RETIREMENT PLANNING 2015
RETIREMENT are you ready? Tips to find the best place to retire Supersize your retirement savings Your Guide to Retirement Planning Produced by the BEACON’s Advertising Team
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OCTOBER 2015
Tips to find your best retirement location By Billy and Akaisha Kaderli
S
o you and your spouse have decided to retire. At some point in your retirement planning you must ask yourself where you would like to spend your golden years. The following questions and insights should place you on the right path for finding the location that suits your needs.
First things first The first question is if you want to stay in the home in which you are currently living or if you would like to move elsewhere. Retirement is a big step and sometimes people feel more secure staying in familiar surroundings because it makes the transition to a new lifestyle smoother. Others want to relocate for financial reasons, a change of pace, health reasons, or better weather. In this case, the next decision is if you want to stay in your home country or move overseas. If you want to stay in your home country then you must decide what sort of climate is most attractive to you. Do you want to experience the four seasons or have a more moderate, year-round climate? Do you like mountains or beaches? What size of city or town do you most enjoy? These questions are very important
because they will automatically exclude places you won’t need to research. Knowing what you prefer in climate, city size and geographical configuration carries a lot of weight in terms of your happiness quotient. Another thing to consider is if there are adequate medical facilities nearby. Larger cities tend to have a full range of medical care. Smaller towns generally have clinics and a variety of doctor’s offices, but perhaps not the equipment needed for complex medical situations.
Narrowing your search How important are activities such as hiking, biking, sports and access to nature versus more citytype activities such as theater, fine dining, bridge, mahjong, museums, concerts and art events? Would you like to live near a university so you have the energizing qualities of youth plus all the activities (and lower prices) that a university town offers? Do you want to snowbird or travel part of the year? Are you willing to downsize your home if necessary to attain this style of retirement? Are you amenable to home exchange or house sitting to achieve these travel desires? Or do you want a traditional retirement community? Would
you consider a walkable city and getting rid of your vehicle, utilizing mass transit instead?
Cost of living No matter what size of town or city you find yourself choosing, another important factor is cost of living. There are many locations in the states that have a below-average cost of living. Or perhaps average cost of living or higher will suit you just fine. Do any of these places fill your requirements for city size, weather, geographic beauty and medical facilities?
Know what you want The more you can describe your requirements to be happy, the easier it is to find a retirement location that will fulfill your needs. Make a list of what is important to you and put these requirements in numerical order of importance. You might find that you must make concessions, but not necessarily so. If most of your requirements are fulfilled, then you have been successful in your search. In making our own list of what we wanted in a retirement location,
climate was a big consideration. We also like to have access to a variety of fresh food and dining options. We want to experience natural beauty and prefer large towns to big cities and wanted an international airport within reasonable distance so that we can continue our travels easily. For the most part, we live overseas so having an active expat community is significant. We also make use of medical tourism for our medical needs.
Moving overseas? If you find that your retirement is underfunded, or if you enjoy travel and a bit of the exotic, those are good reasons to consider moving overseas for a retirement haven. Countries such as Mexico, Panama, Costa Rica and Guatemala are close to the states and are on similar time zones, so it’s easier to snowbird back to a home to visit children and grandchildren or to call them on Skype or Facetime. These countries offer large cities and small towns, mountains or beaches and they all have active expat communities. Excellent medical care is available, also. If you are considering moving overseas, then becoming familiar with expat forums is important. These forums are free to join and will give you access to those who
OCTOBER 2015
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Do you want to snowbird or travel part of the year? Are you willing to downsize your home if necessary to attain this style of retirement? are already living in areas that attract you. Read threads on daily life, housing rental, cost of living, visas and residency permits or start your own thread with specific questions you want answered.
