Moynihan Lyons PC

Early Social Security Means a Smaller Check

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 and their expectations for the future.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: The Motley Fool (Dec. 20, 2018) “Social Security: Why Claiming Early Could Be All the Rage Next Decade”

Longer Retirement Means More Money Is Needed

It can be tough to save because of everyday life expenditures. However, knowing what sort of retirement you want, makes it much easier.

Planning for activities that you expect to do during your retirement and recognizing that the longevity of retirement is increasing, can help you plan better to save for those days, according to U.S. News & World Report in “Will You be Able to Afford the Lifestyle of Your Dreams in Retirement?”

Here are some pointers to help get retirement savings on track:

What do you want to do? Vague goals like travel may not motivate your savings. However, if you’ve identified the cost of living in Paris for six months you’ve got a real concrete goal to work toward. That provides more motivation and helps avoid impulse spending. Get specific: write down what you want to do and start researching what it will cost.

Do a test drive first. If your spouse wants to live in an RV full time, that’s great as long as you do. However, don’t sell the house before testing it out. Try renting an RV and living in it for at least a month. The same is true for living in a house in the woods. Sounds great—but if you’re a city dweller, how will you feel after a few months of living in an isolated spot?

Think about how long you want to work. Many people today work into their late 60s and early 70s. If they have a desk job, and they have reached a certain level of success, there may not need to be a cut-off date for retirement. What about taking more time off for vacations or working part time? Recent studies have shown that working even a few more years, can have a major impact on the quality of your full retirement.

Do the math. Once you have some concrete plans in place, run the numbers. Consider how you might make the money you have last longer. Look at housing prices, if downsizing to a less expensive area is on your list. If you plan on travelling, do you have to stay in five-star hotels, or could you be content with Road Scholar, formerly known as Elderhostels?

Remember to include health care costs. You’ll need to include the cost of medical expenses, including Medicare premiums, deductibles, copays and coinsurance, among other costs. This is especially true, if one or both spouses have any chronic conditions.

Now, what’s your savings plan? Once you have all this information, you’ll be able to determine how much you need to save, each year and each month. When you combine all your retirement income sources, do you have enough to sustain your retirement dreams? Or do you need to adjust your savings?

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: U.S. News & World Report (Dec. 19, 2018) “Will You be Able to Afford the Lifestyle of Your Dreams in Retirement?”

Don’t Avoid a Conversation about Growing Older

The talk may be difficult but may turn out to be necessary.

It might not be the easiest conversation you have ever had. However, it is a good idea to have a talk with your loved ones about what steps to take as you go through the aging process, according to The Des Moines Register in “In 2019, resolve to have a difficult conversation.”

The person who is contemplating needing help, may want to start the conversation but the person who may be called on to help may find it too difficult to consider. Who wants to think about their parents getting frail and needing help going to the bathroom? No one.

The person who is starting to feel the impact of aging may already be aware of some limitations. However, talking with their children or potential caregivers, may change the conversation from “someday” to “soon.” The loss of independence is one of the big milestones, just as gaining independence is a milestone earlier in life. That’s a hard thing to accept for both sides.

Those who have lived through this process of needing to become caregivers, say that it would have been easier, if they would have known what their loved ones wanted. So, would have been knowing what kind of help their loved ones could afford. It’s better to have time to research available resources in advance, rather than operating in crisis mode.

This is what your conversations need to address:

• Medications, physical health, emotional well-being and health care providers
• Their wishes, if their health declines slowly or rapidly. Do they want to stay at home? Who would they want to help with daily care?
• Finances: Can they afford to pay for care at home? Has any Medicaid planning been done? What government programs are they eligible for? Do they have a CPA or financial advisor?
• Estate plan: Where is their Last Will and Testament? Is there a Power of Attorney, Living Will or Medical Directive in place? Who is their estate planning attorney?
• Documents, including birth certificates, Social Security, insurance cards, safe deposit box keys, computer passwords, etc.

Seven out of 10 people over age 65 will need help from others at some point. Most will need it for at least three years, so it might be wise to have the conversation before a difficult situation arises.

Reference: The Des Moines Register (Dec. 19, 2018) “In 2019, resolve to have a difficult conversation”

The New Year Is a Good Time for Estate Plan Review

Don’t limit your attention to your investment portfolio. Include a fresh look at your estate plan.

