In 2010, companies have a whole new retirement plan option.

www.youtube.com/watch?v=qdmDandRL84

What is a DB(k)? Basically, a DB(k) combines a pension plan with a matching 401(k) plan. As the name implies, it is a defined benefit retirement plan with some of the features of a 401(k).

DB(k)s could become great recruiting tools. These hybrid retirement plans will be very attractive to employees looking to restore pre-bear market retirement savings levels – not to mention workers who want to retire with a pension-style income like the one Mom and Dad had. In the coming years, firms in especially competitive industries may be prompted to offer DB(k)s as perks.

Won’t it cost a lot for a company to fund one? Not necessarily. It is likely that the companies that do create them will have sizable cash reserves and profit margins. However, it isn’t as if a business is funding two retirement plans at once. In fact, any businesses that offer both defined benefit plans and 401(k) plans may unite them in this new option.¹

A DB(k) could save a business paperwork & money. These plans are exempt from “top-heavy” rules, and a company can put one in place with just one Form 5500 and one plan document. Principal Financial Group vice-president Chris Mayer, whose firm helped to develop the DB(k), told the Washington Post that the cost of providing a DB(k) will probably work out to 6-8% percent of payroll for most companies. This is certainly beneath the administrative costs of having both a 401(k) and a pension plan. Companies with 2-500 employees are eligible to have DB(k)s.^2,3,4

What do employees get? An income stream, an employer match and a really neat tool to save for retirement. In brief, the DB(k) has four compelling attributes:

• An arrangement for lifelong monthly income. The income stream won’t replace an employee’s end salary, but it certainly will help. Loyalty is rewarded: the pension income equals either a) 1% of final average pay times the number of years of service, or b) 20% of that worker’s average salary during his or her five consecutive highest-earning years.⁵
• Employees are automatically enrolled in the 401(k) portion. (They can choose to opt out.)²
• The company automatically directs 4% of a worker’s salary into his or her 401(k) account. The company also has to match 50% of that amount, which is vested upon the match. (Employees do have the choice to alter the contribution level up or down from 4%.)³
• It only takes three years for an employee to become fully vested in a DB(k) pension plan. So even if they leave the company, the money is theirs.⁴

The best of both worlds? Maybe. The DB(k) is shaping up as an intriguing 401(k) alternative, a new IRS-sanctioned way to offer valued employees something more than the usual voluntary retirement savings program. If you are saving for retirement, ask your company about it. If you own a business in a very competitive field, it may help you recruit, impress and retain the caliber of employees you really want.

Do they go hand in hand?

www.youtube.com/watch?v=RCZcc8DU2Tw

Does money actually buy a degree of happiness? In this recessionary holiday season, it is worth thinking about the effect money has on our lives. What role does money play in our happiness? Is that role overrated?

Most psychologists and sociologists will tell you that our happiness comes largely from social interaction. But studies indicate that there is a direct correlation between wealth and a kind of mental health.

As Pearl Bailey immortally quipped, “Honey, I been poor, and I been rich. And let me tell you, rich is better.” Having a well-paying job, being successful at what you do – these are definite cornerstones of self-esteem and contribute to happiness.

So is Warren Buffett happier than we are? The math is not quite that simple. American wealth grew remarkably in the late 20^th century, but surveys found that Americans on average weren’t any happier than they’d been decades before.

A 2002 study by psychologists Edward Diener, Ph.D., and David Myers, Ph.D. documented greater happiness among residents of wealthy countries versus poor countries. But they found that once individuals in both types of nations gained the money to pay for basic creature comforts, happiness did not markedly increase along with wealth thereafter. A second 2002 survey by psychologist Tim Kasser, Ph.D., showed lower personal well-being in individuals who “bought into” messages of materialism and consumerism.¹

Does spending money make people happy? It depends on the purpose. Perhaps you’ve heard of the “hedonic treadmill” theory, an economic theory which holds that the middle-class and the affluent exhaust themselves and diminish their happiness through endless pursuit of the latest material goods. Americans are proudly competitive, and can’t help but measure their wealth in relation to their friends and neighbors. We have to have more than the next guy.

