Retirement Plans for Small Businesses

If you’re self-employed or own a small business and you haven’t established a retirement savings plan, what are you waiting for? A retirement plan can help you and your employees save for the future.

Tax advantages

A retirement plan can have significant tax advantages:

  • Your contributions are deductible when made
  • Your contributions aren’t taxed to an employee until distributed from the plan
  • Money in the retirement program grows tax deferred (or, in the case of Roth accounts, potentially tax free)

Types of plans

Retirement plans are usually either IRA-based (like SEPs and SIMPLE IRAs) or “qualified” (like 401(k)s, profit-sharing plans, and defined benefit plans). Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific Internal Revenue Code and ERISA (the Employee Retirement Income Security Act of 1974) requirements in order to qualify for their tax benefits. Also, qualified plan assets must be held either in trust or by an insurance company. With IRA-based plans, your employees own (i.e., “vest” in) your contributions immediately. With qualified plans, you can generally require that your employees work a certain numbers of years before they vest.

Which plan is right for you?

With a dizzying array of retirement plans to choose from, each with unique advantages and disadvantages, you’ll need to clearly define your goals before attempting to choose a plan. For example, do you want:

  • To maximize the amount you can save for your own retirement?
  • A plan funded by employer contributions? By employee contributions? Both?
  • A plan that allows you and your employees to make pretax and/or Roth contributions?
  • The flexibility to skip employer contributions in some years?
  • A plan with lowest costs? Easiest administration?

The answers to these questions can help guide you and your retirement professional to the plan (or combination of plans) most appropriate for you.

SEPs

A SEP allows you to set up an IRA (a “SEP-IRA”) for yourself and each of your eligible employees. You contribute a uniform percentage of pay for each employee, although you don’t have to make contributions every year, offering you some flexibility when business conditions vary. For 2015, your contributions for each employee are limited to the lesser of 25% of pay or $53,000. Most employers, including those who are self-employed, can establish a SEP.

SEPs have low start-up and operating costs and can be established using an easy two-page form. The plan must cover any employee aged 21 or older who has worked for you for three of the last five years and who earns $600 or more.

SIMPLE IRA plan

The SIMPLE IRA plan is available if you have 100 or fewer employees. Employees can elect to make pretax contributions in 2015 of up to $12,500 ($15,500 if age 50 or older). You must either match your employees’ contributions dollar for dollar–up to 3% of each employee’s compensation–or make a fixed contribution of 2% of compensation for each eligible employee. (The 3% match can be reduced to 1% in any two of five years.) Each employee who earned $5,000 or more in any two prior years, and who is expected to earn at least $5,000 in the current year, must be allowed to participate in the plan. SIMPLE IRA plans are easy to set up. You fill out a short form to establish a plan and ensure that SIMPLE IRAs are set up for each employee. A financial institution can do much of the paperwork. Additionally, administrative costs are low.

Profit-sharing plan

Typically, only you, not your employees, contribute to a qualified profit-sharing plan. Your contributions are discretionary–there’s usually no set amount you need to contribute each year, and you have the flexibility to contribute nothing at all in a given year if you so choose (although your contributions must be nondiscriminatory, and “substantial and recurring,” for your plan to remain qualified). The plan must contain a formula for determining how your contributions are allocated among plan participants. A separate account is established for each participant that holds your contributions and any investment gains or losses. Generally, each employee with a year of service is eligible to participate (although you can require two years of service if your contributions are immediately vested). Contributions for any employee in 2015 can’t exceed the lesser of $53,000 or 100% of the employee’s compensation.

401(k) plan

The 401(k) plan (technically, a qualified profit-sharing plan with a cash or deferred feature) has become a hugely popular retirement savings vehicle for small businesses. According to the Investment Company Institute, 401(k) plans held $4.3 trillion of assets as of March 2014, and covered 52 million active participants. (Source: http://www.ici.org/401(k), accessed February 5, 2015.) With a 401(k) plan, employees can make pretax and/or Roth contributions in 2015 of up to $18,000 of pay ($24,000 if age 50 or older). These deferrals go into a separate account for each employee and aren’t taxed until distributed. Generally, each employee with a year of service must be allowed to contribute to the plan.

You can also make employer contributions to your 401(k) plan–either matching contributions or discretionary profit-sharing contributions. Combined employer and employee contributions for any employee in 2015 can’t exceed the lesser of $53,000 (plus catch-up contributions of up to $6,000 if your employee is age 50 or older) or 100% of the employee’s compensation. In general, each employee with a year of service is eligible to receive employer contributions, but you can require two years of service if your contributions are immediately vested.

401(k) plans are required to perform somewhat complicated testing each year to make sure benefits aren’t disproportionately weighted toward higher paid employees. However, you don’t have to perform discrimination testing if you adopt a “safe harbor” 401(k) plan. With a safe harbor 401(k) plan, you generally have to either match your employees’ contributions (100% of employee deferrals up to 3% of compensation, and 50% of deferrals between 3 and 5% of compensation), or make a fixed contribution of 3% of compensation for all eligible employees, regardless of whether they contribute to the plan. Your contributions must be fully vested.

Another way to avoid discrimination testing is by adopting a SIMPLE 401(k) plan. These plans are similar to SIMPLE IRAs, but can also allow loans and Roth contributions. Because they’re still qualified plans (and therefore more complicated than SIMPLE IRAs), and allow less deferrals than traditional 401(k)s, SIMPLE 401(k)s haven’t become popular.

Defined benefit plan

A defined benefit plan is a qualified retirement plan that guarantees your employees a specified level of benefits at retirement (for example, an annual benefit equal to 30% of final average pay). As the name suggests, it’s the retirement benefit that’s defined, not the level of contributions to the plan. In 2015, a defined benefit plan can provide an annual benefit of up to $210,000 (or 100% of pay if less). The services of an actuary are generally needed to determine the annual contributions that you must make to the plan to fund the promised benefit. Your contributions may vary from year to year, depending on the performance of plan investments and other factors.

