THIS IS NOT YOUR PARENT'S RETIREMENT
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Change is the way of the universe and this is especially true in the world of finance. Investments change, the economy changes, cycles follow one another and yesterday’s recommendation may no longer be valid. Federal income taxation changes in a constant swirl of special interests and the tug and push of legislators and administrations.

In the environment of change, financial books become obsolete very rapidly. Anyone who followed recommendations of the leading texts of the day in 1998 and 1999 found their investment portfolio down by 40% to 65% throughout 2000 to 2002 in the great Tech and Dot Com bust of those years.

This section will keep your retirement planning book This Is Not Your Parents’ Retirement up to date and proactive. Simply check periodically for changes in each section. Contact me with your email address (Use the Contact Me button on the home page of this website) and you will receive the latest strategies to enhance your retirement. You will be alerted in time when an investment or tax strategy is no longer effective.

Asset Allocation & Specific Mutual Funds (Pages 64 & 65)

Small Cap is reduced from 15% to 10%.
5% to Vanguard Small-Cap Value Index (From 7.5%)
5% to Heartland Value Fund (From 7.5%)

Large Cap Growth is increased from 10% to 15%
15% to Fidelity Capital Appreciation (From 10%)

International Large Cap: My recommendation Fidelity Diversified International, symbol FDIVX. This fund recently closed to new investors. If you are a current shareholder, continue to hold this fund-do not sell it. If you are starting to invest in this sector, use the following funds for international:
Fidelity Canada (FICDX)   5%
Fidelity Europe (FIEUX)   5%
Fidelity global Balanced (FGBLX)    10%

Life Insurance Recommendations (Chapter 9, page 119)

Following the analysis and ideas in this chapter, we only recommend a combination of Term Life and Whole Life. We recommend you avoid Universal and Universal Variable Life, unless it is your goal to enrich insurance companies.

Term: AIG/US Life 10 to 30 years guaranteed term.

Whole Life: Farmers & Traders Life (New Century & Flagship II product.)

There are many other fine companies, but I prefer to give you what I have found to be the two best companies in their field. If you choose another company look for the following:

At least an A or better rating from AM Best company.

For term life, a price guaranty for the number of years chosen. It should be simple, clear and written in the policy.

For whole life the premiums should be guaranteed in writing all the way to age 100. There should be guaranteed cash value along with a projected non-guaranteed value. Be sure that the projections are made on current assumptions and not inflated. The policy should be participating and issue dividends. There should be a probability that the policy will become self-funding within 15 to 20 years.

If you have a good insurance agent that you trust, by all means work with them. Be aware that the insurance companies are pushing Universal and Universal Variable Life very heavily and the pressure carries to their agents. Some agents will call Universal Policies “whole life” when it is not.

Re-read Chapter nine and follow the life insurance worksheets on page 229.

Prosperity Points #11: How to Audit Proof Your Tax Return (Page 206)

ALERT!

Be prepared for a number of alerts in this section. Tax laws constantly change and the IRS is making stepped up audit efforts. Here’s the latest one:

Do you do business as a Subchapter “S” Corporation? This applies to you:

In 2004 the IRS won an important tax court ruling. A one-person owned Sub S corporation may not use non-payroll distributions for the shareholder. This ruling was based on the concept that since there is only one owner of the corporation, that person is the only one (outside of normal payroll) who can render service to the corporation and therefore may only remove funds from the corporation by means of payroll. That means the shareholder-owner will be subject to Social Security taxes, Medicare taxes, Federal Unemployment, State unemployment and other state payroll taxes, as well as for some states, be required to carry workers’ compensation.

Here is how to avoid getting snared in this trap. First, turn it into a two person corporation whenever possible. Make your spouse or other trusted relative a 10 or 20% shareholder. Now it’s a two-person corporation. Second, be sure that you and/or your tax advisors are aware of this audit trigger:

On S Corporation tax return form 1120S, always be sure that the “compensation of officers” (Page 1, Line 7 for 2004) is greater than the “distributions other than dividends” line (Page 4, Schedule M-2, Line 7).

Corporation taxes are complex. Be sure you get help form someone who is qualified.

Recommended Dividend Re-Investment Plan Directory (Pages 239 to 249)

MERCK & COMPANY
I am removing Merck from our recommended buy list because of problems with Vioxx. While I believe the stock holds long term value for patient investors, current problems have placed a damper on its prospects.

If you bought the stock at our recommended levels, it composes a small part of your portfolio, no more than one to two percent. If that’s the case, hold on to it. If you own more than that, sell on price upswing.

I’ve had a number of requests for a shorter list, a “preferred portfolio” of a dozen stocks, so here it is:

Dividend Re-Investment Plans Preferred Portfolio

Dominion Resources
ChevronTexaco
Keyspan
The Southern Company
Aqua America (Formerly known as Philadelphia Suburban)
Pepsico
Verizon
AmSouth Bank
Bank of America
Conoco Phillip
ExxonMobil
Walgreen

Contact information and investment details will be found in pages 239 to 249. How and when to invest in DRP’s is in pages 142 & 143. It is also part of the investment pyramid on page 102.