How To Plan For Retirement

Transcription

1 Planning Your Exit and Retirement: Financial and Product tips for a Successful Transition July 15, 2015 Steve Parrish, JD,CLU,ChFC read my weekly Forbes column at:

2 Three Challenges; Three Solutions CHALLENGES Exit Strategy Retirement Estate Planning SOLUTIONS Planning Preparation and papers Products Your Practice

3 Prioritizing Your Business and Personal Needs TRANSITION PROTECTION Practice Owner Challenges

4 Where I m Coming From 39 years in, and 1 month out Adjunct professor Journal of Financial Service Professionals Forbes 158 columns 415,586 total visitors 625,125 total pageviews

5 Protection and Income Replacement Morbidity Medical insurance Long term care insurance Disability Income protection Practice protection Buy-sell funding Mortality Basic life insurance Supplemental life insurance Key Person funding Replacement costs Buy-sell funding Deferred compensation

6 Tax and Design Considerations Disability income Bonus v. salary replacement Overhead expense protector Long term care Limits Design P.P.A Life Insurance - risk Section , 412, etc. Funding Term v. permanent Bonus

7 Exiting Your Practice Cash flow, credit and receivables Compensation and fringe benefits Business valuation and continuation Taxes

8 Tax Considerations $464,850 $464,850 $309,900 $12,300 Trusts $83,400 AMT $250,000 Medicare Surtax $250,000 Medicare Employment tax PEP and PEASE limitation Tax Bracket Increases Capital gain & Dividend income (USING MARRIED FILING JOINTLY TAX YEAR 2015)

9 Professional Firm Tax Issues Employment taxes and flow through taxation Flat tax for P.C.s Accumulated Earnings Fringe benefits for flow through entities

10 Three 2014 Cautionary Tales Estate of Franklin C. Adell, TC Memo estate says $0; IRS says $92.2 MM; Court says $9.3 MM Selzer v. Dunn, 2014 WL , No CV (Ct. App. Tex. Jan. 31, 2014). Cleanline Products, Inc. a failed business continuation plan Baur v. Baur Farms, Inc., Iowa Sup. Ct., No , remanded 2014) a family flair-up

11 Buy-sell Reviews: Top Three Transition Events Most business owners will tell you that their business IS their retirement. But have they taken THE NECESSARY STEPS to make that a reality? Percentages of business owner agreements that cover the top three transition events and those that include them as mandatory triggers* % 70% 62% 35% DEATH DISABILITY RETIREMENT Mandatory buy-out events 23% 12% *Source: Review of 720 buy-sell reviews by the Principal Financial Group, January 1, 2011, July 31, 2014

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13 Step 1: Business and Personal Survival Financial Analysis Family Dynamics Analysis Business Valuation (with adjustments) Family Financial Needs Financial Gaps Family Issues Integrate with Overall Business Concerns

14 Step 2: Exit Plan for Owner Determine Objectives Assess Exit Techniques Maximize value Minimize taxes Maximize flexibility Sale Capital transfer Gift

15 Step 3: Funding Transfer Plan 1. Determine Funding Events 2. Funding Opportunity Review Target Dates (Retirement, Sale, etc) Contingent Events (Death, Disability, Divorce, etc) 3. Create Funding Plan 4. Pre-Funding 5. Execute and Monitor

16 Exit Planning Best Practices Reflecting business value in agreement Spousal agreement Coordination with Life Insurance Business Continuation LLC or GP Funding considerations

17 The Retirement Challenge Social Security Employer Pension Your Practice Personal Savings

18 First, define retirement Career switch in 50s or 60s? Reduction in income Sale of part or all of a practice One spouse retires; one doesn t

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20 Insidious costs: inflation and taxes $100,000 X 2% C.D. = $2,000 gross return ($1,620) inflation loss + $2,000 gross return = $380 real return CPI in 2014: 1.62 = $1,620 inflation loss of $2,000 = $860 ($480) after tax real loss

