2. -2- Step #5: Make your investment decisions and goals on what is probable, not what is possible . I like the information that comes from Paul Merriman, Publisher and Editor of FundAdvice.com and a columnist for CBS Marketwatch.com. He says that you have three basic choices when you invest. Choice #1: Some things are guaranteed. The return you get on a certificate of deposit or a Treasury security is one example. Investors who require certainty can get it, but at a very costly price. When the bank guarantees what it will pay on a CD, it assumes all the risk. In return for that, the bank promises to pay a very low interest rate. Choice #2: Some things are probable though not guaranteed. One example is the notion that stock funds will outperform bond funds in the future. There will always be periods in which the opposite occurs. But if history is any guide, it’s more likely than not --- that over long periods that stock funds will outperform bond funds. Research indicates that over long periods of time, stocks have returned 7% above the rate of inflation. Choice #3: Some things are possible, although not probable . One example is that the stock you read about or that is recommended to you by somebody you know will turn out to be the next Microsoft. In fact there is probably some relatively small, relatively new company on the market right now that, 10 or 20 years from now, will be an industrial giant. But out of 5,000 or so possible candidates, will you be lucky enough to spot that one future gem. Which choice does Merriman recommend? Choice #2 Some things are probable though not guaranteed. Merriman says you have to forget what is guaranteed and also what is possible. Focus on what is "probable though not guaranteed.” He says this is "the sweet spot" in investing --- you are taking a carefully calculated risk that is likely to pay off. Jeremy Siegel, Professor of Finance at Wharton School at the University of Pennsylvania, and author of "Stocks for the Long Run" (1998), shows us what is probable. He presents a thorough analysis of stock market data showing that stocks returned about 7% above inflation for the past two hundred years, and that for twenty year time frames, stocks outperformed bonds over 90% of the time. Step #6 - How Should You Withdraw Your Money In Retirement? . You have worked and saved and invested for all of your working days and now is the time to kick back and enjoy the rewards from your efforts --- it's time to withdraw money from the nest egg. How do you handle this chore? How do you set up a withdrawal rate that will provide you with an infusion of cash but also be sure that your nest egg will last for 30 years or more. Too many retirees have unrealistic expectations. A survey from the MetLife Mature Institute found that two-thirds of the pre-retirees felt that they could withdraw 7 percent or more. But, as we have found from a good number of research studies is that if you want withdrawals from your nest egg to last for a least 30 years, you should go with a withdrawal rate of 4 percent. One of the reasons for a suggested 4 percent withdrawal is if you run into a bear market (going down), your portfolio will also be going down. Let's look at an example. If you have a nest egg of $500,000 and you establish a 4% withdrawal rate, you could withdraw $20,000 in the first year of retirement. You could then make an assumption that we would have a 3% annual rate of inflation (the average for the last 75 years) so you would add in that figure for each additional year. That $20,000 withdrawal would increase to more than $36,000 in 20 years. You can perform a simulation of this exercise on the internet at trprice.com and click on their Retirement Income Calculator. “ What each man wishes, he also believes to be true.” Sophocles 496 – 406 BC, ancient Greek scholar, p laywright, dramatist What You Should Know: Investing On The Basis of Facts --- Not On Hope And Hype Paul Merriman is the founder and president of Merriman Capital Management, Inc., a Registered Investment Advisory firm. On his web site, he tells us about a person who came up to him at the conclusion of a conference on investing. The attendee said “It’s really confusing to listen to five experts when they all have such different views of the market." That is why it is so difficult to be an intelligent investor. When five compelling, persuasive panelists try to wrap things up by telling you five very different things ---how do you decide who to believe? On the panel, R.E. McMaster, publisher of The Reaper, said he makes major buy and sell decisions based on how investors react to economic and market news. James Stack, publisher of InvesTech Mutual Fund Advisor, was adamant in insisting that this is the most dangerous stock market ever, on the brink of turning into a devastating bear market. Stack gave a list of sound reasons why the U.S. equity part of his portfolio is 100 percent in cash. The next speaker was Al Frank, publisher of the Prudent Speculator. He gave a convincing talk about why he is totally committed to the market. He is so sure that he is right that he advocates buying stocks on margin without any defensive strategy. Merriman then took the microphone and told the audience that he had no idea what is the best way to "play" the stock market for this month or this quarter or this year. "I don't even try to predict the next hot market sector, the next hot mutual fund or the next hot stock.” Marriman stated that he felt he had let down the 100 or so people who had come out on a Saturday night to hear about investing. “ They wanted something clever, something that made sense, something that gave them confidence. And what did I offer? I offered only the truth as I see it, and it wasn’t very helpful for people trying to figure out the best place to put their money this year.” “ In the market, what matters is not the past, but the future. Yet the future of the market is unknown. It simply can’t be known. You can (and you should) study the past, but you can’t buy it. Every business day, the future begins right now.”

