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- 1. Ameriprise Financial is the umbrella marketing name used by two separate and distinct broker-dealers of Ameriprise Financial, Inc.: Ameriprise Advisor Services, Inc. and Ameriprise Financial Services, Inc. Investments and financial advisory services are offered through Ameriprise Advisor Services, Inc., member NYSE/FINRA/SIPC, which is not affiliated with H&R Block, Inc. or any of its affiliates. Investments and financial planning services are offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC. Some products and services described may not be available in all jurisdictions or to all clients . © 2009 Ameriprise Financial, Inc. All rights reserved.
- 5. Ameriprise Financial and its representatives or affiliates do not provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax/legal issues.
- 6. CREATING YOUR NEW PERSPECTIVE
- 7. SETTING FINANCIAL GOALS Buy a new home Retire with financial security . Have enough cash to cover unexpected events. Minimize my taxes Take care of my family if I am injured or worse. . Dreams Concerns
- 8. A NEW PERSPECTIVE ON YOUR FINANCES
- 9. A NEW PERSPECTIVE ON YOUR FINANCES Cash to cover unexpected events. Minimize my taxes. Retire with financial security. Take care of my family if I am injured or worse.
- 10. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor. Ameriprise Financial and its subsidiaries do not give legal or tax advice. Please seek the advice of professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice, or other content. Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC. © 2009 Ameriprise Financial, Inc. All rights reserved.
- 20. MAKING A RETIREMENT PLAN DECISION Is it time to do something with your retirement plan?
- 29. WHERE CAN YOU GO FROM HERE? Your meeting with an Ameriprise financial advisor will include a review of your existing financial situation and potential opportunities, gaps, or general strategies. You will not receive an extensive review or financial advisory services for which fees are charged. Attend another workshop: Learn more about the individual cornerstones. Meet with a financial advisor for your own personal New Perspective review.
- 30. Ameriprise Financial is the umbrella marketing name used by two separate and distinct broker-dealers of Ameriprise Financial, Inc.: Ameriprise Advisor Services, Inc. and Ameriprise Financial Services, Inc. Investments and financial advisory services are offered through Ameriprise Advisor Services, Inc., member NYSE/FINRA/SIPC, which is not affiliated with H&R Block, Inc. or any of its affiliates. Investments and financial planning services are offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC. Some products and services described may not be available in all jurisdictions or to all clients . Past performance is no guarantee of future results. Neither Ameriprise Financial nor its affiliates or representatives may provide tax or legal advice. Always consult with your tax advisor or attorney concerning your situation. © 2009 Ameriprise Financial, Inc. All rights reserved.
Notas do Editor
- Script: [AFSI – Ameriprise Advisor Services, Inc. has a unique business relationship with H&R Block, which can help us provide you with a unique tax perspective on your overall financial picture. Investments and financial advisory services are offered through Ameriprise Advisor Service, Inc. Member NYSE/FINRA/SIPC, a registered broker dealer, registered investment advisor and subsidiary of Ameriprise Financial, Inc. Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S. federal, state or local tax penalties. This material is not intended to provide tax, accounting or legal advice.] As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice. Is the drum beat about the bad economy getting old? The media have confronted us with everything from speculation to economic science in an attempt to explain the situation. Yet what seems missing from all this chatter is any clear direction about the future and where we can go from here. What response is the right response? As individuals what do we do now? While there is no one answer for everyone. I can show you a process that will help you develop a New Perspective . A perspective to help you take action– now and in the future. Before we get started on that process however, let me set some historic context. No economic down turn has lasted forever. The Great Depression did not last forever, the recession during the 70’s did not last forever, and there was life after the technology bubble burst in the late 90’s. I have no way to predict the future, but I have a strong hunch that the current state of affairs will not last forever either. Fact: markets and the economy go through cycles, recessions and bear markets. During the 1970s, stocks had a poor track record and inflation was pushing double-digit levels. In 1979 Business Week magazine ran a famous cover story in called “The Death of Equities.” What happened? They came to life. Based on internal Ameriprise calculations, from 1980 to 1999, as measured by the S&P 500, stocks returned an average of 17.9% per year. The point is that the market does change it will go down and it will go up. A few years ago – when the market was cooperating and our homes were worth more than we ever thought possible – our goals and dreams seemed to be within easy reach. But times have changed and reaching our goals may not appear so easy. For many of us, this has been not just a test of our financial bottom line, but a test of our emotions. Key points to address: The media is full of information about the economy and how we got into our current state. What’s missing is information on where we can go from here.
