Financial Answers "IN SIMPLE LANGUAGE"

I’ve written quite a few posts over the last couple of months talking about 401k plans and what is happening to your money and the actual 401k plans.

 

Participants are Worried

 

Unfortunately, I am seeing more and more evidence of participants reducing their payroll contribution amounts.  I am also seeing more and more employers reducing or eliminating the company match on your dollars.  This is another sign of our distressed economy and this one will have long term negative implications for all of us.

 

What I have stressed in previous posts is not to reduce what you are putting into your 401k plan if at all possible.  I know how difficult it is for many people to make ends meet when salaries are stagnant and prices keep going up.  It is difficult to plan and worry about retirement when you are trying to survive day to day. 

 

The problem you are creating for yourself down the road by not funding or adequately funding your 401k plan means a lot less money to retire on.  And add in the fact that your employer is either reducing the company match or eliminating it all together paints a bleak retirement picture.  

 

What I am suggesting is to continue to put money into the cash part of your 401k plan.  Put your money into the money market account that is offered by the plan.  The money market account tries to maintain a $1 share price so you have some protection from the craziness of the financial market. You will not make a lot of money on what is being paid but you have several things in your favor.

 

• You are effectively reducing your taxable income and therefore paying less federal and state taxes.
• You are continuing to get the company’s match, whatever that might be.  This is free money for you.
• You are continuing to fund your future retirement on a tax deferred basis.
• You are positioning yourself much better in the future to be able to maintain your lifestyle because of a larger 401k balance.
• You are creating a bigger, albeit as a last resort, emergency fund if you should need it.

 

You can only do so much so if it is a matter of survival you have to do what you have to do.

 

Companies Don’t Want to Reduce Match

 

Although companies don’t want to reduce or eliminate the match on your 401k plan, many are doing it on a temporary basis.  This temporary reduction is in lieu of the economy turning itself around and heading into positive territory.  Many companies don’t have much choice in reducing or eliminating the 401k match.  If it is a choice between reducing or eliminating the 401k match and eliminating or reducing jobs, most companies will favor the former over the latter choice.

 

Some of the large mutual fund companies are seeing some of their participant companies reducing the company 401k match and others have said that they have seen no noticeable difference in the amount of match or employee contributions going into 401k plans.  I guess it just depends on what industry you are in. 

 

There are many businesses and industries out there that are making money.  I know that is hard to believe but think about this.  Do you think what is happening with people defaulting on their credit cards and loans aren’t causing collection agencies to be busier than ever?  Do you think that the bankruptcy attorneys are busier than ever?

 

These are somewhat negative examples but nevertheless when one area is down there always seems to be some other area that is booming.  It is like the stock market.  You have to have someone selling stock and someone buying stock.  One is usually right and making money while the other is losing their shirt.  Welcome to the real world.

 

Before you “adjust” your contributions with your 401k plan sit down and give it some careful though.  Think about the reasons I mentioned above in the bullet points and then make your decision.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

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

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

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Have you given any thought to what is happening to all of the pension plans out there that are administered by corporate America?  I’m not talking about your 401k plans.  I’m talking about the defined benefit plans that are funded by your employer not you. 

 

You fund your 401k plan and it is called a defined contribution plan because you define or tell your employer how much money you want to put into the plan each paycheck.  You never know how much money you will have in your 401k and how much you will be able to draw out until the time of your retirement.

 

The defined benefit plan, on the other hand, is funded by your employer and benefits are based on how long you were with the company and how much you were paid. These factors will determine or define the benefit or amount of pension money you will receive when you retire.

 

401k’s Got Clobbered.  How About Regular Pensions?

 

It seems that regular pensions, defined benefit plans, have held up better than their counterparts, the 401k plans.  Most, but certainly not all, of the defined benefit pension plans were more conservatively invested.  However, there still was a lot of financial damage done to many plans.

 

With this congressional bailout mentally permeating our congress, some of the country’s biggest companies are asking congress to roll back the rules that require them to fund their defined benefit pension plans.  This is interesting because just two years ago President Bush signed into law the Pension Protection Act of 2006.  This law requires companies with defined pension plans to put money into these plans on a regular basis.  It seems up to this point many companies were using their pension monies for everything other then funding their pension plans.

 

In an analysis by a pension expert, it was determined that of 500 pension plans analyzed, more than 200 were  less than 80% funded.  That means that more than 200 major defined benefit pension plans now have less than 80 cents to cover every dollar in pensions promised to their employees.  Now if that doesn’t make you wonder what your company has been doing, I don’t know what will.  But don’t worry just yet.  There is a potential solution to this problem.

 

Pension Benefit Guaranty Corporation

 

The Pension Benefit Guaranty Corporation (PBGC) www.pbgc.gov, a federal corporation created in 1974 under the Employee Retirement Income Security Act (ERISA), was created to address these types of pension issues.  Like the FDIC, http://www.fdic.gov, and SIPC, http://www.sipc.org/ , the PBGC does not receive general tax revenues but is funded by the members or sponsors of the defined benefit plans.

