Time is Running out for the SIMPLE Retirement Option

Time is Running out for the SIMPLE Retirement Option 

Are you considering starting a retirement plan for your small business?  Have under 100 people and want to make it easier to get them enrolled?  Then you only have a couple of days left to establish your SIMPLE Retirement plan.  They must be established by October 1.   

When people think of retirement plans, they almost always focus on 401(k)s.  We think the choice for many small businesses is really between a 401k account and a SIMPLE IRA.  We wanted to create a mini primer on some of the differences between the two plans. 

The SIMPLE IRA is the easiest from an administrative perspective, but all contributions are 100% vested as soon as employees contribute.  This makes it more of an employee benefit and less for employee retention.  The 401k has more administrative expense, but has flexibility in the amount, timing and nature of the contributions.  You can also have the employer contributions vest over a number of years (For example, 20% every year you work there…) 




Contributions can be either 2% for everyone regardless of employee contribution or a 3% match.  Sample on employee with $100,000 in income.  If you selected 2%, they get $2,000 regardless of their participation.  On the Match, they get $3,000 but only if they also contribute $3,000.  I have seen more success with plans where employees need to participate in order to get a contribution.  Focuses the benefit on the employees that understand the contribution as a benefit.  Maximum Employee Deferrals would be $12,500/year.  If over 50 years old, they can also contribute an additional $3,000.  

To calculate your maximum company match, just multiply your payroll by either 2% or 3%. 

You can also set eligibility requirements.  You can be as strict as an employee must be with you for 2 years and make at least $5,000/year before they are eligible.  Most common would be employees eligible after the first year.  There isn’t much else available in terms of customization and you need to have fewer than 100 people to participate. 


You have a lot of flexibility when it comes to providers and Cost.  You can Hire a Registered Investment Advisory firm to conduct in person enrollment and offer ongoing education and investment management or you can work directly with a fund provider.  Think of the fees like layers and make sure you understand the fees at each layer and the services that will be provided. 

Layer 1.  Tax filing and Administration:  Good news here.  Generally, there is no cost.  You want to make sure and establish a proto-type plan document, establish written authorization to deduct from employee’s paychecks…but you generally don’t need a lot of professional help.  If you are the owner, you will want help calculating your maximum contribution, but this is generally in the realm of your CPA.   

Layer 2 The investments: The Funds themselves have an annual expense ratio.  This is the percentage of the fund that is being used to manage the funds.  When you look at returns, they are generally referenced after this cost has been taken into account. 

Layer 3 Custody:  The funds need to be held somewhere and the company responsible for this is the custodian.  Some charge an IRA custodial Fee, usually flat rate per account or per fund.  Some also charge for transaction charges as a percentage of the account balance or per trade.  Employers have the ability to pay for many of the costs at this level. 

Layer 3 Investment Management:  When you want to give your employees the option of using a professional investment advisory firm to help allocate, manage and report on their accounts.  This often starts with an enrollment meeting and continues to establish an investment objective and manage accounts to conform to that objective.  Fees are either flat rate or expressed as a percentage of assets under management.  Be sure to find out how much employee education and financial planning is available at this level.  The employer can pay for the fees at this level as well.    

Layer 4 Employee Education and Financial Planning:  Many companies are not just offering these benefits, but ensuring that their employees have the resources to use them.  This can be in the form of Employee enrollment meetings, or one on one financial planning discussions.  This is generally either included in the investment management or defined in a separate consulting agreement based on a flat rate package or hourly commitment.  To get the most use out of your plan, don’t overlook the importance of educating and motivating your employees to take control of their own future.    




There is a lot of customization available at the 401k level.  You can do flat contributions, matching contributions and profit sharing contributions.  You can set eligibility requirements similar to the SIMPLE, but you can also set vesting requirements.  Sample 6 year vesting requirement would be 0% the first year, followed by 20%, 40%, 60%, 80%, 100%.  You can always chose something less restrictive as well. You can even set your plan up so employees have to Opt-out instead of opt in. 


