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How Can I Rescue My Retirement?

A 2019 survey by Global Atlantic Financial Group, which sells annuities, asked more than 4,000 Americans, pre-retirees and retirees, about their retirement savings. Of those surveyed, 55% said they had regrets. The top three were that they:

  • Did not save enough.
  • Relied too much on Social Security.
  • Did not pay down debt before retiring.

However, you can avoid some of this remorse, by taking steps now. Let’s look at how you can avoid those major retirement regrets.

  1. Failing to save enough. A recent survey found that 62% of respondents were confident about their current financial health. However, when people looked ahead to their retirement finances, that changed. Part of the issue is planning. Only 18% of the Fidelity survey respondents had a financial plan for retirement. Without planning, it’s hard to know if you have enough saved. See how much you’ll be spending in retirement. Go through your expenses and increase your savings. The most common financial surprises for retirees are inflation and unexpected medical costs.
  2. Depending too much on Social Security. Rather than looking at Social Security as your main source of income in retirement, view it as one of several legs of a stool. Social Security isn’t designed to provide all the necessities of life. It is supplemental. It is not intended to be replacement income. Your planning should include other resources, including:
  • Tax-advantaged retirement plans
  • Pensions
  • Taxable investment accounts
  • Personal savings
  • A health savings account
  • Income from businesses or properties.
  1. Not paying off debt before you retire. For retirees on fixed incomes, debt makes it difficult to really enjoy retirement. Therefore, retire any debt you have before you stop working. You should systematically focus on one debt at a time, while making minimum payments on other debts. Get started by targeting the debt with the highest interest, or perhaps the one with the smallest balance. The goal is to be debt-free in retirement, so your financial resources can go toward helping you enjoy life. However, you shouldn’t concentrate too much on paying down debt and overlooking your retirement savings.

The best way to avoid retirement regret is planning. Start now and evaluate your situation. Then develop a retirement roadmap that helps you get from today to tomorrow.

Reference: Money Talks News (Oct. 13, 2019) “The 3 Biggest Regrets of Retirees — and How to Avoid Them”

Why Do Families Fail when Transferring Wealth?

A legacy plan is a vital part of the financial planning process, ensuring the assets you have spent your entire life accumulating will transfer to the people and organizations you want, and that family members are prepared to inherit and execute your wishes.

Kiplinger’s recent article entitled “4 Reasons Families Fail When Transferring Wealth” gives us four common errors that can cause individuals and families to veer off track.

Failure to create a plan. It’s hard for people to think about their own death. This can make us delay our estate planning. If you die before a comprehensive estate plan is in place, your goals and wishes can’t be carried out. You should establish a legacy plan as soon as possible. A legacy plan can evolve over time, but a plan should be grounded in what your or your family envisions today, but with the flexibility to be amended for changes in the future.

Poor communication and a lack of trust. Failing to communicate a plan early can create issues between generations, especially if it is different than adult children might expect or incorporates other people and organizations that come as a surprise to heirs. Bring adult children into the conversation to establish the communication early on. You can focus on the overall, high-level strategy. This includes reviewing timing, familial values and planning objectives. Open communication can mitigate negative feelings, such as distrust or confusion among family members, and make for a more successful transfer.

Poor preparation. The ability to get individual family members on board with defined roles can be difficult, but it can alleviate a lot of potential headaches and obstacles in the future.

Overlooked essentials. Consider hiring a team of specialists, such as a financial adviser, tax professional and estate planning attorney, who can work in together to ensure the plan will meet its intended objectives.

Whether creating a legacy plan today, or as part of the millions of households in the Great Wealth Transfer that will establish plans soon if they haven’t already, preparation and flexibility are uber important to wealth transfer success.

Create an accommodative plan early on, have open communication with your family and review philosophies and values to make certain that everyone’s on the same page. As a result, your loved ones will have the ability to understand, respect and meaningfully execute the legacy plan’s objectives.

Reference: Kiplinger (Aug. 29, 2021) “4 Reasons Families Fail When Transferring Wealth”

Will Inflation Ruin My Retirement?

