Executive Summary: June 2008
America’s Baby Boomers have dominated the U.S. economy for more than a quarter-century. MGI research shows that the nearly 79 million Baby Boomers have earned record levels of income, generated great wealth, and spurred economic growth. But they have also spent at record levels, failed to save, and accumulated unprecedented levels of debt. Now, as the oldest Boomers near retirement, MGI estimates that almost two-thirds of early Boomer households, who are aged 50 to 63, are financially unprepared for retirement that is, they have not accumulated enough savings to maintain their lifestyle as they age.

The Boomers’ aging also will be felt throughout the economy. As the Boomers grow older, they will work and spend less, slowing real U.S. GDP growth to a more modest pace than in recent decades: from the 3.2 percent average annual rate enjoyed since 1965 to 2.4 percent over the coming three decades.

MGI research also shows that these challenges can be met. Enabling the Boomers to work later in life would significantly benefit both individual households and the broader economy. By increasing the median retirement age by about two years from 62.6 today to 64.1 by 2015 the share of unprepared boomer households could be halved from 62 percent to 31 percent. And the additional workers would boost real GDP growth.

MGI’s survey of Boomers’ attitudes on retirement shows that 85 percent expect to work later in life. However, there are significant legal and institutional barriers that need to be overcome. They include a variety of disincentives for both employers and older workers, including the costs of America’s health care system, the unintended consequences of labor laws and pension regulations, and corporate attitudes toward older workers. The research highlights several areas for action for policy makers and businesses to prevent the Boomers’ retirement from becoming a multidecade-long drag on U.S. growth.

For more information and the full report go to:

http://mckinsey.com/mgi/publications/Impact_Aging_Baby_Boomers/index.asp

For professional investment advice on this topic contact:
Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com
www.allgenfinancial.com

Executive Summary: June 2008
America’s Baby Boomers have dominated the U.S. economy for more than a quarter-century. MGI research shows that the nearly 79 million Baby Boomers have earned record levels of income, generated great wealth, and spurred economic growth. But they have also spent at record levels, failed to save, and accumulated unprecedented levels of debt. Now, as the oldest Boomers near retirement, MGI estimates that almost two-thirds of early Boomer households, who are aged 50 to 63, are financially unprepared for retirement—that is, they have not accumulated enough savings to maintain their lifestyle as they age.

The Boomers’ aging also will be felt throughout the economy. As the Boomers grow older, they will work and spend less, slowing real U.S. GDP growth to a more modest pace than in recent decades: from the 3.2 percent average annual rate enjoyed since 1965 to 2.4 percent over the coming three decades.

MGI research also shows that these challenges can be met. Enabling the Boomers to work later in life would significantly benefit both individual households and the broader economy. By increasing the median retirement age by about two years—from 62.6 today to 64.1 by 2015—the share of unprepared boomer households could be halved from 62 percent to 31 percent. And the additional workers would boost real GDP growth.

MGI’s survey of Boomers’ attitudes on retirement shows that 85 percent expect to work later in life. However, there are significant legal and institutional barriers that need to be overcome. They include a variety of disincentives for both employers and older workers, including the costs of America’s health care system, the unintended consequences of labor laws and pension regulations, and corporate attitudes toward older workers. The research highlights several areas for action for policy makers and businesses to prevent the Boomers’ retirement from becoming a multidecade-long drag on U.S. growth.

For more information and the full report go to:
http://mckinsey.com/mgi/publications/Impact_Aging_Baby_Boomers/index.asp

Steps

1. Have a clear understanding for why you want to establish a 401(k). For example, some companies want to attract or retain good employees, while others want to ensure there is a succession plan in place for the older workforce.
2. Define the needs of your organization and its employees as it relates to retirement benefits. Conduct a simple survey to determine potential plan participation.
3. Determine whether the company is planning to match contributions or not.
4. Create a census with critical employee information such as full name, employment status (part-time or full-time), hourly wage or salary, level of employment (entry level, management, etc.), and the date of hire.
5. Determine a vesting schedule for when employees can participate.
6. Choose a 401(k) advisor well. Do your due diligences by interviewing and receiving a proposal from at least 3 different 401(k) providers. And, ask lots of questions.

Tips

• Make sure you clearly understand how your financial advisor and recordkeeper are being compensated.(Commission or Fees)
• Understand how investment options are chosen and managed by the investment advisor.
• Ask for historical returns for the different allocation models. There should be approx. 5-8 models to choose from (For example: Very Conservative – Very Aggressive). For mutual funds, request fund ratings and report.
• Understand how and when financial statements are provided to the plan administrator and employees who participate.
• There are 3 basic platforms to structure a 401k: 1) Annuity, 2) Mutual Fund, and 3) Trust. Learn the pros and cons of each one as the mechanics are different and the most suitable one depends on several factors including costs and convenience.
• There are open architecture and closed architecture bundled products. Open architecture are more open to varying styles of investment choices and vehicles (ie stocks and ETFs) This can be beneficial for the more sophisticated investor.

Warnings

• Watch for hidden fees and high commission or fee structure. (recommended: 1% or below depending on plan size)
• Your plan administrator (TPA) and investment advisor should not be the same entity. This creates a conflict of interest. In this case, the recordkeeper and compliance provider are also doing the investing.
• The biggest names are not necessarily the best providers.

