How to estate plan, beyond just creating a basic will

Half of Americans with children and 41 percent of baby boomers don’t have a will according to a 2012 survey by Rocket Lawyer.

The lack of planning is an epidemic, says Melissa Richey, an executive vice president of sales and marketing at Fragasso Financial Advisors. People aren’t prepared for an untimely death, and they aren’t prepared for their timely death either.

“People need to understand that life is unpredictable. They should not put estate planning off,” she says. “People get caught up in the investment rate of returns and the stock market — none of that means anything if you lose half your money to the government because you died without a will or didn’t plan well and your family suffers.”

Smart Business spoke with Richey about the pieces of your individual estate plan, including looking beyond a will.

What are the basics that you need in your estate plan?

Three pieces to a solid estate plan are the simple will, power of attorney and living will. The power of attorney guides financial decisions and allows somebody to manage financial tasks if you’re incapacitated. A living will is a legal document that provides end of life directives like medical decisions. When emotions are running high, it can be hard for family members to make decisions. Clearly defined documents make it easier.

Why do you think people put planning off?

People often think they are too young. Others don’t think they have the time or money to spend. For some, it’s just not a priority. There are reasons to plan no matter who you are or what your situation is, but it usually takes a triggering event. People taking care of both their children and elderly parents may realize how much needs to be done with their parents’ affairs and they spring into action for their own.

What are the repercussions — financial or otherwise — to poor planning?

If you die intestate, meaning you don’t have a will or any way to transfer your property, the state comes in and says who gets what.

The federal estate tax can go as high as 45 percent if your estate is over $5 million or $10 million as a married couple. A business owner can easily have an estate, including the value of the business and life insurance, over that amount.

In Pennsylvania, there’s a state inheritance tax assessed no matter how large or small your estate is, which you can possibly protect against.

It’s also important to properly designate your accounts. If your will states that your husband gets everything, but your IRA, 401(k) and life insurance beneficiaries are different, that supersedes the will. If you’re going through a life change update all your beneficiaries. It’s easy to do; you just have to fill out the paperwork.

What are some other estate planning tools?

Gifting is something most high net worth people need to consider while they are still alive, because it removes funds from the estate. You can give to charities, your kids or educational accounts for your grandkids.

Trusts can get complicated, but a couple of key ones are charitable remainder trusts (CRUTs) and irrevocable trusts. A CRUT is typically funded with highly appreciated stock. You get a tax deduction for the contribution, the assets transfer to a charity at death where they are not taxed and you can get income for life from the trust.

An irrevocable trust typically is funded with life insurance. For example, you calculate your estate or inheritance tax at $500,000, buy a $500,000 life insurance policy and set up an irrevocable life insurance trust. It pays the tax of your estate, protecting the assets that pass on to heirs or charity. The caveat is that you must be healthy to get the life insurance.

Are trusts only for the wealthy?

Beyond wealth, there are lots of reasons to set up a trust, like family dynamics, special health considerations or multiple properties across state lines. Trusts are great for going into detail about distribution of wealth and property. They also can help you avoid probate, which is public.

How often do you need to update the plan?

Once a year is common, but whatever life throws at you — a divorce, birth of a child or a severe car accident — pause and think about the repercussions on your planning.

Insights Wealth Management is brought to you by Fragasso Financial Advisors

How Ohio’s new residency provision affects financial planning decisions

As of March, Ohio became more favorable to those who spend most of the year here but winter elsewhere. People, such as retirees, who have ties to Ohio but wish to be residents of Florida, can now extend their stay in Ohio without concern for the tax implications.

The so-called “snowbird rules” that determine whether or not an individual is an Ohio resident for income tax reporting purposes have been altered to allow people to spend an extra 30 days in the state without being considered a resident.

“From a financial planning perspective, this is a benefit to those who are looking at ways to maximize the wealth available for themselves and their heirs,” says John Schuman, Chief Planning Officer at Budros, Ruhlin & Roe, Inc. “Now people who are here for fewer than 212 contact periods don’t need to report their income to the state. They’re essentially getting to stay seven months in the state instead of six months.”

