Don’t Let a College Savings Plan Crack Your Retirement Nest Egg

Wednesday, January 18 at 09:15 AM
Category: Personal Finance

Balancing saving for retirement and saving for your child's college can be tricky. Here are some tips to help you manage both at the same time.

LOWELL, Ark.  Two of the largest savings plans consumers need to fund and manage in their lifetime are saving for their child’s college and for their personal retirement. These are plans that take time to adequately build, but one doesn’t have to negate the other. Both can be managed successfully and simultaneously through early planning.

“Above all, start saving for both as soon as possible,” said Donny Rogers, President of Arvest Bank Trust. “From the moment you get your first job to the moment you learn you’re going to be a parent, set aside money and let it grow.”

Rogers says the balancing act begins with determining how much of the college expense parents want to fund and what other big-ticket expenses they may also cover for their children. 

“It’s smart to focus on saving for college, but the reality is that there are a few other large expenses that require long-term budgeting,” Rogers said. “If you plan on buying your teenager their first car or paying for a daughter’s wedding, you need to factor those expenses into your budget so you segment your savings plans across the board. I always tell parents that it’s fair to require some ‘sweat equity’ from their kids so they contribute to the expense of paying for a car or shouldering a portion of any student loans. There’s no expectation that parents pay 100 percent of all of those expenses.”

A 529 Plan offers a tax-free savings option for college that is specifically earmarked for post-secondary education. These state-specific plans have different rules of engagement but typically can be used to fund expenses from tuition to housing to other necessary items for school. Significant supplemental funding is also available in the form of academic, athletic and arts scholarships.  

While you can borrow for college expenses, you can’t do the same for retirement savings. Therefore, it’s critical to begin saving early for your retirement nest egg and to budget in parallel with other savings priorities. Maximizing an employer’s 401(k) matching option puts “free money” in your account. In the event you need to adjust your savings more heavily toward college, be sure not to reduce your retirement savings below the level of employer matching. It’s recommended that 10 percent of your income be allocated toward retirement every year.

“Regardless of how well you plan, there will inevitably be change and the need for adjustments along the way, and that’s perfectly normal,” Rogers said. “Consistency will reward your efforts when you need to utilize those funds.”

The so-called “catch-up plan” that allows individuals age 50 and over to make extra contributions can help consumers make up for lost ground during the saving process, once college and major expenses have been paid for, but Rogers advises customers not to lean too heavily on that option. He says the number of variables involved in retirement planning can sometimes cause consumers to miss significant savings. Those may include the length of time one plans to work, or is able to work; the kind of lifestyle one wants to lead after retirement; the security of their career and other potential factors or risks.

In addition, the rate of inflation and the rising cost of college tuition will affect how much of an impact savings for college and retirement have on the larger family budget, making that early foundation and steady savings plan even more important in the long run.

Tags: College, Financial Education, Press Release, Retirement, Savings
 

Retirement Savings Fall Short for Most Americans

Monday, October 03 at 09:00 AM
Category: Personal Finance

National Financial Planning Month is a good time to re-evaluate.

LOWELL, Ark.  In most American households, saving for the next “big ticket” purchase is always on the radar, whether it be a new home, a new car or even a television. More often than not, however, the retirement nest egg isn’t considered something that needs funding in the immediate future.

A survey by GoBankingRates this year revealed that one-third of Americans have no retirement account whatsoever. The poll included respondents from multiple generations - millennials, Gen Xers and baby boomers. Among those, 23 percent have saved less than $10,000 for retirement.

The National Institute on Retirement Savings (NIRS) affirms those findings, reporting that the “average working household has virtually no retirement savings” and households that are near retirement have a median savings of around $12,000. Because October is National Financial Planning Month, it is a good time for households to review retirement objectives and plans.

“Saving for retirement is one of the most important investments consumers should make,” said Ben McLintock, Arvest Wealth Management Regional Investment Officer. “Being able to live life on their own terms is a priority for every client we serve. The most valuable resource we all have when it comes to planning for your retirement is time. The sooner you start saving, the chances of reaching your retirement goals go up significantly. It’s about finding a balance between saving for the future and enjoying life today."

