These Social Security Myths Could Derail Your Retirement

If you’re like many Americans, you’re relying on Social Security to a large degree to cover your expenses once your career ends and that steady paycheck vanishes, says AZ Central in the article “These 3 dangerous Social Security myths could destroy your retirement.” However, that dependence could lead to serious problems, if you don’t know the best way to manage Social Security.

The better educated you are about this government agency and its benefits, the better off you, your spouse and your family will be. Even if you’re a decade or two away from retiring, it’s a good idea to start learning about how it all works.

Here are three myths that land many people in trouble.

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Why It’s Always Better to Plan Ahead

Two stories of two people who managed their personal lives very differently illustrate the enormous difference that can happen for those who refuse to prepare themselves and their families for the events that often accompany aging. As an article from Sedona Red Rock News titled “Plan ahead in case of sudden sickness or death” makes clear, the value of advance planning becomes very clear. One man, let’s call him Ben, has been married for 47 years and he’s always overseen the family finances. He has a stroke and can’t walk or talk. His wife Shirley is overwhelmed with worry about her husband’s illness. Making matters worse, she doesn’t know what bills need to be paid or when they are due.

On the other side of town is Louise. At 80, she fell in her own kitchen and broke her hip, a common injury for the elderly. After a week in the hospital, she spent two months in a rehabilitation nursing home. Her son lives on the other side of the country, but he was able to pay her bills and handle all the Medicare issues. Several years ago, Louise and her son had planned what he should do in case she had a health crisis.

More good planning on Louise’s part: all her important papers were organized and put into one place, and she told her son where they could be found. She also shared with him the name of her attorney, a list of people to contact at her bank, primary physician’s office, financial advisor, and insurance agent. She also made sure her son had copies of her Medicare and any other health insurance information. Her son’s name was added to her checking account and to the safe deposit box at the bank. And she made sure to have a legal document prepared so her son could talk with her doctors about her health and any health insurance matters.

And then there’s Ben. He always handled everything and wouldn’t let anyone else get involved. Only Ben knew the whereabouts of his life insurance policy, the title to his car, and the deed to the house. Ben never expected that someone else would need to know these things. Shirley has a tough job ahead of her. There are many steps involved in getting ready for an emergency, but as you can see, this is a necessary task to start and finish.

First, gather up all your important information. That includes your full legal name, Social Security number, birth certificate, marriage certificate, divorce papers, citizenship or adoption papers, information on employers, any military service information, phone numbers for close friends, relatives, doctors, estate planning attorney, financial advisor, CPA, and any other professionals.

Your will, power of attorney, health care power of attorney, living will and any directives should be stored in a secure location. Make sure at least two people know where they are located. Talk with your estate planning attorney to find out if they will store any documents on your behalf.

Financial records should be organized. That includes all your insurance policies, bank accounts, investment accounts, 401(k), or other retirement accounts, copies of the most recent tax returns, and any other information about your financial life.

Advance planning does take time, but not planning will create havoc for your family during a difficult time.

Call us (228) 460-5243 or email us at to find our how your estate planning attorney can help you.

Legal disclaimer: The information in this article is provided for information purposes only and should not be construed as legal advice. Your should not act or refrain from acting on the basis of any content included in this article or on our website ( without seeking legal or professional advice.

Reference: Sedona Red Rock News (July 9, 2019) “Plan ahead in case of sudden sickness or death”

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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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The Conversation You Need to Have with Your Parents
Woman with elderly mother on bench in park

The Conversation You Need to Have with Your Parents

Sometimes the way to ease into a conversation with aging parents about money and their plans for the future, is to start by discussing your own. You want to know about their will or retirement finances? Start by explaining your own plan, how you’ve decided to set up your estate and then ask what they’ve done for themselves.

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What are Common Mistakes that People Make with Beneficiary Designations?

