August 28, 2008

Alternative Energy - Part 1 of 4 - A Look At Four Different Options

I write a daily blog for Rollins Financial, and one of the recent subjects that I have been discussing each week has been the debate on alternative energy. I have received some great e-mails from clients and subscribers, so I thought I would share those posts with you over the next few weeks.

With the rise in the price of conventional fuels (namely oil and natural gas) earlier this year, there was a shift to look at different energy alternatives. Many people have pointed to the need for green energy, while others have talked about the U.S. dependency on foreign countries for oil. Whatever the reasons may be, alternative energy sources are going to become a growing part of our lives.

Today's post will be the first in a series of four posts discussing four different alternative energy sources - nuclear, solar, wind, and ethanol. While none of these sources to be discussed are new, the importance of each over the next 10+ years should grow.

Nuclear Energy

Since 1951, the U.S. has been at some level interested in nuclear power as an alternative energy source. During the late 1960's and early 1970's, it seemed that everyone wanted to build and operate a nuclear plant and soon. Then as construction costs mounted and economies of scale were not realized, nuclear power essentially faded into the background.

Fast forward to 2008 and it has now been 30 years since a new plant was ordered, and 18 years since the "peak" of nuclear plants in the U.S. with 112 units. As of today, the U.S. currently receives 19.4% of its energy from the 104 units that are still generating electricity. Since this is the most widely used alternative energy solution, what can be done to make it better and more widespread? First, look across the ocean at our old friends in France.

France is a country with no oil, coal, or natural gas, so back in the 1950's, Charles de Gaulle pushed the French into the nuclear age. De Gaulle did not want France dependent on other nations, and to him, nuclear energy was the solution.

Thus 50+ years later in 2008, the French currently have 58 plants that produce 77% of the country's electricity. Also, they have continued to improve the technology of the plants by making them safer, more powerful, and more efficient with their third generation European Pressurized Reactor (EPR). The EPR plants also used what is called a "closed fuel cycle" which essentially means they reprocess used nuclear fuel to recover plutonium made in the reactors so it can be reused as nuclear fuel.

How "green" are the nuclear power plants? As President Nicolas Sarkozy recently said, "Each EPR that replaces a (natural) gas-powered electricity plant saves two billion cubic meters of gas each year, and each EPR replacing a coal plant means cutting 11 million tons of CO2." In France, electrical power generation accounts for only 10 percent of the nation's greenhouse gases compared with an average of 40 percent in other industrialized countries. The French have become such experts in nuclear energy that they are in negotiations to buy England's nuclear power plants to renovate and build new ones.

Can we copy the French? Yes, but the U.S. needs to make this just one part of the solution - it is not the magical answer. A typical EPR plant costs about $5 billion to build, so the costs are large. The main issues holding any new plant back will be the bureaucracy and politicians.

If we can jump through the hurdles of politics and bureaucracy red tape, the U.S. could start to increase its nuclear energy foot print and lower its dependency on foreign oil and help lower greenhouse gases too.

Sources: International Herald Tribune, U.S. Energy Information Administration, World Nuclear Association

August 18, 2008

You Need A Break

It is back to school time, and I am in the middle of giving everyone a couple of weeks to get things back to normal before adding more. I do not want anyone to get even more overburdened than they already are.

See you next week!

August 6, 2008

Retirement Plans/Tax Sheltered Accounts - 403(b) Companies

We have already discussed some of the tax advantages of contributing to your 403(b) (it can also be called a "Retirement Plans/Tax Sheltered Account"), but the quick math shows you receive a current year tax deduction for any contribution of about 25% - 30%.

What is also important when it comes to these assets is that fees matter! Not all 403(b) companies are equal in fees and/or withdrawal fees!

Pay attention and ask questions about fees. If you think it sounds a bit questionable, it probably is. Mortality fees are pretty much worthless, so any account that will charge those is taking money from you with absolutely no return.

The average annuity charges you 1.35% of your assets every year (Morningstar 12/31/06). The majority of that money goes to pay the commissioned salespeople that sell most variable annuities. Additionally, you may also pay a 1% mortality fee on top of that charge.

Following are the four options available for Gwinnett County educators - Click to go to the Gwinnett County Tax Sheltered Investing Options website.

  • AIG Retirement (VALIC) – Total Annual Fees 1.75% - 2.5%
    • Annuity Product – quarterly fee of $4
    • Mutual Funds with normal fees (0.75% – 1.5%)
    • Higher fees based on mortality (1% additional expense)
    • Can have fees for withdrawals – no fees under only certain circumstances

  • Lincoln National – Total Annual Fees 1.5% - 2.5%
    • Annuity Product
    • Mutual Funds with normal fees (0.5% – 1.5%)
    • Higher fees based on mortality (1% additional expense)
    • Can have fees for withdrawals – no fees under only certain circumstances

  • Fidelity – Total Annual Fees 0.2% - 1.3%
    • Can be an annuity based product – is an option at retirement
    • Mutual Funds with normal fees (0.2% – 1.3%)
    • No mention of mortality or withdrawal fees

  • Jefferson National – Total Annual Fees $240 plus 0.23% - 2.72%
    • Annuity Product
    • Mutual Funds with normal fees (0.23% – 2.72%)
    • Set mortality fee of $20 per month ($240 per year)
    • Some funds have transaction fees ($20-$50)
    • No surrender charge
Note - Fees charged by 403(b) companies are the greatest impact on your final account value with the exception of stock market performance. A 1% per year mortality fee will continue to charge you as your account grows with little to no benefit to you. Control those fees when you can.

August 5, 2008

Countdown Till School Starts - Gather Your Items To Make Decisions

I know how swamped my wife is this week, so I will make today's blog very brief.

Gather your items (paychecks, 403(b) statements, TRS statements, GRS statements, etc.) in one place now. If you do it now, it will not be as big of a headache when you are running around next week when the kids get back to school.

What you are essentially trying to do is get all of the information together regarding your retirement in one place, so when you want to analyze it, discuss it, or just dream about it, you have it to refer to without spending hours looking for it.

On Wednesday, I will be posting a blog about some of the differences in the various companies that you can have a 403(b) from here in Gwinnett County. These are all big firms, so for the most part, any other county may be using some or all of these same firms.

Good luck this week with pre-planning, and check back Wednesday to see some of the differences between the companies.