Smart Business spoke with Schuman about the implications of Ohio’s revised snowbird rule.

How can residency affect a person’s financial planning decisions?

What most people don’t account for on their balance sheet is the tax impact of their residency. Where one resides affects the net cash that can be generated from a pension, IRA or portfolio assets. When that’s measured over a long period of time, it affects lifestyle and the amount of wealth that can be left to heirs. Residency, then, becomes a big part of the financial planning discussion.

Changing the state in which you live is often done purely as a tax play. Most people, however, found it hard to be out of Ohio more than six months, which was the condition under the old rule. The weather makes it easy to reside elsewhere from January through March, but people want to come back for holidays, summer and fall. That means difficult choices had to be made when deciding which months to not be in the state.

The law change allows snowbirds to pick up an extra month in Ohio without negative tax implications.

What is a contact period and what impact does it have on residency decisions?

The new presumption of residency is based on being in Ohio for 212 contact periods rather than 182 contact periods. More than 212 contact periods and you’re considered a resident, and you’ll pay tax to Ohio on all of your income.

A contact period can be interpreted as staying in the state overnight — it means you’re in Ohio part of any two consecutive days. For instance, if you’re in Ohio at 11:59 p.m. and stay through 12:01 a.m. that’s considered one contact period, even if you’re only here for those three minutes. That doesn’t count as two days, only one contact period.

Just how many contact periods a snowbird has in the state is a source of anxiety for many. That’s because anyone who is called by the state to substantiate his or her residency bears the burden of proof — it’s not the state’s responsibility to show the person should, in fact, be considered a resident. It’s the person’s responsibility to show they aren’t.

Filing Ohio Tax Form IT DA-NM creates an irrebuttable presumption of nonresidency with the state. It’s a good idea for those who have a home in Ohio to file this form, even if they don’t have a tax filing requirement here.

Based on the rule changes, what financial planning advice would you offer Ohio residents who winter outside the state?

This opportunity that the state is providing is making Ohio friendlier to the retiree community. Snowbirds should give this new residency provision a close look because it can be a significant benefit — the ability to keep an extra 5 percent of a pension or Social Security, or the income generated from an investment portfolio.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

The rules for retirement are changing for public employees in Ohio

The Ohio Public Employees Retirement System (OPERS) recently enacted changes to its pension and health care plans that place more of the burden on retirees to pay for their health care coverage.

Also being adjusted is the elimination of the annual 3 percent cost-of-living adjustment (COLA). The COLA will now be based on the consumer price index, says Phillip Natale, RCIP, a financial consultant at AXA Advisors, LLC.

“Depending on what the index has done, the participant will get between a zero and 3 percent COLA each year,” Natale says. “This could have a huge long-term effect on the participant’s income.”

Another component of the changes is a tier system that will force some OPERS employees to work a little longer than they had previously planned.

There’s not much good news in these changes, Natale says. But that doesn’t mean public employees in Ohio are out of options.

Smart Business spoke with Natale about the pension and health care plan changes and what OPERS plan participants can do to come out ahead.

How is the retirement timetable for OPERS members changing?

People fall into one of three groups, depending on their years of service at the time of the pension change, which went into effect Jan. 7, 2013. Participants in Group A can still get their unreduced benefits at any age with 30 years of service or at age 65 with five years of service.

In Group B, participants must have at least 31 years of service and be 52 years old; have 32 years of service at any age; or have five years of service at age 66, in order to get their unreduced benefits.

What is being changed with health care coverage?

Historically, pension plans picked up most, if not all of the cost of health care coverage in retirement. But with more and more pension plans struggling to remain solvent, many pension plans are moving away from paying for health care and turning this responsibility over to the retiree.

As a result, married couples are looking at anywhere from $1,000 to $1,200 a month for health care coverage, a figure which could add up to as much as 50 percent of the person’s pension.

Is it too late for those close to retirement age to turn things around?

