As a doctor,
I know how to keep physically healthy. However, I don’t fully understand the intricacies of my personal financial health, nor do I have the time to spend figuring it out. I want to make sure that I am properly planning for my financial future. Where do I start?
 

As the head of my own practice, what types of retirement plans are there available for me and my employees?

Choosing a plan

Ferris Capital recognizes that as a small business owner, you have many options when choosing retirement plans for your employees, so you can find a plan that is best suited to meet both your needs and the needs of your employees. By exploring all of your options and fitting them to the fiscal and operational structure of your company, you can decide how much you can and want to contribute to employee retirement plans and what type of plan can best handle these contributions. Options include;



Payroll deduction IRAs


This type of IRA is the simplest for employers to implement, as it is largely under employee control. With a payroll deduction IRA, employees choose where to house the IRA and how to invest it, and only employees contribute to the account. It requires no plan documents and no employer contribution. Employees simply authorize a payroll deduction amount for the account, and automatic retirement savings is implemented. This type of retirement plan has a $5,500 annual contribution limit. This can be a good option for businesses that don’t have the funds to offer an employer match and don’t have the resources to deal with the documentation and administrative requirements necessary with defined compensation or benefit plans.


Simplified Employee Pension (SEP) IRAs

This type of IRA offers the opposite type of contribution from a payroll deduction IRA, as 100 percent of contributions are made by the employer instead of the employee. These contributions are immediately vested for the employee. The employer can decide on a year-to-year basis whether to contribute to SEP IRAs, but all employees must receive uniform benefits, for example, the same percentage of compensation. SEP IRAs have a limit of 25 percent of the employee’s compensation or $52,000 annually, whichever is less. SEP IRAs are a low maintenance way to set up retirement savings for your employees, and are ideal for an employer who can afford to contribute to his or her employees’ retirement savings but wants to do so without legal hassle. As an added bonus, employer contributions to employee’s retirement savings are deductible from the employer’s income for tax purposes.


Savings incentive match plan for employees (SIMPLE) IRAs

A SIMPLE IRA allows both employers and employees to contribute to retirement savings plans. Employees can contribute up to $12,000 per year, while employers must either match at least 3 percent of employee contributions or contribute 2 percent of employees’ salaries. This type of plan also allows for minimum administrative duties and allows employers and employees to share the responsibility of retirement contribution. With both SEP and SIMPLE IRAs, small employers can claim a tax credit for part of the necessary startup costs for these types of plans. The credit is equal to 50 percent of the cost necessary to set up and administer the plan, up to a maximum of $500 per year for each of the first three years.


Safe harbor 401(k)s

A variation of the traditional 401(k), safe harbor 401(k)s make employer contributions mandatory rather than optional. This encourages plan participation by employees and eliminates the need for nondiscrimination testing for employer contributions, as employers are required to contribute to all employee plans. The contribution limit for safe harbor 401(k)s is the same as for traditional 401(k)s.


Traditional 401(k)s

401(k)s fall into the category of defined contribution plans, meaning that they allow employees to save money in a tax-deferred account and withdraw this money at retirement for living expenses. While income is not taxed when it is put into a 401(k), this money will be taxed when it is withdrawn in retirement. Employees can contribute a set amount for retirement by deferring a portion of every paycheck and putting that money into a 401(k). However, it is usually more difficult to withdraw from a 401(k) than from an IRA before retirement, and some plans do not allow this. As with an IRA, any early withdrawal will be subject to a penalty tax.


Automatic enrollment 401(k)s

Automatic enrollment 401(k)s are just what their name implies—401(k) plans that automatically enroll eligible employees in the plan. Employees are allowed to change the amount of their contributions or opt out of the plan altogether, but they will initially be automatically enrolled. As with safe harbor 401(k)s, this type of plan is also exempt from annual nondiscrimination tests, as it too requires employer contribution. When employees are automatically enrolled, their initial contribution must be at least 3 percent of their salary. This type of plan usually provides a high level of employee participation.


