Long-term care is a variety of services that includes medical and non-medical care to people who have a chronic illness or disability. Long-term care helps meet health or personal needs. Most long-term care is to assist people with support services such as activities of daily living like dressing, bathing, and using the bathroom. Long-term care can be provided at home, in the community, in assisted living or in nursing homes. It is important to remember that you may need long-term care at any age.
You may never need long-term care. This year, about nine million men and women over the age of 65 will need long-term care. By 2020, 12 million older Americans will need long-term care. Most will be cared for at home; family and friends are the sole caregivers for 70 percent of the elderly. A study by the U.S. Department of Health and Human Services says that people who reach age 65 will likely have a 40 percent chance of entering a nursing home. About 10 percent of the people who enter a nursing home will stay there five years or more.
Medicare and Long-Term Care:
While there are a variety of ways to pay for long-term care, it is important to think ahead about how you will fund the care you get. Generally, Medicare doesn’t pay for long-term care. Medicare pays only for medically necessary skilled nursing facility or home health care. However, you must meet certain conditions for Medicare to pay for these types of care. Most long-term care is to assist people with support services such as activities of daily living like dressing, bathing, and using the bathroom. Medicare doesn’t pay for this type of care called “custodial care”. Custodial care (non-skilled care) is care that helps you with activities of daily living. It may also include care that most people do for themselves, for example, diabetes monitoring. Some Medicare Advantage Plans (formerly Medicare + Choice) may offer limited skilled nursing facility and home care (skilled care) coverage if the care is medically necessary. You may have to pay some of the costs. For more information about Medicare Advantage Plans, look at the Medicare Personal Plan Finder.
Medicaid and Long-Term Care:
Medicaid is a State and Federal Government program that pays for certain health services and nursing home care for older people with low incomes and limited assets. In most states, Medicaid also pays for some long-term care services at home and in the community. Who is eligible and what services are covered vary from state to state. Most often, eligibility is based on your income and personal resources.
Choosing Long-Term Care:
Choosing long-term care is an important decision. Planning for long-term care requires you to think about possible future health care needs. It is important to look at all of your choices. You will have more control over decisions and be able to stay independent. It is important to think about long-term care before you may need care or before a crisis occurs. Even if you plan ahead, making long-term care decisions can be hard.
The following links provide you with information on planning for your long-term care:
Financial planning covers a wide variety of money topics including budgeting, expenses, debt, saving, retirement and insurance among others. Understanding how each of these topics work together and affect each other is important for laying the groundwork for a solid financial foundation for you and your family.
1. Budgeting
At the very basic level of personal finance you are dealing with a budget; you make money and then you spend that money. Even if you haven’t created a detailed and written budget you continue to budget on a daily basis. When you are faced with spending money on something, you think about it and realize that by spending that money, you will not be able to spend that same money on something else.
When you create a budget, you begin to see a clear picture of how much money you have, what you spend it on, and how much, if any is left over. When you can clearly see where your money is going, you can then budget appropriately so your money is going where it should.
2. Cutting Expenses
After you have successfully created a budget, you’ll have a much better understanding of where your money goes and where you can possibly trim expenses. For many people, this is as simple as cutting back on some of the little things that can add up.
3. Getting Out of Debt
Even after creating a sound budget and cutting unnecessary expenses, you may still find yourself with lingering debt to get rid of. Using credit and taking on some debt itself isn’t necessarily a bad thing, but when you can’t keep up with the payments or borrow more than you can afford to pay back, you could be in trouble.
One of the most important steps in getting out of debt is to pay more than the minimum amount due each month. Even a modest credit card balance can take over a decade to pay off if you simply pay the minimum amount due. In addition, paying the minimum will end up costing you thousands of dollars in interest over that period.
With fewer companies offering full pension plans and the uncertainty of Social Security, it has become more important than ever to save and plan for your own retirement. Unfortunately many people feel that they simply don’t have enough money left over each month to save.