Employees can defer up to $18,000 of their salary pre-tax plus an additional $6,000 if over the age of 50.  Employee match depends greatly on customization options.  


Since there is so much customization available, there are testing requirements and IRS filing requirements every year.  A Sample plan would include the following costs:  I won’t go into too much detail repeating above. 

Layer 1.  Tax filing and Administration: You will need a recordkeeper to make sure and keep accounts separated and a Third-party administrator to ensure testing, compliance and reporting.  There is usually a flat rate cost plus a certain dollar amount per participant.  The larger the plan, the costlier.     

Layer 2 The Investments:  This is the same as in the SIMPLE.  Make sure you are paying attention to the share class.  Some funds are offered at multiple cost ranges.  You want to see if you have access to the lowest cost institutional share.  Some providers obscure some of their costs in the expense ratio.  Hypothetically, you might have a Fund with an R2, R3, R4, R5, or R6 designation or N, L, G lettering.  Cost differences between the share class may exceed 1% so make sure you are getting the lowest cost share for your plan. 

Layer 3 Custody:  The funds need to be held somewhere and the company responsible for this is the custodian.  Most custodians will offer funds from multiple fund families and make it reasonably easy to change them.  You may also want a self-directed brokerage component for some employees. 

Layer 3 Investment Management: When you think of Investment management for your plan, it can be at the plan level or the employee level.  Minimally, the plan level should have an investment policy statement in place documenting the investment process for selecting and if need be, replacing the investment line up.  At the participant level, you can also set up models that can be managed by a professional and eligible as “one size” investment options for employees.  Most of these are generally offered as a % of the funds being managed though you may encounter minimums if you are starting a plan up from scratch. 

Layer 4 Employee Education and Financial Planning:  Same as the SIMPLE.  Consider an employee education plan to address not just Investment management, but budgeting and use of credit.   

So there are Many choices .  For more detail, check out the IRS Website on SIMPLE IRAs https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan  or 401K plans https://www.irs.gov/retirement-plans/401k-plans or contact a qualified Financial Advisor or CPA.   

Content may be re-distributed with reference and link.

About the Author 

Ben Rickey is co-Owner of Leonard Rickey Investment Advisors PLLC.  www.bestpathforward.com  Their practice focuses on family businesses.  He holds the Certified Financial Planner(CFP®) , the Certified Investment Management Analyst(CIMA®),  and the Certified Private Wealth Advisor Designations(CPWA®).   


NAPFA Conference

Last year, I joined the National Association of Personal Financial Advisors (NAPFA).  It is the country’s leading professional association of fee only financial advisors.  It requires substantial continuing education as well as adherence to a Code of Ethics and a yearly attestation to a Fiduciary Oath. It has been a tremendous resource for our entire Firm.  When they announced their National Conference was going to be in our backyard (Bellevue), I didn’t think I could pass it up.

The first day was dedicated to investor behavior.  We had professors from Kansas state and the University of Georgia run a workshop on how our behavior can get in the way of making good money decisions.  It was no surprise to me that they listed money as the number one stressor in America since 2007.  Felt good to know that the number one way to cope with that stress is to create a plan and number two is to implement it.

I had a great educational session on College planning and the benefits of deeply integrating tax planning with your investment management.  While neither of these topics are new by any means, it is always beneficial to sharpen the mental saw and stay on top of new developments.  There was also an excellent session on cyber-security.  We are planning on adapting it to a classroom session we intend to offer to clients and post on our website.

My favorite key note speaker was Vivek Wadhwa.  His talk centered on how America is re-inventing itself through innovation.  He spent time talking about the concept of exponential growth.  It is hard to think of things getting twice as good at the same time that they get half as expensive, but the examples are numerous – from computer memory to cell phones.  A very exciting look at the future with implications in the investment world as well as the economy in general.

