person(s) who creates and funds the trust
• The beneficiary: The person(s) who receives benefits from the trust, such as income or the right to use a home, and has what is called equitable title to trust property
• The trustee: The person(s) who holds legal title to trust property, administers the trust, and has a duty to act in the best interest of the beneficiary

You create a trust by executing a legal document called a trust agreement. The trust agreement names the beneficiary and trustee, and contains instructions about what benefits the beneficiary will receive, what the trustee’s duties are, and when the trust will end, among other things.

Funding a trust

You can put almost any kind of asset in a trust, including cash, stocks, bonds, insurance policies, real estate, and artwork. The assets you choose to put in a trust will depend largely on your goals. For example, if you want the trust to generate income, you should put income-producing assets, such as bonds, in your trust. Or, if you want your trust to create a fund that can be used to pay estate taxes or provide for your family at your death, you might fund the trust with a life insurance policy.

Potential trust advantages:

• Minimize estate taxes
• Shield assets from potential creditors
• Avoid the expense and delay of probate
• Preserve assets for your children until they are grown (in case you should die while they are still minors)
• Create a pool of investments that can be managed by professional money managers
• Set up a fund for your own support in the event of incapacity
• Shift part of your income tax burden to beneficiaries in lower tax brackets
• Provide benefits for charity

Potential trust disadvantages

• There are costs associated with setting up and maintaining a trust, which may include trustee fees, professional fees, and filing fees
• Depending on the type of trust you choose, you may give up some control over the assets in the trust
• Maintaining the trust and complying with recording and notice requirements can take considerable time
• Income generated by trust assets and not distributed to trust beneficiaries may be taxed at a higher income tax rate than your individual rate

Types of trusts

There are many types of trusts, the most basic being revocable and irrevocable. The type of trust you should use will depend on what you’re trying to accomplish.

Living (revocable) trust

A living trust is a trust that you create while you’re alive.

A living trust:

• Avoids probate: Unlike property that passes to heirs by your will, property that passes by a living trust is not subject to probate, avoiding the delay of property transfers to your heirs and keeping matters private
• Maintains control: You can change the beneficiary, the trustee, any of the trust terms, move property in or out of the trust, or even end the trust and get your property back at any time
• Protects against incapacity: If because of an illness or injury you can no longer handle your financial affairs, a successor trustee can step in and manage the trust property for you while you get better. In the absence of a living trust or other arrangement, your family may have to ask the court to appoint a guardian to manage your property

A living trust can also continue after your death–you can direct the trustee to hold trust property until the beneficiary reaches a certain age or gets married, for instance.

Caution:   Despite the benefits, living trusts have some drawbacks. Property in a living trust is generally not protected from creditors, and you cannot avoid estate taxes using a living trust.

Irrevocable trusts

Unlike a revocable trust, you can’t easily change or revoke an irrevocable trust. You usually cannot change beneficiaries or change the terms of the trust. Irrevocable trusts are frequently used to minimize potential estate taxes. The transfer may be subject to gift tax at the time property is transferred into the trust, but the property, plus any future appreciation, is usually removed from your gross estate.

Additionally, property transferred through an irrevocable trust will avoid probate, and may be protected from future creditors.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

An individual retirement arrangement (IRA) is a personal retirement savings plan that offers specific tax benefits. In fact, IRAs are one of the most powerful retirement savings tools available to you. Even if you’re contributing to a 401(k) or other plan at work, you should also consider investing in an IRA.

What types of IRAs are available?

There are two major types of IRAs: traditional IRAs and Roth IRAs. Both allow you to make annual contributions of up to $5,000 in 2011 and 2012. Generally, you must have at least as much taxable compensation as the amount of your IRA contribution. But if you are married filing jointly, your spouse can also contribute to an IRA, even if he or she does not have taxable compensation. The law also allows taxpayers age 50 and older to make additional “catch-up” contributions. These folks can put up to $6,000 in their IRAs in 2011 and 2012.

Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both give you a wide range of investment choices. However, there are important differences between these two types of IRAs. You must understand these differences before you can choose the type of IRA that’s best for you.