Testing the waters Now that you have your list of requirements and you have narrowed your search, it’s time to test the waters. Nothing replaces going to the location of your choice and seeing firsthand if it will work for you. If at all possible, rent an apartment or home in these locations for several months, hopefully several seasons, before you shell out money to purchase. For instance, in an active adult community you will want to know if you like your neighbors, if there is enough social activity going on
during the seasons to keep you occupied, and if food shopping and dining options are close by. If you are moving overseas, you might be enthralled with the spring or autumn weather, but perhaps the rainy season doesn’t work for you, or the summers are too hot and humid. If you wait to purchase a home and rent something instead, you might find that you prefer the town just down the road rather than the one you are living in. Allow yourself some time to observe and to adjust to your new location before you make any binding decisions. You won’t regret this, and it puts the power back into your hands. For more information on relocating in retirement, visit retireearly lifestyle.com/relocation. ■
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How hidden investment fees can upend your retirement goals S
aving enough money for retirement can be a tricky proposition even under the best circumstances. But when some of those dollars are being siphoned away by hidden and perhaps unnecessary fees, then the path to a secure retirement becomes even more difficult to navigate. Even small fees can have a major impact over time, which is why people need to be aware of what they are being charged, and whether other options exist that make for a better and smarter investment. “Probably 99 percent of people have no clue what they are really paying in fees and expenses,” said Casey B. Weade, retirement professional and author of the book “The Purpose-Based Retirement” (www. purposebasedretirement.com). “They are bleeding out their life savings.” Weade said those hidden fees, which are abundant in the financial industry, are his number one frustration with the profession. “There are a couple of products that consistently illustrate the problem with hidden fees—mutual funds and variable annuities,” he said. “Many people believe their retirement advisor only makes money when something is bought or sold. But that’s not always the case. With mutual funds, for example, some fees are disclosed in the prospectus for the funds, but often there are additional ongoing fees that are not consistently or adequately disclosed.” Some of those mutual fund fees and costs include:
Stated expenses: • Loads. Different classes of mutual funds have different types of loads, or charges, that are similar to commissions in that they compensate the financial professional for selling the fund to you. Some are front end and you are charged at the time you make your initial investment. That charge usually is about 5 percent. Others are back end, meaning you are assessed the charge if you sell the mutual fund, usually within a specified timeframe. • Expense ratios. Other than loads, this is the only cost many retirees and pre-retirees are aware of, Weade said. The expense ratio is used to pay distribution costs, administration fees, management fees and marketing costs. The expense ratio can be 1 percent or more, depending on the mutual fund. According to the Investment Company Institute, the average expense ratio in an equity mutual fund is 1.4 percent per year. • Advisory fees. In addition to the internal costs of owning a mutual fund, you may be paying a management fee to your advisor, Weade said. This fee can range anywhere from 0.25 percent up to 2.5 percent. Even if you aren’t aware of it, you should be able to determine how much this one is costing you because it is required to be disclosed on investor documents.
Unstated expenses: • Soft dollar costs. One of the most difficult mutual fund expenses to uncover is soft dollar costs, Weade said. Often, mutual
“Probably 99 percent of people have no clue what they are really paying in fees and expenses.” fund managers are provided software, education, research or other services by brokerage firms. In exchange for these benefits, the brokerage house gets the brokerage business and may charge a higher commission for the trading of stocks within the fund. That commission is paid by the investor. • Tax impact. Mutual funds are pass-through entities, meaning you pay tax on every transaction inside the mutual fund whether you benefited or not. The average tax cost ratio for stock mutual funds is 1 percent to 1.2 percent per year, according to a Forbes magazine article. • Trading commissions. Potentially one of the largest undisclosed expenses inside a mutual fund is trading commissions. “Every time something is bought or sold within a mutual fund there is a commission charged and, believe it or not, these costs legally do not need to be disclosed,” Weade said. A Wall Street Journal article noted that a 2009 study of thousands of U.S. eq-
uity mutual funds showed that the trading costs investors, on average, 1.44 percent. Once you know about the fees and charges attached to mutual funds, you may be able to negotiate to lower some of them, Weade said. “I regularly audit investors’ portfolios and find expenses in excess of 3 percent annually,” he said. But he also often recommends separately managed accounts as an alternative to mutual funds because there are no loads and there is more transparency. Separately managed accounts are somewhat similar to mutual funds, but can be tailored specifically to the individual needs of the investor. “Regardless of the investment, it is vitally important to understand how valuable it is to avoid hidden fees and charges that can add up and prove costly, especially over decades,” Weade said. “You want to keep as many of your hard-earned dollars in your account and working for you as possible.”■
OCTOBER 2015
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Are baby boomers forgetting something essential when planning retirement? M ost people have some kind of lifestyle vision for retirement. Unfortunately, without proper planning their dreams won’t always become a reality as they enter the encore time of their lives, said Michael Bivona, a certified public accountant who retired almost 20 years ago. “I had a simple plan: When I stopped working I planned on living on my 42-foot Chris Craft cruiser with my wife, Barbara, which was a very pleasant pastime during my busy working years,” he said. “But, after a few weeks, as we tried to make our dream a reality we found that we were bored out of our minds. Pre-retirees and retirees are rightly concerned about whether they can afford retirement. But not having enough to do is another kind of deficit that is frequently overlooked until it’s too late.” Bivona, author of the book “Retiring? Beware!! Don’t Run Out of Money and Don’t Become Bored” (www.michaelbivonabooks.com), offers possible avenues to explore for a fulfilling retirement lifestyle.
