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Gateway to Leadership Case Study

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					     2008
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        Gateway to 
        Leadership Case Study 
         Retirement Portfolio Optimization 
         
        A thorough analysis of three generations of Americans, The Millennials, 
        Generation X, and the Baby Boomers, has provided the information necessary to 
        devise three different retirement strategies perfectly suited to a target couple in 
        each generation. The results of the team’s research, as well as the 
        implementation of its strategies, has conclusively shown that a comfortable 
        retirement can be achieved by leveraging available time and carefully managing 
        risk. 
         



                                      Presented to:
                                  Dr. Richard McCline, Ph.D.
                                       Mr. Darryl Dennis
                                       Ms. Penni Owens




                                     Presented by:
                                           Paige Dupar
                                          Jamie D. Hart
                                            Rachel Hill
                                       Elizabeth Johnson
                                        Jordan Lindsey
                                         Charles Taylor


                              Gateway to Leadership
                                    Team A
                                                                                 
                                                                                  
                                                                                 
                                                                                 
                                                         Presented on 07/21/2008 
                          Executive Summary

The demographic landscape of the United States is rapidly becoming more
and more statistically homogeneous and alien. Currently, Americans belong
in one of three generational categories: Baby Boomers, Generation X, or
Millennials. Never before have citizens been so simultaneously divided and
united by age alone.

In general, the three generations differ in many ways. While Baby Boomers
exhibit a strong respect for and obedience to authority, Millennials have taken
the distrust of such figures shown by Generation Xers to a new level, and
habitually question authority figures. Furthermore, while Millennials are quite
prone to transition between jobs at whim, Baby Boomers are more
accustomed to having and keeping a job for 20 years or more. Technology
only further heightens the differences between the generations. Millennials
easily embrace and adapt to new technology while Baby Boomers and
Generation Xers often find it difficult to incorporate or even understand new
advances. Despite these differences, they do share some similarities, namely
their desire to enjoy a comfortable retirement. This newfound fascination with
retirement presents an unprecedented opportunity for the money
management industry, and companies are already creating new products to
satisfy the ever-changing needs of customers.

The purpose of this case study is to optimize the retirement portfolio of a
given couple in each generation, to learn the importance of early and
disciplined retirement planning, and to propose new and creative solutions
which will help to meet the needs of those planning for retirement.

Major general findings of the case study include:
   • Early planning is the most powerful tool available to those planning for
      retirement.
   • Time can create positive returns for almost any portfolio.
   • Diversification is the key to hedging risk protecting invested capital.
   • Even those who make a moderately below-average income can enjoy
      a comfortable retirement using discipline and early planning.
   • Contrary to conventional wisdom, post-retirement expenses are not
      always lower than pre-retirement expenses. Retirees generally have
      higher travel and medical expenses.

Major generation-specific findings of the case study include:
Millennials:
    • Long-term retirement horizon is this generation’s most powerful asset
    • Time allows for safe long-term holding of riskier investments
    • Early planning coupled with compounding over time creates the
       greatest current potential gains of any generation




                                                                             1
Generation X:
  • Financial ignorance is a key disabler of economic progress
  • Generation is beginning to understand that they will be personally
     responsible for their own retirement
  • Existing debt is distracting many from retirement saving

Baby Boomers:
  • Millions depend on Social Security for a large portion of their retirement
      income1
  • Rapid decline of pension plans have caused financial setbacks for
      many
  • To an extent, even those who have a below-average income can enjoy
      retirement

While a number of options exist to help individuals attain financial security in
retirement, this report shows that for the majority of individuals, the 401k, IRA
(Roth or Traditional), and diversified investment portfolio are generally the
safest and best-performing.

Indeed, many people who have not planned, including those who will receive
Social Security, will find themselves in dire straits in their “golden” years.
However, for many Americans it is not too late. With time, proper planning
and discipline, extraordinary results can be achieved, which will create a
blissful retirement for anyone committed to obtaining it.




Millennials
1
    http://www.heritage.org/Research/SocialSecurity/bg1811.cfm


                                                                               2
Millennials, often referred to as Generation Y, Next Generation, and Echo
Boomers, comprise the largest generation in United States history, with an
estimated 80 to 952 million people, approximately 2 to 17 million people more
than the Baby Boomer generation3. Millennials have grown up with a wide
array of choices, and therefore are unhappy with limited choices. In addition,
researchers have found that the behaviors of the Millennials include
intolerance of services and choices that do not work consistently and reliably
in their favor.

According to an online article in USA Today, “After witnessing the financial
insecurity that beset earlier generations stung by layoffs and the dot-com
bust, today's newest entrants into the workforce are generally savvy when it
comes to money and savings. They care about such benefits as 401(k)
retirement plans.”4 Millennials have a wider concern for their retirement future
than that of their parents. Upon further research it is inferred that this
generation values family and work life balance, contributing more to their
401Ks and exploring various types of retirement vehicles such as IRAs.

Using a hypothetical millennial couple, The Wongs, from Dallas, TX, will allow
for a more thorough analysis and implementation of the benefits provided by
a realistic and disciplined approach to retirement planning. Stephen Wong, a
second-year investment banking associate, is 25, and Lisa Wong, a
beginning web designer, is 24. They have two young children: Gavin age 5,
and Hannah age 3. Together, Stephen and Lisa currently have a combined
annual gross income of $135,000.

In order to strike the right balance between leveraging the couple’s great
capacity for risk and their need for security, we have created The Omega
Fund. This fund will enable customers to utilize the power of compound
interest, minimizes their taxes, maximize the earning potential of their
available time until retirement, and automatically and continually reduce their
risk at predetermined points.

Below you will find a hypothetical meeting between potential customers of
Omega Retirement, Inc, and representatives of the company.

Mr. Taylor: Welcome to Omega Retirement Inc., Mr. and Mrs. Wong. We
sincerely appreciate your business.

Mr. Wong: Thank you. Your company has an excellent reputation and your
plans have some of the best returns in the industry.

Mrs. Wong: We really look forward to working with you.

2
  http://www.americanprogress.org/issues/2008/05/progressive_generation.html
3
  http://www.cbsnews.com/stories/2006/01/10/health/webmd/main1195879.shtml
4
  http://www.usatoday.com/money/workplace/2005-11-06-gen-y_x.htm


                                                                               3
Mr. Taylor: This is my colleague, Ms. Rachel Hill. She is a Certified Financial
Planner and was instrumental in helping to develop a retirement plan that
works best for you. In short, a certified financial planner helps to manage all
areas of your financial life, and provides guidance and advice to help you
reach your financial goals. We selected Ms. Hill specifically because her area
of expertise is in retirement planning, and because many of her clients have
historically been in the financial services industry. Before we describe the
plan to you, I want to go over the information you’ve provided us one more
time. Developing an accurate profile, that is, understanding your goals, risk
tolerance, and lifestyle, is the first step to creating an optimal retirement plan.

Mr. Wong: That sounds good. Please proceed.

Mr. Taylor: Your names are Stephen and Lisa Wong, aged 25 and 24
respectively. Stephen is an investment banker whose current gross income is
$90,0005, and Lisa works from home as a web designer. Her current gross
income is $45,000.6 Is this correct?

Mr. and Mrs. Wong: Yes, that’s correct.

Mr. Taylor: You have two children, Hannah and Gavin, aged 3 and 5.

Mrs. Wong: Correct. Tomorrow is Gavin’s birthday in fact.

Mr. Taylor: Yes, they grow up so fast. You are both legal residents of Dallas,
Texas, correct?

Mr. Wong. That’s right. We both grew up here as well.

Mr. Taylor: Excellent. In previous conversations you stated that you expect
out-of-pocket medical expenses to be below $200,000, and that you and your
wife have a high risk-tolerance. You also stated that you both plan to retire at
67.

Mr. Wong. That is correct. We live a fairly healthy life, but you never know
when an accident might occur.

Mrs. Wong: As far as risk is concerned, because we are so young we have
time to recover from any losses that we may incur, and want to get the
maximum return possible on our savings and investments.

Ms. Hill: Are you familiar with mutual funds and target date funds?


5
    http://www.careers-in-finance.com/ibsal.htm
6
    http://swz.salary.com/salarywizard/layouthtmls/swzl_compresult_national_IT10000109.html#bottom


                                                                                                 4
Mr. Wong: I’ve heard of both of them, but I have to admit that I don’t know
much.

Ms. Hill: I understand. Our plan includes both, so we will be sure to fully
explain the potential gains and losses you may incur.

Mr. Wong: Sounds good.

Mr. Taylor: I think that about wraps it up. All of the information on record was
correct. I think we can move on to describing the plan to the Wongs now.

Ms. Hill: Great. Mr. and Mrs. Wong, you are in a unique and distinctly
advantageous position. You have something that many Americans don’t;
time. Our plan will help you make the best use of that time. The key word for
you is balance. While parts of our plan include a few “risky” investments,
other parts will help to safeguard your nest egg and guarantee a positive
outlook for your financial future.

Ms. Hill: Our plan includes four financial instruments:
1. Your individual 401(k) plans – These will essentially allow you to collect
“free money” from your employer, and will form the bulk of your nest egg
2. An indexed mutual fund – Indexed mutual funds have out-performed the
great majority of actively-managed funds over the long term and generally
have lower fees
3. A Roth IRA – This will allow you to save money “tax-free”, as long as you
meet certain requirements.7 Also, direct contributions may be withdrawn
without penalties.
4. A target date fund – Automatically reduces your risk at certain designated
intervals as time goes on. Your 401k will be invested in this financial
instrument.

Mr. Taylor: The attached Glossary of Financial Terms further explains each
financial instrument. As you can see in the chart below, the average American
saves only .09% of their income and often dips into their savings to spend
even more8.




7
    http://en.wikipedia.org/wiki/Roth_IRA
8
    http://thepennysaved.com/2008/04/24/live-the-american-dream-fix-your-problems/


                                                                                     5
Mr. Taylor: Many experts advocate saving between 10% and 15% of your
income, apart from the percentage of your income that you are contributing to
your 401k9. We believe that 13% is the optimal amount for you to save for
retirement. This is in the median range of what research suggests you should
invest, and it is also realistic. Children can put a tremendous strain on your
economic resources, but we believe that this is a manageable amount. Each
of you would set aside enough of your gross income in your 401k accounts to
receive the full company match (6%-7%), and the remainder would go toward
the other financial products we will discuss.

