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Navigating the transition for Baby Boomer businesses

As a community of family-owned businesses, we understand the importance of planning for the future. 

Today, we address a crucial topic that is particularly relevant to Central PA — the impending transition of Baby Boomer businesses in our region. Central Pennsylvania has long thrived on the strength of family owned enterprises, and it is essential to proactively navigate this changing landscape to ensure the continuity and success of your business legacies.  

Let’s delve into the numbers that underscore the magnitude of this transition. According to the Small Business Administration, there are 10,000 businesses in central Pennsylvania owned by Baby Boomers, employing over 200,000 individuals. Many of these businesses are woven into the fabric of Central Pennsylvania’s economy, contributing to its distinct character and vitality. Furthermore, according to a survey conducted by Wilmington Trust, only 38% of business owners have a written succession plan in place.  

As you plan for the future of your businesses, it is crucial to consider the potential challenges posed by the 4 D’s: death, divorce, disability, and disagreement. These events can have a profound impact on the continuity and success of your businesses if not adequately addressed.  

  1. Death: While it may be uncomfortable to contemplate, planning for the unexpected, including the owner’s passing, is essential. Without a proper succession plan in place, the sudden loss of leadership can leave the business vulnerable to internal conflicts, management issues, and potential financial instability. Establishing a clear roadmap for the transfer of ownership and management will not  only protect the business but also provide peace of mind for your loved ones. 
  1. Divorce: Divorce can introduce complex dynamics, especially when business ownership is involved. Failing to address this possibility can have detrimental effects on the business’s ownership structure and create unnecessary tension among family members or business partners. Incorporating prenuptial or postnuptial agreements that outline the treatment of business assets can help protect your business and minimize potential disruptions in the event of a divorce. 
  1. Disability: Planning for the possibility of the owner’s disability or incapacity is crucial to ensure the continued operation of the business. Without appropriate measures in place, such as a durable power of attorney, the business may struggle to make crucial decisions and face financial challenges. Implementing disability insurance can also provide financial protection for both the owner and the business during periods of incapacitation. 
  1. Disagreement: Disagreements among business partners, family members, or key stakeholders can jeopardize the future of the business. Without clear guidelines and mechanisms for dispute resolution, conflicts can escalate, leading to prolonged legal battles and potential damage to the business’s reputation and financial stability. Developing comprehensive operating agreements, shareholder agreements, or partnership agreements that address decision-making authority, ownership rights, and conflict resolution procedures can help mitigate these risks. 

To ensure comprehensive coverage of the four potential pitfalls, it is crucial to conduct a thorough examination of your operating agreement, specifically focusing on the appropriate buy/sell language. By implementing meticulous planning from the outset, you can potentially mitigate months or even years of challenges that may arise during the business transition. It is important to acknowledge that the nature of business transitions can be unpredictable, making it imperative to have well-crafted documentation and strategic considerations in place. By doing so, you can effectively minimize the risk of detrimental conflicts within your family or other stakeholders.  

The transition of your businesses also presents tremendous opportunities for the next generation of entrepreneurs and employees. By actively involving family members, trusted employees, or even members of the local community, you can ensure the continuation of your business’s legacy. Engaging in succession planning early on is crucial for identifying and nurturing the right individuals to take over leadership roles and preserve your business’s values and culture. 

In addition, it is important to acknowledge that the consolidation of Baby Boomer businesses into larger companies can pose challenges for the region. While some cherished local establishments may undergo this transition, it is crucial to be aware of the potential impact on the local economy. Consolidation may lead to the loss of smaller businesses, resulting in decreased diversity and opportunities for entrepreneurship. To mitigate these effects, it becomes crucial to embrace strategies that promote economic growth, attract new industries, and foster innovation within Central Pennsylvania. By diversifying the economy and creating new job opportunities, we can offset the potential losses and strengthen the overall economic landscape of the region.  

Securing your business legacies requires the expertise and the correct team of accountants, attorneys, and financial advisors. They provide guidance in decision-making, legal matters, and financial strategies. With their support, you can develop comprehensive plans, navigate complexities, and optimize success. 

Together, we can ensure a thriving business community in Central Pennsylvania and a lasting legacy for future generations. Seek their assistance and forge ahead with confidence. 

Chris Rice –

Chris Rice is an Executive Benefits & Financial Services Consultant at McConkey Insurance and Benefits of York. 

Lancaster-based firm names new COO

CPBJ Staff Reports 

Ambassador Advisors of Lancaster announced on Friday the promotion of Robert Nayden to COO. 

Nayden previously served as the company’s Director of Operations. 

Based in Lancaster, Ambassador Advisors is a financial planning and investment management firm. The company serves clients nationwide from its offices in Pennsylvania, New York, and Florida. 

A company press release stated that as Ambassador Advisors expands its East Coast offices in Pennsylvania, New York, and Florida, Nayden will guide and lead the firm “toward more efficient systems and workflows” with a focus on client service. 

Nayden joined Ambassador Advisors in 2019. Since his arrival, the company’s Assets Under Management (AUM) have grown to $649 million, an increase of more than 46% from its previous AUM of $444 million. As part of the executive team, Nayden works to collaborate with company leaders to develop and advance strategic goals and drive results. 

