How to shift from saving to taking income for your retirement

Retirement planning means saving early and often while developing a balanced and diversified portfolio. Once you are within three to five years of retirement, however, reality sets in that your paycheck must be replaced with some combination of Social Security, pension funds, distributions from your IRA, annuities and/or pulling from an investment account.

“It’s kind of a shift,” says Adam Spiegelman, wealth management advisor at Northwestern Mutual. “The brakes come on, and you ask, ‘How do we draw down? How do we take income? Where does that paycheck come from?”

Smart Business spoke with Spiegelman about preparing for retirement.

If someone has a large chunk of money, is it better to invest it at once or spread it out?

If you’re moving money over from an existing 401(k) or IRA, it’s best to invest it at once. If it’s cash, like from a home sale or inheritance, it’s better to invest it over a period of three to four months, which helps mitigate against market volatility.

What is the appropriate strategy for providing financial gifts?

First, make sure you’re squared away for your own retirement.

After that, it depends on the needs of your dependents. Some might be OK financially, while others may need help. Be sure to keep score in your estate plan as you gift. If you help a child or grandchild, earmark that amount so everything is equitable in the end.

Wealthier couples also may gift out of their estate to mitigate a future tax exposure. Under normal circumstances you would only consider this for the final 10 or 15 years of your life. You don’t want to gift too early and be left short of funds.

How and when do annuities work?

Annuities are like private pension plans that provide a guaranteed source of income, which can help even out cash flow. With an annuity as part of your portfolio, you can be strategic with how you pull from investment accounts. If the market is down, you can let your account build back up and live on the annuity income.

If, however, you’re unhealthy and/or single, annuities are less attractive because you’re paying a large sum for income you only get for a short time.

How will Social Security affect retirement? When should you delay drawing upon it?

Social Security was never meant to replace your pre-retirement income, but it can help supplement it. There are numerous strategies for drawing Social Security. An increasingly popular one for many married couples is the file and suspend strategy, where the main breadwinner applies for Social Security at age 66 and immediately suspends payment. In most cases, this allows his or her spouse to collect half of their benefit, while the 66-year-old’s benefit increases by 8 percent every year until age 70 — a 32 percent total increase.

The key here is sit down with a Social Security consultant in conjunction with your financial adviser to make sure you aren’t leaving money on the table.

What do people need to consider when taking a payout option from their pension?

With pension plans, you’re provided with a number of payout options, including a lump sum. It surprises many that you might do better investing the lump sum versus taking the company’s offered annuity. This depends on numerous things like the current interest rate environment, inflation protection within the pension plan, the company’s financial strength, etc. It’s best to discuss this thoroughly with your financial adviser.

How can you invest conservatively, securing your nest egg, while still beating inflation?

Inflation should be considered, since it can easily erode your retirement. Often, people underestimate the power of inflation, but even a small amount can become significant over a 10- or 20-year period.

With the help of your adviser, you can be diversified and conservative in the markets, employing investment vehicles like mutual funds, dividend-paying stocks, bonds or treasury inflation protected securities, while protecting your buying power over the course of your entire retirement.

Insights Wealth Management is brought to you by Northwestern Mutual

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Spiegelman is an insurance agent of NM and Registered Representative of Northwestern Mutual Investment Services, LLC (securities), a subsidiary of NM, broker-dealer, registered investment adviser, member FINRA and SIPC.

How to leave a legacy for your heirs beyond the financial

Eighty percent of high net worth individuals today didn’t grow up with wealth. They can’t follow the example set by their parents and grandparents, and they may not know the right questions to ask financial advisers.

“This segment of the population — these ‘self-made’ millionaires — wants to help their kids but, for the most part, they don’t want them to be dependent on trust funds. They prefer their children to have a good work ethic and contribute to society,” says Deborah F. Graver, CFP®, CLU®, senior vice president of Advanced Planning at Fragasso Financial Advisors. “Although they are willing to give some money to their children, they also want to give back.”

Using tools like a charitable trust or family foundation, people are able to support their core values while teaching their heirs how to manage money and give back to society.

Smart Business spoke with Graver about some effective estate planning vehicles that allow you to leave a legacy behind.

What does it mean to ‘leave a legacy’?

To leave a legacy is to transfer your core values, along with your assets, to benefit family or society as a whole. Some people choose to establish family trusts to ensure their name and assets last for future generations. Others are more interested in creating a family philanthropy that helps create a positive social change. It’s more far-reaching than simply estate planning; it’s multi-generation planning.