Mrs. Wong: Would you mind restating that? I’m still a bit confused. What is
the bottom line % we should save?

Mr. Taylor: In short, each year you should save 13% of your total yearly
income for retirement. Contribute as much as you need to in order to receive
the full company match, and reserve the rest for the other financial
instruments. For example, Lisa, your employer matches up to 6% of your
salary. So, you would contribute 6% of your salary, and the other 7% would
go towards the other financial instruments.

Mrs. Wong: Now I understand. Thank you.

Ms. Hill: In a recent interview, John Morris, Senior Vice-President of the Asset
Management Products and Services (AMPS), division at Charles Schwab,

9
    http://money.cnn.com/2007/01/08/pf/expert/expert.moneymag/index.htm


                                                                              6
stated that people who are planning for retirement should “max out the
company 401(k), because it is basically free money.”10 We agree with him
completely. Maxing out your investment in your company’s 401k plan is an
integral part of our overall retirement plan for you. According to an article in
Fortune Magazine, “the average company match… is 50%, up to 6% of your
salary.”11 Stephen, your employer offers a slightly higher match, 50% up to
the first 7% of your salary. Lisa, your employer offers the average match.
Despite these differences, we strongly urge you both to invest at least enough
to gain the full company match. Unfortunately, 401k’s also have contribution
limits. The limit in 2008 for your age range is 15,500. Thus, at the moment,
Stephen would contribute 7%, or $6,300 each year, while Lisa would
contribute 6%, or $2,700.

Mrs. Wong: How much do we have to make in order to receive the full
company match?

Mr. Taylor: If, at some point in the future, Stephen’s salary rises to
approximately $222,000 each year, $15,500 will be 7% of his salary, meaning
he will be maxing out the 401k.Furthermore, if Lisa’s salary rises to $258,000,
6% of her salary will be the maximum contribution of $15,500. If either of
these possibilities occur, which is highly possible, the remainder of the
investable assets should be funneled into your index mutual funds, which we
will discuss shortly.

Mr. Wong: That part definitely makes sense to us, but what if our employer(s)
reduce or remove the match?

Ms. Hill: Even if the match is reduced, you should still contribute to obtain the
maximum amount from your employer. If you don’t, you’re basically allowing
free money to slip through your hands. Another benefit of 401k plans is that
they reduce the amount of income taxes you’ll have to pay by reducing your
total taxable income. So in effect, putting money away for later helps you
reduce your taxes.12

Mr. Wong: Wow, I never would have thought of using our savings to reduce
taxes.

Ms. Hill: An important secondary issue is what type of fund your 401k money
should go into. Our plan calls for you to have your employer place your funds
into a target date fund which allocates 50% of its stock holdings to US large
caps, 30% to small caps, and 20% to high-growth international stocks.



10
   Morris, John. Personal interview. 20 June 2008.
11
   http://money.cnn.com/magazines/fortune/fortune_archive/1995/07/24/204804/index.htm
12
   http://taxes.about.com/b/2006/06/02/plan-to-reduce-this-years-taxes.htm


                                                                                        7
Mrs. Wong. I’m beginning to get a bit confused. What exactly is a target date
fund?

Mr. Taylor: A target date fund is a fund comprised of a number of different
asset classes, typically stocks, bonds, and highly liquid cash investments.
The key feature of target date funds is that they start off risky, then grow more
conservative over time13. The funds are automatically re-allocated for you at
certain pre-determined times. This is known as a glide path. This will allow
you to capitalize on your ability to recover from losses while you’re still young,
while simultaneously helping to shield and protect your nest egg as your
retirement date grows closer. Plus, they work automatically, and require little
action on your part. You just pick a fund with a target date that is approximate
to when you want to retire. Stephen, you are set to retire in 42 years, which
would be 2050.

Wong: Are there any downsides to target date funds? They sound too good to
be true.

Ms. Hill: Indeed there are, but they can be managed with a little planning and
research. While many people see target date funds as one-size-fits-all, they
aren’t. Target date funds vary wildly in how much risk they take and when
they take it. While they may all operate in a similar way, just beneath the
surface there are many differences.14 We have come up with a plan that
should help you obtain the best results.

                                                                    Cash
              Risk               Age         Stock      Bonds       Equivalents

              Tier 3             25          95%        0%          5%
              High Risk          44          95%        0%          5%
                                 45          95%        0%          5%

              Tier 2             46          60%        35%         5%
              Moderate risk      53          60%        35%         5%
                                 54          60%        35%         5%

              Tier 1             55          60%        50%         30%
              Low risk           66          60%        50%         30%
                                 67          60%        50%         30%


Mr. Taylor: The Omega Fund M1 offers this precise asset allocation and
timeline. Furthermore, the target date is 2050, the year that Mr. Wong is set to

13
   http://www.smartmoney.com/smartmoney-magazine/index.cfm?story=february2008-target-date-
funds
14
   http://www.usnews.com/blogs/planning-to-retire/2008/5/20/safe-target-date-retirement-funds-have-
hidden-risks.html


                                                                                                      8
retire. This asset allocation was chosen because your youth will enable you to
deal with any potential losses you may incur, but we believe that risk must be
mitigated, as you get older to protect your retirement investments. Do you
have any questions so far?

Mr. Wong: No, this makes perfect sense. We don’t have the financial know-
how to make the best decisions about when to re-allocate and into what, so
it’s nice to know that a professional will be taking care of it.

Ms. Hill: Great. Let’s continue. So far we’ve covered two financial products;
401k plans and target date funds. As previously stated, the money invested
into the 401k will be used to finance the target date fund. In order to further
contribute to the possible maximum returns, we suggest that at least 3 of the
remaining 6 or 7 percent of investable income be placed in an index fund.
Approximately 80% of all actively managed mutual funds underperform the
market.15 Furthermore, many come with higher fees which can eat into any
potential returns. According to the MotleyFool.com, index funds “are distinct
from actively managed mutual funds in that they do not involve any stock
picking by supposedly skilled professionals – they simply seek to replicate the
returns of the specific index.”16 Furthermore, index funds do not come with the
large fees which plague actively managed funds. The graph below shows the
number of mutual funds that have failed to match the returns of the S&P 500.
The results are from 1964 to 1996.




              Percent
                                                                                17



Ms. Hill: Furthermore, “During the 1990s, the S&P 500 has provided an
annualized return of 17.3%, compared with just 13.9% for the average
diversified mutual fund.”18 Suffice to say, despite the attention that actively
15
   http://www.fool.com/school/indices/introduction.htm
16
   http://www.fool.com/School/MutualFunds/Basics/Intro.htm
17
   John Bogle, Common Sense on Mutual Funds : New Imperatives for the Intelligent Investor. p. 119.
18
   http://www.fool.com/MutualFunds/IndexFunds/IndexFunds01.htm


                                                                                                 9
traded mutual funds have received lately, the performance numbers simply
aren’t that impressive. In fact, they’re downright unimpressive, as they are
consistently lower than the overall market. Index funds have lower fees,
generally better returns, and lower turnover. Our plan will invest your funds
into the Vanguard S&P 500 fund, which “has outperformed over 90% of all
domestic equity mutual funds over the past three and five years (and a much
higher number if you include bond and international equity funds).”19

Mrs. Wong: I’ve heard that some mutual funds are up more than 30% over
the last five years. Index funds might not provide us with the best returns,
right?

Mr. Taylor: That’s true, but unlikely. While a small minority of mutual funds
has beaten the market, many of the funds that beat the market do so only for
a short time. Afterward, they quickly reverse course.20 Index funds, on the
other hand, provide consistent returns above and beyond the great majority of
actively managed mutual funds. Plus, they come with lower fees.

Ms. Hill: The final piece of your retirement plan will be an investment
retirement account or IRA, specifically a Roth IRA. Roth IRAs have a number
of advantages. They provide the flexibility of withdrawing as your needs
dictate (in some cases without penalties), offer tax-free growth potential, and
the money can be invested in just about anything. They are perfect tools for
people who are just beginning their careers, because they allow individuals to
be taxed while they’re in a lower tax bracket than they would be when they
grow older.21

Mrs. Wong: I’m really not sure what that means. How exactly does it help us
save on taxes?

Mr. Taylor: Basically, because you’re just getting your career started, you can
expect your earnings to rise, and to be much higher in the future than it is
now. That means you’ll be in a higher tax bracket, which means higher rates
of taxation. You can save tens of thousands of dollars over the long term by
sheltering your money from such high levels of taxation. We suggest that you
invest your Roth IRA funds into a Dow Jones Industrial index fund. The Dow
has returned approximately 11% each year over the last 30 years.22 While
this is no guarantee of future results, past data indicates that you should
receive an overall positive return on your investment.

Mr. Wong: Wow. That sounds really good. Sign us up!

19
   http://www.fool.com/MutualFunds/IndexFunds/IndexFunds01.htm
20
   http://www.fool.com/MutualFunds/IndexFunds/IndexFunds01.htm
21
   http://www.kiplinger.com/columns/starting/archive/2006/st0309.htm
22
   http://ezinearticles.com/?DJIA---Historical-Performance-of-the-Dow-Jones-Industrial-
   Average&id=699353


                                                                                          10
Ms. Hill: Actually there are a few rules you should know about. First, in 2008,
the contribution limit for Roth IRA contributions is $5,000, or $6,000 if you’re
age 50 or above. Second, and this is fairly important, there are certain income
restrictions. Currently, your joint gross income is $135,000, so you can
contribute the maximum $5,000. However, once your joint income rises above
$159,000, you will only be able to partially contribute to your Roth IRA.23
Furthermore, if your income rises above $169,000, you will not be able to
contribute any more money to your Roth IRA. We fully expect that your
income will indeed rise to or above this level at least some point in your
careers.

Mrs. Wong: If we do go above the contribution limits, what will happen to the
money that’s already in the account? Will we need to withdraw it?