- [NOTE – This description is for AFSI Advisors. AASI Advisors please use the text on the following page.] A piece of good news is that Ameriprise Financial has remained strong and stable through many these economic tests. Even during the Great Depression, our firm never made a single late payment. Unlike many of the companies you’ve read about in the news, Ameriprise Financial has excess capital on hand. For 114 years – through all kinds of economic and market cycles -- our clients have been served well by a diversified business model, a robust risk management processes and a conservative approach to managing the company’s assets. Ameriprise Financial believes that trust is earned in large part by how we help our clients plan for their futures. We take this responsibility very seriously and work tirelessly to help protect and grow our clients’ assets. Today our asset quality remains solid. Our credit ratings are strong. Also, we maintain modest financial leverage, meaning our levels of debt are reasonable and manageable. Making a decision to do business with Ameriprise, is making the decision to work with a company that has a long and stable history. Now that you have some background on the company, I’d like to take a minute to tell you a little bit about me and the commitment I have to my clients. My name is [name] and I’m a [primary title] with [Ameriprise Financial, Inc / Ameriprise Advisor Services, Inc.] . [DESCRIBE YOUR CREDENTIALS: DEGREES, DESIGNATIONS, LICENSES, YEARS OF EXPERIENCE, ETC.] One of the reasons I do what I do is because I feel I can make a real difference in the lives of my clients, especially during challenging times like these. No matter how the markets change, my clients’ goals and dreams don’t go away. I enjoy listening to my clients, understanding their feelings, needs, dreams and concerns, and helping them plan to achieve their goals. I believe that having a clear picture of where you want to go -- and an understanding of what it will take to get there -- makes getting there – even in challenging times -- all that much easier. So, why do I work for Ameriprise Financial? [Pause] Because I want to work with a strong, stable company that is committed to prudently safeguarding my clients’ goals and assets. Key points to address: Your biography and why you are a financial advisor. Why you work for Ameriprise Financial. Strength and stability of Ameriprise Financial. Long history of working with clients through all types of economic cycles.
- [NOTE – This description is for AASI Advisors. AFSI Advisors please use the text on the prior page.] It seems that many of you are feeling distrust toward the industry or [it seems that you are feeling good about the industry]. I’d like to take a minute to tell you a little bit about me and the company I work for. My name is [name] and I’m a [title] with Ameriprise Advisor Services. [DESCRIBE YOUR CREDENTIALS: DEGREES, DESIGNATIONS, LICENSES, YEARS OF EXPERIENCE, ETC.] One of the reasons I do what I do is because I feel that I can make a real difference in the lives of my clients, especially during challenging times like these. No matter how the markets change, my clients’ goals and dreams don’t go away. I enjoy listening to my clients, understanding their feelings, needs, dreams and concerns, and helping them plan to achieve their goals. I believe that having a clear picture of where you want to go -- and an understanding of what it will take to get there -- makes getting there – even in challenging times -- all that much easier. So, why do I work for Ameriprise Advisor Services, Inc.? We have joined Ameriprise Financial, a strong, stable company that is committed to prudently safeguarding our clients’ goals and dreams. For 114 years – through all kinds of economic and market cycles – Ameriprise Financial clients have been served well by a diversified business model, robust risk management processes and conservative approach to managing the company’s assets. Even during the Great Depression, Ameriprise Financial has never made a single late payment, and because of that, Ameriprise Financial continued to and help more people during those challenging times. Ameriprise Financial believes that trust and peace of mind are earned in large part by how we help our clients plan for their futures. We take this responsibility very seriously and work tirelessly to help protect and grow their assets. Today Ameriprise Financial’s asset quality remains solid. Their credit ratings are strong. Ameriprise Financial maintains modest financial leverage, meaning our levels of debt are reasonable and manageable. If you decide to do business with Ameriprise, you can feel confident in who they are as a company. Key points to address: Your biography and why you are a financial advisor. Why you work for Ameriprise Financial. Strength and stability of Ameriprise Financial. Long history of working with clients through all types of economic cycles.
- I feel it is critical that we ground our discussion today with a clear perspective on the current market environment. A clear understanding of where we are today can lead us confidently toward tomorrow. The information I will share with you is provided to me by experienced professionals at Ameriprise Financial. One of the things I value about the information I receive from Ameriprise is that it helps me keep my clients up-to-date and offers me a unique perspective on all aspects of my clients’ financial life – not just investments. I regularly receive bulletins and white papers on tax law changes, new legislation, and economic updates. Having the latest information supports my clients in making informed decisions about all aspects of their financial life. All the negative economic news may make you feel reaching your financial goals is futile. Here are the sort of remarks I hear: I have a lot less cash than I used to. I can’t afford to make mistakes. What should I do now? My goals seem out of reach. How can I invest for them in light of the current market? How can I improve my tax situation? I feel that I’ve lost a lot in the last year. I don’t know how I can afford to pay any more taxes. Is there anything I can do to avoid saying, “Should have, would have, could have”? Maybe you share some of the same sentiments? [AFSI: At this point in the presentation, please deliver the latest economic commentary, which can be found on the seminar page on AdvisorCompass ® or on ameriprise.com – David Joy’s Market Outlook AASI: please refer to the Economic Perspectives available through the Investment Research Resource Center] Key points to cover: Introduce value of Ameriprise information and technical expertise. Stress importance of understanding current economic realities. Deliver current market commentary. All the negative economic news may have you feeling powerless about reaching your goals, and full of questions. Review questions.
