02/04/2010
How Much Annual Income Can Your Retirement Portfolio Provide?
Your retirement lifestyle will depend not only on your assets and investment choices, but also on how quickly you draw down your retirement portfolio. Your withdrawal rate is defined as the annual percentage that you take out of your portfolio, whether from returns or the principal itself. Determining an appropriate initial withdrawal rate is critical in retirement planning and presents many challenges. Take out too much too soon, and you might run out of money in your later years. Take out too little, and you might not enjoy your retirement years as much as you could.
Your withdrawal rate is especially important in the early years of your retirement; how your portfolio is structured then and how much you take out can have a significant impact on how long your savings will last. Gains in life expectancy have been dramatic. According to the National Center for Health Statistics, people today can expect to live more than 30 years longer than they did a century ago. Assuming rising inflation, your projected annual income in retirement will need to factor in those cost-of-living increases. That means you'll need to think carefully about how to structure your portfolio to provide an appropriate withdrawal rate, especially in the early years of retirement.
So what withdrawal rate should you expect from your retirement savings? The answer: it depends. A withdrawal rate of slightly more than 4% could provide inflation-adjusted income for at least 30 years. A higher initial withdrawal rate--closer to 5%--might be possible during the early years of retirement if withdrawals in later years grow more slowly than inflation. Broader portfolio diversification and rebalancing strategies can have a significant impact on initial withdrawal rates. Adding asset classes such as international stocks and real estate can increase portfolio longevity. You might consider freezing the withdrawal amount during years of poor portfolio performance. By applying some specific decision rules that take into account portfolio performance from year to year, it could be possible to have "safe" initial withdrawal rates above 5%.
More ways to help stretch your savings include: Don't overspend early in retirement, plan IRA distributions so you can preserve tax-deferred growth as long as possible, postpone taking Social Security benefits to increase payments, frequently adjust your asset allocation, and adjust your annual budget during years when returns are low.
Your home town banker can help you determine a retirement withdrawal rate that will work best for your situation.
01/27/2010
An Important Message for Internet Banking Users
This column is intended to inform internet banking users of any bank about fraudulent schemes initiated by crooks who want to steal your personal information.
Where would we be without the internet? It has made communications across the globe a real-time event and obtaining information on just about anything takes only a few seconds. It has ushered in the information age in grand style. For all of the positive things the internet has done for us, there is a dark side of cyberspace where crime is growing. Let’s discuss some common ways fraud exists on the internet and ways you can protect yourself from being scammed.
Phishing is just one way fraudsters use the internet to get people to unknowingly provide them their personal financial information. A phishing attack is most commonly initiated with a special type of unsolicited email (spam) containing a misleading domain name that appears to be a legitimate site. The email recipient is tricked into visiting the spoofed website because it ‘appears’ to be a website they visit often and feel comfortable entering their username, password, or other personal information. However, once they enter the spoofed website, malicious software infiltrates their computer files to steal personal information including: passwords, security codes, credit card information, social security numbers, bank account information and well, you get the picture.
Your private information gets into the hands of crooks who will try to steal your identity and your money. Note: Do not answer emails from your financial institution that ask you for sensitive information. No bank will do this. Banks will send you emails and updates informing you to go to their secure website to retrieve the information and messages they have for you. You must initiate the login to your bank on your own --- do not respond to a link in an email that could direct you to a fraudulent site.
Spear phishing is targeted emails toward employees or members of an online group or an organization. Information about the employees or members is obtained from social networking sites like MySpace and FaceBook. The email recipients are tricked into navigating to a fake login page where malicious software again begins to do its fraudulent work.
Whaling is a type of phishing that targets affluent people, corporate executives and other ‘big phish’. It is usually customized like spear phishing in ways that trick the email recipients to go to fraudulent websites where crimes may be committed against them without them knowing it.
Pharming involves the redirecting of unknowing users to another IP address for a fraudulent site where the user’s information is stolen. Pharming is accomplished by changing the hosts file on a victim’s computer to send the victim to the fraudulent site even though they typed in the correct address.
So, internet crime is for real and it happens 24/7. It happens to consumers. Crooks trick consumers into navigating to fraudulent websites by sending them seemingly ‘normal’ emails that they respond to with personal and private information. It happens to businesses. Crooks defraud the customers of businesses, causing the businesses to suffer erosion of reputation and trust, infringement of trademarks and copyrights even when the businesses’ computer systems are not compromised.
