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From the Desk of:

John D. Pivirotto
Calif. Insurance License #0699308

Financial Concepts

Burlingame, CA 
(650) 348-1880
(650)348-0255 Fax


Helping Build & Protect Your Future

Investment Advisor Representative
Securities and Advisory Services
offered through
Lincoln Financial Securities Corporation
Member SIPC

​Disability Income Insurance—Policy Considerations
Imagine what would happen if your ability to earn income were to suddenly disappear. What would your life be like? Even though your income had abruptly stopped, your living expenses would continue. The mortgage and car payments would be due—missing several payments could result in foreclosure or
repossession. You and your family would still have to eat, use electricity, heat your home, etc. How would you cope?
The best way to protect yourself from the financial harm that a disability can cause may be to purchase disability income insurance. Disability income insurance is designed to replace lost income in the event that a disabling illness or injury prevents you from working. It makes an enormous difference at a
time when you should be focused on your health and recovery—not on how your bills are going to be paid.

Key Policy Features
When selecting an individual disability income policy, the following coverage areas are important to check:
• Definition of disability—Policy definitions can vary. Does the policydefine disability as the inability to
perform your own job or any job? Select a policy that will pay benefits when you are unable to work
in your occupation or one appropriate for your education and experience.
• Extent of coverage— Are benefits available for total or for partial disability? Are full benefits paid for loss of sight, speech, hearing, or use of limbs whether or not you are able to work? Does the policy cover
both accidents and illness?
• Amount of monthly benefit—What percentage of income will the benefit replace? Most insurers limit benefits from all sources to 70% or 80% of net monthly income.
• Waiting period—Will benefits begin 30, 60, or 90 days—or even six months—after the onset of the disability? The longer the waiting period, the lower your premiums will be.
• Duration of benefits— Are benefits payable for one, two, or five years, to age 65, or for a lifetime? Most people need a benefit period that covers their working years—at least to age 65 or normal retirement age.
• Inflation rider—Does the policy offer a cost of living adjustment? This important rider should always be considered; for, as the cost of living continuously increases, you will want your benefit to keep pace with inflation.
• Renewability—Is the policy noncancelable, guaranteed renewable, or conditionally renewable? A noncancelable policy will continue in force at the same premiums and benefits, as long as you pay timely premiums; a guaranteed renewable policy will be automatically renewed for an entire class of
policyholders, but the premiums may be increased; optionally or conditionally renewable policies
are extended each anniversary or premium due date if the company decides to do so.
• Waiver of premiums— How long must you be disabled before premiums are waived? Under most policies, you won’t have to pay any more premiums after you have been disabled for 90 days.
• Option to buy morecoverage—Can coverage be increased without further evidence of insurability?
For more help with your disability insurance planning, analyze your sources of disability income and determine whether additional insurance coverage is advisable. $

Tax-Exempt vs. Taxable Income
If you have recently thought about where you can best invest your hardearned money, you may have come up against the age-old question of whether you will do better in a taxable or tax-exempt investment. While the answer is far from easy or clear-cut, there are some simple rules of thumb that you should know.
To determine the equivalent rate that a taxable investment would have to pay for you to net the same amount after tax, plug your combined state and federal income tax bracket (and city tax, if applicable) into the yield comparison formula.
Consider this hypothetical case: Mr. Chambers, who is in the 35% combined state and federal tax bracket (and city tax, if applicable), is considering buying a tax-exempt bond yielding 3%. The following
formula indicates that Mr. Chambers would have to earn approximately 4.6% on a taxable investment to be in the same position after tax:When considering a tax-exempt investment you have two basic choices: You can purchase bonds that pay tax-exemptinterest or you can purchase shares in a taxexempt mutual fund that invests in bonds (a taxexempt bond fund). With the bond fund, you do not
own bonds; instead, your investment is in a mutual fund that owns the bondsfor all of the shareholders.

Tax-exempt bonds come in so many different varieties that it is sometimes difficult to keep them all straight. Not only are there general obligation (GO) bonds, but there are also revenue bonds and industrial revenue bonds. Some investors favor revenue bonds over general obligation bonds because
revenue bonds are secured by the revenues from specific projects, such as utilities and hospitals, or
tolls from bridges and highways. Because risk is spread over a number of different issues, some favor
bond funds over owning a large number of bonds from the same issue.

While tax-exempt interest is free from federal income tax, make sure that your state and/ or city also
exempts the interest from tax. If you own bonds, be careful to note that only the interest, and not any appreciation in value, is exempt from tax. Even though the interest is exempt from federal tax, you are still required to record tax-exempt income on your federal income tax return.

Although your taxexempt income may not be subject to regular income tax, it may be subject to the alternative minimum tax (AMT). Congress enacted the AMT to make sure that everyone pays at least
some tax regardless of their deductions and taxexempt income. It wouldbe prudent to consult your tax advisor to determine whether you have interest from qualifying private activity bonds subject to the AMT.

Finally, remember that too much tax-exempt interest can cause your Social Security benefits to be taxed. Since the Internal Revenue Service (IRS) requires you to include tax-exempt interest in the
calculation of your adjusted gross income (AGI) to determine whether your Social Security benefits are taxable, “loading up” on taxexempt income may be less advantageous. $

Mutual funds are sold by prospectus, which includes additional information on risks, charges, and expenses. Investors should read the prospectus carefully before investing. An investment in the fund is only one part of a balanced investment plan. The principal value of bonds may fluctuate due to market conditions. If redeemed prior to maturity, bonds may be worth more or less than their original cost.

