Vision Financial AdvisoryJohn D. VanDyke, ELPFinancial Advisor5787 Balsam Dr.Hudsonville, MI 49426888-655-9561616-455-3909john.vandyke@visionfinancialpc.comwww.visionfinancialpc.com

December 2010

Paying for Long-Term Care During Retirement

Cash-In Refinancing: Can You Benefit from ThisGrowing Trend?

Year-End Investment Planning Is MoreChallenging in 2010

What does a stronger dollar mean for myportfolio?

Paying for Long-Term Care During Retirement

See disclaimer on final page

Hi Everyone,

We're entering the Christmasseason with a snowy start! As welook toward the end of 2010, somenoteworthy changes are on thehorizon, particularly in the tax arena.Some of those issues are addressedin this newsletter.

Also, long term care and theweakening dollar are a couple ofsubjects that are increasingly in thefinancial mainstream, and so I'veincluded related information in thisedition.

Thank you for your business... andenjoy a wonderful Christmas season!

-John

You may have spent a goodpart of your working yearsplanning for a financiallysecure retirement. But manyissues can arise duringretirement that can impactyour financial health as wellas your quality of life. For

instance, the cost of medical expenses due to aprolonged illness or injury can quickly depleteyour retirement savings and affect your qualityof life and your spouse's. As we get older, theprospect of long-term care becomes a realpossibility. If you're retired, how will you pay forlong-term care if faced with those expenses?

Retirement savings and incomeAn obvious source for paying long-term careexpenses is current income you receive from aretirement pension or Social Security retirementincome. However, using current income mayprove insufficient, or impractical, given otherhousehold expenses.

You could use qualified retirement accountssuch as a 401(k) or IRA, or investments you setaside as a retirement nest egg. But you may bespending savings otherwise needed for thecurrent or future financial support of yourspouse or other family members. Andwithdrawals from qualified retirement accountsare generally taxed as ordinary income,meaning the more you take out, the more youmay have to pay in taxes.

If you have equity in your home, you may beable to tap into that to pay for long-term care.However, since your home is probably one ofyour most valuable assets, there are manyissues to consider before using it to pay forlong-term care. Should you sell your house ortake out a home loan? If you decide to take outa loan, what type of loan will work best for you?Some loan options include a conventionalhome equity loan, a first mortgage, and areverse mortgage.

Private insuranceAside from paying for your long-term care out ofyour own pocket, you might share the costthrough various insurance products. The mostcommon of these is long-term care insurance,which typically pays for the cost of long-termcare up to a specified dollar amount per day,such as $150, for a fixed period of time, suchas three years. Most policies will pay for careprovided in your home, in an assisted-livingfacility, and in a nursing home. But the premiumfor this type of insurance can be expensive andthe policy usually doesn't cover the entire costof care, meaning you'll probably still have topay for a portion of your long-term careexpenses out-of-pocket.

Other types of insurance may also be used topay for long-term care. Cash valueaccumulations in life insurance or annuities canbe accessed, either by cashing the policy in orby borrowing against the cash value. However,policy loans and cash value withdrawals mayreduce the policy's death benefit or cause thepolicy to lapse. Also, some life insurance andannuities have built-in features or riders thatallow access to amounts in excess of the cashaccumulation value if it's used to pay forlong-term care.

Medicaid and veterans benefitsAccording to the National Clearinghouse forLong-Term Care Information, Medicaid pays forabout 49% of aggregate long-term careexpenses. Medicaid is a federally fundedprogram administered through the states thatprovides long-term care benefits for those whomeet state-specific financial eligibilityrequirements, as well as certain health orfunctional criteria. However, retirees are oftenunable to qualify for Medicaid because theirincome or asset values exceed financialeligibility requirements. Aside from Medicaid,the Department of Veterans Affairs may providelong-term care for service-related disabilities forveterans who meet eligibility requirements.