In general, defined benefit plans are too costly and too complex for most small businesses. However, because they can provide the largest benefit of any retirement plan, and therefore allow the largest deductible employer contribution, defined benefit plans can be attractive to businesses that have a small group of highly compensated owners who are seeking to contribute as much money as possible on a tax-deferred basis.

As an employer, you have an important role to play in helping America’s workers save. Now is the time to look into retirement plan programs for you and your employees.

 

 

 

 

 

 

 

 

 

 

 

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and 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 Qwest, fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Chevron, Hughes, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent, Northrop Grumman 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.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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Setting and Targeting Investment Goals

Go out into your yard and dig a big hole. Every month, throw $50 into it, but don’t take any money out until you’re ready to buy a house, send your child to college, or retire. It sounds a little crazy, doesn’t it? But that’s what investing without setting clear-cut goals is like. If you’re lucky, you may end up with enough money to meet your needs, but you have no way to know for sure.

How do you set investment goals?

Setting investment goals means defining your dreams for the future. When you’re setting goals, it’s best to be as specific as possible. For instance, you know you want to retire, but when? You know you want to send your child to college, but to an Ivy League school or to the community college down the street? Writing down and prioritizing your investment goals is an important first step toward developing an investment plan.

What is your time horizon?

Your investment time horizon is the number of years you have to invest toward a specific goal. Each investment goal you set will have a different time horizon. For example, some of your investment goals will be long term (e.g., you have more than 15 years to plan), some will be short term (e.g., you have 5 years or less to plan), and some will be intermediate (e.g., you have between 5 and 15 years to plan). Establishing time horizons will help you determine how aggressively you will need to invest to accumulate the amount needed to meet your goals.

How much will you need to invest?

Although you can invest a lump sum of cash, many people find that regular, systematic investing is also a great way to build wealth over time. Start by determining how much you’ll need to set aside monthly or annually to meet each goal. Although you’ll want to invest as much as possible, choose a realistic amount that takes into account your other financial obligations, so that you can easily stick with your plan. But always be on the lookout for opportunities to increase the amount you’re investing, such as participating in an automatic investment program that boosts your contribution by a certain percentage each year, or by dedicating a portion of every raise, bonus, cash gift, or tax refund you receive to your investment objectives.

Which investments should you choose?

Regardless of your financial goals, you’ll need to decide how to best allocate your investment dollars. One important consideration is your tolerance for risk. All investments involve some risk, but some involve more than others. How well can you handle market ups and downs? Are you willing to accept a higher degree of risk in exchange for the opportunity to earn a higher rate of return?

Whether you’re investing for retirement, college, or another financial goal, your overall objective is to maximize returns without taking on more risk than you can bear. But no matter what level of risk you’re comfortable with, make sure to choose investments that are consistent with your goals and time horizon. A financial professional can help you construct a diversified investment portfolio that takes these factors into account.

Investing for retirement

After a hard day at the office, do you ask yourself, “Is it time to retire yet?” Retirement may seem a long way off, but it’s never too early to start planning, especially if you want retirement to be the good life you imagine.

For example, let’s say that your goal is to retire at age 65. At age 20 you begin contributing $3,000 per year to your tax-deferred 401(k) account. If your investment earns 6% per year, compounded annually, you’ll have approximately $679,000 in your investment account when you retire.

But what would happen if you left things to chance instead? Let’s say that you’re not really worried about retirement, so you wait until you’re 35 to begin investing. Assuming you contributed the same amount to your 401(k) and the rate of return on your investment dollars was the same, you would end up with approximately $254,400. And, as this chart illustrates, if you were to wait until age 45 to begin investing for retirement, you would end up with only about $120,000 by the time you retire.

Investing for college

Perhaps you faced the truth the day your child was born. Or maybe it hit you when your child started first grade: You have only so much time to save for college. In fact, for many people, saving for college is an intermediate-term goal–if you start saving when your child is in elementary school, you’ll have 10 to 15 years to build your college fund.

Of course, the earlier you start, the better. The more time you have before you need the money, the greater chance you have to build a substantial college fund due to compounding. With a longer investment time frame and a tolerance for some risk, you might also be willing to put some of your money into investments that offer the potential for growth.

Investing for a major purchase

At some point, you’ll probably want to buy a home, a car, or even that vacation home you’ve always wanted. Although they’re hardly impulse items, large purchases are usually not something for which you plan far in advance; one to five years is a common time frame. Because you don’t have much time to invest, you’ll have to budget your investment dollars wisely. Rather than choosing growth investments, you may want to put your money into less volatile, highly liquid investments that have some potential for growth, but that offer you quick and easy access to your money should you need it.

Review and revise

Over time, you may need to update your investment strategy. Get in the habit of checking your portfolio at least once a year–more frequently if the market is particularly volatile or when there have been significant changes in your life. You may need to rebalance your portfolio to bring it back in line with your investment goals and risk tolerance. If you need help, a financial professional can help.

Investing for Your Goals

Investment goal and time horizon At 4%, you’ll need to invest At 8%, you’ll need to invest At 12%, you’ll need to invest
Have $10,000 for down payment on home: 5 years $151 per month $136 per month $123 per month
Have $50,000 in college fund: 10 years $340 per month $276 per month $223 per month
Have $250,000 in retirement fund: 20 years $685 per month $437 per month $272 per month
Table assumes 3% annual inflation, and that the return is compounded annually; taxes are not considered. Also, rates of return will vary over time, particularly for long-term investments, which could affect the amounts you would need to invest. This hypothetical example is not intended to reflect the actual performance of any investment.