Does that mean some people need to think more broadly about estate planning?

It’s hard to cast a net over everyone. But if you work with professional advisers who take time to understand who you are and what you care about, they can help you create a thoughtful and effective estate plan, which may include charitable giving. Some clients establish charitable entities to last a lifetime and beyond to support causes that help those with special needs, companion animals and faith-based organizations, to name a few.

It’s also noteworthy that baby boomers are expected to transfer $30 trillion over the next 30 to 40 years. Statistically, however, 70 percent of inherited wealth is lost by the first generation, and 90 percent by the second. So, if these baby boomers leave money outright to their kids, it’s going to be gone.

What are some tools to pass on your legacy?

Always take a holistic approach. Try to incorporate charitable giving strategies in high tax years, which may occur when selling your business or exercising company stock or stock options. In addition to the altruistic and goodwill benefits of charitable giving, it can also have significant tax advantages.

You can establish a charitable trust or create a family foundation and transfer assets on a tax-deductible basis to provide income to you or to the charities of your choice for years and possibly generations to come. For example, if a couple has stock with a zero cost basis, they’d have to pay capital gains tax on the entire amount when it’s sold. Instead, they can gift the stock to a charitable trust that provides income for life. It could be used as supplemental income or to buy life insurance to replace the assets gifted away. At the end of their lives, the trust’s remaining principle is given to named charities and any insurance proceeds flow to their heirs.

What’s the timing for this kind of planning?

First, get young children involved in volunteering so they learn the value and importance of why you want to help others less fortunate than yourself. Then, when your kids are old enough to understand the benefits of charitable giving, start talking to them about your desire to leave a legacy.

Is there anything else you recommend?

You need to educate and communicate your family’s values to the next generation to help ensure — and there are no guarantees — that the money lasts. A financial adviser who focuses on legacy planning can facilitate family communication while the elders are alive and document core family values. Your heirs need to be part of the process so they understand your wishes. It will help them take the responsibility more seriously, and they will be better equipped to manage their inheritance and family philanthropies.

If you’re not working with someone who specializes in legacy planning or includes it as part of their services, get a second opinion on any planning to ensure what you want to accomplish will, in fact, happen.

Insights Wealth Management is brought to you by Fragasso

Simple steps that can help you and your employees manage your wealth 

Many employers are working harder than ever to help employees develop responsible habits when it comes to managing their money. When your people are in a good place financially, it can only help them to be a more productive worker at your company.

“A lot of the education isn’t and shouldn’t be around the 401(k) plan that the employee has through your company,” says Gregg LaSpisa, executive vice president at AXA Advisors, LLC’s Cleveland branch. “Part of the conversation should always be around investment options and the value of financial planning. It’s more about financial literacy, something you can do on a broad basis where everyone can takes bits and pieces and apply it to their own strategy.”

There is a misconception that wealth management is only for the affluent part of the population, but LaSpisa says that could not be further from the truth.

“The segment of the population that is being missed is the middle class,” LaSpisa says. “There is advice out there to be had. They just need to be more engaged.”

Smart Business spoke with LaSpisa about what you can do to help both you and your employees find suitable financial strategies.

What are the key components to a good wealth building strategy? 

One is to get started early. Encourage employees to take advantage of employer-sponsored plans whether it’s a 401(k), a 403(b) or a 457 plan that is geared toward city and municipal workers. It’s something that is going to give them tax benefits and the ability to contribute dollars systematically, which is important because it allows them to dollar-cost average.

One trend a lot of employers are picking up on is having a default into their 401(k) plan.

If someone joins XYZ Co., the employer will default new employees into the plan at 3 or 4 percent of the employee’s pay. Employees don’t even need to sign up and would have to elect to not be in the plan. It has increased participation rates because people are automatically in the plan from day one.

Encourage employees to take advantage of all the employer money that may be available. If the match is on 3 percent of contributions, make sure they at least take advantage of that. Those are free dollars that they have access to.

How does wealth management differ from retirement planning? 

It could be trying to eliminate debt, trying to pay down a mortgage to build up more equity or taking a look at an insurance based portfolio. A person’s entire financial situation is addressed, not just retirement planning.

What about making investments in the stock market? 

A common problem for investors is when they try to time the market so they can get in and get out quickly with a pile of cash. But it’s not timing the market that can help your wealth. It’s time in the market.