Mr. Taylor: Excellent question. Whatever money you are able to get into the
Roth IRA will still be able to grow tax free. You won’t need to take it out, so it
will still be tax sheltered.24

Mr. Wong: So if we max out our 401k and our Roth IRA, and we’re steadily
adding money to our index mutual fund account, where do we put the
remainder of our investable assets?

Mr. Taylor: The remainder of your investable assets would be placed into your
indexed mutual fund account.

Mr. Wong: I see. Thank you.

Ms. Hill: That just about sums up the plan itself. Now we can move on to
showing you the performance of your investments, and where you will be
after 40 years.

Wong: Before we continue, I noticed that you didn’t mention anything about
Social Security. Why is that?

Ms. Hill: Depending on Social Security for all or even part of your retirement
savings at your age can be a major risk. While few believe that the
government will allow Social Security to completely go bankrupt and eliminate
benefits altogether, there is rampant speculation about what will be done.
Many, including JP Walsh, a financial analyst at Charles Schwab, believe that
Social Security will not be able to fully support or significantly aid younger
workers.25 This is in line with the majority of research.26 Social Security will

23
   http://en.wikipedia.org/wiki/Roth_IRA
24
   http://www.kiplinger.com/columns/starting/archive/2006/st0309.htm
25
   Walsh, JP. Personal interview. 14 June 2008.
26
   http://www.dollarsandsense.org/archives/2005/0505orr.html


                                                                               11
likely always be able to provide aid to millions of Americans. The question for
each individual is how much. The average monthly Social Security retirement
benefit for a retired worker is approximately $1,050.27 Furthermore, the
maximum amount that an individual would receive is $2,185, which is $26,220
annually.28 This may seem like a great aid, and indeed it is, but in order to
keep the system solvent in the long term, the government will either need to
raise taxes to further support the system, raise the eligibility and/or retirement
ages, or reduce benefits – none of which are good for you.29 We believe that
any moneys you receive from Social Security should be icing on your
retirement cake, but not part of the recipe.

Wong: I’ve heard about annuities also. Why aren’t they a part of your plan?

Mr. Taylor: Annuities have been received a wave of bad press lately – and for
once the criticism is well-deserved. While annuities may be good for some,
they are not good options for others. One of the main drawbacks of annuities
is their fees. While the average mutual fund averages fees between 1.2% and
1.5% percent, many annuities have fees up to 2%.30 In addition, capital gains
are taxed at ordinary rates, while gains in taxable index funds are taxed at
initial deposit rates. Over the long term, annuity fees, combined with the
higher tax rate, can wipe out a large portion of any potential gains.
Furthermore, additional fees reduce your principal, which, due to slower and
reduced compounding, can result in losses of thousands of dollars over the
long term. Annuities aren’t all bad, however. They do provide a much-needed
source of security for some individuals. We just believe that you have better
options.

Wong: So if we stick to this plan, how much can we expect to have saved at
retirement?

Ms. Hill: The chart below shows your investment progress and the size of
your nest egg as time goes on. This chart assumes that you make no
deviations from our plan. In addition, we assume that your income will grow
3%31 each year. You must contribute to your 401k plan monthly and your
mutual fund and Roth IRA Accounts annually. Finally, we assume a 6% return
on all investments, including your 401k, Roth IRA and mutual funds. Progress
from selected years can be seen below:




27
   http://ssa-custhelp.ssa.gov/cgi-
bin/ssa.cfg/php/enduser/std_adp.php?p_faqid=13&p_created=955050441
28
   http://ssa-custhelp.ssa.gov
29
   http://www.heritage.org/Research/SocialSecurity/bg1811.cfm
30
   http://www.fool.com/retirement/annuities/annuities02.htm
31
   http://www.usatoday.com/money/economy/employment/2006-03-22-snow-usat_x.htm


                                                                                 12
Mr. Taylor: As you can see, if you follow the plan that we have outlined for
you, your nest egg at retirement will be more than $7.07 Million. A complete
chart is included in the appendix below.

 Year   Age      401k               Roth IRA      Mutual Funds     Total Nest Egg
                                    Wong Nest Egg Progress
    1   25, 26         $14,716.08       $4,163.25      $4,293.00       $23,172.33
    5   29, 28         $88,068.47      $24,915.01     $25,607.96      $138,591.45
   10   34, 33        $220,886.68      $51,296.16     $75,321.80      $347,504.64
   15   39, 38        $416,299.69      $68,645.84    $169,627.48      $654,573.00
   20   44, 43        $698,733.72      $91,863.62    $306,792.56    $1,097,389.89
   25   49, 48      $1,101,548.54    $122,934.24     $503,059.30    $1,727,542.08
   30   54, 53      $1,670,219.75    $164,513.74     $780,441.59    $2,615,175.08
   35   59, 58      $2,415,770.72    $220,156.50   $1,211,184.27    $3,847,111.50
   40   64, 63      $3,659,114.26    $294,619.06   $1,840,468.54    $5,794,201.85
   43   68, 67      $4,427,813.52    $350,896.01   $2,300,494.06    $7,079,203.59




Mr. Wong: Wow! That’s amazing. I never thought we would be able to have
that much saved at retirement. We can easily afford to save 13% of our
annual salaries, and we will be sure to stick to the plan.

Ms. Hill: Great. Remember that we here at Omega Retirement, Inc. will be
here for you every step of the way. We really look forward to working with
you.

Mr. Taylor: I think that just about concludes our meeting. Did you have any
more questions?


                                                                              13
Mrs. Wong: Just one… When can we get started!?

Generation X
The evolution of retirement has effected each generation in a unique way.
This portion of this case study will address Generation X directly. In order to
capture the larger impact of retirement on this generation our solution has
attributed specific assumptions based on demographic research. The
assumptions or target couple to be evaluated is defined below:

               •   Middle aged married couple born between (1977-1965) Age 37
               •   Two children ages 13 and 15 years old
               •   Plan to retire at 67
               •   Lifetime Medical expenses out of pocket will not exceed
                   $200,000
               •   Combined income 350,000
               •   Life Expectancy: Between 77.5 and 80
               •   Contribution to children’s college fund
               •   Current contribution to retirement plan: Below $100,000
               •   Total Debt or Contribution to Debt payments monthly
                   • Monthly car payments $383
                   • House Note/ Mortgage $1200
                   • Utility Cost $180
                   • Misc Cost (including child expenses, home maintenance,
                       gas, commodities and entertainment): $1000

In addition to the aforementioned assumptions provided, in order for one to
gain a better understanding of the problem at hand the Generation X
background concerning retirement must be established. For most Generation
X members the harsh reality is that Social Security and pensions may
evaporate by the time they begin their transition into retirement have settled
in, and caused the average Generation X individual to rely on their own
intuition as a means to ensure their desired retirement plan is realized. A poll
conducted by Harris Interactive for the American Institute of Certified Public
Accountants (AICPA) states that, ““The message is getting through to
Generation X consumers about taking control of their own financial futures,”
said Carl George CPA, Chair of the AICPA’s National CPA Financial Literacy
Commission and CEO of Clifton Gunderson LLP. “As a result, they intend to
draw on personal savings and investments for retirement, unlike many of their
baby boomer elders.””32
Although the ever so important mantra of taking one’s financial future into
ones hand is being recognized by most Generation X individuals, there still is
a pertinent concern among the mass Generation X citizens as it concerns
retirement being realized. According to a Chicago Tribune article by Janet

32
     http://www.ecmaxhealth.com/49/5819.html


                                                                             14
Kidd Stewart, the Generation X legion are predominately distracted by the
debt they have incurred thus far from current spending and saving for
children’s college. In addition to these concerns, Kidd’s article goes on to
point out that underfunding of retirement plans among this age group
(Generation X) and Baby Boomers is chronic. She cites a fall 2007 study
released by the Center for Retirement Research at Boston College which
found, “… median balances in 401(k) plans requiring employees to save
portions of their paycheck and in individual retirement accounts remain
stubbornly low—just $60,000 for 55- to 64-year-olds… For Xers, the amount
is even lower.”33

The alarming question is why aren’t generation Xers contributing to 401ks? Is
it their access to funds, desire, or lack of knowledge? The answer is all of the
above. In essence, much of how generation x couples manage their finances
is directly related to their family values.

Nearly half of all Generation X members are unprepared for retirement. In
order to ease the plight of our Gen X couple, an in depth retirement plan will
be created which will help ensure a blissful retirement for these citizens.
Another hypothetical couple this time from the Generation X age group will be
used to allow for a more thorough analysis and implementation of the benefits
provided by a realistic and disciplined approach to retirement planning. The
Hunter family, from Philadelphia, consists of Ryan Hunter, a twelve-year
investment banking associate director, and Marie Hunter a part time web
designer for the past 12 years who is also a stay at home mom. They have
two teenage children: Betsy age 13, and Ross age 15. Together, Ryan and
Marie currently have a combined annual gross income of $350,000, and have
contributions in their 401K plan of 100,000 dollars already.

In order to establish the most efficient balance between leveraging the
couple’s capacity for risk and their need for security, we have created The X
Fund. This fund will enable consumers to take advantage of the power to
compound interest, minimize their taxes, maximize their earning potential
over their available time until retirement, and automatically be able to reduce
their risk at predetermined points.

An in depth analysis will be taken from the below meeting between the Hunter
family, who are potential customers of and Omega Retirement, Inc, and
representatives of the company.

Ms. Johnson: Thank you for visiting us here at Omega Retirement. We pride
ourselves on helping our clients meet their financial goals.

Mr. Hunter: Thank you. Your company has done great work with other
Generation Xers and your expertise is exactly what we need.
33
     http://www.expertbusinesssource.com/article/CA6508880.html


                                                                             15
Ms. Johnson: This is my colleague, Mr. Jordan Lindsey. He is a Certified
Financial Planner and was instrumental in helping to develop a retirement
plan that works best for you. In short, a certified financial planner helps to
manage all areas of your financial life, and provides guidance and advice to
help you reach your financial goals. We selected Mr. Lindsey specifically
because her area of expertise in the Generation X retirement planning age
group, and because many of his clients have historically been in the financial
services industry. Before we describe the plan to you, I want to go over the
information you’ve provided to us one more time. Developing an accurate
profile includes: understanding your goals, risk tolerance, and lifestyle, which
is the first step to creating an optimal retirement plan.

