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Puzzle Pieces: Understanding Investments

Goals are an important part of life - we all have them, and we all dream of the day we can achieve them. Investing to reach those goals is essential, whether you plan to send your children to college in two years, or build your dream home in a few decades. Are you doing enough today to help you achieve those goals tomorrow?

There are many investment vehicles that you can make use of to help build the value of your nest egg. Creating a diverse personal investment portfolio that includes investment vehicles such as mutual funds, your employer's retirement plan, annuities, IRAs, and more, may help you reach your goals. Not all investments are right for everyone, or for all goals, of course. Finding out which investments are right for you, and using them appropriately, is the first step of any investment strategy… it's like fitting together your own financial jigsaw puzzle.

Among the more common problems potential investors face is a lack of understanding about investments. Many options often go unevaluated because potential investors lack a clear understanding of the types of investment vehicles available. That's why we're giving the basics, right here.

Mutual funds

Mutual funds allow investors to enjoy the benefits of professional money management, diversification and asset allocation. These funds offer a wide range of risk/reward characteristics, allowing investors to select the fund - or, more likely, combination of funds - that best help meet their own investment goals and risk tolerance. These funds range from very conservative options, to more aggressive funds that invest both here and abroad.

Appropriate for many short- and long-term investment goals, mutual funds offer individual investors the benefits and resources of professional money management. Mutual fund shares fluctuate based on market conditions, so that redeemed shares may be worth more or less than the original cost. Capital gains taxes and other taxes may apply.

Employer-sponsored retirement plans

Most commonly known as 401(k)s, 403(b)s or 457 Deferred Compensation Plans, these plans are investments that automatically transfer a predetermined amount into the plan from your paycheck. Depending on the type of organization, your employer may offer a 401(k), 401(a), 403 (b) Tax Deferred Annuity (TDA) or 457 Deferred Compensation Plan. Typically, an employer's plan offers tax-deferred growth potential, and different investment options. These plans are widely recognized as some of the most effective retirement savings plans available.

Even considering the new tax laws, participating in your employer's retirement plan may be in your best interest. Since your deferral comes out of your pretax income, you're actually being taxed on less money per month, and putting a percentage of your gross pay into the account. Furthermore, your earnings and contributions aren't taxed until withdraw from the plan, generally when you're ready to retire. Some plans even allow for employer matching, which means your employer also contributes a percentage of what you contribute to the plan.

If your employer offers a plan, find out how to get involved. With pensions on the decline and Social Security in question, employer retirement plans are among the most basic retirement investments you can make.


An annuity is an insurance contract and securities investment wrapped into one. It's also a form of retirement investment. Annuities generally offer a range of professionally managed investment options grouped according to their risk and reward potential, in return for features such as minimum death benefits, tax-deferred growth potential and a variety of payment options including - with Fixed Annuities - a minimum guaranteed return (income for life) (1).

There are many options to consider when purchasing an annuity. First, do you want to invest a lump sum or make periodic payments until you begin the payout period (also known as annuitization)? Do you want to begin receiving payments immediately or defer them until you retire? What sort of death benefits and minimum guarantees work best for you and your family? There are a variety of options and possibilities available in annuities; quite likely you can find a combination that fits your investment goals.

You may want to consider an annuity if you're contributing the maximum to your employer-sponsored retirement plan. If you're nearing retirement and have a lump sum to invest, or if you're interested in an investment vehicle that will provide tax-deferred growth potential and guaranteed (2) pay outs, an annuity might be right for you.


An IRA - or Individual Retirement Account - offers you the benefit of tax deferral on your investment - that means you pay no current income taxes on your investment earnings until you receive distributions from the account.

There are many different types of IRAs - such as Rollover IRAs (designed to accept dollars from tax-deferred employer retirement plans). Roth IRAs, (which allow you to invest post-tax dollars, while your investment earnings can accumulate tax-free), and Education IRAs (which help you fund higher education expenses).

If you're not close to retirement age yet, an investment in an IRA could easily supplement your retirement savings beyond what you're investing in your employer retirement plan or, if you're not eligible for an employer plan, provide you with an opportunity to invest on your own. With the many options available to you for transferring your investments, IRAs can help you invest for retirement and education goals.

Bank accounts

Savings and checking accounts are also pieces of your investment puzzle strategy. While these do not offer the wide variety of investment options and features that other vehicles may offer - mutual funds and employer plans, for example - and generally credit a fixed rate of return, they are extremely important. Bank accounts are also FDIC-insured, whereas mutual funds and employer plans are not. Checking and savings accounts tend to be highly liquid (easier access to your money), and you'll want to consider these investments for your immediate, short-term needs and as a "cushion" to help you deal with unexpected emergencies.

Lower risk investments

Don't forget about Government Bonds and Certificates of Deposit (CDs), historically the least risky investments around. Of course, history is no guarantee of future results, yet Government Bonds and CDs can help add a level of stability to almost any portfolio.

Government Bonds are typically issued for 10 to 30 years and are guaranteed by the U.S. government. When held to maturity, they offer a fixed rate of return and value of principal. CDs offer the same type of investment plan, but can be purchased from banks, which means they are FDIC-insured and credit a fixed rate of return. When the CD matures, your principal payment and its interest are returned to you.