Retirement savings needs to become a priority instead of an afterthought. The Internal Revenue Service has made saving for retirement even more attractive with special tax-advantaged accounts such as employer 401(k) plans, individual retirement accounts and special retirement accounts for the self-employed. These accounts allow for tax deductions, credits and even tax free earnings on some retirement savings.
5. Insurance
You’ve created a budget, cut expenses, eliminated your credit card debt and, have started saving for retirement, so you are all set, right? While you’ve definitely come a long way, there is one more important aspect of your finances that you need to consider.
You’ve worked hard to build a solid financial footing for you and your family, so it needs to be protected. Accidents and disasters can and do happen and if you aren’t adequately insured it could leave you in financial ruin. You need insurance to protect your life, your ability to earn income, and to keep a roof over your head.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
eRollover.com
By Mike Rowan
How Mutual Funds Work-Part 2
Today, we will continue to learn about mutual funds, and the benefits and disadvantages that they represent. Please keep in mind, all of these features of Mutual Funds can have a direct impact on the performance of your 401k, 403b, 457, IRA, or other retirement accounts. Here are the details:
What They Are
A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investor’s proportionate ownership of the fund’s holdings and the income those holdings generate.
Other Types of Investment Companies
Legally known as an “open-end company,” a mutual fund is one of three basic types of investment companies. While this brochure discusses only mutual funds, you should be aware that other pooled investment vehicles exist and may offer features that you desire. The two other basic types of investment companies are:
Closed-end funds — which, unlike mutual funds, sell a fixed number of shares at one time (in an initial public offering) that later trade on a secondary market; and
Unit Investment Trusts (UITs) — which make a one-time public offering of only a specific, fixed number of redeemable securities called “units” and which will terminate and dissolve on a date specified at the creation of the UIT.
“Exchange-traded funds” (ETFs) are a type of investment company that aims to achieve the same return as a particular market index. They can be either open-end companies or UITs. But ETFs are not considered to be, and are not permitted to call themselves, mutual funds.
Some of the traditional, distinguishing characteristics of mutual funds include the following:
Investors purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from other investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock Market.
The price that investors pay for mutual fund shares is the fund’s per share net asset value (NAV) plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads).
Mutual fund shares are “redeemable,” meaning investors can sell their shares back to the fund (or to a broker acting for the fund).
Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis, although some funds stop selling when, for example, they become too large.
The investment portfolios of mutual funds typically are managed by separate entities known as “investment advisers” that are registered with the SEC.
Advantages and Disadvantages
Every investment has advantages and disadvantages. But it’s important to remember that features that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances. For some investors, mutual funds provide an attractive investment choice because they generally offer the following features:
• Professional Management — Professional money managers research, select, and monitor the performance of the securities the fund purchases.
• Diversification — Diversification is an investing strategy that can be neatly summed up as “Don’t put all your eggs in one basket.” Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.
• Affordability — Some mutual funds accommodate investors who don’t have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both.
• Liquidity — Mutual fund investors can readily redeem their shares at the current NAV — plus any fees and charges assessed on redemption — at any time.
But mutual funds also have features that some investors might view as disadvantages, such as:
• Costs Despite Negative Returns — Investors must pay sales charges, annual fees, and other expenses (which we’ll discuss below) regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive — even if the fund went on to perform poorly after they bought shares.
• Lack of Control — Investors typically cannot ascertain the exact make-up of a fund’s portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.
• Price Uncertainty — With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock’s price changes from hour to hour — or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund’s NAV, which the fund might not calculate until many hours after you’ve placed your order. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Let’s face it. You are probably getting hammered in your 401k, 403b, 457 Plan, or IRA accounts, during this severe economic downturn. In my experience, many of these external market factors are simply out of the investor’s control. However, information is knowledge, so you can at least familiarize yourself with some of the jargon so that you can speak knowledgeably about your investments and retirement accounts. In this post, we will give you the basic run down on Mutual Fund terms, and the details that you need to know.
Glossary of Key Mutual Fund Terms
12b-1 Fees — fees paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. “Distribution fees” include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. “Shareholder Service Fees” are fees paid to persons to respond to investor inquiries and provide investors with information about their investments.
