John S. Grande, CFP

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The folk music trio Peter, Paul, and Mary sang a song back in the '60s, "The Times They Are A- Changin." If you don't believe they are, and you are aged more than 40 years, consider the technologic  prowess that young people have today. My 14-yearold grandson, Matthew (whom I consider a  genius-although I may be biased), is so far ahead of me technologically that often I'm not even sure I  know what he's talking about. He has certainly grounded me in the technologic chasm that exists  between me and his generation. (In my defense, however, his college plans do include MIT.)  

So, what does this have to do with your future financial independence? Everything! The rules of  investing have changed, and the old approach of "buy and hold" may not be enough to achieve goals.  Though there's still a place for this time-tested method within your portfolio, our experience indicates that it must be complemented by and coordinated with other more sophisticated investment strategies.  If you are frustrated and even stressed by watching your portfolio zig-zag for the past 10 years,  reaching new highs and then back to new lows and winding up back where you started, then it may be  time to look at an updated approach that's potentially better suited for the times.  

Profound geopolitical, economic, and technologic shifts are reshaping the world's industries, governments, and consumers.  Have you noticed the rising correlation between world events and your  portfolio statement values? One example of a geopolitical shift is that in 1960 the United States  represented 39% of global gross domestic product, but in 2009 it accounted for just 24%. (Source:  Central Park Group) 

The average investor is struggling and needs to find ways to adapt to the pace and complexity of these  accelerating changes. Many individual investor portfolios reflect conventional stock and bond  allocations, heavily weighted toward long-only portfolios of publicly traded securities with limited (if  any) exposure to alternative investments: commodities, currencies, hedge funds, structured products,  private equity, and opportunistic credit funds. Most investors' returns tend to be measured on a relative  basis against a narrow group of benchmarks.  

But, did you know that today there are investment managers with global operations that trade 24/7 all around the world? And, they do this at lightning  speed in markets so complex that the average individual investor could not hope to compete. Unprecedented global change seems to be the catalyst  for opportunities that investors must begin to position their portfolios to capitalize on po- tentially in  order to achieve their goals in this new world of investing. 

Articles

Based on our experience over the years, we believe the rules of investing and planning for retirement that one can feel confident in have changed forever.

Investing enters new world order

Take-home message: When choosing a retirement plan that is right for your practice, conduct a thorough review of available options.

 John J., John S., Traudy F. Grande, CFPs and the Wells Fargo Advisors

If you own a small business (such as a medical practice), many retirement plan alternatives are available to assist you and your eligible employees with retirement planning.

For most closely held business owners, a Simplified Employee Pension Individual Retirement Account (SEP IRA) was once the most cost-effective choice. Then, the Savings Incentive Match Plan for Employees (SIMPLE IRA) became a viable alternative.

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Today, you may find that a defined benefit or 401(k) plan best suits most needs. To make an informed decision on which plan is right for your practice, review the differences carefully before choosing.

Simplified Employee Pension Individual Retirement Account (SEP IRA)

This plan is flexible, easy to set up, and has low administrative costs. An employer signs a plan adoption agreement, and IRAs are set up for each eligible employee. When choosing this plan, keep in mind that it does not allow employees to save through payroll deductions, and contributions are immediately 100% vested.

The maximum an employer can contribute each year is 25% of an employee’s eligible compensation, up to a maximum of $265,000 for 2015. However, the contribution for any individual cannot exceed $53,000 in 2015.

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Employer contributions are discretionary and may vary from year-to-year. With this plan, the same formula must be used to calculate the contribution amount for all eligible employees, including owners. Eligible employees include those who are age 21 and older and those employed (both part time and full time) for 3 of the past 5 years.

Savings Incentive Match Plan for Employees (SIMPLE)

If you want a plan that encourages employees to save for retirement, a SIMPLE IRA might be the appropriate option. In order to select this plan, a practice must have 100 or fewer eligible employees, who earned $5,000 or more in compensation in the preceding year and have no other employer-sponsored retirement plans to which contributions were made or accrued during that calendar year.

There are no annual IRS fillings or complex paperwork, and employer contributions are tax deductible for your practice. The plan encourages employees to save for retirement through payroll deductions; contributions are immediately 100% vested.

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The maximum salary deferral limit to a SIMPLE IRA plan cannot exceed $12,500 for 2015. If an employee is age 50 or older before Dec. 31, then an additional catch-up contribution of $3,000 is permitted.

