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Retirement Income Planning for Petrochemical EmployeesSubmitted by Align Wealth Partners on March 15th, 2019
Experienced financial advisors can offer employees in the petrochemical industry financial plans tailored to the unique needs of their occupation. Oil and gas workers may experience physically challenging working conditions, face the risks and rewards of working in a cyclical industry and need to develop retirement plans that seek to ensure that they will be able to support themselves and their families even if they must stop working in the industry earlier than they had planned. Proper retirement income planning is especially crucial for those in this type of industry.
Developing a personalized financial plan in this specialized and unpredictable industry can address the concerns that employees have when preparing for an uncertain financial future, allowing workers to feel confident in their financial plan no matter what the future holds.
Ready to discuss your retirement income planning with an experienced financial planner who understands the petrochemical industry? Contact us to see how Align-Wealth Partners can help.
Though many companies have moved away from offering their employees defined benefit retirement plans, in the petrochemical industry, certain employers still provide traditional pension plans. These plans pay a set monthly amount to retired employees who have worked at the company for a minimum amount of years, with the payment calculated based on the employee’s years of service and income while working at the company.
Financial planners can help their clients determine what their pension payments are projected to be upon retirement and incorporate this income source into the employee’s retirement plan. Financial planners can also help clients determine the earliest age that pension payments can begin, which is important to understand in case the client becomes disabled or stops working before full retirement age.
Other employers offer their employees 401(k) defined contribution retirement plans. Many companies will match their employees’ contributions up to a certain maximum amount, such as 3 percent of an employee’s income. Financial planners can help clients determine whether such a policy exists at their company and seek to maximize their retirement savings by taking advantage of any company contribution matching policies.
Financial planners can also help clients determine how much they should contribute to their 401(k) to be able to support their desired retirement lifestyle, as well as provide guidance on the different investment options the 401(k) plan may offer. For example, as clients move closer to retirement age, advisors may be able to guide them toward more conservative investment plans.
Individual Retirement Accounts
Traditional and Roth IRAs are an additional option for employees to contribute to retirement accounts independently of their employer. One of the benefits of IRAs is that workers can contribute to these plans even if they are temporarily unemployed due to changing jobs or being laid-off. Financial planners may incorporate IRAs into their clients’ financial plans, as well as offer guidance on appropriate contribution amounts (including “catch-up” contributions, which are allowed starting from age 50).
Financial planners may also provide guidance on whether workers who expect to be in a lower income tax bracket for the year (such as a year during which the worker was unemployed) should contribute to a Roth IRA instead of a Traditional IRA. Roth IRA account owners pay tax on their contribution during the current year rather than the withdrawal year, which is a useful strategy if clients are in a lower tax bracket in the current year than they expect to fall into during their retirement years.
Disability Income Insurance
In a field where employees may find themselves injured at work, it is critical to consider the possibility of long-term disability and being unable to work the same job or even any job at all. Long-term disability income insurance can provide petrochemical employees income while they recover from their injuries or, in the case of permanent disability, even provide income for employees to support themselves until retirement age.
Financial planners can incorporate the risk of disability into oil and gas workers’ financial plans, including helping workers explore their disability insurance options. Some important factors to consider in a policy include how long the policy will pay out benefits, what percentage of the insured’s prior working income they will receive, and whether the employee will qualify to receive benefits if they cannot work in their previous occupation – or in any occupation, for that matter.
Financial planners can also provide clients guidance on exceptions to retirement account early-withdrawal penalties due to disability. For example, 401(k) owners may make penalty-free withdrawals from their accounts if they become totally disabled, while Traditional IRA owners must provide proof from a physician that their disability is total and continuous to avoid an additional penalty tax on early withdrawals. Conversely, Roth IRA owners may be able to make early withdrawals without penalty on the amount of their original contribution, though they will have to pay the penalty tax on any withdrawals of account earnings.
Early Retirement Planning
Even if an employee does not develop a specific disability, petrochemical employees may decide to leave their occupation earlier than planned due to its physical demands. Proper retirement income planning can help prepare employees by developing contingency plans for this possibility. A financial planner can explore a client’s options for working part-time or in another occupation after retiring from the petrochemical field as a full-time employee.
Financial planners can also help clients who are retiring early. For example, when is the best time to start receiving Social Security income (which may begin as early as age 62 at a reduced rate)? What amount should workers safely withdraw from their retirement accounts on an annual basis using their new early retirement age in their retirement plan projections?
Finally, because the oil and gas industry is cyclical, even excellent employees may find themselves laid-off in down economies, and they may find it difficult to transfer their highly specialized skills to other industries, meaning that planning for long periods of unemployment or under-employment is critical.
Financial planners can help clients prepare for the possibility of months without income and implement solid savings and retirement account contribution goals to ensure employees can comfortably live off their savings or find other sources of income until they are re-hired. Financial planners can also help clients understand their options for withdrawing funds from their retirement accounts if it becomes necessary to support themselves, as well as whether these withdrawals would qualify for any “hardship” exceptions that allow withdrawal of retirement funds without paying an early withdrawal penalty.
With any specialized field, it is important to work with a financial planner who has experience with and understands the unique needs of employees within that industry. A financial planner like those at Align-Wealth Partners. Petrochemical employees can benefit in big ways from a financial plan that is suited for a wide range of future scenarios and helps ensure that employees will be financially confident, regardless of happens to them or their careers in the future.
If you’re ready to discuss your situation and start your retirement income planning with a true professional, contact Align-Wealth Partners to see how we can help.