“Our clients appreciate the value they get from working with a team of professionals to create a sound financial plan to assist them with growing, managing and protecting their retirement funds. Saving doesn’t have to be overwhelming, and getting an early start on building a retirement account means less stress later in life.” 

For those who have not started saving, McLintock advises to: 

- Start saving immediately

- Begin by outlining a budget of mandatory expenses

- Determine how much free cash flow can be set back, even if it’s only 2 percent of your income

- Enroll in employer-sponsored retirement plans, especially those in which your employer matches part, or all, of your contribution; not doing so is leaving free money on the table

- Invest a percentage of pay raises, tax refunds and other financial gains into retirement savings

- Set a goal of saving 70 to 80 percent of annual pre-tax income for every year you will be retired

- Diversify savings between 401(k), equities, bonds, traditional savings, etc. 

For those who have begun saving:

- Re-evaluate savings goals and objectives

- Diversify savings options

- Determine the financial requirements for your personal retirement lifestyle

- Seek advice from a financial advisor to help define and maximize asset allocation and risk assessment, as well as to update goals periodically 

It’s not uncommon for retirees to be faced with various unexpected expenses during their “golden years,” most of which are the result of poor retirement planning or misguided spending expectations for which they didn’t anticipate earlier in life.  

“Once you are relying on your savings to pay for your daily expenses and all the fun things you wanted to do in retirement, it becomes very difficult to bridge funding gaps caused by things like age-related medical issues, or retirement benefits going away when a spouse passes away,” McLintock said. “It’s important to understand that, for most people, the amount of retirement income they will receive from Social Security will not be enough to support them.” 

McLintock says those financial hurdles can be avoided with a well-planned retirement goal and a savings strategy that begins as early as possible, when earning is at its peak and savings should be as well.

Tags: Financial Education, Press Release, Retirement, Savings
 

What is a Charitable Remainder Trust?

Monday, July 25 at 09:30 AM
Category: Personal Finance

 A charitable remainder trust is a tool for dividing your wealth between private and philanthropic beneficiaries. Private persons — yourself, you and your spouse, other family members, there are no restrictions — receive the income from the trust. The trust may last for a set number of years, or for the life of an income beneficiary, or for the joint lives of more than one beneficiary. When the trust ends, the charity receives all the remaining assets. 

The income from the trust is determined under one of two formulas. With a charitable remainder annuity trust, a specific dollar amount is paid every year to the income beneficiary, regardless of what happens in the financial markets. The alternative is a charitable remainder unitrust, from which a specific percentage of the trust’s value is paid out each year. The advantage of the annuity is that it can’t go down. It is an income stream that the beneficiary can plan on receiving. The advantage of the unitrust is the amount of income will go up over time as the value of the trust assets goes up. That offers the possibility of inflation protection. 
 
Income and gift tax charitable deductions are available when the charitable trust is funded, because such a transfer is irrevocable. Another important benefit is tax-free diversification of concentrated holdings, or tax-free conversion of a valuable asset into an income stream. When an appreciated asset is transferred to the charitable trust, the tax deductions are determined by full fair market value. If the trust sells the asset, there is no tax on the capital gain—in effect, the capital gains tax is forgiven. Example: The owner of a Stradivarius violin needed to transform the value of the instrument into his retirement income. He did so by transferring the violin to a charitable remainder trust, naming himself as the income beneficiary. 
 
See your tax advisors to learn more. 
 
Article courtesy of Merrill Anderson. (April 2015) © 2015 M.A. Co. All rights reserved.

Find your local Arvest Trust Advisor to learn more.

Tags: Financial Education, Retirement
 

6 Financial Traps New College Graduates Should Avoid

Wednesday, July 13 at 10:25 AM
Category: Personal Finance

As recent college graduates start their careers, their financial lifestyle should be top of mind, says the American Bankers Association. ABA has highlighted six traps new college graduates should avoid to fortify their finances as they transition from the dorm to the office.

“Now is the time for college grads to get their financial life started on the right foot,” said Corey Carlisle, executive director of the ABA Foundation. “When it comes to managing your finances in the real world, pulling an all-nighter isn’t the best strategy. Forming positive financial habits today will set you up for lifelong success.”

