Make Your Retirement Dreams Come True

Moving from general concepts to specific retirement activities you think you’ll want to do during retirement, can help you do a better job of saving and planning, advises U.S. News & World Report in the article “Will You be Able to Afford the Lifestyle of Your Dreams in Retirement?” Increased longevity has made retirement a time to begin anew. This requires a different mindset. Regardless of your retirement dreams, you’ll need more funding for a longer retirement.

Here are some pointers to help get retirement savings on track:

What do you want to do? Vague goals like travel may not motivate your savings. However, if you’ve identified the cost of living in Paris for six months, you’ve got a real concrete goal to work toward. That provides more motivation and helps avoid impulse spending. Get specific: write down what you want to do and start researching what it will cost.

Do a test drive first. If your spouse wants to live in an RV full time, that’s great as long as you do. However, don’t sell the house before testing it out. Try renting an RV and living in it for at least a month. The same is true for living in a house in the woods. Sounds great—but if you’re a city dweller, how will you feel after a few months of living in an isolated spot?

Think about how long you want to work. Many people today work into their late 60s and early 70s. If they have a desk job, and they have reached a certain level of success, there may not need to be a cut-off date for retirement. What about taking more time off for vacations or working part time? Recent studies have shown that working even a few more years, can have a major impact on the quality of your full retirement.

Do the math. Once you have some concrete plans in place, run the numbers. Consider how you might make the money you have last longer. Look at housing prices, if downsizing to a less expensive area is on your list. If you plan on travelling, do you have to stay in five-star hotels, or could you be content with Road Scholar, formerly known as Elderhostels?

Remember to include health care costs. You’ll need to include the cost of medical expenses, including Medicare premiums, deductibles, copays and coinsurance, among other costs. This is especially true, if one or both spouses have any chronic conditions.

Now, what’s your savings plan? Once you have all this information, you’ll be able to determine how much you need to save, each year and each month. When you combine all your retirement income sources, do you have enough to sustain your retirement dreams? Or do you need to adjust your savings?

Reference: U.S. News & World Report (Dec. 19, 2018) “Will You be Able to Afford the Lifestyle of Your Dreams in Retirement?”

Suggested Key Terms: Retirement, Savings, Travel, Health Care, Income

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Get Estate Planning Details Done in 2019

Are you ready to resolve some of the things in 2019 that you really, really, did plan on doing in 2018? This article from the Pittsburgh Post-Gazette, “As a new year closes in, resolve to get those pesky estate details resolved,” offers to act as a reminder—or a kick in the pants—to get you to take care of these frequently overlooked estate planning details.

Health Care Plans. If you’ve got health care issues or a chronic condition, get your advance directive for health care done. The name of the document varies by state, but whether you call it a living will or an advance directive, work with your estate planning attorney to create a document that conveys your wishes, if and when you are not able to communicate them. That means your end of life wishes, so if you end up in the hospital’s intensive care unit your family or health care providers aren’t making decisions based on what they think you might have wanted, but what you have actually declared that you want.

Power of Attorney for Financial Affairs. You’re not giving up any power or control over your finances in having this created. Instead, you are preparing to allow someone to act on your behalf for financial matters, if for some reason you are unable to. Let’s say you become injured in an accident and are in the hospital for an extended period of time. How will your bills be paid? Who will pay the mortgage?

For both of these documents, talk with the people you want to name first, and make sure you are both clear on their responsibilities. Have at least two backups, just in case.

A will and if appropriate, trusts. If you don’t have a will or a trust, why not? Without a will, the state’s laws determine who will receive your assets. Your family may not like the decisions, but it will be too late. Speak with an experienced estate planning attorney to get your will and other documents properly prepared.

Check how your assets are titled. Are they in your name only, jointly titled, etc.? If you have trusts, have you retitled your assets to conform to the trusts? If you have beneficiaries on certain accounts, like life insurance policies and 401(k)s, when was the last time you reviewed your beneficiaries? Don’t be like the doctor who did everything but check beneficiaries. His ex-wife was very happy to receive a large 401(k) account, and there was no recourse for his second wife of 30 years.

Make a list so assets can be located. To finalize these details, you’ll need a list of assets, account numbers and what financial institution holds them. The information will need to be gathered and then organized in a way so key people in your life—your spouse, children, etc.—can find them. Some people put them on a spreadsheet in their home computer, but if your executor does not have a password, they won’t be able to access them. If they are in a safe deposit box that only has your name, they won’t be accessible.

