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355

c h a p t e r

Index

A

A shares, mutual fund, 251AARP (American Association of Retired

Persons), 18Absolute analysis, 26–27Accidental death rider, 217Accredited estate planner (AEP), 296Action plan case study (the Glovers), 17.

See

Goal Oriented Retirement Planning (GORP) case study

Active management, 268Administrative fees, variable annuities, 210ADRs.

See

American Depository Receipts (ADRs)

Aggressive growth mutual funds, 241Alpha, investment, 271Alternative Minimum Tax (AMT), 185A.M. Best insurance company ratings, 221American Association of Retired Persons

(AARP), 18American College, 293, 294American Depository Receipts (ADRs),

134, 172American Express, 73American Savings Education Council, 51Annual reports, corporate, 168Annuitant, 200Annuities, 116–117, 145–146, 199–214, 215

1035 tax-free exchanges, 214403(b) plans and, 79–80benefits of, 200–201costs of, 202, 203, 209–210

criticisms of, 215–216fixed, 57, 79–80, 200, 202–205, 209guaranteed income from, 57–58, 116–117,

143, 145–146, 211–213life expectancy and, 213–214origins of, 200parties in contract of, 200probate process, exemption from, 202safety of, 220–221subaccount transfers within, 209tax-deferred growth and, 200, 201–202tax implications of, 52, 200, 269terminal funded, 49–50variable, 57, 200, 202, 205–210withdrawal features, 208

Annuitization (insured income), 54–58, 116–117, 143, 145–146, 199, 211–214

fixed, 57, 211life expectancy and, 213–214popular forms of, 212retirement income from, 54–58, 211–213variable, 57–58, 208, 211

Art investments, 110, 157, 232, 234Asset allocation, 260–262.

See also

Diversification

Asset allocation funds, 242Assets

distribution of during retirement, 38gifting of, 122insuring, 198leaving as a legacy, 40liquidity of, 109–110

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356 Retirement Countdown: Take Action Now to Get the Life You Want

Assets

(Continued)

marketability of, 109matching to retirement goals,

108–111, 112–113repositioning, 268–269systematic withdrawals from, 53–54, 55

Association for Investment Management and Research, 296

Assumed interest rate (AIR), 58Attorneys, 290Auto insurance, 199Average annual base pay, pension

plans and, 71

B

B shares, mutual fund, 252Baby boomers, 7, 29, 42, 50Back-end loads, 252Balanced funds, 242Bank broker dealers, 290Banks, disclosure issues and, 291Bearer bonds, 181“Bears,” origin of term, 161

Beating the Dow,

O’Higgens and Downes’, 269

Benchmarking, mutual fund, 240Beneficiary

annuities, 200minimum distributions from Roth IRA

and, 59Beta coefficient, 138, 271Bogle, John C., 248Bond funds, 189, 242–245

liquidity of, 110management expenses, 254tax-free, 244–245taxable, 242–244

Bond ratings, 133, 189–190Bonds, 178–193

bearer, 181call provisions on, 187convertible, 187–188corporate, 181–182coupons, 180current yield of, 180duration of, 181equities vs., 178face amount (par value) of, 179government, 183–184high-yield (junk), 133, 182–183income generation from, 178inflation and, 110, 188–189interest rates and, 134–135, 136, 178laddering of, 191liquidity of, 110as long-term investment tool, 109, 110

loss of principal from, 190–191maturity of, 180municipal (muni), 184–186mutual funds of.

See

Bond fundsperformance of, 178ratings of, 133, 189–190reasons for buying, 179resources on, 191risk of, 190, 191–192taxable vs. tax-free, 182terms describing, 179–181yield to call, 181yield to maturity (YTM), 180zero coupon, 186–187

Brokerage firms, 291, 301Brokers, failure to disclose marketing

allowances, 249–250Budget software programs, 115Budgeting, 115–116Buffet, Warren, 165–166“Bulls,” origin of term, 161Burial insurance, 216Business risk, 63–64Buying on margin, 170–171

C

C shares, mutual fund, 252Calculators, retirement, 51The Calvert Group, 249Capital gains tax, 2003 reduction in, 308Case study.