According to ABA, new college graduates should avoid the following financial traps:
 
  • Not having a budget. Don’t spend more than you make. Calculate the amount of money you’re taking home after taxes, then figure out how much money you can afford to spend each month while contributing to your savings. Be sure to factor in recurring expenses such as student loans, monthly rent, utilities, groceries, transportation expenses and car loans.  
  • Forgoing an emergency fund. Make it a priority to set aside the equivalent of three to six months’ worth of living expenses. Start putting some money away immediately, no matter how small the amount. A bank savings account is a smart place to stash your cash for a rainy day. Use your tax refund for this instead of an impulse buy.
  • Paying bills late – or not at all. Each missed payment can hurt your credit history for up to seven years, and can affect your ability to get loans, the interest rates you pay and your ability to get a job or rent an apartment. Consider setting up automatic payments for regular expenses like student loans, car payments and phone bills.
  • Racking up debt. Understand the responsibilities and benefits of credit. Shop around for a card that best suits your needs, and spend only what you can afford to pay back. Credit is a great tool, but only if you use it responsibly. 
  • Not thinking about the future. It may seem odd since you’re just beginning your career, but now is the best time to start planning for your retirement. Contribute to your employer’s 401(k) or similar account, especially if there is a company match. Invest enough to qualify for your company’s full match – it’s free money that adds up to a significant chunk of change over the years.  
  • Ignoring help from your bank. Most banks offer online, mobile and text banking tools to manage your account night and day. Use these tools to check balances, pay bills, deposit checks, monitor transaction history and track budgets. 
For more tips and resources on a variety of personal finance topics such as mortgages, credit cards, protecting your identity and saving for college, visit aba.com/Consumers.*
 
The American Bankers Association is the voice of the nation’s $16 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $12 trillion in deposits and extend more than $8 trillion in loans.
 
Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution. 

Tags: Budgeting, College, Debt, Financial Education, Retirement, Savings
 

Why Choose a Corporate Trustee for Your Company's Retirement Plan?

Wednesday, June 15 at 07:10 AM
Category: Business Banking

As a business owner who sponsors a tax-qualified retirement plan, you know whether it's a traditional pension (defined benefit) plan or a 40l(k) or similar defined contribution plan, there are stringent rules that must be followed in order to maintain the plan's tax-deferred status.

The "master rulebook" for retirement plan sponsors to follow is the Employee Retirement Income Security Act of 1974 (ERISA). Failure to follow the requirements and standards set by ERISA may result in severe consequences. For instance, plan fiduciaries may be personally liable to reimburse any losses to the plan, or to restore any profits made through improper use of plan assets.
 
Plan Fiduciaries and Trustees
ERISA protects a plan from mismanagement and misuse of its assets by establishing a fiduciary relationship between the plan and anyone who exercises discretionary control or authority over plan management or assets; anyone with the discretionary authority or responsibility for management of the plan; or anyone who provides investment advice to the plan and its participants for compensation (or has the authority or responsibility to do so).
 
Plan fiduciaries include the plan's administrators, investment advisors and members of a plan's investment committee. Because ERISA requires the assets in a retirement plan be held in trust, a trustee of the trust is considered a fiduciary as well.
 
The primary responsibility of a trustee, as with any fiduciary, is to operate the plan solely in the interest of the plan participants and their beneficiaries for the exclusive purpose of providing benefits and paying plan expenses. The trustee must act prudently, using the same care and skill an expert would in similar circumstances. When it comes to investments, they are required to diversify in order to minimize losses (unless it is determined it is not prudent to do so). In addition, they can act only as directed in the retirement plan document, unless for some reason the provisions in the plan are not in compliance with ERISA. 
 
Every plan must have at least one "named fiduciary," who serves as the plan's administrator, and at least one trustee.
 
Benefits of a Corporate Trustee
Some business owners wonder whether it's necessary to employ a corporate trustee or, instead, to "self-trustee" the plan. This idea might seem appealing in instances where the trustee is not the investment advisor. To the casual observer, it might appear a corporate trustee merely serves in an administrative capacity taking in and disbursing funds and doing the record keeping involving addition and subtraction of plan participants as they come and go. Aren't these tasks easy enough for the company to take on itself, rather than going to the expense of paying a corporate trustee?
 
