Paul Ferraresi

The push today to find alternative sources of energy is overwhelming. As the price of oil rises, these alternative sources become more feasible. Unfortunately, it will take a long time (5-10 years) before you may get your investment money returned. Make sure to diversify your money as many of the alternative energy start up and established companies may not have the resources to survive 10 years or more.

Solar has been a very costly way to produce energy. As the years have passed, the new technologies are helping to reduce costs. There are companies that produce thin film modules that require very little silicon, thus, cutting costs.

Bio-fuels, such as ethanol, have become the hot topic. Unfortunately, without the government tax subsidies (that is, you paying for the companies to be profitable) then, this program would not work. Ethanol is inefficient, that is, you will obtain less miles per gallon using ethanol versus gasoline. This means people will need to buy more gasoline to go the same distance, thus, defeating the purpose. Next, corn is used to create ethanol. This product has to be transported to the processing plant, which uses more gasoline. When the product is made, there are no pipelines, so it has to be transported by truck to the oil refineries wasting more gas. On top of that, since farmers are getting a tax subsidy for growing the “ethanol corn”, very little is going to feed stock. That is why meat, pork, and poultry prices have skyrocketed for you and milk is approaching $5 per gallon. Ah yes, “Government Programs”.

Wind is a great alternative. It is cheap and can produce power at 4-6 cents per kilowatt. Unfortunately, people do not like looking at the wind turbines, even if that means saving money. Please!

If you want to participate in alternative energy you do need to have a long time horizon and a strong stomach as the investments will be volatile.

Here are some informative sources:

CLEAN EDGE
www.cleanadge.com
Research/consulting firm on the clean-tech sector

KLD RESEARCH & ANALYTICS
www.kldindexes.com
Information on SRI, including alternative energy

SUSTAINABLE BUSINESS.COM
www.sustainablebusiness.com
Publishes information on alternative energy

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Interesting Tidbit

TEN BEN FRANKLINS A DAY

It takes an adjusted gross income of $365,000 (i.e. $1,000 of gross income a day) to rank in the top 1% of individual income tax returns.

(Source: IRS)

I have often written, hinted, cajoled and begged in this blog for you to get on track with Long Term Care Insurance (LTCi). No, I will not share personal experiences or client experiences in this write up. Rather, here is a compilation of statistics on the subject. When you have convinced yourself of the need, please contact us …

The bulk of the country’s 76 million baby boomers will soon reach age 65. The Federal government estimates that 60% of them will eventually need some type of long-term care. Unfortunately, only 7 million (about 10%) actually have a policy to cover those costs.

One reason the public has not purchased a policy is because they are complicated. The typical policy has dozens of options and add-ons that can make for hundreds of permutations. The insurance industry has started a massive simplification of basic policies.

Another reason for not moving ahead with a policy is the good ol’ human trait of … procrastination. Many people wait until the horse has left the barn before closing the door. That is, they wait until later in life to buy the policy when they may not be in good health. Recent statistics show 20% of the applications from clients aged 60-69 and 42% of those aged 70-79 are declined. What is the solution …? Buy a policy when you are young and healthy, say at age 40-45.

The average nursing home (or at home care) costs $8,000/month or $100,000 per year. Assume a basic policy, at age 40, costs $500 per year and you pay it until age 90 (50 years). Then, your total cost over your lifetime would be $25,000 ($500 x 50). Do you realize at today’s cost of $8,000 per month that in 3 months you would spend the same amount as you paid for your lifetime premiums. ($8,000 x 3 = $24,000) The decision to buy a policy is a layup with a ladder, or, a stolen base on a wild pitch.

Why even consider a long term care policy? Everyone needs to be concerned about the quality of Medicaid-funded long term care. With the Medicaid system in sever financial strain and no solution on the horizon it is obvious that care will diminish. The system is underfunded.

