For Cummins Inc employees, understanding the impact of financial decisions through detailed cash flow planning is critical to retirement planning - achieving goals while optimizing tax implications and withdrawal strategies - Kevin Landis, representative of the retirement group, a division of Wealth Enhancement Group.
'Cash flow planning provides a road map for managing spending, saving and retirement so that employees know when to retire and how to spend their retirement years wisely' - Paul Bergeron, of the retirement group, a division of Wealth Enhancement Group.
In this article we will discuss:
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1. Role of cash flow planning in helping Cummins Inc clients manage spending, saving and goal funding.
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2. How cash flow planning tools help you decide when to take your retirement & how to manage your assets post-retirement.
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3. Benefits of account aggregation & real-time data for creating accurate financial plans.
Modeling goals and expense funding for each year of a Cummins Inc client's projected lifetime reveals how chronological and priority goal funding affects multiple client goals. The biggest decision clients face in their Cummins Inc retirement is whether to retire from Cummins Inc this year or next year. Showing how asset allocation changes due to withdrawals - and the tax implications of those withdrawals - our advisors can better assess client outcomes year over year and help clients decide when to retire from Cummins Inc.
Clients can understand where their money went and where it will go to fund their life goals with cash flow planning. At any life stage, this type of planning can be used - early accumulators, mid-career accumulators, pre-retirees and Cummins Inc retirees. Early Adopters' cash flow planning can help Early Adopters understand spending, saving and funding of emergency and Cummins Inc retirement accounts. Starting cash flow planning should involve proper savings for early accumulators. But good planning also involves getting the client's financial house in order and getting the proceeds invested in a solid, diversified portfolio, says financial planner Michael Kitces.
Pre-and post-retirement pre-retirees from Cummins Inc could use cash flow planning to illustrate how current spending translates to retirement spending and how current spending impacts funding all of their goals. Cummins Inc retirees could apply cash flow planning to understand how spending affects distribution of income to fund goals and outlive retirement savings. And third-best use of our cash flow tool - decide whether Cummins Inc employees should leave Cummins Inc this year or next year. Cash flow planning can keep our Cummins Inc clients on the right financial path by integrating income & expenses, investment performance, education funding, insurance and estate planning.
Cash flow planning can also help our Cummins Inc clients understand where they lose money unnecessarily. Fees, miscalculations, wrong insurance, penalties and other charges can really add up quickly for many families. They lose on average USD 200 a month. The holistic view that cash flow planning offers means that advisors have points to discuss with clients during planning. Advisors then can analyze data better and make recommendations in the client's best interest. Gamma is a Morningstar research metric that measures how sound financial planning in five areas - asset allocation, withdrawal strategy, guaranteed income products, tax-efficient allocation and portfolio optimization - can deliver 29% more income on average to a retiree.
In addition to this value, Morningstar Research estimates that a retiree could realize 22.6% more certainty equivalent income with a Gamma-efficient retirement income strategy than in our base case. A few output options and tools are provided by our advisors via software. They range from an annual cash flow report with simulations of inflows, outflows and total portfolio assets to an interactive tool called Decision Center that allows the advisor to model recommendations live during a review meeting. Several key data points are applied to project a client's cash flow simulation.
Projections include living expenses, liability payments, insurance premiums, gifting, taxes, etc. Planned savings are also called an outflow if employee contributions to a qualified account, HSA or taxable investment are made by the employee. Total outflows minus total inflows gives a net cash flow number that is positive or negative. All liquid investments like taxable accounts, tax deferred, cash, etc. will be shown as total portfolio assets at the end of the year. Some factors that affect the ending total portfolio assets year over year are the growth rates for each account and the ending net cash flow.
Simulation uses client inflows such as income, investment distributions, planned distributions and other inflows. And if the client has negative net cash flow, that deficit will have to be financed from available portfolio assets through liquidation. With a positive net cash flow, the surplus will be deposited into the client's core cash account. The core cash account is a hypothetical wallet which measures the inflows and outflows of the client. Advisors may not save excess cash at the end of the year if a client prefers. An expense number can help advisors start cash flow planning conversations with Cummins Inc clients. Conversations about spending can be difficult if there are problems that should be addressed.
A budgeting solution is a good starting point for discussion of client spending and impact on cash flow plan. With budgeting tools, we provide daily updates on a client's spending transactions through connections to their financial institutions. This tool budgets the client's spending so that the advisor has an accurate picture of the spending which can be used for cash flow simulation and where improvements could be made. Also for Cummins Inc employees to remember: entering data - especially expenses - does not have to be time-consuming or too finely detailed in cash flow planning.
Your advisor and the software give you a lot of flexibility when entering expenses - from an annualized rollup of all expenses to major expense buckets (discretionary, etc.) and the ability to fill out a digital expense worksheet or classify transactions on the Cummins Inc client site to determine a client's true expenses for the year. Data entry takes time depending on how detailed you need it. Account aggregation is changing financial planning because it allows advisors to plan with their clients. In cash flow planning, aggregation provides an account balance with real-time information that improves a client's cash flow projection.