That steady course, that consistent dollar-cost average and rebalancing of your account can means a huge difference in the amount of wealth one can accumulate over a 30- to 40-year period of time. When people see the market go down drastically, they often pull out and move to cash. They’ll never recapture that lost opportunity because they tried to time the market.

Get a strategy that is long term and manage it for that horizon. Don’t manage it day by day or year by year. If you have a 30-year time horizon, one year doesn’t mean a whole lot. One month means absolutely nothing because you’re going to have a lot of months over that period of time.

Financial services available to individuals and business owners through AXA Advisors, LLC include: strategies and products for financial protection and investments; asset allocation, college, retirement, business and estate planning strategies; life insurance, annuity and investment products, including mutual funds. Securities products are offered through AXA Advisors, LLC, NY, NY, member FINRA, SIPC, 10104 (212) 314-4600. Insurance and annuity products are available through an affiliate, AXA Network, LLC and its subsidiaries.
GE-96186 (Exp. 7/2016) 

Insights Wealth Management is brought to you by AXA Advisors, LLC 

Why a happy retirement requires a mix of both planning and discipline

It’s one thing to maintain spending discipline when you are still working. You can afford to take a big vacation with the kids or make a major improvement to your house because you are still drawing paychecks on a regular basis to replenish your account.

It all changes when you decide to retire.

“The biggest exercise we go through with clients is retirement income planning,” says Gregg LaSpisa, CLU, executive vice president at AXA Advisors, LLC’s Cleveland Branch.

“You go through your working career and you always contributed money to your 401(k) plan or your retirement plan and you are more in an accumulation mindset. When you retire, you have this big lump sum asset. How do you get income off of that? The retirement income plan is critical. You have to match expenses with income.”

Smart Business spoke with LaSpisa about why it’s never too late to put yourself in a better position to enjoy retirement.

What are the most significant retirement planning challenges?

One of the biggest issues is the fact that we are living longer. Of course, it’s great that we are living longer, healthier lives. But the downside is when you are talking to a financial professional about planning for your retirement, because now you have to plan to live to 90, 95 or even 100. Previous generations were only planning to live to age 75 or 80, so the total money needed for retirement was a lot less.

How do lower interest rates figure in?

It’s huge. If you think back to the 1980s, interest rates were at 12, 13 or 14 percent. Most pension plans invest in government bonds or some sort of bond portfolio. Now many of those rates are at 2 percent or less. Corporations need more capital to generate the income they are guaranteeing. The trend has been to get away from pension plans and push the responsibility for retirement to the employee as opposed to the employer.

What’s the most important thing I can do to plan for retirement?

Have a realistic budget of what it’s going to cost at retirement. How much income do you need to cover your expenses? People will say, ‘My home is paid off, so I won’t have that expense.’ That may be true, but there are expenses you will have, such as health care, that will increase. If you want to help pay for your grandkids to go to college, you’ll need money for that too.

So you need to know what your income sources are going to be and what kind of protection you have against inflation.

We talk about the withdrawal rate in terms of how much you can take out of your portfolio. Some clients want to take 8 to 10 percent out a year. That’s often way too high. On average, you should plan to take maybe 4 percent out a year. That’s the kind of discipline you need to have.

How can I help my financial planner?

Have an understanding or have access to all of your accounts. In other words, be aware of what benefit plans you have from work or the CDs, IRAs or 401(k) plans that you have set up. Take the responsibility to know where your assets are and gather all those documents before you meet with your planner. If you don’t tell your planner what you have, they can’t do their job effectively.

Is it ever too late to start?

It’s never too late to start. There are ways to improve your position and it may not get you to the ideal situation, but it can certainly improve your current situation. If you have done planning, it’s a good idea to review your plan every six months to make sure it is still in accordance with all your objectives and has been updated to include any major changes in your status. The goal of a planner is to make you aware of the issues that are out there because there are too many moving parts to do it alone. Engage a professional and take ownership of your future.

Financial services available to individuals and business owners through AXA Advisors, LLC include: strategies and products for financial protection and investments; asset allocation, college, retirement, business and estate planning strategies; life insurance, annuity and investment products, including mutual funds. Securities products are offered through AXA Advisors, LLC, NY, NY, member FINRA, SIPC, 10104 (212) 314-4600. Insurance and annuity products are available through an affiliate, AXA Network, LLC and its subsidiaries. GE-95292 (06/2016).

