Save America, Save - A Financial Services Podcast with Charlie Epstein

Today I’m going to give you, the plan sponsor, the secret to turning your company’s 401(k) plan into a paycheck manufacturing company for you and your employees. As a plan sponsor, suppose you have a retirement plan that has no fees for investments, services, or administration.  Let’s also suppose that this plan has the best scoring investment options possible.  Some people would say that is the definition of a successful retirement plan. I would argue that and say that there is one key element missing. What’s missing? Employee engagement! Are your employees contributing to the plan? Are they contributing enough money to maximize their retirement plan to create a paycheck for life?  You can offer the best plan imaginable, but if your employees are not engaged and contributing, it will not be a successful retirement plan.“The perfect plan requires employee participation.”Before 1974, retirement income was from a pension plan. Employees knew if they worked for the company for 30 years, they’d have a pension plan that would generate an income for the rest of their life.  Pension plans don’t exist anymore.  Today your employees must contribute to their retirement plans. If they’re not properly allocating their money in the right investments, and if they’re not adjusting their investments over time, how can they possibly create that paycheck for life?  This is where employee engagement is so critical. ERISA is the law that established the retirement plan industry in 1974.  ERISA’s most important rule is something called the “exclusive purpose rule” which states that if you’re a plan sponsor and you establish a retirement plan for the benefit of your participants, you’re doing it for the exclusive purpose of providing benefits to them and their beneficiaries. My next series of vlogs will focus on how your company can help your employees become more engaged and excited to contribute to their 401(k) to maximize their contributions toward their retirement plan to create that paycheck for life.

As I mentioned in my last video, the recent court case of Tibble v. Edison is something, that you as a plan sponsor fiduciary, need to understand because it pertains to the fees and expenses in your plan and what types of share class or mutual funds you have in that plan. As a plan sponsor fiduciary, you have a duty of prudence and a duty of loyalty. You need to be loyal to your employees and make sure you do everything in their best interests. To do that, you need to have a process for monitoring the investments in your retirement plan and being prudent about that process. With that in mind, I want to cover the fees and expenses in a retirement plan, primarily the hard dollar and soft dollar costs. You need to know: Who your service providers are. What services they provide .   What services they provide.                   What are the fees they charge for their services (they can be both hard and soft dollar fees). Whether the fees are reasonable.                  Who’ acting as a fiduciary to your plan. Whether anyone has a conflict of interest in that process.                On page 66 and 67 in my book “Save America, Save!” I lay out what the hard dollar and soft dollar fees are in a retirement plan. “It’s important that you as a plan sponsor fiduciary understand all the fees in your retirement plan.” Hard dollar fees are typically fees you pay directly to your service providers.  You could write a check to your third-party administrator (if you have one) and pay them an annual administration fee and maybe a participation fee for each person in the plan. You might write a check directly to your advisor, which you could deduct out of your corporation. You could also write a check to your record keeper. All of these hard dollar fees come out of the company’s pocket rather than the participant accounts. Most plan sponsors may have all of those fees bundled and coming out of the mutual funds in the plan, or what’s known as a soft dollar fee. Soft dollar fees are when you pay your service providers indirectly from your mutual fund. This is where you can get into trouble, though, because soft dollar fees are a slippery slope and the reason why Tibble v. Edison ended up as a lawsuit. Again, it’s important that you as a plan sponsor fiduciary understand all the fees in your retirement plan—both hard and soft—so you can make prudent decisions as to what’s in the best interests of your employees. In my next video, I’ll delve into the variety of share classes you can choose from. In the meantime, if you have any questions about this topic or would like a free consultation for your investment plan, don’t hesitate to reach out to us. We’d love to help you.

