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'Caterpillar employees should review their retirement planning strategies to see if they are keeping pace with the economic environment, as consistent adjustments can help ensure long-term financial security,' says Brent Wolf, a representative of the Retirement Group, a division of Wealth Enhancement Group.
As we navigate changing market conditions, Caterpillar employees should periodically review their retirement plans and make adjustments where necessary to stay on track for their future goals, 'says Kevin Landis, of the Retirement Group, a division of Wealth Enhancement Group.
In this article, we will discuss:
1. Employee benefits & pension trends.
2. Recent restructuring and layoffs impact retirement plans.
3. 401(k) adjustment tips for dealing with economic shifts.
Those at Caterpillar might notice how much more complex your financial planning needs get the longer you work there. Although you might have similar goals as other coworkers - saving for retirement after leaving Caterpillar or helping pay for your children's college - the components necessary to reach them all require careful management. The best Caterpillar financial planning strategies start with assessing your situation holistically and simplifying it by finding the right experts to help you.
High-Net-Worth Caterpillar individuals' comprehensive asset allocation. Your life may have a lot of moving parts because you work at a Caterpillar company. This makes sound financial planning essential. Complete financial planning examines your entire financial picture. It covers investment management, including strategic asset allocation/diversification, tax planning, and retirement planning before and after leaving Caterpillar.
Estate planning, risk & insurance, cash flow, college funding, executive compensation, and gifting to family and/or charities. And in investment management, a strategic asset allocation is key. You select the appropriate split between stocks, bonds, and other assets based on your financial goals and situation, called strategic asset allocation. Then you diversify within these categories as much as possible. If you took, for example, a 60% stocks 40% bonds allocation, you would have 60% U.S. large-cap stocks, 20% U.S. small and mid-cap stocks, and 20% foreign stocks within the stock band.
You may adjust your asset allocation as the market changes and your investments increase in value. During a bull market, for example, when stocks are outperforming, your stock portion might be 70% of your portfolio instead of 60%. Once this happens, rebalance to your target allocation by selling some stocks and using the proceeds to buy more bonds until you get back to the 60% to 40% split you wanted. You should only adjust your strategic allocation when things get really personal, like when you are retiring from Caterpillar or having a major life event.
Don't get duped into changing your allocation because of market events. Let your stocks grow during a bull market, but it would increase your overall portfolio risk and leave you overexposed when the market falls. A secondary financial planning consideration for high-net-worth individuals is how to manage taxes. The higher your income and net worth, the greater the tax burden. Think strategically about the kinds of investments and where you hold them to minimize taxes. You might, for example, keep income-producing investments like bonds or bond funds in a tax-sheltered account like an individual retirement account (IRA). Another way to reduce taxes is by giving to a charity or loved ones.
The IRS lets people deduct up to 100% of qualified charitable contributions made in cash to a qualifying charity, and give up to USD 15,000 per person per year without paying gift taxes yourself. Plus, any assets you gift to your beneficiaries today will reduce future estate taxes they will owe. Most investors' financial goal is retirement from Caterpillar retirement. Some would think that retirement planning should be easier for high-net-worth people - you have more assets to fund your retirement - but that is far from the case. High-net-worth individuals find retirement planning just as complex, if not more complex.
First, figure out how much income you'll need in retirement after leaving Caterpillar. Starting with your current monthly expenses is good. List all of your expenses as essential or discretionary - utilities and groceries - and those you could live without - restaurant meals and travel. Consider how you want to spend your retirement time as you review your spending. This helps you figure out how your expenses might change when you leave Caterpillar.
Maybe you spend less on transportation when you don't have to commute to and from work every day but more on travel when you travel through your retirement bucket list. Forecast your expenses as precisely as possible. You can be vague about what you will spend if that helps you out. You can revise your estimate as your retirement plans settle. You know how much you want to spend in retirement and can plan how you'll get that income. You could draw retirement income from investments like retirement and non-retirement savings, Social Security, real estate, or a business.
Like you did with your expenses - essential versus discretionary - you should create two categories of retirement income sources:
fixed and variable. Fixed sources of income have a set amount that you know will be paid out periodically - Social Security, a pension, or an annuity - for example. Variable income comes from sources that change value - like your investments. Your basic retirement expenses once you leave Caterpillar should ideally be covered entirely by fixed income sources. You'll get maximum flexibility with your retirement spending. When stocks are down, you can trim your discretionary expenses without sacrificing your living space. A second way to maximize your retirement income is managing your taxes during retirement. Retirement accounts are one such tool.
