King & Wood, P.A.

Don’t Let These Mistakes Crack Your Retirement Nest Egg

“According to a Gallup poll, 51% of non-retired Americans don’t think they will have enough money to live comfortably in retirement.”

While half of those Americans who aren’t retired believe they don’t have enough money to retire, 78% of those in retirement say they have enough money to live comfortably.

However, a Fox Business article, “10 mistakes that can sabotage your retirement savings,” advises that wherever you are on the retirement curve—whether you’re just starting to save for retirement or are already retired—there are mistakes that can poke a big hole in your retirement nest egg. Let’s take a look the list:

1. Failing to consider the effect of taxes on retirement income. You need to calculate how taxes could affect your savings. Some retirement savings plans are taxed, when they’re withdrawn. A big mistake many retirees make is believing that Social Security isn’t taxed, but 85% of Social Security can be taxed.
2. Failing to consider the effect of health care costs in retirement. This can be expensive and includes things like deductibles and out of pocket payments—not just the costs for a health care plan.
3. Failing to consider the effect of potential long-term care costs in retirement. It’s easy to forget to consider the day-to-day costs of long-term care, like assisted living, nursing homes, and in-home care. Medicare will pay for certain care for 30 days, but after that it has to come from your own savings.
4. Failing to have enough liquidity and an emergency fund. You need to have money invested appropriately for retirement, so it can be accessed when you need cash.
5. Having too much money tied up in your home. This isn’t a liquid investment, and if you have too much of your net worth tied up in your home, you may experience a lack of liquidity when you need it.
6. Starting your retirement with significant levels of debt. Pay off or reduce your debt before retirement. Otherwise, your debt can debilitate your finances.
7. Failing to plan for Social Security. There are a lot of strategies for using Social Security to maximize the amount of money you’ll receive. You can begin receiving Social Security payments at age 62. However, if you wait, you’ll see more money.
8. Spending too much early in your retirement. Trips are nice, but your money has to last as long as you do! People who spend too much during the early part of their retirement years, can find themselves in a financial pinch later on.
9. Failing to assess your risk. You need to have risk-appropriate investments in retirement. Consider your risk tolerance, since being too risk averse could eat into the value of a savings plan.
10. Thinking you can do it yourself without a professional. Work with a qualified estate planning attorney to have an estate plan in place.

Reference: Fox Business (August 3, 2018) “10 mistakes that can sabotage your retirement savings”

Caring for Mom and Dad from Far Away

“The best approach to dealing with long-distance caregiving is to educate yourself and your family to prepare ahead of time.”

It’s not uncommon for families and friends to be separated by many miles and even many time zones. Even so, at some point in their lives, parents, grandparents or a loved one may require in-home care.

Flagstaff Business News’ recent article, “How to Care for Loved Ones from Miles Away” reminds us that you could suddenly be faced with the challenge of long-distance caregiving.

Institutional Facilities or Care at Home. In some instances, nursing homes and retirement homes appear to be the only options available for care. However, the elderly can suffer significant emotional trauma when leaving their long-time homes and familiar surroundings. Research has shown that they do better, when they stay in their homes and familiar communities with friends and neighbors.

Finding a Home Care Agency. They offer different levels of service, so you can select an agency that offers more than basic homemaker services. Eventually, your parent may need personal care services. The agency you select should be bonded, insured, and licensed (although not all states require home care licensing). Caregivers should be experienced and vetted with at least a basic criminal background check. You should meet with the caregiver, before you agree to services. It is also important to choose an agency that complies with HIPAA.

Affording the Care Required. Since home care services are non-medical, they aren’t covered by Medicare. Home care services are generally paid individually or by long-term care insurance (LTC).

One solution to covering these costs is a reverse mortgage, which lets your parent access funds from their home equity, without disturbing their income. In addition, eligible veterans and their spouses may qualify for the Disability Pension for Aid and Attendance. That program provides funds for in-home care.

If you are still undecided on whether a loved one needs care, consider these questions to help you make a decision:

• Does your parent need help walking?
• Has his or her physical and/or emotional health been declining?
• Is he or she able to prepare nutritious daily meals?
• Can your loved one get out and shop at a store?
• Can he or she manage bills and financial responsibilities?
• Is he or she taking medications on time?
• Can your parent drive safely?
• Is he or she in need of companionship?
• Does he or she need help dressing or grooming?

