Newsletter for October 2001

If you feel uncertain about your investments in the wake of the September 11 terrorist attacks, you are not alone. This issue of the IRA.Com Retirement Newsletter highlights the topic of risk management and introduces the pros and cons of more conservative investment options. The Article Briefings offer a great sampling of investment news and advice, including potential changes in 401(k) plans, how the new tax law helps 457-plan participants, and tips on finding a financial planner. Be sure to check out our resource link to a free investment analysis web site.

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Article Briefings
401(k) Pioneer Wants to Tune Up Plans
New Tax Law Helps 457 Plan Participants
Supporting 401(k) Bill
401(k) Sponsors See Brief Flow to Fixed-Income Portfolios
Choosing a Financial Planner
Finding Your Way
Invest in Minority Pension Participation

Featured Question
Managing Investments in an Uncertain Economy

Resource Links A Free Investment Analysis Web Site

401(k) Pioneer Wants to Tune Up Plans
Employee Benefit News [] (09/01), Vol. 15, No. 10, Pg. 1; Lee, Karen.

401(k) pioneer Ted Benna is lobbying lawmakers to make adjustments to the 20-year-old, employer-sponsored retirement benefit plan. Benna's proposals include adding structured portfolios that allow participants to automatically lower risk as they age, guaranteeing an average 7 percent return over 20 years, adding a cap to charges of 75 basis points, and allowing plan members to transfer accumulated money to IRAs. He argues that these proposals would eliminate most administrative expenses for 401(k) plans and save workers the stress of making investment decisions. One commentator says that Benna is dead on about the problems with most available advice tools, but that he underestimates how many participants enjoy making and controlling their investment decisions.

New Tax Law Helps 457 Plan Participants
Sacramento Bee [] (09/16/01), Pg. E3; Hanson, Scott.

The Economic Growth and Tax Reconciliation Act, signed by President Bush in June, brings significant changes to retirement savings. Namely, contributions to 457 plans no longer limit the contributions that can be made to such programs as 401(k)s. So, starting in 2002, a state employee will be able to contribute the maximum amount to both the 457 and the 401(k). Because contributions to both 457s and 401(k)s reduce a worker's taxable wages, participation in both plans may provide the opportunity to make a tax-deductible IRA contribution.

Supporting 401(k) Bill
Pensions & Investments [] (09/17/01), Pg. 12; Arnett, Angela.

The ACLI strongly supports the Retirement Security Advice Act, introduced by Rep. John Boehner (R-Ohio). While Boehner himself admits that his bill is not perfect, its shortcomings are heavily outweighed by its benefits--namely, the investment advice that participants could receive concerning the nest eggs in their 401(k) plans. Because the market's decline has exposed many of the bad management decisions workers have made recently concerning their 401(k) plans, one has to wonder whether worries about retirement savings would be as significant as they are if Boehner's legislation was law, writes Angela Arnett, ACLI senior counsel.

401(k) Sponsors See Brief Flow to Fixed-Income Portfolios
American Banker [] (09/25/01); Ackermann, Matt.

As the markets re-opened in the wake of the terrorist attacks, those financial institutions interviewed by American Banker saw that much of the activity involved clients' moves from equities into more conservative fixed-income portfolios. The majority of the activity appeared to focus on 401(k) plans, as call volume from 401(k) customers was 25 percent higher than usual on the morning of September 17. While it will be several weeks before anyone can determine if the attacks will have significant ramifications for 401(k) plan holders, said Phillip Pounds of Evergreen Investments, call-center operators at many 401(k) providers are advising clients not to move money out of fear.

Choosing a Financial Planner
St. Petersburg Times (FL) [] (10/07/01), Pg. 3H; Huntley, Helen.

St. Petersburg Times writer Helen Huntley offers tips on what people planning for their retirement should look for in a financial professional. Huntley says one of the first things people should do is seek recommendations from both personal and professional sources. Once they have settled on a planner, Huntley advises that people request written materials that should include information about the planner's background, areas of expertise, and about how his or her firm operates. The planner should have credentials, and generally should have special training and experience in financial planning. If possible, potential clients should arrange to meet them in person.

Finding Your Way
St. Petersburg Times (FL) [] (10/07/01), Pg. 1H; Huntley, Helen.

Retirement planning experts advise people to prepare for the economic fallout from the recent terrorist attacks. In the wake of the attacks, millions of workers who had hopes of retiring soon suffered major setbacks, as stocks plummeted due to the unstable economy. As a result, a lot of people do not know where they stand. "Without a substantial and sustained rally, the projections we made over the past several years will have to be adjusted," says financial planner Ray Ferrara. People who expected to retire in ten years may have to work another two years before reaching their financial goals.

Invest in Minority Pension Participation
HR Magazine Online [] (1009/01), Vol. 46, No. 10; Johnson, Carla.

Most Americans are unsure about whether they have saved enough money for retirement. And, according to EBRI's 2001 Minority Retirement Confidence Survey, some minority groups do not expect to retire comfortably. Roughly 54 percent of African Americans polled and 45 percent of Hispanic American polled believed they were prepared for retirement. Statistically, minorities tend to lag behind whites in retirement planning because they typically earn less and assume a larger role in caring for elderly relatives.

Q. I'm concerned about the declining value of my retirement investments in our uncertain economy. Since these funds are invested in stocks and IRAs - rather than concrete, banked savings - I worry that my retirement income is threatened. Is it possible to lose all of the money I've placed in an IRA? What low risk options are out there? What can I do in general to manage the risks to my investments?

A. Unfortunately, it is possible to lose a great deal of your investment savings, even in their entirety, including those in IRAs. But you can do a lot to prevent it from happening. First and foremost, work closely with your financial planner to balance conservative and risky investment strategies. You should revisit your strategies regularly, regardless of the economic climate. During particularly uncertain times, it's a good idea to review your investments at least monthly.

There are a number of ways to construct a more conservative investment strategy. For example, you might change from predominantly higher risk stocks to predominantly lower risk (and lower return) bonds. You might evaluate the risk factor of individual mutual funds in your portfolio, and move to funds that are managed more conservatively. You could ask your broker to put a "Stop Limit" on your stocks, so that they will automatically be sold if they fall below a certain price per share. You could also move funds to safer savings vehicles with lower risks (and lower returns). If you choose to go that route, here are some options to consider.

These are just an introduction to the more conservative investment options that are available to you. Be sure to work closely with your financial planner to decide which, if any, are best for your long- term goals.


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