There’s a lot of activity right now in the 401(k) industry, but today I want to talk specifically about a court case that has been dragging out for the past six or seven years: Tibble v. Edison.In this case, the Judge finally ruled that if you have a 401(k) plan, you’ve got a duty of prudence and loyalty to your participants. You must monitor your plans investments. With the correct process in place, you should be able to prudently choose investments for your plan.   In this case, which was a $3 billion plan, the sponsors’ fiduciaries had both institutional share mutual funds and retail share mutual funds.But what’s the difference between these? An institutional mutual fund is the lowest cost fund that one can purchase from a carrier. It also has no revenue sharing.A retail mutual fund has higher fees. These fees compensate your broker/advisor and also may cover other plan related expenses. The Judge in Tibble v. Edison ultimately determined that the trustees failed their duty of loyalty and prudence. The employer in Tibble v. Edison used retail mutual funds with revenue sharing, resulting in more expensive funds for the employees.  According to the Judge, the Plan Fiduciaries should have known if there was a cheaper share class they could have purchased and provided to their employees. “As a sponsor, you’ve got a duty of prudence and loyalty to your participants.” The employer could have used institutional funds that were less expensive and without revenue sharing. In the end, the employer ended up with significant penalties for failing in their duty of prudence.As a plan sponsor it’s important that you understand all the fees in your plan so that you can make prudent decisions in the best interests of your employees.If you’d like to learn more about safeguarding your retirement plan, pick up a free copy of my book, “Save America, Save! The Secrets of a Successful 401(k) Plan.” You can get your copy at www.EpsteinFinancial.com Also, if you’re interested in having us evaluate your plan for you, we’d be happy to do a free consultation. Reach out to Krista Krupa from my office by email at kkrupa@epsteinfs.com or by phone at (413) 539-2371. If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.

In case you didn’t know, revenue sharing has been the basis for the largest litigation and lawsuits by the largest law firms across America against you—the planned sponsor fiduciary. These lawsuits happen because these law firms claim you don’t understand all the fees in your retirement plan, how those fees are paid, who they’re being paid to, and whether or not they’re reasonable. In the video above, I’ve added a slide of a revenue sharing dial which breaks down all the fees and expenses that could be paid inside your retirement plan so you can follow along as I explain each portion. When I show a planned sponsor this dial, 80% of the time, they tell me it’s the first time they’ve ever seen the chart. In fact, we recently took over a $10 million retirement plan from a planned sponsor who told us he’d been asking his broker for years who was getting paid and how they were getting paid. So how are revenue sharing fees paid in your retirement plan? I’ll give you an example. “We can help you protect yourself against a fiduciary liability lawsuit.” Let’s imagine you have a mutual fund in your retirement plan and the expense ratio is 1%. Of that 1%, let’s assume 0.5% (or 50 basis points) goes to your mutual fund manager as a managing investment fee. Where does the other half go? Well, 0.25% of it goes toward the 12b-1 fee, which is the commission paid to your broker and what you use to pay for marketing by that mutual fund company. Of the remaining 0.25%, about 0.2% goes toward shareholder servicing fees—that’s revenue sharing. That’s what the fund company is paying your record keeper to get on the platform and have access to your employees. In other words, it’s a slotting fee. A lot of the litigation I spoke of involves the lawyers arguing that this 20% is really your employees’ money and should be paid back to them. The remaining 0.05% goes toward sub-transfer agent fees. These are paid to the company that tracks the money your employees move from fund to fund. If you have a plan where the average fund expense is 1.25%, you have another 0.25% (or 25 basis points) that goes toward your asset fee. This is your record keeper basically saying they’re not making enough money to operate your plan, so they have to charge you another 25%. As a planned sponsor fiduciary, there are certain questions you must ask yourself. Are those fees reasonable? Can you reduce those fees? If so, how? We can help you with those questions by offering our B-1 Vendor Benchmarking service free of charge.All you have to do is give Matt Gilmore, one of our planning consultants, a call at (413) 539-2379. He’ll help you uncover all the fees in your plan and protect you from a fiduciary liability lawsuit by benchmarking those fees. If you have any other questions about revenue sharing or creating a paycheck for life, don’t hesitate to give me a call or send me an email. I’d be glad to help.

Today I want to focus on what your employees can do to improve their investment outcomes. I have to say upfront, there’s no guarantee when it comes to investing, but there are things employees can do to enhance or improve their potential outcome. One of them is something called automatic rebalancing. This is a feature that just about every record-keeping platform can provide for you.  Automatic rebalancing allows your employees investment options to be automatically rebalanced over long periods of time. Let me give you an example: I pulled a chart from page 98 of my book “Paychecks for Life: How to Turn Your 401(k) Into a Paycheck Manufacturing Company,” and the data from this chart comes from my dear friend Professor Craig Israelsen— the author of “7Twelve Portfolio.” What did Craig and his students uncover in this analysis? They went back over a 40-year period, and they compared investments in a portfolio that has seven different asset classes: large-cap stocks, mid-caps, small-caps, international equities, bonds, cash, commodities, and real estate. They asked themselves, “What would happen if you invested over a 10, 20, 30, or 40-year period.  Investors who just held onto those investments and did not equally rebalance their investment options, as opposed to investors who had the same investments and annually rebalanced their investment options to maintain their one-seventh investment in each asset class?” “There are things your employees can do to improve or enhance the potential of investment outcomes” Let’s look at the results: over a 10-year period of time, the results were still beneficial. From the period between the years 2000 to 2009, during which we had the technology bubble (and the market dropped almost 48%), if they had just held onto those investments, they would have had a 405% gain, which is nothing to be ashamed of. But somebody who took the time to rebalance their account once a year, every year, for 40 years, would have seen a gain of 532%. That’s an outperformance of almost 127%, or a 31.4% rebalancing advantage. But here’s the problem: human nature. Employees simply won’t remember to rebalance their investment accounts. The beauty of automating the annual rebalancing is that all an employee has to do is go online to your record-keeping platform, request that they want their accounts rebalanced monthly, bi-annually or as many times a year as they’d like, and it will be done for them. These are huge incremental successes that your employees can have, but the question is whether you’re communicating this information to them. If you’re not, we’d like to be of help to you, so go ahead and give us a call or email.

