Two employee-benefit actions to take before you accept that new job offer
Are you considering changing jobs this year? If not, you’re in the minority. A survey conducted by Harris Poll found that the majority (52%) of U.S. workers are considering a job change this year – and 44% have real plans in place to make a change. Think about that. Picture your co-workers or your team. More than half are thinking about leaving.
Of course there are many reasons people look for a new job, beyond just the thought of making more money (although that’s a big one). Gone are the days when we work for a single company all our working life. In fact, we often hear that people make at least half a dozen job changes in their lifetime and multiple career changes too.
Trouble is, with all the statistics that are tracked, there really is very little actual data to back up those statements. But, within the U.S. Labor Department resides the Bureau of Labor Statistics and there is quite a bit of data that they do track.
Average Job Tenure
For example, the BLS reported that employees have worked for their current employer for an average of 4.6 years – that alone is telling. Further, how long one works for an employer is affected by one’s age and occupation:
- Managers, professionals, and similar occupations reported the longest median tenures at 5.5 years.
- The median tenure of workers in service occupations was the shortest at 3.2 years.
- Workers age 65 or older have an average job tenure of 10.3 years.
- For workers age 25 to 34, the median tenure is 3.2 years.
What Age Will You Be When You Change?
Indeed.com reports that the average age a person changes careers is 39 years old. Seems like a mid-career crisis of sorts doesn’t it? Well consider that as people get older, they change jobs less frequently.
- Between the ages of 18 and 24, people change jobs an average of 5.7 times.
- The average number of job changes between 25 and 34 years old is 2.4.
- From 35 to 44 years of age, the average decreases to 2.9 jobs.
- It’s 1.9 jobs from 45 to 52 years of age.
Based on those numbers, it can be estimated that most people will have 12 jobs during their lifetime. And the reasons people change careers and jobs are varied.
Tips Before You Change Jobs
Again, looking for a new job can be stressful. But starting a new job can be exciting. Your future-self will thank you if you take the time to manage your employer-provided benefits while moving from one job to the next. In fact, since it is likely that your new employer-provided benefits will be different from the ones provided by your own employer, not only do you need to compare the two, you need to decide how to manage the changes before you leave your old employer. Here are two really huge things to consider.
Often times there is a waiting period before health coverage begins at your new employer and that wait can be upwards of 30 to 90 days. As such, you want to make sure you are not uninsured, even if you think you’re perfectly healthy. So you need to explore whether you can continue under your former employer’s health insurance.
Did you know that under a Federal law known as the Consolidated Omnibus Budget Reconciliation Act (COBRA), you can continue as a member of your previous company’s health plan for up to 18 months after termination of employment, unless you are terminated for cause?
Of course you should also know that you will be responsible for paying the entire premium, including anything your previous employer contributed. Yes, it will likely be expensive, but it will also likely be cheaper than paying for an individual policy. But make sure you know the rules ahead of time.
For example, you might not be able to continue COBRA if your former employer has fewer than 20 employees. And you do need to advise your employer that you are electing COBRA coverage in writing.
Retirement Plan Rollovers
Are you invested in your soon-to-be-former employer’s 401(k) plan? What do you plan to do with those assets? You can reinvest, transfer or even cash in the funds.
But to keep your retirement plan on track, you may want to consider rolling over the funds into another qualified retirement savings account, such as a rollover IRA. But there are right ways and wrong ways to do this.
First, it depends on how old you are as to whether or not there might be penalties.
It’s possible that you might even leave the funds right where they are, but you need to know your soon-to-be-former employer’s rules.
You might also roll over the funds into your new employer’s retirement options. Again, know the rules.
Check with the benefit administrators at both companies and ask your financial advisor for help. Your future-self will thank you.
Taking money out of retirement without a plan is a recipe for trouble
You‘ve saved for years. Now that you are retired, did you create an income plan from your savings?
The financial industry and media constantly talk about the need to save for retirement. Put money into your 401(k), contribute to your individual retirement accounts, and one day, when you are ready to retire, that savings becomes income for you.
