Ameriprise FinancialGreg Younger, CRPC®Financial Advisor300 First Executive AveSuite DSt. Peter's, MO 63376636-405-5004gregory.d.younger@ampf.comwww.ameripriseadvisors.com/gregory.d.younger

May 2012Market-Moving Indicators for MonitoringEurope

Retirement Rules of Thumb

Of Taxes Past, Present, and Future

What happens to my retirement benefitsif my employer goes out of business?

Market-Moving Indicators for Monitoring Europe

See disclaimer on final page

If you've struggled to make sense of theongoing European debt debacle, you're notalone. It's difficult even to keep track of all thepieces of this financial Rube Goldberg puzzle,let alone understand how they can influenceone another.

Though new aspects of the situation seem tocrop up every month, here are some of themost common factors that either reflect or affectsentiment about what's happening in Europe.Knowing about them might help you understandwhy markets react to a seemingly obscureheadline. After all, one of the few things thatalmost everyone seems to agree on is that thesituation isn't likely to be solved overnight.

Take an interest in interest ratesInterest rates on sovereign debt are perhapsthe most closely watched indicator. Whendemand for a country's bonds is low becauseinvestors are concerned about the possibilitythat they might not be repaid in full and on time,that country must offer a higher interest rate inorder to borrow money to finance its day-to-dayoperations.

Interest rates become particularly worrisomewhen they reach or exceed 7%. That's the levelthat prompted Greece, Ireland, and Portugal toseek bailouts from their European peers, andit's widely seen as unsustainable. When acountry must pay that much simply to serviceits debt, investors become concerned that highborrowing costs will make a country's financialsituation even worse.

Watch credit ratingsTroubled European countries are struggling todeal with a devilish Catch-22. In many cases,unsustainable debt burdens have led tostringent austerity measures; however, suchmeasures also can hamper economic growth,which reduces tax revenue and can potentiallyincrease deficits. Higher deficits can lead to alower credit rating that in turn can mean higherborrowing costs, bringing on the problemsdiscussed above and potentially launching anew downward economic cycle. Thus, adowngrade to a country's credit rating tends toraise concerns.

However, investor reaction also can beunpredictable. For example, Standard & Poor'sJanuary downgrade of nine sovereign nationsand the European Financial Stability Fund waslargely met with a shrug by investors. There'sbeen so much pessimism about Europe for solong that in some cases, markets may alreadyhave priced in much of the bad news.

Monitor credit default swap costsA credit default swap (CDS) is a form ofinsurance against the possibility that a bondissuer might default or fail to make a paymenton its obligations. Bondholders buy a CDS froma financial institution or insurance company thatpromises to reimburse the bondholder for anylosses sustained in the event of a default. Thecost of that insurance is seen as a proxy for theperceived risk involved in investing in aparticular country's bonds. The higher the costof a CDS on, say, Italian sovereign debt, thegreater the anxiety about whether the bondissuer will default and the CDS issuer will haveto pay.

Follow the moneyTo prevent credit markets from seizing up, theEuropean Central Bank late last year providedalmost €500 billion in three-year loans toEuropean banks, making it easier for them torefinance their debt. The level of borrowing atthe ECB is seen as one indicator of how banksare being affected by their holdings ofsovereign debt. The greater the need to borrowfrom the ECB, the greater the banks' perceivedlevel of vulnerability.

Bailouts: Nein nein nein?U.S. voters aren't the only ones who aresensitive about bailouts; so are Germans. AsEurope's most powerful economy and the onewith the best credit rating, Germany is thetentpole upon which European financial stabilityhangs. However, by the end of 2011, theGerman economy had begun to slow. Anyindications that economic pressure couldthreaten Germany's ability and willingness toremain strong in its support of the eurozone canspook anxious investors.

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Retirement Rules of ThumbBecause retirement rules of thumb areguidelines designed for the average situation,they'll tend to be "wrong" for a particular retireeas often as they're "right." However, rules ofthumb are usually based on a sound financialprinciple, and can provide a good starting pointfor assessing your retirement needs. Here arefour common retirement rules of thumb.