What impact can fees have on your employees’ success in retirement? Well, no one wants to pay more than they have to. However, when you are the fiduciary of a 401(k) plan, you have a duty of loyalty and prudence. In fact, you have personal liability relating to the results of an employee’s participation in your retirement plan. Therefore, it’s critical that you are benchmarking your plan’s fees. Today, though, I’d like to highlight how you can improve your plans by reducing fees or enhancing investment performance. If we take a look at the chart featured in the video, we can see that if you are able to reduce an individual’s fees by 1.5% it can make a difference of nearly $120,000 more in a 30-year period.   “Our goals are to impact fees, impact performance, and reduce your fiduciary liability.” By reducing fees and expenses and improving performance to save an employee 1.5%, someone who may otherwise have started with $374,532 when they retire at 65 could instead start retirement with a balance of $498,395. This is a difference of more than $1,100 in the money they would be receiving each month. Imagine how this would impact your employees’ quality of life. That’s what Epstein Financial Services is all about. Our mission and our goals are to impact fees, impact performance, and reduce your fiduciary liability. If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.

How can you provide a diversified investment lineup to your employees that meets your fiduciary obligations as a plan sponsor fiduciary? There are a couple things to keep in mind. The first is choice. Giving your employees too many choices has a negative impact. We often evaluate retirement plans and find people that have as many as 100 investment choices. Studies have shown that the more choices you give someone, the less apt they are to take action. More choice does not incentivize people to take action.  A reasonable number of investment options in a 401(k) plan lineup should be about 16 to 18 choices. In the video above, I’ve listed all the major investment asset classes in a retirement plan.  You should have a diversified investment choice for employees who do not want to make an investment choice. In my book “Paychecks for Life,” we found that 85% of your employees would prefer you to make an investment choice for them. This can either be a balance fund, a target life fund, or a lifestyle fund, and it would cover that group of employees. For the other 15% who want to make an investment choice for themselves, it’s critical that you offer them at least one choice in each asset class.  “More choice does not incentivize people to take action.” As far as active funds versus passive funds, you have a duty of prudence and a duty of loyalty to your employees. This means you should offer them choice, but you shouldn’t make the choice for them so you’re not liable for their investment decisions. In order to do that, you should offer both passive (index) funds and actively managed funds.  You should have an index fund in each of the blend categories of the asset classes, including “Growth,” “Mid-cap,” and “Small-cap.” This will be low-cost investing—anywhere from six to eight basis points. On the outside, meaning large-cap growth, large-cap value, mid-cap growth, mid-cap value, small-cap growth, and small-cap value, you should have an active fund option. In the “International” category, offer an index fund and an active fund. In the “Bond” category, offer the same thing.  If you do this, you’ll end up with about 16 to 18 choices, which is all your employees need to build a robust, diversified investment choice.  If you have any questions about offering investment options to your employees, don’t hesitate to reach out to us. We’d be happy to help.  

On this installment in my series—based on my book, “Save America, Save!”—we’re talking about getting a benchmark analysis. One of the keys to being a great plan sponsor fiduciary is ensuring that the fees that you pay in your plan are reasonable. Who and how do you define “reasonable?” Under ERISA, the only way you know if your fees are reasonable is to benchmark them against other expenses. So, you’ve got a record keeper, you might have a third-party administrator, and you’ve got an advisor. These are the people you are paying for their services. You need to understand who the providers are and what services are they providing, and what are the fees that they are charging for those services? Who’s acting as a fiduciary and is there a conflict of interest? So the best way to determine if the fees those individuals are charging are reasonable is to benchmark against other plans,other record keepers, and other advisors. This can be complicated because you need accurate data from the others in order for this to work. “You need accurate data to create a solid benchmark.” As Epstein Financial Services, we have a very simple vendor benchmark of services that we want to offer to you free of charge that will help you determine if your fees are reasonable. What we do is we look at a universe of retirement plans that have similar characteristics to yours— plan size, number of employees and investments, and any other data. We then reach out across the country and pull data from other plans in order to create a benchmark for you. If you’d like to learn more about getting your own free benchmark or you have any other retirement questions, please call us or shoot us an email. We’d be happy to help!

