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.

Budgeting for a wedding

 Being able to pay for all your desired wedding amenities requires careful planning, which means careful budgeting. And when it comes to making a budget for a wedding, there are a few important rules to keep in mind.

At RWM Financial Group, you’ll get a financial advisor who can help guide you through every stage of life by creating a plan that fits you- and the goals you want to achieve. Contact us to schedule a consultation.

529 Plans: The Big Questions Answered

College Savings is important, we discuss several burning issues about these popular college savings vehicles. Assets in 529 college savings plans more than doubled in ten years, topping $370 billion at the end of 2019 according to the Federal Reserve. Interest in 529 plans has grown as students and parents fret over rising tuition costs and increasing student debt loads. These accounts offer many advantages for saving for higher education expenses, but it’s also important to know the rules about how they work.

What’s the difference between the two types of 529’s?

A 529 plan can either be a savings program or a pre-paid tuition program. In a pre-paid tuition program, contributors purchase future tuition units at current prices, which can be used at a later date at eligible state colleges or universities. With savings programs, there’s more leeway in how the account owner chooses to invest contributions so they may potentially grow over time.

The one big difference between the two 529 programs is savings accounts can be used for room and board expenses, while pre-paid tuition programs only cover tuition costs. Besides that, choosing either program depends on the financial needs of the family and the student.

what is the most i can contribute to a 529?

There is no annual limit to how much you can contribute to a 529 plan, but the overall maximum contribution limit is $500,000. That doesn’t mean the account stops at that amount; earnings on all contributions can grow to boost the value of the account over $500,000.

what are the tax benefits?

The principal tax benefits are for the 529 beneficiary—earnings on investments inside a 529 account grow tax deferred, and withdrawals are tax-free when used for tuition and other higher education expenses. If withdrawals are used for non-qualified purposes, expect to pay taxes and a penalty on the earnings portion of the withdrawals. If you’re funding a 529 plan for a future collegian, contributions you make to the account are not tax deductible on your federal income tax return, but could be deducted from your state income taxes depending on where you live.

will a 529 plan account affect financial aid?

Money in a 529 account is deemed to belong to the account owner, not the beneficiary. In many cases, this could benefit the student’s financial aid application. If a parent owns the 529 account, 5.6 percent of the 529 account value will count toward the Expected Family Contribution (EFC) amount. With other types of accounts that are owned by the prospective student, 20 percent of the account value counts toward the EFC.

The potential need for financial aid shouldn’t deter parents, students or other interested parties from saving through 529 plans. Because most need-based financial aid comes in the form of loans, any savings that the student can tap to cover higher education costs will reduce the amount of debt they have to assume.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protections from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. This material was prepared by LPL Financial Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity. Not Bank/Credit Union Guaranteed Not Bank/Credit Union Deposits or Obligations May Lose Value Not Insured by FDIC/NCUA or Any Other Government Agency Tracking #1-05049260

Retirement Benefits That Benefit Employers, Too

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When it comes to job searches and accepting offers, good employee candidates have options. It’s why employers must offer employee benefits that stand out in today’s market—and why a 4% 401(k) match may not cut it anymore.

When you consider that most applicants will review your retirement package and medical insurance coverage when considering a job, updating your benefits can make a significant and decisive difference. Do you want to update your employee benefits to be more competitive? We’ll share how one effective change to your retirement plan can help recruit and retain great employees while being advantageous to you, too.

Provide Retirement and Financial Guidance Beyond Open Enrollment

Open enrollment is generally the only time employers interact with their employees regarding their retirement benefits. To provide more value and incentive to your employees, offering guidance beyond open enrollment is essential. While giving financial advice requires partnering with a licensed professional, there are various benefits to you and your business. Retirement professionals can review your existing retirement program and provide a more comprehensive approach that meets the needs of you and your employees long term, such as:

  • Financial coaching beyond your 401(k) plan. Your employees need resources and access to information and advice to help them succeed before and after retirement. A financial professional can help provide those resources and education on other financial topics such as saving to buy a home or reducing credit card debt.

  • Medical plan savings when your employees retire on time. Employees who are educated about their retirement options and able to consult with a professional will likely make more informed decisions regarding their financial future. Investing early, saving enough, and making the maximum contributions are actions that will help your employees retire on time. When more of your employees retire between the ages of 62 and 65 or younger, the average age of your employees also decreases, which could help you save in medical plan expenses annually.

