The “Sandwich Generation” and the Changing Family Dynamic

The “Sandwich Generation” is becoming a more commonly used term as more and more individuals begin caring for not only their aging parents, but their children as well, all the while planning for their own personal retirement.  According to an April 2010 Merrill Lynch Affluent Insights Quarterly survey, more than one-third of affluent Americans financially support their children and parents while trying to maintain and build upon what they have set aside for retirement.  According to the Pew Research Center, 1 of every 8 Americans aged 40 to 60 is both raising a child and caring for a parent, in addition to between 7 to 10 million adults caring for their aging parents from a long distance.  The US Census Bureau statistics indicate that the number of older Americans aged 65 or older will double by the year 2030, to over 70 million.

With the complex equation of most individuals within the sandwich generation being baby boomers, added to the intricate family dynamics, financial advisors are finding themselves advising over three generations.  What is the family dynamic like?  Many boomers work full time jobs while raising a family or supporting children in college, in addition to serving as the primary caregiver to one or both parents.  How do these families cope with the changing dynamic?  Most consider trade-offs, such as significantly cutting back on personal luxuries, making lifestyle sacrifices to support their family’s needs, and even cutting back on their own personal retirement.

So, what kind of help can advisors give to those facing the pending or already existent sandwich generation?  First and foremost, ease the stress of competing demands by identifying core values and priorities to find balance in life.  Always keep open lines of communication – of course it’s difficult to discuss the financial impact of diminishing health and the eventual loss of a loved one, but putting off that conversation can leave you unprepared for the consequences.  Implementing a plan of affairs for aging parents can off-set the negative consequences of a life-changing event.  Be sure to know where your family members keep important financial and medical documents, as well as the contact information of doctors, lawyers and advisors.  Always know the type of long term care, and how much it will cost.

When it comes to financing children’s education, only 12% of the sandwich generation said they were cutting back on contributions.  What’s the biggest tip for parents?  Start saving early.  Teach your children early on the skills necessary to embrace financial independence, budgeting, and the importance of credit and planning for retirement.  You can even bring your kids with you to an advisor meeting to discuss all these great education finance tips.

I’m sure you’re thinking: but what about me?  Get with an advisor and review your investment strategy, as well as home financing, asset allocation, insurance, securities, your portfolio, and your general retirement strategy in general.  This way, advisors can help shift financial securities based on the family’s specific dynamic.  According to the survey, 54% of the members of the sandwich generation work with an adviser, and among them, 32% wish that they had started working with one sooner.  Among the remaining 46% who don’t work with an adviser, 83% think that they would benefit from such a relationship.


Photo courtesy of:

Enhanced by Zemanta

Cause & Effect: Household Numbers on the Rise

It may not be what you think – according to the Census Bureau, the number of individuals and families living together have taken a big jump in the past several years – and it’s not because grandma and grandpa are living with their grandkids.  The report found that 69.2 million, or 30% of families were “doubled-up” (households that include at least one person 18 or older who isn’t enrolled in school and isn’t the householder, spouse or cohabiting partner of the householder) in 2011, up from 61.7 million adults, or 27.7%, in 2007.  The surprising part?  The biggest increase comes from young people, ages 25-34, living with their parents.  Some 5.9 million, or 14.2% of 25-to-34 year olds, lived with their parents in 2011, up from 4.7 million before the recession.

The Cause:  With high unemployment rates, a meek economy and a surplus of students graduating from college with a laundry list of student loans to pay off, it’s not surprising that more and more young adults are living or moving back in with their parents.  What better way to save some money, look for a job and improve their financial standing?  Another interesting cause I read the other day was that unlike the past, many young adults find it quite pleasant to live with their parents these days.  With child-rearing strategies changing, more parents and their children are nurturing lasting relationships together.

The Effect:  The Census Bureau is having a tough time in figuring out the actual poverty rate of the United States: “These young adults who lived with their parents had an official poverty rate of only 8.4%, since the income of their entire family is compared with the poverty threshold,” David Johnson chief of the Housing and Household Economic Statistics Division at the U.S. Census Bureau said. “If their poverty status were determined by their own income, 45.3% would have had income falling below the poverty threshold for a single person under age 65.”

Another effect that affects the economy is a smaller number of households.  A reduced number of overall households leads to a reduction of consumers, including those in the housing market, which puts a huge drag on the economy.  Regardless of the misleading statistics, the biggest impact can be felt much closer to home.  While young adults living with their folks may be reaping the benefits, parents supporting adult children have less money to spend on themselves, not to mention less income to save for retirement.
Some experts say that there is a silver lining.  They believe that these young adults “doubling up” will eventually become financially stable and be able to move out, enter the housing market and start consuming again.  This boost in consumption would lead to an improvement in the broader economy.

