Moynihan Lyons PC

Plan Retirement but You Also Have to Live Now

How much do I need to save and how much can I afford to save?

Saving for retirement can sometimes be overwhelming. This is because while you’re saving for the future, you have to pay the bills in the present, according to the Twin Cities Pioneer Press in “Your Money: Helping you live in the moment and plan for the future.” Can it really be accomplished?

The question is asked frequently by people at all ages and stages of their lives. Here are some tips on how you can use comprehensive financial planning — by looking at a variety of retirement income savings methods and income strategies — to make the most of retirement savings. Some of them may not apply now, but you’ll need to know about them in the future, like Social Security.

Do you have a retirement savings strategy? Not everyone takes advantage of the 401(k)s, 403(b)s and IRAs that are available. Some of these retirement accounts come through an employer, and a traditional IRA can be set up on your own. If you work for a company that offers the option of having a Roth IRA and you’re just starting your career, it could be a great option. You pay taxes on contributions now, when your income may be lower, but when you take distributions, you won’t pay income tax on them. There are no required distributions for a Roth IRA — other retirement accounts require a certain amount of yearly withdrawals. If you are in a high-income tax bracket, the Roth IRA is not for you.

Social Security strategies make a big difference in retirement income. Deciding when to take benefits is complicated. However, it is well worth the effort. It could be a difference of thousands of dollars over time. Realize that the later you start taking benefits, up until your 70^th birthday, the greater the benefits will be. Your Full Retirement Age or FRA is currently age 66 for Americans born between 1943–1954, and a few months older for those born later. You can apply for benefits as early as age 62, but you’ll get a reduced benefit — as much as 25%!

What about a Roth conversion? For some people, enhancing their retirement savings by moving existing savings into accounts that offer better tax advantages, adds up nicely for current and future tax brackets. A Roth conversion is when you pay the tax on all or a portion of a traditional IRA and move it into a Roth IRA, where it continues growing. If you have owned the account for at least five years, you can then take withdrawals out tax free, once you turn 59½. Note that this is a complicated decision that must be made in conjunction with all of your other retirement and investment funds.

Planning for retirement income is just that: planning. The alternative — winging it and hoping for the best — rarely works out. The earlier you begin planning for your retirement, the more likely it is that you’ll enjoy this phase of your life.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances, as well as plans for retirement.

Reference: Twin Cities Pioneer Press (Jan. 26, 2019) “Your Money: Helping you live in the moment and plan for the future”

It Is Best to Plan for Possibility of Assisted Living

T here is little time when an emergency arises, so perhaps it is best to plan ahead.

When a loved one is hospitalized and cannot return home, there is a lot of pressure because decisions have to be made quickly. The key to handling that problem, if it should arise, is to not wait for the emergency but plan ahead for it, according to Next Avenue in “Planning Ahead for Assisted Living.”

Many people deal with assisted living this way. Adult children uproot their lives and relocate to be near their aging parents. Spouses feel helpless when their husbands or wives refuse to even consider moving to a facility, yet they are not safe at home.

The senior often pushes back against leaving their home, which is understandable. However, when illness or aging takes a toll, it’s just a matter of time before they understand, usually the hard way.

One woman was the very model of aging-in-place, until turning 85. Then illnesses and a chronic condition started making it hard for her to move around. When she was taken to the hospital, she had to take a clear look at her situation. It was distressing, but she realized she had to make a change.

By 2030, the number of Americans age 65 and older is expected to increase dramatically, and for the first time in our country’s history, the number of older Americans will be higher than the number of children.

We may not know what life has in store for us. However, we can plan ahead.

Some people start looking at CCRCs–Continuing Care Retirement Communities. These are facilities that include independent living, assisted living and nursing home care, all on the same property. Some have secured memory care for those living with dementia.

Research the costs, policies, and programs of the long-term facilities you may be considering. There are different services offered. Assisted living facilities are state-licensed housing communities that offer residents a range of services. They usually do not offer medical care. A skilled nursing facility/nursing home will have medical services.