But how does that actually happen? Here are five simple steps to make sure it does:
- Determine how much you need to spend to live a life you enjoy. This should always be the first question because the answer ultimately drives the rest of the decisions. How much money do you need each month to cover your essential expenses, and to also cover the fun things that you’d like to do in retirement? Tracking this spending for the first few years of retirement is critical, since expenses can run higher than expected. You should be aware of these fluctuations and make adjustments accordingly.
- Make the most of income sources other than your savings. There’s a tremendous amount of benefit that some smart planning can do for you. For example, choices like when to start taking Social Security can cut your retirement income by 25% or boost it by an additional 32%. Married couples can use strategies like claiming spousal benefits to increase income substantially. If your income comes in the form of rental properties, then do you need to factor in expenses for maintenance? Should you hire a property management company so that you don’t have to take phone calls from tenants while you’re on vacation? Run through the numbers for your personal situation and make the right decision.
- Decide how much risk you are comfortable with. Your level of comfort with risk determines how you allocate your portfolio. In retirement, people usually don’t want much risk because they’re concerned about markets and fluctuations. Yet the reality is that for a 30-to-40-year retirement with inflating expenses every year, some allocation to growth assets is helpful if not necessary.
- Figure out how much income you need your savings to generate every year. The amount is your total estimated expenses minus your Social Security, pensions or real estate income. Once you know how much you need each year, you can then begin to formulate a distribution strategy (which is another topic altogether).
- Identify how much you want to leave to your heirs. For some, this is a top priority. For others, they want to spend as much as possible while they can.
Like most planning questions, there are no right or wrong answers. If you plan to leave behind a substantial inheritance, just be aware that it might place limitations on your income.
Your Financial Advisor
Creating an income plan is a really important step in your retirement years. And layering on the unpredictability of investing, you might ask yourself how you prepare your retirement portfolio for all of it? Well, one major key to successful planning while in retirement lies in following wise strategies. Your financial advisor understands these strategies and is a great source for information about how to handle your money as you live your retirement. Your financial advisor’s role is to prepare for the best – and the worst – of anything. The world is just too unpredictable to do less.
A framework to help you be among the 8% that sticks to resolutions
Will you make a New Year’s resolution this year? One of the smartest ones could be to get your finances in order. But keeping that promise to yourself is another matter.
A lot of people make money resolutions. According to study after study, the most popular resolution every year is to lose weight, followed by getting organized and saving more money. It’s good to see that a financial-related resolution is in the top three.
Here is a framework for making that New Year’s resolution stick.
Past Performance is No Guarantee
Many Americans are still trying to dig out of the hole after the 2008-09 financial crisis and the COVID bear market of 2020. Some of us are feeling like we missed the bull market of the past 10+ years, or the market rebound post COVID-bear, and might take on too much risk in an effort to catch-up.
No matter your past investing history, there is always more we can do to better the financial picture for ourselves and our families. The key is to make a plan.
Sadly, some don’t bother making a New Year’s resolution because it seems futile. Indeed, few of us are able to keep to what we resolve each year. Did you know that while the majority of us make resolutions every year, less than 8% actually keep them?
This doesn’t have to be the case. There is every reason to make next year your year to accomplish what you set out to do. Here are some tips to help.
Involve Family and Friends
Get your family involved to help you follow through. You can also share your resolution with others, and have someone keep you accountable.
If you decide that you want to set a budget and save a specific amount each month, see if a friend wants to do the same. At the end of each month, check in with one another to make sure you are both on track.
Create A Budget
The centerpiece of a financial resolution is to create a budget for the entire year. This isn’t as daunting as it sounds. Decide with your partner and family members what the big expenses are for next year. Will you need to buy a new car? Take a vacation? Fix the roof or replace the air conditioner? By planning ahead and setting aside money in advance, these expenses don’t hit your pocketbook as hard as they would if there were no plan. A family budget is a great learning opportunity for kids, as well.
Don’t allow mistakes you made in the last 12 months to affect your goals for the coming year. Allow yourself to mentally wipe the slate clean. Use previous stumbling blocks as your new goals for next year.
Perhaps you had trouble with credit card debt, stress at work or gained a few extra pounds. Involve those challenges into your New Year’s plan. Setup a timeline for paying off debt, schedule time to de-stress and get away from the office, meet with a personal trainer or create a fitness plan that will work best for you.
