As the founder of ePERSONAL FINANCIAL, Eric helps his clients take control of their finances through technology and advice. Eric has always been interested in the financial world, and over the past 28 years, he has been involved in every facet of wealth management. This includes, retirement, family business succession, and insurance planning.
Unlike traditional firms, Eric and his team have transformed wealth management into a solution that is truly built with their clients in mind. No longer do clients have to meet with a suit-clad advisor in a stuffy office. Instead, they can take control of their financial future, monitor their investments, and harness current technology in the comfort of their own home.
Eric graduated from Washington State University with a degree in Business Administration with specializations in Accounting and Finance. In addition, he holds his Accredited Investment Fiduciary® and Certified Exit Planning® designations. Eric has a thirst for continuing education and holding himself to a high standard of ethics.
Throughout his career, Eric has managed to find balance among his professional and personal life. Eric enjoys spending time with his life partner, Sherrie, and being a father to his young adult daughters, Kayla and Brooke. As a Washington native, Eric takes every opportunity to get outside. He is an avid cyclist, has taken up stand up paddle boarding, and enjoys snow skiing and training his Australian Labradoodle puppy, Blake.
BA, Business Administration, Washington State University
Eric Flaten is an advisor representative of Sowell Management Services, which does business as ePERSONAL FINANCIAL, LLC. Eric is also the founder of ePERSONAL FINANCIAL, LLC, a separate legal entity. Advisory services are offered through Sowell Management Services, a registered investment advisor.
Thank you for your question and for being proactive with your retirement planning at age 41. You are exactly right! Retirement tools can often make the task of retirement planning more confusing. I have been helping individuals with retirement question for almost 20 years and I always ask, "How can I help simplify this process for my clients?". That's why I came up with term Retirement Number after choosing to work with the tech folks at Riskalyze. They streamlined the number of inputs and combined it with their Risk Number* tool. This simple process can help individuals either planning for retirement or individuals currently retired answer the question, "Am I on track?". The result will provide you with two key numbers, your personal Risk Number (RN) and your Retirement Number number. Yes, it’s that easy. This type of efficient retirement planning can really help you ease the stress of retirement planning down the road.
You have done a great job providing a lot of information that is needed to determine your Retirement number. I have made a couple of assumptions to see if you are on track or not; current income and Risk Number. Based upon your comments, I used 4% of your current retirement portfolio, or $48,000 as your annual income and a RN 43, which is a translates to annual rate of return of 4.88%. Don't worry if the numbers are not exact for this illustration, the Retirement Number tool can be easily updated as soon as you complete a personal RN questionnaire. You can learn more about RN or Retirement Number from any independent advisor that uses the Riskalyze applications or you can visit my website.
Based on your information, I could fill in the following inputs:
Current Investment Amount: $1,200,00
Month Savings (assuming 401k max plus company match): $2,000
Birth Year: 1976
Retirement Year: 2041
Monthly Withdrawal Amount (today’s dollars): $4,000
Life Expectancy: 90
Annual Inflation: 3%
Annual Savings Increase: 2%
Investment Annual Rate of Return: Risk Number 43 or 4.88%
Your Retirement Number: 95%+.
Congratulations! A 95%+ means that you are on track with your stated goals based upon your assumptions. I hope that this information has been helpful in your quest to simplify the retirement puzzle.
* Risk Number is a registered trademark of Riskalyze
You described a lot of thoughtful planning and it sounds like you just need a little coaching to get you to the next level. Your question is my #2 most common question, "Will I outlive my retirement savings". My recommendation is to simplify first, know your Risk Number* and organize your financial drawer to help track your spending. If you follow these three recommendations you have a greater chance of lowering your stress from worrying about outliving your savings.
- Simplify the COMPLEX: You have several accounts that can either be rolled into a IRA rollover account. This simplifies common asset types (retirement savings) into a single portfolio. It allows you more flexibility and choice in the underlying investments. It's a simple process and if done in conformance to IRS rules, can result in a non-tax event. If your brokerage accounts are also dispersed in multiple accounts, I would suggest exploring the same. Because these are taxable accounts, great care will be needed to minimize any capital gains exposure. This may require you to do this over a couple of years as you draw income beginning in the second half of 2018.
