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Are Early Retirement and Pension Buyout Offers a Good Deal for You?

Early Retirement

In today’s economy, offers of an early retirement buyout for a current employee or a pension buyout directed at a former employee are becoming common as companies look for ways to cut costs.

Many large employers are offering employees who are not yet at retirement age the option to take an early retirement buyout. Each company has their reason for providing the buyout, but mainly because it will save the company money to hire a junior employee to fill a senior employee’s role when the yearly salary is a factor.

For companies that had a pension plan for their employees, pension buyout offers have become standard practice due to the increasing costs of administering pension plans. Even though pension plans may not be currently part of the employer’s retirement plan, there may be former employees that have the pension plan. Companies have a desire to get the liabilities associated with the pension payments for retired employees off their balance sheets well ahead of their retirement start dates.

Both of these types of offers usually come with several options:

  • Take the value of your early retirement or pension buyout as a lump-sum payment which can be rolled over to an IRA. The advantage is the ability to manage this money outside the employer’s plan, perhaps growing the value to a level that would provide a more significant benefit than taking your payments every month.
  • Take a monthly payout now (earlier than your average retirement age) with tax consequences.
  • Do nothing and take your original pension payment (or a lump-sum if offered) at your planned retirement age.

Factors to consider:

  • Will taking one of the buyout options put you in a better financial position than doing nothing and waiting until your normal retirement age?
  • Are you comfortable managing a lump-sum yourself or do you prefer a financial advisor you trust to help?
  • Is your financial or health situation such that taking the monthly payments now would make sense?

These types of offers are likely to continue given the unknown financial future, the tariff environment, and the worldwide economy. If you receive an early retirement or pension buyout offer, please contact our office for a consultation. We can help you evaluate your offer and make the best choice for your personal situation. Contact us today!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

GDP: Does It Affect Your Portfolio?

Stocks vs GDP

Gross Domestic Product (GDP) is the total of everything produced in a country, even if it is made by a foreign company or foreign workers within a country’s borders. GDP counts the final value of a product, but not the parts that go into producing it as a way to avoid ‘double counting.’ In many countries, GDP is measured quarterly by adding personal consumption expenditures plus government spending plus business investment plus exports minus imports (GDP Standard Formula: C + G + I + (X-M). But does GDP have a bearing on your portfolio?

GDP growth is a measure of an economy’s growth but is not an accurate indicator of stock market performance. Although politicians like to use GDP as a goal in measuring the health of the economy, stocks don’t track upward or downward depending on the GDP.

There are continuing factors impacting the U.S. GDP:

  • The U.S. has shifted from an Industrial Economy to a Service Economy (not counted in GDP)
  • We are becoming ‘more efficient’ consumers, purchasing fewer non-essential goods than previously.
  • Low energy prices = reduced economic expansion

Indicators that are relevant to stock market performance include current economic conditions, changes in financial conditions for companies, and future production forecasts. Two industries that affect the stock market, regardless of the country of origin, are the automotive industry and the technology sector. When production booms or lags in either of these, it reflects in the stock market where the company is based.

However, when the stock market is over-performing or under-performing, consumer confidence directly affects GDP. During a bull market, there is optimism about the economy and consumer spending increases. As a result, company valuations increase, expansion happens due to increased product demand, companies can borrow easily, and more jobs are available. When the stock market is underperforming, consumers are reluctant to spend and impact on GDP.

If you have questions or concerns regarding the stock market and how your portfolio is performing, now is a great time to review it and plan for a market downturn. Contact us today!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Planning for the Long Haul: Is Your Plan for Retirement Bullet Proof?

Long Haul Runner

The good news is we are living longer, but the bad news is that having irregular employment, higher health costs and the premature depletion of retirement assets is becoming a reality for many Americans. Despite plans for retiring later (compared to previous generations) at age 69 or into the 70’s, unplanned events are contributing to earlier retirement, despite the best retirement planning preparation.

According to a 2018 survey by The Employee Benefit Research Institute (ERBI), 40% of participants in the study plan to retire after age 70 citing personal financial concerns. However, previous research studies by the same group revealed that many workers are forced to retire before age 60. Consider why the outlook for an unexpected early retirement is happening to many people:

Layoffs and Terminations

The ERBI survey revealed that 26% of workers terminate out of their jobs before turning age 60. Older workers are often paid higher wages than their younger counterparts and unfortunately are often the first to be terminated. Even with an early retirement buyout, many have a hard time finding work with the same pay rate and benefits.  The change in income is creating negative consequences for many as suspended savings contributions and premature liquidation is occurring when retirement assets become necessary for living.

