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For Sears Holdings 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 Sears Holdings 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 Sears Holdings client's projected lifetime reveals how chronological and priority goal funding affects multiple client goals. The biggest decision clients face in their Sears Holdings retirement is whether to retire from Sears Holdings 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 Sears Holdings.
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 Sears Holdings retirees. Early Adopters' cash flow planning can help Early Adopters understand spending, saving and funding of emergency and Sears Holdings 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 Sears Holdings could use cash flow planning to illustrate how current spending translates to retirement spending and how current spending impacts funding all of their goals. Sears Holdings 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 Sears Holdings employees should leave Sears Holdings this year or next year. Cash flow planning can keep our Sears Holdings 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 Sears Holdings 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 Sears Holdings 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 Sears Holdings 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 Sears Holdings 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.'
National Bureau of Economic Research
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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 the Sears Holdings Pension Plan differentiate between normal retirement, early retirement, and late retirement options for Kmart participants? In what ways do these options influence the retirement planning process for employees of Sears Holdings, and what specific considerations should Kmart employees be aware of when choosing one of these retirement paths, particularly in relation to their vested status?
Differentiation of Retirement Options: The Sears Holdings Pension Plan offers distinct options for normal, early, and late retirement. Normal retirement is available at age 65 or after five years of plan participation, whichever is later. Early retirement can be taken from age 55 but before 65, provided the employee is vested, with benefits subject to actuarial reduction unless certain conditions are met (like having at least 90 points, which is a sum of age and years of credited service). Late retirement pertains to any retirement after the normal retirement age, with pensions recalculated to reflect the delay in benefit commencement.
Considering the frozen status of the Sears Holdings Pension Plan, how does this impact the benefits eligibility for Kmart employees, and what implications does it have for their retirement savings strategies? In what ways should current employees factor in this frozen status when evaluating their overall retirement readiness and potential alternatives outside of the company plan?
Impact of Frozen Status: The freezing of the Sears Holdings Pension Plan on January 31, 1996, means that there have been no new accruals of benefits or participants since that date. For Kmart employees, this impacts their benefits eligibility by capping the pension benefits at levels earned up to the freeze date. Employees need to consider this stagnation in benefits when planning for retirement, potentially seeking additional retirement savings avenues to bridge any shortfall.
What are the essential calculations involved in determining the retirement benefits under the Sears Holdings Pension Plan for Kmart employees? Specifically, how do the Career Average Pay and Final Average Pay formulas come into play, and what factors should employees consider when estimating their future retirement payouts?
Essential Calculations for Retirement Benefits: Pension benefits for Kmart employees under the Sears Holdings Pension Plan are calculated using either the Career Average Pay or the Final Average Pay formulas. These calculations take into account an employee's years of credited service and compensation up to the freeze date. Factors like estimated Social Security benefits and specific formulas (such as a deduction based on Social Security benefits under the Final Average Pay formula) play crucial roles in determining the final pension payout.
How can Sears Holdings employees best navigate the process of applying for benefits under the Pension Plan? What specific steps should participants take to ensure their applications are processed correctly, and what important deadlines should they be aware of to avoid any negative consequences on their retirement benefits?
Navigating the Benefits Application Process: To apply for pension benefits, employees must submit a formal application, ideally 30 to 90 days before the intended commencement date. It is crucial to ensure all personal information, including marital status and spouse details, is up-to-date to avoid delays or inaccuracies in benefit processing. Missing application deadlines can lead to postponed benefit payments or unwanted default options.
In what situations can Kmart employees expect to receive a Deferred Vested Pension, and how is the calculation for this pension affected by their previous employment and vesting service? Employees should be aware of the important factors influencing their eligibility and the steps necessary to maintain their retirement benefits after leaving the company.
Eligibility and Calculation for Deferred Vested Pension: A Deferred Vested Pension is available to employees who leave the company after becoming vested but prior to qualifying for retirement. The calculation mirrors that of a normal retirement pension, with possible early commencement reductions. Understanding the timing of benefit commencement and the potential reductions for early start is vital for planning.
How does the Sears Holdings Pension Plan address tax considerations for employees receiving both monthly payments and lump sum payments upon retirement? What tax implications should Kmart participants be aware of, particularly in relation to IRS rules for distributions and potential penalties for early withdrawal?
Tax Implications of Pension Receipt: Pension payments, whether monthly or lump sum, are subject to federal taxes. Monthly benefits are taxed as ordinary income, while lump sums might be eligible for special tax treatments or rollover options to defer taxes. It’s important for Kmart employees to consider these implications and possibly consult with a tax advisor to optimize tax liability.
What are the rights and protections afforded to Kmart participants under the Employee Retirement Income Security Act (ERISA) as they navigate their retirement benefits with the Sears Holdings Pension Plan? How can employees leverage these rights to ensure they are receiving all the benefits to which they are entitled?
ERISA Rights and Protections: Under ERISA, Kmart employees are entitled to certain rights including the ability to appeal denied benefits, access to plan information, and assurances of fair and equitable treatment of their benefits. Leveraging these protections ensures that employees receive all due benefits.
What steps should Kmart employees take to update their personal information to ensure they continue receiving their benefits without interruption, especially in the context of missing participants or uncashed checks? What resources and contacts at Sears Holdings are available to assist with these updates?
Updating Personal Information: Maintaining accurate personal information with the pension plan is crucial for uninterrupted benefit payments. Employees should promptly update changes such as address, marital status, or beneficiaries to prevent issues with benefit distributions or lost checks.
How does the process of transferring between affiliated employers impact pension benefits for Kmart employees under the Sears Holdings Pension Plan? What considerations should be taken into account concerning Credited Service and Vesting Service during such transfers, and how can employees ensure they do not lose any entitled benefits?
Impact of Transfers Between Affiliated Employers: Transferring between Sears Holdings’ affiliated employers can affect pension benefits differently depending on whether the employer participates in the pension plan. It's essential to understand how such transfers impact credited and vesting service accruals.
For Kmart employees seeking more information about their benefits under the Sears Holdings Pension Plan, what is the best way to contact company representatives? How can they effectively communicate their questions or concerns to ensure they receive accurate and timely information regarding their retirement benefits?
Contacting Plan Representatives: Kmart employees seeking clarity on their pension benefits should contact the Sears Holdings Pension Service Center. Effective communication, including prepared questions and necessary documentation, will aid in obtaining accurate and comprehensive information.
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