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Barbara Swiatek

Financial Vows for Money-Savvy Couples

By | Financial Advice, Financial Planning | No Comments

February is a good time to celebrate your relationship with your significant other—and renew your commitment to your mutual financial success. Here are some ideas to say “I do” to this month.

  • Vow to protect yourselves from emergencies

During the government shutdown early this year we learned that 40% of Americans don’t have enough money set aside to handle even a $400 emergency. Whether you determine you want an amount equal to six months’ or 12 months’ worth of living expenses, vow to set aside an emergency fund in liquid, readily-accessible accounts so that you have adequate cash on hand should you need it.

  • Vow to protect your family finances by shifting risk

Along the same lines as an emergency fund, work with a financial advisor to determine how much risk you both face from other potentially life-altering events. What would happen if one of you suddenly became unable to work or function due to a disability? What if you required nursing care? What if one of you suddenly passed away?

Insurance companies offer policies designed to shift many of life’s unexpected financial risks away from your family. Be sure to compare policies offered by multiple highly-rated insurance companies to help ensure you get the best coverage for your premium dollar.

  • Vow to put an estate plan in place (or update your current plan)

If one or both of you have children from a previous marriage, make sure all of your documents are in order so that family squabbling is reduced to a minimum if one of you predeceases the other. Most experts say that you should have at least some of your assets transfer immediately lest one of you remarries or other circumstances change and money that you expected would pass to your biological children gets spent by an unintended party.

Similarly, did you know that the beneficiaries you designate on retirement accounts and insurance policies and similar accounts take precedence over your wills and/or trusts? If you haven’t looked at that old 401(k) for decades, chances are that your ex-spouse might inherit that money regardless of your true wishes or life circumstances at the time of your death.

All of your documents need to be reviewed on a regular basis—let’s get together as soon as possible.

  • Vow to make saving and retirement planning a priority for you both

Even though retirement accounts are held separately, it’s important to have a shared vision about your retirement together. Be sure to meet with your retirement planner or financial advisor to discuss your future goals and time horizon. Other financial goals should also be prioritized so that you’re both on the same page, like saving up for the kids’ college expenses or the daughters’ weddings.

  • Vow not to keep secrets about money and keep the communication flowing

Hopefully you’ve been honest from the beginning of your relationship about your level of debt, how you handle sticking to a budget, or whether or not you have a low credit score. Understanding each other’s financial position and money habits is the first part of being able to take control of your finances together in order to achieve mutual goals as a couple.

And remember that it’s important that both of you understands your overall combined financial picture, even if one of you pays the bills or the other takes the lead role in investing. Don’t delegate this, make it a point to stay in the loop with financial decisions. Even if you have separate bank accounts to handle the day-to-day finances, you both need to understand where you’re at and where you’re headed when it comes to your financial future as a couple, especially your plan for retirement.

Even if it doesn’t seem exactly romantic, talking about money can make your relationship a more perfect union for the long-term. Aiming “for richer” rather than “for poorer” together can strengthen your matrimonial bonds.

We’re here to help. Call SF Financial in Colorado Springs at (719) 597-2179.

 

 

Sources:
CNN, “40% of Americans can’t cover a $400 emergency expense.” https://money.cnn.com/2018/05/22/pf/emergency-expenses-household-finances/index.html (accessed February 11, 2019).
Forbes, “6 Financial Vows Couples Should Take To Heart.” https://www.forbes.com/sites/judithward/2019/01/23/6-financial-vows-couples-should-take-to-heart/?ss=personalfinance#1a8149385241 (accessed February 11, 2019).

 

Managing Your Finances

By | Financial Advice, Retirement | No Comments

We work with dozens of people to help them create retirement plans. But in order to get to a successful retirement, there are thousands of small decisions along the way. Like, should you drive through your local coffee place and grab a latte this morning? Go with the office gang for lunch at that little bistro across the street, which usually costs you around $15? Should you order pizza delivered for dinner tonight because you didn’t go to the grocery store yesterday? Grab that new shirt because it’s 50% off?

Sticking to a budget is the beginning of mastering your money. But why do so many of us find it difficult?

A recent article in Forbes magazine may hold some clues as well as ideas about how to take control of your discretionary expenses. The author, Thomas Dichter, advocates writing every expenditure down, to the penny, as well as calculating how well you met your budget on an annual basis. (He usually comes within 1% of his goal, and many times comes in under, which he attributes to his meticulous record-keeping.)