Insights Wealth Management is brought to you by AXA Advisors, LLC

Five key insights you need to know about retirement

Many people don’t give retirement enough thought and wait until it is too late to plan.

It’s important to start with the end game in mind. Dream big and plan ahead.

“Our philosophy is that you should start from the other end of the equation and ask yourself several questions. What do you want to accomplish? What do you envision yourself doing? If you could fast forward five, 10 and 15 years ahead in time, what does your ideal lifestyle look like?” says Adam Spiegelman, wealth management advisor at Northwestern Mutual in San Francisco.

Once you have answered the basics you can start by filling in the specifics. You need to determine what your lifestyle will cost.

Retirement can look very different for everyone, he says. Many business owners want to continue to consult in some capacity but still have the flexibility of not having to go into the office on a daily basis.

Smart Business spoke with Spiegelman about what to consider now in order to make your future dreams a reality.

How much should you be saving?

A big misnomer is that in retirement you’ll only spend 60 to 80 percent of your pre-retirement budget. Today, that’s often not true, especially if you step up travel, join a country club or buy a second home.

It takes a tremendous amount of capital to provide a modest amount of income in retirement. People are living longer and that needs to be taken into account when formulating your plans.

Save as much as you can, even if your significant wealth building doesn’t occur until your 40s and 50s. Plan for extra costs, like grandkids or helping your child out with a wedding or a down payment on a home.

Where does risk management factor in?

Often overlooked, a well-defined exit strategy needs to be laid out well in advance.

Consider diversifying away from your business as well. Your business is your home run. Because there is inherent risk in putting all your eggs in one basket, it’s important to spread out the risk. Real estate or investing in the stock market can provide diversification.

Your exit strategy needs to protect you and your family in the event of a disability or premature death. Consider writing and funding a buy-sell agreement. Do you want to work with your partner’s widow in the event of their untimely death? How long can your business support paying your partner if he/she has a stroke and can’t work again?

What should employers consider prior to retirement in terms of employee benefits?

You can put money away for your retirement and help your employees at the same time. If you have a 401(k) plan, consider including a profit sharing component. Sharing profits with your employees may allow you to max out a contribution for yourself. The end result can be quite beneficial to you both.

How do taxes fit into the big picture?

People often overlook small decisions that can have adverse tax consequences. Not making that extra contribution to a pre-tax plan or taking less of a distribution from an IRA in retirement can potentially cost money by altering the tax bracket you are in. The best thing you can do is to arm yourself with a good accountant, a strategic thinker who understands your situation and can develop a long-term strategy.

What are keys to investment management and strategies for strong financial planning?

Fees and investments need to be transparent. Although many do not want to know all of the details, a strong adviser will help provide the level of detail you can understand.

Also, remember every portfolio is unique. If someone with a $10 million net worth wants to invest $2 million, that portfolio will look entirely different than if someone with a $3 million net worth wants to invest $2 million of it. The investors’ situation and their tolerance for risk will be very different.

After determining the lifestyle you want, take into account Social Security and pension benefits, whether inheritance factors in, how much you’ve accumulated and how much you’ll pay in taxes. These are all pieces to the puzzle, and every puzzle is unique.


Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Spiegelman is an insurance agent of NM and Registered Representative of Northwestern Mutual Investment Services, LLC (securities), a subsidiary of NM, broker-dealer, registered investment adviser, member FINRA and SIPC.


Insights Wealth Management is brought to you by Northwestern Mutual

How natural gas is changing Western Pennsylvania’s business climate

Bob Taylor, Senior Corporate Banker, Senior Vice President, First Commonwealth Bank

Bob Taylor, Senior Corporate Banker, Senior Vice President, First Commonwealth Bank

With drilling in both the Marcellus and Utica Shale formations, Western Pennsylvania is sitting on one of the largest U.S. natural gas fields.

Even if you’re not directly affected, Bob Taylor, Senior Corporate Banker and Senior Vice President at First Commonwealth Bank, says the multiplier effect ripples out into the economy.

Each well site has about 250 different jobs associated with it, and Marcellus alone has about 6,378 active wells.

“It’s an engine that is going to drive the region here for the next 20 years,” he says.

Smart Business spoke with Taylor, an energy lender, about where Western Pennsylvania’s natural gas industry is going.

What is the current situation with Marcellus and Utica?