Account Fee — a fee that some funds separately impose on investors for the maintenance of their accounts. For example, accounts below a specified dollar amount may have to pay an account fee.
Back-end Load — a sales charge (also known as a “deferred sales charge”) investors pay when they redeem (or sell) mutual fund shares, generally used by the fund to compensate brokers.
Classes — different types of shares issued by a single fund, often referred to as Class A shares, Class B shares, and so on. Each class invests in the same “pool” (or investment portfolio) of securities and has the same investment objectives and policies. But each class has different shareholder services and/or distribution arrangements with different fees and expenses and therefore different performance results.
Closed-End Fund — a type of investment company that does not continuously offer its shares for sale but instead sells a fixed number of shares at one time (in the initial public offering) which then typically trade on a secondary market, such as the New York Stock Exchange or the Nasdaq Stock Market. Legally known as a “closed-end company.”
Contingent Deferred Sales Load — a type of back-end load, the amount of which depends on the length of time the investor held his or her shares. For example, a contingent deferred sales load might be (X)% if an investor holds his or her shares for one year, (X-1)% after two years, and so on until the load reaches zero and goes away completely.
Conversion — a feature some funds offer that allows investors to automatically change from one class to another (typically with lower annual expenses) after a set period of time. The fund’s prospectus or profile will state whether a class ever converts to another class.
Deferred Sales Charge — see “back-end load” (above).
Distribution Fees — fees paid out of fund assets to cover expenses for marketing and selling fund shares, including advertising costs, compensation for brokers and others who sell fund shares, and payments for printing and mailing prospectuses to new investors and sales literature prospective investors. Sometimes referred to as “12b-1 fees.”
Exchange Fee — a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group.
Exchange-Traded Funds — a type of an investment company (either an open-end company or UIT) whose objective is to achieve the same return as a particular market index. ETFs differ from traditional open-end companies and UITs, because, pursuant to SEC exemptive orders, shares issued by ETFs trade on a secondary market and are only redeemable from the fund itself in very large blocks (blocks of 50,000 shares for example).
Expense Ratio — the fund’s total annual operating expenses (including management fees, distribution (12b-1) fees, and other expenses) expressed as a percentage of average net assets.
Front-end Load — an upfront sales charge investors pay when they purchase fund shares, generally used by the fund to compensate brokers. A front-end load reduces the amount available to purchase fund shares.
Index Fund — describes a type of mutual fund or Unit Investment Trust (UIT) whose investment objective typically is to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index.
Investment Adviser — generally, a person or entity who receives compensation for giving individually tailored advice to a specific person on investing in stocks, bonds, or mutual funds. Some investment advisers also manage portfolios of securities, including mutual funds.
Investment Company — a company (corporation, business trust, partnership, or limited liability company) that issues securities and is primarily engaged in the business of investing in securities. The three basic types of investment companies are mutual funds, closed-end funds, and unit investment trusts.
Load — see “Sales Charge.”
Management Fee — fee paid out of fund assets to the fund’s investment adviser or its affiliates for managing the fund’s portfolio, any other management fee payable to the fund’s investment adviser or its affiliates, and any administrative fee payable to the investment adviser that are not included in the “Other Expenses” category. A fund’s management fee appears as a category under “Annual Fund Operating Expenses” in the Fee Table.
Market Index — a measurement of the performance of a specific “basket” of stocks considered to represent a particular market or sector of the U.S. stock market or the economy. For example, the Dow Jones Industrial Average (DJIA) is an index of 30 “blue chip” U.S. stocks of industrial companies (excluding transportation and utility companies).
Mutual Fund — the common name for an open-end investment company. Like other types of investment companies, mutual funds pool money from many investors and invest the money in stocks, bonds, short-term money-market instruments, or other securities. Mutual funds issue redeemable shares that investors purchase directly from the fund (or through a broker for the fund) instead of purchasing from investors on a secondary market.
NAV (Net Asset Value) — the value of the fund’s assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. To calculate the NAV per share, simply subtract the fund’s liabilities from its assets and then divide the result by the number of shares outstanding.