Mr. Dichter explains how he started the process:

“I forced myself to write down what I had spent under each category. After a week my inner accountant had emerged and I kept at it. By month six I noticed something magical: the act of tracking expenses had a feedback effect on my spending. My expenses in the categories that all of us tend to ignore (take-out food and coffee, a candy bar at a vending machine, impulse buying a shirt, or a magazine at the check out line, etc.) were going down, not because I wanted to deny myself, but because I could see what was happening.

“At the end of that first full year those few minutes a day of what became compulsive recording paid off. It took me about a half hour to add up each category and then total it all (a side benefit became obvious when I had to do my taxes). Then I compared that total to my take-home income for the year and saw I was ahead, for the first time in my life. I decided to do a budget for the next year, using the past year’s expenses as a guide. At the end of that year I saw I had come within 1% of my budget estimate. Passing that self-imposed test soon became an annual goal. Each year on December 31st, I see how close I’ve come to my budget estimate of twelve months earlier. Usually I come within that 1%, sometimes over but more often under.”

The author goes on to say that he believes that easy access to credit, along with an economy based on consumption, contributes to the overspending problem in America. And the main excuse for resisting his simple method—“I don’t have time”—is just a cover story for other, deeper reasons. For example, he believes that some people don’t really want to know what they spend, because it might rock their feeling that “everything is okay.” Some operate on the subconscious wavelength that it’s better to risk their financial future rather than turn into some kind of accounting nerd or tightwad.

As financial advisors who work with people every single day, we are here to tell you that managing your finances is possible, and might even be easier than you think. Let’s talk. Call SF Financial in Colorado Springs at (719) 597-2179.

 

Source:
“A New Year’s Resolution To Manage Your Finances: Why Is Sticking To It So Hard?” by Thomas Dichter, Contributor, Forbes.com. https://www.forbes.com/sites/thomasdichter/2019/01/01/a-new-years-resolution-to-manage-your-finances-why-is-it-so-hard/#38ef8202106f (accessed January 14, 2019).

The 3 Stages of Your Financial Life

By | Financial Planning | No Comments

What are the three stages in your financial life?

The first stage is preparing for life’s uncertainties. The second stage is managing your net worth and the third stage is managing retirement and your estate. The base of the pyramid is preparing for life’s uncertainties.

Insurance is the most cost-effective way to deal with this. Insurance can include life and health insurance, disability insurance, long-term care insurance, home and auto insurance and insurance against other perils. Adequate liquidity in your investments or in cash to cover emergencies along with a will is important. The next level involves managing your money. Investment strategies should include diversification and risk management. The best option is to review you goals with a professional. The top tier addresses retirement and estate planning.

The ultimate goal is to ensure that you have income and assets for as long as you live. Your investments should be in line with your specific situation, goals and risk tolerance. An estate planning professional can provide you with documents necessary to ensure a planned distribution to beneficiaries. The three stages sound simple yet few people adequately prepare for any of them.

We can work with your tax and legal professionals to develop a plan to help you reach your financial goals. So please give us a call today.

(719) 597-2179

5 Things to Know About Long-Term Care

By | Long Term Care | No Comments

November is long-term care (LTC) awareness month. Here are five things you should know.

 

  1. There are different types of facilities providing increasing levels of care.1

If you hear the words “long-term care” and automatically think “nursing home,” you should know that long-term care encompasses a wide range of options and a progression of choices. The most self-sufficient seniors might live in independent retirement living facilities, while assisted living often adds medication management, daily personal care, meals and housekeeping.

Continuing care retirement communities (CCRCs) offer a tiered approach so that seniors can transition on site as they require more services. Adult foster care is available in private homes run by trained caregivers—there are even special homes designated for military veterans with chronic medical conditions overseen by the Dept. of Veterans Affairs.

Of course, nursing homes are also part of the spectrum, offering 24-hour supervision, nursing care, help with daily living activities and three meals per day. Secured memory care units, which are more expensive, are often located within nursing homes to provide a safe but more homey environment for people suffering with Alzheimer’s or dementia. Skilled nursing facilities (SNF) are not identical to nursing homes—they often staff doctors and nurses around the clock and offer physical rehabilitation services. People in these facilities may be bedridden, need two people move them, and require dialysis or other intensive treatments.

