Should adult children keep a watchful eye on the portfolio?
Adult children of aging Americans are finding themselves caught in a delicate situation of whether they should look into the finances and investments of their parents, according to U.S. News & World Report in “How to Help Aging Parents Manage Portfolios.”
It’s not easy to talk with parents about their finances and their vulnerability to scam artists. Today’s thieves are also savvy. They use Facebook and other forms of social media to learn about family members travelling outside of the country, then call the elderly parents and pose as the grandchild needing money immediately for an emergency.
Older adults, who are lower in numerical skills, tend to rely on their emotional response in making financial decisions. Loneliness and depression, common in aging seniors, also increase the risk of becoming a victim of a scammer. That’s especially so, in the case of someone who has recently become a widow or widower.
It’s often hard for the senior to discuss finances with their children, unless they have done so over the course of their children’s lives and are comfortable doing so.
The biggest marker for many elderly people, is the loss of their ability to drive. That’s followed by the inability to handle one’s own finances.
However, this problem is only growing as investors live longer and portfolios continue to grow over the course of their lifetimes. It only takes a few mistakes for an impact to hit the portfolios and often there’s no recourse.
The first step for adult children is to be aware of any signs of mental decline. Just be careful not to jump every time someone can’t find the right word or remember someone’s name. Keep an eye on their behavior: a formerly neat person who is now leaving bank statements lying around open on their desk, past-due notices arriving or an extreme amount of mail from questionable charities (versus large nationally-known organizations). This mean it is likely they are having a problem handling day-to-day finances.
Don’t confront the issue in a challenging manner. Have a pleasant conversation, possibly starting with a talk about your own finances and how you speak with your own children, or plan to, to get them moving into the topic. Once they are comfortable talking about money, start discussing other important issues, like whether they have a will, medical directive or power of attorney.
An estate planning attorney can advise the family in how to deal with this delicate situation.
The biggest issue in many families, is deciding how much money to spend from their retirement savings accounts and investments. There are many guidelines and formulas. However, no one formula is correct for every situation. It requires a closer look to consider where to draw funds from: retirement accounts or investment accounts, pre-tax or after tax?
There also need to be adjustments made for market volatility and risk tolerance.
It is hard to adjust from living on a steady stream of income from work, to depending on withdrawals from what used to be accounts that were only for savings. A well-designed plan and a specific set of actions on how to live on retirement savings without taking too much money, especially at the start of retirement, is critical.
Retirees need to understand that they may, if they are lucky, be retired for more than one or two or more decades. A balance of taking not too much, nor too little, is what is needed to avoid running out of money, or frankly, not enjoying these last decades of their lives.
Savings need to last longer and must also retain their purchasing power, so that inflation, taxes and healthcare costs do not decimate accounts. We have lived through a historically low interest rate environment for many years. However, that is starting to change. We must be prepared.
Adding to the stress for retirees, is not having an estate plan in place. Speak with an estate planning attorney to ensure that you have a will, medical directives, power of attorney forms and, if appropriate, any trusts.
What often occurs is that one spouse knows everything about all the couple’s finances. When one spouse passes, the other is often left to figure it all out on their own. A better plan is to ensure that both spouses have a complete picture of their financial and legal situation. Both spouses should sit down with the estate planning attorney to ensure that they are both up to speed on what will happen when the inevitable occurs.
Single individuals need to prepare for retirement, with the additional burden of having to rely solely on themselves for funds. Planning for incapacity and general estate planning is more important, as non-family members must be found who can be trusted to make decisions on their behalf, if they are unable to do so and for distribution of their assets after death.
More savings? Bigger retirement checks? Sounds like a good idea!
Just because someone reaches the age of 65, it does not mean they are ready to head into retirement. Those extra years of working can pay off in the long run, according to Bloomberg Business News in “Seventy Is the New Sixty-Five.”
By continuing to work through their 60s and beyond, these older workers are not only giving their portfolios five more years of growth. They are also adding to their Social Security benefits and compressing the amount of time they’ll be drawing down from their savings.