Small companies first explored Marcellus, finding the sweet spots to de-risk the field. Then larger companies like Exxon Mobil Corp., CONSOL Energy and Chevron Corp. bought up these companies and their acreage to move into steady production drilling. Three years ago, more then 45 operators were drilling in Marcellus. By 2013 that was down to 33, according to the Pennsylvania Department of Environmental Protection.

With Utica, the large companies stepped in first to acquire acreage. This consolidation has impacted area service providers that supply the well operators in Utica.

Overall, there has been a strong impact in counties like Washington and Greene. Pittsburgh will be affected now that an agreement has been reached to drill under the airport, bringing in $50 million upfront and $450 million in royalties over the next 20 years.

How are natural gas prices impacting the rig count and service providers?

Marcellus has been ranked as one of the lowest cost fields; operators can get a 10 percent ROI with prices as low as $2.75 per 1,000 cubic feet (mcf) for dry gas and $2.25 per mcf for wet gas. With today’s price around $3.50 to $4.25 per mcf, Marcellus is profitable.

Wet gas is more valuable because it has additional liquids that can be separated out and sold, such as ethane used to make plastics. Utica is principally dry gas in Pennsylvania, but Marcellus has both wet and dry gas.

Several years ago prices were high, but supply began to exceed demand, depressing prices. Therefore, some rigs moved to the wet gas in Ohio’s Utica play. Marcellus went from 100 rigs last year to around 53. Many service companies also have crossed the border.

However, each region has a field manager — service companies that supply products in Pennsylvania have to re-qualify for Ohio. The overriding factor is safety. For example, a service provider’s truck can’t be within 100 feet of the wellhead and must have fire extinguishers.

In the future, the volatility of price should moderate to around $3 to $7 per mcf, with increased demand from export, vehicles, manufacturing and electric generation.

What gas-gathering infrastructure is developing?

Many wells have been drilled and completed, so the next push will be to lay pipe to gather the gas and bring it to production facilities. It costs about $1 million per mile to lay pipeline, and about $3 billion to $5 billion is being spent in Pennsylvania alone.

Just like drilling, laying pipe has a number of associated jobs from engineers, steel pipe manufacturers, excavators and welders to safety inspectors who monitor pipelines.

Why is wastewater treatment the wild card?

Water is injected into the ground at high pressure to frack the shale rocks and release natural gas. Flow-back water that comes up has salt brine, minerals, dirt, sand, etc. Originally, the solids were removed and the water was reused for fracking.

With the drilling slowdown, there is excess wastewater. The cheapest elimination method is deep injection wells, but there are environmental concerns. The Environmental Protection Agency (EPA) may stop or limit deep injection wells sometime in the future. The EPA could require an evaporation and crystallization technique that distills the wastewater, but cost estimates for these reclamation facilities vary from $2.5 million to $100 million.

Bob Taylor is a Senior Corporate Banker and Senior Vice President at First Commonwealth Bank. Reach him at (412) 690-2214 or [email protected]

To learn more, call (800) 711-BANK (2265), or visit

Insights Wealth Management is brought to you by First Commonwealth Bank

How to ensure your estate plan is doing things for you, not to you

Geoffrey M. Zimmerman, CFP®, senior client advisor, Mosaic Financial Partners, Inc.

Geoffrey M. Zimmerman, CFP®, senior client advisor, Mosaic Financial Partners, Inc.

Estate planning is more than just having documents. It needs to be tied to long-term intent and aligned with your goals. What works for one person may not work well for the next, and what worked 10 years ago may not work now.

Geoffrey M. Zimmerman, CFP® practitioner, senior client advisor at Mosaic Financial Partners Inc., says many treat their estate plan like a transaction, even though the moving parts may have changed.

“They may have a document that is doing things to them and to their beneficiaries, and not really working well for them,” he says. “That’s why it’s important to review the plan periodically. It might take a visit to your attorney and the cost of several hours of time to update it. But in terms of relieving the headache on a surviving spouse or beneficiaries, those can be dollars well spent.”

Smart Business spoke with Zimmerman about why your estate plan should be continually adjusted.

What recent changes make updating your estate plan important?

Although the estate tax exemption did not reset as many feared, there are new items to consider. Undistributed income from an irrevocable trust can reach the top federal income tax bracket of 39.6 percent plus the Medicare tax of 3.8 percent after only $11,950. Those trusts can also see capital gains rates increase from 15 to 20 percent. This might impact a surviving spouse with capital gains assets in a credit shelter trust (also called a bypass trust) and assets in a marital trust.