See

Action plan case study (the Glovers)

Cash balance defined benefit plans, 74–75Cash flow, evaluating a company’s, 169Central Registration Depository (CRD), 301Certificates of deposit (CDs), 109, 110Certified financial planners (CFPs),

293, 294, 297Certified fund specialists (CFSs), 297Certified public accountants (CPAs),

275, 290, 297Certified retirement planners (CRPs), 297Charitable giving, 121–122Charitable lead trusts (CLTs), 122Charitable remainder annuity trust

(CRATs), 122Charitable remainder trusts (CRTs), 121–122Charitable remainder unitrusts (CRUTs), 122Charter financial consultant (ChFC),

293, 294, 297Chartered financial analyst (CFA), 296Chartered life underwriter (CLU),

293, 294, 297Chartered mutual fund consultant

(CMFC), 297Chicago Board of Options, 160


Index 357

Childrengifting assets to, 40insurance for, 198IRA investments for, 86leaving assets to as legacy, 40saving for college education of, 104–107Social Security survivor benefits for, 45

Civil Service Retirement System, 82Closed-ended mutual funds, 238CLTs (charitable lead trusts), 122Codes of ethics, financial planner’s, 294Coins, investments in, 224, 232, 234Collaterized mortgage obligations, 232Collectibles, 157, 224, 232–235

buying and selling of over eBay, 233–234liquidity of, 110, 235market value of, 234–235

College education529 plans for, 106–107Glovers’ funding of children’s (case

study), 104–107Common stock, 157Companies, evaluating, 167–170Complexity of retirement issues,

procrastination and, 12–13Compound interest, 13–14, 109, 349–353Compromise, retirement goals and, 16–17Conservation, saving through, 23Contingent deferred sales charge (CDSC)

mutual fund B shares, 252variable annuities, 210

Convertible bonds, 187–188Corporate bond funds, 242–243Corporate bonds, 133, 181–182Couples

communicating about finances, 9, 310–311conflict over investment approaches and,

16, 273–274, 276–277Social Security survivor benefits and, 44

Coupons, bond, 180CRATs (charitable remainder annuity

trusts), 122Credit card debt, 114Credit risk, 132–133, 182CRUTs (charitable remainder unitrusts), 122Currency (foreign exchange) risk, 134Current yield, bond, 180

D

DCA (dollar cost averaging), 262–263Death benefit, variable annuities, 207–208Deferred compensation plans, 82Defined benefit pension plans,

48–50, 69, 70–74.

See also

Qualified retirement plans

cash balance plans, 74–75

ERISA and, 73–74factors determining pension

amount, 71–72instability of due to corporate

greed, 49–50Defined contribution pension plans,

48, 69, 76–82.

See also


401(k) plans, 25, 52, 58–62, 68, 76–79, 81403(b) plans, 79–80, 81457 plans, 82federal pension plans, 82

Derivative instruments, 242Dimensions of investing, 139–141Dining out, costs of during retirement, 117–118Disability benefits, Social Security, 43, 45, 145Disability insurance, 143, 144–145, 220Disability waiver, 217Disclosure, lack of by mutual fund

companies, 249–250Discounts, saving money from, 31Diversification, 135, 137–138, 141, 186–187

asset allocation and, 260–262Efficient Frontier theory of, 270–272Monte Carlo simulation and, 141–142portfolio rebalancing and, 263–265tools for analyzing, 141–142

Dividend Reinvestment Plan (DRIP), 174Dividends, 166

Dividend Reinvestment Plan (DRIP), 174Dogs of the Dow theory and, 269–270relationship to stock price, 269

Divisor for lifetime required distributions, 340Divorce

impact of on retirement plans, 89, 274–276phases of, 274–275Social Security benefits and, 45–46

Do-it-yourself financial planning, 286–289analysis and evaluation of financial

status, 288developing recommendations, 288–289gathering data, 287–288implementing recommendations, 289monitoring the plan, 289setting goals, 286–287

Dogs of the Dow

, 269Dogs of the Dow theory, 269–270, 271Dollar cost averaging (DCA), 262–263Domini Social Equity Fund, 248Double indemnity, 217Dow Industrials, 135, 137, 267Downsizing to smaller home, 118Durable power of attorney, 278Duration, bond, 181Dychtwald, Ken, 29

shapiro_index.fm 57 Wednesday, May 19, 2004 3:29 PM


E

E-TRADE, 316Early retirement, defined benefit pension

plans and, 72Earnings per share, evaluating, 169eBay, 233–234Economic Growth and Tax Relief Act of 2001,

79, 81Efficient Frontier theory, 270–272Emergency fund, extended life

expectancy and, 120Emerging market funds, 241Employee Benefit Research Institute

(EBRI), 146Employee Retirement Income Security Act

(ERISA), 73–74Employee stock ownership plans (ESOPs), 83The Endurance, perseverance and, 312–315Enhanced index funds, 248Enrolled agent (EA), 297Enron, 24, 25Equity-indexed fixed annuities, 204–205Equity indices, 248Equity investments, 156–175

bonds vs., 178buying on margin, 170–171company research when

purchasing, 167–170compound annual growth rate of, 162dividends and, 166, 174individual stocks, 162–175international through non-U.S.

securities, 171–172international through U.S. securities, 171large-cap stocks, 163–164micro-cap stocks, 165mid-cap stocks, 164mutual funds, 163, 240–241, 254small-cap stocks, 164–165style boxes and, 166–167utilities, 172value vs. growth stocks, 165–166

Equity mutual funds, 163, 240–241, 254Equity real estate investment trusts

(REITs), 227–228ERISA.