I also like to take these opportunities to deepen my peer group.  By sharing ideas, we not only have the ability to have better outcomes for our clients, but we also have the ability to help advance the whole industry.   I was certainly not disappointed.  It is refreshing to see so many folks committed and truly passionate about offering fiduciary financial advice.  People committed to not just disclosing conflicts of interest, but doing everything they can to avoid them.  I had some great conversations on different tools and techniques to keep Leonard Rickey Investment Advisors at the forefront of the financial planning community.

For more information about criteria for NAPFA membership, please visit NAPFA.org

2016 Changes Coming to Social Security and Medicare

The budget bill signed by President Obama in November included significant changes to the Social Security program. The changes have left many pre-retirees scrambling to make sense of the new rules. Here’s a breakdown of some of the changes coming:

The Good News

*No COLA. Existing Medicare beneficiaries won’t see an increase in their Medicare Part B premiums. And because of the new budget bill, new enrollees will see a smaller increase  (16%) than originally proposed (over 50%).

*Say Hello. More online services and longer office hours may make it easier to reach someone at the Social Security Administration.

The Bad News

*No Raise. There wasn’t enough inflation in 2015 to trigger a cost-of-living adjustment. That means your Social Security check won’t get any bigger in 2016.

*Goodbye Claiming Strategies. Two popular claiming strategies (file and suspect and restricted application) will end next year. Couples have until April 2016 to enter into a claiming strategy before the loopholes are closed.

What other changes are coming?

Getting the most from your Social Security Benefits

It can be one of the most important financial decisions you’ll have to make in your life – when to begin taking Social Security retirement benefits.  The years between 62 and 70 can make a world of difference to your financial future and the future of your spouse and heirs. Often, the decision can be muddied by complex calculations and varying scenarios. There is no one size fits all choice when it comes to Social Security but just knowing how the system works and what your options are is a good place to start.

A recent article in the Washington Post lays it out nicely and can help you start the conversation. If you’re approaching decision time and would like someone to walk through your individual options, give our office a call. We’d be happy to help.

Read the full article here: http://www.washingtonpost.com/business/economy/how-to-get-the-most-out-of-your-social-security-benefits/2015/06/08/480199f4-0e24-11e5-9726-49d6fa26a8c6_story.html


Retirement Planning Doesn’t Need To Be Scary

Retirement Planning is one of those things that everyone knows they should do, but many fall short in the taking action. This is usually because they simply don’t know where to start. That’s a reasonable concern, but it’s really just a matter of having a framework of understanding as to what comprehensive retirement planning entails.

There are six areas that we should all address:

Current Cash Flow

Money is the fuel that drives any economy, and your family finances is an economy, even if yours is a family of one. As you’ll see when you read on, retirement planning involves some commitment of funds. So the appropriate first step is to know where you’re starting from by creating a cash flow statement. This is simply a list of income sources and expenditures.

Debt Management

If your cash flow statement revealed that you have limited discretionary income, at least part of the problem is probably excessive debt. If that’s the case, don’t despair. With a plan, and a little discipline, you can pay down your debt much quicker than you might think. One great resource is PowerPay.org, a free website that was created by Utah State University to help debtors become savers.

Emergency Preparedness

Something that can get people in financial difficulty very quickly is the unexpected expense. Whether it’s the need for a new range, an emergency car repair, or some other large unexpected expense, these can be devastating unless they’re planned for. What that requires is the creation of an emergency fund that is set aside for the sole purpose of paying for unexpected necessities. A good rule of thumb is to have enough saved to cover six months of normal living expenses. And, when money is taken out to cover something, the fund should be replenished as quickly as possible.

Risk Protection

Most people have adequate risk protection (aka. insurance) on their house, car, and health – usually because they’re forced to by a lending institution or the government. But many people are not adequately covered for their life. Often that’s because they see life insurance as a way to leave their families rich in the event of their death. But that’s not how life insurance should be viewed. Rather, it should be viewed as a means to create a pot of money that will enable the surviving family to generate an ongoing income that replaces the income lost due to the death of a bread winner.