 

 

 

 

 

 

 

 

 

 

 

 

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and 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, ExxonMobil, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, 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.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Nonprofit Boards: New Challenges and Responsibilities

The days are long gone when nonprofit boards were made up of large donors who expected that little more would be asked of them beyond socializing at the occasional fundraiser. Being a board member can be as demanding and rewarding as any full-time work.

 

Nonprofit board members are being required to do strategic planning for both long- and short-term goals. They must produce demonstrable results that are measured against specific benchmarks. And they are finding that they must stretch already tight budgets further than ever. In turn, stakeholders within and outside nonprofit organizations increasingly are holding board members to a higher standard of accountability for making sure the organization not only delivers on its mission but does so in the most effective way.

 

Learning how to do more with less

 

Of all the challenges facing nonprofits, financial issues can be especially complex. In the last decade, many nonprofits have experienced funding cutbacks. Even those whose funding has remained stable are finding that money has to go further to meet increased client loads and demands on programs and services.

 

In some cases, the issues can be so complex that boards are going outside the organization’s ranks to hire consultants with specific expertise in certain areas. People who stay on top of the latest developments in such fields as tax law, charitable giving regulations, and best practices in accounting can be particularly effective in helping an organization fulfill its purpose without having to add staff.

 

Understanding your role and responsibilities as a board member, as well as the challenges facing nonprofits today, can not only improve your board’s decision-making process, but also can help you have maximum impact. A nonprofit board member has a dual role: support of the organization’s purpose, and governance over how it attempts to further that mission. You and your fellow board members doubtless want to use your collective time efficiently. When thinking about how to focus your efforts, consider whether your organization needs help with any of the following issues.

 

Ensuring accountability

 

Limited budgets and greater demand mean that hard choices will need to be made; in many cases, it’s the board’s responsibility to make them. To make wise decisions, it’s important to understand the organization’s financial assets, liabilities, and cash flow situation. If you’ve had corporate experience, you may be able to help your fellow board members review the balance sheet; if not, it’s worth your time to become familiar with it yourself. For example, knowing whether your organization qualifies for state sales and/or use tax exemption could have a meaningful impact on finances. Little may be more disturbing to potential donors than the feeling that their money may not be used effectively.

 

Also, the IRS is beginning to require more detailed information about nonprofit finances and governance practices, such as involvement in a joint venture or other partnership.

 

Program funders also have increased reporting requirements. When deciding which grants to make, foundations are asking for more information, greater documentation, and increased evaluation of results. Gathering and analyzing accurate, timely, comprehensive data and being able to document a program’s effectiveness and impact is increasingly important. Understanding the organization’s finances doesn’t just improve the board’s oversight capabilities; it also can make you a more effective fundraiser.

 

Higher standards of accountability mean that boards also should ensure that liability insurance is in place for both directors and officers. This is especially true if the organization provides services to the public, such as medical care.

 

Adopting enhanced governance standards

 

The Sarbanes-Oxley Act, passed in the wake of corporate governance scandals and nicknamed SOX, also affects nonprofits. Though the law applies almost exclusively to publicly traded companies, some nonprofits are using SOX provisions as a model for developing formal policies on financial reporting, potential conflicts of interest, and internal controls.

 

Two provisions of SOX also apply to nonprofits. First, organizations must have a written policy on retention of important documents, particularly those involved in any litigation. Second, they need a process for handling internal complaints while also protecting whistleblowers. Individual states have expressed interest in extending other SOX requirements to the nonprofit world, particularly larger organizations. Many nonprofit organizations hope that voluntary compliance efforts will eliminate calls for increased official regulation of such issues as board member compensation and conflicts of interest.

 

Ensuring effective fundraising and money management

 

Nonprofits have not been spared the increases in for-profit health care costs and worker’s compensation insurance that have hit corporations and small businesses. Yet fundraising for such mundane areas as day-to-day operations, staff salaries, and building and equipment maintenance has traditionally been one of the biggest challenges for nonprofits.

 

The twin effects of inflation and increased client loads have underscored the importance of having an adequate operating reserve. Also, corporate sponsorships can be vulnerable to the mergers and acquisitions that occur frequently in the corporate world. It makes sense to ensure a diversity of donors rather than relying on a few traditional sources.

 

Bringing in money is only half the battle; the day-to-day issues are equally important. Board members may be unfamiliar with operational challenges that businesses don’t generally face, such as fundraising, or recruiting and managing volunteers. However, in some cases you might be able to suggest ways to adapt businesslike methods for nonprofit use.

 

For example, appropriately investing short-term working capital can help preserve financial flexibility while maximizing resources. If your group has an infusion of cash that won’t be spent immediately, such as a contribution for a capital spending project, consider alternatives for putting at least some of it to work rather than letting it sit idle.

 

Planning strategically

 

Having a strategic plan can lead to better evaluation of funding needs and targeted fundraising efforts; it also can help ensure that board members and staff are on the same page. Make sure your plan provides guidance, yet allows staff members to do their jobs without constant board supervision.

 

A board of directors also must assure that the organization can attract and retain leadership. Many nonprofits today are led by executives who came of age during the 1960s. As those baby boomers march toward retirement, some experts worry that attracting and retaining executive directors and staff will become increasingly challenging, especially when budgets are shrinking. A succession plan for key personnel might be wise.

 

Using your time wisely

 

Nonprofit board membership can be both demanding and rewarding. Understanding your group’s finances can increase your effectiveness in furthering your organization’s goals.

 

 

 

 

 

 

 

 

 

 

 

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and 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, Glaxosmithkline, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Chevron, Hughes, Northrop Grumman, Qwest, Raytheon, ExxonMobil, 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.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Financially, there are reasons why you may want to work a bit longer

Should You Retire Now, Or Later?

