Feeling Squeezed? You Might be a Sandwich

The phrase “sandwich generation” is used to describe people who are caring for their parents and their children at the same time. The number of people who fall into this category is growing, according to an article from The Motley Fool, “How to Help Your Parents Retire Without Derailing Your Own Retirement.” A survey found that about 16% of Americans are currently caring for an elderly relative, and this number is expected to double within the next five years.

What’s worse, very few people are planning for this situation.

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How Do I Discuss My Parents’ Long-Term Financial Goals With Them?

A recent study by Ameriprise Financial found that more than one-third of adult children say they haven’t had a conversation about their parents’ long-term financial goals. Even though discussing this delicate topic may seem uncomfortable, addressing it now can help avoid challenges and uncertainty in the future. To that end, the Ameriprise Family Wealth Checkup study found that those who talk about money matters, feel more confident about their financial future.

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‘Someday’ Is Sooner than You Think

The cause for sleepless nights for many, now comes from worrying about aging parents. As parents age, it becomes more important to talk with them about a number of “someday” issues, advises Kanawha Metro in the article “Preparing for someday.” As their lives move into the elder years, your discussions will need to address housing, finances and end-of-life wishes.

Where do your parents want to spend their later years? It may be that they want to move to an active retirement community not far from where they live now, or they may want a complete change of scenery, perhaps in a warmer climate.

One family made arrangements for their mother to take a tour of a nearby senior-living community, after their father passed. By showing their mother the senior-living community, they made an unknown, slightly intimidating thing into a familiar and attractive possibility. Because she saw the facility with no pressure, just a tour and lunch, she knew what kind of options it presented. The building was clean and pretty, and the staff was friendly. Therefore, it was a positive experience. She was able to picture herself living there.

Money becomes an issue, as parents age. If the person who always handled the family finances passes away, often the surviving spouse is left trying to figure out what has been done for the last five decades. A professional can help, especially if they have had a long-standing relationship.

However, when illness or an injury takes the surviving spouse out of the picture, even for a little while, things can get out of control fast. It only takes a few weeks of not being able to write checks or manage finances, to demonstrate the wisdom of having children or a trusted person named with a power of attorney to be able to pay bills and manage the household.

As parents age and their health becomes fragile, they need help with doctor appointments. Having a child or trusted adult go with them to speak up on their behalf, or explain any confusing matters, is very important.

Having an estate plan in place is another part of the business of aging that needs to be accomplished. It may be helpful to go with your parents to meet with an estate planning attorney to create documents that include a last will and testament, durable power of attorney and advanced health care directive. Without these documents, executing their estate or helping them if they become incapacitated will be more complex, and more costly.

Eliminate a scavenger hunt by making sure that at least two siblings know where the originals of these documents are.

One of the more difficult conversations has to do with end-of-life and funeral arrangements. Where do your parents want to be buried, or do they want to be cremated? What should be done with their remains?

What do they want to be done with their personal belongings? Are there certain items that they want to be given to certain members of the family, or other people they care for? One family used masking tape and a marker to write the names of the people they wanted to receive certain items.

Finally, what do they want to happen to their pets? If there is a family member who says they will take their parent’s pet, can that person be trusted to follow through? There needs to be a Plan A, Plan B and Plan C so that the beloved pet can be assured a long and comfortable life after their owner has passed.

Yes, these are difficult conversations. However, not having them can lead to far more difficult issues. Knowing what your loved ones wish to happen, and making it enforceable with an estate plan, provides everyone in the family with peace of mind.

Reference: Kanawha Metro (May 29, 2019) “Preparing for someday”

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Your Will Isn’t the End of Your Estate Planning

Even if your financial life is pretty simple, you should have a will. However, there’s more work to be done. Assets must be properly titled, so that assets are distributed as intended upon death.

Forbes’ recent article, “For Estate Plan To Work As Intended, Assets Must Be Properly Titled” notes that with the exception of the choice of potential guardians for children, the most important function of a will is to make certain that the transfer of assets to beneficiaries is the way you intended.

