Why Should You Save for Retirement Early?

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Are you one of those people who think that they have plenty of time to start saving for retirement? If so, you’re making a huge mistake. The sooner you start saving for retirement, the more money you will have when it comes time to retire. 

In this blog post, we will discuss the importance of saving for retirement early and how compounding interest can help you reach your goals!

The Importance of Retirement Plans

When it comes to personal finance and money management, there’s a lot of misinformation out there. A study from the Financial Industry Regulatory Authority found that only 24% of Americans could pass a basic financial literacy test. This is why financial wellness programs and resources at work like retirement plans, are essential. They provide employees with the education and support they need to make sound decisions about their money.

If you’re not saving for retirement, start today. Even if you can only contribute a small amount, it’s important to get started. The earlier you start saving, the more time your money has to grow through compounding interest. 

Employees who opt out of retirement savings or put it off often don’t have the information necessary to make better decisions based on the power of compounding interest.

What is Compounding Interest?

Compounding interest is when you earn interest on your initial investment, plus any interest that has accumulated in previous periods. Reinvesting your earnings generates new earnings from the original investment – and that’s called compounding.

But it’s not just about starting early. Consistency is key when it comes to saving for retirement. The more you can save on a regular basis, the better off you’ll be down the road.

If you’re not sure how much you should be saving for retirement, a good rule of thumb is to save at least 15% of your income. But if you can save more, that’s even better.

For example, let’s say you start saving $200 per month at age 25. If you continue saving that same amount and earn a conservative return of six percent, you’ll have almost $900,000 saved by the time you retire at age 67.

What Happens if You Wait to Start Saving?

If you wait until age 35 to start saving, you’ll need to save almost $500 per month to have the same amount of money when you retire, as someone who started saving 10 years earlier than you.

The effect of compounding really adds up over time, especially if you start early. In the example above, the difference in savings between starting at 25 versus 35 is almost $600,000.

The power of compounding interest is real. And, the sooner you start saving for retirement, the more time your money has to grow. If you haven’t started saving yet, don’t wait any longer. 

What Types of Retirement Savings Programs Are There?

There are two main types of retirement savings programs – employer-sponsored plans and individual retirement accounts (IRAs). Employer-sponsored plans, such as 401(k)s, 403(b)s, and 457s, are tax-advantaged savings plans offered by many employers. These plans typically offer a matching contribution from your employer, making them a great way to save for retirement.

IRAs are another type of retirement savings account that you can open on your own. There are two main types of IRAs – traditional and Roth. With a traditional IRA, you make contributions with pre-tax dollars and pay taxes on the money when you withdraw it in retirement. With a Roth IRA, you make contributions with after-tax dollars and the money grows tax-free.

There are other types of retirement savings programs, such as annuities and pension plans. But employer-sponsored plans and IRAs are the most common.

If your employer offers a retirement savings plan, be sure to take advantage of it. If you don’t have access to an employer-sponsored plan, open an IRA and start saving on your own. It’s never too late to start saving for retirement.

How Much Would I Have to Save if I Started at 30?

A recent study found that an alarming amount of millennials and Gen-Zers have nothing saved for retirement. That’s scary considering that most people retiring today are living 20-30 years in retirement.

There are a number of reasons why millennials and Gen-Zers are so unprepared for retirement. One reason is that many of them are saddled with student loan debt. According to the study, millennials and Gen-Zers said their student loan debt was the biggest reason they weren’t saving for retirement.

Other reasons include low wages, high living costs, and a lack of financial literacy. Many young people simply don’t know how to save for retirement or don’t think they can afford to.

If you’re in your 20s or 30s and have nothing saved for retirement, don’t despair. It’s never too late to start saving. Even if you can only afford to save a little bit each month, it’s better than nothing. And the sooner you start, the more time your money has to grow.

If you started saving for retirement at age 30, assuming a six percent rate of return, you would need to save $383 per month to have the same amount of money saved as someone who started saving at 25.  

If you’re not sure where to start, try our retirement calculator. This tool can help you figure out how much you need to save and which type of retirement savings account is right for you.

Embed that calculator! 

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Final Thoughts

Saving for retirement may seem like a daunting task, but it doesn’t have to be. The earlier you start, the more time your money has to grow. And with the power of compounding interest on your side, you’ll be on your way to a bright financial future. The earlier you start saving, the more time you have to reach your retirement savings goals.

