A Review of the CalSavers Retirement Savings Program

If you’ve been following the California legislative process at all, or if you own a business that employs people in California, you may have heard of the CalSavers Retirement Savings Program. In 2016, Governor Jerry Brown signed Bill 1234, requiring development of a workplace retirement savings program for private sector workers without access to one. The resulting program is known as CalSavers.

Basically, the program forces employers with more than 5 employees to defer a portion of their employees’ paychecks into a state run Roth IRA. These contributions are invested in default target date retirement funds, unless the employee directs their investments otherwise. Employees may also opt out entirely, if they choose.

The benefit of such a program is easy access to a retirement savings account. Employees could contribute to one on their own, of course, but that would require opening an account at a brokerage firm & making investment decisions. CalSavers greases the wheels by providing a “done for you” program that employees are defaulted into.

The positive spin here is that the program will certainly result in more retirement savings for many thousands of employees. The negative side of the story comes from the business community. Businesses without retirement plans will be forced to take the time to open a plan, enroll their employees, and deposit their contributions.

CalSavers isn’t at all unprecedented. At this point 21 states have enacted similar legislation. The law is taking a good amount of “heat” though. Several industry groups are suing the state treasurer in an attempt to derail the rule. Some plaintiffs don’t care for the state government telling them what to do, while others in the financial industry probably see the program as a competitive threat.

Whatever your take on the matter, businesses will be required to comply beginning in June of 2020 as the law stands today. This post will provide a quick overview of the program, including its benefits and shortcomings.

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What I Learned at XYPN Live 2019

Today’s post is a follow up to last week’s post. There are a few conferences I try to fit into my travel schedule every year. XYPN Live is one of them. XYPN is an acronym for the “XY Planning Network” – it’s a professional organization for financial planners who work with generations X and Y. (Unlike much of the industry).

This year the conference was held in St. Louis for the second year in a row. Attendees are mostly all financial planners, with a few reporters, CPAs, and tech providers sprinkled in. I make it a point to attend this conference for a few different reasons:

This is the only time throughout the year that my study group meets in person (I have a weekly study group)
Many of the XYPN members who attend have firms similar to mine
Many of the attendees are exploring new, innovative service models and ways to provide value to their clients.

For me, XYPN Live is an opportunity to connect with my study group, reconnect with friends I don’t otherwise see or talk to, and pick up bits of wisdom from other professionals in the industry.

Attending these conferences takes some time away from my family, my clients, and the firm. But because the learnings ultimately benefit all three, I find a lot of value in going.

Here’s what I learned at XYPN Live this year.

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What I Learned at Fincon19

Like most jobs, my work requires a little bit of travel every year. Since we moved down to Sacramento from Portland, I head back up to Oregon 2-3 times per year to see clients. I also attend 2-3 conferences each year, to keep abreast of what’s going on in the industry and to make sure I’m consistently able to deliver the best advice to my clients.

This year I had two conferences on the agenda. The first conference I had penciled in was one I’ve been trying to attend for several years: FinCon. FinCon is a gathering of bloggers, podcasters, YouTubers, reporters, financial planners, and others who produce or promote financial content. FinCon was held in Washington D.C. this year, directly before the second conference on my agenda: XYPN Live, which I just returned from this week.

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A Tax Hater’s Guide to Investing: 5 Tax Free Investment Options Outside of the Roth IRA

Good investing includes minimizing taxes wherever possible. If you’ve followed me or the blog for long you’ve probably picked up on the fact that I’m a big fan of the Roth IRA for this exact reason. You pay income tax on the dollars you contribute to the account, but you never pay them afterward.

I’ve written about Roth IRAs quite a bit. Musings here on the blog have covered how to execute a back door Roth IRA conversion, a mega back door Roth IRA conversion, and when & how to convert your tax deferred savings during your retirement gap years.

Roth IRAs aren’t perfect though, and they’re not for everyone. So what other options are out there for investors trying to avoid taxes? This post will cover five.

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How to Evaluate a Real Estate Investment

The concept of acquiring rental properties as a means to build passive income has become exceptionally popular recently. In fact, it’s difficult to peruse the internet for content on personal finance without bumping into videos/podcasts/blogs/courses on how to build passive income through real estate investing.

My take on real estate investing is that it can indeed be a wonderful complement to your investment portfolio. But the conditions need to be just right. And given how quickly housing prices have risen since the depths of the financial crisis in 2009, the circumstances today are rarely compelling.

As you can imagine, this is a conversation I have with clients frequently. Some have an existing property we need to evaluate. Others fall in love with the idea of putting in sweat equity now & building an empire of properties that kick off income over time. This sounds nice in theory, but in my experience rarely pencils out. (At least of the opportunities I’ve seen recently in California & Oregon).

This post will explore how to evaluate real estate investing opportunities. We’ll cover cash flow, return on investment, and go through a real life scenario of a property I pulled from Zillow.com.

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72t Distributions: The Ultimate Guide to Early Retirement

What’s the most common piece of retirement advice you’ve ever heard? I bet it has something to do with tax advantaged retirement savings. Most people are inundated with voices telling them to start saving early and take advantage of tax deferrals. It’s solid advice. Saving tax deferred money through IRAs, 401(k) plans, and other retirement vehicles is a wonderful way to grow your wealth over time.