The release stated that Nayden is “responsible for leading and executing tactical initiatives, implementing industry best practices to increase efficiency and productivity while adding scale to the back office. He works closely with the teams across the firm to ensure operational success and cultivate excellence to effectively grow the organization.” 

Nayden has played a prominent role in securing and renovating the new headquarters office in Lancaster at 275 Hess Boulevard. He has also been pivotal in relocating the Binghamton, NY, team to an expanded office with educational space for local nonprofits to use for professional training.

Important financial planning considerations for 2023

In December, many people develop annual budgets and financial plans for the upcoming year. As we plan for 2023, there’s good news for those saving for retirement as well as for retirees themselves. Contribution limits have increased for many retirement saving vehicles and new cost-of-living adjustments for Social Security and Supplemental Security Income (SSI) recipients will take effect as of January 2023 and December 30, 2022, respectively.   

From a “financial planning best practices” standpoint, it is a good idea to increase your retirement saving plan contributions – ideally to the new maximums allowed, but if that’s not doable, then by as much as possible. And if you’re a retiree who is fortunate enough to not be fully dependent upon Social Security income for your living expenses, below are some financial planning ideas for making the most of your increased benefit.   

Increased Retirement Plan Contribution Limits in 2023: 

  • 401(k), 403(b), 457, and TSP Contribution Limit Increases 
    • So that workers can contribute enough to keep up with cost-of-living increases, the IRS announced nearly a 10% increase in the amount individuals will be able to contribute to their 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan in 2023. That contribution limit will be $22,500 next year (whereas it was $20,500 in 2022). The catch-up contribution limit for older employees, age 50 and above, will be $7,500 in 2023 (while it was $6,500 in 2022). It is recommended that workers take full advantage of the tax savings offered by these contribution limit hikes and automate higher contributions to these plans.  
  • IRA Contribution Limit Increases 
    • Those contributing to IRAs will be happy to learn that annual contribution limits will also increase – from $6,000 in 2022 to $6,500 in 2023. There is no cost-of-living adjustment (COLA) for the IRA catch-up contribution limit for those age 50 and above: That contribution limit continues to be $1,000.*  
  • SIMPLE IRA Contribution Limit Increases 
    • If you contribute to a SIMPLE retirement account, your contribution limit will increase from $14,000 in 2022 to $15,500 in 2023. For those age 50 and above, the catch-up contribution limit will increase from $3,000 in 2022 to $3,500 in 2023.   

Increased Social Security and Supplemental Security Income Benefits: 

You’ve likely heard that 2023 will bring an 8.7% cost-of-living adjustment increase to the approximately 70 million Americans receiving Social Security and Supplemental Security Income benefits. This is the largest COLA jump in over 40 years. According to the Social Security Administration, “The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation.” With U.S. inflation at 7.7% (as of October 2022) and many people feeling an economic pinch, this is a welcome development.   

If you are fortunate enough to not be dependent upon Social Security income to cover all your retirement living expenses, the following are a few ideas about what you can do with some (or all) of your additional 8.7% income. 

  • Increase contributions to your investment accounts  
    • Increasing investments will positively impact your retirement nest egg. 
    • Set up an automatic monthly transfer of funds. 
  • Add to your emergency fund 
    • We recommend having 3-6 months’ income in a high interest money market account. 
    • Set up an automatic monthly transfer of funds. 
  • Gift the funds 
    • Consider establishing a 529 college savings account for grandchildren, children, or family friends and contributing to it monthly. Accounts grow tax-deferred and withdrawals are free of federal and state taxes when the funds are used at eligible institutions. You may also get a state tax deduction for your contributions. 
    • Consider contributing to a favorite charity or charities on a monthly basis. Set up automatic charitable deductions. 

All in all, 2023 promises to be an easier year for those dependent upon government programs such as Social Security and SSI. And those who are able to use the increased benefits in other ways would be wise to utilize at least some of the funds to improve their overall financial well-being. 

*In addition, the income phase-out ranges for those contributing to an IRA in 2023 have increased. Please go to www.irs.gov for more specifics regarding income phase-out ranges.  

Sarah Caine, CFP®, is a Financial Strategist whose responsibilities include analysis and development of comprehensive financial plans and assisting in their implementation and on-going execution.  A graduate of Lehigh University and a Certified Financial PlannerTM, Sarah can be reached at [email protected]. 

 

 

RKL launches RKL Private Wealth

RKL LLP, which has offices in Lancaster and the Lehigh Valley, has launched a new group of services aimed at people with significant wealth. 

The services include financial planning, tax, investment and advisory services, which are tailored to families and individuals with more sophisticated wealth management needs.  

Known as RKL Private Wealth, the services are a unified approach to personal financial and legacy planning that leverages the firm’s expertise in investment management, business succession, tax compliance and planning, estate and trust services and more. 

“There’s a lot of complexity that comes along with significant wealth, so we designed RKL Private Wealth to help individuals and families navigate all of it,” said RKL CEO Ed Monborne. “Together, we guide clients through decisions and planning today to achieve their unique aspirations tomorrow.” 