Many people don’t understand that their will doesn’t control who inherits all of their assets when they pass away. Some of a person’s assets pass by beneficiary designation. That’s accomplished by completing a form with the company that holds the asset and naming who will inherit the asset, upon your death.

Kiplinger’s recent article, “Beneficiary Designations: 5 Critical Mistakes to Avoid,” explains that assets including life insurance, annuities and retirement accounts (think 401(k)s, IRAs, 403bs and similar accounts) all pass by beneficiary designation. Many financial companies also let you name beneficiaries on non-retirement accounts, known as TOD (transfer on death) or POD (pay on death) accounts.

Naming a beneficiary can be a good way to make certain your family will get assets directly. However, these beneficiary designations can also cause a host of problems. Make sure that your beneficiary designations are properly completed and given to the financial company, because mistakes can be costly. The article looks at five critical mistakes to avoid when dealing with your beneficiary designations:

  1. Failing to name a beneficiary. Many people never name a beneficiary for retirement accounts or life insurance. If you don’t name a beneficiary for life insurance or retirement accounts, the financial company has it owns rules about where the assets will go after you die. For life insurance, the proceeds will usually be paid to your estate. For retirement benefits, if you’re married, your spouse will most likely get the assets. If you’re single, the retirement account will likely be paid to your estate, which has negative tax ramifications. When an estate is the beneficiary of a retirement account, the assets must be paid out of the retirement account within five years of death. This means an acceleration of the deferred income tax—which must be paid earlier, than would have otherwise been necessary.
  2. Failing to consider special circumstances. Not every person should receive an asset directly. These are people like minors, those with specials needs, or people who can’t manage assets or who have creditor issues. Minor children aren’t legally competent, so they can’t claim the assets. A court-appointed conservator will claim and manage the money, until the minor turns 18. Those with special needs who get assets directly, will lose government benefits because once they receive the inheritance directly, they’ll own too many assets to qualify. People with financial issues or creditor problems can lose the asset through mismanagement or debts. Ask your attorney about creating a trust to be named as the beneficiary.
  3. Designating the wrong beneficiary. Sometimes a person will complete beneficiary designation forms incorrectly. For example, there can be multiple people in a family with similar names, and the beneficiary designation form may not be specific. People also change their names in marriage or divorce. Assets owners can also assume a person’s legal name that can later be incorrect. These mistakes can result in delays in payouts, and in a worst-case scenario of two people with similar names, can mean litigation.
  4. Failing to update your beneficiaries. Since there are life changes, make sure your beneficiary designations are updated on a regular basis.
  5. Failing to review beneficiary designations with your attorney. Beneficiary designations are part of your overall financial and estate plan. Speak with your estate planning attorney to determine the best approach for your specific situation.

Beneficiary designations are designed to make certain that you have the final say over who will get your assets when you die. Take the time to carefully and correctly choose your beneficiaries and periodically review those choices and make the necessary updates to stay in control of your money.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

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Fixing a Broken Retirement: Add A Fourth Leg

The analogy of a stool for retirement with three legs is no longer the case for many, if not most, American workers, according to the article “New ‘4-Legged Stool’ Can Mend Broken Retirements” from Newsmax. Between concerns about Social Security’s future, the dearth of pensions at most companies and retirement savings hurt by past market crashes have all combined to take a toll.

What’s the answer?

Let’s scrap the three-legged stool for a four-legged chair. With four legs, if you lose one leg, there are still three holding things up. Here’s how to build a four-legged chair for retirement:

Income. This is the smallest leg on the chair, and in this case, is not income from your retirement accounts. It’s not pension income either. In this case, the income is a small stream of income during retirement. Maybe you’re a greeter at a store, or a part-time consultant to people you worked with throughout your career. Perhaps you do what a lot of retirees do, start a business, selling on eBay or Esty. Whatever it is, a job that brings in a few thousand dollars a year can make a difference in your retirement stability.

