There was a time when you'd have a pension at the end of your working years.
Now, of course, pensions are not as common, though you can certainly analyze your own retirement strategy.
Not all retirement strategies are the same.
In fact, there is such a wide variety of retirement strategies that it is worth reading up on your choices. Here's a brief look at the different strategies and what they have to offer.
The traditional 401(k).
Most people have this type of retirement savings strategy, and it works like this. The strategy is funded with pre-tax dollars taken out of your paycheck (through payroll deductions). If you're lucky, your company will match your level of contribution or even make contributions on your behalf – after all, the employer contributions are tax deductible.
The Safe Harbor 401(k).
A byproduct of the Small Business Job Protection Act of 1996, the Safe Harbor strategy combines the best features of the traditional 401(k) and the SIMPLE IRA, making it very attractive to a business owner. With a Safe Harbor plan, an owner-operator can avoid the big administrative expenses of a traditional 401(k) and enjoy higher contribution limits.
The SIMPLE 401(k).
Designed for small business owners who don't want to deal with retirement plan administration or non-discrimination tests, the SIMPLE 401(k) is available for businesses with less than 100 employees. Like a Safe Harbor plan, the business owner must make fully vested contributions (a dollar-for-dollar match of up to 3% of an employee's income or a nonelective contribution of 2% of pay for each eligible employee).
The Solo 401(k).
Combine a profit-sharing plan with a regular 401(k), and you have the Solo 401(k) plan, a retirement savings vehicle designed for sole proprietors with no employees other than their spouses.
The Roth 401(k).
Imagine a traditional 401(k) fused with a Roth IRA. Here's the big difference: you contribute after-tax income to a Roth 401(k), and when you reach age 59½, your withdrawals will be tax free (provided you've had your plan for more than five years). Also, a Roth 401(k) does not have income limits, so it can be a great way for high earners to contribute to a Roth without having to pay the taxes on a Traditional IRA conversion.
You can roll Roth 401(k) assets into a Roth IRA when you retire – and you don't have to make mandatory withdrawals from a Roth IRA when you turn 70½.
This employer-funded plan gives businesses a simplified vehicle to make contributions toward workers' retirements (and optionally, their own). The employer contributions are 100% vested from the start, and the employer can supplement the SEP-IRA with another retirement plan.
The SIMPLE IRA.
This is like a SIMPLE 401(k) – a small business retirement plan with mandatory employer. But in this plan, there is one big difference for the business owner. If the business is not doing well, the owner can temporarily reduce plan contributions.
The Keogh Plan.
The Keogh is designed for small, unincorporated businesses. There are defined benefit, money purchase, and profit-sharing variations; the defined benefit variation is a qualified pension plan offering a fixed benefit amount.
Did you know you had so many choices?
If you are an employer, you may not have realized you have such an array of choices in retirement plans. But you do, and asking the right questions may represent the first step toward implementing the right plan for your future or your company. Be sure to ask us about your options today.
Across the country, people are saving for that "someday" called retirement.
Someday, their careers will end. Someday, they may live off their savings or investments, plus Social Security. They know this, but many of them do not know when, or how, it will happen. What is missing is a strategy – and a good strategy might make a great difference.
A retirement strategy directly addresses the "when," "why," and "how" of retiring.
It can even address the "where." It breaks the whole process of getting ready for retirement into actionable steps.
This is so important. Too many people retire with doubts, unsure if they have enough retirement money, and uncertain of what their tomorrows will look like. In contrast, you can save, invest, and act on your vision of retirement now to chart a path toward your goals and the future you want to create for yourself.
Some people dismiss having a long-range retirement strategy since no one can predict the future. Indeed, there are things about the future you cannot control: how the stock market will perform, how the economy might do, and so on. That said, you have partial or full control over other things: the way you save and invest, your spending and borrowing, the length and arc of your career, and your health. You also have the chance to be proactive and to prepare for the future.
A good retirement strategy has many elements.
It sets financial objectives. It addresses your retirement income: how much you may need, the sequence of account withdrawals, and the age at which you claim Social Security. It establishes (or refines) an investment approach. It examines tax implications and potential tax advantages. It takes possible health care costs into consideration and even the transfer of assets to heirs.
A prudent retirement strategy also entertains different consequences.
We use multiple-probability simulations to try to assess the degree of financial risk to a retirement strategy in case of an unexpected outcome. These simulations can help to inform us and the retiree or pre-retiree about the "what ifs" that may affect a strategy. They also consider sequence-of-returns risk, which refers to the uncertainty of the order of returns an investor may receive over an extended period.
Let a retirement strategy guide you.
Ask us to collaborate with you to create a retirement strategy, personalized for your goals and dreams. When you have this strategy, you will know what steps to take in pursuit of the future you want.
CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®
Joe McCaffrey, CFP®
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CRA Financial, LLC [“CRA]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CRA. Please remember to contact CRA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. CRA is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of CRA’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.crafinancial.com. Please Note: IF you are a CRA client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your CRA account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your CRA accounts; and, (3) a description of each comparative benchmark/index is available upon request.
Please Note: Limitations: Neither rankings and/or recognitions by unaffiliated rating services, publications, media, or other organizations, nor the achievement of any professional designation, certification, degree, or license, or any amount of prior experience or success, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if CRA is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers (to the extent applicable). Unless expressly indicated to the contrary, CRA did not pay a fee to be included on any such ranking. No ranking or recognition should be construed as a current or past endorsement of CRA by any of its clients. ANY QUESTIONS: CRA’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including the criteria used for any reflected ranking.