Finance Archives - New Century Investments https://www.newcenturyinvestments.com/category/finance/ Knowing Money Matters Fri, 28 Apr 2023 01:29:43 +0000 en hourly 1 https://wordpress.org/?v=6.1.10 https://www.newcenturyinvestments.com/wp-content/uploads/2021/12/cropped-Financial-Advisor-New-Century-Investments-Fort-Worth-TX-Fav-32x32.png Finance Archives - New Century Investments https://www.newcenturyinvestments.com/category/finance/ 32 32 Should You Be Offering Your Employees SARs Instead of Cash Bonuses? https://www.newcenturyinvestments.com/should-you-be-offering-your-employees-sars-instead-of-cash-bonuses/ https://www.newcenturyinvestments.com/should-you-be-offering-your-employees-sars-instead-of-cash-bonuses/#respond Fri, 05 Aug 2022 17:54:48 +0000 https://www.newcenturyinvestments.com/?p=4202 Should You Be Offering Your Employees SARs Instead of Cash Bonuses? In the aftermath of the global pandemic and “The Great Resignation,” many employers are wondering how to retain their employees in a way that benefits both the workers and the company. Traditionally, cash bonuses have been an effective way to reward employees for their hard work, but is this still the best way to show your employees that they are valuable? Stock appreciation rights (SARs) are gaining popularity as another way to incentivize, reward, and retain employees. These compensation vehicles offer employers a greater degree of flexibility to create a benefits plan that works not just for the employees but for the company as well. Here is everything you need to know about SARs and how to tell if they make sense for your business. What Are SARs? Stock appreciation rights are a type of equity compensation that is tied to a company’s stock price over the course of a specified period of time. Unlike other equity compensation, SARs are usually paid out in cash and do not require employees to purchase or own stock. As the employer, you still retain the right to pay out SARs in shares of stock but it is not required. When considering SARs, there are several key terms to understand: Grant date: The date at which the SARs are officially given to the employee. Exercise date: Even though an SAR may have been granted today, it cannot be cashed in until the exercise date. Further, it can only be cashed in if the stock price has gone up since the grant date. The exercise date is dependent on a vesting schedule, which can consist of years of service or hitting certain performance milestones. Expiration date: The last date that an employee can exercise an SAR. Exercise price: This is the price at which the SAR can be exercised for either cash or shares. Benefits of SARs Flexibility  This is the number-one benefit of SARs. Employers have full control over who receives SARs, how much they receive, when they can be exercised, and even how they are paid. With cash bonuses, they can only be paid out in cash. But with SARs, employers have the option to pay in cash or shares of stock depending on what makes more sense for the company at the time. Higher Payouts With Less Risk On the employee end, SARs require little to no risk or investment from employees. They are not required to purchase stock in order to receive the incentive pay. They only need to satisfy the terms and conditions as outlined in the award agreement. This can make SARs more attractive than other equity compensation models.  Additionally, employees often receive higher payouts with SARs than if their employer simply gave them a cash bonus at the end of the year. This is because SARs are not tied to employee compensation level, as bonuses usually are. Instead, they are tied to company stock price, which could have a much higher potential for annual growth than employee salary. Performance-Based Retention & Incentives Equity compensation is commonly used to reward and retain employees by granting them a stake in the company. SARs essentially tie employee earnings to your company’s success, meaning they are more likely to act in a way that helps your company succeed. SARs are also used to retain employees due to the vesting schedules. Employees with unvested SARs will be more likely to stay with the company, at least until their shares vest.  Not only that, but SARs can also be structured in a way that provides employees with a share of the net proceeds if the company is sold. This can be a great way to incentivize employees and keep them motivated to do good work.  SARs can also be used as an add-on incentive for companies that already have ESOP plans in place. SARs Do Not Have to Be Paid if an Employee Is Terminated Employers can create provisions in the SAR agreement that outline what will happen if an employee resigns or is terminated. These conditions can range from a reduction in the payout all the way to forfeiting the benefits entirely depending on the circumstances of an employee’s dismissal. Again, this gives employers the ultimate flexibility over who receives incentive pay and when. Non-Compete Clauses SARs can also be used to foster employee loyalty by including non-compete clauses into the SAR award agreement. This can prevent employees from cashing in on your increasing stock price only to leave to work for your competitor. Making the Right Choice While there are many benefits to SARs, there are also many factors to consider before implementing an SAR plan into your compensation structure. Employers must weigh the options for vesting rules, liquidity concerns, eligibility, tax implications, and so much more.  At New Century Investments, we can help you navigate the SAR process and make the right choice for your business. Schedule a complimentary introductory consultation by calling us at 817-238-6300, emailing Matt.Ward@NewCenturyInvestments.com​, or scheduling an appointment online. About Matt Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals.  Matt graduated from Texas Tech University with a bachelor’s degree and is a CERTIFIED FINANCIAL PLANNER™ and Chartered Retirement Planning Counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him on LinkedIn.

