Category Archives: News

Shell Employees Can Save MORE in the Shell Provident Fund 401(k) in 2019

 Published: December 14, 2018

 

The IRS recently released the 2019 retirement plan contribution limits.

 

For super-savers at Shell, things are looking up. Here are a few of the most noteworthy changes:

 

–> Shell employees can now contribute up to $19,000 (or $25,000 for those over 50 years old) of pre-tax or Roth savings to the Shell Provident Fund. 

–> Shell’s limit on after-tax contributions has remained at $9,000, which means employees can contribute up to $28,000 (or $34,000 for those over 50 years old) to the Shell Provident Fund, between pre-tax and non-Roth after-tax savings.

 

How Shell Employees Can Make Tax-Efficient Retirement Plan Contributions

If you are contributing after-tax dollars to the Shell Provident Fund, remember to roll out the after-tax funds at least once annually to a Roth IRA so that you can take advantage of the mega backdoor Roth strategy.

 

Many Shell employees will be able to take advantage of higher contribution limits for backdoor Roths. With the IRA contribution limit now being $6,000 ($7,000 if over age 50), super-savers at Shell can put away $34,000 ($41,000 if over age 50) — between the Provident Fund and backdoor Roths– into tax-sheltered retirement accounts.

 

2019 Annual Compensation Limits and Strategic Saving for Shell Employees

The annual compensation limit for 2019 has increased from $275,000 to $280,000. If you make more than $280,000 in base and bonus compensation for 2019, remember to ensure that you max out your Provident Fund contributions before earning $280,000 of income. After you earn $280,000 of income, you can no longer contribute to the Provident Fund.

 

Shell contributes a 10% match to 401(k)accounts for employees that have been with the company over nine years. Since the annual compensation limit for 2019 is now $280,000, Shell will now cap company contributions to the Provident Fund at $28,000.

 

In 2019, once you begin earning more than $280,000, Shell will make their contributions to the Shell Provident Fund BRP (Benefit Restoration Plan) instead of to the Shell Provident Fund.

 

If 2019 is the first year you expect to make more than $280,000, check that you have an allocation and investment strategy set up for your Provident Fund BRP. The 2019 limit adjustments will be advantageous for super-savers at Shell and it is important to be sure that you make the most of these changes.

 

Willis Johnson & Associates will be working with our clients over the next few months to assist with adjusting contributions based on the new IRS rules. In 2019, we will follow up with clients who are eligible to take advantage of backdoor Roth IRAs to ensure they are on track for success. In the second half of the year–once these clients have reached their max contributions– we will help facilitate after-tax rollouts from their Provident Fund accounts.

 

If you have any questions about the 2019 contribution and compensation limits, please contact your advisor, or schedule a free consultation with one of our Shell specialists.

 


Nick Johnson, CFA®, CFP®

CONNECT WITH ME ON LINKEDIN

 

Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such.

 

As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.


Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.

Chevron Employees Can Save MORE in the Chevron Employee Savings Investment Plan in 2019

Published: December 14, 2018

 

The IRS recently released the 2019 retirement plan contribution limits.

 

For super-savers at Chevron, things are looking up. Here are a few of the most noteworthy changes:

 

–> Chevron employees can now contribute up to $19,000 (or $25,000 for those over 50 years old) of pre-tax or Roth savings to the Employee Savings Investment Plan (ESIP).

–> Chevron’s limit on after-tax contributions has remained at $14,600, which means employees can contribute up to $28,000 (or $34,000 for those over 50 years old) between pre-tax and non-Roth after-tax savings to their 401(k).

 

How Chevron Employees Can Make Tax-Efficient Retirement Plan Contributions

If you are contributing after-tax dollars to the Chevron ESIP, consider rolling out the after-tax funds to a Roth IRA at the tail end of the third quarter to take advantage of the mega backdoor Roth strategy. For many Chevron employees that are contributing after-tax, the end of the third quarter is the best time to do the rollout because the Chevron ESIP freezes all contributions to the plan for 90 days afterward.

