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Why Insure Your Business?

October 18, 2019

Your business represents a substantial investment of your ideas, time, and money (in addition to your sweat and elbow grease). Because your business faces a variety of risks and perils (e.g., property damage, theft, personal injury claims, and natural disasters), you’ll want to protect your investment. You can do this with various types of business insurance. You may also want to attract and retain employees by providing insurance protection for them. Here are some reasons to insure your business.

To protect against risks and perils to property

Property and casualty insurance protects against the loss, damage, or theft of physical assets such as buildings, equipment, and business personal property. The loss or damage of business assets could result in an interruption of the business process and maybe even a complete shutdown. The right combination of insurance coverage can mean the difference between a temporary shutdown while you repair or replace the losses and the permanent closure of your business.

For example, assume that a hurricane or tornado damages your business’s main building and contents. Without insurance coverage, you could be out of business and possibly even personally responsible for any outstanding loans, leases, or contracts. However, if you carried property and casualty insurance on the building, your business could recover the cost of repairing or rebuilding the facility. Insurance coverage on the business’s equipment would also provide funds to repair or replace damaged machinery. And business interruption insurance coverage would reimburse the costs of operating from a temporary location.

To protect against liability claims

Through contact with the public and through personal injuries suffered on your business premises, your company could face liability claims and lawsuits. For example, retail outlets can be found liable if a customer is injured on the premises, and manufacturing firms can be found liable if a product is defective and injures someone. Service businesses can be found liable for providing improper care or advice.

Liability insurance can provide the funds to settle liability claims, sparing your business (or your own bank account) the expense. Liability coverage may also include legal representation in the event of a lawsuit.

To protect human assets

Your business can protect itself against the loss of human assets, such as the loss of services of key employees due to death or disability, through the use of company-owned life and disability insurance coverage on key personnel and co-owners. If a covered owner or employee dies or becomes disabled, the policy provides payments to cover the loss of income generated by that person. Funds provided by the policy can help your business continue operations and remain competitive while a replacement is found. Business owners can also use life or disability insurance to provide funds for the purchase of an owner’s interest under a buy-sell agreement after the disability or death of the owner.

To attract and retain employees

Insurance can be used to help your business attract and retain quality employees. Group coverage such as life, health, disability, and long-term care insurance can be offered as part of your company’s employee benefits package. In addition to salary, employees often seek benefits that will help them to improve their quality of life outside the workplace. By offering group insurance coverage as part of your company’s benefits package, you may be able to attract and retain employees who might otherwise be hired by your competitors.

Because businesses are not included in homeowners coverage

Businesses are specifically excluded from coverage under a homeowners policy. If you’re involved in a business activity in your home, your homeowners policy will not cover you for liability or medical payments due other persons, even if the damage or injury occurred in your home. This means that your policy will not reimburse you for medical care required by a client who falls off his chair in your home office when you tell him how much tax he owes.

Other structures located on your premises that are used for business purposes are also excluded under your homeowners policy. For example, if you sell furniture and crafts out of your barn, and your barn burns to the ground, your homeowners policy won’t cover the cost of rebuilding the barn because it was used by your business. It won’t cover the replacement of your merchandise, either. Unless you have extremely large cash reserves to cover potential losses, you probably can’t afford to leave yourself unprotected.

Because coverage may be required by law

There may be a legal reason for your business to carry insurance. All U.S. states and the District of Columbia have workers’ compensation laws designed to protect employed individuals who get sick, injured, or killed on the job. Each state has its own workers’ compensation system and requirements. Depending on the size of your business, the industry in which it operates, and the state where your business operates, you may be required to carry workers’ compensation insurance. Depending on the state, coverage is available through a state fund or private insurer. Make sure that you consult a qualified advisor who is experienced with the workers’ compensation rules in your state.

Some states require disability insurance coverage for employees. In addition, some states require professional liability insurance (malpractice insurance) as a condition of licensing in the state. Check the rules of your state and consult an insurance advisor.

Failure to carry legally required coverage may be punishable by fines, civil penalties, criminal penalties, exclusion from public contracts, and cease and desist orders. The rules and penalties vary by state.

Because coverage may be required under the terms of your contracts

If you rent or lease your business facility, the contract with your landlord probably requires that your business carry its own insurance on the premises. The building owner’s insurance will generally cover certain repairs to the facility, but it won’t repair or replace your business’s property, nor will it provide liability coverage to you or your business. Your business will need its own insurance for such protection.

If you or your business borrowed money to finance buildings, equipment, or operations, the loan agreement probably includes an insurance requirement. Equipment lease contracts also contain a provision requiring the lessee (you) to carry insurance against damages to the leased property.

Check all rental, lease, and loan agreements carefully, and make sure that your business is properly insured under the terms of the agreements.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Wills: The Cornerstone of Your Estate Plan

October 18, 2019

If you care about what happens to your money, home, and other property after you die, you need to do some estate planning. There are many tools you can use to achieve your estate planning goals, but a will is probably the most vital. Even if you’re young or your estate is modest, you should always have a legally valid and up-to-date will. This is especially important if you have minor children because, in many states, your will is the only legal way you can name a guardian for them. Although a will doesn’t have to be drafted by an attorney to be valid, seeking an attorney’s help can ensure that your will accomplishes what you intend.