 

  1. Statistics vary on how many people will need long-term care.

With 10,000 people turning 65 every single day in America until around year 20302, there are varying statistics regarding the need for long-term care—some as high as 75%.3 In late August, Morningstar put together their 2018 updated statistics, placing the percentage of people 65 or older who will need long-term care at 52%, the majority female.4

 

  1. Alzheimer’s dementia is on the rise due to longevity.5

According to the Alzheimer’s Association, “Someone in the United States develops Alzheimer’s dementia every 66 seconds.” An estimated 5.5 million Americans—one in 10 people age 65 and older (10%)—are living with Alzheimer’s dementia, almost two-thirds of them women.

In addition to gender, race evidently also plays a role in the risk of developing the disease. Hispanics are about one and one-half times as likely to have Alzheimer’s or other dementia as whites, while African Americans are about twice as likely to have Alzheimer’s or other dementia as whites.

 

  1. Long-term care costs are high, and rising.

According to Genworth’s 15th Annual Cost of Care Survey, the “blended annual median cost of long-term care support services has increased an average of 3% from 2017 to 2018, with some care categories exceeding two to three times the 2.1% U.S. inflation rate.” 7

Annual National Median Costs 2018 8

Homemaker Services: $48,048

Home Health Aide: $50,336

Adult Day Health Care: $18,720

Assisted Living Facility: $48,000

Semi-Private Room in a Nursing Home: $89,297

Private Room in a Nursing Home: $100,375

Most expensive states in order are Alaska, Hawaii, Massachusetts, New Jersey, Connecticut, New York, New Hampshire, North Dakota, Vermont, Delaware, Maine, Washington, Minnesota, Oregon and California.7

 

  1. Hybrid policies are now more popular than standalone LTC policies.9

When it comes to helping people solve the problem of potentially needing long-term care, hybrid whole life, hybrid indexed universal life (IUL) and hybrid annuities have been more popular than traditional long-term care policies, and they are becoming more popular every year.

The reasons for the rise in popularity have to do with a combination of factors, including the rising cost of standalone LTC policies as well as the attractive features of some new hybrid annuities and life policies.  The elimination of the “use it or lose it” nature of typical long-term care insurance policies, in some cases providing a death benefit if the policyholder does not need long-term care during their lifetime, is often cited as the most attractive feature of hybrid policies.

 

 

If you would like more information about how to make sure you are covered for long-term care if you need it, please call SF Financial in Colorado Springs at (719) 597-2179. We can help you compare your many new LTC policy options!

 

 

Sources:
1 “What’s the Difference Between Types of Long-Term Care Facilities?” USNews.com. https://health.usnews.com/wellness/aging-well/articles/2018-10-30/whats-the-difference-between-types-of-long-term-care-facilities (accessed November 5, 2018).
2 “Baby Boomers Retire,” Pewresearch.org. http://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/ (accessed November 5, 2018).
3 “Long Term Care Statistics,” LTCtree.com. https://www.ltctree.com/long-term-care-statistics/  (accessed November 5, 2018).
4 “75 Must-Know Statistics About Long-Term Care: 2018 Edition,” Morningstar.com. https://www.morningstar.com/articles/879494/75-mustknow-statistics-about-longterm-care-2018-ed.html  (accessed November 5, 2018).
5 “Alzheimer’s Is Accelerating Across the U.S.,” AARP.org https://www.aarp.org/health/conditions-treatments/info-2017/alzheimers-rates-rise-fd.html (accessed November 5, 2018).
7 “Top 15 Most Expensive States for Long-Term Care: 2018,” Thinkadvisor.com. https://www.thinkadvisor.com/2018/10/24/top-15-most-expensive-states-for-long-term-care-20/   (accessed November 5, 2018).
8 “Cost of Care Survey 2018,” Genworth.com https://www.genworth.com/aging-and-you/finances/cost-of-care.html (accessed November 5, 2018).
9 “Why hybrid policies are so popular,” Thinkadvisor.com. https://www.thinkadvisor.com/2018/03/28/why-are-the-new-hybrid-ltc-policies-so-popular/  (accessed November 5, 2018).
Further reading:
“How clients can use annuities to pay for long-term care,” Financial-planning.com. https://www.financial-planning.com/news/as-ltc-insurance-prices-rise-long-term-care-annuities-gain-popularity (accessed November 5, 2018).
 “Could Your Long-Term Care Premiums Be Hiding in Plain Sight?” Morningstar.com. https://www.morningstar.com/articles/879259/could-your-longterm-care-premiums-be-hiding-in-pla.html (accessed November 5, 2018).
“Hybrid policies for long-term care,” Chicagotribune.com. https://www.chicagotribune.com/business/sns-201806261243–tms–savingsgctnzy-a20180626-20180626-story.html (accessed November 5, 2018).
“Hybrid Policies Allow You to Have Your Long-Term Care Insurance Cake and Eat It, Too,” Elderlawanswers.com. https://www.elderlawanswers.com/hybrid-policies-allow-you-to-have-your-long-term-care-insurance-cake-and-eat-it-too-15541 (accessed November 5, 2018).

