Which Retirement Plan Suits You?

Here’s an overview of the retirement plan landscape.

provided by Ron Richards

All retirement plans are not the same. I​n fact, there is such a wide variety of retirement plans that it is worth it to read up on your choices. Here’s a brief look at the different plans and what they have to offer.

The Traditional 401(k). M​ost people have such a retirement savings plan, and it works like this. The plan is funded with pre-tax dollars taken out of your paycheck (through payroll deductions). If you’re lucky, your company will match your level of contribution or even make contributions on your behalf – after all, the employer contributions are tax-deductible.

The I.R.S. will currently let you put up to $16,500 a year in a Traditional 401(k); COLA adjustments may drive that limit higher in the future. The I.R.S. also allows catch-up contributions (additional contributions from those aged 50+), with a current annual limit of $5,500. In 2010, the total amount put into a 401(k) by you and your employer can’t exceed $49,000.1​

There are several variations on the traditional 401(k) theme …

The Safe Harbor 401(k). A​byproduct of the Small Business Job Protection Act of 1996,​t​he Safe Harbor plan combines the best features of the traditional 401(k) and a SIMPLE IRA, making it very attractive to a business owner. With a Safe Harbor plan, an owner-operator can avoid the big administrative expenses of a traditional 401(k) and enjoy higher contribution limits. The Safe Harbor plan allows for employers to make matching or non-elective contributions. Typically, employers match contributions dollar-for-dollar up to 3% of an employee’s income.2​

The SIMPLE 401(k). D​esigned for​s​mall business owners who don’t want to deal with retirement plan administration or non-discrimination tests, the SIMPLE 401(k) is available for businesses with less than 100 employees. Like a Safe Harbor plan, the business owner must make fully vested contributions (up to 3% of an employee’s income). But the maximum pretax employee contribution to a SIMPLE 401(k) is $11,500, and employees with a SIMPLE 401(k) can’t have another retirement plan with that company.2​

The Solo 401(k).​Combine a profit-sharing plan with a regular 401(k), and you have

the Solo 401(k) plan, a retirement savings vehicle designed for sole proprietors with

no employees other than their spouses. These plans currently permit you to

contribute up to $49,000 annually p​lus $5,500 in catch-up contributions for a total of

3 $54,500 if you are 50 or older.​

The Roth 401(k). I​magine a Traditional 401(k) fused with a Roth IRA. Here’s the big difference: you contribute after-tax income to a Roth 401(k), and when you reach age 591⁄2, your withdrawals will be tax-free (provided you’ve had your plan for more than five years). The annual contribution limits are the same as those for a Traditional 401(k) plan.4​

You can roll Roth 401(k) assets into a Roth IRA when you retire – and you don’t have to make mandatory withdrawals from a Roth IRA when you turn 701⁄2. With a standard 401(k), you have to rollover the assets to a traditional IRA and make the required withdrawals.4​

The DB(k).​The DB(k) is a defined benefit retirement plan with some of the features of a 401(k). Companies with fewer than 500 employees are starting to put them into place. They offer plan participants a retirement savings plan with the potential for a small income stream in the future, mimicking the pensions of years past. The pension income equals either a) 1% of final average pay times the number of years of service, or b) 20% of that worker’s average salary during his or her five consecutive

5,6 highest-earning years.​

And then there are SEP-IRA, SIMPLE IRA and Keogh plans …

The SEP-IRA.​This employer-funded plan gives businesses a simplified vehicle to make contributions toward workers’ retirements (and optionally, their own). The employer contributions are 100% vested from the start, and the employer can supplement the SEP-IRA with another retirement plan. In 2010, these plans have a $49,000 maximum contribution limit, and an individual’s personal contribution limit depends on such factors as service, performance, and salary. These plans don’t permit catch-up

3,7 contributions.​

The SIMPLE IRA.​This is like a SIMPLE 401(k) – a small business retirement plan with mandatory employer and optional employee contributions and a current $11,500 annual contribution cap. But in this plan, there is one big difference for the business owner. If the business is not doing well, the owner can reduce plan contributions. The employer contributions are still 100% vested from the beginning, and $2,500 catch-up

3,8 contributions are currently allowed for employees 50 and older.​

The Keogh Plan.​The Keogh is designed for small unincorporated businesses. There are defined benefit, money purchase and profit-sharing variations; the defined benefit variation is a qualified pension plan offering a fixed benefit amount. In 2010, the annual contribution limit for a profit-sharing Keogh is $49,000.9​

Did you know you had so many choices? I​f you are an employer, you may not have realized you have such an array of choices in retirement plans. But you do, and asking the right questions may represent the first step toward implementing the right plan for your future or your company. Be sure to ask a qualified financial advisor or business retirement plan consultant about your options today.