Wills avoid intestacy

Probably the greatest advantage of a will is that it allows you to avoid intestacy. That is, with a will you get to choose who will get your property, rather than leave it up to state law. State intestate succession laws, in effect, provide a will for you if you die without one. This “intestate’s will” distributes your property, in general terms, to your closest blood relatives in proportions dictated by law. However, the state’s distribution may not be what you would have wanted. Intestacy also has other disadvantages, which include the possibility that your estate will owe more taxes than it would if you had created a valid will.

Wills distribute property according to your wishes

Wills allow you to leave bequests (gifts) to anyone you want. You can leave your property to a surviving spouse, a child, other relatives, friends, a trust, a charity, or anyone you choose. There are some limits, however, on how you can distribute property using a will. For instance, your spouse may have certain rights with respect to your property, regardless of the provisions of your will.

Gifts through your will take the form of specific bequests (e.g., an heirloom, jewelry, furniture, or cash), general bequests (e.g., a percentage of your property), or a residuary bequest of what’s left after your other gifts.

Wills allow you to nominate a guardian for your minor children

In many states, a will is your only means of stating who you want to act as legal guardian for your minor children if you die. You can name a personal guardian, who takes personal custody of the children, and a property guardian, who manages the children’s assets. This can be the same person or different people. The probate court has final approval, but courts will usually approve your choice of guardian unless there are compelling reasons not to.

Wills allow you to nominate an executor

A will allows you to designate a person as your executor to act as your legal representative after your death. An executor carries out many estate settlement tasks, including locating your will, collecting your assets, paying legitimate creditor claims, paying any taxes owed by your estate, and distributing any remaining assets to your beneficiaries. Like naming a guardian, the probate court has final approval but will usually approve whomever you nominate.

Wills specify how to pay estate taxes and other expenses

The way in which estate taxes and other expenses are divided among your heirs is generally determined by state law unless you direct otherwise in your will. To ensure that the specific bequests you make to your beneficiaries are not reduced by taxes and other expenses, you can provide in your will that these costs be paid from your residuary estate. Or, you can specify which assets should be used or sold to pay these costs.

Wills can create a testamentary trust

You can create a trust in your will, known as a testamentary trust, that comes into being when your will is probated. Your will sets out the terms of the trust, such as who the trustee is, who the beneficiaries are, how the trust is funded, how the distributions should be made, and when the trust terminates. This can be especially important if you have a spouse or minor children who are unable to manage assets or property themselves.

Wills can fund a living trust

A living trust is a trust that you create during your lifetime. If you have a living trust, your will can transfer any assets that were not transferred to the trust while you were alive. This is known as a pourover will because the will “pours over” your estate to your living trust.

Wills can help minimize taxes

Your will gives you the chance to minimize taxes and other costs. For instance, if you draft a will that leaves your entire estate to your U.S. citizen spouse, none of your property will be taxable when you die (if your spouse survives you) because it is fully deductible under the unlimited marital deduction. However, if your estate is distributed according to intestacy rules, a portion of the property may be subject to estate taxes if it is distributed to heirs other than your U.S. citizen spouse.

Assets disposed of through a will are subject to probate

Probate is the court-supervised process of administering and proving a will. Probate can be expensive and time consuming, and probate records are available to the public. Several factors can affect the length of probate, including the size and complexity of the estate, challenges to the will or its provisions, creditor claims against the estate, state probate laws, the state court system, and tax issues. Owning property in more than one state can result in multiple probate proceedings. This is known as ancillary probate. Generally, real estate is probated in the state in which it is located, and personal property is probated in the state in which you are domiciled (i.e., reside) at the time of your death.

Will provisions can be challenged in court

Although it doesn’t happen often, the validity of your will can be challenged, usually by an unhappy beneficiary or a disinherited heir. Some common claims include:

  • You lacked testamentary capacity when you signed the will
  • You were unduly influenced by another individual when you drew up the will
  • The will was forged or was otherwise improperly executed
  • The will was revoked

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Term Life Insurance

October 17, 2019

Term life insurance provides life insurance coverage for a specific time period (the term). It is often referred to as pure insurance. The face amount of the policy is paid if you die during the term of the policy. When you live longer than the term of the insurance coverage, nothing is paid, as there is no cash surrender value.

Who should buy term life insurance?

Term life insurance is appropriate for situations when there is a high need for insurance but not much cash flow to pay for it. For example, a young family with limited cash resources may have a great need for survivor income to provide for living expenses and education needs. Term life insurance is especially helpful here, as it allows the family to buy the maximum insurance protection with minimal cash outlay.

Term life insurance is also well suited to cover limited-term needs, such as coverage during your working years until you retire, while your children are dependent on you, or for the duration of a loan or mortgage. Term life insurance is also used in business to fund buy-sell agreements and to provide coverage for nonrecurring business debt security and key personnel.

