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June 13th, 2018 by

business owner retirement planning

Investing in your own business makes sense. Many businesses achieve significant growth each year. However, when you consider that many small businesses fold every year, it becomes clear that banking your retirement solely on the success of your business might not be the best idea. There is no guarantee that your business will continue to grow or even maintain its current value. If your business is worth less than you were counting on at the time you planned to retire, you could be forced to continue working or sell it for less than what you were expecting.

A business owner often assumes that their businesses will be their main source of retirement funds, but that strategy could be riskier than you think. For business owner retirement planning, it’s generally not wise to put all your eggs in one basket. Broadly diversifying your assets may help protect against risk.

Business Owner Retirement Planning Starts Early

Diversification involves dividing your assets among many types of investments. Putting all your money into a single investment is risky. You could lose everything if the investment performs poorly, even if that investment is your own business. Of course, diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against the risk of investment loss.

Consider what would happen if you were to rely solely on the sale of your business to fund your retirement. What if the U.S. economy falls into a recession about the time you plan to retire? If a recession occurred when you planned to retire, it could affect the sale of your business or the income it generates for you.

Likewise, there is no assurance that a larger competitor won’t overtake your market, or that demand for your business’s goods and services won’t weaken because of new technology, rising energy prices, consumer trends, or other variables over which you have no control.

As a business owner, your business is almost certain to provide some of the money you need to retire. By building a portfolio outside of your business & considering the need for life insurance, you are helping to insulate your retirement from the risks and market conditions that can affect your business.

You may be good at business, but I’m a retirement expert.

As a business owner, don’t neglect your retirement planning. Let me show you how to get the most from what you have & create a dream retirement. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD.
Contact me  1-833-313-7233.

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June 5th, 2018 by

403(b) plan

A 403(b) plan is a special tax-deferred retirement savings plan that is often referred to as a tax-sheltered annuity, a tax-deferred annuity, or a 403(b) annuity. It is similar to a 401(k), but only the employees of public school systems and 501(c)(3) organizations are eligible to participate in 403(b) plans.

Employees can fund their accounts with pre-tax contributions, and employers can also make contributions to employee accounts. Employer contributions can be the same amount each month or discretionary. Eligible employees may elect to defer up to 100% of their salaries, as long as the amount does not exceed $18,500 (in 2018, up from $18,000 in 2017). A special “catch-up” contribution provision enables those who are 50 and older to save an additional $6,000. Total combined employer and employee contributions cannot exceed $55,000 in 2018 (up from $54,000 in 2017).

Staying in control of your 403(b) plan

Employees have the option of choosing the types of products utilized in their funds. A 403(b) can be an annuity contract, a custodial account, or a retirement income account. It is a good idea to do a little research before selecting how you would like to use your funds. Your employer can provide you with a list of the financial instruments that are available.

Distributions from 403(b) plans are taxed as ordinary income. Withdrawals made before age 59½ may be subject to a 10% federal income tax penalty unless a qualifying event occurs, such as death or disability.

Generally, once you reach age 70½, you must begin taking annual required minimum distributions. You can receive regular periodic distributions on a schedule, or you can collect your entire nest egg as a lump sum.

Participating in a 403(b) plan may be a good way to save for retirement. Contact your employer to find out what type of plan is available and how you can take advantage of this retirement funding vehicle. And, if you’re planning to retire soon, here are some tips you should be thinking about.

Are you taking full advantage of your 403(b) plan?

Have you got multiple 403(b) accounts from different employers? We can consolidate them & look at your overall retirement plan. So, contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD.
Contact me  1-833-313-7233.

