Retirement Account Transfers - Considerations

Should I Stay or Should I Go (with my retirement account)?

The subject of retirement plan portability and the decision employees / investors must consider have been on my mind recently, having fielded a few questions from prospects and clients so far this year. Let’s examine the benefits and pitfalls of moving retirement money to an I.R.A.

Many defined contribution (DC) retirement plans, including private and public sector employees, can be moved or rolled over upon an employee leaving or terminating their employment relationship. Some plans are even more flexible and allow you to move some or all of you money while still working through in-service arrangements. New contributions, as an example, can be directed to another custodian and keep the amounts deferred from being taxed when earned. The human resource or benefit department should be able to explain all of the options, but you have to ask. Federal legislation and I.R.S. rules dictate the procedures to follow by the custodian of the account in facilitating the transfer of these funds to another financial institution. These retirement plans could include 401(k), 403(b), 457, TSA, TIAA/CREF, etc.

What are the factors to consider in transferring your retirement account to an I.R.A?
On the assumed advantages side of the ledger:


More investment choices.
Better strategies to achieve longer term goals
Option to convert to a ROTH IRA in later years.
Ability to withdraw funds for 1st time home purchase or to cover medical expenses.
More options for beneficiary selection and continued tax deferral.

Advantages of staying put:
Familiarity with existing plan choices
Generally happy with the performance
Lower fees and expenses than outside choices
Favored tax treatment of company stock owned in your plan.

I favor a balanced approach. Keep some money in the employer plan, and rollover some money to an I.R.A. Why? Neither place offers all the best options usually. Unless you have a heads up on real shenanigans going on (the Enron debacle comes to mind in which employee retirement accounts were frozen and not permitted to move their investments until it was too late), most employer DC plans offer a decent mix of choices: say a couple of stock mutual funds, perhaps an index fund, a bond mutual fund, and a money market fund. In recent years, international fund choices have appeared as well. It’s pretty hard to mess up buying and holding these types of typical fund investments. If you want more “action” buying stocks, bonds, mutual funds that your ex-employer does not offer, then you may wish to venture toward an advisor who knows this area and can help educate you along the way.

To espouse on the above bulleted list, one apparent drawback to moving is that of increased risk. Once you move from the DC “fund” choices to individual stocks and bonds, risk goes up. I’m sure you’ve heard stories after 9/11 and into 2002 of employees losing 40-50% of more of their retirement balances due to the nasty bear market and poor investments. From my experience, most of the really bad losses were not in company sponsored DC plans, but were in Individual-directed I.R.A. accounts. That’s not an absolute statement because some plans did hold funds with a big technology basis (which fell the most), but employer plans I managed then were careful not to give the workers many risky choices; i.e. not enough rope to hang themselves.


Lastly, you could find yourself mulling non-financial reasons for moving or staying put. Did you like your job, or were you close to co-workers that you’ll miss? Was retirement planning part of your conversations with co-workers? These may be intangible reasons to stay connected to the company by way of your retirement plan.

Enjoy your leap year day and weekend!

Barry Unterbrink
Retirement Planning Counselor

A Rocky Start to 2008

Rocky start to 2008 probably a "normal" correction

The stock market is off to a rather dreary start to 2008, with the popular market averages falling 5% to 10% in just a few weeks, and 14% to 20% from the highs of last October. You can blame it on any of the popular reasons you will hear about in the papers or news channels, or just accept the fact that prices are ruled by humans and their emotions of greed and fear. Also, stock prices over long periods tend to rise in 3 of every 4 years. We may not be in a recession yet, but we are in a bear market for stocks now. How you handle the risks will determine if you have to stomach to be a successful investor.

The average of the 10 worst bear markets since 1901 lasted about 20 months, and caused about a 40% decline in stock prices. That may seem like a long time, but some were shorter: 2 @ 13 months; some longer (the Great Depression) @ 31 months, and the recent 2000-2002 bear market that lasted 33 months. So from a historical standpoint, we are about half-way through the pain at this point in price terms if this is a "top 10" event.