Savings and Investments

This is the fun part. This is where the steps designed to help get your financial house in order begin to pay dividends – literally. By implementing and following a customized savings and investment plan, you are creating a pot of money that will enable you to live the kind of retirement lifestyle you want off the interest earned by that pot of money.

Estate Preservation

This component is often overlooked by people planning for retirement. After all, if you’re leaving an estate, that means you’re dead and no longer need the money, right? But failing to adequately plan your estate will cause your heirs to have to pay a substantial percentage of whatever you leave to the I.R.S. Not a very attractive alternative, is it? The fact is, even if you think your estate will be modest, you should consult with an estate planning specialist. Not only can they help you avoid excessive estate taxes, they can also advise you on ways to grow your estate and maximize your monetary legacy.

How you might apply the steps we’ve discussed above will depend on your current age, and a variety of other factors. When creating your retirement plan, you should always seek the help of a qualified professional.

Why Do Women Trail Men in Retirement Planning?

It’s often said that women naturally put others first, which, admirable as it is, can become a problem in terms of their own financial future.  A new study by the ING Retirement Research Institute shows that women, on average, are much less prepared for retirement than men.  Fewer women have formal investment plans in place (only 25%); those that do have a retirement plan have over $40,000 less than their male counterparts in those savings plans.

There is no question that women need to do more in terms of saving for their retirement.  At ages 65 and older, the majority of women in today’s society are single, which means they need to have a plan for funding their retirement.  Before we can start to search for a solution, it’s important to pinpoint the causes.   What is holding women back?

We must start with the most obvious: women are oftentimes mothers.  Although times are changing and more women are heading out into the work world, the fact that the majority of households have women as the main caretakers for the children is a major obstacle in planning for retirement.  The study showed that women on average have $41,000 less in their retirement savings than men, with a $149,000 to $108,000 spread, but that gap gets even more significant when women have children at home.  That $41,000 disparity grows to $61,000 with those women having only $88,000 in their retirement savings accounts.  This number can be attributed to the fact that mother’s spend more of their working years as caregivers rather than breadwinners, which can lead to deficits in their earnings, savings, and Social Security.

Despite the fact that the gender wage gap is becoming smaller overtime, many women fail to capitalize on the skills that they bring to the work force.  These skills can often be a women’s greatest financial capital through her adult years.  Women often fail to see these skills, which makes them much less likely to negotiate for pay raises or benefit increases.  They also don’t take advantage of what their employers offer.  On average, only 65% of mothers are receiving their employer’s full company match while 76% of fathers are.  That is money waiting for women to reach up and grab, but 35% fail to make the stretch. The unfortunate truth is that only 35% of women have spent time thinking about their retirement, which is a big indicator as to their lag in savings.

Another reason many women are unprepared is that they simply don’t feel comfortable in the financial arena.  Financial Planning is a profession that is male-dominated, which leaves many women untrusting of those advisors.  66% of all women indicated they received their financial guidance from family members or friends.  Furthermore, trends show that women often prefer to get their information from sources where they can anonymously research and make decisions, such as blogs, websites, social media sites and so on.  While these sources are valuable assets, including a qualified advisor in retirement planning can help men and women navigate the complicated waters of investing.

One other issue that inhibits women from proper planning is their scope of the issue. Only 28% of women have calculated what their retirement will cost.  This follows the long standing stereotype that women avoid numbers and calculations.  Many times, when women hear about a 2% return annually on their investment, they don’t respond as enthusiastically.  If they change their vantage point to a more tangible result, such as an investment leading to their daughter avoiding student loans, they tend to be more interested in the planning.  Because of the limited and technical vantage point, many women find it easiest to simply avoid the issue altogether.

The hard truth is that women are saving less but living longer and, often times, are living their longer lives independent of men.  This lack of savings can lead to outliving their finances, the inability to afford long term care or burdening their children, all of which are major concerns on the minds of most women.  So it may seem that despite the money spent on cards and flowers this past Mother’s Day, the most valuable gift for these women is simply a conversation about their financial plans for the future.  It doesn’t look as pretty in a vase but it certainly will bloom for much longer.