No-load Fund — a fund that does not charge any type of sales load. But not every type of shareholder fee is a “sales load,” and a no-load fund may charge fees that are not sales loads. No-load funds also charge operating expenses.
Open-End Company — the legal name for a mutual fund. An open-end company is a type of investment company
Operating Expenses — the costs a fund incurs in connection with running the fund, including management fees, distribution (12b-1) fees, and other expenses.
Portfolio — an individual’s or entity’s combined holdings of stocks, bonds, or other securities and assets.
Profile — summarizes key information about a mutual fund’s costs, investment objectives, risks, and performance. Although every mutual fund has a prospectus, not every mutual fund has a profile.
Prospectus — describes the mutual fund to prospective investors. Every mutual fund has a prospectus. The prospectus contains information about the mutual fund’s costs, investment objectives, risks, and performance. You can get a prospectus from the mutual fund company (through its website or by phone or mail). Your financial professional or broker can also provide you with a copy.
Redemption Fee — a shareholder fee that some funds charge when investors redeem (or sell) mutual fund shares. Redemption fees (which must be paid to the fund) are not the same as (and may be in addition to) a back-end load (which is typically paid to a broker). The SEC generally limits redemption fees to 2%.
Sales Charge (or “Load”) — the amount that investors pay when they purchase (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC’s rules do not limit the size of sales load a fund may charge, but NASD rules state that mutual fund sales loads cannot exceed 8.5% and must be even lower depending on other fees and charges assessed.
Shareholder Service Fees — fees paid to persons to respond to investor inquiries and provide investors with information about their investments. See also “12b-1 fees.”
Total Annual Fund Operating Expense — the total of a fund’s annual fund operating expenses, expressed as a percentage of the fund’s average net assets. You’ll find the total in the fund’s fee table in the prospectus.
Unit Investment Trust (UIT) — a type of investment company that typically makes a one-time “public offering” of only a specific, fixed number of units. A UIT will terminate and dissolve on a date established when the UIT is created (although some may terminate more than fifty years after they are created). UITs do not actively trade their investment portfolios.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Nurture Your 401k Portfolio Using Asset Allocation
Here’s a quick quiz. Which strategy is more likely to help you reach your retirement goals: finding the next hot fund about to rally and investing everything in it, or splitting your money among carefully selected funds, some of which don’t even appear to be winners?
If you answered the latter, you probably have a good idea of what asset allocation is about. If you answered “finding the hot fund,” you need to pay especially close attention to this article.
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Asset allocation is a strategy used by long-term savers to spread their money over several investment classes. Its goal is to maximize returns for a given risk level. It’s not an exciting strategy, but it has a good track record of helping savers reach their goals.
Allocation Compromises
In developing your allocation you will have to accept compromises. The first is giving up potential premium returns and high portfolio volatility in exchange for consistent better-than-average returns with lower volatility.
Asset allocation is one of the most important things to do to minimize risk. The idea is to spread your money across a broad spectrum of investments, such as cash, bonds and stocks, that don’t move in synch with each other. Indeed, the more your investments act independently of each other, the better. That way, if one asset goes through a rough time, the other assets support the portfolio.
But that doesn’t mean that if one investment is tanking, you should get out and put your money elsewhere. That’s called market timing and it’s a practice that financial planners discourage.
Bad Timing
Here’s why timing is bad idea. If you bailed out of stocks today, to catch the next rally you would need the market-reading skills to figure out when it was starting and then to quickly buy in. But, reading markets is difficult because they don’t move in a straight line.
Consider the following statistics. They are based on the following assumption — you invest $1,000 in January 1926 and leave it alone until December 2000.
• If you invested it all in Treasury bills, by December 2000 you would have $16,644.
• If you invested it all in stocks, by December 2000 you would have $2,562,976.
• If you invested it in stocks, yet missed being in the market the 40 best months over those 75 years, by December 2000 you would only have $15,050.
Asset allocation keeps your funds always invested in the market so you participate in rallies as they develop.
Building Your Allocation
This article won’t offer you a single, best allocation. What’s best depends on your situation. But we can offer guidance to help build your allocation.