  • More productive and satisfied employees. Another key benefit of access to a financial advisor in your retirement program is that your employees will often feel more financial stability in other areas of their lives, which may result in more productivity and higher morale at work. Employees who feel supported and have financial confidence are usually less stressed and more loyal, which can mean less turnover and hiring costs for you.

What to Consider in a Retirement Professional

Before hiring a financial professional, ensure your employees and business are getting the most value, and you can avoid some common retirement plan mistakes. Begin by asking if they can meet the following responsibilities:

  • Will they be able to provide one-on-one financial guidance and electronic and in-person resources that meet your employees’ financial needs at work and home? At RWM, our clients can consult with live professionals to ask questions and are never routed through a call center.

  • Are they well-versed in the legal and compliance requirements according to your organization type? We’re skilled in several different organization types, including corporations, agricultural companies, and tribal groups, to help our clients maintain compliance and manage their risk.

  • Are they offering access to diversified investment options and other features that can help reduce your costs? We help our clients review their investment spread and make adjustments with cost-efficient options.

Learn more about how we help businesses implement updated employee benefits to create a more attractive and cost-effective retirement program.

Five Design Features Agricultural Companies Worth Considering in a 401(k) Plan

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As a business owner in the agricultural sector, you may be considering starting a retirement plan for your employees, or you may already have a plan in place that needs some updating. From technology to employee education, there are particular challenges agricultural companies face when designing and communicating a 401(k) plan. We’ll share our top five features to consider when creating or updating your retirement plan.

#1 Adopt a Safe Harbor Provision

If you already have a 401(k) and matching program or are designing your plan for the first time, adding a safe harbor provision may be a critical component.

Companies with a traditional 401(k) plan must perform annual nondiscrimination testing to remain compliant and ensure every employee can benefit from a plan fairly. These tests measure a plan’s participation, contributions, and other factors. For example, suppose more highly compensated employees participate in your plan than lower-paid employees. In that case, it can result in an imbalance in the plan’s assets or a “top-heavy” plan, which the IRS considers is favoring highly compensated employees.

However, the nondiscrimination calculations can also make it difficult for a highly compensated employee, such as an executive or owner, to max out their annual 401(k) contributions. This can quickly become a common scenario and challenge among small agricultural companies that consist of owners and a few farmworkers with significant differences in income.

If this is your situation, you can avoid a top-heavy plan and annual nondiscrimination testing by adopting a safe harbor provision in your 401(k) plan. In a safe harbor plan, employers contribute to an employee plan through matching or other contributions. Matches, in particular, incentivize more employees to participate and save for retirement, and the IRS offers the benefit of “safe harbor” from annual testing. Consult with a retirement plan professional to determine if this would be suitable for your company.

#2 Establish an Investment Committee

Managing a 401(k) program comes with specific requirements and rules from the IRS, Department of Labor, and Employee Retirement Income Security Act (ERISA). Plan administrators have the fiduciary responsibility to oversee a plan, review that investments are diversified and fees are reasonable, and share plan details with employees, among other duties.

It’s important to establish an investment committee so you can stay up-to-date with your plan and regulations and act in your employees’ best interests. A committee may look different from company to company, consisting of executives, HR representatives, a third-party retirement plan professional, or a combination of internal and external teams. If you’re a larger company with several different job levels, you may even consider appointing employee delegates representing the various employees you serve.

#3 Share Plan Information in Multiple Languages

To promote your plan’s success, your staff will need to understand its features and guidelines clearly. It can be challenging to do this if the information, disclosures, and jargon are not in your employees’ primary language.

To facilitate a comprehensive understanding, ensure you’re providing materials and communicating presentations in multiple languages, as applicable to your employees’ needs. While this may seem like an obvious detail, it’s a common mistake we see in the agricultural sector, which overlooks the diverse makeup of its farmworkers and their ability to make investment decisions and plan for retirement.

#4 Use Technology

Another typical detail that’s often missing from agricultural retirement planning for employees is the use of technology. It can be a challenge if most employees, including the owners and managers, work on a farm and do not require a computer to perform their daily tasks.

However, even small steps that leverage technology can be significant in your retirement plan’s effectiveness and ensure you’re meeting your requirements if you’re the plan administrator. For example, it’s harder to walk participants through the plan’s details, disclosures, and guidelines and offer to print essential documents without access to a computer.

At the minimum, we encourage you to set up a workstation where your employees can securely use a computer, view their statements, and print the resources they need.

