Intra-Family Loans - Promissory Notes - Appraisal and Valuation

Basic Information

Definition
An intra-family loan is an estate-planning technique using a promissory note. The Internal Revenue Service sets forth rules that allow family members to make loans to other family members at lower interest rates than those charged by commercial lenders, without it being deemed a gift. The lender, usually a parent or grandparent, must charge interest to avoid making a gift to the borrower, but this interest rate may be very low (below market rate), with annual payments of interest only, as contrasted to monthly principal and interest payments. The loan can be structured as a "balloon balance note", meaning the borrower pays interest only during the term of the loan, and then repays the entire principal at the end of the term.

From a cash-flow point of view, an intra-family loan, using this structure can be beneficial for the borrower. Because it benefits the borrower, it is detrimental to the value of the lenders promissory note.

Types of Intra-Family Notes
• Loans to family members
• Installment sales to family members
• Self-canceling installment notes to family members

Benefits
Intra-family loans create wealth shifting opportunities; wealth can be shifted from one family member to another family member, usually a child or grandchild, without incurring a tax liability. If the child or grandchild can earn a greater return on the amount borrowed than the low interest rate charged on the loan, he or she can keep the excess income with no gift taxes being paid. Wealth is transferred tax-free.

The required interest rate is set by the government monthly; it is called "AFR"--Applicable Federal Interest Rate. The actual interest rate used depends on the length of the loan; all of the current AFRs are very low compared to market interest rates.

Another benefit of intra-family loans is keeping the interest dollars paid within the family rather than paid to an outside party. The loan terms can be tailored to the specific needs of the family-member borrower; the repayment timing of the loan can be tailored to suit the borrower's needs.

Valuation and Discount Facts
The goal of "arm-length" promissory note investing is income generation and income maximization; the lower a promissory note's interests rate, the lower its market value. The appraised value of an intra-family loan note, using the IRS's Fair Market Value guidelines, is less than note's unpaid balance, or its face amount. The Fair Market Value of the note is a discounted value. The reason for this discount is the "AFR"-Applicable Federal Interest Rate, is a below market interest rate. To increase that rate to a market interest rate requires applying a discount to the note's value.

Conclusion: The (AFR) Applicable Federal Rate is a below market rate that devalues the note.

Benefits of a Fair Market Value Appraisal
You, your family, or an estate may own a private party promissory note that is not worth its face value. You may not be aware the note can provide a tax deduction. Depending on the size and the complexity of the individual note, the cost of the appraisal report will typically be between $400.00 and $1,800.00. Paying for an appraisal report may initially seem costly, but, it may result in a very meaningful tax savings. The cost of the appraisal can be viewed as an excellent investment; the tax saving can far exceeds the cost of the appraisal.

Conclusion
The value of a promissory note using the Applicable Federal Interest Rates (AFR) must be discounted to make its yield comparable to a similar promissory note having a market interest rate.

Disclaimer: Information is not advice. This article is for your information; it is not financial, legal or tax advice. The information and opinions provided are based on my own research and experience. Always consult a tax expert and valuation expert for your advice

Lawrence Tepper specializes in:
National Valuation and Appraisal Services That Serve Your Needs
Promissory Notes, Debt Instruments, LLC's Appraised & Valued
Expert Consulting Services

EDUCATION AND TRAINING
Law Degree /Accounting Minor University of Denver
Colorado Real Estate Broker-- Promissory Notes Specialization
Certified Commercial Investment Member From National Assoc. Realtors (CCIM)

PRACTICAL EXPERIENCE
35 + years of appraisal and valuation for Attorneys, CPA's, Estates, Trusts, Administrators, and Financial-Investment Advisors.

Will IBMs Watson Cause Job Losses In the Financial Planning Sector?

The other day, I was talking to an individual who just got a new job. They will be working in the financial planning sector as a financial investment advisor. I don't envy them because I realize all the ongoing education and testing requires just to get the license and to maintain it - and that's before you get a single customer. As I got to talking to them about asset allocation and diversifying of investment portfolios, they explained to me that the firm they had signed up with had all of that under control.

All they had to do was ask the customer or client various questions and plug them into the "investment diversity decision matrix," I guess you'd call it. Well, if that's so, then why and Earth would anyone need a financial planning investment advisor? I mean a computer can do all that. Actually it already is in this case. All the financial advisor has to do is go out and get the clients, bring them into the office, ask them some questions, have them fill out forms, find out their risk level, amount of assets, projected age of retirement, and how much money they have to invest today.

Trust me when I tell you that a computer can do that. Not only can a computer give you the right answer, but it already has the right questions figured into the process. Do you remember when the IBM Watson supercomputer (well almost a supercomputer) beat the best humans on the planet in Jeopardy? Now they have this computer system diagnosing diseases based on symptoms, genetics, family history, age, diet, and where they live in case they happen to live in a cluster known for such health ailments. Well, if it can do all that - it could certainly figure out a balanced portfolio for each and every individual that signs up.

There was an interesting YouTube video titled; "IBM Watson-Introduction and Future Applications," which was published on Aug 2, 2012 and the description stated; "David McQueeney of IBM at EDGE 2012 speaking on IBM Watson System, its architecture, functionality, performance and future applications.

In this video it noted that their system was in fact being used in the financial sector, and they had a special advisor to the IBM Watson innovation team. What I'm telling you is; this potentially eventuality that I've described above is not only coming, it seems it is already here. Yes it's true that humans probably want their own human investment advisor to help them, but in the future that may not be necessary.