- Script: Let’s move beyond today’s realities, and focus on gaining a New Perspective on reaching your financial goals. This is the New Perspective framework we use to help clients take a fresh look at their financial lives – not just investments. If we focus on your entire financial, life which includes protection, taxes, cash and liabilities as well as investments; we create a solid understanding to help you gain control of your financial situation today, get back on track toward reaching your goals, protect yourself from setbacks, and maybe even find opportunities to jumpstart your saving and investing program. Here’s my approach. It’s pretty simple. It begins with common understanding. I want you to understand me and to feel comfortable asking questions if you need clarity. In order to accomplish that, I try to create a safe and comfortable learning environment. Finances can be riddled with emotion and confusion. So please, don’t hesitate to ask questions as we go along. I am here to talk with you, not at you. I want to understand you. Only when we are aligned am I able to recommend solutions that suit your needs. Alignment occurs when we have developed mutual understanding and respect. I strive for this with all my clients. I would appreciate your feedback. There is a comment card in your packet I’ll ask you to fill it out at the end of today’s workshop. It will give you an opportunity to provide your feedback on today’s presentation. If you like what you hear, if you have more questions or if you want to hear more, I would like to meet with you and / or invite you to another presentation. On your comment card, you can request an invitation to another event like today’s workshop, and request a one-to-one meeting with me to discuss your financial situation. If you indicate you are interested in meeting with me, either I [or my assistant] will give you a call to schedule an appointment. Are you ready to move ahead and gain a New Perspective together? This Key points to address: Cover ground rules: Safe environment, Mention New Perspe ctive, Discuss comment card Provide agenda: First we will get grounded in the current economic situation. Then we’ll take time to address your feelings about what’s happening today. Then we’ll do a check-in on your goals and dreams for the future. Finally, I’ll offer you a New Perspective – a framework that will help you look at all aspects of your financial life – not just investments – so you can get back on track toward reaching your goals.
- Script: So what steps are you taking to get your financial life in order given the relative chaos of the past year or two? Please take a look at your worksheet. [Hold up New Perspectives Seminar Worksheet.] I’d like to take you through an exercise that helps many of my clients think about their goals as they plan their financial future. We break this exercise out into two key areas that affect how you plan for your goals – your dreams and your concerns. Dreams are the things that you want – in essence, a vision of something you want to accomplish or a place you want your life to be at a later point in life. We show you a few examples here, such as buying a home or retiring with financial security. Concerns are those things that you want to make sure don’t become obstacles to the achievement of your goals. For instance, what would happen to your plans if you lost your job. You want to make sure you have cash reserves in place to help you meet your regular expenses. Most people want to minimize taxes. What if you should become disabled? You want to know that your family would be protected. Think about your dreams and key financial concerns and write down what you believe are the most important for your life. Keep in mind that some are harder to control - minimizing taxes, for example – and the costs associated with goals can vary as well. What I help my clients do is to take those goals and determine how we will analyze their status given current financial realities. Please take a moment to write down what you believe are the most important dreams and concerns for your life and write them down in section one of your worksheet. [ALLOW A COUPLE OF MINUTES FOR AUDIENCE TO COMPLETE WORKSHEET SECTION] This is an important part of the process that I undertake with my clients. I’m guessing that in just a couple of minutes, you could name some fairly critical dreams and concerns. Now let’s look at section 2. Can you map the dreams and concerns you just wrote down to each of the cornerstones? You see, your financial goals include both your dreams and concerns. Key points to cover: Review the example dreams and concerns. Have audience jot down dreams and concerns and map them to the cornerstones.
- Script: You have written down a number of goals so, the obvious question is, now what? Our approach, is a New Perspective review. When we conduct a New Perspective review with clients, we discuss their current situation and map opportunities / observations to the cornerstones. It’s a proven, efficient way to help get your financial house in order. It is a lot like when you move to a new house. Think about how daunting that task can be. You pack up all of your belongings into boxes, then, you have two options – you can either just drop all of the boxes in one pile and figure it out from there, or you can use labels and try to put the boxes in the room they belong. All of the dishes, silverware and pots and pans go into boxes marked “kitchen,” so when you get to the new house, that’s where those boxes go. It is a way to make order out of potential chaos. It’s the same with your financial picture today, and that’s what The New Perspective is all about, it’s about using a practical framework to regain a sense of control over your current reality and your financial future. Now that you’ve identified the “goal boxes” we need to take the next step. Let’s take a few minutes to map the goals you have just identified (your dreams and concerns from the previous exercise) to the four cornerstones. Key points to cover: Introduce worksheet exercise: map goals to New Perspective diagram.
- Script: How did that go? Sometimes people realize there are additional financial goals they need to consider. Once your dreams and concerns are identified and sorted into an appropriate place, finding potential solutions for each becomes easier. As you learn more, as you compare notes with your partner, as life changes, your perspective develops refinement. These elements together will reveal your perspective. This is a simple and effective way to visualize and take actions on your New Perspective . Key points to cover: Recap exercise. Begin transition to going deeper on each of the four cornerstones.
