Every group has its own lingo. When football coaches speak about designing receiver slants, hitting the A-gap, or running stunts, players quickly understand their roles. Likewise, as theater buffs converse about moving stage left, blocking, and striking, no one bats an eye. But if you’re not part of either group, it might just sound like gibberish.
The retirement industry has this problem, too. Advisors and plan sponsors use technically-correct language to describe company plans, features, and savings strategies, but the jargon is causing a disconnect. Research has revealed participants find their retirement plans to be confusing; their desire for clearer language should be a loud call for our attention. If they don’t understand their options, participants may be less likely to make appropriate decisions about their retirement plan account.
As mentioned in previous posts, different generations desire different benefits options, but they also have unique communication needs. This is true for not only how we communicate but what we communicate. A baby boomer may be looking for financial advice, while a millennial might prefer a financial coach or financial counseling.
Plan enrollment is a critical time to help employees see the big picture. Defined contribution is a somewhat clunky term – employees can be encouraged to participate in their workplace savings plan. And instead of talking about a deferral rate, employees might better understand phrases like the amount you contribute or the percentage of your paycheck that you put in the plan.
The employer match is also a point of confusion, but clarification is critical for increasing participants’ savings rates. Telling participants about free money and the ability to significantly increase their total amount of retirement savings resonates with their goals.1 After defining the company match, it’s important to explain how that money is vested – but very few employees have any idea what a vesting schedule is. They might, however, be very interested to hear about the rate of ownership for that free money.
Finally, it’s easy to quickly get in the weeds when it comes to investment terminology. Target date funds are the victims of plenty of industry jargon. A helpful explanation about their intent may include language about a customized strategy that is managed for you and designed to help achieve your goals.1 Talking about a glide path may illicit blank stares, while a risk-reduction path1 over the course of working years is easier to understand.
Ultimately, no language choice will be the perfect fit for all employees, but it remains essential for advisors to prioritize speaking in more understandable and relatable terms.
No matter our job titles here at Shepherd Financial, we are all nerds. Every last one of us. Case in point: every year, the IRS announces new contribution limits for retirement savings.
Because it’s vital information for how we operate, timeliness is essential – so at a meeting several weeks ago, I jokingly suggested there would be a prize for the team member that conveyed the new information to me first. Perhaps the IRS caught wind of our challenge; instead of releasing the limits mid-October, as they traditionally have, we waited with bated breath until November 1st.
(I’m completely serious when I tell you one team member set her Twitter account to alert her every time the IRS tweeted. She still didn’t win.)
In brief, the new limits: in 401(k), 403(b), and most 457 plans, the contribution limit was raised from $18,500 to $19,000. Not a huge jump, and the limit tends to increase by about that much every year. Significantly, though, the IRS has increased the contribution limit for traditional individual retirement accounts (IRAs) for the first time since 2013 (the limit is now $6,000).
But what’s the big deal, you might be asking? Essentially, the government has enabled Americans to save more. Larger retirement contributions can mean lower tax bills and more income in retirement. And if you happen to be an American with a late start on your retirement savings, this is good news. If you’re over age 50, between your 401(k), IRA, and catch up contributions, you could save $32,000 in 2019. That doesn’t even take into account an employer match or integrating a health savings account in your retirement investment strategy.
And that’s where saving smarter comes in. All these investment vehicles play a unique role in your overall retirement savings strategy. If you’re not sure about how to best utilize each one, call our team at Shepherd Financial. We nerds have a great time figuring this out every day.
If you’ve been around the past few months, you’ve probably seen that health savings accounts (HSAs) are all the buzz in the retirement industry. But what’s the fuss?
Well, a major fear for adults is that they’re going to run out of money to pay for health care or long-term care as they age. Studies estimate the average 65-year-old retired couple is going to need between $250,000 and $300,000 for out-of-pocket health care expenses, though some reports push those numbers over $400,000. Regardless, it’s an intimidating number, especially for employees already struggling to save for retirement.
So how can HSAs help? These tax-advantaged medical savings accounts were created in 2003 as part of the Medicare Modernization Act to provide Americans with more knowledge about and more control over their health care spending. HSAs are designed to help people save money for current and future qualified expenses.