Ms. Johnson: Your names are Ryan and Marie Hunter both age 37
respectively. Ryan is an investment banker whose current gross income is
$330,00034, and Lisa works from home as a part time web designer. Her
current gross income is $20,000.35 Is this correct?

Mr. and Mrs. Hunter: Yes, that’s correct.

Ms. Johnson: You have two children, Betsy and Ross, aged 13 and 15.

Mrs. Hunter: Correct. They are growing up so fast.

Ms. Johnson: Yes, they do grow up so fast. You are both legal residents of
Philadelphia, PA correct?

Mr. Hunter. That’s right. But we both grew up in the city of New York.

Mr. Johnson: Excellent. In previous conversations you stated that you expect
out-of-pocket medical expenses to be below $200,000, and that you and your
wife have a medium to high risk-tolerance as of right now, but would like to
lower that late on down the line. You also stated that you both plan to retire at
67.

Mr. Hunter: That is correct. We live a fairly healthy life, but you never know
when an accident might occur.

Mrs. Hunter: As far as risk is concerned, because we are not so young
anymore we have not as much time as we use to have to recover from any
losses that we may incur, yet we want to get the maximum return possible on
our savings and investments.

Mr. Lindsey: Are you familiar with mutual funds and target risk funds?

34
  http://www.careers-in-finance.com/ibsal.htm
35
 http://swz.salary.com/salarywizard/layouthtmls/swzl_compresult_national_IT10000109.html#bottom


                                                                                            16
Mr. Hunter: I’ve heard of both of them, but I have to admit that I don’t know
much.

Mr. Lindsey: I understand. Our plan includes both, so we will be sure to fully
explain the potential gains and losses you may incur.

Mr. Hunter: Sounds good.

Mr. Lindsey: It also looks like that you have already saved 100,000 thus far in
your 401K over the twelve years you have been working so far is this correct?

Mrs. Hunter: This is correct. We know that we have not been exercising our
full potential within these retirement accounts, but we feel that we have
continually saved a generous amount within these accounts even though the
returns provided by our employers has not been to our liking.

Ms. Johnson: This is absolutely fabulous that you have put away this much
thus far in your retirement account, there are definitely other options we can
pursue as we will discuss later in order to reach the desired gains that your
employers has yet to fulfill.

Ms. Johnson: I think that about wraps it up. All of the information on record
was correct. I think we can move on to describing the plan to the Hunter’s
now.

Mr. Lindsey: Great. Mr. and Mrs. Hunter, you are in a very good position to
retire comfortably by the age of 67. You still have a significant amount of time
left with 30 years, and with discipline your goals can be reached. Our plan
will help you make the best use of that time. The key word for you is balance.
While parts of our plan include a few “risky” investments, other parts will help
to safeguard your nest egg and guarantee a positive outlook for your financial
future.

Mr. Lindsey: Our plan includes three financial instruments:
1. Your individual 401(k) plans – These will essentially allow you to collect
“free money” from your employer, and will form the bulk of your nest egg
2. An advisory account – This account will allow for the client and advisor to
both see eye to eye and make the client’s portfolio return to be what’s most
important rather than individual transactions. Clients also have the possibility
of accessing world-class money managers at low cost.
3. A target risk fund – These funds are split into three groups, based on risk:
aggressive, moderate, and conservative. It is up to the investor to decide
when they want to switch from one to the other.




                                                                             17
Ms. Johnson: The attached Glossary of Financial Terms further explains each
financial instrument. As you can see in the chart below, the average American
saves only .09% of their income and often dips into their savings to spend
even more36.




Ms. Johnson: Many experts advocate saving between 10% and 15% of your
income, apart from the percentage of your income that you are contributing to
your 401k37. We believe that 13% is the optimal amount for you to save for
retirement. This is in the median range of what research suggests you should
invest, and it is also realistic. Children can put a tremendous strain on your
economic resources, but we believe that this is a manageable amount. Each
of you would set aside enough of your gross income in your 401k accounts to
receive the full company match (6%-7%), and the remainder would go toward
the other financial products we will discuss.

Mrs. Hunter: Would you mind restating that? I’m still a bit confused. What is
the bottom line % we should save?

Ms. Johnson: In short, each year you should save 13% of your total yearly
income for retirement. Contribute as much as you need to in order to receive
the full company match, and reserve the rest for the other financial
instruments. For example, Lisa, your employer matches up to 6% of your
salary. So, you would contribute 6% of your salary, and the other 7% would
go towards the other financial instruments.

36
     http://thepennysaved.com/2008/04/24/live-the-american-dream-fix-your-problems/
37
     http://money.cnn.com/2007/01/08/pf/expert/expert.moneymag/index.htm


                                                                                      18
Mrs. Hunter: Now I understand. Thank you.

Mr. Lindsey: According to, Janet Kidd of Your Money, in a recent article she
stated that, “If every Gen Xer started contributing at least the maximum
amount to qualify for their entire company match in a 401(k) plan, they would
be miles ahead of where they stand today.”38 We agree with her completely.
Maxing out your investment in your company’s 401k plans is an integral part
of our overall retirement plan for you. According to an article in Fortune
Magazine, “the average company match… is 50%, up to 6% of your salary.”39
Ryan, your employer offers a slightly higher match, 60% up to the first 7% of
your salary. Marie, your employer offers the average match. Despite these
differences, we strongly urge you both to invest at least enough to gain the
full company match. Unfortunately, 401k’s also have contribution limits. The
limit in 2008 for your age range is 15,500. Thus, at the moment, Ryan would
contribute 7%, or the maximum of $15,500 each year, while Marie would
contribute 6%, or $1,200.

Mrs. Hunter: How much do we have to make in order to receive the full
company match?

Ms. Johnson: Ryan’s salary has already exceeded the 401k contribution limit.
$22,400 will be 7% of his salary, meaning he will be maxing out the 401k.
Furthermore, Mrs. Hunter’s salary rises to $258,000, 6% of your salary will be
the maximum contribution of $15,500. The remainder of the investable assets
should be funneled into your advisory account, which we will discuss shortly.

Mr. Hunter: That part definitely makes sense to us, but what if our
employer(s) reduce or remove the match?

Mr. Lindsey: Even if the match is reduced, you should still contribute to obtain
the maximum amount from your employer. If you don’t, you’re basically
allowing free money to slip through your hands. Another benefit of 401k plans
is that they reduce the amount of income taxes you’ll have to pay by reducing
your total taxable income. So in effect, putting money away for later helps you
reduce your taxes.40

Mr. Hunter: Wow, I never would have thought of using our savings to reduce
taxes.

Mr. Lindsey: Another pertinent issue is what type of fund your 401k money
should go into. Our plan calls for you to have your employer place your funds


38
   http://www.chicagotribune.com/business/yourmoney/sns-yourmoney-0819journey,0,3868254.story
39
   http://money.cnn.com/magazines/fortune/fortune_archive/1995/07/24/204804/index.htm
40
   http://taxes.about.com/b/2006/06/02/plan-to-reduce-this-years-taxes.htm


                                                                                           19
into a target risk fund, which allocates your earnings to several equity asset
classes that provide a healthy growth for your 401k.

Mrs. Hunter. I’m beginning to get a bit confused. What exactly is a target risk
fund?
Ms. Johnson: A target risk fund is a fund that can be comprised of a number
of different asset classes, typically stocks, bonds, and highly liquid cash
investments. It also maintains a specific asset allocation in order to provide
an essentially level exposure to investment risk. The key feature of a target
risk fund is that it enables investors to stay aligned with professional
managers to keep the portfolio on the right track concerning risk tolerance as
clients pursue their goals. Target risk funds are usually available with
conservative, moderate, and aggressive portfolios, and even some mutual
fund companies provide even more customized offerings. This will be great
way to allow you to monitor your investments based on your appetite for risk
and change the investment approach based upon this decision.41

Mr. Hunter: Are there any downsides to target risk funds? They sound too
good to be true.

Mr. Lindsey: Yes there are just like with any investments, but they can be
managed with the proper planning, research and guidance of professional
managers. Like other funds of funds, the fees you pay for a target risk fund
may be higher than you would pay to own each of the individual funds
separately. However, these fees pay for an additional level of professional
oversight.42

Ms. Johnson: The X Fund offers a precise asset allocation and timeline.
Furthermore, the target date is a 30-year window until the year that both of
you are set to retire. This asset allocation was chosen because you still have
time now to start off with riskier investments, but we believe that this will
change over the next five years as risk must be mitigated as you get older to
protect your retirement investments. Do you have any questions so far?

Mr. Hunter: No, this makes perfect sense. We don’t have the financial
prowess to make the best decisions about when would be the best time to
make risk adjustments or allocation changes, so it’s nice to know that a
professional will be taking care of it yet we will have the final say so in the
end.

Mr. Lindsey: Great. Let’s continue. So far we’ve covered two financial
products; 401k plans and target risk funds. As previously stated, the money
invested into the 401k will be used to finance the target risk fund. But what
fund should you choose to invest in a mutual fund? Approximately 80% of all

41
     http://www.pathtoinvesting.org/dictionary/words.htm?targetriskfund
42
     http://www.pathtoinvesting.org/dictionary/words.htm?targetriskfund


                                                                               20
actively managed mutual funds underperform the market.43 Furthermore,
many come with inflated fees, which can diminish potential returns. According
to the MotleyFool.com, index funds “are distinct from actively managed
mutual funds in that they do not involve any stock picking by supposedly
skilled professionals – they simply seek to replicate the returns of the specific
index.”44 In addition to the diversity of replicating a certain index, index funds
do not include significant fees that plague most actively managed funds. The
graph below shows the number of mutual funds that have failed to match the
returns of the S&P 500. The results are from 1964 to 1996.