21 Qualified and Nonqualfied/Bonus plans Qualified Plans 415 Limits Coverage Limits Nonqualified and Bonus Plans

22 Retirement Planning Best Practices INCOME versus CAPITAL Retirement RISK versus INCOME (mortality, morbidity, longevity, tax, inflation) Timing (cash flows, taxes, qualified/nq) Government programs (Social Security, Medicare)

23 Funding Ideas for sooner or later scenarios SOONER Deferred Compensation 72(t) Pension versus IRA Life insurance LATER Keep working (RMD) Social Security: File and Suspend Life and Annuity combo IRA Legacy

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25 ESTATE PLANNING AND TAXES 1.Gift it 2.2% 2.Discount it 23/31% 3.Lend it 2.74% 4.Insure it 1.2 to 2.1% 5.Give it away 3.8%

26 My Point? Products vs. Taxes

27 Thanks!

28 Planning your exit and retirement: Financial tips for a successful transition I. Intro: the challenges to transition a. The exit challenge b. The retirement challenge c. The estate planning challenge II. Intro: a three part solution a. Planning (exit and retirement planning tools) b. Papers and preparation (best practices with buy-sell agreements, beneficiary designations, estate planning documents) c. Products and tools (insurance and investment products, calculators and monitors) III. Exiting: an overview a. Business exit issues (a three step methodology) i. Business and family survival analysis ii. Exit Plan for owner iii. Funding and transfer plan b. Law firm issues specifically i. From the firm s perspective (cash flow, goodwill) ii. From the exiting attorney s perspective (firm equity, security) c. Current valuation considerations d. Current tax issues e. Best practices in buy-sells (exit events, spousal considerations, funding) IV. Attorney retirement planning a. Break from service, or a transition? b. Retirement income planning i. Risk planning (mortality, morbidity, longevity, etc.) ii. Income planning (methods, tests, and approaches) c. Products/tools for funding i. Insurance ii. Investments iii. Tax and legal V. Funding the transition a. Current opportunities with insurance based solutions (life, annuity, disability and long term care) b. Leveraging tax opportunities c. current best practices a summary of methods and approaches

29 Planning your exit and retirement: Products attorneys should include in their transition plan I. Intro: a. Three challenges to transitioning from a professional practice exit, retirement and estate planning b. A three part solution i. Planning (exit and retirement planning tools) ii. Papers and preparation (best practices with buy-sell agreements, beneficiary designations, estate planning documents) iii. Products and tools (insurance and investment products, calculators and monitors) c. Today s primary focus: products and tools II. INCOME REPLACEMENT a. Protecting earning power: maximizing disability income protection. b. Income for the unexpected: long term care considerations c. Survivor income: life insurance to replace loss of future income i. Section 79: excess group term over $50,000 ii. Other approaches III. FAMILY CONSIDERATIONS a. Spousal coverage whether working in the home or outside career (economic loss of child care, loss of joint income tax status, etc.) b. Ongoing goals and plans for children (education, special needs trusts, etc.) IV. RETIREMENT INCOME PLANNING a. Maximizing retirement plan deposits in 401k or other deferral plans b. Nonqualified plans c. Tax strategies of professional firms V. HEALTH CARE CONSIDERATIONS a. Bar Association coverage / group insurance coverage b. Layering of group benefits with individual benefits c. Long term care considerations VI. TAX CONSIDERATIONS a. Deferral approaches b. Tax timing: financial products with tax advantages c. What to avoid VII. PROFESSIONAL PRACTICE EXIT CONSIDERATIONS a. Business exit issues (a three step methodology) i. Business and family survival analysis ii. Exit Plan for owner iii. Funding and transfer plan b. Law firm issues specifically i. From the firm s perspective (cash flow, goodwill) ii. From the exiting attorney s perspective (firm equity, security) iii. Current valuation considerations iv. Best practices in buy-sells (exit events, spousal considerations, funding) VIII. A PLANNING APPOACH

30 a. Retirement risk planning (mortality, morbidity, longevity, etc.) b. Insure against the contingencies, then plan your income c. Making it happen