Tag Archives: plan for retirement

Retire Without the Worry

More than half (54%) of near-retirees say they’re concerned about having enough money to last through retirement. Forty-five percent say they’ll need to work at some point during retirement.* But this doesn’t have to be your retirement story. Following these tips may give you a better retirement outlook.

Be flexible

Retirement10Retiring before you’re financially or psychologically ready can put a damper on your retirement. From a financial standpoint, if you retire too soon, you risk running out of money. Periodically review your retirement investments with your financial professional to see if you’re on track for your desired retirement date. If not, you may have to work a year or two longer, which could make a surprising difference in retirement readiness. Or, if you’re able to, increase contributions to your retirement account by enough now to meet your desired retirement date.

If you haven’t thought about what you’re going to do with your time, you may be at loose ends when you retire. Explore paying and nonpaying options for keeping active before you retire. The Employee Benefit Research Institute found that many retirement-aged people have nonfinancial reasons for continuing to work full- or part-time.**

Have multiple resources

It’s good to have a fixed income source, such as Social Security benefits and/or an employer sponsored pension plan, to help cover basic expenses and variable income sources, such as a 401(k) account, an individual retirement account (IRA) and personal investments. Because these accounts have the potential to increase in value, they may help cushion inflationary price increases. You can use the funds to help cover unexpected expenses and/or pay for retirement living expenses.

Be realistic about retirement expenses

Your expenses may or may not decrease at retirement, depending on the activities you intend to pursue. Ask your financial professional to help you realistically project your future retirement expenses based on your individual needs and wants so you can judge if you’re financially ready to retire.

* Maritz Research Retirement Study, 2013, surveying individuals with less than $500,000 in retirement resources

** ebri.org Issue Brief, March 2013, No. 384

Life Lessons: Countdown to Retirement

If retirement is close at hand, you’re probably ready to start relaxing after years of working hard. However, there are still a few more details to take care of to make sure you’re well prepared for your future. Here are a few suggestions to help you count down to retirement.

early_retirementReview Your Asset Allocation

Look closely at your portfolio’s asset allocation. As you near retirement, you may want to reduce your exposure to more volatile investments, such as stocks. However, consider keeping some of your retirement dollars allocated to stock funds or portfolios. Since your retirement could last a long time, you may want some investments that have the potential to produce inflation-beating returns.

Consider Distribution Options

Well before your retirement date, consider your plan distribution options. Keep in mind that if you take a lump-sum payment, you’ll owe income taxes in the year you receive the distribution.* That will leave you with less money to spend and reinvest during retirement.

Instead, you may choose to roll over the distribution into an individual retirement account (IRA) to defer taxation. Or you may be able to keep your money in your existing plan account. Either way, withdrawing the money over time would spread out your tax liability. If you decide to roll a plan distribution into an IRA, consider having your money directly transferred by your plan to the IRA to avoid federal income-tax withholding.

Keep Contributing to Your Plan

Use the time between now and retirement to add to your retirement savings. If you’re age 50 or over, your employer’s plan may allow you to make extra “catch-up” contributions. If this opportunity is available to you, taking advantage of it may help you accumulate more money for your retirement.

* Qualified Roth distributions are not subject to federal income taxes.

Target Date Funds: What Employers Should Know

shutterstock_2450250For many employers, the target date funds (TDFs) in their 401(k) plans can do no wrong. The concept of simply picking a fund that corresponds to approximate retirement dates, then leaving the asset allocation decisions to the professionals, has enormous appeal. But as a fiduciary to your plan, that doesn’t mean you’re off the hook by simply offering whatever TDF line-up your fund provider offers you.

The U.S. Department of Labor recently made that clear.

Background: Research shows that an increasing amount of defined contribution assets are going into target date funds.

The Labor Department’s Employee Benefits Security Administration warns that because fundamental variations among TDFs are so significant and impact performance, “it is important that fiduciaries understand these differences when selecting a TDF as an option for their plan.”

Here’s a summary of what the Labor Department recommends employers and plan fiduciaries to do:

Set a formal process for comparing and picking target date funds. The process should enable you to assess the prudence of any investment option made available under the plan.

Beyond the basics of checking on how well the TDF’s characteristics align with eligible employees’ likely retirement dates, “it also may be helpful for plan fiduciaries to discuss with their prospective TDF providers the possible significance of other characteristics of the participant population, such as participation in a traditional defined benefit pension plan offered by the employer, salary levels, turnover rates, contribution rates and withdrawal patterns,” according to the Department of Labor.