Does spending money on others make people happy? Yes, according to the results of a study published in March in Science Magazine. Researchers took a sample of 600 Americans. They instructed 46 to spend a $5 or $20 bill on a particular day. Some were told to spend the money on others, and the study found that they were happier at the end of the day than the ones who spent the money on themselves. The study also tracked 16 workers who got profit-sharing bonuses, and observed that employees who gave a majority of their bonus to others ended up happier than those who spent it on themselves. In fact, the main forecaster of happiness was not the size of the bonus, but how it was spent. The Science study also discovered that spending more money on gifts and charity correlated with increased happiness.²

Are we ultimately only as happy as we want to be? Perhaps. Researchers now increasingly feel that people have a genetic “baseline” or “set point” of happiness, and deviations from this norm are temporary. In other words, how the stock market does doesn’t rattle our basic level of happiness. Even life-altering tragedies or seeming miracles don’t ultimately budge us much from the norm. (Studies of the brain indicate that people with more activity in their left prefrontal cortexes seem to be happier than some others.)

Recently, University of Virginia psychology professor Jonathan Haidt wrote a classically-rooted book called The Happiness Hypothesis. Haidt observed that within a year of their life-changing experiences, “lottery winners and paraplegics, have both, on average, returned most of the way to their baseline levels of happiness.” He feels that happiness can grow from “vital engagement” with other people and one’s passions, and from a spiritual and moral “coherence” in yourself and your life.³

How about some Gross Domestic Happiness (GDH)? No joke: since 1972, the government of Bhutan has dedicated itself to boosting GDH, Gross Domestic Happiness, via a platform of equitable and sustainable economic growth, cultural preservation in the face of the West, good government, and environmentalism.⁴ Other nations have studied Bhutan’s example; in fact, conferences have been held on the concept in Bhutan, Mongolia and the Netherlands.

Wishing you a great holiday season. May it be warm, wonderful, and bright; may 2009 be a year of great things for you. And may you know great happiness. Let’s vow to retain our optimism through the financial challenges ahead.

If you can’t afford a long term care policy, this may be a good alternative.

www.youtube.com/watch?v=pt6wDdc7qsU

Are you familiar with critical illness insurance? Some people aren’t. It doesn’t get as much attention as disability insurance or long term care coverage. But if you face a serious health threat, a critical illness policy can help to ease a financial burden.

A tax-free lump sum at a crucial time. That is what critical illness insurance provides. If you have a life-threatening illness severe enough to prevent you from working, the money from a critical illness policy can be used to pay medical bills and even some costs not covered by medical insurance. While the insurance premiums are not tax-deductible, the insurance proceeds come to you tax-free.¹

A few years ago, a Harvard University study determined that about half of all personal bankruptcies in the U.S. happened as a result of the debts incurred by a critical illness.² Imagine having $50,000, $100,000, even $500,000 in tax-free cash to help you out in the event of a heart attack, a stroke or cancer. That is the kind of coverage we’re talking about. In 2007, the average payout was $100,000 with the average recipient being just under 50 years old.³

What illnesses does a policy cover? Critical illness insurance can cover two dozen or more health circumstances. Nearly all policies cover most forms of cancer, heart attacks and strokes, renal failure, multiple sclerosis, and operations such as heart bypass surgery and major organ transplants. The tax-free lump sum comes to you within 30 days of a diagnosis of a life-threatening disease.⁴

Critical illness insurance doesn’t cover everything. For example, early-stage prostate cancer and less lethal forms of skin cancer aren’t usually covered. Some policies don’t provide coverage if you have lymphoma, or Kaposi’s sarcoma related to HIV. If you have already beat back a serious health threat or if cancer or heart disease runs in your family, then you are undoubtedly going to have to pay more for this coverage – and a disease you fought into remission may be excluded from the policy.

