HFI Wealth Management’s advisors are required to have and maintain the CFP® certification from the Certified Financial Planner Board of Standards, as well as at least one other respected advanced degree or designation. The firm’s advisors have been awarded the following advanced degrees and professional designations: Certified Financial Planner Practitioner (CFP®), Certified Public Accountant (CPA), Master of Science in Financial Planning (MSFP), Master of Science in Finance/Investments (MSF), Accredited Investment Fiduciary (AIF®), Professional Plan Consultant (PPC), and Accredited Asset Management Specialist (AAMS), among others. “There are relatively few independent wealth management firms that can demonstrate such a pledge to advisor academic excellence,” continues Hoxton.

“Other than our name change, nothing else will change,” Hoxton commented. “We will continue to provide financial advice using our financial planning process that has set us apart for the last 20 years.”

Rob Hoxton is a graduate of the Certified Financial Planning Professional Program of the College for Financial Planning in Denver. Hoxton, who began his career in the financial services industry in 1986, has won numerous awards for his work in the wealth management area. He is the developer of The Grow Greenr® Method and the author of Grow Greenr, 10 Steps to a Richer Life, which is available at Amazon.com. He also wrote Investing in Uncertain Times, which shows investors how to profit from the volatile nature of the market, and which can be downloaded as a PDF file from www.hfiwealth.com.

HFI Wealth Management has consistently been named one of the leading wealth advisors in America by publications such as Medical Economics, Wealth Manager, Paladin Registry and Financial Advisor. As a fee-only investment fiduciary, HFI Wealth Management’s sole source of revenue is fees paid by clients, not commissions or incentives paid by brokerage firms, mutual funds or insurance companies. The firm enjoys high referral rates from existing clients, as well as from professional colleagues.

April is National Financial Literacy month and a great time for individuals to avail themselves of resources by reading and researching on-line and taking courses to improve their financial knowledge. Financial literacy is the ability to make informed decisions about one’s financial future and stability.

Parents should teach their children about fiscal responsibility and elementary concepts such as budgeting, analyzing income and expenses, balancing a checkbook, understanding credit cards and interest rates, and saving money and compound interest. It’s incumbent on parents to help their children learn these financial lessons and not leave the teaching up to the schools.

Here is more bad news about our children’s financial literacy: Over 90 percent of students, whose parents took them on back-to-school shopping trips, said that their parents had not discussed back to school finances with them. Slightly more than half of parents with children ages 6 to 17 have ever discussed saving or investing with their kids. A recent study, examining the overall literacy of college students, found that 20 percent of students in 4-year colleges and institutions have basic or below average quantitative literacy skills. Another study conducted among high school students revealed that only about half of respondents were able to answer financial literacy questions correctly.

In addition to teaching their children, parents can also work with their children’s teachers to ensure that the classrooms, from early grades, contain some type of financial literacy education. A number of organizations provide material to help students learn fundamental financial concepts to ensure their economic stability as adults.

West Virginia is leading the way with a law mandating financial education as a high school graduation requirement. The Financial Football video game from the NFL and Visa is a multi-week program to teach financial literacy. By 2070, all adults in West Virginia will have participated in the program.

At the college level, the Rural Financial Planning Project (RFPP) was founded several years ago with the mission of improving the lives of rural Americans through the promotion of financial literacy and the delivery of financial planning by well-trained and ethical financial planning professionals. Partnering with RFPP, Shepherd University has created a financial planning major, which has been approved by the Certified Financial Planner Board of Standards, Inc. The Project provides financial aid and mentorship to students. By creating a degree program with a concentration in financial planning, Shepherd University will graduate students, who can return to their communities and help people become financially literate, as well as obtain a better life through comprehensive financial planning. Another college is about to join the Rural Financial Planning Project.

If you’re not as well educated financially as you should be or if your children are lacking in basic financial fundamentals, there is no time like Financial Literacy month in April for you to learn and for you to teach your children, so you start getting A’s in one the most important components of a happy life.

