The Secure Act would upend 20 years of retirement planning and stick it to the middle class.
Downs Law Firm, P.C.
Downs Law Firm, P.C.
The Secure Act would upend 20 years of retirement planning and stick it to the middle class.
Once your money is in a retirement account, it’s there until you’re ready to use it, right? Not exactly.
‘Divorce gap’ can have an impact on income, as well as on retirement planning. In my prior life, a large part of my practice was as a divorce lawyer. I was involved with may stress filled conversations about the marital break-up. While the ending of a marriage is an emotionally devastating event for most people who experience divorce, it is also very much the ending of a business relationship. Intermingled efforts at saving, raising children and maintaining a home deserve the eyes of a third party who is knowledgeable about assets, alternative ways to negotiate, and what will likely happen in Court if you cannot agree. If you or a loved one is going through this process, seeing proper legal counsel about your rights, particularly as to retirement plans accumulated during the marriage, is critical. A competent divorce lawyer can be well worth their cost. A study from the Center for Retirement Research at Boston College found that divorced women historically are better off than single, never married women, because of the assets they have accumulated before divorce, primarily home ownership. However, that can have a negative impact on retirement, according to Money in “This is The Single Best Way Divorced Women Can Secure a Successful Retirement.” Many divorce lawyers and financial advisors say that keeping the house after divorce, isn’t always the best move. Many newly-single women find they don’t have the resources to keep up with mortgage payments, maintain the property, pay taxes and deal with unexpected crises. One advisor says she’s concerned that these new numbers will lead to women who can’t necessarily afford to maintain a home to hang on to their homes. However, a researcher involved in the study maintains that while the study mentions homeownership, there’s a bigger point being made. Married women who divorce benefit from receiving a share of marital assets. Single, never-married women do not and must rely solely on themselves for saving and accumulating assets that can be used to finance their retirement. A critical fact that women who are divorced must do: whatever assets they get in the divorce settlement, commit to keeping those assets intact for retirement. It’s easier to do this with a house. However, it’s tempting to dip into assets that are intended for retirement. Many of our clients put plans in place to protect the asset they leave to children from divorce. An estate planning attorney can advise you in creating an estate plan that meets your unique circumstances, including retirement planning. Reference: Money (Aug. 10, 2018) “This is The Single Best Way Divorced Women Can Secure a Successful Retirement”
Bad news in the media can spark people to take Social Security before it is gone. Claiming Social Security benefits early means a smaller monthly and lifetime benefit for you and likely for your surviving spouse, according to The Motley Fool tit in an article on a Gallup survey of retired and non-retired people in “Social Security: Why Claiming Early Could Be All the Rage Next Decade.” The Social Security Administration reports that 62% of retired Americans rely on their benefits for at least half of their income stream, with about a third of Americans relying on Social Security for almost all their post-working income.Only one in 10 people don’t depend on Social Security at all for income, when they are retired. Your retirement benefits are based on your 35 highest earning, inflation adjusted, years. To max out, you’ll need to have worked for 35 years. Years with zero income can impact your overall totals. Birth year is another factor. That determines your Full Retirement Age (FRA), the year that you become eligible to receive your full retirement benefit. Claim earlier, and you risk permanently reducing the monthly benefit by as much as a third. Claiming after your FRA could boost benefits by 32%. Most people do start claiming Social Security benefits before their FRA, for a variety of reasons. Sometimes it’s because they have lost their job, are over 60 and can’t get hired. Some people simply don’t know that the longer they wait to claim, the higher their benefits will be. What is clear is that 60% of retired workers in 2013 took their benefits between 62-64, with another 30% claiming between 65-66. One in 10 workers took benefits after their FRA. There has been a change in recent years. While more people are waiting longer to claim their benefits, fewer are waiting until their FRA. The reason is tied to the headlines. People are worried that Social Security is going to be cut, and they want to get the income they can while the agency is still fully funding benefits. The 2018 Trustees Report (officially, “The 2018 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds”) said the agency will pay out more than it collects in 2018, the first time this has occurred since 1982. The net cash outflow is expected to grow faster starting in 2020, and then by 2034, the $2.89 trillion in assets may be gone. Congress will need to act, or benefit cuts to all retirees will have to be made—by as much as 21%. Can anyone know what will occur between now and 2034? Congress could fix any concerns by passing a bill that solves the problem, and those who claim early will be left with smaller benefits. We also don’t know when we are going to die. The decision of when to claim must be made by each individual, based on their FRA, their other sources of retirement income