Saving early can also help you reduce your taxes in retirement. If you contribute to a traditional IRA or employer-sponsored retirement plan, you can deduct your contributions from your taxable income. 

Lastly, saving for retirement early can help you avoid running out of money in retirement. If you start saving early, you’ll have a larger nest egg that can last throughout your retirement years.

What are you waiting for? Start saving for retirement today. Talk to someone on our RWM team about the retirement savings options available to you and make saving for retirement a priority.

What is Meant by ‘Financial Wellness’?

What does financial wellness mean to you? For some, it might be having a certain amount of money in the bank or being able to afford a certain lifestyle. For others, financial wellness might mean being debt-free or being able to retire comfortably. No matter what your definition is, one thing is for sure: financial wellness is important!

In this blog post, we will discuss what financial wellness is and why it’s so important. We’ll also outline how as a business owner, helping your employees achieve financial stability and long-term wellness serves both you and them.

What Does Financial Wellness Mean?

Financial wellness refers to having a good handle on one’s financial situation and feeling confident about it. This includes everything from knowing how much money is coming in and where it’s going, to having an emergency fund in case of tough times, to investing for retirement.

There are a few key components to financial wellness:

  • A solid understanding of your financial situation. This means knowing what you earn, what you spend, and what you owe. It also means understanding how different financial decisions can impact your short-term and long-term financial health.
  • Having a plan. This plan should include both short-term and long-term financial goals. It should also account for unexpected expenses and income changes.
  • Making smart financial choices. This means choosing to spend money on things that will improve your financial health, and avoiding unnecessary purchases.

Why is Financial Wellness Important?

The term “financial wellness” not only describes the state of one’s financial health, but it also takes into account one’s emotional and mental well-being. Financial wellness is important because it allows people to live their lives without stress or worry about money. It also gives people the freedom to make choices without financial constraints.

Another important factor is that financial stress is a leading cause of work-related stress and can have negative effects on employee productivity. Also, happy employees tend to be more engaged and loyal to their company.

Seven Ways to Improve Financial Wellness

Financial wellness is important for employees and employers alike. As an employer, financial wellness programs can improve employee productivity and retention. As an employee, financial wellness can lead to a better quality of life.

Here are seven steps you can take to improve your financial wellness:

  1. Create a budget and stick to it
  2. Build up an emergency fund
  3. Pay off debt
  4. Save for retirement
  5. Invest money wisely
  6. Live below your means
  7. Participate in financial wellness programs at work

Steps You Can Take to Help Your Employees Attain Financial Wellness

So, what can you do as an employer to help your team members achieve financial wellness? Here are a few ideas:

  • Offer financial education and counseling
  • Provide access to financial planning resources
  • Encourage employees to save for retirement
  • Offer employee assistance programs for financial stress relief

There are financial education programs offered by organizations like the Financial Planning Association and the National Endowment for Financial Education.

There are lots of different financial wellness programs out there, but they all have the same goal: to help employees feel more confident and in control of their financial lives.

Offering financial wellness programs can be a great way to attract and retain employees. And since financial stress is a leading cause of absenteeism, it can also lead to improved productivity in the workplace.

By taking these steps above, you can help your employees become financially well and improve your bottom line at the same time. It’s a win-win!

Final Thoughts
The financial wellness of your employees is important because it can help improve productivity, morale, and engagement while also reducing financial stress.

As an employer, you can support financial wellness in your workplace by offering financial education and counseling, encouraging retirement savings, and providing access to financial planning resources. By doing this, you can create a more financially well workforce—and a stronger bottom line for your business.

So what are you waiting for? If you’re not already offering financial wellness resources like retirement plans to your employees, now is the time to start! Visit us to learn more!

The SECURE Act – Business Owners Guide

The SECURE Act, signed into law at the end of 2019, takes steps to address the retirement crisis and provides a host of benefits to business owners looking to sponsor retirement plans for their employees. These benefits include tax incentives, widened access for employers as well as greater inclusion for part-time employees. 

Let’s take a look at the SECURE Act, its impact on employers and what might be coming next with the SECURE Act 2.0. 

What is the SECURE Act? 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019. This act became law as of January 1st,  2020. 

What Does the SECURE Act Change?

The act changed a variety of retirement account rules. These changes included adjustments to who is eligible to contribute to retirement accounts as well as when withdrawals are required. Additionally, the new legislation adds an exception to the early withdrawal penalty.