Your estate plan is really important and that is why you did it in the first place. Don’t let it get out of date, so take a fresh look at any changes in your life that have taken place over the previous year, according to Wealth Management in “Eight Simple Estate Planning Review Items for 2019.”

Here are the eight items that need your attention:

Beneficiary designations. When was the last time you checked these? Beneficiary designations are usually looked at when an account is opened, and often that’s the last time people see them. Look at beneficiary designations for tangible assets, like homes, cars or collectibles. Check legal documents including bank accounts and insurance policies.

Digital asset designations. This is a relatively new area, but very important. Even if you don’t own any cryptocurrency, chances are good you have assets like photos, reward points, websites and more. Each social media platform has a different policy for how accounts are treated on the death of the owner.

Trust funding. This is where many estate plans fall apart. Funding trusts often requires changing titles on bank accounts, homes and other assets into the name of the trust. Major purchases, like a boat or second home, also need to have their titling corrected, so they correspond to trusts.

Documents for adult children. When your children turn 18, they are legally adults and you do not have the legal right to get information or make decisions on their behalf. If you don’t have HIPAA releases, Power of Attorney, and other documents, you may find yourself unable to help in an emergency.

Keep up with life changes. Review your estate plan with an eye to changes in your life: births, deaths, marriages, divorces, big purchases, etc. If you haven’t met with your estate planning attorney or had a phone conversation in a few years, make an appointment now for a review.

Secure photos and memories. How many times have we watched dramatic images of fires, floods, and earthquakes in 2018? Videos, photos, family heirlooms, and artifacts and other irreplaceable items should be stored in some digital format, or in the cloud. If the family includes artists, take photos of paintings or sculptures so at least you have an image of the item should it be destroyed.

Discuss wishes with loved ones. One of the biggest challenges after someone passes, is knowing what they wanted to be done with personal possessions. If you have every Beatles album, unopened, what do you want to happen to your collection? Make inventories and then tell your family what you’d like to have happen with your possessions. You can create a “Legacy Letter” and put it down on paper.

Prepare for incapacity. This is not everyone’s favorite task, but necessary. If you were conscious but not able to speak, what information would your family need? Work with your estate planning attorney to create the necessary legal documents, including medical directives.

Reference: Wealth Management (Dec. 12, 2018) “Eight Simple Estate Planning Review Items for 2019”

Farm Couples May Receive Smaller Social Security Benefits

If you expect 20 years of retirement, then you need to prepare for financing it.

The average couple receives Social Security benefits of about $26,000 a year, says Farm Journal’s Ag Pro in “5 Retirement Investment Tips.” If that’s an average benefit, then farm couples should expect to receive less than that, because farmers are very good at avoiding taxes, said David Marrison, Ohio State University Extension specialist. If that’s the average income, where’s the rest of the household income going to come from?

When it comes to retirement income, about $26,000 is just not enough. To allow for a comfortable retirement and limit negative impact on the family farm, or any family business for that matter, planning must be done in advance. Here are a few tips that are simple, direct and can make a difference for your retirement.

When are you going to retire? Many people retire at 65. However, the decision often needs to be made from a financial perspective and not based on age. If you can work a little longer, that may give you a better chance of building up enough finances to retire comfortably.

What’s your budget? This is where so many people fail. How much money are you going to need when you retire, starts with knowing how much money you are spending now. For farm and business owning families, some expenses can get co-mingled, such as fuel or utilities. Get into the details and make sure you are not missing any expenses.

Inflation. Recent years have seen a very low impact of inflation but that may be changing. Once you’ve identified your target savings goal, build in inflation. Here’s one way to do it: take the number 72 and divide it by an interest-rate factor. Many experts use 4%, which is the average inflation rate for the last five decades. Using this rule, you can expect your living expenses to double what they are today because of inflation. Sounds scary? That’s why planning is so important.

Make a plan for savings. View retirement as both a means to an end and a way to reduce tax liability. For farmers, good times used to translate into mitigating taxes by purchasing equipment. However, it’s likely that putting away money in a 401(k) may have been a better idea.

Start saving today. Even if all you are doing is setting aside 10% for the future, if you are young enough that can be a good start.

