The FRS Pension Option

 

Employer-sponsored retirement plans can be split into two groups:

  • Defined Contribution Plans, or DC Plans
  • Defined Benefit Plans, or DB Plans

As the name suggests, the salient feature of any defined contribution plan is the input – how money goes into the plan. Money goes in from both employer contributions and matching, employee deferrals, and forfeitures from those not vested. On the other hand, the DC plan is defined not by the inputs, but rather than by the output. The FRS Pension option is a defined benefit plan. I explain this a little more fully in my video(below).

With any defined benefit plan, all the investment risk is with the employer and not the participant. When I say the risk is with the employer, I mean the State of Florida. FRS invests the retirement plan assets in such a way that it is able to pay out what has been promised. The employer is guaranteeing the participant a fixed income for life, regardless of whether underlying investments do well or poorly....

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Understanding Medicare, Parts A – D, and Medigap Policies

 

Medicare Part A

Original Medicare is a creation of the Johnson administration in 1965.  Medicare is health insurance for those aged 65+.  There is a premium associated with coverage, and this premium is deducted from the social security benefit.  As with any government program, there is nothing easy to understand about Medicare.  In this blog entry, I’ll cover the highlights.

Medicare vs. Medicaid

Please don’t confuse Medicare with Medicaid.  Medicare is health insurance.  Medicaid is a state welfare benefit, though partially funded with federal dollars.  The Medicare beneficiary is age 65.  Someone who has been receiving social security disability for more than 2 years is also covered.  Coverage is for individuals, so a retiree of age 65 cannot cover his spouse of 63 on the same policy.  This spouse will have to wait two more years to elect coverage.

What’s covered?

Basically, Part A covers hospitalization,...

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Life Insurance Part 3 – Why DOES Life Insurance Make Me Want to Vomit?

It’s not the life insurance product but the process of obtaining it isn’t fun.
Theory 1:
You put the life insurance agent/broker in the same category as a stereotypical car salesman. He’s got greasy hair, you’re his newest best friend in the world, and he wants to know, What do I need to do to get you into a policy today? You think he’s out solely to earn a commission. You have nothing against anyone making a living, but you just don’t trust him.

Theory 2:
You’ll end up purchasing a product – an intangible product, yet – that you know you don’t fully understand. Clearly, this doesn’t sit well. You’re afraid somebody’s pulling a fast one on you. Did I do the right thing? Am I overpaying? What do other companies offer?

Theory 3:
You have a thousand other things to spend your money on that are a whole lot more fun. Eating out. Vacations. Heat tickets. Even saving money and paying bills seems like a better use of...

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401k Retirement Plan Basics

 

It used to be the case that you went to work for one employer and remained with that employer for the entirety of your working life.  You received a pension from that employer when you retired – in other words, you continued to get paid a lesser amount even though you’d stopped working.  This arrangement is no longer the norm – people expect to change jobs several times during their working lives.  A 401K retirement plan suits this kind of work environment.  When you leave one employer, you can move your 401K funds into the 401K of your new employer, or over to an IRA.  In any event, the responsibility for providing a retirement income lies firmly with the worker!

How much can I contribute?

Contributions are limited by IRS regulation.  The maximum deferral that a plan participant can make in 2017 is 100% of salary up to $18,000.  If you are age 50 or older, you may be able to make an additional $6,000 “catch-up”...

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Life Insurance Part 2 – Why Whole Life Insurance is Like a Philip’s Head Screwdriver

Brokers vs. Agents

There’s a difference between a broker and an agent.  An agent represents the insurance company, and his job is to sell policies.  The broker, on the other hand, represents the client, and shops the insurance market to find the product most suited to the client’s specific needs and goals.  From the broker’s point of view, there is no good or bad policy – just unsuitable policies.  Here’s an example:  I’ve just finished painting a bedroom, and it’s time to put the switch plates back on the wall.  I ask you to hand me a screwdriver.  You pass me a Philip’s Head driver, and I need to send home a slotted screw.  Does this make the tool you handed me a bad tool?  Of course not – just the wrong tool for the job.  This is why whole life insurance can be like a Philip’s head screwdriver – because too often agents sell it as the be-all and end-all solution to...

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What is a 457 Deferred Compensation Plan?

 

This deferred compensation plan gets its name from Section 457 of the tax code. It is a type of non-qualified deferred compensation. The employee defers money into the 457 accounts on a pre-tax basis. Any growth in the account doesn’t get taxed until it is ultimately withdrawn years down the road, in retirement. Withdrawals are taxed then at ordinary income tax rates.

Where do you find a 457 deferred compensation plan? At government entities, and less commonly, non-church controlled tax-exempt organizations. Consequently, you won’t find a 457 plan at a for-profit corporation.

If your employer sponsors a 457 plan, how much can you put in? Same limits as with 401ks and 403bs: up to 100% of compensation, capped at $18,000 in 2017.

457 deferred compensation plan coordination & catch-up
If you have two jobs, one with your city, and another with a private company, you can contribute to both retirement plans. You have two separate and unrelated limits: You can defer $18,000...

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Life Insurance Part 1 – Everything You Never Wanted to Know about Life Insurance

The fundamental reason to buy life insurance is that someone else is depending upon you for a living.  Plain and simple.  It is risk transfer:  in exchange for premium dollars, the insurance company will make a big payout at your demise.

The life insurance industry is one that responds to market demands.  In Part I of this series I’m going to give you a little history.  What kind of policy should you buy – term?  whole life?  In subsequent entries, I’ll discuss the other jobs life insurance can do for you, and talk a little about underwriting.

Yearly Renewable Term Insurance

Original insurance contracts were for one year only – term policies, in other words, which renewed each year.  As the insured ages, year-by-year the premiums would rise, reasonably enough, as one’s mortality age comes closer.  So fundamentally we have a bet here between two parties:  you make a bet that you’ll die during the...

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