When using internet banking, you first navigate to your bank’s website. This is your bank’s corporate page and is available for anyone to see. It’s where your bank advertises its products and services and also where you can contact the bank by email for additional information. Once you reach your bank’s website, you must login to the internet banking area by entering your username and password. Once you do this, you are redirected away from the bank’s public website to a secure site where you must be able to successfully login to gain access to your account information. Notice on the address line of the public site that it starts with http:// but when you’re redirected to the secure site, it starts with https:// with the ‘s’ indicating it is a secure site. Also look for a padlock portrayed in the locked position somewhere on the secure site. This is also an indicator of secure site access. When on the secure site, you can usually send secure messages to your bank by accessing the Contact Us or Secure Messaging icons while you are on the bank’s secure site. Sending a secure message from the secure site is NOT the same as sending an email for additional information from the bank’s public site. Secure messages sent or received within secure sites are secure. Email is not secure.
Take the information and suggestions from this column seriously. Enjoy the values and benefits from using the internet to do your research, studies, games, entertainment, shopping and banking. And always be security-sensitive when giving out your personal information on the internet.
01/21/2010
Medicaid and Nursing Home Care
I looked in the mirror the other day and realized that I’m not getting any younger. My hair is salted and I’m growing rounder instead of taller. We all reach that stage in life when the years pass faster than we’d like to admit they do. So what about the future? Who’s going to take care of you down the road when there are things that you can no longer do for yourself? Let’s look at options you may have and focus on nursing home care and how Medicaid can help pay for it.
If you can no longer care for yourself, it’s usually the result of either physical or mental incapacitation. Sometimes the help of an in-home caregiver is adequate, but if you require more specialized care, a nursing home may be your best option.
A nursing home is a state-licensed facility that can provide three levels of service:
- Skilled care is 24/7, ordered by a doctor and performed by skilled medical personnel.
- Intermediate care is less intense using occasional nursing and rehabilitative care provided by registered nurses and other medical personnel.
- Custodial care helps you perform the activities of daily living and does not require medical skills.
Because nursing homes sometimes have waiting lists, you should research the nursing homes in your area before an emergency arises. If you plan on using Medicaid, make sure that the facility you select accepts it. Some nursing homes put limits on the number of Medicaid beds they offer. Private rooms are not available under Medicaid plans.
When choosing a nursing home, consider the level of medical care offered, the cost of the care provided, dietary options, recreational opportunities, maintenance and appearance of the facilities, and resident/staff ratios. Obtaining a rating from the state licensing board is helpful. When you select the nursing home, get the application requirements, deal with a waiting list if you must, and have your payment planning done well in advance.
Medigap insurance, Medicare (Part A), and Medicaid each provide some assistance in paying for long-term care. However, Medigap and Medicare provide only a certain number of days per year for skilled care at nursing homes. Neither provides coverage for intermediate and custodial care in nursing homes. Medicaid will generally pay for skilled care and intermediate care in nursing homes, and for custodial care at home. The bottom line is that most nursing home residents are left with only three alternatives for paying their nursing home bills: Medicaid, long-term care insurance (LTCI), and out-of-pocket.
Purchasing a LTCI policy is great, but as you get older, qualifying becomes more difficult and premiums get more expensive. You may not want to spend your life savings on nursing home bills, or you may have spent what you have available up to this point. Qualifying for Medicaid may be your best bet. With proper planning, you may be able to qualify for Medicaid and even leave some assets to your loved ones after you're gone.
Medicaid is a joint federal-state program that provides medical assistance to various low-income people, including those who are 65 or older, disabled, or blind. It can pay for a number of costs, including hospital bills, physician services, and portions of long-term care. Medicaid is the single largest payer of nursing home bills in America and is the last resort for people who have no other way to finance their long-term care. Eligibility rules vary from state to state, but federal minimum standards and guidelines must be observed.