3. -3- Our Planning – Saving – Investing For Retirement Workshops We all know that we have to pay fees and expenses for the funds we buy – have in our 401(k) plan. We didn’t worry too much about this back in the days of double digit returns in the 1990s. But we have to now because every dollar we pay in fees and expenses is a dollar that will not end up in our nest egg. In our Retirement 201 Workshop – Advanced Concepts, we spend some time discussing how and why we have to take fees and expenses into consideration when choosing our investments. Your retirement may be years away but planning for it shouldn’t be. Talk to the people in your benefits – compensation office about our workshops and ask them to get in touch with us so that we can bring our sessions to your workplace. If you’d like to see a brochure which details what we do in our three sessions, send us an email ---rrj1@cornell.edu Getting to The Nitty-Gritty: What's Better Than Cold-Hard-Cash? When I was a kid growing up, a lot of the families in the neighborhood kept a lot of cash on hand and they storied it primarily in the freezer (is that why they call it cold-hard-cash) or under the carpet in the living room or under the mattress in the bedroom (that was my mother's favorite spot until some unscrupulous thief took the envelope away). So much for a risk free method of saving. Cash supposedly is a "safe investment" until the thief stops by for a visit. It can seem "safe" until you think about the thief. You could also think about how you can lose money to inflation. One of the problems we are finding with investing for retirement is that too many people keep too much money in cash type savings – investments. If you keep it in cold-hard-cash, in you know where --- your pot of money shrinks because of inflation. If inflation is averaging 3% a year, each dollar next year will be worth 97cents. Or you could place your money in a bank savings account and earn 1%. If inflation is averaging 3% a year, each dollar next year will be worth 98 cents. You could take on a little bit of risk and invest in a certificate of deposit or a money market or Treasury Bills or Bonds. You could earn 2 - 3 - 4 - 5% on your money but when you measure that up to inflation of 3% a year, you are either losing a little money or gaining a very little bit of money. And that is why you need to take on some additional risk in order to build your retirement nest egg. Merriman says, "The trouble is, when you're an investor, the only thing that matters is the question, as in 'what's the market going to do in the future’. Once you know the answer, that answer is useless, because it’s already too late to do anything about it.” What's the problem? Merriman adds "Too many people base their investment decisions on hope and hype. Too few act on the basis of facts and realistic expectations." “ Distrust interested advice.” Aesop 620 – 560 BC, Greek writer, “Aesops Fables” animal stories illustrating human challenges The following table will show you the returns for three major asset classes through a period of 76 years. Risk And Return 1926 - 2002 Average Annual Worst Return In A Single Return Year Cash 3 1/2% 0 (U.S. Treasury Bills) Bonds 5 1/2% -9% (U.S Treasury) Common Stocks 10% -43% (Large Companies) Cash has been a stable investment and you won't lose much dollar value by investing in Treasury Bills. Bonds are different. They have not been as stable. In the worst year, they lost 9%. Stocks, as you see, produce the higher returns (10%) over a 76 year period. But the bear market of 2000 - 2002, also proves that you can lose money in stocks. Professor of Economics Burton Malkiel, Princeton University in his book "The Random Walk Guide Walk To Investing" states, "In order to induce investors into buying risky securities, a higher return must be offered. Thus, higher investment returns can only be achieved by accepting greater risk. The table provides us with a menu of the choices available and the risk - return relationship.” When the waiter arrives at your table and asks, "What will you be ordering for retirement," what will you be telling him. “ When prosperity comes, do not use all of it.” Confucius 551 – 479 BC, Chinese philosopher and sage This Month’s Question : Dump Your Mutual Fund? Have your ever had the feeling that you should dump a dud or two of the funds in your portfolio of investments? Sure, you can feel that way --- and you won't have too much trouble finding a story in a financial magazine or a TV financial interview or on the web that may help you. But, are there any guidelines that can help you? One of the problems is that we sometimes buy a fund for the wrong reason or for no reason. We did not have a plan or a strategy. We did not have a well thought out diversified portfolio of funds --- we have a collection of funds. You should do some research before you make your decision and pay attention to things like long-term performance, fees and expenses and focus on results. But before you sell what you think is a clunker, the first thing you need to do is to find the right reasons to sell. All too often, investors sell for the wrong reasons. Sometimes parting with a mutual fund can be a difficult task. Other times it can be quite easy. More often than not, investors tend to sell their mutual fund holding for the wrong reason. So before you make a hasty decision, look at the following list of reasons you should consider. 1 - I need the money Sometimes there will be situations when you must sell your investments. But, before you do, be sure to look at alternatives to selling your investments. You may be able to get a loan or