Advantages of term life insurance

Term life insurance is generally the most efficient way to achieve maximum life insurance protection for a minimum current cash outlay. When you are young and just beginning your career or family, you may have a need for insurance but not much cash to pay for it. With a term policy, you can buy a larger death benefit for less cash than you could get with any other type of life insurance policy.

Term life insurance is also pretty flexible. You can buy term insurance coverage for the time period that best suits your needs. Common term periods are 1 year with an automatic and guaranteed renewal each year (at a higher premium) up to age 95 in some states, or a level premium for periods of 5, 10, 15, 20, 25, or 30 years.

Disadvantages of term life insurance

The main disadvantage of term life insurance is that a term policy has an end point, like an expiration date. When the coverage period ends, you may have the option to renew the policy, depending on the specific policy and with limitations. But each time you renew the policy for an additional term of coverage or buy a new term policy, the rate increases because your age (and consequently the insurance company’s risk of paying the death benefit) has increased. Eventually, the premiums can become quite high and difficult for people to pay. In addition, some states limit the age at which a person can buy life insurance. If you live in one of those states and want coverage beyond the allowable number of years (generally age 70), consider purchasing a permanent (cash value) policy such as a whole life, variable life, universal life, or variable universal life policy. Even if your state allows you to continue your term insurance policy to age 95, a cash value policy may, in the long run, be less expensive than a term policy.

Note: Variable life insurance and variable universal life insurance policies are offered by prospectus, which you can obtain from your financial professional or the insurance company. The prospectus contains detailed information about investment objectives, risks, charges, and expenses. You should read the prospectus and consider this information carefully before purchasing a variable life or variable universal life insurance policy.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Applying for a Mortgage

October 17, 2019

Since most people finance their home purchases, buying a home usually involves applying for a mortgage. Here is some basic information to help guide you through the process.

Mortgage prequalification vs. preapproval

Before applying for a mortgage, you’ll want to shop around and compare the mortgage rates and terms that various lenders offer. When you find the right lender, find out how you can prequalify or get preapproval for a loan. Prequalifying gives you the lender’s estimate of how much you can borrow and in many cases can be done over the phone, usually at no cost. Prequalification does not guarantee that the lender will grant you a loan, but it can give you a rough idea of where you stand. If you’re really serious about buying, however, you’ll probably want to get preapproved for a loan. Preapproval is when the lender, after verifying your income and performing a credit check, lets you know exactly how much you can borrow. This involves completing an application, revealing your financial information, and paying a fee.

Generally, if you’re applying for a conventional mortgage, your monthly housing expenses (mortgage principal and interest, real estate taxes, and homeowners insurance) should not exceed 28 percent of your gross monthly income. In addition, most mortgages require borrowers to have a debt-to-income ratio that is less than or equal to 43 percent. That means that you should be spending no more than 43 percent of your gross monthly income on longer-term debt payments.

It’s important to note that the mortgage you qualify for or are approved for is not always what you can actually afford. Before signing any loan paperwork, take an honest look at your lifestyle, standard of living, and spending habits to make sure that your mortgage payment won’t be beyond your means.

Before you apply

Do some homework before you apply for a mortgage. Think about the type of home you want, what your budget will allow, and the type of mortgage you might want to apply for. Obtain a copy of your credit report, and make sure it’s accurate; you’ll want to dispute any erroneous information and quickly correct it. Be prepared to answer any questions that a lender might have of you, and be open and straightforward about your circumstances.

What you’ll need when you apply

When you apply for a mortgage, the lender will want a lot of information about you (and, at some point, about the house you’ll buy) to determine your loan eligibility. Some of the information you’ll need to provide:

  • The name and address of your bank, your account numbers, and statements for the past three months
  • Investment statements for the past three months
  • Pay stubs, W-2 withholding forms, or other proof of employment and income
  • Balance sheets and tax returns, if you’re self-employed
  • Information on consumer debt (account numbers and amounts due)
  • Divorce settlement papers, if applicable

You’ll sign authorizations that allow the lender to verify your income and bank accounts, and to obtain a copy of your credit report. If you’ve already made an offer on a home, you’ll need to give the lender a purchase contract and a receipt for any good-faith deposit that you might have given the seller.

Types of mortgages

Like homes themselves, mortgage come in many sizes and types. The type of mortgage that’s right for you depends on many factors, such as your tolerance for risk and how long you expect to stay in your home. The following are some of the more popular types of mortgages available:

  • Conventional fixed rate mortgages
  • Adjustable rate mortgages (ARM)
  • Government mortgages (e.g., FHA or VA mortgage loans)
  • Hybrid adjustable rate mortgages (ARM)
  • Jumbo loans

Finalizing the application

As your mortgage application is processed and finalized, your lender is required by law to give you a Loan Estimate within three business days of receiving your application. The Loan Estimate is a form that spells out important information about the loan you applied for, such as the estimated interest rate, monthly payments, and total closing costs for the loan.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Commercial General Liability (CGL)

October 16, 2019

A commercial general liability (CGL) policy will insure your business against general liability exposures, unless a possible liability is specifically excluded from coverage. Benefits are paid for actual damages and legal costs when the business is held legally responsible for bodily injury, property damage, or personal and advertising injury liability. If someone is injured on the premises of your business, benefits may be paid even if the business is not held legally responsible.

