According to a 2018 survey from AmeriTrade, 43% of Gen Xers say they’re behind on retirement savings and a just 33% of people 39 to 53 years old are confident about being financially secure when they retire. That generation is also feeling the double-crunch of paying off their own college loans, while trying to save for their own children’s college education.
Getting past these obstacles is possible, as is getting retirement savings on track. However, you’ll need a plan.
Among the milestones to aim for, if you’re a Gen Xer:
Set a Target. You’ll want to know what you are aiming for in retirement and that means knowing about how much money you’ll need to accumulate. Consider what kind of a lifestyle you’ll want. Does retirement look like a lot of luxury travel or are you open to the idea of seeing the world from an Elder Hostel? What kind of housing will you want to live in and what kind of car will you want to drive? Will your children be self-supporting by the time you retire, or will you be first sending them off to college? All these questions will be important to figuring out what kind of a nest egg you’ll need.
Does Your Employer Offer a 401(k) Plan? This could be your greatest tool for retirement savings. You can save for retirement on a tax-deferred basis, while you are entering your peak earning years. If you’re really lucky, you work for a company that matches contributions, so your retirement savings will grow even faster.
If you haven’t already started using this employee benefit, start now. Are you saving enough to qualify for the full employer match? You should do what you can to bring your savings level up to that point. If you are already getting the match, can you increase your own contribution?
If you can’t make an adjustment now, consider making a small increase to your savings, like 1% to 2% every year. If the gradual increase grows along with your paychecks, you won’t notice the difference.
Look into Other Tax Advantaged Accounts. As you move into your late 30s and early 40s, your earnings are most likely growing, so you need to look past your employers’ plans. Consider a traditional IRA (Individual Retirement Account) or a Roth, depending on your income level. If you qualify for a Roth IRA, the money is 100% tax-free when you withdraw it. The traditional IRA is taxable in retirement. However, you have the benefit of a tax deduction on your contributions.
Don’t Overlook the Health Savings Account. The HSA is not a retirement account. However, it can be useful in funding retirement costs. HSAs are designed to be used to save for qualified medical expenses. Contributions to these accounts are tax-free, if they are used for health care but you can also tap into one of these accounts for other reasons. Withdrawals from an HSA are penalty-free after age 65. However, you will have to pay regular income tax on the money. If your employer offers a matching contribution to an HSA, there’s no reason not to fully fund one of these accounts.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can help meet the challenges of your generation.
It’s easy to put off starting an estate plan. However, you really do want to take care of your family.
Why should you have an estate plan? There are many reasons and many goals, including providing for your spouse and children, as well as dealing with a family business, minimizing tax liabilities and naming the people you want to act on your behalf when you’re gone, according to the Brainerd Dispatch in “Wealth Column: Estate Planning Basics,”
So, what do you need? First, you’ll need a will, which is the basic tool for estate planning. It prevents two very expensive and stressful issues: managing your wishes for your estate and possibly losing hefty sums through unnecessary taxes. However, that’s just the start.
You may also need trusts, depending on your family’s situation. You’ll want to have life insurance policies with beneficiaries. Life insurance proceeds are not governed by the will, so your heirs will receive any funds directly. Benefits from retirement funds fall into this same category. That’s why making sure that your beneficiary designations are up-to-date, is so important.
Working with a team of trusted advisors, is productive for most people. Remember that your estate plan touches on taxes and investments as well as your will, power of attorney and medical directive. Consider these steps to get your entire estate plan in order:
Gather personal data about yourself and your family,
Create a balance sheet of your assets and liabilities,
Review your will and any existing trusts,
Evaluate all estate tax options, such as the best method of disposing of your share of community property—considering the unlimited marital deduction and the use of tax-sheltered trusts,
Consider the optimal way to distribute your retirement plan benefits,
Calculate potential estate, gift and income tax liabilities,
Determine the availability of liquid assets to meet potential estate expenses and taxes.
An estate planning attorney can work with the information you have gathered to create an estate plan that fits your unique circumstances.
Most people seek confirmation that they have accumulated enough for the remainder of their years.
You can put a lot of effort into saving for retirement and still have questions. However, it is important to know that the success of your plan will often be your income to expense ratio, according to Investopedia’s article “Determining If You’re Prepared for Retirement.”
Commonly asked questions are:
Am I saving enough, or did I save enough?
Can I retire, or did I make a mistake and retire too early?