Percent




Mr. Lindsey: With an index fund your investment risk will be based upon the
index it follows. The S&P 500 is a benchmark that has performed well
historically. “During the 1990s, the S&P 500 has provided an annualized
return of 17.3%, compared with just 13.9% for the average diversified mutual
fund.”45
Keeping this in mind, as well as the continued rising cost of energy and the
cost of production of energy we at Omega Retirement feel that investors
should take advantage of this pertinent opportunity that plagues Americans
economic lifestyles everyday by investing in an energy index fund. Index
funds have lower fees, generally better returns, and lower turnover. Our plan
will invest your funds into the S&P Global Energy Sector Index Fund, which
has seen returns that have beat the S&P 500 index regularly over the past 5
years. 46




43
   http://www.fool.com/school/indices/introduction.htm
44
   http://www.fool.com/School/MutualFunds/Basics/Intro.htm
45
   http://www.fool.com/MutualFunds/IndexFunds/IndexFunds01.htm
46
   http://www.ishares.com/product_info/fund/returns/IXC.htm


                                                                               21
Mrs. Hunter: I’ve heard that some sector specific index funds are up more
than 30% over the last five years, but these Index funds might not provide us
with the best diversity right?

Ms. Johnson: That’s true, but with the current state of America only one thing
is certain for the future. America is still an energy hungry nation that is taking
gradual steps towards cleaner forms of energy, but as of the present the
speculation about supply and price of oil will continue to drive these prices
higher, thus presenting investors with a short window of opportunity to take
advantage of these premium returns. Also, there are other alternative energy
funds that are on the horizon and that have entered the marketplace thus far
that might be appealing in the near future, as America makes their drastic
switch to these energy options in order to become greener. The energy fund
will only be used for a short time period of your 30-year retirement, with a
rollover to a diversified index fund that covers a whole index later to provide
more stability, as you get older. Plus, they come with lower fees.

Mr. Hunter: So, what about the $100,000 that we already have saved thus far
in our 401k accounts? I did not see that factored into the 401K numbers that
you divulged to us.

Ms. Johnson: Great question! The $100,000 that you have invested thus far
will be rolled over to help start the advisory account that my colleague Mr.
Lindsey will explain further.

Mr. Lindsey: As Ms. Johnson has stated, the final piece of your retirement
plan will be an investment professional advisory account. These advisory
accounts have a number of advantages and also options that appeal to a
wide variety of clients. They provide the flexibility of withdrawing as your


                                                                               22
needs dictate, offer tax-harvesting options that can be worked out with
advisors to meet your tax need, and the money can be invested in just about
anything. They are perfect tools for people who are established within their
careers, because they allow individuals to gain access to professional money
management options without having to have a behemoth account balance.

Mrs. Hunter: I’m really not sure what that means. How exactly would a
professional advisory account benefit our retirement plan?

Ms. Johnson: Basically, because you and your spouse have incomes that
have seen growth over the time that you have been working it is safe to say
that these incomes will continue to grow over the remainder of your work like.
Thus, the possibility of investing in an IRA is out of the question. A
professional advisory account which will give you professional guidance to
ensure premium returns for the retirement. Many financial institutions offer
these products especially many of the public and private brokerage firms. We
suggest that you choose a private advisory firm such as LPL Financial or
work with an advisor that uses their platforms because of their low fees.
Unlike brokerage accounts which charge for every transaction that occurs in
your account, the advisor charges one fee for the year based upon on the
return that your account brings back. This methodology ensures that the
advisor is in tune with its client and that they put the client’s returns first.

Mr. Hunter: Great. That sounds too good to be true!

Mr. Lindsey: Yes, they are an excellent investment option. However, there are
some specifics that you should know about these products. First, there are
several different platforms to choose from that are used based upon the initial
contribution. For your investment style we suggest the Manager Select
platform provided by LPL Financial. This product account minimum is just
$100,000 for equity strategies and uses only separately managed accounts or
(SMAs).

Mrs. Hunter: What are SMA’s?

Ms. Johnson: SMAs are individual investment portfolios (as opposed to
“pooled assets”) offered through financial consultants who provide advisory
services, and managed by professional investment advisors. SMAs have an
asset-based fee structure.

Mr. Hunter: How do they differ from mutual funds and what are some benefits
of these portfolios?

Ms. Johnson: They differ from mutual funds because the investor directly
owns the securities instead of owning a share in a pool of securities. One of
the most popular benefits of separate accounts involves tax harvesting



                                                                             23
Consider, for example, a separate-account portfolio in which two securities
have been purchased at similar prices. Over time, one of the securities has
doubled in value while the other has fallen by half. By instructing the money
manager to sell both securities, the gains generated by the security that has
doubled in value are offset by the losses in the other security, eliminating any
capital-gains tax liability.

Mr. Lindsey: Another tax benefit of individual cost basis is the lack of
embedded capital gains. Mutual funds must pay out all capital gains once per
year. Since mutual funds are "mutual", all investors share the tax liability on
the gains. If a fund doubled in value from January through November,
investors purchasing into the fund in December did not get the benefit of any
of those gains, but they do inherit the tax liability because the gains are
embedded in the portfolio. Separate account investors, thanks to individual
cost basis on the underlying securities, would not be liable for capital gains
generated prior to the day they invested in the portfolio.             Another
major advantage of individual cost basis is the ability to customize the
portfolio by choosing to avoid investing in certain stocks or certain economic
sectors (technology, sin stocks, etc). ). Last but not least, you will have
access to some of the best money managers in the world with a low account
minimum.

Mr. Lindsey: So is everything clear?

Mrs. Hunter: Crystal! If we max out our 401k, and we’re steadily adding
money to our advisory account, we should be on the right path to retirement
bliss, right?!

Mr. Lindsey: Correct; that just about sums up the plan itself. Now we can
move on to showing you the performance of your investments, and where you
will be after 30 years.

Mr. Hunter: Before we continue, I noticed that you didn’t mention anything
about Social Security. Why is that?

Mr. Lindsey: Depending on Social Security for all or even part of your
retirement savings at your age can be a major risk. While few believe that the
government will allow Social Security to completely go bankrupt and eliminate
benefits altogether, there is rampant speculation about what will be done.
Many, including JP Walsh, a financial analyst at Charles Schwab, believe that
Social Security will not be able to fully support or significantly aid younger
workers.47 This is in line with the majority of research.48 Social Security will
likely always be able to provide aid to millions of Americans. The question for
each individual is how much. The average monthly Social Security retirement

47
     Walsh, JP. Personal interview. 14 June 2008.
48
     http://www.dollarsandsense.org/archives/2005/0505orr.html


                                                                             24
benefit for a retired worker is approximately $1,050.49 Furthermore, the
maximum amount that an individual would receive is $2,185, which is $26,220
annually.50 This may seem like a great aid, and indeed it is, but in order to
keep the system solvent in the long term, the government will either need to
raise taxes to further support the system, raise the eligibility and/or retirement
ages, or reduce benefits – none of which are good for you.51 We believe that
any moneys you receive from Social Security should be icing on your
retirement cake, but not part of the recipe.

Mrs. Hunter: So if we stick to this plan, how much can we expect to have
saved at retirement?

Mr. Lindsey: The chart below shows your investment progress and the size of
your nest egg as time goes on. This chart assumes that you make no
deviations from our plan. In addition, we assume that your income will grow
3%52 each year. You must deduct income to contribute to your 401k monthly
and your advisory account. Finally, we assume a 6% return on all
investments, including your 401k, and advisory account. Progress from
selected years can be seen below:

                                                                 Total Nest
 Year         Age         401k               Advisory            Egg
         1           37      $47,848.50       $128,309.38         $176,157.88
         5           42     $332,081.76       $307,854.92         $639,936.68
        10           47     $797,838.37       $631,902.34        $1,429,740.71
        15           52   $1,208,370.61       $937,858.15        $2,146,228.75
        20           57   $1,870,525.98      $1,457,898.52       $3,328,424.51
        25           62   $2,748,311.17      $2,181,473.93       $4,929,785.11
        30           67   $3,911,945.67      $3,180,309.97       $7,092,255.64

Ms. Johnson: As you can see, if you follow the plan that we have outlined for
you, your nest egg at retirement will be more than $7 Million. A complete
chart is included in the appendix below.




49
   http://ssa-custhelp.ssa.gov/cgi-
   bin/ssa.cfg/php/enduser/std_adp.php?p_faqid=13&p_created=955050441
50
   http://ssa-custhelp.ssa.gov
51
   http://www.heritage.org/Research/SocialSecurity/bg1811.cfm
52
   http://www.usatoday.com/money/economy/employment/2006-03-22-snow-usat_x.htm


                                                                                 25
Mr. Hunter: This is unbelievable! I never knew that we could be this close to
our retirement dreams. We can easily afford to save 13% of our annual
salaries, and we will be sure to stick to the plan.

Mr. Lindsey: Thank you. Remember that we here at Omega Retirement, Inc.
will be here for you every step of the way. We really look forward to working
with you.

Ms. Johnson: I think that just about concludes our meeting. Did you have any
more questions?

Mrs. Hunter: Just one… When can we get started!?

Baby Boomers

From Baby Boomers to the Generation X, Americans today are more focused
on their preparation for retirement. Americans are taking more responsibility
for their finances for several reasons including their decreased reliance on
Social Security, more frequent job changes, and the fact that companies are
no longer providing a pension plans but are requesting that employees
contribute to their retirement through a 401(k) plan. Additionally, Americans
are taking a more active approach to becoming educated about finances. This
proves that many, especially those in the Baby Boomer generation, are
learning to adapt to a financially turbulent53 environment

Today, with advances in healthcare, people’s life spans are increasing.
Presently, the average life expectancy for women is 81 and 75 for men.1 Baby

53
     http://news.aol.com/health/story/_a?us-life-expentancy-tops-78-as-top/n20080611133609990007


                                                                                                   26
Boomers are being faced with several ambiguous perceptions about their
security in retirement. Similarly, Baby Boomers have learned to expect the
unexpected and now are making preparations for a longer retirement. Baby
boomers and members of other generations are learning to save for
retirement by developing a retirement plan and exploring the different
methods of saving for their future.

