The Partners Circle

The mission of the Partners is to empower all of us to go directly to each other with our expertise. FiduciaryFirst is considered an industry leader and our knowledge and informative blogs can help you gain an understanding about key topics within the industry.

Behavioral Finance: How People Handle their Money

For the most part, people make sensible decisions about their money. They choose actions that improve their lives or increase their net worth. Sometimes, though, people don’t make rational financial choices. They make decisions that are arbitrary and unpredictable. Behavioral finance seeks to explain those choices, by combining economic and financial principles with psychological theory. Conventional economics assumes that people are “wealth maximizers” and make decisions that increase their well-being. But the world is a messy place, and sometimes emotions and other factors influence monetary decisions. Behavioral finance has identified a number of irrational behaviors that affect financial decisions, including: Anchoring. Anchoring comes into play when a person stubbornly clings to a fact or figure that shouldn’t affect their decisions. A common example is “The stock market is too risky.” Mental accounting. This term refers to people separating their money into different mental “accounts” and then treating it differently. For example,...
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Financial Mistakes to Avoid in Retirement

As a plan sponsor, you want to help your participants plan a comfortable retirement. Obviously, planning your retirement while you’re working is a big part of successfully retiring. Another critical part, though, is what you do after you retire. At that point, when you’re no longer working, it’s much harder to recover from mistakes. Here are some mistakes that your participants should avoid after they’ve retired: No financial plan. Retirees run into problems when they don’t have a budget before retiring. Failure to set a budget leaves you very vulnerable to unpleasant surprises. You should also update your financial plan over time and as your circumstances change. Claiming Social Security too early. Waiting as long as possible to collect Social Security is one of the best moves a retiree can make, but many start collecting as early as possible, thinking they’ll get the “most” money that way. Delaying benefits can increase...
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Making Your Retirement Funds Last Longer

The Census Bureau predicts that by 2050, more than 400,000 Americans will be over the age of 100. That creates a real financial concern: Will your retirement funds last long enough, or will you spend that time struggling to make ends meet? As a plan sponsor, educating your participants about this issue is important – you want to help them make sure their finances are healthy enough to support them throughout retirement, however long that may be. Some ways to extend retirement income include: Plan ahead. Put together a budget that matches your financial needs with your income. That type of cash flow analysis will help you make sure you know how much you’ll need in retirement before you actually retire. It may also be a good idea to conduct a dress rehearsal: Try to live on your budget before you retire. Review all your retirement accounts and Social Security, and...
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Factors to Consider Before Retirement

As a plan sponsor, you want to make sure your participants have a secure retirement. More and more Americans are continuing to work for a variety of reasons, including maximizing their Social Security benefits and continuing to contribute to their 401(k)s. Another reason, though, is that many Americans don’t have confidence in their ability to retire comfortably. When thinking about retirement, your participants should give careful thought to what they want to do with both their time and their money. Some of the things to consider include: Do you have enough? You need to review your retirement expenses and balance those against your sources of income. Create a retirement budget with monthly expenses and monthly income to determine if you have enough to live on in retirement. Review your credit. Make sure you’re not carrying high-interest credit card debt into retirement. If you’re paying more in interest that your retirement accounts...
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Fiduciary Risk Management at FiduciaryFirst

As a plan sponsor, it’s important that you understand your fiduciary duties. Often sponsors overlook some fiduciary responsibilities, or believe that they have “outsourced” their fiduciary functions. FiduciaryFirst can advise you on your key fiduciary responsibilities and help you understand and manage your fiduciary duties. What is a fiduciary and why is that important? For retirement plans, a fiduciary is generally anyone with discretionary authority or control over the plan itself or the investments offered by the plan. Fiduciaries include plan trustees, plan sponsors, external advisors who provide investment advice, and owners and managers of the company that offers the retirement plan. Usually fiduciaries are spelled out in the plan document that established the company’s retirement plan. These fiduciary definitions can be complex, and FiduciaryFirst can help you determine who is a fiduciary in your plan. Understanding who the fiduciaries are for your retirement plan is important, since fiduciaries are personally...
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Encouraging Employee Participation in Retirement Plans

The most common vehicle for retirement savings has become the 401(k) plan, which are primarily funded by employee contributions. Workers can choose whether or not they want to participate in the plan, and can reduce or eliminate their contributions whenever they want. What, then, are the best ways to encourage participation in your company’s 401(k) plan? Start immediately. The best time to enroll an employee is when he or she is hired. You have the employee’s full attention, and he or she is more likely to be enthusiastic. Requiring an extended period of service before entering the plan discourages participation. Further, automatic enrollment, where the employee is automatically entered as soon as he or she becomes eligible unless the employee chooses not to participate, also increases participation. Communicate regularly. Plan communication and education should be an ongoing process, with the materials presented clearly using examples, like projected benefit illustrations. This helps...
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Five Reasons Your Employees Should Love Your 401(k) plan

A 401(k) plan is a powerful tool for saving for retirement, and almost everyone can benefit from participating in a 401(k) plan. Some of the reasons a 401(k) plan may be a good idea for your employees include: They save on taxes, and their money grows tax-deferred. Contributions to a 401(k) plan are not taxed as current income, which means participants pay less in taxes each year. The investment earnings on funds in the plan are also not taxed as long as they stay within the plan, which means the money participants would normally pay in taxes on earnings continue to earn money for them. They’ll eventually pay taxes on both contributions and earnings, but if they withdraw the funds after retirement, they may well be in a lower tax bracket than they are now. Their money belongs to them. Unlike employer-provided pension plans, participants own their 401(k) contributions. As their...
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What You Should Know about 403(b) Retirement Plans

Most people have heard of 401(k) retirement plans. However, there is a lesser-known type of retirement plan that is only available to tax-exempt groups such as K-12 schools, colleges and universities, hospitals, and libraries. Named 403(b) retirement plans after the section of the federal tax code that created them, these plans are similar to 401(k) plans, but have some crucial differences. How does a 403(b) plan work? Participants in 403(b) plans agree to allow their employers (the plan sponsors) to take a portion of their paychecks before taxes and contribute that to the plan. The employer may also match a portion (or all) of the employee’s contribution. The employee is not taxed on the money invested in the 403(b) plan or the gains on that money until the funds are withdrawn, typically after retirement, and earnings, dividends, or capital appreciation earned on plan contributions are not taxed until the employee starts...
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