What are your options at this point? One option is to sell your lagging (losing) stocks, and deploy that money into better prospects. Another is to sell and to park the money is cash. If you are a long-term investor and chose this option, then you need another decision to buy again...and that is a difficult assignment. No one rings a bell when it's time to buy again. A third way is to keep most of your stocks and hedge your risk using mutual funds or ETF's that move opposite the direction of stock prices. I won't get into the details, but check the following symbols on your charts: The ETF's are: SH, SDS, DOG, DXD, RWM,TWM, PSQ. In mutual funds, try the no-load Pro Funds: UCPIX and USPIX. These investments trade like regular stocks or mutual funds, and they hold securities sold "short". Today, the above mentioned gained between 1.5% and 5.5%. So therefore, their gains would offset a portion of your loses day by day.

Political Implications for Stocks

I don't want to mix political musings in this column, but wanted to share this verbiage from David Kotok of Cumberland Advisors in his year-end report in this election year. To quote, "we acknowledge that stock markets like clearer outcomes during election years. Uncertainty breeds volatility. Ned Davis database starting in 1888 shows Election year gains averaging 14% when the incumbent party wins and 18% if that incumbent party is Republican. When incumbent Republicans have lost, the average Election year gain is under 2%. Since WW2, there have been three Republican Party turnovers. Kennedy’s election year of 1960 had a 3% declining stock market. Carter’s 1976 victory over a post-Nixon disgraced Republican Party was celebrated by a booming 19% up market. Bill Clinton’s 1992 win over incumbent Daddy Bush saw a 5% upward market move."

For a review of your portfolio, give me a call.
~Barry Unterbrink
(954) 719-1151

For Baby Boomers ('46 - '64)

Are Baby Boomers out of the woods yet?

What I mean by that is...has the baby boom generation (born 1946 to 1964) conducted themselves financially to be able to retire someday in a fashion better than their parents did?

I returned last week from an interesting 3-day financial conference in Topeka, Kansas that addressed many issues of importance to this generation, and thought it helpful to share this with you. A few of the findings from recent surveys:

* Baby boomers want a lot.
* They are concerned with lifestyle preservation.
* They do not like loss of control with things or money. Money controls the lifestyle.
* They are less likely to be charity-oriented.
* They may know a lot, but are unsure of their best choices for retirement savings.
* Guarantees are important to them: 71% feel a steady income is important.
* 69% value a guarantee of their principal when they near retirement.
* They are becoming more conservative...as is expected when we age.
* 32 percent would not invest any money in the stock market to fund their retirement.

* The average baby boomer's 401k account balance is just $58,000.
Whoa-only that much! Maybe boomers are living up to the survey results; live now, pay later. Of course it's unfair to place all boomers in this category, and a 401-k plan is most often not their only asset or investment/savings account.

What I found most interesting is that boomers did not know more about retirement savings and investments. Perhaps my view is skewed since I'm in the business, but I assumed they knew the basics of income planning, annuities, options, stocks, bonds, etc. The financial media and commercials make it seem so easy. "Open an account, trade free, make lots of "Mad Money", retire early". Well, lest I burst your bubble: managing and planning for retirement is tough work ... a moving target of decisions, taxes, employer miscues and incompetent HR guidance, etc. Throw investor emotions of fear and greed into the mix, and it's no wonder boomers and investors in general are like the deer blinded by the headlights before it gets run over.

Luckily, coming to the resuce are some very interesting products and services that can help ease the decision-making with your retirement money - guarantees on income and principal protection, offseting inflation risks and that can avoid other headaches if structured properly.

I'll save the details for my next blog, which should post in about a week or so.

Have a blessed Thanksgiving.

~Barry Unterbrink

Think Long Term

You gotta be in it - to win it...

It's been two months since my last blog to you. I hope you had a nice summer and are getting back to normal with your schedules as we enter the last quarter of 2007.

The stock market did not fare too well this past week. Friday marked the 20th anniversary of that fateful day in 1987 when all hell broke loose, chopping 508 points or 22% off the popular Dow Jones Industrial Average in one day. I remember it quite clearly. My father and I were managing pension fund money then, and I had taken my fiancee out to lunch that day (we married 5 months later). I called in and asked if the market had pulled up from the morning retreat. He paused and said I had better come back quick. The market had fallen 109 points the prior Friday and was off over 200 at that point. I still have my ring-binder with yellowing pages of hand-written orders I placed then. We were net buyers of shares after that crash, adding to stocks we already owned. That was about it: stock prices stablized, the S&P 500 was actually up 5% overall in 1987, and stock prices doubled in the next four years before a slowdown (still gains) in the early 90's.