Investment Decision Making in a Volatile Market
You have just turned on the morning news, poured a second cup of coffee, and are wondering what effect the market will have on your investment portfolio today. Many investors share your concern
because they also may have a substantial amount of their wealth invested in the market.

Historically, “bull” and “bear” markets occur with the almost automatic expansion and contraction
of the economy. The events that turn a bull market into a bear market and vice versa are events that economists and market analysts have studied over long periods of time. They are considered the ebb and flow of wealth accumulation. Bear markets, for instance, are viewed as normal and necessary, as
they serve to “clean up” what are considered prior economic excesses. 

Taking the Long View
Long-term investing is more often about thepsychological aspects of managing money and sticking to a financial strategy. It is important to understand how market conditions create euphoria or fear in
some people. The general rule is that market corrections will always happen. Bear markets prepare the
way for future bull markets. And, while investing carries specific risks, many of those risks may become more acceptable and tolerable by remembering, for instance, that what is occurring in a bear market is a revaluing ofsecurities.

Managing the economy is complex. But, a combination of the Fed’s (Federal Reserve Bank) willingness to lower interest rates, along with the possibility of a changing U.S. tax structure, can help shorten bear markets. The two economic controls of managing interest rates and easing tax burdens generally can help to keep the U.S. economy growing.

Stick with Your Plan
It is only natural to ask, “What’s the best move during a bear market?” What all long-term investors
should realize is that bear markets create opportunities—often, excellent opportunities. It is the long-term picture that investorsneed to keep in mind. Your original investment goals are probably still unchanged, whether they include accumulation for retirement or funding for college education. Since a bear market on the heels of a bull market reflects a long expansion cycle of growth it is often easy to lose track of the basics that will see investors through an economic slowdown. Investment opportunities are always present. Therefore, the general rule of thumb must be to continue in the same directionby maintaining a well diversified portfolio.

Diversification is Key
A diversified portfolio should be based on an investment strategy that represents different sectors of the financial markets, such as stocks, bonds, mutual funds, and cash and cash equivalents, consistent
with your financial goals and time horizon. Although there are no guarantees, it is widely believed that different asset classes rarely all move in the same direction at the same time.

Investors seeking the relatively higher rates of return that may come from investing in equities, should
also be mindful of diversifying within this asset class. Equity-based portfolios have a wide range of options to choose from including individual stocks and stock funds in large-,mid-, and small-cap companies, foreign and domestic firms, and individual sectors, such as biotechnology, health care, or utilities.
With a well-diversified portfolio consistent with your goals and objectives, and a long-term outlook, the wisdom of the day is to stay your investment course and resist the temptation to try to time the market’s gyrations. It would be beyond anyone’s comprehension to think that it is possible to predict when any market will turn higher or lower. Continued involvement, with a longterm investment strategy, will serve the farsighted investor better than trying to predict the ultimate direction of the market by judging the current emotional temperature of the investing public. $

Tax Credit or Deduction— What’s the Difference?
How is a tax credit different from a tax deduction? First, consider the following: A $1,000 credit is more valuable than a $1,000 deduction on your income tax return. A tax credit reduces your tax, dollar for dollar—that is, a $1,000 tax credit actually saves you $1,000 in taxes. By comparison, a tax deduction reduces your taxable income, but is only worth the percentage equal to your marginal tax bracket.
For instance, if you are in the 27% marginal tax bracket, a $1,000 deduction saves you $270 in tax (.27 x $1,000), which is $730 less than the savings with a $1,000 tax credit. The higher your tax bracket, the more a deduction is worth; but a credit is always worth more than a dollar equivalent deduction. $
Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. The information contained in this newsletter is not intended as tax, legal, or financial advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek such advice from your professional advisors. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Written and published by Liberty Publishing, Inc. Copyright © 2009 Liberty Publishing, Inc.
Copyright 2009 Liberty Publish- ing, Inc., Beverly, MA. The opinions and recommendations expressed herein are solely those of Liberty Publishing, Inc., and in no way represent advice, opin ions, or recommendations of the Financial Planning Association, its affiliates or members. CFPTM and CERTIFIED FINANCIAL PLANNERTMare federally registered service marks of the Cer- tified Financial PlannerBoard of Standards (CFP Board). This summary does not constitute legal and/or tax advice and should only be relied upon when coordinated with a qualified legal and/or tax advisor. Febuary, 2009.
Planning Strategies
*Disclosure – Securities and Advisory services offered through representatives of Lincoln Financial Securities Corporation, member FINRA & SIPC. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in California, Oregon and Colorado only. Advisory Services are offered to residents of the state of California only. Lincoln Financial Securities Corporation is not affiliated with Financial Concepts. Financial Concepts offer insurance & financial services to residents in California and Oregon. Variable & Group insurance products offered through LFS Marketing and Insurance Sales Corporation; fixed insurance products offered through Financial Concepts Insurance & Financial Services.
John Pivirotto’s California Insurance License #: 0699308
Financial Concepts’ California Insurance License #: 0786047