There are two types of retirement accounts:
Traditional, or pre-tax, accounts, and Roth, or after-tax, accounts. Traditional accounts allow you to deduct some contributions today. So you pay no taxes until you take the money out of the account. You can contribute today, but with a Roth account, you can take the money out tax-free when you leave Caterpillar. The main stumbling block to Roths is the IRS won't let high-income earners contribute. Individuals and heads of households making over USD 144,000 in 2022 can't contribute to Roth IRAs, and those making USD 129,000 or less can make reduced contributions. In 2022, for married couples filing jointly, the income phase-out range is set at USD 204,000, with couples earning more than USD 214,000 no longer contributing.
Saving for retirement in traditional and Roth vehicles, if you can, will help you with taxes when you leave Caterpillar. Since Roths aren't taxable when withdrawn, you can use them for tax-free income in retirement. Unless you can contribute to a Roth now, you can also talk to a financial advisor about making Roth conversions in lower-income years when you can afford to pay a little more tax in return for more future tax-free income. You can see that good financial planning doesn't stop when you stop working for Caterpillar. Most likely, you want to pass the wealth you've built up with your family through estate planning. And as complicated as retirement planning is, estate planning for high net worth is just as complex.
Estate planning is about getting as much of your inheritance as possible where you want it. And trust is one of the best tools for this. The types of trusts and customizations available make picking the right one and getting it set up properly a bit of a chore. Work with a financial professional and an attorney to determine the right type of trust and draft the appropriate trust agreement. And you need to insure your assets and income accordingly. This includes getting appropriate health, homeowners, auto, boats, and other vehicle and excess liability coverages. So you got long-term care or life insurance, or both. Maybe those fit your situation? Using a Financial Advisor From The Retirement Group Financial planning for a Caterpillar employee involves many moving parts.
Hence, many investors choose to work with a financial advisor - but not just any financial advisor. Partner with someone who understands Caterpillar company benefits for the best advice on financial planning. The Retirement Group advisors train to help Caterpillar employees develop a customized financial plan to meet your financial goals. The Retirement Group holds its advisors to high ethical and educational standards and demands that they serve their clients' best interests. Our advisors will never recommend an investment unless they are confident it is right for you. How a financial advisor is compensated is also an important factor when choosing one.
Advisor compensation may take one of three forms:
via commissions on investments or products they sell; via an annual, hourly, or flat fee (fee-only advisors); or a combination of fees and commissions (called fee-based advisors). Under a fee-only model, the advisor makes no commissions, so there is no incentive to promote one product over another. Instead of variable and obscure commissions, retainer-based fee models charge clients one fixed fee. That fee varies depending on your goals for wealth management and the services the advisor provides - so you get the personalized service you want.
A fee that is tailored to your needs and goals means your advisor will always work for you. About The Retirement Group The Retirement Group is a national group of financial advisors that works together. We only plan for and design retirement portfolios for corporate employees leaving Caterpillar. And each representative of The Group has been handpicked 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, and stocks. They handle retirement, pensions, tax, asset allocation, estate, and 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. In your retirement years after leaving Caterpillar, we will keep you updated on issues affecting your retirement via our complimentary and proprietary newsletters, workshops, and 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. Financial Samurai. 'How High Net Worth Individuals Invest: Asset Allocation Breakdown.' Financial Samurai , 15 Oct. 2019, www.financialsamurai.com/how-high-net-worth-individuals-invest-asset-allocation-breakdown/ .
2. Right Horizons. 'Asset Allocation: A Guide for High Net Worth Investors.' Right Horizons , 22 Dec. 2024, www.righthorizons.com/asset-allocation-guide-high-net-worth-investors/ .
3. Sensible Money. 'Retirement Benchmarks: Go Beyond the S&P 500 Index.' Sensible Money , 11 Oct. 2024, www.sensiblemoney.com/retirement-benchmarks-go-beyond-sp-500/ .
4. The IFW. 'Smart Strategies for High Net Worth Investing in the Current Market.' The IFW , 27 Sept. 2024, www.ifw.com/smart-strategies-high-net-worth-investing/ .
5. Equirus Wealth. 'Asset Allocation Strategies for High-Net-Worth Individuals.' Equirus Wealth , 17 Nov. 2024, www.equiruswealth.com/asset-allocation-strategies/ .
How does the transition from the Solar Plan to the Caterpillar Inc. Retirement Income Plan impact current or former employees of Caterpillar Inc. in terms of retirement benefits and service credits? Considering both plans' differences, what aspects should employees of Caterpillar Inc. understand to ensure they are maximizing their retirement benefits under this merged structure?
Transition from Solar Plan to Caterpillar Inc. Retirement Income Plan: The transition from the Solar Plan to the Caterpillar Inc. Retirement Income Plan maintained the benefits of those previously covered under the Solar Plan without impact. Both plans allowed the continuation of prior service credits and the incorporation of benefits payable under previous retirement plans. For current or former employees, understanding the nuances of how prior service credits and benefits are integrated can maximize their retirement benefits under the merged structure.
