September 1, 2010

L-Funds: Know the risk involved

How do you know if an L-fund is right for you? Financial planner Jerry Cannizzaro joined Your Turn this week to talk about the pros and cons of the TSP option.

Cannizzaro described the L-fund as a “professionally determined investment mix and it’s tailored to meet investment objectives based on timer rises”…meaning you open an account for the year you plan on retiring.

“It’s what we call an automatic investment, in that you put your money into the L-fund, the professionals are there to move and allocate the money over time to come up with a certain return at the expected time of the end of the fund, let’s say your retirement.”

Cannizzaro noted that those that participate in L-funds occassionally play with risk too much and don’t know exactly what they’re getting themselves into.

“When you look at the studies that have been done by many different companies, you see a higher level of risk after you go beyond 65% of your total investment money in stocks.”

“You get more risk beyond that for every percentage beyond that. I think most of these funds, a lot of the longer funds, the 2030 or 2040 funds have too much equity in them. The 2040 fund has 80% of its money in equities. I couldn’t do that to a client who was [between ages 40 to 50].”

Federal benefits after you die

What happens to your benefits when you die? Benefits strategist John Elliott joined Mike Causey in the second half of his show to discuss whether a spouse gets any benefits when a federal employee dies.

For starters, Elliott explains that someone must be married in order to get any benefits after the death of a federal employee.

“If a fed employee dies in service, as they say, and they are married, their spouse is entitled to automatic benefits. If you have a surviving spouse, he or she will automatically get around $29,000 plus half of your final salary in a lump sum payment.”

“If you had 10 years of service when you died, your spouse will also get an annuity equal to half of your earned annuity. If he or she was under your health plan they will automatically be able to continue in the very valuable federal health benefits program but only if when you died they were covered under your family plan.”

There are many options involved for surviving family members of federal employees. One such option is whether to take life insurance over a survivor annuity. Elliott says this is possible, but it may not be the best option for every family.

Elliott noted that many financial planners say when people come into a large sum of money at one time, they often spend it within 18 months. This is one reason why he does not suggest taking life insurance over annuity.

“If you’re worried about an irressponsible survivor, insurance might not be the best way to go.”

There was much more to Mike’s interview with Jerry Cannizzaro and John Elliott. Hear the entire interview by clicking the link above.

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