Medicare Fall Open Enrollment Ends Soon

By | Retirement, Retirement Investing | No Comments

Time is almost up for this years Medicare Open Enrollment period.  You have until the 7th of December to modify your existing Medicare plans. In this period you can enroll in a Medicare Advantage Plan or a Part D drug plan.

Any modification made during this period is effective from January 1st of the following year. Generally, this is the only time of the year when one can opt for a new plan or switch from Advantage plans to Original Medicare plans. A tweak not known to many is to purchase a Medigap policy which compensates for Medicare costs to some extent. The availability of a Medigap Policy completely depends on the place of residence.

Medicare coverage and costs are revised every year. It is recommended to compare the existing package with the new ones for better understanding before making any possible modifications. The members of Medicare Advantage Plans of Part D receive notice of changes and the current evidence of coverage which are to be compared to see if any modification will result in cost and coverage benefits.

Medicare has rolled out a Plan Finder tool for locating the best plans in Part D drug coverage policies. The tool is designed to understand the requirement of drugs, cost of those drugs and the availability in pharmacies often visited based on which it runs extensive comparisons with other plans and end up displaying the best plan to opt for if there is any.

Joining an Advantage Plan is a very simple process. Calling their national toll free number may be the quickest way to know about the plans in that area following which one can choose to opt for a particular package best suited for the requirements. Calling the State Health Insurance Assistance Program can help you understand the available options and is recommended for changes if necessary. After shortlisting a plan, it is a must to check that the doctors and hospitals are included in the network. Speaking to the representative should be followed by noting down the date, the conversation and a cross-check with the current plans for transparency.

Though there are different ways to enroll during the fall open enrollment period, the most hassle-free way of enrolling and protecting yourself is to directly call their toll free number which is 1-800-MEDICARE. One last check to confirm all the details before making payment is suggested.

In case that you are not satisfied with any Advantage Plan opted for during the Fall Open Enrollment period, you can modify the plan in the next window which is called the Medicare Advantage Open Enrollment Period abbreviated as MA OEP. This period starts from 1st January and ends on 31st March of every year. This is the final window for making any sort of changes wished for in the Medicare Advantage Plans and the Part D drug coverage plans.

There lies a distinct difference between Open Enrollment for Federal Marketplaces and the Fall Open Enrollment period. The federal marketplaces are meant to annually offer enrollment periods for American citizens who are not insured or underinsured according to the standards set by the law. Though the duration of both the windows may coincide, the federal marketplaces or exchanges is not recommended citizens with existing membership with Medicare or are eligible for Medicare. For people who can afford and are eligible for Medicare and are looking to modify their current plans or opt for the new membership with the organization, the Fall Open Enrollment Period starting from October and ending on December is the correct time of the year.

Your Social Security Benefits Get A Boost

By | Retirement Investing | No Comments

Some seniors are dependent on their Social Security benefits, but the majority of your retirement income may be derived from other sources. While your Social Security income may not be your primary source of income in retirement, you nonetheless may be counting on that income to provide financial support for your quality of life in a modest capacity. Social Security benefits increases have been minimal most years since 2000. The exception was in 2012 when benefits increased by 3.6 percent. However, in 2010, 2011 and 2016, there was no cost-of-living adjustment. The announced cost-of-living increase for the 2019 calendar year is 2.8 percent.

More than 67 million Americans are Social Security beneficiaries, so this has a major impact on the lives of many people. The modest increase in income is not the only change made by the Social Security Administration for 2019. The amount of income that can be taxed for Social Security has increased, and the earnings limit for some individuals has also been adjusted.

