Mike McCafferty's Estate Planning Blog

Planning for Retirement Does Include Risks

A retirement planning conference has discussed a broken system and revealed five standard risks.  However, there are also some solutions on what to do about them, according to Wicked Local (Topsfield) “Your Financial Views: How your retirement can be the ‘golden years’.”

The recent conference focused a discussion on a Harvard Business Review study called “The Crisis in Retirement Planning” that challenged how consumers and the financial industry look at retirement. The author said that the process is broken, and which is why many families are not enjoying their “golden years.” The article presents five key risks and some solutions.

The first of the five key risks concerns investments. What if there is a market downturn that reduces your retirement savings significantly?

The second concerns inflation, which was practically dormant for many years. It is currently heating up again. Your assets and income need to be structured to keep up with inflation.

Withdrawal-rate risk is third. Typically, in the first few years of retirement, people tend to spend more than when they were working. It makes sense. Most people spend more money on Saturdays. When you’re retired, every day is Saturday.

The fourth is sequence-of-returns risk. This involves the order in which investment returns occur and the impact of those returns on people who are near retirement, transitioning into retirement or recently retired.

Finally, the fifth is longevity risk. If you live long enough, goods will be more expensive and the likelihood of a market downturn increases.

The solution is to change how you think about retirement planning. It’s as much about accumulating savings, as about how your retirement accounts will produce a good monthly income stream.

Start by listing your basic necessary expenses and then list your discretionary spending. It is important to know the difference between what you want and what you need. You should structure your income to give you the basic necessary items for life, by incorporating Social Security, pensions and guaranteed income annuities, as well as your retirement savings accounts. Use the remaining assets to protect yourself against inflation and produce any additional income.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances, including retirement.

Resource: Wicked Local (Topsfield) (Aug. 7, 2018) “Your Financial Views: How your retirement can be the ‘golden years’.”

Want to Stay in Your Home? What are Your Options?

Most people want to avoid moving to an assisted living facility or nursing home, so sometimes it is best to think ahead about just where you do want to go or even if you want to remain right where your are, according to US News & World Report in “Tips to Help You Age in Place.”

Among the options for seniors are moving to small houses located in the backyard of their adult children’s home or small studio apartments in buildings with common living rooms and kitchens.

While planning for your future, here are a few things to consider:

Physical safety. If you can’t manage the stairs anymore or if there’s no bathroom on your bedroom level, perhaps you should consider changing your situation.

Neighborhood. Do you love your community? If you have access to your friends, family and good medical care, that’s a good reason to stay in the vicinity.

Support Network. If you were to need assistance for a short period of time or in an emergency, are there people near you who can check on you on a regular basis or arrive quickly in a life-threatening situation?

Cost of Living. Sometimes this factor overrides many others. If you can afford to live in your own home and cover all your expenses, then staying in your home is an option. Remember, as you age you’ll need different services and not all will be covered by Medicare or Social Security.

Even if you’ve got all these factors covered, you may still need to make changes to your home to make it safer and more comfortable. For instance, if you can’t reach items in cabinets, then move anything you use to a lower cabinet. If arthritis has made reaching for things difficult, then install grab bars and floor treads to avoid falling in slippery bathrooms. If you have a sunken living room, then install a ramp with a handrail so you can continue to use the room, but can enter and exit safely.

Embrace technology, which makes keeping in touch with loved ones easy. Don’t be put off by the idea of a medical alert button, so help can be summoned quickly. Consider installing a video camera in a frequently-used area of your home, so a loved one can get a visual check on you every now and then.

Look to the future and consider your options.

For more information visit my Wichita KS Estate Planning Attorney website 

Reference: US News & World Report (April 27, 2018) “Tips to Help You Age in Place”

Generation X Better Get to Work … Now

Generation X is the generation entering midlife and is expected to take care of children and parents. However, they aren’t prepared. But there is still hope, according to CNBC in “What Generation X Needs to focus on to retire successfully.”

