VALIC to be Sold - AIG Press Release

On Friday, AIG Retirement seems to have released a press release from its President and CEO Bruce R. Abrams explaining that VALIC would be one of the properties sold by parent company AIG. This news does seem to fit in with the previous press release e-mailed to me directly by AIG and posted on the website on Friday.

This does not mean that anything will change with VALIC or the investment options you have in your 403(b) accounts, but it is worth noting that a change does seem in the cards. As I have previously stated, the change should most likely be nothing more than a "branding" change with AIG Retirement's name changing to that of the purchasing company. This is similar to a bank being purchased by another bank, and it is no reason to be alarmed.

You can find the press release that was e-mailed to me by a visitor to the website by clicking here.

As information becomes available, I will post more information about changes.

Out of the Blue - AIG Press Release?

Whenever I write anything on this blog, I do try to research it as thoroughly as possible. I do searches, watch interviews, etc. I have never had a company or someone just e-mail me something... until this morning from AIG.

The following is the press release sent to blogs like this one from AIG.

We apologize for sending this to you as a mass e-mail distribution, but we thought you would want to receive this as soon as it came out, since you and your readers have been following this story closely.

AIG TO REFOCUS AS WORLDWIDE PROPERTY AND CASUALTY COMPANY WITH CONTINUING PRESENCE IN FOREIGN LIFE

Ongoing Business Expected To Have Significant Earnings Power
NEW YORK, October 3, 2008 - American International Group, Inc. (AIG) today indicated its intent to refocus the company on its core property and casualty insurance businesses, generate sufficient liquidity to repay the outstanding balance of its loan from the Federal Reserve Bank of New York and address its capital structure. AIG had drawn $61 billion on the Fed credit facility as of September 30, 2008.

AIG plans to retain its U.S. property and casualty and foreign general insurance businesses, and to retain a continuing ownership interest in its foreign life insurance operations. AIG's worldwide property and casualty businesses generated $40 billion in revenues in 2007. The company is exploring divestiture opportunities for its remaining high-quality businesses and assets.

AIG is also actively at work on a number of alternatives for its Financial Products business (includes VALIC) and its securities lending program.

AIG Chairman and Chief Executive Officer Edward M. Liddy, said, "We are refocusing on our traditional strengths in property and casualty underwriting. We have a number of remarkable businesses with leading market positions and significant competitive advantages that could not be recreated today."

"To realize our objective we will sell a number of extraordinary businesses that are already proving to be highly attractive to buyers," Liddy said. "We have already been contacted by numerous strong, stable parties, and we expect the buyers will recognize the value of these properties, be a good strategic fit and offer the greatest potential for growth, profitability, and continuing opportunities for employees. Our goal is to emerge from this process as a smaller but more nimble company that is solidly profitable and has good long-term growth prospects."

AIG's global coordinators for the divesture program are The Blackstone Group and J.P. Morgan.

We hope this information is useful.

All the best,

AIG Blog Relations

What Does This Mean for AIG-VALIC Retirement Accounts?

Well, at the moment nothing. It does seem to point to the fact that AIG may be selling its VALIC unit, but to who we do not know. I would agree with the statement that AIG does in fact have several very profitable lines of business. In fact, it was only due to the mortgage related securities that AIG was even effected at all.

AIG is working with two of the most respected names in industry to work out its issues with JP Morgan and The Blackstone Group. I would imagine that there have been and will continue to be numerous discussions about what business units may be divested (sold).

I will continue to look for information on AIG and especially VALIC, and as I receive it, I will post it and comment as necessary.

Today's big story... get the financial bill passed in the House.

How to Look at Your Entire Portfolio - Pension, 403(b), Real Estate, etc.

Whenever a new client comes to my office, I always ask them to bring any relevant account statements, tax returns, etc. We discuss each one and make a list of assets and debits. From there, we can start to really get a picture of the financial portfolio of the client.

I think that sometimes it is hard for many people, including educators, to understand that their pension has a current value beyond just the monthly payout in retirement. This is something that I am frequently asked about by educators, so I hope this post helps explain it.