 

2019 Annual Compensation Limits and Strategic Saving for Chevron Employees

The annual compensation limit for 2019 has increased from $275,000 to $280,000. If you make more than $280,000 in base and bonus compensation for 2019, remember to ensure that you max out your ESIP contributions before earning $280,000 of income. After you earn $280,000 of income, you can no longer contribute to the Employee Savings Investment Plan.

 

Chevron contributes up to an 8% match to employee 401(k) accounts. Since the annual compensation limit for 2019 is now $280,000, Chevron will now cap out contributions to the ESIP at $22,400. In 2019, once you begin making more than $280,000, Chevron will be making their contributions to the Employee Savings Restoration Plan (ESIP RR) instead of the Employee Savings Investment Plan. If 2019 is the first year you expect to make over $280,000, check that you have an allocation and investment strategy set up for your ESIP RR.

 

In addition, many Chevron employees will be able to take advantage of higher contribution limits for backdoor Roths. Since the IRA contribution limit for 2019 is now $6,000 (and $7,000 for those over 50 years old), super-savers at Chevron can put away $34,000 (or $41,000 for those over 50 years old) between the 401(k) and backdoor Roths into tax-preferred retirement accounts.

 

The 2019 limit adjustments will be advantageous for super-savers at Chevron and it is important to be sure that you make the most of these changes. Willis Johnson & Associates will be working with our clients over the next few months to assist with adjusting contributions based on the new IRS rules.

 

In 2019, we will follow up with clients who are eligible to take advantage of backdoor Roth IRAs to ensure they are on track for success. At the tail end of the third quarter–once our Chevron clients who contribute after-tax savings to the Employee Savings Investment Plan have reached their max contributions– we will help  facilitate after-tax rollouts from their Chevron ESIP accounts.

 

If you have any questions about the 2019 contribution and compensation limits, please contact your advisor, or schedule a free consultation with one of our Chevron specialists.

 


Nick Johnson, CFA®, CFP®

CONNECT WITH ME ON LINKEDIN

 

Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such.

 

As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.


 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.

BMC Employees Can Save MORE in the BMC Software, Inc. Savings and Investment Plan in 2019

 Published: December 14, 2018

 

The IRS recently released the 2019 retirement plan contribution limits.

 

For super-savers at BMC Software, Inc., things are looking up. Here are a few of the most noteworthy changes:

 

–> BMC employees can now contribute $19,000 (or $25,000 for those over 50 years old) of pre-tax or Roth savings to the BMC Software, Inc. Savings and Investment Plan.

 

How BMC Employees Can Maximize Their Retirement Plan Contributions

It’s important to ensure that you are contributing at least 5% of your pay every pay period to receive the full 5% company match. At BMC, it is easy to miss the opportunity to receive the company contributions, so make sure you do the math every year! A great resource to assist you is the BMC 401(k) Deferral Calculator.

 

2019 Annual Compensation Limits and Strategic Saving for BMC Employees

The annual compensation limit for 2019 has increased from $275,000 to $280,000. If you make more than $280,000 in base and bonus compensation for 2019, remember to ensure you max out your BMC 401(k) contributions prior to earning $280,000 of income. After you earn $280,000 of income, you can no longer contribute to the 401(k).

 

In addition to the $19,000 of pre-tax or Roth contributions, BMC also allows employees to contribute non-Roth after-tax savings to the BMC Software, Inc. Savings and Investment Plan. If you make $280,000 or more annually, you can contribute up to $23,000 in additional after-tax savings. If you contribute over $23,000, you may reduce the amount of money BMC puts in the plan on your behalf. Lastly, if you are contributing after-tax dollars to BMC’s 401k, remember to roll out the after-tax funds at least annually to a Roth IRA to take advantage of the mega backdoor Roth strategy.