Write it Down
Don’t forget to write down what you want to achieve and place it somewhere you see it each day. If nothing reminds you of your goals, then it becomes much more challenging to attain them.
Finally, talk to your financial advisor to make sure your resolutions are consistent with your long-term financial plan. And your financial advisor can be a great accountability partner too.
The world lost one of its greatest and most accomplished basketball players on Sunday, January 26, 2020. Early in the morning, Los Angeles Lakers legend Kobe Bryant and his 13-year old daughter, along with seven others, died when the helicopter they were in crashed amidst foggy conditions in the hills of Calabasas, California. Kobe was 41.
Losing a spouse brings grieving and heartache enough without the unanticipated leap into the deep end of personal financial management. And Kobe’s death reminds us that if your spouse were to die, you have special considerations when planning your financial future.
Most Surviving Spouses are Women
Most women understand too well the odds that later life might find them alone financially. Among baby boomers, for example, an estimated 7 out of 10 wives will outlive their husbands. If you’re one of these women, how do you prepare?
Research shows that the average American woman lives almost five years longer than the average U.S. man. According to the Women’s Institute for a Secure Retirement, half of all widows become so by age 65. Vanessa Bryant became a widow at the age of 37.
More than 700,000 American women are widowed every year, according to the latest U.S. Census data, and widows are more likely than their male counterparts to lose income after a spouse’s death.
When your husband dies, you may have to dive into dealing with the murky waters of probate to validate a will, as well as many other legal and financial issues. In many marriages, the husband handles tax and financial issues – and understanding these new and confusing challenges can be overwhelming.
Acquiring enough financial knowledge to make money decisions confidently goes a long way toward easing the transition if you lose a spouse.
Plan and Re-Evaluate
Even when a death causes no new considerations for the surviving spouse, personal finances can still be a jigsaw puzzle difficult to fit together. Dealing with the death of a spouse can be overwhelming by itself but generally there is no need to make urgent money decisions.
Think Logically About Priorities
What does your financial plan look like? Re-evaluate what you value, what’s important to you, the purpose of your money. You might change your goals or timelines for what you and your deceased spouse planned. You might also reconsider how and where you want to live. This reset of your goals and how you want to deploy your money also helps you think of what-if scenarios to identify where you enjoy financial flexibility or where your long-term planning has stress points.
Analyze Cash Flow
Address changes to your income and budget before you consider more complex investment, insurance and tax issues. One needs to understand changes to their Social Security income and possibly survivor pension payments and if either relate to expenses. With month-to-month basics understood, you can then explore rules for inheriting investment accounts or insurance proceeds, and how to put these resources to work smartly.
Review your Investment Strategy
Maybe your investment objective differs enough going forward that you must revise investments to fit your new plan.
Even though one might feel they have a good handle on their finances, many may benefit from the help of professional advisors.
Maximize your employment benefits!
Open enrollment for employee benefits kicks off this month. While you plan your Thanksgiving menu, review your benefit choices.
Here are some pointers:
Even if you carry the same plan as in many past years, spend a few minutes evaluating which one is best for you and your family when you choose – especially high-deductible health plans and traditional plans. Switching from the traditional plan to a high-deductible option might save money if you don’t visit the doctor much. Perhaps too your spouse’s company now offers a better plan and you can switch the family coverage to the better alternative.
Improved employer plan descriptions lay out plans’ differences and costs, and do that much better this year. Take advantage of their free help, online or in person.
Often you receive only one choice for dental coverage, but you may be surprised at how many people decline to pay the relatively small premium for this coverage. Even if young and cavity-free, you take care of your teeth now to potentially prevent large dental bills in retirement. If nothing else, dental insurance provides a teeth cleaning twice a year.
This benefit works great if you wear glasses or contacts and need regular eye exams. Those with perfect vision may opt out of this coverage.
Most employers offer some basic life insurance, the coverage usually a multiple of your salary. If you are married, own a home or have kids, this basic coverage falls short. Pay extra if possible to increase life coverage through your employer. If that’s not an option, consider supplementing this minimal coverage with a term policy. These policies come with set duration limits on coverage and you decide whether to renew once the policy expires. Remember that whatever life coverage your employer pays for vanishes if you leave that company.
