Estate Planning Blog Articles

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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?”

What Should I Do in Retirement?

Some people think of retirement as not who you are or where you are in life, but instead as the transition of your time and money. Think of it as a process you go through, and not your identity.

The transition for money is a transition from accumulating money to using it. With time, it is also a transition of reallocating the many hours every week you spent working.

Kiplinger’s recent article entitled “Living a Life of Purpose after Retirement: 3 Action Steps to Take” explains that this distinction of what retirement means is an important one to make.

That’s because the default answer and mindset that “I’m retired” leaves people stuck. As a result, they don’t truly progress toward reinventing themselves. In effect, they’ve made retirement their new identity, which just seems odd considering when you say something is “retired” it often means that it’s no longer useful.

However, this may not be an accurate description for most successful people who’ve lived a life of purpose, who’ve gained valuable insight and wisdom from their life experiences and who’ve refined their talents and unique abilities over decades.

Therefore, the word “retirement” shouldn’t be a label used to describe who someone is. That’s because it’s not their identity. Instead, “retirement” is a term that is used to describe the transition a person is going through from one phase of life to another.

It’s significant because the success of your retirement transition is dependent upon the ease with which you understand this distinction and your ability to shift your mindset in the following three key areas.

Reinvent Yourself. Every day up until your retirement transition, you dedicated many hours each day to someone or something to earn a living. That manifested as a sense of purpose. However, when that time commitment goes away, so can that sense of purpose. Therefore, think about the transition of retirement as the transition to what’s next. It’s your chance to reinvent yourself and live out the second half of your life with purpose.

Reframe Your Mindset About Money. Many people envision a life of abundance for themselves or being able to leave a financial legacy for their children and grandchildren. However, measuring your financial success based solely on rate of return or how much money is in your bank account is the wrong measurement. Instead, it should be on how much income you can generate from your assets that’s consistent and predictable. This income from your assets gives you freedom to dedicate your talents to pursue your purpose.

Reframe Your Mindset of Time. Have the choice to imagine your own future, and when you change the time frame you are operating in, you change the way you think. This gives you the freedom to reframe your future and reprogram your thinking about how to live the second half of your life.

The key to a successful retirement transition is to reframe your mindset about money, focus on maximizing cash flow, expand your concept of time and reinvent your purpose in life.

Reference: Kiplinger (May 26, 2021) “Living a Life of Purpose after Retirement: 3 Action Steps to Take”

What to do If Someone Wants to Buy Your Business

Forbes’ recent article entitled, “What Should You Do When You Receive An Unsolicited Offer For Your Company?” suggests that it’s important to follow a structured three-step process to make certain you make the right decision and get the most successful outcome.

Is it the right time to sell? You need to see if this is the right time to sell your business. Examine your company and your personal readiness. Determine if the business is performing at a high level and is poised for rapid future growth. Look for any unaddressed issues that might harm value. On the personal side, think about whether you know how much you need to receive to fulfill your financial obligations and secure your future. It is also important to make sure that you have done needed tax and estate planning, so that you do not overpay taxes.

Is it the right buyer? If you are still thinking about selling, next determine if this is the right buyer. Think about what they will do with your company after the acquisition, and whether they will retain your staff or combine it with other operations. Will you have an ongoing role? You must also determine if the buyer will pay the best price and whether it is all cash or if you will retain equity in your company or the buyer’s company.  You should also ask if there are earn-outs that depend on the future performance.

Do you have a strong advisory team? Some business owners prefer to use their business attorney but consider using an experienced mergers and acquisitions attorney who knows “market” terms, where to advocate strongly and when to agree to the other side’s requirements to move the deal ahead. An inexperienced deal lawyer may negotiate hard on terms to “prove value,” which may, in effect, only obstruct the deal. The deal might go south, if an inexperienced lawyer makes you hold fast on terms the buyer needs to get the deal done. An experienced M&A attorney can also frequently move to a good deal in less time, by clearly setting parameters and getting buy-in on early drafts rather than a continuing series of drafts back and forth.

Reference: Forbes (May 11, 2021) “What Should You Do When You Receive An Unsolicited Offer For Your Company?”

Are You Clueless about Social Security?

If you haven’t a clue about Social Security, it’s vital that you learn, so you can be ready to grow and maximize your benefits.

Lake Geneva Regional News’ recent article entitled “35% of Near-Retirees Failed a Basic Social Security Quiz. Here Are 3 Things You Need to Know About It” provides several important things you should know:

Your benefits are determined by your top 35 years of earnings. The monthly benefit you get in retirement is based on your specific earnings during your 35 highest-paid years in the workforce. If you don’t work a full 35 years, you’ll have $0 factored into that equation for each year you’re missing an income. So, you can see how important it is to try to fill in those gaps. If you lost your job during the pandemic and are thinking about early retirement, check your earnings history before you do.

