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SUZE ORMANThe Ultimate Protection Portfolio™

Retirement Records

This product provides information and general advice about the law. But laws and procedures change frequently, and they can be interpreted differently by different people. For specific advice geared to your specific situation, consult an expert. No book, software, or other published material is a substitute for personalized advice from a knowledgeable lawyer licensed to practice law in your state.

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Copyright © 2003 by Suze Orman Media, Inc. All rights reserved.Suze Orman® is a registered trademark of Suze Orman.Suze Orman—The Ultimate Protection Portfolio™ is a trademark of Suze Orman.People First, Then Money, Then Things® is a registered trademark of Suze Orman. Published and distributed in the United States by Hay House, Inc., P.O. Box 5100, Carlsbad, CA 92018-5100 • Phone: (760) 431-7695 or (800) 654-5126 • Fax: (760) 431-6948 or (800) 650-5115 • www.hayhouse.com®

All rights reserved. No part of this guidebook may be reproduced by any mechan-ical, photographic, or electronic process, or in the form of a phonographic recording; nor may it be stored in a retrieval system, transmitted, or otherwise be copied for public or private use—other than for “fair use” as brief quotations embodied in articles and reviews without prior written permission of the publisher. The author of this guidebook does not dispense legal advice. The intent of the author is only to offer information of a general nature. In the event you use any of the information in this guidebook for yourself, which is your constitutional right, the author and the publisher assume no responsibility for your actions.

ISBN 13: 978-1-4019-0345-9ISBN 1-4019-0345-2

16 15 14 13 12 11 10 9 8 71st printing, November 2003

7th printing, March 2016

Please locate the documents listed in the “Retirement Records Checklist” below and file them in your Protection Portfolio.

When the time comes for you to begin withdrawing money from your retirement accounts, please store records of those transactions in the Protection Portfolio for at least three years.

q Pension-plan summary description, annual plan statement, and annual individual-pension-benefit statement

q Money-purchase/profit-sharing-plan documents

q Beneficiary designations

q Retirement-account withdrawals

RETIREMENT RECORDS CHECKLIST

Retirement Records

S u z e O r m a n — T h e u l T i m a T e P r O T e c T i O n P O r T f O l i O ™2

Time and Your Retirement Plans

Retirement planning is a linchpin of financial security for you and your family. After all, each of us will one day have to live on the money we’ve saved rather than the money we’re earning. The time to start planning for that day is now. To help evaluate your readiness, please answer yes or no to the follow-ing questions:

• If you’re employed by a company or firm that offers a retirement plan, are you currently par-ticipating in it (or planning to participate when you’re eligible)?

• If you’re self-employed, do your contribute to a Keogh plan or SEP-IRA?

• If you answered yes to either question, are you making the maximum contribution allowed by law?

If you didn’t answer yes to the questions above, I have to tell you that in my opinion, you’re making one of the biggest financial mistakes possible. Let me ask you one more question: If you can’t afford to put money away for your retirement because you don’t have enough money to pay your bills now, how do you expect to pay those same bills when you no longer have a paycheck? Write your answer below.

Nice try, but there really is no answer. The only way to ensure that you’ll be able to cover your living expenses in retirement is to plan for them now, and that means saving and investing for your retirement. No matter how modest a sal-ary you have, you can—and must—start putting away money right now.

How to Save More—and More Wisely—for Retirement

If you don’t have credit-card debt, and if you’re signed up at work for a 401(k), 403(b), 457, or SIMPLE plan, I want you to go to your human-resources department and make sure that you’re contributing up to the company match. If you haven’t signed up for your retirement plan, please do so now. Then see page 12 for my advice on what to do once you’ve contributed up to the point of match. If you’re self-employed or your place of employment doesn’t offer a 401(k) or a similar plan, please read on and take the actions that are right for you. If you do have credit-card debt, and if you’re eligible to invest in your 401(k), 403(b), 457, or SIMPLE plan, please answer yes or no to the following questions:

If you answered yes to both questions, I want you to begin changing the way you contribute to your 401(k) or similar retirement plan, based on whether or not your company matches your contribution. Please consult the following chart.

Do you hate having credit-card debt? q q

Is the interest rate on your credit-card debt higher than the average rate of return on your 401(k) or similar retirement plan? q q

YES NO

r e T i r e m e n T r e c O r d S 3


Employer-Sponsored Retirement Plans: How They Work

The plans known as 401(k), 403(b), 457, and SIMPLE all allow you to contribute a percentage of your salary on a

HOW TO CONTRIBUTE TO YOUR 401(k) OR SIMILAR RETIREMENT PLAN

IF YOU HAVE CREDIT-CARD DEBTIfthecompanydoesnotmatchyourcon-tribution,andtheinterestrateonyourcreditcardishigherthanthereturnonyour401(k)orsimilarretirementplan.You should stop con-tributing to your 401(k) or similar plan and take

every dollar you would have been contributing to the plan and put it toward paying off your credit-card debt. After your debt is paid in full, go back to contributing to your 401(k) or simi-lar plan.

Ifthecompanydoesmatchyourcontribu-tion,andtheinterestrateonyourcreditcardishigherthanthereturnonyour401(k)orsimilarretirementplan.

You should contrib-ute to your 401(k) or

similar plan to up to the point of the match. After you have reached the maximum amount of money that your company will match, stop contributing and take that money and put it toward paying off the debt.

Ifthecompanydoesmatchyourcontribu-tion,andtheinterestrateonyourcreditcardislowerthanthereturnonyour401(k)orsimilarretirementplan.

If you don’t mind hav-ing credit-card debt,

and you’re 40 years of age or younger, con-tinue to invest fully in your 401(k) plan—or least to the level of the match. At the same time, continue to pay off your credit-card debt.


tax-deferred basis to a retirement-savings program, to which your employer may or may not contribute a full or partial match-ing amount. You decide where to invest your contributions—typically you’ll have an array of mutual funds to choose from. The amount you’ll have in this account at your retirement is dependent on the performance of the investments you choose. A 401(k), which takes its exciting name from a section of the tax code, is an all-around plan that almost any company can enter into. A 403(b) plan is the plan you probably have if you work for a nonprofit organization, such as a hospital, university, or research organization. A 457 plan is typically offered by state and local governments, but may also be offered by tax-exempt organizations. Its rules can differ depending on whether a public or private employer sponsors it (the chart on pages 6–7 only addresses government-sponsored 457 plans). SIMPLE, or Savings Incentive Match Plan for Employees, can be offered by companies that employ 100 or fewer people (each with at least $5,000 in compensation in the previous year) and don’t maintain another plan. On the following pages is a quick reference guide to employer-sponsored retirement plans.

Individual Retirement Accounts (IRAs)

In addition to contributing to an employer’s retirement plan, you can also maintain a traditional individual retirement account (IRA). If you’re also covered by an employer’s plan, your IRA contribution is deductible only if you meet certain income limits. Those of you who aren’t covered by an employ-er’s plan can defer taxes on your contributions no matter what your income.