Standard coverage in this category usually pays 60% to 66% of your compensation if you become disabled and unable to work. As this coverage often comes with a cap, if you are highly compensated, this insurance might also fall short to sustain your standard of living. Estimate your minimum to live on if you become unable to work and, if that number scares you, purchase a supplemental policy.
This pays for assisted living, a nursing home or in-home care late in your life. Even as our lifespans increase, long-term care premiums escalate. If your employer offers any coverage at a relatively inexpensive group rate, lock in some protection. Many advisors will recommend LTCI when you turn age 50 – but getting it while you are young and healthy under an employer plan may still make sense.
Flexible Spending Account
This savings account reduces your taxable income and funds medical co-pays, orthodontist appointments and prescription drug orders, among other expenses. Figure your out-of-pocket medical costs and sign up to set aside that amount, up to $2,750 for 2020, pre-tax in an FSA. Each working spouse can do one. Remember that if you participate in an HDHP, you maintain a related health savings account and can only take advantage of a limited FSA.
Either way, pay for the most of out-of-pocket medical costs with pre-tax dollars.
Dependent Care Flexible Spending Account
If you pay for day care, after-school programs or summer day camps for children under age 13 or for elder care for a dependent parent, DCAs help you offset that cost with pre-tax dollars. Again, a working couple can set aside up to $5,000 from paychecks.
If your company offers this and pays in whole or in part for public transportation passes, ride-sharing or other options, reconsider your routes to work.
Advisors see this wide-ranging employee benefit more and more, from simple mental-health hotlines to complete menus of services.
For instance, if you lack a will, many companies now offer reduced-rate or even complimentary legal services to establish your basic estate planning documents.
If you have questions about your benefits, talk to someone in Human Resources. The point is, make sure you review your benefits. Your future self will thank you.
Be careful of the “lump sum illusion” and talk to your financial advisor
The last few years have not been kind to General Electric – the once invincible, well-known blue-chip company that was one of the most widely held stocks for decades.
Consider the last three years:
- For the year ending 2017, General Electric was the worst-performing stock in the Dow Jones Industrial Average, losing about half of its value.
- For the year ending 2018, GE would have been the worst DJIA performer again, but mid-way through the year, GE got kicked out of the DJIA-club (GE lost about 56% in 2018, by the way).
- A few months later after getting kicked out of the 30-company DJIA, GE’s CEO got the boot.
GE Freezes Pensions
Then on Monday, October 7, 2019, GE announced plans to freeze pension benefits for about 20,000 employees in an attempt to shrink its pension deficit and shore up its balance sheet. Further, GE is “offering a limited time lump-sum payment option to approximately 100,000 eligible former employees who have not started their monthly U.S. GE Pension Plan payments.”
What to Know About Lump Sums
A lot of companies have made changes to their pensions, including plan terminations, plan freezes for employees, and changes to the formula by which pension benefits are calculated. In fact, GE is joined by a growing list of companies making changes to their pensions, including UPS, L.L. Bean, the Boston Red Sox, the Washington Post, Boeing, General Motors, American Airlines, and Bank of America, to name a few. Should you object to a wad of retirement cash all at once? Here are a few things to consider before you opt for that lump sum.
The Lump Sum Illusion
In a recent podcast, Olivia Mitchell, executive director of the Pension Research Council and professor at Wharton talks about what she calls the “lump-sum illusion.” She told her listeners that, “Somebody who gets a lump sum of say, $100,000, might think they are suddenly rich, but that money doesn’t go very far. Based on annuity estimates, a $100,000 payment would provide a monthly income of $560 for a 65-year-old male, and $530 for a female, because women live longer than men.” Mitchell then adds, “But a lump-sum payment could help many older people who are entering retirement with far more debt than they did in the past. Baby boomers are getting into retirement not having paid off their mortgages, and not having paid off their credit cards. A lump sum in such cases could really help older people pay off their debt and move into retirement less exposed to interest rate fluctuations.”