- Know your RISK NUMBER: #1 top request by clients – “Create an investment strategy that provides me with all the profit from the market but none of the loss”. To maintain your investments over any length of time, investors must first understand their emotional reaction to market loss. Too often investors have no idea of how upsetting a down market can be until after they experience a down market event. Unfortunately. then it’s too late. Knowing your Risk Number allows you to know this vital information BEFORE you invest your savings or allows you to evaluate your current investments. Investors armed with this information will know the upside and downside range of their investment portfolio six months ahead with a 95% confidence rate. When you know your Risk Number, you will know what expect with confidence.
- Simplify your FINANCIAL DRAWER & maintain YOUR budget: Organizing your financial statements, pension plans, social security, brokerage statements, 457 & 403B and keep track of all this information is very difficult for most investors. On top of all that, trying to keep track of your monthly spending and stay in budget. By having access to an eDASHBOARD you can easily organize all this important information and keep track of your spending. Clients enjoy a digitally secure site in which they can easily access from any device 24/7. By having all this information virtually at your fingertips, helps lower stress and keeps you organized. When you are organized and have easy access it’s much easier to stay on track with your goals. It also allows you to securely provide information to all your advisors (tax, financial advisor, estate attorney, etc.).
These are my three tips to help you reduce stress, simplify your financial life and enjoy your retirement with confidence.
* Risk Number is a registered trademark of Riskalyze
Please allow me to rephrase your question, "When Can I Retire and Remain Retired Without Worrying About Having Enough Money to Live On?". Is that what you are really asking? If a client/prospect doesn’t have the CONFIDENCE to retire and remain retired it can be very stressful. This is the second most popular question that I receive from prospects/clients, "Will I outlive my retirement savings?", you will find the #1 most popular at the end of this response*. The initial answer is different for everyone and the ongoing answer depends. Why? Because things change in our lives every day, sometimes in our control (i.e. bad decision making, spending too much too fast, etc.) and sometimes not in our control (i.e. accidents, health issues, etc.). Clients want to know if they can retire and once they are retired they want an easy way to monitor and maintain their lifestyle. Also, most folks don't want to rehash it every quarter with their financial advisor, they want to spend about two minutes or less a week, monthly, quarterly or annually and know that they are still on track.
That is why I use the Retirement Number. It takes only a couple of minutes and it tells you in numeric form if you have arrived at your destination (>= 95) or you got some more work to do (<95). If you have more work to raise your number to a 95, I will layout a simple multiyear plan for the client to follow. If you have arrived, then the real work begins.
No not planning your retirement party. The next critically important decision is, "What are you going to do to fulfill your daily mission?". For some people, its traveling, for others its spending more time with family. It really doesn't matter, but you to have purpose in retirement or you will wither away in a short amount of time or just be miserable the rest of your life (and probably making your spouse miserable too!). Once you have nailed down your purpose, now you can start gazing at the calendar.
A huge service for clients is not only knowing what retirement investment and sources of retirement cash flow (i.e. social security, pension, annuity) are available. One common question that pre-retirees ask, “Will it continue to last throughout the rest of my retirement?” Your Retirement Number is updated frequently, so that the advisor can track if the value of your Retirement Number. If it drops below a 95 throughout your retirement, we are to help to get you back on track. I hope that this made sense and could serve as another tool in helping with your pre- retirement planning decisions.
*Most common statement from both clients and prospects: “Create an investment strategy that provides me with all the profit from the market but none of the loss”.
First and foremost, thanks for stopping by Investopedia! This situation is becoming more common for small business owners and it can be both exciting and nerve wracking at the same time. Instead of listing the pros and cons, I am going to approach your question from a slightly different perspective.
What goal are you trying to achieve? You will need a stated outcome first before you sign anything. It doesn’t matter if it’s a private investor providing capital or a loan from the bank. How will you turn this capital into revenue and hopefully profit for your business? Next, do you want a business partner? If so, what is their role in your business and how much control are you willing to hand over to a stranger? Will their capital and knowledge create a 1 + 1 =3 outcome? Can you achieve your stated objective with a loan? Once you have tackled these very important questions, you either decline and go on with your business or move to the next step.
