Tag Archive: retirement

Retirement Plans for Entrepreneurs

Retirement Plans for Entrepreneurs
Saving for retirement is even more important for solo-entrepreneurs because you don’t have a company sponsored pension plan or matching 401K contributions to rely on.  There are many retirement plans available to self employed individuals and small businesses.  Which one is right for you?

Here is just a sample of the retirement plans available to solo-preneurs and small businesses:

Roth IRA – although this is not just for solo-preneurs, this is the first place you should look to save if you are just starting to save for retirement (or resuming to save after starting a business).  Roth IRAs are low-cost, very flexible, and allow you to grow money tax-free as long as you follow the distribution rules.  Contributions can be made up to $4,000, and can be withdrawn at any time without tax or penalty (earnings withdrawn may be subject to penalty and tax if withdrawn before age 59 ½ and certain other conditions are not met).

SEP IRA – if you’re maxing out your Roth IRA, and are ready to save more, a SEP IRA allows you to save up to 25% of your compensation (20% of your self-employment income) for a maximum of $44,000 per year.  Contributions are tax-deductible, and SEP IRAs have low maintenance fees.  Contributions can be made for employees also, but employees cannot contribute to their own SEP IRA.  This is a good choice if you just have a handful of employees and are looking for a low-cost way to save for your own and your employees’ retirement.

Simple IRA – a Simple plan offers many of the benefits of a 401K, but with less IRS reporting requirements.  You can contribute up to $10,000 to a Simple IRA, with an employer match of up to 3%.  Contributions are tax-deductible, and Simple IRAs also enjoy low annual fees.  Employees are allowed to contribute to Simple plans, and a company match is mandatory.  If you have a lower salary (or self-employment income) in your small business, a Simple IRA allows you to put more away towards your retirement than other plans.

Solo 401K – for small businesses with no employees, the solo-401K allows you to put the maximum amount away, with less cost and less reporting requirements than a traditional 401K.  Similar to a SEP IRA, contributions max out at $44,000.  However, unlike a SEP IRA, participants in a Solo-401K can contribute up to 100% of the first $15,000 of compensation or self-employment income, and an additional amount up to 25% of your compensation.  This is important because it allows you to save substantially more than a SEP IRA, if your compensation is less than $220,000 per year.  A solo-401K is not appropriate for small business with employees or expecting to add employees.

There’s no one best plan for all small businesses.  The best plan for you will depend on many factors, such as whether you have employees or not, how much you want to contribute each year, how much time you want to spend administering the plan, etc.  To get more information about small business retirement plans, contact a no-load mutual fund company, a discount brokerage company or a fee-only financial planner.

4 Ways to Keep Retirement Plans Afloat by Tim Jacquet

4 Ways to Keep Retirement Plans Afloat4 Ways to Keep Retirement Plans Afloat
by Tim Jacquet

4 Ways to Keep Retirement Plans Afloat. The fastest way to sink a retirement plan is not having a strategy to pay the bills for long-term care. Too many people simply bury their head in the sand and hope that day never comes. But when it does, the impact on their plans for retirement can be devastating. Yet there’s a simple, sensible solution to help keep retirement afloat…long-term care insurance.List below we will names some way to keep your Retirement Plans afloat.

Here are four things you can do to keep your Retirement Plans afloat:

1. Help your clients understand the risk they face in retirement. According to the U.S. Department of Health & Human Services, 70 percent of people who reach age 65 will need long-term care services at some point in their lives. Compare that to the risk of being in a severe car accident (15.5 percent for men and 18 percent for women) or having a major house fire (2.2 percent for men and 2.6 percent for women). Yet people don’t question the need to insure their homes and cars. So you need to help them understand why protecting themselves and retirement from the real risk of needing long-term care is so important.