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How Big or Small Will Your Retirement Paycheck Be?

You’ve spent years saving for retirement, and maybe you’ve gotten that down to a science. That’s called the “accumulation” side of retirement. However, what happens when you actually, finally, retire? That’s known as the “deaccumulation” phase, when you start taking withdrawals from the accounts which you so carefully managed all these years. However, says CNBC, here’s what comes next: “You probably don’t know how much your retirement paycheck will be. New technology is working to change that.”

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A Roadmap for Making Your Money Last Through Retirement

Many Americans worry about whether they will outlive their money in retirement. This concern is understandable. Just the thought of going broke after decades of working hard, and not being able to fix the problem, because very few companies will hire a person of advanced age is enough to cause sleepless nights. To help you avoid this situation, here is a roadmap for making your money last through retirement.

Since people ask them about this problem frequently, financial experts have come up with key strategies for making your money outlast you. The four components are:

Add Up the Income You Can Count On

Start with Social Security and add to that all of your guaranteed income. This category can include things like a pension, annuity, or net rent (after all expenses) from reliable rental property. If you do not yet receive Social Security retirement benefits, you can call the Social Security Administration (SSA) or set up an online account for yourself (a My Social Security account) at the SSA’s website, (ssa.gov) to estimate your Social Security retirement benefits.

Your Safe Number to Withdraw from Savings

With interest rates fluctuating and the stock market going all over the place, it can be exasperating to try to calculate how much money you can withdraw safely from your retirement savings, without running out of money down the road. You can stop banging your head against the wall. Financial planners have a formula.

Get the total value of all of your liquid assets – things that are cash or that you can easily convert into cash. These assets include checking and savings accounts, money market accounts and investments like mutual funds, stocks and bonds. You should include your retirement accounts and other savings and investments.

Once you have that total, deduct a ”buffer” amount for several months’ worth of living expenses. That year, you can withdraw four percent of the amount that remains.

Here is how it works: If your total liquid assets minus the cash cushion equal $200,000, you can spend four percent ($8,000) that first year. The second year, you can withdraw a little more if there is inflation, but make sure that you do not confuse the formula on how to adjust for inflation.

Let’s say inflation is two percent. In year two, you can withdraw and spend four percent of your total liquid assets plus two percent for inflation. That does not mean you should spend six percent of your total liquid assets. It means you can spend $8,000 plus $160, which is two percent of $8,000.

Add Your Guaranteed Income and Your Spendable Amount

You can calculate your total income, by combining your Social Security and other guaranteed income with your “safe” four percent to withdraw. If you get $24,000 from Social Security and your four percent to withdraw from savings is $8,000, your total income is $32,000 a year.

Budget Accordingly

Set your budget around this amount. If you can keep your annual spending at or under your total income, you should have enough money to last you for your lifetime.

Be aware that some economic fluctuations might require you to withdraw less money from your savings in some years, and things like a medical crisis can increase your expenses.

Every state has different laws, so be sure to talk with an elder law attorney near you to find out how your state’s regulations might vary from the general law of this article.

References:

AARP. “4 Steps to Make Your Money Last a Lifetime.” (accessed January 25, 2019) https://www.aarp.org/retirement/retirement-savings/info-2018/make-money-last-lifetime.html

 

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Planning for Three Financial Phases of Retirement: Spending Down, Final Spending and Legacy

In pre-retirement earning years, all our attention is focused on accumulating assets. However, the information you need during the accumulation years is different than for the remaining years, according to a useful article from Financial Advisor titled “A Successful And Secure Retirement—Spend-Down Strategies: Part 1.”

The biggest difference in the strategies during the accumulation and withdrawal strategies, is that there’s a greater emphasis on long-term tax planning. Taxes are often the single biggest expense for investors. To make sure that you meet your goals, which includes having the IRS take the smallest piece of your assets, a plan must be created to focus on paying the least amount in taxes, while you are alive and even after you have passed.