The SECURE Act and Retirement Account Changes

According to US News, the act includes changes such as:

  • “The required minimum distribution age increases to 72, up from 70 1/2.
  • The age limit for IRA contributions has been removed.
  • Inherited retirement account distributions must be taken within 10 years.
  • New parents can take penalty-free withdrawals.
  • Long-term part-time employees may now be eligible for 401(k) plans.”

How Does the SECURE Act Affect Business Owners?

The main benefits to take advantage of under this new law include: 

  • Tax credits for establishing new retirement plans
  •  Tax credits for establishing automatic enrollment plans 
  • The creation of Multiple Employer Plans (MEP) and Pooled Employer Plans (PEP)
  • Inclusion of Long-term, Part-Time Employees

Let’s take a look at each of these changes in more detail.

Increased Tax Credit For Businesses Starting a Plan

The SECURE Act proposes raising the current Retirement Plans Startup Costs Tax Credit. 

Additional Tax Credit for Automatic Enrollment

The SECURE Act develops a new tax credit of up to $500 per year to employers to defray startup costs for new 401(k) and SIMPLE IRA plans that include automatic enrollment. Why? This additional tax credit will help to encourage business owners to add an automatic enrollment feature to their plan. 

Multiple Employer Plans (MEP) and Pooled Employer Plans (PEP)

One of the biggest benefits is that multiple, unrelated employers can participate in the same retirement plans through MEPs and PEPs, beginning January 1, 2021. 

Through PEPs, companies can benefit from their pooled buying power to lower administrative and investment costs. Additionally, companies can transfer some fiduciary liabilities and administrative burdens to third-party pooled plan providers.

This change can provide employers with more options and access to new systems. 

Inclusion of Long-term, Part-Time Employees

As a result of the tight labor market, many employers may be having difficulty attracting and retaining top talent. One impactful and often successful option of mitigating these challenges is for employers to offer 401(k) to their team. 

The SECURE Act supports these efforts through providing flexibility on the hours per year requirement for long-term, part-time employees to qualify for a workplace retirement plan. 

In the past, a part-time employee had to maintain at least 1,000 hours per year to qualify for the retirement plan. Now, with the SECURE Act, employees must complete at least 500 hours every year over a three-year period to qualify. This change can be helpful to seasonal employees or those who take long absences, such as parental leave. 

How Can Business Owners Take Advantage of the SECURE Act For Their Business?

While the overall goal of the SECURE Act is to simplify the process and provide benefits to employers, the process can still become complicated quickly. 

Because of this, the US Chamber recommends business owners should consider enlisting additional help in implementing SECURE benefits and “create retirement plans in an efficient, legal way.”  

The SECURE Act 2.0 May Be Coming

A House-approved SECURE Act 2.0 is on the horizon in the United States. This act includes over 50 provisions designed to address and remove some of the barriers faced by employees trying to save for retirement. The SECURE Act 2.0 will likely be finalized in the late fall or winter of 2022, along with some other provisions introduced by the Senate.

According to Forbes Advisor, we should know if the act will pass by the end of the year. 

Here’s what to be ready for if the SECURE Act 2.0 Bill passes.

Increased Credit for Small Employers

Does your business have less than 50 employees? If you start an employer pension plan your business may be eligible for a 3-year start-up credit that is now up to 100% (50% in the 2019 SECURE Act) for your start-up costs. 

There will also be credit for 5 years of up to 1,000 dollars per employee participating in your pension plan. If the law goes through these increases in credit will be effective for tax years beginning after 2022.

Multiple Employer 403b Plans

If your company has a 403b plan, or you’re planning on starting one, it can now be established and maintained as a Pooled Employer Provider (PEP) or Multiple Employer Plan (MEP). PEPs and MEPs provide great value because they limit employer compliance responsibilities and fiduciary liability by outsourcing your plan to a provider. 

Employing Military Spouses

Do you employ any military spouses? The new act will create a nonrefundable income tax credit for small employers that employ military spouses and allow them to take part in your defined contribution plan. The credit will be $250 per employee, plus up to $250 for contributions made by the employer, and applies for up to 3 years. 

Expanded Automatic Enrollment 

Your 401k and 403b plans will now have to enroll all eligible employees at a 3% contribution rate that will tick up 1% every year and cap out at 10%. Your employees can choose to opt-out though.

You will be exempt if your company is less than 3 years old or employs less than 10 people.

Student Loan Payments

Your contributions made on behalf of your employees for qualified student loan payments will now count as matching contributions. 

