Archive for the ‘Retirement’ Category
These days, IRA’s often make up a substantial part of your estate. Yet one of the common mistakes I see is that people assume that their will or trust automatically dictates who will receive their retirement accounts.
In fact, who will receive your IRA (or other type of retirement account) depends entirely on who is named as beneficiaries. Often people name beneficiaries when they open an account and then forget all about it. Another common mistake is not naming a contingent beneficiary who will inherit the IRA if all of the primary beneficiaries are deceased.
Life insurance death benefits also go to the people you name as your beneficiaries on the application or change of beneficiary form.
Not long along I met with a new client, who told me her sad story about how she and her brother hadn’t spoken to each other in years. The reason? Her father had purchased a life insurance policy many years ago while she was still a minor and because of that named her brother as the sole beneficiary. He had a will but never updated his beneficiary designations.
Clearly naming primary beneficiaries and contingent beneficiaries is a very important decision. Your decision can also have important tax implications. IRA’s are wonderful savings vehicles but require careful planning if you want your beneficiaries to be able to utilize the tax benefits of their inherited accounts.
It is also important to consult an estate planning attorney for assistance if you have young children, if you are in a second (or third) marriage, or if there are any other family issues that you have questions about. An IRA Retirement Trust is a good option for some beneficiaries.
Another common mistake I see is not having any contingent beneficiaries – or naming your estate as the beneficiary. This can create a large income tax bill.
You should always list both primary and contingent beneficiaries and you should review those beneficiary designations on an annual basis.
I’ve seen situations where a young adult opens an IRA in his 20's and lists his parents as the primary beneficiaries. Years and possibly a decade passes and he forgets to re-visit the designation. As a result, the IRA went to his parents instead of his wife and children.
The easy way to address this situation is to stay on top of your current beneficiary designations. If you have IRA's scattered at multiple companies, you need to take the time to contact the custodians of each those accounts and check the current beneficiary status. You could decide to use this as an opportunity to consolidate your accounts in one place. Then it'll be easier to review and check them to make sure they are in line with your estate plan wishes.
Aging Care recently published an article that caught my attention because it highlights an issue that many of my baby boomer clients have had to deal with when caring for and overseeing a parent’s care.
One elder’s family discovered that some months she was writing 75 checks to scammers and fraudulent businesses. They knew they had to step in and take a closer look at her finances.
What they uncovered was a surprising state of affairs. Their mom, a retired schoolteacher, was spending over one-third of her income on frivolous purchases ranging from donations to illegitimate charities, to sending money to an internet con-man who was pretending to be a relative in need of cash.
But having the conversations about this was tough. This scenario is very common. typical. Approximately 7.3 million older Americans have been the victim of financial abuse, according to a survey conducted by Investor Protection Trust, a nonprofit investor education organization.
In the case of the retired schoolteacher, her bank advised the family to take away their Mom’s checkbook so she wouldn't be able to write any more unnecessary check; but doing so would have prevented her from paying her own bills or purchasing her own groceries—two activities that she could still perform competently and didn't want to give up.
The family was caught in a common dilemma; they wanted her to remain as independent as possible, but they knew they couldn't let her finances to remain in jeopardy.
Making money management easier for family caregivers
This problem provided the spark that inspired a tool to help older adults and their families meet in the middle when it comes to financial management – c
The card functions like a regular pre-paid Visa, which means it can be registered in an elderly loved one's name and can be used to pay any vendor who accepts Visa debit cards. Social Security checks and other outside sources of income can be direct deposited on the card, and money can be loaded on to it from a separate bank account.
Family caregivers (or the elders themselves) can act as the account holder, customizing the controls based on what the card will be used for and what particular types of fraud they want to prevent. True Link uses constantly-updated algorithms to keep tabs on trending elder scams so that they can preemptively block payments to suspected fraudsters.
According to one of the founders of the card, the biggest difference between True Link and a traditional card is the ability of the account holder to set up a "personalized fraud blocker" which, among other things, can disallow purchases from certain merchants. For example, if your mother is spending too much money on unnecessary magazine subscriptions and home shopping channels, you can flag those vendors. If she attempts to make a payment to them using the True Link Visa, it won't go through.
Account holders can also set up spending limits, prevent (or allow) ATM cash withdrawals, and sign up for email and text alerts of suspicious activity. The individual managing the account will also receive regular reports charting the cardholder's purchases.
The goal of the card is to strike a better balance between autonomy and security for aging adults who may not be capable of making the most prudent financial decisions, such as those in the early stages of Alzheimer's or another form of dementia.
True Link Prepaid Visa cards are currently available for order on the True Link website.
Budgeting is hard for everyone, and it's especially hard for people on fixed incomes. For boomers who are the adult children of seniors, talking about money can be a challenge. However, there are ways for family members to tackle this somewhat daunting task. Here is some help.
Prepare an expense worksheet: The first step we recommend is filling out an expense worksheet (a sample of which is provided below) that includes all of your loved one's monthly income and expenses. This will provide you with a good handle on their expenditures, and help you identify which areas, if any, need to be pared back. If there is a shortfall in the monthly income, there are some things you can do.
Cut down on utility costs: Contact utility companies to see if they offer a monthly budget plan, so the amount is the same every month (this is particularly helpful with the changes in the heating/air conditioning seasons; instead of paying higher monthly bills, the cost is spread over 12 months).
Pay insurance over time: Insurance premiums can be paid on a variety of modes (such as monthly, quarterly) versus annually. Depending on your loved one's cash flow situation, it might be more cost-effective to pay premiums on a monthly or quarterly basis, rather than in one large lump sum.