It’s not too late. People who are nearing retirement need to talk to a professional. A few simple decisions can drastically change their status. Unfortunately, many people don’t know or don’t understand their benefits or their pension plan and end up making decisions that aren’t necessarily the best for their specific situation.

For instance, an individual will pull $30,000 or $40,000 out of their retirement plan to pay for their home, a move that could leave the person in a tough spot should an emergency situation arise.

The key lessons are to start saving earlier and to find a professional who can help you develop a customized retirement plan.

How can a single-life or joint-and-survivor annuity help?

Take a married participant with a pension that pays $5,000 a month. The participant receives $5,000 a month when he dies and nothing goes to a spouse. If the participant chooses joint-and-survivor, he can get $4,000 and his beneficiary can get $2,000 a month. So he’s essentially paying the pension plan $1,000 a month to give his wife $2,000 a month.

If individuals start planning early, this man may be able to buy his own life insurance policy for $100 a month. If it builds sufficient cash value, he can then take the single-life annuity and make an extra $900 in retirement. When he dies, his wife ideally would get a lump sum that produces the same amount of income if he had taken joint-and-survivor. This strategy will only be suitable under certain circumstances, and may not work for all people. Please consider all factors before taking any action.

This promotional information is not approved or endorsed by the Ohio Public Employees Retirement System. Neither AXA Advisors, LLC (and its affiliates) nor Phillip Natale is affiliated or associated with the Ohio Public Employees Retirement System. 

Phillip Natale offers securities through AXA Advisors, LLC (NY, NY, 212-314-4600), member FINRA, SIPC, offers investment advisory products and services through AXA Advisors, LLC, an investment advisor registered with the SEC, and offers annuity and insurance products through AXA Network, LLC. AXA Advisors and AXA Network do not provide tax or legal advice. AGE 101614 (03/2017)

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



Can the 1% afford to retire? Few assumptions are safe with retirement planning

It may seem obvious that the top 1 percent of earners can afford to retire. There are, however, distinct changes that must take place in order for these retirees to keep up the lifestyle they had during their working life.

“Most people, regardless of income, have a hard time maintaining their standard of living when they retire,” says Jim Budros, chairman and founder of Budros, Ruhlin & Roe, Inc.

Determining what it will take to replace that income is the toughest question to answer, especially if the answer is based on commonly held, but false, assumptions.

Smart Business spoke with Budros about retirement planning for high-income earners.

How much money does someone in the top 1 percent of earners need for retirement?

The simple answer is that a portfolio designed to not run out of money during one’s lifetime might require $8 million. To get to that number, a person must accumulate assets that represent that value during his or her productive life.

Some in this income range falsely assume that Social Security payments can help offset that income requirement. Social Security, however, has little value for those accustomed to high earnings. Where, then, does one get the rest of the $7.5 million that is still needed?

How does someone calculate retirement spending?

Some people think they can adjust their standard of living downward during retirement, or that their spending will be less as a matter of personal choice.

Let’s say a couple retires at 65. The likelihood is that only one of them makes it to age 95. Retirement may encompass the last one-third of the couple’s lifetime. The last 30 years might be divided into three periods.

The first 10 years is the most active, ‘bucket list’ period, and is carried out with the greatest expense. The second period is a transition where likely one spouse dies. The surviving spouse, then, doesn’t need as much money and begins to readjust his or her standard of living. Health care is likely to take over as the dominant expense, depending on the person’s insurance coverage. The last period is probably occupied by one spouse with low, extremely fixed expenses.

Attempting to calculate the cost of retirement highlights the complexity of what can be called ‘decumulation,’ which is spending without saving. That means one has to spend at a pace that doesn’t risk exhausting one’s available assets during one’s remaining lifetime.

That’s a difficult shift in thinking because during the working years, a person is one point on a cash flow pipeline. Income moves from the payer to that point person, then along to pay expenses and then the cycle begins again with the next pay period. In retirement, there’s no flow. There’s just a big bucket full of money in the form of a 401(k), IRA and personal investments. A person in retirement, then, shifts from a pipeline person to a bucket person. That is a tough transition partly because the assumptions are difficult to make — how much longer the person will live, for example.