Unfortunately, there’s no telling when that will happen, and in the meantime it’s not fair to many retirement-saving parents to allow their children to hurt their futures.  If you’re going to provide a home and various necessities for your post-graduates or financially-unstable children, make sure you set parameters that keep them from getting to comfortable in your house.  Don’t feel bad charging them some sort of rental fee and giving them a timeline in which they must move out or find a job.  Without structure the situation could get worse and put too much pressure on your financial future.

Photo courtesy of:

Enhanced by Zemanta

Solutions to Your Biggest Money Problems

No two individuals have the same financial woes.  Not only do financial situations vary in income, debt, spending and saving habits, but they also vary in the perspectives of those individuals and how they rank their specific money problems.  After researching a few polls on the most popular money problems, we’ve created a list of what financial issues most individuals worry about the most and what you can do about it.

I spend too much.  Without a doubt, the most worrisome financial problem people dwell over is the act of spending too much money, but why?  While credit cards play a big factor in their ease and accessibility of use, scientists have actually proven that spending money makes us happy.  Surprise?  Probably not.  Much like chocolate cake or kissing a loved one, the idea of spending money can release a feel-good chemical in our brains called dopamine.  Overspending can also stem from poor planning or lack of time.  So, how do you stop spending?  It’s not easy but doing things like changing your daily habits, only having one credit card and using more cash, unsubscribing from catalogs and finding other inexpensive ways to be happy will help you curb your spending problems.

I save too little.  You’re not alone!  According to the U.S. Department of Commerce, the average American household saves 0.4 percent of its disposable income, down from 2.4 percent in 1999. Some blame low interest rates; if you’re making very little in your savings account you have less incentive save.  Others blame spending too much.  It’s obvious – when you spend too much you can’t save what you should.  One nice way to make yourself save is to detail out a clear goal.  Additionally, you can set up automatic deductions from your paycheck, open a 401(k), and start an immediate savings account.

Gas prices are absurd.  Energy prices, in general, are on the rise, but gas prices specifically are up one-third in the past year.  And with our economy depending heavily on other world markets, it is clear that gas prices are not going to drop any time soon.  There are several alternatives to driving, like taking metro transit, walking, biking and carpooling.  But if you must drive, check out the cheapest gas prices online, remove heavy junk from your car, and be sure to check the oil, air filter and tire pressure on a regular basis.  If you can, investing in energy efficient will save you money in the long run.

I’m not sure how much to save for retirement.  The standard number for your retirement planning is 15% of your income each year.  However, each person’s financial picture is different, and there are many variables that need to be factored in.  You can either contact a retirement specialist, or check out the countless online calculators that will do the math for you.  Some tips for retirement planning include 401(k)’s, IRA’s, pension plans, investments and annuities.

I need a budget.  Are you constantly finding yourself out of cash?  Is your monthly cash cycle consistently inconsistent?  A budget is simply a plan on how to appropriately spend your money.  In order for it to work, though, you must realistic and stick to your plan.  Budgets are relatively easy to calculate.  Simply sit down and create a map of your monthly spending and saving habits.  Follow it accordingly and revisit it at the end of the month to determine what’s worked and what hasn’t.  Another tip is to sign up for an online money-tracking program.  You can even link your bank accounts and bills for deductions itemizations.

I need a financial plan.  Wait, didn’t we just talk about budgets?  A financial plan is much broader than a budget.  It’s a track to help you achieve those big things in life, like a house, vacation home or your child’s education.  It encompasses your savings, investments and even your insurance.  Creating a financial plan is much more complex than creating a budget.  Do some research and hire a financial planner.  The peace of mind in knowing your financial future is secure and protected is worth the time and effort in hiring and educator to coach you through your big life decisions.


Photo courtesy of

The high cost of 401(k) hardship withdrawals

A hardship withdrawal must always be your last resort. Remember, if things are really bad and you are required to file for bankruptcy your money in a qualified retirement plan are protected from creditors. Seek professional help before you make a mistake which cannot be reversed.