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Cash-In Refinancing: Can You Benefit from This Growing Trend?With mortgage interest rates at or near historiclows, you may be wondering if it's time torefinance your home. But declining propertyvalues and stricter mortgage lending standardsmay make it harder for you to capitalize on lowmortgage rates, because you may no longerhave enough equity in your home to qualify fora new mortgage. Enter cash-in refinancing.With cash-in refinancing, you bring cash toclosing to reduce your mortgage balance andincrease your home equity, enabling you tomeet the lender's loan requirements.

Why is cash-in refinancing becomingpopular?Cash-in refinancing reverses the trend ofcash-out refinancing that has been popularduring the last decade. If, like manyhomeowners, you refinanced your home threeor four years ago when home values wereskyrocketing, you may have tapped into youravailable home equity to obtain cash to invest,put toward home improvements, or pay offdebt. According to Freddie Mac, more than80% of homeowners who refinanced a fewyears ago received cash back at closing. Butthe unfortunate combination of declining homevalues and rising foreclosure rates forcedfinancial institutions to tighten lendingstandards, leading to a sharp increase in thenumber of homeowners now putting cash in atclosing instead of taking cash out.

Of course, to complete a cash-in refinance, youmust have a lump sum of money that you canput toward reducing your mortgage balance.Those contemplating a cash-in refinance oftenhave funds sitting in a savings or money marketaccount that is yielding low returns--e.g., 1% orless--that they would like to put to better use.For example, if you're nearing retirement andplan to stay put, you may especially welcomethe opportunity to pay down your mortgagebalance and refinance at a low interest rate,thereby reducing your retirement expenses.

Here are some other reasons to consider acash-in refinance:

• You can't otherwise qualify to refinancebecause the value of your home hasdeclined. If the appraised value of your homehas fallen, your equity may not be enough tomeet minimum lending requirements; bringingcash to the table may enable you to refinanceyour loan.

• You have enough equity in your home tomeet a lender's criteria for refinancing, but notenough to avoid paying private mortgageinsurance (PMI), which lenders generallyrequire if you have less than 20% equity inyour home. Bringing enough cash to theclosing to reach that all-important 80%loan-to-value ratio will enable you to avoidpaying PMI and reduce your mortgagebalance at the same time.

• You want to qualify for a better mortgageinterest rate and terms. For example, puttingcash in at closing could help you avoid takingout a jumbo mortgage, which generally has ahigher interest rate.

• You want to reduce your loan term. Forexample, now that interest rates are low, youmay be able to afford the monthly paymenton a 15-year mortgage rather than a 30-yearmortgage, but to do so, you need additionalhome equity.

Even if you can refinance, should you?The prospect of potentially shaving hundreds ofdollars off your monthly mortgage payment orsaving thousands of dollars in interest over thelife of your loan is obviously appealing. Butthere's a lot to think about before you take theplunge. One major drawback of increasing yourhome equity is that you could tie up money youmay need for other purposes, such as reducinghigh interest debt or bolstering an emergencysavings account. Home equity isn't liquid, andin difficult economic times it's wise to havesome cash on hand. It's possible that homevalues will continue to decline instead ofstabilize or even rise; if so, you may sink furtherunderwater, so make sure you're able to rideout the economic storm.

Finally, make sure that you'll really benefitfinancially from a cash-in refinance. Forexample, if you plan on moving within the nextcouple of years, you may not have enough timeto recoup the costs associated with obtaining anew mortgage, even if you're able to refinanceat today's historically low interest rates.

A growing trend

According to Freddie Mac,33% of homeowners whorefinanced their first-lienmortgages in the thirdquarter of 2010 did a cash-inrefinance.

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Year-End Investment Planning Is More Challenging in 2010If you don't normally review your investments atthe end of each year, 2010 might be a goodtime to start. And if year-end investmentplanning is already part of your routine, youmight want to pay special attention this year.Why? Because significant changes in the taxcode that are scheduled to go into effect in2011 could substantially alter the taxation ofyour portfolio next year. That could in turn affectyour investment strategy. And since manyexpect additional changes that will affect nextyear's tax landscape, it's even more importantthan usual to think about whether your portfolioneeds fine-tuning.