See

Employee Retirement Income Security Act (ERISA)

Estate planning, 199, 278–279Excise taxes on required minimum

distributions, 60Expense fees, mutual fund, 253

F

Face amount, bond, 179Fannie Mae, 229, 231

Federal agency mortgage-backed securities.

See

Mortgage-backed securitiesFederal Deposit Insurance Corporation

(FDIC), 110Federal Employees Retirement System, 82Federal estate taxes, 278–279Federal Home Loan Mortgage Corporation

Act (Freddie Mac), 229, 231Federal National Mortgage Association

(Fannie Mae), 229, 231Federal pension plans, 82FICA taxes, 42Fidelity Magellan Fund, 23959.5 rules, 84, 85–86, 88Financial advisors, 292–301

checking background of, 300–301company-backed, 296compensation of, 292, 299, 300independent, 296, 297interviewing potential, 298–300professional designations,

293–294, 296–298trust and, 294–295

Financial planning, 284–304.

See also

Goal Oriented Retirement Planning (GORP)

do-it-yourself approach to, 286–289professional help with.

See

Financial advisors

Financial Planning Association (FPA), 293Financial planning seminars, 295Financial products

absolute vs. relative comparison of, 27distribution of over Internet, 301

Financial service providers, 290–301.

See also

Financial advisorscompensation of, 292, 299, 300lists of, 290preferential treatment of certain

products, 291role in retirement planning, 291–292as salespeople, 294selecting, 292–301trust and, 294–295

Financial services industrydisclosure of relationships among

entities, 291industry watchdogs for, 300–301professional designations within, 293–294shift from trading to consultative

services, 301–302Financials, evaluating a company’s, 168, 169First Executive Corporation, 50529 plans, 106–107Fixed annuities, 200, 202–205

403(b) plans and, 79–80costs of, 203, 209


Index 359

equity indexed, 204–205liquidation fees, 203minimum lifetime guaranteed interest

rate, 202–203retirement income from, 57–58, 211

Fixed annuitization, 57–58, 211Fixed-income investments (bonds).

See

BondsFlexible portfolio funds, 242Foreign exchange (currency) risk, 134Foreign investment risk, 134Forensic CPAs, 275Foundations, 121457 plans, 58–62, 69, 81, 82401(k) plans, 68, 76–79

borrowing from, 78“catch-up” provisions for, 81contribution limits, 77decreasing rates of participation, 25employer matching of

contributions to, 77, 78minimum distributions from, 58–62taxation of, 52time until vested in, 77

403(b) plans, 79–80, 81Freddie Mac, 229, 231Front-end loads, 251Full retirement benefits, Social Security, 44–45Full-service brokerage firms, 300Full-time employment, retirement income

from, 51Futures, 242

G

Gap analysis, 30–31Geneen, Harold, 9–10Generation groups, savings

characteristics, 27–30Generation X, 28–29Generation Y, 27–28Gifting, 122Ginnie Mae, 228–231Global asset allocation funds, 242Global bond funds, 243Global equity funds, 241Glovers’ case study.

See


Goal Oriented Retirement Planning (GORP), 4–5, 96–125

assets, matching with goals, 108–111, 112–113

budgeting and, 115–116case study of (the Glovers).

See


compromises and, 16–17deciding to spend or save, 308–309

do-it-yourself approach to, 286–289expenses, pre- vs. postretirement, 117–119finances, snapshot of current, 100–102financial planners and, 290–301fixed-income investments (bonds) and, 192gap analysis between goal and current

savings, 30–31goals, establishing, 31–34, 103–105goals, modifying, 31–34, 115goals, prioritizing, 108goals, reasons for failure to meet, 97–98impact of returns on retirement

goals, 32–33income replacement goals, 122–123individual stock investments and, 174inheritance and, 120insurance and annuities and, 221life expectancy and, 119–120mountain-climbing analogy, 7–9, 103moving forward with, 307–308mutual funds and, 254perseverance and, 311–312procrastination and, 10–16, 309–310qualified retirement plans and, 89–91relationships and, 310–311risk management and, 152–153shortfalls, managing, 111, 114–115spending vs. investing and, 308–309steps in, 5–6, 307success, creating culture for, 99–100

Goal Oriented Retirement Planning (GORP) case study, 17, 322–336

Glovers’ current financial status, 322–326, 329

goals, establishing, 104–107, 328, 330–332goals, modifying, 31–34insurance review, 327shortfalls, managing,

31–34, 111, 114–115, 332–336tax planning and, 327

Gold investments, 110, 224, 232GORP.

