Questions About Investing

What financial services does Pension Planners provide?

Pension Planners is a full service Broker/Dealer and Insurance Agency. This means that we can fulfill most investment needs, including but not limited to:

  • IRAs/Educational IRAs/RothIRAs/529 College Savings Plans
  • 403 (b)/TSAs
  • 401 (k) group plans/SIMPLE IRA/SEP IRA
  • 401 (k) and other retirement plan lump sum transfers
  • Mutual Funds
  • Variable/Fixed Annuities
  • College Funding
  • Retirement Plans
  • Life Insurance/Long–Term Care/Disability
  • Brokerage Accounts - Stocks, Bonds, etc.
  • Investment Advisory Services - Financial Planning

Do I need a financial professional to invest?

We all have our strengths and concentrations in life. Some of your most important decisions in life will concern financial matters. It is prudent to have someone who is qualified in financial matters to help advise you on your situation. This should be someone who spends his/her day researching and following the complications of investments. In the recent record high markets of the 80’s and the 90’s, some investors made the mistake of thinking it is easy to make the right financial decisions by themselves. In a straight up market, it might be easy to make good decisions, but the incredible run of the market in the 80’s and 90’s is not normal in American history and tough times are now upon us when critical decisions need to be made. For instance,many Americans, today and in the past, have sought funds solely on performance; not taking the necessary step of comparing a fund to the expected performance for its risk and the types of investments it is in.

Do you want to leave your financial future with the possibility that the best decisions were not made?

This is an enormous gamble to make. Think of it this way, if you wanted to, you could probably school your children at home and do an average job. They would probably learn to read and write and do math, but could you be proficient in teaching them advanced writing skills,calculus, history and economics? Probably not, unless you’re a teacher by profession. This is what a financial professional does for you. He/she considers the more advanced aspects of finance; your risk tolerance, how your portfolio should be diversified, fund performance for its class, how much you need for retirement, what the tax implications are, and so on. A financial professional will also be level headed in times when you are emotionally involved in a financial decision. He/she can help logically take you through advanced decision making processes, like when to hold or sell a fund through tough investment cycles. He/she will be there to help remind you of your financial goals and what you need to do to meet them. Don’t try to go it alone in one of the most complicated and important set of decisions you will ever make,contact Pension Planners to set up a consultation with a Registered Representative today!

How much money will I need for retirement?

Most Americans underestimate what they will need for their retirement years. Statistically speaking, most Americans will need 70–80% of their final compensation for their retirement income. Many think they will need less,based on a house being paid off and other decreased expenses. The reality is that you will have more time to yourself and therefore, you will spend more miscellaneous money. Inflation is also another problem. Even a low inflation rate eats at the purchasing power of your dollar over a 10–15 year period of time. Higher inflation rates can debilitate some retirees (as they did in the late 70's and early 80's) and there is no way to predict how high inflation will be in your future. Americans are also living longer than they ever expected in their retirement years; some living as long in retirement as they did in their working years – this is a challenge to save for! This problem will most likely only get worse when the next generation reaches retirement. You do not want to run out of money during those final years, leaving your destiny to your family or the state. To get a specific estimate of your retirement needs, contact Pension Planners today!

When should I start saving for retirement?

Now! The sooner you get going, the less it will cost you out of your pocket! For example, if all participants want to retire at 60, save $300/month and earn 8% returns on their funds:

  • The 25–year old will have saved $126,000 and have $646,906 at 60.
  • The 35–year old will have saved $90,000 and have $274,452 at 60.
  • The 45–year old will have saved $54,000 and have $101,933 at 60.
  • The 55–year old will have saved $18,000 and have $22,024 at 60.

THE LESSON HERE: Time can cost or make you incredible amounts of money.

What is a mutual fund?

A mutual fund is an investment vehicle in which a professional money manager invests money based on the stated objective of the fund on the behalf of its fund holders. A mutual fund enables the investor to invest small amounts of money into a portfolio of investments; typically stock or bonds. By using a mutual fund, the fund holder is able to diversify his investment with very small amounts of money while utilizing the expertise of a money manager.

What type of mutual funds are available?

There are many different types of mutual funds including but not limited to:

  • Large Cap funds
  • Mid Cap funds
  • Small Cap funds
  • Balanced funds
  • Growth and Income funds
  • Specialty funds i.e.: Health/ Technology / Banks / Internet / Communications
  • Bond Funds (Government /High–yield / Tax–free / Corporate)
  • Money Market Funds
What are the advantages of a mutual fund over a CD or other principal guaranteed investments?

A mutual fund has the POTENTIAL to have greater returns than that of a fixed type investment. Unlike fixed investments that usually guarantee your principal and pay a lower rate of interest; mutual funds get their returns based on the gains of the underlying assets in the fund, so when those assets go up or earn dividends, those gains are shown in the value of your fund. A mutual fund also has the potential to outpace inflation, this is a benefit that most fixed vehicles cannot provide.

What are the risks of mutual funds?

Mutual funds do have risk and you should select a fund that meets the amount of risk you are willing to take. A Registered Representative is very helpful in determining what funds are best suited for you. They can help weigh all of your financial information, as well as look at your objectives,time horizon, and risk tolerance. The longer your time horizon, the smaller your risk in a fund is. In addition, the more you diversify your portfolio of funds you have, the lower your risk will be. Remember that the gains or losses of the market affect mutual funds, so an increase or decrease in that market (whichever market the fund invests in) can directly affect your fund. It is inadvisable to choose funds based on what your friends, family or neighbors have chosen. Their objectives, time horizon, risk tolerance, and other investments may be very different from yours and these factors must all be taken into consideration when you select a fund. Contact Pension Planners to get a risk tolerance questionnaire today.

