Living on the Edge: Small Business Owners and Retirement

Do you feel comfortable with your retirement plan? If you’re a small business owner the answer to that question is probably no. In fact, according to this report by Jules H. Lichtenstein, Office of Advocacy, US Small Business Administration, “Retirement account ownership, contribution, and participation rates for all business owners are low” and that “Having a micro-business with fewer than 10 employees reduces the probability of an owner having a 401(k)/Thrift plan from 17.4 percent to 10 percent!”

This is a concerning statistic. Why is it that so many small business owners skimp on their own retirement? It can’t be lack of knowledge, because most of them have enough financial savvy to keep their businesses doing well. And it isn’t likely that the reason is lack of awareness, as most small business owners are well aware of the need for a substantial plan for the future.

Perhaps the reason is that small business owners feel the best investment in their future is to invest in themselves. Where an employee in a large corporation is likely to take any investment income and put it in stocks or savings, a small business owner is more likely to turn around and put that money back into growing her own company. Perhaps small business owners feel that they have limited options when it comes to retirement—after all, they don’t have a large corporation offering to match their retirement contribution. However, according to this article in the Motley Fool, small business owners actually may have more options than employees in large corporations.

“Several retirement plan options exist for small-business owners. They vary in how much money can be contributed, whether employees other than the owners may participate, what (if any) contributions the employer must make on behalf of employees, what deadlines there are for creating and putting money into the plan, and how hard it is to run the plan. Among the options small businesses commonly use are SIMPLE IRAs, SEP IRAs, profit-sharing plans, SIMPLE 401(k) plans, and single-participant 401(k) plans.”

So… are small business owners unaware of their many options for retirement planning, or are they merely more willing to live on the edge?

“For Richer or For Poorer, Till Death Do Us Part” Includes Retirement

“I take you to be my lawfully wedded spouse, to have and to hold from this day forward, for better or for worse, for richer, for poorer, in sickness and in health, to love and to cherish; from this day forward until death do us part.”

These aren’t just sweet words designed to bring a tear to your parents’ eyes on your wedding day, these words mean something—they mean that you intend to take care of your spouse all of your (or their) life. This includes retirement, and it even includes the months or years following your death.

You might think that caring for your spouse during retirement isn’t any different than caring for your spouse the rest of the time, but that isn’t necessarily true.  In many ways retirement requires us to look at familiar things with new eyes.  So how can you go about the familiar job of loving and caring for your spouse during a new and unfamiliar time?  U.S. News and World Report has some suggestions in this article entitled 5 Ways to Protect a Surviving Spouse in Retirement.

When you choose to retire your financial resources suddenly become finite.  You may still have an income in the form of a pension, social security, or withdrawals from savings accounts; but you can no longer count on regular pay raises or bonuses. According to author Mark Patterson, the key to protecting your surviving spouse (or even yourself!) during retirement is with maximization, preservation and planning. People often say they want to enjoy their retirement and spend their last penny on the day they die; but not at the expense of their spouse’s livelihood should he or she live 5, 10, or even 15 years after the first spouse is gone.

The good news is that you can enjoy your retirement and protect your surviving spouse.  All it takes is a little bit of forethought and a lot of planning.  The forethought you have to do yourself, but we can help you with the planning.  Call our office and let us help you show your spouse once again how much they mean to you.

Ensure that Your Retirement Savings Goes to the Right People

Do you know how your retirement plan fits into your estate plan?  Ideally you would never have to worry about this; you would spend the last penny of your savings on the day you die.  But life rarely works out according to ideal circumstances, and the reality is that doing a little bit of estate planning for your retirement savings can save your heirs a whole lot of money and confusion.

The good news is that it’s fairly quick and easy to make arrangements for the distribution of your retirement assets after you die—that’s why you fill out all those beneficiary forms when you start a new job or open a new retirement account.  The bad news is that it’s also fairly easy to forget about these forms as the years go by, which is how too many people end up inadvertently leaving their retirement assets to a divorced spouse or aging parents rather than to their current spouse or children.  How can you ensure that your retirement savings will go to the right people?

  • First and foremost, you’ll want to review your beneficiary designation forms frequently: every 2-5 years, and whenever you experience a major life event.
  • Second, always name contingent beneficiaries!  You may feel that if you name your spouse as the primary beneficiary you’ve done all you need to do, but in life you should always have a fallback plan, and your retirement assets are no exception.
  • Third, don’t count on your will to take care of everything.  Your named beneficiaries on your retirement account will override the beneficiaries named in your will.  If you are certain you want to leave your retirement assets to your estate, do so through a living trust and under the advice of an estate planning attorney.
  • Fourth, if you’ve named minor children as beneficiaries (either primary or contingent), make sure you name a guardian for your kids and a trustee for their assets.  You may want to use those retirement funds to provide for the kids if anything happens to you, but minors cannot legally control assets, and they’ll need someone to manage their inheritance for them until they come of age.

