Ten Tips to Live Life on Your Terms and Understanding Retirement Plans

Women's History Month has its origins as a national celebration in 1981 when Congress passed and authorized a resolution and requested the President to proclaim the week beginning March 7, 1982 as "Women's History Week." Throughout the next five years, Congress continued to pass joint resolutions designating a week in March as "Women's History Week."

In 1987 after being petitioned by the National Women's History Project, Congress passed a new resolution designating the month of March as "Women's History Month." Since that time, Congress and presidents have issued a series of annual resolutions and proclamations designating the month of March as "Women's History Month."

These proclamations celebrate the contributions women have made to the United States and recognize the specific achievements women have made over the course of American history in a variety of fields.

UNIQUE CONCERNS ABOUT FINANCIAL INDEPENDENCE

It's no secret that women have special concerns about financial independence that need to be addressed. For one thing, women tend to live longer than men, so they need to worry about paying for an extended old age.

The data that follows shows just how far there is to go, as the challenges that women face in 2022 are still significant.

• Women comprise 51% of the U.S. population and roughly 65% of the workforce.
• Women are the sole heads of 32% of American households.
• Approximately 60% of college students are female.
• Women control 65% of global spending and more than 80% of U.S. spending.

Women have more to worry about when it comes to financial confidence. Most consider health a major risk to their financial future. They also worry about the death of their spouse as a major risk. And often the disability insurance is lacking or inadequate, and life insurance will not deliver sufficient financial horsepower if the breadwinner dies. Further, a surprising number of parents, single and married, do not have wills and have not provided for their children.

 

TEN MONEY MANAGEMENT TIPS

No matter where you are in your career, money management will become an important part of your life. While it may be true that money can't buy or ensure happiness, your ability to manage your finances can play a large role in your financial future, and to a large extent, your ability to live life on your terms.

A huge amount of time is not necessarily required to get your finances moving in the right direction. It is often simply a matter of attending to the "basics." The following steps may help you stay on track:

1. Pay Yourself First. Transfer a set amount from your earnings to your savings each month. Even a small amount in the beginning helps.
2. Reduce Consumer Debt. Avoid high credit card finance charges by paying off the balances each month, or if you must carry a balance, use only cards offering low finance rates beyond the introductory period.
3. Maintain Good Credit. You can obtain one free annual credit report from each of the three major credit bureaus: TransUnion, Equifax, and Experian. Good credit is required for obtaining loans and low interest rates. Monitoring your credit can also help you guard against identity theft.
4. Diversify Your Savings. Develop a plan for your short- and long–term needs. Consider your liquidity needs, risk tolerance, and time horizon for retirement. Be sure to consult a financial professional to help you develop an appropriate strategy for your financial future.
5. Take Advantage of Tax Benefits. If you qualify, contribute to an Individual Retirement Account (IRA), an employer-sponsored 401(k) plan, or another similar retirement plan. These plans offer tax benefits that may help enhance your retirement savings.
6. Update Your Estate Plan. Have your will and any trusts reviewed by a legal professional. Prepare advance directives, such as a durable power of attorney, living will, and health care proxy. This is important for everyone at any time, regardless of age.
7. Review Your Insurance Needs. Periodically review your risk management program. Your life, health, and disability income insurance needs will likely change as you progress through various life stages.
8. Plan for Future Care. Consider your possible long-term care needs. Have you ever thought about your future care needs, should you one day require help with activities of daily living, such as meal preparation, personal care, dressing, and housekeeping? Long–term care insurance increases your care options, should the need arise by helping to cover care at home, an assisted living facility or in a nursing home.
9. Build a College Fund. College tuition, at a public or private institution, continues to rise. So, relying on your children to receive scholarships or financial aid may not be the most practical strategy. Look into opening a 529 college savings plan or other college planning account. As soon as possible, begin saving for your child's education. Eighteen years can pass quickly.
10. Set Long–Term Financial Goals. Establish one–, three–, five– and 10–year goals. Evaluate your progress yearly and make adjustments, as appropriate, to help you work towards a confident financial future.

Whether you're single, married, divorced or separated, straightening out your finances should become a top priority. Make a commitment now to start this planning process.

