retirement planning

Serving Southwest Florida

Helping clients plan for their family's future, by creating an efficient, thoughtful and comprehensive estate plan that preserves their legacy and gives them peace of mind.

Selecting Beneficiaries

For many people, selecting beneficiaries occurs when they first set up an account, and it’s rarely given much thought after that. The Street’s recent article entitled “Secure your IRA – Review Your Beneficiary Forms Now” says that many account holders aren’t aware of how important the beneficiary document is or what the consequences would be if the information is incorrect or is misplaced. Many people are also surprised to hear that wills don’t cover these accounts because they pass outside the will and are distributed pursuant to the beneficiary designation form.

If you are remiss in selecting beneficiaries and if one of these accounts does not have a designated beneficiary, it may be paid to your estate. If so, the IRS says that the account has to be fully distributed within five years if the account owner passes before their required beginning date (April 1 of the year after they turn age 72). This may create a massive tax bill for your heirs.

Get a copy of your listed beneficiaries from every institution where you have your accounts, and don’t assume they have the correct information. Review the forms and make sure all beneficiaries are named and designated not just the primary beneficiary but secondary or contingent beneficiary. It is also important to make certain that the form states clearly their percentage of the share and that it adds up to 100%. You should review these forms at any life change, like a marriage, divorce, birth or adoption of a child, or the death of a loved one.

Note that the SECURE Act changed the rules for anyone who dies after 2019. If you don’t heed these changes, it could result in 87% of your hard-earned money to go towards taxes. For retirement accounts that are inherited after December 31, 2019, there are new rules that necessitate review of selecting beneficiaries:

  1. The new law created multiple “classes” of beneficiaries, and each has its own set of complex distribution rules. Make sure you understand the definition of each class of beneficiary and the effect the new rules will have on your family.
  2. Some trusts that were named as beneficiaries of IRAs or retirement plans will no longer serve their original purpose. Ask an experienced estate planning attorney to review this.
  3. The stretch IRA has been eliminated for most non-spouse beneficiaries. As such, most non-spouse beneficiaries will need to “empty” the IRA or retirement account within 10 years and they can’t “stretch” out their distributions over their lifetimes. Failure to comply is a 50% penalty of the amount not distributed and taxes due.

For many selecting beneficiaries, using the beneficiary form is their most important estate planning document but the most overlooked.  Let us help you incorporate selecting beneficiaries into your estate plan.

Reference: The Street (Dec. 28, 2020) “Secure your IRA – Review Your Beneficiary Forms Now”

 

How to Catch Up on Retirement Savings

Many workers need to catch up on retirement savings because they haven’t created any plans to save for their retirement. However, you can start turning that situation around now. Money Talks News’ recent article entitled “The 7 Fastest Ways to Catch Up on Retirement Savings” says that, even if you can’t add to retirement savings at the moment, here are some ideas to plan for how you’ll address this shortfall, when you’re back on your feet financially.

Review your budget. If you need more money for retirement savings, change your budget. Make certain that all your money is identified and working for you. Reduce or cut expenses that prevent you from achieving goals.

“Catch up” your 401(k). If you are over 50, take advantage of the ‘catch-up contribution’ in your 401(k). In 2020, the base limit for contributions to workplace retirement accounts is $19,500. In addition, starting at age 50, workers with a 401(k) plan can contribute an extra $6,500 per year. If you have an IRA — either traditional or Roth — you can contribute $6,000, plus an extra $1,000 beginning at age 50.

Leverage all investment opportunities. When you invest in your 401(k), put enough in to at least get any full employer matching funds. There are also employers that match contributions to a health savings account, which can be a great hidden way to save for retirement. You can also maximize IRA contributions (Roth or traditional), depending on what is possible given your income. Any money left over can be invested it in a taxable account.

Bolster your earnings. If you’re behind in saving for retirement, you might need to boost your earnings more quickly. To earn more income, consider changing jobs, get training to update your skills, or finding a side gig. If income doesn’t grow over time, it’s hard to have savings strategies accelerate retirement success.

Be wise with raises and windfalls. When you get a raise, split the amount and put half in a checking account and half toward retirement savings.