In fact, everyone may be able to get financial planning advice even if they have very little to invest and no investment advisor would care to set up an appointment to talk with them. Now they would be able to get that planning by merely plugging in their information into a computer - and then waiting .00256432761 seconds for the best answer along with Watson's new list of questions and answers. Do you see that point? Indeed I hope you will please consider all this and think on it.

Legacy Pension Costs Killing Earnings - A Problem for Multinational Corporations Considered

Not long ago, I was listening to CNBC and they were interviewing a union representative who claimed that their company had wronged the employees by not funding the pension in over three years. It turns out that the company had emerged from bankruptcy and could not make those contributions because they were not profitable yet. They had previously given into union demands, and there just wasn't any money left over. Okay so let's talk about all this shall we?

What happens when the legacy costs exceed the profit of the company? Those legacy costs should be attributed to past periods, not to the current quarter of earnings. To do anything else with them would be disingenuous and really bad accounting. Nevertheless, the money has to come from somewhere, and in despite what you might think, it doesn't grow on trees, although we have many socialist left-leaning politicians which would have you believe otherwise.

Manufacturing (dot) net surely had an interesting article, similar to one I'd recently read in CFO magazine on how to account for legacy pension costs. This newest article was titled; "Boeing Considering How To Account For Pensions," published on November 13, 2012, which noted that the Boeing Company was;

"Studying different ways to account for pension expenses, which reduced the aerospace company's 3rd quarter earnings," and that; "The options under review include changing to mark-to-market accounting, which would take into consideration changes in the value of pension assets and obligations. It could, however, introduce more swings in earnings reports because the current accounting method spreads out gains and losses from assets over several years."

Okay so, not only does this effect manufacturing businesses and make it a nightmare for that sector, but we already know the challenges it is causing in the public sector for municipalities, states, military, and the Federal Government. And not just here, think about the aging populations of Japan and Europe too? This demographic problem is exacerbating the challenges. People are living longer, and health care costs keep increasing, and so to do all the legacy costs.

If someone retires at age 60, but lives to be 100 years old, they will be taking money out for 40 additional years, there's a good chance they didn't even work that long. Consider if you will the reality that Social Security when it first came into fruition was only $1700 per person per lifetime. Today, people are getting that much every month, and for as much as 40 or more years. Worse, back then there were 17.1 people paying in for every person collecting the money. Today, we can move that decimal point over, and there are only 1.7 people working for every person taking out.

Boy, I hate to use a socialist left-leaning phrase here, but quite frankly; that's just unsustainable.

Indeed, it is my sincere hope that you will please consider all this and think on it.

What Is a Segregated Fund and Why You Should Choose Them for Your Estate Planning

A segregated fund is an annuity issued by an insurance company. They are similar to a mutual fund except for the fact that they come with capital or income guarantees as well as other substantial benefits. The term segregated means the issuing company must keep the premiums separated from other funds they are holding.

Like mutual funds "seg" funds have various fee options such as Deferred Service Charges (Back End fees that usually decrease over time), Low load and Front End Load fees. Typically the MERs (Management Expense Ratios) are slightly higher than the equivalent mutual fund to cover the companies risk in offering the guarantees. Some issuing companies also offer automatic re-balancing services.

Some of the key benefits of seg funds are as follows:

• Maturity benefit guarantees- At the maturity date of the contract a specified percentage of the premium is guaranteed to the account holder. Usually 75-100%. In other words if the market plummets just before your maturity date you will be guaranteed 75-100% of your premiums back even if the market value is zero. This essentially limits your risk to 25% of your capital where as in a mutual fund the risk is 100%.

• Death benefit guarantees- At the death of the account holder a specified percentage of the premium is guaranteed to the beneficiary regardless of the market value of the account, unless of course the market value is higher. This would be a great advantage if you are using a leveraged strategy especially if you chose the 100% death benefit option. Your entire loan would be covered regardless of the market value of the account at the time. A definite advantage from your beneficiaries point of view.

• You can name a beneficiary.

• Proceeds from a death claim are treated like an insurance policy. They by-pass the estate and go directly to the named beneficiary there by side stepping probate and estate fees. Since the proceeds go directly to the beneficiary you have the advantage of increased privacy and control over your estate.

• They have potential creditor protection.

• They now have an option of providing guaranteed income for life. This feature can provide an income bonus if you defer the start date of your retirement withdrawals. The withdrawal benefit can increase with age.

As with any portfolio you should diversify your assets through a range of investments and products. I believe the estate planning benefits of seg funds make them worthy of being an important part of your plan.

Is an IRA or 401k Really the Best Plan for My Money?

If you've spent a majority of your life working a 9 to 5 job for a mid to large size company, you likely have some type of retirement or 401k plan. Most financial advisers will suggest establishing this type of plan and diversifying by investing in various stocks and bonds. These advisers often have both very little interest and understanding regarding the value of gold-backed investing and a precious metals IRA (individual retirement account).

Many people follow this plan hoping to have established a sizable nest egg when retirement becomes a reality. However, with the steady devaluation of the dollar and account/banking fees, the actual amount left in a retirement fund may be much smaller than what one would expect. This is not surprising, due to the fact that most financial advisers make a living selling stocks and portfolios and have a strong interest in following the "Wall Street Agenda" while minimizing the value of gold-backed investing.

This is affecting people all over the country, as many are now reaching retirement age and coming to the harsh realization that they may not have nearly as much money saved as they once thought. More people are becoming aware of these pitfalls and are taking steps to protect themselves and ensure that they don't face similar outcomes as the ones described here.