It's important to understand your investment options completely, and PaulBalep and Affiliated Companies are here to help. Call our representative today at 1-800-964-8614 for more information on these investment vehicles and other strategies to help prepare you for your future.

(1) Guarantees are based on the claims-paying ability of the issuing company
(2) Ibid

Retirement Income: Taking the Next Step

The demographics of our country are changing dramatically - the imminent "retirement" of the first Baby Boomers will change the nature of our work and leisure landscapes. As these Americans start making retirement decisions, they will need to pay attention to making the best - and appropriate - use of the dollars they may have accumulated in employer-sponsored and other retirement plans (such as 403 (b)s, IRAs, 457 plans and 401(k)s).
Options for turning a retirement investment into retirement income fall into two broad categories - or a combination of options from within these categories:
"Distributions" from qualified plans, or Annuitization

Distribution - just what it sounds like

A "distribution" from a qualified plan or IRA means - literally - distributing funds from the plan. This can be done in a lump sum (all of the account), in random payments, or in some sort of systematic way. In all of these cases, the funds actually distributed from the account will be subject to current income taxes. There are three "regular," or prescheduled distribution options:

For people interested in making use of their funds to create retirement income before age 591/2, and avoiding the 10 percent premature withdrawal penalty.

72t involves rolling an employer-sponsored account (or part of it) into an IRA, and then taking what are called "substantially equal period payments."

For people who want to use their retirement account or IRA to add to their estates.

The Estate Conservation Option allows you to take only the minimum amount required by the IRS out of your account (remember, the IRS requires you to begin using the money in these accounts by the April after you turn age 701/2).

For people who want some income from their investment, but also want to have access to the balance of their accounts.

A Systematic Withdrawal Option allows you to take payments for a certain period of time…until you've withdrawn your entire balance.

These " distributions," no matter which option you use, will be taxed as regular income. Also, choosing one of these options gives you access to the balance of your account; you can change your mind or selection (except with 72t, which requires you to take its distributions for a minimum of five years).

Annuitize… creating guaranteed income

You'll also have the option to use all or part of your retirement account to purchase an annuity contract. An annuity can provide you with income, and other guarantees* in a variety of ways. For example, you can choose an annuity that will guarantee you an income for the rest of your life - regardless of how long you live! You could choose this for just yourself, or for yourself and another individual (i.e., your spouse). Or, you could choose to receive guaranteed income payments for a specific period of time - again, either for yourself or for yourself and another individual.

Some annuities also offer the flexibility to decide whether you want fixed payments or variable payments (which reflect investment performance), or a combination of both.

An important consideration about annuities is that, while they do offer great flexibility, many are irrevocable. The portion of your account balance applied to an annuitization option may no longer be available for you to withdraw.

Next steps

This article provides only a very high-level overview of the options available to today's pre-retirees and retirees. Think of it as food for thought. When it's time for you to make these decisions, talk to a PaulBalep representative about the many options available from the PaulBalep family of companies.

We want to help you - when it's time - use those dollars you've saved and invested to help turn your own retirement dreams into realities!

" Guarantees are based on the claims-paying ability of the issuing company

Q & A… Test your Financial IQ

1. An annuity is:
a. a share of stock representing one share of equity
b. an insurance contract and a securities investment wrapped into one
c. an employer contribution to a retirement plan
d. none of the above

2. Which of the following is a valid reason to not invest in an employer retirement
a. I can't afford it.
b. My pension and Social Security are enough.
c. I don't understand investing.
d. none of the above

3. The Rule of 72 is:
a. a theory to determine the amount of years it will take your money to double
b. a theory that eventually the retirement age will reach 72
c. a predetermined formula for allocating contributions to your plan
d. none of the above

4. Who should consider an employer retirement plan?
a. individuals who are close to retirement
b. individuals without pensions
c. everyone
d. no one

5. Which of the following did "The Economic Growth and Tax Relief Reconciliation
Acts of 2001" (EGTRRA) not do?
a. require employers to give pensions to all employees
b. create a new, additional deferral contribution known as a "catch-up"
c. raise employee deferral limits for employer retirement plans
d. create portability for governmental 457 deferred compensation plans

6. Which of the following statements is true?
a. most baby boomers spend at least two hours a month on financial retirement
b. 80% of baby boomers have long-term care insurance
c. nearly half of baby boomers are unprepared for retirement
d. none of the above

7. An arrangement under which an employee may elect to defer a portion of
Compensation on a pretax basis to a plan is:
a. a defined benefit plan
b. an annuity
c. a 401(k) plan
d. none of the above

8. Which of the following statements is correct?
a. PaulBalep family of companies are one of the world's premier providers of
financial services
b. PaulBalep affiliated companies specialize in providing financial services
c. PaulBalep's goal is to provide refreshing financial solutions
d. all of the above

9. Investments in short-term debt securities such as CDs and short-term
Government securities are:
a. stocks
b. money market investments
c. bonds
d. none of the above

10. Which of these choices is not a good investment strategy?
a. diversification
b. asset allocation
c. reviewing your strategy yearly
d. timing the market

Answers: 1-b; 2-d; 3-a; 4-c; 5-a; 6-b; 7-c; 8-d; 9-b; 10-d.

This information is not intended to be considered tax or investment advice. It is provided, for your education only. For more information about our products and services, please contact PaulBalep representative at 1-800-964-8614.




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