Health Issues

Despite longevity increasing worldwide, many workers are forced to retire early due to health reasons. What we do to our health in our younger years affects us later; smoking, alcohol consumption, lack of a healthy diet and exercise and sleep deprivation are the most significant contributors affecting our health later in life with genetics being secondary

Keeping yourself healthy and employed is imperative to your retirement plan’s success. By preparing yourself financially and taking care of yourself, your plans for retirement have a better chance of being bullet proof-regardless of what life hands you.

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

When Your Child Inherits

For many parents, planning to leave their estate to their children is a common practice. There are many things to consider when planning to leave your children an inheritance, but the complexity increases when your child is beneficiary to someone else’s estate. What happens when the minor child becomes an heir, or when the child’s parent (a beneficiary) passes away before the benefactor? 

Children can’t legally own property until they become of legal age, even if they inherit. This can be a problem when wills and estate plans are not updated, and when the benefactor (a non-parent) doesn’t understand the complications of leaving an estate to a minor. If this is a situation you see your minor child being in, seeking legal advice to help you plan a course of action to address this in your own will or estate plan is essential.

As recent as 2016, the celebrity deaths of Carrie Fisher and her mother Debbie Reynolds show how relatives can die in close proximity. Although Carrie Fisher had no minor children at the time, this illustrates the likelihood a child could receive an inheritance from an unintended source at an unanticipated time.  Planning is crucial for high net worth individuals, those in second marriages, and for those planning to leave their children (especially minor children) an inheritance. 

For parents with minor children, having an estate plan for yourself and the other involved parent is important in case you both die in close proximity. Secondly, have a discussion with other relatives that may leave an estate to you or your minor child. Discussing the details of their will and estate plan can be uncomfortable, but relaying the reasons for your concern can make the discussion easier. 

In your own will, you have the legal right to determine who will assume responsibility for the management of your assets on your behalf until your child becomes of legal age, or when your will directs the age your estate will pass to your child.  However, be advised that with securities and life insurance policies there are additional requirements and paperwork if you choose to name your minor child as a beneficiary.

For minor children who inherit in this unintentional way, the timeline of passing the inheritance can be drawn out and expensive as the case moves through probate.  Each state has its own laws regarding passing assets to minors.  Planning for your own state’s laws can be beneficial for the time being, and keeping your will and estate documents updated is crucial while your children are minors.

As always, feel free to consult our office on the requirements for transferring assets to your minor children if part of your estate plan or will. Contact us today!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

The Perils and Possibilities of Self-Employment

Cheerful smart self employment

 

More people are choosing to become self-employed with one in three Americans leaving their jobs to go on their own. According to a twenty-year Harvard University Study republished in November 2018, the top reasons many are leaving stable employment is wanting more control over how and why they work and choosing who they work with for clients. This trend is expected to continue as older and highly educated workers choose the alternative working arrangements of self-employment.  

Other workers are forced to start their own business due to down-sizing by American companies as more companies are choosing to hire contracted labor versus hiring full-time employees and paying benefits. Necessity has also created an entrepreneurial opportunity for many to become self-employed due to technology advances eliminating workers, people working past age 69 in comparison to previous generations, and the slow recovery of business growth resulting in fewer positions with wages above the minimum wage.

Self-employment creates an interesting problem when it comes to benefits that others receive through their full-time employment such as health insurance and a retirement savings plan. Most U.S. workers rely on a three system approach to retirement savings: a governmental savings plan (Social Security), employer savings plans (401(k), etc.), and personal retirement savings.  Self-employed individuals are not always participating in these same savings plans, often they are only paying into the governmental plan of Social Security.

If you are self-employed or considering becoming self-employed, it is important for you to continue saving for your retirement on a regular basis. Your business may liquidate at some time in the future and provide you with retirement assets, but that is an unknown until the event happens. In the meantime:

  • Move your former employer 401(k) into an IRA to manage and avoid liquidating it to fund your business or the lean-times in cash flow.
  • Continue health insurance coverage and shop for a plan that is affordable and provides you with protection.
  • Keep your property and casualty insurance up to date.
  • Plan for retirement by meeting with a financial advisor and have a financial plan done that reflects this major life change of self-employment.
  • Set up a self-employment retirement savings plan such as a solo 401(k) and save regularly, even if at a minimal level.
  • Keep yourself focused, healthy, and stress-free. Self-employment can be stressful and take a toll on you if you don’t take care of yourself both physically and mentally.