Advantages for older homeowners: Check with your local town office to see what real estate tax savings might be available for them. Veterans are also eligible for property tax abatements.
Dealing with credit card debt: If credit card debt is an issue; your loved one can apply for a debit card that can be replenished every month to cover emergencies. This is just one of several credit card strategies for retirees.
- Benefits of packaged services: Cable, internet and telephone companies often offer bundled service packages at a lower cost than if each service was paid for individually.
Take the time to talk about finances: Be sure that there has been a discussion regarding the existing financial situation between all the parties involved (the parent and their family members . You want to put your Mom or Dad at ease. If it is a family situation, there is usually one child (or sibling) who should be considered "in charge" of the finances, to keep things simple. We usually recommend holding a family meeting where this topic is discussed among the siblings and one individual is chosen to oversee this function. After that person has been designated, an appointment should be made with an attorney to create a financial power of attorney (POA) that allows an elder to appoint an attorney-in-fact (usually a trusted family member, or friend) to act on their behalf to manage their financial matters. This POA can be limited to certain functions, or be broad enough to cover all financial actions.
These steps are especially important if your parent is suffering from illnesses, such as Alzheimer's or advanced Parkinson's disease.
Some of my clients had all the bills forwarded to them so that they could be sure the bills were being paid on time. Remember – there are many resources to help you.
The 2013 Retirement Confidence Survey, which Maritz Research conducted for the Employee Benefit Research Institute, finds that investment savings and financial security have overtaken age as the chief determinant on when one should retire.
The study found $500,000 as the “tipping point” at which workers who are approaching the traditional retirement age — about 65 years old — feel comfortable stepping out of the work force. People above that monetary threshold feel more optimistic about their financial security and are less concerned about having enough money to last through retirement. These fortunate ones say they aren’t likely to have to work to make ends meet and are prepared for rising health-care costs.
The study queried 1,000 near and recent retirees and offered an interesting contrast in outlooks between the two groups. Fewer near-retirees, for example, are “optimistic” about their financial security than are the recently retired. Even among survey participants above the half-million-dollar frontier, only 76 percent of near-retirees felt “very optimistic” or “optimistic” about their financial security. Among the near retires under the $500,000 level, only 59 percent expressed optimism. The recently retired group, both above and below the $500,000 mark, expressed optimism — 86 percent among those above the threshold and 75 percent below.
Most respondents — 60 percent of recent retirees and 56 percent of current workers in the survey said they consider “retirement age” an outdated concept. In fact, 37 percent of current workers in the survey and 13 percent of recent retirees — half of those surveyed, in all — said they thought they would have to work during their retirement years. About 36 percent of near-retirees said they expect to delay their retirement altogether.
It seems like baby boomers are seeing retirement differently than their parents and grandparents. Some love what they’re doing — doctors, attorneys, people who own their own businesses. It seems like they feel they’re healthy and working is the way to stay connected and they enjoy doing it. Those are good reasons, he said. But there are also baby boomers who will continue to work to survive.
That’s because many people have not been saving all along the way. Furthermore, the 2008-09 market meltdown significantly affected a lot of retirees’ incomes. Then, in mixed market, they got the double-whammy because they weren’t able to participate when the market went higher. All this adds up to more older workers in the future.
People are living longer and some people have decided that the 20th century concept of retirement is no longer viable for them. Some may even decide to revisit the former retirement practice of living in extended families. To keep control over your choices you have to figure out which kind of model you want for yourself, figure out your numbers and then calculate your savings and income.
Residents of California, Massachusetts and New Jersey are the most financially capable, according to a survey conducted by the FINRA Investor Education Foundation.
They ranked in the top five among in at least three of five measures of financial capability. The bottom 4 states were Mississippi, Arkansas and Kentucky. Mississippi did worst overall, landing in the bottom five in four measures.
Although some states stood out as particularly capable or incapable, the state of the nation’s financial capability was generally poor.
Most Americans — 61 percent to be exact — got three or fewer correct answers on the five-question assessment.
The average score was 2.88 correct answers out of a possible five. Only 58 percent of Californians got that failing mark, however.
More than 68 percent of Mississippians, meanwhile, missed three or more.
In addition to the quiz, the study looked at four other measurements of financial capability.
One was how many respondents had enough rainy-day savings to cover three months living expenses. Most (56 percent) didn’t.
Another question asked how many spent less than they earned (41 percent said they did). Unpaid medical bills were reported by 26 percent.
And over a third (34 percent) reported paying only the minimum on a credit card during the past year.
However, there is a bit of good news. FINRA did a similar survey in 2009, during the last recession, and comparing it to the current study shows some increase in financial capability. The people who said they had no trouble paying monthly bills rose from 36 percent to 40 percent. Also, in 2009 about 40 percent had experienced a large unexpected income drop in the previous year, something 29 percent reported in 2012.
But enough about the results. What are the five questions? Here they are.
You Take the Quiz
Question 1: Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have?
A) More than $102
B) Exactly $102
C) Less than $102
C) Don’t Know
Question 2: Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year.
After one year, would the money in the account buy more than it does today, exactly the same or less than today?
D) Don’t Know
Question 3: If interest rates rise, what will typically happen to bond prices? Rise, fall, stay the same, or is there no relationship?
C) Stay the Same
D) No Relationship
E) Don’t Know
Question 4: True or false: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less.
C) Don’t Know.
Question 5: True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.
C) Don’t Know.
To find out how much you know, take the actual test at http://www.usfinancialcapability.org/quiz.php. Bear in mind: Only 14 percent got all five right.