Reference: Pittsburgh Post-Gazette (Dec. 24, 2018) “As a new year closes in, resolve to get those pesky estate details resolved”

Suggested Key Terms: Power of Attorney, Estate Planning, Advance Directive, Living Will, Health Care, Assets, Titling, Trusts

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How To Keep Your Financial Resolutions in 2019

New Year’s Resolutions: we all make them but keeping them is another story. About 30% of all Americans plan on making financial resolutions for the year ahead, reports CNBC in the article “The secret to keeping next year’s financial resolutions.”

Getting more specific, most of the 2,000 people surveyed by Fidelity said they were going to save an extra $200 a month for their long-term 2019 goals, like retirement, college costs and health care. Half said they were going to boost contributions to their retirement savings plans, usually a 401(k) or their IRA. Higher limits for contributions to both are expected to increase the savings rate.

The unexpected ups and downs of life could stand in the way of your resolutions. Rising costs of health care, the volatile stock market and concerns about the trade wars are on most people’s minds. Try to focus on what you can do, rather than what you cannot control.

Like most of us, the people surveyed also admitted to making some spending mistakes they know made their savings less than they wanted. Chief among them: eating out too often and splurging on things that are way out of their budget.

How can you be sure to make and keep your financial New Year’s resolutions in 2019?

Try a budgeting app. There are several well-known, tried and tested budgeting apps that make keeping an eye on your spending and finding costs to cut easier. Once you’ve identified places you can cut spending and created a surplus, put that money into your savings account. Or, increase your retirement plan contribution. Even a little bit, can make a big difference over time.

Can you do better with your savings interest rate? Rising interest rates may make it possible to get a better return in 2019. As the Fed has raised its benchmark rate, yields on savings accounts are on the rise. While many savings accounts are only averaging 0.2%, some high-yield accounts are at 2.25%. Consider switching to a bank that offers at least a 2% return.

Note that the opposite goes for your credit cards: rising interest rates mean you’ll want to pay those off as soon as you can. Today’s average credit card interest rate is more than 17%. Try to pay the balance in full every month to avoid paying any more in fees than necessary.

Take control of your health care costs. If your Health Savings Account permits, increase the amount of money you contribute to your plan. If you didn’t use up all your funds in 2018, make an appointment for mid-year 2019 to schedule appointments or procedures you know you’ll need before the year is out. Make a resolution not to throw away health care dollars in 2019, especially if you have a “use-it-or-lose-it” flexible spending account.

Reference: CNBC (Dec. 15, 2018) “The secret to keeping next year’s financial resolutions”

Suggested Key Terms: Retirement Savings, Health Care Costs, Credit Cards, Interest Rates, 401(k), IRA Contributions, Budgeting, New Year’s Resolutions

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Proper Estate Planning Can Prevent Family Fights

Research shows that about 60% of U.S. adults don’t have a will.

However, not all of your possessions pass through a will. 401(k)s, life insurance proceeds, pensions, and annuities pass by beneficiary designation.

The (Washington, PA) Observer-Reporter’s recent article, “Improper estate planning can lead to familial conflict” explains that some of your possessions will pass through probate. If you own property in several states, the process could become more difficult for your loved ones. A way to simplify the process for them, is by having an updated will.

For instance, even if your will states that all of your possessions are to be split equally between your two children, this may not be what actually occurs. If your life insurance lists only Bob as the beneficiary, he’ll walk off with 100% of the death benefit. Your younger son Doug will receive only half of the assets that don’t have a beneficiary designation. Assets that pass by designation are not controlled by the will. That is why Bob gets all the money from the insurance. As you can see, it’s vital that you review your accounts’ beneficiary designations regularly, to make certain they’re up to date. Check on them every few years or when there’s a family divorce, birth, or death. Once you’re gone, they can’t be changed.

In addition, your estate plan should include two powers of attorney (POA). The first POA is to make health decisions. The second POA is to make financial decisions, if you don’t have the capacity to do so. Your POA agent has your authority to make decisions, only when you do not have capacity and she can only exercise it for your own benefit. POAs end at the drafter’s death.