Schedule a Consultation - Click here to get your free book We believe that you can design a retirement plan that can nearly bulletproof you from any fiduciary liability. You do this by hiring prudent experts; people who have a 3(38) ;3(21) ;or 3(16); designation.    Someone with a 338 designation has discretionary authority over the plan’s investments. You can hire a prudent expert with this designation to make decisions about which investments you should have in your plan.    A 321 fiduciary provides you with data and information so that you as the plan sponsor fiduciary can choose which investment choices to have in your investment plan.   A 316 fiduciary takes on all the liability of administering your plan, and this is a critical role that most plan sponsors don’t take advantage of.  “We can help you create a shield that virtually bulletproofs you from fiduciary responsibility.”   Think about it—you’re a busy HR director trying to deal with payroll and the responsibilities of your employees, and now you have the burden of making sure all the notices go out on time and everybody is being communicated with. If these things don’t happen, then you can be liable for it.   Our team can help you design a retirement plan with a fiduciary shield around it that could bulletproof you as a plan sponsor fiduciary by allowing other individuals to be that 3(38); 3(21); or 3(16); and reduce your fiduciary liability. It’s not that difficult, but it’s important to know what your options are.   If you want to learn more about creating a successful retirement plan, give me a call or send me an email. I look forward to hearing from you.

Schedule a Consultation - Click here to get your free book Your role and responsibility as a fiduciary of a retirement plan is an important aspect of a 401(k) plan. ERISA—the rules and regulations that govern how a retirement plan is established and the process you need to have as a plan sponsor—was established in 1974. There’s a very important section that many people overlook, the Exclusive Purpose Rule. It states that when you establish a retirement plan, you’re doing it for the exclusive purpose of providing benefits to your employees and their beneficiaries. We believe that it’s the basis to operate from to determine you’re doing everything you should be doing as a plan sponsor fiduciary to meet the obligation of helping your employees create that kind of benefit. As a plan sponsor fiduciary, you have a duty of loyalty and a duty of prudence to your employees. This is the highest standard you can have in the industry. Being loyal to your employees means doing everything for their and their beneficiaries’ benefit and not doing anything that would harm them, disservice them, or disrupt them from creating benefits. Being prudent means doing everything with a standard and the knowledge and ability to run that plan would have. “We can help you design a retirement plan with a fiduciary shield that can bulletproof you as the plan sponsor.” The problem as a plan sponsor is that it’s not your full-time job or specialty. The government understands that, so you can outsource these roles. Frankly, we believe you can design a retirement plan that will almost bulletproof you from any fiduciary liability. You do this by hiring prudent experts, or those with a 338, 321, or 316 designations. A 338 has discretionary authority over the plan’s advancements, and you can hire one to make decisions about investment choices in your plan. A 321 fiduciary provides you with data and information so that you as the plan sponsor can choose which investments to have in your plan. A 316 fiduciary takes on all the liability of administering your plan, a critical role that most plan sponsors don’t take advantage of. Think about it—you’re a busy HR director who now has the burden of making sure all notices are going out on time and that everyone is being communicated with, and if these things don’t happen, then you could be liable. We can help you design a retirement plan with a fiduciary shield that can bulletproof you as plan sponsor by letting you allow other individuals to be a 338, a 321, and/or 316. It’s not difficult, but it’s important to be aware of your options. If you have any questions, don’t hesitate to give me a call. I’d love to hear from you.

