• Helping Small-Businesses Plan for Retirement
• Getting Started with Social Media

Helping Small-Businesses Plan for Retirement By Douglas C. Radcliffe, CFP, CLU

Today’s retirees face unprecedented financial challenges. Longer life expectancy, inflation, turbulence in the stock market and a lack of personal savings can create the perfect retirement storm. Although no magic formula exists, there are some steps small-business owners can follow to help them reach financial independence.

Combining a New Comparability profit-sharing plan with a 401(k) plan allows individuals age 50 or older to contribute up to $55,500 per year in pretax dollars in 2012.  Small-business owners in higher income tax brackets could potentially save $18,000 or more per year in taxes.  At $55,500 per year, it doesn’t take long to build a sizable nest egg, not to mention accumulate tremendous tax savings.

A few rules apply when combining the two, but the basic concept gives older, highly compensated employees--who have fewer years remaining to build up retirement funds--the option to make larger contributions.

Below is a sample Small Business Census utilizing a New Comparability plan with a 401(k) plan. The hypothetical company consists of eight employees, including the owner who earns an annual salary of $250,000 of $495,000 in total payroll. As shown, each employee receives a company contribution equal to 4.5 percent of his or her annual income, and the owner 13.40 percent (see PS% column). “ER PS column,” or Employer Profit Sharing, shows the dollar amount the company contributes to the plan.

In this scenario, the 60-year-old owner receives a contribution of $33,500 in addition to qualifying for the maximum pretax deferral of $16,500, plus an additional “catch up” of $5,500 allowed to those 50 years of age and older for a total benefit of $55,500. Adding the $11,025 in deferrals for non-highly compensated employees brings total tax deductible dollars to $66,525, with nearly 85 percent of this amount going to the owner.

If the owner took the $66,525 in personal income, the taxes would be around $24,400, so the bottom-line translates to only around $44,000 in his or her pocket. This shows that the New Comparability plan is a great way to put money away for retirement, help employees fund their retirement, while also saving substantial tax dollars.

Sample Small Business NEW COMPARABILITY PLAN  WITH A 401(k) 3% CONTRIBUTION SAFE HARBOR 401(k)
						COMP	ER CONT	%of TOT
* HCE Deferrals				*	HCE	$250,000.00	$55,500.00	83.43%
** NHCE Deferrals			AS SHOWN	**	NHCE	$245,000.00	$11,025	16.57%
					TOT	$495,000.00	$66,525	100.00%
					44,525	24,750	5,500		74,775
Name	HCE	COMP	Class	PS%	ER PS	Deferral	Catch up	Match	TOT ALLOC
60 yr old Owner	y	250,000	Owner	13.40%	33,500	16,500	5,500		55,500
40 yr mgr	n	60,000	MGR	4.50%	2,700	4,200			6,900
50 yr old staff	n	40,000	Staff	4.50%	1,800	1,200			3,000
45 yr old staff	n	35,000	Staff	4.50%	1,575	1,050			2,625
40 yr old staff	n	30,000	Staff	4.50%	1,350	900			2,250
35 yr old staff	n	30,000	Staff	4.50%	1,350	900			2,250
30 yr old staff	n	25,000	Staff	4.50%	1,125				1,125
25 yr old staff	n	25,000	Staff	4.50%	1,125				1,125

 

* Highly Compensated Employees- owner
** Non Highly Compensated Employees

Plan features

There is a surprising amount of flexibility in the plan’s design to help meet the needs and goals of different businesses:

• A plan can accommodate different classes of employees. For example, management can be separated and given a higher level of profit sharing.
• Within limits, contributions can be based on years of employee service, thereby encouraging and rewarding longevity.
• Employers can attach a vesting schedule that requires an employee to stay with the company for a set number of years before receiving a certain portion of retirement earnings.

More options are available; so it is wise for business owners to seek advice from a CPA, pension administration firm as well as a financial planner with small-business-owner experience to design the right plan for their situation.