You’re only entitled to your full monthly benefit when you hit full retirement age. You can claim your monthly retirement benefit in full once you hit your full retirement age (FRA). However, many people don’t know what that age is. About a quarter (26%) of those aged 60 to 65 couldn’t correctly identify their FRA on the quiz. Your FRA is based on your year of birth.

You can claim Social Security as early as age 62 or wait until age 70 and grow your benefits in the process. However, you’ll need to know your FRA first.

You can collect Social Security, even if you never worked. If you are or were married to someone who’s entitled to Social Security, you may be eligible for spousal benefits that amount to 50% of what your current or ex-spouse collects.

MassMutual found that 30% of older Americans didn’t know that a person who’s divorced may be able to collect Social Security benefits based on a former spouse’s earnings history. Thus, it pays to read up on spousal benefits as retirement nears, even if you never held a job.

Being ill-informed about Social Security could make it more difficult to file at the right time and make the most of your Social Security income

Stay up to date on how Social Security benefits work, so you’re able to make wise choices for your retirement.

Reference: Lake Geneva Regional News (April 10, 2021) “35% of Near-Retirees Failed a Basic Social Security Quiz. Here Are 3 Things You Need to Know About It”

Does New COVID Relief Bill have an Impact on Seniors?

Money Talk News’ recent article entitled “6 Ways the New COVID-19 Relief Law Affects Retirees” provides a look at some of the changes retirees can expect from the new legislation.

  1. Stimulus payments for dependent adults. A first noticeable way in which the third round of stimulus payments is different from the first two is that dependents of all ages can qualify. Therefore, a household that supports a disabled senior will receive an additional $1,400 payment for that senior, if the household claims the person as a dependent on their federal income tax.
  2. Funding for ailing pension plans. The American Rescue Plan Act includes several terms concerning pension plans, one of which calls for the Treasury Department to transfer funds to the Pension Benefit Guaranty Corp. so that certain financially troubled multiemployer pensions can continue to pay out full benefits. That will help more than one million Americans. The PBGC operates insurance programs for single-employer and multiemployer pensions.
  3. Eligibility for the earned income credit for 2021. One of several changes the legislation made to the earned income tax credit — which is for working taxpayers with low to moderate incomes — is striking the maximum age of 64 for the 2021 tax year. As a result, seniors who work may be eligible to claim the earned income credit, when they file their taxes in 2022. The usual eligibility requirements for the credit require you to have at least one qualifying child or, if you don’t have a qualifying child, you must be between 25 and 65.
  4. Higher taxes for some gig workers. However, this COVID-19 relief law isn’t all good news for all taxpayers. Retirees (and anyone else) who earn some extra money with gig work might face more taxes in the future. This will help offset the cost of the American Rescue Plan Act, generating an estimated $8.4 billion in additional tax revenue for the federal government through fiscal year 2031. Companies with gig workers may report more payments than in the past, so the IRS will have a better idea of who is earning income from gig-economy jobs. This change may come as a surprise for some who’ve underreported income in the past.
  5. Tax relief for forgiven student loans. Under the Act, student loan debt that’s forgiven in 2021 through 2025 can be excluded from the debtor’s gross income. That will shield the canceled debt from federal taxation. Prior to this, such canceled debt generally was considered taxable income by the IRS. This will apply to student loan debtors of all ages. However, that group includes a growing number of retirees, as 20% of all student loan debt — around $290 billion — is owed by people age 50 and older, according to a 2019 AARP report. That’s five times more since 2004.
  6. New or expanded tax credits for health premiums. Retirees who aren’t yet 65 and as a result don’t have Medicare health insurance, might benefit from tax credits in the Act that help eligible individuals with two other types of health insurance. The law creates a refundable, advanceable tax credit for COBRA continuation coverage premiums. It is for people who are eligible for COBRA from when the Act was signed into law (March 11) and Sept. 30, 2021.

Reference: Money Talk News (March 16, 2021) “6 Ways the New COVID-19 Relief Law Affects Retirees”

What are Most Costly Mistakes with Social Security?

Motley Fool’s recent article entitled “5 Social Security Oversights That Could Cost You Thousands” says that these five Social Security mistakes could cost you thousands in your retirement.