Schedule a Consultation - Click here to get your free book Welcome back to my series on how to create a successful retirement plan for your employees. In the last few videos, I’ve been talking about the various options you have for automating your employee’s savings to create paychecks for life. However, I want to switch gears today and talk about another important topic. I’m talking about the stretch match and courageous plan design.    The courageous plan design requires a real commitment on your part as a plan sponsor to do more than just offer investment choices and a reasonable fee. The truth is that if your employees aren’t incentivized to save more, they won’t save more. What you really have to do is change their mindset by incentivizing them to save more money, otherwise they won’t save enough. Enough is around 10% per year. “With this strategy, employees will need to save 10% to get the full match.”   On a retirement plan that matches 50 cents on the dollar up to 6%, we’ve found that employees only end up saving 6%, not that 10% that they need. The reason they have for not saving more is that their contributions aren’t being matched, so what’s the point? That’s just their initial mindset.   If you changed your plan design from contributing 50 cents on the dollar up to 6% to 50 cents on the dollar up to 2%, and then 25% on the dollar all the way up to 8%, your employees would have to save all the way up to 10% to get the entire 3% match. With this strategy, you’re stretching your matching dollars while also incentivizing your employees to save the 10% they will need to in order to create paychecks for life. The great part about it is that it doesn’t cost you any more money.   This is a strategy that works and creates a win-win situation for you and your employees. In my next installment, I’m going to talk about the safe harbor plan designs. There are three of them and each is critical in showing how you as an owner and your highly compensated employees can save the maximum amount allowable by the government.   If you have any questions or feedback for me in the meantime, don’t hesitate to give me a call or send me an email. I look forward to hearing from you soon.

Schedule a Consultation - Click here to get your free book Today I’m covering another facet of Auto to the 5th Power, automatic re-enrollment. You have can actually re-enroll your employees into that Qualified Default Investment Option, or QDIA, to provide incredible protection for you as a plan sponsor and help your employees save money to create that paycheck for life. If you’d like to skip ahead and learn all the secrets on how to create the best possible retirement plan for yourself, I’d be happy to get you a copy of my book, “Save America, Save! The Secrets of a Successful 401(k) Plan.” I’d also like to get you a copy of my first book, “Paychecks for Life: How to Turn Your 401(k) into a Paycheck Manufacturing Company.” It contains my nine secret recipes for how your employees can create a paycheck for life. Click here to get your copies. “As the employer, you are protected under the Pension Protection Act of 2008.” In addition, if you’d like a free benchmarking analysis of your retirement plan, we’d be happy to do that for you. Just send an email to Matt Gilmore in my office at mgilmore@epsteinfs.com or give him a call at (413-539-2379). Now onto our topic for today. Automatic re-enrollment is the option where you send out a 30-day notice and tell people that if they do not want a change in their investment options, they need to let you know. Otherwise, there are going to be automatically re-enrolled into that QDIA investment option. Don’t forget, you as the employer are protected under the Pension Protection Act of 2008. If you have any other questions, please feel free to give me a call or send me an email. I look forward to hearing from you.

Schedule a Consultation - Click here to get your free book Welcome back to my series based on my book “Save America Save”. Today I’m covering the third automatic feature in “Auto to the 5th Power,” automatic escalation. This is my all-time favorite automatic feature, and here’s why. I want to mention up front that I think this is the most important feature you can add to your employees’ retirement plans. In my first book, “Paychecks for Life,” I talk about a very simple mantra called “ten one now.” What does this mean? On average, an employee needs to save 10% of their pay if they are going to have a chance at getting to their retirement years with enough money to pay for all the things they desire to do. Quite frankly, when I stand in front of your employees and tell them to do this, a majority of them are going to say, “Charlie, that’s just not going to happen.” However, they don’t realize is that there is more than one way to save that money. To illustrate that, I like to use an example of three different hypothetical employees: Susan, George, and Morgan. Let’s assume that each of them are 30 years old, make $40,000 per year, and want to save 10% each year. Susan says she will save 10% of her pay over the next 35 years. After that period of time, she has over $445,000 in her account. That’s a tidy sum. “Left on their own, a majority of employees won’t increase their contribution.” Now George tells me there is no way he can save 10% of his pay, but he can save 5%. I tell him to start with saving the 5% and then increase it by 1% each year until it gets to 10%. This gives him five years to get things going, and he will wind up with about $405,000 in his account by the time he is 65. That’s almost as much as Susan saved. Morgan is in a similar position to George. However, instead of increasing her contributions by 1% each year, she keeps it at 5% until she is 65. At that point, Morgan will have only saved $225,000 in her account. I call that the $200,000 mistake. By not increasing those contributions, she loses out on $200,000 of compound interest on her investment. Left to their own devices, a majority of employees will never increase their contribution. It’s a habit that people are generally poor at forming, just like dieting and regular exercise. However, the more you do it, the more you get out of it. The more you save, the more you get in the end. How can you help your employees out in this area? Let’s go back to the subject of this article, automatic escalation. It’s a really simple process. Every year on January 1st, you send out a notice to all your employees letting them know you’ll increase their contribution by just 1%. If they don’t want it increased, all they have to do is notify you or your HR department. However, statistics show that over 80% of participants, when sent a notice that their contribution will be increased, allow it to be increased. This is how you can incrementally help your employees save more each year until they get to that 10% mark. Then they all can live by my “ten one now” mantra. Next time, I’ll cover automatic re-enrollment, a very powerful tool and interesting topic. If you have any questions for me in the meantime, don’t hesitate to reach out and give me a call or send me an email. I look forward to hearing from you.