See


Gosnell, Richard, 267Government bond funds, 243–244Government bonds, 183–184Government employees, retirement plans

for, 68, 69, 82Government National Mortgage Association

(Ginnie Mae), 228–231Greenspan, Alan, 18Growth and income mutual funds, 241Growth mutual funds, 241Growth stocks, 165–166Guaranteed minimum account benefits

(GMABs), 208



Guaranteed minimum income benefits (GMIBs), 208

Guaranteed minimum withdrawal benefits (GMWBs), 208

H

H shares, mutual fund, 252Health

annuitization (insured income) and, 213–214

life expectancy and, 142retirement goals and, 34

Health care directive, 278Health insurance, 64, 143, 146–148, 199, 219Healthcare costs, loss of income to,

117, 146–148High-yield (junk) bonds, 182–183, 243Hobbies, 33, 118Home improvements, 118Homeowners insurance, 199Hybrid mutual funds, 240, 242Hybrid real estate investment trusts

(REITs), 228Hybrid shares, mutual fund, 252

I

I shares, mutual fund, 252–253Income allocation, 62Income-equity mutual funds, 241Income, guaranteed.

See

Annuitization (insured income)

Income-mixed funds, 242Income, retirement.

See

Retirement incomeIncome taxes

deferred with annuities, 201–202inflation-indexed bonds and, 189municipal bonds and, 185–186taxable vs. tax-free bonds and, 182zero coupon bonds and, 186

Independent financial planners, 290Indeterminate premium life insurance, 218Index funds, 248, 269Indexing, 83Individual Retirement Accounts (IRAs),

68, 69, 85–89“catch-up” provisions for, 81divisor for calculating lifetime required

distributions, 340life expectancy tables for inherited,

340–346minimum distributions from, 58–62penalties on early withdrawals from,

85–86Roth IRAs.

See

Roth IRAs

Simplified Employee Pension IRAs (SEP-IRAs), 83

stretch IRAs, 86tax efficiency of, increasing, 92taxation of, 52traditional IRAs, 86–87

Inflationaffect on retirement income, 64bonds and, 110, 188–189compound annual growth rate of, 162as investment risk, 110, 135

Inflation-indexed bonds, 188–189Inheritance

as investable asset, 35setting aside assets for, 40, 120

Inherited IRAs, life expectancy tables for, 340–346

Initial public offering (IPO), 160Institutional “I” shares, mutual funds, 252–253Insurance, 196–222

annuities.

See

Annuitiesfor assets

not

liabilities, 198auto, 199burial, 216determining need for, 197–198disability, 143, 220health, 143, 146–148, 199, 219homeowners, 199income (annuitization).

See

Annuitization (insured income)

life, 143–144, 198–199, 216–219long-term care, 143, 148–149, 199, 219MediGap, 143, 151mortgage, 216postretirement risks and, 199preretirement risks and, 198–199riders, 144, 217

Insurance agents, 290Insurance companies

disclosure of relationships and, 291ratings of, 27, 221

Insurance industry, safety of, 220–221Insurance regulatory agencies, 220Interest

compound, 13–14, 109, 349–353simple, 14

Interest ratesbond performance and, 134–135, 136, 178risk and, 63–64, 134–135, 136volatility of, 178

Interest-sensitive whole life, 218International equity funds, 241International investments, 134, 171–172Internet

distribution of financial products over, 301reliability of information from, 18, 316


Index 361

as source of postretirement job opportunities, 51

as source of retirement planning information, 18

Interview, potential financial advisor, 186–187Investing

in areas or personal interest, 157–158choosing to save rather than

spend, 308–309dimensions of, 139–141generational characteristics of, 27–30loss of returns in from delaying, 33–34resources on, 156three-dimensional view of, 139–141

Investment Company Act (1980), 253Investment Company Institute (ICI),

238, 240, 246Investment management, 258–280

asset allocation, 260–262of assets in qualified retirement

plans, 91–92differing styles of in a relationship,

273–274, 276–277diversification and, 135, 137–138, 270–272dividend-paying stocks and, 269–270dollar cost averaging (DCA) and, 262–263lifestyle investing and, 272–273“optimizing” strategies, 271passive vs. active, 239, 267–268rebalancing of assets, 263–265repositioning assets, 268–269risk management strategies,

138–139, 258–260Investment products, online distribution of, 301Investment pyramid, 138–139, 272Investment research, 167–170, 265–266Investments

annuities.