Let me give you an example. Let's say that you are set to retire after 30 years, and the last two years you made $65,000 each year. In Georgia, your pension payout would be $3,250 ($39,000 annual) a month with a 1.5% cost of living adjustment every 6 months. Since this is essentially an annuity, let's estimate that you will live for 40 years. Factoring in 480 payments, the $3,250 to start,the 1.5% increase every six months, and the TRS return of 4.5%, you would need to purchase an annuity for $1,159,396 today. Yes, that is more than $1 million.

Now that we have the value of the annuity, let's look at the other assets - a little 403(b) of $175,000 plus a paid for house of $250,000. Without knowing it, you have a net worth of $1,584,396. See the chart below (click it to enlarge).

Now that we have valued your pension and totaled your assets, you can start to see why your 403(b) being invested is a smart move. The pension portion is considered "fixed income," thus it is very stable and predictable. The real estate portion (your house) does not generate income, but it is also a substantial asset that has a significant value.

Your 403(b) - which you should rollover to an IRA - is actually your least valuable asset, and it is one which it should be used to complement your pension. By leaving it invested in equities and slowly drawing it down, you allow the 403(b) to weather any moves in the market and to continue to gain in value for our future use.

You can read in many books about moving your assets to fixed income as you approach retirement, but this is generally meant for 401(k) participants. Since the vast majority of your assets (your pension) is already considered fixed income, you are looking at only 11% of your assets being invested in equities. This is well within a range of acceptability.

Keep investing, keep asking questions, and keep wanting to learn more about your financial future.

Is My 403(b) Safe? - Part 2

Since my previous "Is My 403(b) Safe?" post, there have been hundreds and hundreds of visits to the website and numerous e-mails asking questions - I hope I have helped. This is obviously an important topic, so I decided to add a second section to the blog.

It was not even two weeks ago that I wrote the previous blog discussing 403(b) accounts held at AIG VALIC. In that time, the financial world has continued to change, and on Monday, the Dow had its largest one day point drop in history with 777 points. What I want you to remember now is that this account is for your retirement and the rest of your life, not today.

There are several dozen vendors that have 403(b) accounts, and I have not heard of one going out of business. As for the case of AIG-VALIC, the company could change soon. I am not sure it will, but the VALIC accounts may be a one of those assets that is purchased by another company as AIG is sliced up and sold off. This does not mean that you are losing your account!! It just means that someone else will be the company you do business with. This is just like your bank being bought by another bank - i.e. Wachovia purchased by Citigroup. Your money and accounts do not disappear, but the name will change.

If you have left teaching or the county you started the 403(b) in, by all means please rollover that 403(b) to an IRA. In an IRA, the asset choices are better, the fees lower (annuities charge about 1.35% per year with NO additional services), and the services you can receive for your account make it all worthwhile. If you have not, look at the various options you have.

Going Forward

This is not the time to stop contributing to the account, but it is a good time to look at your investments (tomorrow I will discuss how to value your TRS and 403(b) together). Remember your pension from TRS is guaranteed and should be considered a fixed income security when looking at your overall portfolio. If you are young with 10+ years to retirement, the diversification, time, and your continued contributions will be enough to help you weather any momentary blip. If you are less than 10 years from retirement, then this is something you should really talk to someone about - your goals, feelings, level of risk, etc. I would not transfer money into the fixed annuity side - this just locks it up for the next 4+ years - this is not a good investment. The money market is better than that since you can move it back to the equity investments at any time.

The main thing here is that your account is safe as to the possibility of losing all of your assets based on a company going under. You are invested in mutual funds that are regulated by the SEC that own dozens of companies within each. This does not mean that you cannot lose money, but just as the market goes up sometimes it will go down. The long term benefits though have been tremendous.

A quick glance back at history shows that as we have reached the current "modern era" of investing, the recessions and bear markets have become shorter with bull markets that have become longer. No one knows when the bottom will be, but if you sell out now, you are locking in losses with no potential for gain. The only people that lost money on October 19, 1987 were the people that sold out. The market rebounded over the next 6 months, and the economy and markets had a tremendous bull market rising 650% over the next 21 years.

I cannot say that we will have the same return, but if you look at your pension as the foundation of your retirement and the 403(b) as the "extra" money, you can benefit from being invested. Just stay diversified (have I preached it enough?), get advice (from a professional - not your neighbor), be smart about your money (rollover old 403(b) and 401(k) accounts to an IRA), and you will be much better for it.

If you have any questions or just want to chat, always feel free to e-mail me.