An HSA can be a very effective companion to a 401(k) plan when preparing for retirement. And for certain employees, after qualifying for their employer’s matching contribution in the 401(k) plan, it could make sense to max out their HSA contributions. There are three primary tax advantages:
- Like a 401(k) account, employees can make pre-tax contributions, lowering their taxable income. Employers can also contribute to the account, either in a lump sum or with each paycheck.
- The money grows tax-free and, depending on the HSA’s features, can be invested for greater growth potential.
- As long as the money is used for qualified healthcare expenses, withdrawals and any investment gains are 100% tax-free. (If money is withdrawn before age 65 for any reason other than paying qualified medical expenses, there is a 20% IRS penalty, and the funds are considered taxable income.)
An HSA’s positive features don’t end with the triple tax savings – they’re individually owned and portable, which means employees have control of their accounts and can transport them from job to job. Unlike a flexible spending arrangement (FSA), HSA money isn’t forfeited at year-end.
Though there are contribution limits, HSAs allow more than just the account owner to contribute, because after-tax contributions are also permitted (and if made by the account owner, these contributions can also then be deducted on personal taxes). Additionally, individuals age 55 or older can make catch-up contributions.
Employees can easily miss out on an HSA’s advantages if they are not properly educated about its features. The Shepherd Financial team is equipped to help your participants better understand their whole suite of benefits; call us today to schedule an HSA-focused employee engagement meeting!
None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation.
We are currently faced with a financial epidemic: many employees are on unstable footing due to debt challenges and a lack of emergency savings; others abruptly find themselves responsible for both their aging parents and dependent children. There’s no doubt about it – many employees are financially stressed.
These financial burdens can have negative effects at home and in the workplace, impacting health, relationships, and productivity. As an employer, this should concern you – aside from the possible adverse bearing on your company’s bottom line, it’s also discouraging to know financial stress can have the power to derail top employees.
In fact, 45% of employees say financial matters cause them the most stress in their lives. We believe it’s essential to closely and honestly examine the financial wellness programs currently in place within your company – are they adequately addressing your employees’ needs? Are they producing the behavioral changes necessary to improve employee well-being? If they’re not, consider the following:
Problem: More than a quarter of employees are using credit cards to pay for monthly necessities because they can’t afford them otherwise – and it’s an issue across all income levels.
Suggested courses of action: Host a budgeting and debt management course to help employees understand where their money is coming from, as well as where it’s going. Teach employees how to monitor their credit scores, emphasizing the power of compound interest and how it can either work for or against them.
Problem: Among employees with student loans, a large percentage indicate these are having a moderate to significant impact on their ability to meet other financial goals.
Suggested courses of action: Provide resources to educate employees about student loans and possible payment plans. Offer opportunities to learn about college savings plans to help ease future student loan burdens. Implement a student loan repayment benefit as part of your overall benefits package.
Problem: 47% of employees have less than $50,000 saved for retirement.
Suggested courses of action: Participants must understand the importance of starting early, how to take advantage of the company match, and what kind of gap they face between what’s saved and their retirement-ready futures. Make sure you’re providing sufficient education about your company’s retirement plan, how to enroll, your recordkeeper and their website, and where they can go with any kind of financial questions.
The Shepherd Financial team specializes in customized financial wellness programming, so we’d love to have a conversation about how we can improve your employees’ well-being. Connect with us today at 844.975.4015 or shepfinteam@shepherdfin.com.
Source: pwc, Employee Financial Wellness Survey, 4.16
Because we’re passionate about staying at the forefront of industry trends and regulations, Shepherd Financial recently sent a team to the National Association of Plan Advisors (NAPA) 401(k) Summit. This national conference allows industry experts to interact and share relevant, best-practice strategies for serving retirement plans. Our team highlighted the following topics as key difference makers in the retirement industry, plan administration, benefits collaboration, and plan participant financial wellness:
Industry News: Plan Litigation
The news continues to swirl with lawsuits against corporations, alleging their 401(k) plans have high fees harming employees. Such litigation has brought greater awareness to the fees being charged in plans, as well as a sense of urgency for retirement plan committees to take their fiduciary duties seriously. For example, the duty of exclusive benefit means fiduciaries must be aware of and fully understand all expenses paid from the plan – but it doesn’t end there. Expenses must also be deemed reasonable for the services provided. There is no obligation to choose providers or investments with the lowest costs; the best choice for a plan is unique to the plan’s objectives and characteristics. The most important elements for avoiding litigation over fees come in the form of a consistent process and thorough documentation.