Spending that Nest Egg Wisely in Retirement

It’s difficult enough to plan and save right for retirement, given today’s topsy-turvy financial markets. What’s more, it can be a bit of a puzzle in those Golden Years to come up with the right withdrawal plan. The idea, of course, is to find that balance between spending down a portfolio while maintaining the right asset allocation to capture future growth possibilities.

One method that investors often use for spending during retirement is the ‘bucket strategy.’ According to an overview in the American Association of Individual Investors (AAII), more than thirty-percent of financial professionals recommend this approach to their clients:

The ‘bucket strategy’ segments retirement assets by certain categories; generally based on the risk level of the assets and the needs or expenses these assets are expected to cover over the period of time in retirement when the assets are expected to generate income. With the help of a qualified financial advisor, the bucket approach can help bring that all-important sense of control to the investor’s concerns about having enough income during their lifetime.

A financial advisor can also help an investor assess their individual risk tolerance in handling the financial strains put on the portfolio during the market’s dips. Using a questionnaire that asks basic questions about risk preference, an advisor can determine an appropriate allocation given a client’s time horizon and other sources of income, such as pensions and social security.

Ultimately, no one strategy fits all investors. Consulting with a qualified advisor can help you develop a withdrawal plan that will keep you on your best path forward.

The Importance of Maxing out Contributions to Employer Sponsored Plan Accounts

According to the Employee Benefit Research Institute, only about 4 in 10 workers contributed to an employment-based retirement plan in 2011.  This means that the other 60 percent of workers could be missing out on one of the most valuable retirement tools available to them.

There are some significant benefits associated with contributing to such a plan.  And these benefits could easily add tens of thousands of dollars or more in value to such an account over the course of a career.

Matching contributions

The first major benefit that probably comes to mind when discussing employer sponsored retirement plans is a matching employer contribution.  While not every plan comes with such a benefit, many do.  And such employer matches could range from 5 percent all the way up to a dollar-per-dollar addition to your retirement funds.  According to 401kHelpCenter.com, in 2012, “Companies contributed an average of 4.1% of participants’ pay to the plan.”

These contributions can act not only as great incentives to put more money into such plans, but they could also be viewed as protection against potential losses.  When an employer is putting up their own money, it can act as a sort of buffer.  Say your employer provides a match of 50 cents for every dollar you contribute to your plan.  Well, even if the stock market has a tremendous fall as it did during the financial crisis and loses 20 or 30 percent of its value, that matching contribution by your employer could make up for a substantial portion of those losses without touching a dime of your own contributions.

Lower tax liability

Contributing to an employer sponsored plan account can also help reduce your tax liability.  Contributions to such plans can be pre-tax, which can reduce the amount of taxable income you must report annually.  By putting several thousand dollars into an employer-sponsored plan – and adding to that an employer match – you could find yourself saving hundreds of dollars or more that might otherwise have been spent paying taxes in the short term.

Dividend reinvestment results

Selecting investments with healthy dividends can help build account value over time and supplement your employer’s – as well as your own – contributions.  Harnessing the power of dividends and reinvesting them into your account over time can also better dollar cost average your contributions.  Buying shares at low, middle, and high prices over time can help balance your overall share price average, helping to smooth the hills and valleys of stock market swings.

Generation X and Last-Minute Retirement Planning

Procrastination is rarely a good thing. When it comes to retirement planning, Generation X can’t afford to wait until the last minute. According to a recent Pew Charitable Trusts study and a PwC survey cited by Bankrate.com, Generation X is struggling to save for retirement. Moreover, experts say Generation X was hit hardest by the housing crash, which means many of them won’t be able to rely on the equity in their homes when they retire. It’s not too late for people in their late 30s and 40s to improve their retirement outlook and start planning for a secure future.