Begin planning before December 31If you plan to sell a profitable investment atsome point, you'll want to assess whether youshould sell before the end of the year. That'sespecially true if you're in a low tax bracket oryou have investments that have appreciatedsubstantially. Investors in the 10% and 15% taxbrackets currently owe no capital gains taxeson long-term capital gains. That is scheduled tochange in 2011, when the long-term capitalgains rate at this level is scheduled to increasefrom 0 to 10%. If you're in the 25% bracket orhigher this year, you'll also need to think aboutthis issue, though the scheduled increase fromthe current 15% to 20% isn't quite as dramaticas the leap from 0 to 10% that those in thelower income brackets will face. (Special,slightly lower rates for investments held formore than five years will apply beginning in2011.)

Also, the tax brackets themselves arescheduled to change next year (see sidebar). Ifyou plan to harvest a tax loss and think youmay be in a higher tax bracket next year, itmight make sense to first determine whetherthe loss would be more valuable later. Thoughtax considerations shouldn't be the sole factorin a decision to buy or sell, they shouldn't beignored, either--especially this year.

Complicating your decisions, of course, is theuncertainty about whether the scheduledchanges will undergo further revision before theend of the year. One possibility is to have agame plan based on the current scenario, andadjust it as warranted. It may seem like aburden, but for those in higher tax brackets, theextra effort could pay off come tax time.

Think about your overall tax burdenIf you converted an IRA to a Roth IRA this yearor are thinking about doing so before the end ofthe year, you may need to take that intoaccount when deciding whether to book capital

gains in 2010. That's because you're able toreport the taxable ordinary income from theconversion on either your 2010 return or in the2011 and 2012 tax years (half of the income ineach year). Your decision about when you willaccount for the taxable income that results froma Roth conversion may affect your decisionabout the timing of investment sales, or viceversa. If you choose to report the incomeresulting from your Roth conversion on your2010 return, consider whether it makes senseto realize sizable capital gains this year. If youfeel it's to your advantage to sell assets andpay the capital gains tax in 2010, you may wantto consider opting to postpone payment of thetaxes owed on the Roth conversion until 2011and 2012. That would mean the total taxesowed would be spread over three years ratherthan one (though as noted above, your futuretax bracket also should be factored into thecalculation).

Consider the tax status of dividendsQualifying dividends are scheduled once againto be taxed next year as ordinary income, asthey were before 2003, rather than at long-termcapital gains rates, which are typically lower. Ifyou'll be in the 15% tax bracket, that representsan increase of 15%. And if you'll be in the 28%tax bracket or higher next year, the change inthe tax status of dividend payments could alsohave an impact; the higher your tax bracket in2011, the greater the impact.

Don't forget the usual suspectsIn addition to staying on top of the tax issuesthat complicate this year's investment planningefforts, there are some tasks that are usefulevery year. A portfolio review can tell youwhether it's time to adjust your holdings tomaintain an appropriate asset allocation. Also,if you have losses, you may be able to harvestthose losing positions to offset some or all ofany capital gains. Be sure to consider how longyou've owned the asset; assets held a year orless generate short-term capital gains and aretaxed as ordinary income.

If you're selling an investment but intend torepurchase it later, be careful not to buy within30 days before or after a sale of the samesecurity. Doing so would constitute a violationof the "wash sale" rule, and the tax loss wouldbe disallowed. Finally, if you're considering thepurchase of a mutual fund outside of atax-advantaged account, find out when the fundwill distribute dividends or capital gains, andconsider postponing action until after that dateto avoid owing tax on that distribution.