How could outdated plans create problems?

In 1996, a couple with a $3 million estate would typically use a bypass trust to allow both spouses to use their respective $600,000 exemption to non-spouse beneficiaries, effectively allowing $1.2 million to pass to heirs free of estate tax. The remaining $1.8 million — plus any additional growth — was taxed at the death of the surviving spouse at rates up to 55 percent. A common planning strategy at the death of the first spouse was to put growth assets into the trust, as there would be no estate taxes on those assets. Heirs would still pay capital gains taxes, but capital gains taxes were (and still are) lower than estate taxes.

Today, the estate tax exemption has increased to $5.25 million per person. In our example above, the surviving spouse’s estate of $2.4 million worth of property could more than double before reaching $5.25 million and triggering any estate taxes.

Also, with the new laws, there is a now a new feature called ‘portability,’ which allows the surviving spouse to use the deceased spouse’s unused exemption amount. So in theory, a surviving spouse could pass up to $10.5 million worth of assets to heirs free of estate tax without using a bypass trust.

Older trusts that call for the creation and funding of a bypass trust may incur other unintended consequences. For example, formulas that call for funding the bypass trust to the maximum amount available without triggering an estate tax could leave the surviving spouse at a disadvantage with little or no assets in the survivors trust. Subtrusts that contain highly restrictive conditions for distributions to the survivor can create further complications. Finally, estates that contain large amounts of illiquid  assets that would need to be split between multiple trusts may also be problematic.  Periodic reviews, including a flowchart to understand what assets are going where, may be particularly helpful.

Also, as mentioned earlier, undistributed income in the bypass trust can hit top tax rates at very low levels of income, whereas the surviving spouse may not reach top tax brackets until he or she reaches $400,000 in taxable income.

Does this mean subtrusts are no longer useful?

They are still useful in cases where control over the disposition of assets is important, such as preventing a surviving spouse from disinheriting children from a previous marriage. You must balance the need for control against the surviving spouse’s needs, and your goals for your non-spouse beneficiaries. The surviving spouse and beneficiaries may have different interests — income versus growth. Proper planning, which includes a good understanding of goals and motivations, can help improve the odds of a successful outcome.

Geoffrey M. Zimmerman, CFP® practitioner, is a senior client advisor at Mosaic Financial Partners Inc. Reach him at (415) 788-1952 or Geoff@MosaicFP[email protected]

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.

What in-laws should know before going to work in the family business

Ricci M. Victorio, CSP, CPCC, managing partner, Mosaic Family Business Center

Ricci M. Victorio, CSP, CPCC, managing partner, Mosaic Family Business Center

As an in-law coming into a family business, you’re stepping into one of the hardest working environments imaginable. A family member is held to a higher standard than regular employees, but an in-law has to work even harder than a family member.

“It really takes someone with vision and purpose because there will be a lot of extra challenges,” says Ricci M. Victorio, CSP, CPCC, managing partner at the Mosaic Family Business Center.

If you lay the right groundwork, establish clear expectations, and work with an adviser familiar with the challenges that will occur, she says it can be a productive and joyous experience.

Smart Business spoke with Victorio about how in-laws can successfully enter the family business and thrive.

What challenges do in-laws face when coming into the family business?

The hardest thing to overcome is perception. It doesn’t matter if you have an MBA from Cambridge or a Ph.D. from Harvard. When it comes to in-laws, the fact that you married into the business downgrades any credentials in the eyes of non-family managers or employees. People will tend to judge you harshly, so be patient and don’t take it personally.

How can an in-law successfully enter into the business?

The position, pay scale and responsibility must match the in-law’s experience and education. Thrusting an unqualified in-law upon people, no matter how great he or she is, makes it a much harder road. For example, an in-law was a sales manager making six-figures who was downsized. Now, he’s in trouble financially, and the family is worried. The family can bring the in-law into the business, which might be in another industry, but he shouldn’t start as the head of the sales division. He needs to learn the business and earn his way up the corporate ladder. If parents are still concerned about the financial gap, they can consider gifting additional monies from outside of the business — to help until he earns his way up.

It can be helpful to have the in-law candidate interview with the executive management team to gain support.

How can in-laws overcome the assumption that they have the boss’s ear?

You can’t expect the employees to be your friends, because they are going to assume that anything they reveal will get back to the boss. It can feel isolating and you have to be above reproach. Stay professional and never assume to be the heir apparent.

