Free Suze Orman's Action Plan by Suze Orman Page B

“variable” means. How much your account is worth is largely a function of the performance of the subaccounts (funds) you are invested in.
    SITUATION: You have a single-premium fixed annuity and are worried that the insurance company will go under and you will lose your money.
    ACTION: With a single-premium fixed annuity your payout is indeed a guarantee from your insurer, so if your insurer goes under there is reason to be concerned. Concerned, but not panicked.
    First, in the unlikely event anything happens to your insurer, there is a state guaranty fund that will swoop in to cover annuity payments—up to certain limits. In most states, the guaranteed payoutfor an annuity is $100,000, though it can be higher in some states. (Go to www.nohlga.com and use the locator to find your state’s insurance department, where you can learn about your state’s guaranty fund limits.)
    If your annuity exceeds your state’s guaranty limit, you need to weigh the cost of cashing out carefully.
    SITUATION: You are retired and need a higher income payout than you can get from bank CDs today.
    ACTION: Consider municipal bonds and dividend-paying stock mutual funds or ETFs.
    I want to be clear: You never want to put money that is in an IRA, 401(k), or other tax-deferred account in municipals. Because your money is already tax-deferred, you get no added benefit from buying munis. So I am talking about money you invest outside of your IRA and 401(k). Now, I know that earlier I told you that the bond portion of your IRA and 401(k) should be kept in Treasuries with short maturities, but I have a different strategy for municipal bonds. I think it is smart to invest in municipal bonds with maturities of 10 to 20 years. In the fall of 2009, a 20-year general-obligation municipal bond had a yield of 4.4%. For someone in the 28% federal tax bracket, that is the equivalent of a 6.1% yield. That is a seriously great return on your money. If you are in ahigher tax bracket, your return will be even higher.
    As much as I love municipal bonds, I want to emphasize that this strategy only makes sense if you have at least $100,000 to invest; that is how much you need to be able to buy a diversified portfolio of five to 10 different bonds and not be hit with outrageous fees. You need to be particularly strategic these days, given the financial pressure many states and municipalities are under. I recommend sticking with General Obligation (GO) municipal bonds rather than revenue bonds (in which your payout is dependent upon the income generated by the project being financed by the bond). If you live in a state with big budget woes, it might be wise to add a few out-of-state bonds from more stable states. Yes, you may have to pay income tax on the payouts from out-of-state bonds, but having a well-diversified portfolio is more important in this environment than avoiding tax on every dollar you invest.
    Another strategy to generate more income is to invest a portion of your money in high-dividend individual stocks or ETFs. The dividend payout from stocks can be a valuable income stream.
    However, you need to know that dividend stocks of course have greater risk than a bank CD. Even though you are receiving a dividend payout, the underlying value of your shares can indeed fall. And there is always the possibility that somecompanies might find that they have to suspend or reduce their dividend payout if they hit a severe rough patch. Indeed, according to Standard & Poor’s, in the second quarter of 2009, 250 companies decreased their dividend payouts, the worst stretch for dividend-paying stocks in more than 50 years. You need to understand that companies choose to pay dividends—they are not required to do so.
    So here’s my strategy for cautious dividend investing:
Invest only money that you know you will not need to cash in for at least the next 10 years. You will earn income (the dividend payout) on the money, but because these are stocks, you want to know