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Saving for Retirement
By Ed Wallack
Do you know exactly where you stand on the path to a secure retirement in light of the Great Recession? Over the 10 year period through 2009 (the “Lost Decade”), the total effective yield of the S&P 500 was -24.05.1
As a further impediment to attaining financial security, pending no new legislation President Bush’s tax cuts are scheduled to expire at the end of this year and President Obama has proposed increases in capital gains and income taxes in his 2011 budget. Two provisions that will have the biggest effect on high (i.e. over $250,000) wage earners are the tax on investment income (i.e. a new 3.8% Medicare tax) and the tax applicable to wages (a new 0.9% Medicare tax). The bogey has been raised and now may be an ideal time to consider tax effective strategies to make up for lost time.
If you are a business owner looking to shelter significant income on a tax-deductible basis, you may need to go beyond a traditional 401(k) plan (which limits a high wage earner to a $16,500/year contribution) or profit sharing plan (limited to 25% of compensation, not to exceed $49,000). A defined benefit or cash balance plan allows a business owner to fund for a lump sum benefit at age 62 of over $2,500,000! For example, if you are age 53, you can design a plan allowing for a total plan contribution of over $230,000/year into the program! And if the employer already sponsors a 401(k) plan, this type of plan design can be created with little or no additional cost for your employees.
While qualified plans remain one of the few legal tax shelters available, many individuals who do not own or control a business are similarly faced with the reality of needing to accumulate additional assets to attain a rewarding retirement. For these individuals, an institutionally priced life insurance policy can provide similar tax advantages of a Roth IRA. A Roth IRA offers tax-deferred accumulation, tax-preferred distribution and income tax-free death proceeds. However the Roth IRA has annual contribution limits of $5,000/year prior to age 49 and $6,000/year afterward. Life insurance offers a combination of advantages; no annual limits, tax deferred accumulation, tax-advantaged distribution and income tax-free death benefits.
If you would like to know where you stand on the road to retirement and receive a complimentary personal roadmap, please call or email the specialists at Sapers & Wallack.
Ed Wallack is the President of Sapers & Wallack. Ed specializes in creative methods of designing life insurance and employee benefit programs to help businesses and their key executives solve their unique problems. His areas of specialization encompass wealth accumulation and preservation planning, deferred compensation, and business continuity. Please contact Ed at 617-225-2600 or via email at ewallack@sapers-wallack.com.
1S&P 500 S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.
NFP Securities, Inc. does not provide legal or tax advice. Any decisions whether to implement these ideas should be made by the client in consultation with professional financial, tax and legal counsel. Death benefits subject to the claims paying ability of the carrier.