2. Guide them as they explore their options for care. Many people mistakenly believe in retirement that their family members will be able to take care of them. But these folks generally haven’t considered what it takes to be a full-time caregiver. A spouse may have to quit working or put a career on hold. Adult children may find it difficult to juggle caring for their own families with caring for a parent. Caregivers often suffer stress, burnout and their own health issues. And it’s not uncommon for families to argue or harbor resentments when one person assumes a greater portion of the care-giving duties. Also, most people want to stay in their homes as long as possible in retirement, so they probably aren’t willing to think about giving up their independence by moving in with one of their children or going to a nursing home or assisted living facility.

3. Explain how people pay for long-term care services. Many people think they have sufficient assets to pay for the services they need. But they probably haven’t thought about having to liquidate those assets. They may find themselves dipping into savings or 401(k) accounts, cashing in stocks or selling assets, maybe even their home. Others believe the government will take care of their long-term care needs. But that’s only partially true. Medicare provides coverage for a short time – just long enough to help people get back on their feet after an accident or illness. Medicaid is a program of last resort for people of limited means. So if your clients have assets to protect, spending them down to the level required to qualify for Medicaid probably isn’t an effective strategy.

4. Show them why long-term care insurance is a better solution. There are a lot of advantages to owning a policy. It helps people pay the bills for long-term care services. It prevents them from burdening family members with the responsibility of caregiving. It allows them to protect a portion of the assets they’d set aside for retirement. And it gives them peace of mind knowing they have a plan in place should the need for long-term care arise this could help in firming up your retirement plans.

This article 4 Ways to Keep Retirement Plans Afloat Afloat is provided by Tim Jacquet, an advisor with Mutual of Omaha in Arlington, Texas. You can call at 281-780-1728 or check out Mutual of Omaha page at http://www.mutualofomaha.com/agent/timothyjacquet

 

 

Revisiting Retirement Benefits: Is It Time to Sweeten Your Employees’ Plans?

Revisiting Retirement Benefits: Is It Time to Sweeten Your Employees’ Plans?By Sherron Lumley.

Whether a distant dream or just around the bend, retirement benefits hold significant sway with employees making decisions about where to work and for how long. In fact, a 2011 Mercer What’s Working survey of 30,000 workers found that, among American and Canadian employees, retirement plans placed second only to base pay among the most important employee value proposition elements.

Despite this emphasis, modern-day employees are notoriously poor at following through with retirement savings. Jack VanDerhei, research director of the Employee Benefit Research Institute (EBRI) in Washington D.C. notes, “Only 13 percent of workers now say they’re very confident about retirement,” an all-time low in 21 years of the institute’s Retirement Confidence Survey. What’s more, well over a quarter—29 percent—of workers surveyed said they have savings of less than $1,000.

Still, the expense and administrative burden often appear unaffordable to small business owners. Yet, these tangible costs should be weighed against the intangible benefits that drive employee satisfaction and performance. For example, Met Life’s 9th Annual Study of Employee Benefit Trends found a strong correlation between satisfaction with retirement benefits and job loyalty. In that survey, more than three out of four employees who were happy with their employer’s retirement plan also reported being satisfied with their job.

PQ_RetireBenefits.jpg“We provide medical and retirement benefits, though we are not obligated to, in order to attract and retain good employees,” explains Jodi Teti, small business owner of Blueprint LSAT Preparation, headquartered in Los Angeles, California. Small business owners like Teti say they recognize that to stay competitive and desirable, it’s time to revisit their employees’ retirement benefits. Below, three retirement specialists contribute their insights about the types of retirement benefits that are most desirable to small business employees today.

What employees want most: matching contributions, risk choices, and quick results

“Adequate investment choices and reasonable investment returns for an appropriate level of risk are important aspects employees want in their plans,” says Wes Rommerskirchen of Benefit Plans Plus, LLC, in St. Louis, Missouri. “Employees also look for a healthy employer contribution to assist them in reaching their retirement goals,” he says.

Peter Macaluso, Vice President of FM International Services in Melville, New York, concurs. When it comes to employee satisfaction and retirement benefits, he finds from his experience that “employer contributions affect employee satisfaction the most.”

What does this look like for a small business?