The CGL policy replaced a similar policy known as the comprehensive general liability policy. Although the CGL is often issued as part of a business package policy that includes both property damage and liability coverage, it can be issued separately as well.

Who’s insured under a commercial general liability (CGL) policy?

Under a CGL policy, the type of business insured determines who can be covered under the policy. For instance, if you own a business as a sole proprietorship, you and your spouse may be covered under the policy. If you own a business that is a corporation, you and any other owners can be covered, as well as executive officers, directors, and stockholders. The parties insured, however, are covered only for liability claims and damages related to activities or services performed for the business, not for personal liability.

Types of liability covered by a CGL policy

The CGL policy covers three types of liability exposures: premises and operations exposure, products and completed operations exposure, and indirect/contingent exposure. Coverage for the premises and operations exposure protects your business against claims for bodily injury and property damage related to the ownership and maintenance of the business premises, or as the result of business operations conducted both at and away from the business premises.

Coverage for the second type of exposure–products and completed operations exposure–protects your business against claims for bodily injury and property damages that result from faulty products or completed operations (work performed by the business).

To protect against indirect/contingent liability exposure, the CGL policy protects your business if you are found liable for the negligent actions or work of independent contractors and subcontractors you hire.

Insuring agreements

Part A pays claims if the insured business is found legally responsible for causing accidental bodily injury or property damage.

Part B pays claims of the insured business if it is found legally responsible for causing personal injury (including false arrest, malicious prosecution, slander and libel, and violation of a person’s right of privacy) or advertising injury (including slander and libel, violation of a person’s right of privacy, misappropriation of advertising ideas, and copyright infringement).

Part C pays medical expenses to individuals injured on the premises of the business within three years of the accident, whether or not the business is found legally liable.

Not every liability risk is covered

The following 15 liability exposures are specifically excluded from coverage by Part A of the CGL:

  • Expected or intended injury
  • Contractual assumptions
  • Liquor liability
  • Workers’ compensation
  • Employers’ liability
  • Pollution exclusion
  • Aircraft, autos, and watercraft (26′ in length or over)
  • Mobile equipment (off-road motor vehicles)
  • War exclusion
  • Care, custody, and control
  • Damage to the insured’s product arising from the product itself
  • Damage to the insured’s work
  • Property damage to impaired property
  • Product recall
  • Employment-related practices

Part B exclusions include breach of contract (advertising only), incorrect price descriptions (advertising only), and violation of a penal statute or ordinance (personal injury and advertising). Part C exclusions include injuries payable under workers’ compensation laws and injuries to all insured parties, tenants, or employees of the insured.

Specialized products and endorsements

If you purchase a CGL policy and still need coverage for one or more of the items specifically excluded by the policy, you may be able to purchase a specialized policy or add an endorsement that will extend protection to you. Here is a partial list of types of specialized coverage and endorsements you can purchase:

  • Workers’ compensation and employers’ liability policy
  • Liquor liability policy or endorsement
  • Pollution liability policy or endorsement or an environmental impairment liability policy
  • Marine policy
  • Aviation policy
  • Employment-related practices exclusion endorsement
  • Owners and contractors protective liability endorsement
  • Manufacturers and contractors liability insurance policy

When coverage is triggered under the policy

CGL policies can be written in two forms, a claims-made form and an occurrence-made form. These forms describe when coverage is triggered. If a CGL policy is a claims-made liability policy, the policy will cover losses for which claims are made during the policy period. If the CGL policy is an occurrence-made liability policy, the policy will cover losses that occurred during the policy period, no matter when the claim is made.

Coverage limits

A coverage limit is the most that can be paid for claims under the terms of the policy. A CGL policy includes several different coverage limits and sublimits that apply to different sections of the policy or types of coverage:

  • The general aggregate limit is the maximum amount that the insurance company is obligated to pay for all damage and injury during the policy period. This limit includes injury or damage covered under Parts A, B, and C, but excludes damages or injury related to the products-completed operations coverage; a separate aggregate limit applies to this coverage. When the total claims exceed the specified limit, no more claims for the policy period will be paid.
  • The per-occurrence limit is the most that will be paid for all injury, property damage, and medical payments under Parts A and C for any one occurrence.
  • The personal and advertising injury limit is the most that will be paid per person for damages resulting from personal injury or advertising injury under Part B, subject to the general aggregate limit.
  • Sublimits apply to both medical payments under Part C and the fire damage legal liability under Part A.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Repaying Your Student Loans

October 16, 2019

You vaguely remember signing a form every year at college registration time. Now that you’ve graduated, it’s all become painfully clear — those forms were promissory notes detailing your student loan obligations. Your loans aren’t going away, and you’ll want to repay them as quickly as possible. So whether you have a small sum or a small fortune to pay off, it’s helpful to brush up on some student loan basics.