The 5.4% rise in the consumer price index in the last year is the highest inflation in almost 13 years. Kiplinger’s recent article entitled “How Big of a Threat Does Inflation Pose to Your Retirement?” explains that even moderate inflation can have a big effect on a retiree’s savings. The Federal Reserve’s target inflation rate is 2%. However, it said it will let inflation rise above that mark for some time. Here’s how an average annual inflation rate of 3% over the next 20 years would affect your finances.

If you needed $60,000 for your first year of retirement, in 20 years you’d need more than $108,000 to match today’s purchasing power of $60,000. Said another way to look at it: at a 3% annual inflation rate, that initial $60,000 would be worth only $33,000 in 20 years.

You have to take into account inflation in your retirement plan because you can expect that everyday items, travel and other expenses will continue to rise in cost. Inflation decreases the value of savings and will continue to do so after you retire. As a result, it’s important to look at your investment strategy and retirement income plan to determine if you’re protected against inflation for the long term.

The Senior Citizens League estimates that the average Social Security benefit has lost almost a third of its buying power since 2000 because benefit increases have failed to keep up with the increasing cost of prescription drugs, food and housing. This has happened even with yearly cost-of-living adjustments (COLAs) for Social Security benefits that are designed to make benefit amounts keep up with inflation.

Think about what would happen if all your retirement income lost a third of its value over the course of 20 years. Would that scenario make it more likely that you’ll run out of money? How can you know how much income you will need in retirement, when inflation insists on complicating the situation? Here are some things to keep to consider

  1. Fixed-Income Sources. Look at any fixed-income sources in retirement that won’t keep pace with inflation. Consider the amount of interest you’re earning from money in a savings account or CD. It’s unlikely that we’ll see a substantial interest rate hike in the next few years, so be ready to continue earning little interest. Assess your investment strategy and retirement income plan to see if you’re protected against inflation for the future.
  2. Look at Your Nest Egg. See how much your nest egg is right now and factor in inflation over the next 10, 20, and 30 years. Know that while overall inflation rates may fall from what they are now, that might not be true for some of the specific goods and services that could take a large chunk of your income, like utilities, food, health care and long-term care costs.
  3. Will Your Strategy Need to Change? Think about whether your current investment strategy will need to be modified when you retire. You may want to contemplate a strategy that continues to grow your money in retirement, so when transitory events like inflation hit, you’re okay. A solid plan will make certain that your purchasing power needs are always satisfied. Some people may need to take on less investment risk when they are approaching and hit retirement. However, having the right risk asset allocations for your particular circumstances may help to thwart the eroding effects of inflation on your nest egg over the course of your retirement.

Reference: Kiplinger (Oct. 3, 2021) “How Big of a Threat Does Inflation Pose to Your Retirement?”

How Can I Conduct a Family Meeting about Family Wealth Planning?

Kiplinger’s recent article entitled “It’s Never Too Late for a Family Meeting – Here’s How to Do Them Well” emphasizes that no matter the amount of wealth that a family has, wealth education is crucial to overall financial education, preparing for the future and to becoming a good steward of an inheritance.

Family meetings are a great way of bringing members of a family together with a goal of facilitating communication and education. This allows for sharing family stories, communicating values, setting goals to help ensure transparency and helping members across generations understand their roles around stewardship and wealth.

Here are some ideas on how to have an effective family meeting:

Prepare. The host of the meeting should spend time with each participating family member to help them understand the reason for the meeting and learn more about their expectations. There should be a desire and commitment from the participants to invest time and effort to make family meetings a success.

Plan. Create a clear agenda that defines the purpose and goals of each meeting. Share this agenda with participants before the meeting. Select a neutral location that makes everyone comfortable and encourages participation.

Have time for learning. Include an educational component in the agenda, such as an introduction to investing, estate planning, budgeting and saving, or philanthropy.

Have a “parking lot.” Note any topics raised that might need to be addressed in a future meeting.

Use a facilitator. Perhaps have a trusted adviser facilitate the meeting. This can help with managing the agenda, offering a different perspective, calming emotions and making certain that everyone is heard and understood.

Follow up. Include some to-do’s and schedule the next meeting to set expectations about continuing to bring the family together.