4. -4- borrow the money. If you can get a rate lower than your expected returns on your investment, it might be best to hold off on selling your investments. 2 - Your Situation Has Changed You may be at a different stage in your life and you may want to consider selling your fund. As you get closer to retirement, you may want to consider more conservative funds. If you recently married, you may need to compromise your risk tolerance and desired returns with that of your spouse. 3 - The Fund Has Changed Its Style or Objective When you buy a fund, you should look at its goals and objectives to see if they match yours. It is important to consider your original reason for buying a fund. If you bought a small cap fund to help diversify your portfolio, but you notice that it is investing in large blue-chip companies, then you should consider selling that fund. 4 - The Fund is Underperforming You can look at raw numbers but you have to find out how you fund has performed relative to others that invest in a similar manner. Not every fund will be a winner every year. They all hit icy patches. Take Fidelity Magellan for instance. At one time, it was the number one fund in its category but over the last 10 years or so, results have been so - so. In four of the past five years, it has been in the bottom 30% of its peer group (large-blend funds). This reason for selling, although valid in certain conditions, is where most investors make a mistake. When calculating performance, don't look at too short of a period and don't compare apples to oranges When studying relative performance, look at your fund and compare it to its peers. If your fund is a utility fund, you should not be comparing it to the S&P 500. When choosing a benchmark, you must select funds in the same category (asset class). 5 - The Fund Manager Has Changed At one time, when Peter Lynch, managed the Fidelity Magellan fund, it was number one for a number of years. He left the fund and since then, the results have been lack luster. A change of fund managers, in itself, is not enough reason to sell a fund on a short-term basis. If it is a passively managed fund (index fund), then you have little to no reason to worry. If it is an actively managed fund, then you should keep on eye on the new manager. Give the new manager a few years before you decide to cut them off. Believe it or not, there are plenty of quality fund managers to replace your manager no matter how good he or she was. 6 - The Fund Size Has Changed Sometimes size does matter. One great example is a small cap fund. A small cap fund manager may be great at picking small company stocks and their success can often lead to their failure. Joe the fund manager is great at picking a portfolio of 30 small company stocks. His success brings a lot of attention to his fund in the media, resulting in a large increase in assets in his fund. The problem is that he now has such a large amount of money to place into these small stocks that he may end up owning 10% of a particular stock, which leads to liquidity problems (because his fund becomes a major shareholder of the stock). To get around this problem, he has to hold more stocks. It was tough enough for him to pick 30 quality companies, but now he is forced to find 50 or 60. 7 - The Fund's Expense Ratio Rises A small rise in an expense ratio may not a big deal, but when you see a significant rise you may want to consider selling the fund. In the case of bond funds or money market funds, it is highly unlikely that the fund can increase its returns enough to justify an increase in the fund's expenses. Just remember --- a dollar that is taken from you for fees and expenses is a dollar that cannot compound more dollars in the future. “ In the stock market, as with horse racing, money makes the mare go. Monetary conditions exert an enormous influence on stock prices.” Martin Zweig, Winning On Wall Street . A Retirement Diary: Why Don’t My Stock Picks Fly Like Microsoft, Dell or Google? Do you know of someone who told you that they noticed a new stock offering for Microsoft back in 1986 and they put some money into it and eventually they were able to retire at the age of 25? Your friend also had a hand in developing and patenting a software package that was able to fund retirement for his children. I – you - we - would all like to pick out the next Microsoft or perhaps Google or even Dell, but those who do are few in number. You may know someone who did. The question is “How Can I Do It.” If I could find a simple quick answer to that question, I wouldn't have to worry one second longer about building my retirement nest egg. All I have to do is find the next Microsoft, etc., etc. From March 1986 (when Microsoft went public) through December 1999, the share price rose more than 60,000%. I haven't figured it out to the penny --- but if I invested $100 in Microsoft and bought 5 shares back in 1986, today, I would be worth about $6 million and have a beach front home on Nantucket Island. How about Dell? Dell's Initial Public Offering (IPO) was June 22, 1988, at $8.50 a share. Dell did not become an overnight sensation. In 1994, Dell was a struggling second-tier PC maker but it did become a very successful company. If you invested $1,000 in Dell stock back in 1990, in 2005, your investment would be worth $398,700 ---- a total return of 39,870% (The Motley Fool “Searching for 40,000% Returns 8/8/2005). How about Google? The initial offering price in August, 2004 was $85 a share. In December - $190 --- In May 2005 - $250 --- and in October - $320 a share --- a gain of almost 400%. The problem is that I just might not be able to spot the next Microsoft or Dell or Google. Let’s say that back in the late 1900s, I placed all of my investment money in theglobe.com or Swapit.com or zing.com or gofetch.com or Bunions.com, or Crayfish, or Zap.com, or Gadzooks, or Fogdog, or Jungle.com, or Scoot.com, or mylackey.com or moreover.com. Or how about Flooz--- a company that offered an alternative currency that could be mailed to.

5. -5- friends and family. Or how about IAM.com --- they offered a data base of pictures of aspiring actors Or how about Zing.com --- they would let you download free software. Or Pets.com ---- they had a sock-puppet mascot that starred in their TV commercials. Or the one I really, really thought would take off ---- ezboard.com --- they produced internet pages called toilet paper, to help you "get the poop" on the online community. I kid you not. Burton Malkiel, Professor of Economics as Princeton in his book, A Random Walk Down Wall Street, tells us that "These were not business models. They were models for business failure." Thankfully, I did not invest in Flooz, IAM.com, go fetch, etc., etc. I would have been in deep, deep, deep trouble spelled with a capital T. Like Malkiel's "models for business failure," they all crashed like a rock and turned a good number of retirement dreams into a nightmare. “ I can calculate the motions of heavenly bodies, but not the madness of people.” Isaac Newton, 1642 - 1727 English physicist, mathematician, astronomer, philosopher, How Can I: Use The Rule Of 72 Gary Charlebois is associated with Pension Portfolios in La Verne, California. He likes to educate people on the importance of financial planning. He especially likes to educate them on the miracle of compound interest and the rule of 72. He says that "If you educate people about the rule of 72, it opens their eyes.” The first thing he does is to tell them that “if they will just divide the interest that they are presently getting into 72, it will tell them how long it will take to double their money.“ He cites an example of a $3,000 trust paying 6% interest set at birth and maturing at age 60. “If you follow the math, you will see that 72 divided by 6 is 12 --- so, the amount of the trust will double every 12 years --- or five times by the age of 60. What do you end up with? The original $3,000 will have grown to $96,000.” Gary then suggests that you instead place the $3,000 in small-cap mutual funds, which have historically averaged 12.7% a year. What do you end up with? “At that rate, the money would double about every six years --- which would mean 10 doubling periods by the age of 60.” He then asks "If your money at 6% grew to $96,000, how much would it grow at 12%." Most people say that it will be twice that amount. Gary says that "When they realize that instead of $96,000, the amount is now in excess of $3 million, the miracle of compounding really begins to sink in.“ Albert Einstein was the physicist who developed the special and general theories of relativity. He probably didn't know a great deal about small-cap mutual funds but roughly 100 or so years ago, he knew about the magic of the rule of 72 when he said, "The most powerful force in the universe is compound interest.“ Building Your Nest Egg: Keeping Track of Fees - Again I know, I continue to get on your case about the fees you pay to invest in your 401(k). And I know that in most cases, it's not your fault that you don't know. I ran across two stories recently which caught my attention. First story: Jim Price, the CFO of Tatum Partners wanted to reduce the costs that his employees pay for investing in their 401(k). He then started to ask some questions and was "told by some providers that the fees (for investing in the mutual funds offered) would be buried so that none of the plan participants would ever notice." That was something Jim didn't want to hear. Jim is part of a group of more than 90 percent of finance executives who think that fees are too high. Second story: Walter Hopgood, a computer systems analyst at a Silicon Valley company is also bothered by the fees he has to pay to invest in his 401(k). He has two questions that he would like to have answered. 1) Why does his 401(k) plan charge him $13.50 a share for the same mutual fund that he could buy in the open market for $10.50 a share? 2) Why didn't anyone warn him about it? Hopgood is not too happy. He didn't even know how much he was going to pay until his first statement arrived in the mail. "It's a total rip-off. Every person in this company is losing money hand over fist.