Schedule a Consultation - Click here to get your free book Today I’m going to be talking about something I like to call Auto to the 5th Power. This is a way that you can use technology to automate savings for your employees and make your life easier, especially if you’re an HR director trying to get people to enroll in their retirement plans. So what exactly is Auto to the 5th Power? It’s actually a series of automatic features that you can use in your retirement plan to get your employees engaged in their retirement plans. This means getting them enrolled, getting them to increase their savings, and also providing greater protection for you as a plan sponsor. Today we’ll be taking a look at the top two automatic features. I’ll show you why they are so beneficial and how you can put them into action. The first feature is automatic enrollment, which is one of the easiest ways to save time, money, and effort. Instead of sending out a retirement form to your employees that may or may not ever be returned, all you need to do is send out a 30-day notice to your employees notifying them that when they are eligible for the retirement plan, they will automatically be enrolled in the plan at a set rate. For example, if your match is 50% on 6% you might want to set that contribution rate at 6%. The government will allow you to go as low as 3%, so that is an option if you’re worried about taking too much out of your employees’ paychecks right away. We personally always recommend setting the contribution rate at whatever the match rate is. After all, the name of the game is getting people to save for retirement, and people usually need to save about 10% a year. Now, you’re probably not going to automatically enroll at 10%, but the key to automatic enrollment is in the 30-day notice. You’re covered because you gave your employees notice, and your employees have the option to opt out. However, 70% of people who are automatically enrolled in the plan stay in the plan. “The name of the game is getting people to save for retirement.” The second feature is called automatic QDIA. A QDIA is a qualified default investment option. Say you automatically enroll an employee into the retirement plan but they don’t pick their investments. What’s a plan sponsor to do? Under the Pension Protection Act, you can automatically enroll them into something called the Qualified Default Investment Option. Typically a QDIA is going to be some sort of lifestyle fund, but it could be a customized option based on the employee’s age. As with automatic enrollment, the key to the QDIA is all about the notice. You have to send them something that tells them if they don’t make an election, you’re going to make the election for them. Provided you do investment due diligence on that investment option and document that you are monitoring that investment, you’ll be protected under the Pension Protection Act, which means you can’t be sued for making that investment choice for your employee. The bottom line is, using automatic features is easy, convenient, faster, and cheaper. Also, if you do your due diligence, you are completely protected thanks to the Pension Protection Act. In the end, your employee is the person who wins as they are saving money to create that paycheck for life. If you have any questions please feel free to send me an email or give me a call. Additionally, if you’d like an analysis of your retirement plan, you can reach out to Matt Gilmore in my office by sending him an email or giving him a call as well. We’d be happy to help!