 

In addition, many BMC employees will be able to take advantage of higher contribution limits for backdoor Roths. With the IRA contribution limits now $6,000 (and $7,000 if over age 50), it means super-savers at BMC can put away $48,000 (or $55,000 if over age 50) between the BMC 401(k) and backdoor Roths into tax-preferred retirement accounts.

 

The 2019 limit adjustments will be advantageous for super-savers at BMC and it is important to be sure that you make the most of these changes. Willis Johnson & Associates will be working with our clients over the next few months to assist in adjusting contributions to ensure they get the full 5% company per paycheck match.

 

In 2019, we will follow up with clients who are eligible to take advantage of backdoor Roth IRAs to ensure they are on track for success. We will help facilitate after-tax rollouts from the 401(k) in the second half of the year once contributions have been maxed.

 

If you have any questions about the 2019 contribution and compensation limits, please contact your advisor, or schedule a free consultation with one of our BMC specialists.

 

 


Nick Johnson, CFA®, CFP®

CONNECT WITH ME ON LINKEDIN

 

Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such.

 

As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.


 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.

The Markets (as of market close November 30, 2018)

The Markets (as of market close November 30, 2018)

 

November proved to be a very volatile month for stocks.

 

By the third week of the month, the benchmark indexes listed here had given back just about all of the gains accumulated during the year. However, a spurt during the last week of November helped push stocks higher by the end of the month. Each of the indexes listed here outperformed their October end-of-the-month closing values, led by the large caps of the S&P 500 and the Dow, followed by the Global Dow and the small caps of the Russell 2000. The technology stocks of the Nasdaq edged higher by the close of November, and that index still maintains a sizeable lead year-to-date among the indexes listed here. 

 

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

Nevertheless, investors head into the last month of the year anxiously, as fears of a slowing economy and growing international trade tensions will likely temper expectations for steady stock gains moving forward. Energy stocks have been hit by falling oil prices, and the yield on 10-year Treasuries fell below 3.0% as bond prices rose after the Federal Reserve chairman intimated that interest rates may not be increasing as aggressively as previously thought… Click here to read the full article. 

Tax Loss Harvesting: How to Benefit From Your Investment Losses

Published: November 16, 2018

 

Positive investment performance is desirable, but not achievable 100% of the time.Though it may seem counterintuitive, the upside to negative performance in an investment is the potential tax savings when the investment is sold or distributed. 

There are times, during both good and bad market years, when seeking to generate losses through the sale of underperforming investments may present an opportunity.

 

Reaping the Benefits of Losses with Tax Loss Harvesting

The U.S. federal tax system allows for taking realized capital losses on investments against income, which reduces a taxpayer’s overall income tax liability. The process of tax loss harvesting involves proactively selling investments in taxable, non-retirement accounts where the current market values are below the purchase cost bases. This enables the investor to realize losses, which can then be used to offset realized gains as well as additional income.

 

How Can You Apply Tax Loss Harvesting to Your Financial Situation?

Tax loss harvesting can be effected with stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Beyond offsetting capital gains…

 

–> Any net losses (losses that exceed gains) can be used to offset $3,000 in ordinary income.

–> Net losses on marketable investments can also offset gains on the sale of assets, which are taxed at higher long-term rates like gold coins or a gold ETF (at 28%), or depreciation recapture on rental property (at 25%).

–> Any net losses not used to offset gains or ordinary income in one year may be carried forward indefinitely to offset realized gains in other years.

–> Depending on portfolio investments and selling strategy, long-term losses could be used to offset short-term gains which are taxed at ordinary income tax rates.

 

Also, you can sell an asset class- like internationals– and immediately buy the asset class back with a different fund. This strategy allows you to maintain the same allocation to an asset class with a slightly different fund, while reaping the tax benefit. 

 

 

Let’s walk through an example to demonstrate how tax loss harvesting works…

 

Mary owns two investments- BLUE stock and RED stock. BLUE has a $100,000 accrued gain in the investment and RED has a $50,000 loss from its cost basis. Mary is in a tax bracket such that if she sold BLUE stock she would pay 23.8% tax (20% capital gain plus 3.8% net investment tax) on her gain, generating a tax liability of $23,800.