This means you’ll be able to subtract any student loan payments your employees make from their salaries and treat them as an elective contribution.

Financial Incentives

Unlike the 2019 SECURE Act, the 2022 bill, if passed, will allow you to offer your employees small financial incentives to join your company’s retirement plan. This could be anything from gift cards to merchandise, as long as they are “of little importance”. 

Optional Roth Contributions

If you have a 401k or 403b plan at your company, you’ll be able to give your employees the option to elect that their matching contributions become Roth contributions, which means that contributions use after-tax dollars.

What To Do Now

The bill expects to pass because of overwhelming bipartisan support. If you’ve been considering any type of pension plan for your business, there’s never been a better time to do it. You’ll have access to huge tax benefits and will be giving your employees more options than ever. The SECURE Act was a good incentive to start a plan, the 2.0 version will make it a no-brainer.

Interested in Setting Up a 401(k) Plan for Your Business?

Setting up a 401k retirement savings plan for your business is a great way to save money on taxes and provide your employees with a valuable benefit. 

Consider contacting our team for assistance. At RWM, we provide a clear path to secure retirement for employers and employees of successful businesses. Learn more about us and why we do what we do, here. 
Then, check out our blog for all the retirement savings jargon you should know, here.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Understanding Retirement Savings Plans

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If you live in California, you’ve probably heard a lot more about retirement savings in the past year than ever before.  That’s because all employers with 5 or more W-2 employees have to offer a retirement savings plan or enroll in the California State-run CalSavers retirement savings program.  For many employees, the idea of pulling money out of their paychecks right now with high inflation and soaring gas, rent, and food prices might seem like a terrible idea. So, why should you save for retirement now? The first thing is to understand your options and that starts with answering the question:  What do all of these acronyms mean? And what do they mean to you? 

A high-level overview of Retirement Savings acronyms

From 401ks to IRAs, Roth and SIMPLE, SEP, and Solo, the number of acronyms used when talking about retirement savings can get overwhelming. As if you don’t have enough to worry about already, you’re expected to be an expert in finance overnight. So, to simplify things, let’s review what the terms mean and why each of these options exists to begin with. 

The most popular retirement savings plans are called 401ks because that’s the IRS code for income that they can’t tax. 

A 401k is a retirement savings plan that is sponsored by an employer. It helps employees save and invest for their retirement. The money in a 401k investment account grows tax-deferred, meaning you don’t pay taxes on it until you withdraw it when you are retired. 

There are two types of 401k plans: Roth and traditional. Roth 401ks are funded with after-tax dollars, so you don’t get a tax break when you contribute but you also don’t pay when you take money out later. Traditional 401ks are funded with pre-tax dollars, so you get a tax break when you contribute, but you’re kicking the can down the road because you will pay taxes later when you take it out.

But wait, there’s more… there are Solo 401ks and Employer-Sponsored 401ks, Profit-sharing 401ks, Safe Harbor 401ks, and SIMPLE 401ks. 

Solo 401ks are available for people who are self-employed or own a small business. They work like employer-sponsored 401ks, but with some key differences. As a solopreneur, you are both employer and employee. So, you can contribute to your retirement in both capacities. For 2022, you can contribute up to $61,000 in a year, however, you configure it. (this limit changes but that’s the number for 2022).

Employer-sponsored 401ks are offered by companies as a benefit to employees. Sometimes, employers match a portion of employee contributions, making them an even more attractive way to save for retirement. For example, if you contribute $300/month to your employer-sponsored matching 401k every month, that money is working for you in multiple ways. First, you don’t pay income taxes on it. Second, it’s going into an investment account that is earning interest, so it’s growing for you. And Third, your employer, in this matching scenario, is contributing let’s say $150 to your 401k for you.  You’re able to save more without taking as much out of your paycheck every month.  

A profit-sharing 401k is a type of 401k that allows employees to share in the profits of their company. Like an employer-sponsored matching 401k, contributions are made by both the employer and employee, and the money is invested in the same way as a regular 401k. The main difference is that employees can receive distributions in cash or stock, depending on how the plan is set up. This can be a great way for employees to feel more invested to their company and have a stake in its success.

A safe harbor 401k  provides all eligible plan participants with an employer contribution, everybody gets the same with safe-harbor plans. The advantage to a business owner for being generous and equitable is that safe harbor plans allow businesses to avoid annual IRS nondiscrimination testing. The contributions in a safe-harbor plan are mandatory and hard to adjust later, and vesting (your 401k is 100% yours) is immediate in a safe harbor plan. In many safe harbor plans, employers can choose to “force out” small-balance (<$5,000) participants after they’ve left their jobs. For employers, the costs of maintaining all those small balance plans can be cumbersome with missing participants, uncashed distribution checks, and increased plan costs.