The percentage of stock in a portfolioshould equal 100 minus your ageFinancial professionals often advise that ifyou're saving for retirement, the younger youare, the more money you should put in stocks.Though past performance is no guarantee offuture results, over the long term, stocks havehistorically provided higher returns and capitalappreciation than other commonly heldsecurities. As you age, you have less time torecover from downturns in the stock market.Therefore, many professionals suggest that asyou approach and enter retirement, you shouldbegin converting more of your volatilegrowth-oriented investments to fixed-incomesecurities such as bonds.

A simple rule of thumb is to subtract your agefrom 100. The difference represents thepercentage of stocks you should keep in yourportfolio. For example, if you followed this ruleat age 40, 60% (100 minus 40) of your portfoliowould consist of stock. However, this estimateis not a substitute for a comprehensiveinvestment plan, and many experts suggestmodifying the result after considering otherfactors, such as your risk tolerance, financialgoals, the fact that bond yields are at historiclows, and the fact that individuals are now livinglonger and may have fewer safety nets to relyon than in the past.

A "safe" withdrawal rate is 4%Your retirement income plan depends not onlyupon your asset allocation and investmentchoices, but also on how quickly you drawdown your personal savings. Basically, youwant to withdraw at least enough to provide thecurrent income you need, but not so much thatyou run out too quickly, leaving nothing for laterretirement years. The percentage you withdrawannually from your savings and investments iscalled your withdrawal rate. The maximumpercentage that you can withdraw each yearand still reasonably expect not to deplete yoursavings is referred to as your "sustainablewithdrawal rate."

A common rule of thumb is that withdrawal of adollar amount each year equal to 4% of yoursavings at retirement (adjusted for inflation) willbe a sustainable withdrawal rate. However, this

rule of thumb has critics, and there are otherstrategies and models that are used tocalculate sustainable withdrawal rates. Forexample, some experts suggest withdrawing alesser or higher fixed percentage each year;some promote a rate based on your investmentperformance each year; and some recommenda withdrawal rate based on age. Factors toconsider include the value of your savings, theamount of income you anticipate needing, yourlife expectancy, the rate of return you anticipatefrom your investments, inflation, taxes, andwhether you're planning for one or two retiredlives.

You need 70% of your preretirementincome during retirementYou've probably heard this many times before,and the number may have been 60%, 80%,90%, or even 100%, depending on who you'retalking to. But using a rule of thumb like thisone, while easy, really isn't very helpfulbecause it doesn't take into consideration yourunique circumstances, expectations, and goals.

Instead of basing an estimate of your annualincome needs on a percentage of your currentincome, focus instead on your actual expensestoday and think about whether they'll stay thesame, increase, decrease, or even disappearby the time you retire. While some expensesmay disappear, like a mortgage or costs fortransportation to and from work, new expensesmay arise, like yard care services, snowremoval, or home maintenance--things that youmight currently take care of yourself but maynot want to (or be able to) do in the future.Additionally, if travel or hobby activities aregoing to be part of your retirement, be sure tofactor these costs into your retirementexpenses. This approach can help youdetermine a more realistic forecast of howmuch income you'll need during retirement.

Save 10% of your pay for retirementWhile this seems like a perfectly reasonablerule of thumb, again, it's not for everyone. Forexample, if you've started saving for retirementin your later years, 10% may not provide youwith a large enough nest egg for a comfortableretirement, simply because you have feweryears to save.

However, a related rule of thumb, that youshould direct your savings first into a 401(k)plan or other plan that provides employermatching contributions, is almost universallytrue. Employer matching contributions areessentially "free money," even though you'll paytaxes when you ultimately withdraw them fromthe plan.

Rules of thumb are usuallybased on a sound financialprinciple, and can provide agood starting point forassessing your retirementneeds.

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Of Taxes Past, Present, and FutureWith the 2011 tax filing season behind us,much attention is being paid to the expiring"Bush tax cuts"--the reduced federal income taxrates, and benefits, that will expire at the end of2012 unless additional legislation is passed. Infact, though, several important federal incometax provisions already expired at the end of2011. Here's a quick rundown of where thingsstand today.