A survey by CareerBuilder in 2017 found that half of U.S. workers over age 65 have no intention of retiring before age 70. While about a third of adults between the ages of 65 and 74 have full or part time jobs, the Bureau of Labor Statistics expects that number to jump by 2026. It’s a win-win-win, and for middle class Americans, it’s another form of longevity risk management.
Working for just a few more years, has been found to offer a bigger boost to retirement savings than saving more over the decades.
The downside? Not everyone is able to keep working past age 65. Some lose their jobs and find it hard to get hired again. While there is no longer a mandatory retirement age, age discrimination is still present in the workplace. Employers often push out older workers, eliminating their positions by “restructuring,” which lets them hire younger workers at lower salaries.
Others need to slow down their careers to care for ailing parents or spouses.
A recent survey by AARP found that 44% (!) of older job applicants were asked about age-related information by their potential employers, even though doing so is illegal.
However, the tight labor market has also led more companies to rely on older employees. People 55 and above are expected to comprise more than a quarter of the workforce by 2020. While companies are often reluctant to discuss ageism in the workplace, many have realized the value of the older worker.
One large corporation that makes industrial equipment, reports that a third of its workforce is currently over age 50, and many are choosing to stay into their 60s, especially those in white collar positions. Those who have technical experience and knowledge about products and can mentor younger workers, are especially important to the company’s continued growth.
Working a few more years can offer a bigger payout than saving more money during younger years. That’s according to a recent study from Stanford University. Here’s a hypothetical example: a 43-year-old in 2013, earning roughly $114,000 per year and putting 9% into a retirement fund. If she works until she is 68½, she’ll have the same retirement income, as if she saved an additional 10% of her paycheck for 23 years and stopped work at 66.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and can include more working years and a better retirement.
Planning for retirement may be a hard job. However, it can turn into some joyful years later in life.
Planning for your retirement is not only a big job but a really important and serious job that can be used to create a pleasant and even youthful retirement that has a good chance of being a lot of fun, according to Kiplinger in “A Pre-Retirement Checklist: 8 Steps to Take Right Now.”
Most large tasks or projects are more likely to be completed, if broken down into a series of steps. Here are eight steps that can make planning for your retirement more successful:
Where do you want to live? Think about the lifestyle you want and find a location that will support it. If travel is your focus, a “lock and leave” condo means you don’t have to think about your home while you are out exploring. If you are a homebody and like a peaceful setting, a small town may work well for you. If you have more money, you will have more options but need to know your priorities.
Start practicing being retired now. What happens if you don’t have a job to go to every day? Take a week of vacation time to do nothing. How do you feel by the end of the week? Bored? Anxious? Ready to go back to work? Post-retirement depression occurs to people who have a hard time adjusting to the loss of their role in the workplace. Start thinking about who you want to be when your identity is not tied to your job.
Eliminate as much debt as you can. With no mortgage, car payment or credit card debt, you have more control over your expenses. This takes planning. Start by listing all your current debts, then rank them not by amount, but by interest rates from highest to lowest. Start paying down the highest interest rates and work your way down, until you are debt free.
Shift your risk profile. Once you get within five years of retirement, it’s time to adopt a more defensive investment philosophy. Maybe you were an aggressive investor in your early or middle earning years but now is the time to reduce risk. Rebalance your portfolio quarterly to get there slowly, reduce exposure to equities and create stop-loss strategies to mitigate downside risk.
Deal with it: health care costs. This is the ugly part of retirement that we tend to hope not to have to deal with at all. As we age, your health care costs are likely to go up. Do your research and plan for what Medicare does not cover, like long-term care or health care costs that happen when you are overseas.
Make a budget and live on it. You should actually make two budgets: necessities and discretionary items. What do you need to live now, including housing, transportation, food and health care? What are the things you’d like to enjoy: recreational activities, travel and entertainment? Create a plan that gives you the best possible chance of getting your necessities covered, then play around with the luxuries. If there’s no breathing room, then consider upping your savings or working longer.
