The Most Important Question in Retirement Planning

It’s a touchy subject, but walking clients through a life expectancy analysis is the best way to ensure they will have enough money to live their later years in comfort and ease.

What is your clients’ #1 fear in retirement? Outliving their income. And what variable has the largest impact on whether or not they will outlive their income? Life expectancy. Your ability to successfully plan for your clients’ retirement is largely dependent on how well you can estimate their life span.

Longevity is the new buzzword in retirement planning, and rightfully so. It wasn’t that long ago when most people retired at 65 and maybe lived another five to 10 years if they were lucky. Those days are over, which makes current retirement planning a much more challenging endeavor. People are living much longer, and their retirement nest eggs must live much longer as well. Not only are life spans increasing, but statistics tell us that the longer people live, the longer they will live.

According the Social Security Administration, a man who reaches the age of 65 today is estimated to live until he is 84.3 years old. A woman turning 65 today is expected to live, on average, until she is 86.6 years of age. In addition to that, 25% of all 65-year-olds today will live past 90 and 10% will live beyond 95. This dramatic increase in life spans is also expected to continue well into the future.

Longevity planning is becoming a larger and larger component of successful retirement planning. In order to ensure that your clients do not outlive their income, maintain a comfortable lifestyle, and have choices in retirement, you must be as accurate as possible in estimating their life expectancy.

Unfortunately, estimating longevity is not even close to an exact science. The traditional approach for most advisors is to rely on actuarial tables for a best estimate. However, with life expectancies increasing practically every year, the mortality tables may no longer be enough.

Overestimating life expectancy is almost as bad as underestimating it. You may think a safe response to the whole longevity question would be to simply assume death at the age of 105. While underestimating could result in clients outliving their income, overestimating can affect the clients’ quality of life throughout their retirement by forcing them to spend less than they could.

Individual life expectancy analysis

To increase the probability of success in estimating life span, advisors should consider developing an individualized life expectancy analysis for each client. Begin by emphasizing to clients that everything you do in planning for their retirement revolves around this number. Therefore, it is critical to the success of their retirement plan that you are able to estimate their life span as accurately as possible. Only then can you begin to develop a plan that will adequately provide for that life span.

Areas you’ll want to consider when doing individualized life expectancy analysis are: medical history, family history, and lifestyle habits. Following are some questions you might want to include:

Medical and family history

• Have they ever had a heart attack or been diagnosed with any kind of heart disease?
• Are they or have they ever been on cholesterol medication?
• Have they ever been diagnosed with high blood pressure?
• If so, are they on medication?
• Have they or anyone in their immediate family—parents, grandparents, siblings—ever had a stroke?
• Have they or anyone in their family ever had any type of cancer?
• Are their parents still alive?
• If not, what did they die of and how old were they when they passed away?
• Are all their siblings still alive?
• Have any of their siblings experienced any serious health problems?

Lifestyle habits

• On a scale of 1-10, with 10 being a health nut and 1 eating at McDonald’s every day, how would they rank their diet?
• Do they exercise regularly?
• How many times a week?
• What kind of exercise?
• Have they ever smoked?
• Did either of their parents smoke?
• How many days a week on average do they consume alcohol?
• Do they always, sometimes, or never wear a seat belt?
• On a scale of 1-10, with 10 being they could go postal any second and 1 they’re in a pleasant coma, how would they rank their daily stress levels?

It’s probably best to go through these questions with your client so you can add your personal touches and even some humor where appropriate. You can then explain to them that you’ll be reviewing their answers together with the actuarial tables to determine the life expectancy you’ll be using when developing their retirement plan.

Once you’ve completed the process, review the mortality tables and decide whether years should be added or subtracted from the client’s life expectancy based on their answers to the questions. A large number of “bad” answers, especially the parents’ age at death, would justify lowering your estimate, while a preponderance of “good” answers would suggest a higher estimate is appropriate. The parents’ age at death is generally considered an anchoring data point for most longevity estimates, unless death occurred by other than natural causes.

Obviously no one can know for sure how long a particular client will live. As mentioned earlier, this is definitely not an exact science, but it will likely give you a better estimate than relying on the actuarial tables alone.