Services in assisted living communities vary. Some offer meals and help with bathing, dressing and mobility, medication management, education and social activities. They may be large or small, with residential homes, where three or four residents live with a paid caregiver. Those are known as “adult foster homes.” Others are “assisted living homes,” which usually have 10 or so residents. Here, the caretakers don’t live in the house, but 24-hour care is provided.

Here are some questions to ask, when visiting assisted living communities:

• Is the facility clean? Does it smell?
• What is the culture and atmosphere of the place?
• Are the residents and employees smiling, or does everyone look downcast?

Reference: Next Avenue (Jan. 21, 2019) “Planning Ahead for Assisted Living”

Prepare for the Three Phases of Retirement

The information you need to prepare for retirement, isn’t the same that you need for retirement itself.

As one prepares for retirement, they usually focus on earning, saving and gathering assets for the future. However, that is just one phase of preparing and living comfortably in those years, according to Financial Advisor in “A Successful And Secure Retirement—Spend-Down Strategies: Part 1.”

The biggest difference in the strategies during the accumulation and withdrawal strategies, is that there’s a greater emphasis on long-term tax planning. Taxes are often the single biggest expense for investors. To make sure that you meet your goals, which includes having the IRS take the smallest piece of your assets, a plan must be created to focus on paying the least amount in taxes, while you are alive and even after you have passed.

The first phase of decumulation, which occurs at different times for different people (and for some people, never occurs) usually comes with a low tax rate. It often starts with retirement, when the paychecks are not coming in and, ideally, you are not yet drawing Social Security or pension benefits. This would allow your Social Security benefits to continue to grow and keep you in a low tax bracket.

The spend-down phase begins, when you start taking withdrawals from tax deferred retirement accounts. This typically starts the year you turn 70½ and start taking RMDs (Required Minimum Distributions). This is the time to be careful, since your tax rate will likely jump up from the amount it was when you were not yet taking RMDs or getting Social Security or pension benefits. The goal is to manage your retirement income, in order to minimize taxes.

The final-spending phase begins all too soon, especially when medical costs and long-term care costs increase dramatically. Given their tax deductibility, as things currently stand, this may provide another period with very low tax rates.

The legacy phase begins upon your death, or on the death of the surviving spouse. The goal is the tax efficient transfer of remaining wealth to heirs and charities and preparing heirs for the assets they will inherit. An estate plan should be in place long before this phase is reached, so that your assets are passed seamlessly to family members and charities.

As a person moves through these stages of post-retirement spending, there are many strategies that can be used to minimize tax liability and maximize the growth of assets. A balance must be found between spending, managing tax burdens and preparing for a legacy.

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

Reference: Financial Advisor (Jan. 21, 2019) “A Successful And Secure Retirement—Spend-Down Strategies: Part 1”

As Time Marches on, Consider an Estate Plan Review

Life rarely remains the same and those changes mean it is time to take a fresh look at your estate plan.

Time marches on and a person’s life changes. That creates the situation of there not being a doubt of whether an estate review is necessary but simply becomes a questions of when it will be reviewed, according to the New Hampshire Union Leader in “It’s important to periodically review your estate plan”

Most people get their original wills and other documents from their estate planning attorney, put them into their safe deposit box or a fire-safe file drawer and forget about them. There are no laws governing when these documents should be reviewed, so whether or when to review the estate is completely up to the individual. That often leads to unintended consequences that can cause the wrong person to inherit, fracture the family and leave heirs with a large tax liability.

A better idea: review the estate plan on a regular basis. For some people with complicated lives and assets, that means once a year. For others, every three or four years works. Some reviews are triggered by changes in life, including:

• Marriage or divorce
• Death
• Large changes in the size of the estate
• A significant increase in debt
• The death of an executor, guardian or trustee
• Birth or adoption of children or grandchildren
• Change in career, good or bad
• Retirement
• Health crisis
• Changes in tax laws
• Changes in relationships to beneficiaries and heirs
• Moving to another state or purchasing property in another state
• Receiving a sizable inheritance

What should you be thinking about, as you review your estate plan? Here are some suggestions:

Have there been any changes to your relationships with family members?