 

$100,000 BLUE Gain @ 23.8% = $23,800

However, if Mary sold both her BLUE and RED investments, she would reduce her taxable gain to $50,000 and her tax liability to $11,900.

$100,000 BLUE gain (minus) $50,000 RED loss @ 23.8% = $11,900

 

tax loss harvesting

 

Why Would Mary Want to Take a Tax Loss on Her Underperforming RED Stock?

Taking the loss on RED could be a choice that is investment strategic. Perhaps, a determination that RED stock was not going to render positive performance in the foreseeable future supports a conclusion that it would be a good time for Mary to sell RED. Or, perhaps, Mary has several lots in RED stock, some of which are at a gain, but she decided to sell her highest purchase cost basis lot because it proffers the best opportunity to take a loss which she can use for reducing her tax liability on her BLUE gain. This approach would exemplify a HIFO (highest-in-first-out) strategy.

 

Why is 2018 a Particularly Good Time to Pursue a Tax Loss Harvesting Strategy?

Even though tax loss harvesting presents a tax savings opportunity in both good and bad market years, the 2018 market volatility may enable investors to lock in greater gains and net those gains with losses to minimize their tax liability. The type of volatility we are experiencing creates considerable divergence – of different international markets, of different industry sectors, and of different asset types, and fielding a net of gains and losses in this environment can be the most effective when compared to less volatile market environments.

 

This divergence can also create a need for rebalancing an investment portfolio necessitating transactions to bring the portfolio into parity with its objectives. Prospective performance can also drive the need for trading. For example, interest rates and their effect on medium-term and long-term fixed income investments may prompt a transfer to shorter-term investments. In short, the opportunity to generate a loss for tax purposes may be attractive outcome coupled with a need to properly maintain the portfolio.

 

What are the Risks Associated With Tax Loss Harvesting?

One considerable risk when harvesting losses is the wash sale rule. The IRS prohibits the recognition of a loss for tax purposes if “substantially identical” securities are purchased within 30 days before or after the loss generating transaction.

 

What qualifies as a “substantially identical” security?

 

–> Securities are the same stock 

–> Two different classes of stock issued by the same corporation

–> ETFs offered by different investment firms that track the same index

 

A loss could be excluded, in whole or part, if the wash rules are not followed. Note that inadvertent violation of the rules can occur if a dividend reimbursement election is in place on a particular security and a reinvestment takes place within 30 days of the loss transaction.

 

There are many reasons and potential applications for investors to employ tax loss harvesting. You should seek the counsel of your tax advisor and financial advisor when implementing a loss harvest in order to maximize the benefits of this strategy. Throughout the month of December, we will be implementing tax loss harvesting strategies for our clients and will proactively notify those concerned. If you have any questions, please contact a member of the Willis Johnson & Associates team for more information.

 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.

International Equities and Market Volatility: A Breakdown and What to Expect

During the month of October, the S&P 500 briefly touched a 10% correction before finally somewhat recovering, and has recently been helped by the political outcome of the election.

 

On the other hand, the international asset class year-to-date has continued to lag the S&P 500 noticeably and has been a cause for concern among market participants.

 

When we disaggregate the contributions to international equity returns this year, we see that the biggest detractors have been the contraction of P/E multiples, and currency weakness against the U.S. dollar. Earnings per share growth has been a positive driver for international company stock performance in 2018.

 

So, what does this tell us?

 

This data indicates that the response to internationals has been driven not by the economic fundamentals of these international markets and companies, but by a reaction to the recent trade conflicts and tariffs, whose effective economic impact has not yet materialized. The selling of these international companies has caused the price to contract while earnings have simultaneously been growing, a sign of forced selling.