QUICK REFERENCE GUIDE: EMPLOYER- SPONSORED RETIREMENT PLANS

401(k)/403(b)

A voluntary retirement plan offered to employees of com-panies. Plans allow up to a certain percentage of employ-ees’ pretax pay to be set aside and invested within the retirement plan.

Year Under 50 Over 50 2016 $18,000 $24,000

Those limits are adjusted periodically—in increments of $500—to account for inflation.

Taxes are deferred until you take your money out, at which time it will be taxed as ordinary income if you have a tra-ditional 401(k). Some employers now offer a Roth 401(k): you do not receive any tax benefit on your contribution, but in retirement your withdrawals can be 100 percent tax free. Both a traditional and Roth 401(k) offer the same tax treatment while your money is invested: there is no tax.

In most cases, you can’t withdraw the funds prior to age 591⁄2 without paying a 10% federal penalty, as well as income tax, on the amount withdrawn if your withdrawal is from a traditional 401(k).

Definition

Whatisthemaximumcontribution?

WhenandhowamItaxed?

WhencanIwithdrawfunds?


QUICK REFERENCE GUIDE: EMPLOYER- SPONSORED RETIREMENT PLANS

Governmental457

A voluntary retirement plan, typically offered to employees of state, county, and city govern-ments, which allows up to a certain percentage of employees’ pretax pay to be set aside and invested within the retirement plan. Please note: 457 plans may also be offered to employees of tax-exempt or nonprofit organ izations, but provi-sions may differ from those listed here.

Year Under 50 Over 50 2016 $18,000 $24,000

Yearly increases will be indexed in $500 incre-ments based upon inflation. Please note: In government 457 plans, as of 2002, a special catch-up rule applies if you are less than three years away from retire ment, letting you contrib-ute up to twice the annual maximum amount in any given year. Taxes are deferred until you take your money out, at which time it will be taxed as ordinary income.

Funds can be withdrawn when you retire from or leave your employer’s service. A government-sponsored 457 plan is different from a 401(k) or a 403(b) plan in that there is no mandatory mini-mum retirement age and no 10% federal penalty for early withdrawal of funds. As of 2002, under certain con ditions, rollover of assets from government-sponsored 457 plans into other retirement plans—such as IRAs, 401(k)s, 403(b)s, and other 457 plans—is allowed.

SIMPLE

A voluntary retirement plan (Savings Incentive Match for Employees) set up by small businesses for their employees. Employees receive some level of match-ing contribution from their employer.

Year Under 50 Over 50 2016 $12,500 $15,500

Yearly increases will be indexed in $500 increments based upon inflation.

Taxes are deferred until you take your money out, at which time it will be taxed as ordinary income.

In most cases you can’t withdraw funds prior to age 591⁄2 without paying a 10% federal penalty, as well as income tax, on the amount withdrawn. In addition, if you take out funds during the first two years you participate in the plan, an early with-drawal tax of 25% will apply.

Here are the income limits for being able to deduct your traditional IRA contribution from your federal taxable income:

• For single people who are covered by an employer’s retirement plan, the deductibility phases out between $61,000 and $71,000 in 2016.

• For married people who are covered by an employer’s plan, the deductibility phases out between $98,000 and $118,000 in 2016.

• For married people who aren’t covered by an

employer’s plan but have a spouse who is, the deductibility phases out between $183,000 and $193,000 in 2016.

Under any circumstances, the maximum amount you could contribute to an IRA in 2016 was $5,500 if you’re under age 50, or $6,500 if you’re 50 or older. For 2017 and beyond, the amounts will be indexed to inflation.

Consider a Roth IRA

In addition to having a traditional IRA, you can also con-tribute to a Roth IRA if you meet certain income qualifica-tions. Single taxpayers whose modified adjusted-gross income (MAGI) is less than $116,000 per year, and married couples filing a joint return who have a combined annual MAGI of less than $183,000 for 2016 can contribute up to $5,500 each if they’re under 50, or $6,500 if they’re 50 years old or older. Eligibility to contribute the full $5,500 (or $6,500 if you’re over 50) is phased out between an income of $117,000 and $132,000 for single taxpayers and between $184,000 and $194,000 for


married taxpayers filing jointly. After those income levels, you’re not eligible for a Roth IRA. With a Roth IRA, contributions aren’t tax deductible, but your contributions grow tax-free rather than tax deferred. That means that when you withdraw money from a Roth IRA at retirement, you won’t owe any taxes on the money you withdraw, no matter how much the money has grown in value (provided you’ve followed IRS guidelines). In addition, with a Roth IRA, you don’t have to wait until you’re 591⁄2 to begin taking withdrawals. You can take out your original contributions at any time, for any purpose, regardless of your age, without incurring taxes or penalties. Any earnings on your contributions, however, must remain in the Roth IRA until you turn 591⁄2 and have held the account for more than five years; otherwise, you’ll incur taxes and penalties on the earnings you withdraw. Earnings from a Roth IRA can be withdrawn penalty-free if you become disabled or die. Please note: You can have both a traditional IRA and a Roth IRA, but you can contribute only the maximum total amount allowed (in 2016, $5,500; or $6,500 for those 50 or older) each year to all your IRAs, no matter how many you have or what kind they are. See the chart on the next pages for a comparison of traditional IRAs and Roth IRAs.

Roth IRA Conversions and Qualifications

Beginning in 2010, you are allowed to convert a tradi-tional IRA to a Roth regardless of income. That means anyone, regardless of income, can contribute to a traditional IRA and then convert that account to a Roth IRA. If you do a conver-sion, even though you may be under the age of 591⁄2 when you take the money out of your traditional IRA to convert to a Roth IRA, the 10 percent penalty tax won’t apply—but you will owe ordinary income tax on any money that you convert.



When you convert money from a traditional IRA to a Roth IRA, the withdrawal privileges should be noted. The money that you originally converted—that is, both earnings and contribu-tions—has to stay in the Roth account for five years or until you are 591⁄2 (whichever comes first) before you can withdraw it with-out taxes or penalties. So you don’t have to be 591⁄2 to withdraw the converted amount to avoid the 10 percent penalty, you just have to meet the five-year holding requirement.

QUICK REFERENCE GUIDE: IRA COMPARISONS

TraditionalIRA

Yes (in most cases)

Yes

Yes, prior to age 591⁄2 701⁄2

$10,000 for first-time home buyers, or unlim-ited for educational purposes.

Year Under 50 Over 50 2016 $5,500 $6,500

After 2016, increases will be indexed in $500 increments based upon inflation.

Taxdeferred?

Taxableatwithdrawal?

10%Penaltyforprematurewithdrawal?Ageatwhichmandatorywithdrawalsmustbegin?

Penalty-freewithdrawals?

Maximumcontribution?


As an example, let’s say that you’re 39 and you convert $50,000 from a traditional IRA to a Roth. That $50,000 has to stay in the Roth IRA for at least five years. After that time, even though you’ll only be 44, you can withdraw all $50,000 without any taxes or penalties. The earnings on that $50,000, however, can’t be withdrawn without penalties or taxes until you’ve reached age 591⁄2.