Are any family members facing challenges or does anyone have special needs?

Are there children from a previous marriage and what do their lives look like?

Are the people you named for various roles—power of attorney, executor, guardian and trustees—still the people you want making decisions and acting on your behalf?

Does your estate plan include a durable power of attorney for healthcare, a valid living will, or if you want this, a DNR (Do Not Resuscitate) order?

Has your estate plan addressed the possible need for Medicaid?

Do you know who your beneficiary designations are for your accounts and are your beneficiary designations still correct? Your beneficiaries will receive assets outside of the will and nothing you put in the will can change the distribution of those assets.

Have you aligned your assets with your estate plan? Do certain accounts pass directly to a spouse or an heir? Have you funded any trusts?

Finally, have changes in the tax laws changed your estate plan? Your estate planning attorney should probably take a look at the impact of state law changes, as well as federal.

Reference: New Hampshire Union Leader (Jan. 12, 2019) “It’s important to periodically review your estate plan”

This Year Includes Some Key Retirement Issues

Retirement policies are becoming a hot topic in the political world.

There are a number of retirement policy issues that will most likely be highlighted this year, according to The New York Times in “For American Workers, 4 Key Retirement Issues to Watch in 2019.”

The article covers many issues, including Congress working on a plan to stop sharp cuts in traditional pensions, the SEC’s battle over fiduciary responsibilities to protect investors and the possible expansion of Social Security.

Here are some of the highlights:

Workplace Savings Plans. Features like automatic enrollment and matching employer contributions make these plans a great way to help save for retirement. However, a third of workers in the private sector don’t have access to these plans. In 2019, some states are starting programs to automatically sign up workers who don’t have access to these plans at work. Employers in some states will be required to set up automatic payroll deductions, although they won’t have to make matching contributions.

Congress is expected to work on legislation that would make it easier for employers to create and join a single 401(k) plan that they could offer. This “open multiple-employer plan” would be offered by private plan custodians. It may take a while for this to get up and running.

Pension Insolvency Crisis. A special congressional committee is working on heading off an insolvency crisis that could lead to big cuts in pension benefits for millions of workers. More than 10 million workers and retirees are covered by multi-employer plans, which are severely underfunded. The Pension Benefit Guaranty Corporation, a federal insurance program for pensions, will run out of money by 2025, if nothing changes. This is a complex problem, with no easy solution.

Protecting Investors. This battle over requiring fiduciary standards by brokers has been going on for a while. It centers on requiring brokers and others to put customer’s financial interests first. A rule from the Department of Labor from the Obama era never made it past opposition from the financial services and insurance industries. A proposed new rule from the Securities and Exchange Commission would require brokers to put their customer’s financial interests ahead of their own. However, it does not require them to act as fiduciaries. Consumers advocates are against this rule, believing that it does not go far enough.

Expanding Social Security. Expansion legislation in the Larson Bill from has more than 170 co-sponsors in the House. The bill includes a 2% increase in benefits, a generous annual COLA (Cost of Living Adjustment) and higher minimum benefits for low-income workers. How are we paying for these increases? The cap on wages subject to taxation and a gradually phased-in higher payroll tax are the sources.

Resource: The New York Times (Dec. 23, 2018) “For American Workers, 4 Key Retirement Issues to Watch in 2019”

Planning Needed for Future of Farm and Ranch Families

Many farms and ranches have been in one family for generations and it can be a challenge.

Passing assets from one generation to another takes careful thought but it can be very challenging when it comes to family farms, ranches and businesses, according to the Woodward News in “Plenty to consider in legacy planning.”