Is it safe for the top 1 percent of earners to assume they will be in the same tax bracket when they retire?

The tax bracket won’t change much in retirement for most of the 1 percent. The largest source of their wealth is typically retirement plan accumulation, which is all pretax dollars. Every dollar that replaces one’s income from that source is taxable. If a portion of their portfolio isn’t in after-tax vehicles, when any money comes out it’s all taxable.

When should someone start thinking about retirement planning?

Thinking about financing retirement requires one to consider his or her goals, then accumulate the savings and investment returns to meet that expectation. If those goals aren’t established in one’s early 40s, chances are those goals will be missed by a mile.

Wealth management firms base much of their business on questions of sufficiency. The answers form the basis of the most fundamental retirement concern, which is how much does one need to retire and how does he or she get there.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

Five things to remember when transitioning business ownership

There’s no one-size-fits-all way to transition a business to a new owner. The type of business and its customer relationships can dictate a very short or lengthy transition period. But in either case, it’s critical to thoroughly plan to minimize potential hiccups.

“There is lots of minutia and details that need to be mapped out. And even if you plan things out, you still can run into trouble. But mapping everything out will help smooth the ride,” says Adam Spiegelman, wealth management advisor at Northwestern Mutual.

Smart Business spoke with Spiegelman, who is taking over his father’s practice, about overseeing a sound business transition.

How do the right buyers and sellers connect?

Thoroughly explore and know exactly what you’re getting yourself into. For buyers, that means looking at the risks of the business. How much travel will be involved? Are customers getting discounted rates that you will have to live with when you take over? How established are the client relationships, and are they easily transferable? Is there potential for new business with existing clients? Does the company have good accounting records? Can you understand the cash flows and current expenses? What is the staffing model? What types of relationships does the staff have with clients?

If you’re selling, research all your options to find the right buyer. A family member or key employee can be more of a proven entity than a third-party because you know their work habits, work style and personality.

What’s important to remember about valuing the business?

There are several accepted methods for valuing businesses. Your CPA can run through the numbers, but he or she might not be well equipped to value your business. You’ll want to get a proper valuation — maybe even more than one from a professional valuation company specific to your industry. If you’re the buyer, however, keep in mind that all business valuation companies would like to broker your deal, so they can tend to overvalue the business a little bit in order to please the seller.

As a seller, you can increase value by cleaning up your books, making sure relationships are solid and ensuring a good accounting system is in place to best depict cash flows for potential buyers. Also, try to trim the fat on your infrastructure so the business is lean from an expense standpoint.

What have you learned about the actual transition itself?

In addition to a business agreement that any buyer and seller should have, put contingency plans in place. If during the transition — however many years that may take — one partner becomes disabled, what happens? Does the seller have the first right of refusal to buy back his or her business? If there’s a death, do you have life insurance to cover that death or does the owner’s spouse get involved and work with the new buyer?

Also, clearly establish your roles from the get-go. What type of role does the old owner play in the new business? Who will run meetings? Who will talk to clients and distributors? Who will work with staff? Make sure you put steps in place to resolve disagreements, such as having an outside adviser you both trust arbitrate.

How can you best transfer client and staff relationships?

Don’t underestimate the time a transition takes. Delicate issues are involved, especially in a family business. Professional business transition consultants can work with you, acting like a mediator, helping you plan and holding everyone accountable to ensure you’re both meeting goals. A good business attorney and accountant can help as well.

During the transition period, a buyer might want to put golden handcuffs on the former owner to keep him or her in the game. With these incentives, the seller is available to mentor the buyer and help bridge relationship gaps.

What surprised you the most?

The biggest ‘aha’ moment was understanding how difficult it is for the seller to give up control. For a former owner to take on a lesser role, letting go emotionally, is very challenging.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries.


Insights Wealth Management is brought to you by Northwestern Mutual

Why it might be a smart move to hold off on starting that college fund

When asked to choose between a college education and their own retirement, parents will often put their children first and focus on saving money for college.

