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Oaktree Financial Advisors Blog

Lilly VERP Analysis - Should I Stay or Should I Go?

Written by Ed Snyder on .

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What factors do you need to consider when evaluating your VERP offer? How do you know if the VERP is right for you?

We had clients calling the morning the VERP was offered to schedule time to come in to have us help them evaluate their offer. Here's what we're talking to them about, along with a couple of real life examples.

Employees should consider if they are financially ready to retire. They should look at how the offer fits in with their retirement income plan. Because we provide an Independent Professional Retirement Overview (IPRO) for our clients, when we discuss their VERP offer with them we can see how it fits in with their IPRO retirement plan. It can quickly be updated to see the feasibility of retirement with the VERP offer.

While the Lilly VERP offer may look attractive, you must be aware of how the pension schedule impacts your personal situation. Many employees receiving the offer may be leaving significant pension benefits if they accept the offer. Let's take a look at an example:

Eli Lilly Employee Voluntary Early Retirement Program (VERP) Decision

Written by Ed Snyder, CFP® on .

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Many employees of Eli Lilly will consider a Voluntary Early Retirement Program (VERP) offer as Lilly looks to workforce reductions in an effort to improve its cost structure. Approximately 3,500 positions are expected to be impacted by the reductions.

VERP offers can be complicated. You should compare the value of the enhanced benefits being offered to retire early to what you would get if you continued to work. By continuing to work you would continue to contribute to the Lilly Savings Plan (401k), accrue additional pension benefits and earn credits towards retiree healthcare. You need to weigh if those benefits would be greater than the benefits offered in the VERP. Early retirement could impact your Social Security benefits, which are based on your average earnings over 35 years of work. And it's important to know that the one-time lump sum payment is taxed as ordinary income and will be reduced by applicable tax withholding.

Beyond the above analysis, any employee considering the VERP should have a thorough understanding of what their retirement would look like. This includes knowing what expected expenses would be, as well as sources of available income and their amounts. This is best accomplished through a comprehensive retirement income plan, not an online retirement calculator or "financial advisor" available via phone at a call center. Something as serious and intricate as your retirement deserves more than a one or two-time chat on the phone with an advisor with whom you'll have no ongoing relationship.

Oaktree Financial Advisors has developed the Independent Professional Retirement Overview (IPRO), a customized retirement analysis that takes into account your specific Lilly benefit programs. We can help you determine if you can maintain your lifestyle throughout retirement based on an early retirement, a full retirement, or anywhere in between.  There are many factors to consider. It includes evaluation of "what-if" scenarios so that you can make an informed decision about a VERP offer based on various scenarios.

Factors that often get overlooked or are misunderstood such as inflation, withdrawal rates from savings and healthcare costs, if not handled correctly, can have serious negative consequences on your retirement years. Many retirement decisions are irrevocable, so small mistakes now can have a lasting impact for years down the road.

If you would like to discuss this very important decision with one of our advisors, please click here, call us toll-free at 1-877-901-1631 or email us at info@oaktreeadvisors.com. Oaktree Financial Advisors can provide an Independent Professional Retirement Overview and help you evaluate "what-if" scenarios.

We have been advising our clients on this decision and we would be glad to assist you.

Oaktree Financial Advisors is neither endorsed by nor affiliated with Eli Lilly

Lilly HSA Plan Changes – Effective October 3, 2017

on .

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Lilly has recently announced changes to the investment menu within the Health Savings Account (HSA). Effective October 3, 2017, all funds are moving from Class A to Institutional Class Shares. This will not be a change in the actual funds or underlying investments, but the fund ticker symbols will be different and fees will be lower. You will automatically be moved to the new investments on October 2. No action is required on your part.

If you have automated investing set up on your HSA, those instructions will automatically be transferred to the new Institutional Class shares of the same fund(s). No action is required on your part.

In addition, as of September 25, 2017, new investments into Dreyfus Premier Strategic Value (DAGVX.LW) and Dreyfus Appreciation Fund (DGAGX) will no longer be allowed. These funds are being eliminated from the HSA, however, if you currently invest in these funds, you may continue to hold the investments or move them to a new fund at any time.