RKL Private Wealth offers a continuum of services to create and grow wealth, prepare assets for transfer and prepare recipients to receive the assets.  

The firm said the services are united around the client’s vision and values, with RKL’s wealth advisors, portfolio managers, investment analysts, business strategists, estate planners and tax professionals designing a comprehensive plan to turn life and legacy plans into reality. 

Holistic financial planning is a balancing act that pivots on the client

When a client comes to Brian Kennedy for financial planning advice, Kennedy wants to know everything—their goals, their dreams—and whether they have wills, a power of attorney and a slew of other documents that might not first appear to be tied to financial security.

“It means taking all of those things and putting them into a funnel and from that funnel I’m analyzing it,” said Kennedy, founder of KCA Wealth Management with offices in Camp Hill, Carlisle and Hershey. “I then identify opportunities that were missed and look for any gaps. And we talk about those and how to fill the gaps so they can become more successful.”

The process is known as “holistic financial planning,” Kennedy said, adding that the concept has been around for years but not all advisers do it to a full extent. During the pandemic, holistic planning became more pronounced as people started to think about their wills, beneficiaries on insurance policies and a power of attorney—the person who will make financial decisions if a client becomes incapacitated for whatever reason.

Those are just several aspects of what the holistic approach can cover. The holistic planning process might include coaching clients on how life-changing events, such as divorce or a job loss, can affect plans, according to a June 2019 article in Investopedia, an online financial website based in New York.

“In addition to getting better inputs for a financial model, the process helps build a closer relationship,” the article states.

Kennedy breaks the process down into three stages: life planning; the financial services aspect; and then implementation.

Life planning can boil down to a series of questions about how someone likes to spend their time and what is important, he said. Questions about travel or volunteer work are part of the equation.

“We can talk about money all day long, but if you don’t have a reason to spend it or do anything with it, what is the sense of it, right?” Kennedy explained. “So, we get the life planning aspect of it first.”

The financial planning aspect involves gathering all the documents and analyzing them. The obvious ones involve investment and savings documents. Estate documents and legal documents add another layer, as well as a look at all the insurances, including life, health, auto and property. He also will ask for tax returns and the sources of all income and expenses, among other things.

Implementation involves advice on the best paths forward and investment strategies to achieve the overall goals. By having looked at the entire picture in a holistic manner, he might see gaps with insurance coverage or estate planning or legal documents, which will lead him to recommend that a client meet with an attorney or CPA to fill holes. One issue he often sees, for example, is that wills often don’t match the beneficiaries in the various insurance and investment documents.

He stressed that he isn’t a lawyer or accountant. But he often finds that his clients, who typically are 50 and older, haven’t talked to an attorney or CPA to connect any dots.

“You need a team of people,” Kennedy said, adding that coordinating those discussions is what helps make the planning holistic. “All of it is a big circle. The problem is that a lot of people don’t have the circle connected.”

A power of attorney, for example, can save trouble if people get sick and need someone to make decisions for them. “If you can’t get to the money in a time of need, what good is it?” he said. “That is the part that some people overlook.”

He charges a one-time fee for the overall plan, largely based on the complexities of the individual situation. Regardless, a lot of time is involved in making sure that all the boxes are checked off. And the fee covers all the meetings, phone calls, emails and “everything and anything we need to do.”

He said he understands when some clients take the plan and buy products themselves or go to other financial advisers to obtain the insurance and investment products that he could provide.

“Some clients want us to do the plan, and they go out and get products on their own or go to other advisers, which is fine,” Kennedy said. “They basically are hiring us because we can find those opportunities and gaps that have been missed or overlooked or not even discussed.”

Brian Trout, assistant professor of accounting and finance at Millersville University, teaches several courses, including one on financial planning. That course touches on numerous topics, including taxes, investment, insurance, budgeting, the basics of buying residential properties, as well as the behavioral component of personal finance.

The behavioral component explores the dynamic that people often don’t act rationally when it comes to finances. His goal with students is to at least get them to understand their biases—risk aversion, for example—so that they can counter predispositions.

“We are human beings, and we don’t act rationally all the time,” he said, adding that a financial planner helps, especially if the adviser is trusted with all the details involved through the holistic approach. “Looking at the details adds value, because it helps with the emotional aspect.”

“The notion of crafting a plan and starting with an end in mind, with all the personalized values, is good. A lot of these things should not be decided in silos,” Trout said. “If you have an adviser who knows what you value and what you want, then they can help you keep your head on straight during difficult times and prevent you from making decisions that you might regret.”

The generation raised during the downturn in the late 2000s is more conservative and skeptical than previous generations, which is affecting how they invest for the future, Trout said.

“Whatever age they were during the Great Recession they watched a lot of things happen with the market and their parents,” he said. “Inevitably, this shapes how we think about money.”

For example, some studies show that younger generations are more interested in travel earlier in life, he said. An adviser who understands those desires is better positioned to help.

“Their values are different, and they are going to want to have that integrated into their plans,” Trout said.  “And that is where holistic financial planning would help make sure they are investing in ways that can help.”

