The Next Wave in Retirement Planning: Digital and Cyber Assets

You’ve worked hard for decades, saving and planning for retirement. Don’t put it at risk by delaying having an estate plan created by a qualified estate planning attorney, advises The Press of Atlantic City in the article “Estate planning for your digital and cyber assets.” But here’s the thing: even when you have a comprehensive estate plan in place, meaning a last will and testament, a power of attorney, a health care power of attorney and the appropriate trusts, you’re not quite done.

That’s because today we have an entirely new type of property that must be dealt with in estate planning. Unlike tangible property that people have been handing down for centuries, this is a relatively new kind of property: digital assets. One of the problems with digital assets is that, unlike paper documents, your family members can’t simply sift through decades of physical records to find out what you own. The online world is endless, and if they don’t know what websites to look at, there’s simply no way that they can find your digital assets.

What is a digital asset? They include such things as:

  • Mobile devices, like cell phones, laptops, tablets
  • Email accounts—all of them
  • Social media profiles including Facebook, Instagram, Twitter, LinkedIn, etc.
  • Sites that contain music, photos, and other personal information
  • Your personal desktop
  • Online banking, investment accounts, cybercurrency
  • Online gaming accounts
  • Online bill paying, like utilities, EZ-Pass, and any automatic payments
  • Websites or blogs

You’ll want to let your executor know what you want to be done with your digital assets. Some platforms have the ability for you to express your wishes for your digital assets, like Facebook. What do you want to happen to your pages when you are gone? Do you want people to be able to see your pages, or to post on them? Would you want them to be taken down a month after you pass, or left up permanently?

You’ll need to list out all your digital assets, your username and your passwords, and provide a directive to specifically state what you want to happen to each website. Yes, it will take time and it may be tedious, but imagine how challenging it will be for your family members to try to track down all your digital assets. Speak with your estate planning attorney as to how to share this information—but don’t put it in a will, because your will becomes a public document if your estate goes through probate (which happens to most wills).

Just as you have taken the time to have an estate plan created, making sure to have a digital assets plan is a gift to your loved ones. With these details taken care of, your family will be able to focus their attention on taking care of each other, dealing with your estate, and going through the grief process. You’ll have spared them a lot of additional stress and expenses.

An estate planning attorney will be well worth the investment. You can be confident that your will is going to be prepared in accordance with the laws of your state, and that your family will be protected as you wished.

Reference: The Press of Atlantic City (July 4, 2019) “Estate planning for your digital and cyber assets”

Suggested Key Terms: Digital Assets, Websites, Cybercurrency, Estate Planning Attorney, Username, Passwords, Directives

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Will You Return to the Work World in Retirement?

Retirement income is often described as a three-legged stool, with money coming from three different sources: retirement savings accounts, other investment accounts, and Social Security. But, as reported by the New Hampshire Register in the article “Returning to work after you retire,” often that’s not enough income to provide a comfortable retirement. Or, for some people, work is an enjoyable and fulfilling experience and they see no reason to retire. Others feel their identity is wrapped up in what they do, so they keep working.

A study from the Employee Benefit Research Institute found that almost half of Americans expect to work past age 65. But that doesn’t always work out for everyone.

Many people become unable to work before they retire due to illness or an injury. Others lose their job in their early 60s and have problems finding a new position with the same level of salary.

Even if you can work after retiring, there are several factors to consider. If you claim Social Security benefits before reaching Full Retirement Age (FRA) and then return to work, the IRS will deduct money from your Social Security benefits if you earn above a certain amount. In 2019, that number stands at $17,640. You’ll lose $1 in benefits for every $2 you earn above that threshold, which changes every year, until you reach FRA.

For the year you reach FRA, that threshold takes a leap, to $46,920 in 2019, and then $1 is deducted for every $3 over the threshold, but just for that year. Once you finally do reach FRA, there is no limit to what you may earn.

For some people, retirement is the time to strike out in a new direction, one they have wanted to explore for years but were limited by a need to pay a mortgage, put kids through college, etc. For others, working part time is a way to ease into retirement while still bringing in some income.

If you intend to work again after retirement, start by clarifying exactly why you want to do so. For instance, if you love your profession and would prefer to remain in it, maybe a consulting position with a prior employer would be enough to keep yourself in a field you love, while giving you more leisure time.

