Should you contribute to your company’s Roth 401(k)?

October 23rd, 2018

The basic difference between a traditional 401(k) and a Roth 401(k) is when you pay the taxes. In a traditional 401(k), you make contributions with pre-tax dollars, so you get a tax break up front that lowers your current income tax bill. With a Roth 401(k), it’s the reverse: you make contributions with after-tax dollars, but withdrawals of contributions and earnings are 100% tax-free at age 59½, so long as you’ve held the account for five years. Although everyone’s situation will be different, many advisors suggest splitting your contributions between your traditional 401(k) and Roth 401(k) to enjoy their dual tax benefits.

Looking For Free Financial Advice?

October 16th, 2018

Looking for free financial advice? Money Smart Week, launched by the Federal Reserve Bank in 2002 for people of all income levels, is one of the most comprehensive financial literacy programs in the country. And it’s free! Get informed about saving for college, buying a house and using credit wisely.

Source: moneysmartweek.org.

Looking At ‘Generational Money Habits’

October 11th, 2018

Generational money habits – How did my grandparents manage their money?

One thing that has changed significantly over the past century is people’s attitude towards money and how they manage it. Do we learn these habits from our parents, or do we recognise their bad habits and implement change to ensure we don’t do the same thing?

When I was growing up, the phrase my parents constantly used was “We can’t afford it”; even today, when I hear those words it sets me off.

My poor husband has to deal with the onslaught of comments that come from me when he has to deliver the message that we need to “tone down our spending”. In all honesty, the overspending most of the time is down to me, but the fact that I have not been able to break the “can’t afford it” cycle infuriates me!

Many articles have been written about baby boomers spending everything before they die, or millennials being overwhelmed with student loan debt, but rarely do you read articles that describe exactly how different generations manage their money.

My 99-year-old grandfather is part of “the Greatest Generation”, people who were born between 1910 and 1924. It’s crazy to think my grandfather was actually born in 1919! However, what is almost incomprehensible is that in 1929, at the start of the Great Depression, my grandfather’s parents were both killed by a horse-drawn milk truck when he was only 10 years old. My grandfather was then raised by his older sisters and a spinster aunt, and even during the Great Depression his aunt, who was illiterate, made sure my grandfather went to school so he would not be.

I imagine the events of 1929 and later greatly influenced the person he became and certainly guided his choices and decisions on how he managed what he earned. Fast-track his life to 1969: he retired at age 50 and is still living a financially comfortable retirement 49 years on. Whatever he did, he certainly did it well!

One thing my grandfather was most proud of was the fact he never borrowed money, not even for his home. In fact, he has never borrowed from anyone or owed anyone anything. I can’t even imagine being able to buy a home without a mortgage – home ownership and a mortgage go hand in hand these days.

My grandfather told me that he saved 20 per cent of each pay cheque from day one because he wanted to make sure he could take care of himself and never have to rely on anyone financially.

Nowadays, the benefits of a company pension plan that requires both the employer’s and the employee’s contribution are pathing the way for our long-term retirement goals. Our grandparents, and even some of our parents, never profited from employee benefits, and although these are mandatory, they have been put in place to secure our financial future.

At the end of the day, if you look at money management through the generations, there are still binding principles that hold true: set aside money for your future and borrow as little as you can. The reality is, it doesn’t matter how much money you make if you can’t figure out how to manage it.

Taken from a column in bernews.com. Carla Seely is the Vice President of Pension and Investments at FM Group. If you would like any further details, please contact her at cseely@fmgroup.bm or call +1 441 297 8686.

New Tax Law Changes Treatment of Mortgage Interest

October 9th, 2018

For 2018, taxpayers may only deduct interest on $750,000 for qualified residence loans taken out after Dec. 15, 2017. This new limit applies to the combined amount of mortgage and home-equity debt. In addition, the new limit applies only to loans used to buy, build or improve the taxpayer’s main home and second home, according to the IRS. Taxpayers no longer can deduct a home-equity line of credit for any purpose.

Source: irs.gov.

Managing the Emotions of Volatile Markets — a Survey

October 4th, 2018

The financial markets in 2018 experienced lots of ups and downs we haven’t seen in a long time. How do you stay focused on your goals when the markets get volatile? Take this short quiz to uncover your feelings about investing.