Also, if you have a problem, resolve things through the proper chain of command. If you’re not reporting to your father-in-law, don’t go to him when you have an issue.
Remember when you come home and complain to your spouse about work that you’re talking about a family member. Your spouse may get defensive, run to whomever you’re complaining about or start disliking that person. Try to share more than just the bad days.

What documentation is needed to protect the business, and the in-law?

Families with a high net worth business typically will require a prenuptial agreement that protects the stock from leaving the family in the case of divorce or death of the blood relative. However, there are incentives such as restricted or phantom stock for high-performing managers, which can provide financial incentives that feel like ownership for growing the company.

It’s also critical to create family member employment and stock qualification policies. These policies define the benchmarks and requirements for all family members, whether an in-law or not, as to how they can become stockowners or hold key executive positions, clarifying the pathway and making family employees more accountable.

Why is having a succession coach valuable?

Engaging a coach who specializes in succession transitions to help employed family members can smooth the predictable challenges along the way. Family employees, including in-laws, need a safe place to talk, and guidance to strategize through the maze of issues that will occur. The coach also can facilitate a family business council, which provides a venue for family members to talk about business related topics, questions and issues that would normally feel inappropriate to bring up in a productive environment.

Ricci M. Victorio, CSP, CPCC, is a managing partner at the Mosaic Family Business Center. Reach her at (415) 788-1952 or [email protected]

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.

How to construct passive portfolios to offset large wealth concentrations

Nina M. Baranchuk, CFA, senior vice president, chief investment officer, First Commonwealth Advisors

Nina M. Baranchuk, CFA, senior vice president, chief investment officer, First Commonwealth Advisors

Business owners and corporate executives tend to overinvest in their businesses, often ending up with a large portion of their wealth at risk to the fortunes of one company. However difficult, these owners need to diversify their financial assets to better survive periods of stress. The rules of prudent investing tell us that any more than 10 percent of one’s wealth invested in any one company is too much.

“Diversifying is not natural to individuals so closely connected to one business, but it can be a serious risk to their underlying wealth and the financial health of their entire family,” says Nina M. Baranchuk, CFA, Senior Vice President and Chief Investment Officer at First Commonwealth Advisors.

Smart Business spoke with Baranchuk about how to structure portfolios to diversify or offset these concentrated risks.

Why do corporate executives or business owners need to diversify?

Even regular employees get a company paycheck and buy company stock in the 401(k) or the employee stock purchase plan, so the concentration risks for all employees can be severe. Senior executives often accumulate additional large holdings of company stock and options as part of their compensation.

A business owner’s company may also be a disproportionately large part of his or her portfolio as well. An owner bears the risk of the entity and any economic, competitive or regulatory forces that might impact it. Like putting all your chips on red, there are serious consequences to holding so much ‘concentrated’ wealth if things don’t go well. In addition, these holdings can be illiquid — there is no easy exit under times of stress.

How should business owners construct their passive investment portfolios?

In some cases, it may not be possible to diversify much. If an owner can take cash out of the business, he or she should work with a qualified portfolio adviser to ensure that all of his or her passive investments are built to complement or offset the risk. A qualified adviser can craft a portfolio that helps to mitigate your specific concentration risks and manage your overall exposures.

For example, a local Pittsburgh businessperson might be concentrated in a steel or metal fabrication business. So, he or she would share exposure to the fates of this or other industries as well their end markets in the U.S. or overseas. He or she also may have significant risks to things like geography, interest rates, significant product input costs, etc.

You can easily have issues of exposure based on subtle or indirect connections. Some risks to a firm are really in your supply chain or the financial health of a customer’s industry. Maybe you have one or two dominant clients that represent a large percentage of your revenue stream. Geographical risks loom large for some companies as well.

A portfolio built to offset these risks might exclude many other holdings in the industrial arena and overinvest in industries that often do well when industrials/metals do not — think consumer-purchase staples like food and household products or utilities.

What’s another example of offsetting your risk?

One family we worked with had made its wealth in the real estate business — owning everything from apartment complexes to high-rises. Our analytic work found that two good offsets for these holdings were private equity and financial stocks. Thus invested, whatever happens to interest rates, private equity and financials will react in opposition to the direction of real estate, counteracting one of its most impactful environmental factors.

What should executives consider?

While many executives have limited ability to divest their options or stock, they should certainly not invest their 401(k) in the company stock or buy additional shares. Remember that the executives at Enron and WorldCom went down together, along with their options, pensions, paychecks and other compensation.