#5 Provide Employee Education

When you’re managing day-to-day operations, a sprawling worksite, and several groups of employees, retirement plan education can quickly go on the back burner on your list of priorities. However, as a plan administrator, you’re required by law to meet specific compliance guidelines—one of which is providing employee education to help inform investment decisions.

The positive results of education can help increase your plan’s participation and employee loyalty for employees who feel supported, engaged, and secure with their retirement benefits. However, overlooking this key area can result in legal action by your employees, increased risk to your organization, and expensive plan corrections.

Train plan fiduciaries or work with a company specializing in retirement plans and administration to create an employee education campaign that fits your agricultural business and employee needs in an efficient and compliant way.

How RWM Financial Group Can Help

We’re aware of the challenges agricultural companies face daily and how operations could affect the effectiveness of an employee retirement plan.

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.

How to Overcome Common HR Challenges in Your Tribal Organization’s Retirement Plan Pt. 2

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In the first part of this blog, we explained some of the standard HR and benefits challenges your tribal organization can avoid in your retirement plan efforts, including working with a financial advisor and tightening up your retirement loan policy. In part two, we explain how critical education is to the overall success of your plan and participants.

As a plan administrator, you have a fiduciary responsibility to provide adequate retirement plan education. In addition to the compliance risk a lack of education can pose, additional challenges arise when you don’t have a comprehensive education strategy. When overlooked, these challenges can cause issues for your participants and headaches for your HR and benefits team. Let’s discuss how you can improve your plan’s education to serve more people in your organization.

Challenge #1 A Lack of Plan Education Resources

When there is a lack of general plan education, employees will seek out assistance, generally from the HR and benefits team. This can put your team in a difficult position since they can’t offer thorough or professional advice regarding retirement planning. Organizations with successful retirement programs include essential information and guidance in retirement materials and sometimes even provide access to a third-party professional for additional help. When you’re building your retirement plan, education should be a critical step in your rollout. Consider what other resources, reminders, marketing materials, or access participants need to stay on track, enroll on time, and ultimately contribute toward their retirement success. Keep in mind, your education materials may shift depending on the employee’s position and salary.

Challenge #2 No Tracking System

Another common challenge is when tribal organizations have not established a tracking system for their retirement plan education. Perhaps you’ve provided resources to address the first challenge, but you don’t have a metric to measure their effectiveness. One way to measure is by looking at your plan’s participation and contribution rates. If they’re not performing as well as expected, you may consider what parts of your program materials or employee presentations need to be improved or offer more clarity to engage your employees.

Challenge #3 Missing Beneficiary Information

We often see tribal organization retirement plans with missing or partial beneficiary information. Many employees may feel pressured to choose an individual as a beneficiary when asked or may not know pertinent personal information and end up forgetting to designate one at a later time. However, with proper education, employees will better understand the ramifications of not listing a beneficiary. For example, upon their passing, an estate executor may distribute their savings against their desired wishes, or their surviving heirs may be subject to a lengthy and costly probate process. A regular review and additional marketing push around this critical step can also reduce the stress the HR team may experience when facilitating subsequent steps with an appropriate next of kin.

Challenge #4 Low Plan Participation Rate

A low plan participation rate is a clear indication that something is missing from your retirement plan execution. A lack of education, clarity, and resources can leave employees feeling confused or even uninterested in the valuable benefits available to them. We know you care about your employees, and clear and thorough education can help you guide them, with a focus on their retirement well-being and future confidence. Consider how you can engage your employees so they’re more inclined to participate and how you can encourage them to ask questions so you can identify gaps in their understanding.

Challenge #5 Contributions Below the Employer Match

An employer match is a valuable feature every eligible employee should know about in your retirement plan. It is why when we often see contributions lower than the employer match, it’s generally indicative of a lack of plan education. When employees understand the details of their plans and how contributing less than the employer match leaves free money on the table, an increase in contribution rates generally follows. When you see lower contribution elections, evaluate how you can emphasize this feature in your initial and ongoing presentations and marketing.

Many factors contribute to a successful retirement plan, but robust education can address several challenges you and your participants may encounter. Partnering with a specialized professional can help you identify the areas of your education strategy that need improvements, measure your plan’s success, and offer ongoing education resources to participants—in addition to reducing stress and frustration in your HR department. We’ve been helping North American tribes build effective education strategies into retirement plans for over 20 years. Contact us to learn how we can help you promote your plan’s success.