Friday's fall, almost 400 points, was nasty in its own right, but bore little resemblance to 1987. It amounted to just a 2.6% loss. But, just 20 stocks rose in price in the S&P 500 Index of 500 stocks. All this history is past news, and what the newspapers and on-line media-reporteres will fill the pages with this weekend. Rarely do you read about market history longer term, where we all should be thinking anyway.

My main point is: Don't let the media and talking heads scare you into foolish decision-making with your money. Unless you are retiring tomorrow, buying a boat and sailing away, you should have participation in the stock and bond markets to 'be in the game' and help assure your retirement and savings 5,10,15 or more years from now. I've harped on this before - with history on my side - get yourself a good manager who knows how to control the risks with your money - who can read a chart, be independent, and who has learned from their mistakes.

For instance, with a 10-year time horizon, a 70% stock, 30% bond portfolio has a performance range of +2% to +17% during the last 79 years. I figure that +2% to +5% is needed to keep up with inflation, so anything above 5% can build real wealth over time. And the trick is to stay in the game, as you don't know when the super-charged periods will occur. Since stock prices rise in 3 of 4 years anyway, the odds are good for gains during the next 10 years.

October 9th marked the five year anniversary of the 2002 market low of Dow 7,300, so in effect, stock prices almost doubled (+95%) in 5 years. Who knows what will happen in the next 5 years? Perhaps a regression to 7-8% gains per year? A change in the leadership in Washington in 2008 could be both good and bad for various markets and businesses also.

Stay tuned! There's rarely a boring day in this business.

Thanks for reading !

~Barry Unterbrink
Retirement Planning Counselor

Know the Odds

Learning the Odds

Understanding the odds of events in life is important. It can lead to better choices with our money decisions. We should encourage this topic's study among friends and our children.

The gambling houses know the odds of you winning and handily "adjust" the rules so that they are favored to win over time. Warranty plans and product mail in rebates are based on the odds that you will act in a certain way, or a product's reliability will keep repairs down. Life insurance companies gauge how many people will die per year. Same with games of chance like the state lotteries. They design and advertise the games to draw in the most money, then offer you much less than what is advertised if you opt for the lump sum payment. In their defense, it wouldn't make sense to pay out all the money...they operate as a state-run business more or less to fund their budgets, education, etc. I guess I feel a little better knowing this when I lose. I get a kick out of the names they've created: Fantasy Five, Mega-millions, Megabucks, etc.

Some examples: Tonight is a big night for the nation's lotteries: $350 million is up for grabs, ranging from $6 million in Ohio to the huge $181 million Multi-state Powerball game across 27 states. Surprisingly, the smaller Florida Lotto at $25 million, is a worse bet than the Powerball, because the latter has grown so huge that it will pay over 7 times more money for only 5-1/2 times less odds to win. Of course, if multiple winners are announced, then the odds change again and could favor the Florida Lotto game.

Knowing which option to take when you retire can relate to odds-making. Do you roll over the lump sum, or accept the annuity payments for life? Is your health good, fair or poor? Did your brothers, sisters and parents live long, or have challenges with their health and longevity that could affect you - and your money decisions now?

The stock market is sometimes referred to as a lottery, mostly by those investors that have not fared well investing in stocks. Over time, the stock market can be expected to provide about a 10% gain each year. So...do you index your portfolio, accepting the standard 10% return, or do you take some risk to do better? I can help you decide if I know what "type" of investor you are (or want to be) and how you handle risk when it shows up. I can give you options and a historical perspective. I might talk you into, or out of something after we talk things over.

I hope this short piece on odds will get you to thinking about your decisions, especially ones of a financial nature.

Stay cool in these 'dog days of August'.

Barry Unterbrink

Living Large and Long

The longevity of humans on this earth is increasing year by year, and this will have profound effects on how we live, work, save and invest. This is especially important if you are a younger person now, as future advances in health and medicine will affect you more. Consider where we have been...