Using account aggregation, we connect with thousands of institutions to collect client account information like balances, holdings, asset allocations and more. By including accounts held away, aggregation makes the cash flow plan comprehensive. From this information, the advisor also understands how an account accumulates for projection purposes. This helps the advisor make recommendations that better meet the client's needs. These provide fully integrated account consolidation (assets under management) and account aggregation (assets held away) functionality across the advisor and client experiences. More than USD 2 trillion of assets are connected via the platform.
All linked accounts update values across the system - including financial plans - every day. We use a commercial aggregator - where more than 90 percent of this aggregation work is done in-house by the team with a small percentage coming from third parties. A nationwide group of financial advisors known as the Retirement group. We only plan for and design retirement portfolios for transitioning corporate employees. And each representative of the group has been hand-picked by the retirement group in select cities throughout the United States.
Each advisor was screened for pension expertise, financial planning experience and portfolio construction knowledge. TRG believes in teamwork to find solutions to our clients' problems. A conservative investment philosophy guides the team in constructing client portfolios with laddered bonds / CDs / mutual funds / ETFs / annuities / stocks and other investments. They handle retirement / pensions / tax / asset allocation / estate / elder care issues.
This document uses different research tools and techniques. All attempts to estimate future results involve assumptions and judgments and are therefore only tentative estimates. The law, investment climate, interest rates and personal circumstances will all change and will affect how accurate our estimations are and how appropriate our recommendations are. Such a plan requires ongoing change sensitivities as well as constant re-examination and alteration of the plan. So update your plan a few months before your expected retirement date and do an annual review.
Nothing contained herein shall be construed as an attempt by the Retirement Group, LLC or any of its employees to practice law or accounting. We look forward to speaking with any tax and/or legal professionals you may select regarding the implications of our recommendations. Through your retirement years, we will continue to update you on issues affecting your retirement via our complimentary and proprietary newsletters, workshops & periodic updates. Or call us at (800) 900-5867.
Articles you may find interesting:
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
Sources:
1. National Institute on Retirement Security (NIRS). 'Retirement Insecurity 2021.'
National Institute on Retirement Security
, Feb. 2021,
www.nirsonline.org/wp-content/uploads/2021/02/FINAL-Retirement-Insecurity-2021-.pdf
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2. U.S. Congress. 'H.R. 2954 - Securing a Strong Retirement Act of 2022.'
Congress.gov
, 2022,
www.congress.gov/bill/117th-congress/house-bill/2954/text
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3. Groom Law Group. 'Summary of Provisions in the Securing a Strong Retirement Act (H.R. 2954).'
Groom Law Group
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www.groom.com/resources/summary-of-provisions-in-the-securing-a-strong-retirement-act-h-r-2954/
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4. Börsch-Supan, Axel, and Courtney Coile. 'Social Security and Retirement around the World.'
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www.nber.org/brd/20234/social-security-and-retirement-around-world
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5. National Academy of Social Insurance. 'Social Security and Retirement around the World.'
National Academy of Social Insurance
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www.nasi.org/research/social-security-archive/
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How does Cummins determine eligibility for participation in the Cummins Pension Plan, and what are the implications for employees who temporarily leave the workforce? This inquiry should delve into the specific criteria that define an eligible employee, such as citizenship requirements and exclusions, as well as the continuation of benefits and service credit during approved leaves or breaks in service at Cummins. It would also explore the complexities surrounding vesting and how service prior to a break is credited upon re-employment at Cummins.
Eligibility and Participation in the Cummins Pension Plan: Eligibility for the Cummins Pension Plan requires being an active employee, not participating in another Cummins defined benefit pension plan, and meeting certain citizenship or residency criteria. During approved leaves of absence, employees continue to accrue service credits, ensuring continuous growth in their pension benefits. Notably, vesting occurs after three years of service, securing the employee's entitlement to pension benefits upon leaving the company. The plan handles breaks in service by allowing reemployment within 12 months to count towards vesting and benefit calculations, safeguarding employee benefits against temporary disruptions in their career with Cummins.
What are the potential benefits and limitations of the forms of distribution available under the Cummins Pension Plan, and how should employees prepare for their pension benefit election? This question requires an analysis of various forms of distributions, such as lump sums versus annuities, highlighting the financial implications of each choice, particularly in relation to the IRS rules for 2024 regarding tax treatment. Employees should also consider how their family structure (e.g., marital status, dependents) may influence their decisions when electing a distribution method.
Distribution Forms and Tax Considerations: The Cummins Pension Plan offers various distribution forms, including lump sums and annuities, each with distinct tax implications under IRS rules for 2024. Employees must consider their family structure and tax status when choosing a distribution form, as these factors influence the tax treatment and financial outcome of their pension benefits. The plan provides clear guidelines on these options, ensuring employees can make informed decisions that align with their personal and financial circumstances.
In what ways do pay credits and interest credits accrue within the Cummins Pension Plan, and how can employees gauge their potential retirement benefits over time? This question will focus on the specifics of how pay credits are calculated based on an employee's compensation and service at Cummins, as well as the impact of interest credits on the total account balance and long-term retirement planning. It will also examine how employees can track these credits through the Cummins retirement resources.