Two issues to consider are your time horizon and investment-risk tolerance. Time: The longer until you need your savings, the more money you will be able to save and the more investment risk you can tolerate. You can assume more risk because your portfolio will have time to recover from losses. Risk: The investment risk we’re talking about refers to the fluctuation or volatility of returns on your investment. In assessing your risk tolerance keep in mind your time horizon, your retirement goals, whether you have the money to take risk and whether you feel comfortable taking risk.
Allocation Steps
The first step is to set up reserves equal to several months of living expenses. This money should be used for emergencies such as temporary job loss. The reserves should be invested in liquid, low-risk investments such as money market funds, financial planners recommend.
The next step is to create an investment allocation for your remaining savings — how much you put into equities, bonds or cash.
While most folks think of allocating their retirement portfolios, many planners recommend you apply this strategy to the investments used for all your long-term savings goals, such as a child’s college education or buying a second home.
Don’t rush creating an allocation because it’s one of the most important decisions you will make.
“For the long-term individual investor who maintains a consistent asset allocation and leans toward index funds, asset allocation determines about 100 percent of performance,” according to the January 2000 Ibbotson study The True Impact of Asset Allocation on Returns.
Many employers don’t offer index funds in their 401k plans, but the lesson remains valid: over the long term, your allocation will have a significant impact on your portfolio’s performance.
In creating your allocation, you will have to balance the risks inherent in each investment against their respective returns. From 1925 through today, cash investments generated average returns of 3 percent a year, bonds averaged a little over 5 percent and stocks averaged about 11 percent.
Cash: In a 401k plan, a cash investment would be a money market fund. These are considered extremely low risk and generally earn a small return. With this investment your original investment is not supposed to fluctuate. Fixed income: In a 401k plan, this asset class is represented by bond funds. Many bond funds invest in a mix of government and corporate bonds. These funds typically offer a higher rate of return than cash-type investments and carry a modest amount of investment risk. Equities: Within 401k plans this asset class is often represented by a myriad of funds. Equities have higher investment risk than cash or bond funds. In exchange for assuming this risk you gain the potential for higher returns. Indeed, equities are the one type of investment that, historically, has consistently beaten inflation over the long term. Retirement savers with a long time horizon should consider inflation the leading risk they face. That suggests equities should be a dominant asset in their portfolio.
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Most 401k investors aren’t offered a single fund to serve as a proxy for the stock market. Typically, plans offer large-cap, small-cap, growth, value and international funds, and various permutations of these. You will need to create an allocation among these sub-classes of equities. It will be up to you to choose the funds to cover these different sub-classes. Carefully research their holdings by reading the fund prospectus to ensure that you are covering each category only once. If you invest in funds with overlapping assets you risk inadvertently putting too much money in a particular stock class.
You can make up for lost returns by saving more, or saving for a longer time.
When to Change Allocation
The recent market turmoil might tempt you to change your allocation. Don’t, say financial planners. That’s market-timing.
Your allocation is a long-term plan based on assumptions about your time horizon, your savings rates and your goals. Recent events have probably done little to change those assumptions.
The time to consider changing your allocation is when a major event occurs in your personal life (such as a major medical problem or accelerated retirement date) that changes your retirement outlook. If this occurs, you should run through the same decisionmaking process you used to develop your asset allocation, but now using your new set of assumptions.
Even as planners advise against changing your allocation, they do recommend regularly rebalancing your portfolio. To do this, compare your current allocation with your original allocation. If they’re not the same, sell assets that make up too large a percentage of your portfolio, and buy assets that make up too small a percentage, to return to your original allocation.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
401k Plans, 401k Rollovers, & Self-Directed IRA’s
(Transferring your 401k from your previous employer into a Rollover IRA)
What is a 401k Rollover?
A 401k rollover occurs when you change jobs or retire and then elect to transfer or “rollover” your 401k into a new IRA. This process of transferring a 401k with a previous employer into an IRA is referred to as a “401k Rolloverâ€, “Rollover IRA†or “IRA Rollover.â€
The assets in your 401k can be transferred from your 401k directly to an IRA via a trustee-to-trustee transfer. A direct rollover from a 401k to an IRA is made tax-free and there is no tax liability. There is no limitation on the dollar amount you can rollover from your previous employer’s retirement plan.