Your assets and monthly income must each fall below certain limits to qualify for Medicaid. Several assets and a certain amount of income may be exempt. That's where Medicaid planning comes in. You may decide to keep only enough assets in your name that are legally available to you for paying your bills. You may transfer other assets to a trust to be given to your family. When doing this, a period of ineligibility for Medicaid may occur and you would have to wait to receive Medicaid benefits until after that period has passed.
Interested in Medicaid planning? Consult your friendly home town banker to get started and for a personal referral to an attorney who specializes in elder law.
01/14/2010
Will Social Security Be There For You
Watching the news, you've probably come across many stories on the health of Social Security. Social Security has been described as needing only minor adjustments to being in crisis requiring immediate, drastic reform. The underlying assumptions used can skew one's perception of the solvency of Social Security, and even experts disagree on the best remedy. So let's take a look at what we know.
According to the Social Security Administration (SSA), approximately 54 million Americans currently collect some sort of Social Security retirement, disability or death benefit. Social Security is a pay-as-you-go system, with today's current workers paying the benefits for today's retirees. Today's workers have the first $102,000 of their annual wages subject to 12.4% Social Security payroll tax, with half being paid by the employee and half by the employer. Self-employed individuals pay all 12.4%. This money is put into the Social Security trust fund and is used to pay out current benefits.
The amount of your retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving benefits also affects your benefit amount. The full retirement age is in the process of rising from 65 to 67 in two-month increments. For instance: If you were born in 1940, your retirement age is 65 & 6 months; if you were born from 1943-1954, your retirement age is 66; if you were born in 1960 or later, your retirement age is 67. You can begin receiving Social Security benefits as early as age 62, but if you retire early, your Social Security benefit will be less than if you had waited until your full retirement age. If your full retirement age is 67, you'll receive about 30 percent less if you retire at age 62. This reduction is permanent with no future increases available.
Demographic factors are complicating Social Security's problems. Life expectancy is increasing and the birth rate is decreasing. This means that over time, fewer workers will have to support more retirees. According to the SSA, in 1950 there were 16 workers per beneficiary. Today there are 3 workers per beneficiary, and within 40 years there will be only 2 workers per beneficiary. The SSA predicts that in 2017, Social Security will begin paying out more money than it takes in. However, the SSA estimates that Social Security should be able to pay promised benefits until 2041.
The SSA continues to urge Congress to address its solvency issues sooner rather than later, to allow for a gradual phasing in of any necessary changes. While no one can say for sure what will happen, here are some solutions that might fix the problems:
- Allow individuals to invest some of their current Social Security taxes in personal retirement accounts
- Raise the current 12.4% payroll tax
- Raise the current ceiling on wages subject to the payroll tax
- Raise the retirement age beyond age 67
- Reduce future benefits
For now, the best thing you can do is stay informed. You should periodically check your Social Security earnings record and review your Social Security Statement, which the SSA mails annually about three months before your birthday to every worker over age 25. This statement will estimate the amount of Social Security benefits you will be eligible to receive in the future, based on your actual earnings and projections of future earnings. If you have questions, call the SSA at (800) 772-1213 or go to www.ssa.gov for more information.
Contact your friendly home town banker to help you estimate and plan for the income you will receive during retirement.
01/07/2010
Business Contingency Planning and Buy-Sell Agreements
It’s the first week of a new year and a new decade. It doesn’t seem that long ago when the year, decade, and millennium changed overnight. Remember Y2K? All of the media hype and computer scares over how computer code stores and reads dates caused many industries to spend millions of dollars on new computer programs to fix the dates if Y2K caused them to freak. What happened? Basically nothing. Millions of dollars spent and millions of labor hours exhausted on preparing for an event that we were not sure would even occur. What a waste of time and money that was in retrospect. And what lessons we can learn from that experience. For example, we now know the importance of contingency planning on a large scale. Problem is, contingency planning for Y2K was left for anyone and everyone’s imagination to conjure up world-wide disaster scenarios and engineer brilliant solutions to them and, by the way, profit from those solutions.
So where am I going with this? Contingency planning for your business! If Y2K taught us contingency planning on a world-wide scale, we should now be able to plan for contingencies in our businesses. What steps should you take? Determine what elements of human and financial resources combined with the optimal levels of products and services your business needs to produce its dead-level best performance ever. Then, think of everything that could interfere with reaching this level of performance and label each a performance interrupter. Finally, design a contingency plan that will bypass each performance interrupter and put your business’s performance back on track.