Each year, the employer must decide to do either a matching contribution (the lesser of the employee’s salary deferral or 3% of the employee’s compensation) or non-matching contribution of 2% of an employee’s compensation (limited to $265,000 for 2015). All participants in the plan must be notified of the employer’s decision.

This type of plan helps build savings quickly. It produces a much larger tax-deductible contribution for the practice than a defined contribution plan. However, annual employer contributions are mandatory since each participant is promised a monthly benefit at retirement age.

Since this plan is more complex to administer, the services of an enrolled actuary are required. All plan assets must be held in a pool, and employees cannot direct their investments.

Certain factors affect an employer’s contribution for a plan, such as current value of the plan assets, the ages of employees, date of hire, and compensation. A participating employee with a large projected benefit and only a few years until normal retirement age generates a large contribution because there is little time to accumulate the necessary value. The maximum annual benefit at retirement is the lesser of 100% of the employee’s compensation or $210,000 per year in 2015 (indexed for inflation).

This plan may be right for your practice if you want to motivate your employees to save toward retirement and give them a way to share in the practice’s profitability. 401(k) plans are best suited for companies seeking flexible contribution methods.

When choosing this plan type, keep in mind that the employee and employer have the ability to make contributions. The maximum salary deferral limit for a 401(k) plan is $18,000 for 2015. If an employee is age 50 or older before Dec. 31, then an additional catch-up contribution of $6,000 is permitted.

The maximum amount the employer can contribute is 25% of the eligible employee’s total compensation (capped at $265,000 for 2015). Individual allocations for each employee cannot exceed the lesser of 100% of compensation or $53,000 in 2015.

The allocation of employer profit-sharing contributions can be skewed to favor older employees, if using age-weighted and new comparability features. Generally, IRS Forms 5500 and 5500-EZ (along with applicable schedules) must be filed each year.

Once you have reviewed the goals and objectives of the practice, physicians should check with their financial advisors to evaluate the best retirement plan option for their financial situation.

John J., John S., and Traudy F. Grande, CFPs, are the editors of the 

 column. They are owners and principals of Grande Financial Services Inc. and registered principals of Wells Fargo & Co., member of SIPC. The Grandes advise physicians across the country on a diverse range of investment and financial matters. Readers may submit their financial questions to them at 800/722-1258, online at 

Wells Fargo Advisors and its Financial Advisors provide non-fiduciary services only. They do not provide investment advice [as defined under the Employee Retirement Income Security Act of 1974 as amended (“ERISA”)], have any discretionary authority with respect to the plan, make any investment or other decisions on behalf of the plan, or otherwise take any action that would make them fiduciaries to the plan under ERISA.

Wells Fargo Advisors does not provide legal or tax advice. Be sure to consult with your tax and legal advisors before taking any action that could have tax consequences.

Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE.

Wells Fargo Advisors Financial Network, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company Investment products and services are offered through Wells Fargo Advisors Financial Network.

If you own a small business (such as a medical practice), many retirement plan alternatives are available to assist you and your eligible employees with retirement planning. To make an informed decision on which plan is right for your practice, review the differences carefully before choosing.

Which retirement plan is right for your practice?

	While many put off estate planning because it can be difficult, there are several tips one can follow that can make the process less stressful.

John J. Grande, Traudy F. Grande, and John S. Grande

 By John J. Grande, CFP; Traudy F. Grande, CFP; and John S. Grande, CFP

	When it comes to estate planning, procrastinating is easy. The task of getting one’s financial house in order can seem daunting and the topic uncomfortable. In fact, while the majority of Americans believe that all adults should have an estate plan, only 44% have actually created one, according to a 2011 LexisNexis survey.

	Unplanned estates may be left to wind their way through probate court, leaving state law to determine the disposition of your assets.

	“The time to devise an estate plan is now, if you haven’t already,” says John Padberg, vice president of Life Event Services and Estate Planning for Wells Fargo Advisors.

	Many people equate estate plans with wills, he said, but a well-thought-out structure involves much more.

	There are many tools-such as living trusts and financial and health-care powers of attorney-that can help trusted professionals and family members manage your affairs if you cannot.

	Planning does not need to be stressful, and the results often confer the comfort of knowing assets will be distributed in an orderly way.

	Padberg offered five steps to help create an estate plan to accomplish that goal:

1 Work with experienced estate-planning attorney

	It takes specialized expertise to create a plan that includes all the necessary elements and meets specific needs. A solid estate plan will likely consist of several documents, which may include the following:

	·      A will, which states how individually owned assets are to be distributed upon death.