Develop a social network with senior civic centers Civic centers, which usually have
a department dedicated to the betterment of the senior citizens who live in their areas, can be found in almost every municipality in the U.S. These centers offer a wide range of activities. Additionally, the following online search, “Fun Activities for Senior Citizens,” offers a nice list of activities and associated details that can be explored prior to retiring.
of which can be maximized with “research, research, research,” Bivona said. You might even parlay traveling with another interest, such as your family history. You may learn about your roots at www.Ancestry. com, and then visit areas based on your research. Or you may be more interested in stretching your dollar. There are many cost-effective deals to be had by researching your heart’s desire on the Internet and by reading the BEACON Senior Newspaper.
Stay sharp and keep learning The mind is much like the body: If you don’t use it you will acceler-
Try on a pair of dancing shoes For some, the thought of dancing may elicit a strong sense of aversion, but you may want to try it anyway. The benefits include exercise, coordination and possibly enjoying a romantic hobby with your spouse or others. Dancing is a beautiful art form that gives participants something with which to challenge themselves, Bivona said. A goal-oriented mindset is a healthy one especially when approaching the encore years.
Make the most of your travels Traveling is a common bucket list item for most retirees. Of course, it’s going to cost you. That’s why this is a subject that perfectly combines the two great concerns for retirement: money and purpose, both
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ate the process of losing it. Building bridges to new adventures is the key to maintaining your mental acuity and increasing your vitality. There is an abundance of educational courses developed for seniors to keep them exercising their mental prowess. Remember, if you started working in your 20s and retire in your sixties, there’s a good chance you’ll spend as many years in retirement as you did working. So building bridges to what you want to do in a rational manner for your encore years is imperative if the last phase of your life is to be enjoyable for you and your loved ones. ■
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Transitioning into retirement isn’t always easy By Edward A. Joseph One of the most important differences between a change and a transition is that changes are driven to reach a goal, but transitions start with letting go of what no longer fits or is adequate to the life stage you are in. —William Bridges, “Transitions: Making Sense of Life’s Changes”
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our financial ducks are in order; you have selected an amenable retirement location that you and your spouse, or significant other, are looking forward to moving to; you have been conscientious about taking care of your health and are now ready to start a new physical activity, for example, golf. You are obviously ready for all the changes retirement entails. Actually, according to William Bridges, author of “Transitions: Making Sense of Life’s Changes,” you may be ready for the changes of retirement, but you are probably not ready for something much more important: the internal transition process that is part of a major lifechange like retirement. When I retired early because of a buyout, my daughter, Amy, gave me Bridges’ book, and it has proved to be one of the most valuable gifts I have ever received. The following are some of the things I learned from “Transitions” that have made my retirement more understandable and less anxiety producing. Most retirees are not in touch with the inner psychological and emotional dynamics that are inherent in the transition of retirement, and they are generally unaware of the threefold process that all transitions are composed of: an ending, a neutral zone, and a new beginning. As a recent retiree, one’s work life
has ended, and even if there are many new activities, possibly even starting a new job, there are still internal issues that are important to pay attention to. Understanding the process of transition better helps a retiree deal with the emotional and psychological challenges that are part of all significant transitions. The important internal work that is involved in any transition takes place in the neutral zone. The old work life has ended, and one may be rushing around with many new beginnings. But this is not always the best idea because it may slow down the process of restructuring, psychologically and emotionally, a new life. In addition, the behaviors that helped one in an old life may be hindrances in a new life. One example given was of a retired executive who rearrange everything in the kitchen when his wife was away as a “surprise” for her (including labels stating what was in each drawer and cabinet) and couldn’t accept or understand her ballistic reaction when she saw what he had done. His detailed, business-oriented mind and his need for controlling his environment are not necessarily assets in his new life. New retirees may ask themselves, “How come I feel let down and feel like a lost something? I have been working 40 years for this time and this is not how I expected to feel.” Or as one “Transitions” workshop participant said, “They congratulate