In this world of heightened competitive and financial risks, no business is immune from potentially negative outcomes. We urge our clients to make sure they have done everything possible to ensure their family’s financial health by planning for worst-case scenarios.

Nina M. Baranchuk, CFA, is a senior vice president and chief investment officer at First Commonwealth Advisors. Reach her at (412) 690-4596 or [email protected]

To learn more, call (855) ASK-4-FCA, or visit

Insights Wealth Management is brought to you by First Commonwealth Bank

How corporate executives can navigate the 2013 tax minefield

Geoffrey M. Zimmerman, CFP®, senior client advisor, Mosaic Financial Partners, Inc.

Geoffrey M. Zimmerman, CFP®, senior client advisor, Mosaic Financial Partners, Inc.

There’s a popular metaphor referred to as “the boiled frog.” Simply put, it says if you drop a frog in boiling water it will quickly try to escape. But if you place a frog in tepid water that’s slowly heated to a boil, the frog will “unresistingly allow itself to be boiled to death.”

With the 2013 tax changes, this metaphor may apply to taxpayers, married and filing jointly, with wages of taxable income of $223,000 to $450,000, says Geoffrey M. Zimmerman, CFP®, Senior Client Advisor at Mosaic Financial Partners, Inc. These households could see their federal marginal tax rate go from 28 to 45.5 percent.

“Executives in this income range may soon find that they are in hot water with the heat on as the marginal tax rates ramp up fairly quickly,” Zimmerman says.

Smart Business spoke with Zimmerman about key tax changes as well as possible planning and investment strategies.

Why are $223,000 to $450,000 income earners unaware of the danger?

The increases come from moving up tax brackets, new Medicare taxes of 0.9 percent on payroll and 3.8 percent on unearned income, and the phase-out of itemized deductions. People earning more than $450,000 have a good idea of what’s coming, but others aren’t as prepared for 1 to 2 percent increases that can add up. For example, if each spouse earns less than $200,000, their employers aren’t required to withhold additional taxes from their paychecks for the 0.9 percent increase in Medicare. But, if their combined income pushes them over the $250,000 threshold in household wages, they may be surprised by an unexpected tax bill.

Additionally, if you live in a state like California where state income taxes have gone up, combined federal and state income tax rates can exceed 50 percent, with capital gains rates reaching 33 percent or more.

What should these taxpayers be doing?

First and foremost, don’t let the tax tail wag the dog. Tax strategies that look great in a silo may actually be detrimental to the big picture. If your strategy puts you in a concentrated position or triggers undue risk, then a sudden bad market movement can be worse than paying the taxes.

This is an opportunity for people to update their financial plan and review how the tax changes affect their goals. Make sure your advisers are talking with one another and coordinating their work and advice.

How can some key planning strategies mitigate these increases?

Look for opportunities related to the timing of cash flows. If you have a big income year where up to 80 percent of your itemized deductions might be lost, defer some itemized deductions to the following year where the income might be lower. In a low income year, look at doing IRA to Roth conversions, realizing capital gains and/or accelerating income.

Take the initiative to engage in tax loss harvesting in taxable accounts, which means you sell a security, harvest the loss and then use that loss to offset a gain in either the current year or carry forward for use in future years. This can be attractive, particularly for investing styles that offer similar but not identical alternatives. One example might be to sell an S&P 500-index fund and reinvesting with a Russell 1000-index exchange traded fund to capture the loss while remaining invested.

Review the use of asset location strategies to improve tax efficiency. Strategically place securities that produce ordinary income or that generally don’t receive favorable tax treatment into a tax-deferred account, while putting tax-efficient investments that generate long-term capital gains or qualified dividends in taxable accounts.

Municipal bonds/bond funds in taxable accounts now may be more attractive, and you also can review opportunities to take advantage of ‘above the bar’ deductions, such as contributions to qualified plans like your pension, 401(k), etc. For senior executives, contribution to nonqualified deferred compensation arrangements may be more attractive, particularly if a transition, such as retirement, is on the horizon.

With the help of good advisers who understand these moving parts and how they fit together, executives can use these strategies and others to make better decisions to move toward the things that are really important to them.

Geoffrey M. Zimmerman, CFP®, is a senior client advisor at Mosaic Financial Partners, Inc. Reach him at (415) 788-1952 or [email protected]

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.