Michael J. Daso, CHFC, a financial consultant at AXA Advisors LLC, understands the thought process, but doesn’t agree with it.

“I believe strongly in flipping it,” Daso says. “Retirement should be the first priority. There are dollars out there for college through loans, grants and scholarships. But there are not dollars available to borrow for retirement. Too often, we focus on our short-term needs first and ignore the long-term financial goals because they seem so far away.”

Whether it’s a college fund or a retirement plan, saving money today for tomorrow has never been an easy thing to do. Determining the best plan to maximize your investment is further complicated by your age and life status.

“Time horizon has the most significant impact on how aggressive or conservative you should be in your investment strategy,” Daso says. “If you have 20 years until retirement, you can afford to be more growth oriented than someone who might be retiring next year. You need to reassess that risk level over time and adjust your strategy as you get closer to the date of your financial goal.”

Smart Business spoke with Daso about how your age and life status can affect your wealth-building strategy.

Which age groups tend to have a more conservative investment strategy?

The baby boomers and millennials both tend to be more conservative. A lot of the millennials entered the workforce during the 2008 financial crisis. It was a really tight job market and a period of historically low returns in the stock market. That made a lot of millennials worry and it carried over into their investment philosophy. It’s the same thing with the baby boomers, so they tend to be more conservative as well.

The challenge for both groups is if you’re too conservatively invested, particularly with the low interest rate environment we’re in now, you won’t even keep pace with inflation. Then we have the middle generation, Generation X. The biggest mistakes made by members of this group are not saving enough money, and then outspending what they make each month.

It isn’t so much a risk concern as a cash flow concern. The best way to combat that problem is to set up automatic monthly savings plans, either through your 401(k) at work or through supplemental savings. One of the best ways to do this is through monthly automatic bank transfers. It forces you to save money and pay yourself first.

How do you know how much you will need to retire?

Two of the biggest questions people have are will I have enough to retire and will I outlive my retirement outcome. It used to be that a three-legged stool was a good metaphor for what you would need in retirement. You had Social Security, your company pension and then your personal savings only had to provide a third of your retirement income.

But these days, fewer and fewer people are retiring with a pension from their company. They have to come up with a larger percentage of their retirement income from their personal savings. That is making them scared to lose their nest egg and it causes them to invest too conservatively.

What are some principles to follow regardless of age?

Establish an emergency fund before you save for other long-term goals. Long-term savings accounts have penalties if you need to access them prior to retirement. Life is definitely unpredictable and having an emergency fund should be the basis of your sound financial plan.

Start small and get something going where you’re saving on a monthly basis. It could be $100 into an investment account on the 15th of each month. That’s really empowering and helps change your mental outlook on saving. It can spill over into changing the way you spend money on a monthly basis. Once you get the account open and started, even if it’s a modest amount, that’s a huge hurdle to clear. 

Securities are offered through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC. Insurance and annuity products are offered through AXA Network, LLC. AXA Advisors and AXA Network do not provide tax or legal advice. AGE 100896 (1/15)(Exp 1/17) 

Insights Wealth Management is brought to you by AXA Advisors LLC


How to satisfy the fiduciary duties of your 401(k) plan

If your organization sponsors a 401(k) or qualified retirement plan, then, as a plan trustee, you are legally responsible for the decision-making surrounding the plan.

These fiduciary duties are something many plan sponsors aren’t aware of. But even if trustees recognize them, they usually don’t understand what the responsibilities entail.

The fiduciary is tasked with running the retirement plan in the best interest of its participants — ensuring investments perform well relative to their benchmarks, and that fees follow industry standards. It’s the prudent man standard: You must do what is prudent for employees in the plan.

“I think the biggest difficulty is that most employers aren’t investment experts. They have little understanding of the 401(k) industry and its fee structures. As a fiduciary, it’s their job to make sure they are giving their employees the very best, but they have no education or understanding to take on that role,” says Daniel Halle, vice president and manager of Retirement Plan Advisors at Fragasso Financial Advisors.