If you want to advance to the next step, I have more questions. Who are your business advisors? Do you have an inhouse management team or rely on outside professionals? Your management team needs to be multi-disciplined. Legal, tax, financial, strategic and valuation specialists.
You should seek legal counsel to review any agreements (starting off with the NDA), draw legal documents and discuss legal strategies (i.e. legal entity, voting rights, buyout, etc.). The CPA can possibly act as both a consultant as well as prepare detailed financial statements and supporting documents to sufficiently (and transparently) demonstrate your financial history. A business financial advisor can help you word a detailed strategy with what you would like to achieve because of this new partnership. The business financial advisor can also help organize your professional advisory team, moderate the meetings and be an unbiased sounding board. A business strategist can be very helpful in drawing out the big picture and boil it down to the material impact of this new relationship or direction of your company. A business valuation expert will provide you with a baseline value of your company and estimated value of both a minority and majority interest of your company. Some of these roles can be combined into a single professional resource, but typically you will want at a minimum your tax, legal and valuation advice sourced from different professionals.
I have only skimmed the surface of what it will take for you to take the next step in working with an M&A and/or Capital Raising firm. This is not a transaction that you should casually enter. A properly constructed advisory team will provide you with invaluable advice and be your best prevention in making any unwise business decisions in the future.
Great question to address setting up a multi-generational estate distribution plan using your qualified retirement accounts. Before we get into the details, let's provide you the short answer to a few of your questions (my apologies in advance the other answers are little lengthier). Yes, IRA or Qualified Accounts can be used to defer taxes over your life (less RMD's past age 70 1/2), the remaining balances would be stretched over each child’s life (subject to annual required minimum distributions). Rollovers can accept funds from your 457, 403(b) and 401(k) plans. Your Traditional IRA's can be combined if you have more than one of these account types. You must maintain individual accounts, no joint IRA’s.
You have three main options to maximize your deferral. Each of these have increased complexity in setting up (and costs), but will most likely provide you with a more defined outcome.
1.Generation Based Beneficiary Designations
2.IRA conversion to ROTH IRA
Generation Based Beneficiary Designations:
A very simple solution to put in place the spirit of your request. Make a list of all your children beneficiaries (name your spouse the primary), then rank each by age. Your youngest children will be able to stretch out your deferral the longest. My guess is that your intent is probably to evenly distribute the assets. These will be your “contingent beneficiaries”. The percentage allocation is based the number of children divided into one. Now create a list of each of your grandchildren under their respective parents. You then can add your grandchildren “per stirpes”, meaning if your children predecease you the same percentage would be divided among their children. That’s it. The biggest downside to this strategy is that you have zero control over the spending of this money by each of the beneficiary. The other issue is if the parents are deceased when the grandchildren are still minors, a guardian will need to be appointed and custodial account (i.e. 529 college savings plan, UGMA or UTMA) will need to be established prior to any distributions.
IRA Conversion to ROTH IRA
To maximize growth of your deferral during your life, you may want to convert your IRA’s to a ROTH IRA. This increases cost quite a bit (subject to taxes as ordinary income). But depending on how long you live and your investment performance it could potentially be a big positive (never pay taxes on any distributions!). The ROTH IRA requires no RMD. You will also be required to convert your 401(k), 457 and 403(b) accounts. I would suggest that you hire a financial advisor to perform a ROTH conversion analysis and that you completely understand any downside and costs associated to rolling the retirement accounts out of your former employer sponsored plans. The beneficiary designations will be set up the same as the Generation Based Beneficiary Designation strategy.
For the maximum desired outcome and control over distributions this may be the best solution for you. With a Trusteed IRA (or Individual Retirement Trust - IRT), you can ensure that your beneficiary designations can never be changed, restrict the amount of excess distributions (beyond the RMD) and compliment the estate plan between the two of you. Especially if you have set up a QTIP or credit shelter trusts. If you want your estate plan and qualified accounts to fully meet your desired outcomes, then this might be the correct choice. The potential downside is cost to set up and administer, higher tax rates, high minimum balance requirements (minimums balance as high as $2,000,000).
A couple items in summary. I would suggest that you seek out a fee-only financial advisor that understands these options clearly and can conduct the analysis that I have recommended. Ideally, the financial advisor is already working with estate planning attorney in a collaborative relationship to develop the best solution to meet your needs.