Rethinking Retirement Age

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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.

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Avoiding The Middle Class Retirement Maelstrom

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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

Last Minute Tax Tip: How Entrepreneurs can get BIG Tax Breaks through Retirement Savings

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 latax-dayst 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:

  1.      You can contribute more (up to $51,000) to a plan like this than the traditional IRA maximum annual contribution of $5,500
  2.      The contribution is tax deductible
  3.      The account grows tax deferred until you withdraw the money
  4.      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.

This great way anyone who is self-employed who has a profit to shelter some of that income from taxation.   We recommend using this worksheet to figure out your savings or, as always, contact us.

Is The PBGC is going bankrupt? How it affects your retirement.

monopolyLast week, in it’s annual report, the PBGC announced a record deficit of $35.7 billion.

The Pension Benefit Guaranty Corporation (PBGC) is a United States Federal Agency that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect companies’ pension benefits[1].  For companies whose pension plans are insured by the PBGC, the PBGC will pay employees a portion of the pension funds if the company goes bankrupt.

The PBGC’s deficit has been increasing annually over the past several years due to a variety of factors.  Unless the government steps in, this will result in the PBGC going bankrupt.

As you review your own company’s retirement plan options (for example taking an annuity option versus a lump sum distribution), knowing the back-up plan is important. If the company cannot meet its payout obligation, and the PBGC is having its own financial challenges, what are you to do in order to protect your pension payouts?

Why does this matter for you? If you were to take an annuity option from your employer when you retire and the company were to go bust, what will the PBGC do for you?

  1. The PBGC does not guarantee every dollar owed to you from your company pension plan – there is an annual cap.  For 2013, the maximum guaranteed about is $ $57,000/year (for people who begin receiving benefits at age 65).
  2. The PBGC is running a deficit that will eventually bankrupt it, voiding your pension guaranty.
  3. The time has come for people to start saving outside of their employer’s plans for their retirement.

There are some major misconceptions about what retirement is and how much money you need to put away to have a comfortable retirement.

  • The typical American household will experience a 28% income shortfall in retirement?[2]
  • 4 out of 10 retirees do not have sufficient income to cover their monthly expenses.

It is time to take additional steps to prepare for your retirement. You should not solely rely on your company being able to pay your pension, nor the PBGC to pay you either.

Call us today to schedule a retirement savings assessment and discuss retirement planning and year-end planning opportunities to minimize taxes today so you can have a more secure future.


[1] In private defined benefit pension plans

[2] 2012 Fidelity Retirement Savings Assessment