Were my investment decisions the right ones?
How am I doing, compared to my peers?
The answers to these questions are important, but like so many things in life, there is no “one-size-fits-all” answer. Just because you’ve accumulated six, seven or even eight figure retirement savings, doesn’t mean you’ve “won” the retirement game. In this case, size doesn’t always matter.
One of the key factors to a successful retirement is your income to expense ratio. Can you generate enough income from all sources, without drawing down too much from your portfolio?
If you have a small to non-existent portfolio, but you have a good-sized pension, maybe you don’t need such a big portfolio. If you live very simply, it’s possible that Social Security benefits and modest withdrawals from your investments might take care of your needs.
Remember that just because you have a large portfolio, does not mean you don’t risk running out of money during retirement. If you spend lavishly on first-class vacations, drive luxury cars and live in a house that costs a fortune to run, you can easily get yourself into a tight spot.
Take a long hard look at all sources of income to determine how long your portfolio will last. You should include Social Security, pensions, retirement accounts and any other sources of income. It is important to figure out how much income you’ll need on annual and monthly basis. You’ll then have a better sense of whether you are prepared for retirement.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances, as well as point out options on planning for your retirement.
Misconception #1–You can sign a power of attorney, even if you are legally incompetent.
Not true. This is one of the most common misconceptions. In fact, if you have a document from a medical doctor that says a person is not competent, that person is no longer able to sign any legal documents. Many people generally think about what they need to do, i.e., accessing a bank account when an elderly parent can no longer do so. However, if Dad lost his legal capacity just before a power of attorney or living trust was signed, that’s no longer an option. You’ll have to go through a guardianship or conservatorship proceeding through the court to have any control over Dad’s assets.
Misconception #2—You can find a power of attorney document online.
You might find such a document online but it most likely will not be suited to your circumstances. You need to have a power of attorney custom drafted, so it is legal in your state and addresses your family’s needs. Many online documents end up being useless. It’s a big risk to take.
Misconception #3—A power of attorney lets the agent do whatever they want.
The agent under a power of attorney has a legal and fiduciary duty to make decisions in the best interests of the person who named them as power of attorney. They have not been handed a free pass; on the contrary, they have a big responsibility to do the right thing.
Misconception #4—There is one power of attorney.
This is why an estate planning attorney is needed for the power of attorney. There are two main types: a general power of attorney and a limited or special power of attorney. They are named correctly: a general power of attorney allows for buying or selling property or managing assets. A limited or special power of attorney refers to a specific transaction or task. Which one you need, depends on the laws of your state and the circumstances.
Misconception #5—A power of attorney survives death.
All powers of attorney terminate on death. Once a person has passed, so has the authority for their agent to act on their behalf. A durable power of attorney allows the agent to act, in the event of incapacity but not death.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include a POA.
Okay, you have saved for retirement tax free for years. However, now it is time to think about the taxes.
You have been fortunate over the years to grow your IRA tax free. However, withdrawals from your traditional IRA is taxable income. You will have to make Required Minimum Distributions starting at age 70½. It is a good idea to be prepared financially, according to Kiplinger in “When Do I Have to Take My First RMD?”
If you miss that deadline, be warned: penalties are expensive. How does half of your required withdrawal amount sound? It is bad enough to be sure you won’t miss this deadline!
It’s not as hard today to find out when you must take your RMD, although in the past this was challenging. There are online calculators that can help, and you can always ask your estate planning attorney, just to be sure. The IRS gives you a little wiggle room for that first RMD–until April 1 of the year that you reach age 70½. However, here’s the kicker: the second RMD is due on December 31 of that same year. Therefore, you might end up taking two RMDs in one tax year, which could make your tax bill bigger than you had expected. You may be tempted to defer taking the first RMD, but don’t. Take it by the first calendar year in which you turn 70½ and avoid that double-RMD whammy.
There are a few factors that could change your RMD. One of them—if your spouse is more than 10 years younger than you are and is named as the sole beneficiary on at least one of your IRAs—the RMD will be less than what some online calculators show.
If you discover that you missed your RMD, don’t delay trying to fix the error. Figure out how much you should have taken and remove that amount as soon as possible from the IRA.
File Tax Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax Favored Accounts.” You can file this with your tax return or by itself. If you are requesting that the 50% penalty be waived, payment does not have to be made when the forms are filed.
Last, attach a letter explaining what happened steps you’re taking to fix the error.