Sources and Citations

• http://en.wikipedia.org/wiki/Employee_Retirement_Income_Security_Act
• http://www.dol.gov/dol/topic/health-plans/erisa.htm

Article provided by wikiHow, a collaborative writing project to build the world’s largest, highest quality how-to manual. Please edit this article and find author credits at the original wikiHow article on How to Set up a 401(k). All content on wikiHow can be shared under a Creative Commons license.

For professional investment advice on this topic contact:
Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com

www.allgenfinancial.com

Only direct (trustee to trustee) rollovers qualify (e.g., 60-day indirect rollovers do not).

Generally, the same rules apply to these rollovers as do to conversions of traditional IRAs to Roth IRAs (rollover includible in gross income (except after-tax contributions), and no 10% early distribution tax).

Taxpayers with AGI of at least $100,000 or who are married filing separately, are not eligible for this direct rollover to a Roth. These limitations were repealed by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), but not until 2010.

For professional investment advice on this topic contact:
Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com
www.allgenfinancial.com

While this issue usually focuses on portfolio or investment allocation, another issue to consider are those variables in retirement that can deplete assets quickly. I find that when I consider the variables, the need for some kind of assisted living services (whether in a nursing home or hiring a nurse to come to the home)has the biggest potential impact on a retirement nest egg. The average cost of a private nursing-home room is about $70,000/year according to a MetLife survey. Obviously, the impact of this cost will vary depending on the extent of care needed. For example, persons with cancer average 36 months of needed care vs persons with Alzheimer’s disease who need an average of 96 months of care.

While this issue seems to be of high potential impact, the biggest obstacle I come across towards addressing the issue is the cost to take care of it (usually the purchase of a long term care insurance policy). I will be the first to say that I do have a bias or stigma against insurance as its sales has been abused for the sake of generating commissions at the expense of consumers. However, I will not dismiss the potential value of such tools as a result of their misuse. As I look at the numbers, the cost of implementing such a vehicle is dwarfed when measured against the potential cost of not having such a vehicle in place. Of course, the actual cost varies, depending on how the policy is structured.

Issues to consider when assessing one’s particular situation:

1) The need for asset protection
A major consideration for pursuing long term care planning is the level of assets one has. At lower asset levels, the planning for long term care becomes less of a viable option as the costs become inhibitive of current lifestyle.

2) The cost of care in your area of retirement
Nursing home care costs do vary by geographical location. The nursing home costs determines the level of benefit one might need and therefore the expense of implementing a care policy. Genworth financial has some cost estimators on its website that can help in determining costs based on geographical location. Note, the younger you are, the cheaper the monthly premiums, regardless of geographical location. Therefore, while not an issue on the forefront of one’s thinking during the work years, many industry experts recommend that families start looking at this issue in their mid 40′s to mid 50′s.

3) Particular policy features
There are many bells and whistles when it comes to purchasing a long term care policy. One can choose to have inflations riders (the policy keeps up with the increasing costs of care), single or joint benefit, guaranteed renewable, nursing home coverage as well as in home coverage, etc. One needs to make a personal assessment after exploring the various features to determine an appropriate fit. Of course, the more features places on a policy, the more expensive the premium. So doing one’s homework is critical in this effort.

Summary
These are several of the factors to consider when researching the appropriateness of a long term care policy for oneself. The immediate cost should not be the only consideration as the long term cost could outweigh the immediate financial hit. In practical terms, it is more efficient to absorb the financial hit during one’s working years than during retirement when one is at the mercy of legislation and inflation. The government is aware of the increasing need to address this issue and has passed legislation where there may even be tax benefits to obtaining a long term care policy. As the population continues to shift in demographics, as parents start feeling the pressure of preserving 401K, IRAs and other assets in retirement while not being a burden to their children, the use of long term care as a financial planning tool will increase in awareness and use.

How we work with our small business clients
Allgen Financial Services, Inc. provides superior investment solutions to 401k participants. As an independent Registered Investment Advisor (RIA), we implement 401(k) plans using low-cost mutual funds to build diversified portfolios. Along with
Nobel Laureates and leading academics, we believe the best way to grow your retirement investments is through a fully diversified global portfolio.

For 401(k) participants, we provide five model investment portfolios. This takes away the guesswork (and wasted time) by employees trying to pick individual mutual funds, and will help them have a better investment experience. Our five portfolios give a full array of choices, from aggressive to conservative – and everything in between. Importantly, because our portfolios are fully diversified (over 10,000 securities) in low-cost mutual funds, you avoid employee liability problems associated with a lack of diversification or high expenses.

Services and support you can expect
Allgen will help establish and customize an appropriate 401(k) plan for your business and will ensure that this is communicated properly to participants. Allgen will also provide ongoing plan review services and participant education.

How we get compensated for our services
It should come as a surprise that how your financial advisor is paid may determine the content of the advice you receive. Most financial advisors sell financial products. As such, they are paid commission by the Wall Street companies whose products they sell.

Allgen Financial Services, Inc. is a fee-based investment manager. We are paid by our clients for providing investment advice, not by Wall Street companies for selling their products. As an independent company we have no conflicts of interest, nor do we earn commissions on your transactions. There are no sales loads or commissions paid in Allgen’s 401(k) plans. Allgen is paid an asset management fee equal to a percentage of assets under management for the entire 401(k) plan.

More information about setting-up a 401(k) for your company

For professional investment advice on this topic contact:
Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com
www.allgenfinancial.com