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May 9th, 2018 by

student debt

Normally, it’s recent college graduates or young professionals that complain about the burden of student debt. However, the number of consumers age 60 and older with student loan debt quadrupled from 2005 to 2015 (see chart). During this period, the average amount owed by those 60 and older rose from $12,100 to $23,500.1

late life student debt

Repaying student debt can make it more difficult to save for retirement. Student loan borrowers who are 50 to 59 have lower retirement account balances than those without such loans. In 2015, 29% of loans by borrowers age 50 to 64 were in default, compared with just 17% for those under 50. For borrowers who are 65 or older, the default rate was even higher at 37%.2

If you have student debt or are considering a higher-education loan, here are some factors to keep in mind:

1. Federal Offsets

The federal government can withhold all or part of a tax refund and up to 15% of monthly Social Security benefits to pay back defaulted federal student loans.3(These federal “offsets” do not apply to private student loans, but private debt collectors may threaten to take such action.) Unlike some forms of loans, student debt is not dischargeable through standard bankruptcy proceedings.

2. Student Debt Payment Considerations

Federal student loans offer a variety of income-based repayment plans, but it’s important to make sure you are enrolled in the appropriate plan if your income changes, such as when you shift into retirement. Borrowers of Parent PLUS loans, designed specifically for parents, are eligible for a limited income-based repayment plan, but the student debt must be converted to a federal consolidation loan.

When making payments for a student who has multiple loans that have not been consolidated — for example, if you co-signed a loan for a student who has other loans under his or her name — make sure that your payments are being applied to the appropriate loan in order to preserve your own credit.

3. Think About Your Own Future

Although some older Americans still carry debt from their own education or a spouse’s education, almost three out of four student loan borrowers age 60 and older carry loans for children or grandchildren.4 Many parents feel a deep sense of responsibility to help put their children through college. But it’s also important to focus on your own financial future and maintain a consistent and realistic retirement strategy.

Sources:
1–2, 4) Consumer Financial Protection Bureau, 2017
3) U.S. Government Accountability Office, 2016

There are no scholarships to help pay for retirement.

I know you may have strong feelings about putting your children or grandchildren through college. But, there may be other solutions available to you. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me 1-833-313-7233.

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May 2nd, 2018 by

Should you pay off debt or save for your employer-sponsored retirement fund?

That’s a very good question and one that does not have easy answers. For one person, they may need to pay off debt. Another may benefit from money in the employer sponsered retirement fund. So, the answer boils down to how your money can best be put to work for you.

pay off debt

1. Debt interest rate vs possible financial instrument growth

If you make extra payments on a specific debt, you are essentially earning a return on the interest rate of that debt. For example, if you’re paying a credit card with a 14% interest rate, you are basically getting the same benefit as if you put away that money & earned a 14% growth on it. That rate of return would be difficult to match in your retirement portfolio on a long-term steady basis. So, if you’re carrying a balance on a high-interest rate credit card, your money may be best put to work paying down that balance.

However, paying down a house debt could be important to you. But, if you pay off debt of your house in lieu of setting aside money for your retirement, you may be making a mistake. That’s because the house interest rate debt is low (maybe like 5%). But, the compounded interest increases your earning potential over a long period of time. Therefore, the time-value-of-money will bring more benefit to you than trying to shave off a couple years on your mortgage. But, yes, there may be a good reason to want to pay off your mortgage debt. Entering retirement age debt-free is strategic & wise move.  Therefore, the key is to think strategically & carefully about growth versus debt interest rates in relation to your overall goals & circumstances.

2. Do you get matching contributions?

If you get matching contributions from your employer for your 401K account, it’s free money. That free money can increase the growth potential of your retirement plan account. If your employer offers it, try to take full advantage of the matching program. However, if your company does not offer a match plan, there are still huge tax advantages & long-term growth potential of even small contributions.

Planning & money discipline.

With a little budgeting & financial discipline, you may be able to pay off debt and save for retirement through your employer-sponsored plan. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  1-833-313-7233.

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April 30th, 2018 by

Stashing money away for retirement is complicated, so it’s not surprising that fundamental retirement guidelines have become popular over the years. Here are four that you might have come across in reading, researching, or just talking with friends. Like most guidelines, they offer helpful starting points but need to be examined critically and adjusted for your specific situation.