- [PRESENTER WALKS TO THE KNOWLEDGE SPOT, WHICH IS FRONT AND CENTER OF THE ROOM.] Now that we’ve covered the four cornerstones, I’d like to shift gears and focus on financial strategies that can help you prepare for or manage a job transition. [If Retail Retirement RVP or another speaker is presenting, introduce speaker at this point.] As you can imagine, a job change (especially an involuntary one) can impact all four of our financial cornerstones – cash flow, investments, taxes and even protection. So if you lose your job, or if you’re afraid you might, a New Perspective review is a great idea.
- There are many issues to consider when it comes to a job loss, but thinking about them in order of urgency may help make them more manageable. When you’re first out of work, you may wonder how you will meet your basic expenses. How long will your cash reserve last? How will you provide health coverage for your family? If you’re still unemployed after six months, other issues begin to surface. What happens if your cash reserves run low? Is your family protected if something happens to you? Is it time to do something with your retirement plan? And the worst-case scenario, if you’re out of work much longer than you anticipated, what will happen to your ability to meet long-term financial goals, like saving for education and retirement? Will you need to rethink your plans for the future? Many of the people I talk with have these kinds of concerns. The good news is: You can maintain control of your life through a job transition. My goal today is to help you see the places where you are well-prepared for a potential job transition, where your concerns lie, and where you might need some help. Does that sound good?
- When you first lose your job, your most important concerns are meeting your basic needs and making sure your family still has health coverage. If the money flowing into your household exceeds the money flowing out, you’ll be in good shape. If not, you may need to tap cash reserves. How confident are you that your cash flow needs would be met during a job transition? You’ll feel a lot more secure if you know how much money would be coming in each month and how much you would be paying out. Fortunately, the government has made it easier to afford health care by reducing the cost of COBRA benefits through the American Recovery and Reinvestment Act of 2009. You may also get coverage through a spouse’s plan. We’ll take a closer look at these areas using a hypothetical example. Meet Kay. Her employer laid off several people last week and word has it that more cuts are coming. Kay earns $80,000 a year. She’s 38 years old, married with one child and her spouse is self-employed. They own their own home. I have often heard it said that a new job can take an average of one month for every $10,000 in salary. If that is the case, it would mean that Kay can expect it to take about eight months to land a new job. She’ll need cash during that time to meet the family’s basic expenses, bills and other debts. She knows it’s important that she doesn’t miss these payments just because she’s out of work. What can she do to take care of her family and prepare for the prospect of losing her job?
- Although you may not be receiving a regular paycheck when you’re out of work, you may have money coming in from other sources, including: a severance package, unemployment benefits, a spouse or partner’s income, or part-time, temporary or freelance work. If you’ll be getting a severance , find out if it will be paid in a lump sum and, if so, decide how will you use that money or invest it. Taking it in payments over a period of time may help you manage your cash flow better. Once your severance runs out, you may be eligible for unemployment benefits . The emergency unemployment compensation program has been extended through December 31, 2009. This program provides workers who have exhausted their benefits with an additional 20 weeks of benefits. The compensation payments have also been increased by $25 through 2009. Perhaps you have a spouse or partner who has income. It may be possible to adjust their federal tax withholding amount to get a bigger paycheck. But make sure you don’t under-withhold or you could end up owing the IRS a penalty. Maybe you’ll take an interim or part-time job to earn extra income. This might also help you network and find out about job openings within a company. To find out if you’d have enough income to survive a job transition, we’ll have to look at the other side of the cash flow equation … your liabilities, or the money that flows out. In the early stages of unemployment, you can focus on the essentials: food and shelter, insurance costs, loans. What payments do you have to make every month in order to keep your family safe and stable and your credit solid? Take the time to lay out your liabilities next to your income and see where you come out. Do you think your income sources would outweigh your liabilities? If not, it’s time to look at the cushion: your cash reserve . How many of you would say you are at least somewhat prepared for a job transition with a cash reserve? In general, cash reserves should be set up in two parts totaling three to six months of your living expenses. Your primary reserves include checking, savings and money market accounts. All of these vehicles are highly liquid, meaning you can get your cash out with no delay. These are the accounts you use to pay your everyday bills. Your secondary reserves consist of money you may not need immediately but you don’t want locked up for the long term either. It’s there in case of an emergency and you can get to it relatively easily in vehicles such as short-term CDs. How big should your cash reserve be? Big enough to make up the difference between your money in and your money out for a minimum of six months.