Who buys this coverage? Well, it is often sold in tandem with life insurance – but not always. There are a few different scenarios in which critical illness insurance can be a great help:

• You have a major medical problem and you don’t have health insurance.
• You have health insurance, but it won’t pick up the cost of the treatments you need.
• You face a major health scare, and you are unable to pay your bills and your mortgage because you can’t work.
• You worry about winding up in a nursing home or an assisted-living facility someday, but you can’t afford to pay high premiums for long term care insurance.

Sometimes you can guarantee the premiums on a critical illness policy so they won’t rise with time.

You don’t have to be employed to collect the benefits from a critical illness policy. You don’t have to be disabled to collect the benefits either. You don’t even have to spend the lump sum on medical expenses – you can spend it as you wish.⁵

Critical illness insurance has been around since 1983 – it was first offered in South Africa, became popular in Canada and Europe, and has become an option more people are exploring in the U.S. A 2010 study from the nonprofit American Association for Critical Illness Insurance found that 89% of those opting for the coverage were under age 45.⁶

If you’re self-employed, in a high-risk line of work, or just want to have little more protection in case a serious illness strikes, take a look at critical illness insurance. Ask your insurance agent to show you some options. You might be very thankful for it someday.

You can thank the Pension Protection Act.

www.youtube.com/watch?v=TXF09-F84SE

More options. On January 1, 2010, owners of non-qualified annuities were allowed some new tax benefits. On that date, the Pension Protection Act (PPA) of 2006 was fully implemented and brought about dramatic and interesting changes for those who had started annuities with after-tax dollars. At the start of 2010:

• Non-qualified deferred annuities with added long term care insurance riders were now characterized as tax-qualified LTC insurance plans.¹
• As a result, all withdrawals from these “hybrid annuities” are income tax free so long as they are used for qualified long term care. So you can use the cash value of the annuity to cover the cost of LTC insurance premiums without triggering a taxable event.¹
• Annuity owners were now allowed to make tax-free 1035 exchanges into appropriate hybrid annuities with long term care riders.²
• Additionally, an annuity owner can do a 1035 exchange for the cash value from any annuity into a single-premium qualified LTC insurance policy without incurring any gains.²

Now these annuities are even more attractive. Hybrid annuities with LTC insurance riders already offer their owners tax-deferred growth – and sometimes, a return-of-premium option that gives back the investment to an owner’s estate if no LTC claim is made. These linked-benefit annuities (and linked-benefit life insurance policies) can provide something like a “money-back guarantee”, as well as the capability to multiply the benefit value of idle cash sitting on the sidelines. The new allowance of what could be sizable tax-free withdrawals makes them look even better.

In addition, the new freedom to make a tax-free exchange means that an annuity owner can now leave a current contract for a hybrid annuity that may provide a much greater pool of money someday to cover LTC costs.

Are they for you? These hybrid annuities are certainly worth a look. If you can’t qualify medically for LTC insurance but still need to be protected, a hybrid annuity may be an excellent option. Many people fund these annuities by redirecting cash from a bank CD or an annuity they already own. You might want to talk to your insurance or financial consultant about the possibility.

Alternative investment ideas are attracting a surge of investors seeking diversification and reduced volatility.

www.youtube.com/watch?v=0o5C5zNnG5k

Alternatives for interesting times. The last 18-24 months have been wild ones on Wall Street, and the volatility has motivated some sophisticated investors to look into non-correlated or indirectly correlated asset classes. With the rise in oil and gas prices, high net worth investors are naturally examining the potential of alternative investment programs, especially in the energy sector.

Sunny forecast for energy firms. The world appetite for energy – especially clean energy – is surging. Analysts project that global energy needs will be 50% higher in 2030 than now, with the economies of China and India spurring 45% of the increase.¹ Therefore, some economists and Wall Street analysts have become quite bullish about the long-term outlook for energy investments.

In recent years, accredited investors seeking greater portfolio diversity have begun to direct some of their investable assets into energy programs, oil and gas equipment leases, and private REITs focusing on the energy sector. Additionally, other investors are moving assets into ETFs and mutual funds focused on energy firms.