QUICK REFERENCE GUIDE: IRA COMPARISONS

SpousalIRA

Yes (in most cases)

Yes

Yes, prior to age 591⁄2 701⁄2


Year Under 50 Over 50 2016 $5,500 $6,500


RothIRA

No

No (if you meet qualifications)

Yes, for earnings withdrawn prior to age 591⁄2 and earlier than five years from when the Roth was funded. Original contributions can be withdrawn tax- and penalty-free at any time. No


Year Under 50 Over 50 2016 $5,500 $6,500


401(k) Plans vs. Roth IRAs

Are you eligible for a company retirement plan such as a 401(k), and do you also qualify to fund a Roth IRA? If so, decid-ing which one to fund first can be confusing. It’s best to fund both to the maximum, if you can. But if money is tight and it’s an either/or situation, then this is what you should do: If you have a 401(k) or 403(b) plan where your employer matches your contribution (meaning that for every dollar you put into your retirement plan at work, the employer puts money in for you as well), fund your 401(k) or 403(b) up to the point of the maximum match. Once you reach the point where the employer is no longer matching your contribution (or if your 401(k) or 403(b) plan doesn’t have a matching program to begin with), figure out what tax bracket you’re in. If you make a lot of money and are in a high tax bracket and you like the investment choices that your retirement plan at work offers, continue to fund your 401(k)/403(b) plan to the max. Then fund your Roth IRA. If, however, you’re not currently in a very high tax bracket, or you don’t like the investment choices within your retirement plan at work, first fund your Roth IRA, and then, if you have the money, fund the 401(k)/403(b) plan at work. You should definitely consider switching to a Roth IRA (provided you’re eligible) if you’ve been investing in a non- tax-deductible IRA. I know the tax deductibility of the tradi-tional IRA looks tempting, but think long-term: When you go to withdraw the money at retirement, your traditional IRA will be taxed at your income-tax rate, but the Roth withdrawals will be tax free. So I want you to think about the long-term advan-tage of the Roth IRA compared to the short-term tax break you get with a traditional IRA. If you’re young and in a lower tax bracket, then by all means


look into a Roth IRA. Let’s say that from ages 21 through 30 you invest $5,500 in a Roth IRA averaging an annual return of 6 percent, and then you never deposit another cent into that account—you just let it grow. At age 591⁄2, you’d have more than $425,000 that you could access totally tax free. Keep the money growing until you are 70, and you will have nearly $800,000. Now let’s compare that to using a traditional IRA. If you were in the 15 percent tax bracket, your annual tax deduction would be about $825, or $8,250 over ten years, but you’d owe income tax on the $425,000 when you started making with-drawals. So you “saved” $7,500, but later you’re going to be hit with a big tax bill—especially if your tax rate has increased. While you’ll get no initial tax deduction savings on the Roth IRA, that $425,000 will be all yours—you’ll owe no tax.

Consider a Roth 401(k)

Since 2006, companies have been able to offer a Roth 401(k), which combines features of the traditional 401(k) with those of the Roth IRA. If your company offers a Roth 401(k) and you are at least ten years away from retirement, I encour-age you to consider investing in the Roth 401(k) rather than the traditional 401(k). With a Roth 401(k) you get no upfront tax break on your contributions; just like a Roth IRA (see page 11), the money you invest is after-tax. But the big payoff is that when you retire, all your withdrawals will be 100% tax free. Remember, with a traditional 401(k) all withdrawals are taxed at your ordinary income tax rate. Unless you are sure your tax rate in retirement will be lower than the rate you pay today, a Roth 401(k) can be a better deal for you over time; what you forego in a tax break today you will make up for with a bigger tax break in retirement.


Maximize the Impact of a Roth or a Traditional IRA

Most people wait until just before they file their taxes in April to contribute to their IRA for the preceding year. This is a mistake and an incredible waste of an opportunity. For example, you could fund your 2016 IRA all the way through mid-April 2017, the tax-filing deadline. But if you do that you miss out on up to 15 months (assuming you make your IRA contribution in January 2016) where your money would be invested and have the ability to grow. If you don’t have $5,500 at the beginning of the year, start putting $458 (or whatever you can) into your IRA each month. Continue to do so for the next 25 years, and you’ll still come out better than if you had waited to do it in one lump sum at each year’s end.


Retirement Plans for the Self-Employed

If you’re self-employed, you also have excellent retirement-planning options, in addition to funding a traditional or a Roth IRA. These include opening a SEP-IRA or a Keogh plan, either of which offers a great way to save for retirement. If you qualify, as of 2016 you may be able to save up to 25 percent of your income, or a maximum dollar amount of $31,000—whichever is less. To qualify for these retirement programs, you must report your earnings on Form 1099-MISC or earn income as fees for services you’ve provided. If you have people working for you and you open a SEP-IRA or Keogh for yourself, after a certain period of time you’ll have to fund one for them as well. If you’re thinking of setting up an SEP-IRA or a Keogh, it’s best to con-sult an accountant familiar with these plans.

Traditional Pension Plans You’ve worked all your life to be able to retire. Now, when you reach retirement age, if you’re going to receive a basic pen-sion from your company (not a 401(k) or other voluntary plan), then you’re going to have to make a choice about how to take that pension so that it’ll preserve and protect the income you may need to live on for the rest of your life. You may not have to make the decision right away; many companies will allow you to keep your pension money in the company plan for at least one year after your retirement date, and most will allow you to keep it there indefinitely. Until you know exactly what you’re going to want to do with your money, don’t rush into anything! Protect yourself by taking the time to weigh your options and plan your strategies carefully.


Time Creates Money

Employed, self-employed—it doesn’t matter; the key is to start saving as soon as you can. When it comes to money, time is probably the most important factor in the growth process. The more money you save and the more time you give to your money to grow, the more you’ll attract and create large sums. The amount you’ve accumulated when retirement comes will determine what kind of lifestyle you’ll be able to afford.

Exercise: Time Quiz

1. If at age 25 you start putting $100 a month into an account that averages a 6 percent return, how much will you have at 65?

2. If you start ten years later, at age 35, how much will you have at 65?

3. If you start 20 years later, at age 45, how much will you have at 65?

Answers: 1. $200,000; 2. $101,000; 3. $46,400

Time accounts for the difference. For every year you wait to take the step of establishing respect for your life and your future, it costs you thousands of dollars. In this scenario, by waiting 20 years—from age 25 to age 45—you’ll have lost more than $150,000. Why do just a few years make such a big differ-ence in the financial big picture?


Compound Interest

The answer to the preceding question is one of the secrets of financial success: Compound interest multiplies your money. When you leave your money invested over time, the amounts of money that your contributions are generating on their own are the worker bees in your money hive. For instance, let’s say you’re investing $6,000 a year, and that $6,000 is earning 6 per-cent. Let’s assume that your investment will be able to average that 6 percent over the next 20 years, and that you continue to add $6,000 at the beginning of every year. There will come a point in time when the earnings on your account will add up, by themselves, to generate more every year than the $6,000 you’re contributing. This is when those worker bees really start to make that money honey. Take a look at the following table to see how many years it’ll take before you earn as much in interest every year as you’re putting in. Look a little farther down the road, and you’ll see that in just a few more years you could be earning three times more annually in interest than what you’re contributing. Why? Because of the magic of compounding! It’s for this reason and this reason alone that you can’t afford to let one year pass without making a contribution to your retirement plan. The wonderful effects of compounding are too compelling to ignore. Since time is of the essence, you’ve got to start now to mul-tiply your money.