Schultz Collins Lawson Young & Chambers, Independent Investment Counsel of San Francisco, discusses this issue in an article entitled "Why Employ a Corporate Trustee?: The Costs and Benefits of Using an Institution to Trustee Your Qualified Retirement Plan." They offer several good reasons to seek the services of a corporate trustee:
  • Fiduciary responsibility, when distributed broadly over several parties, reduces the potential for conflicts of interest.
  • There is a multitude of time-consuming administrative functions that can be delegated (processing receipts and disbursements, preparing consolidated asset and income statements, filling out and filing tax returns, to name just a few).
  • A corporate trustee is "in the business" of providing trustee services, thus minimizing the possibility of mistakes and oversights that might lead to imposition of penalties or even cost the plan its tax-qualified status.
  • When plan assets are managed by a corporate trustee, participants enjoy an extra degree of protection that the assets will be used in the way they should.
Turn to Us
As you can see, there are many reasons to seek a corporate trustee, such as us, an institution with broad experience in plan administration and investment management. Please contact a local Trust Officer to discuss in more detail what our services and capabilities as a corporate trustee can offer you and your company's retirement plan.

© 2015 M.A. Co. All rights reserved.Any developments occurring after January 1, 2015, are not reflected in this article.

Tags: Arvest Biz, Business Banking, Financial Education, Investing, Retirement
 

Benefits of a Co-pilot in Portfolio Management

Monday, June 13 at 09:45 AM
Category: Personal Finance

Appendix removal? Use a professional every time. Root canal? Same answer. Litigation? Go with the best pro you can hire. Car repair? Hire a specialist. Invest your money? Save money by doing it yourself. Do you see any inconsistencies in this thinking?

It's true an investment advisor is going to charge a fee for services rendered. That seems to be a reasonable expectation. But, why wouldn't you be inclined to hire a professional in this case, as you would in the other examples above?
 
It's fairly easy to simply hold your investments, make few changes, collect the income, and distribute funds according to your financial plan. It's often sound financial advice to find some good investments and hold them for the long term. So maybe in that case, where everything is on autopilot, an investment advisor may seem unneeded.

But, as you are automatically flying along, do conditions change? Do objectives change? Does the equipment you are using need attention? Are there facts that arise you did not consider when you filed your flight plan?

You understand the need to hire a pro when it involves something you absolutely cannot do yourself. You also know you can't simply create a plan and make no changes for the rest of time.
 
Now, consider the possibility your results would improve with the help of an investment advisor. Consider whether the advisor might earn a fee and still return more to you than you are earning right now. Consider also the possibility the advisor will not make rapid changes but will make adjustments to your investment portfolio that make sense as times change. It might just make sense to sit down periodically with your advisor to take an independent look at the portfolio. With this outside push and evaluation, you could more likely be motivated to take a hard look at where you are now, and if that is where you want to be in the future.
 
Also, consider all of the time and resources the fee you pay will bring to the table. You cannot possibly duplicate the knowledge and experience of a firm of advisors who are doing investment management full time. You may read the Wall Street Journal and other financial periodicals or even have a newsletter or two you read faithfully. You may tune into your favorite cable financial show. But, does that give you a base knowledge to assist you with your financial management? Yes, it does that very thing. But, can you do better with an investment advisor who has made a career of it? Probably so. In fact, if you are a knowledgeable user of those services, the advisor will appreciate your input and the discussion about your investments will be even more productive.
 
There is another reason to use a professional. That is when one marriage partner has little investing experience. When one’s chances of dying or developing a serious illness is greatly increasing you want to have a trusted financial advisor in place. So, test drive an advisor before that happens.
 
Certainly, look around at the alternative services available. Meet with the potential advisors. See if you like their approach and relate well to what they say. Yes, you can compare costs from one to another. You can also ask to see what their past performance has been. You can even start out with a small part of your portfolio to see how it goes. 
 
You may find you get better results. You might have a better assurance your investments are being well taken care of. Plus, there is the added benefit of more time to enjoy the fruits of your investments and less time to spend studying, managing, changing and updating your portfolio on your own. You may not be on autopilot, but you will feel better, perhaps, having a co-pilot on board.

If you have additional questions, please feel free to contact your local Client Advisor.
 
© 2015 M.A. Co. All rights reserved. Any developments occurring after January l, 2015, are not reflected in this article.

Tags: Financial Education, Investing, Retirement, Savings

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