Roth plans

For both 401(k)s and IRAs, there is an additional option called a Roth plan that alters the way tax is applied to employees’ retirement funds. With a traditional 401(k) or IRA, money put away for retirement is tax-free when it goes into the account, but will incur taxes when it is withdrawn at retirement. A Roth plan taxes money when it is put into the account, but allows retirees to withdraw this money tax-free. This type of plan is usually used by employees who are in a lower tax bracket now than they expect to be at retirement. Roth plans give employers yet another option to contribute to employee retirement.


Defined benefit plans

Defined benefit plans differ from defined contribution plans because they are guaranteed to pay employees a specific amount of money when they become eligible for retirement benefits, whether they contribute to their retirement savings or not. This money is either paid out on a per month basis or in a lump sum, depending on the terms of the plan. These plans use a formula to determine how much employees will receive, based on criteria such as salary and how long they have worked for a certain company. The employer pays this cost, but there is a maximum annual benefit of either $210,000 or 100 percent of the employee’s final annual pay, whichever is less. These plans force a lot of employer contribution, but, similar to vesting, allow employers to protect themselves against a high turnover rate. Defined benefit plans are usually more complex than other types of plans and also cost more to establish, so small business owners with limited resources may want to consider a different type of retirement plan for their employees.



Profit-sharing plans

A profit-sharing plan is a plan that gives employees a share in the profits of the company, so the employees’ retirement earnings may fluctuate based on the company’s profitability. Additionally, employers have the option to contribute as much as they want each year, and can choose not to contribute to employee profit-sharing plans if it is a bad fiscal year for the company. The contribution limit for profit-sharing plans is either $52,000 annually per employee or 100 percent of employee’s compensation, whichever is less. The employer also must choose how to divide the contributions to participants’ accounts, as the money goes into a separate account for each employee. Many employers choose to divide this based on a percentage of each employee’s salary, but since contributions are discretionary, you may choose to distribute the funds as you want, as long as you have a set formula for determining how contributions are allocated. While this offers a great amount of flexibility, the administrative costs for profit-sharing plans can become quite high. Profit-sharing plans are also subject to an annual testing requirement that ensures benefits are being proportionally distributed among employees.

Will I have enough money in retirement?

One of the most common questions the team at Ferris Capital encounters is; “Will I be able to retire, and not outlive my money?”. Although it is the most common question, it is absolutely one of the most complex issues facing individuals and families. That is why Ferris Capital offers comprehensive goals-based planning to all of our clients, inclusive of their fee.


Ferris Capital will help you consider the factors that go into estimating your retirement savings goal and decide how much you’ll need to live on in your retirement. Our team uses detailed Monte Carlo simulations to help you plan for a variety of potential scenarios. Here are some of the key factors we will help you navigate;


Factors in the Planning Process

The amount of variable factors in the retirement planning process make it impossible to predict a precise retirement income for everyone. However, by taking a closer look at these factors, some within your control, such as your retirement lifestyle, and some subject to outside influences, such as inflation, you can determine their effect on your retirement savings and more accurately predict what is “enough” for you to comfortably retire.


Current savings

The amount you currently have earmarked for retirement will affect the amount and the pace at which you need to continue to save. This may include money you put into funds directly for retirement, such as a 401(k) or an IRA, as well as personal savings accounts.


Life expectancy
Predicting your own death may seem morbid, but having an idea of your life expectancy can help you determine how many years you need to plan for in retirement. According to the Social Security Administration (SSA), an American man at age 55 can expect to live, on average, an additional 28 years, and an American woman at age 55 can expect to live, on average, an additional 31 years. Since most people estimate their retirement savings based on how much they will use each year, it’s important to know how long you will need to depend on these savings.


Retirement age

Just as knowing your life expectancy is vital to your retirement timeline, so is choosing an age at which you hope to retire. If you want to retire by age 50, you will have a vastly different savings plan than someone who plans to retire at age 70, as that person will have 20 years of additional income to add to their savings. If you do want to retire at an early age, starting to save early is even more crucial; the more years you have between you and retirement, the less you’ll have to save each month to reach your goal.