What was once “exotic” now seems fundamental. Direct energy investments represent just a slice of the alternative investment world. Commodities, managed futures, tax credits, real estate securities, real estate exchanges, annuities, even collectibles … there are all kinds of investment vehicles apart from Wall Street. While many people historically dismissed some of them as too exotic or speculative for their portfolios, that opinion has changed as investors have become more educated about their potential.

Let’s look at these intriguing numbers. As any financial advisor wisely notes, past performance is no guarantee of future results. But just for a moment, let’s compare a couple of blue chip indices with a couple of commodity indices.

Over the last three years ending April 25, the S&P 500 returned nearly 21%, and the DJIA about 27%. Across the same 3-year period, the S&P GSCI Commodity Index went up 57%. It also posted a year-over-year gain of 22% for the 12 months ending April 25, 2008. The Dow Jones-AIG Commodity Index returned about 27% in that same 12-month stretch. Did the blue chips do this well in the last 12 months?²

Interesting options for sophisticated investors. To make some of these investments, you do need to be an “accredited investor”. That is a category of investor defined by the Securities and Exchange Commission. In general terms, the SEC defines an accredited investor as

• an organization, partnership, corporation, business, or trust with $5 million or more in assets
• an individual or couple with a net worth of $1 million or more or stable annual income of $200,000 or more ($300,000 for a couple).³

As the value of these investments can fluctuate notably, they are not usually suited for the risk-averse retiree or the middle-class investor. But if you are a high net worth investor in search of diversification, they may be for you.

To learn more about how an investment in energy or other alternatives can help you hedge rising costs or add balance to volatile stock portfolios, please speak with a qualified financial advisor familiar with these kinds of investments today.

You can own real estate without having to be a landlord.

www.youtube.com/watch?v=5mL5qbhSNeI

What is a REIT? A real estate investment trust (REIT) is a real estate investment company that manages a portfolio of income properties, distributing the lion’s share of its profits as dividends. By getting into a REIT, you can gain an ownership interest in prime commercial real estate … without the headaches of commercial real estate management.

How do REITs work? On one level, a REIT is an agreement with the IRS. In choosing a REIT structure, a real estate investment company agrees to pay out 90% or more of its taxable profits in dividends in exchange for avoiding corporate income tax.¹

In the typical public REIT, investors buy shares in the trust. (You may have heard the term “real estate stock” before; that’s what we’re talking about.) Like any other stock, REIT stock offers you the potential for dividend income and share value appreciation. REIT dividend income tends to be stable, as REITs usually invest in large commercial properties involving long-term tenant leases. The REIT may choose to make some of the dividend a nontaxable return of capital, which results in tax deferral and a lower taxable income for the investor during the period he or she holds the stock. That can boost the after-tax dividend yield. REITs don’t pass their losses onto investors, and they usually don’t have minimums.²

Non-traded REITs. Most REITs are listed on stock exchanges, but not all are. Some REITs are non-traded (or “non-listed”). Non-traded REITs are akin to private equity funds in that they are usually conceived to last less than 10 years before listing their shares, selling out, or liquidating. They typically invest aggressively when they start buying assets, and their dividend yields can be notably higher than those from publicly listed REITs.³

Are REITs right for your portfolio? Many investors are considering REITs these days, attracted by the diversification they provide for a portfolio. Notably, there are REIT mutual funds, closed end funds, and REIT ETFs to choose from, among several options. Before you make the move to invest in a REIT, be sure to speak with a qualified financial advisor who knows the particulars surrounding REIT investment.

Citations.

A majority of Americans may be under-prepared for their financial futures.

www.youtube.com/watch?v=9bsahaqkQAU

Taking control of your financial future may be even more important for women than it is for men. Here’s why women need to invest and save actively.

The earnings gap. Even today, men tend to earn more than women. A fresh 2008 survey of retirement savings trends conducted by Hewitt Associates, a global human resources consulting firm, found that the women worked they surveyed earned an average of $57,000 annually, compared to $84,000 for men.¹ The average male employee in the study therefore had the chance to defer greater amounts of salary into a company retirement plan, while the average salary of the surveyed female employees sometimes wasn’t high enough to trigger a company match.