See

Annuitiesbeta coefficient of, 138, 271bonds.

See

Bondschoice of in qualified retirement

plans, 91–92collaterized mortgage obligations, 232collectibles, 157, 224, 232–235compound annual growth rate of

different, 162equity.

See

Equity investmentsimpact of returns on retirement

goals, 32–33inflation and, 110insurance.

See

Insuranceliquidity of, 109–110managing.

See

Investment managementmatching with goals, 109–111mortgage-backed securities, 228–231mutual funds.

See

Mutual funds

precious metals, 224, 232real estate, 224–228relative vs. absolute evaluation of, 27researching, 167–170, 265–266retirement income from, 50standard deviation of, 265–266

IRAs.

See

Individual Retirement Accounts (IRAs)

ITT Corporation, 9, 10

J

Jobs, working during retirement, 51, 64Joint life expectancy, 142, 343–346Joint ownership of assets, 278Junk (high-yield) bonds, 133, 182–183Juris doctorate (JD), 297

K

Kelley Blue Book, 234Keogh plans, 84–85

L

Laddering of bonds, 191Large-cap stocks, 162, 163–164Late trading violations, mutual funds, 249Lawler, Mary, 274–275Lehman Brothers Aggregate Bond index, 267Leverage

buying on margin and, 170–171real estate investing and, 225

“Life event triage”, 13Life expectancy, 14–15, 62–63, 64

calculators for, 120emergency fund in case of extended, 120forecasting, 63investment risk and, 142life expectancy tables, 15, 340–346minimum distributions from qualified

plans and, 59–60, 61systematic withdrawals from

investments and, 54, 55underestimating, 119–120

Life insurance, 143–144, 198–199, 216–219Lifestyle investing, 272–273Lifetime required distributions, divisor to

use for, 340Limit Order, 173, 174Limited partnerships, real estate investing

and, 226–227Lincoln, Abraham, 315–316Lipper, 243Liquidation fees, fixed annuities, 203Liquidity, 109–110, 224, 235Living trusts, 278Loans from 401(k) plans, 78



Long-term capital gains taxes, 48Long-term care (LTC) insurance,

143, 148–149, 199, 219Long-term goals, matching assets to, 109Long-term government bonds, 162LTC insurance.

See

Long-term care (LTC) insurance

Lucent, 147–148Lynch, Peter, 165–166, 239

M

Major medical insurance, 219.

See also

Health insurance

Maloney Act, 301Management expenses, mutual fund, 253–254Management fees, variable annuities, 209Management team, evaluating a company’s,

168–169Margin, buying on, 170–171Market capitalization (market cap), 159, 160,

163, 164Market risk, 63–64, 132Market timing, mutual fund mismanagement

and, 249Marketability, 109Marriage.

See also

Divorceconflict over investment approaches in,

16, 273–274, 276–277importance of communicating about

finances, 9, 310–311Social Security survivor benefits and, 44

Massachusetts Investors Trust, 238Maturity, bond, 180Medicaid, 149Medical expenses, 64, 117, 146–147Medicare, 117, 146, 149–151Medicare+Choice, 149, 150–151MediGap insurance, 117, 143, 151Men, shorter lifespan of, 16, 142Micro-cap stocks, 165Mid-cap stocks, 164Milken, Michael, 182–183Minimum distributions from qualified

plans, 58–62Mission statements, 169Money markets, 109, 110, 240, 245–246, 254Monte Carlo simulator, 141–142Moody’s

bond ratings, 133, 189–190insurance company ratings, 221

Morningstardiversification tools offered by, 141mutual fund rankings, 240style boxes, 166–167, 246–247

Mortality fees, variable annuities, 210Mortgage-backed funds, 244

Mortgage-backed securities, 228–231Mortgage insurance, 216Mortgage real estate investment trusts

(REITs), 228Motley Fool, 316Mountain-climbing analogy, retirement

planning and, 7–9, 103Multipliers, pension plans and, 71Municipal bonds (munis), 184–186Mutual fund companies

disclosure of relationships and, 249–250, 291

fraud and mismanagement allegations, 249–250

Mutual Fund Fact Book

, 238Mutual funds, 163, 238–255

benchmarking, 240of bonds.

See

Bond fundscategories of, 240closed-ended, 238cost of vs. annuities, 210equity funds, 240–241equity indices, 248evaluating, 246–247expenses, 250–254growth in by type, 238history of, 238hybrid, 242inflation and, 110liquidity of, 110as long-term investment tool, 109, 110management expenses, 253–254money market.

