LOMA SRI III
529
Limited to a menu of mutual fund options. Tax investments: TAX DEFERRED (tax FREE to pay qual edu expenses). Partially deductible from state taxes in many states. Penalty for early withdraw. STATE based.
Commercial Banks
Make Personal and Commercial Loans; Accept savings account deposits from individuals and businesses; serve as distributors of mutual funds and insurance products.
Credit Unions
Make consumer loans to members; accept deposits from members; function as non-profit cooperative organizations owned by members.
Savings and Loan Associations (S&Ls)
Make residential mortgage loans to consumers; accept savings account deposits; offer checking services.
Investment Adviser
Manage account's holdings to ensure the investor's objectives are met. May be responsible for hundreds of accounts w the same investment objectives and selection of securities.
Cost of Living Adjustment (COLA)
increase in the amount of social security benefits to account for rising prices.
Depository Institutions
A financial institution that specializes in accepting deposits and making loans. Also offers checking accounts, savings accounts, and debit and credit cards. Sometimes offering investment services, financial counseling services, and trust services. Such as a Credit Union.
Qualify for Social Security
1 credit each quarter (4 credits per year) to reach 40 credits = 10 years
Social Security Retirement Age
1960 and after retire at age 67
Skilled Nursing Facility
24 hours a day. Hospital like setting. Last resort. Average stay 2.5 years.
Defined Contribution Plan.
401k Plan. Employer contributions are voluntary and are usually a percentage of each participant's annual salary.
Medicare
A US federal government program established by the Old Age, Survivors, Disability and health Insurance (OASDHI) Act that provides medical expense benefits to elderly and disabled persons.
Social Security
A United States federal program that provides specified benefits - such as retirement benefits, survivor's insurance, and disabiltiy benefits- to eligible individuals.
Insurance Company
A contractual savings institution that offers protection for customers against financial loss in exchange for premium payments.
Bond
A debt security that represents a debt that the bond issurer - the entity that sells the bond to raise money - owes to the bondholder - the person or company that buys the bond. Issuing Co typically pays a stated rate of interest over period of time. End: issuing co repays face value of the bond to owner. Bonds include: Corporate, Treasury, Agency, Municipal. Safter than stocks, lower returns.
Interest
A fee that individuals and financial institutions pay (or charge) for the use of borrowed money.
Contractual Savings Institution
A financial institution that acquires funds at periodic intervals on a contractual basis. Collect money from households, businesses and governments; invest in long-term financial assets; use accumulated assets to pay the benefits promised in a contract such as Insurance Companies and Pension funds.
Broker-Dealer
A financial institution that buys and sells securities either for itself or for its customers and provides information and advice to customers regarding the purchase and safe sale of securities. Maintains an inventory of securities and marketing those securities to customers.
Investment Institutions
A financial instution that engages primarily in investing and trading (buy and sell) securities. Securities represent ownership interest in a business (stock) or A debt owed by a business, government, or agency (bond). 2 catageories (institutional and individual investors): Broker-Dealer or Mutual Fund Companies.
Pension Funds
A fund used to pool contributions made to employer-sponsored pension plans. Established by private plan sponsors (employers for employees) and public sponsors (government agencies for citizens or public-sector employees)
Medcaid
A joint state and federal program in the US that provides basic medical expense and nursing home coverage to the low-income population and certain aged and disabled individuals.
Mortage
A loan, typically long term, secured by a pledge of specified real estate.
Insurance
A mechanism for transferring some or all of the risk of financial loss from an indvidual or entity to an insurance company.
Product Features
A product is a bundle of physicial, technical and functional features. Example: an Ind Retirement Arragngement (IRA) can be described in generic terms as a bundle of asset accumulation features, tax benefits, and payout options.
Proprietary
A product that is developed and managed by the company that distributes the product.
Nonproprietary Product
A product that is developed by a company other than the company that distributes the product.
Rollover
A tax-free distribution of cash from one retirement plan that the owner then contributes to another retirement plan within 60 days.
Mutual Fund Company
A type of investment institution that manages one or more mutual funds and sells shares in those funds to individual or organizational customers. Also called investment company. Choice of funds each with its own risk profile and investment objectives. Investors can buy or sell shares at any time and switch from one fund to another.
Savings Banks
Accept savings account deposits from individuals; make mortgage loans to individuals; only allowed in certain states.
Stock
An Equity Security representing a share of ownership in a corporation. Typically bought and sold by consumers through the stock exchanges or over-the-counter markets. Generate income through 1. Capital appreciation and 2. Dividends payable to share holders out of company earnings. Better return than fixed income products and over the long term usually result in gains. Involve greater risk than fixed income products.