Smart Business spoke with Halle about mitigating the risks of fiduciary duties.

Who typically serves as a trustee?

Many times the trustee who has fiduciary responsibility is the business owner, but in a corporate environment it could be more than one person like the owner, CFO and HR manager. With nonprofits, the board of directors and finance committee are often tasked with making decisions for the 401(k) or 403(b) plan.

If these fiduciaries don’t fulfill their duties, what problems can result?

As a fiduciary, you can be held personally liable for the decisions you make regarding the retirement plan. The Department of Labor or IRS likely won’t come after your personal assets unless you’ve done something illegal, but a former employee or group of employees may file a lawsuit. Those same employees could lodge a complaint with the Department of Labor.

The Department of Labor’s Employee Benefits Security Administration also is increasing retirement audits. This group, which has hired more personnel, would like to be in a position to audit every U.S. retirement plan every two years. And, these auditors will often find something wrong, which means paying fines and fees, and then going through a correction process.

How can trustees educate themselves to better understand fiduciary duties?

If you become a trustee or fiduciary and aren’t familiar with how to meet your responsibilities, at the very least, download the Department of Labor primer: Meeting Your Fiduciary Responsibilities.

Once you are familiar with what you need to do, consider whether you have the capability to do what the department is asking. A lack of knowledge is not an excuse.

Most people find they spend too much time trying to become an expert at something that doesn’t help the business. Instead, consider outsourcing it to an adviser willing to share that fiduciary liability with you, and who will help you mitigate it.

If you decide to outsource, how does it work?

It can sound like you’re adding another management layer, but often it’s a matter of redirecting the resources your plan was paying a broker to a registered investment adviser. Then, he or she not only acts as a fiduciary to the plan but also handles education, investment analysis and helps ensure all responsibilities are met.

What are other tips for mitigating liability?

Sit down with your adviser or broker at least annually to ensure plan investments are doing what they should be, according to your investment policy statement and investment benchmarks. Overall plan fees also should be examined to ensure they are reasonable. Then document that meeting.

Most importantly, if there are changes that need to be made, those changes must get initiated. If you find a problem and don’t take action, it can create more trouble than if you didn’t realize there was an issue.

Make sure you do everything you can. Look at the plan. Have an evaluation process. Fix problems. It’s not so much that you have the right or wrong investment. It’s what process did you use to help ensure that the offered investments meet their benchmarks as described in the investment policy statement, and then continually monitor those investments going forward.

Insights Wealth Management is brought to you by Fragasso Financial Advisors

Hidden fees mean financial advisers don’t have your best interest at heart

Investors working with a wealth manager or financial adviser may be satisfied with their returns. But that doesn’t mean they’re getting all they should.

“Many times prospective clients come to us for a second opinion on their investment strategies. We look into their portfolio and see fees the client is paying that they were not aware existed,” says Daniel Roe, CFP, Chief Investment Officer at Budros, Ruhlin & Roe, Inc.

“These can be in a variety of forms, often not well disclosed, particularly in products that are sold for ‘sizzle,’ which actually have little substance when it comes down to it.”

Smart Business spoke with Roe about the fees some advisers may be hiding in your investment portfolio.

Why should investors be wary of advisers who recommend annuities?

If an adviser suggests a variable annuity as an investment, it should sound an alarm. It’s not considered a standard vehicle for high-net-worth investors.

Some annuities may appear similar to stocks, bonds or mutual funds and have some attractive features, such as guaranteed levels of income upon retirement or downside protection from stock market declines. Their high fees, which manifest as commission to the adviser, as well as provisions that often work against the investor, mean stock exposure can be better obtained elsewhere.

There are times when annuities are useful, such as when a high-net-worth investor has no access to a tax-deferred retirement plan, but those applications are rare.

How can mutual funds be of more benefit to advisers than investors?

There are many mutual funds and each fund can be designated as one of many share classes. The only differentiation among the share classes is the underlying expense or fee structure of the fund.

