Quote of the Month

"One of the penalties for refusing to participate in politics is that you end up governed by your inferiors." Plato

RSG welcomes you to the September 2002 edition of The Retirement Strategist. We hope you enjoy our actionable ideas for implementing a better retirement stategy. Remember that time can be your greatest friend; the sooner you implement excellent retirement savings ideas, the better.

1. Questions From Members
2. Timely Investment Tip$: Basics of Long-Term Care - Part II
3. Fiscal Therapy: Pay Yourself First
4. Retirement Strategies Group Service Highlight: How We Can Help You

QUESTIONS FROM MEMBERS

Q.	I'm looking into buying a mutual fund, but I'm confused when the prospectus talks about different shares. Could you explain this to me so I can understand it?
A.	We're going to assume that you're not talking about the actual shares of the fund you'll be purchasing, but about the different share classes offered to you as an investor of a mutual fund. This can be confusing, but we'll try to explain it without complicating things. When you buy a loaded fund, you're typically offered three different options of paying the load. A shares allow you to pay the entire load up-front. The amount usually ranges anywhere from 4.25-5.75% of the money you invest. A shares are best suited for those that are putting a lump-sum amount of money into a fund and plan on leaving it there for at least 5 years. These shares also have the lowest expense ratio of the three shares offered. B shares have what's called a back-end load, and the percentage owed dissipates the longer you are in the fund. The increments decrease, usually, as follows: 5%,4,3,3,2,1,0. What this means is that the longer you are invested in the fund, the less you will owe when you eventually redeem your money. However, B shares tend to have higher expense ratios, which will also be reduced the longer you are invested; eventually B shares are converted into A shares and the expense ratio is reduced. B shares are mostly intended for those contributing to an IRA, or some other type of investment vehicle where they will be contributing money on a yearly basis. C shares are what some like to call a combination of A and B. They typically comprise a front-end load and a back-end load, and are recommended for investors who do not want to keep their money in the fund for very long, usually about 12-18 months. C shares also have a higher expense ratio, but these will never convert to A shares, therefore leaving you with the higher expense ratio the entire time you are invested in the fund.

TIMELY INVESTMENT TIP$

Basics of Long-Term Care: Part II

In Part I of this series we introduced you to the basic workings of long-term care. We covered what it was, who should consider purchasing it, and when they should start thinking about it. Part II will expand on those same ideologies, and give you a more detailed base in understanding the intricacies of LTC.

Things you need to know before purchasing an LTC Policy

Income:  Before purchasing an LTC policy, you need to think about your future ability to pay the premium, if the company has to raise premiums for all policyholders. A good benchmark is that a premium should not exceed 7% of your annual income. Your income may fail to keep up with inflation as you age, and/or if your spouse dies, your income might drop. You could then be faced with some difficult decisions about what you can afford to continue paying.

Assets:  If you have a good sum of assets, you may plan to pay some of your long-term care costs yourself (self-insure). If your non-housing assets are low (less than the cost of one year in a nursing home), then purchasing long-term care insurance is probably not a good idea. If you already qualify for Medicaid/MediCal, or would spend all your assets within a few months, you do not need LTC insurance. If you are somewhere between these extremes, LTC insurance may be worth considering. The amount of insurance coverage you buy should be comparable to the assets you would otherwise have to spend.

Age:  Premiums are based on age. The older you are when you purchase LTC coverage, the more expensive the premium will be. Many companies do not sell LTC insurance policies to a person over 85 years of age. In the past, the majority of people did not consider LTC insurance until they were ready to retire - 65 years old or older. Today, however, a third of all individual LTC policies are purchased by people younger than 65, ("Who Buys Long Term Care Insurance in 2000", Lifeplans, Inc., October 2000). Furthermore, as more and more employers/businesses begin to offer LTC insurance as part of their employee benefits package, it is predicted that the average age of people buying LTC protection will drop even further in the next ten years, (Dychtwald, Ken, Age Power, January 1999). Although a person can experience a chronic debilitating illness or a disabling accident at any age, the majority of financial planners and LTC Specialists still recommend that the most appropriate age to begin to explore your options for long-term care protection is 50 years old.

Health:  People with serious health problems are rarely accepted for LTC coverage. A few companies will accept you with certain chronic conditions, but your premiums will be a lot higher, because the insurance companies are taking on more risk.

Financial Rating Companies:  If you are considering purchasing an LTC insurance policy, there are rating companies that rate insurance companies on their financial condition and their "claims-paying abilities." These companies include AM Best, Standard & Poors, Duff-Phelps and Moody's.

Pay yourself first!

With the holidays just ahead, you probably will be spending money on everyone else except the most important person, yourself! As a new year is on the horizon and as the holiday bills pile up, we felt it was important to review the first fundamental aspect of investing - making sure you write yourself a check before you pay everyone else!

Planning for your retirement is your responsibility. Unfortunately, you can no longer rely solely on your company pension and/or social security to provide for you during your retirement years. With this responsibility it is imperative to put yourself ahead of everyone else. A good rule is to put 15% of your income away each year. Make writing that check to yourself part of your budget and do it on a consistent basis, each and every month! If you put yourself ahead of everyone else, the money you spend will be working for you in the form of compound interest, and you are less likely to spend it on items you may not really need. Consider your retirement a debt to yourself and make it a point to pay it off like a monthly bill.

When it comes to investing, there are a million excuses to not put money away - the market is too high or too low, there's too much volatility, I don't have the thousands of dollars it takes to get started, I'm waiting for the technology bubble to burst, my dog ate my application - it can go on and on. The point is that by writing a check to yourself every month, you are taking a step in the right direction - planning for your retirement. The size of your monthly payment is irrelevant, whether it be $25 or $25,000, make it your New Year's resolution to begin this month, and continue on with this discipline every month, by giving yourself a piece of your hard-earned dollars.

You have already taken the first step in requesting to receive our monthly e-bulletin. If you would like additional information including a free review of your current portfolio, information on brokerage services, mutual funds, tax-deferred annuities, or have a question on a specific financial program, please contact Retirement Strategies Group.