Variable Annuity
An annuity contact under which the amount of the accumulation value and periodic income payments fluctuate in accordance with the performance of one or more specified investment funds. Less liquid. Wide range of payout options. Can be customized to meet owners' needs.
Laddering
An investment strategy that involves purchasing a series of investments whose maturity dates are staggered to produce a steady stream of income.
Mutual Funds
An investment vehicle that pools the funds of multiple customers and uses the funds to purchase shares in diversified portfolios of securities. High liquidity and diversification. Low minimum investment requirements. Offer professional Management services. Purchase any time through a broker-dealer or mutual fund company. Can switch from one fund to another.
Medicare Part C (Medicare Advantage)
Aso called medicare Advantage, Part C combines with Part A & Part B coverage and is available as a private fee-for-service, managed care plan, or Medicare medical savings plan. Many Medicare Advantage plans also cover prescriptions drugs.
Activities of daily living (ADLs)
Bathing, continence, dressing, eating, toileting, and transferring into or out of bed, chair, or wheelchair.
Withdrawing from Stock Bonus Plans - Original Value of the Stock
Benefits are paid from company stock: Taxed at distribution, whether or not stock is sold and taxed as ordinary income.
Withdrawing from Stock Bonus Plans - Increases in the Value of the Stock
Benefits are paid from company stock: Taxed when stock is sold and taxed as capital gain.
National Full-Service Firms
Broker-Dealer for extensiver national networks. Emphasis on non-proprietary prodcuts. Full range of banking products. Limited high net worth and estate planning services. All types of securities products and services. Consumers and organizational buyers.
Wirehouse
Broker-Dealer for national and international networks. Wide range of proprietary and nonproprietary products. Full range of investment services. Consumers and organizational buyers.
Registered Investment Advisors
Broker-Dealers for Local or regional coverage. Full range of products. Highly personalized services. Emphasis on consumer sales.
Bank Brokerages
Broker-Dealers for Regional and national coverage. Emphasis on mutual funds and variable annuities. Limited proprietary products. Emphasis on consumer sales.
Insurance Brokerages
Broker-Dealers for Regional, national, and international coverage. Emphasis on proprietary insurance products and estate planning services. Consumers and organizational buyers, emphisis on high net worth market.
Regional Broker-Dealers
Broker-Dealers for strong local or regional branch networks. Most currently owned by banks and insurance companies. all types of securities products and services. Consumers and organizational buyers.
Independent Broker-Dealers
Broker-Dealers for strong national networks. Emphasis on variable annuities and mutual funds. Consumers and organizational buyers.
Cash Accounts
Brokerage accounts in which all transactions are settled on a cash basis.
Old Age Security (OAS)
Canadian Residents and funded by general tax revenues. Full pension is available to any person, regardless of marital status or current employment, who has 1. reached full retirement (65 for people born before 1963; 67 for people born in 1963 or later) 2. lived in Canada for at least 40 years after age 18. Partial pension is available to people sho have lived in Canada for at least 10 years after age 18. Benefits are also reduced if income exceeds a specified amount (71,592 in 2014) The reduction is referred to as a "clawback" and is equal to $0.15 per year for every $1 of income in excess of the specified limit.
Low Income OAS Recipients Guranteed Income Supplement (GIS)
Canadian Residents: provides additional beneifts for low-income OAS recipients who meet specified requirements. Amount of benefit depends on martial status and income.
Former Wage Earners (Canada Pension Plan CPP) / Quebec Pension Plan (QPP)
Canadian, Quebec Residents: , Provides monthly taxable benefit to wage earners who have contributed to the pan during their working years. Benefit AGe: as early as age 60. QPP: Covers Quebec residents; CCP: Covers residents of all other provinces. Also provides survivior and orphan benefits, lump-sum death benefits and disabiltiy benefits.
Cash Account (Brokerage account)
Cash basis. Transactions handled in 3 days. Small initial deposit ($50) to open the account and addtl pymts to cover transaction costs.
Full-Service Broker-Dealer
Complete requested transactions AND provide personalized investment advise.
Medicare Part B
Covers Physicians professional services and costs for diagnosing and treating illinesses or injuries. Part B is optional. People age 65 who are currently covered by an employer-sponsored health care plan usually don't need Part B. Those who have outside coverage must formally enroll for part B. Premiums plus deductibles & other cost sharing amounts.
Medicare Part A
Covers basic inpatient hospital services, limited period of confinement in nursing and extended care facilities or home care after hospitalization, and hospice care. Enrollment in Part A is automatic when a person applies for Social Security; otherwise, individuals need to formally apply when they reach age 65. No premiums - only deductibles. Medicare covers 50-55% of health care costs.