While this year’s increase is substantially higher than the increase in most years in recent history, it is not enough to compensate recipients for the diminished buying power of their Social Security income. The Senior Citizens League has estimated that the buying power of Social Security benefits has decreased by 34 percent since 2000. This estimate takes into account the planned increase in benefits for 2019. Over this same period of time, this organization estimates that expenses for seniors have increased by as much as 96 percent. For example, homeowners insurance premiums for seniors have increased by 164 percent and property taxes have increased by 129 percent in this time period. Prescription drug costs have increased by 188 percent, and home heating oil costs have increased by 181 percent.

In recent years, cost-of-living adjustments to Social Security benefits has also resulted in an increased premium for Medicare premiums. In fact, the net benefit for many retirees has been minimal when both factors are taken into account. Updates to Medicare premiums for 2019 have not yet been released. However, because the cost-of-living adjustment for this year is substantial, any premium increases are not expected to make a huge impact on the raise that many beneficiaries are receiving for 2019. Keep in mind that Medicare premiums have increased by 195 percent between 2000 and today, and Medigap costs have increased by 158 percent.

While the impact of the Social Security benefits increase this year and in the next few years may have a modest impact on your financial situation at the moment, you can see that continued increases to senior living expenses could make you more reliant on Social Security benefits in the years ahead. It is important that you pay attention to benefits adjustments, Medicare costs and cost-of-living increases in the years ahead as their effects can become increasingly significant as you get older. In addition, now that you know more about the increase to Social Security benefits in 2019, you can update your financial plan and budget going forward.

Retirement Should Not Scare Women

By | Retirement Investing | No Comments

Halloween may be an appropriate time for a good scare, we should limit unwanted surprises in retirement!  Generalizations may not necessarily reflect your individual circumstance although there are fact-based reasons why the average woman faces greater hurdles than the average man does in securing her retirement. However, an awareness of the negatives and a proactive plan to take full advantage of some positives should demonstrate that retirement should not scare women.

More years of retirement and with fewer assets

The deck is stacked against some women before they even think about enjoying their first day of retirement. Some of the factors include:

• Longer life expectancy
• Greater likelihood of being the surviving spouse
• Wage gap as compared to male counterparts
• Less working years due to child rearing and caring for aging parents

One factor that may be interpreted as either a positive or negative is risk tolerance. Women tend to invest more conservatively than men, which can lead to lower potential returns. Conversely, conservative investors tend to move money around less often and continuity can lead to more consistent growth in the long term.

Take control

Where one starts is seldom as important as where one ends up. Consider these strategic goals to level the retirement playing field:

Save – Start early, continue to save and save as much as possible. 20 percent of income is a nice goal but maximizing what is practical is the ultimate goal.

Know what is needed – In our sunset years, we tend to fear dying less than outliving our retirement money. One way to prevent that is to begin with knowledge of what it costs to live. Be realistic about expenses that are fixed and what will no longer be needed once work is no longer in the picture. Ideally, the fixed expenses of one year of retirement living is generated annually by retirement income.

Invest the savings – This comes with one caveat – invest savings once an emergency fund for unexpected expenses is established. Most experts recommend six months of living expenses in cash assets as a minimum. Once that is accomplished, an asset allocation plan should be devised based primarily on age and ultimate financial goals.

Keep working – Other than the satisfaction work can provide as wells as a longer timeline to save, extending work past age 65 pays dividends in social security benefits. Although many women are concerned social security may one day fail, experts predict its pending demise is over exaggerated. One thing that is certain is that the longer a worker waits before taking benefits, the better. Consider that at age 62 a worker receives 70 percent her full retirement benefits, but that number rises to 132 percent at age 70.

Include an estate plan

Careful planning includes what-if scenarios. Take the time to set up a will and more preferably a trust, as well as a financial power of attorney and durable power of attorney for healthcare.

There’s no reason any woman should fear retirement. A realistic analysis, a well-crafted plan and disciplined execution will go a long way towards a secure and serene future.  We are here to help, give us a call, today.

Top 5 Things Baby Boomers Should Know

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  1. The Social Security COLA (cost of living adjustment) in 2019 will be 2.8%.

This is the largest COLA increase from the Social Security Administration since 2012.1

  1. Social Security benefits are often taxed.

If you work and are at full retirement age or older, you can earn as much as you want and your benefits will not be reduced; however, you may have to pay taxes on them. If your annual combined income is from $32-$44,000 filing jointly, you may have to pay taxes on 50% of your benefits. If your income is more than $44,000 filing jointly, then you may have to pay taxes on up to 85% of your benefits.2

Social Security calculates “combined income” by adding one-half of your Social Security benefits to your other income.2

  1. RMDs can have a profound effect on taxes.

Many people forget that RMDs (Required Minimum Distributions) begin at age 70½. You are required by the IRS to start withdrawing money annually from your 401(k)s, traditional IRAs and other tax-deferred accounts using a precise formula, and you must do so by December 31st of each year or owe the income tax plus a 50% penalty.