Ron Richards is a Representative with Cambridge Investment Research

Ron R. Richards may be reached at 208.855.0304 or r​on@cir1daho.com.​

www.cir1daho.com

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative 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. www.montoyaregistry.com www.petermontoya.com

Citations.

1​smartmoney.com/personal-finance/retirement/got-a-401k-question-13841/ [2/2/10] 2​irs.gov/retirement/article/0,,id=119625,00.html [1/5/10] 3​turbotax.intuit.com/tax-tools/tax-tips/tax-planning-and-checklists/5438.html [4/19/10] 4​smartmoney.com/personal-finance/retirement/understanding-the-roth-401k-17679/ [2/2/10] 5​kiplinger.com/businessresource/forecast/archive/DBk_pension_of_future_090819.html [8/19/09] 6​bankrate.com/finance/retirement/where-to-find-income-for-retirement-1.aspx [3/9/10] 7​irs.gov/retirement/article/0,,id=111419,00.html [2/3/10]
8​irs.gov/retirement/article/0,,id=111403,00.html [10/16/09] 9​moneycentral.msn.com/quickref/quickref.asp?cat=10&qamode=2&reftype=0&selcat=6&sub=4&topic=5 [4/19/10]

Weekly Economic Update – October 26th, 2015

EXISTING HOME SALES ACCELERATE
The National Association of Realtors measured a 4.7% gain in residential resales for September, and the annualized sales pace of 5.55 million units was the second best seen since February 2007. Over the past 12 months, existing home sales are up 8.8% with the average sale price up 6.1% (September’s median sale price was $221,900). 1

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The Fine Art of Flexible Estate Planning

Specialized trusts & private loans can help address some “what ifs.”

Provided by Ron R. Richards

Estate planning professionals often contend with ambiguities. A plan may need to be modified in the future when some development in family life occurs – and there are some estate planning tools that may help to provide that kind of flexibility.

Standby trusts. These are unfunded revocable living trusts that go into effect when and if families need them. (Sometimes they are referred to as contingent trusts.)1

In a common scenario, a family has a history of hereditary illnesses, and mom or dad worry about one day being mentally or physically disabled to the point where they cannot make financial decisions. So a standby trust is declared through a living trust document – or alternately, a will may contain a provision authorizing one when necessary.2  

A standby trust goes into effect upon a triggering event. It could be the death of the grantor; it could be a diagnosis of a terminal illness or a form of dementia for that individual. At that point, the revocable standby trust can become an irrevocable trust with assets transferred into it via a durable power of attorney.3

Should the grantor recover from a prolonged disability or illness, the standby trust can remain revocable and the grantor can regain control over the assets.4

From a life insurance standpoint, the mechanics work as follows. One spouse buys either a survivorship life insurance policy or a single life policy insuring the other spouse, naming the standby trust as the contingent owner of the policy. The policy owner has control plus access to the cash value of the policy. If the policy owner dies first, the policy is transferred to the trust and the trustee names the trust as the policy beneficiary. Only the fair market value of the policy is added to the estate of the decedent; the trust pays the policy premiums until the surviving spouse dies, at which point the trust receives the policy death benefit tax-free.5

Spousal lifetime access trusts. If it seems that one spouse might live decades longer than the other, a spousal lifetime access trust (SLAT) may offer a helpful estate planning option. A SLAT essentially gives a longer-living spouse access to a trust established by a spouse who passed away.6

A SLAT is actually a form of irrevocable life insurance trust (ILIT) that one spouse creates for the benefit of the other. One spouse is the grantor, and the spouse expected to live longer may be named the trustee (or another party can be named as such).5

Premiums on the life insurance policy are paid by the trust. These payments are funded by gifts of property from the grantor. A SLAT is funded with separate property of the grantor spouse rather than community property.5

Basically, this is an irrevocable life insurance trust (ILIT) with one key difference: the spouse is a beneficiary as well as the children/grandchildren. The surviving spouse (trustee) may distribute assets out of the trust for his/her own benefit as well as the benefit of the heirs. As a SLAT is also an ILIT, heirs receive a tax-free life insurance benefit when the longer-living spouse passes away.5 

