The Purpose of Risk Management

There is a great variety of risk in our lives, and mitigating these risks is an intelligent response to achieve financial self-preservation. Personal risk When considering insurance as a means for financial protection, two main issues must be considered and resolved: Your ability to accept the financial risk inherent in insurance policy protection, and Your willingness to weather the volatility that sometimes accompanies insurance policies’ value development There are two main reasons for purchasing insurance policies: To protect your financial well-being To accumulate cash And: a combination of the two Insurance as a source of financial support for dependents Insurance can be an excellent tool for providing financial support to the surviving family members. Funds from insurance policies can be used for the typical household expenses of paying bills, maintaining mortgage payments, purchasing food, clothing and health care, and can also be applied to education, day care, legal fees, or business costs. Insurance to service debt Insurance is also an effective means for providing resources to pay off a mortgage, vehicle loans, credit card debt, and debts such as college or business loans. Death does not terminate the estate’s obligation to pay back these debts, and an insurance policy could be very useful for preserving your survivors’ finances. Insurance for personal uses Insurance policies can also be a great resource during your lifetime. Cash value life insurance policies can potentially accumulate cash you can use for any purpose through a policy loan, or policy termination if circumstances warrant. If you terminate your policy, you would pay taxes on the funds you receive, possibly at a favorable rate. Assessing your...

401(k) plans: review, monitor and adjust

When you choose Synergy 401(k) to set up your 401(k) plan, you get more than just an objective financial advisor. You get a team of 401(k) experts that will help you grow and nurture your plan from Day 1 to ensure it meets your needs as the business owner, as well as the needs of your employees. Part of that process is reviewing, monitoring and adjusting your plan and its investments. To help you and your 401(k) plan participants stay on course, we review your goals and objectives with you annually. Does this plan still meet your needs? If not, we’ll recommend adjustments. We will hold quarterly investment review meetings to help you and your plan participants understand your investment choices and the results of those investments in our five-step process.           We are also available any time you or a plan participant has a question about the plan. We can explain everything from salary deferrals and contribution limits to investment performance and hardship withdrawals. To learn more about how a 401(k) plan can benefit your business, visit our Synergy401k.com site, give us a call at 206-386-5455 or send us an email. We enjoy sharing our expertise and helping business owners create healthy retirement plans that meet everyone’s...

10 ways business owners can save money on taxes

With 2014 behind us, income taxes are on our minds right now. There is little we can do to reduce our tax liability for last year (except setting up an IRA and making contributions by April 15), but this is a good time to start tax planning for 2015. Here are 10 ways business owners can reduce their tax liability: Closely track tax deductible expenses, using software like QuickBooks or an app like Expensify. Track everything from mileage and business lunches to business travel and moving expenses. If you have employees, add them to your Expensify account to track their expenses as well. File your taxes on time. This might seem obvious, but not everyone pays their taxes when they’re due, racking up late fees and penalties. Visit IRS.gov for tax filing due dates and circumstances under which the IRS might waive penalties. If you are anticipating an exceptional year in terms of revenue, consider accelerating the time line on major business purchases to offset this year’s revenue. Start a profit sharing plan to put away as much money as you can as the business owner. Our team of retirement planning experts can help you choose the right plan for your company and set up the plan to maximize your contributions. Ask us how. If you own multiple businesses, create an overarching umbrella company to simplify taxes and use the losses of one company to offset the profits of another. Working from a home office? You may be able to deduct expenses for the business use of your home if (a) you regularly use part of your home exclusively...

Long-term care insurance explained: part 2

In our most recent blog post, we introduced you to long-term care insurance and explained risk management and how to evaluate a policy, including factors to consider. We continue our discussion below, beginning with benefit flexibility. Benefit flexibility A comprehensive policy may be purchased that covers the individual in a nursing home, adult day care center, assisted living facility, his or her own home, or just about any other setting. Or a nursing home only or home care only policy may be purchased. Most policies will pay 100% of the daily benefit for skilled care, but many policies will reduce the percentage they pay if care is received for custodial care. Some policies will also reduce the benefits depending on where the care is received. For example, it will pay 100 percent for care received in a nursing home but only 80 percent for assisted living. Further, many polices allow the client to choose a lower coverage rate in order to keep the cost of the policy down. In this situation the policy may pay 100% of the daily benefit for nursing home coverage and the client could choose a 50% or 80% rate for home health care. As long as the coverage is affordable, it is wise to have a policy that pays 100% at any level of care and 100% regardless of the care facility. This way the client can choose where he/she will receive care at the time of claim as opposed to at time of application. Benefits are paid usually in one of two ways. A policy can be designed to pay for expenses actually...

Long-term care insurance explained: part 1

As a person ages, insurance for long-term care will be a welcome lower cost solution as current costs for care in a nursing home is about $70,000 annually. Our elder population is growing as the Baby Boomers enter their retirement years; before long there will be a significant impact on end-of-life health issues, and mortality rates will increase as this generation becomes ill and dies. Elderly people typically require assistance with daily activities such as eating, bathing, dressing, etc. This type of care is called long-term care, and may be administered by family members, or in a variety of assisted living facilities. Because the costs for long-term care can be exorbitant and can quickly deplete assets, and because standard health insurance policies exclude long-term care benefits, long-term care insurance can mitigate the effect of excessive expenses. Risk management Long term care insurance is available to manage the risk of enormous expenses, typically in the later years of a person’s life when they are living on a fixed income. The risk is great, because most people will not be able to afford the exorbitant cost of the care they may need, and their entire estate can be consumed. Some careful thinking about and planning for this very likely situation is mandatory. An analysis of the risks associated with long-term care reveals that the only choices available to an individual considering the financial impact of elderly needs are purchasing an insurance policy, or self-funding the costs. A third choice, dispersing your estate to rely on the resources and mercies of Medicaid, is an unappealing alternative. There are three categories of people...

What is your financial advisor’s fiduciary responsibility?

When choosing a financial advisor to manage your most precious assets, it is essential to determine if the financial advisor will accept fiduciary responsibility and to what degree. Most plan sponsors are quite busy with the daily business of managing their company, and do not have time for the extra diversion of becoming proficient with the regulations and many details of offering a 401(k) plan to their employees. Considering the implications of the fiduciary responsibility that will otherwise default to you, unless you are well versed in retirement plans, IRS Code, ERISA regulations, and investment strategies for the range of your employees’ financial needs, you’ll want to have a 3(21) investment advisor sharing partial fiduciary responsibility with you, or a 3(38) investment advisor taking the full burden off your shoulders. Finding the right financial advisor for your company’s plan is very important! When you’re interviewing a financial advisor, you should find out if the advisor’s company will accept the legal responsibility and become a fiduciary for your plan, and whether as a 3(21) or a 3(38). In addition, you should expect your financial advisor to access resources that help meet IRS compliance; inquiring about the nature of these resources will help you decide if your company will be sufficiently represented when compliance issues arise. Considering that your company may have a 401(k) committee, it would be wise to inquire if the financial advisor is capable and willing to offer training, education and support to your committee. Also important is asking about potential conflicts of interest that might occur between the financial advisor and money managers with whom the financial...