Retirement expectations don’t always line up with reality. Are you picturing your retirement? Without careful planning, those years might not live up to your plans, according to The Washington Post in “The top regrets of retirees.” Global Atlantic conducted a study looking at retirees and found that many admitted that they had made mistakes in their retirement planning. The report was based on data from more than 4,200 retirees and pre-retirees in America. The company wanted to learn how expectations for retirement costs lined up with reality. The expectations often did not. The risk of running out of money is real, said the report, noting that 39% of retirees said they had planning regrets. Here are the top reasons for regret: They found themselves relying too much on Social Security for income. They did not pay down debt before retiring. Many people today are retiring with a mortgage. People used to pay off their mortgage before retiring, but it’s less and less common now. They didn’t save enough. Most people didn’t start saving for retirement until they turned 31. Missing almost a decade in saving can make a huge difference over time. Let’s say an employee puts away $50 every time she gets a paycheck—twice a month—and puts the money into an account with a 6% annualized return. If she started saving at age 23, by retirement age she’d have $227,150 in that account. If she waited to start saving until age 31, the account would be worth $128,578—$88,572 less. If she was able to save $100 per paycheck, by retirement, she’d have $434,299 versus $257,156. The power of time and compounding makes a huge difference. Compounding is the process through which an asset’s earnings are reinvested to earn additional earnings over time. The more time your assets have to grow, the most compounded growth can occur. Age 31 seems relatively young to start thinking about retirement, but by waiting that long, workers are missing out on almost a decade of savings, asset accumulation and the associated potential of compound returns. The survey also revealed that women are more likely than men to have retirement planning regrets, with 62% of women having retirement regrets, versus 47% of men. Reference: The Washington Post (Dec. 10, 2018) “The top regrets of retirees.”
Snowbirds Checklist Heading is a good idea but consider legal issues before leaving. If you are a retiree who heads south after the holidays, it might be wise to create a checklist of at least four personal legal business items, according to LimaOhio.com in “Extra checklist before heading south for the winter.” Not that January and February aren’t delightful here in the Baltimore-Washington area… First, make sure that your living will and healthcare power of attorney documents have been updated. Does your family have copies of these documents? Or do you emailed copies to them ? If you have these documents with us, we now scan them and forward a copy to you to send on to your decision makers. If they save that email, they will also have our contact information to access your Property Power of Attorney if needed. Second, discuss the location of your estate planning portfolio with them, and how to contact your estate planning attorney. Update them if changes need to be made and get copies to your children and/or friends. Third, make sure that your last will and testament is updated. Have you had any big changes in your life since the last time it was reviewed? Marriages, deaths, divorces, births, and adoptions are the typical “trigger” events that signal a need for review. Being out of town for an extended time is a good prompt to review how current your documents are, and how they address your concerns. Who will have that document? If your estate planning attorney maintains original copies for clients, then make sure to have another original on your person or safely secured with a loved one. Lastly, and this takes a little time but is well worth doing, create a list of all your assets. Make sure they are properly titled for your situation. Should you have all your bank accounts become Payable on Death to your spouse? When was the last time you checked your beneficiary designations? Chances are good there are beneficiary designations on your bank, investment, and retirement accounts and on your life insurance policies. Wherever you have a beneficiary designation, you should also have a contingent beneficiary. An estate planning attorney can advise you snowbirds on creating an estate plan that fits your unique circumstances and may include a trip in a southerly direction. Reference: LimaOhio.com (Oct. 13, 2018) “Extra checklist before heading south for the winter”