Are You Ready to Retire?

Whether or not you’re ready to retire depends on two fac-tors: your emotional and financial states.


Exercise: Your Emotional Quotient

To help you clarify if you’re emotionally ready to retire, answer yes or no to the following questions:

An answer of no to most of these questions suggests you aren’t ready for retirement. Either stay where you are or secure another income-producing opportunity elsewhere. Be sure you continue contributing the maximum allowed to any or all of your retirement-savings accounts. A yes to the majority of these questions makes you a good candidate for retirement. Your next considerations will be financial, and will confirm or contradict your ability to retire comfortably.

HOW COMPOUND INTEREST WORKS:401(K) YEARLY INTEREST EARNED

Year

1234567891011121314151617181920

Contribution

$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000$6,000

Interestearned(at6%peryear)

$360$742$1,146$1,575$2,029$2,511$3,022$3,563$4,137$4,745$5,390$6,073 (interest now equals your contribution)

$6,798$7,565$8,379$9,242$10,157$11,126$12,154 (interest is more than twice your contribution)

$13,243


The Financial Factor—Can You Afford to Retire?

Now it’s time to figure out if you have the money to retire. When you retire, your income and expenses will change—some-times dramatically. It’s important for you to figure out how much you expect to have when that happens. A few of your expenses might decrease—you won’t have to pay for transportation to get to work, buy office clothes, or eat out as often, for example—but other expenses might increase. If you have time on your hands, you might spend more money on traveling, visiting your kids or calling them on the phone, or playing golf. So, as you fill in the worksheets in this section, think about your life after retirement in a very truthful, realistic way.

Exercise: My Retirement Expenses

You may want to refer to the figures from the “Total Yearly by Category” column of the “My Monthly Expenses” worksheet in the “Credit: Cards, Records, and Debt” booklet in this portfolio to help you with the following exercise. For your convenience, all of the worksheets for determining if you can afford to retire can also be found on the Must Have Documents Website.

q q

q q

q q

q q

q q

q q

Are you planning to retire within five years?

If you could afford to, would you retire now?

Are you ready to give up the daily work routine?

Does your spouse want you to stop working?

Would you like to have a different job than you have now?

Do you know how you want to spend your time after you stop working?

YES NO


MY EXPECTED RETIREMENT EXPENSESTotalYearly byCategoryMortgage/PMI/rentProperty taxes, property insuranceHome maintenance, association, or condo feesUtilities (gas, electric, oil, water)Home systems (burglar alarm, pool, spa)Telephone, cellular phone, cableGardening, lawn careFood, alcohol, restaurants, home entertainmentMedical, dental, optometricPet care, veterinarianInsurance (life, health, auto)AutomobilesTransportation (gas, parking, tolls)Clothes, shoes, jewelryDry cleaning, laundry serviceHair, manicure, facialAlimony, child supportChildren’s education, child careJob training, educationProfessional fees (legal, accounting, counseling)Technology (computer, printer, Internet connection)Credit-card balances, loans (other than mortgage)Bank fees, credit-union feesPostage, shippingEntertainment (video rentals, movie tickets, etc.)Recreation (sporting events, hobbies, health clubs)Books, subscriptionsVacationsDonationsLotteryGifts (holidays, weddings, birthdays, baby showers)CigarettesATM cash withdrawalsSeasonal expenses (firewood, summer camp)Weekly expenses (lessons, house cleaning, babysitting)TotalYearlyRetirementExpensesAverageMonthlyExpenses(yearlydividedby12)


Exercise: My Retirement Income

Now you need to record every source of your retirement income. This includes your Social Security income, pension, and any annuities you may have. Please calculate only the amount you’re fairly certain you’ll collect on an ongoing basis—don’t include any windfall payment, such as a recent one-time tax refund. If you’re working and are about to retire or be laid off, don’t count the few paychecks you have left. Be as realistic as possible as to how much you can really count on month in and month out.

MY EXPECTED RETIREMENT INCOMEIncomeCategory YearlyAmount

Pension checks (after taxes and deductions)

Predictable bonuses off past work income

Social Security income

Disability income

Alimony and child support

Bond income (outside of retirement accounts)

Interest income (outside of retirement accounts)

Dividend income (outside of retirement accounts)

Rental income (that you can expect to continue

throughout retirement)

Predictable yearly gifts from any source

Loan repayments

All income from retirement accounts (assume that

you’ve invested all your retirement-account

moneys at the going five-year CD rate)

Miscellaneous

TotalYearlyIncome

MonthlyIncome(yearlydividedby12)


Exercise: Know Where You Stand at Retirement

In the chart below, you’ll compare the difference between your expected monthly retirement income and your expected monthly retirement expenses. Write the figure you calculated in the “My Expected Retire-ment Income” worksheet on the previous page in the first box below. Next, write your “Average Monthly Expenses” figure from the “My Expected Retirement Expenses” chart on page 20 in the second box below. Subtract your expenses from your income. Write the result-ing figure in the “Difference” row. This figure is the amount of your monthly deficit or excess.

If You Have an Expected Retirement Deficit

Let’s say that your expected retirement expenses are $3,000 a month and your expected income is only $2,300 a month. This leaves you $700 a month short to meet your expenses. At this point, you may decide that you can’t currently afford to retire. To take action, look again at your expenses, and start saving at the rate you need to. Delaying when you begin to take Social Security benefits can also be a smart strategy. As

Expected monthly retirement income $

Minus (–)

Expected monthly retirement expenses $

Difference (expected monthly deficit or excess) $

WHERE YOU STAND AT RETIREMENT


explained in the Social Security booklet, your benefit will be larger if you wait to start taking your retirement benefit. The benefit for someone with a full retirement age of 66 (the age Social Security pays you 100 percent of your earned benefit) will be 25 percent larger if they wait until age 66 to claim, rather than starting at age 62. If you delay your start all the way until age 70, the benefit will be 76 percent larger than what you are entitled to at age 62. Continuing to work well into your 60s—even part-time—can give you enough income to make delaying your Social Security start date realistic.

Safeguard What You Need to Retire

If you’re a few years away from retiring and the exercise above showed that you have just enough to be able to do so, I want you to do something else. You need to figure out just how much money you’ll need to keep safe and sound in order to generate income to live on. If you’ve based your expected income numbers on money that’s currently invested in the stock market and you’re planning to put that money into bonds when you retire, you need to do so now. For instance, suppose you now know that the money in your retirement account is going to generate $700 a month in income. If you know that you’ll need at least that $700 a month (or whatever your figure is) for you to make it, you need to switch the funds from the unknowns of the stock market to the safety of bonds. To ensure that you have that money secured, multiply the yearly amount you need from your account by 20 and transfer that amount into a safe investment right now. You need to put your money in a place where absolutely nothing could happen to it. This way, you’ll always have money to generate the income you know you’ll need. If you want it to be extra safe and sound,


can you put more than that amount in very safe investments? Of course you can. But you have to have at least that much tucked away. Of course, by switching from stocks to bonds, your account will probably earn less than in the past. That’s fine—assuming you don’t need the money to earn a higher rate of return to meet your retirement-income needs.

