Welcome to Retirement A to Z, I’m Sue Burnett w Monarch Financial Advisors, and this series focuses on Qualified Retirement Plans.
This is Episode P, where we’ll be discussing 3 ways that a qualified plan can protect you and your savings. What kind of protection, you may ask? Does it protect your benefit? Your business? You? The answer is yes, to all 3 questions.
A qualified plan can protect your benefit amount, protect your benefit from creditors, and protect your benefit payment to your family if you pass away before retirement
How? Take a listen! Have any questions? Shoot me an email at MonarchFinancialAdvisors@gmail.com.
Thanks for listening in!
Welcome to Retirement A to Z, I’m Sue Burnett w Monarch Financial Advisors, and this series focuses on Qualified Retirement Plans.
This is Episode P, where we’ll be discussing 3 ways that a qualified plan can protect you and your savings. What kind of protection, you may ask? Does it protect your benefit? Your business? You? The answer is yes, to all 3 questions.
A qualified plan can protect your benefit amount, protect your benefit from creditors, and protect your benefit payment to your family if you pass away before retirement
How? Take a listen! Have any questions? Shoot me an email at MonarchFinancialAdvisors@gmail.com.
Thanks for listening in!
Welcome to Retirement A to Z, I’m Sue Burnett w Monarch Financial Advisors, and this series focuses on Qualified Retirement Plans. There are a lot of moving pieces with these plans, and the rules are complicated and complex, so we’re going to break them into smaller pieces – 26 pieces, to be exact, from A to Z, with maybe a few extras thrown in for good measure.
This is Episode P, where we’ll be discussing 3 ways that a qualified plan can protect you and your savings. What kind of protection, you may ask? Does it protect your benefit? Your business? You? The answer is yes, to all 3 questions. Let’s talk it through.
The first protection that a qualified plan offers is income protection. We talk about this more in Episode G, for “guarantees”, but it’s worth mentioning again. With a defined benefit plan, you’re guaranteed a benefit over your lifetime. No matter how long you live, you’ll receive payments from the plan. And, regardless of how much is in the pension trust, the plan document guarantees you the benefit that you’ve earned over the years. Although defined benefit plans are on the rise, especially cash balance plans, most businesses have shifted over the last 20-25 years to a defined contribution plan, like a 401k, SEP, or profit sharing. These plans are account based, which means that when you quit, or retire, you’d take a lump sum balance with you. Most of these plans didn’t even offer a lifetime income benefit. How do you know how much to take each year? What if you take too much out, and you run out of money? Almost half of Americans have that worry – that they’ll outlive their savings. Thanks to the SECURE Act, passed a few years ago, 401(k) plans and other account based plans are now required to offer a lifetime income benefit, in addition to a one-time lump sum, which will help reduce this worry. Now, this doesn’t mean that when you’re 35 years old, that your benefit will be guaranteed at age 60! Defined contributions plans like 401(k)s have no future guarantees, because the contributions made as well as the investment returns aren’t known. What you can count on, though, is the ability to change that lump sum to a payment over your life. So this is one way that a retirement plan protects you, IF You choose the income option. If you don’t – well, that’s up to you! But the offer is required to be there!
Here’s a fun fact – a 65 year old man can expect to live for another 18 more years, and a 65 year old woman can expect another 20 years plus. Why is that? I’m not touching that question with a 10 foot pole … if you google it, you may see some of the reasons!
The second way that a qualified plan protects you is that it protects the money in the pension trust from creditors in case your business goes bankrupt. The money in that trust is for the sole benefit of the participants, and is pretty sacred. As long as the business has one person in the plan that isn’t an owner, then it is covered by ERISA and creditors can’t get at those assets. If you remember the name OJ Simpson, you know that he was charged with killing two people. He was acquitted in criminal court, but was ordered to pay millions in civil damages. Guess what wasn’t counted in those assets? His retirement plan from the NFL. It’s a great story, but it proves the point I’m trying to make – no matter how much the creditors can take, they can’t not take any money from your business’s pension trust. For professions who have a lot of lawsuits filed against them, this could be a great way to be sure at least a portion of your assets stay in your pocket!
Finally, there’s one more way that a qualified plan protects you – it could actually protect your life. It’s true - life insurance can be used as an investment in a qualified plan, up to certain limits, and the insurance policy would protect your family if you were to pass away without getting your benefit to the levels that was expected. We call this a self-completing benefit. Let’s take an example. Suppose an owner would like to have 2M at retirement, and sets up a pension plan to target this amount in 15 years, which is when he wants to retire. If a portion of the contribution for the owner purchases a life insurance policy with a $2M death benefit, that owner would be assured that regardless of what happens to him, whether he lives or dies, his family will have $2M. If he lives – great! The plan will pay him $2M because it’s guaranteed. If he doesn’t live, his beneficiaries will be paid $2M from the death benefit, plus whatever he had accrued in the plan. There are a lot of other benefits to having Life insurance in a qualified plan, and we discuss them in Episode L – go check it out!
Wrapping it all up – a qualified plan can protect you from outliving your income by providing a lifetime benefit, the pension trust can protect your retirement assets from creditors if your business goes bankrupt, and life insurance as an investment can protect your family if you pass away sooner than expected. That’s a lot of protection for you and your family, and could give you peace of mind when planning for the future. Wondering how this would work for you and your business? We can definitely help determine what protection a qualified retirement plan can offer to you, your business, and your family.
Wanna learn more? Tune into the other a to z podcasts where we continue to break down these wonderful and complex plans into bite size pieces. Remember, how do you eat an elephant? 1 bite at a time. Have any questions? Shoot me an email at MonarchFinAdvis@gmail.com. Thx for listening in and have a great rest of your day!