Members of Generation X (born between 1965–1978) are getting their careers in order and they are busy caring for aging parents and saving for their kid’s college funds.  A survey from money manager Personal Capital found that more than 34% of Gen Xers have no retirement savings set aside at all.

As the youngest turn 40 and the oldest now in their early 50s, they do have time to catch up.  However, they need to act decisively and act now. There’s no time for waffling

Start by figuring out your current financial status. What’s your net worth and how much do you spend on a regular basis? List your assets and debts, then figure out how much money is coming into the household and how much is going out. You most likely will need to make some changes.

Define your retirement goals. It’s much easier to reach goals, if you know what they are. Do you need $1 million to retire and continue your current lifestyle? You may need to consider shrinking your spending, extend your working years or shift your retirement expectations.

For more information visit my Wichita KS Estate Planning Attorney website 

Reference: CNBC (July 9, 2018) “What Generation X Needs to focus on to retire successfully,”

Divorce and Retirement are Not Good Partners

The cost of a divorce is often very high, with legal fees and splitting up of a household.  However, a real challenge is a divorce and trying to continue with your retirement savings intact, according CNBC in “This move is almost as bad for your retirement savings as the Great Recession was.”

Statistics show that approximately 40% of all marriages end in divorce. Researchers at Boston College behind the National Retirement Risk Index examined how likely individuals are to maintain their standard of living, once they retire. As of 2016, half of working-age households were reported to be at risk. Divorce pushes up a retirement risk for a person by 7 percentage points, while the 2008 financial crisis added 9 points.

Here are more reasons why divorce deals a tough blow to retirement:

• In addition to legal fees, divorce proceedings pull people away from work and can have an impact on their earnings abilities, especially women.
• Many divorces lead to the sale of the family home, which creates a major financial burden. If your marriage falls apart when the housing market does, the impact will be even worse.
• It’s more expensive to run two households, than it is to run one.
• Tax rates change when couples divorce.

Dividing up a 401(k) when only one spouse was working can be tricky. You’ll need a court order known as a QDRO (a domestic relations order) to divide the account. The nonparticipating spouse of a 401(k) can typically receive funds from their ex’s as cash and not have to pay a tax penalty for the early withdrawal.  However, that money should be set aside for retirement. The money is often used to pay off debt or to fund the purchase of a new home. That means there is much less available for retirement.

Once the financial dust has settled, experts recommend reviewing both your retirement plan and your estate plan. You’ll want to make changes on documents, including life insurance policies and any assets where your former spouse was listed. There may be court orders concerning retitling accounts.

An estate planning attorney can advise you in reviewing your estate plan during a life-changing event, such as a divorce.

For more information visit my Wichita KS Estate Planning Attorney website 

Reference: CNBC (June 28, 20918) This move is almost as bad for your retirement savings as the Great Recession was”

Retirement Planning and Your Estate

It can be tempting to think of different types of life planning in isolation. People do not necessarily start planning for how they want to live in retirement when they decide what courses to take in college and what type of career they would like to have.

Similarly, many people do not think about their estate planning when they are planning for their retirements. Estate planning is often left for much later.

However, this can be a mistake as Life Health Pro explains in "Bequest goals: more than just an issue for the wealthy."

The primary reason for this is that if you would like someone else to have a given asset after you pass away, then you need to make it so your retirement plan preserves that asset and that you do not have to use it. For example, if you would like to leave your home to your children, then your retirement plan needs to be sufficient enough for you not to have to sell the home to have funds to live on when you are no longer working.

This is true whether you have a large mansion or a more modest house.

What this means is that you should not think of life as entirely separate stages when you do your planning. Think about what type of estate you want to leave behind when you plan for your retirement and act accordingly.

Contact a qualified estate planning attorney to help you make appropriate plans.

For more information visit my Wichita KS Estate Planning Attorney website

Reference: Life Health Pro (Aug. 9, 2016) "Bequest goals: more than just an issue for the wealthy."