Knowing that one day your grandchildren, and hopefully their children, will walk the land their great-grandparents did, and take the same satisfaction in knowing that the work they do, is a part of our country’s economy. Every family’s situation is different but one thing they all share in common is that succession goals need to be evaluated critically, even though there is great emotion involved in passing on a legacy.

Dividing assets, sharing control and management decisions and transferring ownership are all things that must be examined and formalized as part of a succession plan.

For starters, determine the overall goal. Every family’s goals are different. Should assets be held for end-of-life-care for aging parents, passed on to children, donated to charity or are they needed to ensure the successful transition of the business to the next generation?

People work hard their whole lives to accumulate assets, so it’s important to have a legacy plan. In this way, everything you’ve worked for is preserved for the next generation or available for your needs.

In 2019, gift and estate tax exemptions are up dramatically, but strategic planning still needs to be done.

For farm families, the Farm Journal Legacy Project offers printable downloads, including a succession planning action guide, family meeting agenda, conversation starters and a goals clarification worksheet.

Family meetings will need to tackle some topics that may benefit from the presence of an estate planning attorney, who is experienced with family farms and succession planning.

• How will the transfer of property, including farm equipment, property, and livestock, be done with minimal taxes due?
• How can the non-farming members of the family receive their fair share of their inheritance, without taking away valuable resources needed to keep the farm or ranch going?
• What resources will be available for the older parents to live on, when they retire?
• Can the farm support multiple generations?

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances, including the challenges of passing on a farm or ranch.

Reference: Woodward News (Jan. 2, 2019) “Plenty to consider in legacy planning”

Health Savings Accounts become More Attractive

It can be a challenge, but it is possible to save more in HSA.

It needs to be handled carefully but it is possible, depending on age, to save additional money for health costs during retirement, according to CNBC’s article “Over 55? Maximize your savings in this tax-advantaged account.” If you are over 55, you can save an additional $1,000.

Starting in 2019, people with self-only coverage in a high-deductible health insurance plan will be allowed to save up to $2,500 in a Health Savings Account (HSA). If you’ve got family coverage, you can save $7,000.

HSAs permit users to put away money that is pre-tax or tax deductible. The funds accumulate interest on a tax-free basis, and then the account owner can withdraw the money tax-free for qualified medical expenses. Catch-up contributions for those 55 and older of $1,000, make this an even more attractive way to save for health care costs.

However, there are a few complications you’ll need to know about, if you are married and if you are getting close to being eligible for Medicare.

Keeping one HSA, if you’re married and in a high-deductible health plan works, until one of the spouses celebrates a 55^th birthday. If the spouse under 55 years has the HSA account, but the older spouse is eligible for the catch-up contribution, the spouse who is over 55 should open their HSA and put away the additional $1,000. There are no joint HSAs, so only the older spouse can make that contribution.

If both spouses are 55, the only way each can make a $1,000 contribution, is if they have separate HSAs. If both spouses have family coverage, they can split the total plan contribution of $7,000 between the two accounts. However, those $1,000 catch up contributions still have to go into the account of the spouse permitted to make that contribution.

Once you or your spouse turns 65 and you enroll in Medicare, you are no longer permitted to make contributions. You can use the funds for qualified medical expenses, but no more contributions.

Let’s say you celebrated your 65^th birthday in July and enrolled in Medicare. You were in a plan with self-only coverage. In that case, you are only permitted to make contributions until June—one month before you enrolled in Medicare. The most you are permitted to contribute to your HSA account for that year would be $2,250.

Contribute too much, and you’ll need to get the money out of there. Your deadline to do so is April 15.

One last detail: you are permitted a one-time-only rollover from your IRA to your HSA. There’s a limit, of course: $3,500 if you have self-only coverage or $7,000 if you have a family plan—and the $1,000 catch-up contribution, if you’re over 55.

Reference: CNBC (Dec. 24, 2018) “Over 55? Maximize your savings in this tax-advantaged account”

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”

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”

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.”