“Initially, we offered a scaled vesting period,” says Teti, whose company originally planned to match 100-percent of contributions for employees after six years of employment. “However, in today’s fluid employment environment, we found that employees simply weren’t contributing under that rubric,” she says.

To counter this trend, her company changed its policy so that employees could realize their benefits more quickly. “After an employee’s first year of employment, we match their retirement contribution up to three percent; we’re 100 percent vested after the initial year,” she says, adding, “the total number of contributions tripled since we instituted the new policy.”

Traditional 401(k) and profit sharing

With a 401(k) plan, employees contribute part of their pay into a plan sponsored by their employer. Many 401(k) plans provide for employer matching and profit sharing, which are employer contributions not taxed by the federal dovernment or by most state governments until distributed. The annual employer contribution is discretionary.

FM International offers its employees a three-percent profit-sharing contribution, which is what they recommend to their customers and clients. Profit sharing permits employers to make large contributions for employees, up to the lesser amount of 100 percent of compensation or $49,000. Employers can deduct amounts that do not exceed 25 percent of aggregate compensation for all participants. If offered, profit sharing must include all employees at least 21 years of age who worked at least 1,000 hours in a previous year.

Visit the Department of Labor’s website, Choosing a Retirement Solution for Your Small Business for more information.

Offer automatic enrollment and target-date funds

Recently hired participants in 401(k) plans, particularly those under 30, are more likely to want target-date funds (TDFs), according to an analysis by EBRI. TDFs are usually mutual funds that have a portfolio mix that becomes more conservative as retirement approaches. Small business owners should consider plans that offer TDFs for workers who want more control about the risk and return of their retirement investment portfolio. Risk-averse or conservative plans find a lower yield acceptable, whereas more risk is required when pursuing a higher yield.

The Pension Protection Act of 2006 contained provisions designed to encourage 401(k) plan sponsors to automatically enroll their workers in the plan to boost retirement savings and TDFs are often used as a default investment for workers who are auto-enrolled.

Adding a cash balance plan – the best of both worlds?

Although still quite popular in the public sector, the old-fashioned pension (or standard defined benefit) plan is out of reach for many small business owners and has been on the decline for three decades in the private sector, according to EBRI. However, cash balance plans are hybrid plans that combine some aspects of a traditional pension plan with those of a defined contribution plan (401(k)/profit sharing).

“Business owners that have the cash flows to support an additional employer contribution may want to consider installing a cash balance plan alongside their existing 401(k)/profit sharing plan,” says Rommerskirchen. “Using a cash balance plan in conjunction with their properly-designed 40(1)k/profit sharing plan could allow the business owner to contribute substantially more towards retirement than just a traditional 401(k) plan would allow,” he adds.

A cash balance plan defines the promised benefit in terms of a stated account balance, yet fluctuations in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. Another advantage: Benefits of cash balance plans are protected by federal insurance provided through the Pension Benefit Guaranty Corporation.

Simplified Employee Pension (SEP), Payroll Deduction IRA or the simple IRA plan

Many small businesses that want to help their employees with retirement turn to Individual Retirement Accounts (IRAs), such as the Simplified Employee Pension (SEP). With a SEP, employers set up an Individual Retirement Account (IRA) for themselves and each employee, with the employer contributing the same percentage of pay for each employee, up to 25 percent of their salary (or $49,000, whichever is less).

The Simple IRA plan allows contributions by both the employer and the employee, whereas the Payroll Deduction IRA is funded by employee contributions without participation from the employer.

Providing retirement and investment education opportunities for employees

Year after year, employees surveyed by EBRI in the Retirement Confidence Survey continue to rank private employers as their most trusted institution, positioning small business owners in the role of guiding and providing for their own and their employees’ retirement savings.

“As far as sweetening the benefits, it is quite difficult for micro-companies and small businesses under 200 employees,” says Marcia Mantell, President of Mantell Retirement Consulting in Needham, Massachusetts. However, there are other things employers can do to help their employees prepare for retirement, she explains.