A major part of business contingency planning is implementing a plan for your business to continue without interruption should business owners or key managers unexpectedly die. Buy-sell agreements are used to purchase a deceased partner or owner’s percentage of the business. This provides the deceased partner or owner’s survivors with financial support for their future and ensures other business employees that the business will continue to operate, even after the loss of a key person in the company.
If you’re a partner or co-owner of a business, you've spent years building a valuable financial interest in your company. Establishing a buy-sell agreement to ensure your surviving family a smooth sale of your business interest is important. Let’s discuss some types of buy-sell agreements and ways to fund them.
The three basic types of buy-sell agreements are: entity purchase, cross purchase, and wait and see purchase.
In an entity purchase buy-sell agreement, the business itself buys separate life insurance policies on the lives of each of the co-owners. The business usually pays the annual premiums and is the owner and beneficiary of the policies.
In a cross purchase buy-sell agreement, each co-owner buys a life insurance policy on each of the other co-owners. Each co-owner pays the annual premiums on the policies they own and are the beneficiaries of the policies.
A wait and see buy-sell agreement combines features from both the entity purchase and cross purchase models. The business can buy policies on each co-owner, the individual co-owners can buy policies on each other, or a mixture of both methods can be used.
One of the best methods used to fund buy-sell agreements is life insurance. The life insurance that funds your buy-sell agreement will create a sum of money at your death that will be used to pay your family or your estate the full value of your business ownership interest. If the value of your business grows over time, the insurance proceeds could be less than the value of your business interest, causing your surviving family members to get less than full value for your business interest. Because of this, you should specify how the valuation difference will be handled. Should the insurance proceeds be greater than the value of your business interest when you die, you should have addressed this potential situation upfront to specify whether the excess funds will belong to the business, the surviving co-owners, or your family or estate. Either way, if all goes well, your family gets a sum of cash they can use to help sustain them after your death, and the company has ensured its continued operation.
Consult your friendly home town banker to assist you with business contingency planning, business entity selection, business financing, and professional referrals for the purchase of all business-related insurance products.
02/04/2010
How Much Annual Income Can Your Retirement Portfolio Provide?
Your retirement lifestyle will depend not only on your assets and investment choices, but also on how quickly you draw down your retirement portfolio. Your withdrawal rate is defined as the annual percentage that you take out of your portfolio, whether from returns or the principal itself. Determining an appropriate initial withdrawal rate is critical in retirement planning and presents many challenges. Take out too much too soon, and you might run out of money in your later years. Take out too little, and you might not enjoy your retirement years as much as you could.
Your withdrawal rate is especially important in the early years of your retirement; how your portfolio is structured then and how much you take out can have a significant impact on how long your savings will last. Gains in life expectancy have been dramatic. According to the National Center for Health Statistics, people today can expect to live more than 30 years longer than they did a century ago. Assuming rising inflation, your projected annual income in retirement will need to factor in those cost-of-living increases. That means you'll need to think carefully about how to structure your portfolio to provide an appropriate withdrawal rate, especially in the early years of retirement.
So what withdrawal rate should you expect from your retirement savings? The answer: it depends. A withdrawal rate of slightly more than 4% could provide inflation-adjusted income for at least 30 years. A higher initial withdrawal rate--closer to 5%--might be possible during the early years of retirement if withdrawals in later years grow more slowly than inflation. Broader portfolio diversification and rebalancing strategies can have a significant impact on initial withdrawal rates. Adding asset classes such as international stocks and real estate can increase portfolio longevity. You might consider freezing the withdrawal amount during years of poor portfolio performance. By applying some specific decision rules that take into account portfolio performance from year to year, it could be possible to have "safe" initial withdrawal rates above 5%.
More ways to help stretch your savings include: Don't overspend early in retirement, plan IRA distributions so you can preserve tax-deferred growth as long as possible, postpone taking Social Security benefits to increase payments, frequently adjust your asset allocation, and adjust your annual budget during years when returns are low.
Your home town banker can help you determine a retirement withdrawal rate that will work best for your situation.
01/27/2010
An Important Message for Internet Banking Users
This column is intended to inform internet banking users of any bank about fraudulent schemes initiated by crooks who want to steal your personal information.