The case for working past 65. Increasingly, baby boomers are urged to work until full retirement age or beyond. (Social Security defines “full” retirement age as 66 for those born from 1943-1954; it incrementally rises to 67 for those born in 1960 or later). If your health and workplace allow this, it may be a good idea for a few notable reasons.1

Your Social Security payments will be larger. Researchers from UCLA and Duke University jointly conducted a study and found that about 80% of Americans sign up for Social Security before full retirement age. In fact, 50% of Americans claim their federal retirement benefits either at age 62 or within two months of losing or quitting a job they hold at age 62 or older. The rush to get Social Security comes with a distinct penalty, though.2

As an example, take a hypothetical pre-retiree named Sharon. Born in 1952, Sharon wants to retire next year at age 62. If she leaves work and claims Social Security benefits in 2014, she will end up getting 25% less in monthly benefits than if she had waited until her full retirement age of 66.3

  

You have a chance to save more. Most people need to save more for retirement. Why not give yourself more years to amass extra funds for the next stage of life? They may even prove to be your peak earning years. If you have considerable retirement savings, think about the boost your nest egg could get from just two or three more years of growth and compounding.

Additionally, the longer you work, the shorter your retirement becomes. If you work two or three years longer, that is two or three years less of retirement that you have to fund.

  

You can pay down debts. Do you have a dream of retiring debt-free? Why not give yourself a better chance to realize it? Too many people are approaching retirement with significant debt – not just mortgage debt, but also business and education loans, auto loans and high credit card balances. This is becoming a major headache for baby boomers.

In a recent Securian Financial Group survey, 67% of those polled anticipated retiring with an outstanding mortgage. Credit card debt may seem easy to manage, but consider that most cards charge interest rates of 15% or more. In retirement, will your investments give you that kind of return? Retiring with your house paid off also puts you in position for a reverse mortgage should you need another income stream.2,4

 

You can keep your health insurance. If your employer sponsors a health plan, leaving work at age 62 is a definite risk when you aren’t eligible for Medicare until age 65. Unless you want to shop for your own health insurance or live without coverage for up to three years, it makes sense to stay on the job.4

You have a chance to delay RMDs from your workplace retirement plan. Owners of traditional IRAs, SIMPLE IRAs and SEP-IRAs must take Required Minimum Distributions from those accounts after turning 70½. It doesn’t matter whether you are working or retired; you must do it. That isn’t the case with qualified retirement plans such as 401(k)s, 403(b)s and 457(b)s. With some exceptions, you can wait until the year in which you retire to take your first RMD from those accounts. So each year you work past 70 potentially represents another year in which you don’t have to take an RMD from a qualified retirement plan and see your income taxes jump as a result. No RMD also means a bigger account balance that may benefit from another year of compounding and investment returns.4,5

 

You may even be happier. Working provides a sense of purpose and accomplishment. If you don’t have a new passion or objective in mind when you end your career, you may start to feel a bit adrift.

A 2012 report from the American Psychological Association’s Center for Organizational Excellence found that workers older than 55 enjoy their jobs more than any other age group. Asked why they stayed at their particular job, 80% of the employees polled who were older than 55 said job enjoyment was the main reason, with 76% noting “work-life fit” as the leading justification. In contrast, only 58% of employees aged 18-34 cited job enjoyment as a motivation to stay with their current employer, and just 61% felt their jobs fit well with the other aspects of their lives.6

So if you like what you do, you may want to keep at it a little longer. The financial and emotional benefits could be considerable.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – ssa.gov/retire2/retirechart.htm [9/19/13]

2 – dailyfinance.com/2013/09/10/reasons-70-new-62-retirement-social-security-debt/ [9/10/13]

3 – ssa.gov/retirement/1943.html [9/19/13]

4 – marketwatch.com/story/5-reasons-you-shouldnt-retire-2013-09-17 [9/17/13]

5 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics—Required-Minimum-Distributions-%28RMDs%29 [9/4/13]

6 – apaexcellence.org/resources/goodcompany/newsletter/article/391 [9/5/12]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and 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. 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. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. 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, Qwest, 
AT&T, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Verizon, Bank of America, Merck, Pfizer,  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.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

How Do You Know When You Have Enough to Retire?

How Do You Know When You Have Enough to Retire?

You save for retirement with the expectation that at some point, you will have enough savings to walk confidently away from the office and into the next phase of life.

So how do you know if you have reached that point?

Retirement calculators are useful – but only to a point. The dilemma is that they can’t predict your retirement lifestyle. You may retire on 65% of your end salary only to find that you really need 90% of your end salary to do the things you would like to do.

That said, once you estimate your income need you can get more specific thanks to some simple calculations.

Let’s say you are 10 years from your envisioned retirement date and your current income is $70,000. You presume that you can retire on 65% of that, which is $45,500 – but leaving things at $45,500 is too simple, because we need to factor in inflation. You won’t need $45,500; you will need its inflation-adjusted equivalent. Turning to a Bankrate.com calculator, we plug that $45,500 in as the base amount along with 3% annual interest compounded (i.e., moderate inflation) over 10 years … and we get $61,148.1

 

Now we start to look at where this $61,148 might come from. How much of it will come from Social Security? If you haven’t saved one of those mailers that projects your expected retirement benefits if you retire at 62, 66, or 70, you can find that out via the Social Security website. On the safe side, you may want to estimate your Social Security benefits as slightly lower than projected – after all, they could someday be reduced given the long-run challenges Social Security faces. If you are in line for pension income, your employer’s HR people can help you estimate what your annual pension payments could be.

Let’s say Social Security + pension = $25,000. If you anticipate no other regular income sources in retirement, this means you need investment and savings accounts large enough to generate $36,148 a year for you if you go by the 4% rule (i.e., you draw down your investment principal by 4% annually). This means you need to amass $903,700 in portfolio and savings assets.

