How many times have you heard pre-retirees state that they could live on less when they retire? It is counterintuitive that an individual, or couple, could make that statement. What will change dramatically at age 65 (or after you eventually retire) to make that statement come true? Do the IRS, your mortgage lender, your utility companies, and the like give you a discount because you are a retiree? I’m sure that the majority of those comments by pre-retirees are part of their retirement wish list.

Fortunately, or unfortunately, we are all creatures of habit. Articles upon articles appear daily about losing weight, exercising regularly and eating correctly. People who are successful at accomplishing weight loss, becoming more physically fit, or eating a more balanced diet will tell you that to accomplish any objective, you need to make a life-style change. Wishing and hoping don’t change habits; it takes new knowledge, skills and action to effectively manifest new attitudes and new behaviors.

So initiate a dress rehearsal for retirement now. Rather than speculate on future cash flow needs, start today to identify those cash flow items that may or may not decrease as you transition from your “Earning Years” into your “Golden Years.”

Determining what expenses to eliminate may be the starting point of this exercise, but the second-dimension of cash flow analysis may uncover “free cash” to be reallocated to ongoing wealth-building and asset protection strategies.

Eliminate those items that you have no ability to control, identify those that require your creativity, and compromise on adapting and adjusting. Too often, the “Earning Years” reinforce our new cultural habits of affluence and consumerism. Affluence has its roots in the Ancient Latin word, affluere, which means “flow freely.” Yes, for consumers, money does flows freely when you have a paycheck. What happens in retirement when the majority of your income is now dependent upon the investment return and/or distribution from the assets you accumulated? Let’s not forget that we may be experiencing a longer life expectancy. This phenomenon is putting an even greater onus on being better stewards of our wealth for a longer period of time.

Other than the proverbial miscellaneous expenses, what other categories come to mind where you might be overspending? Is this a good time to refinance your mortgage? Interest rates are low once again. Is it time to review your cash flow to reduce the cost of your mortgage? Refinancing may be the catalyst to reduce mortgage/housing costs to free up cash to purchase wealth building assets and strategies.

If you refinanced your mortgage and the monthly (P & I) payment is lower, should those mortgage savings go to increasing your 401(k) contribution to build up your retirement nest egg or funding your child’s/grandchild’s 529 plan? The 401(k) contribution creates a federal and Ohio state income tax deduction; the other creates a tax-free accumulation account for education.

If you examine your payroll withholding and/or quarterly tax payments, will you receive a refund or will you owe taxes? The ideal is to pay, via estimated payments and your payroll withholding, exactly what you will owe. The balance in excess withholding or quarterly payments should be reallocated to categories to build your wealth on a regular basis. Periodically consulting with your tax advisor can maximize this strategy.

Are you paying too much for life insurance or auto and homeowner’s coverage? Maybe you would like to purchase long-term care insurance, but the premium would challenge your monthly budget. So rather than always spending more money to purchase things, why not review the expense of current items first. For example, by increasing your deductibles on your auto and/or home insurances, you may realize substantial savings.  These savings then can be applied to those items warranted by your new financial direction.

When you retire, what monthly obligations will remain? What expenses will go away? 401(k) contributions will drop off; saving/investing/accumulating money for retirement will no longer be an expense. Federal and state income tax withholding (and quarterly estimates) may be lower. So as you work through each line of your expense sheet, you’re approaching the true “bottom line” of what you need to live on in your Golden Years.

Working with your wealth manager and life-planner, can help you fine-tune the projected income needed per month, adjusted for annual inflation. So here is where the “dress rehearsal” comes in.  If you’re five years from retirement, begin to live now on that bottom-line number you identified to be your future retirement income needs. Working within your budget and with your advisor will help you focus on what nonessential expenses need to be eliminated or adjusted prior to retirement. Statistics indicate that retirees will need 70 to 100 percent of their pre-retirement income during their retirement years. Rather than guess what that required income need is, let’s identify your future bottom-line monthly number now.

Like anything else, retirement is a life-style decision. Don’t jump in to retirement unprepared. Ease into retirement by practicing fiscal responsibility and accountability. Approach the dress rehearsal technique as the opportunity to continue to live your Golden Years with an attitude of abundance as opposed to living a life controlled by scarcity.

As a fee-only wealth manager and life-planning company, we are ready to make your dress-rehearsal a success.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC.  He can be reached at

Insights Wealth Management is brought to you by RAV Financial Services LLC

Published in Cleveland

Retirement plan participants and sponsors will gain more information about their plans’ fees and expenses when changes from the U.S. Department of Labor require comprehensive disclosure from service providers.

“The outcome of this change is going to be a much more level playing field of service providers and investment companies in terms of how and what they charge,” says Greg McDermott, Executive Vice President, FirstMerit Retirement Plan Services.

