With the growth in popularity of 401k plans, it’s common for employees to accumulate large account balances through disciplined savings and the power of compound investment growth.  Much of the attention over the years has centered around the habits and skills needed to effectively create a significant retirement nest egg. But, as retiring employees are discovering, accumulating the nest egg is only half the challenge.  The other half is all about how you distribute income from your nest egg once you retire.  The more efficient your plan, the longer the money lasts.  There is growing evidence and concern that employees aren’t well prepared for the task of converting a lump sum of money into an income stream that lasts for their lifetime. Here are the primary issues: Ideally, preparation should begin well before retirement in the preretirement working years. The “optimal plan” requires different and specialized tax and investment techniques coupled with some actuarial...

In a previous post, we discussed the issues faced by business owners seeking to extract profits from their firms on a tax-advantaged basis through a qualified retirement plan and discussed the Safe Harbor 401-k Plan design.   In this blog post, let’s look at additional plan design opportunities well suited for self-employed business owners with few or no employees. This business could be someone’s primary occupation or a lucrative side business.  In either regard, a number of options exist that allow the business owner to shelter income from taxation and invest for retirement.  In our experience, individuals often do not look past the obvious choices and miss out on some interesting opportunities. A common default choice is the SEP IRA.  A self-employed business owner may contribute 25% of their net profits to a SEP IRA plan up to a maximum dollar amount of $54,000 in 2017.   It is a very simple plan...

Many small employers offer 401-k retirement plans as an employee benefit.  These plans offer a method for individuals to save and invest for their own retirement security and reward them with tax benefits and often some form of employer contribution.  For most employees, their 401-k plan is the most effective wealth building and retirement planning tool in their financial planning toolkit.  For the employer, it is a tool to recruit, reward, and retain the best employees and to be competitive in the labor marketplace. However, the owners of small firms are usually employees too.  They have their own unique set of retirement, tax, and investment goals.  In the financial planning/investment management world, we often speak of proper diversification as a tool to reduce risk when managing a portfolio.  But the prototypical highly-focused and hardworking entrepreneur often concentrates the majority of their resources (time, effort, and money) into one asset; their business...

In this final segment on Cash Management and Budgeting, lets connect all the dots from the previous four segments to construct one comprehensive easy to use system that helps you create the following: A forward-looking budget that accurately reflects the reality of your life and tells each dollar of income where to go. It gives the highest priority to the amount of savings, investment and debt reduction necessary to build wealth each month according to your unique financial goals, objectives and life values. A turnkey system that automates savings, investments, bill paying and record keeping each month simplifying your life and minimizing ongoing financial decision making and the time you spend worrying about money issues. There is an initial process required to create your budget and solve any deficits as outlined in parts three and four of this series.  If done well, it should function pretty much automatically thereafter with simple routine oversight. ...

In Part III of our continuing series on cash management and budgeting, we discussed the importance of identifying your highest financial priorities like retirement, children’s education, or buying a home when preparing your budget. Your savings for these priorities should be the first items in your budget.  Once these objectives are identified and quantified, then you should fill in all the remaining spending that takes place in your household.  Not surprisingly, most households find themselves in the red.  There just isn’t enough income to cover the savings needed to fund your life’s goals and continue your current spending patterns.  Learning to pay yourself first and then live on what is left takes some thoughtfulness and some time. There are three things you can do to balance your budget deficit over time; reduce your current spending, liquidate your debt, and automatically allocate future income growth to debt reduction or savings.  Obviously, debt reduction and...

The following is Part III of a four-part series from Senior Financial Advisor Winfred Jacob, CFP®

The following is Part II of a four-part series from Senior Financial Advisor Winfred Jacob, CFP®

The following is Part I of a four-part series from Senior Financial Advisor Winfred Jacob, CFP®

Over the course of our lifetime, we will accumulate various forms of “property”.   One of the decisions we need to make about our property is how we want it distributed at our death someday.  This may seem fairly straight forward, yet the concept of transferring property to heirs is a bit more complicated than people often assume.   In reality it’s easy to make some common errors that lead to unintended and unfortunate results.   Here are some of the issues or misconceptions that may cause us problems: Property transfers to heirs in different ways.  A will is an important tool in transferring property to our heirs, but it’s important to understand that some of our property may transfer via a different route entirely, not controlled by our will. For instance, life insurance policies, IRAs and employer sponsored retirement plans like 401k plans transfer via their beneficiary designations.  They will distribute the proceeds accordingly,...