Government Coverage of Long-Term Care
Covers day 1-20. Day 21-100 $161. Day 101+ All charges.
Pension Plan
Employer contributions are mandatory. Most common type of defined benefit plan.
Taking Benefits - Less than 35 years
Example: Chuck Mansfield retired in 2010 at age 65. He had 30 yrs of social security earnings totaling $1,650,000. His average earnings over the 30 years equaled $55,000 ($1,650,000 / 30). He has no plans to work again. ANALYSIS: Because chuck has fewer than 35 years, the SS admin will include five years with $0 earnings. His average earnings will decrease to approx $47,143 ($1,650,000 / 35), and his monthly social security benefit is reduced.
Disadvantages of annuitized payments
Fixed income payments lock retirees into a specific amount each month. Retirees can't choose a higher or lower payment according to their actual needs in a given month. If a person dies earlier than expected, it's possible that he will receive less in benefits than was paid into the account. When an account balance is annuitized, a retiree no longer has access to the funds. He can't withdraw a lump sum to pay for one-time or emergency expenses.
Deductible
Flat dollar amt of eligible expenses that the insured must pay b4 insurer begins payments. applies to total eligible expenses incurred during a specified period, like 1 year.
Product Purpose
For a customer, a product is a solution to a problem and a way to satisfy needs. Example: a retirement plan can be a means of providing financial security or protection against financial risk, a way to manage savings and taxes, evidence of the owner's concern for loved ones, or a legacy left by the owner to future generations.
Canada Health Care Coverage
Government sponsered health care coverage is provided at the provincial level. For example, Ontario offers coverage to seniors throught the Ontario Health Insurance Program (OHIP)
Defined Benefit Plan
Guaranteed lifetime income benefit at retirement. Paid by employer. Employer must contribute enough assets to provide the promised benefit, calculated using FORMULA; can be based on years of service or salary. They know the amount of income they will receive each month & Year and that their retirement income payments will last for the rest of their lives.
Transfer the money to an IRA
If funds are transferred directly from the plan to a traditional IRA and not paid to the plan participant, the transfer qualifies as a rollover, which is not taxed. Taxes are payable on the taxable protion of any withdrawals taken from the IRA.
Taking Benefits before normal Retirement Age
If you retire before normal retirement age (earliest time) her benefit will be reduced by 25%. Example: if full benefit is 1, 000 then her benefit at age 62 will be $750 ($1000-$250)
Retiring Late
If you work byond your retirement you will generate more retirement income. 1 credit each year they delay up to age 70 (maximum benefit). A mininum of 3% (for 1924) to a maximum of 8% (for 1943 or later). Cost of living can apply. In the second instance you would multiply the number of years X 8.
Home Care
In home assistance from outside service provider. Stress reducing; expensive.
Retirement Savings Contributions Credit (Saver's Credit)
In the United States, a tax credit available to low and moderate income workers who contribute to an IRA or one of severl types of workplace retirement plans. The Saver's Credit is available in addition to a plan's other tax advantages but is often limited in amount and subject to various requirements.
Federal Deposit Insurance Corporation (FDIC)
Insures deposits in member commercial banks for amounts up to $250,000 per depositor per insured bank.
Broker-Dealers in Canada
Investment Industry Regulatory Organization of Canada (IIROC) dealers.
Brokerage Accounts
Investment account established through securities broker-dealers or an online brokerage firm. Help buy and sell securities. May be able to provide personalized investment advice.
Required Minimum Distribution (RMD or MRD)
Must take distributions by April 1 of the year after they reach age 70 1/2. Minimum amount: account balance at the end of previous year / owner's remaining life expectancy. These remaining life expectancy tables are provided by IRS. Does not apply to Roth IRAs.
Back-end sales charge
Mutual fund sales charge assessed when an investor sells a security.
Front-end sales charges
Mutual fund sales charge is assessed when an investor purchases a security.
Individual Account holders
Own the securities. Can request that certain securities be added or dropped. Responsible for tax consequences of their investment decisions and can direct account managers to hold certain securities for more than a year to qualify for long-term rather than short-term capital gains.
Penalty for Failing to Take Minimum Required Distribution (RMD)
Owner withdraws less than Minimum: must pay penalty tax equal to 50% of the difference between the RMD and the amount taken. ($2500 divided by 2 = $1250) Does not apply to Roth IRAs.
Managed Accounts
Portfolio of securities that is actively managed by an investment adviser who provides the account holder with personalized advice on selection, diversification, and allocation of assets. Also know as a separately managed account. High minimum deposit. Yearly fee to cover advisory services, mgnt activities, & Transaction costs.
