Financial Answers "IN SIMPLE LANGUAGE"

The stock market, over the last couple of months, has been anything but stable.  One day it’s up 50 points and next day it is down 150 points.  If there is bad news about oil or war or some obscure item the emotional roller coaster of the stock market begins and it drops like a rock.  This emotional up and down makes us all nuts on what do we do with our investments and savings?

What some of us are doing is purchasing an insurance product called a “fixed annuity”.  A fixed annuity is an insurance company product that puts your money into an insurance “savings account” called an annuity. This fixed annuity pays a fixed or set interest rate just like your saving account would. This annuity is tax deferred meaning you don’t pay taxes on the interest you have earned until you take the money out. 

This is a good benefit because now the growth or interest paid on your tax deferred money has the opportunity of making money again on the interest being paid to you. This is the magic of what is called compound interest. A topic for another post.   The insurance company pays a fixed rate of interest and keeps your money in what’s called their general account.  This means your money is guaranteed by the strength of the insurance company.  Your money is not protected in any other way.

If you are considering making a fixed annuity part of your investment picture make sure you do your homework and pick an insurance company that has been around for a while, is large in size-billions of dollars in assets-and has a high rating by a company called A.M. Best.  Your trusted financial advisor can help you with this. If you would like to learn more about annuities pick up a copy of Annuities for Dummies plus there is a lot of free info on the Internet.

First and foremost understand what you are getting yourself into.  Almost all- at one time all did-annuities have a penalty involved if you cash out the annuity ahead of time.  This is where your financial education is important in keeping you out of trouble.  If you don’t understand it don’t do it until you feel comfortable in your decision. I have only briefly covered fixed annuities.

Let In Simple Language help you to better understand financial terms and products.  That’s what we are all about.  Ask In Simple Language your questions.  Give us your comments and suggestions.

Thank you for taking the time to visit In Simple Language.    Copyright 2008

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My personal fortune has been estimated at upwards of $200 million dollars.  I live in a house that is worth approximately $5 Million.  I know and have worked with some of the most famous people in the world.  I was actually a household name for many, many years and worked as the sidekick for the most famous late night talk show host on the planet, Johnny Carson.  Do you know who I am?  Of course you do.  I am Ed McMahon.  Former Mr. talk show sidekick and publisher’s clearing house spokesman.

Guess what’s happened to me?  I just received a default notice on my mortgage and I am approximately $650,000 in arrears on my $4.8 million mortgage.  How can this be?  Well sometimes you spend a lot more than you make.  Add that to a tough economy and tough times and you have a formula for financial disaster.

Mr. McMahon is not the only celebrity that is having a hard time with his mortgage.  How about the likes of the pop king Michael Jackson, boxing great Evander Holyfield, baseball star Jose Conseco, basketball star Latrell Sprewell, and Actor Dustin Diamond.  And let’s not forget Laura Richardson, D-California congressional representative.  All of these people have been threatened with foreclosure.  Can you believe it?

No one has been immune from the sub prime mortgage mess.  Standby!  More problems to come.  Even the rich and famous and congress have been hard hit by the economic mess the United States is in.  However, we know that Washington is aware that things are not that bad right now.  Now roll your eyes and say right!

You need to protect yourself from things like this happening to you.  One of the best ways to protect yourself from these financial disasters is to educate yourself in financial matters.  That’s what In Simple Language is all about.  You can take the time now to ask questions and learn what you can about your financial situation or you can wait and find out what a mess you are in like all the people previously mentioned.  Your choice.  Your financial future.

Ask your questions of In Simple Language.  Give us your comments and suggestions.  We would love to hear from you.

Thank you for taking the time to visit In Simple Language.    Copyright 2008

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If you remember my previous post of May 17, titled Target Date Funds And Retirement, I talked about how mutual fund managers have been increasing the stock exposure of these mutual funds.  That is not necessarily a bad thing unless it is going against what the mutual fund was initially designed to do.  Target Date Mutual Funds are designed to get less aggressive as the mutual fund owner moves closer to retirement.

There is another report recently released in June 2008 that reviewed Target Date Mutual Funds.  It stated that not only is there a trend of Target Date Mutual Funds moving more into stocks but that some of these mutual fund’s prospectuses had missing data.  This makes it difficult to compare mutual fund strategies to make sure that this is the proper mutual fund for you.  Not a good thing.