A SIMPLE 401k is a retirement savings plan that is similar to a Simple IRA (keep reading), but it has higher contribution limits. With a Simple 401k, you can contribute up to $56,000 per year (as of 2022), compared to $13,000 for a Simple IRA. Like a Simple IRA, the money in a Simple 401k grows tax-deferred. You don’t pay taxes on it until you withdraw it in retirement.

The main advantage of any 401k is that it offers tax-deferred growth. This means you don’t pay taxes on the money in your account until you withdraw it in retirement. This can be an advantage since your money will have more time to earn interest.  When you do withdraw that money, you will likely be in a lower tax bracket than you are in while you are working and contributing to the plan, so you’ll also pay less in taxes at that time than you would if you just earned and paid taxes on that money now. 

Speaking of IRAs, let’s review the options available

IRAs come in a lot of “flavors” Traditional IRA, Roth IRA, Simple IRA, SEP IRA

IRA stands for Individual Retirement Account. 

Traditional IRAs are tax-deferred retirement accounts in which investors can contribute pre-tax dollars. Investments grow tax-free until withdrawal during retirement, and withdrawals are taxed at the IRA owner’s current income tax rate. There is a contribution limit ($6,000 for 2021 and 2022 for those under age 50, $7,000 for those 50 and older), and required minimum distributions (RMDs) must begin at age 72. qualified withdrawals from a traditional IRA prior to the age of 59.5 years old may result in taxes plus a 10% penalty.

A Roth IRA  is set up to use after-tax dollars, which means you pay taxes and then contribute to your Roth IRA. You don’t get a tax benefit when you put the money away, but, the money grows tax-free, and you can withdraw money tax and penalty-free after age 59½ (as long as the account has been open for five years at that time). There are no contribution age restrictions as long as you have qualifying earned income. Also, there are no Required Minimum Distributions (RMDs) so if you have enough money, you can leave your Roth investment in the account into retirement. One last bonus. If you die and pass your Roth IRA to your heirs, their withdrawals will also be tax-free. You’d choose a Roth IRA if you were in a lower tax bracket (making under the limit for a Roth IRA)  but you think you’ll be in a higher tax bracket later when you withdraw the money. 

A  SIMPLE IRA plan (Savings Incentive Match Plan for Employees) Is like an employer-sponsored 401k but well, simpler. SIMPLE IRAs require employers to match employee contributions: 

  • Up to 3% of your employee’s compensation
  • At least 1% for no more than two out of five years

A SIMPLE IRA is easy to set up for an employer and allows the employee to put money away before taxes.  So it cannot be combined with a Roth IRA.  The contribution limits are lower than other retirement plan options.  It is very much like the traditional IRA but with mandatory matching contributions from the employer. 

A SEP IRA stands for a simplified employee pension individual retirement account. So you can see why the acronym was a good idea. SEP IRAs use pre-tax money and are for business owners with few to no employees or self-employed people. With a SEP IRA, if you have employees you have to contribute as much to their IRA as you do to your own. We’re all for generosity but with a large team, or even a team of 5, that could get very expensive. 

Saving for retirement is so important, your money grows in an investment account and is waiting for you when your income-earning days (mostly) are done.  While it can be hard to motivate to put money away during inflationary economic times, consider the benefit long term for you and for your loved ones.  If you have questions, please visit our resource center to learn more about financial wellness and some of the steps you can take to reduce financial stress and strain.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Simple Guide to CalSavers for Business Owners

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The State of California requires that all businesses with 5 or more employees offer a retirement savings program. When examining the retirement-readiness of CA residents it became clear  that many people were not saving enough for retirement. Because of this, a whole generation of retirees was facing the very real possibility of finding themselves dependent on State-funded programs… which would be very expensive for the government.  So, to solve the problem, California now requires all employers with 5 or more employees to offer retirement savings to their employees.  Employers and business owners can choose to default to the California state-run CalSavers program or, they can offer a retirement savings plan of their own. 

There are a number of reasons why business owners should consider setting up their own 401k plan rather than relying on CalSavers. In this article, we review what CalSavers offers, what a custom plan can offer, and what the benefits of a custom 401k retirement savings plan are to both employers and employees. 