The more accurate your estimate, the better your retirement planning will be. Taking clients through this process will give you additional insight into appropriate strategies to use in their retirement planning as well as proper asset allocations at different stages of their retirement.

Your clients will appreciate the extra time and thought you’ve put into getting their retirement plan right. Doing an individualized life expectancy analysis will also truly set you apart from your competition.

Maier & Associates Financial Group is here to help!

At Maier & Associates, we are committed to helping you manage your finances as you strive to achieve your financial goals today, tomorrow, and many years down the road. Your financial success is important to us, which is why we create a wealth management strategy designed to meet your personal financial goals and dreams. Visit our website at http://maierandassociates.com/ or simply give us a call at (800) 282-4503.

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August 17, 2015 Weekly Market Update from Maier & Associates Financial Group

Stocks moved slightly ahead of last week. Both the large-cap S&P 500 and Dow posted modest gains by week's end as did the small-cap Russell 2000. The Nasdaq was relatively flat posting only a 0.09% gain week-on-week. The Global Dow, possibly influenced by the generally slumping Chinese economy coupled with that government's devaluation of the yuan, finished the week in negative territory.

The price of gold (COMEX) rebounded from last week, selling at about $1,113.20 by late Friday afternoon. Prices for crude oil (WTI) fell to a level not seen since early 2009, selling at $42.18/barrel by week's end. The national average retail regular gasoline price decreased to $2.629 per gallon on August 10, 2015, $0.060 less than last week's price and $0.876 below a year ago.

Maier & Associates Financial Group is here to help!

At Maier & Associates, we are committed to helping you manage your finances as you strive to achieve your financial goals today, tomorrow, and many years down the road. Your financial success is important to us, which is why we create a wealth management strategy designed to meet your personal financial goals and dreams. Visit our website at http://maierandassociates.com/ or simply give us a call at (800) 282-4503.

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August 11, 2015 Weekly Market Update from Maier & Associates Financial Group

It could be the result of an impending interest rate hike in September, or slumping oil prices, or lackluster earnings reports from some major companies, or it could be just summer doldrums, but the stock market definitely languished this past week as it has for most of the summer. The Dow continued its losing streak, falling over 300 points by week's end. The S&P 500 and Nasdaq followed the trend as well. but the week's biggest loser was the small-cap Russell 2000, which dropped 31 points, or over 2.5%.

Possibly in response to the increasing likelihood that interest rates are going up in the near term, the price of gold (COMEX) fell a bit compared to last week, selling at about $1,093.00 by late Friday afternoon. Prices for crude oil (WTI) continued spiraling downward, selling at $43.75/barrel by week's end. The national average retail regular gasoline price decreased to $2.689 per gallon on August 3, 2015, $0.056 less than last week's price and $0.826 below a year ago.

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Maier & Associates Financial Group is here to help!

At Maier & Associates, we are committed to helping you manage your finances as you strive to achieve your financial goals today, tomorrow, and many years down the road. Your financial success is important to us, which is why we create a wealth management strategy designed to meet your personal financial goals and dreams. Visit our website at http://maierandassociates.com/ or simply give us a call at (800) 282-4503.

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August 3, 2015 Weekly Market Update from Maier & Associates Financial Group

The stock markets rebounded last week amid a tepid report from the Federal Open Market Committee seemingly halting talk of an imminent interest rate hike – although every indication points to some rate movement before the end of the year. Nevertheless, each of the major U.S. indexes showed improvement over last week. Both the large-cap Dow (121 points) and S&P 500 (24 points) posted gains, as did Nasdaq, which jumped almost 40 points. Even the Global Dow showed improvement.

On the other hand, the price of gold (COMEX) continued to hover around $1,095.00 as the demand remained weak. Crude oil (WTI) saw some upward movement early in the week, but ended up losing value – selling at $46.77/barrel as of late afternoon Friday. The national average retail regular gasoline price was $2.745 per gallon on July 27, 2015, $0.057 less than last week's price and $0.794 below a year ago.

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Maier & Associates Financial Group is here to help!

At Maier & Associates, we are committed to helping you manage your finances as you strive to achieve your financial goals today, tomorrow, and many years down the road. Your financial success is important to us, which is why we create a wealth management strategy designed to meet your personal financial goals and dreams. Visit our website at http://maierandassociates.com/ or simply give us a call at (800) 282-4503.