About 72 million workers participate in 401(k)-type plans, representing about $3 trillion in investments, according to the U.S. Department of Labor. All will be affected by these disclosure changes.

Currently, neither the plan participants nor the company providing the retirement plan are required by law to be informed of what fees the third-party plan administrator and investment manager charge and what that money covers. In fact, last year’s AARP survey revealed that 71 percent of 401(k) participants said they didn’t think they paid any fees.

McDermott explains that the disclosure mandate was supposed to take effect last summer but the deadline was extended twice to give providers more time to prepare by implementing new software, creating new reporting plans or adjusting their administrative processes. The mandate now takes effect July 1, 2012.

“For many other providers, it will be a dramatic change,” McDermott says. “But for FirstMerit, it’s not a significant change in terms of the way we currently charge for services and our level of disclosure. According to McDermott, FirstMerit already discloses the fees it charges for both its administrative and investment services and will now simply formalize the process to comply with specific aspects of the regulations. “We’re moving forward to meet the deadlines,” McDermott said. “In fact, our relationship managers are getting prepared to communicate the new regulations and what they mean to our clients and prospects.”

What does the change mean to service providers, sponsors and participants?


Service providers of retirement plans need to make sure their fees are reasonable, McDermott says. The Department of Labor has reported that the fees will need to meet industry benchmarks but has yet to define those benchmarks. FirstMerit, however, has already proactively compared its fees to available industry data that list average fees for different size retirement plans and found them to be both reasonable and competitive.

McDermott anticipates that review of provider fee information by plan sponsors will become a critical part of their compliance protocol. Although service providers are tasked with developing the required disclosures, plan sponsors face fiduciary liability for ensuring the disclosures are received, reviewing them and making certain their arrangements with providers are reasonable. McDermott recommends that plan sponsors begin a dialogue now with service providers to understand what assistance they will receive from their providers.

With the change, plan sponsors are responsible for seeing that plan participants will receive two categories of information—general information on plan restrictions and an explanation of any fees and expenses for plan administration such as investment advisory, legal, accounting or recordkeeping services. Additionally, the new regulation requires that participants receive information about each designated investment option in a comparative chart. According to McDermott, this may include items such as performance information over one-, five- and 10-year periods, a description of any shareholder-type fees, and the total annual operating expenses of the investment options.

“This will outline for participants the investment fees they pay in both percentages and dollars,” McDermott explains. “It will give them a picture of their retirement plan in hard dollars.”

Service providers, sponsors and participants also should be aware of the timing and impact of the impending regulation. Once the regulation takes effect July 1, 2012, expect changes in the marketplace because, as McDermott explains, more plan sponsors will be inclined to compare their fees to benchmarks, which will make the marketplace more competitive. As a result, some providers may need to align their fees more closely with benchmark levels.

“In the end,” says McDermott, “I think this trend toward transparency will benefit plan sponsors and certainly the participants in the long run because fees and fund expenses will be more competitive across the marketplace.”

What service providers must disclose

While the retirement plan fee disclosure mandate has many nuances, FirstMerit’s Greg McDermott offers

highlights of the information providers are required to share with plan sponsors:

  • Description of the services provided (e.g. record keeper or securities broker).
  • Description of designated investment alternatives available to participants.
  • Consulting fees, actuarial fees, custodial fees and third-party administrative fees.
  • All direct compensation earned by the provider as well as any indirect compensation that may be received. For example, a mutual fund company may pay the provider a small fee to provide its mutual funds.
  • Description of any compensation that will be paid to the service provider, whether it is charged against the plan’s assets or paid directly.
  • Any fees that will be paid upon the termination of the arrangement.
  • Information necessary for the plan to comply with ERISA reporting and disclosure requirements.

Want to learn more about the changes or investment accounts in general? Contact Greg McDermott, Executive Vice President, FirstMerit Retirement Plan Services, at

The opinions and information contained in this message have been derived from sources believed to be accurate and reliable, but FirstMerit Bank, N.A. makes no representation as to their timeliness or completeness. This message does not constitute individual investment, legal or tax advice. All opinions are reflective of judgments made on the original date of publication and do not constitute a guarantee of present or future financial market conditions.

Published in Chicago
Thursday, 17 May 2012 14:05

Making sense of an uncertain environment


Greg McDermott, the President of FirstMerit Insurance Group, discusses retirement planning with Smart Business.

How has the economy affected future retirees?

The prospect of enjoying the Golden Years may seem more like fools gold to many Americans who have seen their retirement savings dwindle during the recent economic downturn. One of the immediate impacts of the downturn was the reduction or elimination of employer contributions to qualified retirement plans. In addition, a significant number of individuals lost their jobs and have had to tap into retirement savings in order to sustain them during this difficult economic period.

Perhaps the most significant barrier to the goal of retirement has been the loss in account values suffered by most retirement plan participants over the past few years due to market volatility and dramatic declines in stock values. The psychological fallout from the market meltdown has made many employees nearing retirement more risk averse and conservative in their investment selections, which may limit the future performance of their accounts.

