If You’re Single with No Kids and Approaching Retirement, You Still Need an Estate Plan

You may have been busy building your career, socking away money and enjoying your time off with weekends away and exotic vacations.

Forbes’ recent article, “5 Estate Planning Strategies For Singles,” says that, as you move closer to retirement, you should seriously think about your estate plan. Here are some important components:

Power of attorney and a health care proxy. These are used while you’re still alive. They let you choose who will make important financial and medical decisions for you, if you can’t make them for yourself. A single person must be sure that she’s named someone she trusts to make these decisions. When you die, the power of attorney and health care proxy are no longer valid, so you also need to create a will and trust.

Will. You need to designate an executor of your estate. This individual will take care of your affairs after you die, probate your will if necessary and pay any income and estate taxes. The beneficiary of your will can also be a revocable trust that you create during your lifetime.

Revocable trust. While you are alive, you should be named the primary beneficiary. You may also want to provide benefits for your significant other, especially if you live together and you’re the primary breadwinner. Name the beneficiaries who’ll receive the assets at your death. You also need to name a successor trustee to manage the trust assets, in the event you are unable to manage them yourself. The successor trustee will play an important role, if you’re incapacitated. As a single person, naming someone to manage the assets for you is an important part of your planning. If you fund the trust during your lifetime and are later incapacitated, the successor trustee can use the funds for your care.

Estate taxes. Many singles don’t mind if their beneficiaries receive less, and the government receives more. However, if you do care, there are many planning options to consider, such as charitable giving as a way to reduce taxes and give back to those charitable institutions that have played an important role in your life. You can also make lifetime gifts to family and friends.

If you’re that single person without an estate plan, don’t wait until the last minute. Otherwise, it will be too late.

Reference: Forbes (March 15, 2019) “5 Estate Planning Strategies For Singles”

Tips to Boost Your Tax-Free Income in Retirement

There is a bright side to the income taxes that will follow you into retirement. Create a pool of tax-free income, advises CNBC, by following the advice in the article “3 tips to help boost your tax-free income in retirement.”

Introduce yourself to the Roth IRA and the Roth 401(k). Unlike a traditional IRA, with a Roth IRA you pay taxes when you make your contribution to the account. The funds then grow tax-free over time and, as long as you meet certain conditions, there are no taxes on withdrawals. With a Roth IRA, there are none of those pesky RMDs (Required Minimum Distributions). However, there are withdrawal distribution requirements for a Roth (401)k.

Most employers offer Roth IRA and Roth 401(k) accounts, so there’s a good chance they are offered by your employer.

Roth IRAs are often offered along with their counterpart, the traditional 401(k). Between the two of them, it’s possible to save as much as $19,000 in 2019. For those workers who are 50 and over, you can add $6,000 as a catch-up contribution.

The power of the Roth 401(k) is the tax-free compounding that takes place over time. Don’t miss out on this, if you want to max out your tax-free savings.

There are two different types of Roth plans: the Roth 401(k) and a Roth IRA. Roth IRA plans have income limits. If your modified AGI (Adjusted Gross Income) is more than $137,000 for a single and $203,000 for a couple filing jointly, you aren’t allowed to make a direct contribution to a Roth IRA. However, there are no income caps for Roth (401)k. You can also save more for retirement in a Roth 401(k), compared to a Roth IRA. Roth IRAs are also subject to annual contribution limits: $6,000 in 2019, plus a $1,000 catch-up contribution, if you are over age 50.

Here are three steps to make your retirement savings more tax free:

Can you do an in-plan conversion? If your employer offers a Roth 401(k), you may be able to convert some of your traditional 401(k) savings to the Roth. This is called an in-plan Roth conversion. Just like a direct contribution to a Roth 401(k), it will be taxable. Therefore, make sure that you run the numbers before moving funds. You’ll be responsible for taxes on pretax principal and earnings. Don’t do it all at once, so that you don’t find yourself moved into a higher tax bracket.

What does your plan allow? If you’ve left your employer and have money in both a traditional 401(k) and a Roth (401)k, you might want to convert those accounts — if your retirement plan allows it.  Remember that you may not write a check from an outside bank account to add after-tax money to a Roth 401(k).