Given that our question is hypothetical and has a vast amount of solutions,
we have constrained our answer to the assumptions we made about the baby
boomer couple and their lifestyles. With the given information, along with our
assumptions, we have sought to answer this most important question, “Can I
afford to retire?” Thus, we proposed the following scenario:

The assumptions made are:

•   The poor will never retire because they don’t have the income to save or
    contribute to 401k. While harsh, unfortunately, the will work until death.
•   We have, too, excluded the rich and affluent from our report. They will
    have the funds necessary to retire.
•   Primarily, the focus of our report will be the middle class baby boomers.
    We feel as though they are the persons who will most likely benefit from
    our findings.
•   We assume that the family lives prudent lifestyles and have taken our
    recommended approach to retirement.
•   We assume the family bought a home that was within its means and have
    lived there for their entire married lives.
•   Both parents are college educated and contributed to their children’s
       education.
•   Race was excluded from our report.
•   We assume that the median incomes have risen 4.38% year over year
    since 1968, the last 40 years. (Jamie Hart, a member of the research
    team that prepared this paper, determined this number by using a
    financial calculator.)
•   We assume that the husband and wife are married at age of 20 and
    never divorced.
•   All income is combined and jointly allocated amongst living expenses,
    investments, taxes, savings, and etc.
•   Mr. & Mrs. Stark were both born in 1946, married in 1966, and planned
    for retirement for him and Jill in 2013, when they are both 67 years old.
    They both contribute to the joint income by working individually and have
    two children together.
•   Any inheritances or unusual financial gains are excluded from our
    scenario which imposes tax liability on our couple. Also, all financially
    deleterious situations are excluded. We assume that the live balanced
    normal middle class lives.




                                                                           27
Below you will find another hypothetical meeting between potential customers
of Omega Retirement, Inc, and representatives of the company.


Mr. Hart: Welcome to Omega Retirement Inc., Mr. & Mrs. Stark. What brings
you out on this rare occasion? Your husband usually comes alone.

Mrs. Stark: Yes, I have always relied on Mr. Stark to handle our personal
finances, but now that we are preparing to enter retirement, I’ve had some
concerns. So, I decided to come and sit in on our appointment today.

Mr. Hart: Well, Mrs. Stark, your husband has been a valued client of Omega
Retirement Inc. since 1968, the year after you married.

Mr. Hart: This was the budget that was recommended and you all have
maintained this budget for the last 40 years.




Mr. Hart: While you both make 25% less than the median income, Omega
Retirement Inc. was sure that we could create a plan that would work for you.

Mrs. Stark: We both have valued the advice that we have received from you
all over the years.

Mr. Hart: Thank you. Mrs. Stark you have not met my colleague, Paige Dupar.
She is a Certified Financial Planner and has been beneficial in the
development and planning of your retirement portfolio over the years.

Mr. Stark: Yes, she has proven to be just as knowledgeable and as big of
assistance as you, Mr. Hart. She has often helped me when I could not
contact you.




                                                                          28
Ms. Dupar: Thank you, Mr. Stark and Mr. Hart for that delightful introduction.
It has been a pleasure to assist you.

Mrs. Stark: Ms. Dupar it is a pleasure to meet you and thank you so much for
what you have done for my family.

Ms. Dupar: It has been a joy to serve you and our motto at Omega
Retirement Inc. is “to ensure that all of our customers are financially fit for
their future.”

Mr. Hart: Ok…let us begin this meeting.

Mr. Hart: You both are 62 years old now, right?

Mrs. Stark: Yes, that is correct.

Mr. Hart: Currently, you both have a combined income of $90,000 a year,
correct?

Mr. and Mrs. Stark: Yes, that’s correct.

Mr. Hart: You have two children, Aimee and Jack Jr.

Mrs. Stark: Yes, they grew up so fast, hard to believe that our babies are
adults with their own families.

Mr. Hart: It seems as only yesterday when you came in as an expecting father
– very nervous about your financial condition and plan for the future. It was
hard to settle you, but I assured you that with the right plan things would be
okay. Haven’t our plans lived up to your expectations?

Mr. Stark: That’s right, so far, you have. After this meeting, let’s hope I can
confirm my assurance.

 Mr. Hart: Well, we don’t want to deviate from the topic and important issue of
this meeting, so let’s confirm your assurance, shall we?

Mr. Stark: We shall.

Mr. Hart: Now, here we are, five years from retirement. Do you both plan to
retire at 67?

Mr. Stark. That is correct. We have paid our dues and anxiously anticipate the
day.




                                                                            29
Mr. Stark: Upon your advice, we have maxed out our contributions to our
401k, since our companies’ first introduced them in 1980.

Ms. Dupar: I see that your low risk investments have returned an average of
3.25% year over year.

Mrs. Stark: Yes, Mr. Stark has been trying to explain to me risk and return,
but I never really understood and I guess it’s too late to learn now.

Mr. Hart: No Mrs. Stark, it’s never too late to learn. By the end of this meeting,
you will have a clearer understanding of bonds, equities, risk, and return.

Mr. Stark: Yes, this is correct. He’s good at making things simple and
coherent.

Mr. Hart: Your conviction and commitment to your savings have really paid
off.


Ms. Dupar: Mr. and Mrs. Stark, your year over year 3% contributions to your
401k plan, which were matched by your employer’s, really grew substantially.
Also, your pension plan has also helped to prepare a nice nest egg for the
both of you.

Mr. Hart: Let’s take a look back. Our records show that you paid us a visit in
May of 1988 and we illustrated you the following graph depicting your
financial condition at that point.




Ms. Dupar: As seen above, the family at this time had $203,000.



                                                                               30
Mr. Hart: Mr. Stark, I can still remember the look on your face when you first
saw this graph. You couldn’t believe that your pension plan had grown so
much. You were equally surprised to see how much your 401K and savings
plans had grown. By saving 1% of your combined income and investing it into
risk free assets, with a 3.25% return, your savings grew to $23,860 in a
twenty year span.

Mr. Stark: Yes, you really eased my concerns about paying for my kids’
education. With Jack soon starting his first year and Aimee following two
years after, I was terrified.

Mr. Hart: However, I was able to show you payment options for college. I
explained that you had $23,860 to contribute towards their education. I also
explained that you could have borrowed against your 401K, which had a
balance of $21,280 at the time. While you may not have been able to provide
100% of their education, you did have roughly $12,000 to contribute excluding
the loan from you 401K.

Mrs. Stark: I am so glad that we were well prepared. Putting both kids through
college was difficult, however, with the help of scholarships, student loans,
and the kids having part-time jobs, they were able to make it through.

Mr. Hart: Mr. Stark withdrew $12,000 of the money for Jack Jr.’s education
and in two years, withdrew another $12,000 for Aimee’s education. I told you
to trust me Mr. Stark. I had a plan that would work.

Mr. and Mrs. Stark: That is correct.

Mr. Hart: I must admire you because your family was disciplined and kept to
the plan. While the children were away in college, you are not able to save
any additional money. However, you continued to save the 1% of your
income. Upon both children’s graduation and being freed from the financial
burden, you were both tired and begin to aspire for traveling and other
vacations. Therefore, you began to spend all additional disposable income on
travel and etc., but continued to invest as you always have.

Ms. Dupar: Mr. Stark, I assisted you when you came in 1992.

Mr. Stark: Yes, I remember.

Ms. Dupar: You were shocked when I showed you the graph depicted on the
screen above. I gave you this forecast of your retirement in 5 year intervals
leading to retirement in 2013.




                                                                           31
Mr. Stark: Yes, I remember.

Mr. Hart: So here we are, in year 2008, and referencing the previous chart
you viewed, and as you can see, you’re retirement portfolio is exactly on track
as the bar graph depicted above?

Ms. Dupar: I am pleased to announce that you have a net worth $2.1 million
dollars.

Mr. Stark: That’s great

Ms. Stark: Oh my God!!!

Mr. Stark: Is this including the pending loses from our pension plans?

Mr. Hart: Yes, this is including the losses from your pension plan. While it was
a major setback, your fervent savings plan prevailed in the end.

Mrs. Stark: I am still angry that all those years of dedication were wasted.
They promised that they would take care of us in retirement. They lied…Oh
my God…they lied.

Ms. Dupar: Mrs. Stark, over the past 40 years, a lot has changed.
Managements changed. The world changed. While the company’s meant
well, they were no longer able to keep their promises. They had to make
choice between paying pension benefits or file for bankruptcy. It was painful,
but they had to make these cutbacks.




                                                                             32
Mrs. Stark: Yes, I know, but it’s still painful. It hurts to know that all that you
have worked for was taken away.

Mr. Stark: What are the future generations going to do?

Mr. Hart: If they are wise Mr. Stark, they will take the road you traveled. They
should save at least 1% of their combined income, save for their children’s
college fund, max out their 401k contributions, and live beneath their means.

Mrs. Dupar: At this time, Mrs. Stark, maybe we should explain risk and return
and Omega Retirement’s analogy.

Mrs. Stark: That would be great.

Mr. Hart: Any investment that you partake any interest in, assume that there
is always going to be risk. The question is, “How much return do you expect
from your investment?”

Mrs. Dupar: And the answer is simple, a higher risk yields a higher return,
whereas being conservative towards risk may yield a conservative return.

Mrs. Stark: In other words, you get what you put?

Mr. Hart: Basically.

Ms. Dupar: Mr. and Mrs. Stark, you all are the example to follow. At
retirement in 2013, you will have nearly $3 million dollars; moreover, your
golden years will truly be golden.

Mr. Hart: It can all be explained by referring to the graph that was prepared
depicting the future retirement plan forecast.




                                                                                33
Mr. Stark: If I am reading this graph correctly, I see that our disposable
income will not only be maintained throughout retirement, but it has some
growth. How can that be?


Mr. Hart: Looking forward, if we roll the balance of your 401K and $40,000
from your savings into a $1 million fixed annuity product from Jackson
National Life Insurance Company, you will increase your income, while in
retirement. It will allow you to pull down 5% year over year while earning 7%
interest year over year.

Mr. Stark: I cannot believe my eyes. Not only did the Mr. Hart and Ms. Dupar
provide me with a sufficient financial plan to retirement, but they also year
over year improved my disposable income.