It’s common today for families to have blended elements. Many people were married before and may have had children. Here’s an example of a famous father who made his third wife executor of his estate, giving her control of his business. In this case, his equally famous son was the principal player in the father’s business. The son didn’t understand the implications of his father’s estate plan. When the father died, there was a long and expensive legal battle between the son and the third wife.

Who was it? It was Dale Earnhardt Jr.

Work with an experienced attorney and don’t let this happen to your family.

Reference: The (Washington, PA) Observer-Reporter (December 7, 2018) “Improper estate planning can lead to familial conflict”

Suggested Key Terms: Estate Planning Lawyer, Wills, Executor, Capacity, Probate Court, Inheritance, Power of Attorney, Intestacy, 401(k), Pension, Beneficiary Designations, Life Insurance

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What are The Top Financial Planning Predictions for the New Year?

WTOP recently made some financial planning predictions for the New Year in its article, “Top financial planning trends for 2019.” Here are several to consider as 2019 begins.

  1. Increased longevity means more planning. The Social Security Administration reports that the current average life expectancy for a man reaching age 65 is 84.3. For a woman turning 65, it’s 86.7. According to a World Economic Forum white paper, “We’ll Live to 100—How Can We Afford It?“, the global life expectancy for people born in 2007 is age 103. Are you ready for that? Think about how to best manage your costs and needs, should your live into your nineties.
  2. Special estate planning tools for second marriages. The financial consequences of a gray divorce can be huge. It’s important to have open and honest conversations about your financial future with a new spouse. Balancing the legacy you leave for your children and building a life with a new spouse can create planning challenges. As women’s economic power and wealth increase, the job of protecting their assets becomes even more complex.
  3. Financial technology. Technology continues to be a large presence in managing both administrative and complex financial tasks. This includes things like how we track spending and provide real-time investment data during volatile markets. These tools are a necessity for families that are more geographically dispersed, especially when they’re managing finances for aging parents.
  4. More workforce diversity. Another effect of living longer, is that more people are working longer than prior generations and, in some cases, longer than they anticipated. Couples are also having to consider decisions about when they’ll retire and how to balance the trade-offs of retiring together, versus staggering their retirements over several years.

All of these trends for next year have implications for how we choose to work, how long we want to stay in the workforce and how we effectively manage the benefits that we have.

As diversity increases in the workforce, employers see that more differentiation and choice within benefit plans may be needed, to ensure that the benefits offered are meaningful for a wider variety of family circumstances.

When planning for your finances, there are potential opportunities and obstacles based on your specific circumstances. Being aware of the trends in financial planning can help you take advantage of these trends and enjoy more of your money.

Reference: WTOP (December 12, 2018) “Top financial planning trends for 2019”

Suggested Key Terms: Tax Planning, Financial Planning

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Why You Need More Than One Bucket for Retirement

An 80-year-old man shares his experience and hard lessons about retirement income in this article from the Canton Citizen “Smart About Money: Retirement Lessons.” The story begins when he retired from a mid-sized company with a “guaranteed pension.” The pension may have been guaranteed, but what was not guaranteed was the amount of his monthly payments. They were cut, several times.

He and his wife were receiving about a third of what they had counted on receiving, which created a financial hardship they never anticipated. They did what they could with their budget, but had to tap their savings, which were nearly gone.

Friends suggested a reverse mortgage, but they were reluctant to do so. Their home was the only asset, and they didn’t want to find themselves with nothing.

Their regrets?

The man wished he had gotten a part-time job after retirement. They could have lived frugally on this income and let his pension continue to grow. They were considering, even at this late stage in their lives, getting part-time work just to give themselves a few hundred dollars a month, in addition to their Social Security income.

He also wished he had never trusted his pension “guarantee.” He wished that he had multiple income buckets for retirement. A pension and Social Security are two buckets, but a third and a fourth would have given them more income, which as it turned out, they desperately needed.

Finally, he said that he wished he and his wife had devoted more time to planning for their retirement years to last far longer than they had anticipated. They are both likely to live into their 90s, or even to 100. They had no idea they would need income for a three- or four-decade retirement.

There are no guarantees in retirement planning but having multiple sources of income makes it far more likely that your retirement income will be enough to live on, and hopefully enough to enjoy the things you want to do during retirement.