“ Hopgood did not suffer in silence. He went to the 401(k) plan administrator and the human resources department and the 401(k) plan record keeper at his company. Did he get results? "They gave me a song and dance. No one could really explain it.” As you come across stories like this, you begin to realize that it is not unusual for 401(k) plan participants to be in the dark about the fees they pay for their 401(k) plan services. Sometimes it's because they don't ask --- like most plan participants --- and sometimes it's because the plan administrator won't tell them (as Jim Price found out). Only 15% of plan participants understand how plan fees are charged. As I have said before, plan sponsors --- the people in the organization who are entrusted with the responsibility of acting in the best interests of the plan participants ---- a fiduciary responsibility--- often do not completely understand how much money is changing hands among all of the parties involved in a retirement plan. Does this somehow mirror a shell game???? Help may be on the way. Rick Meigs, president of www.401khelp center.com, states that he expects the Securities and Exchange Commission and the Department of Labor to move toward more disclosure on fees "but don't expect them to make any radical changes like the elimination of 12b-1 fees.” On its Web site, the Labor Department offers the publication, “A look at 401(k) plan fees for employees”. If you are complacent about this issue, read this scenario presented by the DOL on why fees are an important consideration to 401(k) plan investors.

6. - 6 - "Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent." That's a huge difference -- the difference between livin' lean and livin' large during your retirement. Are you getting riled yet? “ As a group, investors never - never enjoy the gross return that the markets deliver. Investors earn the net return, after all of the costs of our system of financial intermediation. Thus, just as gambling in the casino is a zero-sum game before the croupiers rake in their share (I'm told that this is called "vigorish," or "the vig") and a loser's game thereafter, so beating the stock and bond markets is a zero-sum game before intermediation costs, and a loser's game thereafter.” John C. Bogle, Former Chairman, The Vanguard Group Interesting Perspective: Older Workers Retiring? No, They're Going Back To Work. Take a guess as to who took over one of every two jobs created in the U.S. during the past year. It wasn't the kid who just got out of college or the kid with the high school diploma or any other kid. According to economist Dean Baker, "Over the last year, workers over age 55 accounted for 918,000 of the 1,810,000 rise in employment shown in the (Labor Department's) household survey. This is a very striking and relatively new development.“ Baker, Director of the Center for Economic and Policy Research, says there are two factors that are driving older workers into the labor market. One is the falling value of 401(k)s invested the stock market. The stock market highs of the 1990s were supposed to help a good number of investors take early retirement but the stock market bubble burst from 2000 - 2002 with losses of up to 50% and more, was bad news for many workers. They put their retirement plans on ice. The second factor --- Baker says it's the increasing cost of health care coverage. If you are on the job, you have seen them --- costlier co-payments and deductibles on doctor's visits and prescriptions. It is easy to figure out that retirees who have less income than when they were working bear an increasing cost and risk for their health care. As you may know, an ever increasing number of employers are choosing not to provide health care coverage for retirees. One story states that it costs $1,500 for every car General Motors sells just to pay for retiree heath care coverage. Baker notes that this move cuts costs for companies in fierce competition with other firms for profits and market share. This forces retirees to spend more income from their savings or pensions or other sources just to pay for health care. Baker adds that basic economic insecurity is driving some would be retirees back into the labor market and employment opportunities for other workers are soaring. "In February 1999, there were 16,953,000 people over age 55, who were working. In the early part of 2005, there were 22,772,000, an increase of more than 35 percent. This is especially striking since job growth had collapsed for everyone else after March 2001." Another possible reason for going back to work? There are some who feel that older workers are concerned with President Bush's plan for Social Security privatization. They fear that privatization could have a negative impact (less money) in their monthly Social Security check once they retire. Hence, the need to stay on the job. If you don't want to work you have to work to earn enough money so that you won't have to work. Ogden Nash 1902 – 1971, American poet best known for writing pithy, funny, light verse Sandy The Smart Saver: Hi, I’m Sandy The Smart Saver and I am here once again to give you some tips on