Long-distance management of a parents care can be exhausting. Try to get help from other family members. If your parent is suffering from a specific illness like Alzheimer’s, ALS, or a stroke, contact the local association/support group.

You should also use the services of a care manager and an experienced elder law attorney. Most importantly, stay in touch with your loved one and his or her support group.

Reference: Flagstaff Business News (March 18, 2018) “How to Care for Loved Ones from Miles Away”

Can You Afford to Make These Retirement Mistakes?

“As more and more baby boomers start eyeing the coastline of retirement, thoughts turn from the daily worry over the Monday-through-Friday commute to concerns about how to fund the golden years.”

On a scale of one to ten, how prepared are you for retirement? A five? An eight?

Do you know the amount of money you really need to retire?

Do you understand all the rules concerning your pension (if you have one)? What about your 401(k), IRA, and other retirement accounts in your nest egg? You also need to have a grip on when to claim Social Security benefits. These are some of the issue you need to address in the days and months ahead of your retirement.  However, don’t wait too long to do your research and ensure that you’re making the right moves.

Kiplinger’s recent article, “Retirement Planning Mistakes You'll Regret Forever,” compiled a list of the greatest retirement planning mistakes and how to avoid making them.

Spur-of-the Moment Relocation. If you’re thinking of moving to Arizona or another warm weather spot to get out of the cold, test the waters before you make a permanent move. Consider renting before you buy a home.

Not Saving for Retirement. The single greatest financial regret of Americans surveyed by Bankrate was waiting too long to start saving for retirement. Those who responded who were age 50 and older expressed this regret at a much higher rate than younger respondents. Many people don’t begin aggressively saving for retirement, until they reach their 40s or 50s. While these investors may still have enough time to change their savings behavior and achieve their goals, they’ll need to take action quickly and be extremely disciplined about their savings. Morningstar calculated the amount required to save each month to reach a goal of $1 million saved by age 65. Assuming a 7% annual rate of return, you’d need to save $381 a month if you start at age 25; $820 monthly, starting at 35; $1,920, starting at 45; and $5,778, starting at 55.

Taking Social Security Too Soon. You can start taking retirement benefits at 62. However, you should  consider delaying this if you can afford it. Most experts recommend that you wait at least until your full retirement age–67 for anyone born after 1959–before tapping Social Security. If you can wait until 70, it is even better.

For example, if your full retirement age (when you’d get 100% of your benefit amount) is 67, but you claim Social Security at 62, your monthly check will be reduced by 30% for the rest of your life. If you can wait, it’s an 8% boost in benefits each year between ages 67 and 70 because of delayed retirement credits. Talk with an elder law attorney, because the strategies can differ for couples, widows, and divorced spouses.

Avoiding Estate Planning. It is not just for the super-rich. Estate planning is for you. This is true, even if you just own a car, home and bank account. Your estate plan will instruct who you want to want to get what and who will be in charge of dispersing your money and possessions (the executor). If you pass away without a will, your estate is subject to your state’s probate laws. You should also have a durable power of attorney that names someone to manage your financial affairs, if you become incapacitated. There are also advance directives such as a living will, which spells out the treatments you do and don’t want, if you become seriously ill, and a power of attorney for health care, which names someone to make medical decisions for you, if you can’t make them yourself.

Reference: Kiplinger (February 12, 2018) “Retirement Planning Mistakes You'll Regret Forever”

Widow/Widower Preparation 101

“Among the risks that married couples face in retirement, this one is unavoidable. It’s the risk of becoming a widow or widower.”

According to USA Today’s recent article, “How to prepare financially for being a widow/widower,” the death of a spouse frequently results in a decline in economic status. For example:

• Some income may cease when a spouse or former spouse dies.
• The death of a disabled person’s caregiver spouse may result in financial issues at a very difficult time.
• The surviving spouse may be unable or unwilling to manage the family’s finances.
• The inability to cope with a spouse’s death or terminal illness plays a part in high rates of depression and suicide among the elderly.

There are several things you and your spouse can do to manage the risks associated with becoming a widow or widower. One is talking about money matters together.

First, spouses (especially women) need to know about the household’s finances. This includes where all accounts are located. In addition, it’s critical that they know what benefits might be available from employment-based plans, like pensions, 401(k)s, life insurance and medical insurance, and how to contact the appropriate people to access any benefits that may be due.