The pandemic is leading more future retirees to a financial awakening

No one could have predicted the impact Zoom would make on retirement planning and wealth and estate management prior to the coronavirus pandemic.

In-person meetings and conversations – the long held gold standard for financial advising were dramatically curtailed because of the COVID-19. For many people the pandemic has driven closer scrutiny of long-term financial plans; making, changing or holding investment strategies and navigating stock market spikes and dips. It’s also triggered action for updating important personal documents – like wills, trusts or assigning minor children guardianships, have taken on greater urgency.

“The take away from this year and the real change is the way we connect with our clients and execute business continuity plans,” said Laurie Peer, president of RKL Wealth Management with offices in Spring Township, Berks County and Manheim Township, Lancaster County.

Peer said virtual platforms had been especially crucial this year. They are here to stay as a method to “broaden the way our industry will find new clients, and how clients will find us,” she said.

Solid, flexible business continuity plans for firms like RKL “were really put to the test this year” to ensure technology and security was in place from March 18 onward. That’s when many businesses were restricted from working in person, forcing work-from-home setups and creating new challenges for professionals and clients.

“Once firms became confident this could be done successfully, it helped us move forward,” Peer said.

Paying attention

With the pandemic creating more time in many peoples’ lives along with more free time at home people seem to be paying more attention to financial planning, said Joyce Petrenchak, senior vice president and wealth strategy regional manager for PNC Bank’s northeast region. She is based in Blue Bell, Montgomery County.

“Now [clients] are more focused on what their plan looks like and the things they can do to improve it if it’s not where they want to be,” she said.

She agreed the pandemic created a virtual component that did not exist prior to coronavirus. “One thing that has changed is that we are primarily virtual. We’ve always had a virtual component, but now it has been different for people,” Petrenchak said.

Showing clients the investment tools they currently have underscored how the impact of their decisions can be predicted over the coming 10 or 20 years.

Go long term

Paul Marrella a wealth manager at Marrella Financial Group LLC in Wyomissing, Berks County, said this year’s market performance has made the best case for long-term planning he’s ever seen.

“If you’ve never believed markets are unpredictable and economies can be resilient I think this is news that can’t be ignored,” Marrella said of the record highs and seismic lows of surging stock markets around the world during 2020.

Investors who keep their eyes on the ultimate prize – comfortably funding retirement and their golden years “fared OK this year,” he said. “Those who were myopic did not.”

The bottom line is that the pandemic has not changed the value of understanding how much money will be needed to fund retirement and taking appropriate steps to achieve that goal.

“The biggest mistake people make is they look at the rate of return as their benchmark for success [as in] the more I earn, the better off I’ll be. That is true with one exception – when I try to earn more, I also risk losing more,” Marrella said.

Reacting to market swings – and panicking because of those changes may spur some investors to react emotionally, rather than from what is in their long-term best interests, Marrella said.

Running the numbers, knowing how much is being spent and making decisions with that information should inform the timing of retirement. These are important decisions in moving forward to the next life stage.

He recommends viewing long-term financial planning as a math problem.

“From Day 1 of retirement to me or my spouse’s final day, how much money do I need in my bank account to do the stuff I want to do,” Marrella said.

Treating retirement funding this way can help calm fears and provide a measure of control – even when stocks may seem out of control. Padding the amount of money needed to fund retirement, adding the anticipated cost of inflation and health care can go a long way toward taking the

reflexive emotional jolt out of a poor performing quarter.

He recommends spending less than you earn, being debt free and living within your means as a route to success, capped with a philosophy of “discipline, discipline, discipline.”

“I think it helps people psychologically to think about this, that every dollar has a job description,” Marrella said.

The end game

Preparing for the end of life isn’t a conversation most people are happy to have, but Petrenchak said the pandemic is starting to crack open that resistant taboo. “For a lot of our clients [the coronavirus pandemic] has brought about thoughts of their own mortality,” she said.

The result has been that financial health and well being and wealth and estate planning have become higher priorities.

Petrenchak said helping clients update documents including financial and health care powers of attorney was another by-product of the pandemic’s uncertainty, and urgency this year.

“I think the scarier conversation is what will happen if you don’t have open discussions about estate planning,” Petrenchak said.

Along with wills and estates, Petrenchak advises regularly reviewing and keeping beneficiaries updated on 401K plans and life insurance documents.

Triggers for reviewing a will should include changes in circumstance such as the birth of a child or grandchild, or the death or divorce from a spouse or partner.

A Conversation With: Christopher Cassel

Christopher Cassel, 37, has spent more than 15 years in wealth management and public accounting, with experience in financial planning, investment management, corporate retirement plan consulting and business succession planning. He joined Harrisburg-based Sevenbridge Financial Group earlier this year as a senior wealth adviser. He was a 2013 Central Penn Business Journal 40 Under 40 honoree. Cassel earned a bachelor’s degree in finance from Susquehanna University and is also a Certified Public Accountant. He and his wife, live in South Londonderry Township, with their 7-year-old son and 4-year-old daughter.

 

Q: What challenges are there to getting a business succession plan in place?