See

Money marketsNAV (net asset value), 252number of, 238open-ended, 239–240rankings of, Morningstar’s, 240share classes and charges, 251–253socially responsible investment

(SRI), 248–249unit investment trusts (UITs), 239

N

NASDAQ 100, 267NASDAQ (National Association of

Securities Dealer Automated Quotations), 159–160

National Association of Insurance Commissioners (NAIC), 220

National Association of Personal Financial Advisors (NAPFA), 293, 294

National Association of Securities Dealers (NASD), 291, 300–301

National broker dealers, 290National municipal bond funds, 244–245National Retirement Planning Coalition, 24, 40


Index 363

National Retirement Planning Week, 18National Summit on Retirement Savings, 27National tax-exempt money market funds, 246NAV (net asset value), 252Neuro Linguistic Programming, 310–311New York Stock Exchange (NYSE), 159, 160Newton, Sir Isaac, 7Nonprofit employees, retirement plans for,

79–81, 82Nonqualified annuities, 52Nonqualified retirement plans, 52, 69North American Securities Administrators

Association (NASAA), 300–301Nursing-home insurance (long-term care

insurance), 143, 148–149, 199, 219NYSE.

See

New York Stock Exchange (NYSE)

O

Online brokerage services, 301Open-ended mutual funds, 239–240“Optimizing”, 271Optional benefit fees, variable annuities, 210Over-the-counter (OTC) stocks, 160

P

Pacific Stock Exchange, 160Par value, 179Part-time employment, retirement income

from, 51, 64Passions, investing based on, 157–158Passive management, 239, 267PE ratio, evaluating, 169Penny stocks, 158Pension Benefit Guarantee Corporation

(PBGC), 48–50Pensions.

See

Defined benefit pension plansPerfection, incapacitation due to search for, 16Perseverance

example of The Endurance, 312–315importance of to retirement

planning, 311–312Personal Earnings and Benefits Statement,

Social Security, 347–348Personal financial specialist (PFS), 297Personal savings rates, 25Philadelphia Stock Exchange, 158–159Policy fee, variable annuity, 209Portfolio management.

See

Investment management

Power Checklistsfinancial planning and, 303–304fixed-income investments (bonds), 193getting started with a retirement

plan, 19–20

insurance and annuities, 221–222investment management, 279–280mutual funds and, 255qualified retirement plans, 92–93real estate investments, 236retirement income and, 65–66risk management and, 153saving for retirement, 35–36stock investments and, 175taking action on a retirement plan, 318–319

Precious metals, 224, 232Preferred dividends, 157Preferred stock, 157Price earning (PE) ratio, 169Probate, 202, 278Procrastination, retirement planning and,

10–16, 309–310Professional designations, financial service

providers, 293, 296–298Profit sharing plans, 82–83Puppies of the Dow theory, 270

Q

QTIP.

See

Qualified terminable interest property trust (QTIP)

Qualified domestic relations order (QDRO), 89, 275

Qualified retirement plans, 68–93average percent of retirement income

from, 47cash balance defined benefit plans, 74–75defined contribution plans, 48, 69, 76–82divorce and, 89, 275, 276employee stock ownership plans

(ESOPs), 83funding of, determining best

amounts, 89–91investment strategies for, 91–92IRAs.

See

Individual Retirement Accounts (IRAs)

Keogh plans, 84–85minimum distributions from, 58–61nonqualified plans vs., 69participation rates, 68–69penalties on early withdrawals from, 53pensions (defined benefit plans),

48–50, 69, 70–74postretirement income from, 47–50profit sharing plans, 82–83SIMPLE plans, 84Simplified Employee Pension IRAs

(SEP-IRAs), 83stock bonus plans, 82–83tax efficiency of, increasing, 92taxation of, 52



Qualified terminable interest property trust (QTIP), 276

Qualified Tuition Program (QTP), 106–107Qualitative evaluation measures, 168Quantitative evaluation tools, 168Quasi community property, 274

R

R shares, mutual fund, 253r-squared, 271Ratings, bond, 133, 189–190Real estate, 224–228

1035 tax-free exchanges, 214, 225inflation and, 110as leveraged investment, 225limited partnerships and, 226–227liquidity, lack of with, 109, 110as long-term investment tool, 109, 110marketability of, 109real estate investment trusts

(REITs), 227–228time shares and, 226–227

Real estate investment trusts (REITs), 110, 227–228

Recessions, S&P 500 and, 258, 259Recreation, costs of during

retirement, 117–118Redemption fees, mutual fund share, 252Regional equity funds, 241Registered financial consultant (RFC), 298Registered investment advisor (RIA), 297Reinvestment risk, 135REITs.

See

Real estate investment trusts (REITs)

Relationshipscommunicating about finances, 9, 310–311conflict over investment approaches in,

16, 273–274, 276–277Relative comparison, 26–27Required minimum distribution (RMA), 58–62Retirement, 116–120.

