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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

​Understanding the Consumer Price Index

The highs and lows of the econ- omy affect people and markets in a variety of different ways. While some sectors of the economy are thriving, others may be sluggish. One economic indicator used to gauge the state of the American economy is the Consumer Price Index (CPI), which measures the rate of inflation in the U.S.
Inflation, which is defined as the rise in the average price level of all goods and services, can have a significant impact on the American economy and your financial affairs. Understanding the CPI, and the ways it measures inflation, can provide a strong foundation for understanding not only market and economic swings, but also the ways in which fiscal and monetary policies affect America’s finances, and your own. To begin, let’s look at the information used by the U.S. Bureau of Labor Statistics (BLS) to compile CPI data.

Determining the Market Basket
Each month, the BLS surveys prices for a “market basket” of goods and services in order to create an economic “snapshot” of the average consumer’s spending, which is quantified as the CPI. Actual expenditures are classified into more than 200 categories and eight major groups. These include the following, defined by a sampling of items included within each group:
  • Food and Beverages—common groceries, alcoholic beverages,and full-service meals
  • Housing—rent, furniture, and utilities
  • Apparel—clothing, shoes, and jewelry
  • Transportation—vehicle lease and purchase costs, gasoline, auto insurance, and airfare costs
  • Medical Care—doctor’s visits, hospital care, and prescriptions
  • Recreation—cable television, pets, events, and sporting equipment
  • Education and Communication—school tuition, postage, telephone service, and computer equipment
  • Other Goods and Services—tobacco, haircuts, personal services, and funeral expenses.
Because the CPI looks at expenditures in these fixed categories, this index is a valuable tool for comparing the current prices of goods and services to costs last month or one year ago.

Using the CPI 
As a measure of inflation, the CPI has three main uses. First, the CPI often serves as an indication of the health of the economy and the effectiveness of government policy. To a certain extent, some
inflation is the sign of a healthy economy; however, too much inflation, or no inflation at all, can be a
sign of troubling economic times. In fact, one of the primary U.S. economic policy goals is to maintain
an inflation rate ranging from 1% to 3% each year.Constant fluctuations in the CPI will cause Congress and the Federal Reserve Board (the Fed) to take measures to control the amount of inflation and stimulate economic growth. As a result, business executives, labor leaders, and other private citizens may change their spending and saving patterns. For example, the Fed may attempt to curb rising
inflation by raising short term interest rates; this increase in the cost of borrowing money is likely to
slow personal and business spending. Conversely, if the economy is not growing, the Fed may attempt
to stimulate inflation by lowering short-term interest rates; in this case, lowering the cost of borrowing may trigger increased spending among businesses and individuals.

As a second use, the CPI helps determine the “real” value of a dollarover time by removing the effects of inflation. As prices increase, the purchasing power of a dollar decreases; in other words, more dollars are needed to purchase the same amount of goods and services. Comparing inflation-free wages and prices also allows economists to determine the actual earning and spending patterns of the American consumer. Lastly, the CPI is used as a means of adjusting salaries and government benefits to account for price changes. For example, as a result of collective bargaining agreements, the wages of over 2 million workers increase according to the amount of change in the CPI. The CPI is also used to determine the benefits of almost 80 million people covered under government programs, including Social Security benefi ciaries, military and Federal Civil Service retirees and survivors, and food stamp recipients. In addition, changes in CPI can be seen in the price of school lunches, as well as through rents, royalties, alimony payments, and child support payments as determined by private firms
and individuals. Finally, the CPI has been used to adjust the Federal income tax structure to prevent
increases in taxes caused solely by inflation.

For More Information
Inflation can have a serious impact on the American economy as it affects both government policy and the spending and saving patterns of businesses and individuals. Understanding and following changes in the CPI can help you know how the value of the dollar changes and estimate how inflation
may affect your future plans. The U.S. Department of Labor (DOL) publishes current information on the CPI each month through the BLS. For more information, visit their website at www.bls.gov/cpi. 

Practical Uses for Practical Trusts 
Trusts are valuable tools that can help you and your family achieve a variety of financial and estate planning goals. As you plan your long-term strategies, you may find many practical ways to use trusts to manage your investments, retirement, children’s education, and your estate. Let’s look at several types of trusts that may be helpful to you.
Revocable Trusts. Assets in a revocable trust avoid probate, which is the judicial process that determines the validity of a will and ensures it is faithfully executed. Incorporating a revocable trust into your estate plan may save your heirs time and money, as well as preserve your family’s privacy. Furthermore, with advance planning, these trusts can also be used to help married couples minimize estate taxes.

Irrevocable Life Insurance Trusts (ILITs). When properly implemented, the proceeds of an ILIT will not beincluded in your estate. They will be payable to the ILIT’s beneficiaries (generally, children and grandchildren) without incurring any estate tax consequences. In more advanced uses, an ILIT can be a useful strategy to help ensure continuity in a closely-held business. Passing a family-owned business of substantial value to heirs may be hampered by potentially large estate taxes. These taxes, in some instances, may require a forced sale of the business in order to raise the necessary cash to pay them. However, an ILIT can purchase a life insurance policy on the owner, with the death benefit providing the cash needed to help meet estate tax obligations and keep the business in the family.
Qualified Residence Trusts. Putting your home in a trust can help reduce the potential estate or gift taxes on your personal residence.