Where would we be without the internet? It has made communications across the globe a real-time event and obtaining information on just about anything takes only a few seconds. It has ushered in the information age in grand style. For all of the positive things the internet has done for us, there is a dark side of cyberspace where crime is growing. Let’s discuss some common ways fraud exists on the internet and ways you can protect yourself from being scammed.
Phishing is just one way fraudsters use the internet to get people to unknowingly provide them their personal financial information. A phishing attack is most commonly initiated with a special type of unsolicited email (spam) containing a misleading domain name that appears to be a legitimate site. The email recipient is tricked into visiting the spoofed website because it ‘appears’ to be a website they visit often and feel comfortable entering their username, password, or other personal information. However, once they enter the spoofed website, malicious software infiltrates their computer files to steal personal information including: passwords, security codes, credit card information, social security numbers, bank account information and well, you get the picture.
Your private information gets into the hands of crooks who will try to steal your identity and your money. Note: Do not answer emails from your financial institution that ask you for sensitive information. No bank will do this. Banks will send you emails and updates informing you to go to their secure website to retrieve the information and messages they have for you. You must initiate the login to your bank on your own --- do not respond to a link in an email that could direct you to a fraudulent site.
Spear phishing is targeted emails toward employees or members of an online group or an organization. Information about the employees or members is obtained from social networking sites like MySpace and FaceBook. The email recipients are tricked into navigating to a fake login page where malicious software again begins to do its fraudulent work.
Whaling is a type of phishing that targets affluent people, corporate executives and other ‘big phish’. It is usually customized like spear phishing in ways that trick the email recipients to go to fraudulent websites where crimes may be committed against them without them knowing it.
Pharming involves the redirecting of unknowing users to another IP address for a fraudulent site where the user’s information is stolen. Pharming is accomplished by changing the hosts file on a victim’s computer to send the victim to the fraudulent site even though they typed in the correct address.
So, internet crime is for real and it happens 24/7. It happens to consumers. Crooks trick consumers into navigating to fraudulent websites by sending them seemingly ‘normal’ emails that they respond to with personal and private information. It happens to businesses. Crooks defraud the customers of businesses, causing the businesses to suffer erosion of reputation and trust, infringement of trademarks and copyrights even when the businesses’ computer systems are not compromised.
When using internet banking, you first navigate to your bank’s website. This is your bank’s corporate page and is available for anyone to see. It’s where your bank advertises its products and services and also where you can contact the bank by email for additional information. Once you reach your bank’s website, you must login to the internet banking area by entering your username and password. Once you do this, you are redirected away from the bank’s public website to a secure site where you must be able to successfully login to gain access to your account information. Notice on the address line of the public site that it starts with http:// but when you’re redirected to the secure site, it starts with https:// with the ‘s’ indicating it is a secure site. Also look for a padlock portrayed in the locked position somewhere on the secure site. This is also an indicator of secure site access. When on the secure site, you can usually send secure messages to your bank by accessing the Contact Us or Secure Messaging icons while you are on the bank’s secure site. Sending a secure message from the secure site is NOT the same as sending an email for additional information from the bank’s public site. Secure messages sent or received within secure sites are secure. Email is not secure.
Take the information and suggestions from this column seriously. Enjoy the values and benefits from using the internet to do your research, studies, games, entertainment, shopping and banking. And always be security-sensitive when giving out your personal information on the internet.
01/21/2010
Medicaid and Nursing Home Care
I looked in the mirror the other day and realized that I’m not getting any younger. My hair is salted and I’m growing rounder instead of taller. We all reach that stage in life when the years pass faster than we’d like to admit they do. So what about the future? Who’s going to take care of you down the road when there are things that you can no longer do for yourself? Let’s look at options you may have and focus on nursing home care and how Medicaid can help pay for it.
If you can no longer care for yourself, it’s usually the result of either physical or mental incapacitation. Sometimes the help of an in-home caregiver is adequate, but if you require more specialized care, a nursing home may be your best option.
A nursing home is a state-licensed facility that can provide three levels of service:
- Skilled care is 24/7, ordered by a doctor and performed by skilled medical personnel.
- Intermediate care is less intense using occasional nursing and rehabilitative care provided by registered nurses and other medical personnel.