OCTOBER 2015
you on your new life, but I have to mourn the old life alone.” It is helpful to remember at such a time that confusion and disorientation are common components of the neutral zone. In other times and cultures, the neutral zone was formalized, “... the person in transition left the village and went into an unfamiliar stretch of forest or desert zone.” The neutral zone in these cultures was not meant to be a pleasant time, but a time of reorientation. The transition process is an integral part of every human being’s life, not only in retirement, but also in many other situations: “Endings and beginnings, with emptiness and germination in between. The basic shape is so essential to growth that we must learn to recognize it in our lives.” Since I retired, I have undergone other transitions, most recently the retirement of my spouse, Susan. I remember talking to my sister-inlaw about her and her husband’s retirement a year or so before Susan’s. She told me that the retirements had made a huge difference in their lives and indicated it wasn’t always smooth sailing. At the time, I thought to myself, “It should be no big deal for Susan and me.” It turned out to be a big deal, so big in fact that it motivated me to reread “Transitions.” This rereading has helped me deal with the neutral zone that I am now in, as well as the neutral zone that Susan’s and my relationship is now in. It also reminded me of some ways to help the time in the neutral zone to be more productive, such as accepting my need for time in the neutral zone, planning for regular time alone to figure out what I really want, and keeping a log of my neutral zone experiences. The “dividends” from Amy’s retirement gift have significantly outperformed my other investments. ■
OCTOBER 2015
Medicare Monday highlights 2016 changes By Eileen Doherty, Colorado Gerontological Society
current Medicare beneficiaries. Beneficiaries new to Medicare on January 1, 2016, however may face ach year, Medicare makes nusignificant increases in Medicare merous changes to the benefits, charges and access to care for Medi- Part B premiums and deductibles, as the Centers for Medicare and care beneficiaries. As in the past, Medicaid and Congress struggle to the Colorado Gerontological Socimeet the federal mandate to cover ety will be sponsoring along with 25 percent of the local hosts, 16 Part B costs with Medicare Monday MEDICARE MONDAY DATES: Part B premiums events throughout and deductibles. Colorado to eduOctober 19, 2015 Projections by cate older adults 9:30 a.m.-11:30 a.m. some financial about the impact analysts suggest The Commons of Hilltop of these changes. a more than 50 Medicare Mon625 27 1/2 Road, Grand Junction percent increase, day will occur in thus possibly November 2, 2015 Grand Junction making the Part from 9:30 a.m.9:30 a.m.-11:30 a.m. B premium as 11:30 a.m. on Third Street Center much or more October 19, 2015 520 S. 3 rd Street, Carbondale than $150 per and in Carbondale month. Similarly from 9:30 a.m.individuals with 11:30 a.m. Novemincomes over $85,000 are projected ber 2. to experience even higher increases First and foremost, the Social in their Part B premiums. Security Trustees have announced Other changes that will be highthere will not be a Cost of Living lighted at Medicare Monday are Adjustment (or COLA) for 2016. Although not official, Social Securi- the new rules recently signed by President Obama related to hospital ty beneficiaries will see a small, if any, increase in their Social Security status as an inpatient or outpatient status. Many beneficiaries are exbenefits. periencing problems with durable Speculation based on the Medimedical equipment as well. care Trustees’ report suggests that Experts will review the 2016 current Medicare beneficiaries prescription drug plans that are will not see any changes in their available in Colorado, as well as Medicare Part B premiums or deshare the changes in premiums, forductibles since the Social Security Trustees have announced no COLA mularies, and co-pays based on tier levels. Expectations are that while for 2016. premiums will not change much, However, the overall costs of there will be significant changes operating the Medicare Part B in co-payments for prescriptions program have increased. There is depending on the tier level. a “hold harmless” provision in the The Medicare Advantage Health Medicare law, which protects Social Plans have announced some imSecurity beneficiaries from having provements for 2016. Annually to pay more in increased Medicare there are changes in premiums, covPart B premiums than the amount erages and co-pays. Knowing these of the COLA. This is beneficial for changes helps Medicare beneficia-
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ries prepare for 2016 in the areas of out-of-pocket expenses, expanded benefits and network providers. Representatives from the health plans attend Medicare Monday at selected locations to provide information for comparison shopping. Many Medicare beneficiaries also qualify for financial assistance with Medicare Part B premiums, as well as prescription drug premiums and co-pays. Changes in eligibility for the Medicare Savings Program and Extra Help will be featured.