Since you’ve never paid taxes on this money, you will owe income tax on your withdrawals based on your tax bracket for the year, and the income from your withdrawals are added in to the combined income amount that Social Security calculates. Some Baby Boomers are shocked at the amount of income tax they will actually owe, and come to the realization that their nest egg is actually much less than they thought.

RMDs, tax planning and income planning are the major reasons having a retirement plan in place is so important.

  1. Medicare isn’t free.

Not only is Medicare not free, but the premiums are usually deducted from your Social Security check.

Medicare health and drug plan providers often make changes to their policies each year, including changes to costs, coverage, deductible and coinsurance amounts, and what pharmacies and providers are in their network, so it pays to do your homework every year. Medicare Open Enrollment runs from October 15 through December 7, and this is your opportunity to make new choices and pick plans that work best for you; changes made are effective as of January 1, 2019.

During Medicare Open Enrollment you can sign up for a Medicare Prescription Drug (Part D) Plan, switch plans, drop your Part D coverage altogether, switch from Original Medicare to a Medicare Advantage plan or select a Medicare Advantage plan from another provider.

You should review drug costs because the prices of some brand-name drugs could be lower next year. As part of the recent tax plan changes, some drug manufacturers will pay more of the costs for enrollees in the drug coverage gap (also known as the “donut hole”) starting in 2019.3

  1. Everyone should have an estate plan

Estate plans are for the people you leave behind when you pass away. Here are some things you should be aware of:

  • An estate plan helps ensure your final wishes get carried out, and also let your family, trustees and health care providers know what your wishes are in terms of finances, possessions and end-of-life health desires.
  • Having a trust in place usually allows your estate to avoid probate court and keeps your finances private.
  • A will allows you to name guardians for minor children and to specify how possessions will be distributed. But if you have only a will in place, your estate will have to go through probate court, which could be a lengthy and costly process for your heirs. Probate also leaves your finances open to public scrutiny.
  • Beneficiaries you have named on individual life insurance policies, 401(k)s and other financial accounts take precedence over your estate planning documents. There have been cases where a former spouse has received financial benefits that weren’t intended, simply because the beneficiaries were never changed on individual accounts. Make sure you review and make updates to all documents on a regular basis.
  • The estate tax exemption, which was doubled by the latest tax legislation to $22.36 million per couple until 2025, means that you should investigate to see if or how you might be able to take advantage of the favorable tax laws while they exist.4

 

For more information about issues related to retirement planning, please call SF Financial in Colorado Springs for retirement advice at (719) 597-2179.

 

Sources:
1 “Social Security Benefit to Increase 2.8 Percent in 2019,” AARP.org. https://www.aarp.org/retirement/social-security/info-2018/new-cola-benefit-2019.html (accessed October 16, 2018).
2 “Benefits Planner | Income Taxes And Your Social Security Benefit,” SSA.gov. https://www.ssa.gov/planners/taxes.html  (accessed October 16, 2018).
3 “Medicare ‘Doughnut Hole’ Will Close in 2019,” AARP. https://www.aarp.org/health/medicare-insurance/info-2018/part-d-donut-hole-closes-fd.html (accessed October 9, 2018).
4 “How the new tax law upends estate planning,” Financial-planning.com https://www.financial-planning.com/news/how-the-new-tax-law-changes-estate-planning-trusts-income-tax-planning  (accessed October 17, 2018).

 

Retirement Planning Mistakes To Avoid

By | Retirement | No Comments

Retirement should be a time of rest, relaxation, and play. It should be about focusing on those pursuits that you wanted to do when you were younger, but you have yet to cross them off of your bucket list. 

Failing to plan for a comfortable retirement, however, can be a major stressor in the life of someone facing their golden years. Recreational hopes and dreams can quickly be squashed in the wake of news that you haven’t set up things to be nearly as prosperous as you’d hoped. Learning what to do, and what NOT to do, as you plan for this time in your life will be key to being able to enjoy these years. Here are some things to avoid as you plan for this exciting time in your life: 

Don’t Rely Solely On Social Security 

You may have been somewhat misled with regard to social security—it was never meant to replace your original paycheck. Social security will cover approximately 40 percent of your pre-retirement income, and unless you are intending to pare down your expenses in retirement, its best to put other things in place to make sure you can live comfortably. 