What is CalSavers and what does it offer?

The CA EDD describes CalSavers as: 

“a retirement savings program for private sector workers whose employers do not offer a retirement plan. This program gives employers an easy way to help their employees save for retirement, with no employer fees, no fiduciary liability, and minimal employer responsibilities.” The details are that CalSavers offers a basic Roth IRA to help employees build their retirement savings. If you are not familiar with Roth IRAs, they allow employees to save after tax dollars. 

Roth IRAs have lower contribution limits, limited investments, and limited tax advantages. 

You can withdraw the money from a Roth IRA without having to pay any taxes on it because you paid taxes on that income before contributing it to the IRA. 

The contribution limit for a Roth IRA is $$6,000 per year, and the income limit is $144,000 for single people or $214,000 for married filing jointly per year (as of 2022). This means that if you make more than $144,000 per year, you are not eligible to contribute to a Roth IRA. 

There are also limits on what you can invest in with a Roth IRA. You are limited to investing in stocks, bonds, and mutual funds. 

While a Roth IRA can be a great way to save for your retirement, if you are looking for a retirement savings plan with more flexible investment options and higher contribution limits, you will want to consider setting up a 401k for your business instead. 

First and foremost, a custom 401k plan can be designed to specifically meet the needs of your business and your employees. This means that it can be tailored to maximize both employee retention and to encourage and reward retirement savings.

Additionally, setting up a custom 401k retirement savings plan can have tax benefits for Business Owners. CalSavers does not offer any tax breaks for businesses, meaning that you could be missing out on significant savings. 

If you are not familiar with the difference between a Roth IRA and an employer-sponsored 401k: 

A 401k plan is a retirement savings plan that allows employees to save money for their retirement with pre-tax dollars, which means that the income they choose to invest in the plan is not taxed until it is withdrawn from the plan after retirement. 

Setting up a 401k retirement savings plan for your business has a number of tax advantages that can save you money in the long run. 

One of the biggest benefits is that contributions to the plan are made with pre-tax dollars. This means that you do not have to pay taxes on the money until it is withdrawn from the account. This allows employees to save more money for their retirement. 

Another advantage of 401ks is that they offer businesses a number of tax breaks. For example, businesses can deduct their contributions to the plan from their taxable income, and they can also deduct employee contributions. This can save business owners a significant amount of money on their taxes each year. 

It’s no secret that good employees are hard to find and harder to keep. 

One of the best ways to retain key employees is by offering them a good benefits package. And one of the most valuable benefits you can offer your employees is a 401k retirement savings plan. Offering a 401k plan is a great way to show your employees that you value them and want them to stay with the company for years to come. 

If CalSavers is not the right solution for my business, what do I have to do to exempt my business from the requirement?

Business owners must have a retirement plan in place as of the mandatory participation date. This may mean a 401(k) plan, a 403(b) plan, a SEP or SIMPLE plan, or a multiple employer (union) plan. Want to know what these terms mean? Check out our blog on simplifying the retirement savings jargon here. 

Even if you set up your own 401k employers must still register with CalSavers to certify their exemption. Visit: https://employer.calsavers.com and choose  “I need to exempt my business” from the drop-down menu. You will need your federal EIN or TIN and an access code provided on the notice sent to you from CalSavers (can’t find it or didn’t get one? Call (855) 650-6916).   

Setting up a 401k retirement savings plan for your business is a great way to save money on taxes and provide your employees with a valuable benefit. If you are considering CalSavers for your retirement savings plan, be sure to weigh the pros and cons carefully before making a decision.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

How Much Do I Need to Save For Retirement?

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It used to be that when you thought of someone retired you’d imagine them sitting in a rocking chair knitting, maybe with a blanket across their knees. These days, most of us like to imagine an active retirement, filled with travel and adventure. Whether you plan to retire at 62 or at 82, the post-work-years can be a time to live life to the fullest.

If you imagine your retirement paddling around Lake Como or hiking the Alps, you’ll need to put some things in place starting right about now to afford that kind of lifestyle.

Because employees change jobs so often, the pension structures that used to support retirees (in combination with Social Security benefits) can no longer be relied upon to the extent they were in the past. The traditional sources for post-work income in the form of social security and pensions are less robust today than they were say, 30 years ago.  That, in combination with longer life spans and the expectation of good health well into your 70s (at least!) means you’re going to need additional income to support your lifestyle in retirement. By most estimates, you’ll need between 60% and 100% of your current income in order to keep up with your current lifestyle in retirement.

