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■ Student advice
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Reviewing the risks

Ask Suze Orman

E-mail your personal-
finance questions to:
suze@costco.com.
Please include
“Suze Orman Q&A”
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Q&A with Suze Orman
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Suze will answer
selected questions in
this bimonthly column.
She regrets that
unpublished questions
cannot be answered
individually.

Suze Orman’s TV
show airs Saturday
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can be contacted at
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By Suze Orman

I’ve been reviewing various fixed-annuity products offered by insurance companies. Having watched the meltdown of banks, brokerage houses and mortgage lenders, my question is: What about the major insurance companies? What risk factors are associated with them?

Roger R. Shawnee, KS

YOU ARE RIGHT: An annuity is only as good as the financial health of the insurer promising you a steady payout. And in the wake of the financial crisis, that’s become a riskier proposition. Keep in mind that outright bankruptcies are extremely rare.

Also, regulators will do everything to have a solvent insurer take over the business.

MARC ROYCE

That said, you should do everything to protect
yourself. Two pieces of advice:
• Consider only life insurers with a financial
strength rating of at least “A” from A.M. Best,
Standard & Poor’s or Moody’s.

• Check with your state insurance department to find out the coverage you would be eligible for from the state guaranty fund if, in fact, the insurer runs into trouble. You can find your state info through the Web site of the National Organization of Life & Health Insurance Guaranty Associations, www.nolhga.com.

For an annuity, the Kansas guaranty fund provides maximum coverage of $250,000 per insurer. If you are considering investing more than that in annuities, diversify your risk by buying separate policies from a handful of insurers, with no single policy worth more than $250,000.

A 21-year-old friend just told me, “I’m bailing on my credit-card debt, as it’ll only affect my credit rating for seven years; plus all my college friends are doing it right now.” I told her that I didn’t think that was such a good idea. But what does happen to such a person? Maybe some college student out there would benefit by learning about what happens if they don’t pay off their debt.

Joanie F. Santa Rosa, CA

YOU’RE A GOOD FRIEND to be concerned. Your
friend has her facts straight: Failure to pay a bill does
indeed stay on her record for seven years, though
the impact of the demerit vanishes over time. But
perhaps she doesn’t realize the financial repercus-
sions from failing to pay off her obligation. Her
credit score will indeed take a big hit, and as a col-
lege student that could make starting out in the real
world tough. And some employers use a credit
check as a quasi character reference.

I put $300 a month in a retirement plan. I plan to retire in 10 years. In the past six months I’ve lost between $10,000 to $15,000. Should I move my money to a low-risk or savings account, or just wait it out?

Alicia H. National City, CA

THE FACT THAT a retirement account suffers losses from time to time should not be a concern. Surprised? When you retire is not really the end goal. You could live 25 to 30 years in retirement.

So if you are still 10 years from retirement, chances are that 40 years from now you will need to have some money left to keep supporting you. That’s an argument for having some of your money in stocks. Put 100 percent of your money in savings accounts and you are pretty much guaranteed to lose ground to inflation over time. That’s a huge risk everyone needs to pay attention to.

Here’s a good rule of thumb: Subtract your age from 100. That’s roughly the percentage you want to have in stocks. If you’re worried about losses, increase your bond and cash portion by 5 to 10 percent. C