  1. When do you plan to stop working?
    1. 40 years or more
    2. 20 years
    3. 10 years or less
  1. When the stock market drops 10% or more, how do you feel?
    1. I pay no attention.
    2. I become a little concerned, but generally stick to my investment game plan.
    3. I freak out.
  1. How often do you check your retirement account balance?
    1. Once a year
    2. Occasionally
    3. Every day
  1. Which of the following statements captures your feelings about losing money in the short run?
    1. Markets go up and down every day. Over longer timeframes, their historic tendency has been to rise.
    2. I check to see if my asset allocation is significantly out of balance, but generally don’t do anything about it. Markets eventually recover.
    3. I feel sick, and want to sell everything.
  1. What’s the most important factor when thinking about risk and reward in your retirement plan?
    1. It’s time in the market, and not timing the market, that counts.
    2. I accept risk as a normal part of investing. Without some level of acceptable risk, I cannot expect to get a reasonable return.
    3. The risk of losing money in the markets is intolerable to me.

Score your answers:

Give yourself 20 points for each answer “a”; 15 points for every “b” and 5 points for each answer “c”. Total your score.

80 to 100 points (Green light): You are comfortable with maintaining your long-term investment strategy through volatile markets.

40 to 79 points (Yellow light): The risk of loss is somewhat concerning to you, whether that’s because you are getting closer to retirement age or feel anxious when markets go down. Think about resetting your asset allocation to be more conservative.

20 to 39 points (Red light): The risk of losing money is weighing heavily on you. Spend some time to understand how stocks, bonds and cash investments have performed historically, and consider working with a financial advisor who is sensitive to your feelings and who may be able to suggest investment products that seek to limit losses.

The scores are based on generally accepted investment principles and are not intended as investment advice or recommendations. There is no guarantee that a particular investment strategy or asset  allocation will meet your objective. Additional factors should be considered as part of a comprehensive review of your individual financial situation.

Employees Prefer a Retirement Paycheck

October 2nd, 2018

The shift away from traditional pension plans means today’s employees are largely responsible for their own retirement security. Yet many seem to long for the “good old days,” at least in the sense of knowing they will receive a monthly income throughout retirement.

What role should companies play in the retirement security of their employees, especially as it relates to steady retirement income? And how can employees best meet the need for a retirement income they can count on? Those were among the questions explored recently with about 1,000 U.S. employees.

While 54% of the survey’s respondents said they retain primary responsibility for their own retirement security, 27% said companies are primarily responsible, and 19% believe it’s the government that has primary responsibility. Asked if they would prefer a set retirement paycheck for life from their employer over a lump sum of money to invest themselves, 58% preferred the steady paycheck. Interestingly, that sentiment came not only from Baby Boomers, but also from Millennials.

Employees want to partner with employers

Employees continue to want to partner with their employers in the planning and execution of their retirement savings, the survey found. In fact, they said they want companies to be more involved in providing for their retirement security in the next five to 10 years; 61% of respondents agreed with that sentiment, compared to just 9% who said the employer should be less involved.

When asked whether they would prefer to set aside part of their salary into a company-sponsored retirement plan or into the Social Security program, about three-quarters said they prefer to channel their money to the company plan. In fact, 56% said they would prefer to save on their own rather than paying into Social Security, if those were the only two choices. Forty-four percent preferred Social Security to saving on their own.

This information, which was gleaned from MetLife’s Role of the Company Survey2, released in April 2018, aligns with research that found a crisis in financial confidence among single female retirees; close to half of those surveyed are not confident their savings will last through age 90.3

Annuities and advisors increase confidence

The concept of a paycheck for life could be realized, even without traditional pension plans, through the purchase of annuities. Among single retirees, 71% of women with an annuity felt confident that they could live the retirement lifestyle they want, compared to 56% of those without an annuity. The figure was 68% for single male retirees, whether or not they owned an annuity.

2 https://www.metlife.com/about-us/newsroom/2018/april/for-retirement-employees-prefer-steady-paycheck-over-managing-th/

http://www.limra.com/Posts/PR/News_Releases/LIMRA_Secure_Retirement_Institute_Single_Retirees_Feel_More_Vulnerable_to_Longevity_Risk.aspx

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The same research shows that working with a financial advisor can have a significant impact on retiree confidence. Three out of four single men and women retirees who work with an advisor were confident in living the lifestyle they want, while 66% of single men and 54% of single women who do not work with an advisor feel that way.