Some people tell me that they will self fund their long term care needs. Costs today are running $100,000 per year and rising 14% annually. Some people need long term care coverage for 10 years. Do you have “loose change” of 1.5-$2 million to handle these long term care costs for one person?
As I have written many times in this blog the new Federal rules for transferring your assets to obtain Medicaid are super tight. Thus, this can be an option only if done 6-10 years in advance of the need.

Are there alternative ways to fund long term care coverage? Yes. See your financial advisor TODAY to develop some strategies.

In general, here are a few ideas and tips for buying long term care insurance (LTCI):

• Buy young, when premiums are less expensive
• Women are more likely to need LTCi as 72% of nursing home patients are women
• Avoid lifetime coverage to save on your premiums
• Buy joint spousal coverage
• Set up a side business and have your business pay the premiums. The premiums are a tax deductible expense
• Buy inflation protection. (Compound inflation rather than simple inflation)
• Avoid future purchase option riders
• Examine new lifetime benefits life insurance that pays for your needs when you are alive, not, after you die

I implore you to examine this area. I have seen emotional strain and financial strain of long term care costs demolish a family.

The tax cuts of 2001 and 2003 that George Bush enacted are set to expire on 12/31/10. These fantastic tax cuts supercharged the economy from the devastating solar-plex blow of 9/11.

Those tax changes propelled the economy to unpredicted GDP growth, doubled the stock market over 5 years, brought huge tax income into the U.S. Treasury and gave relief to overtaxed U.S. citizens at every level. The number of tax code changes from those cuts are too numerous to cite in this article. My favorites are the across the board reduction in tax rates; a drop in dividend tax rates from 39.5% to 15% which have benefited everyone especially our senior citizens that depend on fixed income; a drop in capital formation taxes from 28% to 15% that have helped create jobs and increase everyone’s wealth, and, a drop in the deficit below any one’s wildest expectations even as Congress spends more.

I have seen all my clients … “happy” and not under stress due to the lowering of taxes. Every American with more in their pockets have been spending the excess dollars (God Bless the American consumer … they know how to spend) which lead to the growth in GDP and jobs. Those that did not spend, saved and invested the excess money which led to a lowering of interest rates to record levels.

A funny provision of the tax cut was that Democrats in Congress insisted on a “sunset” provision. That is, all these cuts and happiness must end by 12/31/10. Funny how they NEVER put a “sunset” provision on any tax increases – hmmm.

The sad part of your fortunes is as I write this EVERY Democratic Presidential candidate has said they will increase taxes immediately after 12/31/10. “She” has said that if “she” is elected her first order of business the day “she” is inaugurated – is to “roll back” all of Bush’s tax cuts to pre 2001 levels … Hmmm! In addition, Charles Rangel, head of Ways and Means Committee Tax Writing, who has been Ms. Clinton’s puppeteer, is in full agreement with her plan. If “she” is not elected and any other Democrat is elected President he will push for her Inauguration Day plan. The bill would raise all tax brackets by as much as 10%. So if you are now paying 35% it is set to go to 44%. That is a 25% increase in their tax take and a 25% drop in your “keep” rate.

I have advocated in this column countless times that everyone knows taxes will go up. This is not just in the next few years but continually in the future. Why? To simply fund the generation long war on terror, to prop up the underfunded/bankrupt Social Security/Medicaid bill for the coming Baby Boomers, and to pay for Congress’ insatiable appetite to spend for votes.

What can you do?

• Meet with your advisor immediately to take action on strategies in 2007 with lower rates and do similar planning to take action in 2008.
• If you buy stock or capital assets now you will have your 1 year holding take place before the end of 2008.
• Begin now to do strategic rollouts of your IRA/401K plans. You do not have to be retired to do this. If taxes are going to be higher later then why wait (see all past articles on Missed Fortune).

If the Republicans win the White House and the Democrats do not have a majority in Congress then we will get a reprieve. The above strategies still make sense for the long term, but hold onto your wallets.

Ah, Discipline now — or Regret later!