If you’re still working, you can delay taking RMDs from your current employer’s 401(k) until after you stop working in that job, unless you own 5% or more of the company. The important word here: current employer. You’ll have to take RMDs from prior employers, even if you’re still working. However, you might be able to delay your RMD, if your current employer lets you roll over money from other retirement accounts into the current employer’s plan.
After you’ve taken your first RMD, subsequent years get a little easier. They’re due by December 31.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can also make sure that your retirement and estate plans work well together.
The aim of the Senior Safe Act is to encourage all types of financial institutions to play a larger role in fighting against elder financial abuse. The law, which was modeled after the Senior$afe program created in Maine, requires financial institutions to train employees on detecting activities that may indicate elder abuse is occurring. If the employees are trained, the Senior Safe Act also provides a reporting process and liability protection for those who report the possible abuse. It is thought that the liability protection would make those individuals reporting the possible abuse more proactive. However, there are still some problems with this.
Some advisors report being reluctant to report any client who seems to be suffering from mental deficiencies or elder abuse. The problem, advisors say, is that they are not trained and won’t feel confident in making a judgement about competency. Some court cases have put the onus on the advisor, when selling certain products or strategies but advisors lack both the training and the ability to make a medical diagnosis of senior clients. Without the ability to identify competency, it is very likely that any reporting will only take place well after the elder financial abuse has taken place.
Another issue is that family members or friends are typically the ones who commit elder financial abuse. The victim usually does not want to press charges, fearing that the person will become angry with them and withdraw their emotional support. Being dependent upon the same person who may have perpetrated financial abuse, puts the elderly person in a no-win situation.
Elder abuse prevention, financial and otherwise, should start years in advance, at the first signs of declining physical and mental health. It should begin with a plan for managing financial assets and having the proper legal documents in place, including a will, power of attorney, general durable power of attorney, healthcare directive and other estate planning documents.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and protects all members of your family.
There are tools in an estate plan that a college student may need and are also beneficial to you.
If your child is heading off to college you have prepared them already with background education and the ability to live away from home. However, are they prepared with the documents that an adult needs? They should be, according to the Monterey Herald in “Liza Horvath, Senior Advocate: Off to College.”
When college students go to off to a world of dorm living, classes and increased independence, many are on their own for the first time. If they are 18 or older, they are legally considered adults. If they become sick or injured while away, the rules of HIPAA, the Health Insurance Portability and Accountability Act, prohibit anyone from speaking with a doctor, gaining access to medical records or being informed of their status–even their own parents!
If your college admissions package did not include an Advance Health Care Directive and a HIPAA release form giving you permission to speak on behalf of your student, speak to doctors and to be part of any medical decisions. Your estate planning attorney will be able to draft those documents for you.
Make sure that your college-bound student also has a list of who they should contact in an emergency, including cell, home and work numbers and email addresses. This list should include their primary treating physician and a history of their immunizations, chronic conditions, medications and other relevant medical issues.
This information can be stored in the cloud or on their phones. However, if the phone is stolen or lost, so is a lot of sensitive data. Write it down on an old-fashioned piece of paper and keep a hard copy at home and one on your own computer, so it can be easily sent if necessary.
You should also consider having a power of attorney for finances and a directive to the college, so information on your student can be released to you. This will allow you to see the academic records and act on your child’s behalf on any legal matters.
If you have adult children, even those who graduated long ago, you may also to wish to have some of these documents prepared.
When one woman sought long-term care for her 83-year-old father, she knew the options because she was a long-term care researcher for AARP’s Public Policy Institute. She’s been examining how older Americans can “self-direct” their own care, choosing from several options they can receive in their own homes.
Several states now provide innovative strategies to provide long-term care at home. They involve “person-centered” choices to Medicaid patients. Each state has these programs, although they vary in quality and scope.
One Texas woman had relied on home health care agencies. However, found them inflexible and unreliable. She switched to her state’s self-directed program and found that by scheduling and paying her home-care providers as she wished, the services were provided to her liking.
A study by Matematica Policy Research found that people who were able to take charge of their care were more satisfied and experienced equally good or better outcomes. The idea of choosing your own mode of long-term care is an evolving trend. There are now more than one million people in more than 200 self-directed Medicaid and Veteran directed programs nationwide. Enrollment in these services has increased by more than 40% since 2011.