Minimize your spending. This can be the toughest part, but it’s also perhaps the most important. Reducing spending increases your savings, and it also teaches you to live with less. If you learn to live more modestly, you won’t need to save as much to continue your lifestyle in retirement. If you’re unsure where all your money is going, monitor your spending. List all the expenses and track them over time. When you know where your money is going, you’ll have the information needed to determine if there are places where spending can be diverted to savings.

Make a “mortgage payment” after the house is paid off. If you’ve worked hard to pay off the mortgage, save the money that was budgeted for the house. Save it in an investment account to use for retirement spending. Do the same when you pay off a car loan and watch your wealth grow.  We can help you with your estate planning in retirement.

Reference: Money Talks News (Oct. 8, 2020) “The 7 Fastest Ways to Catch Up on Retirement Savings”

 

Estate Planning After Retirement

How you handle money and legal matters during retirement is more important than during your working years. It’s harder to bounce back from financial setbacks when you aren’t getting a regular paycheck. Managing finances and legal affairs to keep your savings intact and keeping your estate planning after retirement current is part of your new responsibility as a retiree, says a recent article “7 Money Moves You Should Make After Retiring” from MoneyTalksNews.

  1. Review estate planning documents. One of the most important documents is your will, but you also need to review any power of attorney and trust documents. A will is used to specify what you want done with your property after you die. What happens if you die without a will? The state will step in and make those decisions for you.

If you marry, divorce, inherit or buy property, you should update your will to reflect your changed circumstances. The arrival of a new grandchild may make you want to change your beneficiaries.

Reviewing your estate planning after retirement and then periodically afterwards can put your mind at ease. If you don’t have a will or trust, now is the time to have one created with an experienced estate planning attorney. You may also need a living will, power of attorney and letter of intent.

  1. Review named beneficiaries. Beneficiary designations require updating anytime there is a change in your life.  They play a large role in your estate planning after retirement. When you purchase life insurance, enroll in a pension plan or open an individual retirement account, you are often asked to name a beneficiary–the person who will inherit the proceeds when you die. These instructions take precedence over instructions in a will.
  2. Prepare for your funeral. No one wants to consider their own mortality, but helping your loved ones be financially prepared for your funeral is a gift. By planning your own funeral, including making arrangements for funds to be available to pay for it, you save your family of the burden of having to plan and pay for a funeral while they are grieving your loss. Planning in advance also gives you an opportunity to decide what type of funeral you want.
  3. Consider trimming transportation costs. If your household has two cars, but you could manage with one, consider paring down this expense. Seniors tend to pay higher rates than young people, so this is one way to trim your monthly expenses.
  4. Review emergency fund status. Having money set aside for unexpected expenses is more important now than when you were working. An emergency fund can help you avoid taking money out of retirement accounts, which costs you not only the funds themselves, but the potential growth of the funds and any taxes that might be due on withdrawals.
  5. Plan for Required Minimum Distributions (RMDs) and taxes. Once you celebrate your 72nd birthday, you’ll need to start taking RMDs from tax-deferred retirement accounts. If you miss an RMD deadline or don’t take out enough, you may have to pay a 50% tax penalty on the amount of money you did not withdraw. RMDs are treated as taxable income, so they may impact your federal income tax rate, as well as the “combined income” formula used to determine the extent to which your Social Security benefits are taxable.
  6. Do you still need life insurance? If your family is not dependent upon your income, now might be the time to drop life insurance policies. The main purpose of life insurance is to provide an income stream for loved ones, if you should die unexpectedly when you are working and raising a family. However, if you are retired, your children are grown and your spouse is not relying on your income, it may be time to let the policies lapse. On the other hand, if you can afford the premiums and wish to leave the proceeds to a spouse or your children, by all means keep the policy. However, check the beneficiary designation.

Let us help you with your estate planning after retirement.

Reference: MoneyTalksNews (Oct. 9, 2020) “7 Money Moves You Should Make After Retiring”

 

Planning for Social Security Benefits

Planning for Social Security benefits can save you a lot of money.  You’re entitled to your full monthly Social Security benefit based on your earnings history when you hit your full retirement age (“FRA”).

Your FRA is either 66, 67, or somewhere in between, depending on when you were born. However, you can enroll in Social Security as early as age 62.

