Monday, June 25, 2007

Build your Reserve, not your insurer's

Buy only what you need. Build your Reserve with your savings.

Do you still need life insurance?
You may be surprised to learn that many members who were paying for life insurance they no longer needed, used our Guide to drop it—saving $20,000 or more. Some purchased life insurance years ago to provide their family with income if they were not around. Others purchased the policy later to insure that their final expenses were covered. Is the reason you purchased the policy still valid? One member had saved little for retirement but kept paying for a policy for his kids. They were all successful and didn’t need the income protection. Another member had accumulated over $500,000 by age 50 and would retire with over $1million. He won’t need the $50,000 whole life coverage to pay for his cremation. Do you still need that old policy? There are many other ways to meet your needs that your agent didn’t offer (no commission):

Load or commission funds offer less return
You always have a no load fund alternative when your broker/advisor says to buy this or that mutual fund. The average annual fee is now 1.07%. Some of the best managers work for the low-cost mutual fund families. Check out what millions of other people did with their money. Would you “settle” for a well-run low-cost fund that produced 10%-12% over time? If your broker takes 5.75% of your money upfront and over 1% each year, is the long term record worth the extra you pay? Load funds may cost $1,000 a year or $30,000 over time instead of $1,500. Try no loads—you can’t get your 5.75% back but you can stop the bleeding by switching like others have.

BEWARE: Your money manager may receive favors that costs you money
The SEC head said these conflicts of interest raise your investing costs. In a recent letter to the chairmen of two congressional committees, Securities and Exchange Commission Chairman Christopher Cox said that soft-dollar arrangements “hurt investors.” They compromise a money manager’s fiduciary obligation “by inducing it to direct trades to broker-dealers offering research that the money manager wants,” rather than executing trades in the client’s best interests, he said. Mr. Cox added that the desire to build up soft-dollar credits can lead to overtrading in clients’ portfolios and that managers use one client’s commissions to buy research useful for other clients. Members prefer to use low-cost mutual funds or discount brokers. Some buy and sell at $0 cost. See our Guide:

Annuity sellers to receive more commissions
You may have heard that annuities are excellent products if you are a seller. They just got better. Insurance companies are now paying an additional 0.25% of the balance every year. In addition to the 4% to 12% commission, the sellers will receive another 1.75% to 3%, given the average time annuities are held. “The commissions are an additional loading-on of fees to EIAs [annuities] — which are already heavily laden with administrative expenses — that will ultimately come out of clients’ pockets,” one advisor said. Members consider all the alternatives in our Guide:

IRA annuity—the good, the bad and the ugly
Did your advisor suggest rolling your 401(k) from your former job into an “IRA annuity”? Look before you leap! The benefits of putting your money in an annuity and then into an IRA account are just duplicated—you pay twice. Sellers make up to 17% commission on an annuity. You will pay for that expense over the years in higher fees and less earnings. If you want to continue to grow your 401K benefits tax-deferred, the rollover IRA was created for that purpose. And it costs nothing. To grow your nest egg, you need to buy low-cost mutual funds inside the IRA. That way no tax is due until you take the money out. An annuity also charges you for a death benefit so your heirs can’t lose money. However, our annuity expert of 15 years says that only one person in a million uses it. Other guarantees—GMIB, GMWB—are cheaper when you buy them later. Don’t leave your money with your former employer—Think ENRON. You can assure yourself of not losing money by picking mutual funds that match your goals. See our FREE Guide to see how members decide:

Help with decision on family care is helping adults make family care decisions with confidence. It is a place for people to start the thought process, engage with others who have shared experiences and create a plan to solve tough issues related to caregiving such as housing, financial planning, insurance and care provision. It is an easy to understand process for organizing information, identifying priorities and assessing choices that serve as the basis for a plan. The service provides a personal online workspace that allows people to easily find pertinent information and make connections with other community members with shared experiences. People will also have access to industry experts and professionals who can provide relevant guidance, products and services.

Investing For Retirement: a learning module by the NASD
A quick course in investing for retirement uses this example: Investor A invests $2,000 a year for 40 years for a total investment of $80,000, starting at age 26. Investor B invests $2,000 a year for 7 years for a total investment of $14,000, starting at age 19. The table compares the results of net earnings--$1,000,000. These results assume a 10% tax-sheltered rate of return, which approximates the rate of return in the stock market for the past sixty years. If only we had seen this in high school.

Take your financial inventory
Complete a financial worksheet to plan for college, home, retirement. Free software helps you see the BIG picture—your income and assets and debts—so you can make changes to reach your goals. Free from nonprofit insurance information institute

My funeral expense fund:
A Roth IRA with $4,000 in at age 65. In 10 years it will have $10,000, at 15, $15,000, at 20, $25,000 and at 25 years, it may have $38,000 to use for these expenses. There are no taxes to pay now or later and the heirs can have a good laugh at the FREE memorial party. By the way, I left my body to science FREE at

Who owns your account now?
Nuveen to Madison Dearborn Partners
Putnam Lovell to Jefferies Co

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