Building an Emergency Fund

Building an Emergency Fund
Everyone should aim to have a cash reserve.

BY GREG OLIVER

We all would love to have a little extra cash on hand for emergencies. Saving up that cash can be a challenge – but with a little effort, that challenge can be met.

Imagine a 30-year-old couple with no real savings. Let’s call them Kurt and Diana. Together, they earn about $8,000 a month, but their household finances are being squeezed by education debt, rent, and the high cost of living in an affluent metro area. They have about $300 in the bank between them, and they just learned they have a baby on the way. Their need to save has never been greater. How can they do it?

They have many options for building their fund, more than they first assume. Kurt has an old dirt bike gathering dust in his dad’s garage, and he is no longer into off-road motorcycling. Even in its dusty condition, it could easily be sold for more than $1,500. They each have gym memberships; Kurt drops his and Diana switches to a cheaper gym, leading to a 12-month savings of $500.

Kurt also explores the possibility of working weekends or evenings as a barista in addition to his full-time job, a move that could bring in a couple of thousand dollars in the next few months. The pair sense they have a federal tax refund coming – and the average I.R.S. refund for the 2015 tax year was $2,860. They could put some or all of a four-figure refund toward their emergency fund, rather than toward paying down their student loans.1

Ideally, Kurt and Diana’s emergency fund should be $25,000 or more (the equivalent of 3 or more months of living expenses). No, they are not going to come close to that this year. Or next year. They have started, though, and it looks as if they will soon have a few thousand dollars set aside for emergencies. Even having $1,000 could ease many acute financial pains.

There are numerous potential ways to boost your emergency fund. Some are simple: save $5 or $10 a week and deposit it, eat out less, drop those memberships and subscriptions, sell something, save the money the I.R.S. hands back to you. Some require more ingenuity and energy: getting a part-time job for supplemental income, renting out a room.

Perhaps the easiest way of all is to create an automatic transfer of a small portion of your paycheck into a dedicated emergency savings account each month. Saving will seem painless this way, and when you pay off a debt, you can direct the money you used each month to reduce it into your emergency fund instead.

GREG OLIVER
Citations.
1 – fool.com/retirement/2017/02/26/how-big-is-the-average-americans-tax-refund.aspx [2/26/17]

Daylight Saving Time

couple peeping through hole in white paper

Daylight Saving Time
March 12 at 2:00 a.m.

Have you noticed the sun is taking a little longer to set in the evening? That must mean the days are getting longer, with Daylight Saving Time not far away.

When does Daylight Saving Time begin this year? Sunday, March 12 at 2:00 a.m., to be precise. At that point, clocks will move forward one hour (and if you have clocks to set by hand, you will want to do so before you go to bed on March 11). In exchange for an extra hour of sunlight in the evening, we also get an hour less sleep on March 12 – but that is not such a bad tradeoff.

GREG OLIVER
OLIVER Financial Services

Could You Create Your Own Pension Plan?

Could You Create Your Own Pension Plan?

SBOs are taking a new look at old-school defined benefit plans.

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By GREG OLIVER

Contrary to popular belief, classic pension plans have not disappeared. Corporations have mostly jettisoned them, but highly profitable small businesses are giving them a second look. Why are small business owners deciding to adopt old-school, employer-funded retirement plans?

The tax breaks attached to a defined benefit plan may be substantial. In fact, if these plans are funded with insurance contracts or guaranteed insurance products, plan contributions made by the owner become tax-deductible for the business.1

There is no cap on how much you can save. IRAs, 401(k)s, and SEPs all have annual contribution limits. Traditional employer-funded pension plans do not. Business owners have the potential to accumulate millions for the future through such a vehicle.

For the record, the IRS does limit the yearly retirement income that a participant in a defined benefit plan may receive. In 2017, the pension benefit resulting from such a plan may not exceed a) $215,000 or b) 100% of the participant’s average compensation across his or her three highest-paid consecutive years of service.2

If you are earning well into six figures and you are 45 or older, you may have entered the “sweet spot” when it comes to defined benefit plans. You will presumably be in your peak earning years, and yet you may need to accelerate retirement savings. A defined benefit plan offers you the possibility to do just that.