Time out of the workplace. Men don’t usually put their careers aside to care for young children (or family members with special needs). Traditionally, women have been the ones who have taken time out of the work force for these responsibilities.

If a woman relies on a company retirement plan to accumulate retirement savings, this time out from the workplace can amount to a financial setback. A male employee may contribute to a 401(k) plan year after year for 20 or 30 years or more, and his contribution levels may increase as his salary increases. If a woman leaves the workplace for a few years (or more), her retirement nest egg still compounds, but the steady salary deferrals to a 401(k) plan cease. When she retires, she may have less of a nest egg than her male counterpart if she just relies on the company retirement plan as her primary retirement savings vehicle.

This is a compelling reason for women to build their own investment portfolios, in addition to participating in employer-sponsored retirement plans.

Divorce may mean that a woman has to “start over” financially. Many women find that a “fair and equal” settlement is not an equitable settlement. When the husband earns much more than the wife, all kinds of decisions ride on the stability of the husband’s salary – the neighborhood the couple or family can afford, what school the kids attend, and so on. When that big salary is gone, the woman faces a reduced lifestyle, and may dip into her savings to maintain financial equilibrium.

More importantly, she may not have the earnings potential her husband has. Things can get particularly tough when the wife is a key employee at a business or professional practice her husband started years before the marriage. After a divorce, the husband may retain the business and the bulk of the business assets, regardless of the integral role the wife played in growing and running the company. Will she want to work alongside her ex-husband? Probably not. So the stable job she had is a memory, and a career change and a move may be next.

This is why divorce financial planning is so important for many women. Women need to walk away from a divorce not just with an “equal” settlement, but with an investment portfolio and a financial plan personalized for their needs and goals, so that they can (re)build wealth on their own.

Women outlive men. On average, women live five years longer than men; in fact, the Labor Department estimates that almost 90% of women will outlive their husbands and spend a portion of their retirements managing their own finances.²

A woman who retires alone may face a very long retirement: if you leave work at 62, it may last 20 years or longer, with only about 30% of your income coming from Social Security. (That’s if Social Security is still around.)

The Hewitt Associates study estimated that women’s retirements will average 22 years, compared to 19 years for men. Factoring in projected increases in healthcare costs, it concluded that women need to save 2% more than men annually over 30 years to maintain their standard of living when they retire. If a woman earning $57,000 contributes 4% to her company retirement plan annually over 30 years instead of 2% (that’s $95 more a month), the study estimates that she’ll have an extra $81,000 at her retirement date.¹

Take control of your finances. The best antidote to worrying about the financial future is planning for it. Investing to build wealth apart from work – and working with a qualified financial advisor – is a great move. If you want to invest conservatively, you can find strong investment choices with the potential to outpace inflation. Whether your life is stable or changing, talk to a financial advisor today and learn about the moves you can make for a comfortable financial tomorrow.

Citations.

Now is a good time to examine what’s in your portfolio.

www.youtube.com/watch?v=D52wT6OXgyw

The stock market is unsettled … and perhaps its fluctuations are unsettling you. It’s a stressful time for the economy and Wall Street, and you may be concerned about your portfolio given what’s going on with oil prices, the real estate market, and rising unemployment figures. It may be a good time to review how your assets are invested.

Is your portfolio balanced? A balanced portfolio may help you ride out stock market turbulence. Stocks and mutual funds aren’t the only asset allocation choices you have, and you won’t be alone this winter if you decide to examine other investment options.

Fixed annuities and Treasuries become attractive to investors when the market turns volatile. Bonds tend to maintain their strength when stocks perform poorly; fixed annuities are simply contracts with insurance firms, not correlated to stock market performance (though certain types of annuities may enable you to take advantage of stock market gains while maintaining your principal). Fixed-income mutual funds, dividend income funds and bond funds also have their adherents.