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Key Retirement Plan Limits and Reminders for Business Owners

Small business owners have a number of opportunities to save more money in their retirement plan accounts. The key is to know which benefits apply and the governing rules. These general guidelines can help your clients maximize their retirement contributions for 2015 and beyond.

The IRS recently announced the retirement plan limits for 2015, which includes the maximum contribution amounts and other limitations that apply to employer-sponsored retirement plans (employer plans).

In many cases, these create opportunities for your small business clients to contribute more to their retirement savings accounts. However, these benefits can be negated if the applicable rules are not followed. The following are some general guidelines that can be used to help your clients stay within the applicable limits.

$53,000 annual addition: Double-up opportunities for clients who work two jobs (with caution)

The annual addition limit for 2015 has been increased to $53,000. This limit applies to defined contribution plans, including 401(k) plans, SEP IRAs, profit-sharing plans, and 403(b) plans. Both employer contributions and salary deferral contributions are counted when determining whether contributions have reached this limit for an individual.

While many small business owners understand that this limit applies to one employer plan, some are unsure of how it applies to individuals who participate in multiple employer plans. Some either contribute too much or miss out on opportunities to make additional contributions.

If you have clients who participate in multiple retirement plans, the controlled group and affiliated service group (ASG) should be used to determine whether any such client can contribute the maximum amount to each retirement plan.

Example

• John works for ABC Corporation and receives $53,000 in contributions to the ABC Corporation’s 401(k) plan.
• John also runs a successful consulting business and pays himself an annual salary of $250,000 from the business.
• There is no common ownership between the two businesses and no affiliated relationship.
• If John establishes a 401(k), SEP IRA, or profit-sharing plan for his consulting business, he can contribute up to $53,000 to his account under that plan.
• John’s contribution for the year could be up to $106,000, compensation allowing.
• If John will be at least age 50 by the end of the year, he can contribute an additional $6,000 in catch-up contributions if the plan is a 401(k) plan (but see salary deferral limits below).

On the other hand, if John has ownership in two businesses and wants to contribute $53,000 to a retirement plan established for each business, it must first be determined if both businesses are part of a controlled group of companies or an ASG. In that case, both businesses are then likely treated as one for retirement plan purposes. If the businesses are not part of a controlled group or ASG, then John can contribute the maximum amount under each plan.

Note: The controlled group and ASG rules are highly complex and beyond the scope of this article. Clients should consult with an ERISA attorney for assistance with determining controlled group and ASG status.

Don’t forget the 25% cap

The maximum deductible contribution amount for the year is 25% of compensation. As a result, employer contributions to retirement plans such as small business owner 401(k) (SBO-K) plans, profit-sharing plans, and SEP IRAs are limited to the lesser of 25% of compensation or $53,000.

This means that if a participant’s compensation for the year is $50,000, the maximum employer contribution amount that can be contributed to that individual’s account under an SBO-K, SEP IRA, or profit-sharing plan is $12,500. Under an SBO-K plan, additional salary deferral contributions can be made up to $18,000, plus catch-up contributions of $6,000 if eligible.

$18,000 salary deferral limit plus $6,000 catch-up is aggregated

The salary deferral contribution limit for 2015 has increased to $18,000, plus an additional catch-up contribution of $6,000 for participants who are at least age 50 by the end of the year.

This limit applies on a “per-individual” basis. As a result, this is the maximum amount that can be contributed for the year by an individual, regardless of the number of plans in which he participates.

Exceptions to 457 plans

For this purpose, 457 plans are not included. As such, if an individual participates in a 401(k) and/or 403(b) and a 457(b) plan, she can make salary deferral contributions of up to $18,000 to the 401(k)/403(b) plan, and still make salary deferral contributions of up to $18,000 to the 457(b) plan.

If eligible, catch-up contributions of up to $6,000 can be made to each. This means that for someone who participates in a 457(b) plan and a 401(k)/403(b) plan, the total salary deferral contributions for the year can be up to $36,000, plus up to $12,000 in catch up contributions for those who are at last age 50 by the end of the year.