What specific criteria must Caterpillar Inc. employees meet to qualify for early retirement and what implications does this have on their pension benefits? For employees planning early retirement, what calculations or benefit reductions should they be prepared for according to Caterpillar Inc.’s policies?
Criteria for Early Retirement at Caterpillar Inc.: Employees wishing to take early retirement must meet specific age and service requirements detailed in the plan documents. For early retirement, benefits calculations and potential reductions are significant. Employees need to prepare for possible reductions in their pension benefits depending on their age and years of credited service at retirement.
In the context of the Pension Equity Plan (PEP) and the Traditional Pension Plan, how do the benefit calculations differ for employees at Caterpillar Inc., particularly for those who switched from the Traditional Plan to the PEP? What considerations should current Caterpillar Inc. employees take into account when evaluating which plan may offer them more secure benefits?
Differences Between PEP and Traditional Pension Plan: The benefit calculations for the Pension Equity Plan (PEP) and the Traditional Pension Plan differ significantly. PEP calculates a lump sum based on salary and years of service, while the Traditional Plan calculates benefits based on final earnings or credited service formulas. Employees need to consider which plan offers more secure benefits based on their individual career trajectory and earnings history.
What steps must Caterpillar Inc. employees take to ensure that their Credited Service is accurately calculated and maintained throughout their employment, especially in light of the company's policies regarding breaks in service? How might phases of employment, such as parental leave or temporary positions, affect this calculation?
Credited Service Calculation and Maintenance: To ensure accurate credited service calculation, employees must maintain thorough records and communicate any changes in employment status, such as breaks in service or changes in personal information, to the plan administrator. Understanding the rules for service credits during different phases of employment, such as parental leave or temporary positions, is crucial.
How can employees at Caterpillar Inc. file a claim for benefits under the retirement plans, and what are the essential details they need to provide to ensure their claims are processed smoothly? If they encounter issues or denials, what recourse do they have within the Caterpillar Inc. system to appeal these decisions?
Filing a Claim for Benefits: Employees should provide detailed and accurate information when filing a claim for benefits under the retirement plans. If issues or denials occur, they have the right to appeal these decisions. Familiarity with the claims procedure and required documentation can streamline this process.
For employees approaching retirement, what resources are available through Caterpillar Inc. to help them navigate the complexities of their retirement benefits? What steps should an employee take if they wish to understand their benefits better or need assistance with retirement planning?
Resources for Navigating Retirement Benefits: Caterpillar Inc. offers resources to assist employees in navigating the complexities of their retirement benefits. Employees approaching retirement should utilize these resources and may need to engage with the company's human resources or benefits departments for personalized assistance.
What are the implications of the changes to the cash-out limit for de minimis benefits at Caterpillar Inc., which will take effect after December 31, 2023? How does this change affect employees who may have a vested interest in understanding their financial benefit options upon termination or retirement?
Implications of Cash-Out Limit Changes: The increase in the cash-out limit for de minimis benefits affects how small vested benefits are processed upon termination or retirement. Employees with small benefit amounts should understand how these changes may impact their options and tax implications.
How does Caterpillar Inc. ensure that its pension benefits are protected from creditors, and what specific provisions exist to safeguard these benefits? Moreover, how do legal instruments like Qualified Domestic Relations Orders (QDROs) interact with Caterpillar Inc.'s benefits system for employees undergoing divorce?
Protection of Pension Benefits from Creditors: Caterpillar Inc.'s retirement plans are designed with protections to safeguard benefits from creditors, including adherence to Qualified Domestic Relations Orders (QDROs) during instances like divorce. Employees should understand how these legal instruments can affect their retirement savings.
In what ways does the Caterpillar Inc. Retirement Income Plan provide coverage for disability retirement, and how is this benefit calculated for employees? What factors influence eligibility and how do employees initiate claims if they find themselves in need of these benefits?
Disability Retirement Coverage: The plan provides specific provisions for disability retirement, including how benefits are calculated and eligibility criteria. Employees should be aware of how disability affects their benefits and the process for initiating claims if needed.
How can Caterpillar Inc. employees contact the company to learn more about their retirement benefits, and what information should they have ready when making inquiries? Additionally, what specific departments at Caterpillar Inc. should employees reach out to for the most efficient assistance regarding their retirement plan questions?
Contacting the Company for Retirement Benefit Information: Employees can contact the Caterpillar Benefits Center for inquiries about their retirement benefits. Knowing the specific departments to contact for efficient assistance is crucial for addressing concerns and making informed decisions about retirement planning.
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