 

A prime example of what encapsulates the factors at play in this most recent pullback has been the performance of a number of companies in the Chinese technology sector that have maintained strong quarterly earnings growth through the third quarter of 2018, yet have seen their valuations cut by 35% in 2018. There is a strong disconnect between the company’s earnings and economic prospects and their stock price performance, driven not due to any fundamental differences in these companies’ economic position, but of fears regarding uncertain outcomes of these trade wars.

 

Currently, European, Japanese, and emerging market equities are trading below their 25-year historical average P/E ratios, whereas the U.S. is slightly above its historical average P/E ratio. The valuations overseas continue to look more favorable relative to those in the U.S. In volatile times like these, tried and true investing approaches involve staying the course, recognizing good valuations when we see them, and not overreacting during periods of volatility. It may be a couple of months or as long as 18-24 months before valuations from internationals normalize.

 

You may ask, should we wait to invest until everything has worked out? No, because the first positive results usually yield the most significant returns.

 

If you have any questions about this, please reach out to a member of the Willis Johnson & Associates team.

 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.

The Markets (as of market close October 31, 2018)

The Markets (as of market close October 31, 2018)

October truly was a scary month as stocks closed the month well below their end-of-September values.

 

The tech-heavy Nasdaq lost over 9.0% by the end of October, while the small caps of the Russell 2000 fared even worse, losing almost 11.0%. The S&P 500 fell close to 7.0% – its largest monthly decline in over seven years.The Dow dropped 5.0%, and the Global Dow sank over 7.0%. A slide in internet stocks, coupled with investor concerns that global economic growth is slowing, helped amp up volatility during October. Yields on long-term bonds rose as prices fell, with the yield on 10-year Treasuries climbing about 8 basis points on the last day of the month. By the close of trading on October 31, the price of crude oil (WTI) was $64.95 per barrel, down from the September 28 price of $73.53 per barrel.

 

October 2018 Market Review
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The national average retail regular gasoline price was $2.811 per gallon on October 29, down from the September 24 selling price of $2.844 but $0.356 more than a year ago. The price of gold rose by the end of August, closing at $1,216.80 on the last trading day of the month, up from its price of $1,195.20 at the… Click here to read the full article.

Approaching the 2018 Midterm Elections as a Rational Investor

Americans will head to the polls in less than one week to vote for their preferred candidate in the United States midterm elections. No matter who controls the House or Senate both parties will no doubt spin their stories jockeying for a perceived mandate.  

The question going into Election Day is: “What are the issues at hand and what is a rational investor to do?”

 

 

“It’s the economy, stupid.” – James Carville, strategist for Bill Clinton’s 1992 presidential campaign 

 

 

Unlike the concerns surrounding Bill Clinton’s presidential campaign, the  issues of today may be in fact, non-issues. The headline unemployment rate has reached historic lows, consumer confidence is higher than before the dot-com bubble, interest rates may no longer be “accommodative” but are no worse than neutral, tax reform boosted paychecks, and the stock market is hitting new records. A frustrated electorate can be found voicing their opinions on every twitter feed and news program, but the economic fundamentals do not support a mass recall of our governing party.  

 

President Trump touted his polling numbers throughout his presidential campaign and has since maintained historically low approval ratings while in office according to ABC News’s  FiveThirtyEight running calculation. While unimpressive overall, there has been a remarkable consistency to the data indicating most Americans disapprove of his presidency. Disapproval as a descriptor may be misguided when judging a man and a president with such a uniquely colorful resume. However, the approval or disapproval of President Trump may not fully encapsulate how Americans will vote for House and Senate candidates of the same party. According to the Reuters/Ipsos polling data, President Trump may face disapproval from Americans who disagree with his character or leadership style but are likely to benefit from his positions on tax reform and deregulation.

 

A rational investor should reference recent examples of misinterpreted polling results as a word of caution – the 2016 presidential election, Brexit, and the unexpected success of Germany’s AFD electoral performance. There appears to be a growing disconnect between headline polling numbers and the eventual results. We may witness yet another departure from traditional polling expectations next week.