A: Succession planning and estate planning can involve a topic people don’t always like to think about: their mortality. How do you address the balance between their business side and their humanity?: The first challenge is having a client realize the conversation even needs to happen. [For] a lot of business owners, so much of their life is defined by the business that they don’t really think about succession until something detrimental happens in their personal life. It’s the rare business owner I work with at 45, 50 years old who is proactively thinking about it. So the first part is helping them realize they really need to be thinking about business succession, [so] if you got hit by the proverbial bus, etc., that your business doesn’t die with you.

I think when you’re dealing with a business owner, the easiest way to get there is talking about protecting their family and their employees, because typically, at a minimum they care about their family, and for a lot of business owners, their employees are like family members to them… We don’t expect any of this to happen in the foreseeable future but you always need to have a contingency plan, some kind of insurance. You need to have insurance out there to protect against all types of catastrophes and planning how your business succeeds you, whether that’s via an unfortunate incident or you might just be ready to retire or move on to something else. If you make it about the people they care about and not their death it’s usually an easier conversation. Most business … have some sort of buy-sell agreement with their business partners, so part of that conversation has to happen as a matter of legal issue, which makes it easier to talk about.

Q: What are some aspects of financial planning that clients don’t think of until they come to you?

A: Typically your business owner is running a successful business, having a fairly nice lifestyle provided from the cash flow of the business. For those folks, it’s how do we transition from the business and revenue generated from them providing their lifestyle, to an investment portfolio or a combination of investment portfolio and rental, real estate, post-sale or transition. For most business owners, they think so much of their net worth as the business, they don’t really have a substantial investment portfolio until post-transaction. They have no clue how much they really need to maintain the lifestyle they’re trying to maintain post-transition. The other part is, half of the time they don’t know what they’re going to do with their life once they’re done. It helps them envision what they can do if they’re not truly ready to sit on the front porch.

Q: If you could be on any beach right now, which would it be?

A: I would have to say probably in Maui. I love going to the beach, but I actually enjoy the other stuff that comes with beach activities as much as I do the beach. Maui has such a diverse group of things to do, from snorkeling, going diving and seeing sea turtles to going for a drive through the rainforest and hiking to waterfalls. Maui, for me, has been the perfect place when I just want to sit there and stare out over the clear water, but also having great activities to do.

How to minimize risk heading into retirement

If you’ve kept up with coverage of the stock market over the last year, chances are you’ve felt some anxiety and wondered when and how your personal finances could take a hit as a result of the volatility.

Fears of a global economic slowdown and escalating trade war can drive stock prices down, only to be followed weeks later by a wave of optimism about the outlook for employment, corporate earnings, and consumer spending.

With every downturn, headlines warning of volatility and recession splash across the Internet, investors scramble and individuals worry about the long-term fallout. Volatility is particularly concerning for pre-retirees who have spent decades building up their savings to carry them into a comfortable, well-earned retirement.

So, how can individuals proactively guard against volatility to preserve their retirement dreams? Here are a few tips “to keep calm and carry on” to retirement:

Check your balance proactively, not reactively. 

Based on market performance from 1928-2018, the market sustains a 5 percent downturn every three months and a 10 percent downturn every eight months on average. Dips and swings in the market are inevitable, and reacting to fluctuating market conditions can lead to poor investment decisions.

While it’s important to keep tabs on the economic climate and arguably even more important to be aware of your investment portfolio, be careful about linking the two. Checking your balance frequently or every time there’s a dip in the market will take you on the rollercoaster that is Wall Street. One day your balance might appear lower, but the next it could be back on track.

Don’t get on the rollercoaster. Work with your adviser to develop a diversified portfolio with a reasonable amount of risk. Then, stay level-headed, trust the process, and establish a periodic time to check your balance. In times of volatility, sometimes less is more.

Maintain an emergency fund and build up your fixed income holdings.

Individuals who were set to retire in 2008 before the recession hit can attest to the importance of having fixed income and an emergency fund. Having fixed income — namely, bonds — in your portfolio can serve as a buffer to volatility. High quality bonds historically maintain their value during stock market declines.

Typically, we think of an emergency fund as a safety net for unexpected expenses or job loss. However, if the market takes a sudden dip just ahead of your scheduled retirement, it may be time to tap those funds. As you near retirement, build on your emergency fund savings — three to six months of daily living expenses set aside in an account that isn’t subject to market risk. This will provide you with a reserve to draw from if needed. If you can delay taking retirement distributions when the market is down, you can preserve the assets that you’ve worked hard to build up and maintain your vision for retirement.

Work with your adviser to determine a timeline and strategy to systematically re-allocate your assets.

As an individual, your risk exposure is at its peak in the final three years before retirement and the first three years after retirement. Early on in your career, it’s important to create a well-balanced portfolio that matches your risk tolerance and aligns with your goals. In your fifties, it’s important to re-evaluate your risk tolerance and re-allocate your assets accordingly.

For example, if your portfolio is 60 percent stocks and 40 percent bonds mid-way through your career, talk to your adviser about gradually shifting the balance to 40 percent stocks and 60 percent bonds as you near retirement. You don’t want to make any decision hastily or as a reaction to the market climate. Rather, proactively and systematically make the change over time.