planning-Saving- Investing For Retirement and I am still taking a light- hearted approach and still trying to make the whole saving-investing for retirement process a “fun” event. And of course, I am still not your average squirrel. My aunt Dorothy called just a couple of minutes ago. I asked “What’s happening Auntie Do?” She said, “Not too much but I was just reading the newspaper and I see where Federal Reserve Chairman Allan Greenspan was talking about fixing our Social Security system. Are you planning on writing one of your columns on how to fix it?” I replied, “I’m thinking about it.” Do said, “Whatever you do, don’t you do anything that would screw up me and Almo’s (he’s my uncle) checks.” See, that’s part of the problem. It appears to me, at least, that most people would agree that we have a problem with the System. Retirees line up with Dorothy. Younger guys, like me, are wondering if the mailman will leave a monthly check in the mailbox come retirement time---or will there be anything to electronically deposit into my checking account? What’s the real problem? Well, let’s take a look at the last piece of mail that I received from Jo Anne B. Barnett, my friend who is the head honcho (commissioner) of the Social Security Commission. It was a birthday card. What did Jo Anne have to say? She told me that the System now takes in more money than it pays out, in taxes. Good!!! Planning - Saving - Investing For Retirement Sandy Says: Will Social Security Be There For You/Me?

7. - 7 - The Trust Fund (System) is expected to grow to over $4 trillion. Good!!! However, by 2041, the trust fund will be exhausted and the payroll taxes (read—deduction from my/your pay check) collected will be enough to pay only about 73% of the benefits that are owed. Not so good!!! Don’t tell Dorothy. I then checked out what my friend Allan G. had to say about it. In a Q & A with a U.S. Senate committee, he said that delays in shoring up the shaky Social Security and Medicare programs could require, “abrupt and painful” adjustments, when the baby boom generation (ME!!!) begins retiring. He urged Congress to move as quickly as possible to fix the problem. However, the problem is that Congress never “moves as quickly as possible to fix the problem” --- think molasses --- stuck in the mud. You’ve got to remember that Clinton (Bill) and Bush (the first one) urged Congress to fix the problem in the 1990’s. And, according to the papers, “A proposal to overhaul Social Security is unlikely to come to a vote in the current session of congress.” We knew years ago that a problem was the “dependency ratio”---the number of workers (me) per Social Security beneficiary (Dorothy and Almo). In 1970, there were about 3.7 workers for every person who received benefits. Today, it’s about 3.4%. By 2010, it will be 3.1 and by 2030, it will be about 2.1. According to SSA, if we want to deal with the “dependency ratio” problem, we would have to bring the program into “actuarial balance.” And we could do that with a permanent 13% reduction in benefits (ouch), a 15% increase in taxes (the amount deducted from your paycheck ---ouch, ouch) or a combination of the two (ouch, ouch, ouch). And, I won’t even bore you with the fact that when we begin paying out more in benefits than we collect in taxes (2018), the System will have to rely on the interest of U.S. Treasury Bonds that had been sold previously by our government to finance other federal programs. Those bonds make up our famed Social Security Trust Fund. The value of the bonds held by the trust fund is about $1.4 trillion. Guess who will end up paying the bill? Money magazine gives us a hint---“Ultimately, the U.S. taxpayer is on the hook.” Translation---ME/YOU. What are we going to do? Basically, there are 3 options. 1. Raise taxes. 2. Reduce benefits. 3. Move money from other government programs into Social Security. Or there could be a combination of the three. Let’s hope we don’t wait until we have a real crisis to take care of the problem. By the way---please don’t tell Aunt Dorothy that I wrote this column. “ Doh !” Homer Simpson Follow Up Report: Variable Annuities During the past year or so, we have written several stories about variable annuities. In our July issue, we told you the sad tale of John Migliaccio (74 years old) of Palm Dessert, California. He and his wife Carmen wanted financial security in retirement. An insurance agent from Midland National Life Insurance Company urged them to move $43,000 from their investment account into a tax-deferred annuity. When John died in May 2004, Carmen learned that the payments from the annuity were not scheduled to begin until January 2045 when he would be about 115 years old. And that problem not only affected Carmen and John but many other people who bought into this variable annuity scam. The good news from this scandal is that it appears that federal regulators want to enact a new rule which would make it harder for brokers and other sales persons to sell these products to unsuspecting senior citizens like the Migliaccio's. Even though this new legislation can't come fast enough, the bad news is that the insurance and variable annuity industry are opposing the legislation . The abusive sales tactics have generated