Setting up retirement savings now is key to a comfortable retirement

Adults who are in their 40s, or 50s now can’t bank on Social Security to fund their retirement.  At the time of this article’s writing, Social Security is estimated to cover only about a third of the current retiree’s income and that number will continue to dwindle. In fact, according to the Social Security website by 2037 benefits will be exhausted. (source: https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html)

Because of inflation the numbers associated with maintaining your current income levels might surprise you (and not necessarily in a good way).  At an average inflation rate of 3%, the cost of living would double in 24 years. So, if you are 40 years old today and you make $80,000/year, you’ll need to be bringing in $160,000 when you’re 64 and beyond. 

You’ll also want to factor in increased medical costs in retirement. Falls and unforeseen illnesses such as stroke or heart attack can send medical bills soaring. 

Whether you imagine a modest or a luxurious retirement the numbers point to the need to save now to prepare for your later years. If you do want to travel and have luxury experiences, well, you’re going to need even more money. For entertainment purposes only, let’s run some numbers to estimate what a person who makes a significant income currently would need to put away to meet their retirement goals. (not for financial planning purposes, for illustration only) 

How Much Would You Need for a Luxurious Retirement?

For the sake of this calculation, let’s assume you’ll need 85% of your current income to retire in style. 

  1. If you are currently making $140,000 and have 20 years until retirement, you’ll multiply your income by two: $140,000 x 2 = $280,000 this is assuming about a 2% inflation. 
  2. Since we chose 85%, now we’ll multiply the sum by that number: $280,000 x .85 = $238,000
  3. Now subtract your social security benefits SS.GOV CALCULATOR (we got $35K) $203,000 (this is questionable since the previous reference states the funds will be exhausted)
  4. Now multiply that total by 20 (to find amount of money you would need to last you if you live 30 years) = $406,000
  5. Take all your savings and investments and multiply it by 5% (since we’re looking at a 20 year timeline)  $3,000,000 x 5% = $1,500,000
  6. In this scenario, you will need an additional: $1,094,000
  7. Assuming an 8% annual return, divide that number by 50. So you’ll want to set aside: $22,000.00 a year

Calculator based on tables linked here: 

As with any online calculator, this is a rough estimate and should not be construed as financial guidance.  Speak to your financial planner to better understand your goals. 

How Else Can You Prepare for Retirement?

While there are pensions, social security and there may be unforeseen inheritances, relying on government support will not lead to the action-packed retirement outlined at the beginning of this article. The good news is the earlier you start saving the better because compounding interest really adds up over time. 

Using resources like 401k retirement savings plans, Defined Benefit plans, and other tax-deferred retirement options can help put your funds to work for you. 

Did you know: If someone starts investing at 25 vs 35 those 10 years can yield nearly triple the savings?!  As with all investments, there are no guarantees any investment will provide the same results as described or experienced by someone else.

Taking the time to discuss your goals with your financial planner can help create clarity around how much money you should set aside and what tools are best for your unique situation.  With good planning and forethought, you can set up the right structures to support your financial and retirement goals.

WELLNESS

Give your employees the knowledge and tools they need to get on the road to financial wellness. The tools and educational resources on this site are provided to help them take action toward saving for a healthy retirement. This video looks at the different elements that make up financial wellness – planning, budgeting, saving for retirement, college funding and estate planning — and how they collectively define financial health.

YOUR RETIREMENT PLAN, MADE EVEN BETTER

Offering a company sponsored retirement plan is an important step in letting employees know you value them and care about their future. You can help take them to the next step on their road to retirement.

We can provide a customized microsite for your company with an array of online tools, videos and articles for your employees to guide them on their retirement journey. In addition, providing a proactive communication program may help engage your employees toward saving for their financial future and build appreciation for the benefits you provide through your retirement plan.

Midyear Outlook 2022

Midyear Outlook 2022 – Markets rarely give us clear skies, and there are always threats to watch for on the horizon, but the right preparation, context, and support can help us navigate anything that may lie ahead. So far, this year hasn’t seen a full-blown crisis like 2008–2009 or 2020, but the ride has been very bumpy. We may not be flying into a storm, but there’s been plenty of turbulence the first part of 2022. How businesses, households, and central banks steer through the rough air will set the tone for markets over the second half of 2022.

 

Read more about this in the following article by LPL Financial.