Max out on your 401(k) contributions.

No matter the market outlook, wherever you are in your career, save as much as possible. When you get a raise or a bonus, increase your deferral rate so that you never “miss” that money.

The current annual limit for 401(k) contributions as set by the IRS is $19,000 for individuals under age 50 and $25,000 for individuals over 50. As you progress in your career and some of the larger expenses such as student loan debt, mortgage payments, and college tuition for children are behind you, aim to get as close to this number as possible to maximize the tax-deferred savings benefits.

To sum it up: Don’t make short-term moves with long-term money. Whether you’re a young professional, mid-career, or on the cusp of retirement, stay calm and be proactive about adjusting your investment strategy based on your goals and risk tolerance, instead of being at the mercy of the market.

 

Brooke Petersen, CFP®, is an investment consultant specializing in asset management and financial planning for individuals and families.

Investment Advisory Disclosure: All investment advisory services are provided through Conrad Siegel Investment Advisors, Inc., a fee-for- service investment adviser registered with the U.S. Securities and Exchange Commission serving as a fiduciary for its clients. Investing in securities involves the potential for gains and the risk of loss. Past performance may not be indicative of future results. Any testimonials do not refer, directly or indirectly, to Conrad Siegel Investment Advisors, Inc., or its investment advice, analysis or other advisory services.

Investing? Ignore the heart, listen to your head

Successful investing is only one percent intellectual and 99 percent behavioral. Even if you think you know what you’re doing as an investor—the intellectual part—you still face a huge challenge in the area that matters the most: the behavioral department.

This is where even highly intelligent, educated individuals often go wrong, as they lack the discipline needed to construct and consistently maintain a sound, diversified investment portfolio. Without this discipline, a portfolio can easily go off the rails. Warren Buffett pointed this out when he said: “Success in investing doesn’t correlate with IQ … What you need is the temperament to control the urges that get people into trouble.”

Many get into trouble by over-reacting to market fears, selling in a panic and then, driven by greed, chasing past performance by investing in what has recently been performing well. Academics in the field of behavioral finance refer to this as recency bias—extrapolating future performance from recent past performance. This is a mistake because an investment’s future performance is more likely to resemble its long-term past, not its recent past. (This is known as reversion to the mean.) If you invest this way, you’ll likely be perennially buying high and selling low; the opposite of what you should be doing.

Investing for retirement and other goals means carefully formulating a thoughtful, focused plan that reflects your goals and risk tolerance—and, above all, sticking with it. If you lack the discipline to ignore market noise about short-term fluctuations — noise that’s irrelevant to capturing long-term market returns — you’re prone to financial self destruction. Instead, you need an unemotional process in place to protect you from yourself so you can stick to your financial plan.

This financial plan should be written down, purposefully designed and driven by your specific goals and tolerance for volatility.  Also, your plan should account for the inevitable market declines that will inevitably occur during your lifetime.As the dangers of behavioral risk have a tremendous impact on your future financial security, taking behavioral risk out of the equation is the single biggest reason to work with a trustworthy, experienced financial adviser. A qualified adviser can help keep you on track and serve as your coach by keeping you from making rash moves, which don’t reflect what Buffett referred to as the right investing temperament.

Maintaining discipline improves long-term returns while helping keep risk in perspective. And for the vast majority of investors, a good adviser can help you do better in the long run, studies show. A 2018 study by Vanguard found that using an adviser can increase your net returns over time, after paying the adviser up to 3 percent annually. The study refers to this gain as the adviser’s alpha, or added value.

Of course, this assumes that these advisers aren’t charging high fees and commissions, and that they’re free of conflicts of interest. Ideally, you want an adviser who is paid by you alone and is a true fiduciary — one who always puts your interests ahead of their own; this is crucial. Also, be certain that the adviser’s investment philosophy and strategies are evidence-based–supported by objective academic research.

Experienced advisers usually have much more discipline than their clients. Numerous studies by Vanguard, Morningstar and other institutions have concluded that some of the value experienced advisers can deliver stems from providing time-consuming portfolio rebalancing, the use of tax-saving asset location strategies, designing portfolios and assisting you with retirement withdrawal strategies. These services, along with all-important behavioral coaching to prevent self-inflicted wounds, enable skilled advisers to earn your trust while earning their fees.

Ultimately, by working closely with the right adviser, most people can improve their net returns and reduce risk from their own financially destructive behavior. Thus, they’ll be taking care of the intellectual part of investing while helping you avoid the perils of the behavioral part.

 

Tim Decker is president of ISI Financial Group, a wealth management firm in Lancaster, and a fee-only financial planner (he sells no products). His weekly call-in radio show, Financial Freedom, airs Saturdays at 10 a.m. on WHP580 AM.

This content is based upon information believed to be accurate by ISI Financial Group, Inc. However, it is not intended to provide specific financial advice. You should always seek professional guidance before making any financial or legal decisions, as everyone’s needs are different.

Could games help people save more?

A number of government-backed programs encourage good financial habits, from retirement-savings vehicles such as IRAs to college-tuition plans, but few do so with the idea of having some fun.