 

All 435 House seats are up for reelection this November. Pundits, too numerous to count, are predicting the House will swing left lead by Nancy Pelosi as the new majority leader. As of October 31, 2018, ABC News’s FiveThirtyEight estimates an 85.4% chance of Democrats winning control of the House. Further supporting these predictions are the micro-level shifts in demographics and voting districts that tend to favor Democrats this election season. 

 

The Senate is where things get interesting. Twenty-six of the 35 Senate seats up for grabs are held by Democrats, indicating that the odds favor a continuation — or increase– of Republican control of the upper body. 

 

Regardless of Tuesday’s outcome, corporate CEOs will return to work on Wednesday morning, and American consumers will begin their holiday shopping season. A rational investor should maintain a long-term investment horizon while rebalancing portfolios when market volatility skews the target allocation beyond an acceptable tolerance band.  

 

If you have any concerns or questions regarding the the impact of 2018 U.S. midterm elections on market activity, reach out to a member of the Willis Johnson & Associates team to schedule a conversation with one of our financial professionals.

 

Join Vice President Nick Johnson as he dives into an  in-depth review of recent market activity during our Market Update webinar. Click here to browse our upcoming webinar presentations and register today.

 


SOL_3311 (2)Tyler Baker, CFP®

CONNECT WITH ME ON LINKEDIN

 

Tyler Baker is an associate wealth manager at Willis Johnson & Associates.Tyler enjoys guiding individuals and their families through the financial planning process, and he specializes in uncovering new opportunities that work to minimize client expenses, while increasing their savings.

 

Tyler graduated from the University of Georgia with two degrees, a Bachelor of Science in financial planning, and another in housing management and policy. 

 


 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.

3 Steps to Calculate Your Shell 80 Point Benefit Restoration Plan Pension Lump Sum

Realistically, it is a complicated and often confusing process to calculate Shell’s 80 Point BRP Pension, and it requires an actuary to do the math accurately.

 

However, Shell employees can calculate a rough estimate that enables them to understand the potential magnitude of how the change in rates may impact their lump sum benefits.

 

STEP ONE: Calculate the Value of the Shell 80 Point Pension

The first step is to calculate the value of the Shell 80 Point Pension according to the formula, which you can find in the Shell Benefit Book.

 

The Shell 80 Point Pension formula is 1.6% * average final compensation * years of service.

 

For this example, let’s assume the Shell employee’s average final compensation is $600,000, years of service is 30, and age at retirement is 60.

 

If we do the math, the pension is valued at 1.6% * $600,000 * 30 = $288,000 / year, or $24,000 / month.

 

The dilemma is that an employee in such a financial situation will not receive an 80 Point Pension of $24,000 per month because a substantial portion of their benefit will be saved in the BRP plan since they are a highly compensated employee.

 

 

STEP TWO: Log In to Fidelity NetBenefits & Perform a Pension Calculation

Once we calculate the total value of the pension, we log onto to Fidelity NetBenefits and do a pension calculation.

 

For this example, let’s say that NetBenefits is showing a Shell 80 Point Pension of $11,000 per month. We know the difference ($24,000 – $11,000 = $13,000) is roughly the ‘monthly annuity value’ of the BRP pension. As we discussed previously, the BRP is paid out as a lump sum, not an annuity.

 

The easiest way to estimate the Shell 80 Point BRP Pension lump sum value is to revisit NetBenefits. The dilemma is that NetBenefits is not set up to show Shell employees the difference in value a change in interest rates may have on their BRPs, which is essential for this analysis.

 

 

STEP THREE: Estimate the Value of the Shell 80 Point BRP Pension Lump Sum

The next step is to walk through how the math works to perform a rough calculation of the estimated value of the BRP Pension lump sum. Essentially, it comes down to the basic time value of money.