Social security funds are also subject to availability, so if market fluctuations affect the overall health of this national account pool, you could also be affected. 

Don’t Assume Cost Of Living Will Be Cheaper

If you think of your day to day living expenses like food, clothing, and utilities, it is likely that these expenses will not go away in retirement. You might even find that certain expenses, like health care and leisure entertainment, actually go up during this time. To plan for a comfortable retirement, you’ll need to take into account all of these potential expenses when you budget what your cost of living will be. 

Don’t Neglect Catch-Up Contributions 

Many people simply don’t prioritize adding to their retirement savings in their early years of contribution to the workforce–most of their income is spent on student loan payments, housing, and supporting their families. 

After 50, people can take advantage of a catch-up contribution option, where you are able to put additional money into an IRA or another retirement account. While a startlingly low percentage of people over 50 do take advantage of the catch-up option, it is strongly recommended that you look into this as an efficient way to expand and grow your retirement portfolio. 

Don’t Forget Those Taxes 

It may seem at first with social security and other avenues of income streaming in that you have a pretty healthy influx of cash at your disposal. Stop and consider whether you have paid Uncle Sam his dues. Most retirement income is still taxable by law; up to 85 percent of social security income is still taxable! Interest and investment income are not immune to tax regulations either, even in retirement. Staying informed and making wise decisions with the counsel of trusted financial advisors will be key to maximizing your profit while minimizing your tax liability. 

An Ounce Of Prevention 

You’ve heard the phrase, “an ounce of prevention is worth a pound of cure”. It is especially true when planning for retirement. Making smart decisions now and preparing for this time will help ensure that your golden years are just that.  We are here to help you create a plan that will help you pursue a successful retirement.

Passing Your Estate to Imperfect Heirs

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When planning one’s last will and testament, one always hopes that the people they will be passing on their hard-earned wealth to will be responsible enough to handle it well and if possible, carry on their legacy. This is a hope which can be difficult to keep alive, especially in cases where the heirs have issues such as bad spending habits, drug addiction, gambling problems, and other weaknesses which compromise their judgment. When passing your estate to an imperfect heir, you need to make sure that you have put in place measures to control the manner in which they will use the money to prevent wastage. Here are some of the most common approaches.

Creating a trust

A trust is one of the ways in which you can pass on wealth to an heir while at the same time controlling the manner in which they use the money.  You can open a trust fund and appoint someone to play the role of trustee. The trustee is usually an independent and non-partisan party to the agreement. They should also be responsible, trustworthy, firm and principled. There are people who opt to appoint family members as trustees although there are times that these arrangements do not work out because of the possibility that they will cave when pressured by a family member who needs the money.  The ideal features of a trust is that they can specify the circumstances under which the money can be withdrawn. There are also trusts which state that it is only the trustee who will have discretion on when the funds can be disbursed.

Structured ideas

There are other approaches proven to have some success;

· You could decide to only have a lump sum payment made to them after they graduate from college

· You could decide to have chunks of the money offered to them after a specified period of time of sobriety. For instance, you could have money released to them after five years of being sober.

· You could create a will which says that payments are made directly to their utility providers such as their landlords and other utility companies.

There are many other specifications which you can make, but the most important part of to ensure that you are dealing with a professional who understands the rules and regulations of the process.

Dealing with the problem at the present

Another approach that many people never think about, and one that can be more helpful than trying to make safety nets, is dealing with the problem in the present. For instance, if you have a child that has an addiction issue, you can work to correct the issue now. Speak to them in the present and tell them that they need to get help. Create incentives that work in the present and work towards making sure that by the time you are approaching your sunset, the child has tried their best to reform.

Disinheritance

This may sound harsh, but in some circumstances, when you have tried all other approaches and when you are sure that leaving the property to the problematic heir will just be the same as throwing it away, you can choose to disinherit them. However, this is a last resort and usually applied if everything else that you can think about has completely stopped working.

These are just a few of the ways in which you can resolve the inheritance issue when their heirs are less than perfect. Ensure that you start looking for a solution long beforehand so that you can protect the child and/or family member from further destruction.