Education Trusts. If you hope to help fund your grandkids’ college education, you know how challenging it can be to determine how much each grandchild will need. You could simply give money directly to your children, with instructions for themto use the money for that purpose, but that doesn’t guarantee the money will be available when your grandchildren need it. To help ensure this objective is met, consider establishing a trust and give the trustees (possibly your children or a financial institution) discretion to allocate the funds among your grandchildren as appropriate to provide incentives for them to pursue their higher education.

Trusts for Creditor Protection. Many parents have had the unfortunate experience of making large gifts to a married child who subsequently gets divorced and much of those assets go to the former in-law. In other instances, the child may be subject to claims from a lawsuit. A trust can be an excellent vehicle for making gifts to your children in a way that makes the assets available for their use but prevents them from being depleted to satisfy the claims of potential creditors.
Spendthrift Trusts. You may have a child or relative who needs your financial support but cannot effectively manage the assets. A trust can be established that will help assure both you and your intended beneficiary that the funds will be available when they are truly needed. The trust can be structured to distribute assets when the beneficiary reaches a certain age or to allow the beneficiary to become a co-trustee. With the latter approach, the beneficiary may participate in, but not have sole responsibility for, management of trust assets.

Trusts for Medicaid/SSI “Supplemental Needs.” 
If your child has disabilities that may qualify for government assistance, the receipt of an inheritance or gift normally will disqualify them from such benefits until the gift is “spent down” and only exempt resources remain. In that situation, it’s critical to leave assets in a carefully drafted discretionary trust that permits the trustee to expend needed resources for the child’s benefit in a manner that supplements, but does not replace, governmental resource payments.
There are numerous ways for those of more modest means to use a trust in their estate planning and normal life circumstances. For specific guidance, consult your financial, tax, and legal professionals. 

Riding the Carousel to Retirement
You’re certainly not alone if the variety of Individual Retirement Accounts (IRAs) causes you to wonder
which type of IRA, or which combination of IRAs, would work best to meet your goals. You have
several options, including the Roth IRA. Let’s take a moment and explore the IRA carousel.
Traditional IRAs.
Contributions to these IRAs may be tax deductible and are limited to $4,000 in 2006 and 2007. However, the deductibility of contributions is generally dependent upon one, if not all, of the following
factors: whether or not you (the IRA owner) are participating in an employer-sponsored retirement
program, your tax-filing status, and your adjusted gross income (AGI)—taxable gross income less any
possible deductions. If you withdraw money before age 591⁄2, you pay a 10% federal income tax penalty
(on top of any income tax due) unless an exception applies. Qualified situations include first-time
home purchases, disability expenditures, medical expenses exceeding 7.5% of your AGI, and qualified
higher education expenses. At age 701⁄2, contributions cease, and mandatory minimum withdrawals must begin by April 1st of the year following attainment of age 701⁄2. 
Roth IRAs. Similar to the traditional IRA, contributions to a Roth IRA are limited to $4,000 per year in 2006 and 2007. However, contributions to a Roth IRA are not tax deductible. (Note: The $4,000 limit applies to the total of all IRAs that a person may hold in a given tax year.) The 2006 AGI limit
for Roth IRA eligibility for single fi lers is $95,000 to $110,000, and for joint filers, it is $150,000 to
$160,000. These amounts will be adjusted for inflation in 2007. Contributions may be made for life (i.e.,need not stop at age 701⁄2), and no withdrawals are required until one year following the death of the participant. In addition,qualified distributions, including earnings, are taxfree if you’ve maintained
your account at least fiveyears and are older than age 591⁄2. Withdrawals made prior to age 591⁄2 may subject you to a 10% federal income tax penalty, unless certain qualifi ed exceptions apply.
SIMPLE IRAs. Many small businesses have found the popular 401(k) plan costly to administer.
A more affordable alternative may be the Savings Incentive Match Plan for Employees (SIMPLE),
under which an eligible employee can defer up to the lesser of 100% compensation or $10,000 per
year for 2006 ($10,500 in 2007). A SIMPLE IRA must provide immediate vesting, and an employer can either match employee annual contributions on a percentage basis, up to 3% of compensation, or provide a nonelective contribution for all employees of 2% of compensation. There are no annual tax fi ling requirements and no need for anti-discrimination tests. In addition, both owners and employees can put away more than they could with a regular IRA.
SEP IRA. The Simplified Employee Pension (SEP) is also simple to administer. Only employers contribute to a SEP. Congress created the SEP primarily so small businesses could provide a
retirement plan without burdensome administrative costs or government paperwork. Contributions to a SEP are limited to 25% of compensation (earned income for self-employed) of up to $220,000 in 2006 or a maximum of $44,000 (in sole proprietorships and partnerships the limit to the owners’ contributions is 20%). In 2007, the compensation limit is $225,000, and the maximum contribution
limit is $45,000.
Annual IRA contributions for tax year 2006 can be made up until the filing deadline, April 17th, 2007.
In a world where many clamor for tax simplification,you may find that retirement planning is quite complex. Therefore, an IRA can be attractive for its versatility and ease of implementation. Because Congress has provided many options for individuals and small businesses to establish retirement
plans, you may discover it’s easier than ever to find the “right” IRA to fulfill your objectives. 

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. FINRA Branch Office: 233 Bloomfield Road, Burlingame, CA 94010. 
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