What to Do with Your “Safe” Money

In this economic environment, where interest rates are low, you might want to look at investing any money you need to keep safe and sound in the following vehicles:

• Treasury notes and bonds

• Series I bonds

• Series EE bonds

• Ginnie Maes

• CDs

• Single-premium deferred annuities that guaran-tee an interest rate for the entire time the surren-der charge is in force

• Insured municipal bonds (outside of a retirement account only)

For more information on these investments, please consult my other books. Please don’t consider investing in intermediate


or long-term bond funds under any circumstances. I want you to stick with shorter-term issues so you won’t be hit hard if interest rates rise. That being said, if you intend to own the bonds until they mature, you can invest in some longer-term bonds, because you’ll get your principal back when the bonds mature, so you can be less concerned about interest rate fluctuations during the period you own them. Please don’t invest in individual corporate bonds or preferred stock unless you’re a very sophis-ticated investor.

If You Have Extra Retirement Assets

If you have more than you need to meet your retirement needs, then you can keep the excess invested in stocks. If you invest in individual stocks (rather than mutual funds), then be sure that no single stock accounts for more than 4 percent of your overall stock investments. Don’t repeat the mistakes of those Enron and WorldCom employees who had all or most of their retirement money in their company’s stock. You may have all the faith in the world in the company that you work for, or you may have an emotional attachment to a stock you purchased or inherited from your parents, but please don’t fail to diversify your holdings.

Early Retirement

Retirement isn’t necessarily just for those who have reached 65 anymore. Retirement can be offered now as early as 50 to 55 years of age. In order to entice long-term, relatively well-paid employees to retire early, many companies offer them addi-tional benefits such as an increased pension, the opportunity


to receive the pension immediately, and health-care benefits. (By the way, most early retirement health-benefit offers don’t include dental or optical care, so get all your dental and optical work completed before you decide on early retirement.) The following are some tips you should keep in mind if you’re considering early retirement. If you take early retirement because your spouse or partner’s earnings cover your financial needs and you’re dependent on those earnings, then you should consider purchasing a “level term” life-insurance policy on him or her to protect you in case anything happens. You will need the policy only for the number of years your spouse or partner plans to work. If he or she is planning to retire in ten years, then take out a ten-year policy. If you and your spouse have set up a revocable living trust (hold your assets in trust), make sure the primary beneficiary named on all your retirement accounts is the individual name of your spouse and not the trust. If you name the trust as the primary beneficiary, it’ll be subjected to the same rules as a non-spouse, and the account will have to be wiped clean within five years. The trust should be named the contingent benefi-ciary only. Making a decision about early retirement is stressful. For-tunately, you don’t have to make all of your financial decisions at the same time. Most companies will allow you to leave your money in the company plan for at least a year after you retire, and many will allow you to leave your funds there until you turn 701⁄2, at which time you must, by law, begin withdrawing the minimum required distribution. (If you invest in a Roth 401(k), you can roll over the account into a Roth IRA prior to age 70 ½. There will be no tax bill due on that transaction. There are no RMDs on money invested in a Roth IRA.) So don’t feel pressured to make any decisions or move your money if you’re not ready. Find out your company’s deadlines—you


probably have some time to think about what to do with your retirement account. Here are just a few options:

• If your company allows you to do so, you can leave your money in your 401(k).

• You can roll over all the money into an IRA. (You can do an unlimited number of rollovers into as many IRAs as you want.)

• You can leave some of your money in the com-pany plan (assuming that the company allows you to do this) and roll the rest of it over into one or more IRAs.

• If you’re 55 or older in the year you retire, you can take distributions of all or part of your retire-ment account without penalty. (You’ll still have to pay ordinary income tax on those distribu-tions.) This rule of 55 or older pertains only to money in employee-qualified plans, not for any other retirement account, such as an IRA, an IRA rollover, or a SEP/IRA.

Essentially, your options are leaving your money in the company plan, rolling it over into one or more IRAs, or doing a combination of both. A word of warning: If you’re 55 or older and transfer your funds from your qualified plan into an IRA rollover, you’ll also transfer away the right to access these funds at convenience without penalty until you turn 591⁄2—unless you take substantially equal periodic payments.


Should You Take a Monthly Pension or a Lump-Sum Payment?

Whether it’s best for you to receive your pension money in a lump-sum payment or as a monthly pension check depends on the following factors:

• How much you have in your pension account

• The amount of the monthly payment the com-pany will pay you

• The amount of the monthly payment the com-pany will pay to your spouse or life partner after you’ve died

• Your age

• Your life expectancy and the life expectancy of your spouse

• Whether you need this income to live on

• Whether this income needs to support another person after your death

To decide between taking your pension as a lump sum or as monthly payments, start by looking at the actual return you would get if you took the monthly pension payments. Then compare that to what you could reasonably expect to get on your own if you took a lump sum and invested it. To make this process as easy as possible, complete the following “Monthly Pension vs.


Lump-Sum Payment” exercise. You’ll also find a “Monthly Pen-sion vs. Lump-Sum Payment” calculator on the Website.

Exercise: Monthly Pension vs. Lump-Sum Payment

Let’s say that you’re 60 years old and are being offered a choice between a $250,000 lump sum or $1,300 a month for the rest of your life. There’s a joint-and-survivor benefit attached (please see page 34 for information on joint-and-survivor- benefit options), so when you die, your life partner or spouse will receive half of the monthly pension amount ($650 a month). To figure out the rate of return on your monthly pension, we need to do some math:

Step 1: Take the monthly pension amount that your com-pany is offering you and multiply it by 12. This is how much you’ll receive in pension payments every year.

Example You

monthly pension monthly pension

$1,300 $

x 12 x 12

$15,000 $

annual pension payments annual pension payments

Step 2: Take the amount of your annual pension payments and divide it by the lump sum you’re being offered. This answer is, in essence, the percentage return the company is giving you on your money.


Step 3: Do these calculations again, this time using the amount that your surviving spouse or life partner will get. To do this, take the monthly pension amount that your company is offer-ing your surviving spouse or life partner and multiply it by 12. This is how much he or she will receive in pension payments every year.

Step 4: Take the amount of your surviving spouse’s or life part-ner’s annual pension payments and divide it by the lump sum your surviving spouse or life partner is being offered. This answer is, in essence, the percentage return the company is giv-ing you on your money when it comes to paying your surviving spouse or life partner.

Example YourSpouse

monthly pension monthly pension

$650 $

x12 x12

$7,800 $

annual pension payments annual pension payments

Example You

annual pension annual pension

$15,600 $

÷ lump sum $250,000 ÷ lump sum $ percentage .0624 or percentage

return 6.24% return


Using the example here, the question I would ask myself is: Do I think that over my life expectancy I can earn 6.24 percent a year without risk, and that after I die a spouse or life partner could earn 3.12 percent? Now, using your actual numbers from the exercises you completed, fill in the blanks: Do you think that over your life expectancy you can earn _____ percent a year on your money without risk, and that after you die your spouse or life partner could earn _____ percent?