Having a retirement plan does not have to mean leaving oneself susceptible to the devaluing currency of the dollar, or any other loopholes or fees that could compromise the viability of your nest egg. By supplementing a 401k with a precious metals IRA, this can help to ensure that the value of your retirement account will continue to grow, as precious metals like gold and silver are some of the most stable investments and are practically immune to devaluation.

The reason gold is such a reliable and safe investment, is mainly due to the fact that - unlike conventional stocks - it's value is not in any way dependent on the performance and growth of any particular company. Despite the annual fees for storing these precious metals, they are still a popular and profitable investment strategy that is recommended by many of the top financial experts in the world. It is best to think of investing in precious metal IRA's as a form of portfolio diversification.

Opening a precious metal or gold IRA is simple and easy and takes a little over a week to get up and running, and you can transfer any of your existing IRA or 401k money into a gold-backed IRA, also known as a gold 401k rollover or gold IRA rollover. After filling out the necessary forms and account documents, the rollover process will then be initiated. The gold 401k rollover or gold IRA rollover process is tax-free and is also free of any penalties. At this point, you can decide which type of precious metals that you would like to include in your new IRA profile.

It is important to remember that a rollover of either a 401k or paper-based IRA account is essentially a liquidation of whatever is contained in these accounts and you will want to check with your custodian throughout the process to make sure that you qualify under certain exemptions such as financial hardship and other criteria.

Originally a gold-backed IRA was the only type of precious metal that could be used for these types of accounts, however, in 1997, the U.S. Government approved other forms of gold and silver to also include platinum and palladium. Precious metals IRA's can now be backed by gold, silver, platinum and palladium.

Paper Investments Must Beware of Inflation

Gold is now a better investment than ever and is one of the only smart alternatives still available due to current inflation rates that are showing no signs of slowing down. Inflation is directed related to the printing of more paper money and the resulting devaluation of the dollar.

This all started in 1971, when President Nixon got rid of the gold standard, making it so that the paper dollar was no longer backed by gold. Since then, this drastic shift in the monetary system has resulted in the government printing more and more paper money each year that has no physical backing or value behind it. The more money that is printed each year the further the value of the dollar will decline until it potentially becomes worthless.

If you invest in gold, you will be taking one of the most significant steps towards helping to preserve your individual assets and savings. Gold has the capability of holding its value and has a long and steady track record confirming this fact. This means that investing in gold will help protect your hard-earned savings against the devaluation of currency like the paper dollar. The value of gold never goes down and is universally accepted as a viable currency and can be bought and sold around the world.

Not only is a gold IRA a stable investment, it is also a physically secure one. All precious metals IRA's are stored at the Delaware Depository, where they are all stored in high security vaults and are insured for up to one billion dollars. If you have heard of some of the recent scenarios in which entire retirement savings were lost due to poor investment decisions by brokerage firms and other unforeseen events, you already know how insecure investing in stocks and other retirement funds can be.

If you're considering a rollover of your current 401k plan or paper-based IRA into a gold or precious metals IRA, you may want to look into setting up a "self-directed IRA". You will have to make sure that you are in total compliance with certain rules and requirements, such as only using the allowed forms of gold and other precious metals and that your assets are properly stored in a secure depository and not under your own possession.

Whether you choose to go with a larger gold investing service or set up your own self directed IRA, you will be making a smart choice that will likely put you ahead of all of your peers who are still contributing to a less stable paper based IRA that will be highly susceptible to further decreases in the value of the dollar.

Seven Promissory Note Myths and Seven Myth Busters

Myth Defined: A myth is an invented story, idea, concept, or legend that concerns some idea or hero without a basis in fact. There are numerous promissory myths. Here are the main myths.

Myth #1: The value of a promissory note is clear and obvious-it is not debatable.
Myth Buster: A promissory note can have many values. The term "value" means different things to different people. The meaning of "value" is different to when used by the Internal Revenue Service, by an art auction company, by an antique dealer, by a real estate appraiser, or by an investor.

There are at least 15 meanings to "value": Fair Value, Fair Market Value, Market Value, Book Value, Cost Value, Discounted Cash Flow Value, Quick Sale Value, Liquidation Value, Speculative Value, Intrinsic Value, Investment Value, Personal Value/Owner's Value, Insider/Family Value, Wholesale Value, and Retail Value.

Myth #2: The cash value of a $50,000 promissory note is $50,000-just like a bank CD.
Myth Buster: Promissory notes are not like cash or bank CDs. They are mere promises to repay cash, not actual cash. There is always uncertainty about debt repayment. Consequently, their value is discounted because they lack marketability, liquidity, enforceability, adequate collateral security, proper documentation, and proper interest rate.

Myth #3: Investing in a promissory note is low-risk investing-just like buying a bank CD.
Myth Buster: Every investment has some degree of risk. Because of the reasons mentioned in #2 above, notes may have a higher risk factor. To compensate the investor for this added risk, their yields are higher than safer investments. This concept is the "Risk-Return Trade-Off".

Myth #4: Doing a foreclosure to collect on a defaulted promissory note is quick, easy, and inexpensive.
Myth Buster: There are always significant cash expenses and costs related to the foreclosure and repossession of a property. Attorney fees, eviction fees, property insurance premiums, property repair costs caused by ordinary wear and tear, neglect, and vandalism, real state commissions, other selling costs, and title company closing costs are the main expenses.

Doing a foreclosure and repossession can take between four months and twenty-four months, depending on the legal jurisdiction, and individual facts. This long time-frame results in addition costs and expenses for productive time lost, collection efforts, and losing the use of money for up to twenty-four months-the opportunity costs of having cash tied-up unproductively.