Lump sums might make sense if you expect to die soon without a surviving spouse who will need lifetime income. They might also make sense if you already have another secure source of retirement income or are trained in handling such amounts of money at once. In many other cases, however, accepting a lump sum payout rather than income from a pension may significantly affect your retirement funding unless you take proper steps.
Regarding taxes, for instance, if you receive a lump-sum distribution and were born before January 2, 1936, you may qualify to elect optional methods of figuring, reducing or deferring tax on the distribution, according to the Internal Revenue Service.
Among other tips for you to consider:
- Take your time. You can’t reverse your decision to take the lump sum.
- Lump payouts may not include subsidized benefits that some employers offer as an incentive for early retirement.
And most importantly:
- As you might after any large windfall, plan your decision with your financial advisor.
Three tips so that your financial plan can account for retirement travel
Thomas Cook, the 178-year-old British travel company, declared bankruptcy on September 23rd, suspending operations and stranding 600,000 tourists around the world.
The travel company employed approximately 20,000 people, operated its own airline, and was listed on both the London Stock Exchange and the Frankfurt Stock Exchange.
If you’re like most people who think about retirement, you probably imagine traveling in your golden years. But before you browse those travel websites and whip out the credit card to buy your ticket, make sure your financial plan accommodates for your retirement travel – and that includes some emergency funds too.
Because of those 600,000 stranded Thomas Cook clients and the 20,000 Thomas Cook employees, think of how many were either in retirement or real close to retirement.
Travel on Your Bucket List?
What’s at the top of your retirement bucket list? If you are like most folks thinking about retirement, travel is high on the list. But consider that as you travel, you will find that your bucket list does not grow smaller – it expands as new possibilities entice. And while certainly some people do experience years of unlimited and unfettered retirement travel, many more don’t find it so easy. Doing “what you want, when you want, with whom you want,” assumes three things we often take for granted: good health, adequate finances and meaningful relationships.
Invest in Your Health
When it comes to travel, good health may not be essential, but it makes your experience more fulfilling and enjoyable. Of course, we aren’t typically in either good or poor health, but fall somewhere on a continuum. With limited mobility, you may be able to shop at the bazaar in Istanbul, but chances are you won’t hike the Grand Canyon or explore the Acropolis.
Like most things, good health typically requires a conscious intention to create and maintain it. Someone who says, “when I retire I’ll have the time and money to take better care of myself,” may be in for a surprise.
Most people who chose not to take care of their health before retirement won’t do so in retirement. As one retired person might tell you, “if you didn’t have the energy to work out when you were young, you sure won’t have it when you retire.”
And you can’t bank on your spouse’s health staying good enough to share your travel adventures. Even if you’ve taken care of yourself, your significant other may be unable to travel. Instead of strolling a beach in the Bahamas, you could end up at home as a caretaker.
Money and the 80% Rule
On average, baby boomers have saved about $150,000 for retirement. That won’t pay for many around-the-world cruises. If you want to travel after you retire, you need a serious commitment during your working years to invest as much as you can.
Saving for retirement is critical, because your expenses in retirement can be significant. Consider that the average retiree spends $4,300 each year on out-of-pocket healthcare costs, according to a study from the Center for Retirement Research at Boston College. And that figure does not include long-term care.
Many financial planners suggest you think about the 80% rule: take your annual income today, and assume you will spend about 80% of that income in retirement. So, for example, if your pre-retirement income is $100,000, plan on spending $80,000 in retirement every year.
If you spend your career working 80-hour weeks, you may accumulate enough assets to fund plenty of retirement travel, but by then you may be traveling alone. Saving for the future is out of balance if it’s done at the expense of enjoying life and close relationships today – especially your marriage.
Did you know that over the past 25 years, the divorce rate of couples over the age of 50 – often called the gray divorce – rose 109% according to Pew Research? For comparison, the divorce rate among couples 25 to 39 years old decreased 21%.
There are a lot of theories about what is driving this trend, but when 50- or 60-year olds divorce, their assets are divided and the respective expenses of each are usually closer to what the combined expenses were as a couple. In other words, same expenses, half the assets. So, just as you invest in your health and your retirement plan today, invest in your relationships now too.