What’s your time-frame? Just as young workers are in the best position to save early and often, they are also in the best position to make the most out of Roth savings accounts of all types. It’s likely that younger workers have not yet reached their full career and earnings stage, so now is the best time to put money into a Roth 401(k). When incomes are higher, so will taxes on Roth retirement account contributions. If you’re close to retirement, there are other timing factors to consider, primarily Medicare. How much you pay for Medicare Part B and D, which covers doctor’s visits and prescription drugs, depends upon your modified gross income from two years ago. Do the conversion to a Roth at age 62, if you intend to file for Medicare at age 65.

Reference: CNBC (Feb. 10, 2019) “3 tips to help boost your tax-free income in retirement”

Your Most Important Asset Is Not Your Bank Account

It’s hard to think about getting older. When something is challenging, the usual human response is to procrastinate. We can’t slow down the aging process, but we can prepare for it. One of the things that needs to be done to prepare for aging, is discussed in the article from The Mercury titled “REINVENTING RETIREMENT: Your most important asset—it’s not what you think.” Good health is definitely important, but there’s something else to consider: your independence.

We hate to think about becoming dependent upon others, but that is often what occurs with aging. This is an asset that needs to be planned for and managed, like any other. Here are some tips for each decade:

Health Care Directives in Your 50s. You need to have a will and you need to have it updated, as the years go by. However, in mid-life you need to make sure to have a living will and power of attorney. Estate planning is a tool used to protect your independence and your wishes as you grow older. These two documents are a critical part of your estate plan. A health crisis or an accident can happen to anyone, but planning can ensure that your wishes are followed. Put your wishes on paper, with an attorney, so that they are enforceable. Just telling someone what you want, is not going to do it.

Home and Belongings in Your 60s. The kids are out of college and have their own careers and families. Do you still need that big house? Downsizing could bring you tremendous freedom now. Yes, you have to go through all of your belongings which is a lot of work. However, consider how your life would change if you had less stuff, a smaller home and lower bills? This one move could change how your retirement succeeds—or fails.

Stay Connected in your 70s and 80s. Connecting with your community is critical at this time of life. When you are actively engaged with your community, you’ll be busy with activities that you enjoy. You will hopefully be making contributions that draw on your years of experience and knowledge. Hope and having a purpose in life is not just for the young. The healthiest and most independent lives, are lived when people are engaged with other people, with a life that has meaning and purpose.

Planning for your retirement is about much more than your bank account. Speak with an estate planning attorney to make sure that your estate plan protects your independence, conveys your wishes and plans the coming stages of your life to be as rewarding—or maybe more fulfilling—than the past.

Reference: The Mercury (Feb. 10, 2019) “REINVENTING RETIREMENT: Your most important asset—it’s not what you think”

 

Should You Accept that Early Retirement Offer?

The number of job cuts due to voluntary severance, including both buyouts and early retirement offers, went as high as 46,100 in 2018, says Money in the article “This Is the Only Time You Should Accept an Early Retirement Offer.” Those numbers are up considerably from 2017, and the expectation is that more are on the way.

For people who have been at their companies for a decade or more and are over age 55, be prepared, just in case an early retirement offer comes your way, by doing a lot of analysis. There’s a key fact you need to be highly aware of: where’s your income coming from?

The idea is simple: if you are not going to be getting paid every two weeks, then how are you going to generate that income? Now that the bull market has ended, you’ll need to be aware of how market volatility may impact your numbers. Here are a few things to consider, when that offer arrives at your workspace:

How close are you to retirement age? Buyouts are tempting because they are big chunks of cash—sometimes, six months to a year and a half of pay. If you’re in your early 60s, this might be a way to exit. However, remember that your income change will have an impact on your Social Security benefit, since there will be six months to a year and a half less of income in your earnings history. If you start taking Social Security early before your Full Retirement Age, your monthly benefit could be at least 25% less in lifetime benefits, than if you waited until FRA.

Once you reach 59½, you can start taking money out of your 401(k) without the 10% early withdrawal penalty–but that’s going to reduce your nest egg.

How are you going to pay for health insurance? Buying health insurance privately is expensive, especially if your income is too high to qualify for premium subsidies under the Affordable Care Act. Find out how much you’ll have to pay for health insurance and see if you can manage that. Note that your premiums and deductibles are going to rise every year. See if you can negotiate having healthcare covered as a part of your buyout. Another option is to go on the company’s COBRA health coverage, which any company that employs more than 20 people must offer to departing employees. That’s expensive too—usually about 102% more than the cost of the plan as an employee.