All of these factors have combined to create a material reduction in retirement savings.

Many future retirees are worried about the future of Social Security.  Where do you see Social Security heading?

The future viability of Social Security is certainly a looming issue and one that has challenged our government for decades, but with little action. I think we are nearing a time in which changes are going to need to be made in order to sustain the system for future generations. Since the Social Security system was put in place in 1935, the average life expectancies of retiring workers have increased dramatically, which means benefits are being paid for many more years than originally anticipated.

Another startling statistic is that in 1950, for every Social Security beneficiary, there were 16 active workers helping to fund the system. Today, there are three workers for every beneficiary, and that ratio will be two workers for every beneficiary by 2050.

The logical conclusion from this is that the age to qualify for Social Security will need to be increased materially in the future. It is also likely that there will be a form of “means testing” so that higher income earners may receive fewer Social Security benefits. Lastly, there is considerable discussion today surrounding converting our current “defined benefit” approach to Social Security to a defined contribution approach for younger employees in the work force in order to limit the continued growth in the benefit liability.

There is a general awareness by our government of the added burden on future retirees to create additional personal retirement savings. The advent of the Roth IRA is a good example of the government’s desire to create incentives for individuals to build their retirement savings on a tax-favored basis and create greater financial independence from government programs.

Anything else interesting or timely regarding retirement planning?

In late 2010, as part of the financial service reform legislation, Congress focused on creating greater transparency in fees and expenses charged within qualified retirement plans. Beginning in 2012, plan sponsors and participants will be told — in dollars and cents — exactly how much they pay each quarter for the management of their 401(k) plan. Most participants believe they pay nothing.

Investment fees, recordkeeping and administrative fees will be published in the one document most participants actually open and read — their participant statements. As participants begin to compare these fees and expenses, there will likely be questions raised concerning the value of services provided. This will be especially true when selecting investment fund alternatives. While many 401(k) providers have been very disciplined and transparent in their pricing for services, those providers that have been more aggressive in their fees and expense charges and have not been transparent in disclosure will be at a distinct competitive disadvantage. Many industry analysts are predicting that this new disclosure will likely produce a tipping point, resulting in reduced fees and expenses by many service providers, accompanied by greater accountability by plan providers.

As an example of the impact of fees and expenses, a 1 percent annual reduction in expenses at the participant account level over a working career could result in an increase in the account value at retirement of as much as 25 percent. While plan participants will now have a greater awareness of the expenses being charged to their account, plan providers will have an enhanced responsibility to assure the reasonableness of the fees and expenses being charged to the retirement plans they sponsor.

Reach Greg McDermott at

The opinions and information contained in this message have been derived from sources believed to be accurate and reliable, but FirstMerit Bank, N.A. makes no representation as to their timeliness or completeness. This message does not constitute individual investment, legal or tax advice. All opinions are reflective of judgments made on the original date of publication and do not constitute a guarantee of present or future financial market conditions.

Published in Chicago

For those of you diligent baby boomers who have filed your income tax returns on time, you can redirect your attention to your readiness for eventual retirement. Yes, on Jan. 1, 2011, the very first baby boomers turned age 65. For almost the next 20 years, more than 10,000 baby boomers will be considering retirement or retiring every single day. But just because you’re eligible does not make you necessarily prepared to enter this new phase of your life.

Today, let’s address some challenges to retirement cash flow. What amount of income do you really need in your golden years? What will be your expenses? Traditionally, previous retirees looked forward to living on the certainty of a fixed income and fewer expenses in the retirement years.

The first thing to do is some homework. Create a current personal income and expense sheet. Uncover what you are spending today and every day. Once that is completed, consider the potential financial obligations that you will face in the future once you retire and are without an employment income. The foundation for a solid retirement plan is built on managing your expectations and life-plan goals relative to your income sources, assets, liabilities and your overall net worth. Let’s explore some what-ifs that may impact you.

Writers have stated that boomers consider retirement as a time to reinvent themselves. The economic and financial events since 2007 have taken that reinvention definition to a new level. Let us be reminded that we boomers are still considered the “sandwich generation.” We still have an obligation to our children and heirs, but we also have the eventuality of dealing with aging parents and other relatives.

How are you preparing for these phenomena?

  • When will you really retire? The economic downturn includes the virtual disappearance of any “standard” retirement age. According to a recent report from the C.D. Howe Institute the new trend among baby boomers is to prolong retirement by at least five years because of economic and social pressures.

  • Employers are bracing for major changes in health care policy come 2014, and for better or worse, you’ll be affected. If you or your dependents have health issues, update your financial contingency plan around potentially higher costs for care.