In 1,000 AD, life expectancy was about 25 years. Four hundred years later, it had jumped to 35, not bad. By the year 1800, one could expect about a 40-year life span. These figures seemed too low I thought. However, remember, very few lived to very old ages, and many died as infants or young from illnesses we now have cures for or medicines to mitigate the effects. Plagues and wars took their toll as well. The fastest advance in longevity took place the last 200 years, where life expectancy about doubled, from 40 to 76. This will no doubt lead to more challenges for us. I'll address two: the Social Security mess and the baby boomer generation, along with my job as a financial planner.

Social Security: Ida Mae Fuller, the first social security recipient in 1940, collected about $23,000 in benefits for her $25 in taxes paid into the system. Wow, that was a good deal. She did live to age 100 however. Our checks might not last that long due to a shrinking pool of workers to support the future beneficiaries. The politicians keep monkeying around with the rules with no real progress for a long-term fix. The Government will control the retirement age, qualifications, taxation, or they could just renege on the inherent promise of what social security was supposed to deliver. Given: the full retirement age will lengthen into the 70's.

Retirement Planning: 78 million U.S. births were recorded between 1946 and 1964. I’m a middle baby boomer. Are you? Boomer or not, are we prepared for the future? It will take an astute savings and investing plan to stay financially healthy into our 80's and 90's. That’s my job – understanding needs and advising clients on the latest trends and solutions to retirement planning using the financial markets and products designed for savings and income.

The fastest segment the next 15 years will be the 85+ group, but the 55-64 age group is right behind them with a 70% growth rate. What does all this mean to us? Well, if you are in good health and come from a robust "gene pool" you may spend more time in retirement than your working life. A 25-30 year career may be followed by a retirement from age 55 to age 95. A retired couple today aged 65 can expect one spouse to live to age 87! I can envision that in my children’s lifetime, they may need to work from age 30 to age 70, then retire and live 40 years in retirement (or semi-retirement). I think I’ll go exercise now to increase my own life span.
Barry Unterbrink, 954-719-1151

Using IRAs to Retire

IRA and retirement account contribution deadlines: April 15th

The Individual Retirement Account, or IRA is probably the most popular investment account for individual investors. Started in 1974, the IRA allowed workers without a traditional company retirement plan, a much needed way to save tax-deferred for their retirement.

The key to building substantial wealth in an IRA account is to contribute to it every year, and let your money grow with the stock market. Here's a table to show you the almost magical effect of compound growth with your IRA.

10 years @ 10% growth, contributing $3,000 per year: ending balance, $52,593
15 years @ 10% growth, contributing $3,000 per year: ending balance, $104,850
20 years @ 10% growth, contributing $3,000 per year: ending balance, $189,007
25 years @ 10% growth, contributing $3,000 per year: ending balance, $324,545

As you see, contributing $3,000 per year, or $58 per week, with the added growth of those deposits, can really add up. Skipping contributions will hinder your performance. Taking money out before age 59 1/2 will also incur tax penalties, and you will pay tax now on the withdrawal. Initially set at $1,500 per year as a maximum contribution, it is $4,000 per person today, and $5,000 if you are over age 50. That can increase those balances above substantially.

You may question my using the 10% figure. That is the average gain in the stock market over 70+ years as measured by the S&P 500 Index, which includes dividends. Take a look at history.
1940's - stock market gained 11% per year
1950's - stock market gained 17% per year
1960's - stock market gained 8% per year
1970's - stock market gained 8% per year
1980's- stock market gained 15% per year
1990's- stock market gained 15% per year

When is the best time to contribute to your IRA account? Anytime. With only a few weeks left to contribute for 2007, you had better get moving. If you are expecting an income tax refund, it would probably pay to even borrow the IRA deposit money now, make your deposit and then pay back the loan with your tax refund or recently approved tax rebate.

Give me a call should you require further advice on this topic, or to open your IRA account.

~Barry Unterbrink
(954) 719-1151

Today's Market - Don't Lose Your Head

Feb. 27, 2007

Tuesday's stock market action was fairly chaotic and painful on the downside as stock prices across the board fell significantly. The Dow Industrials, Nasdaq Composite and S&P 500 Indices fell 3.3% to 3.9%. Hopefully, you had time to relax after work and have a nice dinner before turning on the television set and checking the financial news on the grim details.