For companies who want to help their employees right now, but who aren’t yet ready financially to add employer contributions to a retirement plan, Mantell suggests creating non-monetary benefits for employees. Educational opportunities such as lunch-and-learn or hosted seminars about investing for retirement and retirement readiness, combined with in-house training for using online retirement preparation tools, will help employees gain a realistic view of retirement financial needs.

Don’t go it alone

“One of the most common areas overlooked in a retirement plan is the selection of an appropriate investment professional to advise the business owner,” says Rommerskirchen. With many small business owners wearing multiple hats, it’s difficult to stay on top of retirement benefit changes. Therefore it’s important to know exactly what services the financial advisor is going to provide for the plan, and how often you will meet with the financial advisor to review issues. You’ll also want to know how often the plan’s financial advisor will meet with your employees and how much experience he or she has, Rommerskirchenk recommends.

Revisiting Retirement Benefits: Is It Time to Sweeten Your Employees’ Plans?

The Pension Protection Act of 2006 contained provisions designed to encourage 401(k) plan sponsors to automatically enroll their workers in the plan to boost retirement savings and TDFs are often used as a default investment for workers who are auto-enrolled.

Adding a cash balance plan – the best of both worlds?

Although still quite popular in the public sector, the old-fashioned pension (or standard defined benefit) plan is out of reach for many small business owners and has been on the decline for three decades in the private sector, according to EBRI. However, cash balance plans are hybrid plans that combine some aspects of a traditional pension plan with those of a defined contribution plan (401(k)/profit sharing).

“Business owners that have the cash flows to support an additional employer contribution may want to consider installing a cash balance plan alongside their existing 401(k)/profit sharing plan,” says Rommerskirchen. “Using a cash balance plan in conjunction with their properly-designed 40(1)k/profit sharing plan could allow the business owner to contribute substantially more towards retirement than just a traditional 401(k) plan would allow,” he adds.

A cash balance plan defines the promised benefit in terms of a stated account balance, yet fluctuations in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. Another advantage: Benefits of cash balance plans are protected by federal insurance provided through the Pension Benefit Guaranty Corporation.

Simplified Employee Pension (SEP), Payroll Deduction IRA or the simple IRA plan

Many small businesses that want to help their employees with retirement turn to Individual Retirement Accounts (IRAs), such as the Simplified Employee Pension (SEP). With a SEP, employers set up an Individual Retirement Account (IRA) for themselves and each employee, with the employer contributing the same percentage of pay for each employee, up to 25 percent of their salary (or $49,000, whichever is less).

The Simple IRA plan allows contributions by both the employer and the employee, whereas the Payroll Deduction IRA is funded by employee contributions without participation from the employer.

Providing retirement and investment education opportunities for employees

Year after year, employees surveyed by EBRI in the Retirement Confidence Survey continue to rank private employers as their most trusted institution, positioning small business owners in the role of guiding and providing for their own and their employees’ retirement savings.

“As far as sweetening the benefits, it is quite difficult for micro-companies and small businesses under 200 employees,” says Marcia Mantell, President of Mantell Retirement Consulting in Needham, Massachusetts. However, there are other things employers can do to help their employees prepare for retirement, she explains.

For companies who want to help their employees right now, but who aren’t yet ready financially to add employer contributions to a retirement plan, Mantell suggests creating non-monetary benefits for employees. Educational opportunities such as lunch-and-learn or hosted seminars about investing for retirement and retirement readiness, combined with in-house training for using online retirement preparation tools, will help employees gain a realistic view of retirement financial needs.

Don’t go it alone

“One of the most common areas overlooked in a retirement plan is the selection of an appropriate investment professional to advise the business owner,” says Rommerskirchen. With many small business owners wearing multiple hats, it’s difficult to stay on top of retirement benefit changes. Therefore it’s important to know exactly what services the financial advisor is going to provide for the plan, and how often you will meet with the financial advisor to review issues. You’ll also want to know how often the plan’s financial advisor will meet with your employees and how much experience he or she has, Rommerskirchenk recommends.