As overall longevity increases, outliving retirement resources is more likely than in the past, making retirement planning more important than ever
As overall longevity increases, outliving retirement resources is more likely than in the past, making retirement planning more important than ever.
And yet it probably comes as no surprise that retirement planning is woefully neglected, even though many individuals identify it as their No. 1 personal finance goal.
Forty percent of employees in the private sector don't have access to a retirement plan at work. Among those who work at companies with fewer than 100 employees, the number jumps to 55%.
Fortunately, there is something that can be done. Tax and wealth management advisers with a keen knowledge of retirement planning have an opportunity to address retirement planning inertia, strengthen client relationships and build their practice.
There are many reasons why small-business owners don't establish retirement plans. Although many employees view retirement plans as an important benefit that their employer should offer, the recent economic downturn has made it hard for some employers to justify what they perceive as the tremendous costs involved in setting up and maintaining employer-sponsored retirement plans.
PLANS OFFER BENEFITS
By helping them better understand retirement planning, advisers can help show employers that not all retirement plans are expensive. Retirement plans contribute to company growth and enhance employee retention, while providing for financial security during retirement for employees and employers.
As an additional bonus, both the employer and employees receive significant tax advantages.
For example, a SEP or Simple individual retirement account plan doesn't have the cost of administration that applies to defined-contribution plans such as a 401(k) plan. There are some DC retirement platforms that cost less than $1,000 a year for companies with fewer than 10 employees.
Here are some benefits of employer-sponsored plans that you should highlight for clients who own businesses:
• Employer contributions are tax-deductible.
• Businesses can receive tax credits and other incentives for starting a plan.
• Through attracting and retaining better employees, new employee training costs are reduced.
Here are some benefits to em-ployers and employees:
• Tax on employee contributions is deferred until distributed.
• Investment gains in the plan aren't taxed until distributed.
• Assets in the plan grow tax-free.
• Assets grow with compounding interest.
• Contributions can be made easily through payroll deductions.
• Retirement assets can be carried from one employer to another.
• Financial security of retirees is enhanced.
DOLLAR COST AVERAGING
With recent volatility in the stock market, it actually may be a good time to start an employer-sponsored retirement plan because of dollar cost averaging. By allowing in-vestors to purchase additional shares when the market is down, dollar cost averaging adds investment discipline and can help smooth out the effects of volatility in a person's portfolio.
The bottom line is that using dollar cost averaging may be the best option for a person when setting up and contributing to a retirement plan.
With your knowledge of the tax laws on qualified plans, recommending company-sponsored retirement plans is a wealth management subject at which you can excel.
By communicating with your clients and applying your knowledge of their goals and their company's needs, you can add value by helping them implement a suitable retirement plan solution. Speak to your small-business-owner clients about how a company-sponsored retirement plan can be an important piece of their overall wealth management plan.
Carol Dogans is director of retirement planning for 1st Global Corp.