Mr. Hart: Mr. Stark, it wasn’t us. It was you and Mrs. Stark who made sound
decisions. We only facilitated the transactions.

Mrs. Stark: How much income are we talking about? I have always dreamed
of going to Paris.

Ms. Dupar: Mrs. Stark, you will be able to travel wherever you would like to
go. We project that at age 92 you and Mr. Stark will have the net worth of 5.9
million dollars.

Mrs. Stark: What?! Really?

Mr. Hart: Really.

Mr. Stark: We appreciate you and Ms. Dupar meeting with us today to discuss
our future. Once again, you have given us great results and my assurance is
well-confirmed.

Mr. Hart: As Ms Dupar stated earlier, it is our goal to make our customers
financially fit for the future and we are dedicated to facilitating that goal.

Mrs. Stark: I’m overwhelmed with our results and I am completely happy with
you service.

Ms. Dupar: We aim to please our customers.




                                                                           34
Conclusion

In conclusion, thorough research and hypothetical scenarios have proven that
life can have some inconsistencies, which prove that change is inevitable and
must be planned for. On the other hand, while changes are inevitable,
preparations a key asset to overcoming any problems. Conversely, there is
no simple way to solve the retirement problem in America, but the question is
solvable. It requires that one be advised, disciplined, dedicated, willing to
make sacrifices, and determined to stay the course. Social security is not
secure. Pension plans are not precise. 401k is not always the way, but
combined, risk is mitigated and retirement realized.

As Americans grow more knowledgeable of needs and obstacles of
retirement, financial tools and vehicles used to secure retirement will be more
meticulously studied. We can only expect that the baby boomer generation
will be the guinea pig for all other generations to learn from. Americans are
being forced to make sacrifices today for a better, more secure tomorrow.

Unfortunately for some, retirement is a dream that will never be realized. Due
to poor planning and preparations, many will have to lean on family and the
state for the time when they are no longer able to provide for themselves.
However, this burden may be too heavy for social security and future
generations to bear. Therefore, the present offers the chance for all people to
prepare and make the decisions that will provide opportunities for all to enjoy
the Golden Years.

Our recommendations for each couple are as follows:
Millennials:
    • Discipline and commitment are necessary to achieve the best results.
       Deviating from the established plan can reduce earnings by thousands
       or tens of thousands of dollars over the long term. Emergencies will
       undoubtedly arise, but dedication to a solid savings plan is the surest
       way to a comfortable retirement.
Generation X:
    • Education concerning financial matters will help Gen Xers make wise
       decisions. The couple should seek to learn more about investment and
       retirement products, as well as about themselves. They may find that
       by taking an objective look at their lifestyle and values, changes can
       (or must be) made to their current retirement planning strategy.
Baby Boomers:
    • The selected couple has been vigilant about their retirement planning.
       Thus, they will be able to enjoy the fruits of financial independence in
       their later years. While some Boomers continue to work due to poor
       retirement planning, many retirees are voluntarily starting new careers
       after “retirement.” Some are doing it for mental stimulation, to stave off
       boredom, or for additional disposable income. The traditional view of


                                                                              35
       “retirement” may have to be re-defined as the Boomers continue to
       alter the retirement landscape.

Appendix

Social Security Chart:
Workers and Covered Earnings Above the Social Security Tax Cap,
1937-2003
              Number of Workers (in millions)   Percent of--
              Total covered    With earnings    workers with all   covered earnings in
                               above the cap    earnings below     economy below the
                                                the cap            cap
1937          32.9             1.0              96.9               92
1945          46.4             3.6              86.3               87.9
1950          48.3             13.9             71.1               79.7
1960          72.5             20.3             72                 78.1
1965          80.7             29.1             63.9               71.3
1970          93.1             24.2             74                 78.2
1980          113.0            9.9              91.2               88.9
1990          133.6            7.6              94.3               87.2
2000          153.7            9.5              93.8               83.1
2002          154.3            8.4              94.6               85.8



Dow Jones Historical Performance (1900-2006, Monthly):




                                                                                    36
NASDAQ Historical Performance




US Personal Savings Rate:




Wong Full Retirement Progress:
                                                       Total Nest
Year       401k           Roth IRA      Mutual Fund    Egg
       1     $14,716.08     $4,163.25      $4,293.00     $23,172.33
       2     $30,781.30     $8,708.18      $8,972.37     $48,461.85
       3     $48,292.11    $13,662.08     $14,065.16     $76,019.34
       4     $67,351.32    $19,054.02     $19,600.14    $106,005.48
       5     $88,068.47    $24,915.01     $25,607.96    $138,591.45
       6    $110,560.31    $31,278.07     $32,121.20    $173,959.58
       7    $134,951.20    $38,178.37     $39,174.54    $212,304.11
       8    $161,373.62    $45,653.40     $46,804.86    $253,831.88
       9    $189,968.68    $48,392.61     $60,489.64    $298,850.92


                                                                      37
10     $220,886.68    $51,296.16      $75,321.80     $347,504.64
11     $254,287.66    $54,373.93      $91,379.98     $400,041.57
12     $290,342.06    $57,636.37     $108,747.81     $456,726.24
13     $329,231.34    $61,094.55     $127,514.26     $517,840.15
14     $371,148.66    $64,760.22     $147,773.94     $583,682.83
15     $416,299.69    $68,645.84     $169,627.48     $654,573.00
16     $464,903.32    $72,764.59     $193,181.83     $730,849.74
17     $517,192.52    $77,130.46     $218,550.75     $812,873.74
18     $573,415.26    $81,758.29     $245,855.15     $901,028.70
19     $633,835.40    $86,663.79     $275,223.55     $995,722.74
20     $698,733.72    $91,863.62     $306,792.56   $1,097,389.89
21     $768,408.96    $97,375.43     $340,707.39   $1,206,491.78
22     $843,178.99   $103,217.96     $377,122.32   $1,323,519.26
23     $923,381.95   $109,411.04     $416,201.32   $1,448,994.31
24   $1,009,377.58   $115,975.70     $458,118.61   $1,583,471.90
25   $1,101,548.54   $122,934.24     $503,059.30   $1,727,542.08
26   $1,200,301.85   $130,310.29     $551,220.04   $1,881,832.18
27   $1,306,070.41   $138,128.91     $602,809.73   $2,047,009.05
28   $1,419,314.64   $146,416.65     $658,050.30   $2,223,781.59
29   $1,540,524.19   $155,201.64     $717,177.47   $2,412,903.30
30   $1,670,219.75   $164,513.74     $780,441.59   $2,615,175.08
31   $1,808,955.04   $174,384.57     $848,108.56   $2,831,448.16
32   $1,946,869.33   $184,847.64     $929,074.07   $3,060,791.03
33   $2,093,602.12   $195,938.50   $1,016,292.77   $3,305,833.39
34   $2,249,706.69   $207,694.81   $1,110,181.73   $3,567,583.24
35   $2,415,770.72   $220,156.50   $1,211,184.27   $3,847,111.50
36   $2,592,418.43   $233,365.89   $1,319,771.61   $4,145,555.93
37   $2,780,312.83   $247,367.84   $1,436,444.58   $4,464,125.25
38   $3,192,702.29   $262,209.91   $1,561,735.43   $5,016,647.63
39   $3,418,739.75   $277,942.51   $1,696,209.75   $5,392,892.01
40   $3,659,114.26   $294,619.06   $1,840,468.54   $5,794,201.85
41   $3,914,721.96   $312,296.20   $1,995,150.34   $6,222,168.50
42   $4,170,581.19   $331,033.97   $2,160,933.56   $6,662,548.73
43   $4,427,813.52   $350,896.01   $2,300,494.06   $7,079,203.59




                                                                   38
Effect of Higher Fees over time:




                                   39
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                                                                      43
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101. http://www.en.wikipedia.org/wiki/Pension#Current_challenges
102. http://www.investopedia.com/terms/c/corppension.asp
103. http://www.investopedia.com/terms/d/definedbenefitpensionplan.asp
104. http://www.investopedia.com/terms/p/pensionplan.asp
105. http://www.pensionresearchcouncil.org/pdf/news/8.pdf
106. http://www.retireplan.about.com/cs/pensions/a/aa_cashbal_a4.htm
107. http://www.retireplan.about.com/cs/retirement/a/aa_defined_a5.htm
108. http://www.retireplan.about.com/od/retirementincome/qt/defined_cont
     rib.htm
109. http://www.uspolitics.about.com/od/electionissues/i/pensions.htm

Roth IRA

110. http://www.kiplinger.com/columns/starting/archive/2006/st0309.htm
111. http://www.schwab.com/public/schwab/home/account_types/ira_retir
     ement
112. http://en.wikipedia.org/wiki/Roth_IRA


Social Security


113. http://www.aarp.org/money/social_security/diverse_perspectives_on_
     social_security.html
114. http://www.dollarsandsense.org/archives/2005/0505orr.html
115. http://www.epi.org/content.cfm/briefingpapers_fixsocsec
116. http://www.heritage.org/Research/SocialSecurity/bg1811.cfm
117. http://www.investorwords.com/4617/Social_Security.html
118. http://www.socsec.org/publications.asp?pubid=531
119. http://www.tcf.org/Publications/RetirementSecurity/ballplan.pdf
120. http://www.wisegeek.com/what-is-social-security.htm
121. http://www.whitehouse.gov/infocus/social-security/

Target Date Funds




                                                                      44
122. http://www.investopedia.com/terms/t/target-date_fund.asp
123. http://www.smartmoney.com/smartmoney-
     magazine/index.cfm?story=february2008-target-date-funds
124. http://www.usnews.com/blogs/planning-to-retire/2008/5/20/safe-
     target-date-retirement-funds-have-hidden-risks.html