…the earliest age a person can receive benefits is age 62?
…the average or “full” retirement age is between 66 and 67, depending on the year the person was born?
…most individuals will continue working until the full age of retirement to maximize their benefit policy?
…the basis for calculating benefits is a person’s top 35 years of pay?
…a person needs to work at least 10 years to earn retirement benefits?
…the average monthly retirement benefit is $1,182?
…a divorced person, who was married for at least 10 years, can claim Social Security benefits on the former spouse’s payment history?
…calculating the age when a husband and wife take their own benefits vs. when they take spousal benefits can drastically alter their benefit amount?

The Social Security Administration’s website provides some tools for calculating benefits and for applying for Social Security. However, the website does not provide any guidance on how to maximize benefits. For example, John and Susan, a married couple, have reached the age 62, allowing them to collect on Social Security. In this hypothetical situation, the net present value of their benefits is around $900,000. They both decide to work until age 65.

After consulting with their financial planner, they determine that Susan will collect her Social Security benefits at age 65 while John will take a “spousal benefit” until age 70. At this time, John can begin to collect his own benefits. Social Security is inflation-adjusted, and by delaying the start of his benefits, John actually increases their amount. By utilizing “spousal benefits” and by delaying the start of their benefits, they have increased the net value to be over $1.2 million, an increase of $300,000.
By consulting with financial advisors, baby boomers can be better prepared to apply for and receive the maximum amount of Social Security benefits available to them.

 In the past, seniors age 70 ½ and above were forced to take required minimum distributions (RMDs) from their IRAS, whether they needed the additional income or not. These RMDs were then treated as income and subject to taxes. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extended the deadline for making qualified charitable distributions (QCDs) from IRAs to December 31, 2011. The QCD provision is particularly attractive if seniors do not need their RMD towards living costs and plan to give this money to charity eventually. A QCD saves the individual from having to count the distribution as taxable income.

The Qualified Charitable Distribution Process

Accountholders can instruct their IRA trustees to make a distribution directly to a qualified charity. These QCDs can account for as much as $100,000 of gross income. These distributions can make up all or part of individuals’ RMDs and be directed to single or multiple charities.

For example, an accountholder’s RMD is $20,000. The investor instructs the trustee of his or her IRA to distribute $5,000 to Charity A and $5,000 to Charity B. The investor must then take the remaining $10,000 as a distribution before the end of 2011 to avoid paying a penalty. The IRS considers the $10,000 distribution as part of the accountholder’s taxable income for 2011. However, the accountholder can direct the trustee to distribute $10,000 to each charity and have no taxable income incurred from his or her RMD.

Other Benefits of the QCD Provision

A reduction in their tax burden is not the only benefit provided to seniors. The QCD provision does not require donors to itemize their tax returns. Some states, such as West Virginia, do not allow itemized tax deductions. By making charitable donations directly from their IRAs, taxpayers can avoid additional income and, therefore, state taxes on that income. Those who itemize their tax returns are prevented from deducting more than 50% of their adjusted gross income in charitable donations. However, the QCD is not included in this percentage and allows individuals to exceed the limit.

Many taxpayers’ deduction amounts decrease as their income increases. Required minimum distributions add additional income, often unnecessarily. Large reported incomes may also increase Medicare Part B premiums or have adverse effects on Social Security benefits. By using QCDs, taxpayers can qualify for other tax deductions or savings that their incomes might otherwise prohibit them, multiplying the provision’s benefits.

 Restrictions of the QCD

While this provision provides many benefits, it also has limitations. Those who hope to take advantage of a QCD must be 70 ½ or older and have a RMD that would otherwise be considered taxable income. The IRA trustee must make the charitable donation directly to the charity from a traditional or Roth IRA. Donations from previously distributed funds cannot qualify as QCDs. Taxpayers cannot deduct these distributions as charitable contributions on federal income tax returns.

Despite the restrictions, the QCD provision can greatly reduce the taxes owed by wealthy investors. Discuss further benefits with a tax professional or wealth manager to understand how it can affect your finances. Remember to take advantage of this extension before December 31, 2011 to increase your tax savings for the year.

The Community Living Assistance Services and Support Act (CLASS Act), part of the health reform legislation signed into law by President Obama in 2010, will establish the nation’s first government-run, long-term care (LTC) insurance program. Long-term care insurance is designed to cover costs associated with cognitive impairment, a chronic illness, a disability, or help with daily needs such as bathing and getting dressed.