Bio:
Douglas C. Radcliffe, CFP, CLU, is a senior financial planner and owner of Invest Central of San Antonio. Invest Central specializes in working with business owners.

(Security products and financial planning services offered through New England Securities, member FINR9A/SIPC and a registered investment advisor.  Invest Centralis not affiliated with NES.)

Getting Started with Social MediaBy Mike Rowan

Social media has become a valuable tool for financial advisors seeking to interact with clients and industry professionals or market their products and services.  In fact, a recent webinar by Socialware, “2011 Year in Review: Social Media in Financial Services,” showed that 84 percent of financial advisors are using LinkedIn, 60 percent are using Facebook, and 28 percent are using Twitter.

As a financial advisor, you typically use social media to stimulate conversations as well as distribute correspondence and information to provide added value for the individuals in your network. For example, if an updated research report has been released by your firm, you may choose to distribute it within your networks. This creates an opportunity for your clients and prospects to respond with questions and thoughts, and more importantly, recipients can share this information throughout their networks. This expands your reach and can contribute to an expanded social contact list. 

However, it can be tricky to navigate the vast array of social media channels available today because their use is highly regulated. Below are three steps to help get you started on the right foot.

1. Get the facts. Before diving into social media, check with your compliance officer or broker-dealer about the rules, regulations and best practices. You must fully understand how you can utilize social media in an appropriate way and stay out of hot water.

In addition to your broker-dealer institution, check out new regulatory guidelines like FINRA Notice 11-39, as well as the numerous online resources available, including webinars, podcasts and e-learning courses.

2. Understand social media. Social media consists of numerous channels, all of which have their own set of features, functionalities and reasons for use.  For example, LinkedIn is typically a professional network, and is probably the most popular current social media site among advisors because most of their clients and prospects know about it.

You can use LinkedIn to distribute content and network with other advisors and potential clients via professional groups, as well as through the Question and Answer section of the site. For example, you can join its alumni group or another group of particular interest, and use that as a sub-channel for new contacts by participating in the group membership. You can also search for specific planning questions in the Q&A section and offer advice. This shows added value and firmly establishes your credibility. 

Generally speaking, Facebook is a great way to stay in touch with existing clients and provides a window into their lives. It helps you keep up with activities like their trips, family events and important issues. This can help strengthen the bond between you and your clients.

For example, if you notice that a client has posted a lot of pictures from a recent trip to Europe, you have the opportunity to comment on the trip, which shows that you are engaged in his life.

However, you need to use Facebook cautiously because you don't want to be too intrusive.

It's like the story about an advisor who goes to a party and immediately starts to hand out his business cards to strangers before making an effort to speak with them first. It's important to use social media tactfully, just as you would do in any one-on-one conversation. 

Twitter allows for immediate conversations, while blogging provides a blank template you can use to express deep, meaningful thoughts and advice that add credibility to your expertise.

3. Connect with clients. Social media can be an excellent way to reach the millions of users that log on to their favorite websites each day, and can be great for cultivating existing relationships and developing new ones.

You can engage in thoughtful conversations via social media channels, which can lead to potential new business leads or referrals from existing clients. For example, according to the Socialware webinar mentioned earlier, 34 percent of advisors generated new prospects through social media, and 17 percent generated new clients.

A word of caution

As a financial advisor, however, you must walk a fine line and be careful not to partake in any conversations that could be controversial, such as those involving politics, religion or sensitive financial issues.  These topics cannot only violate compliance regulations, but can also alienate your clients and potential clients, resulting in lost business for you.

Bio:
Mike Rowan is an experienced investment counselor, insurance executive, and financial-services advisor. He recently founded eInsurance Advisors, a full-service insurance and investment- marketing firm serving over 10,000 advisors nationwide. Rowan is also an area vice president of the Georgia Chapter of NAIFA. Contact him at mike@fipath.com.