Figure out if your financial plan will provide enough lifetime income for the surviving spouse. Note that the surviving spouse may have less to live on, if he or she has to spend down assets to take care of the spouse that dies. If, after running all the variables, there’s a shortfall, think about upping your savings, decreasing expenses, downsizing and buying life insurance.

If you’re the higher earner, you might delay Social Security until at least full retirement age (FRA)—or better yet until age 70—if there’s a good possibility your spouse will outlive you, because the surviving spouse collects a higher lifetime benefit based on the primary earner’s benefit.

Investigate whether you have a traditional defined benefit pension plan and select the joint-and-survivor annuity, instead of the single life annuity.  You should also check your beneficiary designations.

Make a list of your employer-sponsored retirement plans, as well as your life insurance plans, bank and credit union checking and savings accounts and titling on real estate. Be sure the credit cards and other accounts are set up so that both spouses have access.

You might also look at long-term care and consider what would happen if one or both spouses needed LTC.

Create or update your estate planning documents. This includes your will, trusts, powers of attorney for financial matters, advance directives, living wills and powers of attorney for health care and physician orders for end-of-life care. You may want to file a “do not resuscitate” or DNR order with your hospital to avoid aggressive attempts to prolong your life. It can also help to prevent incurring large medical bills for the surviving spouse to pay.

Consider planning your funeral arrangements in advance.

Review all of your assets and property with an experienced estate planning attorney and be sure that you understand what is in individual and joint names, and the way it might be disposed.

Reference: USA Today (January 19, 2018) “How to prepare financially for being a widow/widower”

Save Some Big Bucks for You and Your Loved Ones

“If you don't see these coming, you could cost yourself and your loved ones a lot of money.”

You may believe you've developed a well-researched and comprehensive retirement plan, but be certain that your plan hasn’t left out any of these common issues. If so, you could end up with a much smaller retirement income than you expect, as your savings gets eaten up by these unexpected expenses. Motley Fool’s recent article, “4 Retirement Issues You're Probably Not Planning For,” discusses some of those unexpected expenses.

Inflation. Inflation is the quiet retirement-killer. It is the reason why a dollar won't buy as much today as it would 20 years ago. Inflation has averaged around 3% per year since the government began tracking it in 1913.  Therefore, you can assume that your retirement savings will lose about 3% of their value every year. It is possible to beat inflation by selecting investments that will produce high enough returns to outpace the loss of your money's value. Stocks historically are the only investment to reliably beat inflation year after year: large-cap stocks produce an average return of around 10% before inflation over the past century. This is considered by many to be a good reason for retirees to keep some money in stocks, despite their volatility.

Taxes. If your retirement plan doesn't consider future taxes, your budget could be wrecked. Think about how you can minimize the amount of income you give to the government. The best way to go might be a Roth IRA. With a significant percentage of your retirement savings in a Roth, you’ll have greater control over how much income tax you pay each year. It also minimizes your required minimum distributions and allows your investments to grow tax-free, for as long as they are in the account.

Estate Planning. Without at least minimal estate planning, you place a terrific burden on your family. It could also mean that your beneficiaries will have greater expenses, like administrator's fees and other legal fees that will come out of your estate. The essentials of an estate plan are a will, naming beneficiaries for all your accounts, and a power of attorney in case you become incapacitated, along with an advance medical directive to direct the types of extreme lifesaving measures you want your physicians to undertake, if you're incapacitated. You should also ask your estate planning attorney about setting up trusts to manage probate issues and estate taxes.

Long-Term Care. The average cost of long-term care for a couple is around $130,000.  Therefore, you should add in long-term care expenses to your retirement planning. Don’t rely on Medicare to help with these expenses because it doesn’t cover long-term care expenses, unless there's a clear medical necessity, and even in that case, Medicare only covers the first 100 days. Purchase long-term care insurance to protect yourself from these expenses.  You should get it while you're relatively young and in good health to keep your premiums as low as possible. A long-term care insurance premium is predictable and easier to fit into your budget than unexpected long-term care you pay for out-of-pocket.

If you wait until you are retired to add these expenses into your budget, you may need to make some significant sacrifices to fit them in.

Reference: Motley Fool (October 1, 2017) “4 Retirement Issues You're Probably Not Planning For”

Advice for Unpaid Family Caregivers

“Among the many words used to describe family caregivers—invisible, overwhelmed, heroic, to name just a few—one is often just assumed. That word is “unpaid.” Although family caregivers are often praised as a critical part of the elder care workforce, most don’t get a paycheck.”