- Custodial care helps you perform the activities of daily living and does not require medical skills.
Because nursing homes sometimes have waiting lists, you should research the nursing homes in your area before an emergency arises. If you plan on using Medicaid, make sure that the facility you select accepts it. Some nursing homes put limits on the number of Medicaid beds they offer. Private rooms are not available under Medicaid plans.
When choosing a nursing home, consider the level of medical care offered, the cost of the care provided, dietary options, recreational opportunities, maintenance and appearance of the facilities, and resident/staff ratios. Obtaining a rating from the state licensing board is helpful. When you select the nursing home, get the application requirements, deal with a waiting list if you must, and have your payment planning done well in advance.
Medigap insurance, Medicare (Part A), and Medicaid each provide some assistance in paying for long-term care. However, Medigap and Medicare provide only a certain number of days per year for skilled care at nursing homes. Neither provides coverage for intermediate and custodial care in nursing homes. Medicaid will generally pay for skilled care and intermediate care in nursing homes, and for custodial care at home. The bottom line is that most nursing home residents are left with only three alternatives for paying their nursing home bills: Medicaid, long-term care insurance (LTCI), and out-of-pocket.
Purchasing a LTCI policy is great, but as you get older, qualifying becomes more difficult and premiums get more expensive. You may not want to spend your life savings on nursing home bills, or you may have spent what you have available up to this point. Qualifying for Medicaid may be your best bet. With proper planning, you may be able to qualify for Medicaid and even leave some assets to your loved ones after you're gone.
Medicaid is a joint federal-state program that provides medical assistance to various low-income people, including those who are 65 or older, disabled, or blind. It can pay for a number of costs, including hospital bills, physician services, and portions of long-term care. Medicaid is the single largest payer of nursing home bills in America and is the last resort for people who have no other way to finance their long-term care. Eligibility rules vary from state to state, but federal minimum standards and guidelines must be observed.
Your assets and monthly income must each fall below certain limits to qualify for Medicaid. Several assets and a certain amount of income may be exempt. That's where Medicaid planning comes in. You may decide to keep only enough assets in your name that are legally available to you for paying your bills. You may transfer other assets to a trust to be given to your family. When doing this, a period of ineligibility for Medicaid may occur and you would have to wait to receive Medicaid benefits until after that period has passed.
Interested in Medicaid planning? Consult your friendly home town banker to get started and for a personal referral to an attorney who specializes in elder law.
01/14/2010
Will Social Security Be There For You
Watching the news, you've probably come across many stories on the health of Social Security. Social Security has been described as needing only minor adjustments to being in crisis requiring immediate, drastic reform. The underlying assumptions used can skew one's perception of the solvency of Social Security, and even experts disagree on the best remedy. So let's take a look at what we know.
According to the Social Security Administration (SSA), approximately 54 million Americans currently collect some sort of Social Security retirement, disability or death benefit. Social Security is a pay-as-you-go system, with today's current workers paying the benefits for today's retirees. Today's workers have the first $102,000 of their annual wages subject to 12.4% Social Security payroll tax, with half being paid by the employee and half by the employer. Self-employed individuals pay all 12.4%. This money is put into the Social Security trust fund and is used to pay out current benefits.
The amount of your retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving benefits also affects your benefit amount. The full retirement age is in the process of rising from 65 to 67 in two-month increments. For instance: If you were born in 1940, your retirement age is 65 & 6 months; if you were born from 1943-1954, your retirement age is 66; if you were born in 1960 or later, your retirement age is 67. You can begin receiving Social Security benefits as early as age 62, but if you retire early, your Social Security benefit will be less than if you had waited until your full retirement age. If your full retirement age is 67, you'll receive about 30 percent less if you retire at age 62. This reduction is permanent with no future increases available.
Demographic factors are complicating Social Security's problems. Life expectancy is increasing and the birth rate is decreasing. This means that over time, fewer workers will have to support more retirees. According to the SSA, in 1950 there were 16 workers per beneficiary. Today there are 3 workers per beneficiary, and within 40 years there will be only 2 workers per beneficiary. The SSA predicts that in 2017, Social Security will begin paying out more money than it takes in. However, the SSA estimates that Social Security should be able to pay promised benefits until 2041.