But a state representative from East Stroudsburg, Rosemary M. Brown, has introduced House Bill 858, which would encourage savings accounts with some of the excitement of a lottery or raffle.

Brown, a Republican who represents parts of Monroe and Pike counties, said she has a passion for financial-literacy initiatives and has encouraged various proposals that would make financial life skills a mandatory part of public education. While such efforts have not succeeded so far, Brown said, the hope is that the attention around such efforts will increase participation in financial education as an elective.

In a memorandum asking colleagues to support her legislation, Brown noted that about 66 percent of U.S. citizens cannot pass a basic financial literacy test.

House Bill 858 is an extension of the concept of encouraging good financial habits, Brown said.

In 2014, she said, Congress passed the American Savings Promotion Act, spurring 27 states to create savings-promotion plans.

The idea behind her bill is to allow banks and credit unions to create incentive-based savings programs in which people could be entered into a lottery or raffle to win prizes based on saving money or taking other financial-literacy steps. The prizes might include additional money.

“By creating an incentive-based savings program, this legislation will help foster monetary savings among our constituents by giving them a chance to benefit additionally while they help build their savings,” she wrote.

The bill passed the House June 5 and went to the Senate, where it is in the banking and insurance committee, according to an online bill tracker. Brown said she expects to win support in the Senate.

Under H.B. 858, people might be able to participate in a lottery or raffle by entering into transactions such as:

  • Depositing or transferring money into a qualified account on a recurring basis.
  • Refinancing debt to obtain a lower rate.
  • Paying off outstanding debt to lower their debt ratio.
  • Preparing a budget or debt-reduction plan.
  • Attending free financial-literacy programs sponsored by an eligible financial institution.
  • Using online financial education, budgeting or debt-reduction tools.

If people want to save more but are having difficulty making the decision, Brown said, “we are going to try to give you a push to do it.”

The proposal helps financial institutions get new customers, while helping people reach their financial goals, she added. One issue that needs to be worked out is which state agency would be responsible for monitoring the program. Whether it is the banking department or attorney general’s office or another agency will need to be worked out on the Senate side, she said.

Dulcey Antonucci, director of communications for the Pennsylvania Department of Banking and Securities, said the agency is aware of the legislation.

“The Wolf administration believes wise financial planning and savings decisions are important for everyone,” she said in an email.

The state already does a lot to help consumers, Antonucci added.

“The department’s Financial Services for Consumers and Business (FSCB) unit helps consumers and investors protect and grow their money through the Investor Education and Consumer Outreach program,” Antonucci wrote. “All of our programs and presentations are free and help to educate and protect consumers.”

Those efforts include programs that teach students the basics of investing, as well as retirement planning, she added.

Firm builds tools to ease financial worry

Managers at Conrad Siegel looked at personal-finance statistics from a variety of sources and figured there must be a better way to help clients and their employees plan for a secure future.

About 44 percent of workers would not be able to cover an unexpected expense of $400; a similar number said they worry about their personal finances while at work and spend time at work dealing with money matters; a third have reported missing at least some work because of stress or dealing with a problem, the company said.

So the Harrisburg-based employee-benefit and investment-advisory firm set about to create online planning tools that would take at least some of the mystery, as well as the stress, out of financial planning.

The idea — a Financial Wellness Program — “includes a series of interactive, online educational and tracking tools designed to help participants get their finances in shape,” the company said in a statement.

“It’s a journey, and we really want to help them find their way,” Jennifer Becker, communications manager for the Harrisburg-based Conrad Siegel, said in an interview.

The calculators, videos and other educational tools can get people started in the right direction, Becker said. With the help of in-house staff and programmers, Becker said, the company created three platforms, all of which can be accessed online: saving for retirement; managing debt; and income and expenses, which covers the basics of budgeting as the “first step to financial stability.”

Other tools, such as saving for college, might be added over time as the company gets feedback from customers and monitors how the tools are used, Becker said.

Employees seem to appreciate it when employers offer the service because financial well-being is a key concern, as the statistics show, she added. But employees are assured that their employers do not have access to the sensitive financial information.

The tools are free to clients and their employees, she said, but are not available for the general public. Other companies and online tools might have one set of calculators or lessons but not the overall package that Conrad Siegel has tried to provide, she said. The initial set-up doesn’t take long. Users can then spend as little or as much time as they want working to customize what they want to achieve.

Online or in person?

Several financial advising experts said that online tools are a good start to the planning process, but they said customization is a challenge without the help of a professional adviser. They said people often over-rely on online tools and then don’t seek out the advice that might help keep them on track with their unique goals or their unique situations, they said.

Steve Bell, who is with Personal Wealth Advisory in Lancaster and who is a member of the Central Pennsylvania chapter of the Financial Planning Association, said calculators can help people see what is involved. But online tools are limited because they can’t really get into the nuances of someone’s personal finances and goals. Bell said he was speaking generally about retirement-type calculators and not the Conrad Siegel programs, which are only available to people who are signed up for its services.