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When I change jobs or retire, what are my options for my 401k?
When you leave your employer, you will need to decide what do to with the money you have accumulated in your employer’s 401k. For some investors this may represent a sizeable investment. As a result, it is crucial to make an informed decision.
There are several options available to you:
1. Take the money out in Cash
For most investors this is the worst option. Taking a distribution in cash has very serious tax consequences. Your previous employer is required to withhold 20% for federal taxes. The cash that you receive will be taxed as ordinary income. The 20% that is withheld will be used to pay the taxes you owe for your federal taxes. However, depending on your tax bracket you may owe more than the 20% that was withheld when you do your taxes for that year. In addition, you are likely to be penalized 10% if you are younger than age 59 1/2. As you can see, this can be a major setback towards saving for your retirement.
2. Leave the money with your old employer’s retirement plan
For many investors who are saving for their retirement, this may be a better decision than Option 1 since you will not be penalized or taxed, however there are some disadvantages. Many investors find it difficult to manage and organize their retirement accounts when they have several retirement plans at previous employers. As a result, investment performance can suffer if retirement accounts are not diversified properly. An even more important issue is most employer’s retirement plans have a fairly limited number of mutual funds choices (usually only 10-15).
3. Transfer the money into your new employer’s retirement plan
Most employers allow you to do a transfer into their retirement plan. Compared to Option 2 this avoids the potential problem of multiple retirement accounts at different employers and the difficulties of managing your investments and organizing them properly. As in Option 2 the same important issue still applies, as most employer sponsored retirement plans have a fairly limited number of mutual fund choices (usually 10-15).
4. Transfer the money into a Rollover IRA
For many investors a 401k rollover into an IRA is the best option for the money they have saved in their previous employer’s retirement plan. Compared to Options 1-3 you have several advantages: increased control, greater organization, improved investment flexibility and investment advice.
If you have a 401k, 403b, 457 or some other retirement plan with a previous employer, you should strongly consider the benefits of transferring your retirement assets into a Rollover IRA.
The Rollover IRA is a tax advantaged IRA account designed to receive retirement funds rolled over from an ex-employer’s retirement plan (401k rollover, 403b rollover, 457 rollover). The Rollover IRA allows funds to be transferred tax free and penalty free from other retirement plans and allows retirement funds already set aside to continue to grow tax deferred until retirement.
When leaving an employer, some investors believe it is advantageous to rollover your retirement plan into a new IRA versus leaving your money in your old employer’s retirement plan or transferring it into your new employer’s plan.
Advantages of a 401k Rollover, 403b Rollover and 457 Rollover to an IRA
1. Control
When the rollover process is complete, your retirement plan assets from your previous employer will be transferred to an IRA. Since you are the owner of an IRA, you have complete control versus being dependent upon the rules and policies of your former employer’s retirement plan. By rolling over your account into an IRA will not have the potential problems seen with some 401k, 403b and 457 plans such as untimely statements, lack of account information, or more importantly, a limited number of investment options. Also, there are a number of other problems that can arise with your retirement plan should your employer have financial troubles and go into bankruptcy. Rolling over your retirement plan to an IRA eliminates these problems and puts you in a position to be in complete control of your retirement account.
2. Investment Flexibility
Your previous employer’s 401k, 403b or 457 plan probably had between 10-15 mutual funds to choose from. A rollover to an IRA will increase your investment options and will improve your investment flexibility. Within an IRA managed by an advisor you can invest in stocks, bonds and over 10,000 mutual funds. We believe that over the long term greater investment flexibility may lead to improved performance through better diversification and increased investment selection.
3. Investment Advice
Are you receiving guidance from a financial professional with selecting the appropriate investments in your 401k, 403b or 457? Probably not. This is perhaps the greatest advantage of a rollover to an IRA. If you opened an IRA rollover account, an advisor would help you select a diversified investment portfolio based on your age, time horizon and risk tolerance.