If you have more questions about fitting your retirement assets into your estate plan, more information is available in this article from, or call our office for more detailed and personalized information.

Harvard or Shady Oaks? How to Choose Your Financial Priorities

There are any number of things for which you can be earning and saving money: investments, retirement, college, a home, a car, the current high-tech gadget… The thought of it all is enough to make a person dizzy!  So how do you decide what are the most important things for your family’s financial happiness and security right now, and years down the road?  Choosing your financial priorities requires taking stock of the present, a lot of thought about the future, and a little bit of help from trusted advisors.

Robert Brokamp has written an article entitled “Should You Save For College Or Retirement”, which focuses on helping families and individuals organize their financial priorities.  In spite of the title of his article, what Brokamp really stresses that there is more to good financial health than just college or retirement; a good financial future means taking care of your finances now by paying off credit cards, building an emergency fund, and having adequate insurance.

Building a strong financial future includes more than just planning for college and for retirement, it should also include planning to ensure your family’s financial security should something happen to you.  Brokamp alludes to this in his article when he mentions purchasing an adequate life insurance policy, but he neglects to mention how little that policy will actually provide if your assets are eaten up after your death by estate taxes, probate fees, or a young and spendthrift son or daughter.

When it comes to your financial health, our firm may not be able to help you with the credit card fees, but we can help with the rest—especially ensuring that your efforts to save right now will not go to waste years down the line.

Trade Like A Man, Save Like A Woman

How will you be planning for your retirement? According to CNBC your gender could play a bigger role than you think in your retirement plan. While of course not everyone will adhere to gross generalizations, studies have shown that men and women do have a tendency to take a different approach to saving and investing for retirement. Which way is the right way?  Well, as John Ameriks points out in the article, “It’s not a matter of one gender being right and the other wrong… You just need to be aware of the differences when you’re making investing decisions.”

The differences may not be as surprising as you think.  Here are some of the things CNBC had to say about how men and women invest and save:

  • Men tend to be overconfident about their investing and retirement planning skills.
  • Women generally prefer less risky investments.
  • Men don’t plan for a long retirement.
  • Women save more over time.

Considering the fact that our society still tends to view the stock market as “a man’s game”, and one with which women aren’t quite as comfortable, it makes sense that a man would be more confident with frequent buying and selling, while a woman might tend to go for the safer investment requiring less action and attention over the long haul. But lack of attention doesn’t necessarily mean lack of awareness.  Women tend to worry more than men about security in their Golden Years.  The article posits that this is because many men don’t expect to live much past 80, but another possibility is that men have more confidence in their ability to earn a living at any time in their lives; whereas women (who are often the ones to leave the job market in order to care for family) are more afraid of having to depend on an outside source for their livelihood.

Part of planning for your retirement is planning for your estate.  Whether you are a man or a woman, adventurous or conservative, a trader or a saver—your retirement plan and your estate plan need to be in line with each other.  Our office can help ensure that your retirement and estate plans are compatible… both right now and decades down the line.

It’s Never Too Early to Start Thinking About Retirement

Every parent wants to teach their children fiscal responsibility, but it’s not always easy to impress upon live-for-the-now youngsters the concept of saving for a rainy day. Certainly teaching by example is one tried and true method; another is practice. But can a 15 to 21 year old really practice saving for retirement? Of course they can!  And according to this article in the Washington Post, they can reap incredible benefits.

“Setting up a Roth individual retirement account for your teenager can be a smart and rewarding move to consider at tax time… It makes good sense to set aside money that can grow many times over by the time it is put to use. And establishing an IRA with a teenager’s own cash — perhaps supplemented by the parents or grandparents — can convey a powerful financial message that no pep talk could match.”

If you show your child or grandchild that setting up a Roth IRA is just another milestone—similar to graduation, getting a driver’s license, or getting a first part time job—the lesson comes through loud and clear that saving for the future is a natural and normal part of adulthood.  In fact, the attainment of a first job can be the perfect instigating factor for setting up an account because “A Roth IRA can be opened only if the child has income from a job – and allowances don’t count.”

A Roth IRA can be a nice thing for a child to have for another reason… parents or grandparents can support and supplement the child’s investment with their own contributions as well.  A retirement account may not be the most traditional of gifts, but it’s never too early to learn the value—and necessity—of saving for the future.

Will You Take Advantage of New Roth Rollover Rules?

January of 2010 has brought with it a lot of change that is keeping financial and estate planners on their toes. In addition to the repeal of the estate tax (discussed in a previous post), we have been presented with new Roth IRA rollover rules that took effect January 1st, and which now allow anybody, regardless of income, to convert their traditional IRA to a Roth IRA.  The question now is: Is it worth it?