Myth #5: Selling a promissory note is quick, easy, and inexpensive.
Myth Buster: Selling a note is not easy, quick, or inexpensive. There are significant expenses and costs related to selling a note. The main reason is no organized buyer-seller market place exists. A separate selling package is prepared for each note; then the package is presented to each potential buyer. None of these individual buyers is geographically centralized; they reside and do business all over the USA. It costs more time and money to sell (market) one note compared to selling a stock on the New York Stock Exchange.

Myth #6: Any licensed attorney can do a good job preparing the promissory note and supporting documents.
Myth Buster: Just because an attorney has a law license does not mean he or she is knowledgeable in all areas of the law. Being a real estate attorney does not necessarily make the attorney a promissory note specialist. Many real estate attorneys have only a shallow understanding of the note field. Experienced, capable note attorneys have usually specialized in that area of the law--the promissory note field is definitely a specialty area.

Myth #7: Experienced promissory note experts and teachers are abundant, and can teach you the business quickly, easily, and inexpensively.
Myth Buster: Many self-described note experts and teachers have not been, and are not now in the note business. They are actually in the business of selling education. They describe themselves as experienced experts to make the sale. Some have real credentials.

But, regardless of the teacher, the note business, like any other profession, cannot be learned quickly, easily and inexpensively. Like any other serious calling, it takes time, effort, and practice to perfect the necessary skills. There just is no free lunch. Every valuable skill costs time and money to acquire.

Lawrence Tepper specializes in:
National Valuation and Appraisal Services That Serve Your Needs
Free Initial Discussion--Free Fee Quote--Call or Email
Review web site: http://www.PromissoryNoteAppraisers.com
Promissory Notes, Debt Instruments, LLC's Appraised & Valued
Expert Consulting Services

EDUCATION AND TRAINING
Law Degree /Accounting Minor University of Denver
Colorado Real Estate Broker-- Promissory Notes Specialization
Certified Commercial Investment Member From National Assoc. Realtors (CCIM)

PRACTICAL EXPERIENCE
35 + years of appraisal and valuation for Attorneys, CPA's, Estates, Trusts, Administrators, and Financial-Investment Advisors.

Are Sluggish Earnings The Beginning Of The End?

I, like many investors, professional and individual alike, have been skeptically bullish on this global QE/stimulus/money printing driven market for 4 years now, and all with one hand on the sell button. Although I may have missed some of the upside by focusing on investments that pay higher than normal dividends and interest, it has been the goal to participate while taking less risk.

The world economic situation is a contradiction in and of itself. After all, the answer to a debt problem cannot possibly be more debt, right? Life would be so easy if every time we had a recession the answer was simply to print more money without consequences, but it doesn't work that way.

The problem is that it can seem like all things are rosy for an extended period, like now. There is no limit to a house of cards being built, but the taller it gets it certainly could generate a false sense of security. It can kind of give you that, "This Time Is Different" feeling Reinhart and Rogoff wrote about, and of which I discuss in Facing Goliath- How to Triumph in the Dangerous Market Ahead.

One of my favorite sayings is "The market can stay irrational for longer than you can stay solvent", and it obviously works in both directions. However, as a professional, I am constantly on the lookout for warning signs that armor is crinking.

I am not shy to say that the hair on the back of my neck (if I had any) started standing on end last week when earnings, and more importantly revenue numbers, came out for both present and future predictions and were below expectations. Nearly 2 out of 3 companies has disappointed. This, I have said, will likely be one of the major warning signs. The problem is that it can go on longer than anyone thinks it can. Is this the beginning of the end?

Naturally it's better to be safe than sorry, at least on the surface. Yet, no one wants to sit on the sidelines while the market goes up no matter what they say. Realize however, that there is no bell that rings when it's time to get out. We must keep in mind that this bull market is much older than the average and that we are certain to see some sort of spending cuts and tax increases next year which will slow down an already anemic economy,so it is time to revisit your personal exit strategy.

Timing is everything. So when do you pull the trigger? Well, at the moment the market does have a couple of things going for it. We see a sea of liquidity with no place else to go. More importantly, too many people are waiting for it to happen. If a crash occurred soon, a huge majority of investors would be right, and the market never makes the majority right!

So, even though this current correction has been ugly and other warning signs are there, I would not be surprised to see new highs after the election. After that, it may finally be time to take some risk off the table and be happy with above money market rates and inflation. I know the market historically says it generates about a 10% return, over the very long term, but for that there is simply way too much risk.

Our "Invest for need, not for greed™" approach combined with our hands-on proprietary Top-Down Tactical™ investment management strategy can help you manage risk and deliver returns. If you would like to learn more and/or get a free second opinion on your portfolio, click our Appointment Request Form on our website or call for a no-cost no-obligation consultation today at (916) 925-8900.

It's The End Of The World As We Know It, And I Feel Fine!

-Despite Investor Fears, The Market Stands Its Ground

It seems like anyone old enough to remember the 2008 crash is decidedly bearish and absolutely convinced that the next crash is just moments from impact. Of course they'll be right at some point, likely early next year. The market has a couple of things going for it, one big aspect being disbelief, and that markets never crash when everybody expects them to.

The worries for the market are almost endless with the impending doom of the fiscal cliff, poor third quarter earnings, Europe in a recession, and China and emerging markets slowing fast, but these are known. For now, the market will climb the proverbial wall of worry, with a friendly cycle or two on its side. Not to mention of course, the unprecedented government stimulus among us.