WASHINGTON - OCTOBER 26:  Internal Revenue Ser...
WASHINGTON - OCTOBER 26: Internal Revenue Service Commissioner Douglas Shulman addresses the American Institute of Certified Public Accountants' 35th Annual National Tax Conference October 26, 2010 in Washington, DC. Shulman addressed a new IRS program requiring that anyone making money from completing tax returns must register with the IRS, pay a fee and pass competency tests and eventually attend continuing education programs. (Image credit: Getty Images via @daylife)

Hardship requirements

There are two main requirements that need to be satisfied to qualify as a hardship. The first is that the hardship withdrawal must be due to an immediate and heavy financial need. The IRS uses the examples of buying a boat or a television as situations that would not qualify under this condition.3 The second requirement is that the amount distributed under the hardship be restricted to the necessary funds needed to satisfy the financial need.4 This means that a participant can’t receive a hardship withdrawal in the amount of $10,000 when only $2,000 is needed.

The amount available for distribution is generally restricted to the amount the participant has contributed to the plan (without earnings). Some plans do allow employer contributions to be available as well, but this is not as common. In addition, the hardship withdrawal is not rollover-eligible, meaning that the funds distributed cannot be placed in an IRA or another qualified retirement plan to keep its tax deferred status.

What qualifies as a hardship?

The determination of what qualifies as a hardship is usually, but not always, based on “safe harbor” standards. These standards are outlined by the IRS to help plan sponsors determine if a participant’s situation qualifies as a hardship event. The eligible hardship events under the safe harbors are:

  • Medical care expenses that have been incurred or for medical care that is needed
  • Costs associated with purchasing a principal residence (excluding mortgage payments)
  • Tuition payments, educational expenses, or room and board expenses that will be incurred during the next 12 months of postsecondary education
  • Payments to prevent either eviction or foreclosure on a principle residence
  • Funeral expenses
  • Certain expenses related to repairs of a principal residence that are due to damage

When you are considering a hardship withdrawal please seek the advice of a professional. This added expense may help avoid a costly mistake which cannot be reversed.

Please comment or call to discuss how this affect you and your retirement future.

Enhanced by Zemanta

How to determine if a cash balance pension plan is right for your company

PensionRetirement plan design is vital to the success of very plan. The cash balance plan should be considered by professional service firms, closely held small businesses, and any firm with solid cash flowlooking for additional tax deductions. This plan design will help attract and retain top talent.

Companies that have maxed out their 401(k) plans but still have discretionary incomeand steady cash flow available for retirement benefits may want to consider a cash balance pension plan.“A cash balance pension plan is technically a defined benefit pension plan which has features that resemble a defined contribution plan,” explains Tom Sigmund, firm director and chair of the Employee Benefits & ERISA practice at Kegler, Brown, Hill & Ritter. “Like a traditional defined benefit pension plan, the employer bears all responsibility for funding and investing, and the value of the assets do not impact the promised benefit. However, the benefits are depicted as an account balance.”

Sigmund says that a cash balance pension plan is an especially popular tool for professional practices.

“If they have not maxed out their 401(k) plan, we recommend that they do so prior to establishing the cash balance pension plan. In combination, these two plans can enable the organization to cost effectively meet a variety of goals relative to the principles of the practice.”

The cash balance plan design is best suited for organizations will strong steady cash flow. Not only will be able to deduct significantly more, it will help you attract and retain talented employees.

Please comment or call to discuss how this would help you firm.

Enhanced by Zemanta

The Small Business 401(k) is the Holiday Gift That Keeps on Giving

Eagle with flag in background.
Image via Wikipedia

Business owners understand that they cannot rely on the government for their retirement. A 401(k) plan can not only help them save for their retirement but also help attract and retain talented employees.

The Benefit That Keeps on Giving and Can Pay for Itself

There’s no doubt about it, giving each of your employees a fat check around the holidays would feel great. But, in the long-term, giving them free money every two weeks — via matching contributions to their 401(k) — can actually work out even better for both you and your employees.  And, for smaller firms, the plan may actually pay for itself outright.

Here’s how 401(k) saving and tax advantages can really add-up.  Consider a scenario of two businesses. Each has seven employees including the owner, and the owner earns $150,000 a year.  One offers a 401(k) plan with a “safe harbor” match to maximize her contributions and one does not provide a retirement plan at all.

So which owner keeps more of her money? In this situation, the owner with the 401(k) is much better off than the owner without a plan.  The owner with a 401(k):

  • Keeps  $2,729 more of her own money
  • Pays $7,465 less in personal and business  taxes
  • Saves $22,087 in tax-deferred income for retirement

That’s just year one. Take a ten year view, and the numbers get even more exciting.  The owner saves nearly $75,000 in taxes and builds a nest egg $305,000 assuming a seven percent annual return over the period.  Tax credits, deductions of any match and plan expenses, and matching can all have powerful effects on your bottom line.

Small business 401(k)s are in everyone’s best interest and bottom line. Now that’s a concept that even Scrooge could love.