Social Security is not a guarantee, although it has been dependable in the past. It is possible that this government agency will face challenges in the future. Fewer and fewer workers have pensions of any kind. Instead, we rely upon our 401(k) and IRAs to keep growing. A plunging stock market could take a bite out of those funds. Personal savings that grow over time and home ownership are worthwhile goals, but real estate prices do fluctuate.

To use a different metaphor, consider a chair with three or four legs. The chair with four legs will always be more stable. The more sources of retirement income you have, the more likely you’ll be financially secure during your retirement, regardless of how long it is.

Reference: Canton Citizen (Dec. 16, 2018) “Smart About Money: Retirement Lessons”

Suggested Key Terms: Guaranteed Pension, Retirement, Reverse Mortgage, Social Security, Part Time Job

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Here’s a Happy Way to Start the New Year – A Gift of Estate Planning

If you think of estate planning as a gift to your loved ones, and not an obligation, then you will understand why the start of a new year is the perfect time to give your family the peace of mind that an estate plan can bring. The article “Give the gift of estate planning to loved ones this holiday season” from the Brainerd Dispatch describes how stress and guilt for the family can be alleviated just by having a good estate plan in place.

Your estate plan will provide your family with clear directions on where you want your assets to go when you have passed, but that’s just for starters. They will be dealing with many moving parts when you pass: funeral arrangements, notifying family members and grief, which can be overwhelming.

If you don’t have a will or haven’t done any planning, the process for your family to gain access to your assets becomes extremely problematic. The process is called probate, and it can take months and cost a great deal to unlock real estate ownership, account information or other assets for your spouse, children and grandchildren.

There’s also no way to ensure that your assets will be distributed as you wanted, if you do not have a will or an estate plan. Let’s say you have a non-traditional family. You’ve lived with your partner for decades, even raised children together, but never married. Your partner and your children may find themselves completely without any voice in your estate, and no right to any assets. Without a will, the state’s laws will determine who receives your assets, and that may be a sibling or a parent, if still living.

Your estate plan becomes your legacy, and it’s not just for family members. If there are causes or organizations that have meaning for you, they can be included in your estate plan. Lifetime giving or giving “with warm hands” is rewarding, because you get to see the impact of your generosity. However, you can use an estate plan to make a gift to an organization, which serves a dual purpose. It decreases the value of your estate, and can lessen the tax burden of your estate, giving your family more money.

There are many ways to make planned giving part of your estate. Donor advised funds are increasingly popular, or you may want to use a charitable trust or fund a scholarship. Your estate planning attorney will be able to help you determine the best way to structure your giving.

An experienced estate planning attorney has worked with families of all different types and will have the knowledge and skills to help you create an estate plan that works best for your family. The attorney will also encourage you to talk with your family members to make sure they know that you have put a plan into place. You may wish to have a family meeting with your estate planning attorney, to ensure that everyone understands why you made the decisions you did and ensure that the family understands that your estate plan is a gift from the heart.

Reference: Brainerd Dispatch (Dec. 8, 2018) “Give the gift of estate planning to loved ones this holiday season”

Suggested Key Terms: Estate Planning Attorney, Assets, Will, Charitable Giving, Assets, Funeral Arrangements, Probate

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Common Estate Planning Mistakes That You Can Avoid

The number one estate planning mistake is failing to have or to update an estate plan, says the Times Herald in the article “Top six estate planning mistakes.” Therefore, start by working with an estate planning attorney to create an estate plan, and you’ll be way ahead of most Americans. Why does this matter?

An estate plan allows you to stay in control of your assets while you are alive, provide for your loved ones and for yourself in the event you become mentally or physically incapacitated, and when you die, give what you have worked to achieve to those you wish. It costs far less to take care of all of this while you are alive. It’s a gift to those you love, who are spared a lot of stress and costs if it must be figured out after you have passed.

Once you have a plan in place, you have to keep it updated. An estate plan is like a car: it needs gas, oil changes, and regular maintenance. If your family experiences significant changes, then your estate plan needs to be reviewed. If you change jobs, have a change in your financial status, or if you receive an inheritance, it’s time for a review. When there are changes to the law, regarding taxes or non-tax matters, you’ll want to make sure your plan still works.

The second biggest mistake we make is failing to plan for retirement. If you start thinking about retirement when it is five or 10 years away, you’re probably going to be working for a long time. When you are in your twenties, it is the ideal time to start saving for retirement. Most people don’t start thinking about retirement until their thirties, and many don’t plan at all.