How much life insurance should I have?

It is an industry standard to recommend that you have five to seven times your annual gross salary in life insurance. This is what is needed for most individuals; however, personal circumstances can vary. For some odd reason that always seems like a lot of money to Americans. Try this; go through your financials and budget if you did not have your spouse’s income and have him/her do the same. How would you make ends meet? Consider what they are contributing to your retirement picture — how would this loss of savings affect your future? Do not count on being able to liquidate real estate because in a bad real estate market (as seen many times in the past) you may not have that option. Also, you must ask yourself, could your sole income even qualify you for a smaller home? Bear in mind that it is our experience that when a loved one dies the last thing that a spouse wants to do is totally uproot their life. Many even need to take months off work to emotionally recuperate or help children adjust. Your loved ones will never be mad at you for leaving them too much insurance. Love and protect them by adequately covering yourself today. Remember that you cover your house for afire and your car for theft. Statistically speaking, your odds of experiencing these losses are low, while death is 100% guaranteed.

What is a ROTH IRA?

A ROTH IRA is a retirement vehicle that lets most Americans invest up to$4000 per year ($8000 per married couple). Those over 50 years old are allowed to invest an additional $1000 to "catch up" their retirement funds. These amounts are not deductible; however, if IRS rules are followed, earnings on this account are tax–free when withdrawn. To meet these guidelines you must withdraw after 59 ½ or meet certain exceptions such as a first time home purchase. Your principal is always penalty free and can be withdrawn at any time.

What is an Educational IRA?

An Education IRA is an investment vehicle for college funding. The IRS allows most Americans to invest up to $4,000 per child per year. The contribution is not tax deductible; but the earnings are tax–free as long as IRS guidelines are met. To qualify, funds must be used for a qualified college expense and spent before the child reaches the age of 30. The custodian (usually the parent) can transfer the fund to another child, if necessary, at his discretion.

A 529 College Savings Account is similar to an Educational IRA, with a few differences. First, it too is tax–free upon withdrawal if used for qualified college expenses, and is not limited to a maximum of $4,000 per year. It has a $60,000 contribution limit for each 5–year period. The total limit is$250,000 per child. It also does not have an age limit and can be used to save for any adults future college plans and used accordingly. The custodian also has full control over the withdrawal of the account indefinitely and can choose to change the recipient of the account whenever he desires. The only real drawback of the 529 plan is that once invested in a particular portfolio,the money cannot be switched to a different portfolio unless the beneficiary(recipient) has changed. To alleviate this problem, most 529 plans have a portfolio that slowly gets less risky as the child is reaching college age.

To determine the best college savings option for your child, contact Pension Planners today!

What is a 403(b)?

A 403 (b) (also commonly known as a TSA) is an IRS qualified retirement account that allows the employee of certain organizations (educational and non–profit) to save money on a tax–deferred basis. The money that is saved is taken off the employee taxable income for that year by their employer,nothing special needs to be done by the employee at tax time. The earnings on these accounts are also tax–deferred. Funds cannot be withdrawn until age 59½ (with some exceptions for loans, early retirement and financial hardship)without a federal and sometimes state tax penalty along with ordinary taxes. Mutual funds, annuities and life insurance can be used as investment vehicles. Employees can deposit up to 100% of their salaries to a limit of $15,500. There is also a special catch–up provision for employees over the age of 50, an additional $5,000 – total $20,500.

I left an employer and have money in a 401(k). What should I do?

For most, probably roll the money into an IRA. There are a myriad of investment options and you need to select one that suits your financial situation. Do not take the money in cash! It almost always leads to taxation and penalties if you are not 59½! An average American will lose around 38% plus any state tax liability! This can come in the form of a tax bill when you file at the end of the year. Many people are unprepared for this and it can lead to financial disaster. In addition, you are robbing from your own future financial security. That money is for your wonderful retirement years, the opportunity cost of taking it out now can be crucial. Contact Pension Planners to have all of your rollover questions answered.

I am an employer and need to set up a retirement plan for my employees. What are my options?

If you employ less than 100 employees you have several options including the SIMPLE IRA, SEP –IRA and 401 (k). An employer with more than 100 qualified employees cannot use the SIMPLE or SEP. With a SIMPLE, employees are qualified to participate within 2 years (this is determined by you). You have two basic options, to contribute a flat 2% of all qualified employees salaries or match contributions (limited to 3% of each qualified employee’s salary). You must offer the same option for all qualified employees – you cannot discriminate. You can lower the match to as little as 1% for 2 out of every 5 years. Each employee can put in a maximum of $8,000 of his or her salary. There are no administrative fees or vesting options with this plan.

A SEP–IRA lets you put in all of the funds for the employees. The percentage must be the same across the board and you can have a waiting period. The limit is 25% of compensation, or $40,000, whichever is less. There are no administrative fees or vesting options with this plan.

A 401 (k) allows an employer to wait up to one year and does have a vesting schedule for employer contributions. There are, however, administrative fees that usually are around $3000/year (if you are looking for low fees call Pension Planners – we can usually cut your fees by 50 – 70%, most plans with us are around $1000/year). Most employers use a 5 or 6 year vesting schedule. You can put in a flat profit sharing percentage, match funds or do both. Matching funds helps to encourage your employees’ participation in their financial future and a vesting schedule can lower employee turnover rates. In the year 2007, each employee can contribute up to $12,000 plus catch up if over 50 of an additional $2,000 – total $14,000. (up to 100% of their salary) in addition to employer funds. All of these programs can have avast variety of investment choices; most plans use mutual funds.

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