Schedule a Consultation - Click here to get your free book How can your employees maximize the benefits of social security and use it to its full advantages? Last year, the Obama administration made some major cuts to social security. Let me be clear—the social security trust fund has no money in it. It’s a ponzi scheme. Some people pay in, but far more people pay out. Every administration for the last 25 years has tried cutting off various loopholes and raising taxes to shore up the system, but it just hasn’t happened. The Obama administration eliminated some of those loopholes that would’ve allowed you or your spouse to maximize this benefit. And today, those are all gone. The good news, however, is that they’ve made it easier for you and your employees to calculate your benefits. What do you and your employees need to know? First of all, you should go to the social security website www.ssa.gov, log in, enter your personal information, create an ID, and generate your social security report.Once you do that, the report is going to tell you what you’re going to get for income at age 62, what you’re going to get at 66, and what you’ll get if you wait until 70, which is the age that guarantees the largest benefit. When should you take your social security? That depends on a lot of factors, primarily the state of your health, whether or not you like working, and whether or not you have other savings or investments in play. As an example, I’ll tell you about of a client of mine, Jim, who was facing the same scenario. Jim retired two years ago, and we set up a strategy for him to determine when he should take his social security and how he should spend down his other assets. Jim has money in cash, money in a Roth IRA, and money in his 401(k). Not only that, but his retired wife is receiving a monthly pension and taking her own social security. Jim is 63 years old now. The first strategy I shared with him was, once he retired, to live on as much money that’s already been taxed so that he could live tax-free. Jim spends down his cash first and paying absolutely nothing in taxes. When he turns 66 and a half, he’s going to start taking his social security. From there until age 70 and a half, he’s going to pay nothing in taxes because he’s living off his cash (which he’s already paid taxes on), his social security payment will be tax free, and he has money in his Roth IRA which he can draw down and not pay any tax on. At age 70 and a half, he’s going to have to start taking money out of his 401(k) and his IRAs, but he’s going to take out his minimum distribution, and by doing that, he’ll pay as little in tax as possible. Some of you might be saying, “Charlie, I don’t want to wait until I’m 66 and a half or 70 to collect my social security. I had a father who worked his whole life, stop working, died the next month, and then never collect a dime from social security.” That’s an important consideration. Just bear in mind, if you start taking social security at 62, and you’re still working, you’re going to pay taxes on your social security benefit. Basically, for every dollar you earn, you’re going to pay 30%, 40%, or even 50% of tax money on that money while you’re working. “When you should start taking your social security depends on many factors.” However, I know there are still a lot of people who want to get their money as soon as possible. What’s the best solution for them? Again, it depends on how much you have in savings, what you have in your 401(k), how much you have in a Roth account, and other factors. Do you have a history of health and longevity in your family? Psychologically, can you wait to take your social security benefit? Every year that you wait, you’re going to earn an 8% return on that benefit. In other words, that monthly income is going to grow by 8%. That’s a guaranteed return. Now, I know there are also some of you out there saying there’s no money in the social security system and wondering what happens if they take it away. If you’re 55 or older, you can count on social security to be there.If you’re 50 or under, depending on how much money you do have at retirement some day, I think they’re going to means test social security. That means, if you make too much income from your investments, you’re not going to receive any of your social security or a reduced benefit. Trust me when I say that this is how it’s going to have to happen. As it is now, there are too few people paying into a system and too many taking out of it. There hasn’t been any president yet that has had enough political clout to take on social security, and more specifically, to take on congress. So, either take it at 62, take it at 66 and a half, or wait until 70 to get the largest benefit.Make sure you have your employees go online and check their social security statement and verify that they’ve received all their credits for their income. If you’d like to schedule a meeting for your employees where we can help them analyze their social security and their options, we’d be delighted to do so. All you have to do is send me an email and we’d be happy to set up an appointment. Stay tuned for my next video, where I will cover some strategies you can use at no cost to help your employees create that paycheck for life and be even more successful than they are today.

What Would Simpler Bank Regulations Mean for You? I was recently a guest on Fox Business’s show “Countdown to the Closing Bell with Liz Claman” where I talked about the prospect of simpler banking regulations under the Trump administration. Here’s a quick summary of what I talked about. Donald Trump has rolled back the Dodd-Frank Act, which restricted the ability of many small banks to make loans to small business owners.  Back in 2007, as an original founder and trustee of a community bank in Massachusetts, NuVo Bank, now know as Merchants Bank, the Dodd-Frank Act strangled our ability to loan money to small businesses. Small businesses make up 80% of this economy, and now they will be able to access capital much easier. That’s good for jobs and growth. When small banks were held to the same standards as the big banks, it didn’t work. However, does this mean all of the Dodd-Frank Act should be torched? With President Trump’s first action, Congress will have to get involved and trim down the Dodd-Frank Act. However, the biggest piece to be trimmed is the bureaucracy. The notion that more regulation will prevent things from happening is wrong.The free markets need to be free and the free markets will determine what’s in the best interest of businesses and consumers. When the smaller banks are able to release that capital to smaller businesses, the results will be exponential. “Small businesses make up 80% of this economy” To catch my full appearance, just click play on the video above. Thank you for watching.  Let me know your views on this topic.  Just send me your email at cdepstein@the401kcoach.com.    