 

Since the lump sum is the present value of future estimated monthly BRP annuity payments, we need to calculate a summation of all future BRP theoretical annuity payments over the employee’s estimated life expectancy discounted by the applicable rate. 

 

PV = PMT1/(1+r)¹ + PMT₂/(1+r)2 … PMTn/(1+r)n.

 

Remember, as interest rates go up, the pension value will go down, and vice versa.

 

interest rate vs pension

 

Of course, to properly do this we need to know life expectancy and the appropriate discount rate to use. For this example, let’s use the Social Security’s Life Expectancy Calculator as our approximation of life expectancy. As we can see in the table, a 60-year-old male born in 1958 has a life expectancy of 23.2 years.

 

 

Life Expectancy Calculator

 

The discount rate used in the Shell 80 Point BRP Pension is the Minimum Present Value Segment Rates published by the IRS. Specifically, Shell uses the rates from September 30th of the 2017 year for any pension that began in the 2018 year.  

 

I am going to state that one more time because it is so important. Shell uses the rates from September 30th of the prior year for any pension that begins in the current year.

 

For example, let’s say you retire November 30, 2018, and begin your pension on December 1, 2018. In this situation, your pension will be calculated based on the segment rates as of September 30th, 2017—the prior year.

 

In comparison, if you retire December 31st, 2018 and begin your pension on January 1st, 2019, then the segment rates to use for discounting is based on September 30th, 2018.

 

Another important note is that the blended rate is three different rates instead of one rate. First Segment is the rate used to discount the first five years. The Second Segment rate is used to discount years six through fifteen. The Third Segment rate is used to discount any pension payments paid out after year fifteen.

 

To learn more about the impact of interest rate changes on your Shell BRP Pension Lump-Sum, walk through our real life examples by reading our previous blog, You Could Increase the Value of Your Shell 80 Point BRP Pension by More Than $200K by Retiring 31 Days Earlier.

 

Or, take some time to review your retirement options by scheduling a free consultation with one of our Shell benefits specialists

 

 

Related Posts:

You Could Increase the Value of Your Shell 80 Point BRP Pension by More Than $200K by Retiring 31 Days Earlier

How Waiting 15 Days to Retire May Save You $50,000 in Taxes on Your BRP Payouts

Non-Qualified Retirement Plan Tax Risks the Corporate Professional Should Avoid

Sequence of Return Risk

Will You Optimize Your Employee Benefits Elections This Fall? Here’s What You Should Consider BEFORE Open Enrollment

 

 


nickNick Johnson, CFA®, CFP®

CONNECT WITH ME ON LINKEDIN

 

Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such.

 

As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.

 


 

 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.

Financial Fact | Estate Planning Essentials You May Not Know You’re Missing

When you are young and healthy, estate planning is often an overlooked part of the retirement planning process.  

However, it is an important piece of your retirement plan that you should be thinking about as you are building your asset base, getting married, starting to have children, or moving into retirement. 

 

You want to protect the people who are most important to you. Having a solid estate plan in place serves to provide for your loved ones when and if you are no longer around to do so. The following sections address the three most pressing questions people have about their estate plan: Where will my money go? How will it get there? What should I do if I want to leave money to charity?

 

Where Will My Money Go and How Will It Get There? : The Importance of Updating Beneficiaries and the Use of Testamentary Trusts for Your Estate Plan

 

For a majority of our clients, retirement accounts hold the bulk of their asset base. Such accounts may include their IRAs, Roth IRAs, 401(k)s, life insurance policies, annuities and more.

 

Beneficiary Designations

 

While many of an individual’s assets will be transferred at death by their will, a majority of their retirement accounts have beneficiary designations that guide how each asset will pass. If you do not have beneficiary designations in place, or these designations do not match what is outlined in your will, you or your family may encounter problems further down the road.

 

If your estate is fairly simple, you can use beneficiary designations to direct how your assets will be managed at your time of death. However, as you get older and accumulate more assets, it is essential to have a properly drafted will to guide when and how your assets will be distributed. This may require more in-depth estate planning and periodical reviews to ensure your legacy is protected and your money moves in the direction you intended.