Federal tax brackets forordinary income arescheduled to change in 2011as follows:

10% becomes 15%

15% remains 15%

25% becomes 28%

28% becomes 31%

33% becomes 36%

35% becomes 39.6%

Page 3 of 4, see disclaimer on final page

Vision Financial AdvisoryJohn D. VanDyke, ELPFinancial Advisor5787 Balsam Dr.Hudsonville, MI 49426888-655-9561616-455-3909john.vandyke@visionfinancialpc.comwww.visionfinancialpc.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013

Registered representative andsecurities offered throughSecurities Service Network, Inc.,member FINRA/SIPC. Fee basedadvisory services offered throughSSN Advisory, Inc., a registeredinvestment advisor.

Why should I care about Europe's debt problems?When it became apparent lastspring that Greece might beunable to make scheduledpayments on its governmentbonds, equities plunged

around the world. How is it possible for the debtof one country to have such a profound impacton investments in a 401(k) plan a continentaway?

Investors were worried that Greece's problemswith its budget deficit and level of sovereigndebt (bonds issued by the national government)were emblematic of issues plaguing othereurozone countries--issues that could createglobal problems in economies with more globalimpact, such as Spain. For Europe, sovereigndebt is the potential equivalent of the subprimemortgage market in the United States--the firstdomino that could spark major shocks to thebanking industry and, by extension, the globalfinancial system.

Concerns about the level of sovereign debt andthe potential for default or restructuring ofpayments have already affected creditavailability internationally; banks are conserving

more capital, worried that they might needthose reserves to cover any losses on theirsovereign debt holdings. Global investors worrythat tighter credit could slow a fragile globaleconomic recovery or cause it to grind to a halt.European businesses and consumers thataren't able to buy U.S. exports could become aproblem for U.S. corporations, many of whichearn a substantial percentage of their revenuesoverseas.

Another concern is the stability of the euroitself. If stronger European economies lose thewill to help bail out weaker countries, or if highlyindebted countries are unable to make drasticand unpopular budget cuts, investors worry thatthe euro could be in peril. Equities hateuncertainty wherever it is, and the specter ofchaos in the global financial system can affectmarkets worldwide. To combat these problems,European leaders have adopted many of thesame steps taken in the United States duringthe 2008 financial crisis, such as establishing amassive lending facility and subjecting largebanks to stress tests to determine their ability towithstand financial shocks.

What does a stronger dollar mean for my portfolio?In the summer of 2008,investors were watching thedollar shrink. Because interestrates here were still relativelylow, investors favored riskier

investments that offered higher returns. Theeuro's value climbed to a record of almost$1.60 at one point. But with autumn came thecrisis that shook the global financial system.Panicked investors suddenly decided thatdollar-denominated assets such as U.S.Treasury bonds didn't look so wimpy after all.Within three months, a euro was worth 30 centsless. Worries about the European debt crisisand whether the euro would even survive as acurrency has kept the dollar at roughly thesame level or better for much of 2010.

What does that mean for your portfolio? Themost obvious impact of a stronger dollar is onthe value of overseas investments; the value ofholdings denominated in a foreign currency willfluctuate with the exchange rate between thatcurrency and the dollar. Some mutual fundsthat invest overseas attempt to hedge theircurrency exposure, using currency futures

and other derivatives to try to limit the impact ofthat fluctuation on the fund's value. Others donot, hoping that any dollar weakness willincrease the fund's value for U.S. investors.

Before investing in an international fund, checkits prospectus, which is available from the fund.In addition to carefully considering itsinvestment objectives, risks, fees, andexpenses, don't forget the special risks ofglobal investments, including political risks,currency risks, and different accountingstandards; all of these can vary considerably bycountry and region. Also, find out whether thefund is hedged or unhedged. A falling dollar canenhance the returns of an unhedged fund, butthe lack of a hedge leaves it unprotected if thedollar strengthens.

A stronger dollar can affect your portfolio evenif you don't think you own any foreigninvestments. Many U.S.-based multinationalsget a substantial percentage of their revenuesoverseas. A stronger dollar can cut into thoserevenues as U.S. exports become moreexpensive for overseas consumers. Also, manybroad-based mutual funds include a percentageof overseas holdings among their assets.

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