The post Should You Be Offering Your Employees SARs Instead of Cash Bonuses? appeared first on New Century Investments.

]]> Should You Be Offering Your Employees SARs Instead of Cash Bonuses?

In the aftermath of the global pandemic and “The Great Resignation,” many employers are wondering how to retain their employees in a way that benefits both the workers and the company. Traditionally, cash bonuses have been an effective way to reward employees for their hard work, but is this still the best way to show your employees that they are valuable?

Stock appreciation rights (SARs) are gaining popularity as another way to incentivize, reward, and retain employees. These compensation vehicles offer employers a greater degree of flexibility to create a benefits plan that works not just for the employees but for the company as well. Here is everything you need to know about SARs and how to tell if they make sense for your business.

What Are SARs?

Stock appreciation rights are a type of equity compensation that is tied to a company’s stock price over the course of a specified period of time. Unlike other equity compensation, SARs are usually paid out in cash and do not require employees to purchase or own stock. As the employer, you still retain the right to pay out SARs in shares of stock but it is not required.

When considering SARs, there are several key terms to understand:

  • Grant date: The date at which the SARs are officially given to the employee.
  • Exercise date: Even though an SAR may have been granted today, it cannot be cashed in until the exercise date. Further, it can only be cashed in if the stock price has gone up since the grant date. The exercise date is dependent on a vesting schedule, which can consist of years of service or hitting certain performance milestones.
  • Expiration date: The last date that an employee can exercise an SAR.
  • Exercise price: This is the price at which the SAR can be exercised for either cash or shares.

Benefits of SARs

Flexibility 

This is the number-one benefit of SARs. Employers have full control over who receives SARs, how much they receive, when they can be exercised, and even how they are paid. With cash bonuses, they can only be paid out in cash. But with SARs, employers have the option to pay in cash or shares of stock depending on what makes more sense for the company at the time.

Higher Payouts With Less Risk

On the employee end, SARs require little to no risk or investment from employees. They are not required to purchase stock in order to receive the incentive pay. They only need to satisfy the terms and conditions as outlined in the award agreement. This can make SARs more attractive than other equity compensation models. 

Additionally, employees often receive higher payouts with SARs than if their employer simply gave them a cash bonus at the end of the year. This is because SARs are not tied to employee compensation level, as bonuses usually are. Instead, they are tied to company stock price, which could have a much higher potential for annual growth than employee salary.

Performance-Based Retention & Incentives

Equity compensation is commonly used to reward and retain employees by granting them a stake in the company. SARs essentially tie employee earnings to your company’s success, meaning they are more likely to act in a way that helps your company succeed. SARs are also used to retain employees due to the vesting schedules. Employees with unvested SARs will be more likely to stay with the company, at least until their shares vest. 

Not only that, but SARs can also be structured in a way that provides employees with a share of the net proceeds if the company is sold. This can be a great way to incentivize employees and keep them motivated to do good work. 

SARs can also be used as an add-on incentive for companies that already have ESOP plans in place.

SARs Do Not Have to Be Paid if an Employee Is Terminated

Employers can create provisions in the SAR agreement that outline what will happen if an employee resigns or is terminated. These conditions can range from a reduction in the payout all the way to forfeiting the benefits entirely depending on the circumstances of an employee’s dismissal. Again, this gives employers the ultimate flexibility over who receives incentive pay and when.

Non-Compete Clauses

SARs can also be used to foster employee loyalty by including non-compete clauses into the SAR award agreement. This can prevent employees from cashing in on your increasing stock price only to leave to work for your competitor.

Making the Right Choice

While there are many benefits to SARs, there are also many factors to consider before implementing an SAR plan into your compensation structure. Employers must weigh the options for vesting rules, liquidity concerns, eligibility, tax implications, and so much more. 

At New Century Investments, we can help you navigate the SAR process and make the right choice for your business. Schedule a complimentary introductory consultation by calling us at 817-238-6300, emailing Matt.Ward@NewCenturyInvestments.com​, or scheduling an appointment online.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. 