- How do you feel about your ability to make ends meet if you were transitioning to a new career? Many of the people I talk to worry about the impact of changing careers on their long-term goals. But you can take control of your cash flow. It doesn’t mean ignoring your long-term goals, even if you need to down-shift for a period of time. Let’s go back and see where Kay is. Her husband is self-employed and has an unpredictable income stream, especially given the economy. If she were to lose her job, the income into their household would be just $4,500 per month, assuming her husband’s business is mediocre. Meanwhile, their household expenses would be about $5,500. Kay would need to tap her cash reserves but she wouldn’t want to wear them down too much. So, she’s decided to take two important steps: First, she’s recreating her budget by taking out unnecessary expenditures. She knows what’s a necessity and what’s not, and she’s cutting back now . This way she can shore up cash reserves just in case. Second, she’s determined not to increase debt. She’s prepared to contact her lenders to see if they can renegotiate if she is not able to make her payments. For example, her bank may allow her to make lower mortgage payments for a few months. If things get really tight, she may even consider debt consolidation, where she would pay off higher interest debts with a lower cost loan. Making your payments on time is essential to protect your credit rating. If you think you may run into trouble, the Consumer Credit Counseling Service can be a good resource.
- We’ve talked about money coming in and money going out, and some strategies for balancing the scales. Would you agree that this is really about protecting financial stability for you and your family during a challenging time? Most people have taken steps to protect their family in case of an unexpected event, like the cash reserve we spoke about. But what about health coverage? Most Americans get their health coverage from their employer. The good news is that, pursuant to the Consolidated Omnibus Reconciliation Act of 1985 (COBRA) you may continue your former employer's health insurance coverage for up to 18 months. Your employer is obligated to provide you with an election notice to enroll in COBRA coverage. You will have 60 days from the later of the date you are laid off or receive the election notice to enroll. Typically, you have to bear the cost of COBRA coverage. It’s probably more than you were paying when you were employed but less than the cost of private health insurance. The American Recovery and Reinvestment Act of 2009 (the ARRA) provides a COBRA premium reduction of 65% for eligible individuals for up to nine months. If you are involuntarily terminated from your job between September 1, 2008, and December 31, 2009, you may be eligible. A couple of caveats: There are no reductions on premiums paid before February 17, 2009, so if you’ve been paying for COBRA, you’re not entitled to reductions on premiums you paid before that date. Also, there are income limitations: In the year you receive the reduction, if you end up earning more than $145,000 (or $290,000 for joint filers), you’ll have to pay back all of it. If your income ends up between $125,000 and $145,000 (or $250,000 to $290,000 for joint filers), you’ll have to pay back some of it. Also, if you’re eligible for Medicare or group coverage through a spouse’s plan, you won’t be eligible for the premium reduction. So you should weigh the cost of a spouse’s plan against the COBRA coverage. It may be less expensive for your spouse to extend his or her medical benefits to cover you. Keep in mind, if you work for a small firm with less than 20 employees, you may not fall under COBRA. In that case, a spouse’s plan or private health insurance are generally your only options.
- Let’s revisit Kay. She’s heard that it could take six months or more to find a job. If that were to happen to her, her cash reserves would run low. She’s begun to think about the other ways she and her husband might bring in extra cash. Would they use the money in her husband’s last retirement plan? Would they tap into their longer-term cash holdings? Would there be ways they could reduce the taxes they’re paying? How could they earn more with the cash they have on hand? She’s also concerned that, if their resources become depleted, her family would really be in a tough spot if something were to happen to her or her husband. Her life and disability insurance coverage would likely be lost if she lost her job. And, she knows she would really need to start thinking about her retirement plan if she were out of work for six months. Even though she could leave it with her former employer, she would want to take greater control over it after a period of time.
- We’ll start with the “paycheck” Kay thinks she can create for her family. After six months, she figures her severance would have run out and she’d be collecting unemployment. Her husband’s business would hopefully be steady but potentially slow. She plans out what additional steps they would take to beef up the cash on hand. First, they could allow a CD to mature and move the proceeds from their secondary reserves into their savings account so they can use the money to help pay bills. Second, they could shift the maturities on other CDs to better match the time when big bills are due, like their property and income taxes. In fact, she can start doing that right away. In this way, they can continue to earn a decent return on some of their cash and still have the liquidity they need. Third, she and her husband decide they would cut back contributions to his SEP IRA for a few months if they really had to. Finally, they would take a serious look at their tax situation and find ways to save. Let’s take a look at some of those possibilities.
- One of the major cash outflows we have is taxes. When you’re well into a period of unemployment, you should look to take steps to reduce your tax burden. There are specific strategies you can explore to better manage your taxes and minimize your tax bill. Now, Ameriprise and its affiliates don’t provide tax advice, but I want to give you a few topics you can address with your tax advisor. First, unemployment compensation is taxable, but the government does not withhold any tax when it pays you your benefits. You’ll have to make sure you have money on hand to pay those taxes when they’re due. Fortunately, the American Recovery and Reinvestment Act (the ARRA) includes a provision so the first $2,400 of benefits in 2009 is not subject to federal income tax. Still, depending on your other income, you may need to pay quarterly estimated tax in order to avoid owing a penalty. Second, if you’re getting a lump sum severance payment near the end of the year, consider asking your employer to hold the payment until the new year. That way you may avoid ending up with a huge tax bill at a time when you’re out of work Third, you may be able to save on taxes by filing separately from your spouse. Your tax accountant can figure out whether that would make sense for you. Finally, maybe your spouse or partner can change the exemptions withheld from his or her paycheck to help bring in more cash. Again, make sure you don’t underpay or you’ll owe a penalty. If there’s a bright side to a job transition, it’s that it gives you the opportunity to take a fresh look at your tax situation and see what you can do to reduce your taxes. With the help of a financial advisor and a tax advisor, you can actually use this opportunity to better manage your taxes.