Income


Not only how much you can afford to save but also the amount you should ultimately put away is highly dependent on your income. Most estimates for retirement savings are either a percentage or a multiple of your income, and generally, the lower your income, the higher a portion of it you will need to save. In addition to your regular income, you should consider any other forms of income you will have in retirement, such as Social Security or a pension. Your Social Security Statement, available through the SSA, provides an estimate of your retirement, survivor and disability benefits under current law and updates your latest reported earnings. You will receive a statement by mail once at age 25 as well as regularly once you reach age 60, provided you aren’t already receiving Social Security benefits.


Investment returns

When calculating any savings you will incur from investment profits, you’ll have to calculate the annual rate of return you expect to earn. This includes savings you’ve already accumulated as well as savings you intend to make in the future, including during your retirement. These calculations will largely depend on whether the money is inside a tax-deferred account. When estimating these rates, you’ll will want to err on the side of being conservative.


Retirement lifestyle

Especially if you are far away from retirement, it can be difficult to imagine what your life will look like during this unique time in your life. It’s important to ask yourself things like the kinds of hobbies you expect to pursue, how much you want to travel, if you will pursue part-time work during this time and how frugal you realistically expect to be during this time. Although some costs, such as commuting costs, payroll taxes, retirement savings, mortgage payments, etc. will likely go down during retirement, you will also have more free time to spend your money during retirement. Even if you estimate everything else correctly, if you budget for a retirement lifestyle that’s more conservative than the one you actually live, your savings may not be enough.


Deciding How Much to Save

After considering the above factors, you will ultimately have to decide how much of your preretirement income you will need to save to enjoy the standard of living you are used to. Popular estimates usually range from 70 to 90 percent or eight to 12 times your annual income. Once you have an overall goal and considered your planning factors, it should be much more feasible to calculate an amount to save each month and each year. Your financial advisor at Ferris Capital can also help you to decide on an appropriate number.


It’s important to reassess these factors every two to three years, as your retirement savings will have to change along with your lifestyle. It can help to set up checkpoints throughout your life to make sure you’re still on track; for example, if you plan to save eight times your annual preretirement salary by the time you retire, you could save one time your salary by age 35, three times your salary by age 45, five times your salary by age 55, etc. Estimating income needs for 30 to 40 years in the future can be difficult, but starting with a rough estimate and starting small is better than not starting at all.


Ferris Capital will aid in evaluating these factors, and ultimately in implementing a plan to help you and your family meet these goals. More importantly, the firm will keep track of your progress, and help you adjust any changes to the plan as your situation changes.

One of the bigger rewards of financial success is the ability to “give back” to others. What are some factors I need to be aware of?

Many people assume that the hardest part of donating is the choice of charity or maybe even the decision to part with the money in the first place. However, when presented with all the ways to give, donors often find the world of charitable giving to have more choices than they anticipated. See below to easily compare various methods of charitable giving and determine which method(s) may work best for your charitable giving strategy.


Elements of Charitable Giving Methods


Different giving methods can provide a variety of benefits to both donor and charity. A number of factors affect each method’s potential and limitations.


Size of Gift


While charities appreciate any gifts they receive, not every giving method fits every donation size. Some methods require thousands of dollars to setup and should not (or cannot) be used for smaller gifts. On the other end, giving a very large gift through an inappropriate method might prevent it from reaching its full potential value. Small gifts are those under $5,000 while mid-sized gifts start at $5,000 and go up to around $50,000. A large gift will typically be anything greater than a mid-sized one. Each method lists a common, efficient size but is not strictly limited to it; likewise, the cash values of each size listed here are generalizations. It is always wise to ask a financial advisor for recommendations on the giving method best suited for your prospective donation.


How it works


The key operations of the charitable method. The descriptions given in the chart are only a primer and are in no way exhaustive. Giving methods (particularly trusts) can be extremely complex and several require legal guidance when being established.