One of the primary goals of the CLASS Act is to reign in the role Medicaid plays in long-term care. Currently, Medicaid spends one-third of its budget on LTC costs — and with a rapidly aging population, those costs are only expected to skyrocket over the next few decades.

The Act does not yet specify premium levels or the full scope of what services will be covered. The Department of Health and Human Services is responsible for determining the parameters of the program. While the program became effective as of January 1, 2011, the full details won’t be finalized until October 2012.

Here is a summary of what is known so far.

• The program will be voluntary and not funded by tax dollars.
• Employers can include the program as part of their benefits offerings and may fund all or part of the costs. Their employees will be automatically enrolled, but will have the ability to opt out.
• Eligible employees can pay their monthly premiums through direct payroll deductions, similar to traditional workplace health insurance plans.
• Participants earn eligibility for their LTC needs after at least five years of participation.
• These plans will be tax-advantaged, allowing participants to deduct their premiums and out-of-pocket expenses on their tax returns.
• Those who are currently retired are not eligible for the program. Also not eligible are the unemployed and nonworking spouses.

A Need for Supplemental Coverage?

The program’s benefits won’t be capped, but the amount paid will probably not cover 100% of all LTC costs. The law stipulates a daily benefit minimum of at least $50, and many experts believe the program will launch with a $75 daily stipend. Currently, the median cost of “adult day health care” is $60 a day, while a semi-private room in a nursing home runs $185.1

Given the rising costs of care, it is likely that supplemental insurance still may be a necessity for many who have not yet retired. Standalone LTC insurance can be pricey. In 2009, premiums for a policy with a three-year benefit period averaged $1,590 annually for a single 55-year-old.2

In addition to their costs, LTC insurance policies are complicated. If you are considering purchasing a policy before the government plan is launched, be sure to consult with your financial professional. 

¹Source: Genworth Financial, Genworth 2010 Cost of Care Survey, April 2010.

²Source: American Association for Long-Term Care Insurance, 2009 Long-Term Care Insurance Price Index.    

© 2011 McGraw-Hill Financial Communications. All rights reserved.

 This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by  Rob Hoxton, CFP, a local member of FPA.

In Madison, Wisconsin, thousands of protesters flooded the state capital for several days last week to protest the newly-elected Republican governor’s attempt to roll back state employee benefits and overhaul union rules, according to CNN. The battle is being closely watched on the national scene because if the governor succeeds, it may embolden other states to attempt similar moves.

What’s playing out in Wisconsin may be a precursor to sweeping changes in our country over the next few years. Specifically, most people agree that our country is facing massive budget issues that cannot be “kicked down the road” indefinitely. With the Republicans scoring major victories in last year’s election, they are now—right or wrong—trying to follow through on campaign promises to address these issues.

While most people agree that something has to be done with our country’s budget issues, Wisconsin’s governor is discovering that getting changes made won’t be easy.

Interestingly, the stock market keeps moving up despite the political protests here and abroad. Last week, the S&P 500 rose to its highest level since June 2008 as the Federal Reserve raised its forecast for economic growth and most companies reporting earnings topped estimates, according to Bloomberg.

What could possibly derail the market’s upward momentum? In a word—oil. As the unrest in the Middle East spreads, particularly in oil-rich Libya, a spike in oil prices could deflate the market if it causes the economy to slow down.

Back in Wisconsin, the protests show we have no consensus on how to solve the deficit problem. The least painful way would be to grow our way out of the hole. More likely, though, the old Fram oil filter ad presciently spells out the path, “You can pay me now, or pay me later.”

Fundamentally, when interest rates rise, bond prices fall. Think of the school-yard teeter-totter. Bond prices have risen as bond yields have fallen. Now, with bond yields rising, bond prices have begun to fall. Last week, investors got a glimpse of what a bond market correction looks like. From Monday to Friday, the yield on the 10-year Treasury moved higher from 2.92% to 3.32% and the Aggregate Bond Index (AGG) lost 1.27% in value for the week. The potential to lose money in bonds has not been this great in many years. The potential to make money in bonds has not been this small in many years. 