If you have questions about setting up a self-employment retirement savings plan, contact our office to schedule a meeting.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Looking Ahead: The Tax Cuts, Jobs Act, and 2018 Income Tax Filing

Tax Cuts and settlement

 

This is the first tax filing season since the Tax Cuts and Jobs Act (The Act) was passed. Even though 2018 is over, there are tax planning strategies you should think about before you file and plan accordingly for 2019. There still remain 7 income tax brackets and the marginal rates have been lowered

However, many deductions have been eliminated which will necessitate that you plan ahead for 2019 and think about the losses and expenses you had this past year. Some over-looked items that may help to lower your taxable income:

  • Medical Expense Threshold- For 2018 The Act lowered the floor from 10% to 7.5% of adjusted gross income that must be exceeded in order to take a deduction for medical expenses on your 2018 tax return.
  • Combine Charitable Giving into the Same Year- The deduction for cash donations to charities has increased to 60% of the giver’s adjusted gross income. Charitable donations can be combined every other year to exceed the new higher standard deduction ($24,000 married; $12,000 single).
  • The Gift and Estate Tax Exemption- The exemption amount has almost doubled to $11.18 million per person and will increase through 2025 with inflation. The exemption amount is set to return to pre-2018 levels after 2025, so ‘use it or lose it’ if you want to pass assets now to your heirs and tax-free to both parties.
  • Harvest Your Investment Losses- This past year has been challenging for the stock market and investor portfolios. Consider harvesting your 2018 losses on your taxes to offset the capital gains in your securities portfolio from this past year.
  • Maximize Pre-Tax Retirement Savings Contributions Now- If your account was open prior to the end of December 2018 and you didn’t fully fund your accounts, now is the time to do so before Tax Day 2019.
  • Review Your Withholding for 2019- If you haven’t reviewed your tax withholding from your paycheck in the last few years, now is the time you can make adjustments before 2019 gets further underway. It may mean the difference in paying in on your tax return next year or not.

I’m able to provide you with information as it pertains to specific securities investments and their tax consequences, but recommend you consult your tax professional for additional tax savings strategies for your situation. Contact us today with your questions!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

High Income, High Financial Planning Risk?

High Income Workers

Despite having a high income from owning a business or being an executive, these individuals can experience retirement savings problems. They have missed savings opportunities or put off financial planning. Often they assume that everything will work out with their retirement plan, and it can, but their high-income can hide the reality of a retirement savings deficit when their career ends.  They failed in their early working years to consistently save, but why?

Many high-income and self-employed people often focus on the business being their retirement nest egg. The sale of the business being the funding source or an executive benefits package is sometimes an unknown in the early working years. Retirements today are different from the past since retirees desire the flexibility of choosing to work, volunteering, golfing daily, or doing anything they choose. This lifestyle is only possible if they have saved enough for retirement or are financially fortunate when they sell their business.

Consistent financial planning puts the self-employed and high-income executive in a better position to retire on their terms and when they choose. Here are some retirement plan ideas specific to these individuals:

  • Maximizing a Solo 401(k) or SEP IRA each year allows self-employed earners to save more than in a traditional 401(k), but with some additional requirements. For the self-employed or executive, these retirement plan options are the most obvious way to save and should be considered regardless of the financial status of the business.
  • Having a Deferred Comp Plan (DCP) allows larger deferral of compensation to help supplement other retirement savings plans later on.  A strategically planned DCP creates the option to choose an IRS contribution limit determined by the employer’s corporate lower tax bracket or the employee’s higher personal tax bracket when determining contributions for each year. 
  • A Defined Benefit Plan (DB) Provides the opportunity to contribute to retirement benefits well ahead of retirement time. A DB plan is a qualified-benefit plan and differs from a pension fund where the payout amounts are often dependent on investment returns. In a DB plan payments are determined by a formula that considers the length of employment, salary history, and other factors. If poor investment returns result in a DB plan funding shortfall, the employer must tap into the company’s earnings to make up the difference.