Typical time of gift


The period when a gift can be made or goes active. For some giving methods, timing doesn’t matter (provided taxes are taken into account); in other cases, your financial circumstances or life stage may dictate when it’s most advantageous to give. For two methods, both involving life insurance policies, the process can be set up and managed at any time, but the gift cannot.


Though hardly exhaustive, the major feature listed is typically the most appealing aspect(s) or greatest challenge of a giving method while it is being set up or carried out.


Tax deduction


Government-provided tax deductions are one of the most important aspects of giving. A charitable tax deduction allows you to remove your donation from your income (or estate) so that you are not taxed for money you did not keep. Depending on the type of charity, these deduction limits are either 50 percent of adjusted gross income when making standard gifts and 30 percent of income when donating capital gains property or 30 percent and 20 percent, respectively. In the case of appreciating trusts, a deduction can be made for the charity’s “present interest” in the gift – the part of the initial gift that will grow into the amount the charity will ultimately receive.


Retained benefits


Some donations (through trusts and private foundations) can give back to a donor. Money returned to the owner from a donation is referred to as “retained interest” or “retained benefits.” The retained benefits of trusts are the monetary distributions given back to donor (or other beneficiary). The retained benefit of private foundations is the ability to distribute some fund resources as payment to individuals who provide services for the foundation, including, in special cases, family members. Tax deductions are never given for any retained benefits. made until the donor’s death.

Get in touch with our experts


David Ferris

David Ferris

Paul Litchfield

Paul Litchfield

 

 
 

The Ferris Capital Process


We firmly believe that the best results come from a consistent process with a thoughtful design.

We use low cost ETFs, mutual funds, individual bonds, and stocks to build custom portfolios for our clients that are in line with their larger financial plan. We always seek to use the lowest fee, most efficient investment vehicles possible and to utilize best of class managers when they offer more value than an index or ETF.

Understand Your Goals and Financial Situation 

Ferris Capital meets with you to fully understand your goals, time horizon, anticipated cash flows, and feelings towards investments in general . We also conduct an in-depth evaluation of your total financial picture including insurance, wills, trusts, 
and employee benefit options.

Create a Financial Plan Tailored to Your Goals

Ferris Capital works with you to develop a comprehensive financial plan that positions you with the highest probability of success in meeting your goals. The plan includes goal-driven asset allocations, tax sensitivity, long-term estate planning, and overall 
risk management.

Establish the Proper Accounts and Legal Structures

If applicable, Ferris Capital can direct you to top notch accountants and attorneys or work with your existing relationships to formulate and execute the structures and strategies to best protect your assets from taxes and liability. 

Current Investment Evaluation and Tax Analysis 

We analyze your current holdings to see if there are any embedded taxable gains or additional issues that should be considered in building your portfolio. If there are any issues, we will construct the investment portfolio to address those issues specifically and potentially use the existing investment as proxies to our investment model choices. 

Portfolio Construction

Using the risk profile from the financial plan and the considerations from the analysis of your existing assets, we manage your capital in one of our strategies that corresponds with your risk level which are designed using our proprietary market outlook, historical asset class performance, manager interviews and internal expenses. 

Ongoing Maintenance, Monitoring, and Reporting 

Ferris Capital monitors market and portfolio changes and keeps you informed on performance, risk and goals-based progress through quarterly calls or meetings. We also look to address any liquidity needs or life changes that may impact the long-term financial plan. 

Why Ferris Capital?

All investment firms offer “financial planning”. However, not all investment firms are bound by the fiduciary standard and not all firms are conflict free. Ultimately the most important difference between firms comes down to the people, their experience, and the service they provide.

At Ferris Capital, our independence ensures that your interests always come first. We believe that transparency and integrity are critical to building long-term relationships. We’re devoted to a client experience that revolves around the needs of you and your family, not around commissions.

Our work doesn’t end with a financial plan; that’s where it begins.

 

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