Looking Ahead to 2013

It’s no secret that 2013 is expected to be filled with uncertainty. Tax changes and global economic challenges are just two of the issues that will affect most Americans. The good news is that, although you can’t control the outcomes, you can take steps to help prepare yourself for whatever 2013 brings. To help, click on these six key issues for 2013 and get expert insights on what they could mean for you.

Market volatility

Ameriprise Financial Chief Market Strategist David Joy projects that U.S. and international markets will continue to be volatile in 2013. Concerns over slowing U.S. economic growth, the massive federal deficit, the eurozone’s continuing debt crisis and cooling emerging markets will likely keep investors nervous in the months ahead.

Still working? You can cushion yourself against market volatility by spreading your portfolio across a range of stocks, bonds and other investments. Assess strategies for better diversifying your portfolio, such as increasing your exposure to developed and emerging international markets. Also, consider alternative investments such as real estate, foreign currencies and commodities that may reduce the effects of volatility.

Talk with your Ameriprise financial advisor about whether your portfolio is adequately diversified for your age, goals and risk tolerance.

Retired? Make sure your retirement portfolio isn’t overexposed to market volatility in 2013. It’s generally best to keep your portfolio at least partly invested in equities so that it can keep up with inflation and last throughout your lifetime. Remember, though: Too much exposure to stocks can pose a risk to the financial resources you count on in the event of a downturn.

Ask your Ameriprise financial advisor about managing market volatility in retirement.

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Tax expert Bob Keebler says many Americans will face higher taxes in 2013, regardless of whether the U.S. economy hits a “fiscal cliff” or Congress and the president reach a compromise to avoid it. Two new taxes — a 3.8% Medicare tax on net investment income and a 0.9% tax on wages and earnings — are expected to affect individuals with modified adjusted gross income above $200,000 ($250,000 for married couples). Even a compromise will likely mean higher income, investment and estate taxes for many families.

Still working? Consider ways to lower your tax burden, such as timing the sale of certain investments or converting some tax-deferred savings to a Roth IRA.

Retired? Rising taxes means paying more on withdrawals from retirement accounts. Consider ways to lower your future tax burden, such as converting some tax-deferred savings to a Roth IRA and investing more in high-quality, tax-exempt municipal bonds.

Business owner? Business owners could face higher taxes in 2013 and beyond. Consider smart strategies to time your business income and expenses. Also think about converting a portion of any tax-deferred savings to a Roth IRA.

Aim for tax diversification by keeping savings in accounts with different tax treatments — such as traditional and Roth IRAs.

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Global economy

Global economic growth will continue to be sluggish in 2013, says Mark Burgess, Chief Investment Officer of Threadneedle, a London-based subsidiary of Ameriprise. The sovereign debt crisis in the eurozone will drag on for its third year, and China, the world’s second largest economy, likely will continue to rebound gradually following its slowdown. The International Monetary Fund recently cut its worldwide economic growth estimates for 2013 to 3.6%.

Still working? Review your international investing strategy to ensure it is well-positioned given the realities of today’s changing and globalizing world. Also consider how potential international trends — such as a possible future slowdown in China’s manufacturing sector — could affect future prices and how much you need to save for retirement.

Talk with your Ameriprise financial advisor about developing an international investing strategy for 2013 that better reflects today’s world.

Retired? Evaluate how exposed you are to problems in today’s global economy, from the eurozone’s debt crisis to slower growth in emerging markets. In retirement, you can’t afford to have an international crisis greatly hurt your portfolio — though international investments remain a key way to diversify your portfolio.

Talk with your Ameriprise financial advisor about how to better protect your portfolio against challenges in today’s international economy.

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Home prices in many U.S. cities are seeing healthy single- or even double-digit year-over-year gains. Ameriprise Financial Senior Economist Russell Price expects prices will continue to recover in 2013 as housing demand increases. Today’s historically low mortgage rates may also start creeping up. The Mortgage Bankers Association predicts that rates will reach 3.9% for a 30-year fixed mortgage by the first quarter of 2013 and average 4.1% for the year.

Homeowner? Given that average mortgage rates are sitting near historic lows and may creep up in 2013, consider refinancing soon if you haven’t done so within the past two years. If you’re considering selling your home instead, you may find signs of an improving housing market for sellers in 2013.