Speaking of financial news, the popular networks, CNN, CNBC, Fox, etc. do not do much to calm anyone. Their job, in my opinion, is to squawk louder and louder in your ear, creating doubts in your mind, and often cause investors to make the wrong decisions. Decisions that your emotions cause you to do over acting rationally. They harp, "Biggest down day since March 24th, 2003", "Worst day for the S&P 500 Index since Sept. 17, 2001" (the first day the markets reopened after 9-11). Their job is to keep your eyeballs and ear drums tuned in. The show titles are silly; Mad Money and Fast Money. The investing game is characterized like going to Las Vegas with a pair of dice where everyone can win every day.

Putting the stock market in perspective, the action today basically erased about 7 weeks of gains, since the beginning of 2007. Whoop-de-doo! Are you planning to use your retirement plan, 401-k or other investment accounts tomorrow? Most of us are not. If you own stocks directly or through mutual funds, as 92 million American's do, you should understand that investing is a life long endeavor - a multi year marathon, not a morning 100 yard dash.

Here are some common sense tidbits of advice I can dish out from my 25 years of managing money.
1> Have a game plan in place - what level of loss can you live with? 10%, 15%, 25%.
2> Review your performance for last year. Get your year-end 2006 gain/loss statement and look it over. Were your decisions good, bad, ugly? What can you learn and improve upon from your investing.
3> Avoid making big bets or switching in and out of stocks or funds frequently. Scale in or out gradually over the weeks and your performance will be more even-keeled.
4> Rarely be fully invested in stocks. Have some cash or bond funds around to take advantage
of opportunities to buy or add to your favorite stocks or funds when they go on-sale.
5> Think long term, 5-10-15 or more years. It's time that will make you richer, not timing.
6> If you still toss and turn at night and can't handle investing yourself, hire a professional to manage your money for you.

If you would like some safe money alternatives es to investing in the stock market, be the first to call or e-mail me and I'll send you an informative book, Safe Money Places.

~Barry Unterbrink
(954) 719-1840 : unterbrink@usa.net

Estate Planning 101

Why is Estate Planning important?

Estate planning gives you peace of mind by knowing that you have provided security and privacy for your family and loved ones. There are many other benefits of creating an estate plan including: 1) avoidance of costly probate estate proceedings at death, 2) consolidation of all your assets in one plan, 3) faster distribution of assets, 4) reduction or elimination of estate taxes, 5) ability to specify that assets remain in trust until you want them distributed, 6) and avoidance of guardianship. In addition, trusts are more difficult than a will to contest in court.

What happens if you do not have an Estate Plan in place?
If you do not have an estate plan in place when you die, your estate, including debts, will enter a court probate proceeding, which is a legal process that oversees payments of your debts and distributes your assets according to your will. If you have not provided for a valid will, then the court will distribute your assets according to state law.

How do you avoid Probate?
Not only is probate court costly and time consuming, but it also does not afford your family any privacy or control of the distribution of your assets. To avoid probate proceedings, you should set up a revocable living trust. This legal document allows you to transfer ownership of your assets from your name into a trust, which you control. The trust also prevents the court from controlling your assets in case you become incapacitated; for example, due to incompetence or illness or if you die. For probate purposes there are no assets that would be subject to the probate court process. With a revocable trust, you personally do not own anything since all your assets are in the trust.

What is the Tax benefit of a Living Trust?
Federal estate taxes are expensive (top tax rate at 45% in 2007 and 2008) and they must be paid in cash, usually within nine months after you die. Your estate will have to pay estate taxes if its net value (adding all assets and then subtracting all debts) when you die is more than the exemption amount set by Congress at that time. The current exemption amount is $2 million. Assets include your home, business interests, bank accounts, investments, personal property, IRA’s, retirement plans, and any death benefits from your life insurance. It would be helpful to prepare a listing of all your assets and their estimated values so that your advisor can properly assist you with your estate planning.

Estate Planning can help you reduce or eliminate your estate taxes in three simple ways. 1) Remove assets from your estate before you die via gift; 2) Buy life insurance to replace assets given to charity and/or pay estate taxes at a reduced cost; and 3) if you are married, your revocable trusts can utilize both spouses’ estate tax exemptions and possibly pay no estate taxes.