See also

Goal Oriented Retirement Planning (GORP); Retirement income; Retirement savings

early and pensions, 72expenses that decrease during, 118expenses that increase during, 117–118life expectancy and, 119–120as most important goal, 116–117

Retirement action plan.

See


Retirement Countdown Web site, 317Retirement goals.

See also


budgeting to meet, 115–116establishing, 31–34, 103–107, 286–287impact of returns on, 32–33

matching assets with, 108–111, 112–113modifying, 31–34, 115prioritizing, 108reasons for failure to meet, 97–98retirement as ultimate, 116–117

Retirement income, 26, 40–52allocating assets for specific

streams of, 62determining amount needed, 22, 22–25factors affecting, 34–35gap analysis of goal vs. current savings,

30–31goals for, establishing,

22–25, 38–39, 122–123increasing by delaying retirement, 52from insured income (annuities), 54–58from investments, 50lack of saving for adequate, 25–26life expectancy and, 62–63from pensions and qualified plans,

47–50, 58–61risks affecting, 63–65from Social Security, 40–47systematic withdrawals and, 53–54taxation of, 52from work, 51, 64

Retirement planning.

See


Retirement planning seminars, 295Retirement plans, nonqualified.

See

Nonqualified retirement plans

Retirement plans, qualified.

See


Retirement “R” shares, mutual funds, 253Retirement savings

calculator for, 51gap between goal and current

state of, 30–31inheritance and, 35rates of, 25–26, 29setting goals for, 31–34

Revenue Act of 1978, 76Riders, insurance, 144, 217Risk, 131–138

affect of on retirement income, 63–65available time horizon and, 34credit and business risk, 132–133currency (foreign exchange) risk, 134differing comfort with by members of

couple, 273–274, 276–277diversification risk, 135, 137–138foreign investment risk, 134health/mortality, 142inflation risk, 135interest rate risk, 134–135, 136market volatility, 63–64, 132


Index 365

Risk management, 130–131, 138–139insurance as tool for, 143–151investment pyramid, 138–139Monte Carlo simulator, 141–142three-dimensional view of investments

and, 139–141Risk-reward strategy, 258–260

asset allocation and, 260–262bond investments and, 191–192individual stock investments and,

172–173Risk tolerance, 34–35

differing between members of couple, 273–274, 276–277

Robbins, Anthony, 98Roth IRAs, 47, 87–89

converting traditional plans to, 89minimum distributions from, 59tax deferred growth of, 88taxation of, 52

Roth, William V., 87Rule of 72, 13Russell 3000, 267

S

S&P 500, 135, 137, 258, 259, 267Sales/revenue growth, evaluating a

company’s, 169Salespeople, trust and, 294–295Saving, spending vs., 308–309Savings accounts, 109Savings Bonds, 183, 184Savings characteristics, generational, 27–30Savings Incentive Match Plan for Employees

(SIMPLE), 81, 84Sector mutual funds, 241Securities Act of 1933, 161Securities and Exchange Commission

(SEC), 161–162Securities Exchange Act of 1934, 161Self-employed

Keogh plans for, 84–85SEP-IRAs for, 83

SEP-IRAs, 83Shackleton, Sir Ernest, 312–315Share classes, mutual fund, 251–253Shares, mutual fund, 157Short-term goals, matching assets to, 109Shortfalls, managing, 111, 114–115Silent Generation, 30SIMPLE plans, 81, 84Simplified Employee Pension IRAs

(SEP-IRAs), 83Single life expectancy, 340–342Small Business Protection Act of 1996,

83, 84, 106

Small businessesSEP-IRAs for, 83SIMPLE plans for, 84

Small-cap stocks, 164–165Small company stock, compound annual

growth rate of, 162Small Dogs of the Dow theory, 270Social Security, 40–47, 347–348

attempts to fix, 43, 47history of, 42payroll contributions to, 43projected shortfall of, 7, 42, 47

Social Security benefitsaverage percent of retirement income

from, 26, 40calculation of, 44, 347–348disability benefits, 43, 45, 145divorce and, 45–46full retirement benefits, 44–45maximizing, 46–47Personal Earnings and Benefits

Statement, 42, 347–348postponing, 46, 52survivor benefits, 43, 44, 45, 46taxation of, 45

Socially responsible investment (SRI) funds, 248–249

Spendingpre- vs. postretirement, 117–119saving vs., 308–309

Spousesconflict over investment approaches

between, 16, 273–274, 276–277importance of communicating about

finances, 9, 310–311IRA contributions for nonworking, 87Social Security survivor benefits and, 44spousal exception and required minimum

distributions (RMAs), 61Standard & Poor’s

bond ratings, 133, 189–190insurance company ratings, 221

Standard deviation, 265–266State municipal bond funds, 244State tax-exempt money market funds, 246Stock bonus plans, 82–83Stock dividends, 166, 174Stock exchanges, 133, 159–160Stock Interception program,