Add to these tips getting your estate plan done or updating your estate plan. Your estate plan is a critical piece for farm families who want to pass the farm down to the next generation. In addition to a will, you also need Power of Attorney for your finances and documents for health care. Make an appointment with a local estate planning attorney to get this done.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Farm Journal’s Ag Pro (Dec. 24, 2018) “5 Retirement Investment Tips”

A Good Estate Plan Can Provide Security and Family Peace

Estate problems can sometimes lead to a fractured family.

Family members can end up feeling mistreated by the distribution of an estate. However, a good estate plan can help prevent those hard feelings from developing, according to the Observer-Reporter in “Improper estate planning can lead to familial conflict.”

“Dying intestate” is the term used to describe the legal status of someone who has died without a will. The laws of your state will then dictate what happens to your assets. Most of your tangible possessions will be distributed following probate. If your estate is complex, for example, and you own property in more than one state, the process will take a long time and the costs will be high. A will—and an estate plan that is updated regularly—can prevent this and many other scenarios.

Some of your assets do not pass to heirs through a will. This includes retirement accounts, life insurance policies and annuities. All accounts that have named beneficiaries go directly to the people who are named. If they predecease you, then the contingent beneficiary receives the asset.

Reviewing beneficiary designations is as important as reviewing your entire estate plan. If you name only your son as the beneficiary for your insurance policy, then later welcome a daughter into your family by birth or adoption, you’ll want to add her as a named beneficiary as well. Otherwise, when you die, only your son will receive the proceeds.

Anytime a life event occurs—births, deaths, divorces, marriages—is the right time to review your beneficiary designations.

You can make these changes when you are living. When you die, the designation is irrevocable.

Your estate plan also needs to include two different types of Power of Attorney (POA). The first is to make financial decisions if you are incapacitated, and the second is to make health decisions.

The person you give the POA to has authority to make these decisions for you, only while you are alive. The POA terminates upon your death.

Most people name their spouse for their healthcare POA, but if your spouse passes and you have adult children, one of them should be named your healthcare POA. Regulations about healthcare have put medical professionals into a difficult situation when they want to have the family involved but are legally unable to share information.  

Here’s a celebrity story that serves as a perfect example. A famous father made his third wife his executor and gave her total control over his business, despite the fact that his son was equally famous and the top executive in that business, as well as its public face. The son was baffled when he learned that the third wife now controlled the business, including the rights to his own name. When the father died, a long, expensive and unpleasant estate battle began. The son was Dale Earnhardt Jr.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can help your family to remain together.

Reference: Observer-Reporter (Dec. 12, 2018) “Improper estate planning can lead to familial conflict”

Thinking of Your Retirement? Consider the Options

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.”

Don’t Let an Inherited IRA End Up Being Handled Poorly

The IRA may be liquidated quickly.

An inherited IRA can provide a lot of security. However, it can also become a problem, if it is not handled correctly, according to CNBC in “Leaving an IRA to a loved one? How to avoid a tax bomb.” You can structure the distribution, so your children or grandchildren receive the best benefits.

Naming a trust as an IRA beneficiary is a good way to protect large IRAs, since it provides some means of control. By naming a trust, you can protect heirs who are minors, vulnerable to creditors, not able to handle large sums of money or disabled. Trusts only need $12,750 of taxable income in 2019 to be subject to the top tax rate of 37%.

If you don’t structure the trust right, you could accelerate the liquidation of the IRA at warp speed.

Most people think of their spouse, when it comes to naming a beneficiary for an IRA. Unless your spouse needs the funds, it’s best to name the next generation. What are the pitfalls? Not all IRA custodians allow you to list a trust on the beneficiary form. The tax code has very specific conditions, when trusts are the beneficiaries of retirement accounts. If you fail to follow the rules, your heirs could face huge tax bills. For a trust to be viable as a designated beneficiary, it must meet a four-step test:

It must be valid under your state’s laws.

It must be an irrevocable trust, or one that will become irrevocable upon your death.

Beneficiaries must be identifiable from the trust document.

The IRA custodian or trust administrator must have received a copy of the trust by October 31 of the year after the death of the IRA’s owner.

The beneficiaries must be people, not charities and not your estate. If your beneficiaries are not people, then your IRA may not have a designated beneficiary. In that case, your heirs can’t stretch the IRA by taking required minimum distribution,s based on the longer life expectancy of a child or a grandchild.