  1. Claiming Social Security early while you’re still working. You can claim your Social Security retirement benefit as young as age 62, but your benefits will be permanently reduced when compared with the amount you would receive if you waited until your full retirement age. Social Security will also penalize you for continuing to work while collecting benefits, if you are younger than your full retirement age.
  2. Failing to claim Social Security by your 70th birthday. Once you hit age 62, your benefit increases the longer you wait to claim, until you reach 70. You don’t have to claim your benefit by your 70th birthday, but there is no more benefit for waiting at that point.
  3. Delaying past your full retirement age to claim Social Security spousal benefits. If you’re claiming Social Security benefits based on your own income record, it’s smart to wait past your full retirement age to start taking benefits. However, if you’re claiming based on your spouse’s benefits, there’s no benefit to delay beyond your full retirement age to claim. As a result, married couples of similar ages who have vastly different earned incomes have a dilemma: for you to claim spousal benefits, your spouse also has to have begun claiming benefits based on his or her own earnings record. This combination makes it less worthwhile for the primary breadwinner spouse to wait to collect benefits, if the spouse is expecting to take spousal benefits.
  4. Taxes on Social Security benefits are not adjusted for inflation. Originally, Social Security benefits weren’t taxed. However, in 1984, the government started taxing Social Security benefits once a person’s combined income reached $25,000. Even now, the income level where Social Security starts to get taxed is still at $25,000. Because there is no adjustment for inflation, this makes more of people’s Social Security income taxable. This easily costs even moderate-income retirees thousands of dollars of spendable income over the course of their retirements.
  5. “Tax free” income counts toward making Social Security taxable. Even traditionally tax-free sources of income, like the interest from in-state municipal bonds, is included in the calculations to see how much of your Social Security will be considered taxable. Therefore, seniors who own tax free municipal bonds as part of their retirement portfolio may be surprised to find that those bonds are what’s causing their Social Security to be taxed. Seniors who find themselves in that situation may want to reevaluate their choice to be invested in those tax-free municipal bonds.

Despite how simple Social Security may appear, these five situations show how mistakes can cost thousands of dollars.

Reference: Motley Fool (March 14, 2021) “5 Social Security Oversights That Could Cost You Thousands”

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What are the Scariest Statistics for Retirement?

Think Advisor’s recent article entitled “11 Scariest Retirement Statistics: 2020” says that there is a lack of preparation, savings difficulty and general uncertainty that American retirees are facing. Here are those scary stats:

  1. Just a quarter of Americans are on a trajectory to maintain their lifestyles in retirement. The other 75% will need to work longer, move to lower-cost housing and cut spending to maintain their standard of living, largely due to the coronavirus downturn.
  2. The Social Security trust funds would be empty by 2023, without the payroll tax. While President Trump let employers temporarily defer the employee portion of payroll taxes, he said the deferred taxes could later be forgiven, or the cut made permanent. When he signed the order, he vowed to “terminate the tax,” if reelected. Republican lawmakers subsequently debuted a plan to fund any shortfalls from the Treasury.
  3. Social Security benefits will be decreased by 21% if the trust fund runs out. Congress will have to intercede, or it could happen 10 years from now, if not sooner.
  4. Those born in 1960 will have a big problem because of the complicated formula the Social Security Administration uses to calculate benefits. Pre-retirees born in 1960 will see a nearly 15% cut to their lifetime benefits from Social Security when it’s time to collect. If the pandemic suppresses the economy into 2022, those cuts will impact more pre-retirees. The impact to their Social Security benefits will also be permanent.
  5. The 2021 Social Security cost of living adjustment, or COLA, will be just 1.3%. Retirees should note that rising health care costs and a potential 6% increase in Medicare Part B premiums may absorb that benefit increase.
  6. More than 50% of Americans think the economy is worse now than in 2008, with 51% of Americans seeing the COVID slowdown as worse than the 2008 recession. A survey from Edelman Financial Engines also found that 26% had withdrawn money from retirement or savings for living expenses.
  7. About 60% of retirement savers have fallen behind, according to a TIAA study. Among these, 30% said it was directly due to the pandemic.
  8. Internet searches for “move out of the U.S.” have increased 16 times. International Living magazine says it had seen the jump in search traffic around the phrase since May. A total of 20% of respondents in a survey it conducted also said they wanted to move due to the pandemic. However, just 45% cited a desire to save money.
  9. Approximately 42% of investors sold stock, and most of them (88%) of them regretted it. In response to the drop in stocks in mid-March last year, 42% of investors in a survey by MagnifyMoney sold at least one stock and 24% sold all their holdings. About 69% of those who sold stock at the start of the pandemic greatly regretted it, and 19% said they were somewhat regretful.
  10. Roughly 80% of older Americans don’t understand retirement planning and don’t know the basics of how to successfully plan for a financially secure retirement, according to a study by The American College of Financial Services. The survey also found only 30% of respondents had a plan in place to fund long-term care needs, and just one in four actually had long-term care insurance.
  11. About 3 million workers may have been driven into early retirement due to the pandemic. From March to August of 2020, 2.8 million older workers might have been pushed out of their jobs prematurely, with economic turmoil and poor health making it hard for them to resume their careers elsewhere, according to by the Schwartz Center for Economic Policy Analysis at the New School. The report found that 38% of unemployed older adults stopped looking for work and left the workforce, and an additional 1.1 million were expected to do likewise.

Reference: Think Advisor (Oct. 30, 2020) “11 Scariest Retirement Statistics: 2020”