  • Are you taking advantage of voluntary benefits? Voluntary benefits, which can include additional disability coverage, long-term care insurance and/or life insurance, are worth revisiting at different stages in your life.

How are college and/or post-grad education expenses impacting your future cash flow?

  • Americans now owe more than $875 billion on student loans, which is more than the total amount owed on their credit cards.
  • Since 1982, the cost of medical care in the U.S. has gone up more than 200 percent, but that is nothing compared to the cost of tuition, which has gone up by more than 400 percent.
  • Approximately two-thirds of all college students graduate with student loans. Student loan money is out there; however, high school students are never told that not even bankruptcy can get you out of student loan debt. It stays with you forever until it is paid in full.

So, what if you have co-signed and/or guaranteed those college loans or you have taken on other debt to help your children’s education? How will that impact your cash flow during your retirement years? What if your children become dependent for an extended period of time?

Parents’ and children’s delayed creation of a strategic and tactical strategy to deal with educational costs has created this huge burden on the graduate and the parents/custodians. The unfortunate result of this educational quandary is financial distress because not all college graduates are guaranteed a well-paying career to offset the costs of the financial debt incurred to achieve their diploma. In addition, many of those children don’t launch into independence but return home once again as a dependent.  These children are lovingly referred to as “boomerangers.” (By dissecting the word, you may also interpret that child(ren)’s return home has changed boomer’s frustration to boomer’s anger).

If you are a business owner, have you really addressed the issue of a successful continuation and succession plan? In theory, business succession planning focuses on contracts, numbers and documents. Taking the “you” out of the equation is a critical factor in business succession planning. What can you do to plan the best success for your own financial future, the business and potential inheritors?

Start by securing the services of a credible and unbiased business valuator, and understand clearly the basis for the valuation. Not only will accurate business valuations allow you to strategize your income potential, it will also provide the buyer with financial metrics to accurately price the current market value of the enterprise. The business valuation should also address the disposition of and/or the impact of existing liabilities on the future business performance and on your cash flow from the sale of the entity.

Focus on the business players. “It’s not personal, it’s business” is relevant in succession planning, too. Put aside personal feelings and expectations about tradition and keep succession planning about finances and business. Identify family members’ interest in being involved in the future business and accordingly incorporate their roles (or their lack of them) in the succession plan.

Recognize how much of your personal worth is the business. Work with your financial advisor and estate planner now to determine strategies that can strategically integrate your business plan into your personal financial plan and retirement income scenario.

As a fee-only wealth manager and life-planning company, we are ready to make your retirement reinvention a success.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC.  He can be reached at

Published in Cleveland

Fifteen months ago RAV Financial Services, LLC decided to provide our readers with timely insights and strategies to maximize your business growth potential and increase your overall net worth. During this time frame, we all have been bombarded by many headlines both domestic and abroad that may have distracted our focus on our journey towards financial success and ultimate life-plan significance:

  • U.S. economy sees the worst downturn since the Great Depression
  • Foreclosures hit record levels
  • U.S. deficits are out of control
  • Global terrorism on the rise
  • Afghan war now the longest in U.S. history
  • European debt crisis threatens economic recovery
  • Gas hits $4 per gallon and still rising
  • The U.S. political climate is bitter and straining the possibility of cooperation between parties

These are just a few of the stories that have caused consumers to remain “frozen” in the headlines. We have become so ingrained in the negativity around the globe, that we have remained stationary and have abandoned the issues that are “close to home”: to create and implement a successful strategic retirement plan.

Too often bad news reminds us that the “glass is half empty, not half full.” Other times we become angry, lamenting that we have no control over external events. Regardless of the environment, it may be appropriate to accept the events around you, and begin a plan to adjust and adapt to the “cards you have been dealt.” Next, focus on the things you can control as you build your retirement strategy. Individuals and businesses don’t plan to fail, they fail to plan. When a plan is non-existent, fear is created and magnifies what can go wrong. I learned a new definition a while ago about FEAR: false experiences appearing real. Fear immobilizes us and reminds us all of what Franklin D. Roosevelt said: “The only thing we have to fear is fear itself.” Emotional planning and knee-jerk reactions to short-term events can be dangerous to your long-term wealth.  A well-thought-out plan with your trusted advisor and wealth manager can help you crystallize the vision in your life-plan.

So what other statistics are increasing the difficulty of reaching retirement nirvana?