Worse—if your trust fails to meet the test, it is subject to the same rules as if there was no designated beneficiary at all. That means it’ll be depleted faster than you may have wished. If you die before you start taking RMDs (70½) then the IRA must be distributed within five years after death. If you die after you start taking RMDs, then distributions pay out over what would have been your life expectancy.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can include a trust that works best for you.

Reference: CNBC (Dec. 9, 2018) “Leaving an IRA to a loved one? How to avoid a tax bomb”

Power of Attorney a Permanent Decision?

The position of POA can be revoked.

It would be wise for everyone to have thought things through carefully and chosen a Power of Attorney (POA). It is important to remember that the decision can be changed in the future, according to nwi.com in “Estate Planning: Revoking a power of attorney.”

There are three basic ways that a Power of Attorney can be terminated and the first is the date and time that it specifies, if it contains such language. POAs rarely have termination dates, because they are intended to be “durable” over an extended period of time. However, in certain circumstances, they can have a termination date.

The second way a POA terminates, is at the death of the principal. Once the person in the POA dies, the attorney-in-fact authority ends, with the possible exceptions of making anatomical gifts on behalf of the principal, or the authority to make final arrangements or the authority to request autopsy. Except for these unusual exceptions, the POA ends when the principal dies.

The third way a POA terminates, is when the principal executes a written revocation identifying the POA. For it to be effective, the attorney-in-fact has to receive actual knowledge of the revocation. Until they receive that actual knowledge, the POA revocation is not effective.

To ensure that this is done properly, it is recommended that an estate planning attorney be involved, just to make sure there are no mistakes. A letter informing the POA of the revocation must be sent via certified mail, return receipt requested, using U.S. first-class mail. An email and a text follow up could take place, and a phone call would be a good idea.

To make sure there are no deliberate misunderstandings, send a copy of the revocation to institutions that would be potentially targeted by the now former POA—if that is a concern. This includes the bank, financial advisor or any institution that is of particular concern. You want to make sure that these institutions are notified that the POA is no longer in effect.

If the person refuses to sign the certified letter, you will need to prove that notice was given and that the person refused to sign for it. Refusing mail is not a persuasive argument to prove lack of notice.

Once the person has been notified of the revocation, it is a violation of law to exercise any authority under it, and the person has liability, if they do so.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: nwi.com (Dec. 9, 2018) “Estate Planning: Revoking a power of attorney”

Unexpected Fortune? What’s Your Next Step?

Would you be generous? If yes, you’d be siding with the majority.

If a lot of money should arrive unexpectedly through an inheritance, the lottery or some other windfall, the majority of Americans say they would be generous and share the wealth, according to the Financial Advisor in “In U.S., Instant Wealth Spawns Philanthropy Boom.”

When asked what they’d do after sharing with family, friends and charities, one thousand people who took part in a survey from BMO Wealth Management in Chicago knew exactly what they’d do:

A total of 51% said they’d pay off their debts after sharing the wealth. After that, they’d invest in the stock market, buy a business or purchase some real estate (49%). They also said they would keep their financial goals basically the same (43%).

A total of 22% said they’d buy big ticket items, and only 18% said they would splurge and go on a wild spending spree.

Their main concern for their estate and legacy would be helping others, learning how to create a legacy with their windfall and avoiding family conflict over the money.

More than a third of those surveyed (36%) said that a big concern would be to have some help with investment and retirement planning. That was followed by concerns of how this new money would impact their retirement plans, and equally concerning, how they would know who to trust now that they were in a position of wealth. They also said they would have to decide whether to work and wondered if the new wealth would cause any stress.

Anyone who receives a large amount of money with no prior notice, faces a challenge with their new-found wealth. People who win large amounts in the lottery, for instance, are often ill equipped to manage the money. They need help getting their money managed, so that the cash does not overwhelm them—or evaporate.

Today’s new-found wealth doesn’t just come from lottery winnings. With the transfer of wealth between the Boomer generation to their children surpassing the amount of money transferred from the “Greatest Generation” to the Boomers, estimated at $12 trillion, the next few years will see a huge transfer of wealth from one generation to another.

Reference: Financial Advisor (Dec. 10, 2018) “In U.S., Instant Wealth Spawns Philanthropy Boom”