                                                                      45
Glossary of Financial Terms

1. 401(k) Plan – “The 401(k) plan is a type of employer-sponsored defined
contribution retirement plan under section 401(k) of the Internal Revenue
Code (26 U.S.C. § 401(k)) in the United States, and some other countries.
A 401(k) plan allows a worker to save for retirement while deferring income
taxes on the saved money and earnings until withdrawal. The employee
elects to have a portion of his or her wage paid directly, or "deferred," into his
or her 401(k) account. In participant-directed plans (the most common
option), the employee can select from a number of investment options,
usually an assortment of mutual funds that emphasize stocks, bonds, money
market investments, or some mix of the above.”
http://en.wikipedia.org/wiki/401(k)

2. 403(b) Plan – “A retirement plan similar to a 401(k) plan, but one which is
offered by non-profit organizations, such as universities and some charitable
organizations, rather than corporations. There are several advantages to
403(b) plans: contributions lower taxable income, larger contributions can be
made to the account, earnings can grow tax-deferred, and some plans allow
loans. Contributions can grow tax-deferred until withdrawal at which time the
money is taxed as ordinary income (which is sometimes a disadvantage).”
http://www.investorwords.com/12/403b_plan.html

3. 529 Plan – “A plan that allows for the prepayment of qualified higher
education expenses at eligible educational institutions.”
http://www.investopedia.com/terms/1/529plan.asp

4. Asset – “Any item of economic value owned by an individual or
corporation, especially that which could be converted to cash. Examples are
cash, securities, accounts receivable, inventory, office equipment, real estate,
a car, and other property.”
http://www.investorwords.com/273/asset.html

5. Capital Gains Tax – “A tax assessed on profits realized from the sale of a
capital asset, such as stock.”
http://www.investorwords.com/708/capital_gains_tax.html

6. Corporate Pension Plan – “A formal arrangement between a company
and its employees - or the employees' union - that provides funding for the
employees' retirement. This pool of funds can be financed in several ways
and will eventually be used to make periodic payments to retired employees.
In most cases, both employer and employees make regular contributions to
the plan. In the past, employers were wholly responsible for contributing to
the plan based on an employee's work, length of employment and position
held.”
http://www.investopedia.com/terms/c/corppension.asp


                                                                                46
7. Deferred Annuity – “A type of annuity contract that delays payments of
income, installments or a lump sum until the investor elects to receive them.
This type of annuity has two main phases, the savings phase in which you
invest money into the account, and the income phase in which the plan
is converted into an annuity and payments are received.”
http://www.investopedia.com/terms/d/deferredannuity.asp

8. Defined-Benefit Plan – “An employer-sponsored retirement plan where
employee benefits are sorted out based on a formula using factors such as
salary history and duration of employment. Investment risk and portfolio
management are entirely under the control of the company. There are also
restrictions on when and how you can withdraw these funds without
penalties.”
http://www.investopedia.com/terms/d/definedbenefitpensionplan.asp

9. Defined-Contribution Plan – “A retirement plan in which a certain amount
or percentage of money is set aside each year by a company for the benefit
of the employee. There are restrictions as to when and how you can withdraw
these funds without penalties.”
http://www.investopedia.com/terms/d/definedcontributionplan.asp

10. Employee Contribution Plan – “A company-sponsored retirement plan
where employees make deposits (contributions) to an account. Contributions
are deducted from employee's pay; some companies match those payments.”
http://www.investopedia.com/terms/e/employeecontributionplan.asp

11. Financial Plan – “A comprehensive evaluation of an investor's current
and future financial state by using currently known variables to predict future
cash flows, asset values and withdrawal plans.
Most individuals work in conjunction with an investment or tax professional
and use current net worth, tax liabilities, asset allocation, and future
retirement and estate plans in developing the plan. These will be used along
with estimates of asset growth to determine if a person's financial goals can
be met in the future, or what steps need to be taken to ensure that they are.”
http://www.investopedia.com/terms/f/financial_plan.asp

12. Growth Stock – “Stock of a company which is growing earnings and/or
revenue faster than its industry or the overall market. Such companies usually
pay little or no dividends, preferring to use the income instead to finance
further expansion.”
http://www.investorwords.com/2262/growth_stock.html

13. Indexed Mutual Fund – “An index fund or index tracker is a collective
investment scheme (usually a mutual fund or exchange-traded fund) that
aims to replicate the movements of an index of a specific financial market, or



                                                                              47
a set of rules of ownership that are held constant, regardless of market
conditions. The lack of active management (stock picking and market timing)
usually gives the advantage of lower fees and lower taxes in taxable
accounts. However, the fees will generally reduce the return to the investor
relative to the index. In addition it is usually impossible to precisely mirror the
index as the models for sampling and mirroring, by their nature, cannot be
100% accurate.”
http://en.wikipedia.org/wiki/Index_fund

14. Individual Retirement Accounting (IRA) – “An investing tool used by
individuals to earn and earmark funds for retirement savings. There are
several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP
IRAs.
Traditional and Roth IRAs are established by individual taxpayers, who are
allowed to contribute 100% of compensation (self-employment income for
sole proprietors and partners) up to a set maximum dollar amount.
Contributions to the Traditional IRA may be tax deductible depending on the
taxpayer's income, tax filing status and coverage by an employer-sponsored
retirement plan. Roth IRA contributions are not tax-deductible.”
http://www.investopedia.com/terms/i/ira.asp

15. IRA Rollover – “A transfer of funds from a retirement account into a
Traditional IRA or a Roth IRA. This can occur either through a direct transfer,
or by a check, which the custodian of the distributing account writes to the
account holder who then deposits it into another IRA account.”
http://www.investopedia.com/terms/i/ira-rollover.asp

16. Keogh Plan – “A tax-deferred qualified retirement plan for self-employed
individuals and unincorporated businesses. Also called self-employed
pension.”
http://www.investopedia.com/terms/k/keoghplan.asp

17. Modified Adjusted Gross Income (MAGI) – “The amount of income that
determines how much of an individual's IRA contribution is deductible. The
modified adjusted gross income is found by taking the individual's adjusted
gross income and adding back certain items such as foreign income, foreign-
housing deductions, student-loan deductions, IRA-contribution deductions
and deductions for higher-education costs.”
http://www.investopedia.com/terms/m/magi.asp

18. Money Market Account – “A savings account that offers the competitive
rate of interest (real rate) in exchange for larger-than-normal deposits. Also
known by the acronym "MMDA", which stands for "money market demand
account" or "money market deposit account."
http://financial-dictionary.thefreedictionary.com/Money+Market+Account




                                                                                  48
19. Mutual Fund –“ An open-ended fund operated by an investment
company which raises money from shareholders and invests in a group of
assets, in accordance with a stated set of objectives. Mutual funds raise
money by selling shares of the fund to the public, much like any other type of
company can sell stock in itself to the public. Mutual funds then take the
money they receive from the sale of their shares (along with any money made
from previous investments) and use it to purchase various investment
vehicles, such as stocks, bonds and money market instruments. In return for
the money they give to the fund when purchasing shares, shareholders
receive an equity position in the fund and, in effect, in each of its underlying
securities.”
http://www.investorwords.com/3173/mutual_fund.html

20. No-Load Funds – “Without any sales charge. Opposite of load.”
http://www.investorwords.com/3293/no_load.html

21. Nest Egg – “A special sum of money saved or invested for one specific
future purpose… Examples of the purposes for which nest eggs are usually
intended include retirement, education, and even entertainment (vacations
and cruises). The main idea is that the money in the nest egg shouldn't be
touched except for the purpose for which you saved it.”
http://www.investopedia.com/terms/n/nestegg.asp

22. Pension Plan – “A type of retirement plan, usually tax exempt,
wherein an employer makes contributions toward a pool of funds set aside for
an employee's future benefit. The pool of funds is then invested on the
employee's behalf, allowing the employee to receive benefits upon
retirement.”
http://www.investopedia.com/terms/p/pensionplan.asp

23. Roth IRA – “A Roth IRA is an Individual Retirement Account (IRA)
allowed under the tax law of the United States. Named for its chief legislative
sponsor, Senator William Roth of Delaware, a Roth IRA differs in several
significant ways from other IRAs…. In contrast to a traditional IRA,
contributions to a Roth IRA are not tax-deductible. Withdrawals are tax-free.
An advantage of the Roth IRA over a traditional IRA is that there are fewer
withdrawal restrictions and requirements. Transactions inside the Roth IRA
account (including capital gains, dividends, and interest) do not incur a
current tax liability. Withdrawals are generally tax free when the account has
been opened for at least 5 years and the owner's age is at least 59 ½.”
http://en.wikipedia.org/wiki/Roth_IRA

24. SEP – “A retirement program for self-employed people or owners of
companies with less than 25 employees, allowing them to defer taxes on
investments intended for retirement. This plan allows employers to contribute
on behalf of eligible employees, and all contributions are tax-deductible as a



                                                                              49
business expense and can be integrated with Social Security contributions. In
addition, there is no minimum contribution requirement.”
http://www.investorwords.com/4493/SEP_Plan.html

25. Social Security – “The comprehensive federal program of benefits
providing workers and their dependents with retirement income, disability
income, and other payments. The Social security tax is used to pay for the
program.”
http://www.investorwords.com/4617/Social_Security.html

26. Target Date Fund – “A mutual fund in the hybrid category that
automatically resets the asset mix (stocks, bonds, cash equivalents) in its
portfolio according to a selected time frame that is appropriate for a particular
investor. A target-date fund is similar to a life-cycle fund except that a target-
date fund is structured to address some date in the future, such as retirement”
http://www.investopedia.com/terms/t/target-date_fund.asp

27. Target Risk Fund – “These funds are usually split into three groups,
based on risk: aggressive, moderate, and conservative. It is up to the investor
to decide when they want to switch from one to the other, so for retirement,
someone might start with the aggressive fund, then switch to moderate
halfway towards retirement and then conservative when they are a few years
from retirement.”
http://mutualfunds.about.com/od/lifecyclefunds/a/lifecycle.htm

28. Variable Annuity – “An insurance contract in which, at the end of the
accumulation stage, the insurance company guarantees a minimum payment.
The remaining income payments can vary depending on the performance of
the managed portfolio.”
http://www.investopedia.com/terms/v/variableannuity.asp

29.Will – “A legally enforceable declaration directing the disposal of a
decedent's property. Also called testament.”
http://www.investorwords.com/5317/will.html




                                                                               50

				
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