 

It is important to note that certain assets will pass by beneficiary designations, regardless of provisions in your will.  For example, since life insurance policies are contracts between a policy owner and an insurance company, life insurance proceeds will be paid to the named beneficiary, even if your will says otherwise.  Neglecting necessary changes to beneficiary designations can often result in unnecessary costs to resolve disputes among family members, which can be avoided by early planning. Therefore, it’s critical to regularly consult with your attorney and financial professionals to confirm that your assets will be distributed in accordance with your wishes. 

 

Testamentary Trusts

 

A testamentary trust can help ensure your money moves to your beneficiaries when and how you want it to. If your will does not include testamentary trusts, your assets will pass to your beneficiaries directly. Those assets will be included in their estates and will be subject to creditors in the instance of a divorce or lawsuit.  Without the use of testamentary trusts, there is also no assurance that the assets will stay in the hands of your family.

 

Additionally, if your children are young adults when you pass, they may have immediate access to a large sum of money. Depending on your child’s money management skills, this may be a concern worth addressing. Testamentary trusts can allow for another person to manage your child’s assets until they the child reaches an age at which they may be better equipped to make wise financial decisions.

 

Consider that you have a child, age 18, and you have accumulated $1 million in your 401(k) and $1 million in life insurance benefits. What if you and your spouse passed away today? What would happen to your estate?  Your child is no longer a minor so they would inherit $2 million and have outright control over those funds.  While many 18-year-olds are quite responsible, it may be an overwhelming responsibility to manage that amount of money.  Setting up a trust for them in your will could allow for an older, more responsible adult to step in to control and protect the assets for the benefit of your child, until he or she is old enough to make those decisions for themselves. 

 

Such situations illustrate the importance of reviewing and updating your will, beneficiary designations, and additional supporting documents after any major life event (divorce, remarriage, birth of children, etc.), or any time you update your legal documents. 

 

What Should I Include In My Estate Plan If I Want To Leave Money To Charity?

 

In addition to helping family members, many people want to support charity with the assets they leave behind. In such cases, it is generally better to donate a qualified retirement plan to charity instead of a Roth IRA or after-tax account. Why? Because charitable organizations do not have to pay income taxes and you can save your tax-free accounts for your beneficiaries who do have to pay income taxes. You can also receive an estate tax deduction by donating to charity (if applicable). 

 

If you are charitably inclined and want to include charities in your will, be cautious of how you set up your estate plan. 

 

For example, consider that you name both a charity and your spouse/child as beneficiaries to an IRA account. If the retirement account is not split between beneficiaries in a timely manner, your loved ones may be forced to take their share of the retirement account out all at once instead of over their respective lifetimes. As a result, they will miss out on the tax-deferred status of an Inherited IRA and pay more taxes on the money you leave behind.

 

A well-drafted and coordinated estate plan is a crucial piece of a comprehensive financial plan.  You should review your wills and beneficiary designations a minimum of every 5 years, or anytime you have a major life event, to ensure that the estate you have worked so hard to build is protected for your loved ones. Take a second look at your estate plan with the help of a Willis Johnson & Associates advisor by scheduling a free consultation today.

 


alaxisAlexis Long, MBA, CFP®

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Alexis Long is a wealth manager at Willis Johnson & Associates. For Alexis, financial planning combines an interest in producing detail-oriented financial plans with a desire to help people obtain their goals, ranging from retiring early, paying for their grandchildren’s educations, buying a second home or leaving a legacy for their children. Understanding what is truly important to a client is key to good financial planning, along with providing solid technical advice.

 

Alexis earned her undergraduate degree in International Business from Texas Tech University and her Finance M.B.A. from the University of St. Thomas.

 


 

 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. We are not attorney’s or tax advisors therefore please be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed that may have legal of tax implications. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.

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