My friend John Thomas, The Mad Hedge Fund Trader did a study on the "sell in May and go away" phenomenon and points out that according to the data in the Stock Trader's Almanac, $10,000 invested at the beginning of May and sold at the end of October every year since 1950 would be showing a loss today. Amazingly, $10,000 invested on every November 1st and sold at the end of April would today be worth $702,000, giving you a compound annual return of 7.10%. In fact, since 2000, the Dow has managed a feeble return of only 4%, while the long winter/short summer strategy generated a stunning 64%.

Of the 62 years under study, the market was down in 25 May-October periods, but negative in only 13 of the November-April periods, and down only three times in the last 20 years! There have been just three times when the "good 6 months" have lost more than 10% (1969, 1973 and 2008), but with the "bad six month" time period there have been 11 losing efforts of 10% or more. With November 1st only two weeks away, this is definitely food for thought. However, be aware that typically once a trend is discovered, it usually stops working.

Another set of statistics may surprise you. Since 1987, stocks have staged a big run from the October lows to the December's high. The S&P 500, over this twenty four year period study, had an average gain of +10%, ranging from a low of 1% to a gain of 29% with the NASDAQ and Russell 2000 doing even better with a gain of almost 15% and 12% respectively.

That said, this year so far has been very different from historical averages in looking at the behavior of the S&P 500. Since 1949, the first and third quarters are weak (small gains of 0.7% and 0.6% respectively), while second and fourth quarters are the strongest with each gaining 2.1%. In 2012, it has been just the reverse: Q1 and Q3 were the big gainers, 12.0% and 5.8%, while Q2 posted a loss of-3.3%. As I said above, typically once a trend is discovered, it usually stops working.

In the bigger picture, the natural demographic trends of the largest generation in history moving past their peak spending years can only be met with slower growth and higher unemployment and deflation, which I discuss in depth in Facing Goliath - How to Triumph in the Dangerous Market Ahead. Not until the echo-boomers, the 90 million kids of the baby boomers, start spending in about 5 years will the economy fully recover and start growing again. Hallelujah for federal stimulus, while it lasts.

Social Security's Gift to Married Couples: The Spousal Benefit

One of the benefits of being married is that you can share your spouse's Social Security benefits. If you are close to retirement age, you should be aware that there are various benefits available to spouses, including divorced or surviving spouses.

Chances are you are already aware that spousal benefits are available and you're looking for answers to questions, such as:

    My wife doesn't have enough credits to qualify for Social Security; can she collect benefits based on my record?
    My husband and I have been married for 35 years but are divorcing soon; what will happen to my spousal benefits when the divorce is final?
    What happens to my widow's benefits if I remarry?
    I am collecting benefits on my ex-husband's record, what happens if he dies?
    How can we maximize our family benefits? Are there strategies that we should be aware of?

Why is Planning for Spousal Benefits Important?

With Social Security making up approximately 40% of the average American's retirement income, it's important to maximize your lifetime benefits not only for yourself, but for your spouse also.

The rules surrounding spousal benefits are very complicated. Making a wrong decision could mean a lower standard of living and could increase the chance that you will outlive your money.

Retirement Benefits for Spouses

Disclaimer: For simplicity, this article assumes that the husband is the higher earner and that the wife will receive spousal or survival benefits based on her husband's earnings. However, the spousal rules are gender neutral; if the wife is the higher earner, or if it makes sense for other reasons, the husband can certainly claim spousal benefits on his wife's earnings instead.

Wives can collect retirement benefits based on their husband's earnings history even if they have never worked. However, there are many rules and requirements that must be met, including:

    You must be married for at least one year before you can collect benefits based on your spouse's earnings history
    You must be at least age 62
    Your husband must have filed benefits on his own record (that does not necessarily mean he is collecting benefits)

If there are minor children involved the rules are a little different. Wives who are caring for a dependent child who is receiving Social Security can receive the spousal benefits no matter what age she is. However the spousal benefits will end when the child turns 18 if the spouse is under age 62.

Who is a Spouse?

This may seem like a silly question, but in today's world where you have multiple marriages in a lifetime, common-law marriages and same-sex marriages, it's a legitimate question.

"Spouse" typically means the current spouse, but divorced and widowed spouses can also receive benefits based on the worker's earning history. More about divorced and survivor benefits will follow.

Add in common law marriages and same-sex marriages and the definition of spouse gets really confusing.

Common law marriages are recognized by Social Security if they are legally entered into in a state that recognizes common law marriages and you act as if you are married. So in some cases you can be a spouse for Social Security purposes even if you are not legally married.

On the other hand, same-sex marriages are not recognized by Social Security, so a partner in a same-sex marriage will not be considered a spouse, even if you live in a state that allows same-sex marriages.

Divorced Spouse Benefits

Many people are surprised to learn that you can collect spousal benefits on an ex-spouse's earnings record. Divorced spouses can collect spousal benefits if the marriage lasted at least 10 years and if it has been at least 2 years since you have been divorced. Similar to spousal benefits, you will receive the higher of your own benefit of 50 percent of your ex-spouse's benefit.

The age requirement (must be age 62 to collect divorced spouse benefits) and reduction for early withdrawal of benefits applies just like it does for spousal benefits. However, one of the main differences between divorced benefits and spousal benefits for the current spouse is that the divorced spouse doesn't have to wait for her ex-husband to start collecting benefits before she can start collecting divorced spouse benefits.