  • According to a recent poll conducted by Americans for Secure Retirement, 88% of all Americans are worried about “maintaining a comfortable standard of living in retirement.”
  • On January 1, 2011, the very first Baby Boomers started to retire. For almost the next 20 years, more than 10,000 Baby Boomers will be retiring every single day.
  • According to one recent survey, 74% of American workers expect to continue working once they are "retired."
  • A recent AARP survey of Baby Boomers indicated 40% of them plan to work "until they drop.”
  • Per the Congressional Budget Office, the Social Security system paid out more in benefits than it received in payroll taxes in 2010. That was not supposed to happen until at least 2016. Sadly, in the years ahead, these “Social Security deficits” are scheduled to become absolutely nightmarish as hordes of Baby Boomers retire.
  • In 1950, each retiree's Social Security benefit was paid for by 16. U.S. workers. According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 full-time private sector workers for each person that is receiving Social Security benefits in the United States.
  • According to a survey by, 36% of all Americans say that they don't contribute anything at all to retirement savings. (1)

In an article written by Michael Cohn, Small Biz Owners Not Prepared for Retirement, Cohn refers to a survey conducted by the American College:

“The survey, by the American College, a nonprofit educational institution devoted to financial services, found that while 66% of the women and 70% of the men said they had developed an estimate of their retirement needs, only half of these individuals have done so with the assistance of a financial professional.

Even for the small business owners who have calculated their retirement goals, most do not have a formal plan to achieve their financial objectives. Among the small business owners surveyed, 77% of the women and 74% of the men have no written plan for retirement.

Cost of living is a major issue for many small business owners planning for retirement. The main concerns of roughly four in 10 of the small business owners surveyed were increases in the cost of living, higher health care costs, and the ability to maintain their current quality of life.

While just over half of the small business owners who were surveyed reported being concerned about maximizing the value of their business to help fund retirement, only 10% of the women and 20% of the men polled had a written plan to transition their business upon retirement.”

There are many more examples in the media of individuals procrastinating to begin their retirement planning. Let’s get started in a serious commitment to get your retirement planning underway. The first thing is to do some homework. Create your personal current income and expense sheet. We’ll use that in my next article to examine what information is unveiled to you as you examine where money comes from and where it goes today. Remember, when you’re retired, how will that income/expense picture change. We’ll elaborate on that more next month.

In the meantime, I wish you financial well-being and comfort during these taxing times.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at

(1) Excerpts from “The Economic Collapse : Are You Prepared For The Coming Economic Collapse And The Next Great Depression?” November 23rd, 2011

Insights Wealth Management is brought to you by RAV Financial Services LLC

Published in Cleveland

If your key executives left, could your business continue to function, or would the loss cripple your company?

If the thought of losing your key people —whether to another employer or because of death or disability — keeps you up at night, a Supplemental Executive Retirement Plan (SERP) may be the answer, says Mark J. Dorman, president of Dorman Farrell, LLC.

“Finding and keeping talented difference-makers in an organization is tough,” says Dorman. “But, if your 401(k) or other retirement plans aren’t meeting the retirement income needs of your key people, SERPs can help you reward and retain those individuals.”

Smart Business spoke with Dorman about how SERPs can be a big win for both key employees and the company.

What is a SERP?

A SERP is a non-qualified plan, which means it is not subject to the same restrictive federal regulations and tax laws that govern qualified retirement plans, like 401(k), profit sharing and pension plans. SERPs work essentially like a private pension plan for each key employee for whom the employer wants to offer it. The employer makes a legally-binding agreement to pay additional compensation to the employee at some point in the future — usually retirement.

How does a SERP benefit both the employer and the key employee?

The key benefit for the employer is the ability to offer a really attractive future benefit to the employee — a benefit that makes the employee want to stay with the company. For example, if a business owner said to a key executive ‘I need you to stay with the company until age 60 to get the business where it needs to be,’ the executive may be reluctant to make that commitment. However, if the owner said ‘If you stay until age 60, I will pay you $X in annual retirement income between the ages of 61 and 70,’ suddenly the idea of staying becomes a lot more attractive. This incentive to stay with the company is often referred to as ‘golden handcuffs.’

Now is a good time to focus on executives’ retirement benefits. While government regulations have always restricted the deferrals highly compensated employees (annual incomes greater than $110,000 per year) can make to traditional 401(k) plans, what little they have been able to defer has likely taken a hit with the economic downturn and lackluster stock market performance. Executives are likely to have concerns about their retirement income and will find a SERP an appealing option.

SERPs also offer the employer a great deal of flexibility in designing the plan. Because they are not subject to the same regulations as qualified plans, the employer can pick and choose which employees are offered a SERP and design specific provisions. For example, the employer may choose to include a vesting schedule that vests the key employee over several years or, alternatively, requires the employee to stay for the entire term of the agreement to receive any benefit at all.

How do employers fund these plans?

SERPs don’t necessarily have to be funded at the time of the agreement. But if you don’t fund it, you create an unfunded liability on your books that you will have to pay out of future cash flow.

The vast majority of SERPs, particularly in private companies, are informally funded using either taxable investments, such as mutual funds, or tax-favored investments in the form of corporate-owned life insurance (COLI). The company owns, pays for, and is the beneficiary of the life insurance policy. The growth on the cash value accumulation is tax-deferred and used to the pay the SERP benefit, while the death benefit provides corporate cost recovery to the plan sponsor.

