Archive for October, 2011
Will baby boomers retire in a way that is distinct from their parents? Baby boomers are likely to live longer, more healthful, and more active lives than any retirees have before, yet few will enjoy the generous pensions and retiree health benefits enjoyed by many of their parents.
Financial Planning Is Essential
That means boomers will have to figure out how to manage their own IRA’s and 401(k)’s and get help doing it. Many will have to work long after the age their parents stopped working. Other boomers want to do that anyway. Here are some predictions by the experts on demographic changes on how baby boomers’ retirement will be different from their parents’.
Retirement Planning For Boomers
Retirement for boomers will last longer than retirement for their parents. The number of people ages 65 and older in the United States is expected to more than double by 2050, rising from 39 million today to 89 million, according to the Census Bureau. Some seniors will be retired for more years than they spent in the workforce. As Ken Dychtwald author of With Purpose: Going From Success to Significance in Work and Life puts it “People are waking up to the idea that living a long life has become commonplace.”
Very Few Retirees Will Have Pensions
Pensions are going the way of the dodo bird. While 40 percent of private-sector workers received a traditional pension in 1975, that number declined to 17 percent by 2006, according to the Employee Benefit Research Institute. And that trend is continuing. More retirement years that will need to be financed but most private-sector workers won’t get a monthly check from their former employer in retirement.
Those without traditional pensions will have to continue managing their own nest eggs throughout retirement or will have to hire professional help. Baby boomers also will need to make decisions about how much risk to accept in order to beat inflation and still make sure they don’t outlive their savings.
Retirees need to decide on their own—or with the assistance of a financial adviser—how to adjust their portfolio allocations as they progress through their retirement years and how much of their nest egg to spend each year. Many people forget to take income taxes into account. When boomers’ retirement money is in IRA’s or other tax-deferred accounts, the IRS will take a large share because all withdrawals are taxed as regular income. $40,000 taken out each year may only net $30,000 after taxes.
New Careers or Part-time Jobs
Many Americans will continue to work during the traditional retirement years because they need the income. Others will continue working because they enjoy the mental stimulation and social opportunities a job can provide. In fact it might be smart to make an investment of time and money in education for your second career.
One of the most important things you can do to protect your wealth and care for your family is creating a life and estate plan. An estate plan is your key to ensuring that your hard-earned assets are distributed (or saved or invested) as you designate. An estate plan is your family’s safety net. Unfortunately, too many people attempt to take shortcuts with their plan, and find themselves with a safety net that is falling apart just when they need it most.
Here are some of the worst mistakes families make and how you can easily prevent them.
1. Neglecting to fund your trust. A trust can be a wonderful tool for protecting your assets; flexible and customizable, a useful trust can be created for just about every situation. But a trust is like a strongbox—if you don’t fill it up it has nothing to protect. Accounts and assets must be put in the name of your trust for it to work as you’ve designed it to.
2. Not enlisting the help of an estate planning attorney. There are a number of Do-It-Yourself will and estate planning programs out there that promise you a full estate plan for a cheaper price; but estate plans are complicated things, requirements change depending on your state of residence, the size of your estate, the age and situation of your beneficiaries, and much more. If you aren’t able to work with an attorney to create your plan, at the very least we urge you to have an attorney review your plan before you sign it.
3. Neglecting to mention previous estate planning documents, or making unofficial changes in the margins of documents that have already been signed. When creating a will or a trust or any other common estate planning document it is usually necessary to revoke any previous documents so there is no confusion about which document is current and valid. Neglecting to do this can end with your assets tied up in probate court for months or years—or even worse, invalidating both documents completely.
4. Putting your plan somewhere safe—somewhere so “safe”, in fact, that nobody can find or access it! People recognize that estate planning documents are things of value, and as such should be protected in a locked filing cabinet or safe deposit box. Wherever you choose to store your documents, be sure one or two trusted individuals have not only the knowledge of where the documents are, but also the ability to access them. An estate plan does no good if it cannot be accessed when it’s needed.
5. And finally, one of the most common missteps that can sabotage your estate plan is failing to update your plan regularly. Not only do federal and state laws change periodically (as we have recently experienced) but also you will undoubtedly experience changes in your own life and fortune. Failing to update your plan to keep up with the law or with your own life can result in an estate plan that is as useful as a car you neglected to maintain—it may look fine on the outside, but it simply won’t run anymore.
Real Simple recently published a down-to-earth guide about the etiquette of lending and borrowing money from friends or family.
Rules For Borrowing Money From Friends and Family
For starters, be realistic. A recent CNN Money survey revealed this fact – 43 percent of people who made a personal loan weren’t paid back in full; 27 percent had not gotten any of the money back. It’s very possible that you won’t see this money again, either. You need to be prepared for that.
Be Clear About Your Needs
“To show people that you have your act together and plan to use the money they give you responsibly, outline your goals, financial plan, and budget” advises Lauren Gray, a licensed marriage and family therapist in Washington state. That will make it easier to have an honest conversation about this transaction.
Talk Terms of the Deal
Is this a loan or a gift? If it’s a loan, is there interest? (Note that if more than $13,000 is passing hands, you need to be careful not to run afoul of the IRS.) What’s the timeframe for repayment? Are both sides perfectly clear about how the money will be spent?
If expectations are spelled out explicitly, the chances for success increase dramatically. Consider drawing up a formal agreement to outline the terms of the loan. The goal here isn’t to make either party feel bad, but to set clear expectations and protect you if something goes amiss.
If You’re The One Borrowing – Are There Strings Attached?
No matter how much your lenders love and respect you, some may feel that they have a right to tell you how to spend your money (or even your life) after they give you a loan. “Typically, a loan strains a personal relationship,” says Kevin Zulch, an accountant with a practice in Red Hook, NY. In fact, he advises his own clients to try other avenues before turning to friends and family.
If You’re The One Lending – Check Your Motivation
Are you are hoping for some sort of emotional gain besides being paid back? Do you want your recipient to feel grateful—or even guilty? Does a part of you like having a financial edge so you can feel better about yourself in comparison? Try to think about any subconscious agendas in advance so things don’t get sticky down the road.
Be Willing to Say No
What if you choose not to lend money, even if you can afford to? Family psychologist Dr. Brad Sachs suggests that you must be honest and clear. Try something like, “I’m afraid that loaning this money would eventually create more problems than it would solve, and I’m concerned that the longer-term implications would outweigh the short-term relief. I’d be happy to talk with you more about the reasoning behind my decision, if that would help.” You can choose to support your loved ones in non-financial ways, as well, by doing things like passing on a resume to another friend who is hiring, reading a business plan, reviewing grad school papers, or just being a sympathetic ear.
Shakespeare said “Neither a borrower nor a lender be; For loan oft loses both itself and friend.” By using some common sense, you can prove Shakespeare wrong.
Read more here: How to Lend or Borrow Money