Typically, a letter of the alphabet — A, B or C class, for instance — identifies U.S. stock funds. High-net-worth investors want to avoid most of these and invest instead in institutional class funds, typically called I shares, which have the lowest cost.

Choosing one of the higher fee share classes creates more income for the adviser, because they represent different compensation or commission schemes. Institutional funds don’t have that.

What costs might municipal bonds hide?

High-net-worth investors often have municipal bonds, issued to raise capital for government projects, in their portfolios. While the interest paid on these bonds is tax-free to the investor, they may incur significant costs.

The secret advisers keep is that municipal bonds can be traded like used cars, with wide variations in costs even though the products are identical. Investors mistakenly believe buying a municipal bond is the same as buying stock, which has a publicized, commonly accepted price. They’re unaware of the markups that are made as these bonds are resold.

Municipal bonds are bought in a negotiated market. If your adviser is not negotiating, that’s a problem.

What reason do investors have to be cautious with exchange-traded funds?

Exchange-traded funds (ETFs) have exploded in popularity, but many investors don’t understand they can accrue a lot in added costs if they’re not traded efficiently. There’s a spread between the buy and sell price, so when investing in ETFs be careful you’re not paying too much per transaction.

How can investors be confident an adviser is working in their best interests?

Don’t be afraid to get a second opinion on your investment portfolio, or even find a new adviser. An adviser who is independent, fee-only and is willing to act as your fiduciary is the best way to ensure investment recommendations are sound.

The phrase ‘acting as your fiduciary’ has legal significance that means the adviser is acting without conflict and in the client’s best interest.

Often brokerage statements say explicitly that the adviser will not act as an investor’s fiduciary, which should be troubling. Work with an adviser who will sign a letter stating that in every facet of your business relationship he or she will act as your fiduciary so he or she can never put his or her interests ahead of yours.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

Teachers nearing retirement put in a tough spot by new service timetable

Ohio teachers face a new retirement timetable that will go into effect this summer and affect how many years they are required to work, as well as how much they can collect when they retire. It’s creating a lot of stress for all teachers, particularly those close to retirement, says Randy Lupi, a financial professional at AXA Advisors, LLC.

The major change is that instead of being required to work 30 years, teachers will now need to work for 35 years and be at least 60 years of age before they can retire and collect an unreduced pension benefit.

“If a teacher is currently at 35 years with continuous Ohio service credit in the State Teachers Retirement System (STRS), they will receive 77 percent plus an extra bonus of 11.5 percent when they retire,” Lupi says.

“Unfortunately, the 11.5 percent bonus is being dropped after July of this year. A teacher who has less than 35 years as of July will no longer be eligible to receive the bonus. Many teachers decided to work over 30 years due to this incentive.”

Smart Business spoke with Lupi about the STRS changes and what options younger teachers have at their disposal to modify their retirement plans.

What else is changing with the STRS?

The final average salary (FAS) is currently calculated based on the three highest years of earnings. Going forward, the FAS calculation is being changed to cover the average of a teacher’s five highest years of earnings, which can result in a lower base figure. Also, the contribution requirement of a teacher has increased from 10 percent to 14 percent of their current salary, impacting cash flow for all teachers.

These changes were implemented by The State Teachers Retirement Board to make sure the pension system remains solvent.

What is the lesson for teachers?

These changes make it even more important to begin retirement planning several years in advance. Some teachers delay saying, ‘I’ll just go to the STRS and they’ll tell me my options’ or ‘I’ll just choose the highest payout.’

The pension election is irrevocable, so all options should be considered before a final decision is made. Teachers should start planning at least three to five years prior to retirement and consider their pension options based on their lifestyle and that of their spouse. They also should consider how their choices will affect their beneficiaries in addition to themselves.

What is the partial lump sum option (PLOP)?

The PLOP allows the STRS member to receive six to 36 months of their fixed benefit upfront.

