by Stephen Reed | Accounting News, News, Retirement, Tax Planning - Individual
From Millennials who seem to never save for retirement to Boomers who are now wondering if what they’ve saved will be enough, retirement seems to be a never ending topic of worry and anxiety for most. Below are five of the top misconceptions regarding retirement and how to be more prepared when your time comes.
- I will just continue to work when I’m “retired”
Many Americans believe that even when they “retire” from their full-time roles, they will continue to work at least part-time, whether for financial reasons or simply to stay active and social. However, the reality of that idea is actually somewhat slim. In fact, about 79% of workers polled by the Employee Benefit Research Institute said their plan is to work for pay during retirement. The actual percentage of those who work in retirement? Around 29%. Although many plan to work, life and the workforce may look drastically different when retirement comes, so it’s better to be prepared rather than assume the money will continue to flow.
- Social Security is going bankrupt, so I cannot count on the system
While it’s safe to say there is plenty that could be done to improve the Social Security system, it seems many in the workforce believe the future of our government retirement system is significantly worse than it is. Even if the government takes no steps to repair the financial situation of Social Security, the system will continue collecting payroll-tax income and other revenue to pay beneficiaries most of their benefits for decades. According to a report by Social Security trustees, after the year 2034, the system would only have enough funding to pay 77% of scheduled benefits. So, while most beneficiaries would need to adjust their spending, they would only need to calculate a 23% differential, not a complete loss.
- My Social Security benefits won’t be taxed
Unfortunately, this is not entirely true since the Social Security Administration does in fact levy taxes on those receiving benefits, namely those who are bringing in other income. For retired singles who make more than $25,000 annually (outside of their SS benefits) and couples who make more than $32,000, they could be taxed up to 50% of their benefits. Singles making more than $34,000 annually and married couples making more than $44,000 could see up to 85% of their benefits taxed. Thus, you may want to consider the financial value of working during retirement, as limiting your income could actually be more profitable.
- I’ll invest more in cash than stocks for my long-term strategy
When surveyed about the best assets to invest in for 10-plus years, most Americans responded with cash or real estate rather than stocks, bonds or gold/precious metals. While real estate is certainly not a poor long-term investment, cash holdings, like money-market accounts, only yield dividends that are on pace with inflation at the time, which is anything but reliable. Stocks statistically offer higher, more significant dividends, but many individuals avoid them out of sheer lack of knowledge of the market. Therefore, consider doing your homework, or working with a reliable financial advisor before you assume that cash holdings are your best bet.
- I can make up for my lack of retirement planning early on by saving more in the final years
When questioned about which strategy would be most effective in “making up time” for retirement planning, most Americans answered they would save 3% more of their salary in the last five years leading up to retirement, over working for two more years or delaying Social Security benefits for two years. Unfortunately, this is actually the least effective method when comparing the three, so you may want to consider a few extra years in the workforce if you are able, or at least considering holding off on those benefits.
Although it is virtually impossible to prepare for everything that may come up during retirement, it is possible to be educated and avoid common pitfalls. So before you jump right into that part-time role, or you hold off on saving now in lieu of saving more later, or you start right in on receiving Social Security benefits, consider speaking with a financial advisor to determine a plan that makes the most sense for you and will help you feel secure when the big “R” rolls around.
by Stephen Reed | Accounting News, CPA, IRS, Tax, Tax Planning, Tax Planning - Individual, Uncategorized
Most businesses these days are looking to cut spending. Accounting firms are in a unique position to not only help their small business clients trim the fat and manage their money, but to do the same for themselves.
Before any company can delve into strategic ways to save money, it must first set aside time to devote to money management. Even if a company is small, this step is crucial to a company’s success – no other advice is more important.
“You have to be focused enough to dedicate the necessary time weekly, if not more frequently,” said Robin Bell, CPA, member in Brown Smith Wallace (BSM) Tax Services group. “Bill frequently, collect often, and stay on top of billing and receivables. Pay attention to it.”
Set up a budget, then each month, compare the actual to the budget to see where improvements need to be made, suggests Patricia Schreiber, a New Orleans-based CPA.
And if you don’t have the time, delegate.
Look at what you need to have versus what you want to have when determining cash outflow, whether for your clients or your own firm. Once you have what you need, don’t pay more for it than is necessary to effectively operate your business.
“Segregation of duties: Learn it love it. Otherwise, stuff walks out the door,” says Chris Spivey, who has worked as a consultant to the accounting profession for several years.
If you’re an entrepreneur with tons of action items on your plate and collections isn’t your competency, refer it to someone else.
Bell’s longtime retail clients, who are used to bulk-buying seasonal products, have recently experienced difficulties managing their cash flow. Instead of stocking up on the “hot trends” for the season, Bell teaches its retail clients not to purchase more than they need. That way, they don’t have spend money to house products in a warehouse. However, when retail companies do this, they also must pay attention to what their customers might need in the near future. This ensures the retailers’ customers won’t have to wait too long if a product is out of stock.
According to Bell, some retail companies survey their clients to gauge what they’ll want to buy, or they beef up their marketing campaigns. This could put them at an advantage because most companies tend to trim their advertising and marketing dollars when times are tough. It’s not a matter of spending more, it’s just reallocating dollars to draw in more prospects, she said.
Do You Really Need That?
Look at what you need to have versus what you want to have when determining cash outflow, whether for your clients or your own firm, Bell said.
For example, look at telephone costs. If you’ve been using the same telephone provider for years, you might not think about changing vendors. But what about calling your provider to talk about your plan and whether it still makes sense given your current needs. You could also contact other providers to see what they offer.
Ask, “Do I have what I need, and am I paying for what I need versus paying more than what I need to operate my business,” Bell says.
Other potential areas to trim include:
Employee benefits. Can you save money without raising premiums if you have a group of employees who are healthy? “Especially in really small companies, it’s very easy to assess your pool and ask, ‘If I raise my deductible, how much can I save on my premium?’,” Bell said.
Mileage reimbursement. Encourage employees to travel less by visiting several clients on the same day who are based in the same area. Ask employees if they really need to fly nonstop or if they can fly on off hours or off days, Bell added.
While discussing money management is clearly a way to help your clients better manage their money, if they don’t ask you about it, how can you broach the subject?
BSW took a proactive approach by offering its clients a “health checkup,” which included a five-page questionnaire that asked some thought-provoking questions. It also provided BSW financial data that allowed the firm to see client trends and to learn what keeps business owners up at night, Bell said.
“Most clients were interested in seeing what we can do for them,” she said.
Clients want the help, so why not broach the subject?
Full Article: http://www.accountingweb.com/topic/accounting-auditing/money-management-possible-even-todays-economy
