America has experienced several noteworthy shifts in the world of finance, but we often forget what used to be and focus solely on what is. Today, we are experiencing some of the lowest interest rates in modern history, as many of us can buy a home at a rate of under 4%. What we often forget is that in the 1970s and 1980s, rates were as high as 11.2%. We all see changes in our financial world daily, with markets rising or falling, interest rates varying, and the cost of living increasing.
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What does this mean for retirement? Looking back into the same window of time, the 1970s and 1980s was a time where pensions shined, and for most Americans, that pension was the backbone of their retirement plan. Interest rates have lowered, but so has the pension funding that has taken place for millions of Americans looking to exit the workforce in the next 10 years. The days of the company pension are nearly at an end, which means small business owners have taken on the responsibilities to solve problems for those around us. So, how can we aim to solve the problem of retirement funding for those who help us to serve our clients and customers? Below are some of today’s most common options.
• Payroll-deducted IRA or a Savings Incentive Match Plan for Employees – also known as a SIMPLE IRA – which allows smaller employers and employees to contribute to a traditional IRA as a sort of startup retirement plan if the employer doesn’t offer a sponsored plan.
• Pooled Employer Plan is a NEW type of retirement plan that was created through the SECURE Act. It allows employers of different sizes and across industries to work within a single plan that will take on the brunt of the administrative burden for the group of employers.
• Profit Sharing Plans can be discretionary. Depending on the plan terms, there is often no set amount that an employer needs to contribute each year. If you do make contributions, you will need to have a set formula for determining how contributions are allocated among plan participants. The funds are accounted separately for each employee. These plans can vary greatly in their complexity.
• Defined Benefit Plans offer business advantages. For instance, businesses can generally contribute (and therefore deduct) more each year than in defined contribution plans.
The fundamental lack of education can lead small business owners to feel that they’re not able to help employees retire comfortably, but that’s truly not the case. Contact a trusted financial Adviser to go over all the possible retirement options available in order to find the best fit for your business and employees.
Author: Jake Guttman, FSCP, is the Founder & CEO of Rosevest Financial that provides a variety of services including financial, legacy, investment and retirement planning, as well as risk and wealth management. For more information visit rosevestfinancial.com. Securities and advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC.