The STRS will then pay the member a reduced monthly pension benefit. Teachers have been funding their pension by contributing at least 10 percent of their pay throughout their career. By electing a PLOP, they are essentially receiving part of their initial contribution back in the first year of retirement. Teachers that elect the PLOP typically roll the funds over into another pre-tax retirement plan like a traditional IRA or 403(b).

What are the benefits of the PLOP?

In certain circumstances, the PLOP allows teachers to better manage their taxable income at retirement, maintain control over the money and designate beneficiaries on the money. Some teachers will keep their investment conservative while many will maintain a balanced portfolio in efforts to grow their nest egg.

Many retired teachers still enjoy working and may have income from a new second career. By electing the PLOP, they are able to choose not to receive taxable distributions from their PLOP investment until they are truly ready to stop working and settle into retirement. Not taking distributions may help to better manage their taxable income, especially if their spouse is still working.

There are many variables to be considered before making any decisions regarding retirement plans. Teachers should get all of the facts before making these decisions. Consulting a financial professional may help them better understand the options, and the potential results of those options.

Randy Lupi offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC, and offers insurance and annuity products through AXA Network, LLC. AXA Network conducts business in CA as AXA Network Insurance Agency of California, LLC, in UT as AXA Network Insurance Agency of Utah, LLC, and in PR as AXA Network of Puerto Rico, Inc. 
This information is not approved or endorsed by the STRS. Randy Lupi, AXA Advisors and AXA Network do not offer tax or legal advice, and are not affiliated with the STRS.
AGE 100610 (1/15)(Exp 1/17)

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



What’s your financial IQ?

Imagine you’re on a TV quiz show. The host turns to you and offers a list of topics, one of which is “Your Personal Finances.” Based on your knowledge, is this a category you would choose?

If you answered no, you’re not alone. Four out of five Americans admit they know more about a variety of topics other than their own finances. That’s about the same share that would choose to answer questions about subjects far less personal, such as current events, entertainment or science and technology.

These results were gathered as part of a research study, sponsored by Northwestern Mutual, to help gauge the American public’s overall financial knowledge — as measured by a financial IQ index — and its understanding of insurance products.

“For me, the results were a powerful reminder of the reason why financial advisers need to make it a point to help clients — even those in the business world — fully understand their personal finances, so they can make the informed choices that are right for them,” says Michael Byrne, a managing partner at Northwestern Mutual.

It’s also helpful for employers to help ensure their employees are educated on personal finances because it can affect their ability to retire.

Smart Business spoke with Byrne about the online survey, which was conducted by an independent research firm, of 1,664 Americans, ages 25 to 65, in 2010.

What financial concepts did Americans understand, according to the study?

The survey found that some basic financial concepts are well understood, including the best way to minimize losses in investments (88 percent answered correctly), asset allocation (79 percent) and dollar-cost averaging (57 percent).

Likely because of their self-explanatory names, high numbers of Americans also recognize what disability income insurance and long-term care insurance are designed to do.

Where did the survey respondents’ knowledge fall short?

More often than not, Americans fail to understand many key financial concepts like the average inflation rate over the past decade, which was known by about 1 in 3. Also, less than one-third knew the product that has traditionally mitigated inflation risk the best.

This lack of financial knowledge appears to be particularly acute when it comes to permanent life insurance. Only a small percentage of Americans seem to know even the basics of this type of risk protection.

What else did the survey results reveal?

Knowledge is power — and Americans recognize it. Nearly eight out of 10 consumers feel the need to learn as much as possible about their personal financial situation.

As to where they find that information and whom they trust, it was good to hear that when asked to rate the reliability of several sources of financial information, Americans rate financial advisers as the most reliable source.

A successful long-term investment strategy is a process that evolves as your needs and goals change at different points in your life. An experienced financial professional can be invaluable in helping you continually educate yourself on your personal finances — taking an objective, unemotional approach to investing and keeping your overall performance and goals in sight, even during market ups and downs.

In addition to talking to a financial adviser, be sure to check out this retirement savings calculator that can be used to show how contributions affect your ability to fund your retirement, as well as a lifespan calculator to estimate how many years you may live past retirement.


Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Byrne 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