Matt graduated from Texas Tech University with a bachelor’s degree and is a CERTIFIED FINANCIAL PLANNER™ and Chartered Retirement Planning Counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him on LinkedIn.

The post Should You Be Offering Your Employees SARs Instead of Cash Bonuses? appeared first on New Century Investments.

]]> https://www.newcenturyinvestments.com/should-you-be-offering-your-employees-sars-instead-of-cash-bonuses/feed/ 0 Top 3 Financial Challenges After Retirement https://www.newcenturyinvestments.com/top-3-financial-challenges-after-retirement/ https://www.newcenturyinvestments.com/top-3-financial-challenges-after-retirement/#respond Wed, 15 Jun 2022 13:47:34 +0000 https://www.newcenturyinvestments.com/?p=4139 Top 3 Financial Challenges After Retirement Retirement is an exciting life milestone that requires years of forward planning. Once you’re retired, however, the financial planning doesn’t stop. In fact, there are many things to consider after one retires to ensure they are set up for success.  Let’s look at the top three financial challenges that happen after retirement, including accurately determing how long your nest egg will last, knowing when to draw on various sources of retirement income, and knowing how to strategically control your tax bracket so you don’t end up paying more in taxes.  How Long Will My Nest Egg Last? It’s impossible to know exactly how long your savings will last, but there are a few important factors to consider. Consider your expenses and budgeting, taxes, and inflation.  Budgeting As you plan for your retirement income distribution, it’s more important than ever to establish a realistic budget and stick to it. Overspending, even for a short period, can shave years off the longevity of your assets. Calculate your monthly income given your withdrawal strategy, and then create a budget. Then make sure to track your income and spending along the way so you stick to your plan.  Taxes Unfortunately, you won’t get to keep all the money that’s in your retirement savings account due to taxes. Different sources of retirement income are taxed differently (as we will explain below), but it’s important to know whether or not your savings are/were tax-deferred. For example, with a Roth IRA, you contribute after-tax dollars, your money grows tax-free, and you can generally make tax- and penalty-free withdrawals after age 59½. With a traditional IRA, you contribute pre- or after-tax dollars, your money grows tax-deferred, and withdrawals are taxed as current income after age 59½. (1) Inflation Another important factor to consider when determining how long your money will last is inflation. As of this writing, the annual inflation rate for the United States is 8.3% for the 12 months ended April 2022 after rising 8.5% previously. (2) Inflation means that a dollar a day is worth less than a dollar tomorrow, so by the time you retire (or as you live in retirement), your money won’t have the same buying power. This is important as you project 10, 20, or 30 years into retirement.  Drawing on Various Sources of Retirement Income How you take your money out in retirement is just as important as the years you spent saving your money. Strategically drawing on these sources of income includes tax planning, reviewing your tax return, and, most importantly, distribution optimization. That’s why you should capitalize on your wealth by determining a tax-efficient way to withdraw funds in your golden years.  Different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s get taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different from your ordinary income tax rate.  Calculating when might be the best time to pull from each account is enough to give anyone a headache. However, the last thing anyone wants is to get hit with a hefty tax bill when trying to stretch their money for decades. Create a withdrawal strategy with the help of a trusted professional who can assist you in withdrawing funds at a sustainable rate and help ensure that you’re doing it in a tax-efficient way. Using Your Tax Bracket to Your Advantage In addition to making your nest egg last throughout retirement, another advantage of budgeting your assets is to come up with a plan for tax savings. One of the financial mistakes we see people make in retirement is leaving opportunity on the table. Maybe the individual has an opportunity for Roth conversions. Another common mistake might be withdrawing too much money and ending up in a higher tax bracket. You should consider your expenses and withdrawal strategy in terms of today’s tax brackets. Here are the tax brackets as of 2022: (3) 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly) 35%, for incomes over $215,950 ($431,900 for married couples filing jointly) 32% for incomes over $170,050 ($340,100 for married couples filing jointly) 24% for incomes over $89,075 ($178,150 for married couples filing jointly) 22% for incomes over $41,775 ($83,550 for married couples filing jointly) 12% for incomes over $10,275 ($20,550 for married couples filing jointly) Tackle These Financial Challenges With Ease These are just a few of the many financial challenges and concerns you will face in retirement. If you need help tackling these or other challenges, we at New Century Investments would love to help. Schedule a complimentary introductory consultation by calling us at 817-238-6300, emailing Matt.Ward@NewCenturyInvestments.com​, or scheduling an appointment online. About Matt Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals.  Matt graduated from Texas Tech University with a bachelor’s degree and is a Certified Financial Planner™ and Chartered Retirement Planning Counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him today! _______________ (1) https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/ (2) https://www.usinflationcalculator.com/inflation/current-inflation-rates/ (3) https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

The post Top 3 Financial Challenges After Retirement appeared first on New Century Investments.