There are many different “rules” for how to save for retirement and how to calculate how much income you’ll need to live during retirement. However, not all of them work for every situation. Advisors are now telling Americans they need to plan for living until and past their ninetieth birthday. That means you could be living in retirement for four decades.

Mistake number three—failing to fund trusts. Trust funding is completely and correctly aligning your assets with your trust. If you don’t fund the trust, which means putting assets into the trust by retitling assets that include bank accounts, investment accounts, real estate, insurance policies and other assets, adding the trust as an additional insured to home and auto insurance policies and have every change verified, you have an incomplete estate plan. Your heirs will have to clean up the mess left behind.

Fourth, failing to communicate your estate plan to your executor, beneficiaries and heirs is a common and easily avoidable mistake. Talk with everyone who is a part of your estate plan and explain what their roles are. Speak with the person you have named as Power of Attorney and Healthcare Proxy on a regular basis. Make sure they continue to be willing and able to perform the tasks you need them to do on your behalf. Make sure they know where your documents are.

Fifth, don’t neglect to make arrangements for bills to be paid and financial matters to be handled, when you are not able to do so. There are many studies which show that after age 60, our financial abilities decrease about 1% per year. Expect to need help at some point during your later years and put a plan in place to protect yourself and your spouse. If you are the main bill-payer, make sure your spouse can take care of everything as well as you, before any emergency strikes.

Finally, talk with your successors about what you would like to happen if and when you become mentally unable to make good decisions, including caregiving options. As we age, the likelihood of needing to be in a nursing home or other care facility increases. You can’t necessarily rely on your spouse living long enough to take care of you. Make sure that your financial power of attorney contains the appropriate gifting language, your assets are titled properly, and your successor financial agents know about the plan you have created. If you don’t have a long-term care policy now, try to buy one. They are less expensive than having to pay for care.

Protect yourself, your family and your loved ones by addressing these steps. You’ll be giving yourself, your spouse and your loved ones peace of mind.

Reference: Times Herald (Dec. 14, 2018) “Top six estate planning mistakes”

Suggested Key Terms: Estate Planning, Retirement, Inheritance, Wills, Trusts, Powers of Attorney, Beneficiaries, Funding, Retitling, Titling, Documents, Healthcare Proxy, Caregivers, Successors, Incapacity, Competence, Nursing Home, Long Term Care

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When Do I Need a Financial Power of Attorney?

A financial power of attorney is a document that provides a trusted individual with the authority to act on your behalf. The person who creates a power of attorney is called the “principal, and the person who receives this authority is called their “agent” or “attorney-in-fact.”

The Brainerd Dispatch recently interviewed Minnesota Attorney General Lori Swanson in its article, “Guest Opinion: Your legal rights – Financial powers of attorney.” The AG explains that this person doesn’t have to be an attorney, but it should be someone the person trusts. This person should be responsible, honest and diligent.

A power of attorney is required to be in writing, signed before a notary, dated and clear on what powers are being granted by the principal (i.e., the person having the document prepared). If you want to make the power of attorney durable, meaning you want it to last even if you become incapacitated, then the document must have a statement like: “This power of attorney shall not be affected by incapacity or incompetence of the principal.”

You should talk to a lawyer when creating a power of attorney to be certain the power of attorney is drafted in a way that aligns with your wishes.

When creating a power of attorney, you must decide on the degree of authority you want your agent to have over your affairs. A general power of attorney gives your agent the ability to act on your behalf in all affairs.  However, a limited power of attorney grants your agent this authority only in certain circumstances.

A power of attorney is a wise move for every adult American, because each of us may become unable in the future to manage our own financial affairs or make other decisions. Here are some examples of powers you can give to your agent:

  • To use your money to pay your everyday living expenses;
  • To manage benefits from Social Security, Medicare, and other government programs;
  • To conduct transactions with your bank and retirement accounts; and
  • To file and pay your income taxes.

A principal can revoke a power of attorney. A mentally competent person can remove a power of attorney at any point with a signed document. If a power of attorney isn’t removed, it ends with the principal’s death.

Note that some banks and investment firms have their own power of attorney forms. Preparing these organization-specific forms may make it easier for your agent to work with certain organizations with which you do business.

Reference: Brainerd Dispatch (November 20, 2018) “Guest Opinion: Your legal rights – Financial powers of attorney”

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