YES NO (circle one)

If your answer is no, then you might be best off taking the monthly pension option. But if the numbers are close (and they probably will be), then it’ll be worthwhile to look at other investment options, keeping in mind that if you do take the monthly pension option, you’ll no longer have the principal available for you or your beneficiaries. If you decide to look into other investment options, please consult a fee-based investment adviser who has been working as an adviser for at least 10 to 15 years.

Example You

annual pension annual pension

$7,800 $

÷ lump sum $250,000 ÷ lump sum $ percentage .0312 or percentage

return 3.12% return


Age Matters When You Take a Pension or a Lump-Sum Payment

If you choose a lump-sum payment, in order to delay having to pay income taxes on the money in your retirement account, you’ll need to transfer this money into an IRA roll-over—and IRA rollover accounts are governed by age restric-tions. In most circumstances, you can’t easily touch these funds before you’re 591⁄2. Also, by April 1 after the year you turn 701⁄2, you’ll have to start making mandatory withdrawals if the money is in a traditional IRA. Let’s say that you’re only 56 years old, and you need the interest from this retirement money to live on. If you take the lump-sum payment and rollover the money, you won’t be able to freely access these funds without penalty for another three and a half years, or until you’re 591⁄2. There are ways around this, such as SEPPs, or substantially equal periodic payments, but they’re somewhat complicated. If this is the case, you may find that taking the monthly pension works better for you. If you’re older, your age still comes into play, because you have to start taking those mandatory distributions at age 701⁄2. Let’s say that you’re 65 years old and about to retire, and you need all the income your retirement plan can generate. You opt for the lump-sum payment, put all the money into an IRA roll-over, and buy a treasury note earning 5.0 percent. Your monthly income is $1,146—not too far off from what they would give you as a monthly payment. You think you can’t lose, since you’ll even have money left to leave your beneficiaries if you take the lump sum. But you must remember that when you hit age 701⁄2, you’ll have to start making mandatory withdrawals from a traditional IRA account. This is because the government wants the tax money that you’ve deferred for so long on those funds. Over time, because of taxes, you may find that you don’t have


anywhere near that $250,000 you started with to generate inter-est for you. And if interest rates stagnate or decline when this happens, you may find yourself with significantly less income per month than if you had taken the monthly pension.

If You Plan to Work after Retirement

If returning to work is at all a possibility for you, you’re prob-ably better off taking a lump-sum payment and rolling over the funds. If you end up not needing that money for income, you can invest it for growth. If you take the pension and then get another job, you’re double-dipping—you’re getting a salary and a pension at the same time. The problem is that you’re getting money that you may not need, you must pay taxes on this money, and you’re missing the opportunity to invest it for growth.

Lump-Sum Advantage if You Have Children

When you take a monthly pension, depending on the pay-ment option you choose, it may stop when you die. Even if it continues to be paid to your spouse or life partner after your death, upon his or her death it definitely stops. If you have children, this means they’ll get nothing. But if you take this money as a lump sum and invest it wisely, even with mandatory distributions starting at the age of 701⁄2, you could probably still have money to pass on to your beneficiaries. If you’re married or have a life partner and/or children, always look at all your options when it comes joint-and-survivor benefits.


Joint-and-Survivor Pension Benefits

If you’re going to receive a basic pension when you retire, you usually have the option of reducing that monthly pension amount in exchange for the promise that your spouse or life partner will continue to receive some portion of your pension after you die. This is called a joint-and-survivor option. You can often choose among several levels of joint-and-survivor benefits: 100 percent, 75 percent, 50 percent, or 25 percent. The larger the percentage of your monthly pension you want your spouse or life partner to get, the more money will be deducted from your basic pension payment each month while you’re still living. (Federal law requires written permission from your spouse if you opt to take less than a 50 percent joint-and- survivor benefit on a tax-qualified pension plan. Some states make the same requirement in the case of non-company plans, such as IRAs.) Not all companies make it financially affordable to take a joint-and-survivor option. Each company has its own pricing structure, so you must first figure out how much each option will cost. If you’re about to retire, the following section will help guide you through this decision-making process. If you’re still years away from retirement, your company may be able to do a projection so you can get an idea of what your joint-and- survivor benefits will be. Which Joint-and-Survivor-Benefit Option Might Be Best for You?

To determine which joint-and-survivor-benefit option is right for you, enter your personal information in the “Joint-and-Survivor-Benefit Options” calculator on the Must Have Documents Website or fill in the blanks below as we proceed.


Item 1: In (A), enter the amount of your basic pension. This is how much the company will give you monthly. Upon your death, your partner gets nothing. In (B), place a “0.” This is how much your partner will receive from your pension benefits if you pass away first. In space (C), place a “0.” When you take this option, there’s no cost to you because there’s no survivor benefit to pay for. The company owes you the basic pension, and this is what it’ll pay you. Item 2: In space (D), enter the dollar amount that appears in the “50 percent joint-and-survivor” section of your benefit statement. In (E), take (D) and divide it by 2. This is what your partner will receive after your death. This figure should also appear on your benefit statement. For space (F), subtract (D) from (A) and record that sum. This is the cost to you for the 50 percent option. Item 3: In (G), enter the dollar amount that appears in the “100 percent joint-and-survivor” section on your benefit state-ment. In (H), enter the same figure that appears in (G). This is the benefit your surviving partner will receive. You should also find this figure on your benefit statement. In (I), subtract (G) from (A) and record this amount. This is the cost to you for the 100 percent joint-and-survivor option.

JOINT-AND-SURVIVOR-BENEFIT OPTIONS

Item

1.

2.

3.

J&SOptions

Basicpension

50% option

100% option

EmployeePension

(A)_______

(D)_______

(G)_______

PartnerBenefit

(B)______

(E)______

(H)______

Cost

(C)________

(F)________

(I)________


The Case of Don and Janet

Once you’ve filled in the blanks, you’ll have something that looks like the example below, which examines the pension choices of a hypothetical couple we’ll call Don and Janet. Don is 56 and Janet is 54, and Don is about to take early retirement.

JOINT-AND-SURVIVOR-BENEFIT OPTIONS Item

1.

2.

3.

J&SOptions

Basic pension

50% option

100% option

Don

(A)$2,090

(D)$2,000

(G)$1,843

Janet

(B)$0

(E)$1,000

(H)$1,843

Cost

(C)$0

(F)$90

(I)$247

In Item 1, Don’s basic pension is $2,090 a month. If Don and Janet choose this option, Janet will receive absolutely no monthly income upon Don’s death. If Don and Janet take the 50 percent joint-and-survivor-benefit option in Item 2, the $2,090 is reduced to $2,000 during Don’s lifetime, and Janet will receive $1,000 a month if Don dies before she does. The cost to them for this option is $90 a month. In Item 3, taking the 100 percent joint-and-survivor option reduces the monthly income Don and Janet get while Don is alive from $2,090 to $1,843 in order to provide Janet with $1,843 a month for the rest of her life upon Don’s death. The cost to them for this option is $247 a month. Now that Don and Janet know what the cost to them will be for each option, they need to decide which one they’ll take. Don and Janet decide that they want to take the 100 percent joint-and-survivor benefit of $1,843 per month. This will cost them $247 a month, or $2,964 a year while Don lives.