Of course, there are many other variables to consider – your need or want to live on more or less than 4%, a gradual inflation adjustment to the 4% initial withdrawal rate, Social Security COLAs, varying annual portfolio returns and inflation rates, and so forth. Calculations can’t foretell everything.

The same can be said for “retirement studies”. For example, Aon Hewitt now projects that the average “full-career” employee at a large company needs to have 15.9 times their salary saved up at age 65 in addition to Social Security income to sustain their standard of living into retirement. It also notes that the average long-term employee contributing consistently to an employer-sponsored retirement plan will accumulate retirement resources of 8.8 times their salary by age 65. That’s a big gap, but Aon Hewitt doesn’t factor in resources like IRAs, savings accounts, investment portfolios, home equity, rental payments and other retirement assets or income sources.2

For the record, the latest Fidelity estimate shows the average 401(k) balance amassed by a worker 55 or older at $150,300; the Employee Benefit Research Institute just released a report showing that the average IRA owner has an aggregate IRA balance of $87,668.2

 

Retiring later might make a substantial difference. If you retire at 70 rather than at 65, you are giving presumably significant retirement savings that may have compounded for decades five additional years of compounding and growth. That could be huge. Think of what that could do for you if your retirement nest egg is well into six figures. You will also have five fewer years of retirement to fund and five more years to tap employer health insurance. If your health, occupation, or employer let you work longer, why not try it? If you are married or in a relationship, your spouse’s retirement savings and salary can also help.

Can anyone save too much for retirement? The short answer is “no”, but occasionally you notice some “good savers” or “millionaires next door” who keep working even though they have accumulated enough of a nest egg to retire. Sometimes executives make a “golden handshake” with a company and can’t fathom walking away from an opportunity to greatly boost their retirement savings. Other savers fall into a “just one more year” mindset – they dislike their jobs, but the boredom is comforting and familiar to them in ways that retirement is not. They can’t live forever; do they really want to work forever, especially in a high-pressure or stultifying job? That choice might harm their health or worldview and make their futures less rewarding.

So how close are you to retiring? A chat with a financial professional on this topic might be very illuminating. In discussing your current retirement potential, an answer to that question may start to emerge.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – bankrate.com/calculators/savings/simple-savings-calculator.aspx [5/30/13]

2 – marketwatch.com/story/how-to-know-if-you-have-enough-to-retire-2013-05-25 [5/25/13]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and 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, Qwest, Chevron, 
ING Retirement,  AT&T, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Verizon, Merck, Pfizer, 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.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

Weekly Economic Update November 18, 2013

November 18, 2013

YELLEN EMPHASIZES FURTHER EASING

While conceding that the Federal Reserve’s current stimulus effort “will not continue indefinitely,” Federal Reserve chair nominee Janet Yellen sounded decidedly dovish at her confirmation hearing in the Senate last week. “Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” she noted, which global markets took as a signal that tapering was not in the immediate future. The S&P 500 hit a new record close after her comments Thursday; gold and silver futures and the MSCI Emerging Markets Index all rose 1.4% on the day. 1    

HEALTHCARE ENROLLMENT ISSUES LINGER

While demand was reasonably high at the new online health insurance exchanges in October (975,000+ people found that they were eligible for coverage), total enrollment for the month was just 106,000. As tweaks continued to be made to healthcare.gov, President Obama announced that insurers don’t yet have to cancel plans that fail to meet Affordable Care Act standards. Friday, the House passed a GOP bill that would let insurers offer such policies to new customers as well as existing ones in 2014; President Obama has indicated he will veto this bill.2,3   

EARNINGS GROWTH SURPASSES ESTIMATES

As of Friday, 461 firms in the S&P 500 had reported earnings – and according to Bloomberg, 75% of them had beaten profit forecasts. Bloomberg projects S&P 500 earnings up 4.9% for Q3 and 5.8% for Q4.4                                                                                                                                     

DOW…16,000? S&P…1,800? NASDAQ…4,000?

Soon, the major U.S. indices could top those psychologically important levels. Friday saw another record close for the S&P 500: 1,798.18. The Dow settled Friday at 15,961.70 (also a new record close), the NASDAQ at 3,985.97. Weekly performances were as follows: S&P, +1.56%; DJIA, +1.27%; NASDAQ, +1.70%.5

THIS WEEK: Monday brings earnings from Salesforce, Tyson Foods and Urban Outfitters and the November NAHB Housing Market Index. Tuesday offers earnings from Campbell Soup Co., TJX, Best Buy, Home Depot and Medtronic. Wednesday, NAR publishes October existing home sales numbers, and the federal government issues the October CPI, the October FOMC minutes and the report on October retail sales; ADT, Lowe’s, JCPenney, J.M. Smucker, Deere and Staples announce earnings. Thursday, October’s PPI and new initial claims figures complement earnings from Abercrombie & Fitch, Target, Gap, Gamestop, Ross, Intuit and Dollar Tree. Friday, PetSmart announces Q3 results. 