What are the downsides? Cost and complexity. Actuaries have to be involved (and paid) when you have one of these plans; you need an actuary to perform regular and annual calculations and valuations to see that the plan is being properly funded. In addition, the pension benefits need to be insured through the federal government’s Pension Benefit Guaranty Corporation (PBGC), and in exchange for that service, the business must pay the PBGC annual premiums.2,3

An actuary must determine the annual employer contribution amount needed to fund the plan (typically adjusted yearly in light of investment performance) and the actuarial formula used to make contributions per worker. The business must fund the plan annually, regardless of how well it is doing.4

What businesses are bad candidates for defined benefit plans? If you have a small firm with ten or more employees, or if most of your employees are older or high-salaried, these plans may be a poor choice. That is because the employer contributions could be very expensive, even if you opt for vesting.1,3,4

What businesses are good candidates? Accounting, consulting, and medical practices are often good fits for these plans; seeing how many baby boomers have elected to continue working as consultants, you may see interest rising in them during the coming years.1,3,4

GREG OLIVER USA 0970709[70979[7979[79[070709000
Citations.
1 - investopedia.com/terms/1/412i.asp [12/20/16]
2 – irs.gov/retirement-plans/plan-participant-employee/retirement-topics-defined-benefit-plan-benefit-limits [10/28/16]
3 – cfo.com/retirement-plans/2016/03/weighty-new-conundrum-pension-plan-sponsors/ [3/31/16]
4 – us.axa.com/axa-products/retirement-planning/articles/understanding-defined-benefit-plans.html [10/16]

PLUS FOR YOU…..Amazing other BREAKTHROUGH SHOWS YOU HOW TO HAVE HUNDREDS or THOUSANDS of EXTRA DOLLARS EACH YEAR in YOUR RETIREMENT!

NO FEES! NO HIDDEN EXPENSES! NO GIMMICKS!

Your deadline is April 18, 2017

Your deadline is April 18, 2017.1

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IRS ALERT !!!!!

2016 may be over, but you can still make your 2016 IRA contribution! Your deadline is April 18, 2017.1

You can put up to $5,500 into your IRA for the year 2016. If you were 50 or older in 2016, the limit is $6,500. Those limits are for total IRA contributions – so if you have multiple IRAs, that is the maximum you may contribute to all of them for 2016.2

Make sure you make your 2016 contribution by the deadline! Call, text, or email us – we can help you arrange it with one convenient appointment.

Yours truly,

GREG OLIVER

«RepresentativeDisclosure»
1 – irs.gov/retirement-plans/ira-year-end-reminders [12/8/16]
2 – foxbusiness.com/markets/2016/12/22/ira-contribution-limits-in-2017.html [12/22/16]

Is Women’s Wealth Growing Faster Than Men’s Wealth?

Is Women’s Wealth Growing Faster Than Men’s Wealth?

One study says yes. Two major factors may be influencing the trend.

BY GREG OLIVER

Picture the women of the world growing wealthier. It’s happening right now. Research from the Boston Consulting Group affirms this development. BCG, a leading business strategy advisor, says that as the world grew 5.2% wealthier between 2015 and 2016, women’s wealth grew 6.6%. In total, women own about $39.6 trillion in assets worldwide, and possess a 5% greater share of global wealth in 2016 than they did in 2011.1

What are some of the reasons behind this shift? One reason is that more women are becoming successful business owners. Census Bureau data from 2012 (the most recently available year, at this writing) shows women owning 36% of U.S. businesses, a 30% leap from the levels of 2007. As the ranks of middle market companies rose 4% from 2008-2014, the number of women-owned or women-led middle market firms soared by 32%.2

This has all taken place even though female entrepreneurs typically start a business with 50% less money than their male peers, according to research from the National Women’s Business Council. Perhaps most impressive has been the growth of businesses owned by Latina and African-American women. American Express OPEN found that from 1997-2015, the number of U.S. firms owned by Latinas increased by 224%. Simultaneously, the number of businesses owned by black women rose by 322%. African-American women started up companies at six times the national average during those 18 years.2,3

Beyond the business world, there is a second major reason for the increased net worth of women. They are acquiring or inheriting significant wealth from parents, spouses, or relatives, some of whom are millionaire baby boomers or members of thriving business-class households in emerging economies.1

In reference to the latter phenomenon, the net worth of women who live in Asia-Pacific nations other than Japan has risen by an average of 13% a year since 2011. Globally, assets under management owned by female investors grew 8% per year in that time.1

The BCG white paper projects that women may grow even wealthier by 2020. It forecasts that by then, women will control $72.1 trillion of assets around the globe, thanks to their collective wealth increasing by about 7% a year.1

GREG OLIVER
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Citations.
1 - time.com/money/4360112/womens-wealth-share-increase/ [6/7/16]
2 – forbes.com/sites/geristengel/2016/01/06/why-the-force-will-be-with-women-entrepreneurs-in-2016/ [1/6/16]
3 – blackenterprise.com/small-business/black-women-business-owners-outpace-all-other-startups-six-times-national-average/ [3/4/16]