]]> Top 3 Financial Challenges After Retirement

Retirement is an exciting life milestone that requires years of forward planning. Once you’re retired, however, the financial planning doesn’t stop. In fact, there are many things to consider after one retires to ensure they are set up for success. 

Let’s look at the top three financial challenges that happen after retirement, including accurately determing how long your nest egg will last, knowing when to draw on various sources of retirement income, and knowing how to strategically control your tax bracket so you don’t end up paying more in taxes. 

How Long Will My Nest Egg Last?

It’s impossible to know exactly how long your savings will last, but there are a few important factors to consider. Consider your expenses and budgeting, taxes, and inflation. 

Budgeting

As you plan for your retirement income distribution, it’s more important than ever to establish a realistic budget and stick to it. Overspending, even for a short period, can shave years off the longevity of your assets. Calculate your monthly income given your withdrawal strategy, and then create a budget. Then make sure to track your income and spending along the way so you stick to your plan. 

Taxes

Unfortunately, you won’t get to keep all the money that’s in your retirement savings account due to taxes. Different sources of retirement income are taxed differently (as we will explain below), but it’s important to know whether or not your savings are/were tax-deferred. For example, with a Roth IRA, you contribute after-tax dollars, your money grows tax-free, and you can generally make tax- and penalty-free withdrawals after age 59½. With a traditional IRA, you contribute pre- or after-tax dollars, your money grows tax-deferred, and withdrawals are taxed as current income after age 59½. (1)

Inflation

Another important factor to consider when determining how long your money will last is inflation. As of this writing, the annual inflation rate for the United States is 8.3% for the 12 months ended April 2022 after rising 8.5% previously. (2) Inflation means that a dollar a day is worth less than a dollar tomorrow, so by the time you retire (or as you live in retirement), your money won’t have the same buying power. This is important as you project 10, 20, or 30 years into retirement. 

Drawing on Various Sources of Retirement Income

How you take your money out in retirement is just as important as the years you spent saving your money. Strategically drawing on these sources of income includes tax planning, reviewing your tax return, and, most importantly, distribution optimization. That’s why you should capitalize on your wealth by determining a tax-efficient way to withdraw funds in your golden years. 

Different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s get taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different from your ordinary income tax rate. 

Calculating when might be the best time to pull from each account is enough to give anyone a headache. However, the last thing anyone wants is to get hit with a hefty tax bill when trying to stretch their money for decades. Create a withdrawal strategy with the help of a trusted professional who can assist you in withdrawing funds at a sustainable rate and help ensure that you’re doing it in a tax-efficient way.

Using Your Tax Bracket to Your Advantage

In addition to making your nest egg last throughout retirement, another advantage of budgeting your assets is to come up with a plan for tax savings. One of the financial mistakes we see people make in retirement is leaving opportunity on the table. Maybe the individual has an opportunity for Roth conversions. Another common mistake might be withdrawing too much money and ending up in a higher tax bracket. You should consider your expenses and withdrawal strategy in terms of today’s tax brackets. Here are the tax brackets as of 2022: (3)

  • 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly)
  • 35%, for incomes over $215,950 ($431,900 for married couples filing jointly)
  • 32% for incomes over $170,050 ($340,100 for married couples filing jointly)
  • 24% for incomes over $89,075 ($178,150 for married couples filing jointly)
  • 22% for incomes over $41,775 ($83,550 for married couples filing jointly)
  • 12% for incomes over $10,275 ($20,550 for married couples filing jointly)

Tackle These Financial Challenges With Ease

These are just a few of the many financial challenges and concerns you will face in retirement. If you need help tackling these or other challenges, we at New Century Investments would love to help. Schedule a complimentary introductory consultation by calling us at 817-238-6300, emailing Matt.Ward@NewCenturyInvestments.com​, or scheduling an appointment online.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. 

Matt graduated from Texas Tech University with a bachelor’s degree and is a Certified Financial Planner™ and Chartered Retirement Planning Counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him today!

_______________

(1) https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/

(2) https://www.usinflationcalculator.com/inflation/current-inflation-rates/

(3) https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

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