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The Colorado Gerontological Society offers individual counseling for beneficiaries either by phone or in person, as well. For more information about specific locations in each of these communities or to schedule an individual counseling appointment, call 303-333-3482 or 1-855-880-4777. You can also visit www.senioran swers.org for more information. Reservations are suggested to ensure adequate seating, handouts and free refreshments. ■
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“I retired from Amtrak in August 2014. I’m creating a routine that goes with being retired. Also, I’m fixing up my apartment with some new furnishings. But actually, all I’m really doing is trying to figure out what retired people do.”
➤ Janet Nelson “I retired from Colorado Mesa University about two years ago. Now I try to sew, crochet, knit, cross-stitch, take care of grandchildren, and volunteer at my church and at Heirlooms for Hospice. Occasionally I work part-time at Creative Avenues and CMU. I’m busier now than when I worked, but this is a lot more enjoyable.”
Ruth Slaughenhaupt “I keep real busy. On Mondays I volunteer at the Senior Center. On Tuesdays, I volunteer at the Senior Center and at bingo. Wednesdays are my medical appointments day. On Thursdays, I volunteer at the VA Hospital. Fridays are my play day. I set up at various shows and events selling T-shirts that I make.”
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Long-term care costs can put a whammy on life savings B aby boomers, retiring at a rate of roughly 10,000 per day, may have unrealistic notions about what their future long-term care needs could do to their bank accounts. When a recent Nationwide Financial consumer survey asked for an estimate of how much a year of nursing home care will cost in 2030, the baby boomers that were surveyed guessed an average of $111,507. The actual estimated costs—$265,000—are more than double that, Nationwide said. That extreme underestimate indicates many of those baby boomers may be unprepared to handle the costs of long-term care and could end up relying on Medicaid to pay for it, which isn’t the best option, senior health-care advocate and Life Care Funding CEO Chris Orestis said. “One problem is that people wait until they are in the middle of a crisis before they start trying to figure out long-term care options and how to pay for them,” Orestis said. “Long-term care is expensive. It’s natural that families want to do whatever they can to help take care of a loved one, but they can go broke in the process.” Medicaid can certainly help, Orestis said, but it’s best to avoid going that route if at all possible. Here’s why. • Lack of personal choice. Most forms of home care and assisted living are paid for privately, which means you must have resources other than Medicaid to pay the monthly out-of-pocket expenses. But when people go on Medicaid they lose their ability to choose what kind of care they want and where they will go. Usually, instead of home care or assisted living, a person on Medicaid goes into a nursing home and in
most cases will share a room with another patient. “That’s not the way most people want to end up after a lifetime of working hard and raising a family,” he said. • Becoming impoverished. Medicaid was created to be a last resort and that’s exactly the way families should view it. To qualify, you need to be below the poverty line, which means you will need to spend down your assets to get there. “Once you go on Medicaid, you have in effect become a ward of the state,” Orestis said. • State budgets are strained. Because of all those aging baby boomers, the number of people needing long-term care is growing, escalating the long-term funding crisis. Political leaders want people to remain on private pay as long as possible because Medicare and Medicaid can’t keep up with the growing demand for long-term care services. A better option available to many people is to convert their life insurance policy into a long-term care benefit plan. Seniors can sell their policy for 30 to 60 percent of its death benefit value and put the money into an irrevocable, tax-free fund designated specifically for their care. That fund is professionally administered with payments made monthly on behalf of the individual receiving the care. Orestis said unfortunately, many people aren’t aware of the possibility of converting life insurance policies. “I’ve been lobbying state legislatures to make the public aware of their legal right to use this option,” he said. “It’s important that, as people age, they know about all their options so they can avoid making potentially costly mistakes.” ■
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What every woman needs to know about retirement By Akaisha Kaderlie
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he other day I read an article about women and retirement. In this piece, the number one premise for motivation was that we should be afraid—very afraid. It said that for the most part, men did the planning for retirement and women relied on them blindly. I dislike reading articles such as this, first, because it is fear based, but second, it doesn’t take into consideration the talents women contribute to the mix of partnership and planning. While it might be true that men are wired to provide for the household, women have moved into professions that pay grandly. Many marriages today are a different blend of partnership than what our own parents or grandparents enjoyed. Along with their jobs, many women still run the household, so why not get involved in retirement planning in a proactive manner?