If you are the ex-husband you may be wondering how your ex-wife collecting on your benefits affects your current wife and family. The answer is "it doesn't". The payment of benefits to an ex-spouse has no effect on the maximum family benefits for your current wife and family.

If you have been married more than once, and each marriage lasted more than 10 years, you may qualify for benefits on either ex-spouse's record. As long as you are not married at the time you apply (and you have been divorced for 2 years), you can apply for spousal benefits on any ex-spouse that you were married to for at least 10 years.

Tip: If you are considering divorce and you have been married for close to 10 years, consider delaying the divorce until after you have reached the 10 year mark to allow the lower earning spouse to qualify for spousal benefits. Benefits paid to an ex-spouse don't affect your family maximum benefits, so it helps the wife and does no harm to the husband or his new family should he remarry.

Survivor Benefits

Finally, whether you are the current or ex-wife, if your husband passes away before you do, you may qualify for survivor benefits. In general, survivor benefits are 100% of your husband's benefit; however, survivor benefits will vary depending on the number of years worked, the earnings and if the deceased worker was already retired (and at what age).

Survivor benefits can be taken as early as age 60, or even age 50 if you are disabled. A widow can choose to take survivor benefits at age 60 and then switch to her own benefits at full retirement age.

Widows will lose their survivor benefits if they remarry before age 60, however, once you have reached age 60 you can continue to collect survivor benefits even if you remarry.

Learn how to get the maximum Social Security benefits you are entitled to at Your Guide to Social Security Retirement Income, a website created to help baby boomers learn everything they need to know to make the most out of their Social Security, including when to apply, how to coordinate spousal benefits, how to minimize the taxes they pay on Social Security and much more.

Give the Gift of a Roth IRA

This past summer, my business partner's son turned 21. In addition to a beer brewing system, she also gave him a gift with an eye on his future- a Roth IRA. It got me to thinking about what a great idea that was and how other parents and grandparents can help their children and grandchildren get a head start on their retirement savings.

First, let's discuss the basics of the Roth IRA. Introduced in 1997, this Individual Retirement Account uses after-tax dollars (as opposed to pre-tax dollars that fund Traditional IRAs). Earnings accumulate tax-deferred and all withdrawals after age 59 ½ are 100% tax-free. Roths are more flexible than their Traditional counterparts in that contributions may be withdrawn without tax or penalty, thus opening the possibility of using funds for college or a house purchase. Ideally, of course, the Roth should be utilized for long-term retirement savings. Anyone with earned income may contribute to a Roth IRA. The maximum annual contribution is currently $5,000 unless you are over 50 years old, in which case you may put in up to $6,000. There are income limits with the Roth- in other words, if you make too much money, you're not eligible to contribute. For the sake of this article, I'll assume that your teenaged son or daughter is well within these limits, unless he or she is on the Mark Zuckerberg career track.

If you'd like to consider gifting money for a Roth, first you need to make sure your recipient has earned income. It doesn't matter how old he is, but there must be earned income whether it be from babysitting, a part-time job, etc. Interest earned on savings or investment accounts doesn't count, nor does money given to them. Now, there is nothing that says the Roth IRA must be funded with the actual dollars they earn. Let's face it- it's probably not realistic to think that your child will put all of their hard-earned money into an investment account that they won't use for 45 or 50 years. So, if your daughter earns $2,000 working part-time at Dunkin Donuts, she doesn't actually have to use that money for the Roth. That $2,000 simply indicates the maximum that could be contributed for that year. You may give her the $2,000 to put in to her Roth. Many people will wait until late January when their child or grandchild gets their W-2 and then make a contribution for exactly that amount. The deadline for making IRA contributions is the tax-filing deadline, typically April 15th of the following year.

An important incentive for deciding to start a Roth IRA for a teenager or young adult is quite simply the magic of compounding returns. We often tell our clients that "time in the market is more important than timing the market." Putting even small amounts of money to work for upwards of fifty years can have dramatic effects. Consider a 15 year-old who invests $1,500 a year for 3 years and averages 5% annual returns over 45 years. At age 60, that $4,500 would be about $38,000. At 8%, the effect is even more amazing- it would be worth about $132,000.

Another reason for putting money into a Roth IRA versus other savings or investment plans is that retirement plans don't affect college financial aid. If a college-bound student has money in her own name in other types of accounts, they may alter financial aid calculations.

And finally, does anyone have any doubt that tax rates are going up in the future? Whether that happens in January or years from now, it's a pretty safe bet. If your teenager can pay taxes on his (low) income today when rates are historically low and lock in tax-free gains for the rest of his life, why not do it? I can envision a future generation of 60-somethings getting ready to retire and being pretty pleased with their parents' or grandparents' decision to start a Roth IRA for them back in 2012. Even if you're not in a position to be giving your child money to fund their Roth, encourage them to add a little money from each paycheck they earn. It's okay to start small, and it instills in them the value of saving for the future even now while they're still worried about homework and the prom.

Women Over 50 - 5 Tips For Financial Independence

Financial independence is the goal of most people especially as we approach retirement. Once we can see that turning 65 is just around the corner, thoughts of financial independence seem to become more frequent. Unfortunately some of these thoughts are more than that. They are mild forms of panic attacks especially if the retirement nest egg isn't looking great.

While these concerns affect all people, women over 50, especially those who are single, becoming financially independent is important for their survival, if they are desiring a comfortable retirement. And why shouldn't they be.

Working for most of your life, retirement should be a reward for your hard work. But if the coffers are a bit empty, what can you do to fill them so that your senior years are not on struggle street.