- One of Kay’s concerns was that her family’s resources would become seriously depleted over a prolonged period of unemployment, leaving them in a bad situation if something happened to her or her husband. She would lose her life and disability insurance coverage if she lost her job. If one of them became seriously disabled and needed long-term nursing care, it would be a financial disaster as well as a personal one. It may be tempting to simply abandon insurance coverage when you’ve lost your job. After all, paying the premiums will be more difficult and they may be higher. However, if it looks like you’ll be out of work for some time, those “what ifs” really matter. What if you get hurt or seriously ill and require long-term care? What if a natural disaster threatens your home or property? Before you dismiss adding coverage when times are tight, see if you can work out a way to get back under the safety of insurance. Speak with a financial advisor about the costs and benefits of insurance, and the types of plans available. Try figuring them into your cash flow equation and see where you come out. You may be surprised at what you can afford. The peace of mind alone can be priceless.
- For most people, a workplace retirement plan is one of their most significant assets. When you’re first out of work, it’s not the most pressing issue but once you’re unemployed for an extended period of time, you really should consider your options. It could make a big difference in your long-term goals. What are the options available for your employer-sponsored retirement plan? In most cases your former employer’s retirement plan is a “tax-qualified” plan. That simply means that the plan qualifies for special tax treatment. In general, you have four options: Leave your money in your current employer’s retirement plan. If you’re happy with your plan’s performance and investment options, there may be no good reason to change. Move your money into a new employer’s plan. If you think you’re close to landing a new job, you may want to wait for that time and simply move the assets into a plan with your new employer. Take the money in cash. There are strict rules that apply here and we’ll go over them. Roll your money into an IRA.
- There are pluses and minuses to leaving your retirement assets in your former employer’s plan. On the plus side: You’re familiar with how things look and work Growth of your assets continues to be tax-deferred In addition, the money in a 401(k) is shielded from most creditors And, if you lose your job in the year you turn 55 or later, you are entitled to penalty-free distributions. If you have company stock in your 401(k), it may be better to leave your entire balance in the 401(k) rather than move it to another tax-deferred account because you may get better tax treatment. You should ask a tax advisor if you’re in that situation. Typically, qualified plans do not charge fees for trading within the account, mutual fund loads or commissions. Investment expenses may also be relatively low due to institutional pricing. On the negative side, you may have more limited investment options than an IRA would give you and less flexibility to access your money or change your allocation. There are also fewer exceptions to the 10% early withdrawal penalty. For example, you can’t take penalty-free money out for education expenses, health insurance premiums or a first-time home purchase like you can in an IRA. Beneficiary choices may be more limited and, if you do take a distribution that is an eligible rollover, your former employer is required to withhold 20% for taxes. If you decide to leave your plan where it is, be sure you tell your former employer. If you have $5,000 or less in your plan, and you don’t make an election shortly after you leave, your employer can choose to move your assets from the plan, which could result in tax penalties. Also, if you’ve taken out a loan against your retirement plan, you usually need to repay it before you leave the company. If there’s an outstanding balance when you leave, it can be treated like a distribution, and that would be subject to taxes and maybe even penalties.
- If you already have a new job in the wings and your new employer offers a retirement plan, you may opt to make a complete break with your former company and consolidate your assets together into one plan. Moving directly from your existing plan to a new plan will keep the money and any growth tax-deferred, with no current taxes or penalties. Your money stays shielded from creditors, and you’re entitled to penalty-free distributions if you lose your job in the year you turn 55 or later. Note that this scenario assumes you move your plan assets to a qualified plan and not an employer plan IRA such as a SEP. What are the cons? They’re the same as leaving the money with your former employer. You may have limited investment options, access to your money and flexibility to make changes. Plus, if you’ve made after-tax contributions to your current plan, you’ll need to find out if your new plan accepts them and whether you can separately account for after-tax contributions. Moving your plan to a new employer is a relatively simple process, provided you check out all the details with the new plan’s administrator: What are the new plan’s investment options? What are the loan and withdrawal privileges? What is the waiting period, if any, to move the money from your existing plan? Are the account fees in the new plan higher or lower than your current plan? If you are changing employers, it makes good sense to read through the Summary Plan Description of both the old plan and the new one before you make your decision.
- When you’re going through a job transition, it can be tempting to just take the money from your retirement plan so you have extra cash on hand, especially if you’ve been out of work for some time. You do have the option to take your money in cash. But there are serious considerations. In fact many experts on retirement plans agree most people should not take the money in cash. Why? Because if you take tax-deferred money now, you’re generally going to share a big chunk of it with the IRS, growth of the money will no longer be tax deferred, and the money may not be available to help fund your retirement Let’s go back to Kay and see how this might work.