How big is your nest egg? If you’re living mortgage free and have a healthy nest egg, you might be able to take the early retirement buyout. However, unless you’ve got enough to withdraw 4% of your portfolio annually, you may be in for a tough retirement ride.

Annuities are used by some people as a means of ensuring a steady stream of income. However, they are complicated, and the fees are high. Immediate fixed annuities allow you to hand over a big chunk of cash to an insurer. You then receive a check every month for either a set amount of time, or for the rest of your life. You should be cautious but explore this as an option.

Finally, do you have a second career lined up? Some buyouts give people who were planning on moving into a different career path at retirement the incentive to move forward. It can also provide them with the financial cushion to seek a job in their new career, which can sometimes take months.

Of course, the concern is that not taking a buyout may lead to a less friendly position in the future. Many workers who turn down a buyout, find themselves leaving the company within about a year, often with a less generous package. It may not have been what you had in mind for the start of your retirement, but hopefully you can turn it into a positive springboard to the next stage of your life.

Reference: Money (Oct. 29, 2018) “This Is the Only Time You Should Accept an Early Retirement Offer”

Downsizing Boomers Find Help from Senior Move Management Companies

When faced with the task of pulling up roots and moving her family from a big midwestern city to a smaller town, Laura Schulman found it overwhelming. However, she did enjoy some of the tasks, including handling all the details of organizing and packing and setting up a new home. Nine years later, she decided to start a company that would help seniors downsize, before moving to smaller homes, apartments or assisted living facilities.

As reported in Columbus CEO’s article Estate Planning and Retirement: How to Downsize Like a Diva,” Schulman and her team at A Moving Experience take the work and worry out of a move, so seniors can focus on the emotional challenges that come with this kind of move. When people are not at their physical best, downsizing can be extremely upsetting. It can get to the point, where many people wait until the very last minute and then panic sets in.

Her company is one of many senior move management companies that help seniors with this transition. The companies organize possessions, create a floor plan for new residences, schedule and oversee moving companies, handle any sales or donations of items that are no longer needed or wanted and even pack and unpack after the move.

What’s just as important: they provide the seniors with the emotional support needed during a very trying time. It’s not easy to be faced with the reality that they must leave their home after decades or even a lifetime. Equally upsetting: coming to terms with the limitations of aging.

Children and family members may not be as sensitive to their parent’s emotions about a move like this, or they may be equally uncomfortable. Having a non-family professional may serve as a buffer and a facilitator for everyone.

The increase in the number of these types of companies is due to the enormous number of Baby Boomers entering retirement. Most will be downsizing, as they leave one-family homes and move to smaller living spaces. With 10,000 turning 65 everyday, a projected 79 million Americans will be 65 or older by 2030. Clearly, aging is a big business.

Senior moving management charges range in pricing from $40 to $120 per person nationwide, with the average price for help costing around $3,000, plus the charge of the moving company.

The money is considered well-spent by many. One family called on a senior moving company, when their mother had to leave her long-time home in one state and relocate to an independent senior living community near family members in another state. The siblings reported that they needed help from someone who would be patient and understand the process their mother was going through. The senior mover worked to make the new home layout, as close to the mother’s original house as possible.

Nonprofit organizations are also getting involved in helping seniors move, with several agencies helping seniors, who can’t afford the services of a private company.

Reference: Columbus CEO (Jan. 21, 2019) Estate Planning and Retirement: How to Downsize Like a Diva”

Are You Ready to Retire? These Professionals Can Help

Are you thinking about retiring in 2019 or 2020? It seems like a simple concept: Just pick a month, run some numbers and turn off your weekly early morning wake-up alarm. However, it’s not that simple. According to an article titled “Professionals can ease a person into retirement” from the Cleveland Jewish News, most people need some help for both financial and non-financial planning.

A good place to start is with the financial side. Take inventory of all your assets to identify where you have assets and where you have liabilities. You’ll need to be brutally honest with yourself and your spouse. Are there gaps? Is your credit card debt bigger than you thought? Use this exercise to get a real sense of whether you can retire this year.

Next, take care of the legal aspects of retirement. You’ll need a will, durable power of attorney, health treatment directive (for end-of-life decisions) and a medical power of attorney. This last POA will give someone the legal authority to make care decisions for you, if you become incapacitated. If you already have a will but have not reviewed it in three or four years, it’s time for a review. Laws change, lives change, and what may have worked well for you and your family when the will was first created, may not work now. You’ll want to work with an estate planning attorney to create a plan, making sure assets are properly aligned with your estate plan and minimizing any tax liability for your heirs.