For women over 50, here's 5 tips to help you create financial independence:

    Create More Income
    Yes it is easier to create wealth by having more income or a higher paying job. But for women over 50 it is sometimes harder to move into a higher paying job based on age and or qualifications. You could look to undertake a higher education course at Uni or TAFE but again you might face the age issue. Perhaps a partime job or home based business could provide some extra cash.

    Invest Your Surplus
    There are many courses and associations to assist women over 50 to learn how to invest their surplus income to provide for a better retirement. Look for such associations in your local area and start taking an interest in the share market, cash management funds and real estate. With time this surplus correctly invested will compound to build you a nice nest egg.

    Money Is Taxing
    Make sure you have a good accountant or tax advisor to give you good advice on the best investments offering the best tax advantages. While women over 50 need extra income to invest, it is also important to cut your expenses especially by paying lower taxes.

    Get More Out Of Your Time
    Having more time is a dream of most people. But there is only 24 hours in a day. How do you maximise your time especially with earning money. You engage the power of leverage. If you get a partime job over and above you main job' you will create more income. But you are still exchanging your time for money. And there is only one of you. What if you could 'employ' a team of people whereby you could earn a percentage of their income. As well as leveraging people you can also leverage time - more specifically time zones. Why not have your team not only where you reside but also in different states and countries. So when you are asleep, your team members in another country are working and you're earning as well. Home based businesses can offer such an opportunity.

    It Takes Two To Tango
    Going solo in life does have some advantages. But it can also have it's limitations. And creating wealth or extra money can be one of those limitations. Women over 50 and men for that matter seem to do better in all facets of life if they have a loving, supporting partner or spouse. Doing things together including making money is more enjoyable when you're not on your own. If you have someone special in your life, why not make it more permanent and create a wonderful life together; especially in retirement.

Retirement Planning - You Are Never Too Young To Think About This

If you are the type of person who wants to plan for his future, then it's quite possible that you plan ahead even while you're still young. Too many people nowadays find it hard to live their senior years because they don't have money to spend. They enjoyed their teenager years, spent money when they were earning like there were no tomorrow and just about did everything while they were young that they have nothing left to spend as old men and women. The lesson in this is that you should invest in retirement planning so as to not be a burden later on in your life.

Typically you will want to seek advice from experts. We are not all financial advisers in nature so we need to other people to help us with these tasks. It's absurd to think that by just opening a bank account like we teach our kids in their junior we can already count it as investing money. That is not how it works in the real world. You need stocks and bonds that will grow bigger and bigger, you need to buy properties that you can later on sell and generate money with. You need a lot of serious thinking before anything else and you can't do them all by yourself. Expert advices are not free but it's a must.

You don't have to look far actually, searching online will give you a lot of choices which can work to your advantage. Do not be too paranoid that financial advisers will run away with your hard earned money, as long as they have the right papers and the right licenses, they will not fail to do the job you want them done. Be sure to be attentive to what they say to you, obviously they will do most of the job themselves but knowing the things they are about to do is better than being in the dark. Knowledge so power right?

So heed investment advice from experts and ensure that your future be comfortable. With the right decisions we have early in life our granny days won't be that harsh. Sure don't forget to enjoy your current days but don't ignore the fact that you have to save for your future too. Many people in their old age have wished for that to have been so and while you're young now and you know of what to do then don't make the same mistakes they did. Make your future a stable none and don't think that "the now" is the only most important part of your life.

BEWARE: Traditional Pensions Have Changed - The Current Format May Affect Your Retirement Plan By Connie Wesley

We all have family members or friends who are approaching their retirement years. There's no shortage of stories of those who have planned to retire at 62 or 67 only to learn they have to work beyond their target retirement age simply because they do not have enough money to retire. Fast food restaurants and department stores are filled with seniors who have been forced to seek employment just to make ends meet. One of the biggest fears seniors have is outliving their savings. Failing to start planning during their youth is at the top of the list of regrets. We would be wise to learn from the examples of our seniors and take advantage of the years ahead of us and plan early.

According to the Office of Personnel Management (OPM), "rather than being a near retirement event, retirement financial literacy and education is a career-long process." The earlier you start to plan the harder your money can work for you. Let the young you take care of the older you. Many people live the first part of their lives unhappy with their jobs. Don't live the second part of your life unhappy with your retirement. Start planning now.

Even if you don't have thousands of dollars lying around each month, you can still set your plan in motion. The key is to adjust your thinking today. Remember, if you continue to do what you've been doing, you'll keep getting what you've been getting. Ask yourself how close are your current financial habits getting you to your retirement goals?

Numerous books on the subject leave readers with unanswered questions. Many claim to be experts and charge thousands of dollars for consultation and other fees. Often, we become overwhelmed with information about how much we should save, and the best means by which to do it. The experts give you so much information that planning for retirement may seem unattainable. However, there are key tools that when used will aid workers of every economic level in planning for a luxurious comfortable retirement. This luxury is available to all. The time to start is now.

Each individual's circumstance is unique. Your financial planning should be as well. Take time to evaluate your spending habits. Could you accommodate your mobile needs and save money by sharing minutes with family members, for example? Would a smaller cable or Internet package fit your needs and allow you to save money? When we evaluate our spending, most of us can identify ways to trim $50 to $100 a month to contribute to retirement savings, which would be a great start!