However, for each month you claim benefits ahead of FRA, it reduces the amount for the rest of your life.

Motley Fool’s recent article entitled “3 Reasons to Claim Social Security Benefits Early” says it may pay to enroll early, if one of these situations applies to you.

  1. You need cash ASAP. It’s not uncommon for seniors to lose their jobs and have a hard time securing employment again. Others are forced to stop working due to health issues (either theirs or that of a family member).

If you require money immediately, then you might not have the option of weighing whether claiming Social Security early is a good idea. You’ll just have to go ahead to get by.

It’s better to claim your benefits early at a lower rate, than adding costly debt to survive.

  1. Your health is a concern. Social Security is supposed to pay you the same total lifetime benefit. As a result, filing early will give you less money each month, but more years of benefits. This, in effect, simply means stretching that total payout for a longer time period. If you delay, it will have the opposite effect. You get a bigger monthly benefit but over fewer years.

This formula is designed so you break even, if you live an average lifespan. However, if your health isn’t good, and you don’t expect to live all that long, then filing for benefits early could be the right move. This could ensure that Social Security ultimately pays you the largest amount of money.

  1. You want to have fun in retirement, while you’re younger. Filing for benefits before your FRA may let you really enjoy travel and other experiences, while your health permits. However, if you don’t have a lot of retirement savings, you may need to wait on filing for benefits to avoid financial difficulties later on. However, with a good-size nest egg, it pays to claim your money when it will do you the most good.

Take the time to consider your options for claiming your benefits. Planning for Social Security benefits will help you to avoid regretting your choice. Consult with a financial advisor with expertise and experience in retirement planning.  Let us help you plan.

Reference: Motley Fool  (Oct. 6, 2020) “3 Reasons to Claim Social Security Benefits Early”

 

Why Not Claim Social Security at 62?

If you’re getting close to age 62 and thinking about filing for benefits, there are a few things you need to know before you act, so you don’t later regret your choice.

Motley Fool’s recent article entitled “3 Reasons Retirees May Regret Claiming Social Security at 62” explains that there are three reasons why you may regret getting your checks when you turned 62.

1.You outlive your life expectancy. Social Security is designed in theory for you to get the same income over your lifetime, no matter if you begin getting benefits early, claim them late, or start them on time. Early filers receive more but smaller checks, because of early filing penalties. Late claimers get fewer and bigger checks, because they don’t claim them until they’re older. However, everyone dies on schedule, and if you outlive your projected lifespan and you claimed Social Security at 62, each month you live beyond your life expectancy, is a month in which you miss out on extra income. Your total lifetime benefits could end up much larger, if you receive a lot of checks beyond the point when you would’ve broken even for delaying benefits.

  1. Your medical care is too expensive. Medical care is very expensive for many retirees. There is out-of-pocket spending for Medicare premiums and prescription drug costs that aren’t covered. Many of these substantial healthcare costs are incurred late in retirement, when your health has started to decline. Unfortunately, for many, their investment account balances are low at this point after years of withdrawals. If you find that your savings are running short and you can’t afford costly care, you may regret that you claimed your money early and minimized the amount of your Social Security checks.
  2. Your spouse winds up with lower survivor benefits. If you’re the higher-earning spouse, taking your Social Security benefit may potentially result in leaving your spouse in a pinch, if you die first. That’s because filing at 62 would mean lower survivor benefits. You should think about the effect on your spouse, if you file benefits ahead of schedule.

Ask an attorney to work the numbers for you. In some cases, for married couples, it’s frequently best for a lower earner to begin their benefits early, if the money is needed for household income.  The higher earner can then wait to claim benefits as long as possible—ideally to age 70—to maximize the survivor benefits.

Take your time and think carefully about when to claim benefits. You don’t want to regret your choice, especially if it’s at 62.

Once you claim your Social Security benefits early, your income is going to be smaller for the rest of your life, unless you can undo your claim. You don’t want to look back and wish you’d waited or regret not considering all of the ramifications of starting benefits at 62. Even so, you may determine that claiming right away at age 62 still makes sense. However, understand the negatives before you make this choice.

Reference: Motley Fool (Aug. 17, 2020) “3 Reasons Retirees May Regret Claiming Social Security at 62”

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