First, remember the grace period

After you graduate, you’ll probably have a lot to think about — deciding where to live, finding a job, renting an apartment. Fortunately, you don’t have to add student loans to your list, at least not right away. Thanks to the grace period built into most student loans, you’ll likely get anywhere from six to nine months before you need to start repaying your loans. This gives you some breathing room to get financially settled.

Understand your repayment options

Gone are the days when your only repayment option consisted of fixed, equal payments spread over a 10-year term. Though this is certainly one option — and typically the fastest way to pay off your loans — it’s not the only option. Because of the growing number of students who require student loans to finance their education and the ever increasing amount of their debt, the federal government offers several flexible repayment plans to help students manage this large financial responsibility. (Private student lenders may or may not offer the following plans — check with your lender.)

  • Standard repayment plan: This is the original repayment plan. With a standard plan, you generally pay a fixed amount each month for up to 10 years.
  • Graduated repayment plan: With a graduated plan, your payments start out low in the early years of the loan but increase in later years (the term is still 10 years). This plan is tailored to individuals with relatively low current incomes (e.g., recent college graduates) who expect their incomes to increase in the future. However, you’ll ultimately pay more for your loan than you would under the standard plan, because more interest accumulates in the early years of the plan when your outstanding loan balance is higher.
  • Extended repayment plan: With an extended plan, you extend the time you have to repay your loan, usually from 12 to 30 years, depending on the loan amount. Your fixed monthly payment is lower than it would be under the standard plan, but again, you’ll ultimately pay more for your loan because of the interest that accumulates under the longer repayment period. Note: Many lenders allow you to combine an extended plan with a graduated plan.
  • Income-based repayment plan: With an income-based repayment (IBR) plan, your monthly loan payment is based on your annual discretionary income. The federal government offers a PAYE plan (Pay As You Earn) and a REPAYE plan (Revised Pay as You Earn). Generally, undergraduate borrowers who qualify will pay 10% of their discretionary income toward their student loans each month, and after 20 years of on time payments, the remaining balance may be forgiven (payments may be forgiven after 10 years for those in certain public interest jobs and after 25 years for graduate school borrowers). For more information, visit the federal government’s student aid website at studentaid.ed.gov.
  • Loan consolidation: Loan consolidation is technically not a repayment option, but it does overlap. With loan consolidation, you combine several student loans into one loan, sometimes at a lower interest rate. Thus, you can write one check each month. You need to apply for loan consolidation, and different lenders have different rules about which loans qualify for consolidation. However, with most loan consolidations, you can choose an extended repayment and/or a graduated repayment plan in addition to a standard repayment plan.

To pick the best repayment option, you’ll need to determine the amount of discretionary income that you have to put toward your student loan each month. This, in turn, requires you to make a budget and track your monthly income and expenses.

In addition to inquiring about repayment options, ask whether your lender offers any special discounts for prompt loan repayment. For example, some lenders may shave a percentage point off your interest rate if you allow them to directly debit your checking account each month. Or, they may waive some monthly payments after receiving on-time payments for a certain length of time.

Apply for a deferment or forbearance if you can’t pay

At times, you may find it financially difficult or impossible to repay your student loan. The worst thing you can do is ignore your payments (and your lender) completely. The best thing you can do is contact your lender and apply for a deferment, forbearance, or cancellation of your loan.

  • Deferment: With a deferment, your lender grants you a temporary reprieve from repaying your student loan based on a specific condition, such as unemployment, temporary disability, military service, or a return to graduate school on a full-time basis. For federal loans, the federal government pays the interest that accrues during the deferment period, so your loan balance won’t increase. A deferment usually lasts six months, and you are limited in the total number of deferments you can take over the life of the loan.
  • Forbearance: With a forbearance, your lender grants you permission to reduce or stop your loan payments for a certain period of time at its discretion (one common reason is economic hardship). However, interest continues to accrue, even on federal loans. Like a deferment, a forbearance usually lasts six months, and the total number allowed over the life of the loan is limited.
  • Cancellation: With a cancellation, your loan is permanently wiped off your list of financial obligations. It’s not easy to qualify for a cancellation, though. Situations when this may be allowed are the death or permanent total disability of the borrower, or if the borrower takes a job teaching needy populations in certain geographic areas. Typically, student loans can’t be discharged in bankruptcy.

Remember, these things are never automatic. You’ll need to fill out the appropriate application from your lender, attach any supporting documentation, and follow up to make sure that your application has been processed correctly.

Keep track of your paperwork

If your idea of organization is stuffing your random assortment of student loan papers into your sock drawer, or not keeping them all, think again. Repaying your student loans is a serious matter, and you’ll need to stay on top of it. It’s important to keep accurate, accessible records. Open a file folder for each loan, and file any accompanying paperwork there, such as copies of promissory notes, coupon booklets, correspondence from your lender, deferment and/or forbearance paperwork, and notes of any phone calls.