The SSA continues to urge Congress to address its solvency issues sooner rather than later, to allow for a gradual phasing in of any necessary changes. While no one can say for sure what will happen, here are some solutions that might fix the problems:
- Allow individuals to invest some of their current Social Security taxes in personal retirement accounts
- Raise the current 12.4% payroll tax
- Raise the current ceiling on wages subject to the payroll tax
- Raise the retirement age beyond age 67
- Reduce future benefits
For now, the best thing you can do is stay informed. You should periodically check your Social Security earnings record and review your Social Security Statement, which the SSA mails annually about three months before your birthday to every worker over age 25. This statement will estimate the amount of Social Security benefits you will be eligible to receive in the future, based on your actual earnings and projections of future earnings. If you have questions, call the SSA at (800) 772-1213 or go to www.ssa.gov for more information.
Contact your friendly home town banker to help you estimate and plan for the income you will receive during retirement.
01/07/2010
Business Contingency Planning and Buy-Sell Agreements
It’s the first week of a new year and a new decade. It doesn’t seem that long ago when the year, decade, and millennium changed overnight. Remember Y2K? All of the media hype and computer scares over how computer code stores and reads dates caused many industries to spend millions of dollars on new computer programs to fix the dates if Y2K caused them to freak. What happened? Basically nothing. Millions of dollars spent and millions of labor hours exhausted on preparing for an event that we were not sure would even occur. What a waste of time and money that was in retrospect. And what lessons we can learn from that experience. For example, we now know the importance of contingency planning on a large scale. Problem is, contingency planning for Y2K was left for anyone and everyone’s imagination to conjure up world-wide disaster scenarios and engineer brilliant solutions to them and, by the way, profit from those solutions.
So where am I going with this? Contingency planning for your business! If Y2K taught us contingency planning on a world-wide scale, we should now be able to plan for contingencies in our businesses. What steps should you take? Determine what elements of human and financial resources combined with the optimal levels of products and services your business needs to produce its dead-level best performance ever. Then, think of everything that could interfere with reaching this level of performance and label each a performance interrupter. Finally, design a contingency plan that will bypass each performance interrupter and put your business’s performance back on track.
A major part of business contingency planning is implementing a plan for your business to continue without interruption should business owners or key managers unexpectedly die. Buy-sell agreements are used to purchase a deceased partner or owner’s percentage of the business. This provides the deceased partner or owner’s survivors with financial support for their future and ensures other business employees that the business will continue to operate, even after the loss of a key person in the company.
If you’re a partner or co-owner of a business, you've spent years building a valuable financial interest in your company. Establishing a buy-sell agreement to ensure your surviving family a smooth sale of your business interest is important. Let’s discuss some types of buy-sell agreements and ways to fund them.
The three basic types of buy-sell agreements are: entity purchase, cross purchase, and wait and see purchase.
In an entity purchase buy-sell agreement, the business itself buys separate life insurance policies on the lives of each of the co-owners. The business usually pays the annual premiums and is the owner and beneficiary of the policies.
In a cross purchase buy-sell agreement, each co-owner buys a life insurance policy on each of the other co-owners. Each co-owner pays the annual premiums on the policies they own and are the beneficiaries of the policies.
A wait and see buy-sell agreement combines features from both the entity purchase and cross purchase models. The business can buy policies on each co-owner, the individual co-owners can buy policies on each other, or a mixture of both methods can be used.
One of the best methods used to fund buy-sell agreements is life insurance. The life insurance that funds your buy-sell agreement will create a sum of money at your death that will be used to pay your family or your estate the full value of your business ownership interest. If the value of your business grows over time, the insurance proceeds could be less than the value of your business interest, causing your surviving family members to get less than full value for your business interest. Because of this, you should specify how the valuation difference will be handled. Should the insurance proceeds be greater than the value of your business interest when you die, you should have addressed this potential situation upfront to specify whether the excess funds will belong to the business, the surviving co-owners, or your family or estate. Either way, if all goes well, your family gets a sum of cash they can use to help sustain them after your death, and the company has ensured its continued operation.
Consult your friendly home town banker to assist you with business contingency planning, business entity selection, business financing, and professional referrals for the purchase of all business-related insurance products.