Retirement is a boring word The word “retirement” conjures up images of old people on pensions or perhaps pictures of those who no longer contribute powerfully to society with their expertise and knowledge. I prefer the description “financially independent” for the freedom, influence and self-reliance it implies.
One can choose financial independence at any stage of life and it’s an exciting and worthy goal. The younger people begin on this path, the more they have in their favor.
Housing What you do today in this category and what you choose to do about it during your financially independent years is the largest expense of any household. Yes, most women want a cozy home, a place they can call their own and decorate how they choose. Is it possible for you to view this differently? Could you rent? Or purchase a smaller home? Do you need all the renovations and upgrades every few years, or the lawn and house cleaning services? What is your house currently
your accountant or financial advisor to help you. Knowing how to structure your taxes can save you thousands of dollars over time.
Entertainment
Women, listen up I don’t buy into any idea that we don’t financially affect a marriage. Not only is this old fashioned, but it’s silly. Regardless of what your paycheck is, or even if you lack one, what you must know is that you can track your spending, manage your cost per day, and that there are four major categories of spending in any household: housing, transportation, taxes and food. What you do in these categories seriously affects the bottom line in your family budget.
OCTOBER 2015
costing you per day for mortgage, insurance and maintenance? This is an important figure and one with which you must become familiar. When you move into your financially independent life, can you downsize, rent, RV, house swap, or house sit?
Transportation Americans love their cars and during child rearing years it is often a necessity to have one’s own transport available to shuttle kids around, get to the store or pick up supplies for the home. Do you know how much your car or car payment, gasoline expenses, maintenance, repair, cleaning and parking cost you per day? When you move into your retirement, you won’t be traipsing the kids around, so how can you look at your transportation needs differently? Could you bicycle, walk, carpool or have one car instead of three?
Taxes Taxes can be another boring word with images of piles of paper and forms stacked up high on the desk, and meanwhile the sun is shining brightly outside. But you need to know enough about your tax bracket and what is taxable with your sources of income so that you can work your taxes in your favor. While Billy and I recommend that you learn how to do these things on your own, if this is too much of a hurdle, ask
The last large category of expense in any household is food, dining and entertainment. When Billy and I were working 80-hour weeks, we played hard, too, racking up expensive vacations, eating out at top-notch locations and purchasing costly toys. Whether it’s before your financially independent years or as you enter them, this is one category where you have complete control. What you choose to spend or save in this category can definitely affect the bottom line.
Track spending If you are tracking your spending in the above categories and know what your cash outlay is on a daily basis, then you are in control of your present finances and your future way of life. One does not have to get fancy or complicated. Anyone reading this can do simple figuring. Just add up what you are spending and divide by the number of days you are keeping track. This gives you your cost per day and it’s a figure that you can manage assertively. If you multiply out that daily average figure, you will know what your annual spending is. Financial experts say that we need 25 times our annual spending stacked up in our savings in order to become financially independent. We women hold great influence in our households. Being mindful of and managing the four categories of greatest spending can place you directly on the road to financial independence, or cause financial concern later on. Be a full partner and get on board for financial freedom. ■
OCTOBER 2015
Over 50? Supersize your retirement savings By Nathaniel Sillin
I
RETIREMENT PLANNING
www.BeaconSeniorNews.com
f you’re over age 50 and not sure whether you’re going to be able to retire, it’s time to focus, get advice and build a realistic plan. You’re not alone. The U.S. Government Accountability Office recently reported that most households approaching retirement have low savings, adding that nearly half of households led by individuals or couples aged 55 and older having no retirement savings accounts at all. The first step is to define where you stand financially. Consider speaking with a qualified financial and tax advisor to define your present financial circumstances. Such a conversation should take into account your household income, tax situation, debt and retirement assets in any form. Reviewing these factors can help shape your decisions about supersizing your retirement plan for maximum safe returns. While a customized plan is generally the best way to approach shortfalls, here are some general approaches. Take time to reevaluate your budget. To accelerate retirement saving and investing, you need to find the money first. Non-mortgage debt is a major retirement savings obstacle. Better budgeting can help you find the money to pay off debt quicker. Adjust your spending across the board so you can accomplish this while adding more money to savings over time. Know that you’re going to need to accelerate your savings. Estimates vary, but generally, after age 50, it’s best to direct at least 10 percent of your gross income in savings and investments to cover living expenses when you stop working. If you are employed, review your contribution and income limits for the most popular self-directed and tax-advan-