Long-Term Care (LTC) Insurance
Provides benefits for medical and other services needed by individuals who, because of advanced age or the effects of serious illness or injury, need constant care at home, in an assisted living facility, or in a skilled nursing facility. Benefit amount between $75 and $250 per day. Waiting period: up to 100 days. Exclusions: Six-month for pre-existing conditions disclosed in the application. Benefits paid if insured: is cognitively imparied or is unable to perform without assistance at least two fo the six activities of daily living (ADLs).
Coverage Gap - Donut Hole
Temporary gap in coverage - participant responsible for own drug costs until she reaches the plan's out-of-pocket maximum. Discounts received from drug manufactures during hole. Subsidies provided through ACA. Subsidies will increase until 2020 where participants will pay the same percentage for perscription drugs in the donut hole as out of donut hole.
Financial Services Industry
The companies that offer products and services designed to help individuals, businesses, and governments meet certian financial goals, such as protecting against financial losses, accumulating and investing money or other assets, and managing debt and cahs flow.
Medicare Part D
The component of Medicare that provides coverage for prescription drugs. Premium varies by plan. Participants with income above certain limit must pay an additional premium, which is deducted from Social Security benefits. Annual deductible and coinsurance for each prescription purchase. Plans offered by managed care organizations usually charge a flat copay for each perscription purchase instead of coinsurance.
National Credit Union Share Insurance Fund (NCUSIF)
The insurance arm of the National Credit Union Administration that insures credit union accounts for up to $250,000.
Amortization
The reduction of a debt by regular payments of principal and interest that results in full payment of the debt by the maturity date.
Annuitized Payments
The retiree receives a steady income stream for life.
Advantages of annuitized payments
The retiree receives payments for as long as she lives. She can not outlive her income. If a retiree lives longer than expected, it's possible that she will receive more in benefits than was paid into the account. The retiree doesn't need to manage a large sum of money.
Systematic Withdrawals
The retiree receives planned payout amounts at predetermined intervals for as long as the savings or investments last.
Lump-Sum Distribution
The retiree receives the full account balance in a single payment.
Keep money in DC plan
The retiree sill has access to the features and investment options of the group plan. He wont have to pay taxes until he makes withdrawals, and then he'll only pay taxes on the taxable amount he withdrawals.
Sequence of Returns Risk
The risk of earning low or negative returns during the first few years of withdrawals from a retirement plan.
Personal Risk (L&H)
The risk of economic loss that results from death, poor health, injuries, or outliving one's economic resources. Life, Health Disability Income, Annuities.
Liability Risk (P&C)
The risk of loss from a person being held responsible for harming others or their property.
Property Damage Risk (P&C)
The risk of loss from damage to a person's property. Auto, Homeowner's, Liability.
Product Value
The value of a product depends on how well it solves problems or satisfies customer's needs.
Margin Account (Brokerage account)
Transactions can be funded w a combination of investor deposits and money borrowed from the brokerage firm. Substantial initial deposit (cash or securities) usually 50% of the buy-sell order. If value falls below percentage of its current value (at least 25%) the firm can issue a margin call (Notice) that addt'l cash or securities must be deposited into the account. Order cost: 100 shares x $50 per share / 50%.
Assisted Living
Unable to live by themselves, but dont require consistant care: Medication Management; Housekeeping & Laundry; meal preparation; Assistance with bathing and toileting; transportation to doctor appointments.
Coverdell
Unlimited choice of investments; k thru college. Tax investments: TAX DEFERRED. distributions are tax-free for qualified education expenses. NOT TAX DEDUCTIBLE. FEDERAL based. No more contributions after Age 18.
Online Brokerage Accounts
Usually offer fewer services than traditional brokerage accounts.
Roth IRA Withdrawals
Withdraw money after 59 1/2 after 5 years.
IRA Withdrawls
Withdrawals before 59 1/2 are subject to additional 10% tax penalty, except waived if they are used to pay for qualified education expenses, unreimbursed medical expenses that exceed a specified percentage of adjusted gross income, or a first time home purchase.
Social Security Penalties
Working while receiving benefits: penalty is equal to a $1 reduction in benefits for every $2 earned income exceeds the established limit. (only if younger than normal retirement age)
Pension Benefit Guaranty Corporation (PBGC)
a US federal agency that guarantees the payment of part or all of the retirement benefits for participants in defined benefit retirement pans when those plans become financially unable to pay benefits.
Discount Broker-Dealer Firms
execute custumers' orders to buy and sell securities.
Defined Contribution (DC) Plans (401k)
introduce more uncertainty into the planning process: they can calculate how much money goes into the plan, but not how much monthly income they'll recieve when they retire or how long their benefits will last.