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+21.81

+27.26

+17.57

+6.34

NASDAQ

+32.01

+40.50

+32.56

+10.65

S&P 500

+26.08

+32.87

+21.18

+7.12

REAL YIELD

11/15 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.53%

-0.80%

2.87%

1.87%


Sources: USATODAY.com, bigcharts.com, treasury.gov – 11/15/136,7,8,9

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends. 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – bloomberg.com/news/2013-11-13/asian-futures-heed-u-s-rally-as-yelen-boosts-treasuries.html [11/13/13]

2 – washingtonpost.com/blogs/plum-line/wp/2013/11/13/what-the-obamacare-enrollment-numbers-really-tell-us/ [11/13/13]

3 – usatoday.com/story/news/politics/2013/11/15/house-cancelled-plans-bill/3576071/ [11/15/13]

4 – sfgate.com/business/bloomberg/article/U-S-Stocks-Rise-on-Fed-Bets-Amid-Industrial-4985720.php [11/15/13]

5 – fxstreet.com/news/forex-news/article.aspx?storyid=5f3ccc1a-1b74-482b-b7fe-37046d8e5fc4 [11/15/13]

6 – usatoday.com/money/markets/overview/ [11/15/13]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F15%2F12&x=0&y=0 [11/15/13]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F15%2F12&x=0&y=0 [11/15/13]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F15%2F12&x=0&y=0 [11/15/13]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F14%2F08&x=0&y=0 [11/15/13]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F14%2F08&x=0&y=0 [11/15/13]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F14%2F08&x=0&y=0 [11/15/13]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F14%2F03&x=0&y=0 [11/15/13]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F14%2F03&x=0&y=0 [11/15/13]

7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F14%2F03&x=0&y=0 [11/15/13]

8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [11/15/13]

9 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/15/13] 

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

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, ExxonMobil, Pfizer, Hughes, Raytheon, Bank of America, Northrop Grumman, Verizon, Chevron, Merck, Qwest, AT&T, Glaxosmithkline, 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.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray and 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.

 

Entering the Yellen Years

A look at the economist newly nominated to lead the Federal Reserve.

Janet Yellen – currently the vice chair of the Board of Governors of the Federal Reserve – has been nominated to succeed Ben Bernanke at the helm of the world’s most important central bank. A former UC Berkeley and London School of Economics professor and San Francisco Fed president, Yellen is a globally admired economist with many fans on Wall Street. The way it looks now, in January she will become the most powerful woman in the world.1,2,4

The average investor doesn’t know that much about Yellen and may be wondering what kind of course Fed policy may take under her watch. So here is a closer look at her.  

Is Yellen just a clone of Ben Bernanke? It is true, Yellen has often voted in line with Bernanke regarding Fed policy; that was partly why Wall Street cheered her nomination. It also liked the fact that the controversial Larry Summers had withdrawn his name from consideration. Yet there are discernible differences between Yellen and Bernanke.1

The Fed has a mandate to focus on two goals: the goal of full employment, and the goal of price stability. Some Fed chairs lean more toward the first objective, and some lean more toward the second. While Bernanke built a reputation among his fellow economists as a responsive monetarist, Yellen is known as more of a Keynesian, someone who believes in the power of a sustained government stimulus to promote employment and heal the economy. In fact, earlier this year, she commented that “it is entirely appropriate for progress in attaining maximum employment to take center stage.” 1,2

So is Yellen an inflation dove? In the eyes of many, yes. She may end up sustaining QE3 longer than Bernanke might have, and putting off significant tapering of QE3 for longer than her predecessor. Interest rates may stay at rock-bottom levels under her tenure for longer than presumed. Since QE3 began, both Yellen and Bernanke have maintained that easing to the tune of $85 billion in bond purchases per month is needed to fight ongoing high joblessness and subpar growth, even with the threat of asset bubbles or the possibility of losses for the central bank when those bonds are sold.1,2,3

Yellen got it right at a couple of key moments during the 2000s. In 2006, she warned of a housing bubble that could bring down the whole economy, not a particularly dovish moment for her. (Of course, Yellen and her Fed colleagues could have chosen to tighten and try to prevent one from forming 2-3 years earlier.) As the FOMC voted to cut interest rates by 25 basis points in December 2007, Yellen wanted a half-percent cut, stating that “any more bad news could put us over the edge, and the possibility of getting bad news — in particular, a significant credit crunch — seems far from remote.” The Great Recession was a fact of life within a year.2,4

While Yellen is widely seen as extending the policies put in place during Ben Bernanke’s term with little alteration, the big question is how quickly and how ably the Fed will be able to tighten if inflation becomes hazardous after all this easing. If Bernanke’s legacy is that of a great scholar of the Great Depression who reactively managed the economy out of dire straits, Yellen’s legacy may be built on how well the Fed can control the side effects and the gradual withdrawal of its current accommodative monetary stance.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – cnn.com/2013/10/10/opinion/ghitis-janet-yellen/?hpt=hp_t4 / [10/10/13]

2 – tinyurl.com/kawhouj [3/21/12]

3 – bloomberg.com/news/2013-10-09/janet-yellen-s-to-do-list.html [10/9/13]

4 – tinyurl.com/mlqgjyf [10/13/13]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray and 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.

Patrick Ray is a Representative with FSC Securities and may
be reached at http://www.theretirementgroup.com.

 

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Raytheon, Chevron, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Hughes, ExxonMobil, AT&T, ING Retirement, Northrop Grumman, Qwest, 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.

401(k) Company Sponsors Cannot Ignore Fiduciary Duty

Inattention may open the door to liability & severe penalties.

Do your employees have a company retirement plan? If they do, then you have a fiduciary responsibility to them.

Ignoring it to any degree could really cost you.

Maybe you’ve heard about some of the settlements linked to charges of negligence or mismanagement. They can be painful for businesses big and small.

In 2010, a Fortune 500 engineering firm based in California had to pay a settlement of $18.5 million as a result of a class-action case brought by just two employees who claimed that it was making insufficient effort to reduce the account fees in its 401(k) program. In 2012, the Department of Labor recovered more than $117,000 in unremitted employer contributions (and associated lost opportunity costs) for two employee benefit plans sponsored by a Wisconsin construction firm with 25 active plan participants; its owner was forced to cough up nearly $23,000 per a court judgment.1,2

These are not isolated examples. These are just two stories plucked from a seemingly unending news feed. So what does fulfilling your fiduciary responsibility mean?

More transparency. Because of new Department of Labor regulations, plan participants have to be issued a detailed breakdown of fees and expenses pertaining to their accounts. You must also disseminate investment instructions to them per updated Department of Labor regulations.