Reference: Kiplinger (Sep. 1, 2021) “It’s Never Too Late for a Family Meeting – Here’s How to Do Them Well”

What Your Need to Know about 529 College Savings Plans

You might think that tax-deferred savings is the main benefit, along with tax-free withdrawals for qualifying higher education expenses. However, there are also state tax incentives, such as tax deductions, credits, grants, or exemption from financial aid consideration from in-state schools in certain states .

Forbes’ recent article entitled “7 Benefits You Didn’t Know About 529 College Savings Plans (But Should)” says there are many more advantages to the college savings programs than simple tax benefits.

1) Registered Apprenticeship Programs Qualify. You can make qualified withdrawals from a 529 plan for registered apprenticeship programs. These programs cover a wide range of areas with an average annual salary for those that complete their apprenticeship of $70,000.

2) International Schools Usually Qualify. More than 400 schools outside of the US are considered to be qualified higher education institutions. You can, therefore, make tax-free withdrawals from a 529 plan for qualifying expenses at those colleges.

3) Gap Year and College Credit Classes for High School. Some gap year programs have partnered with higher education institutions to qualify for funding from 529 accounts. This includes some international and domestic gap year, outdoor education, study-abroad, wilderness survival, sustainable living trades and art programs. Primary school students over 14 can also use 529 funds for college credit classes, where available.

4) Get Your Money Back if Not Going to College. If your beneficiary meets certain criteria, it’s possible to avoid a 10% penalty and changing the plan from tax-free to tax-deferred. For this to happen, the beneficiary must:

  • Receive a tax-free scholarship or grant
  • Attend a US military academy
  • Die or become disabled; or
  • Get assistance through a qualifying employer-assisted college savings program.

Note that 529 plans are technically revocable. Therefore, you can rescind the gift and pull the assets back into the estate of the account owner. However, there are tax consequences, including tax on earnings plus a 10% penalty tax.

5) Private K–12 Tuition Is Qualified. 529 withdrawals can be used for up to $10,000 of tuition expenses at private K–12 schools. However, other expenses, such as computers, supplies, travel and other costs are not qualified.

6) Pay Off Your Student Loans. If you graduate with some money leftover in a 529 account, it can be used for up to $10,000 in certain student loan repayments.

7) Estate Planning. Contributions to a 529 plan are completed gifts to the beneficiary. These can be “superfunded” for up to $75,000 per beneficiary in a single year, effectively using five years’ worth of annual gift tax exemption up front. For retirees with significant RMDs (required minimum distributions) from qualified accounts, such as 401(k)s and traditional IRAs, the 529 plan offers high contribution limits across multiple beneficiaries, while retaining control of the assets during the lifetime of the account owner. Assets also pass by contract upon death, avoiding probate and estate tax.

Reference: Forbes (July 15, 2021) “7 Benefits You Didn’t Know About 529 College Savings Plans (But Should)”

Has COVID Affected Baby Boomers’ Retirement Plans?

Baby boomers, who are either in retirement or very close to it, have had COVID-19 make an especially significant effect on post-work plans. That’s according to a recent survey from the Center for a Secure Retirement and CNO Financial Group. With the coronavirus, Boomers had to help family financially, which meant less for their own retirement.

Money Talks News’ recent article entitled “5 Impacts the Pandemic Had on Baby Boomers’ Retirement Plans” provides five important ways the pandemic has changed baby-boomer retirement dreams. The results are based on a survey of more than 2,500 middle-income boomers — defined as Americans who were born between 1946 and 1964, and who have an annual household income between $30,000 and $100,000 and less than $1 million in investable assets.

  1. Their main ‘non-negotiable’ retirement priorities have changed. Before the pandemic, 56% of boomers said maintaining financial security and independence was their top “non-negotiable” retirement priority. However, it’s now back to the basics for more boomers. The top retirement priorities are now: spending time with grandchildren (43%); maintaining financial stability and independence (35%); staying active (34%); being able to travel (30%); and living close to family and friends (25%).
  2. They’ve supported other family members financially. Many middle-income boomers reported that they assisted family members financially during the pandemic, with 41% of those surveyed saying that was the case.
  3. They haven’t been able to save much for retirement. Among middle-income baby boomers who offered cash to support family during the pandemic, 75% say they haven’t been able to save as much for retirement as they wanted.
  4. They’ve delayed plans to move. Retiring by the beach or near the grandkids are common retirement destinations. However, the pandemic has thwarted those plans for many a baby boomer. Among middle-income baby boomers who helped support family during the pandemic, 65% say that they delayed their moving plans.
  5. They’ve re-evaluated retirement finances and expenses. Helping the kids in the pandemic has meant an adjustment for many baby boomers’ budgets. About half (51%) responded that they’ve re-evaluated finances and expenses for retirement.