1. Save 10% of your pay for retirement.

This is a good beginning, but new retirement guidelines suggest putting away 15% of your salary. If you started late, you may need to save more. At the very least, save enough to receive any matching funds offered by your employer. Consider this: If you save just 6% of your salary and your employer offers a full 6% match, you are already putting away 12%!

new retirement

2. The percentage of stock in your portfolio should equal 100 minus your age.

This reflects fundamental retirement guidelines that younger people can take on more risk, while older people approaching retirement should protect their principal by converting some volatile growth-oriented stocks into more stable fixed-income securities.

Although the strategy is sound, the math may no longer be appropriate considering long life spans and low yields on fixed-income financial instruments. For example, if you followed this rule at age 40, 60% (100 less 40) of your portfolio would consist of stock, and at age 60, the percentage of stock would be 40%. Depending on your situation and risk tolerance, you may require a higher percentage of stock at either of these ages to meet your retirement goals.

3. You need 80% of your pre-retirement income during retirement.

New retirement guidelines suggest that you need 80% of your pre-retirement income during retirement. But, in fact, there is no magic number, and you may be better off focusing on your actual expenses today. Then, think about whether they’ll stay the same, increase, decrease, or even disappear by the time you retire.

While some expenses might disappear, like a mortgage or costs for transportation to and from work, new expenses may arise, such as travel, help with home maintenance, and medical costs. A typical 65-year-old couple who retires in 2017 might spend $275,000 on medical care in retirement, even with Medicare.1 Calculate how much you may need to pay for your expenses in retirement and add a cushion for “the unexpected”.

4. A “safe” withdrawal rate is 4%.

The “4% rule” suggests that you make annual withdrawals from your retirement nest egg equal to 4% of the total when you retire, with annual adjustments for inflation. This model was developed in the 1990s for a 30-year retirement with a portfolio that included 50% large-cap stocks.2Although this may be part of many retirement guidelines, some experts suggest a lower rate. Factors to consider include the amount of income you anticipate needing, your life expectancy, the rate of return you expect from your financial products, inflation, taxes, and whether you’re single or married.

Sources:
1) CNBC, October 5, 2017
2) The Balance, August 18, 2017

It’s your retirement. Plan it perfectly for you!

Retirement guidelines are helpful, but they are not exactly the same for everyone. Let me show you how to get the most from your retirement planning. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me 1-833-313-7233.

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March 12th, 2018 by

Contributing to a Roth IRA or a designated Roth account in an employer retirement plan do not reduce current income, but qualified withdrawals are generally free of federal income tax as long as they meet certain conditions. Moreover, withdrawals from a Roth IRA can tax-free and penalty-free at any time, for any reason.

Repositioning Your Retirement Dollars

  • If you have a traditional IRA but prefer the advantages of a Roth, you can open a Roth IRA and make contributions to either or both accounts. However, you are subject to the combined annual contribution limit.
  • You could also convert all or part of your traditional IRA money to a Roth IRA. You can convert contributions to an employer’s retirement plan to a designated Roth account if the plan allows for conversions.
  • Conversions of monies to a Roth account are subject to federal income tax in the year of conversion. Under current tax law and if you meet all conditions, the Roth account will incur no further income tax liability for the rest of your lifetime.
  • The prospect of a substantial tax bill can be daunting, but paying taxes now may be a worthwhile tradeoff for potential tax-free growth and tax-free income in retirement. And because you do not have to take required minimum distributions (RMDs) from a Roth IRA, you have more flexibility when taking withdrawals.
  • To make the tax liability of a Roth conversion more manageable, you could spread out smaller conversions over several years. Recharacterizations should take place by October 15 of the year following the tax year of the conversion.

Contribution and Distribution Rules

  • Eligibility to contribute to a Roth IRA phases out at higher income levels. (Income limits also apply for tax-deductible contributions to a traditional IRA if you’re an active participant in an employer plan.) IRA contributions for 2017 can be made up to the April 2018 tax filing deadline; however, employer-plan contributions and Roth IRA conversions for 2017 must be made by December 31.
  • To qualify for tax-free and penalty-free withdrawals, distributions from a Roth IRA or a Roth employer plan account must meet a five-year holding requirement and take place after age 59½ (with some exceptions).
  • RMDs from traditional IRAs and employer-sponsored retirement plans (including Roth accounts) must start in the year you turn 70½.
  • Beneficiaries of all IRAs and employer plans generally must start taking RMDs in the year after the original account owner’s death.