Gabelli Asset Fund has a short-term trading fee. New investments in Class A shares will be blocked beginning September 22 to help participants avoid being subject to this fee. The Institutional Class Shares will re-open for new investments on October 3. Any automated investing scheduled during this blocked period will be executed on October 3.

Three new index funds will be added. Vanguard Mid Cap Index (VIMAX), Vanguard Total International Stock Index (VTIAX) and Vanguard Total Bond Market Index (VBTLX).

If you have questions regarding how these changes may affect your HSA portfolio, please do not hesitate to contact Oaktree toll-free at 877-901-1631 or info@oaktreeadvisors.com

Oaktree Financial Advisors is neither endorsed by or affiliated with Eli Lily. The information contained herein is provided for informational purposes only and is based upon sources believed to be reliable. No guarantee is made to the completeness or accuracy of the information. This content should not be construed as investment advice, a solicitation, or recommendation to buy any security or investment product. Contact your financial professional regarding your specific circumstances.

Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the mutual fund, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Should I Choose an HRA or an HSA?

Written by Ed Snyder on .

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Open enrollment is coming. You know, that time of year where you make choices about your benefits at work? One area that I've noticed that people may want to take a little more time in comparing their options is in the health insurance plan that they choose. As an Eli Lilly employee you can choose from two plans; a Health Reimbursement Account (HRA) or a Health Savings Account (HSA). I assume they will again offer these two options for 2018 and will update this article when we find out. My experience has been that most people use the HRA. But I think you should do some analysis and consider whether the HSA might be a good choice for you and your family.

You may have heard about the HSA, but maybe you're not sure how it works or how to use it. HSAs are relatively complex and can be confusing. Is it affiliated with health insurance? Does it have anything to do with my retirement? Is it a bank account, an investment account? It can be all of these things.

Where to Invest Money You Need in the Next Five Years

Written by Ed Snyder on .

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An issue that has come up frequently the last several years is when people have money in savings that they don't need right now but they need it in a year or two for some specific goal like a vacation or a down payment on a house. Savings accounts are paying less than one percent so people want an alternative with a higher interest rate but want a stable return. Sometimes people ask if they should invest it in the stock market so they can get a better return. If you need the money within five years don't invest it in the stock market – save it in more conservative fixed rate investments. The reason I say that is because in a period less than five years, your money invested in the stock market could be worth less than you initially invested by the time you are ready to use it. There is no magic to the five year recommendation but historically the market has had positive returns 87% of the time over five year periods.[1] So you can see that even five years is no guarantee that your investment would be worth more than you originally invested, but once you get to five years the probability that you'll have a positive return is pretty good. But when you need the money before five years stick with fixed-rate investments because the last thing you want when saving money for a short-term goal is to have a return that fluctuates and goes negative.

So if we're trying to do better than a savings account but don't want the risk of the market, where do you go? Here are three suggestions.

  1. Online savings accounts. Savings accounts or money market accounts that you open online often pay more interest than those of the bank in your neighborhood. All you need to do is Google a term like "online savings account" and you'll get all the information you need to see what's available. Rates are ranging from 1.15% to 1.25%[2], most with no minimum balance required. You won't be able to go to the drive through window and make a withdrawal when you need your money but you can request the money electronically and have it deposited to your checking account within a few days.
  2. CDs. My recent search online shows rates from 1.40% for a one year CD to 2.25% for a five year CD.[3] In return for the higher rates you give up a little bit of flexibility in that you have to leave the money deposited for the period of the CD or be subject to penalties if you withdraw it early. But if you're sure you won't need the money during that time period, a CD could be a good solution.
  3. Short-term bond funds. Unlike savings accounts or CDs, short term bond funds do not guarantee an interest rate. Because of that they are a little riskier. You may get a little higher return than a savings account or CD but it may be lower too. Because these investments can fluctuate, you don't know ahead of time. With that being said, they are still conservative investments. If you want absolutely no fluctuation in return, then one of the other options is better suited for you.

While the low interest rate environment we're in can be great for those borrowing money since they are able to borrow at lower interest rates, it can be tough for savers trying to earn decent interest on their short-term investments. The suggestions above should help you earn a little more than you can get at the bank.

[1] crsp.com

[2] Magnifymoney.com

[3] Magnifymoney.com