- Kay has $30,000 in her retirement plan and is weighing whether she would take it in a lump sum if she lost her job so she could pay off her car. What kind of money would Kay actually have for the car? What would taking a lump sum really cost her? Let’s do the math. She starts with $30,000, but her retirement plan is required to withhold 20% for taxes. That’s $6,000. So she will have $24,000, right? No. Kay is in the 25% tax bracket, so she is going to owe an additional 5% when she pays her taxes. That’s another $1,500. Now she is down to $22,500. But there’s more. Because Kay is under age 55, she may be subject to a 10% early withdrawal penalty. For Kay, that means another $3,000 will be gone. So, taking the money will cost Kay $10,500, leaving her $19,500. And this doesn’t even address state or local income taxes. Not a pretty picture, is it? What if Kay does not take the money to spend? What would that give her? We’ll use the Rule of 72 to help estimate how her money might grow. To use the rule, divide 72 by an assumed average rate of return. That gives how many years it would take for money to double. Let’s assume, hypothetically, that Kay earns an average rate of return of 8% from now until age 65. So with 27 years until retirement, at 8%, it would take nine years for her to double her money. So she has three nine-year periods until age 65. What will she have at age 65? In nine years, the $30,000 would become $60,000. Then it doubles again to $120,000, and again to $240,000. If she uses the money for her car, she won’t have that money to withdraw in her retirement. Like Kay, you need to know the implications of your decisions — because you can’t use the same dollar for two different things. And a dollar taken in cash from your retirement plan now could mean less money later. Explore all options with your tax advisor.
- In the unlikely event you are still unemployed much longer than you anticipated, your concerns may reach a new level. Perhaps there have been major structural changes in the industry you work in. Maybe your skills need to be strengthened to make you more marketable. Or you may need to consider a dramatic career change. Whatever the reason, it’s clear you will need to revisit your financial goals and plans for achieving them. This is definitely the time to sit down with your financial advisor. First, work together to redefine and redesign. Redefine your goals and set realistic timeframes. Then redesign your path for reaching those goals and build in other options to help you get there. For example, you may need to explore student loans and financial aid to help ease the burden of college educations, especially if you think you may go back to school yourself. Second, seriously consider rolling over your retirement plan assets to an IRA. I’ll explain how that works, but what I want you to see is that these steps don’t mean abandoning your dreams for the future. In fact, they may be the best way to help you get back on track toward achieving them.
- Once you’re out of work for a very long time, it may become important for you to have the most flexibility and control of your retirement dollars, and rolling them into an IRA may give you that advantage. There are a lot of good reasons to consider this option: The account is yours, in your name, and no longer connected to your former employer. Your investment choices are typically greater than with a 401(k). You typically have greater flexibility to make changes and access your money. Some plans only allow for lump sum distributions and don’t allow you to take your money out as you please. That’s not an issue with most IRAs. Growth continues without current taxes or penalties. You may have greater flexibility with your beneficiary arrangements. There are more exceptions to the 10% early withdrawal penalty. For example, you can make withdrawals for education, health care insurance and a first-time home purchase. And, there’s no mandatory withholding tax on distributions. To roll over to an IRA, get the paperwork to do a direct rollover from the company setting up the IRA and ask your employer to roll the assets over directly to the IRA, not to you. This is important. If the check is made payable to you, 20% of your distribution will be withheld. And, you will only have 60 days to roll the portion not rolled over — including the 20% that was withheld — to another retirement plan or to an IRA. What are the possible disadvantages of a direct rollover to an IRA? With an employer’s plan, you can withdraw money without the 10% early withdrawal penalty if you leave your job in the year you turn 55 or later, but once you roll the money into an IRA you have to be 59 ½ to withdraw the money without the tax penalty. Or, you have to take substantially equal periodic payments for five years or until you attain age 59 ½, whichever is later. If you are between 55 and 59½ and face this decision, I’d be happy to explain these options to you in more detail after the session. Also, assets in a 401(k) plan are protected from all creditors other than the IRS and your former spouse. IRA assets that are rolled over from a qualified plan are protected from the same creditors in the event of bankruptcy. However, if creditors are trying to gain access to the IRA assets outside of bankruptcy, it is a matter of state law. Speak to a tax or legal advisor before taking action. If you have stock in a company plan that has appreciated in value, you may lose favorable tax treatment on the “NUA” or “net unrealized appreciation” if you take a distribution or rollover any portion of that company plan. Speak to a tax advisor before you take any action with an employer's plan that holds company stock. Finally, you should compare fees. IRA fees that apply are disclosed in the applicable product prospectus, contract, offering or other disclosure document you receive, and may include fees for trading within the IRA, and mutual fund loads or commissions.