Here is an example of how a corporate-owned life insurance policy can be structured to fully fund a SERP: Assume an employer has agreed to pay a SERP participant $50,000 a year for 10 years between the ages of 61 and 70. The employer purchases a corporate-owned life insurance policy and uses the cash value accumulation to pay that benefit during those years, and takes a tax-deduction for the benefit during each year it is paid. Once the SERP benefits are fully paid, enough cash value remains in the policy that it stays in effect throughout the employee’s lifetime (even after leaving the company). When that person dies, the company receives the life insurance benefit tax-free, recovering the cost of the years of employer-paid premiums.

Are there any other considerations?

Yes. It is important for the employer and the employee to understand that one of the key requirements for non-qualified plans, including SERPs, is that there must be a substantial risk of forfeiture to the plan participant. If this requirement is not met, the IRS will deem the benefit to be ‘funded’ and immediately taxable to the participant. The primary risk to the participant is that the funds are subject to claims of the company’s creditors.  Additional planning is needed to protect the participants from a change in control and other factors that may threaten the security of their benefit payments.

What should an employer do to get started?

Companies should first enlist the help of experienced professionals. An experienced executive benefit consultant, along with the company’s accountant or attorney, can help you design a SERP agreement, determine appropriate financing and communicate with the key employee. The initial process usually takes between nine and 12 months. Once the plan is up and running, the administration is really quite simple.

Mark J. Dorman, CFBS, is president of Dorman Farrell, a member of the Skylight Financial Group . He has nearly 25 years of experience in the financial services and executive benefits arena. Mr. Dorman assists middle market privately held Northeast Ohio employers with their executive and employee benefit needs. He also works with business owners on the creation of business exit planning strategies. Reach him at (330)725-0501 or Dorman is a Registered Representative of and offers securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC. Supervisory Office: 1660 West 2nd Street, Suite 850, Cleveland, Ohio 44113-1454, Phone: (216) 621-5680. Dorman Farrell is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies.   CRN201307-150122

Published in Cleveland

As we enter the second month of 2011, it’s time to think of some of the resolutions made just a short time ago. For some, it was to lose weight, eat better and exercise more frequently; for others, it was to save more and invest wisely.

As more and more people are increasingly concerned about the viability of our nation’s Social Security system, the focus has continued to shift toward providing for our own retirement, says Mark G. Metzler, director, Audit & Accounting, at Kreischer Miller.

“One mechanism that owners of businesses and their employees often have is their company’s 401(k) retirement plan,” says Metzler. “Because many people are not professional investment managers, an option provided in many plans is ‘target date retirement funds,’ sometimes referred to as ‘target date funds’ or ‘lifecycle funds.’”

Smart Business spoke with Metzler about target date funds and how they can work for you.

What are target date funds?

Target date funds, which have grown in popularity in recent years, are long-term investments, typically mutual funds that hold a mix of stocks, bonds and other investments designed to reduce overall risk. The funds are generally structured as investments for individuals with particular retirement dates in mind. The name of the fund often refers to its target retirement date (e.g., Retirement Fund 2025). As a fund gets closer to its named target date, the investment mix shifts to become more conservative.

This is appropriate because an individual nearing retirement may wish to have his or her investments become more liquid to provide for living expenses, as well as to minimize losses in a volatile market. Ideally, the target date retirement fund concept is a simple way to provide for professional portfolio management. The investment firms sponsoring the funds make the investment allocation decisions for participants based upon the target date.

Are all types of target date funds basically alike?

No. Funds that share the same target date may have significantly different investment strategies and risk profiles. The Department of Labor’s Employee Benefits Security Administration (EBSA) and the Securities and Exchange Commission (SEC) published an investor bulletin stressing that ‘participants should not rely on the fund’s target date as the sole criterion for selecting the investment because funds with the exact same target date may have entirely different risk strategies, risks, returns and fees.’

One of the most significant differences among target date funds is the construction of the ‘glide path.’ The glide path represents the asset allocation philosophy among equities, bonds, cash and other investments at various times throughout the investment life of a participant. Typically, all target date funds have a higher exposure to equities when the participant is furthest from retirement (at the beginning of the glide path) and steadily decrease the exposure to equities as the individual approaches retirement age.

However, different investment managers may have significantly different strategies for a similar target date fund.

The EBSA and SEC provided an example in their bulletin of the extreme differences between target funds with identical target dates. In the example, at its target date, Fund A had an asset allocation of 60 percent stocks and 40 percent bonds, while Fund B maintained an allocation of 25 percent stocks, 65 percent bonds and 10 percent cash investments.

Fund A does not reach its most conservative mix of 30 percent stocks and 70 percent bonds until 25 years after its target date.

How can funds with the same target date have such significantly different investment philosophies?