Find out how much you could save by refinancing.

Renter/non-owner? If you’re thinking about buying a home, you may want to start shopping and buy in early 2013, since mortgage rates may slowly rise from today’s historic lows. Rents in many U.S. cities are also likely to rise, making ownership more attractive.

Evaluate your housing opportunities and mortgage rates with your Ameriprise financial advisor.

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With U.S. economic growth still tepid, Ameriprise Financial Senior Economist Russell Price expects inflation will remain subdued in coming months. In fact, forecasters surveyed by the Federal Reserve Bank of Philadelphia predict the Consumer Price Index will rise just 2.2% in 2013. The price of certain foods such as meat, eggs, cereal and dairy, however, could rise more than 3% in 2013 due to the widespread drought that afflicted many farmers’ crops in 2012.

Still working? Though inflation may remain mild in 2013, it can still hurt your savings — especially given the low interest rate environment. Consider ways to minimize the effect of inflation on your portfolio, such as increasing your stock exposure or investing in Treasury Inflation-Protected Securities (TIPS).

Talk with your Ameriprise financial advisor about how to protect your portfolio against rising prices.

Retired? Retirees need to be concerned about inflation of any rate given the low interest rate environment. That’s because common savings vehicles, such as certificates of deposit (CDs) and money market accounts, are paying such low interest rates that inflation can quickly reduce a nest egg’s purchasing power. Consider how to minimize the effect of inflation on your savings, such as increasing your equity holdings or building a CD ladder to help you earn more on your cash investments.

Ask your Ameriprise financial advisor about ways to protect your portfolio against inflation’s toll on your retirement savings.

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Health care

The price consumers pay for health care services is expected to rise 7.5% in 2013, according to a 2012 report from PricewaterhouseCoopers. And as employers start complying with new federal health care reform laws, some consumers may also see higher insurance premiums. However, many insurers and employers are also trying out more cost-effective and efficient health care delivery methods, which may ultimately reduce what consumers pay out of pocket.

Still working? Consider ways to reduce the sting of rising health care costs on your finances. One possibility is funding a health savings account (HSA), which gives you a tax deduction on contributions and can be withdrawn tax free when funds are used toward qualified medical expenses. An HSA must be coupled with a high-deductible health plan.

Ask your Ameriprise financial advisor if you qualify for an HSA and, if so, how much you can contribute in 2013.

Learn more about HSAs.

Retired? Consider whether you are doing all you can to keep health care costs manageable now and in the future. Your Ameriprise financial advisor can help you review your Medicare plan choices, including prescription drug benefits, and help ensure you have enough savings set aside for future costs.

Talk with your Ameriprise financial advisor about your Medicare plan options and health care spending.

Find out more about managing health care expenses in retirement.

Business owner? Federal health care reform is expected to move full-speed ahead given President Obama’s reelection. Evaluate what this means for your business and lay out the steps you need to take in 2013, 2014 and beyond.

Talk with your Ameriprise financial advisor about how to make sure your business is ready for the new federal health care reform laws.

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The views expressed by Mr. Joy, Mr. Burgess and Mr. Price are as of the date given, may change as market or other conditions change and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance.

Diversification helps you spread risk throughout your portfolio, so investments that do poorly may be balanced by others that do relatively better. Diversification does not assure a profit and does not protect against loss in declining markets.

Ameriprise Financial and its representatives do not provide tax or legal advice. Consult your tax advisor or attorney regarding specific tax issues.
Bob Keebler is not affiliated with Ameriprise Financial.

Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by, any financial institution and involve investment risks including possible loss of principal and fluctuation in value. Certain bank products are FDIC-insured.

International investing involves increased risk and volatility due to potential political and economic instability, currency fluctuations, and differences in financial reporting and accounting standards and oversight. Risks are particularly significant in emerging markets.

Alternative investments involve substantial risks and are more volatile than traditional investments, making them more suitable for investors with an above-average tolerance for risk.

Income from tax-exempt municipal bonds or municipal bond funds may be subject to state and local taxes, and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains.

There are risks associated with an investment in bond investments, including the impact of interest rates, credit and inflation. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities.

Treasury Inflation Protected Securities (TIPS) are backed by the full faith and credit of the U.S. Government.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.

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