What's already expired?A series of temporary legislative "patches" overthe last several years has prevented a dramaticincrease in the number of individuals subject tothe alternative minimum tax (AMT)--essentiallya parallel federal income tax system with itsown rates and rules. The last such patchexpired at the end of 2011. Unless newlegislation is passed, your odds of being caughtin the AMT net greatly increase in 2012,because AMT exemption amounts will besignificantly lower, and you won't be able tooffset the AMT with most nonrefundablepersonal tax credits.

Other provisions that have already expired:

• Bonus depreciation and IRC Section 179expense limits-- If you're a small businessowner or self-employed individual, you wereallowed a first-year depreciation deduction of100% of the cost of qualifying propertyacquired and placed in service during 2011;this "bonus" depreciation drops to 50% forproperty acquired and placed in serviceduring 2012, and disappears altogether in2013. For 2011, the maximum amount thatyou could expense under IRC Section 179was $500,000; in 2012, the maximum is$139,000; and in 2013, the maximum will be$25,000.

• State and local sales tax-- If you itemize yourdeductions, 2011 was the last tax year forwhich you could elect to deduct state andlocal general sales tax in lieu of state andlocal income tax.

• Education deductions-- The above-the-linededuction (maximum $4,000 deduction) forqualified higher education expenses, and theabove-the-line deduction for up to $250 ofout-of-pocket classroom expenses paid byeducation professionals both expired at theend of 2011.

What's expiring at the end of 2012?After December 31, 2012, we're scheduled togo from six federal tax brackets (10%, 15%,25%, 28%, 33%, and 35%) to five (15%, 28%,31%, 36%, and 39.6%). The rates that apply tolong-term capital gains and dividends willchange as well. Currently, long-term capital

gains are generally taxed at a maximum rate of15%. And, if you're in the 10% or 15% marginalincome tax bracket, a special 0% rate generallyapplies. Starting in 2013, however, themaximum rate on long-term capital gains willgenerally increase to 20%, with a 10% rateapplying to those in the lowest (15%) taxbracket (though slightly lower rates might applyto qualifying property held for five or moreyears). And while the current lower long-termcapital gain rates now apply to qualifyingdividends, starting in 2013, dividends will betaxed at ordinary income tax rates.

Other provisions expiring at the end of the year:

• 2% payroll tax reduction-- The recentlyextended 2% reduction in the Social Securityportion of the Federal InsuranceContributions Act (FICA) payroll tax expires atthe end of 2012.

• Itemized deductions and personalexemptions-- Beginning in 2013, itemizeddeductions and personal and dependencyexemptions will once again be phased out forindividuals with high adjusted gross incomes(AGIs).

• Tax credits and deductions-- The earnedincome tax credit, the child tax credit, and theAmerican Opportunity (Hope) tax credit revertto old, lower limits and (less generous) rulesof application. Also gone in 2013 is the abilityto deduct interest on student loans after thefirst 60 months of repayment.

New Medicare taxes in 2013New Medicare taxes created by the health-carereform legislation passed in 2010 take effect injust a few short months. Beginning in 2013, thehospital insurance (HI) portion of the payrolltax--commonly referred to as the Medicareportion--increases by 0.9% for high-wageindividuals. Also beginning in 2013, a new 3.8%Medicare contribution tax is imposed on theunearned income of high-income individuals.

Who is affected? The 0.9% payroll tax increaseaffects those with wages exceeding $200,000($250,000 for married couples filing a jointfederal income tax return, and $125,000 formarried individuals filing separately). The 3.8%contribution tax on unearned income generallyapplies to the net investment income ofindividuals with modified adjusted gross incomethat exceeds $200,000 ($250,000 for marriedcouples filing a joint federal income tax return,and $125,000 for married individuals filingseparately).

Qualified charitabledistributions

A popular provision allowingindividuals age 70½ or older tomake qualified charitabledistributions of up to $100,000from an IRA directly to aqualified charity expired at theend of 2011. These charitabledistributions were excludedfrom income, and countedtowards satisfying any requiredminimum distributions that youwould have had to take fromyour IRA for the year.

Return of the "marriagepenalty"?

Tax changes that wereoriginally made to address aperceived "marriage penalty"expire at the end of 2012. Ifyou're married and file a jointreturn with your spouse, you'llsee the effect in the form of areduced 2013 standarddeduction amount, as well as inlower 2013 tax bracketthresholds in the tax rate tables(i.e., couples move into higherrate brackets at lower levels ofincome).