In the simplest terms, it depends upon whether the fund manager is investing ‘to retirement’ or ‘through retirement.’ When the fund manager invests ‘to retirement,’ it is anticipated that a significant portion of the portfolio will be liquidated at the target date to provide for living expenses, so therefore it would comprise a much smaller percentage of equities. Conversely, when a fund manager invests ‘through retirement,’ it is anticipated that the individual will continue to have a much higher exposure to equities and will continue to invest in the market throughout his or her retirement years.

In the 2008/2009 market downturn, participants close to retirement whose target date funds followed the ‘through retirement’ date philosophy were shocked at the large losses their funds suffered as they mistakenly believed they had been shielded from substantial loss by investing in a target date fund.

What should someone consider when evaluating a target date fund?

First, remember that all investments have some level of risk, and even the same type of investment may have more or less risk than other seemingly identical ones. Participants should read the fund’s prospectus to focus on:

  • When does the most conservative mix of investments occur?
  • What is the fund’s risk level?
  • How has the fund performed in the past, and what is the fund’s Morningstar ranking?
  • How does the asset allocation change over the life of the fund?
  • What fees apply?

Target date funds provide simplification to the average investor. While there is no magic pill that provides for a guaranteed return or that eliminates the risk of loss, target date funds do provide a level of portfolio management and complexity that is typically out of reach for most investors.

Mark G. Metzler is director, Audit & Accounting, at Kreischer Miller. Reach him at (215) 441-4600 or

Published in Philadelphia

Most people spend their working lives saving for retirement. But when you’re ready to retire, it’s a whole new ball game, and how you approach retirement distribution planning can have a huge impact on both your taxes and lifestyle.

“Most people focus on saving money for retirement their entire working lives, so they’ve been successful riding out volatility in the market because they didn’t have to rely on those dollars to live,” says Bernard T. Garrah, Jr., a financial planner and Special Care Planner at Skylight Financial Group.

“But as they get to retirement, the type of planning they have to do changes from wealth accumulation to wealth preservation. When you look at your distribution strategy, you need to consider the asset classes and tax consequences of the assets that you’re going to be spending.”

Smart Business spoke with Garrah about navigating retirement distribution planning and understanding the tax consequences of your choices.

How can people preserve their wealth so that it not only lasts for their lifetime but also transfers efficiently and effectively to the next generation?

With a retirement distribution strategy, you have to determine what fixed income sources you will be receiving, whether you have enough money saved, and in which decade you will be spending it. Then you earmark vehicles to fund those particular decades.

First, divide your retirement into a series of decades. If you’re retiring at age 62, determine the first 10 years of income needs, then the second 10 years, and, finally, the next 10 years. Then compare that to your fixed income sources to determine if you have a substantial reliance on investment income. If so, it’s not a good idea to keep 80 percent of your net worth in the stock market. Those dollars needed should be invested in a conservative manner because you don’t want to drastically change your lifestyle if the market doesn’t perform. Then, whatever dollars you are not going to spend, can be allocated into a growth position and used in later decades. By doing this exercise, you are identifying a bucket of assets for each decade. At that point, if there is money left, it can transfer to the next generation. By reviewing your estate plan and beneficiary elections, you can increase the efficiency at which your beneficiaries inherit those assets.

How can taxes affect retirement distributions?

Managing your taxes is a key component to retirement distribution planning. Retirement plans are good vehicles to reduce taxes today, but what happens once withdrawals start?

For example, take one fund that could be taxed three different ways. If you purchase that fund within your 401(k), you purchase it with pre-tax dollars today and the money grows tax deferred, but when you pull it out, it is 100 percent taxable as ordinary income. Second, you could buy that fund with after-tax money, and the interest will be taxed each year through ordinary income tax and when you sell it, you may have to pay capital gains tax on the interest. The third option is to buy that fund inside a Roth IRA with after-tax dollars. The fund grows tax deferred, and, upon withdrawal, if all IRS guidelines are met, it’s 100 percent tax-free. It’s the same mutual fund, but depending on ownership of the account, it could be taxed three different ways, not all of which are beneficial to you.

People assume their tax bill will be lower in retirement, but that’s not always the case. When you’re younger, you have many tax advantages. You’re not making as much money, you can write off property taxes and mortgage interest, and you can claim your children as deductions. In retirement, you may not have those things, so when you talk about retirement distribution strategy, you have to understand the tax bracket you’re in today and what it might be in retirement. Once this is understood, set up multiple buckets you can withdraw from that are all taxed differently.

Don’t wait until the day before you retire to create your distribution plan. Be savvy and proactive; start looking at this in your 30s, 40s, or even 50s so that you can possibly manipulate the tax system instead of being manipulated by it.

How can someone ensure they are making the right decisions for their situation?

Work with a team of advisers. Work with your CPA to determine where you are today from a tax perspective and what it could look like in the future. Work with a financial adviser to determine if you are saving in the right places and how much you should be deferring on a pre-tax basis and into after-tax accounts.