While every employer-sponsored retirement plan must have a named fiduciary, it is important to realize that fiduciaries are also determined by function. That is, while the plan document might not name John X. Person as a fiduciary, if John X. Person participates in the management or administration of the plan or hires a service provider, these are considered fiduciary functions by the DoL.3

The plan’s investment processes must also be documented, so that you have clear evidence that things are operating according to stated procedure. In addition to a Summary Plan Description (SPD), an Investment Policy Statement (IPS) is also essential: it can define the plan’s investment program and establish formal criteria for monitoring, comparing and evaluating performance results of various investment options over time. Input from a Registered Investment Advisor is critical here.3

Sufficient participant education. A retirement plan will be undervalued and underutilized without an effective employee education program. For legal reasons alone, your employees have to understand the investment options the plan presents and the fees and risks associated with each one. This can’t be given short shrift and an investment professional should be called in to help explain the options as well as the potential role the plan can play in an employee’s overall retirement savings effort.3

Compliance. Most administrators of workplace retirement plans are required to file a Form 5500 Annual Return/Report with the federal government – a disclosure made available to the U.S. Department of Labor, the Internal Revenue Service, the Pension Benefit Guaranty Corporation, and by extension the public.3

Plan providers need to be monitored, too. You don’t want the wrong kinds of investments creeping into the plan and you want to watch for changes in the way a plan provider is compensated, changes in the fees affecting plan participants, and more.

This is just the tip of the iceberg. There is so much to watch over in the typical employer-sponsored retirement plan that little details can easily be missed – and they may lead to big headaches for your business.

Don’t risk lawsuits or five- or six-figure settlements. Don’t open the door to liability. Do the right thing, do the smart thing – turn to an experienced, professional third party that can play a fiduciary role for assistance.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – http://www.plansponsor.com/Bechtel_Settles_401%28k%29_Fee_Case_for_18_5_Million.aspx [10/14/10]

2 – http://www.dol.gov/ebsa/newsroom/2012/12-2319-CHI.html [12/5/12]

3 – http://www.irs.gov/publications/p560/ch04.html#en_US_publink10008978 [11/13/12]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Hughes, GlaxoSmithKline, Chevron, Verizon, ExxonMobil, Bank of America, ING Retirement, Merck, Qwest, Raytheon, Alcatel-Lucent, Northrop Grumman, AT&T, Pfizer, 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.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com. 

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray and 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.

Social Security Claiming Strategies

 What can married couples do to increase joint lifetime benefits?

 What is your “magic number”? Roughly half of retirees claim Social Security benefits at age 62, as soon as they become eligible. Some people delay benefits and postpone using their retirement savings as an income source. Others apply out of necessity; their financial situation leaves them little choice.1

These factors aside, what if you have a choice? If you wait a few years to apply for Social Security, how much more income might you realize?

Could you wait until age 66? The Social Security Administration has made 66 the “full” retirement age for people born during 1943-1954. If you were born in this period and you apply for Social Security at age 62, you will reduce your retirement benefit by 25% and your spouse’s by 30%.2,3

That alone might convince you to wait. In addition, there are claiming strategies that may bring spouses much greater cumulative lifetime Social Security income, and they depend on one spouse waiting until age 66 to apply for benefits.

That may be the time for a file & suspend strategy. This tactic positions a married couple to receive maximum Social Security benefits at age 70, with one spouse being able to claim some benefits at age 66. 

An example: Terry was born in 1947 and Teresa was born in 1951, so full retirement age is 66 for both of them. Terry files his claim for Social Security benefits at age 66, but then he elects to suspend his $2,000 monthly retirement benefit. Doing that clears the way for Teresa to get a $1,000 monthly spousal benefit when she reaches 66; she can do this by filing a restricted claim for spousal benefits only at that time.4

So while some spousal benefits are rolling in, Terry and Teresa have both elected to put off receiving their own Social Security benefits until age 70. That allows each of them to rack up delayed retirement credits (8% annually) between 66-70. So when Terry turns 70, he is eligible to collect an enhanced benefit: $2,640 per month instead of the $2,000 per month he would have received at age 66. At 70, Teresa can switch from receiving the $1,000 monthly spousal benefit to collecting her enhanced benefits.1,4

Variations on file & suspend. There are other ways to do this. For example, 66-year-old Terry could initially apply for Teresa’s spousal benefits as Teresa applies for her own benefits at 62. Terry thereby gets $800 a month while Teresa receives her own reduced benefit of $1,200 a month. At 70, Terry foregoes getting the spousal benefit and switches to receiving his own enhanced benefit ($2,640 a month thanks to those delayed retirement credits). If Terry lives to age 83 and Teresa lives to age 90, their total lifetime Social Security benefits will be $1,043,520 under this strategy, as opposed to $840,600 if they each apply for benefits when they turn 62.1

Widows can also use a variant on the file-and-suspend approach. As an example, Fran is set to receive $1,400 monthly from Social Security at age 66. Her husband dies when she is 60. She can get a widow’s benefit of $1,430 at 60, but instead she claims her own reduced benefit of $1,050 at age 62, then switches to a widow’s benefit of $2,000 at 66 (her husband would

have received $2,000 monthly at age 66). By doing this, she positions herself to collect $112,000 more in lifetime benefits.1

Postponement can also be used to enlarge survivor benefits. Let’s go back to Terry and Teresa: if they each start getting Social Security at 62, Teresa is looking at a $1,650 monthly survivor benefit if Bob passes away. But if Terry waits until 66 to claim his benefits, Teresa’s monthly survivor benefit would be $2,640.1

Details to note. The file-and-suspend strategy is only allowable if one spouse has reached full retirement age. In order for you to claim a spousal benefit, your husband or wife has to be getting Social Security benefits. Applying for Social Security before full retirement age with the idea that your spouse can collect spousal benefits at 62 has a drawback: you are reducing both of your lifetime retirement benefits.5

Only 29% of respondents in a 2012 AARP survey knew that waiting until age 70 to apply for Social Security would bring them their maximum monthly benefit. Congratulate yourself for being in that group, and consider the long-range financial merits of claiming your benefits years after age 62.6

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

Citations.