Social Security. Social Security may not be going away completely, but it is possible that the amount of benefits will be reduced. The trust fund will be exhausted in 2034, there are some big demographic shifts now underway with more millennials in the workplace than boomers and depending on your point of view, the changes to Social Security may be big, little, or none at all. Expect something to change. That’s why the small part time job that brings in a little bit of income could be a retirement-saver.

Non-Tax Advantaged Accounts. Retirees need liquidity in retirement. If you have lots of money in your IRA, 401(k), or SEP accounts, that’s great. However, that money may not be immediately available and there are tax consequences to selling those assets that can do damage, if you withdraw too much in any given year.

It is better instead to have a mixture of demand and investment accounts, including checking accounts, savings accounts, money market and mutual fund accounts. Checking and saving accounts are the most immediately liquid, while money market and mutual fund accounts are less liquid. They could result in a taxable event, if assets are liquidated. The benefit of having money in a taxable investment account, is that you can take that money out with no limitations. If you are taking money from a 401(k) or an IRA before age 59½, you’ll get hit with taxes and possibly penalties. Yes, you may have to pay capital gains taxes on your earnings, but at least those funds are readily available to you, if you need them.

Tax-Advantaged Retirement Accounts. These accounts have become the mainstay of most people’s retirement funds. Investment choices are limited for most people, since they are determined by the company handing the accounts for your employer. However, many plans offer benefits, like matching contributions. This is free money, and it is always recommended to do whatever you can to take advantage of any employer matching plans. It lets you make more gains than you would just from your own savings efforts.

These accounts come with strings. You can’t touch them until you are close to retirement age, but there are benefits. If they’re not performing, you can make changes within the restrictions of the investment company. While it’s not easy to figure out what the market is going to do next, with the help of representatives from the companies running the retirement portfolio, you can make informed decisions.

As long as you exercise financial discipline, don’t put all of your retirement nest eggs into one basket and make sure you have four legs on your retirement stool, you’ll be well-prepared to enjoy your retirement.

Reference: News Max (April 11, 2019) “New ‘4-Legged Stool’ Can Mend Broken Retirements”

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Retirement Planning Mistakes that Can Be Fixed and Those that Can’t

Mistakes that can be fixed are a wonderful thing. We learn from them, and hopefully we don’t make the same mistake twice. However, in the case of retirement planning, there are mistakes that can’t be fixed, says USA Today in the article “Social Security, IRA and tax mistakes to avoid when planning retirement” and happily, there are mistakes that can be repaired before too much damage is done.

Here are the fixable mistakes:

Getting your buckets mixed up. You may have heard of the planning model that uses buckets to help you get focused. The money you save for retirement is either in a taxable, tax-free or tax-deferred bucket. When people get to the end of the year or into tax season, they tend to focus on putting money into tax-deferred accounts, especially if they are over 50 and making catch-up contributions. However, it might be better to put money away in taxable or Roth IRA accounts.

A Roth account will let you withdraw money tax-free. A taxable account may also let you withdraw money at good tax rates for capital gains and dividend income.

In 2019, the annual IRA contribution is $6,000, or if you’re 50 and over, $7,000. The annual contribution for a 401(k) limit and other employee plans is $19,000 or $25,000, if you’re 50 and older.

You may need the tax savings later, when tax rates may be higher, more than you need it now.

Another fixable mistake: your HSA (Health Savings Account). Contributions go in and out of HSA accounts tax-free, if they’re used for qualified medical expenses. The money also grows tax-free in those accounts.

Making your Social Security plan. There are smart ways to take Social Security benefits, and there are not-so-smart ways to take Social Security benefits. How can you figure out what works best for you? Ask for help from the people who know. That includes your CPA, estate planning attorney and financial advisor. You should also talk with the people at Social Security. If you can delay taking benefits until FRA (Full Retirement Age), your monthly benefit will increase up to age 70. Should you withdraw money from your IRAs before taking Social Security? It all depends on your retirement savings. However, withdrawing money from your IRA now, would reduce future tax bills on the RMDs (Required Minimum Distributions) that begin at age 70½. Those distributions are taxed as ordinary income. If you’ve got large IRAs, RMDs might push you into a higher tax bracket.