Who are successor trustees and what do they do? Successor trustees can be your child, CPA, corporate fiduciary, attorney, etc. It is critical that successor trustees be appointed because if you become incapacitated, your successor trustee can look after your care and manage your financial affairs using your assets, and if you die, can dispose of your assets pursuant to the provisions in your trust.

What is a Designation of Health Care Surrogate?
This document allows you to designate someone you trust to act on your behalf to make health care decisions in the event you are not capable to do so. These health care decisions may include the consent, refusal or withdrawal of your health care regarding pain management, the removal of respiratory support, artificial nutrition and/or artificial hydration.

What is a Durable Power of Attorney?
In the event of your incapacity to act, this document allows your designated agent to handle your financial affairs as necessary and transfer assets to your revocable trust.

How much can I save by preparing an Estate Plan instead of paying an attorney, CPA, or personal representative to administer an estate in probate?
Preparing an estate plan can avoid many costs typically associated with probate, including attorney’s fees, personal representative fees, and other court costs. Probate costs can range from six to eight percent of your assets versus an average of one to two percent in non-probate estates.

Who should have an Estate Plan?
Having an estate plan should not depend on your age, marital status, or wealth. If you own any titled assets and want your loved ones to avoid court interference at the time of your death or incapacity, then you should consider preparing an estate plan. Further, you may want to encourage other family members to have one, so that you will not have to deal with the courts if they should become incapacitated or die.
Copyright 2007, Christopher D. Vasallo, J.D./LLM Taxation

Better Annuity Options for Retirement

Annuities Now Give You Better Options for Both Income and Growth

The annuity options available to investors today seem light years ahead of what was available just 5-10 years ago. As annuities are transformed into more favorable retirement planning investments, I thought it would be a good time to review some important enhancements that could benefit you. Realizing the thirst investors have for both income and growth, insurance companies have now added features to the traditional deferred fixed annuity to enable it to grow along with the rise in the stock market. It's called a fixed index annuity.

For example, a traditional fixed annuity today for 5 years will earn you about 5% guaranteed for each year. The new fixed index annuity may guarantee you a lower minimum guarantee of 3% during the contracts life, and you can opt for getting credits added to your account equal to the stock market's rise each year, subject to a maximum cap. Simply put, your retirement savings can get a minimum guaranteed fixed rate, while the potential exists to earn double or triple that if the stock market appreciates. The obvious question I get asked a lot is: What happens if the stock market goes down? Aha! In that case, your account value would stay the same, but the guaranteed 3% per year would apply. The good news is, you are guaranteed no losses in your account year to year or at the end of the annuity term.

For an easy example, assume $50,000 is invested in the annuity one year ago when the S&P 500 was 1280, the index most often used to determine your credits. Now it's at 1435, or 12% higher. If the cap is set at 9%, you get 9% of $50,000 or $4,500 added to your account. Now you start year two at $54,500 and reset the S&P 500 Index at 1435 for year two. If the S&P 500 falls 40% in year two, (as it did in the 2000-2002 downturn), your credit is zero and your guaranteed rate of 3% applies. The S&P 500 will reset each year to measure the next 12 months.

The real important analysis that you need to consider is: what are the odds that the stock market will outperform the 5% guaranteed fixed annuity rate over time? Given the stock market's long history of going up an average of 10% per year and it posting positive returns 70% of the time, that's a bet I'll take. U.S. Treasury bills and intermediate-term bonds have beaten the S&P 500 just 10% of the time over the past 80 years.

Insurance companies in general have also shortened the lengths of these annuity contracts. The average term is 6-7 years with a few offering 4-year plans. Starting deposits are in the $10,000 to $15,000 area. Virtually all deferred annuities allow withdrawals of 10% of your account annually, or you can set up a schedule with them depending on your income needs. I recommend an analysis of your retirement plans and your tax situation before buying any annuity. Remember, they are longer term retirement savings vehicles, similar to 401k pland, and are subject to taxes and penalties if surrendered early. Annuities can offer guarantees - something few other investments with this flexibility can give you.

Please give me a call if I can be of more assistance on this topic or to schedule a review.

~Barry Unterbrink
Retirement Planning Counselor