Investigate the student loan interest deduction

On the bright side, you might be able to deduct some or all of the student loan interest you pay on your federal tax return. In 2019, if you’re a single filer with a modified adjusted gross income (MAGI) under $70,000 or a joint filer with a MAGI under $140,000, you can deduct up to $2,500 of student loan interest that you pay during the year. A partial deduction is available to single filers with a MAGI between $70,000 and $85,000 and joint filers with a MAGI between $140,000 and $170,000.

There are a couple of hurdles, though. You must have incurred the loans when you were at least a half-time student, and you can’t take the deduction if you’re claimed as a dependent on someone else’s tax return.

If you paid $600 or more of interest to a single lender on a qualified student loan during the year, you should receive Form 1098-E at tax time from your lender, showing the amount of student loan interest you’ve paid for the year. For more information, see IRS Publication 970.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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October 16, 2019

Tax Planning Tips: Life Insurance

October 15, 2019

Understanding the importance of life insurance is one thing. Understanding the tax rules is quite another. As insurance products have evolved and become more sophisticated, the line separating insurance vehicles from investment vehicles has grown blurry. To differentiate between the two, a mix of complex rules and exceptions now governs the taxation of insurance products. If you have neither the time nor the inclination to decipher the IRS regulations, here are some life insurance tax tips and background information to help you make sense of it all.

Life insurance contracts must meet IRS requirements

For federal income tax purposes, an insurance contract cannot be considered a life insurance contract–and qualify for favorable tax treatment–unless it meets state law requirements and satisfies the IRS’s statutory definitions of what is or is not a life insurance policy. The IRS considers the type of policy, date of issue, amount of the death benefit, and premiums paid. The IRS definitions are essentially tests to ensure that an insurance policy isn’t really an investment vehicle. The insurance company must comply with these rules and enforce the provisions.

Keep in mind that you can’t deduct your premiums on your federal income tax return

Because life insurance is considered a personal expense, you can’t deduct the premiums you pay for life insurance coverage.

Employer-paid life insurance may have a tax cost

The premium cost for the first $50,000 of life insurance coverage provided under an employer-provided group term life insurance plan does not have to be reported as income and is not taxed to you. However, amounts in excess of $50,000 paid for by your employer will trigger a taxable income for the “economic value” of the coverage provided to you.

You should determine whether your premiums were paid with pre- or after-tax dollars

The taxation of life insurance proceeds depends on several factors, including whether you paid your insurance premiums with pre- or after-tax dollars. If you buy a life insurance policy on your own or through your employer, your premiums are probably paid with after-tax dollars.

Different rules may apply if your company offers the option to purchase life insurance through a qualified retirement plan and you make pretax contributions. Although pretax contributions offer certain income tax advantages, one tradeoff is that you’ll be required to pay a small tax on the economic value of the “pure life insurance” in the policy (i.e., the difference between the cash value and the death benefit) each year. Also, at death, the amount of the policy cash value that is paid as part of the death benefit is taxable income. These days, however, not many companies offer their employees the option to purchase life insurance through their qualified retirement plan.

Your life insurance beneficiary probably won’t have to pay income tax on death benefit received

Whoever receives the death benefit from your insurance policy usually does not have to pay federal or state income tax on those proceeds. So, if you die owning a life insurance policy with a $500,000 death benefit, your beneficiary under the policy will generally not have to pay income tax on the receipt of the $500,000. This is generally true regardless of whether you paid all of the premiums yourself, or whether your employer subsidized part or all of the premiums under a group term insurance plan.

Different income tax rules may apply if the death benefit is paid in installments instead of as a lump sum. The interest portion (if any) of each installment is generally treated as taxable to the beneficiary at ordinary income rates, while the principal portion is tax free.

In some cases, insurance proceeds may be included in your taxable estate

If you hold any incidents of ownership in an insurance policy at the time of your death, the proceeds from that insurance policy will be included in your taxable estate. Incidents of ownership include the right to change the beneficiary, the right to take out policy loans, and the right to surrender the policy for cash. Furthermore, if you gift away an insurance policy within three years of your death, then the proceeds from that policy will be pulled back into your taxable estate. To avoid having the policy included in your taxable estate, someone other than you (e.g., a beneficiary or a trust) should be the owner.

Note: If the owner, the insured, and the beneficiary are three different people, the payment of death benefit proceeds from a life insurance policy to the beneficiary may result in an unintended taxable gift from the owner to the beneficiary.

If your policy has a cash value component, that part will accumulate tax deferred

Unlike term life insurance policies, some life insurance policies (e.g., permanent life) have a cash value component. As the cash value grows, you may ultimately have more money in cash value than you paid in premiums. Generally, you are allowed to defer income taxes on those gains as long as you don’t sell, withdraw from, or surrender the policy. If you do sell, surrender, or withdraw from the policy, the difference between what you get back and what you paid in is taxed as ordinary income.