Morningstar’s, 141Stock market

bull and bear markets, 161compound annual growth rate of

investments in, 162history of stock exchanges, 158–160SEC oversight of, 161–162



Stocks, 162–175buying on margin, 170–171common, 157dividends and, 166, 269–270donating to charity, 121evaluating, 166–167goal-oriented financial planning and, 174growth, 165–166inflation and, 110international, 171–172large-cap, 163–164liquidity of, 110as long-term investment tool, 109, 110micro-caps, 165mid-caps, 164over-the-counter (OTC), 160penny, 158preferred, 157researching, 167–170risk-reward strategy and, 172–173shares of, 157small-cap, 164–165utility, 172value vs. growth, 165–166

Strategic income funds, 244Stretch IRAs, 86Style boxes, Morningstar’s, 166–167, 246–247Subaccounts, variable annuities and, 58, 205,

206–207, 209Success, creating culture for, 99–100Supplemental disability income insurance,

143, 144–145, 220Survivor benefits, Social Security,

43, 44, 45, 46Systematic investment programs, 262, 263Systematic investment risk, 132–138

credit and business risk, 132–133currency (foreign exchange) risk, 134diversification risk, 135, 137–138foreign investment risk, 134inflation risk, 135interest rate risk, 134–135, 136market volatility, 132

Systematic withdrawals from investments, 53–54

T

Tax bracket reductions, 2003, 308Tax changes, affect on retirement

income, 64–65Tax-deferred contributions, Roth IRAs and, 90Tax-exempt money market funds, 245–246Tax-free bond funds, 240, 244–245Tax-free bonds, 182, 185Tax Payer Relief Act of 1997, 87–88Tax rebates, 2003, 308

Tax Sheltered Annuities (TSAs), 69Taxable bond funds, 240, 242–244Taxable bonds, 182Taxable money markets, 245Taxes

on 401(k), 52early withdrawal penalties, 53excise on required minimum

distributions, 60federal estate taxes, 278–279on non-Roth IRAs, 52on nonqualified annuity payments, 52on nonqualified plan investments, 52on pensions, 52on Social Security income, 45

Teachers, 403(b) plans for, 79–8110-K’s (corporate annual reports), 1681035 tax-free exchanges, 214, 225Term life insurance, 217Terminal funded annuities, 49–50Three-dimensional view of

investments, 139–141Thrift Savings Plan, 82Time horizon, risk and, 34Time management, 13Time shares, 226–227TIPS.

See

Treasury Inflation-Protected Securities (TIPS)

Total market cap, 159, 160Total return mutual funds, 241Traditional IRAs, 86–87

converting to Roth IRAs, 89penalties on early withdrawals from, 86

Travel, cost of during retirement, 117–118Treasury bills, 109, 162, 183, 184Treasury Inflation-Protected Securities

(TIPS), 188–189Treasury notes, 184Trusts, 121–122, 276, 27812(b)(1) fees, 249, 250, 251, 252, 253

U

UITs.

See

Unit investment trusts (UITs)Union-sponsored retirement plans, 90Unit investment trusts (UITs), 239Universal life insurance, 218U.S. Savings Bonds, 183, 184U.S. Treasury bills, 162, 183, 184U.S. Treasury notes, 184Utilities, investing in, 172

V

Value Line, 167Value stocks, 165–166Vanguard 500 Index fund, 248


Index 367

Variable annuities, 200, 205–210403(b) plans and, 79–80costs of, 202, 209–210death benefit options, 207–208fixed annuities vs., 205investment options (subaccounts),

205, 206–207, 209retirement income from, 57–58, 208withdrawal features, 208

Variable annuitization, 57, 211Variable universal life, 218Volatility, 132, 138, 224, 271–272Volume of shares traded, evaluating, 169–170

W

Waiver of premium rider, 217Wearaway provisions, 75Web sites

pension plan information from, 70reliability of information from, 18, 316Retirement Countdown, 317

Whole life insurance, 218Withdrawal features, variable annuities, 208Withdrawal, systematic from

investments, 53–54Women, longer lifespan of, 16, 142Working during retirement, 51, 64World bond funds, 243World equity funds, 241

X

X-ray diversification tool, Morningstar’s, 141

Y

Years of service, pension plans and, 71Yield, bond, 180Yield to call, 181Yield to maturity (YTM), 180

Z

Zero coupon bonds (zeros), 186–187


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