Demands On Your Money When You Retire

If you think of your money as a partner in your retirement plan, the idea that it should work hard for you makes a lot of sense. Consider these “demands” on money that appeared in “Seven demands retirees should place on their money,” from MoneyWatch:

• Growth: Make sure you still have a growth component in your portfolio so that you aren’t faced with attempting to live with an income that no longer covers your costs.
• Safety: Keep your money in a safe place and in the care of a reputable custodian who is not part of the investment company. Two words of warning: Bernie Madoff.
• Tax Efficiency: Remember what Mom used to always say, “It's not about how much money you make, but how much money you keep.” After tax cash flow is a must.
• A Healthy Long-Lasting Income: Ask your financial planner to conduct a cash-flow analysis to see how your money shakes out in five, ten, twenty and thirty years. Get help creating a plan that takes taxes and inflation into consideration and one that increases the probability that you’ll receive an income for the rest of your life.
• Control: Have some control over the access to your investments. What if there's an emergency?
• Access: Set some money aside for an emergency fund or rainy day fund, in case you have an unforeseen expense.
• Effective Estate Planning: Make sure that your estate plan lets your loved ones inherit your estate in the least-taxed, most cost-efficient way.

Make your money work hard! Speak with a qualified estate planning attorney.

For more information visit my Wichita KS Estate Planning Attorney website

Reference: MoneyWatch (August 3, 2015) “Seven demands retirees should place on their money”

Do’s and Don’ts For Aging Parents

A recent article in Hometown Life article, titled "Plan ahead to assure secure future for aging parents," stressed the importance of planning ahead for elderly parents are or may become physically or mentally unable to care for themselves. This process should include two important documents: a power of attorney—which can give an adult child legal authority to act on behalf of elderly parents with financial matters—and a medical power of attorney—to help them in medical matters. By starting early, children and their parents can work together to create these documents.  The article also answers questions on a few other topics:

What about putting your name on your parents' bank accounts?

Children should not be joint owners, because you’ll be subjecting your parents' assets to all of your liabilities, causing issues for future benefits. The government is more likely to scrutinize a joint account if the parent applies for Medicaid when transitioning to a skilled nursing facility. Instead, a signed financial power of attorney allows an adult child to pay bills, sign checks, and help the parent with other financial matters—without the need for joint bank accounts.

Who pays when an elderly parent, on Medicare, needs rehab in a skilled nursing center?

Medicare may pay 100 percent of the first 20 days. After that, Medicare may pay 80 percent, and supplemental insurance may pay the other 20 percent of the bill. There is a 100-day Medicare benefit, but not everyone qualifies. You also need to have a 30-day wellness period outside the hospital or a skilled nursing center for that benefit to reset. For example, if the parent leaves the facility on Day 20—but returns the next week—they start where they left off at Day 21 because they didn't have a 30-day wellness period.

Should I give any money away if considering entering a skilled nursing home (with Medicaid)?

No, Medicaid will examine the past five years of your finances when you apply for coverage. If you have given money away, you could be severely penalized with long periods of ineligibility and you may not get Medicaid even if you have zero dollars.

For more information visit my Wichita KS Estate Planning Attorney website

Reference: Hometown Life (January 23, 2015) "Plan ahead to assure secure future for aging parents"

Demands On Your Money When You Retire

If you think of your money as a partner in your retirement plan, the idea that it should work hard for you makes a lot of sense. Consider these “demands” on money that appeared in “Seven demands retirees should place on their money,” from MoneyWatch:

• Growth: Make sure you still have a growth component in your portfolio so that you aren’t faced with attempting to live with an income that no longer covers your costs.
• Safety: Keep your money in a safe place and in the care of a reputable custodian who is not part of the investment company. Two words of warning: Bernie Madoff.
• Tax Efficiency: Remember what Mom used to always say, “It's not about how much money you make, but how much money you keep.” After tax cash flow is a must.
• A Healthy Long-Lasting Income: Ask your financial planner to conduct a cash-flow analysis to see how your money shakes out in five, ten, twenty and thirty years. Get help creating a plan that takes taxes and inflation into consideration and one that increases the probability that you’ll receive an income for the rest of your life.
• Control: Have some control over the access to your investments. What if there's an emergency?
• Access: Set some money aside for an emergency fund or rainy day fund, in case you have an unforeseen expense.
• Effective Estate Planning: Make sure that your estate plan lets your loved ones inherit your estate in the least-taxed, most cost-efficient way.

