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All-In-One Pension Plan Makes it Easy to Invest

- Alan Lavine and Gail Liberman



Insurance companies have come up with a new way to invest for your retirement. But is it for you?

MassMutual, a Springfield, Mass.-based insurance company and GE Financial Services, Richmond, Va., have launched all-in- one retirement accounts that can be used to sock away extra money. They are like personal pension plans.

Here's how these programs work. Technically, they are annuities. You pay a 10 percent IRS penalty if you withdraw before age 59, and when you do get income, you owe income tax on your earnings--not the principal. Under both programs, you invest in a mix of stock and bond mutual funds for at least 10 years. When you retire, you get a guaranteed minimum amount of income for life--no matter how your investments perform. If your investments earn more, you get more retirement income.

MassMutual's program gives you a selection of 40 mutual funds. Then you have several investment mixes of stocks, bonds and cash from which to select.

GE Financial's program is slightly different. You invest in a single asset-allocation fund that owns stocks, bonds and cash. Each insurance company has a different calculation to determine the minimum amount of lifetime income you can receive. But in a nutshell, if you've accumulated $100,000 in a retirement account, you probably could get about $700 monthly for the rest of your life, depending on your age when you retire. You also can set up these annuities so that your surviving spouse gets a monthly check for as long as he or she lives. However, expect to receive less income monthly under this arrangement. Ed Slott, CPA and author of "The Retirement Savings Time Bomb (Viking)," likes these types of annuities.

"You can save for retirement in mutual funds and have principal protection," he says. "It is a good way to supplement your retirement income."

There is no free lunch with these retirement accounts. The fees for insurance and fund management can run more than 2 percent of assets annually. Say your investment earns 8 percent: Your net return is really likely to be about 5.50 percent or so.

If you have to cash out early, you also can expect to pay a back-end surrender charges.

You must ask yourself whether the insurance guarantees are worth the added cost. If so, this could be a good retirement account for you.

These investments are quite complex, so it could pay to consult with a financial professional before you invest.

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Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).


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