Most tools allow people to get an idea of what might happen based on current and future income projections, he said. A lot of people don’t think about the many layers that might need to be peeled away to make sure that they are on the right track, such as whether they should buy or lease a car, pay off their mortgage early, pay off debts or save more, or where to invest savings and how, he said.

“There are a lot of financial decisions to further the success of an overall plan,” Bell said. “There is a lot that a calculator cannot do.”

He and Michael A. Ippoliti, a vice president at Valley Financial Investment Advisors in Bethlehem, said in separate interviews that long-term financial planning should involve meeting with a certified financial planner to evaluate a family’s individual circumstances.

Ippoliti said one problem he often sees is that people “don’t know what they don’t know,” which could lead them to make poor decisions if they try to handle planning on their own. Typically, he added, there are often multiple if not conflicting goals, such as wanting to have a vacation home while also trying to achieve long-term savings. A financial planner can help navigate those tricky decisions, he said.

People can be divided into several categories: those who are intent on doing it on their own but want to try to learn; some people who think they are experts when they are not; and then people who know they don’t understand the complexities so they reach out for help.

He also has found that a lot of the “rules of thumb” that appear to be conventional wisdom often don’t apply. One example is the advice for young people to take more risks because they have time to recover if a risk doesn’t work out. However, some younger workers want to stay conservative. The reverse can be true with older workers, who might want to take bigger risks near the ends of their careers, he said. The goal is to sort out the individual preferences and then create the right plan, Ippoliti added.

Conrad Siegel executives agreed the decisions can be complex and that people might need professional advice, but many workers just need to get started, which is where its programs help.

Tara Mashack-Behney, partner and president of Investment Advisory Services at Conrad Siegel, said online tools “can’t replace the value of individual counsel.”

“As with any tool, it’s all about how you leverage it,” Mashack-Behney said in a written response to questions. “Our vision in creating this program was to provide participants with a simple, accessible, user-friendly platform to track and analyze their financial goals — and provide a personalized experience based on what each participant identifies as their priority.”

“Our hope is that through this program, participants will be more mindful and aware of their finances and take the initiative to ask questions, seek advice and make the necessary changes to meet their goals,” she said.

She also pointed out that the company has partnerships with plan sponsors who offer individual coaching for participants on a number of financial topics.

Several experts noted that knowledge of personal finances continually evolves, so people are encouraged to continue their education.

Regular check-ins with financial advisers are a good idea, because priorities change over the years, Catherine Azeles, investment consultant with Conrad Siegel, said in an email.

“Consistency and follow-through is where so many people get stuck,” she added.

A Conversation With: Andrew Barninger

Photo: Submitted

Andrew Barninger, 30, joined Personal Wealth Advisory in 2013 and was recently named partner. He will be involved in launching NextPhase, which will focus on business transition planning.

Barninger has a bachelor’s degree in finance, economics and accounting from Mercyhurst University. He also is a certified financial planner.

He and his wife, Leah, and their month-old son live in Manheim Township.

Q: Tell us about NextPhase and the role you will take in launching it.

A: We’d been doing more financial planning and business transition work for Lancaster County small-business owners, and it’s a really unique and specialized area of planning. What we wanted to do was break off a subsidiary from Personal Wealth Advisory, which led to NextPhase Business Planning, which is going to focus on the transition planning needs of small-business owners, helping them achieve what they want, whether that is selling the business or keeping it in the family, or they want to work five or 10 more years or they want less day-to-day responsibilities.

What are some of the challenges businesses face as they start transition planning?

The main challenge we see over and over is that transition planning doesn’t happen early enough, so a business owner will come to us and say, I’d like to no longer own this business or work in it in two years. The perception is, that’s plenty of time to make this happen, but often we’re looking at five-plus years of work and strategic planning to make that transition as smooth as possible. Time is the most valuable resource in transition planning, especially if the sale proceeds the owner will eventually get are important for their long-term financial future.

Lancaster County has so many small businesses that are family-owned, and what business owners don’t realize is the next generation might have no idea how to do what the owner does on a day-to-day basis, so it’s not just figuring out how to change ownership but it’s also how that next generation is going to pay for it, how they are going to be trained to do what the owner does on a daily basis. That all takes a lot of time, because they also have to run their business and keep it profitable. Often the owners don’t start the planning process until there’s a bit of a time crunch or a health event or some catalyst.

Why do you enjoy providing financial education sessions for local associations and businesses?

I think they’re fun because it gives a platform for these business owners to take a step back from their day-to-day roles and think big picture, think long term, which sometimes are not luxuries they have in their work. I always think it’s enjoyable to help people, to challenge them to set that time aside and think more about themselves, about the business at a higher level, and take off whatever hat they’re wearing and ask themselves some critical questions about what makes them happy, what their ideal future looks like, and get the information they need and hear other people who are in a similar situation ask questions and talk about what they’re experiencing.

What’s on your summer activity list?

My wife and I just had our first baby in the first week of April, so if you’d asked me that 10 months ago I’d have had a different answer. Our activity list includes whatever our little guy is going to allow us to do, hopefully taking him to some fun places and watching him develop. My wife’s family lives in Pittsburgh, so we’ll be taking lots of trips, I’m sure, and having family come in and visit.