What if the spouse dies before the grantor dies? If that happens, the trust assets (including the life insurance policy) are usually inaccessible to the grantor as this is an irrevocable trust.5

Private demand loans. Similar to a SLAT, these are also arranged with the help of either a survivorship life insurance policy or a single life policy. In this instance, an ILIT is created but the grantor loans funds to the ILIT instead of gifting them. The trustee uses these loaned funds to pay premiums on a single life policy on the grantor or a survivorship policy on the grantor and the other spouse. (The annual gift to the ILIT may vary depending on required interest rates stipulated by the IRS.) The loan is payable on demand if the grantor needs the money; the trustee can do so using the cash value of the policy. So the couple retains indirect control over the policy while they live (with access to its cash value) while also establishing an irrevocable trust.5

Could these ideas work for you? They may be worth exploring. These flexible estate planning techniques all use life insurance creatively, offering couples access to cash value while aiming to keep the death benefit of the policy out of the taxable estate of the spouse.

Ron R. Richards may be reached at 208.855.0304 or ron@cir1daho.com.

www.cir1daho.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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 – info.legalzoom.com/contingent-trust-trustee-22534.html [3/16/15]

2 – avvo.com/legal-guides/ugc/california-revocable-living-trusts [3/16/15]

3 – tyelaw.com/practice-areas/trust/ [3/16/15]

4 – californiaestatecorp.com/RevocableLivingTrust.aspx [3/16/15]

5 – internal.nfp.com/webfiles/public/2012/emails/brk/qrtly-sales-ideas/links/3FlexibEstateLiquidityIdeas.pdf [9/11]

6 – tinyurl.com/mmfoqnz [1/18/13]

Weekly Economic Update – October 19th 2015

A SURPRISE: HO– USEHOLD OPTIMISM RISES

Even after a bad month for stocks and numerous negative headlines, the University of Michigan’s preliminary October consumer sentiment index showed notable improvement. It came in at 92.1, up 4.9 points from its final September reading. Analysts surveyed by MarketWatch expected an initial October reading of 88.5.

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An Estate Planning Checklist

What to check (and double-check) before you leave this world.

Presented by Ron R. Richards

Create a will if you do not yet have one. A valid will may save your heirs from some expensive headaches linked to probate and ambiguity. A solid will drafted with the guidance of an estate planning attorney will likely cost you a bit more than a “will-in-a-box,” but may prove to worth the expense.

Complement your will with related documents. Depending on your estate planning needs, this could include some kind of trust (or multiple trusts), durable financial and medical powers of attorney, a living will and other items.

Review your beneficiary designations. Who are the beneficiaries of your retirement plans and/or insurance policies? If you aren’t sure, it is probably a good idea to go back and check the documentation to verify (or change) who you have designated as beneficiary.

Create asset and debt lists. You should provide your heirs with an asset and debt “map” they can follow should you pass away, so that they will be aware of the little details of your wealth.

Think about consolidating your “stray” retirement and/or bank accounts. This could make one of your lists a little shorter. Consolidation means fewer account statements, less paperwork for your heirs and fewer administrative fees to bear.

Let your heirs know the causes and charities that mean the most to you. Write down the associations you belong to and the organizations you support.

Select a reliable executor. That personal should have copies of your will, forms of power of attorney, any kind of healthcare proxy or living will, and any trusts you create. In fact, any of your loved ones referenced in these documents should also receive copies of them.

Talk to the professionals. Do-it-yourself estate planning is not recommended, especially if your estate is complex enough to trigger financial, legal and/or emotional issues among your heirs upon your passing.

Ron R. Richards may be reached at 208.855.0304 or ron@cir1daho.com.

www.cir1daho.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

Weekly Economic Update – October 12th

SEPTEMBER FED MINUTES SHOW CAUTION

Minutes from last month’s Federal Open Market Committee meeting provided a bit more insight into the Federal Reserve’s decision not to tighten monetary policy in September. Fed officials opted to “wait for additional information” before making a move, noting that “recent global economic and financial developments may have increased the downside risks to economic activity somewhat.” Even so, most FOMC members thought it appropriate to raise rates “before the end of the year”, believing that slowing economies elsewhere had not “materially altered” the economic outlook for America.

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Should You Apply For Social Security Now…or Later?

When should you apply for benefits? Consider a few factors first.