taged retirement savings vehicles. Those include: • 401(k), 403(b) and most 457 plans, which have a maximum annual contribution limit of $18,000 in 2015 • Individual Retirement Accounts (IRAs) – both traditional and Roth – which will have maximum “catch-up” contribution limits of $6,500 (the regular $5,500 limit plus $1,000 for taxpayers aged 50 or over by year end 2015) If after all this effort you’re still not able to find enough money to put away, consider making a greater effort on the income side. Many individuals boost their savings through a second job or freelancing from home. Consult qualified financial and tax professionals to make sure you’re handling this extra income correctly from a tax perspective and putting it in investments that make sense for you. Downsizing to a smaller home or an apartment in a lower cost-of-living destination or deciding to move in with friends or family at minimal costs may also provide additional savings for retirement. But first, consider what you might get for your home. If you are able to sell a primary residence at a significant profit over your purchase price – above $250,000 for a single taxpayer and above $500,000 for married taxpayers filing jointly – speak to a tax professional about ways to avert a significant tax liability. Finally, put proper financial safety nets in place. Make sure you have an emergency fund set up so you won’t be forced to dip into savings to cover unexpected expenses. And don’t forget insurance: having the right amount of property and casualty, health and disability insurance can protect your retirement nest egg from significant risk. ■
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Why a ‘pour over’ will is a good idea By Jonathan J. David
Q
My husband and I recently completed our estate planning. We were able to save a lot of money by downloading forms off the Internet. The forms were pretty straightforward and after doing our own research we feel very comfortable with what we did. One thing we chose not to do, however, was to prepare wills, which we didn’t feel were necessary because we created a trust. It is our understanding that if we have a trust our assets are protected from probate and a will isn’t necessary. Are we on the right track?
A
First of all, although this is self-serving, I never recommend that people engage in do-it-yourself estate planning. Estate planning can be a complicated process and the documents used to create an estate plan can also be quite complicated. Trying to prepare estate planning documents on your own will most likely lead to mistakes and sometimes serious mistakes. Further, estate planning forms you find on the Internet cannot be relied upon to address your specific concerns, are oftentimes poorly drafted, and may not even comply with the laws of your state. I would encourage you to consult an estate planning attorney in your area to make sure that whatever documents you prepared are sufficient for your purposes and are valid under the laws of your state. As for your specific question, you should always have a last will and testament regardless of whether you have a trust. Having a trust allows you to retitle assets to that trust during your lifetime, and if you do that, those assets avoid probate at your death. However, if at the time of your death you have any assets titled in your name alone, then those assets will need to be
probated, and if you don’t have a will, upon the completion of probate, those assets will pass pursuant to state law and not to the beneficiaries of your own choosing. This is because when you die without a will you are deemed to have died intestate and the state gets to decide who receives your assets. If you want to make sure that all of your assets eventually pass into your trust, each of you will need to prepare wills naming your trust as the beneficiary of any assets that need to be probated. This type of will is known as a “pour over will,” which means that upon the completion of probate those assets will pour over, or be distributed, to your trust to be held, administered and distributed to the beneficiaries named in the trust pursuant to the terms of that trust. If you have minor children, a will is also important to have because it allows you to name who you want to be their guardian while they are under age 18. I also want to be clear that simply creating a trust alone does not by itself protect your assets from probate. Creating the trust is simply the first step. Once you have created the trust, the next step is for you to make sure that assets are retitled in the trust name. Also, for those assets which allow a beneficiary to be named, such as life insurance, you might want to consider having the trust named as either the primary or contingent beneficiary. Because retitling assets can be complicated, especially when real estate is involved, I suggest that you consult with an estate planning attorney to help you make sure that your assets have been properly retitled and/or beneficiary designations have been properly made (or changed) naming the trust as a beneficiary. Good luck. ■