 

Currently the PBGC covers approximately 44 million American workers and retirees.  What this means to you, generally speaking, is the PBGC guarantees basic benefits to you at normal retirement age.  Now these guarantees vary plan to plan.  That should be no surprise because we are talking about the government here.

 

These guarantees are a comfort with all the turmoil in the economy and financial institutions we are experiencing today.  As with every governmental agency, there are numerous exceptions to the rules.  If you have a specific question about what the PBGC covers or doesn’t cover you can go to their website at http://www.pbgc.gov or post your question in the comments section at the end of this blog post and I will be more than happy to research it for you.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

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

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

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So much of the spotlight today has been on the banks and investment houses and all their woes.  Other than AIG (American International Group), which required a $150 billion bailout, what about all the other insurance companies in the United States and around the world?  Not much is being said about them.

 

State Guaranty Fund

 

What most people are not aware of is insurance companies in the United States are insuring each other through what’s called the “state guaranty fund”.  In most states that I am aware of, in order to do business in that state you must belong to the state guaranty fund. This fund is state run and funded by its member insurance companies doing business in that state.  This means, as an insurance company, if you do business in the state of whatever you have to pay your fair share of “dues” and be a member of that state’s guaranty fund.

 

The state guaranty fund’s purpose is to bail out any insurance company in that particular state that is having financial problems. Whether you put money into your insurance policy and it builds cash value or if you put money into your fixed annuity or fixed account of your variable annuity, the value of that money is segregated in the insurance company’s general account and backed by the full faith and credit of the insurance company.  This is like depending on the full faith and credit of the United States Government when buying its bonds but on a smaller scale.

 

This means the insurance company is saying it has the money to pay you from its general account, separate from any other investments like mutual funds or whatever.  The state guaranty fund is indirectly protecting your money by bailing out insurance companies doing business in your state.

 

Account Values Have Dropped Significantly

 

With significant drops in value of many investment accounts, people are beginning to realize that they may not have enough assets to cover their family’s financial obligations if something should happen.  That IRA or 401k or 403b account that they were counting on to take care of their family in the event of their demise is now worth a whole lot less.  This has made many people very uneasy and the sale of life insurance has been on the rise in the recent months.

 

Most of us take life insurance for granted thinking that we have too much or we don’t need it.  But it is in times like these that we need to rethink what we have.  If you are a first time visitor to In Simple Language than let me explain that I do not sell or endorse any products and can therefore give an unbiased opinion on products.  I truly believe that life insurance has its place in everyone’s financial plan.

 

Life Insurance is So Cheap

 

The cost of life insurance over the last couple of years has fallen through the floor.  If you would shop around and compare the costs of what you can buy term insurance for today, you have to be crazy not to either buy a sufficient amount or add to your existing coverage.  When I did sell life insurance no one ever said to me when I delivered a claim that the check was too much.  With that said don’t fall into the trap of buying too much.  Plan what you need to buy based on the circumstances that you are trying to cover.  Moderation is the name of the game.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

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

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

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This is really disturbing news for our economy which is already having massive problems. It was announced by Citigroup, Inc., the No. 2 U. S. bank; it is going to eliminate approximately 15%-50,000+-more jobs this year. This is in addition to approximately 23,000 jobs already eliminated between January and September of 2008.

Setting a Record?

Here we have the second largest bank in the United States, which by the way, is one of the recipients of the Emergency Economic Stabilization Act of 2008, to the tune of $25 billion, trying to rein in expenses. The 50,000+ jobs being eliminated added to the 23,000 jobs lost in the first nine months of the year may be the all time record of job losses by any one company. It seems that IBM may have held that record when in 1993 they let go of 60,000 employees. Well move over IBM. Here comes Citigroup, Inc. Not a real admirable record to obtain.

In 1998, Sanford “Sandy” Weill, the Chairman of the Travelers Group Inc., merged the Travelers Group and Citicorp to form the new bank, Citigroup Inc. The history of these companies and Sandy Weill is very interesting. If you want to learn more about them Google each name and there is a ton of information.

Worldwide Cuts

Citigroup, Inc. is cutting many of its international expenses by eliminating and selling many of its regional and business lines. In addition to cutting jobs and expenses it plans on selling many of its businesses such as its German retail banking business. All of these moves seem to be reasonable and make economic sense since the stock value of Citigroup, Inc has dropped by 68% as of this writing. Something has to be done and it looks as though senior management is taking the bull by the horns and directly addressing the problem through prudent actions.