IF YOU ANSWER "NO" TO ANY OF THE FOLLOWING QUESTIONS YOU NEED A FREE BENEFIT ANALYSIS

1. Are you sure you are maximizing the value of your employee benefits?

2. Will your Retirement Annuity actually be enough to retire on?

3. Do you know what happens to your health insurance when you leave your job?

4. Do you know that your Employee Life Insurance increases every 5 years?

5. Do you know why it is so important to have an emergency fund?

6. Are you aware of the importance of protecting your paycheck?

7. Have you received a review and estimate of your 3 sources of retirement income?

8. Do you have a date scheduled for your next annual review?

Retirement Planning - A Bliss!

Ever since a person enters teenage he is told stories about successful people with name, fame and most importantly, money! People achieve a lot but in that process, go beyond their own expectations and lifestyles too and get on with their life, planning for family in the same manner. The once-called-luxuries become necessities and financial wizards have shown the benefits of leverage too which of course, may be understood and misunderstood in one's own wisdom.

But, we forget during this luxurious and leveraged life span that the journey which had started from being dependent -> independent -> inter-dependent ->?.. Could end at again being 'dependent'! This is realized when your HR informs you that you are retiring next month and then you start calculating your expected retirement corpus. "Wish I had 5 more years of working!" "Wish I had the right spectacles to see through a few years back!"

Life in retirement is as long as career itself and some times even more. Retirement means no salary on the last day of every month, no increments, no medical reimbursements and no bonus! It also means inflation could be hurting more than ever with increased lifestyle and health care costs but limited/no income at all. All your investments could be subject to 'market risks' and irrespective you could have to liquidate some portion to meet current expenses.

If not planned well, you could have to live a life of compromises.Travel and recreation could seem to exist for the affluent. After living a lavish life, would you be able to compromise on the standard of living? And a few more developments which make retirement planning more critical in the Indian context are absence of any kind of social security for majority of people, rapidly decreasing career span due to long study time or want to retire early, increased longevity and reducing joint family system.

Let's see the other side of the coin; what if the planning was done properly? Instead of you working for money, you make your savings/investments work for you; annuity, pension, interest, dividends, capital gains, less taxes; enjoy senior citizens' concessions by increased deduction in computing taxable income, lower train fare/air fare; no milestones, targets except the one given to you daily by your new boss (Spouse!). You would rather Google a new place to explore than ways of earning more money to do so!

For a carefree retirement at least as good as the working span, you must start planning now as it is never too early to plan for retirement!

3-Step process for Retirement Planning:

    Assess the cost of post retirement life based on current lifestyle net of inflation. Add increased healthcare costs, vacations, other family celebrations and reduce costs like children's education and rent, if you own your home.

    Estimate the amount you would need to save regularly from now to build the retirement corpus which if accumulated at that time should be sufficient to substitute your pre-retirement income or a little more than anticipated post-retirement expenses.

    You must start early and systematically to experience the power of compounding and top up such an investment whenever possible. While investing for retirement, parameters like diversification, portfolio balancing, risk, taxation, estate planning should also be managed.Most importantly there should be ample liquidity to tide over any contingency. The investments must be capable of protecting one from inflationary pressure at the same time should be wealth protectors.

What You Don't Know Can Hurt Your 401(k)

"If I'd only known" is a lament that can easily become "You should have told me." Employees at two major companies who suffered big hits to their retirement accounts, however, found no sympathetic judicial ear for their final appeal.

Earlier this week, the Supreme Court declined to hear two separate but related cases regarding defined contribution retirement plans. Employees from Citigroup Inc. and McGraw-Hill Companies Inc. claimed in their respective suits that the companies had violated their fiduciary duties in offering their own stocks without disclosing information that suggested those stocks could soon lose a great deal of value. It in the case of Citigroup, this information was the extent of the company's subprime mortgage exposure; for McGraw-Hill, it was problems at the company's Standard & Poor's unit.

The fiduciary responsibility that the plaintiffs cited was specified under the federal Employee Retirement Income Security Act of 1974 (ERISA). The 2nd U.S. Court of Appeals in New York, however, said in a pair of rulings last year that the companies were under no obligation to disclose nonpublic information to employees participating in the 401(k) plans, regardless of whether the plans offered company stock as an investment option.

The Supreme Court did not comment on its decision, but it left many who had hoped for a stricter interpretation of employers' duty disappointed. Helaine Olen, a contributor to Forbes, wrote that "perhaps the time has come for us to acknowledge that most have little clue about what they are doing when it comes to 401(k)s and need protection." (1)

On the other hand, some attorneys expressed concern that, had the Supreme Court reviewed the cases and found the companies at fault, the result would be many employees who wanted access to some employer stock losing that choice entirely, as companies proactively covered their own liability. There were also concerns about creating an overly litigious atmosphere for concerns related to stock performance. Scott Macey, president and CEO of The ERISA Industry Committee, said, "We don't want our courts clogged every time a stock goes down, unless there is a reason." He added, "You can't hold people liable for not knowing. We all know that stocks can go down." (2)

But while the courts have held that it is not a violation of ERISA for employers to offer their own stock in 401(k)s, despite knowing about company risk that might not be evident to all employees, it still unwise for employees to over-invest in that offered stock.

There are a variety of reasons why holding large amounts of employer stock is a bad idea. These cases are a reminder of one: Even though ERISA holds employers to a certain level of fiduciary duty, your employer is not your financial adviser. The employer's first priority isn't to oversee its employees' private financial decisions. While it may be convenient to offer employees compensation as company stock, that doesn't mean the company is necessarily doing you a favor in its offering.

Within a 401(k) plan, it's especially important to remember one of the cornerstones of investment: Past performance doesn't guarantee future results. Even if it may not feel that way, the principle holds for your own company as much as for any other.