1 – http://www.smartmoney.com/retirement/planning/strategies-to-max-out-social-security-benefits-1329243329517/ [3/2/12]

2 – http://www.ssa.gov/retire2/retirechart.htm [11/15/12]

3 – http://www.ssa.gov/retire2/agereduction.htm [11/15/12]

4 – http://www.investmentnews.com/article/20121105/BLOG05/121109984 [11/5/12]

5 – www.nextavenue.org/article/2012-08/how-avoid-making-social-security-mistakes [8/6/12]

6 – http://www.aarp.org/about-aarp/press-center/info-02-2012/new-aarp-survey-shows-many-unaware-of-social-security-claiming-strategies.html [2/29/12]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Hughes, AT&T, Merck, Bank of America, Chevron, Alcatel-Lucent, Pfizer, ING Retirement, ExxonMobil, GlaxoSmithKline, Northrop Grumman, Verizon, Raytheon, Qwest, 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.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com. 

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray and 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 Major Retirement Planning Mistakes

THE MAJOR RETIREMENT PLANNING MISTAKES

Why are they made again and again?

Much has been written about the classic financial mistakes that plague start-ups, family businesses, corporations and charities. Aside from these blunders, there are also some classic financial missteps that plague retirees.

Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. Yet whether they result from ignorance or fate, we need to be aware of them as we plan for and enter retirement.

Leaving work too early. The full retirement age for many baby boomers is 66. As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for greater retirement income.1

Some of us are forced to make this “mistake”. Roughly 40% of us retire earlier than we want to; about half of us apply for Social Security before full retirement age. Still, any way that you can postpone applying for benefits will leave you with more SSI.1

Underestimating medical expenses. Fidelity Investments says that the typical couple retiring at 65 today will need $240,000 to pay for their future health care costs (assuming one spouse lives to 82 and the other to 85). The Employee Benefit Research Institute says $231,000 might suffice for 75% of retirements, $287,000 for 90% of retirements. Prudent retirees explore ways to cover these costs – they do exist.2

Taking the potential for longevity too lightly. Are you 65? If you are a man, you have a 40% chance of living to age 85; if you are a woman, a 53% chance. Those numbers are from the Social Security Administration. Planning for a 20- or 30-year retirement isn’t absurd; it may be wise. The Society of Actuaries recently published a report in which about half of the 1,600 respondents (aged 45-60) underestimated their projected life expectancy. We still have a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.3

Withdrawing too much each year. You may have heard of the “4% rule”, a popular guideline stating that you should withdraw only about 4% of your retirement savings annually. The “4% rule” isn’t a rule, but many cautious retirees do try to abide by it.

So why do some retirees withdraw 7% or 8% a year? In the first phase of retirement, people tend to live it up; more free time naturally promotes new ventures and adventures, and an inclination to live a bit more lavishly.

Ignoring tax efficiency & fees. It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming that your retirement will be long, you may want to assign that or that investment to it “preferred domain” – that is, the taxable or tax-advantaged account that may be most appropriate for that investment in pursuit of the entire portfolio’s optimal after-tax return.

Many younger investors chase the return. Some retirees, however, find a shortfall when they try to live on portfolio income. In response, they move money into stocks offering significant dividends or high-yield bonds – which may be bad moves in the long run. Taking retirement income off both the principal and interest of a portfolio may give you a way to reduce ordinary income and income taxes.

Account fees must also be watched. The Department of Labor notes that a 401(k) plan with a 1.5% annual account fee would leave a plan participant with 28% less money than a 401(k) with a 0.5% annual fee.4

Avoiding market risk. The return on many fixed-rate investments might seem pitiful in comparison to other options these days. Equity investment does invite risk, but the reward may be worth it.

Retiring with big debts. It is pretty hard to preserve (or accumulate) wealth when you are handing chunks of it to assorted creditors.

Putting college costs before retirement costs. There is no “financial aid” program for retirement. There are no “retirement loans”. Your children have their whole financial lives ahead of them. Try to refrain from touching your home equity or your IRA to pay for their education expenses.

Retiring with no plan or investment strategy. Many people do this – too many. An unplanned retirement may bring terrible financial surprises; retiring without an investment strategy leaves some people prone to market timing and day trading.4

These are some of the classic retirement planning mistakes. Why not plan to avoid them? Take a little time to review and refine your retirement strategy in the company of the financial professional you know and trust.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – moneyland.time.com/2012/04/17/the-7-biggest-retirement-planning-mistakes/ [4/17/12]

2 – money.usnews.com/money/blogs/planning-to-retire/2012/05/10/fidelity-couples-need-240000-for-retirement-health-costs/ [5/10/12]

3 – http://www.forbes.com/sites/ashleaebeling/2012/08/10/americans-clueless-about-life-expectancy-bungling-retirement-planning/ [8/10/12]

4 – www.post-gazette.com/stories/business/personal/shop-smart-avoid-seven-common-errors-in-retirement-plans-635633/ [5/13/12]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, hewitt.com, resources.hewitt.com, Raytheon, AT&T, access.att.com, Chevron, Glaxosmithkline, Pfizer, Verizon, Hughes, Northrop Grumman, ING Retirement, Qwest, netbenefits.fidelity.com, ExxonMobil, Merck, 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.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and 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.

Patrick Ray is a Representative with FSC Securities and maybe reached at http://www.theretirementgroup.com.