Plan Administration: Committee Relationships
It can be beneficial to establish a committee to assist plan sponsors in the development of prudent processes for plan governance. It’s considered best practice to select a committee chair and establish a committee charter. Utilizing a committee charter to formally authorize the purpose and scope of the committee defines how committee members are selected or appointed, how often meetings occur, and the roles of any outside consultants. Understanding each party’s role, financial liability, fiduciary responsibility, and signing authority can help ease the administrative burden.
Benefits Collaboration: Health Savings Accounts
The buzz continues around health savings accounts (HSAs): they’re the link between health care and finance, but many employees still don’t understand their unique benefits. These savings vehicles provide triple tax-advantaged opportunities (tax-deductible contributions, tax-free earnings, and tax-free distributions), but few are taking advantage. Often confused with flexible savings accounts (FSAs) or health reimbursement accounts (HRAs) and their ‘use it or lose it’ rule, unused HSA funds from the current year roll over to the next year, so participants don’t have to worry about forfeiting their savings. Additionally, employees are often not saving enough to fully utilize the investing capabilities of the HSA – savings can be invested in mutual funds, stocks, or other investment vehicles to help achieve more growth in the account. Clearer education is needed to enable participants to fully engage in their whole suite of benefits.
Plan Participants: Watch Your Language!
The retirement plan experience can be extremely intimidating for participants, and language choices from both plan sponsors and advisors are important. Communication needs to be positive, reasonable, clear, and personal. Participants respond well to a process that is readily accessible, but they first need to hear why they’d want to participate. Using phrases like ‘a comfortable and enjoyable retirement’ and ‘an easy, cost-efficient, and satisfying path to retirement’ resonated well with employees. Each company has unique demographics, so plan sponsors should work closely with their advisor to determine the best language fit for their participants.
This list doesn’t need to be overwhelming – navigate each of these areas by working with your advisor to create a retirement plan strategy every year. Incorporate a formal process that includes regular plan cost benchmarking, a thoughtful examination of plan design, thorough documentation of committee policies and procedures, and honest conversations about how to better equip participants to retire well.
Valentine’s Day reminds us now is the perfect time for ‘the talk’ with that special someone in your life. And since this is a financial blog, I obviously mean the money talk. True, communication can be challenging, and the topic of money is a sore spot for many people. But the more you can speak honestly about money, the less fear and anxiety will be wrapped around it. The dialogue may look different based on your relationship status and life stage; regardless, it’s important to have the conversation now, as well as make room for future conversations.
You may benefit from making individual financial balance sheets, including all your debt and savings, before you begin talking. This way, you’ll have a better idea of your net worth. You may also compile a list of money questions or concerns you’d like to cover. It’s worthwhile to discuss your current financial situation, share values and long-term goals, and talk through spending and saving habits. Not being willing to talk about money can lead to big issues, both now and down the road. Open communication, though, gives the opportunity to create shared vision for the future, tackle problems as a team, and have accountability for your financial decisions.
Determine your own money values. This is where you’ll examine if you value saving or spending, as well as think about the various lifestyle standards you have. If you’re single and value the ability to travel, you’ll likely take that value into a relationship. Potential partners may discover conflicting values. Married couples may disagree about saving for college for their kids versus boosting their own retirement savings. It’s ok to disagree, but finding common ground is key. And keep the big picture in mind: creating safe space for ongoing dialogue about a positive financial future.
It’s also critical to come clean about your financial baggage. If you have student loan debt or a spending habit you’re having trouble kicking, hiding the issue will only compound it. (Literally – interest either hurts debtors or helps savers, but it doesn’t sit still.) Once you’ve talked about where you’ve been and where you are, look ahead. Are there any financial obstacles ahead? What are you hoping to do with your money in the future? Highlighting these can help you better see how to actually plan for the future.