Accrual of Pay and Interest Credits: The pension benefits at Cummins accrue through pay credits based on compensation and service, along with interest credits. Employees can monitor their accumulating benefits through the Cummins retirement resources, offering transparency and planning advantages. This structured accrual method supports employees in projecting their future pension benefits and making informed decisions about their retirement timing and financial needs.
How does Cummins ensure compliance with ERISA and other regulatory standards in the management of the Cummins Pension Plan, and what rights do employees have under these regulations? This query should explore Cummins' obligations as a fiduciary in managing employee benefits and highlight the key rights of plan participants. The discussion should include access to plan documents, the process for filing claims, and the significance of ERISA protections for employees retired from Cummins.
Regulatory Compliance and Employee Rights: Cummins diligently adheres to ERISA standards in managing the pension plan, emphasizing fiduciary responsibility and ensuring participants' rights are upheld. Employees have rights to access plan documents, participate in claims and appeals processes, and are protected under ERISA from any plan-related discrimination. This regulatory compliance not only secures the integrity of their pension benefits but also reinforces the legal framework protecting participant rights.
What role does the Pension Benefit Guaranty Corporation (PBGC) play in safeguarding the retirement benefits of Cummins employees, and how does this affect the perception of the plan's reliability? This question would examine the insurance coverage provided by the PBGC, what types of benefits are guaranteed, and under what circumstances benefits may not be fully covered. Employees might analyze how this federal insurance impacts their confidence in the plan, especially in light of changing economic conditions.
Role of the Pension Benefit Guaranty Corporation (PBGC): The PBGC insures the pension benefits under the Cummins Plan, providing a safety net that enhances the reliability of these benefits. Employees covered by the plan can gain confidence in the security of their pensions, knowing that even in the face of potential plan termination, the PBGC guarantees the core benefits, subject to certain legal limits and conditions.
How does the Cummins Pension Plan interface with employees' Social Security benefits, and what should retirees consider when planning for a sustainable retirement income? This inquiry will look at the coordination of benefits under the Cummins plan with Social Security, examining how pension income might influence Social Security calculations. It would require discussions on the timing of retirement elections and how they align with Social Security claims.
Interaction with Social Security Benefits: The Cummins Pension Plan is designed to integrate smoothly with Social Security benefits, offering provisions that help plan participants optimize their total retirement income. Understanding this interaction allows employees to strategically plan their retirement age and benefit commencement, maximizing their financial stability in later life.
What are the specific procedures and deadlines that Cummins employees should follow to successfully elect a distribution from the Cummins Pension Plan upon retirement? This question will necessitate a detailed look at the steps involved in initiating a benefit distribution, including the importance of spousal consent, the timing of application submissions, and any documentation that may be required. Understanding these processes can significantly affect the financial outcomes for retirees.
Procedures and Deadlines for Electing Pension Distribution: The Cummins Pension Plan outlines specific procedures and deadlines for electing a distribution upon retirement, emphasizing the importance of timely and informed decision-making. By understanding these processes, employees can avoid delays and ensure that they receive their pension benefits in the manner that best suits their post-retirement financial plans.
What are the implications of choosing to defer pension benefits and how does the Cummins Plan accommodate employees who opt not to start their benefits at the normal retirement date? This inquiry could address the potential financial consequences of deferring benefits, including eligibility requirements for such deferral and how it aligns with IRS regulations. Employees should critically evaluate their financial situations and retirement goals, weighing the allure of continued employment against starting their retirement benefits sooner.
Deferring Pension Benefits: Employees at Cummins have the option to defer their pension benefits beyond the normal retirement date, which can influence the financial value of their benefits. The plan provides guidelines on how deferral impacts benefit calculations and distributions, assisting employees in making decisions that align with their long-term financial goals.
How can Cummins employees designating beneficiaries ensure that their wishes are respected concerning death benefits, particularly in light of recent changes in the pension landscape? This question focuses on the options available to employees for designating beneficiaries, the process for updating these designations over time, and the specific forms that need to be completed to ensure compliance with the Cummins Pension Plan. It will also discuss the impact of state and federal laws on these designations.
Designating Beneficiaries and Ensuring Compliance: The plan stipulates clear processes for designating beneficiaries for pension benefits, ensuring that employees' wishes are respected and legally documented. This is crucial for planning and securing financial provisions for survivors, reflecting the plan's comprehensive approach to retirement benefits.
How can Cummins employees contact the Cummins Retirement Benefits Service Center to obtain more information about the Cummins Pension Plan and related retirement processes? This question emphasizes the various channels through which employees can reach out to the service center, the types of queries they can address regarding the Cummins Pension Plan, and the resources available online to assist with pension-related inquiries. Employees are encouraged to take advantage of these resources to make informed decisions regarding their retirement planning.
Accessing Information and Assistance: Cummins provides multiple channels for employees to access information and assistance regarding their pension plan, including online resources and a dedicated service center. This accessibility ensures that employees can obtain detailed information and personalized support, enabling them to navigate their pension benefits effectively.
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