Ah, mid-February- that time of year when my postman provides a daily barrage of tax documents, and scolds me for not retrieving them quickly enough. When it finally becomes apparent that he can no longer jam another rumpled envelope into my overflowing mail slot I know it’s time to file my taxes. While this annual ritual often yields a financial reward in the form of a tax refund, there is clearly a higher purpose for the enormous pile of paper. Note to self: my inner guilt will be quelled; this year I will make better use of tax time, and so can you. Continue reading
Congratulations to the class of 2016, your hard work and perseverance has paid off. You are newly minted graduates and may be facing a variety of decisions surrounding your life and career that you feel totally unprepared to make. Should I take that crazy job teaching English in Tibet, or the stuffy office gig with a 401 (k)? Mom and dad said I could move back home, but living with my friends in a sixth-floor walk- up apartment just seems like more fun. Do I need to start saving for retirement already, oh, and what about my student loans? Continue reading
The age at which we retire has traditionally been linked to cultural norms and external factors such as the availability of a company pension, health care and Social Security retirement benefits. Pensions were designed to incentivize long-service with a single employer while also establishing formulas that would provide reliable incentives for employees to eventually retire. While there has been a dramatic shift from a manufacturing economy to one based on the delivery of goods and services, the decision to retire based on attaining a set age remains stubbornly persistent. As the self-funded and self-managed retirement replaces traditional lifetime pensions, fresh thinking has emerged on how to manage the risk of outliving one’s assets. Rethinking retirement as a ratio of working years to leisure years is beginning to gain acceptance as a more thoughtful way of addressing this and other retirement risks.
A thoughtful retirement income plan involves varying degrees of monitoring and oversight to ensure continued success. While this may be readily apparent at the onset of planning, many otherwise well-constructed plans fail to consider what happens if active participation is no longer possible. Planning for mental incompetency is an often overlooked component of planning that can have devastating emotional and financial consequences. Thankfully, it can be proactively addressed through proper planning.
Let’s face it, the financial services industry loves analytics. We produce mountains of data and delight in presenting it to clients in new and creative ways. Finance is, after all, a highly analytic field, so it is hardly surprising that we focus our time and energy on numbers. This is the paradigm that is often used to develop and deliver financial advice, but a growing body of evidence suggests that the financial decisions made by most individuals may have less to do with analytics and more to do with behavior and emotions. How do we as advisors strike the appropriate balance between analytics and emotions, and what can the field of behavioral finance teach us that may help our clients to make better financial decisions?
Those approaching retirement are looking for ways to provide lifetime income; a recent ruling from the United States Department of the Treasury has placed renewed attention on the use of deferred income annuities, also known as longevity insurance, in a retirement income plan.
First, A Little Background
Deferred income annuities are generally paid for with a single-premium and income payments commence after a minimum of one year. The recent Treasury ruling allows participants in a 401K or Traditional IRA retirement account to use the lesser of twenty five percent of their account balance or $125,000 for the purchase of a qualifying deferred income annuity. Income from the contract may be postponed up to age eighty five and will be excluded from Required Minimum Distribution calculations.
Turning accumulated assets into a reliable income stream is THE critical issue facing retirees. A growing body of research, and memorable terminology, has provided financial planners with the ability to help our clients create a dynamic income plan that best suits their needs.
While each client has a unique set of circumstances, having adequate income to maintain a given lifestyle in retirement is a near universally shared goal. Likewise, many clients will face similar obstacles and challenges throughout retirement. Our job as advisors is to assist clients in identifying their retirement goals, risks, income sources and expenses, and to combine these to help create an income plan that can be revised and adapted over time. In this blog, we will outline three distinct approaches to retirement income planning.
Retirement income planning has seen a dramatic shift in focus in recent years from an accumulation of assets approach to one focused on how best to create income streams in retirement. Shifts in demography and an emphasis on employee-directed savings programs will result in an increasing number of retirees bearing the responsibility of developing and managing their own retirement income plans. With this in mind, it is important for workers to accurately identify the sources of income available to them in retirement.
As financial advisors we devote an enormous amount of time and energy crafting financial and estate planning strategies for our high net worth clients. While our wealthier clients provide us with interesting problems to solve, many of us take great enjoyment in helping clients with fewer resources and options to realize their retirement dreams. Unfortunately, most middle income clients are ill-prepared to retire and are not a target market for the majority of financial advisors.
Middle class clients face many of the same risks that our wealthier clients do: outliving their money, poor stock market performance and rising health or long-term care costs are near universal concerns. Others such as inflation and the death of a spouse may be particularly impactful for those with limited resources. So what are some simple tips that middle income clients might consider in planning for retirement? Continue reading
With Tax Day in 2 weeks, you might be wondering whether there are any last minute things you can do to save on taxes from last year’s income. Good news: if you’re an entrepreneur, there is!
Did you know that if you’re self-employed or a small business owner there is a special type of pension plan available for you (and your employees)? Available for businesses of any size, a simplified employee pension plan (SEP-IRA)is a written arrangement that allows a self-employed individual or a business owner to contribute to a pension plan with significantly higher limits than a traditional IRA.
A self-employed individual can contribute (pre-tax!) between 0-25% of their compensation (maximum contributions up to $51,000 for 2013, $52,000 for 2014); here’s the small catch: each eligible employee has to get the same percentage.
There are distinct advantages to setting up a plan like this:
- You can contribute more (up to $51,000) to a plan like this than the traditional IRA maximum annual contribution of $5,500
- The contribution is tax deductible
- The account grows tax deferred until you withdraw the money
- There are no annual reporting requirements for SEPs as long as each participant or individual who is in the plan receives a copy of the plan agreement and disclosure form (this is unlike a traditional 401K, defined contribution plan, or defined benefit plan, which have an annual 5500 form filing requirement)
In order to deduct the contribution, you must establish the plan by April 15th and contribute to the plan by April 15th (or the due date of your return including extensions – check with your accountant).
There are very few drawbacks to setting one of these plans up.
How to set up a SEP-IRA:
SEP-IRAss can be set up through a financial advisor, through a brokerage house, or through a bank.
Participants are eligible to sign up for a wide variety of investment opportunities including mutual funds, stocks, bonds, ETFs, and many more.
There should be no establishment fees to launch the plan and annual fees are minimal.