Bull

Now that I have taken you this far with a little history of our country’s second largest bank and some praise for what they are trying to do, let me tell you what this post is really all about. If you have been following In Simple Language for the last couple of weeks, you have read about the arrogance and greed and total disregard of the American taxpayer, you, by the insurance giant, American International Group (AIG). Well faithful readers, hold onto your hat because here we go again.

Not only are Citigroup, Inc. senior executives such as Vikram Pandit, CEO and his cronies grabbing the bull by the horns they are also throwing the bull at us the taxpayer. These typical arrogant, greedy bankers have not only been planning to eliminate 73,000 jobs during this time of crisis but they are also discussing when they should be paying themselves bonuses.

Are these people nuts? Is the arrogance and greed so deeply imbedded in the financial industry that these idiots have the gall to believe that no one would pay attention to what they are doing? Obviously so. They are talking about eliminating tens of thousands of jobs and reducing expenses by 20% with a loss in value of company stock of 68% and they are still talking about giving themselves bonuses. Maybe I’m nuts but is this out of control or what? Is anyone with any authority going to rein in these people? When is sanity going to return to the financial segment of this country?

President Elect Obama please have a talk with President Bush and this stupid bunch we call congress and bring common sense back to the greatest country on the face of this planet.

If you read this far there may be something about this post that you are relating to. There may be some financial related pain In Simple Language is talking about. Tell us your story. We really do want to know.

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

Looking for a financial speaker or financial writer? Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

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If you have been watching any financial news programs lately you have seen the recent mention of AIG (American International Group) the behemoth insurance based company that is being loaned $85 Billion by the Federal Reserve Bank.  This loan was supposed to help the financially teetering company from going belly up.  Because of the size of AIG this was probably a necessary move by our government to prevent financial chaos.

 

However

 

The rules have changed for AIG and now the Federal Reserve Bank is reducing the original loan of $85 Billion to $60 Billion of your money.  The Federal Reserve Bank is also replacing a part of the original loan of about $38 Billion with an “aid” package of $52.5 Billion dollars.  This almost sounds like a good thing.  But is it?  Do you have to pay back an “aid” package?  Where’s your “aid” package?

 

This is the first time since the $850 billion bailout package, called the Emergency Economic Stabilization Act of 2008, in which money has gone to anything other than a bank.  I guess that shows the importance that our government is placing on this one company.

 

Because of this special treatment by our government for this one company, we keep seeing things in the news about how the executives of AIG are squandering this money to maintain their executive lifestyles.  This is the part that bothers me.

 

I’m Better and Smarter than You

 

This arrogant attitude of I’m better and smarter than you otherwise you would be running this company is the thing that gets to me.  These are the same arrogant jerks that got this company, AIG, in this mess in the first place.  Yet, they continue to thumb their noses at us as the government uses our hard earned dollars to bail their arrogant asses out of this mess.

 

Many of the mystifying arrays of complex financial products that helped directly or indirectly to create this financial mess were structured by AIG.

 

The problem is that AIG is so large, with operations in over 130 countries and with assets of over $1 trillion; the U.S. Government doesn’t know how to handle this situation.  This is a perfect example of how Wall Street is really running this country.

 

 It is a perfect example of how things have gotten out of control with our politicians. Our inept congress, being under the influence and direct or indirect control of a bunch of arrogant, greedy, out of control executives that have such a major influence on the lives of the people of not only the United States, but many other countries, is unconscionable.

 

It’s as though these executives are living the life of the villain in a James Bond movie, seeking world domination, only the reality of the situation is what they are doing is real and it is working.

 

A Recent Letter to the Editor

 

In a recent letter to the editor in my local community, I talked about when I was a financial advisor with a major insurance company whose name I know you would recognize.  I wrote about how at a meeting with 600+ other financial professionals, the president of this major insurance company walked out on the stage, which was about six or eight feet above us, and paced back and forth across the stage.

 

When this man began to speak he started to chastise us like we were all children.  Here is a guy in a lofty position with a major insurance company being paid tens of millions of dollars and he starts ranting and raving about how we all failed “him”.

 

He began his rant by saying you people promised me that you would hit “the numbers”.  And you people have disappointed me because you haven’t hit “the numbers”.  And I am disappointed because you promised me.  This insanity went how for a couple of minutes and was very uncomfortable for everyone in the audience.  I looked around and saw a lot of people squirming in their seats, rolling their eyes and covering their faces.

 

I tell this story to drive home the point I make about the out of control arrogance that pervades the financial services industry at many top levels of management.  I have seen it.  I have been there.  We need to constantly remind “our” congress about how these arrogant jerks use “our” money.  When was the last time you called or sent an email or snail mail to your congress person expressing your wishes?  It’s your money!  What are you waiting for?  Do it now!

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

·         Please ask your questions of In Simple Language.

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·         Like what you read?  Send it to a friend.  Click on “share this post” right about leave a comment below.

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

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

Check out the “SERVICES” tab above the beginning of the post for all available services.

 

 

 

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