Advantages and Disadvantagesof Joint-and-Survivor-Benefit Option

Essentially, what Don and Janet are doing by selecting a joint-and-survivor-benefit option is purchasing a life-insurance policy on Don through his company. However, the advantages of a joint-and-survivor option are that there are no health qualifications to receive these benefits, and it guarantees a monthly income for both partners for the rest of their lives—they’ll automatically get a check every month. However, it may be more advantageous to purchase a life-insurance policy outside the company. It might be possible for Don and Janet to purchase a policy on Don that would provide Janet with $1,843 a month upon Don’s death for a cost of less than $247 a month. You see, if Janet dies before Don, he’s still stuck paying $247 a month for the rest of his life for benefits no one but Janet can use. Many companies are now offering what is called a pop-up option to protect against this. The pop-up option (each company may have its own name for this) allows Don to be reinstated to the basic pension amount if Janet dies before he does. More and more companies are utilizing this option for a small additional cost. Generally, this pop-up option is limited to married couples, while the other joint-and-survivor benefits are available to unmarried couples.

Joint-and-Survivor Alternatives

Don and Janet have alternatives to taking joint-and-survi-vor benefits with Don’s company. These options include: Buying a whole-life policy and investing the death proceeds to live off the interest: The kind of policy you buy must offer the same security as the joint-and-survivor benefits so that the sur-viving partner will have the death proceeds to invest to provide


a monthly income equivalent to the joint-and-survivor benefits. The policy must be guaranteed to pay a specific death benefit no matter how long you live and no matter what happens to interest rates. Because this is guaranteed coverage, it can also be very expensive, so it’s necessary to take the time to compare it to the cost of your joint-and-survivor-benefit payment. Purchasing a life insurance policy and an annuity: Don and Janet can purchase a lesser amount of life insurance on Don wherein Janet can invest the death proceeds in an annuity that will provide $1,843 a month in income. Buying a life-insurance policy with the intention of purchasing an annuity to provide monthly income is the most comparable alternative to the joint-and-survivor benefit. In both cases, when the surviving partner dies, there’s no lump-sum payment to beneficiaries, and in many situations the monthly payments cease. Buying term life insurance coupled with an investment pro-gram: A term insurance can be purchased on Don coupled with an investment program to replace the term insurance completely when and if it expires. I don’t like this alternative for most people, since very few of us are disciplined enough to save on our own or know how to invest our money safely.

Note: If you’ve opted for the life-insurance alternative, you must apply and be accepted before you retire.

With all the possible alternatives presented, most of you will find that the joint-and-survivor benefit through your com-pany will be the most cost-effective and beneficial option. If a financial adviser indicates that you should take anything less than the 100 percent joint-and-survivor option, I’m firmly countering this advice. Unless you’re guaranteed to receive a significant inheritance or windfall within the very near future, have considerable liquid assets, or if insurance is an option, the


100 percent joint-and-survivor option is highly recommended, with these special exceptions: if your nonworking partner is much older than you, or if the nonworking partner has a seri-ous or terminal illness. When either of these two exceptions is the case, people tend to take the basic pension (where the partner will receive nothing), thinking that the nonworking partner will most assuredly die first. On the surface this seems logical, but it can work to your detriment, because you never know how things are going to turn out. When you and your life partner have to make a decision that will affect your financial future for the rest of your lives, please, please take the time to consider your objectives and the ramifications of your choices. Once a joint-and-survivor option has been chosen, the choice is irreversible. All too often people think they should take more money now, without considering the future consequences. Do the math. Don’t tempt fate.

Your Pension Plan: Knowing Your Rights

By now we’ve all heard stories about companies mismanag-ing their pension plans, leaving employees who have worked for them 20 years or more with nothing to retire on. If that makes you nervous, then the best thing you can do is to protect your future by keeping track of what your company does with your retirement plan. Yes—you can do this. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pen-sion plans in private industry. ERISA requires retirement-plan administrators—the people who run the plans—to provide you with written information explaining the most important facts about your pension plan. The plan administrator is required


to keep you regularly informed. This includes a summary plan description (SPD), which you should get when you begin participating in the plan (you should keep this statement the “Retirement” pocket of your Protection Portfolio). The SPD is a comprehensive document that tells you exactly what your plan provides and how it operates. The SPD should show when you began to participate in the plan, how your service and benefits are calculated, when your benefits become vested, when and how you will receive payments, and how to file for your benefits when you need to. If there are any changes to the SPD, your plan administrator is required to give you a revised SPD or a separate document detailing the modifications. Please file those in your Protection Portfolio as well. In addition to the SPD, the plan administrator must give you a copy of the plan’s summary annual report, a summary of the yearly financial report that most pension plans must file with the Department of Labor. Finally, you should also receive, free of charge every year, an individual benefit state-ment that describes your personal total accrued and vested benefits. Please file these as well. If the information you’re given doesn’t answer the ques-tions you have about your plan, more information is avail-able—but you must request it from the plan administrator. Here are some facts you should know: If you’re vested in your pension, you have rights even if you lose your job. If you leave an employer with whom you have a vested pension benefit that you won’t be eligible to receive until later in life, your plan administrator must report that informa-tion to you and to the IRS. The IRS will inform the Social Secu-rity Administration. You can check with the Social Security Administration to ensure that you were reported as having a deferred vested benefit (call the Social Security Administra-tion toll-free at 800-772-1213). Even if you don’t request this information, Social Security will automatically fill you in when


you retire and apply for Social Security benefits. Still, I think it is a good idea to double-check after you leave your job. Stay in touch with the plan administrator, keeping him or her informed of any name or address changes to ensure that you’ll receive your full pension benefit. The law mandates that you start getting your pension ben-efits at a designated age and time. According to the Employee Retirement Income Security Act, you must begin to receive plan payments from a qualified plan not later than the 60th day after the close of the plan year in which the last of the following events occurs:

• You turn 65 (or the normal retirement age speci-fied by your plan)