There is a human tendency to believe when times are good they will always be good. And when times are bad they will always be bad. This is not the case, the economy and the world will get better. Now is the time to begin a retirement plan for yourself and your employees. It will pay dividends for you very soon.

Please comment or call to discuss how this affects you.

  • Your Employees Appreciate Your Company’s 401(k) Plan (
  • An Employer’s Guide in Choosing which Retirement Plan to set up (
  • A Solo 401(k) Plan Can Cut Your 2011 Tax Bill by $9,800. But Need to Act Soon. (
Enhanced by Zemanta

401k Beneficiary Designations: Getting the Right Assets to the Right People

Image via Wikipedia

This often overlooked detail can cause many probelems in the future.

The Spouse Is the Automatic Beneficiary for Married PeopleA federal law, the Employee Retirement Income Security Act (ERISA), governs most pensions and retirement accounts. Under ERISA, if the owner of a retirement account is married when he or she dies, his or her spouse is automatically entitled to receive 50 percent of the money, regardless of what the beneficiary designation says.

If another person is the designated beneficiary, the spouse will receive 50 percent of the assets and the designated beneficiary will receive the other 50 percent. A spouse always receives half the assets of an ERISA-governed account unless he or she has completed a Spousal Waiver and another person or entity (such as an estate or trust) is listed as a beneficiary.

A spouse can forgo his or her right to 50 percent of the account by properly executing a Spousal Waiver. However, generally a Spousal Waiver is not permissible under ERISA unless the spouse is at least 35 years old, depending on the type of retirement plan.

These rules can cause problems when the owner of a retirement account remarries. Often, the owner will change his or her beneficiary designation upon divorce and name the children as the designated beneficiaries. If the owner later remarries, though, 50 percent of the retirement assets will go to the new spouse instead of the children, even if the new spouse is not added as a beneficiary.

Beneficiary Designation Trumps Will

If the owner of a 401k is single when he or she dies, the assets go to the designated beneficiary, no matter what his or her will states. In addition, the assets will be distributed to the designated beneficiary regardless of any other agreements — even court orders.

For example, assume a man’s wife is the designated beneficiary of his 401k. The couple gets divorced and the man does not change his beneficiary designation, but the woman waives her right to receive any retirement assets as part of the divorce agreement. If the man dies without changing his beneficiary designation and without remarrying, his former wife will still receive the retirement assets, even though the divorce decrees declares that she should not.

Periodic review beneficiary forms is recommended and may justify consulting an expert to prevent disputes in the future.

Please comment or call to discuss how this affects you and your employees.

Enhanced by Zemanta

Best Practices for Reducing Loans, Hardship Withdrawals, and Impulsive Investment Decisions

Image by ghknsg548 via Flickr
These practices will not only help employees successfully retire, you will also reduce the workload of your staff. Employees must be reminded that the money in their 401k plan is protected from creditors in the event of bankruptcy.

Employees who take 401k plan loans contribute less for retirement. According to the Aon Hewitt study Leakage of Participants’ DC Assets: How Loans, Withdrawals, and Cashouts Are Eroding Retirement Income, employees with loans have an average contribution rate of 6.2% while employees without loans contribute on average 8.1% to their defined contributionplans. This difference in contribution rates could mean tens of thousands of dollars to participants in retirement. The study also noted that withdrawals (including those due to hardship ) have a great impact on retirement income as well, noting that full-career contributors who take withdrawals and stop contributing for two years thereafter reduce their retirement income by 7% to 25% depending on income and enrollment methodology.Investment timing can negatively affect investment performance, but many employees don’t know what else to do when they don’t understand basic investment strategies. A recent study by Fidelity Investments® showed employees that moved all of their funds out of equities during the recession of 2008 – 2009 experienced an average increase in account balance of only 2% through June 30, 2011 while those who maintained their investment strategy realized an average account balance increase of 50% during the same period. Reducing impulsive investment decision making and encouraging strategic decision making will improve retirement preparedness along with employees’ investment confidence.

This is a problem that could come back to haunt employers. There is a growing concern that lawsuits from employees who claim they weren’t given enough information on how loans, hardship withdrawals, and poor investment choices could severely impact their retirement may increase. The claim may be that employees shouldn’t have been allowed to take loans or hardship withdrawals, or that they should have been given more information on asset allocation.

The 401(k) plan has become the sole source of retirement for many Americans. Yet many see their 401(k) account balance as a source of emergency funds. This will negatively impact their ability to retire when they choose.

Please comment or call to discuss how plan design can improve your plan.

Enhanced by Zemanta