- If you are considering rolling your retirement plan assets into an IRA, it may be beneficial to rollover directly to a Roth IRA. When you convert pre-tax money in your plan to a Roth IRA, you pay tax in the year of the conversion. If your 401(k) account value has dropped, the taxable amount would be less. Also, if you are not earning an income, you will likely be in a lower tax bracket than usual at this time. Once you start taking distributions from the Roth IRA, after you’ve held the account for five years and reached age 59 ½, the distributions are tax free. It is important with this strategy that you have money outside your IRA to pay the tax. You should also be sure you won’t need to access the money in the short term, so your investments will have years to grow. This strategy is currently available only if your modified adjusted gross income is $100,000 or less, and your tax filing status is not married filing separately. In 2010 there will be no income limit on who can rollover to a traditional IRA today and convert to a Roth IRA at a later date, if it is beneficial to you, so you could roll over today and — if it is beneficial for you — convert to a Roth IRA at a later date. If you convert in 2010, the amount included in income can be spread evenly over tax years 2011 and 2012. So, if Kay rolls her $30,000 into a Roth IRA in 2010, she would pay tax on $15,000 in 2011 and $15,000 in 2012. Or, she could elect out of the 2-year spread and pay tax on the entire $30,000 in 2010. Keep in mind that if you have been making after-tax contributions to an employer retirement plan, you can roll those over into a Roth IRA. You must have less than $100,000 in income.
- So what are the really important ideas to carry away from all this? When you’re first unemployed, the most important thing to do is to weigh your income against your expenses and decide where you will cut back. You can likely get health coverage through COBRA and, you have sufficient cash reserves, you can probably leave your retirement plan where it is. If you’re still unemployed six months later, you’ll have to get more creative to build up cash, looking to your other investments or reducing taxes. This will be the time to make sure your family is protected if something happens to you. And time to revisit your retirement plan options. Try not to take the money out…wait and see if you land that job on the horizon. If it turns out you are unemployed much longer than you expected, it’s time to get together with a financial advisor and recreate your plan. Start by considering getting your retirement money into an IRA. Someday you’ll look back at a job transition and you may see it as a bump on the road to your future success, or as a significant obstacle. You could view the change as an opportunity to take a new perspective on your career and your financial life. I hope the information and strategies outlined in this seminar are helpful to you.
- Script: So, at this point, I hope I have helped you gain a New Perspective about your financial situation and you come away from here with some actionable ideas to help you get from where you are today to where you want to be tomorrow. Before we wrap up, I’d like you to return to your worksheet, section 3. Now that we have covered all of the cornerstones, think about the goals you wrote down earlier. Write them down in each of the cornerstones. Also, based on this discussion, maybe you have thought of additional goals? Please write those down, too. [Give audience a minute or two to fill in section 3 of the worksheet]. I’d like to invite you to come in for a New Perspective review. As part of our New Perspective review, we offer a discussion about what we see as the four key areas of your financial life – Cash and Liabilities is one of them. The others are Investments, Protection and Taxes. We will walk through your worksheet and start thinking about how we can help you achieve your goals. We are regularly scheduling additional workshops around these four different key areas of New Perspective review. I’m going to pass around a schedule of those right now. If you are interested in any of these topics, please sign up and I can send you an invitation. Now, you’ve been listening to me for awhile, but in your individual review I’ll start by listening to you. Your concerns, hopes, fears and goals are what we will discuss as a starting point to your current personal situation and where you want to go. If you would like your own personal New Perspective review of your finances, simply fill out the comment card in your information packet. Check this box [HOLD UP CARD] to request a New Perspective review of your finances. My assistant, [STATE NAME AND GESTURE TOWARD IF PRESENT] , or I will give you a call in a day or two to schedule an appointment. There’s absolutely no charge for this initial meeting. Our conversation will include a review of your existing financial situation, identification of possible gaps in your current strategy and broad recommendations on potential opportunities and strategies to go forward. Remember, the New Perspective review is designed to provide you with a way to quickly assess where you stand and how you might want to proceed. A far more extensive and personalized financial planning service is available to you for a fee, that can provide you with a much more detailed analysis and recommended solutions. If you decide I can be of help to you, we’ll start by identifying opportunities to help you regain control of your financial goals and then work together to create financial strategies that can help you get there. And I’ll stay with you to track your progress and help you adjust your plan as the economy changes – hopefully improves – in the future. [HOLD UP SECOND CARD] , I’d appreciate it if you would use this second card to let me know of friends, coworkers and family members who you think could benefit from attending a seminar, or a New Perspective review. You can also jot down some other topics you might be interested in learning about. Thank you for your time and attention today. I hope this presentation helped to give you a New Perspective on your financial future. I also want to thank my staff [CALL OUT BY NAME IF PRESENT] and the team at [EMPLOYER OR VENUE] for helping put this event together. Key points to address: What’s missing is a New Perspective on the future: clear, actionable information on where we can go from here. Ongoing seminar offerings provide a New Perspective on your financial future. I offer you a New Perspective review – a framework that will help you look at all aspects of your financial life – not just investments – so you can get back on track toward reaching your goals.