Reference: Money Talks News (Aug. 2, 2021) “5 Impacts the Pandemic Had on Baby Boomers’ Retirement Plans”

Does My Social Security Increase If I Work Past 70?

Many seniors choose to work later in life. It will have an effect on their Social Security benefits, says nj.com’s recent article entitled, “If I work past age 70, can my Social Security benefits increase?”

You must pay FICA (Federal Insurance Contribution Act) taxes, commonly called Social Security and Medicare taxes, if you have income that’s covered by Social Security.

The tax is imposed on your earnings up to a maximum amount. For 2021, that maximum amount is $142,800.

Your Social Security benefit at full retirement age (FRA) is determined by taking your highest 35 years of earnings on which Social Security tax has been levied, indexed for inflation.

The maximum amount of your benefit is capped because of the maximum amount of income on which Social Security tax is levied.

If you continue to work while collecting Social Security at any age, your benefit could increase, if your earnings are one of the 35 highest years you have earned.

The increased benefit is automatically calculated by the Social Security Administration and is paid to you in the December of the next year.

However, working while collecting Social Security benefits has other complexities you should consider.

If you’re younger than full retirement age (FRA) and you earn more than a certain amount, your benefit will be reduced.

For example, for 2021, if you’re below YOUR FRA for the whole year, your benefit will be reduced $1 for every $2 you earn over $18,960.

However, the benefit isn’t actually lost. That’s because when you reach your full retirement age, your benefit will increase to reflect the amount withheld.

If you have substantial income — any and all income that must be reported on your tax return — other than your Social Security income, up to 85% of your Social Security income will be taxable.

Reference: nj.com (July 26, 2021) “If I work past age 70, can my Social Security benefits increase?”

Can a Retired Police Officer Qualify for Medicaid?

An 84-year-old retired police officer recently took a fall in his home and injured his spinal cord. He retired from the police force more than 20 years ago and received a lump sum.

Currently, he gets more than $2,000 per month from his pension and Social Security.

How does this retired police officer spend down to qualify for Medicaid, since he is now a paraplegic?

State programs provide health care services in the community and in long-term care facilities. The most common, Medicaid, provides health coverage to millions of Americans, including eligible elderly adults and people with disabilities.

Medicaid is administered by states, according to federal requirements. The program is funded jointly by states and the federal government.

Nj.com’s recent article entitled “How can this retired police officer qualify for Medicaid?” advises that long-term services and supports are available to those who are determined to be clinically and financially eligible.

A person is clinically eligible, if he or she needs assistance with three or more activities of daily living, such as dressing, bathing, eating, personal hygiene and walking.

Financial eligibility means that the Medicaid applicant has fewer than $2,000 in countable assets and a gross monthly income of less than $2,382 per month in 2021.

The applicant’s principal place of residence and a vehicle generally do not count as assets in the calculation.

If an applicant’s gross monthly income exceeds $2,382 per month, he or she can create and fund a Qualified Income Trust with the excess income that is over the limit.

The options for spending down assets to qualify for Medicaid are based to a larger extent on the applicant’s current and future living needs and the amount that has to be spent down.

Consult with an elder law attorney or Medicaid planning lawyer to determine the best way to spend down, in light of an applicant’s specific situation.

Reference: nj.com (July 19, 2021) “How can this retired police officer qualify for Medicaid?”

Do I Need Long-Term Care Insurance?

Women face some unique challenges as they get older. The Population Reference Bureau, a Washington based think tank, says women live about seven years longer than men. This living longer means planning for a longer retirement. While that may sound nice, a longer retirement increases the chances of needing long-term care.

Kiplinger’s recent article entitled “A Woman’s Guide to Long-Term Care” explains that living longer also increases the chances of going it alone and outliving your spouse. According to the Joint Center for Housing Studies of Harvard University, in 2018 women made up nearly three-quarters (74%) of solo households age 80 and over. Thus, women should consider how to plan for long-term care.