Think About This
If travel is one of your dreams, why not do some of it now? Use your vacation time while you can enjoy yourself. Take that motorcycle trip through Europe or go scuba diving in Belize while you’re in top shape. Do the international travel now when you can better negotiate airports, handle travel delays, and power through jet lag.
To save on expenses, plan ahead, use a credit card that awards frequent flyer miles (which you pay off monthly), and use cost-saving options like home swaps and off-season travel. Then, after you retire, when you need more access to medical care and less demanding travel, you can stay closer to home and enjoy the opportunities in your own back yard.
Your Financial Advisor
What a lot of people don’t understand about financial advisors is that we are not there solely to plan your financial future. We are at your side today to help you make yourself better.
We can not only help you make sound financial decisions but also help you think through different dreams and what it takes to achieve those dreams. It can be much easier to achieve your dreams if you have a plan that helps you get there.
Special Needs Require Special Planning
Make sure you protect against disqualifying an individual for services
The most effective way to provide a great life for your loved one with special needs is to access both public and private resources. Unlocking this money from public resources often starts with asking the right questions.
Almost 50 million Americans – that’s one in six of the entire U.S. population – live with a disability, according to the latest figures from the U.S. Census Bureau. In recent years, the federal government spent almost $260 billion annually on programs for working people with disabilities. Individual state and other local governments kick in millions more for all levels of special needs.
Still, you need every advantage you can get when advocating for a loved one or other individual with special needs. Service providers continue to struggle with limited budgets and high staff turnover.
The best way to identify and obtain monetary benefits or services such as housing or employment support, therapies or respite care: Go directly to the gateway to those services while you gather information from other families or agencies regarding the specific service you want.
First, identify and connect with your state agency that serves the needs of the individual based on his or her disability and visit the website to become familiar with the services they provide to see if the agency is appropriate. This is often the gateway to access services and support.
Since funding is based on state budget appropriations, even if the individual qualifies for services based on eligibility, there may not be sufficient funds to fully serve lifetime needs.
Advocate, Advocate, Advocate
Three pointers for advocating:
- When you apply for services, the gatekeeper staff (those who control access to the benefits you seek) can give you an overview of the process. If he or she doesn’t, ask for one – and realize that you still may not get all your answers.
- The process may look intimidating, so it’s important that you connect with a parent or advocacy group.
- Try to get objective input regarding these groups, even if you pay for the information. If the group you contact does not provide specific services, the members or staff can likely tell you about other options in your region.
Other parents often share what they did to obtain services. Learning about advocacy activities can not only help your family and the individual with special needs but can also ultimately advance overall availability of services.
- Parents and trustees must protect against potentially disqualifying an individual for services beneficiary. The right questions help. For example, ask if state programs offered are legally mandated entitlements or elective benefits.
- How do I obtain the service after the individual becomes eligible?
- How long is the application period? (An entitlement may be available for your family member but the state may take six months to complete all steps in the application process.)
- If the individual is an adult, for prioritization does the agency look at his or her income alone or at all family income? (There is typically a difference for individuals older than 18.)
- What factors determine priority for services? Ask for a copy of the determination policy.
- Does the eligibility process complete the application or does a second process determine needs and priority for funding?
- Are eligibility and needs determinations completed together or do you wait more for determination of need?
- What’s the priority for funding (need alone, income or both, for example)?
- Are there waiting lists if the service is not an entitlement?
- What’s the current wait for a specific service or support?
- If there is a wait, can the staff recommend other, potentially quicker options? (Make any urgent need clear to your application’s manager.)
More Important Questions
Other important questions:
- What can my family do to advance the individual as a priority for services?
- Do contracted providers or different state offices provide services?
- Do I have a choice of providers? (If so, ask for a list of potential providers.)
- If the individual is determined ineligible, what’s the appeals process and how can you obtain a copy of the necessary forms?
- If these services depend on funding, how much funding is available this year?
- When does that funding get appropriated?
- How can you help advocate for more resources for this service?
Special Needs, Special Planning
Working with a qualified financial planner who is knowledgeable in special needs planning will help guide you to maximize and protect your own private resources while planning for two generations.