	·      A living will, which communicates your wishes regarding life-prolonging medical treatments.

	·      Powers of attorney, which designate another individual to handle financial or health-care matters if you are incapacitated.

	·      Revocable trusts, which can be useful in avoiding the probate process in states where probate is burdensome, and can be altered or canceled according to your wishes.

	Creating a well-designed plan will require input from both an attorney and a financial advisor.

	Your financial advisor may be able provide some options for legal assistance, if you do not yet have an estate planning attorney.

	“You want to make sure your estate planning attorney’s skill level is commensurate with the complexity of your plan,” Padberg said.

	Before drafting an estate plan, ask a financial advisor to prepare a financial net worth statement. This will give a clear sense of what you are working with.

	Also, review the beneficiaries listed on critical documents, such as life insurance policies and retirement plans. Beneficiary designations determine how those assets will be distributed, Padberg cautioned, so you want the named beneficiaries to reflect-and not undermine-your intentions.

	An estate plan is also an opportunity to direct how wealth will be passed on to the next generation.

	“You want to think as much about how you want to pass your assets-outright to your heirs or distributed through a trust-as you do the amount that each person should get,” Padberg said.

	For instance, leaving a large sum to a child or young adult may create long-term issues if the child lacks the skills or maturity to manage such a windfall. Ask a financial advisor about trusts that might be established to control the distribution of inherited funds.

	To bequeath money to a charity, ask a financial advisor and estate planning attorney about the many charitable giving strategies that are available. He or she can offer guidance on choosing the technique that best fits your philanthropic goals.

	Under the fiscal cliff agreement enacted in early 2013, individual estates worth $5.25 million or less-and double that amount for married couple -can avoid federal estate taxes.

	Amounts that exceed the exclusion amount are taxed at a rate of 40%.

	Work with a financial advisor to determine current estate tax liability and project any future liability. Consider the impact those taxes might have on how you wish to pass assets on to the family.

	“The planning will be different-and more sophisticated-if you’re planning for a tax bill,” Padberg said.

	Life is about change, so it’s crucial to make sure instructions are always current.

	That means updating your estate plan whenever you experience a major life event, such as a new baby, a marriage, or a divorce. Otherwise, not only will the plan fail to contemplate new circumstances the way you want, but it could also increase the potential for outside challenges, such as those from disgruntled family members.

	Ambiguity and conflicts about intentions could have a disastrous impact on the family, Padberg noted, so preventing them is typically well worth the investment of time and money.

	“If you don’t have a comprehensive estate plan in place, you’re leaving it to state law and the courts to decide your legacy for you,” he said.

	1. EZLaw survey finds most Americans recognize the importance of a will or estate planning, yet few have necessary documents in place. LexisNexis, 19 July 2011, 

https://www.lexisnexis.com/media/press-release.aspx?id=1311095221427043

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While many put off estate planning because it can be difficult, there are several tips one can follow that can make the process less stressful.

5 steps to help create an estate plan

This realization of no longer being able to rely on earned income is compounded by numerous other risks an individual will face leading up to and during retirement. 

Given the uncertainty of world economies and the increased volatility in world stocks and bonds, 

are near the top of the concern list. The impact of increased volatility is amplified as one approaches and then enters retirement. It is difficult enough for someone with a long-time horizon to see his or her savings decrease in market downturns, but it can be outright devastating for an individual close to or in retirement. The sustainability of his or her portfolio could be in question depending on the degree and timing of negative market returns. 

Couple the aforementioned risks with unknown risks, such as premature death of a spouse, long-term care needs, and disability, and it is no wonder individuals have concerns about the prospects of their retirement years. 

The reliable income can be counted on and should support the majority of your Needs. Using our example from above, the Income Needs are $60,000 and the Reliable Income is $45,000. There is a shortfall of $15,000. 

The goal is to have as much of your income needs satisfied with reliable income as possible. 

This way, you are not relying on market performance and investment assets to meet your most essential retirement expenses. Since this is not always possible, any shortfall will need to be made up using income derived from investments. 

When meeting with pre-retirees as well as current retirees, one of the most common areas of concern, apprehension, and (at times) outright fear, is whether they will run out of money during retirement.

John S. Grande, CFP

Articles

Which retirement plan is right for your practice?

5 steps to help create an estate plan

Piecing together your retirement puzzle

Investing enters new world order