Ability to pay. Long-term care is costly. For example, the average private room at a long-term care facility is more than $13,000/month in Connecticut and about $11,000/month in Naples, Florida. There are some ways to keep the cost down, such as paying for care at home. Home health care is about $5,000/month in Naples, Florida. Multiply these numbers by 1.44 years, which is the average duration of care for women. These numbers can get big fast.

Medicare and Medicaid. Medicare may cover some long-term care expenses, but only for the first 100 days. Medicare does not pay for custodial care (at home long-term care). Medicaid pays for long-term care, but you have to qualify financially. Spending down an estate to qualify for Medicaid is one way to pay for long-term care but ask an experienced Medicaid Attorney about how to do this.

Make Some Retirement Projections. First, consider an ideal scenario where perhaps both spouses live long happy lives, and no long-term care is needed. Then, ask yourself “what-if” questions, such as What if my husband passes early and how does that affect retirement? What if a single woman needs long-term care for dementia?

Planning for Long-Term Care. If a female client has a modest degree of retirement success, she may want to decrease current expenses to save more for the future. Moreover, she may want to look into long-term care insurance.

Waiting to Take Social Security. Women can also consider waiting to claim Social Security until age 70. If women live longer, the extra benefits accrued by waiting can help with long-term care. Women with a higher-earning husband may want to encourage the higher-earning spouse to delay until age 70, if that makes sense. When the higher-earning spouse dies, the surviving spouse can step into the higher benefit. The average break-even age is generally around age 77-83 for Social Security. If an individual can live longer than 83, the more dollars and sense it makes to delay claiming benefits until age 70.

Estate Planning. Having the right estate documents is a must. Both women and men should have a power of attorney (POA). This legal document gives a trusted person the authority to write checks and send money to pay for long-term care.

Reference: Kiplinger (July 11, 2021) “A Woman’s Guide to Long-Term Care”

Have You Considered Estate Planning for Fido?

In Montana, a pet is “any domesticated animal normally maintained in or near the household of its owner.” In Kansas, the statutes define an “animal” as “any live dog, cat, rabbit, rodent, nonhuman primate, bird or other warm blooded vertebrate or any fish, snake, or other cold-blooded vertebrate.”

Wealth Advisor’s recent article entitled “Estate Planning For Pets” explains that a pet is tangible personal property—just like guns, cars, or jewelry. When a pet owner passes away, pets pass to beneficiaries by provisions in an owner’s will, by directives in an owner’s trust document, or by a priority list of heirs contained in the state probate laws, if an owner does not have a will or a trust.

Pet owners should select a willing care giver and make a care plan for their pet that will lower the pet’s stress in the first days after you are gone. Writing down your wishes can help your heirs avoid potential problems, if there is a need to cover expenses for food, medical requirements and transportation of the pet to the beneficiary.

For example, in Montana, an honorary trust for pets is valid for only 21 years, no matter if a pet owner writes a longer term in the trust document. As a result, the trust terminates the earlier of 21 years or when the pet dies. Unless indicated in the trust document, the trustee may not use any portion of the principal or income from the trust for any other use than for the pet’s care.

Pet owners have options, when funding a pet trust. Funds could come from a payable on death (POD) designation on financial accounts to the pet trust. Another option is a transfer on death (TOD) registration with the pet trust as beneficiary for stocks, bonds, mutual funds and annuities. The pet owner could also direct the trustee in the pet trust document to sell assets, like a vehicle, house, or  boat, and place those funds in the trust for the care of the pet.

Life insurance is perhaps another option for funding for a pet’s care. States typically do not consider a pet to be a “person,” so Puffball cannot be a beneficiary of a life insurance policy. A pet owner can fund a living or testamentary pet trust, by naming the trustee of the trust as the beneficiary of a life insurance policy. As an alternative, a pet owner may have a certain percentage of an existing policy payable to the pet trust.

Pet owners should talk to an experienced estate planning attorney about the best way of naming the trustee of a pet trust as a beneficiary of a life insurance policy.

Reference: Wealth Advisor (June 14, 2021) “Estate Planning For Pets”

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