Of course, not every money conversation needs to be so in-depth, but it helps to check in at least once a month to ensure you and your partner are on the same page, spot any problem areas quickly, and maintain momentum toward your goals. Your first financial talk together may be a little awkward, but with time, you’ll become fluent in a shared money language.
It’s easy to see why January is considered the start of new things – there’s a fresh calendar year and a plethora of resolutions get shouted from the rooftops. This feels like a chance to hit the reset button in many areas of life. At this point, you can see the race has a clearly-defined finish line – and it’s 12 months away. Of course, for some people, January is really right in the middle of the action. Maybe you’re gearing up for your second semester and looking at a somewhat shorter distance to the finish line.
No matter the length of your particular race, though, it’s helpful to have a good idea of what you’re getting into. As runners will tell you, there is a vast difference between sprinting 100 meters and grinding out a marathon. From race preparation and strategy to gauging your pace along the way, you will benefit from having a plan in place before your feet ever leave the starting line. At Shepherd Financial, we believe financial wellness is one important piece of whole-life wellness. So while we hope financial goals are part of your plan (and want to help you set and achieve those goals), don’t stop there. Pause and think for a moment about how financial well-being could positively impact the rest of your life. Do you want to pay off debt? Save more for retirement? Increase your charitable giving? Send your kids to college? Travel more? We can help you create a plan and work toward those goals.
It’s also important to realize not all runners are built the same. If you’re a sprinter, don’t force yourself into strapping on a hydration belt to run 26.2 miles. Set yourself up for success by running your race. You may find it useful to set smaller goals with shorter timelines. We believe each of our clients has a unique lens with which they see the world. Getting to know you, as well as your strengths and weaknesses, is part of our process – if we craft a financial plan that doesn’t fit your specific needs, it doesn’t make sense to pursue it.
Don’t forget your running buddies! When you head out to pound the pavement for a few hours, it’s nice to know you have a support system by your side. Think through what you want to accomplish, then find the teammates who will encourage you to get there. Because our focus is creating retirement-ready individuals, our team is constantly producing new tools and educational resources. We love finding customized solutions for retirement plan sponsors, participants, and individuals.
To our friends, family, and clients in Houston, know we are thinking of you.
Ten years ago, our country was on the cusp of a terrible recession. The housing market crashed, unemployment spiked, and American households lost trillions of dollars in net worth. Considering we are currently approaching 100 months of economic expansion, are we about to see another downturn? It’s the question market analysts keep asking.
However, retirement planning takes a backseat when faced with immediate issues like finding safe housing and bottled water. It’s completely understandable to feel frustrated, confused, and scared by the world these days. In fact, those reactions are a good sign of your humanity. But there are times when these emotions can immobilize us. We don’t know what to do, how to help, or where to turn.
Doing nothing, though, produces nothing – so how do we move forward? Start by choosing to believe small actions can create avalanches – history has proven this over and over. When you are feeling overwhelmed, consider these seemingly small actions:
Fear does its best work in the dark. So take an honest look at the problems in your life and name them. Understanding what you’re facing is important; turning a blind eye tends to increase the chaos rather than help defeat it.
Equip yourself. Gather resources, knowledge, and the people you need by your side. Be humble enough to ask questions, make connections, and invest time into understanding the roots of the issue. It’s much easier to fight a battle when you are adequately prepared.
Find your lane. You can’t solve every problem – that’s like using a sprinkler to stop a forest fire. But you can figure out where your strengths lie; investing deeply into one thing can then produce a powerful fire hose effect. And remember that each person is unique, so it’s ok your purpose and passion happen to be different than someone else’s.
And finally, persist. I know that sounds unfathomable when you’re trying to take down a mountain with a tiny chisel. But enough little chips over time matter. Your small actions will create an avalanche.
Whether you’re knee deep in water and not sure how to remove it or knee deep in debt and don’t know how to budget, remember there are people who are trained to help. Make the phone call. Accept advice. Take one small action.
As the onslaught of end-of-school activities, exams, and graduation parties begins to fade, parents may heave a sigh of relief. Summer at last! The relief is short-lived, however, if you gaze slightly down the road. Whether your child is five or fifteen, college may very well be in their future. Have you begun thinking about how to pay for those expenses?