Self-directed programs are not for everyone, because they require the ability to manage the care and vet caregivers. Someone who is too ill or suffering from mental incapacity may not be able to handle this.
You’ll need to know what services are available locally before making a choice. For example, when is adult day care an option? How do you find a home care specialist who can do anything from basic homemaking to providing in-home nursing care?
The other drawback is that self-directed services are typically offered only through veterans and state Medicaid programs for low-income participants.
Most Americans who need long-term services must still pay for it themselves. You’ll need a family member with the tenacity and time, or you can hire a geriatric care manager who will be able to determine needs and set up a care management plan. That person can help select the right professionals and coordinate services.
Retirees may find themselves facing a major federal tax increase fueled by tax-deferred accounts.
There are many financial strategies occurring as you save toward your retirement, including maximized annual contributions and compounding interest. This can cause a tremendous tax bite, unless you are careful, according to the Citizen Times in its article ““Try this strategy to save on taxes in retirement.”
Now that you’re retired, or near to retirement, you’ll want to use tax-efficient ways to withdraw money from your investment accounts. There was a rule of thumb from the financial investment community that said just leave those tax-deferred accounts alone and use the money from your taxable accounts until you reach age 70½. You can then start taking Required Minimum Distributions, or RMDs.
Here’s the problem: that equation assumes that your income has decreased in retirement and that simply may not be true.
RMDs are taxed as ordinary income at the time of withdrawal, so they could push you into a higher federal tax bracket than you expected. Let’s say a 63-year-old married woman born in 1953 has $1 million in tax deferred accounts. An example may be taking an RMD of nearly $47,000 at the age of 70½, combining it with $47,000 from Social Security or a pension or rental property income, and you could be bumped into a higher rate tax bracket.
Another impact could be the reduction of individual income tax rates that went into effect this year, because of the Tax Cuts and Jobs Act, which expires in 2025. Those tax cuts may not be extended or may be changed, so future tax rates might go up again in 2026. When that tax cut expires, you’ll need to review your tax burden again.
So, what can you do?
If you are a retiree between 59½ and 70½, consider a Roth conversion. Proactively convert a portion of your tax-deferred accounts into a Roth IRA on an annual basis. You’ll have to pay federal income tax on the amount you convert every year. However, you’re taking advantage of lower rates before those provisions mentioned above expire and before the RMDs begin. The goal is to convert just what you need to keep you in your current tax bracket.
Be mindful that you must do this right. Work out the numbers so you don’t trigger a higher Medicare premium or the 3.8% Medicare surtax. There are a lot of moving parts. However, this could save you a huge amount in taxes.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include a careful look at your retirement income.
Shortages in some sectors make partial retirement an inviting opportunity for both parties.
Not every person who reaches retirement age wants full retirement .Some labor markets make it easy to ease into retirement while helping out employers, according to The New York Times in “In a Tight Labor Market, Retirees Fill Gaps Their Previous Employers Can’t.” Some retirees are not ready to quit working and some employers aren’t ready to let them go. In a tight labor market, firms find recent retirees increasingly attractive.
Montefiore, a large hospital located in the Bronx, N.Y., is one of many organizations developing informal programs to rehire some retired employees. Administrators noticed that half of its nurses were nearing 50. It didn’t have a nursing shortage and wanted to prevent one. It now routinely brings back retired nurses on a freelance basis. It’s good for the hospital and the retirees, who can supplement their pensions.
This has become more common than at any other time since the Great Recession, says Kathleen Christensen, who funds research on aging and the American labor market at the Alfred P. Sloan Foundation.
There’s a shortage in many sectors, including construction and transportation, so the attitude toward older workers is changing.
One large northeastern power company is also bringing back retirees, using their years of experience to train younger employees. This company’s management deliberately stays in touch with retirees, allowing some to work part time and taking others on, as needed, for short term projects. Since they are brought back on as contractors, not employees, they continue to receive their pensions.
The boom in online shopping has had an impact on delivery services. UPS has organized a program to recruit retirees. Management sought to bring back retired workers and has also tapped the older workers in construction to help with new facilities that are being built.
In other words, when you retire, don’t be surprised if you’re asked to come back.
One thing to keep in mind if your retirement includes going back to work: how will your income impact your Social Security benefits and your overall retirement plan? Sit down with an experienced estate planning attorney to find out how your new life as a freelancer or independent contractor will impact your tax liability, your government benefits and your estate plan.