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Ameriprise FinancialGreg Younger, CRPC®Financial Advisor300 First Executive AveSuite DSt. Peter's, MO 63376636-405-5004gregory.d.younger@ampf.comwww.ameripriseadvisors.com/gregory.d.younger

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012

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What is the Pension Benefit Guaranty Corporation?The Pension Benefit GuarantyCorporation (PBGC) is afederal agency created by theEmployee Retirement IncomeSecurity Act of 1974 (ERISA)

to help protect pension plan benefits. When apension plan ends (a "plan termination") withoutenough money to pay all benefits owed toparticipants, the PBGC takes over andassumes the obligation to pay those benefits.

The PBGC only protects defined benefitplans--that is, qualified employer pension plansthat promise to pay a specific monthly benefit atretirement, based on your pay and years ofservice with your employer. The PBGC doesn'tprotect 401(k) or other defined contributionplans, plans not covered by ERISA (forexample, governmental plans and certainchurch plans), or plans offered by professionalservice employers (such as doctors andlawyers) with fewer than 26 employees.

The PBGC guarantees that you'll receive basicpension benefits up to a specified dollaramount. Basic benefits include normal andearly retirement benefits, survivor annuities,and disability benefits. The maximum pensionbenefit is set by law and adjusted yearly. For

plans ending in 2012, the maximum annualamount (based on a single life annuity) is$55,840.92 (or $4,653.41 per month) for aworker who retires at age 65. According to thePBGC, most people receive the full benefit theyhad earned before the plan terminated.However, this amount may be lower than thebenefit you had counted on from your plan atretirement.

The PBGC maintains two insurance programs:the single-employer program protects about33.6 million workers and retirees in about27,600 pension plans, and the multiemployerprogram protects 10.4 million workers andretirees in about 1,500 pension plans.(Multiemployer plans are set up by collectivelybargained agreements involving more than oneunrelated employer, generally in one industry,such as trucking or construction.)

The PBGC isn't funded by general taxrevenues. Rather, the PBGC collects insurancepremiums from employers that sponsor insuredpension plans, receives funds from the pensionplans it takes over, and earns money on itsinvestments. Employers are required by ERISAto pay insurance premiums to the PBGC.

What happens to my retirement benefits if my employergoes out of business?If your employer goes out ofbusiness, any retirement planyour employer sponsored willbe terminated. If the plan is a

401(k) or other defined contribution plan, yourbenefits are held in trust, apart from youremployer's assets, and you'll generally beentitled to receive your full account balance in alump sum. (You can take the cash, or roll yourpayout into an IRA or another employer's plan.)

But if your employer sponsors a defined benefitplan, it gets a little more complicated. A definedbenefit plan promises to pay you a specificmonthly benefit at retirement. While definedbenefit plan assets are also held in trust (orinsurance contracts), apart from youremployer's assets, whether a particular planhas enough cash to pay promised benefitsdepends on your employer's contributions andthe plan's investment earnings and actuarialexperience.

When a defined benefit plan is about toterminate, the Pension Benefit GuarantyCorporation (PBGC), a federal agency createdspecifically to protect employees covered bythese plans, is notified. If the plan has enough

money to cover all benefits that participantshave accrued up to the plan termination date,then the PBGC will permit a "standardtermination," and your employer will eitherpurchase an annuity from an insurancecompany (which will provide lifetime benefitswhen you retire) or, if your plan permits, let youchoose a lump-sum equivalent.

However, if the plan doesn't have enoughmoney to pay all promised benefits earned upuntil plan termination (that is, the plan is"underfunded"), the PBGC will take over theplan as trustee in a "distress termination," andassume the obligation to pay basic planbenefits up to legal limits. For plans ending in2012, the maximum annual benefit (payable asa single life annuity) is $55,840 for a workerwho retires at age 65. If you begin receivingpayments before age 65, or if your pensionincludes benefits for a survivor or otherbeneficiary, or if your plan was adopted (oramended to increase benefits) within five yearsof the termination, the maximum amount islower. According to the PBGC, only 16% ofretirees in recent years have seen their benefitreduced because of the annual dollar limits.

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