Provided by Ron R. Richards

Now or later? When it comes to the question of Social Security income, the choice looms large. Should you apply now to get earlier payments? Or wait for a few years to get larger checks?

Consider what you know (and don’t know). You know how much retirement money you have; you may have a clear projection of retirement income from other potential sources. Other factors aren’t as foreseeable. You don’t know exactly how long you will live, so you can’t predict your lifetime Social Security payout. You may even end up returning to work again.

When are you eligible to receive full benefits? The answer may be found online at socialsecurity.gov/retire2/agereduction.htm.

How much smaller will your check be if you apply at 62? The answer varies. As an example, let’s take someone born in 1953. For this baby boomer, the full retirement age is 66. If that baby boomer decides to retire in 2015 at 62, his/her monthly Social Security benefit will be reduced 25%. That boomer’s spouse would see a 30% reduction in monthly benefits.1

Should that boomer elect to work past full retirement age, his/her benefit checks will increase by 8.0% for every additional full year spent in the workforce. (To be precise, his/her benefits will increase by .67% for every month worked past full retirement age.) So it really may pay to work longer.2

Remember the earnings limit. Let’s put our hypothetical baby boomer through another example. Our boomer decides to apply for Social Security at age 62 in 2015, yet stays in the workforce. If he/she earns more than $15,720 in 2015, the Social Security Administration will withhold $1 of every $2 earned over that amount.3

How does the SSA define “income”? If you work for yourself, the SSA considers your net earnings from self-employment to be your income. If you work for an employer, your wages equal your earned income.4

Please note that the SSA does not count investment earnings, interest, pensions, annuities and capital gains toward the current $15,720 earnings limit.4

Some fine print worth noticing. Did you know that the SSA may define you as retired even if you aren’t? (This actually amounts to the SSA giving you a break.) For 2014, the SSA considered you “retired” if you were under full retirement age for the entire year and your monthly earnings were $1,290 or less.5

If you are self-employed, eligible to receive benefits and under full retirement age for the entire year, the SSA generally considers you “retired” if you work less than 15 hours a month at your business.5

Here’s the upside of all that: if you meet the tests mentioned in the preceding paragraph, you are eligible to receive a full Social Security check for any whole month of a year in which you are “retired” under these definitions. You can receive that check no matter what your earnings total for all of that year.5

Learn more at socialsecurity.gov. The SSA website is packed with information and is quite user-friendly. One last little reminder: if you don’t sign up for Social Security at full retirement age, make sure that you at least sign up for Medicare at age 65.

Ron R. Richards may be reached at 208.855.0304 or ron@cir1daho.com.

www.cir1daho.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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 – socialsecurity.gov/retire2/agereduction.htm [11/6/14]

2 – socialsecurity.gov/retire2/delayret.htm [11/6/14]

3 – forbes.com/sites/janetnovack/2014/10/22/social-security-benefits-rising-1-7-for-2015-top-tax-up-just-1-3/ [10/22/14]

4 – ssa.gov/retire2/whileworking2.htm [11/4/14]

5 – socialsecurity.gov/retire2/rule.htm [11/6/14]

   

Weekly Economic Update – October 5th, 2015

142,000 NEW JOBS CREATED IN SEPTEMBER

Is a global slowdown impacting the U.S. economy? The latest Labor Department jobs report seemed to say yes. Hiring last month fell far short of the 200,000 total projected by economists in a MarketWatch survey. Moreover, job gains across July and August were revised down by 59,000. There was some good news – the U-6 (underemployment) rate declined 0.3% to 10.0%. The headline jobless rate stayed at 5.1%. After the report’s release, just 2% of futures investors on the Chicago Mercantile Exchange felt the Federal Reserve would raise interest rates in October; only 29% thought the Fed would do so in December.

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Monthly Economic Report – September 2015

THE MONTH IN BRIEF
The Federal Reserve left interest rates alone in September, but that did little to calm investors. Growth worries took the market south again – the S&P 500 lost 2.64% for the month as more disappointing economic news filtered out of China. Perceptions of reduced demand for crude oil and other raw materials led to monthly losses in the commodities sector. America’s economic indicators looked good by comparison, but encouraging consumer spending and consumer confidence numbers failed to distract Wall Street during a gloomy end of summer for equities.

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How Do You Know When You Have Enough to Retire?

There is no simple answer, but consider some factors.

Provided by Ron R. Richards

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.

Ron R. Richards may be reached at 208.855.0304 or ron@cir1daho.com.

www.cir1daho.com

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]