an increasing number of lawsuits and settlements. In July, Citizen's Financial Group agreed to pay a $3 million fine, admit that it engaged in "unethical or dishonest conduct," and to offer refunds to elderly customers who bought variable annuities during the past two years. Bank of America acknowledged that these investments may not have been appropriate for senior citizens. Waddell & Reed paid a $14.5 million fine to settle charges brought by the National Association of Securities Dealers. Robert Powell, a columnist for CBSMarketWatch.com, states that "the proposed rule that Securities and Exchange Commission (SEC) published for comment won't make it tougher for brokers to sell variable annuities. Nor will it stop entirely some of the aforementioned abuses." But, John Gordon, director of investment education for the National Association of Securities Dealers (NASD) states that "the new rule will make it more difficult for brokers to sell such investments appropriately.“ Let us warn you one more time ---- Before you buy any variable annuity, make sure that you thoroughly understand what you are buying. Avoid aggressive sales persons who may only be interested in selling you a product that supplies them with a nice commission. Do some research. The NASD, SEC and most state insurance regulators have Web sites that feature tips on detecting and avoiding abusive sales tactics as well as plain English descriptions of variable annuities. Visit those sites: www.nasd.com , www.sec.gov/investor/pubs/varannuity.htm and www.naic.org/pressroom/comsumeralerts/deceptivesales.pdf . http://www.naic.org/pressroom/consumer_alerts/deceptivesales.pdf . Also visit the web site of the National Association of Insurance Commissioners, which along with other information, features links to all state insurance department Web sites. And if you are a variable-annuity investor who feels that you are a victim of abusive sales, file a complaint at the SEC or NASD Web sites, as well as with your state's insurance or securities regulators. Sandy Cartoon: Sandy: I just went to our new neighborhood bank and they have a new sign and a new image. Wife Camille: Really? What is it? Sandy: ”You new have a new friend in town – we are your friendly banker.” Wife Camille: That’s interesting. The question I want to ask is this – If they are so friendly,, how come they chain down the pens? Sandy: The next time I go there, I’ll have to ask them that question.

8. Quick Takes #1: Taking On A New Job: What To Do With Your Old 401(k)? You will be moving on to a new employer and their 401(k) plan. What should you do with the money in the old one with your former employer? First off ---- don't cash out. A survey by Hewitt Associates found that 40% of employees take the cash distribution. Hey, it's your retirement nest egg!!! And if you cash out, you’ll owe ordinary income taxes plus a 10% tax penalty. A good number of experts will tell you that you should just have it transferred over to your new 401(k). But, before you do, you should know that there are some times when you should consider leaving it with your old employer. Most employers mandate that you have to transfer the funds into your new 401(k) if you have less than $5,000 in your account. But, if it doesn't, you can leave it there until you move into your retirement years. It will just sit there and grow through compounding. You may be able to keep on investing in it. Don't forget about it. You should monitor how it is doing and if you need to, makes some changes in your allocations. The old plan allows former employees to borrow funds from their account. You many need/want to borrow against it now or in the future. You may find that the investment choices that you have in your new plan may not be as good as the choices you had with the old plan. The costs --- fees, expenses --- may be lower with the old plan. And, by the way, good luck with your new job. Quick Takes #2: How Will A Bear Market Impact Your Retirement A bear market can do much harm to your retirement. Why? Taking money out of your nest egg in a bear market will have a huge impact on your losses. How? Let's say that you have an all stock portfolio worth $300,000. And you have decided to withdraw 5% or $15,000 a year or $1,250 a month from it. But suddenly a bear market rips into your nest egg and you sustain a 20% loss of $60,000. Your nest egg is now down 25% to $225,000. You enter a new year with that $225,000 in your nest egg and you still withdraw 5% from it. That 5% will now only provide $12,500 a year. Just suppose that your nest egg declined 50% over a two year period --- like it did, in some cases from 2000 - 2002. Your nest egg would be down from a high of $300,000 to $150,000. Your 5% withdrawal would only amount to $7,500 a year or $625 a month. That is the problem with stocks. Sure, we can tell you that over a 75 year period, the stock market has been able to generate an annual return of just over 11%. However, it does not generate “ When a choice has to be made between regulation that is investor friendly or business friendly, you must lean toward investor friendly. Remember, the original purpose of the SEC (Securities and Exchange Commission) was to insure that the stock market was a fair