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Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Index Annuities-Protection in a Volatile Market
by Mike Rowan, eRollover.com
What is an index annuity?
There are two major types of annuities in the world — fixed and variable.
An indexed annuity is a deferred annuity whose return is tied to the performance of a particular equity market index. Your investment principal is usually protected against severe market downturns, in that you may have an annual return of 0% but not less than 0%. However, earnings are generally capped at a fixed percentage, so any index gains that are above the cap are not reflected in your annual return.
Since interest is based on an index, isn’t this like a variable annuity?
No. If a variable annuity account goes down, you could lose principal. Index annuity principal is protected from market risk - you can’t lose principal if the index declines. Variable annuity gains are typically not locked in. Once index-linked interest is credited in an index annuity it cannot be lost, even if the index subsequently declines. And, variable annuities include reinvested dividends, neither the index nor index annuities reflect reinvested dividends.
So do I get all of the index gains and none of the losses?
No. It costs the insurance company to provide this protection against loss. This typically means that you won’t fully participate in all of the gains when the market increases, but you also won’t lose any principal in a falling market.
What kind of interest will I earn?
Typically, we try to gain about 2% more on average than you could in a bond fund or fixed interest CD or similar vehicle. Remember though, an annuity provides you with tax deferred growth as well, so your taxable yield is much higher.
How could I earn zero?
The primary goal of the minimum guarantee is to protect the principal from market risk. So if the market drops, the worse thing an index annuity owner would say is “Gee, I didn’t lose any principalâ€. Many companies minimize the minimum guarantee so that if the market stayed down for years, the owner would only get back their money and a few dollars of interest. By minimizing the minimum, and only crediting the minimum guarantee at the end of the term, companies can let index annuities participate in more of the index performance.
Do index annuities have fees?
Not in the same way that a variable annuity or mutual fund does, but more like the way a bank does it. Index annuities have penalties for early withdrawal if you surrender the annuity early. You need to match the period with your goals, keeping in mind that all annuities are designed to be long term savings instruments.
What returns have index annuities actually credited?
The highest index annuity interest rate credited for one year was over 40%. In 2001 and 2002 the stock market was down and most index annuities credited 0%. Index annuities have been around since 1995. During this period we’ve seen the strongest bull market in ages, with five years of high double-digit stock market gains, and the worst bear market in a generation; hardly a “normal†period. Index annuities are designed to provide a return somewhere between stock market vehicles and savings instruments and they’ve been performing as intended.
Are index annuities safe?
Both principal and credited interest are protected from index declines, so the worst thing that could happen is the stock market drops for years and you still get back your principal plus a little interest. The index annuity is as safe as the insurance company issuing the annuity. No index annuity owner has ever lost money because the insurance company failed.
States and independent rating firms on a regular basis examine the financial books of insurance companies, and they look to make sure there’s enough money to cover everything, which is why you very rarely hear of an insurance company going bust.
What if a company does go belly up?
An annuity contract is an asset of the insurer, and in the past another insurer has bought the annuity contracts of the troubled company and life goes on. And every state has a guarantee fund to dip into and protect annuity contract owners (up to a certain limit) if a company tanks. It is possible to lose money if an insurance company fails, but based on history it is not very likely.
Who buys an index annuity?
People purchase an index annuity because they want the potential to possibly earn more than they might make from another savings vehicle. If you have sufficient time to recover from potential losses (and the stomach for it) direct stock market investments should give you a higher return than index annuities. However, if your timeframe is too short to recover from a possible bad market, or you simply don’t like the idea of possibly losing principal, index annuities are used as an alternative savings vehicle to bank instruments, fixed rate annuities, bonds and bond mutual funds
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Buying disability insurance probably ranks low on your financial to-do list. After all, if you’re young and healthy and you work at a desk job, what are the odds you’re going to need it?