For someone who wants to become active in their community, working at a nonprofit organization that serves a cause or a group that you believe in could give you a fulfilling and productive role.

For those who like to travel, consider a new occupation. A teacher who retired early became a stewardess on an airline because she wanted to visit a daughter who was going to college in Australia.

It’s okay to want to work up to or long past your retirement. A recent television news segment featured a gentleman who was well into his late 90s who worked four hours a week at a local supermarket, bagging groceries.

Reference: New Haven Register (July 7, 2019) “Returning to work after you retire”

Suggested Key Terms: Retirement Income, Working, Social Security, Full Retirement Age, Community, Consulting, FRA

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Why the Secure Act May Make Your Retirement Less Secure

Congress can’t wait to get its hands on America’s retirement account assets, says The Wall Street Journal in the article “Congress is Coming for Your IRA.” In May, the House passed the Setting Every Community Up for Retirement Enhancement Act, known as the Secure Act, and it’s widely expected to pass the Senate. While its name sounds like it’s looking to help Americans with retirement, some believe that the bill will reduce the value of all retirement savings plans, from IRAs to 401(k)s and Roth IRA.

The problem with the Secure Act is that it eliminates the ability to stretch the IRA, which has been the gold star in the retirement sky since 1999. The stretch IRA allows account owners to leave their retirement accounts to children, grandchildren or other beneficiaries.

Under current rules, those recipients can take only Required Minimum Distributions (RMDs) over the course of their actuarial lifetimes. That means small payouts, small taxes, and stretching the IRA over an extended period. Over time, the IRAs can grow through the power of tax-deferred compounding.

A parent could die knowing that whatever their children may experience in their lives, they won’t have to worry about their retirement because of the inherited IRA.

Congress wants to change this option. The Secure Act gives non-spouse beneficiaries only ten years to pull out every dime from an IRA. The net effect would be to make more of the IRA subject to higher taxes sooner, as distributions are made in bigger amounts.

Here’s the bottom line: as much as thirty percent more of an IRA will be subject to higher taxes under the Secure Act than under the current rules.

When the Tax Cuts and Jobs Act expires in 2025, taxes will rise across the board.

As part of the Secure Act, Congress will push back the age at which retirees must take their first RMD from 70 ½ to 72.

This is probably not the deal that Americans had in mind when they started saving money in IRAs some two decades ago. The best approach for savers was to leave their IRAs to the kids or the grandkids and stretch those payouts over decades.

Under the Secure Act, the IRA owner may still leave the account to a surviving spouse, who’d remain exempt from the ten-year time period. But the surviving spouse is still paying taxes in a higher tax bracket as a “filing single” taxpayer. That bracket takes a giant leap from 12% to 25% or 24% to 35% as the mandatory payout ratios increase with age.

For example, a 70-year-old is 3.7% of the retirement account balance. For a 90-year-old, it is 8.8%.

If a $1 million IRA passes to a high-earning adult, they would have to take payouts annually, adding $100,000 of annual income on top of their salary for a decade. Live in a high-income state tax, and half the annual payout could be consumed by taxes.

For those with college aged kids, watch out. Parents of college age children who inherit IRAs could lose financial aid options. If they decide to postpone taking distributions for four years to avoid the impact on needs-based financial aid, they’ll have to double up on distributions after college to compensate.

In the past, an IRA owner might have established a trust for young beneficiaries. Under the Secure Act, an IRA of $1 million placed in trust for the benefit of an 8-year-old could receive nothing for nine years. Then, at year ten, the entire IRA would have to be paid out. Now the beneficiary turns 18 and he gets a windfall. With a decade of additional compounding growth, the original IRA could have grown to $2 million or more. If it’s delivered all at once, it’s taxed in the highest bracket.

The bill hasn’t become law yet, but it’s likely that it will. If it does, make an appointment with your estate planning attorney as soon as you can, because your carefully created estate plan may be turned upside down and sideways.

Reference: The Wall Street Journal (July 9, 2019) “Congress is Coming for Your IRA”

Suggested Key Terms: Congress, The Secure Act, Stretch IRAs, 401(k)s, Retirement Funds, Beneficiaries, Required Minimum Distributions, RMDs

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