This is also the time to consider how you’ll pay for long-term care. Do you have a long-term care insurance policy in place? Speak with a reputable insurance agent, or if you don’t know one, ask your trusted advisors to make a recommendation. People don’t like to think about going into a nursing home for an extended period of time, but it happens often enough that it makes sense to have this type of insurance. It’s not cheap—but neither is paying out-of-pocket for care at a nursing facility.

When you’ll retire, and what you’ll do with your retirement years, which could last two or even three decades, is a big question. The answer may be based on your finances—can you realistically stop working full time, or do you need to continue to work for a few more years? Would part-time work fill any savings gaps? These are questions that can’t be answered, without a thorough financial analysis of your retirement income.

If you stop working, what will you do? Some experts advise asking a bigger question: Who are you, now that your work identity is gone? If you’ve planned well, or if you’re lucky, your retirement can be a time of great fulfillment, spending time with family, volunteering in the community and devoting time to taking better care of yourself. For some people, retirement from one career is an opportunity to spring into a new career, one that they’ve always put to the side, in order to earn a paycheck.

How much you can achieve of your dreams, depends on putting down a solid foundation of legal and financial resources. An estate planning attorney and a financial advisor are important members of your retirement success team.

Reference: Cleveland Jewish News (Jan. 9, 2019) “Professionals can ease a person into retirement”

Here’s Why You Need an Estate Plan in 2019

The New Year sees young adult clients calling estate planning attorney’s offices. They are ready to get their estate plans done because this year they are going to take care of their adult responsibilities. That’s from the article “Estate Planning Resolutions for 2019: How To Be A Grown-Up in The New Year” in Above The Law. It’s a good thing, especially for parents with small children. Here’s a look at what every adult should address this year:

Last Will and Testament: Talk with a local attorney about distributing your assets and the guardianship of your young children. If you’re over age 18, you need a will. If you die without one, the laws in your state will determine what happens to your assets, and a judge, who has never met you or your children, will decide who gets custody. Having a last will and testament prevents a lot of problems, including costs, for those you love.

Power of Attorney. This is the document used to name a trusted person to make financial decisions if something should happen and you are unable to act on your own behalf. It could include the ability to handle your banking, file taxes and even buy and sell real estate.

Health Care Proxy. Having a health care agent named through this document gives another person the power to make decisions about your care. Make sure the person you name knows your wishes. Do you want to be kept alive at all costs, or do you want to be unplugged? Having these conversations is not pleasant, but important.

Life Insurance. Here’s when you know you’ve really become an adult. If you pass away, your family will have the proceeds to pay bills, including making mortgage payments. Make sure you have the correct insurance in place and make sure it’s enough.

Beneficiary Designations. Ask your employer for copies of your beneficiary designations for retirement accounts. If you have any other accounts with beneficiary designations, like investment accounts and life insurance policies, review the documents. Make sure a person and a secondary or successor person has been named. These designated people will receive the assets. Whatever you put in your will about these documents will not matter.

Long-Term Care and Disability Insurance. You may have these policies in place through your employer, but are they enough? Review the policies to make sure there’s enough coverage, and if there is not, consider purchasing private policies to supplement the employment benefits package.

Talk with your parents and grandparents about their estate plans. Almost everyone goes through this period of role reversal, when the child takes the lead and becomes the responsible party. Do they have an estate plan, and where are the documents located? If they have done no planning, including planning for Medicaid, now would be a good time.

Burial Plans. This may sound grim, but if you can let your loved ones know what you want in the way of a funeral, burial, memorial service, etc., you are eliminating considerable stress for them. You might want to purchase a small life insurance policy, just to pay for the cost of your burial. For your parents and grandparents, find out what their wishes are, and if they have made any plans or purchases.

Inventory Possessions. What do you own? That includes financial accounts, jewelry, artwork, real estate, retirement accounts and may include boats, collectible cars or other assets. If there are any questions about the title or ownership of your property, resolve to address it while you are living and not leave it behind for your heirs. If you’ve got any unfinished business, such as a pending divorce or lawsuit, this would be a good year to wrap it up.

The overall goal of these tasks is to take care of your personal business. Therefore, should something happen to you, your heirs are not left to clean up the mess. Talk with an estate planning attorney about having a will, power of attorney and health care proxy created. They can help with the other items as well.