Tax planning for the long-term. Do you stop thinking about taxes the minute your annual taxes are filed? Most people do but that’s a mistake. Instead, start thinking about tax planning. Experts say consider the amount of taxable income over the next five to 15 years. Once you have a general idea of what that will be, start figuring out how you’ll avoid launching yourself into a higher tax bracket. There are many different tax strategies, and your estate planning attorney and CPA will be able to help with tax planning. However, there are also two fairly straightforward ones you can put into place yourself.

First, tax harvesting. This involves selling investments at a loss, when you are in high-income years and selling investments that produce capital gains in low-income years. For instance, use a capital loss as an offset to ordinary income (up to $3,000 per year). If you have more than $3,000, it becomes a carry-over to future tax years. Selling investments that produce capital gains in a low-income year might make the difference between paying taxes at 15% instead of 20%, or even 0% rather than 15%. Check with your tax professional.

Next, using IRA or Roth IRAs. If you qualify to contribute to a traditional IRA in high-income years and a Roth IRA in low-income year, you get the best of both worlds. The first will let you reduce your AGI (Adjusted Gross Income). The second will let you reduce your future tax bill.

Planning for taxes as part of retirement, making smart Social Security decisions and making sure to save in the right tax bucket can make a difference. Make sure you work with qualified professionals and, if you can, get it right the first time.

Reference: USA Today (March 30, 2019) “Social Security, IRA and tax mistakes to avoid when planning retirement”

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How Do I Incorporate Charitable Giving into My Estate Plan?

One approach frequently employed to give to charity, is to donate at the time of your death. Including charitable giving into an estate plan, is great way to support a favorite charity.

Baltimore Voice’s recent article, “Estate planning and charitable giving,” notes that there are several ways to incorporate charitable giving into an estate plan.

Dictate giving in your will. When looking into charitable giving and estate planning, many people may start to feel intimidated by estate taxes, thinking that their family members won’t get as much of their money as they hoped. However, including a charitable contribution in your estate plan will decrease estate tax liabilities, which will help to maximize the final value of the estate for your family. Talk to an experienced estate attorney to be certain that your donations are set out correctly in your will.

Donate your retirement account. Another way to leverage your estate plan, is to designate the charity of your choice as the beneficiary of your retirement account. Note that charities are exempt from both income and estate taxes. In choosing this option, you guarantee that your favorite charity will receive 100% of the account’s value, when it’s liquidated.

A charitable trust. Charitable trusts are another way to give back through estate planning. There is what is known as a split-interest trust that lets you donate assets to a charity but retain some of the benefits of holding the assets. A split-interest trust funds a trust in the charity’s name. The person who opens one, receives a tax deduction when money is transferred into the trust. However, the donors still control the assets in the trust, and it’s passed onto the charity at the time of their death. There are several options for charitable trusts, so speak to a qualified estate planning attorney to help you choose the best one for you.

Charitable giving is a component of many estate plans. Talk to your attorney about your options and select the one that’s most beneficial to you, your family and the charities you want to support.

Reference: Baltimore Voice (January 27, 2019) “Estate planning and charitable giving”

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How Do I Know When It’s Time to Retire?

Many senior workers are actually a little afraid of retirement, because they’ve heard too many horror stories about people who retire too soon and wind up outliving their nest eggs. This is reflected in a 2016 survey from the Transamerica Center for Retirement Studies, which found that 51% of American workers say their top retirement worry is outliving their investments and savings.

Here are the key indicators that you’re probably ready to retire, according to this recent article from Investopedia’s, “6 Signs That You Are OK to Retire.”