Many have faced these sins, so it might be a good idea to check them out before they can surface. As the year draws to an end, here are a few thoughts on planning for your eventual transition to retirement. You may have every intention in the world of planning and financing your retirement. However, it is possible that you will run up against some of the common deadly sins that have been known to block other people from reaching their goals, according to The Reader’s Digest in “The 7 Deadly Sins of Retirement Planning.” Look at these and see if you recognize any potential problems that could be your stumbling block. Pride. Sometimes we think retirement planning should be simple, and when it gets complicated, our knee-jerk reaction is to be prideful and refuse to allow anyone to help us. If you’re not a professional retirement planner, how will you know what to watch out for? You won’t. A mistake could make the difference between a heavenly retirement and one that is delayed or never arrives. Swallow that pride about the difficulties of building a portfolio or investment strategy and be open to getting help. Envy. If you spend 30 years trying to keep up with the Jones’ extravagant spending, who knows if you’ll ever be able to retire? Just because a neighbor, friend or relative spends on new luxury cars, or sends their kids to pricey private schools, doesn’t mean you need to do that, unless you can afford to—all while saving for retirement. Live below your means and save for the future. Wrath. This is a dangerous emotion. If you’re angry about a situation at work, for instance, and you leave without good financial planning, you could put your retirement savings at risk. It often takes longer than you think to find a new job. Leaving voluntarily makes you ineligible for unemployment benefits. Paying for COBRA insurance is usually a lot more expensive than an employee group benefit plan. Hate your job/boss/co-workers? Wait until you have a new job lined up before leaving. Greed. Chasing investment trends or listening to your brother-in-law’s latest get-rich quick scheme rarely leads to success. A professional advisor with a long-term plan will almost always yield a better return. Sloth. Lazy about retirement planning? You have to do the planning, the savings, track your expenses and keep an eye on your money and your taxes. Have you made the effort to have a will, power of attorney and health care directive made for you and your spouse with an estate planning attorney? A missed step could doom your retirement and create a crisis for your family. Gluttony. This is kind of like greed’s younger, sloppier cousin. Are you being greedy about making money, to the detriment of any other goals? A goal-oriented investment plan will serve you better. Lust. Are you yearning for a billionaire’s lifestyle, with an income that is more middle class? Leave the lust for the jets, diamonds and
Think ahead about what you are going to enjoy during the retirement years. Don’t lose you purpose in your retirement.We work with many clients who are about to make the dramatic life altering change or retiring. Many people are very good at planning for the parts of retirement. However, they sometimes forget to include the change of lifestyle that comes without a work schedule, according to Next Avenue in “How to Keep Retirement From Being A Drag.” Most people plan for the financial and legal aspects of retirement: how much they need to save, how much of a bite inflation will take, the cost of healthcare, long-term healthcare, etc. But, what about fun? Work is where many people get their sense of purpose and their identity. Talk to any working parent who steps out of their career trajectory for a few years. It’s a similar shift, except there is no smiling cooing baby to keep you busy. If you don’t have projects, meetings, or deadlines, or the community of the workplace, what defines you? This sense of being adrift occurs to people regardless of their income level and may be even more intense for successful people who are used to running a business, commandeering a company or managing a busy desk. Here are some suggestions for making sure your life during retirement is enjoyable and has purpose and meaning. Set your alarm and have a reason to get up every day. After you’ve taken the big trip, spent time with your grandchildren and organized your closets, what’s next? It’s time for you now, time to do things that you’ve always wanted to but for reasons of time, could not. That might mean taking up a sport, expanding a hobby, becoming an active volunteer or returning to school to explore a subject you love? Consider yourself to be on a fixed salary. The transition from paycheck to drawing down savings can be unnerving. You’re sitting on a huge pile of money—but it must last two or even three decades. Create a post-retirement budget before you retire and don’t forget to include healthcare, taxes and potential emergencies. Also consider which assets to draw from and in what order. Do you use your 401(k) funds first, or start with cash? Avoid this retirement rookie mistake: taking out too much cash in the initial stage of retirement. Talk with your partner and family. Will you both retire at the same time? If one is still working and the other is not, how will you divide up chores? If your work schedules meant you didn’t see each other for more than a few minutes during the week, spending 24/7 together is a big change. Do you expect to spend all your time together, or will there be some “me” time? Will your children expect you to babysit on a regular basis? An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances, including your retirement years. Reference: Next Avenue (Nov.