Reference: Above The Law (Jan. 8, 2019) “Estate Planning Resolutions for 2019: How To Be A Grown-Up in The New Year”

 

Don’t Neglect Planning for Long-Term Care

If you don’t have a plan for long-term care, welcome to the club. However, you may not want to be a member of this club, if and when you need long-term care. A recent report from the U.S. Department of Health and Human Services found that people age 65 and older have a very good chance—70%—of needing long-term care. Despite this, most people are not putting plans in place, according to an article from Westfair Online titled Keybank poll reveals clients aren’t planning for long term care.”

This is true for people with assets exceeding $1 million and for people with more modest assets. In a study by Keybank, fewer than a quarter of high net-worth clients had plans in place for long-term care. This poses real financial risks, to the individuals and their families.

Consider the costs of long-term health care. One study from Genworth Financial reports that in 2017, the national median cost of a home health aide was roughly $49,000 a year, assisted living facilities could cost $45,000 (that’s not including medical services), and a private room in a nursing home came close to $100,000 annually. Costs vary by region, so if you live in an expensive area, those costs could easily go much higher.

Why don’t people plan ahead for long-term care? Perhaps they think they will never become ill, which is not the case. They may think their health insurance will cover all the cost, which is rarely the case.  They may believe that Medicare will cover everything, which is also not true.

Everyone’s hope is that they are able to be at home during a long illness, or during their last illness. However, that’s often not a choice we get. This is a topic that families should discuss well in advance of any illness. Talking with family about potential end-of-life care and decisions is important for setting expectations, delegating responsibilities and avoiding unpleasant surprises.

The other part of a long-term care discussion with family members needs to be about estate plans and decisions about the disposition of assets. Everyone should have a will, and all information including deeds, trusts, bank and investment accounts and digital assets should be discussed with the family. You’ll also need a power of attorney and health care proxy to carry out your wishes. An experienced estate planning attorney can help create an estate plan and facilitate discussions with family members.

Long-term planning is an on-going event. Life changes, and so should your long-term care plan, as well as your estate plan. You should also keep communications open with your family. They will appreciate your looking out for them before and after any illness.

Reference: Westfair Online (Sep. 7, 2018) Keybank poll reveals clients aren’t planning for long term care

How Do I Include Retirement Accounts in Estate Planning?

You probably made beneficiary designations for your retirement accounts, when you opened them. Remember: who you designated can affect your overall estate planning objectives. Because of this, when including your retirement assets in your estate, ask yourself if anything has changed in your life since then that would affect their status as your beneficiaries, as well as how they’d receive the retirement assets.

Investopedia’s recent article, “Include Your Retirement Accounts in Your Estate,” gives us some things to consider in the New Year.

Beneficiary Designations. Review your beneficiary designations after major life changes. If you fail to make these designations, the funds will most likely go into your estate—a horrible outcome from a tax and planning perspective. If your estate is named a beneficiary, your heirs must wait until probate is finished to access your retirement accounts. It is usually better to name an individual or a trust as your beneficiary.

Protecting Retirement Funds With a Trust. Another option is to include a trust in your estate planning, instead of giving your retirement funds directly to named individuals. This allows you more control over the distribution, while protecting your heirs from additional paperwork and taxes. Trust distributions keep a beneficiary from accessing and spending their inheritance all at once. It’s also a good idea if your beneficiaries include minor children who shouldn’t have direct access to the money until they are adults. Be sure to consult with an estate planning attorney, because there are tax and other complexities associated with designating a trust as beneficiary.

Required Minimum Distributions (RMDs). Your retirement plans have rules about when you are required to start taking distributions. For 401(k) accounts, you are required to start taking RMDs at age 70½. However, if you die and leave retirement plans and accounts to your heirs, these rules apply to them instead. A spousal beneficiary can roll over your retirement funds tax-free into their retirement plan and make their own distribution choices. However, other beneficiaries don’t have the same option. Tax treatment and distribution options vary, depending on who is receiving your retirement assets.

Tax Considerations. The biggest worry you need to address when designating retirement accounts as part of your estate plan, is how they’ll be taxed. Consider how to withdraw from these accounts while you’re alive and how to minimize tax consequences after you’ve passed.

Work with an estate planning attorney who has a strong understanding of retirement accounts and the tax and legal requirements of estate planning. That way you can be certain your retirement assets are distributed to the proper beneficiaries with the least tax liability.

Reference: Investopedia (August 27, 2018) “Include Your Retirement Accounts in Your Estate”