Make your money work hard! Speak with a qualified estate planning attorney.

For more information visit my Wichita KS Estate Planning Attorney

Reference: MoneyWatch (August 3, 2015) “Seven demands retirees should place on their money”

The Last Halloween Story of the Season

Health care expenses are the main concern among Americans who are 65 and older, according to the last Halloween story of the season, "What Spooks Us Most About Money," from Forbes. In comparison, millennials have their own financial worries, chiefly the ability to pay their rent or make mortgage payments.

But here's the scariest part of the survey: about 21% of the 50+ respondents said their financial fears are holding them back from reaching their goals. That's gotta give you some estate planning chills! Many people 50+ are also undoubtedly scared of what will happen to their financial assets after they die and whether their loved ones will receive proper care.

The whole subject of estate planning gives some people the willies. It is scary to think about dying and planning for what may happen after your death. But not thinking about it could wind up haunting your family for years to come.

If you fail to name guardians for your children in your will, the court might name them for you. And if you don't have a written estate plan, your wealth could go to heirs you hardly know or do not want to have an inheritance.

Sit down with a qualified estate planning attorney and have him or her draw up a will or trust, if you haven't done so already. Ask if it would be wise for you to have one or more trusts, which can be extremely helpful if you have children or grandchildren with special needs.

For more information visit my Wichita KS Estate Planning Attorney website

Reference: Forbes (October 30, 2015) "What Spooks Us Most About Money"

HOW LONG WILL I LIVE AND DO I HAVE ENOUGH MONEY?

While few of us ever feel that we have enough money for retirement, strategies to help ensure that your nest egg lives longer than you do are addressed in The Boston Globe article, “Can you afford to live to 100?”

Delay claiming Social Security. This is the least costly way to add to your income later in life. For example, those born in 1949 are now reaching “full retirement age.” They are able to earn a benefit that’s 8% higher each year they delay, up to age 70. At the minimum, you should wait to claim until your full retirement age, which ranges from 66 (for people born from 1943 to 1954) to 67 (for people born in 1960 and later).

Buy an Annuity. Consumer Reports’ surveys of retired readers show that having a pension as a guaranteed income correlates with satisfaction in retirement. With these becoming less available, insurers are providing annuities, which have pension-like, lifetime income. If you have a small nest egg, the less you’ll want to devote to an annuity, as this effectively locks up your savings. A 65-year-old could cover all spending after age 85 by earmarking 10-15% of his or her current assets toward purchasing a longevity annuity.

What about Long-Term Care Insurance? The average cost of nursing home care in a semiprivate room is about $80,300 per year. Although 44% of men and 58% of women currently age 65 will need nursing home care at some point, those stays will average less than a year for men and less than 18 months for women. Most of the care is provided at home or another community setting. Half of nursing home and retirement care expenses are typically covered by either Medicare or Medicaid. Nonetheless, in assisted living facilities, where stays are around 22 months and the cost is about $43,200 annually, they might not accept Medicaid. You’ll need long-term-care insurance to fill the gap.

Don’t Forget Medicaid. If you believe you may require long-term care, either in your home or in a care facility, you should see where you stand as far as Medicaid. An experienced elder law attorney may be able to help you legally transfer certain assets before you submit your application.

For more information visit my Wichita KS Estate Planning Attorney website

Reference:  Boston Globe (September 11, 2015) “Can you afford to live to 100?”