These things get confusing!

With multiple accounts in different places, it can get a bit confusing to know what to do with your monies. Let me show you how to get the most from your retirement planning. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me 1-833-313-7233.

Freeman2017-blog2

 

April 3rd, 2017 by

money in buckets

Saving money is difficult for everyone, especially when it is your last priority every month. However, you can achieve it with a little planning and diligence. No matter how much you are saving, celebrate it. A Federal Reserve study found that 27% of US pre-retirees age 60 and older had no retirement savings or pensions. Moreover, these statistics were common in other age groups too.

Some people find it easier to save more of their income when they create targeted accounts or “buckets” for specific goals. A bucket is simply an account for a single purpose. It is usually more efficient to have a certain amount of money diverted automatically to each bucket on a monthly basis.

Money in buckets for long term goals

It’s common for families to put money away for long-term goals such as retirement and college. However, you can also assign smaller buckets to save for shorter-term or recurring expenses such as household improvements, auto repairs, property tax bills, vacations, and holiday gifts.

Money in Buckets

Creating names for your buckets may help you create a clear visual image for each goal. Name creation tends to make it easier to track progress and makes it harder to spend the money carelessly. The concept of buckets may also inspire you to plan and save for the big-ticket items, instead of using credit and taking on massive amounts of debt.

If you’re not sure how to begin retirement planning, call me for a free consultation. I specialize in retirement strategies and making sure your nest egg is safe during your retirement years. Call 1-833-313-7233

May 18th, 2015 by

Retirement Plan

Your time in the workforce is limited, but you need ensure you have enough money for the rest of your life. It starts with an assessment of where you are now and looking at what choices you need to make to reach your goals.

Start with these strategies:

1. Start by increasing the amount you put in tax-advantaged product or vehicles, including your 401(k), IRA, SEP-IRA, Keogh, 403(b) or other plans. You can make larger contributions to many of these plans once you reach a certain age, and if you can, you should.
2. Be smart about Social Security. While you’re eligible to start drawing Social Security at age 62, that is not the best option for most people. Each year you wait until age 70 adds 7 to 8 percent to your monthly benefit.
Learn more about Social Security Retirement Benefits here.
3. Get a money checkup. If you’re not sure whether you’re heading in the right direction, find someone who is qualified to help you with your retirement goals.
4. Expect to work longer if you haven’t saved enough. If you can’t live on your Social Security and other income, you likely will have to keep working. That might mean starting a second career or a new business.
5. Figure out how much you’ll really need when you retire. It’s unlikely that you’re going to spend significantly less in retirement than you do now, unless you move to a cheaper area and slash your housing expenses. And if you plan to travel, you may spend even more.
6. Get out of debt. You don’t want to go into retirement owing money. Plus, interest you’re paying on loans is money you could be putting towards something else in your retirement goal.
7. Be ready to cope with life changes. The best-made plans can be swept aside if one spouse dies or if you lose the high-paying corporate job you expected to keep indefinitely. Divorce can also complicate plans. Expect to need a Plan B or C or even D.
8. Update your wills, trusts and beneficiaries. Retirement dollars are distributed to the beneficiaries you name on those products. Make sure you keep that information updated. It’s also wise to make sure you have an updated will, a trust, if needed, and health care surrogate documents. These issues are especially important for unmarried couples or couples in second marriages. See my video below on how to get started.

Source: US NEWS  “Saving Strategies for People Between Age 55 and Retirement” | May 14, 2015

I want to help you live your golden years stress-free. For that, we need to start planning early. So, let me help you assess where you are now and help you get to where you want to be.
Let’s get started today!
Contact my office at 1-833-313-7233 | MD, VA & DC.
Freeman Owen, Jr - Host of SAFE MONEY TALK on CBS The Big Talker 1580AM