market for all --- but especially the customers.” InvestmentNews.com (8/15/2205) 11% year after year, after year, after year. Sooner or later the big bad bear will make an appearance and take a chunk of money out of your nest egg. Sure, if you are younger, the market will return to the mean (average) over a period of years. But a bear market that lingers on for a couple of years in your retirement can cause much damage. You may move into the senior retirement years with what you feel will be an adequate nest egg but that big bad bear market can really spoil your party. “ Never invest your money in anything that eats or needs repairing.” Billy Rose 1899 – 1966, American theatrical showman - 8 - Stock Market – Investment Humor A young college graduate applied for a job with a Wall Street investment banking firm. The personnel officer asked, "What kind of a job are you looking for?” The graduate replied, "I'll take vice-president for a start." The personnel officer said, "We already have twelve vice-presidents." The young graduate replied, "That's OK, I'm not superstitious." Quotable Quotes Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome while trying to succeed. Booker T. Washington 1856 – 1915, major African-American spokesman People should do in the stock market what they do about their house when they purchase. You don't buy insurance in some years and drop it in others because you think some years are safer. Prof. Meir Statman, Finance, Santa Clara University Talk does not cook rice. Chinese proverb The stock market is most dangerous when it looks best; it is most inviting when it looks worst. David Dreman, Contrarian Investment Strategies The best way to keep money in perspective is to have some.” .Louis Rukeyser, economic commentator and financial adviser "Bankers are like anybody else, except richer.“ Ogden Nash 1902 - 1971, poet, best known for writing pithy, funny, light verse.

9. Coming In the December Issue: The Immediate Annuity --- A Do It Yourself Pension You have been saving and investing for many years and at some point in time, you will want to use income from that nest egg to finance your retirement. One of the questions that many have difficulty answering is ----how long will I live. The problem? Without knowing how long your nest egg will need to last, you could end up making huge miscalculations. You may need to have that money last for many years. Today, 65-year-old couples have a 50% percent chance that one of them will live past 90 years. With a defined benefit pension plan, your employer guaranteed those retirement checks and with Social Security, Uncle Sam took on the guarantee. But with a 401(k), guess who takes on that obligation ---- you. And the investment option that can promise a steady stream of income in retirement is the immediate annuity. But, first, let’s try to sort out the differences in annuities. It is easy to become confused about annuities and many of us have some difficulty in understanding them. Basically, there are two types ---- deferred or immediate . A typical deferred annuity helps you to accumulate money while a typical immediate annuity provides you with a steady stream of retirement income in return for your purchase. Although you put money into both types of annuities, the difference is when you start receiving money from them. You get your money soon from an immediate annuity. You delay getting your money from a deferred annuity. An immediate annuity is an annuity which is purchased with a single payment and which begins to pay out right away. With an immediate annuity, a regular income stream purchased with a lump sum investment, where the income stream starts immediately after the purchase. They are usually provided by a life insurance company for the purposes of retirement income. In the December issue of Your Retirement, we’ll take a look at the immediate annuity and give you an idea of the options and choices that you will have when you contemplate that decision. - 9 - For additional information or if you have any questions, contact, Robert R. Julian, Retirement Planning Consultants, 313 Blackstone Avenue, Ithaca, New York 14850, (607) 255-4405, email: rrj1cornell.edu. Visit our website at retirementplanningconsultants.com Retirement Planning Consultants provides a number of resources designed to help individuals make informed decisions on planning – saving – investing for retirement. We offer unbiased and easy-to-understand information from an impartial outside source. We’ve been doing that for almost 30 years. Our “Planning – Saving – Investing For Retirement” workshops have helped thousands of individuals. This newsletter intends to present factual up-to-date, researched information on the topics presented. We cannot make any representation regarding the accuracy of the content or its applicability to your situation. Before any action is taken based upon this information, it is essential that you obtain competent, individual advice from an attorney, accountant, tax adviser or other professional adviser. Information throughout this newsletter, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. No party assumes liability for any loss or damage resulting from errors or omissions based on or use of this material.