Apply for Social Security early. Apply three months in advance of the date you would like to start getting retirement benefits. You are allowed to apply four months in advance of your Full Retirement Age. Get up to speed with all the data on Social Security: when should you start taking benefits, should your spouse start taking benefits before you, how will your income impact your benefits, etc.
Could rolling over your 401(k) work for you? There are several moves that can be made with your 401(k), including rolling into an IRA, which could increase investment options, give you more flexibility and offer more distribution options.
Need an executor for your estate? Don’t rush, think it through carefully and make the right choice.
It would be wise to have a conversation with your heirs that you most likely do not want to have, and it would be best to have that conversation sooner rather than later. That conversation is about your estate plan and among the important decisions to make is your choice of executor, according to the Twin Cities Pioneer Press in “Your Money: Qualities of an appropriate estate plan executor.”
Selecting an executor is not a decision to make in a hurry. This is an important decision with far-reaching consequences for your family and should be made thoughtfully.
Your estate planning attorney has walked down this road with many clients before. A conversation to explore possible individuals who would be able to serve in this role could be helpful in clarifying your understanding of the responsibilities and the best person to ask.
Most of the tasks of the executor relate to distributing your assets after you are gone. Consider who you would trust, right now, to handle all your money and property, because that person is the one who will be overseeing everything. They’ll be serving as your legal representative, making decisions as you have directed in your will. The right choice will give you the confidence that your final wishes will be followed.
One fact to keep in mind: the person you select as your executor will need to outlive you. That means they ought not be a parent or older sibling. Most people name their spouse, a child, niece or nephew or a trusted friend, preferably one who is a little younger than you.
Your executor will need to have an intimate knowledge of your life, your goals and your relationships. Someone who is a dear friend to you, one you trust unquestionably, is a good candidate. They should be someone who knows about any debts, financial or otherwise, that you’d like to address in your estate plan.
Just because you want someone to serve as your executor, does not mean that they want to take on this role and the responsibilities. Depending on the size of your estate, or your family’s dynamics, this could be a very time-consuming effort. Have an in-depth discussion to make sure they understand the responsibilities, if they choose to accept the role.
Keep in mind that the person you select may have to stand up to various family members. If your family has some tough dynamics or headstrong personalities, you’ll need someone who will be comfortable with unpopular decisions. Some individuals relish this kind of a challenge, while others shrink easily. Keep that in mind, when making your selection.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.
Decide where you want to locate and then study the opportunities and drawbacks.
So, you are retiring. Where do you want to live? What’s the attraction? What is the cost of living? Taxes? Medical facilities? The list is long but there are some factors to look into that can be helpful in the decision making, according to MoneyWise in “Sun? Low Taxes” The Top Factors When We Pick Where to Retire,”
The biggest factors:
Politics. Check into the local political scene. Make sure you’re comfortable with the predominant political culture. Don’t neglect a look at how well—or not—the local municipality is working. Are state and local governments working well at running the area or is it a disaster? If you are counting on social service agencies, for instance, you’ll want to be sure they are in good shape. Too much local in-fighting can doom even the best agencies. Local newspapers and websites are a good source.
What do they do for fun around here? A non-golfer in a golf community is a non-starter. What kind of activities are in the area? For instance, if you move to Colorado, you can count on a lot of hiking trails. If Arizona is your destination, make sure there are indoor fitness centers for when the temperatures become very high. Consider what you’ll do on a regular basis. Will you be able to get into the programs to enjoy them or is there a waiting list?
Can you get from here to there? A rural location may be inviting, but what if family and friends want to visit? If travel is a big part of your retirement plan, you don’t want to be too far away from the airport. That will help making traveling to and from your destination easier and will encourage friends and family to visit more often. If you do go for a rural location, having an airport nearby makes it more likely that you’ll be able to receive health care items, electronics and other things that may need to come from far away.
What’s the tax rate? You’ve paid enough taxes during your working life. Take a look at the local tax rules. How much, if at all, is retirement income taxed? What about estate or inheritance taxes? Don’t forget the basics: gasoline taxes, property taxes and land transfer taxes. Some people move overseas to stretch their retirement budgets and different countries have different tax laws for expatriate retirees.