Establish a process for the periodic review of selected TDFs. Plan fiduciaries are required to periodically review the plan’s investment options to ensure that they should continue to be offered, the guidance states. “At a minimum, the review process should include examining whether there have been any significant changes in the information fiduciaries considered when the option was selected or last reviewed.” Sometimes a TDF’s investment strategy or management team changes significantly. If that happens, and you don’t like the change, “you should consider replacing the fund.”

Understand the fund’s investments. What are they, and how will they change over time? “Make sure you understand the fund’s glide path, including when the fund will reach its most conservative asset allocation and whether that will occur at or after the target date.” Some TDFs assume employees will keep holding onto those TDFs for the rest of their lives, and others assume they will re-invest those funds when they reach retirement. “If the employees don’t understand the fund’s glide path assumptions when they invest, they may be surprised later if it turns out not to be a good fit for them.”

Review fees and investment expenses. It should come as no surprise that TDF costs can vary significantly, both in the amount and types of fees. “Small differences in investment fees and costs can have a serious impact on reducing long term retirement savings.” (However, fees are not the sole determinant of net performance, of course.) “If the TDF invests in other funds, did you consider the fees and expenses for both the TDF and the underlying funds?” the Labor Department asks.

“Added expenses may be for asset allocation, re-balancing and access to special investments that can smooth returns in uncertain markets, and may be worth it, but it is important to ask.”

shutterstock_15716791Consider whether a custom TDF would be a better fit for your plan. The Labor Department notes that some TDF vendors use only their own funds as the TDF component investments. But a customized TDF may offer advantages by giving you the ability to incorporate the plan’s existing core funds in the TDF. “Non-proprietary TDFs could also offer advantages by including component funds that are managed by fund managers other than the TDF provider itself, thus diversifying participants’ exposure to one investment provider.”

Develop effective employee communications. “Just as it is important for the plan fiduciary to understand TDF basics when choosing a TDF investment option for the plan, employees who are responsible for investing their individual accounts need information too,” the Labor Department stresses. Much of what employees must receive is already mandated, of course, such as fee disclosure rules that went into effect last August. Those rules include specific fee and expense information about TDFs and other investment options available under their plans. (The Labor Department is also working on other regulations that will expand TDF reporting requirements.)

Document the process. As with other investment decisions, “plan fiduciaries should document the selection and review process, including how they reached decisions about individual investment options.”

Does My Retirement Plan or Health Plan Need Audited?

Many businesses may be asking themselves this question. According to the Department of Labor (DOL) there are some general rules regarding the auditing of retirement/health plans.  First, one has to decipher whether their plan is a “small” or a “large” plan.  Plans with 100 or more participants at the beginning of the plan year are considered “large” plans.  Plans with less than 100 participants at the beginning of the plan year are considered “small” plans. “Small” plans are generally exempt from DOL audit requirements.  “Large” plans  are not exempt from the annual audit requirement.

Additionally, there is an exception for those plans that routinely fluctuate between slightly more or less than 100 participants at the beginning of the plan year that would not require the plan to switch between being categorized as a “small” plan or a “large” plan due to inconvenience.   This rule is known as the 80-120 Participant Rule.  This basically states plans with between 80-120 participants at the beginning of the plan year may elect to complete the current year return using the same category (“small” versus “large”) that was used in the prior year.  Thus, if your plan had 110 participants at the beginning of this plan year but was considered a “small” plan in the prior year, then in the current year your plan is considered a “small” plan, which would generally not require an audit.  Also, in this instance, the plan would not require an audit in subsequent years until the number of participants exceeds 120.  On the other hand, if the plan had 110 participants at the beginning of this year, and was considered a “large” plan in the prior year, the plan would be considered a “large” plan in the current year and would need to meet the audit requirement.

The following table provides a summary of the 80-120 Participant Rule:

Number of Participants at Beginning of   Current Year


 Requirements Followed for the Previous   Year Form 5500


Requirements to Be Followed for the Current   Year Form 5500

Fewer than 80 “Small” plan “Small” plan
Fewer than 80 “Large” plan “Small” plan
80-99 “Small” plan “Small” plan
80-99 “Large” plan May elect to file Form 5500 again as a “large” plan or   switch to a “small” plan
100-120 “Small” plan May elect to file Form 5500 again as a “small” plan or   switch to a “large” plan
100-120 “Large” plan “Large” plan
More than 120 “Large” plan “Large” plan
More than 120 “Small” plan “Large” plan

This is just a general guideline.  There are other factors that may influence whether an audit is required or not required by the DOL.  Contact your William Vaughan Company representative for further information.

By: Ryan Leininger, CPA