You usually aren’t taxed on dividends paid

Some policies, known as participating policies, pay dividends. An insurance dividend is the amount of your premium that is paid back to you if your insurance company achieves lower mortality and expense costs than it expected. Dividends are paid out of the insurer’s surplus earnings for the year. Regardless of whether you take them in cash, keep them on deposit with the insurer, or buy additional life insurance within the policy, they are considered a return of premiums. As long as you don’t get back more than you paid in, you are merely recouping your costs, and no tax is due. However, if you leave these dividends on deposit with your insurance company and they earn interest, the interest you receive should be included as taxable interest income.

Watch out for cash withdrawals in excess of basis–they’re taxable

If you withdraw cash from a cash value life insurance policy, the amount of withdrawals up to your basis in the policy will be tax free. Generally, your basis is the amount of premiums you have paid into the policy less any dividends or withdrawals you have previously taken. Any withdrawals in excess of your basis (gain) will be taxed as ordinary income. However, if the policy is classified as a modified endowment contract (MEC) (a situation that occurs when you put in more premiums than the threshold allows), then the gain must be withdrawn first and taxed.

Keep in mind that if you withdraw part of your cash value, the death benefit available to your survivors will be reduced.

You probably won’t have to pay taxes on loans taken against your policy

If you take out a loan against the cash value of your insurance policy, the amount of the loan is not taxable (except in the case of an MEC). This result is the case even if the loan is larger than the amount of the premiums you have paid in. Such a loan is not taxed as long as the policy is in force.

If you take out a loan against your policy, the death benefit and cash value of the policy will be reduced.

You can’t deduct interest you’ve paid on policy loans

The interest you pay on any loans taken out against the cash value of your life insurance is not tax deductible. Certain loans on business-owned policies are an exception to this rule.

The surrender of your policy may result in taxable gain

If you surrender your cash value life insurance policy, any gain on the policy will be subject to federal (and possibly state) income tax. The gain on the surrender of a cash value policy is the difference between the gross cash value paid out (plus any loans outstanding) and your basis in the policy. Your basis is the total premiums that you paid in cash, minus any policy dividends and tax-free withdrawals that you made.

You may be able to exchange one policy for another without triggering tax liability

The tax code allows you to exchange one life insurance policy for another (or a life insurance policy for an annuity) without triggering current tax liability. This is known as a Section 1035 exchange. However, you must follow the IRS’s rules when making the exchange.

When in doubt, consult a professional

The tax rules surrounding life insurance are obviously complex and are subject to change. For more information, contact a qualified insurance professional, attorney, or accountant.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Government-Sponsored Disability Insurance Programs

October 15, 2019

Government-sponsored disability insurance programs are designed by federal, state, and local governments to provide basic income protection (and sometimes medical benefits) to disabled individuals. Although these programs may not offer the comprehensive protection you’d like, they can help you and your family if you can’t work.

Social Security disability benefits

Two programs administered by the Social Security Administration pay disability benefits. The Social Security disability insurance program pays benefits to qualified individuals who are under age 65, regardless of income. The other program, Supplemental Security Income, pays benefits to qualified individuals with limited income who are over age 65 or are blind or disabled. Neither program covers partial disability, and both programs define disability strictly. Your impairment must prevent you from earning a substantial income, must be medically determined, and must last (or be expected to last) 12 months or more (or result in your death). Like other Social Security benefits, disability benefits are based on your Social Security earnings record.

Workers’ compensation

All states and the District of Columbia have workers’ compensation laws designed to protect employed individuals who get sick, injured, or killed on the job. Although most workers are covered by these laws, a few occupations are excluded, and some states exempt small-business employers from the law. Under workers’ compensation, disability benefits are paid only to covered workers whose illnesses or injuries are work-related. How benefits are paid and in what amount are determined by state law and are based on how severe and permanent your injury or illness is. In most states, you will receive 66 2/3 percent of your wages (subject to a weekly maximum), although this percentage may be higher for permanent total disabilities.

Veterans benefits

Military servicemembers and veterans are entitled to disability compensation for service-connected health problems. Military-sponsored programs include disability retirement, temporary disability retirement, and disability severance pay. Department of Veterans Affairs (formerly known as the Veterans Administration) benefits include disability compensation, vocational rehabilitation, and VA pensions. Since the rules surrounding these benefits can be complex and change often, it’s best to check with your military personnel office or local VA office if you have questions about any of these benefits.

Federal Employees Retirement System

Federal employees covered under the Federal Employees Retirement System (FERS) are eligible for disability benefits if they have at least 18 months of creditable service. To receive benefits, you must be unable to perform your job because of injury or disease. During the first year of disability, you receive 60 percent of your average salary (your average salary is based on your three highest earnings years). After the first year of disability, you receive 40 percent of your average salary. However, in the first year, any Social Security benefit you receive will offset your FERS disability benefit dollar for dollar. In the second year of disability, your FERS benefit will be reduced by 60 percent of your Social Security disability benefit. At age 62, your benefit is further adjusted.