Traditional IRAs

Practically anyone can open and contribute to a traditional IRA. The only requirements are that you must have taxable compensation and be under age 70½. You can contribute the maximum allowed each year as long as your taxable compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum contribution allowed, you can contribute only up to the amount you earned.

Your contributions to a traditional IRA may be tax deductible on your federal income tax return. This is important because tax-deductible (pretax) contributions lower your taxable income for the year, saving you money in taxes. If neither you nor your spouse is covered by a 401(k) or other employer-sponsored plan, you can generally deduct the full amount of your annual contribution. If one of you is covered by such a plan, your ability to deduct your contributions depends on your annual income (modified adjusted gross income, or MAGI) and your income tax filing status. You may qualify for a full deduction, a partial deduction, or no deduction at all.

What happens when you start taking money from your traditional IRA? Any portion of a distribution that represents deductible contributions is subject to income tax because those contributions were not taxed when you made them. Any portion that represents investment earnings is also subject to income tax because those earnings were not previously taxed either. Only the portion that represents nondeductible, after-tax contributions (if any) is not subject to income tax. In addition to income tax, you may have to pay a 10% early withdrawal penalty if you’re under age 59½, unless you meet one of the exceptions.

If you wish to defer taxes, you can leave your funds in the traditional IRA, but only until April 1 of the year following the year you reach age 70½. That’s when you have to take your first required minimum distribution from the IRA. After that, you must take a distribution by the end of every calendar year until your funds are exhausted or you die. The annual distribution amounts are based on a standard life expectancy table. You can always withdraw more than you’re required to in any year. However, if you withdraw less, you’ll be hit with a 50% penalty on the difference between the required minimum and the amount you actually withdrew.

Roth IRAs

Not everyone can set up a Roth IRA. Even if you can, you may not qualify to take full advantage of it. The first requirement is that you must have taxable compensation. If your taxable compensation is at least $5,000 in 2012 (and 2011), you may be able to contribute the full amount. But it gets more complicated. Your ability to contribute to a Roth IRA in any year depends on your MAGI and your income tax filing status. Your allowable contribution may be less than the maximum possible, or nothing at all.

Your contributions to a Roth IRA are not tax deductible. You can invest only after-tax dollars in a Roth IRA. The good news is that, if you meet certain conditions, your withdrawals from a Roth IRA will be completely free from federal income tax, including both contributions and investment earnings. To be eligible for these qualifying distributions, you must meet a five-year holding period requirement. In addition, one of the following must apply:

• You have reached age 59½ by the time of the withdrawal
• The withdrawal is made because of disability
• The withdrawal is made to pay first-time homebuyer expenses ($10,000 lifetime limit from all IRAs)
• The withdrawal is made by your beneficiary or estate after your death

Qualified distributions will also avoid the 10% early withdrawal penalty. This ability to withdraw your funds with no taxes or penalty is a key strength of the Roth IRA. And remember, even nonqualified distributions will be taxed (and possibly penalized) only on the investment earnings portion of the distribution, and then only to the extent that your distribution exceeds the total amount of all contributions that you have made.

Another advantage of the Roth IRA is that there are no required distributions after age 70½ or at any time during your life. You can put off taking distributions until you really need the income. Or, you can leave the entire balance to your beneficiary without ever taking a single distribution. Also, as long as you have taxable compensation and qualify, you can keep contributing to a Roth IRA after age 70½.

Choose the right IRA for you

Assuming you qualify to use both, which type of IRA is best for you? Sometimes the choice is easy. The Roth IRA will probably be a more effective tool if you don’t qualify for tax-deductible contributions to a traditional IRA. However, if you can deduct your traditional IRA contributions, the choice is more difficult. Most professionals believe that a Roth IRA will still give you more bang for your dollars in the long run, but it depends on your personal goals and circumstances. The Roth IRA may very well make more sense if you want to minimize taxes during retirement and preserve assets for your beneficiaries. But a traditional deductible IRA may be a better tool if you want to lower your yearly tax bill while you’re still working (and probably in a higher tax bracket than you’ll be in after you retire). A financial professional or tax advisor can help you pick the right type of IRA for you.

Note:   You can have both a traditional IRA and a Roth IRA, but your total annual contribution to all of the IRAs that you own cannot be more than $5,000 ($6,000 if you’re age 50 or older).

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.