Please reach out to us at RWM Financial Group. We look forward to the opportunity to extend our services and to help position your investment portfolio for long-term success. 

Member FINRA/SIPC Tracking #1-05292601

CalSavers vs 401(k)

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Many people find themselves financially unprepared for their non-working retirement years. According to the most recent National Retirement Risk Index, nearly half of Americans age 55-59 have insufficient savings to maintain their pre-retirement standard of living.*

In response, California has recently established its own state-run retirement plan. The plan has been mandated for use by business owners who otherwise do not offer a retirement plan benefit program for their employees, such as a 401(k), SIMPLE IRA or SIMPLE 401(k).

For some companies CalSavers can make sense as a retirement saving option for both the business owner and their employees. However, as time passes and the company grows, this option may no longer be the right fit.

Now is the time for you to have a conversation with RWM Financial Group regarding this program and what it means for your business. We can help guide you through your options and help you decide what’s best for you and your employees. Here are some frequently asked questions being asked by employers like you:

What is CalSavers?

In 2016, Senate Bill 1234 was passed, requiring the state to develop a workplace retirement savings program, known as CalSavers, for private sector workers whose employers do not offer a retirement plan. State law protects employers from any liability or fiduciary responsibilities to the plan.

Who is required to implement the CalSavers program?

Employers with five or more employees who do not provide a retirement plan for their workers must register for CalSavers and facilitate employee contributions to Individual Retirement Accounts.

How will the program work for my employees?

  • Contributions to their account will occur automatically from each paycheck.

  • The default savings rate is 5% and an automatic increase feature that will increase their contributions by 1% each year, until it reaches 8%.

  • The first $1,000 of contributions will be invested into the CalSavers Money Market Fund.

  • Employees can customize their account and choose alternative savings rates and investments.

  • An asset-based fee will be applied to their account to cover administrative expenses and the operating expenses of the underlying investment funds.

  • Depending on their investment options, the fees will range from 0.825% to 0.92%. This means they will pay between 83 cents and 92 cents per year for every$100 in their account.

  • Employees can opt out or back into the program at any time. If they leave their job, they can take the money with them or leave it in the account.

When do employers have to register for the CalSavers program?

Employers can start the program as soon as July of 2019. However, the final deadlines for employers to implement the program are as follows:

Size of Business Deadline

Over 100 employees … June 30, 2020

Over 50 employees … June 30, 2021

5 or more employees … June 30, 2022

How much work will be required of employers?

Employers are required to manage all employee census data and submit their employee contributions each pay period. You will need to assign this ongoing administrative task to someone in your organization and make sure they get trained — or do it yourself.

Do I have to use the CalSavers program?

No. Registering for the CalSavers program is just one way to fulfill the requirement that every qualified employee in California have access to a retirement plan. Businesses can also establish their own employee retirement plan, such as a 401(k) or SIMPLE IRA, or SIMPLE 401(k) to satisfy this requirement.


How RWM Financial Group Can Help

While we applaud the mission and effort behind the CalSavers program, we believe you should also consider other available retirement plan solutions that can provide your employees with more benefits and value.

Consider the following:

The CalSavers program does not allow for employers to make contributions on behalf of their employees. In a competitive labor market, this limits your flexibility and takes away your ability to offer an attractive retirement plan benefit to employees you are trying to recruit.

  • The CalSavers managers will pick the investment options, which may be different from what you and a financial advisor might choose.

  • Employee contributions are limited with the CalSavers program. It only allows a maximum contribution of $6,000 in 2022, compared to $20,500 for a 401(k) or $14,000 for a SIMPLE IRA or SIMPLE 401(k).

  • While there is no cost to employers for participating in the CalSavers program, it does not offer the employer any tax credits, which you can get by offering a 401(k) plan. For example, starting a 401(k) plan currently allows employers up to a $500 tax credit in each of the first three years.

  • Are you worried about the extra work and time commitment necessary to sponsor a workplace retirement plan such as a 401(k)? RWM Financial Group can help you review retirement plan providers who can provide very cost effective solutions that can help minimize your administrative burdens and fiduciary risk.


At RWM, we help businesses like yours create well-managed retirement plans that benefit both your employees and you as an employer. Contact us to learn more about how we develop customized solutions to help you design a 401(k) program, maintain compliance, reduce your costs, and increase employee loyalty.

*The NRRI is published by Boston College’s Center for Retirement Research.

This information is not intended as authoritative guidance or tax or legal advice. You should consult our attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.