The first phase of decumulation, which occurs at different times for different people (and for some people, never occurs) usually comes with a low tax rate. It often starts with retirement, when the paychecks are not coming in and, ideally, you are not yet drawing Social Security or pension benefits. This would allow your Social Security benefits to continue to grow and keep you in a low tax bracket.

The spend-down phase begins, when you start taking withdrawals from tax deferred retirement accounts. This typically starts the year you turn 70½ and start taking RMDs (Required Minimum Distributions). This is the time to be careful, since your tax rate will likely jump up from the amount it was when you were not yet taking RMDs or getting Social Security or pension benefits. The goal is to manage your retirement income, in order to minimize taxes.

The final-spending phase begins all too soon, especially when medical costs and long-term care costs increase dramatically. Given their tax deductibility, as things currently stand, this may provide another period with very low tax rates.

The legacy phase begins upon your death, or on the death of the surviving spouse. The goal is the tax efficient transfer of remaining wealth to heirs and charities and preparing heirs for the assets they will inherit. An estate plan should be in place long before this phase is reached, so that your assets are passed seamlessly to family members and charities.

As a person moves through these stages of post-retirement spending, there are many strategies that can be used to minimize tax liability and maximize the growth of assets. A balance must be found between spending, managing tax burdens and preparing for a legacy.

Speak with your estate planning attorney, who can help you navigate tax planning.

Reference: Financial Advisor (Jan. 21, 2019) “A Successful And Secure Retirement—Spend-Down Strategies: Part 1”

 

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Self Employed People Get to Retire Too–If they Plan Well

People who work for companies have access to perks like 401(k) plans, with automatic deductions that let them put retirement savings on autopilot. However, when you work for yourself, it’s all up to you, says Zing! in the aptly-titled article “Saving for Retirement When You’re Self-Employed? It Takes Planning and Commitment.” If you have the discipline and self-motivation to run a business, you should be able to apply those skills to your retirement.

Here are some tips for self-employed people who are concerned with building their retirement savings.

Embrace a budget. One of the biggest challenges is income that fluctuates. It’s hard to save when one month has you earning $10,000 and $3,000 the next month. You’ll need to create a budget and stick with it, including budgeting a percentage of your income for retirement. While you’re creating a budget, set goals for short- and long-term objectives to keep your budgeting focused.

A budget should include necessary expenses for each month, including mortgage or rent, car loans and credit card payments. Include groceries, transportation, and health care costs. Some self-employed people pay for some items like transportation or entertainment out of their business accounts. If you do that, just work with one budget, so you can measure spending. There is no need to split things out for yourself. You should then look at discretionary items like vacations, entertainment, gym memberships, clothing and things that are not basic necessities.

Now see what’s left at the end of the month. If there’s no regular stream of money going into retirement savings because there’s not enough after spending, you may need to make some changes.

Create an item in your expense budget for retirement savings. Make it automatic. Set a fixed amount of your income, by dollar amount or percentage of monthly income, and put it away every month for your retirement. This takes discipline at first and then becomes a habit. Once you see how the account grows, you’ll be more inclined to continue.

Talk with your accountant about the best savings vehicle for you. Some self-employed individuals use a “solo” 401(k) account, known as a SEP or Self-Employed 401(k). Designed for employers who have no employees other than themselves (or their spouses), it offers the same benefits as traditional 401(k)s. In 2019, you can contribute up to $19,000 when contributing as an employee, or up to $24,500 if you are 50 and older. As an employer, you can contribute up to 25% of your compensation – not counting catch-up contributions for those 50 and older, you can go as high as $55,000 in 2019.

Another factor if you are self-employed is your estate plan. Entrepreneurs are often so busy working on their business, that they forget about the legal side of their personal lives. You need a will, power of attorney, health care power of attorney and, depending on your business and life situation, a succession plan.

Reference: Zing! (Jan. 7, 2019) “Saving for Retirement When You’re Self-Employed? It Takes Planning and Commitment”

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