Many caregivers of elderly parents and loved ones need financial help. There’s the constant pressure of emotional and physical stress, but caregiving also can bring money issues. These can include things like paying for medical supplies and drugs that aren’t fully covered by insurance, transportation to doctor offices and therapy, home adaptations, home care and many other expenses. These expenses can destroy a caregiver’s budget.

It’s not surprising that many family caregivers wonder if they can get paid for taking care of their parent.

Next Avenue’s recent article asks “Can You Get Paid to Take Care of Your Mom?” The short answer? “It depends.” The reason it depends is because there are a variety of programs and resources that are eligible to caregivers based on eligibility requirements, as well as the state where you live, the age or condition of the senior for whom you’re caring, your relationship to that person, his or her income and assets, plus other criteria.

While none of the state and federal programs discussed below would replace a full-time salary with benefits, for some caregivers, the extra resources would be welcome.

1. Long-term care insurance. If your parent has long-term care insurance that provides for in-home care, it may allow a family member to be paid.
2. A private contract with a family member. Your parent or family member may have the resources to pay you if they choose. If so, a private contract or a personal care agreement may be the answer. However, this may cause family conflict and legal issues. Consult an elder law attorney to draft a contract that details your wages and your responsibilities. He or she will make sure that any effect on inheritances is noted. All interested parties, like siblings and other relatives, should also be informed and approve the arrangement in advance.
3. Consumer-directed Medicaid programs. Every state, except South Dakota, has Medicaid programs that allow an eligible senior to hire, fire, and train their home care aides. These programs are called “Cash and Counseling.” Every state has its eligibility requirements. Family members or friends can be hired, but only 12 states allow spouses to be paid. When the request is approved, the state Medicaid agency creates an individualized budget based on needs and available resources.
4. Paid family leave. The federal Family Medical Leave Act protects workers’ employment, when they take time off for the birth or adoption of a baby, or to care for a seriously ill family member. But it’s unpaid leave. A few states, like California, New Jersey, and Rhode Island, have programs that give employees the right to paid leave for these major life events. The states all have different payment schedules and eligibility requirements.
5. Caregivers of veterans. The U.S. Department of Veterans Affairs (VA) has several caregiver support programs. For primary caregivers of veterans injured in military conflicts after 9/11, there are monthly stipends, and other benefits to caregivers to include travel expenses, access to health care insurance, mental health services and 30 days of respite a year. Caregivers of other veterans, who require assistance and are housebound, may be eligible for the VA’s Aid and Attendance Pension Benefit. Some states also have programs for veterans.
6. Vouchers for employed caregivers. Hawaii became the first state to provide financial assistance to full-time employed caregivers of older adults this past summer. The Kupuna Caregivers Act (kupuna means “grandparent” or “elder” in Hawaiian) provides up to $70 per day in vouchers for eligible caregivers. The voucher can be used to pay for services available through one of Hawaii’s Aging and Disability Resource Centers. The services include adult day care, case management, home-delivered meals and transportation.
7. Tax credits. Twenty-three states have some type of tax credit for caregivers of dependent older adults. Tax credits can be deducted from their state tax bill, and sometimes a percentage of the amount on their federal tax return.

There are also other sources of support, like Supplemental Nutrition Assistance Program (SNAP) or Meals on Wheels to help provide food. There are other programs that pay for paratransit or homemaker services.

Finally, consider that caregiving that lasts for years presents financial challenges. You should have a comprehensive plan. Speak to an elder law attorney about the options for your situation.

Reference: Next Avenue (September 19, 2017) “Can You Get Paid to Take Care of Your Mom?”

Consider a Trust to Protect Your Assets

“Trusts can be helpful for individuals at any income level and are much more common than most people realize.”

There’s a misconception that trusts are just for the uber rich. This is not so.

If you've ever listed your spouse or child as a beneficiary on a bank account, in theory, you've just created a simple trust. This is an important point made by Madison.com in the recent article, “3 Types of Trusts That Can Cover Your Assets.” They describe three types of trusts that can help you protect your assets.

A trust is simply a device used to divide ownership of property between its legal title and its beneficial enjoyment. The trustee is responsible for managing the property and the terms of the trust will state directions for the benefit of the named beneficiary. A trust can be revocable, meaning that you can change your mind about the beneficiaries or you can even cancel the trust entirely.  However, an irrevocable trust doesn't let you modify the terms, once the trust has been established. The distinction is important, because some types of trusts won't work, if you set them up with the wrong kind of revocability.