There’s simply no better time to begin planning than today. From harnessing the power of compound interest to hopefully avoiding drawing from your own retirement savings, there are a number of benefits to starting early.
One of the most flexible and affordable resources available to help fund a child’s future education is a 529 savings account. You can utilize tax-advantaged investing (earnings grow tax-deferred and are free from federal income tax when used for qualified higher education expenses), low fees and expenses, professional investment management, and potential state tax deductions or credits.* Here in Indiana, contributions to a CollegeChoice 529 account are eligible for a state income tax credit of 20%, up to a $1,000 credit per year.
In most plans, your choice of school is not affected by the state in which your 529 savings plan was established. Additionally, the funds in the 529 plan can pay for any eligible 2- or 4-year college, graduate school (including law and medical), or vocational/technical school. Tuition is not the only expense covered by 529 funds – other qualified expenses include textbooks, computers, and certain room and board costs. Even if your child is already in high school or uncertain if they want to go to college, you may still benefit from opening a 529 account. Aside from tax-deferred earnings, any unused assets may be rolled to another eligible family member’s account. Many 529 plans feature gifting programs that give family and friends a unique code to contribute to the account.
There are other funding options for higher education, including Coverdell Education Savings Accounts, federal and state grants, scholarships, and a variety of loans. If you have questions, our team at Shepherd Financial is always ready to help clear confusion and create solutions for your family.
Participation in a 529 College Savings Plan (529 Plan) does not guarantee that contributions and investment return on contributions, if any, will be adequate to cover future tuition and other higher education expenses or that a beneficiary will be admitted to or permitted to continue to attend an institution of higher education. Contributors to the program assume all investment risk, including potential loss of principal and liability for penalties such as those levied for non-educational withdrawals. Depending upon the laws of the home state of the customer or designated beneficiary, favorable state tax treatment or other benefits offered by such home state for investing in 529 Plans may be available only if the customer invests in the home state’s 529 Plan. Consult with your financial, tax, or other adviser to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. You may also wish to contact your home state or any other 529 Plan to learn more about the features, benefits, and limitations or that state’s 529 Plan. For more complete information, including a description of fees, expenses, and risks, see the offering statement or program description.
*To find out if your state offers tax deductions or credits for contributions, visit savingforcollege.com.
Indiana is renowned for its litany of sports legends. You’ve likely heard of fan favorite Peyton Manning or a trash-talking guy named Reggie Miller. Perhaps you’ve seen those little cinematic gems, Hoosiers and Rudy? And in the month of May, it’s commonplace to see Indianapolis flooded with spectators, all eager to witness what’s known as The Greatest Spectacle in Racing – the Indy 500.
Drivers complete 200 laps to try and win this 500-mile race. Their prize? It’s unique – winners get an ice-cold bottle of milk to celebrate their triumph at the Speedway. Yes, there is a monetary prize as well, but many drivers have claimed getting to drink the milk is the better reward – it’s symbolic, celebratory, and a refreshing end to a grueling race.
Here at Shepherd Financial, our passion is helping individuals and plan participants navigate their personal roadmap to retirement. Like Indy 500 drivers, many things are needed along the way: clear vision, endurance, and support from others. The process starts by asking yourself these questions:
· How much money will I need at retirement?
· Where is my retirement income going to come from?
· How much should I be contributing today?
· How should I invest my retirement savings?
· What steps do I need to take right now?
It’s important to remember your working years are a long race, and some seasons may feel achingly repetitious. There are other times when, out of necessity, you must take a pit stop. Life changes – like having a baby, buying a house, or losing a spouse – happen and can feel frustrating (and maybe even like you’re spinning your tires), but we’d encourage you to use those moments to reset and refocus.
Ask for support and let other people help you. A driver may have a great understanding of how his or her car works, but their job on race day is to drive. Changing tires, refueling, and making mechanical tweaks are the responsibilities of the pit team. The driver simply needs to radio the crew and ask for help. In the same way, financial professionals can walk through the roadmap questions with you, enabling you to focus on your current race.
Visualize your end goal and think about what it requires to get there. Yes, you are striving for the monetary prize of funding your retirement income goal. But how will you celebrate actually reaching the finish line? What’s your bottle of milk?