State-sponsored programs

To date, five states–California, Hawaii, New Jersey, New York, and Rhode Island–and Puerto Rico require employers to provide short-term disability benefits to residents who are disabled due to injuries or illnesses not related to work. Benefits may be payable up to 26 weeks (39 weeks in California).

Who is eligible for coverage?

To be eligible to receive disability benefits from government insurance programs, you must meet the requirements established by each program. For instance, your disability may need to be totally disabling (Social Security), work-related (workers’ compensation), or non-work-related (state assistance). You may have to work a certain length of time before becoming eligible for benefits (Social Security and FERS).

Advantages of government-sponsored disability programs

You don’t have to pay a premium for government-sponsored disability coverage (unlike other types of disability coverage). It’s not a free benefit; you finance some types of government disability insurance by paying taxes. However, you don’t have to pay the relatively high premiums that you pay for private disability insurance, and you get basic protection against disability.

In addition, government disability programs often have provisions for disabled and nondisabled family members of a disabled worker. For instance, if you suffer a job-related illness or injury and later die, your family may receive survivors’ benefits under workers’ compensation. By comparison, a private disability insurance policy doesn’t pay any benefits to your family members.

Disadvantages of such coverage

One of the main disadvantages of government disability programs is that qualifying for benefits can be tricky because you must meet a strict definition of disability. For instance, to be considered disabled under workers’ compensation, your disability must be job-related. In contrast, to qualify for state assistance (if you live in one of the five states that have disability programs), your disability must be non-work-related. To qualify for benefits under Social Security, you must be unable to work at any job (not just your own job) and unable to earn income, and your disability must be expected to last at least a year or end in your death.

If your earnings are high, it’s also likely that your benefit check from a private disability policy would be larger than a disability benefit check you receive from the government. Like private disability insurance, government disability programs aim to replace a portion of your earnings lost to disability. However, government benefits are often capped at legal maximums that may not reflect your true earnings level.

Finally, government disability is less flexible. When you buy a private disability insurance policy, you can determine (within certain limits) your base coverage and purchase riders to help personalize your policy. But government disability is essentially an impersonal product designed to protect the average worker. If you rely on government disability insurance to meet your individual needs, you may end up disappointed.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Business Interruption Insurance

October 14, 2019

A natural disaster like a tornado or a fire can strike your business at any time, possibly resulting in a forced shutdown and an interruption of your normal business process. Such an event can lead to direct losses and indirect losses. Although your business’s property and casualty insurance will likely cover your direct losses (e.g., any property that’s been damaged, the expense of rebuilding your business facility), it probably won’t cover any indirect losses. Indirect losses include ongoing business expenses and extraordinary expenses, like rent for a temporary location, that your business wouldn’t have incurred if the perilous event hadn’t happened.

Business interruption insurance is designed to cover your indirect losses in the event that a catastrophe prevents you from doing business. Though most lenders don’t require such insurance, it can help restore your business to the same position it was in before the catastrophic event by covering the extraordinary expenses and loss of income.

What catastrophes are covered?

Business interruption insurance typically kicks in after any catastrophe that prevents a company from doing business. Common catastrophes that are covered include fire, lightning, hurricanes, tornadoes, and massive ice storms. Make sure to carefully read any policy you’re considering to see exactly what’s covered.

To be eligible for coverage after a catastrophe, you must report the event to your insurance company. There may be a waiting period between your report and the start of coverage. For example, some policies don’t begin paying benefits until 48 to 72 hours after you report the event.

What business expenses are covered?

Business interruption insurance typically covers:

  • Loss of income during the period that your business is inoperable
  • Rent or lease payments for a temporary facility
  • Rent or lease payments for replacement furniture, machinery, and equipment
  • Tax payments
  • Salaries of key personnel

After a catastrophe, it’s important to get your business up and running again as soon as possible. Your customers probably won’t be able to wait very long for you to rebuild your business before they’re forced to buy elsewhere. And your key employees could be forced for economic reasons to leave your business during a shutdown to seek another position elsewhere.

Even if your business has enough insurance against direct property losses, the extent and duration of your indirect losses could significantly erode your cash reserves. It’s possible that your indirect losses could exceed your direct losses. For example, delays in rebuilding or repairing your facility could prolong the expenses you’ll need to operate in a temporary location.

How long does coverage last?

Coverage is provided for the actual length of time needed to resume your normal business operations, and may extend for up to 12 months after the catastrophic event. The amount of coverage is based on your business’s historical expenses and profits, including seasonal variations. You will be required to provide accounting records when you buy the policy.

Perilous events at other locations can still affect your business

You might think that business interruption insurance protects just your business location. But it’s broader than that. Disasters at other locations can still have a serious effect on your business. For example, consider what might happen to your business in the event of a prolonged outage of gas, water, or telephone service, or if your primary materials supplier is forced to shut down. Business interruption insurance can protect your business from these types of losses that result from catastrophes that start elsewhere.

How do you buy business interruption insurance?

Check with an insurer who specializes in commercial business insurance. Typically, business interruption insurance will be part of a larger business insurance policy package. An experienced insurance professional can help you assess the right insurance needs for your business.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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