In my opinion, this is a very disturbing trend.   If I am buying this Target Date Mutual Fund as part of my overall investment retirement strategy and bought a particular Target Date Mutual Fund that “matures” in the year that I have chosen to start taking money out of it, it better do what I want it to do.  I don’t want to have to second guess whether this particular mutual fund is going to get more cautious and conservative as I approach the target date I have chosen. Or is it going to lose my money because it became more aggressive?  Second guessing defeats the purpose of a Target Date Mutual Fund.

Target Date Mutual Funds are currently structured so you really don’t know what the makeup of the mutual fund really is. That is, I don’t know what investments are currently making up the mutual fund.  This needs to be fixed now! 

Target Date Mutual Funds do have a worthwhile purpose in supplementing retirement, but like all investment vehicles you need to use them as a “part” of your overall investment strategy.  Talk to your trusted investment advisor and express your concerns if you are thinking about including Target Date Mutual Funds in your portfolio.

Tell In Simple Language your experience with Target Date Mutual Funds.  Please give us your questions, comments, and suggestions.  In Simple Language would love to hear from you.

Thank you for taking the time to visit In Simple Language.    Copyright 2008

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Well here we go again.  Our overpaid under-worked politicians in Washington D. C. calling themselves representatives of the people have done it again.  Sounds like I have an issue with these people.  I do!

According to various business and retirement plan groups, it seems that Congress has overstated the amount of revenue that the government would lose if current retirement savings plans were overhauled.  It also seems that Congress, in its infinite wisdom, has not included the amount of tax revenue that would be generated when people start to take money out of their retirement accounts when it becomes taxable. Hello Washington!

What this does to us, as taxpayers trying to maximize our retirement savings, is it makes it harder to pass legislation that would favor more retirement savings.  Congress’ current methods of figuring how much tax revenue the government would lose does just the opposite.  It encourages legislation that reduces what we can save for our retirement.  This is nuts!  We all know what is going on in our economy today with people having to tap their retirement programs just to survive.  And these “paid servants” of the people don’t have a clue on how they are hurting, not helping us.

Granted, I’m sure there are some Congress-people who have an idea of what’s going on but not enough of them to make this a priority item.  And yes, tax laws are extremely complicated.  But remember,  Congress makes the tax laws and the IRS enforces them.  So I don’t feel sorry for the difficulty “our” congressional representatives have when it comes to their lack of understanding retirement issues.  They design these ineffective laws based on antiquated thinking, influence from various lobbyists, and influential rich people.  The same ole same ole.  Maybe I should run for Congress.  Nah!  I want to stay honest and ethical.

Have a question, comment, or suggestion regarding this post?  In Simple Language would love to hear from you.

Thank you for taking the time to visit In Simple Language.    Copyright 2008

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In my June 4, 2008, post I talked about what a reverse mortgage is and how people are using them.  Some people are using them correctly and some are not.  Reverse mortgages, about 85% of them, fall into the category of HECMs-Home Equity Conversion Mortgages-which are guaranteed by the federal government.

These HECMs grew from around 7,800 reverse mortgages to 107,000 in the six year period between 2001 to 2007.  Even with the recent sub prime mortgage mess in this country, reverse mortgages in 2008 are continuing at a record pace.

What you need to be aware of is that reverse mortgages come with some pretty hefty fees.  You need to look at a reverse mortgage, in most circumstances, as a last resort. 

Many of the experts talking about reverse mortgages feel that the ideal candidate is someone in their mid-seventies who house is paid for and has substantial equity and plans to remain in that house at lease for another five years.  They should also have no or very limited access to other sources of income.

The popularity of these reverse mortgages is growing by leaps and bounds evidenced by the growing number of mortgage salespeople who are going door to door.  Can you believe that!  Door to Door.  So be very careful not to sign anything until you have talked with your “trusted” financial advisor.

Remember that information about reverse mortgages is FREE from HUD the U.S. Department of Housing & Urban Development.  Scam artists are on the prowl and are charging thousands of dollars for this same free information.

If you would like to read about reverse mortgages from some experts try attorneys Tammy and Tyler Kraemer The Complete Guide to Reverse Mortgages: Turn Your Home Equity into Instant Income and/or Reverse Mortgages by Greg Patti, CPA, MBA, CSA.

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Thank you for taking the time to visit In Simple Language.    Copyright  2008

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