Well, you might not think of a broken bone, a problem pregnancy or an anxiety condition as disabling, but all of them could keep you out of work. About 30 percent of Americans age 35 to 65 will suffer a disability lasting at least 90 days sometime during their careers, according to the Health Insurance Association of America. Should you ever need the protection a disability policy can offer, you’ll be glad you took financial precautions. Without coverage, an unexpected disability can easily drive you into serious debt.
Do you need it?
Many people say, “I don’t need disability coverage — I’ve already got it through work.†But most company-issued disability insurance only provides you with 60 percent of your salary and sets a monthly maximum of $5,000 to $10,000, which can be even less than 60 percent of a highly compensated employee’s salary.
But here’s the problem: Those benefits are also fully taxable, which means you’re actually getting a lot less than 60 percent of what you’re used to.
You could easily find yourself trying to survive on about 40 percent of your salary — or less, if you’re a high wage earner — if you don’t buy a supplemental policy. And Social Security probably won’t cover you, either — Social Security disability benefits are one of the most difficult benefits to qualify for. You have to be completely disabled for at least a year, with no hope of recovery. Even when you meet those requirements, you’re unlikely to receive more than $2,000 a month.
Shopping for policies that make the grade
Look for company strength. The first question you need to ask is whether the insurance company you’re eyeing is financially sound.
There are maybe six major insurance companies left that still offer disability insurance. There are lots of smaller companies that offer disability insurance, but you should check their financial statements. Make sure they look like they’ll be able to pay out claims as time goes by. To check insurance company ratings, check moodys.com, standardandpoors.com, or ambest.com.
Aim for a non-cancelable contract.
Next on your checklist is renewability, or whether your policy’s terms are subject to change over time. There are three options: a non-cancelable and guaranteed renewable policy, a guaranteed renewable policy, and a conditionally renewable policy.
Experts say the non-cancelable contract, especially if price is not an issue, is by far the best of the three. That’s because it locks in your rates and benefits. The insurance company can’t make changes unless you request them.
Finally, avoid conditionally renewable policies. An insurer can put any condition on them or raise rates at any time.
Look for a broad definition of “total disability.
The most consumer-friendly definition of total disability is “own-occupation disability.” If you are disabled and cannot perform the principal duties of the job you currently have, you get paid your disability benefit even if you can do some other tasks.
Even if they become disabled, most people want to keep working. The neat thing about own-occupation coverage is that you’re not penalized for working at the flower shop down the street, even if you can’t yet go back to your full-time job.
The most conservative definition of total disability is “any-occupation disability.” Under this definition you do not get a benefit unless you are completely unemployed and unable to do any work.
Many companies, of course, will define “disability” in shades of gray between own-occupation and any-occupation disability. And some disability insurance products will give you own-occupation coverage for a specified period, then move you to a modified plan, increasingly contingent on whether you can produce any income.
Get the appropriate riders
If you have disability coverage, you may not use it for decades — if ever — and $3,000 a month in ten years will buy you considerably less than it does now. You might want to buy a rider that adjusts your policy for inflation, particularly if you’re in your 20s and 30s.
Another option to consider is a “future purchase option” – it allows you to buy more coverage as your salary rises or your business expands. This is especially good for people just starting their careers.
Putting a price tag on your policy
Disability insurance premiums will typically cost between 1 percent and 3 percent of annual income. Prices will vary according to several main factors, including your age, gender, health history and occupation.
Another factor affecting your premiums is the policy’s elimination period. That’s a specified length of time — people usually choose 90 days — from the onset date of disability. When that time is up, the company starts paying your benefits. You can choose an elimination period as short as 30 days or as long as 720 days. Generally, the longer your elimination period is, the cheaper your premium.
You’ll also have to choose a benefit period, or the length of time the insurer will pay you benefits. Most companies let you choose between benefits lasting two years, five years, all the way to age 65, to age 67, or for the rest of your life. Most people choose the age-65 option, as Social Security kicks in thereafter. The longer your benefit period, the more expensive your policy will be.
When they price your policy, each insurer categorizes you according to its own set of occupation classes, ranking systems that sort different jobs according to their likelihood of filing a claim. The more likely your occupation is to result in disability, the more expensive your coverage will be.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