Schedule a Consultation - Click here to get your free book First I’ll cover how much your employees, on average, will need to save to create their paycheck for life for retirement. Next, I’ll move on to something called the “Rule of 72,” which is a shortcut for figuring out how fast your money grows and how fast inflation can reduce the purchasing power of that paycheck for life. On average, I like to tell employees that they need to save at least 10% of their pay,  year in and year out, to effectively accumulate enough money to create a paycheck for life. More importantly, your employees need to calculate how much of their current income they need to replace when they get to retirement in order to successfully replace their income and have that paycheck for life. This is a calculation we’ve found that most employees don’t bother with, which is unfortunate because it’s the most important number.  How is this calculation done? In my industry, we have a technical word for it called the “income replacement ratio,” or the “income replacement formula.” It works like this: On average, when you reach retirement age, you’re probably not going to need 100% of your income; you’ll probably only need 70%, 80% or 90% of it. Why? Let’s imagine that you’re 40 years old, your annual income is $50,000, and you decide you want to retire at age 66 and start collecting that paycheck for life. We’ll also assume that you’re going to get social security, which will make up for a portion of that income replacement. If you’re only going to need 80% of your income, that would equate to $40,000. That’s $40,000 in today’s dollars, but complicating matters is this little problem called inflation.  The economic definition of inflation, in layman’s terms, is too much money chasing too few goods. Inflation basically erodes your purchasing power over the years, so you need your income or your savings to grow in order to keep up with the cost of living. “Don’t let your employees retire without a paycheck for life.” This is where the Rule of 72 comes into play. The Rule of 72 is a shortcut to figuring out how fast your money is going to be eroded by inflation. The rule of 72 helps you figure out how long you have until your income erodes to half of what you are currently making. So, since the inflation rates is 3%, you’ll take 72 and divide it by three. If the inflation rate was 4% and 5%, you would divide 72 by four or five. 72 divided by three is 24, therefore it would take 24 years for a $50,000 income to erode to $25,000.  Let’s turn this calculation around under the same assumption of working until age 66 with an annual income of $50,000. Replacing 80% of that $50,000 would equate to $40,000. However, in 24 years, that $40,000 is only going to be worth $20,000. That means you would actually need $80,000 just to keep pace with inflation when you get into your mid-60s.  If you’re thinking that this sounds too complicated or you’re wondering how your employees are going to calculate this, I have good news. Most 401(k) record keepers have calculators that will help your employees calculate their income replacement ratio and the effects of inflation. As a matter of fact, there are even some record keepers who, instead of giving out a statement of a lump-sum amount of how much money your participant has accumulated in their plan, they’ll actually convert that amount to a monthly income at the participant’s retirement age.  For example, if somebody needs $2,000 a month to live on and they have only $1,350 projected, the calculator will notify them that they’re short $650 and inform them how much additional money they would need to save at a reasonable rate of return at 3% inflation in order to create that paycheck for life.  If you’d like a list of the record keepers that actually do those calculations or convert the lump sum amount that they’ve saved into a monthly amount, email me at cdepstein@epsteinfs.com. What we’re covering here is mission critical. If your employees don’t know how much income they need to replace, what inflation will do to their paycheck over time, and what they need to save, they’re going to end up without enough money in their retirement account to create that paycheck for life.  One way we can help your employees understand exactly how much they need to save is something called a “gap statement.” The gap statement simply performs this calculation for them. As a matter of fact, with all our clients, we create a gap statement for all their employees. If you’d like a sample copy of our gap statement, feel free to email me again at the aforementioned address.  If you have any other questions about this topic and you would like to connect with me, don’t hesitate, send me an email. I look forward to helping you. 

Schedule a Consultation - Click here to get your free book Picture this: you’re getting ready to go on a great vacation. You’re standing at the airport gate when all of a sudden, the agent comes on the intercom and says, “The captain would like me to announce that there is an 85% chance that this flight will not make it to your vacation destination on time and safely. Have a nice trip!”  Are you going to get on that plane? Of course not! Why? Because there is a significant chance that you won’t make it there safely or on time.  In my 36 years as America’s 401K Coach, I’ve learned that there is an 85% chance that 85% of your employees in your retirement plan will not get to their destination—retirement—on time and safely.  That is why I’m starting this video blog. I will share all of the secrets to creating a successful retirement plan with you. You can even click here to get a free copy of my book, Save America, Save! so that you can learn all of my secrets right away.  “I can help you create a paycheck for life.” Over the course of the next year, I’ll send you a series of videos talking about everything that you can do as a plan sponsor to help your employees create their own paychecks for life. In fact, my first book, Paychecks for Life, has sold more than 20,000 copies. I highly recommend that plan sponsors read it so that you can pass valuable information on to your employees; click here if you are interested.  Every two weeks, you will get a video featuring one of my secret recipes. For example, you’ll learn how to reverse engineer the expenses for your retirement plan. You can reduce them or get Uncle Sam to pay 30% to 40% of those expenses. I’ll also discuss automatic features, part of the Pension Protection Act that provides complete fiduciary protection for you as a plan sponsor. If you take advantage of these powerful tools, you will help your employees save enough money to create that paycheck for life. If you have any specific questions, give me a call or send me an email and I’ll answer you with a video.  I look forward to hearing from you!