“If the 10-year Treasury merely adjusted to a normalized 5% rate (2.5% to 3% real rate with a 2% inflation assumption and some term premium), given its 9+ duration, it could suffer a price decline of over 20% (Taubes p. 5)”. A decline of 20% or more would come as a huge surprise to traditionally risk- averse bond investors.

Typically, there are  two reasons that investors buy bonds– as a source of income and for stability.  With yields at 60-year lows and the potential for capital loss at 60-year highs, investors should expect neither income nor stability.

 [1] Taubes, Ken. The Risk of Fixed Income Indexing vs. Active Multi-Sector Management. Pioneer Perspectives. Print. November 2010.

• Raise the Social Security retirement age to 69 by about 2075
• Reduce or eliminate the deduction for home-mortgage interest
• Reduce farm subsidies
• Lower and simplify individual tax rates
• Lower the corporate tax rate to 26%
• Reform medical-malpractice law
• Slow the growth of the Medicare program
• Cut the federal workforce by 10%
• Permanently ban congressional earmarks
• Cut $100 billion from military spending

The potential economic ramifications of last week’s news are, to put it mildly — huge.

Three big things happened that could have long-term effects on your portfolio and your financial well-being. First, on Tuesday, the Republicans scored a major victory in the mid-term elections and now have the upper hand in shaping the legislative agenda over the next two years. Should they succeed in cutting taxes and reducing spending, it could usher in a new era of fiscal conservatism that might cause short-term pain, but could lead to long-term gain. On the other hand, we could just end up with gridlock, finger-pointing, or compromises that please no one. 

Second, on Wednesday, the Federal Reserve cranked up the printing presses again and announced that they will buy up to $600 billion of additional Treasury securities by the end of June 2011, according to MarketWatch. In a November 4 Op-Ed piece in The Washington Post, Fed chief Ben Bernanke justified the action by saying, “Easier financial conditions will promote economic growth… lower mortgage rates will make housing more affordable and allow more homeowners to refinance… lower corporate bond rates will encourage investment… higher stock prices will boost consumer wealth and help increase confidence.” On the other hand, some critics suggest that this action will lead to high inflation, a weak dollar, and perpetuate global imbalances, according to CNBC.

Then, on Friday, the Labor Department reported that the U.S. economy created 151,000 jobs last month, which was well above the forecast of 60,000 jobs, according to Bloomberg. On top of that, the previous two months’ payrolls were revised upward to show 110,000 more jobs created than previously reported. Could the U.S. economy finally be on the cusp of a new wave of job creation?

The net result of these three sweeping things was that stock prices roared to their highest level in more than two years, according to Bloomberg. In addition, yields on two- and five-year Treasury notes dropped to record lows and gold prices surged to all-time record highs. Whew!

Barry Knapp, chief U.S. equity strategist at Barclays Plc in New York summed up the week very nicely by saying, “The elections point to the stabilization between the government and the private sector. The Fed purchases will go on for at least seven months, and the stronger-than-expected payrolls report creates an encouraging macro-environment going forward.”

The FOMC announced that they will leave the Fed funds rate unchanged and they anticipate economic activity to require current low rates for an extended period of time. Of course, low rates and extremely low inflation will continue to produce low yields for fixed income investors. Low rates will also postpone the day of reckoning which awaits bond investors who are not prepared for inflation, higher interest rates or deflation.

Market sentiment continues to improve as productivity gains generate higher profits for big companies. This is likely to continue as corporations remain hesitant to re-hire employees who were displaced during the recession.

Market data have improved significantly this month, with last week showing technicians a strong break higher in the range-bound trading pattern of the last year. HFI Wealth Management’s “Advance & Protect” investment strategy allows us to make adjustments to a client’s portfolio strategy (within the limitations set forth by the agreed investment policy) to increase or reduce exposure to various asset classes based on technical research performed by our research vendors. Our clients are aware that earlier this year we reduced exposure to stocks, particularly Emerging Markets, US Large Cap Growth and Small Caps. With positive market momentum confirmed this month and particularly last week, we will begin to reintroduce these equity asset classes.