• You have participated in your plan for at least ten years

• You terminate your service with the employer

“Normal retirement age” is defined as the earlier of these two scenarios: (1) the age specified in the plan as normal retire-ment age; or (2) age 65 or the fifth anniversary of the employee’s participation in the plan, whichever is later. Normal retirement age is also the point at which a partici-pant must become 100 percent vested in the plan. So for most people, being 100 percent vested in a qualified retirement plan is the factor that determines normal retirement age. These rules apply for both defined-contribution plans and defined- benefit plans. Depending on the type of plan you have, you may be able to access benefits before the normal retirement age. Check your summary plan description for the specific details of your plan, but generally, there are several conditions under which your


plan might allow you to begin receiving payments early. A defined benefit plan could permit earlier payments by, say, providing for early retirement benefits, which might have addi-tional eligibility requirements. A defined-benefit plan might also allow benefits to be paid out when you terminate your employment, suffer a disability, or die. Often, 401(k) plans allow you to withdraw some or all of your vested accrued benefit when you leave your job, reach age 591⁄2, become disabled, retire, die, or suffer some other hardship that may be defined in the SPD. Profit-sharing or stock-bonus plans may allow you to receive your vested accrued benefit after you leave your job, reach a specific age, become disabled, die, or after a specific number of years have elapsed. If you’re a part-time employee, you may be covered. Employees who work at least 1,000 hours per year but don’t work full-time must be credited with a pro rata portion of the benefit that they would accrue if they were employed full-time. In other words, if your plan requires that employees work at least 2,000 hours of service per year for full benefit accrual, but you only work 1,000 hours per year, then you’ll be credited with 50 percent of the full benefit. Check your SPD to see exactly how your plan calculates service credit. Pension plans can be terminated, but any vested money you have in the plan may still be due you. Pension plans are sup-posed to continue indefinitely, but employers are allowed to ter-minate plans. Luckily, you do have some protection if your plan is canceled. If your plan is a qualified plan, your accrued benefit must become 100 percent vested when the plan terminates, to the extent that it’s funded (how much has been contributed by you and your employer). This is also true if your employer partially terminates a qualified plan—for example, if one divi-sion of a company is closed and a substantial number of plan


participants are affected. All affected employees’ plans become 100 percent vested, to the extent they have been funded, effec-tive as soon as the plan terminates. Pension plans may be insured. If you have a defined- benefit plan, ask your plan administrator if it’s insured by the Pension Benefit Guaranty Corporation (PBGC). If it is, the PBGC guarantees that you’ll receive your vested pension bene-fits—up to certain limits. Receiving any additional benefits that exceed the PBGC’s limits—or that weren’t guaranteed—rests on what the PBGC can work out with the employer. If you find yourself in this messy situation, contact the Pension Benefit Guaranty Corporation, Administrative Review and Technical Assistance Department, 1200 K Street NW, Washington, D.C. 20005, 202-326-4000, for more information. You can also learn more at www.pbgc.gov. Starting in 2008, the Pension Protection Act requires companies with ailing pension funds that may have to curtail benefits to notify the affected workers in writing. For more information on the workings of this complex law, visit the Pension Rights Center at www.pensionrights.org.

What to Keep in Your Protection Portfolio

Money-Purchase and Profit-Sharing Plan Documents If you’re self-employed or a small employer and have a money-purchase retirement plan, a profit-sharing retirement plan, or a solo 401(k) that was set up for you or is administered by a pension administrator, please be sure to ask your adminis-trator for the original or a copy of the plan agreement and keep it safe and sound in your Protection Portfolio.


Beneficiary Designations IRAs, Keoghs, 401(k)s, 403(b)s, 457s, profit-sharing plans, and pensions are all types of retirement plans in which a custo-dian—usually a bank, brokerage house, or employer—retains the title to the account and you are the beneficiary. When you set up one of these accounts, part of the paperwork requires you to name a beneficiary or beneficiaries to receive the account when you die. The trouble is, many people forget who they des-ignated as beneficiary when they created the account. In some cases, people get divorced and forget to change the beneficiary designation, in which case the ex-spouse is legally entitled to receive the accounts. This isn’t what most people want. To be protected from this and other problems, please file copies of all the beneficiary designations you’ve made for all your retire-ment accounts in the Protection Portfolio. If you don’t have a clue about these designations, contact the account holder or custodian and ask to receive a copy of the beneficiary designation on file for you. If you see that your beneficiaries aren’t who you want them to be, call the custodian and request a change of beneficiary form. Be sure to include not only a primary beneficiary, but a contingent or secondary beneficiary. That way, if your first choice dies before you do (or with you), you get to control who inherits the account. Don’t name your estate as a beneficiary; this will require your family to probate the account. If you want to make a donation to a charity at your death, you can name the charity as a beneficiary on your account, or give a percentage of the account to the charity, and the charity won’t pay a penny of income tax on the account. Any other ben-eficiary will be required to pay income tax on the tax-deferred dollars in the account, which is usually all of the account.


There are special rules for spouses, who may be able to roll the account over into their own name and not pay taxes until they withdraw the money. Such a decision may have a time line that requires a decision to be made in writing and given to the custodian; otherwise, the spouse may lose the right to roll over the account.

Retirement: The Big Picture

When planning for your retirement, it’s essential that you invest in your retirement plans to the maximum, take advan-tage of tax-deferred ways to save, and at the same time invest outside your retirement accounts to the extent that you can. By doing so, you’ll contribute to your overall financial picture—and the truth is, the more complete this picture, the safer your future will be. Please don’t make the mistake of arriving at your retire-ment unprepared. If you have doubts about the best investment choices for your retirement plan, seek guidance from a good professional adviser who can help you construct a sensible financial profile. But no matter what, don’t forget that it’s your money that’s at stake. So watch your investments carefully—it’s a matter of securing your retirement dreams.


About the Author

Suze Orman has been called “a force in the world of personal finance” and a “one-woman financial advice powerhouse” by USA Today. A two-time Emmy Award–winning television host, New York Times mega-best-selling author, magazine and online colum-nist, writer/producer, and one of the top motivational speakers in the world today, Orman is undeniably America’s most recognized expert on personal finance.

Orman for 16 years was the contributing editor to O, The Oprah Magazine and for 13 years hosted the award-winning The Suze Orman Show, which aired every Saturday night on CNBC. Over her television career, Suze has accomplished what no other television personality ever has before. Not only is she the single most successful fund-raiser in the history of public television, but she has also garnered an unprecedented eight Gracie awards, more than anyone in the 41-year history of this prestigious award. The Gracies recognize the nation’s best radio, television, and cable programming for, by, and about women.

In 2010, Orman was also honored with the Touchstone Award from Women in Cable Telecommunications, was named one of “The World’s 100 Most Powerful Women” by Forbes, and was presented with an Honorary Doctor of Com-mercial Science degree from Bentley University. In that same month, Orman received the Gracie Allen Tribute Award from the American Women in Radio and Television (AWRT), which is bestowed upon an individual who truly plays a key role in laying the foundation for future generations of women in the media.

In October 2009, Orman was the recipient of a Visionary Award from the Council for Economic Education for being a champion on economic empowerment. In July 2009, Forbes named Orman 18th on their list of “The Most Influential Women In Media.” In May 2009, Orman was presented with an honorary Doctor of Humane Letters degree from the University of Illinois. In May 2009 and May 2008, Time magazine named Orman as one of Time’s “100 Most Influential People in the World.” In October 2008, Orman was the recipient of the National Equality Award from the Human Rights Campaign.

In April 2008, Orman was presented with the Amelia Earhart Award for her message of financial empowerment for women. Saturday Night Live spoofed Orman six times during 2008–2011. In 2007, Businessweek named Orman one of the top 10 motiva-tional speakers in the world—she was the ONLY woman on that list, thereby making her 2007’s top female motivational speaker in the world.

Orman, who grew up on the South Side of Chicago, earned a bachelor’s degree in social work at the University of Illinois, and at the age of 30 was still a waitress making $400 a month.