QUESTION:
After talking to my local bank PNC, they are advising me to buy an annuity for 80% of my total amount. This is about $400 K. Do you think this is a good idea as I'm being told that I will be guaranteed at least 7% no matter what the market does and is that amount insured up to $250 K now if the holder of the annuity would go under?

ANSWER:
When buying an annuity, there are several things to keep in mind. Among these are:

Are you purchasing a fixed or variable annuity? A fixed annuity pays a guaranteed rate for a specified period of time. A variable annuity invests your money in subaccounts that contain stocks, bonds or a combination of the two.

What is the surrender period? Typically an annuity assesses no upfront sales charge but there will be a backend surrender charge if you pull your money out within a certain period of time. This can be costly if you change your mind and want to move to a different investment.

What is the rating of the insurance company behind the annuity? Even if the annuity is purchased at a bank, it is NOT FDIC insured. The guarantees are underwritten by the insurance company. There is a PA state guarantee fund that protects up to $100,000 of cash value if the insurance company should fail.

It is difficult to determine if this is a suitable investment for you without having more information regarding your age, risk tolerance, and objective for this money. In general, I would question the advisability of investing 80% of your total assets in this type of investment since it is not particularly liquid. It is important to maintain an emergency fund in addition to additional investments that could be accessed more easily should you need them.

Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC), member FINRA/SIPC. AIC and The Advisors Group of Pittsburgh are not affiliated.

This question was answered by:
Ruth Forsyth, MS, CFP
The Advisors Group of Pittsburgh
790 Holiday Drive
11 Foster Plaza
Pittsburgh, PA 15220
412-539-0055 x225
412-539-0056 fax
www.advisorsgroup-pgh.com

QUESTION:

I am aware that an annuity is not FDIC insured. Do you believe they are still a safe investment?

ANSWER:
Whether or not an annuity is "safe" has to do with the financial rating and stability of the issuing insurance company. Additionally, it is important to know what you are investing in within the annuity. Is it a fixed account or a sub account consisting of stocks or bonds? Annuities can be a good investment if you are seeking tax deferral and a guaranteed lifetime income stream or death benefit. Your time horizon and risk tolerance should be factors in choosing all investments.

Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC), member FINRA/SIPC. AIC and The Advisors Group of Pittsburgh are not affiliated.

This question was answered by:
Ruth A. Forsyth, MS, CFP, CSA
The Advisors Group of Pittsburgh
790 Holiday Drive
11 Foster Plaza
Pittsburgh, PA 15220
412-539-0055 x225
412-539-0056 fax
www.advisorsgroup-pgh.com

QUESTION:
I am 49 years old and I have two separate 401(k) plans (moderate risk) from previous employers, one has $7,000 and the other $4,000. I received a notice of termination from the oldest plan and I didn't know if it would be beneficial to transfer both into a Roth or Traditional IRA. My current income is the $50 K range. Should I convert to an IRA (if so Roth or Traditional?) or rollover and continue my existing 401 plan?

ANSWER:
As you know, but others may not, you can roll your old plan into the current one; you can transfer out into a traditional IRA; and you can transfer to a Roth IRA.

Factors to consider on rolling in or going with an IRA:

First, consider the number and type of funds offered in your 401 (k). You have 10 ½ years until you will be using your money and with that time frame, you should have a broadly diversified portfolio across all major asset classes. Frankly, all 401(k) don’t provide this. Get an opinion from a trusted source on the breadth and quality of the funds you have available. If it isn’t there, go with an IRA where you have control over the funds you choose.

One thing to note: Rolling into the current 401(k) allows you to keep the loan provisions available. Once you move to an IRA, this is no longer allowed. My best advice is to not consider taking a loan from your retirement monies, so this should be a minor issue.

Should I do a Roth or Traditional IRA?

A traditional IRA allows you to invest money pretax, it grows tax deferred, and when you use it (after you turn 59 1/2) you pay income taxes on what you take out, when you take it out.

A Roth IRA allows you to put money into an account after tax, it grows tax deferred, and when you use it, you pay no taxes on what you take out.

With income in the $50,000 range, and considering personal exemptions and potential deductions, your marginal tax rate is quite low. Paying the taxes now and avoiding them in 10 years is probably a good strategy for you. I would go with the Roth.

Remember, you will be subject to taxation for the conversion to a Roth and should consult your tax advisor as to the degree.

Finally, continue investing into your 401(k) at least to the level of a company match. Times like the ones we currently face are made for systematic investing.

A professional adviser can help you determine where to open up your IRA.

This question was answered by:
David M. Jeter, CFP®
Senior Vice President
Allegheny Financial Group
Stone Quarry Crossing
811 Camp Horne Road, Suite 100
Pittsburgh, PA 15237
412 367 3880
fax 412 367 8353

QUESTION:
If you had 10,000.00 to invest, how would you invest the money?

ANSWER:
How I would invest the money depends on a several factors personal to you. But allow me to approach it this way:

If you have any consumer debt, use the $10,000 to pay it off

If you have no consumer debt, and no cash reserve place the $10,000 in a liquid account such as a money market for unexpected events.

If you are good with debt and good with cash reserves, let’s go here:

If the objective for the money is greater than 10 years away, invest in a one or several mutual funds with an allocation weighted towards equities to take advantage of long term growth.

If the objective is less than 10 years, but greater than 1 year, choose a fund or funds that diversify across several asset classes, but with less of a weight toward equities because you have less time to ride out the volatility.

In either case, you personal risk tolerance will determine what percentage should be stocks and what should be bonds. As you consider what funds to use, keep an eye on charges and expenses. A professional advisor can help guide you on your selection.

This question was answered by:
David M. Jeter, CFP®
Senior Vice President
Allegheny Financial Group
Stone Quarry Crossing
811 Camp Horne Road, Suite 100
Pittsburgh, PA 15237
412 367 3880
fax 412 367 8353