Attention to the basics may help you manage your financial goals and improve your emotional and financial wellbeing.

 

YOU ARE A BUSINESS OWNER

You're an entrepreneur and you’re not looking back. You've opened your own business, whether alone or with other partners, and you've found some success. You've hired employees, or not, depending on your business and now you're thinking about retirement, not just for you, but also for any employees you may have.

Many employers find that one way to attract and keep good employees, especially executives with critical skills, is to offer competitive retirement plan packages along with a buffet of other benefits. Yet, employee–sponsored retirement plans are often unavailable to employees working in small private companies and can lead to poor employee retention.

What business owners need to know is that sponsoring a retirement plan, not just for their employees but also for themselves, is really quite easy. Perhaps you think you must fund employee retirement plans and that plan sponsoring requires lots of complicated paperwork. Or maybe you're perplexed about compensating top executives without pushing them into an even higher income tax bracket. But don't fear. Help, and advice, from starting and managing retirement plans to planning for the day you retire, is here.

Qualified Plans: Something for Everyone

A multitude of retirement plan options are available as benefits packages or customized products to suit your company's needs. Currently available qualified retirement plans include defined benefit plans, 401(k)s, Savings Incentive Match Plans for Employees (SIMPLEs), Simplified Employee Pensions (SEPs), profit–sharing plans, and money purchase plans.

The Employee Retirement Income Security Act (ERISA, amended in 1974) governs most private pension and benefit plans. ERISA has a special focus on making sure that qualified retirement plans do not discriminate in favor of highly paid employees.

Specifically, ERISA deals with qualified retirement plans, with the term "qualified" meaning employers and employees can make tax-deductible contributions up to certain limits to employees' retirement accounts. "Qualified" also means the earnings on contributions employees make to their own accounts, within certain limits, are tax deferred until withdrawn at retirement.

Traditional pension plans, also known as defined benefit plans, have declined in numbers over the years with the increasing popularity of defined contribution plans, such as the 401(k). But defined benefit plans can be a nice choice for small business owners, particularly for those who are nearing retirement and are looking to accelerate their savings program.

Defined benefit plans focus on the end result so that employees, or plan participants, have a defined or fixed income at retirement. Defined contribution plans focus on the amount contributed, so the level of income at retirement depends heavily on the employee's management of plan funds. The type of plan determines who contributes – employer, employee, or both. Administration, funding, eligibility, and vesting requirements also differ by plan.

A Look at Nonqualified Plans

Nonqualified plans, on the other hand, offer no immediate tax benefit to the employer and, instead, focus on deferring compensation for a select group of employees, usually highly paid executives, until retirement, death, or disability. "Nonqualified" essentially means participants and employers receive no immediate tax advantages.

Payment for services rendered is delayed to limit the executive's tax liability during peak earning years. The provisions often intentionally tether the employee to the firm, giving you a better chance to retain good and potentially irreplaceable employees. Such plans are most often governed, not by Federal regulation, but by a legal contract between employer and employee.

Stock options and creative uses of life insurance are common ways to fund these plans. Special provisions, such as rabbi trusts, can be used to segregate funds in nonqualified plans that an employer has agreed will be paid out in the future.

 

IT'S ABOUT YOU

No one plan is inherently better than another; the most suitable choice for you depends on your specific circumstances.

Since the risks and potential rewards differ between defined benefit and defined contribution plans, it would be in your best interest to make sure you fully understand the benefits you want to offer your employees and the funding resources you desire for your own retirement.

 

YOUR FINANCIAL PROFESSIONAL

Don't let your fears about feeling judged and misunderstood stop you from seeking guidance to pursue the financial life of your dreams.

Seek out someone who understands where you're coming from. Find a financial professional you can relate to and feel comfortable with, and who doesn't make you feel foolish for asking too many questions about your financial goals and concerns.

Consider talking to your family, friends and colleagues. Get recommendations and then interview financial professionals until you find the right fit.

Your future–self will thank you.

 

PRO–SPRING–2022

 

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any insurance product, ERISA or individual security. To determine which product(s) or investment(s) may be appropriate for you, consult your financial professional prior to purchasing or investing.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

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 protection 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 information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by FMeX.

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