For those that are self-employed, avoid putting all of your additional revenue back into your business. Choose to contribute to a retirement savings plan and avoid believing you can ‘always make it up later’ when it comes to financial planning and retirement savings. Having a high income enables you to save more, but only if you consistently engage in planning for your retirement.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Financial Planning for a Couple’s Age Gap

Financial Planning for a Couple

Couples usually don’t retire at the same time when they have an ‘age gap’ between them. An age gap relationship is one where there is eleven or more year’s age difference between them. Age gap relationships are becoming more common as people are choosing to marry later in life, remarry or start a life-partnership with someone significantly younger.

According to the latest study from the National Center for Health Studies (2017 statistics), the average woman is living 81.1 years compared to 74 years in 1960; the average man is living 76.1 years compared to 67 years in 1960. The increase in life expectancy is helping to change the age differences in many couples, making financial planning even more critical.

In age gap relationships one member continues to work for a decade or longer than the other. The drawing of retirement assets and social security income earlier for one member, coupled with differing longevity factors presents a planning challenge compared to other couples.

Age gap couples may have up to a half-generation between their ages and should consider planning for two different scenarios to reflect their age difference. These couples shouldn’t rely on a financial plan based only on the older member’s financial information and longevity factors. Some things to consider for these couples:

  1. The older member may want to delay taking Social Security benefits until their full retirement age unless they have health issues. Delaying the benefits of the older member will benefit both if the older member was the higher income earner.
  2. Health insurance coverage will be impacted if the older member carried the health insurance and goes on Medicare, requiring the younger one to find new insurance.
  3. Basing the financial plan on the partner with the longer life expectancy will help the combined portfolio last over a longer time horizon. Both expected retirement dates should be included even if they are a decade or more apart.
  4. Considering the tax consequences for drawing down retirement assets at two different starting dates is important. With one member continuing to work, they should maximize their pre-tax retirement account contributions to off-set moving the couple into a higher income tax bracket. Most retirees have a higher income tax consequence for the first few years of their retirement.

If you’re in an age-gap relationship and need guidance in planning for your retirement start-date gap, now is a great time to get started on your unique financial plan. Contact us today to talk about your unique situation with no obligation.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

New Year, New Financial Resolutions?

New Financial Resolutions

The start of a New Year is the time when most people decide to implement changes in some areas of their lives. Whether it is health or money related, starting the New Year off with a plan feels good! According to research from YouGov Omnibus, last year 1 out of every 5 people (20% of the population) that made resolutions stuck to them, while 63% of the population said they didn’t make resolutions anyway! Even though 80% of New Year’s Resolutions made by ‘Resolution Makers’ fail by the end of the first quarter, having ‘resolutions’ is a positive thing because keeping them helps you change.

Here are the top financial resolutions that may be on your list for 2019:

  • Reduce Credit Card Debt: Are you one of the ‘revolver households’ that carries credit card debt month after month? Make 2019 the year you cut up the cards until you stop carrying balances.
  • Start an Emergency Fund: Start with a minimum of one month’s expenses. A fully funded emergency fund should have six months or more of expenses and should be in an account that you won’t access and one that’s not tied to market performance.
  • Save for Retirement: Set your retirement savings contributions to ‘auto-pilot’ and if your provider has automated increases, that’s even better! Make an effort to maximize your contributions, if possible. But then again, if you’re doing everything on this list, you can achieve this in 2019.
  • Reduce Spending: The less you spend, the more you can save. Although this one seems simple, without reviewing your spending at least at the beginning of this year, you have no way of knowing what you can cut out to reduce your spending. If you feel like you were financially insecure in 2018 or on the brink of it, 2019 is the year to take back control.

It takes a little effort but writing down your financial resolutions and having them in a visible place is crucial to keeping them. Much like a written financial plan, you are more likely to follow your financial resolutions when they are in writing. After you’ve written down your resolutions, share them! Tell others about your plan, your progress, and your failures. Lastly, keep your resolutions simple by taking baby steps and believe that you can achieve your goals in 2019.

 

Contact Us for a Portfolio Review

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

3rd Annual Charity Golf Tournament

Golf for a good cause?! We are there!

Check out our 3rd Annual Charity Golf Tournament highlights from December 17, 2018, benefiting the Sojourner Center of Arizona. Our clients and guests donated toys and more to brighten the holidays for those affected by domestic violence. While we’re still working on the final tally, there were well over 100 donations. 

Everyone enjoyed a gorgeous day on the links, playing a scramble tournament and multiple other contests, followed by a delicious dinner.  We can’t wait to do it again next year!

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