Make saving enjoyable

One key is to make saving a joy instead of a painful experience. Most people avoid pain and gravitate toward pleasure. According to Bankrate.com, encouraging Gen-X’ers to put aside 10 or 20 percent of their income backfires by giving them a feeling of deprivation. Instead, experts suggest putting half of future raises into savings. View your balance on a yearly basis so you can experience the pleasure of seeing how your money has grown.

Automate your finances

Another retirement planning strategy is to have money automatically deducted from your paycheck and funneled into a 401(k). If a company match is involved, save up to that level. Otherwise, have money deducted from your paycheck and moved into a Roth IRA. A married individual who doesn’t have earned income can open a Spousal Roth IRA as long as the spouse has earned income. Automating your retirement savings makes it easy.

Avoid lifestyle inflation

Another key aspect of retirement planning is to know what kind of lifestyle you want to have in retirement. Then you need to have enough of an income stream when you are older to support your desired lifestyle. By avoiding “lifestyle creep” or lifestyle inflation, you can make up for lost time. In other words, choose a simpler and less extravagant lifestyle. Buy a home that you can easily afford to pay off in 15 years instead of 30 years. With no mortgage to pay in retirement, you can more easily live on dividends generated from investments.

Although it’s not necessary to know where you want to live in retirement or how you want to spend your days, it is good to set some financial goals. If you plan to financially support children or grandchildren in retirement, you’ll need to have more money invested. A financial adviser can help you set priorities for retirement and make sure you are in a balanced position.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

5 Essentials for Early Retirement Planning

Who wouldn’t want to retire early and pursue their own goals and desires? The problem is that without sensible retirement planning it can be difficult to save up enough to retire at 65 and even harder to get to that point early. To help, here are five things you can do to help get yourself there a little quicker.

1. Track Expenses

The first thing you need to know is “Where is my money going?” Follow the money to see how much you’re spending on what. With this information, you can determine if you’re spending your money wisely and what luxuries you can do without on a monthly and annual basis. Are you working hard just to pay for cable TV, fancy cars, and gasoline? What can you cut out? What is a necessity? You’d probably be surprised to learn just how much you can do without and still live comfortably.

2. Save More

Easier said than done, to be sure, but with what you’ve learned by tracking expenses you’ll see that you can probably save more than you think. Some experts advise saving 10% or 15% of your paycheck for retirement, but some people, by cutting unnecessary expenses, have been able to save 50% or even 70%!

This has two effects. The first is that by saving more you will be able to retire earlier. The second is that you will acclimatize to a less-expensive lifestyle and your retirement nest-egg will go even further, providing even greater security.

3. Side Jobs

For some people, even cutting out every last unnecessary penny still won’t get them to where they want to be. The obvious answer is to increase your income. This can be done a number of ways. If you have experience in a given field, you can become a consultant or a freelance writer. Handy with tools? Some people make spare money assembling things such as IKEA furniture for the “less-than-handy”. If you keep your eyes open, you can find focus groups to participate in that offer financial compensation. Some of you can even dust off your old baby-sitting skills. Make a list of your skills, even non-job related ones. Which ones might bring in a bit of extra money?

4. Start Early

The longer you wait, the harder it will be to retire early. Compound interest works greatly in your favor if you start in your 20s or 30s, and despite its ups and downs, the stock market can be a good wealth generator if you have a long horizon. But what if you’re past your 30’s? Is it too late? Absolutely not! CDs and bonds are safer investment vehicles. It may not be as wild a ride as the stock market, but it’s certainly more stable. Be sure to educate yourself on which vehicles are right for your investment and retirement plans.

5. Price Health Insurance

One drawback to early retirement is that you still won’t qualify for Medicare until you’re 65. Until then you’ll have to buy your own health insurance, and the cost will increase as you get older. Shop around for a plan that fits your budget, and don’t forget to see if you qualify for any federal subsidies.

It takes a lot of planning and preparation to retire early. If you’ve been fortunate enough to be able to save since your first job, you’re way ahead of the game. But if you’ve had to wait until later to be able to save, you still stand a chance by including these five steps into your game-plan.