The answer to that question will be different for everybody, because the amount that will be taxed upon conversion depends entirely on the kind of contributions you have made to your traditional IRA in the past.  If you have made more non-deductible contributions than tax-deductible contributions to your traditional IRA you will almost definitely want to take advantage of the conversion opportunity.  If you have made fewer non-deductible contributions you may be looking at a higher tax bill.  However, the fact that the tax bill can be spread out over two years (but only if the conversion is made this year) should give even those who have made mainly tax-deductible contributions reason to consider the switch.

If you think you may want to make the switch, talk to your advisor.  Your financial specialist can tell you the pros and cons of switching based on your personal IRA history.  The nice part is that if you do decide to take advantage of the new rules, the decision doesn’t have to be permanent.  Those who convert their traditional IRA to a Roth IRA in 2010 will have until October 15, 2011 to change their minds and switch the account back to a traditional IRA.

Who Cares About Medicare?

One of the main concerns of anybody who is retired or nearing retirement is how to pay for medical expenses. Research shows that a healthy 65 year old couple can expect to pay somewhere around $305,000 in out of pocket medical expenses during the course of their retirement—and that’s a healthy couple! With expenses like this staring them in the face, it’s no wonder senior citizens are concerned about Medicare.

For those who don’t know, Medicare is a government administered insurance program providing health insurance coverage to people aged 65 and older, or to disabled persons who meet certain qualifications.  The Medicare program has many parts which variably cover hospital insurance, medical insurance, and more recently, some prescription drug costs. The Medicare program has proven to be a valuable resource for senior citizens since it was signed into law in 1965, but the program is far from perfect or comprehensive. This, plus recent developments with the health care reform bill have many people asking questions about the future of health care insurance for retirees.

To help answer these growing concerns about health care costs and the Medicare program, Time Magazine has published a special article about how to navigate the Medicare maze.   One of the most valuable portions of this article is “When—and How—to Enroll in Medicare”, but the article discusses other important issues such as:

  • Medicare’s Part A, B, D and More
  • How Medigap Policies Can Help
  • When to Buy Long-Term-Care Insurance

Still, the best way to assure that you are getting the right medical coverage for yourself or your spouse during your retirement is to talk to a professional.  Federal and State sponsored health insurance programs offer necessary help and coverage—but they can be fraught with confusing procedures and enrollment difficulties.  Your estate planning or elder law attorney will be able to help you with the process. Don’t wait until it’s too late.

Finding the Right Guide to Help You Navigate Rough Financial Waters

Whether you’re just starting out on your own at the age of 18, or a 65 year old thinking about retirement, or anything in between, financial planning is essential. When most people think about financial planning they think about saving and investing, but a financial plan encompasses much more than that; it includes planning for taxes, charitable giving, gifts to children and grandchildren… and it includes protecting your current assets and planning your estate.

If you’re just starting out on your own your goals may be simple: establish your long term plan, purchase a home, and start putting a little bit away each month toward retirement. If you’re older and more established in your career and finances, your goals are likely much more complex: college for your kids, long term care insurance for you and your spouse, helping to care for your elderly parents, and protecting your assets from estate taxes.

For those who are just beginning to think about your financial futures, this article by Wesley E. Watkis shares 6 basic steps to creating a financial plan, and is a good introduction to the world of planning, saving and investing. Watkis writes that the first step to financial planning is establishing goals; knowing what you want your money to do for you in the years ahead is essential before you map out your plan of attack.

Of course, if you’re a more established adult what you will need is personal guidance in turning those initial goals into an effective plan, and then help maintaining that plan and growing your wealth. For that you will most likely need to find a financial planner whose expertise and philosophy fits your family’s needs, but finding the perfect financial guide for your family is not always as easy as you would hope.

A large part of planning your finances includes planning your estate, and vice-versa; and our firm works closely with many excellent financial professionals. Please don’t hesitate to call our office where we can work with you to assess your needs, and put you in touch with a qualified financial professional who can help your family safely plan for the future.

The Good News is You’ll Live Longer…

Planning for retirement often requires a fine-tuned equation including such variables as where you plan to live, how many years you’ve worked and how much social security you can expect, health care expectations, long-term care, and especially your life expectancy. Well, part of that equation is about to change, because according to U.S. News and World Report the life expectancy in the United States has increased 1.4 years since 1997.

It may seem like a small change, but the article reminds us that when planning for retirement “it’s also important to note that many people live far longer than average and life expectancy increases every year.” And time is the great equalizer, it seems. The expectancy gap between the lifespan of men and women is closing, as is the gap between Caucasians and African Americans.

What this means is that if you planned for your retirement based on an equation from 10 years ago, you may need to revisit your plan with your financial advisor. “Most financial advisers recommend budgeting for at least 20 years of retirement and preferably 30 years in case you do live into your 90s.” Planning this way means you may end up with a surplus, but “it’s better to leave something behind for your children than to use up your entire savings and have no income outside of Social Security.”

And if you do think you may have a surplus to pass on to your children and grandchildren, our firm can help you protect your retirement income right now, AND for future generations.