  1. Hit Your Full Retirement Age. If you were born between 1943 and 1954, your full retirement age is 66. If you were born after 1959, it’s 67. You can start claiming Social Security benefits as early as 62, but your benefits will be much higher, if you wait until your full retirement age.
  2. Retire Debt-Free. If you have a ton of credit card debt or still owe a lot on your home or car, you may want to wait to retire because when you’re on a fixed income, a big mortgage or car payment can put a major dent in your finances. Before you retire, pay off all your debts, if possible, and get on a budget.
  3. Not Financially Supporting Your Kids (or Parents). If your kids still live with you–or you’re paying for their college education–you probably should wait with your retirement plans. Likewise, it might be smart to delay retirement, if you’re financially responsible for your elderly parents. If that’s you, retirement probably isn’t an option until your situation changes.
  4. Make a Retirement Budget. Prior to retiring, calculate whether you can live comfortably on your post-retirement income. Add up your mandatory monthly costs, like a mortgage or rent, groceries and utilities. Next, add in your ‘wants,’ like travel, entertainment shopping and eating out. You can then determine whether you’ll have enough retirement savings to cover all of this. Add your Social Security payments, pension, retirement account distributions and any other sources of income. Your retirement budget (if you retire in your mid-60s) shouldn’t be more than 4% of your investments, plus Social Security and pension payments.
  5. Review Your Portfolio. You’re going to depend a lot on your investment portfolio in retirement. If you haven’t had a portfolio review in a while, do it soon. Reassess your portfolio and determine if you need to make any modifications. As you get close to retirement, you may want to move to lower-risk investment strategies to protect your wealth.
  6. Plan with Your Spouse. Unless you live alone, retirement will have a major effect on your spouse or partner. Retirement should be reviewed together. Look at how the reduction in income will affect your lifestyle, and consider what changes may need to occur to make it enjoyable for you both.

These are just the basic elements to determine when you’re ready for retirement. You should also think about how you’ll spend your days, where you want to live and whether most of your friends will still be working. All of these things could have a big effect on your general enjoyment of retirement.

Reference: Investopedia (June 1, 2018) “6 Signs That You Are OK to Retire”

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Why Is It A Bad Idea to Take a Loan from My 401(k)?

Generally, it’s a really bad idea to take a loan from your 401(k).

Wealth Advisor’s recent article, “Why You Shouldn’t Take A 401(k) Loan,” lists some of the reasons why.

Many people who borrow from their 401(k)s wind up lowering or completely stopping their contributions, while they’re paying back the loans. This can mean the loss of 401(k) matching contributions, when their contribution rates fall below the maximum matched percentage.

Most people thinking about changing jobs don’t know that their outstanding 401(k) loan balance becomes due, when they leave their employer. Whether a job change is voluntary or involuntary, who among us has the financial resources available to pay back a 401(k) loan right away, if we leave our employer? As a result, many individual default.

However, the new tax law gives a little cushion, and you have until your tax return due date the next year. Plan balances that leave 401(k) plans due to loan defaults are rarely ever made up. That makes it less likely that loan defaulters will build sufficient retirement savings.

When you take a loan, it becomes one of your investments in your 401(k) plan account. If you were to take a $10,000 loan for five years at a 6% interest rate, that portion of your 401(k) balance will earn a 6% return for five years.

However, if your loan balance had been invested in one of the other investment options in your plan, you may have earned a lot more. Instead, look into taking a home equity loan first, because interest on those loans is tax-deductible.

Easy availability of a 401(k) loan can frequently make a bad financial situation worse. It can push you into bankruptcy and/or resulting in the loss of your home.

It is clear that 401(k) loans can significantly reduce your chances of achieving retirement preparedness.  It is also one of the worst investments you can make in your 401(k) account.

Reference: Wealth Advisor (February 4, 2019) “Why You Shouldn’t Take A 401(k) Loan”


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