$12,500 plus $3,000 catch-up for SIMPLE IRAs

The salary deferral limit for SIMPLE IRAs has been increased to $12,500, plus an additional $3,000 catch-up contribution for participants who are at least age 50 by the end of the year.

When determining whether an individual has reached his/her salary deferral limit of $18,000, salary deferral contributions made to SIMPLE IRAs are taken into consideration.

$265,000 compensation cap must be used for calculating contributions

The compensation cap has been increased to $265,000. This is the maximum amount that can be taken into consideration when calculating plan contributions.

For example, assume Sue establishes a profit-sharing plan for her business. Assume too that the contribution to the plan for the year will be 10% of compensation.

If Sue pays herself W-2 wages of $300,000 for the year, the maximum amount of contribution she can receive under the plan is $26,500. While 10% of $300,000 is $30,000, the maximum amount of Sue’s compensation that can be considered when calculating her contribution is $265,000.

$600 minimum SEP IRA eligibility

The minimum eligibility compensation for SEP IRAs has been increased to $600.

An employee who meets the other eligibility requirements must be covered under a business’s SEP IRA if he receives $600 or more in compensation from the business for the year.

Keeping within limits is only part of the equation

Ensuring that contributions do not exceed statutory limits is only one of the compliance requirements for employer plans. If a client’s retirement plan covers common-law employees, testing may be required to ensure compliance. This includes performing tests to ensure that contributions do not discriminate in favor of highly compensated employees. In some cases, it may be necessary to engage the services of a third-party administrator, who would be responsible for ensuring that all compliance requirements are satisfied.

Maier & Associates Financial Group is here to help!

At Maier & Associates, we are committed to helping you manage your finances as you strive to achieve your financial goals today, tomorrow, and many years down the road. Your financial success is important to us, which is why we create a wealth management strategy designed to meet your personal financial goals and dreams. Visit our website at http://maierandassociates.com/ or simply give us a call at (800) 282-4503.

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July 6, 2015 Weekly Market Update from Maier & Associates Financial Group

Stock markets closed the holiday week on a sour note for the second week in a row. While several domestic indicators have been favorable, such as housing and unemployment, the markets across the board continued to lose value on the heels of Greece closing its banks for a week and missing a debt payment, coupled with China cutting lending rates in an attempt to support its sagging economy, while Puerto Rico has indicated it can't pay its bills. The S&P 500, the Dow, Nasdaq, the Russell 2000, and the Global Dow all lost more than 1% compared to their respective closes last week. Year-to-date, the Dow has reached negative territory, down 0.52%.

The national average retail regular gasoline price decreased to $2.801 per gallon on June 29, 2015, $0.011 under last week's price and $0.903 below a year ago. Gold closed Friday's trading period selling at $1,167.80, down $5.40 from a week ago ($1,173.20).

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Maier & Associates Financial Group is here to help!

At Maier & Associates, we are committed to helping you manage your finances as you strive to achieve your financial goals today, tomorrow, and many years down the road. Your financial success is important to us, which is why we create a wealth management strategy designed to meet your personal financial goals and dreams. Visit our website at http://maierandassociates.com/ or simply give us a call at (800) 282-4503.

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June 29, 2015 Weekly Market Update from Maier & Associates Financial Group

Bolstered by very favorable housing news and heightened consumer expectations, the economic news was generally good for the week ending June 26. Unfortunately, the markets, which had experienced gains the prior week, can be described as mundane at best. Both large-cap benchmarks dipped this week, while small caps were not immune to a slight skid as the Nasdaq and Russell 2000 closed in negative territory. Possibly influencing the weak domestic market returns is the situation involving Greece and its creditors, who have not yet reached an accord regarding terms of a bailout. However, on Friday Greek Prime Minister Alexis Tsipras called a referendum for July 5 on bailout terms proposed by the country's creditors as deadlines loom.

Click to View & Download the Complete M&A Weekly Update

Maier & Associates Financial Group is here to help!

At Maier & Associates, we are committed to helping you manage your finances as you strive to achieve your financial goals today, tomorrow, and many years down the road. Your financial success is important to us, which is why we create a wealth management strategy designed to meet your personal financial goals and dreams. Visit our website at http://maierandassociates.com/ or simply give us a call at (800) 282-4503.

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