What’s playing where tonight? Retire to Vegas and you can go to a different show every night of the week. If you are a museum buff, New York City abounds in large and small museums. Living near a college or university, is likely to mean you’ll have access to performances of all kinds and at lower costs.
How diverse is your community? Score another point for living near or in a college town. Here’s where you’ll find a richer community life, more social activism and a wider range of different opinions. College towns usually offer retirees the ability to sit in, or audit, courses.
Climate counts. Many retirees from the north can’t wait to head south, when they retire. They’re done with shoveling snow, worrying about falling on icy sidewalks and driving in slushy messes. Others prefer the cold, finding it invigorating and don’t want to give up their skis. Consider what temperatures you like now and what might suit you better, as you and your spouse age.
How much does it cost? Your lowered income must be matched by a lower cost of living or you won’t be able to afford your own retirement. Consider the costs of transportation, property taxes, groceries and home heating/cooling in your potential new hometown. It all adds up.
Health care matters. Even the healthiest seniors, know the value of good quality healthcare. As you age, chances are you’ll need more health care. Moving to a community without a good hospital and lacking qualified specialists puts you at risk.
Safety. We don’t often think of safety as we age, but we should. As we age, we become more vulnerable to crime. Look at the crime statistics for any new communities you are considering. What does the economic data look like? Would you be able to use public transportation without worry? What about driving alone in your car at night?
Once you narrow down your choices, start by taking extended vacations. Talk to the local people, at the library, in the coffee shop and around town. Attend services of your faith. Read the local newspapers. Get a real feel for the community to find out if it suits you, before you start packing.
Decide where you want to relocate and then explore.
Just as any other asset, intellectual property rights and royalties can be transferred to a living trust to avoid going through probate. By using a trust rather than a will for these types of assets, you avoid the costs and delays of the probate process.
Another advantage of placing assets in a trust is that their value, the names of beneficiaries and their inheritance amounts are not public and available to the individuals who comb these records seeking information. The average person isn’t devoting time to searching probate records. A sales person or scammer is more likely to be digging into these personal details.
Depending on the nature and value of the intellectual property or royalties, privacy alone may be reason enough to place these items in a trust.
Like digital assets, intellectual property and royalties are frequently left out of estate plans. If ignored, serious financial issues can be created. If a will is used, the intellectual property is part of the probate proceeding with the beneficiaries named and the values stated.
For the heirs of those who fail to create a will or place property in a trust, the headaches are bigger. In that case, the assets go through an administrative proceeding, under the laws of “intestacy,” or dying without a will. If you die without a will, assets go to the spouse and children, about half and half. If there is no spouse and no children, assets go to parents. If parents have already passed, then assets are distributed to siblings. If a sibling has died, the sibling’s share goes to his or her children.
The joke about people who die without a will, is that they do have a will, it’s just not the one that they may have wanted.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and could include intellectual property.
State laws oversee estates and those laws are rarely the same.
Many people retire in the snowy north and head to the warm south for a few months each year. If that is your scenario, it would be wise to keep that estate plan current because state laws are not usually the same and your plan needs to take that into account, according to The Indiana Lawyer in “Multi-jurisdictional estate planning requires research, collaboration.”
This multi-state thinking applies to anyone with property in more than one state—or countries. How then can they figure out how to administer their assets after death, if they are spread out across the country or around the globe?
The process sounds simple but it’s not. Their estate planning attorney needs to understand and advise them about the laws governing each of the jurisdictions where they have assets. It requires extensive research and may need the help of other attorneys working together. If the cost is a concern, understand that the cost of doing this after death will likely become far more complex and costlier.
The first step is to identify the assets and where they are located and then determine where the client maintains legal residence.
People often have property in a few states, as well as bank accounts in a few states. Tangible assets, such as real estate, and intangible assets, such as bank accounts, are treated differently in estate planning law.