The downside? Those pesky withdrawal penalties. The IRS will typically ding you 10% if you withdraw from these accounts before turning 59 1/2. This can pose a problem if you’re considering an early retirement. Fortunately there are a few loopholes. eight of them, in fact:

Roll withdrawals into another IRA or qualified account within 60 days
Use withdrawals to pay qualified higher education expenses
Take withdrawals due to disability
Take withdrawals due to death
Use withdrawals for a qualified first-time home purchase up to a lifetime max of $10,000
Use withdrawals to pay medical expenses in excess of 7.5% of adjusted gross income
As an unemployed person, take withdrawals for the payment of health insurance premiums
Take substantially equal periodic payments pursuant to rule 72t

For those of you interested in an early retirement, the final loophole is likely the most interesting to you.

According to rule 72t, you may take withdrawals from your qualified retirement accounts and IRAs free of penalty, IF you take them in “substantially equal period payments”.

This post explores how.

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Case Study: Retiring With $1,000,000

Those of you who know me know that I’m a massive baseball fan. And when it comes to famous quotes from baseball players, one person comes to mind more than any other: Yogi Berra.

Yogi Berra was a long time catcher for the Yankees and had an incredible hall of fame career. He was equally known for his head-scratching quotes, which the world has affectionately termed “Yogi-isms.” Yogi didn’t comment often on financial topics, but he does have one quote that applies nicely to retirement planning:

“A nickel ain’t worth a dime anymore.”

When we think about retirement planning, many people consider $1,000,000 as kind of a “golden threshold.” They think of a million dollars as the minimum nest egg they’ll need in order to retire comfortably. But as Yogi pointed out, being a millionaire doesn’t amount to what it used to.

So is it even possible to retire with $1,000,000 these days?

Let’s find out. In this post we’ll explore a hypothetical couple named John and Jane. They’ve saved $1,000,000 and want to retire, which is a very common situation for many Americans.

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What Everyone Ought to Know About Long Term Care Insurance

You’ve seen the stats. Long term care is expensive, and we’re all likely to need it at some point in our lives. The cost of spending time in a nursing home or assisted living facility adds up quickly, which is why many retirees choose to insure against it through a long term care insurance policy.

Problem is, since there’s a high likelihood of requiring long term care, insurance is an expensive proposition in its own right. Plus, there’s no guarantee that the premium costs of a policy today don’t rise in the future. Genworth, one of the biggest underwriters in the long term care insurance, received approval in the Q1 of 2019 to raise premiums an average of 58%. (Insurance companies must receive approval on a state to state basis). That’s also after the company raised costs an average of 45% in 2018, and 28% in both 2017 and 2016. Ouch.

Are you better off crossing your fingers and hoping you don’t need expensive care for a long period of time? Or is it better to cover this risk through an insurance policy that will cost you an arm and a leg anyway?

This post will cover the essentials of long term care insurance, including exactly how to decide whether picking up a policy is a good decision for you and your family.

Long Term Care: The Stats

So here’s the big question. What are the chances you’ll ever need long term care? According to longtermcare.gov, about 70% of people turning 65 will need long term care services at some point in their lives. With the average annual cost of a nursing home totaling around $100,000 these days (depending on where you live), this can be a scary proposition.

The stats can be misleading, though. Many people who need long term care services only need them for short periods of time. And since most long term care policies have elimination periods (the waiting period before the policy starts paying out) of around 90 days, many people won’t even need care long enough for their coverage to kick in.

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How To Calculate Solo 401k Contribution Limits

Solo 401k plans have many aliases: solo-k, uni-k, and one-participant-k, among others. Whatever you want to call it, the retirement plan is one of my very favorite for small business owners without eligible participants. They’re easy to set up, inexpensive to operate, and simple to maintain.

One of the few downsides of solo 401k’s is that they do have one murky intricacy: determining the maximum amount you can contribute in a given year.

This post will cover how to calculate solo 401k contribution limits. We’ll cover the contribution calculations, the deadlines, and everything else you need to know about the accounts.

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6 Reasons Basic Estate Planning is So Important for Business Owners

In general I am not a fan of “listicles”. They feel like a cheap, click-baity, headline grabbing way to produce content and drive traffic to your website. Reading them can feel…yucky. So I typically try to avoid publishing them. I care greatly about the integrity of this site, and avoid content that I don’t think is genuinely valuable.

Recently I’ve run across a number business owners who’ve done ZERO estate planning. No idea who steps in to run their business if they’re not around. No will. No trust. Nothing.

This is pretty common, unfortunately. Hundreds of thousands of small businesses out there have done no estate or succession planning. A study of 200 by Wilmington Trust found that 58% had no plan in place whatsoever. I’ve written on this subject recently. Because this is such an important topic, I’m going to break my rule about listicles today to drive the point home. (Hey, in moderation they can be an effective way to communicate. Who doesn’t like digestible, bite sized snippets?).

Here are my top six reasons estate planning is so important for business owners.

#1: You & Your Family Probably Depend On It

For most business owners I speak with about financial matters, a substantial portion of their net worth consists the equity in their business. And when I say substantial, I mean up to 75-80%. Without any type of plan in place, there’s a very high likelihood that the value of this equity dissolves entirely if you become incapacitated or die unexpectedly.

Even if you have a long term disability insurance policy in place, losing the equity in your business would probably have a significant financial impact on your family. Having a succession plan in place in just in case something does happen is the only way to preserve your equity. And therefore your family’s balance sheet.

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