Last but not least, you have cash, though cash holdings haven’t traditionally performed anywhere near the level of the stock markets.

Are you retired, or retiring? If you are, this is all the more reason to review and possibly even revise your portfolio. Frequently, people approach or enter retirement with portfolios that haven’t been reviewed in years. The asset allocation that seemed wise ten years ago may seem foolhardy today.

Often, people in their fifties and sixties feel they need to accumulate more money for retirement, and that feeling leads them to accept more risk in their portfolio than they should. In the absence of a salary, however, you’ll likely want consistent income and growth, and therein lies the appeal of a balanced investment approach designed to manage risk while encouraging an adequate return.

Why not take a look into your portfolio? Ask your financial advisor to assist you. You may find that you have a mix of investments that matches your risk tolerance. Or, your portfolio may need minor or major adjustments. The right balance may help you insulate your assets to a greater degree against financial ups and downs.

Do Americans need a new way to save for retirement?

www.youtube.com/watch?v=NLe8f9gv6u4

In fall 2009, TIME Magazine raised eyebrows with a cover article called “Why It’s Time to Retire the 401(k)”. Author Stephen Gandel, the magazine’s senior economic writer, argued that 401(k)s, 403(b)s and IRAs had proven themselves “a lousy idea, a financial flop.”

Citing data from the Society of Professional Asset-Managers and Record Keepers, Gandel noted that in 2009, the average 401(k) had a balance of $45,519. Moreover, 46% of all 401(k) accounts had balances of under $10,000. However, he failed to mention that the average 401(k) account has been held for less than a decade.^1,2

A 401(k) plan simply takes too long to succeed, Gandel argued, and is too susceptible to market forces; in a market downturn, he said, it is unfair that the most hurt are the most invested.

What might the alternative be? A New York Times editorial called for a radical move, contending that “the only way to avoid wide variations in [401(k)] outcomes would be to develop a savings plan in which the government shared the risk – say, by providing a guarantee that returns would not fall below a certain level.” The editorial called for shifting the retirement savings “risk that is currently borne by individuals onto corporations and the government.”³

Obviously, not everyone is going to agree with that. But arguments for something similar are gaining momentum. A group of retirement plan administrators calling themselves the ERISA Industry Committee is pitching an idea called the New Benefit Platform for Life Security, which sounds like kind of a super-IRA with some characteristics of an annuity.

In this concept, your employer would have nothing to do with your retirement plan (unless it wanted to match your contribution to it as a perk). Instead, you would set up your own portable retirement plan with a retirement plan administrator of your choice in the free market. Your “NBP” wouldn’t have contribution limits, and you could set it up like a traditional pension to produce a lifelong retirement stream upon retirement. It certainly sounds great – except for one drawback. Who knows if the company acting as your retirement plan administrator would be around 20, 30 or 50 years from now?⁴

Other voices are proposing retirement insurance, possibly even from the federal government. Prof. Teresa Ghilarducci, an economist at The New School in New York City, has offered the idea of directing 5% of the wages of all working Americans into a mass retirement fund, which would pay out 26% of your end salary annually for the remainder of your life. (A little social security to complement Social Security, so to speak.) A Harvard professor would like to set up Social Security so that we would get 20% more than our final pay in SSI.¹ At this juncture and with this federal deficit, who knows if these are anything other than pipe dreams.

The 401(k) is still a vital retirement savings vehicle. In fact, many financial advisors feel it is the most useful retirement savings vehicle available to most Americans. The problem is that many 401(k), 403(b)s and IRAs are underutilized – people invest too little, or too infrequently, or withdraw what they’ve saved and invested too often.

Reaction to market whiplash, or a prelude to real revision? Of course, had the stock market not suffered so badly in late 2008 and early 2009, people might not be talking about this at all. Whether history proves the 401(k) a great idea or not, the thing for pre-retirees (and journalists) to remember is that there is no one retirement savings or retirement planning “answer”. A 401(k) is simply one of the “clubs in the bag” that you can carry as you stay “on course” for retirement – ideally, a component of a diversified retirement savings strategy.