Tangible assets are typically governed by the law where the asset is owned, while intangibles are governed by the law of where the client resides. One way to simply this process is to put all the assets into a revocable trust, which avoids probate and helps client avoid multiple ancillary estates.
However, estate attorneys will need to know the estate law of other locations to help their clients make the right decisions for their assets.
Many states have probate laws with similar general principles. However, the details are different. One example: a trust that was properly executed in Indiana was ineffective under Florida law, because of the lack of sufficient witness signatures. It was a small detail, but one that made all the difference.
The problem becomes even more complex, when the person has assets in foreign countries. In some countries, forced heirship will actually prohibit citizens from dictating where their assets go after death. In these countries, a certain percentage of a citizen’s assets must go to their children, spouse, etc. And some countries don’t recognize the concept of a trust, so creating a revocable trust to avoid ancillary estates won’t work.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and may include multiple states.
A recent survey from the Harris Poll on behalf of One America asked more than 2,000 adults, if they’d had any conversations about long-term care with friends, family members, spouses or partners, health care professionals, financial planners, insurance agents, estate planning attorneys, clergy, accountants or anyone else about preparing for the possibility that at some point they may need long-term care.
That’s a lot of groups to ask and it seems that nearly four in 10 people 65 years and older, who you would think would be more aware of this issue, said they had not. The Harris Poll says this response is similar, when asking that same question of American adults.
The problem is this: roughly 70% of all Americans can expect, at some point in their lives, to have a long-term care need, according to the U.S. Department of Health and Human Services. For 20% of them, conditions like Alzheimer’s and other forms of dementia, Parkinson’s disease and other chronic conditions will lead to situations where they need long-term care.
Planning ahead for this very likely scenario can make it less of a strain on assets and reduce the burden of care on family members and loved ones.
Not surprisingly, wealthier people are more likely to report having engaged in a long-term planning conversation. However, even of those who do, only a small group have moved forward to have a conversation with a financial planner or insurance agent.
It’s important to have these conversations and take the necessary action without delay, so that assets can be protected and the correct care can be received without financial pressure.
Asset-based protection is a solution that may be more within reach than most people think. This is a critical conversation to have with the right professionals, especially for people who are near retirement.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and can include planning for long-term care.
Only 44% of Americans report having a will, according to a poll by the Gallup organization. That percentage drops down to a mere 14% for people younger than 30. Even if you don’t own much, you need a will to help family and friends know that they are following your wishes, which is a comfort.
If you have minor children, you must have a will, so you can appoint a guardian for them in the event that you and your spouse die unexpectedly. Without a will, the court will decide who will rear your children. If you have pets, you can also use your will to express your wishes for their care.
If you have special directions you want for your funeral, like the prayers or songs you would like to be heard, you can also put that in a will.
Having a living will is critical for anyone over the age of 18. This gives your loved ones, guidance regarding what you want them to do if you can’t make important medical decisions. Giving power of attorney to a trusted person will help, if you are incapacitated and cannot express your wishes. An estate planning attorney can help you work through your wishes, figure out who would be the best person to name for these responsibilities and prepare documents to comply with your state’s laws.
You’ll also want to speak with your estate planning attorney about a will and whether you need to have any trusts created. The attorney will also be able to discuss your life insurance and long-term care insurance needs. By working with an experienced estate planning attorney, you get the benefit of his years of knowledge and experience to make sure all bases are covered, and your family is protected.
Another task: naming beneficiaries on your banking, retirement and investment accounts. If you have these accounts already, do you remember who you named as your beneficiary? If it was a long time ago, you should check to make sure you still want those people named.
Create a personal information organizer that contains the important information your family will need. That includes:
Names, addresses, dates of birth, Social Security numbers of spouses, children and any other dependents.
Contact information for the professionals including your estate planning attorney, financial planner, healthcare providers, insurance broker and others who will need to be contacted, if you should become incapacitated or if you die.
A directory that will help them locate all of your important papers, including your birth certificate, passport, property deeds, loan documents, tax returns, estate planning documents and other vital documents.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.