October Checklist

September 26th, 2018

  • Audit third quarter payroll and plan deposit dates to ensure compliance with the Department of Labor’s rules regarding timely deposit of participant contributions and loan
  • Verify that employees who became eligible for the plan between July 1 and September 30 received and returned an enrollment Follow up for forms that were not returned.
  • For calendar year safe harbor plans, issue the required notice to employees during October or November (within 30 to 90 days of the beginning of the plan year to which the safe harbor is to apply). Also, within the same period, distribute the appropriate notice if the plan features an EACA (Eligible Automatic Contribution Arrangement), QACA (Qualified Automatic Contribution Arrangement) and/or QDIA (Qualified Default Investment Alternative).

Financial Terms To Know: Managed Account

September 21st, 2018

Managed account: A managed account is a fee-based investment product for individuals that offers a high degree of customization by investment managers, along with certain tax efficiencies. A managed account often charges fees that are higher than mutual funds or exchange-traded funds (ETFs) to compensate the investment advisor for the higher degree of customization it offers, or for providing access to highly skilled investment managers.

How Millennials View the Role of Employers and Government

September 18th, 2018

As the workforce transitions toward more Millennials in company leadership roles, change is happening in how things are done and in attitudes. Recently, a national cross-section of workers was asked about a variety of topics that included what they expect from their company. According to the survey, American workers say they play the largest role in their own success. But the next-highest number, 76% of the workers, say their employer should have “a meaningful role in providing access to opportunities to help them be successful.” In fact, 36% of the surveyed workers said their employers should have a large role in providing access to opportunities to be successful. That figure is higher than the 34% who said their families should have a large role in their success. The list of actions employers could take to give employees the help they need, according to the survey, included: access to financial products, including retirement savings plans, to help them grow and build wealth (87%); health and wellness programs (85%); and free financial education courses (82%).

Read more of the American Workers Survey commissioned by Prudential and conducted by Morning Consult, at https://tinyurl.com/Worker-attitudes-Pru.

What Happens To Your Pension When You Die?

September 14th, 2018

Written by Carla Seely for Bernews.com.

What happens to your pension when you die?

Anyone who knows me will know one subject I skirt around and immensely dislike talking about is death; I don’t even like using the word – it is just so final.

For me personally, I am not sure whether I am afraid of dying, or if I am more afraid about being told I am going to die and only have a certain amount of time to live. I don’t want the pity stares or the “I am so sorry” comments.

I can’t imagine what my mum at age 63 felt when she was told she had terminal cancer and only 1–2 years to live. She never made it to her 65th birthday, but what she did do was make sure her affairs were in order and that her estate would be distributed as per her wishes.

A common question we get in the pensions industry is in regard to what happens to a balance in a pension upon death. It’s a valid question, and the answer depends on whether it is pre or post retirement, what type of pension product you have now and what option you might select in the future.

First things first: your company’s pension plan, whether it is a defined contribution or defined benefit, will have an option to designate a beneficiary; this also applies to individual pension plans. A beneficiary as it relates to your pension plan means, in the simplest terms, the person[s] whom you designate to receive the retirement funds in the event of your death.

When you enroll in your company pension plan or open an individual pension plan, there will be a section to fill out regarding your beneficiary designation: it will ask for the specific details of the beneficiary and what percentage of the pension balance you wish to leave them in the event of your death.

The amount designated to the beneficiary will be represented as a percentage, e.g. 100% to a spouse. You may elect to have multiple beneficiaries, e.g. 50% to a spouse and 50% to a sister, but most importantly, if there is a balance in your pension plan, who you leave it to and how you decide to split it is entirely up to you.

It is also important to note that a beneficiary does not need to be a family member – you can leave it to anyone, including a charity. However, one disclaimer is that if you put down a beneficiary that is under the age of 18, you must include a trustee who will take care of the funds until the minor becomes of age.

Once you retire and you want to start receiving a retirement income from your pension, you need to study the options available with the company that administers your pension plan, and also see what the competitors are offering to ensure you select a retirement option that supports your retirement goals.

Whether you choose an annuity with monthly payments or select the drawdown method to receive retirement payments, each retirement options has its own set of rules regarding how any residual balance would be treated with regard to a beneficiary.

Sit down with your pension provider and make sure you understand each option and the impact each option will have on retirement. The last thing any retiree wants is to discover they are locked into an option that isn’t working.

As I tell all my clients, we all work hard for the money we make and we can’t change our fate, but we can make intelligent decisions about our retirement.

– Carla Seely is the Vice President of Pension and Investments at FM Group. If you would like any further details, please contact her at cseely@fmgroup.bm or call +1 441 297 8686.