Asset Protection Trust. This trust is designed to protect money from creditors. The trust creator transfers ownership of cash or property to a trustee. The property is now owned by someone else and creditors arguably can't reach it. This type of trust must be irrevocable. Work with a trust attorney to set it up exactly the way you want before you execute it.  Since not every state permits asset protection trusts, ask your attorney if this applies to your situation.

Bypass Trust. This trust is designed to help married couples avoid unnecessary estate tax liability. Each spouse creates their estate planning documents to leave property (up to the threshold of the estate tax exclusion) to the bypass trust. They then bequeath everything else that they own to the other spouse. Any property left to a spouse qualifies for a marital deduction to the estate tax. Thus, when one spouse dies, the other gets the bequeathed property tax-free. The property in the trust is covered by the estate tax exclusion, but is not subject to estate tax in the surviving spouse's estate. Therefore, as the property increases in value, it can safely grow above the exclusion amount without any estate tax at the death of the surviving spouse.

Totten Trust. The bank account set up with a beneficiary is a Totten trust. It’s used to avoid probate. Totten trusts won’t work for real property, like a house. That calls for a specialized trust.

There are also other, more specialized types of trusts that can be helpful in some situations. A spendthrift trust, for instance, can help protect money for a financially irresponsible beneficiary. A charitable trust can allow you to make charitable gifts and keep an income stream flowing to the donor. A special needs trusts lets you provide for the support of a family member receiving government benefits (like Medicaid) without disqualifying him or her based on income.

If you think that a trust might help you and your family, consult with a qualified estate planning and trust attorney.

Reference: Madison.com (August 1, 2017) “3 Types of Trusts That Can Cover Your Assets”

Photo by Štefan Štefančík on Unsplash

Long-Term Disability Insurance can be a Guaranteed Paycheck

“As if it weren't enough that people with disabilities and their families suffer the physical effects of their disability, they must also jump through hoops to first, qualify for assistance and then to pay attention to what is required to hold onto that assistance.”

NJ.com’s recent post, “LTD insurance explained,” says that it would help if workers became more familiar with and signed up for long-term disability (LTD) insurance. Many workers think their short-term disability coverage will be enough—but it only covers them a year or two. Those working at large companies often are offered group LTD coverage.  However, many fail to sign up for it even though it’s not that expensive. Younger workers really need LTD.  The chances of disability for younger, more active people is much greater than for more sedentary older folks. Their young families would have many years ahead of them without a paycheck, if they were to become disabled.

LTD insurance is income-replacement. Most LTD policies provide about 60% of earned income each year from the time of disability through age 65 or until Social Security Retirement Benefits begin. Just signing up for LTD coverage is only half the story. Make sure you understand the exact conditions under which your particular group LTD insurance will pay benefits. Your disability prevents you from working: in your current specific occupation ("Own-Occ"); or in any occupation ("Any-Occ").

Social Security Disability Income (SSDI)

It is quite difficult to qualify for Social Security Disability Income (SSDI). Once benefits begin, maintaining it can also be difficult. Those with a disabled family member who is collecting public assistance for their living expenses want him or her to inherit their assets at their death.  However, they also want to be sure that public assistance won’t be interrupted and will continue to provide for their disabled loved one. An inheritance might disqualify the disabled individual from public assistance. They also may worry that they won't be around to support him or her. The solution is to modify their will to include a "Special Needs Trust." This solution accomplishes the following:

• Leaves assets to benefit a disabled loved one to cover extras like a special educational program;
• Ensures that a trusted person will be in charge of those assets;
• Ensures that public assistance received by disabled loved ones will continue to provide for their routine maintenance and support and won’t be affected by inheritance; and
• Eliminates worry about the future subsistence of disabled loved ones.

This is accomplished by going to an estate planning attorney with experience in creating these types of trusts.

Able Accounts

Some states are beginning to consider "ABLE Accounts,” which are similar to 529 College Savings Plans. With ABLE Accounts, families can save up to $14,000/year or a maximum of $100,000 before the federal benefits are affected. Right now, five states offer their own ABLE account programs.

All workers—particularly younger workers with children—should learn about how long-term disability (LTD) works and make sure that they have the proper coverage in place.

Reference: NJ.com (January 22, 2017) “LTD insurance explained”