An estate planning attorney is also vital to make sure your estate transfers to the next generation correctly. Too often people have documents that were drafted when their children were born and have never been updated. This can be challenging because both people and their wishes may have changed in the last 10, 20 or 30 years.

Most people don’t plan to fail, they fail to plan. However, it is never too late to start planning.

The information provided herein is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek specific advice from their personal tax or legal counsel.

Bernard T. Garrah, Jr., ChFC, CLU, CFBS, is a financial planner and Special Care Planner at Skylight Financial Group. Reach him at (216) 592-7360 or Bernard T. Garrah, Jr. is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC. Supervisory Office: 1660 W. 2nd Street, Suite 850, Cleveland, OH 44113. (216) 621-5680 Skylight Financial Group is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. CRN201301-144191

Published in Cleveland

Carina Diamond, SS&GWith many people living 10, 20 or even 30 years after retirement, planning for your financial future has become more important than ever.

While many people plan through the time up until their retirement, too many fail to consider the decades that could come after. If you live another 30 years after you retire, have you put yourself in a financial position so that your body doesn’t outlive your money?

“You really need to determine where your money is going and what might change,” says Carina Diamond, CFP®, the managing director of SS&G Wealth Management LLC. “If you can get your expenses lower now, then you can live a very rich retirement on less income.”

Smart Business spoke with Diamond about how to make sure that you don’t outlive your money.

How do you start planning for your financial future after retirement?

You first have to identify how much you are spending now and where that money is going. Any future planning must start with your current expenses, because what you’re trying to replace is the income that is paying those expenses. You need to determine what those expenses are, what can be eliminated and what will change going forward.

People tend to underestimate how much they are actually spending. Once you’ve determined that, you need to work backward from that to determine how much money you will need in retirement.

The next step is to define your goals. Some people may not know what those are, and that’s OK, but the point is to try to quantify as much as you can. For example, choose a few different ages at which you think you might want to retire, say 60, 65 and 70, then work backward from that and talk about the lifestyle you’d like to have. People used to think that expenses went way down in retirement, but in fact, expenses tend to stay the same or increase as people travel or do other things they didn’t previously have time for. When people are no longer in the office all day, they have more time to spend money.

How much does someone typically need in retirement?

People used to say you needed $1 million, or half-a-million, but there is no magic number. Instead, you need an income stream that you can’t outlive. It’s all about the income that your investments can generate that is going to determine your lifestyle.

There are a number of things you can do to plan for an income stream that is there when you need it, and it starts with projections of what you need to spend. Once you have that, you need to evaluate your investments with your adviser to make reasonable projections of what those are likely to grow to. You also need to look at income from a number of different sources, such as dividend-paying stocks, rental property, any ongoing consulting you might be doing and annuity investments.

Once you’ve done that, the next thing to consider is your withdrawal rate. The financial planning industry recommends that you don’t withdraw more than 4 to 5 percent a year. If you stick to that guideline, then statistically, there is a good chance that you will not run out of money. But if you start to take out more — and some people will have to — the odds increase that you will run out of money before the end of your lifetime. So if you have a million dollars, you should only be withdrawing 40,000 to 50,000 a year.

If you’re in your 60s and married, according to actuarial tables, there is a really good chance that one or both of you will live into your 90s. Thirty years is a long time frame, and to make your money work for you, you need stocks. People worry about the volatility of the stock market, but if you don’t do anything to grow your money, you are incurring the very real risk of inflation. If you’re not investing for growth, you may think you’re being conservative, but you’re taking a real risk of losing purchasing power.

How important is diversification of assets?

Every person is different in terms of their investment portfolio, depending on age, tax situation, preference and other factors, so there’s no one thing that everyone should be invested in. The biggest thing is to diversify between asset classes in investments that don’t all perform the same way in different economic scenarios. You don’t want them all to do badly if the economy is weak and you don’t want to have all your money in investments that are interest-rate sensitive. A professional investment adviser can help you make the best decisions for your situation.

How does health factor into the equation?

Health is one of the biggest wild cards. You can do all the planning in the world, and have the best investment manager in the world, but if you get sick and need long-term care later in life and you don’t have coverage for that, that can be devastating. It can ruin your whole financial plan, so you also want to do long-term care planning; consider buying long-term care insurance if you can qualify for in-house health care and a nursing home. It’s the No. 1 thing that people forget about, or just don’t plan for. But it is a major wild card that can really disrupt an otherwise sound plan.

It is generally recommended that you start considering it in your early 50s, but it’s getting harder to get and getting more expensive, so you may want to consider buying it earlier.

Carina Diamond, CFP®, is the managing director of SS&G Wealth Management LLC. Reach her at or (330) 598-2208.

Published in Akron/Canton
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