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Tying the Knot Finances

Young couple with giftThe average age of a couple getting married today is older: age 31 for a man and 29 for a woman. This often means merging two households. CBS Boston says that if you both own your own home, you may want to think about selling them and buying one jointly, according to its recent article “Couples & Money: Ours? His? Hers?”
If you go ahead and sell one home and move into the other, you need to decide ownership issues. Will you add your new spouse to the deed and add him or her to the mortgage as a responsible party?
Another thing to consider is that marriage doesn’t automatically combine your credit reports. If one spouse has a poor credit report and is getting out of debt, you may want to keep things separate. If you do want to purchase a house in the future, you’ll have one good credit report and one good credit score. If you bring credit card debt or school loans into your marriage, you’re responsible for paying that off yourself.
As far as banking, think about a joint checking account for household expenses and savings. However, you should keep your individual checking accounts if you’re both working, so then you’ll have your own money.
Keep your own credit card, but know that you’re responsible for the payments. You may want to have a joint card for the household purchases.
Any assets you bring into the marriage—like stocks, bonds, mutual funds, and savings—should be kept in your individual accounts. You can talk about using joint accounts for your future goals and tapping into your individual accounts to help you achieve those goals.
Make certain that you’re both taking advantage of retirement plans when available from your employer. Contribute the maximum you can afford.
As far as beneficiary designations, ensure that your spouse inherits your life insurance, IRAs, retirement plans, pensions, and annuities by updating the beneficiary designations. Review your health insurance policies to see who has the better insurance. And finally, you need to redo your estate planning now that you are married.
Reference: CBS Boston (June 8, 2016) “Couples & Money: Ours? His? Hers?”

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Beneficiary Designations an Important Part of Estate Planning

Tablet with pen"For most people, this beneficiary designation is, in fact, their entire estate plan."

When people think about estate planning, many don't remember the importance of updating beneficiary information on financial products, such as 401(k)s and life insurance policies.

USA Today says that it's not just because many of us have the majority of our assets tied up in products like these. The article, "Your ex could get rich if you don't update your beneficiaries," explains that it's also because beneficiary designations on a 401(k) or IRA are legally binding and often take precedent over anything in your will. This can lead to some serious unpleasantries if your beneficiary information isn't updated.

Many times a person who has worked at the same company for 20 years has a beneficiary designation that they set up on their first day of work, and they never think about it again. However, their lives are rarely the same fifteen or twenty years down the line. For example, they might be divorced and remarried, or they might have children or grandchildren who weren't even a twinkle in someone's eyes way back then. Leaving an estate to an ex-spouse or disinheriting your own children is not a rare event when people don't update their beneficiary designations.

Even if family circumstances are friendly, when that money passes to someone else, they can't just give it back. The IRS allows gifts of under $14,000 tax-free annually, but anything over that is going to be subject to taxation.

Always remember that the beneficiary designation trumps a will. You can avoid a lot of trouble (and fees!) if you approach beneficiary designations the right way. One trick to avoid taxes as long as possible is to skip a generation with a tax-deferred retirement account like a 401(k) or IRA that you leave to your grandkids instead of your kids. Once you reach age 70½, you'll have to withdraw money from these accounts, but leaving the cash directly to a younger family member allows them to keep it growing tax-free for a few more decades.

Think about your accounts and how you'd want them to be passed on to your family, instead of leaving inheritance up to chance. Part of this is reviewing your beneficiary information regularly.

Many accounts allow you to designate beneficiaries with a simple online form, so you can ensure the orderly transfer of wealth in just a few minutes. Some others may take more time to update, but you'll be glad you did it—and so will your heirs!

Here are some common events triggering a need to update beneficiary designations:

  • Marriage or divorce;
  • Birth of a child or grandchild;
  • Death of a previous beneficiary; and
  • When a minor beneficiary comes of legal age to inherit.
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Here are some of the financial products through which you may designate a beneficiary:

  • Retirement accounts (401(k) or IRA);
  • 529 college saving plans;
  • Life insurance;
  • Annuities with a death benefit;
  • Corporate profit-sharing plans;
  • Pension plans;
  • CDs, checking accounts or other bank accounts; and
  • Some stocks, bonds, and mutual funds.
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Reference: USA Today (January 14, 2016) "Your ex could get rich if you don't update your beneficiaries"

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Common Senior Mistakes in Retirement Planning

Senior-man-finances-Dollarphotoclub_70307056While there is nothing that can guarantee that you will have sufficient money to cover all potential costs in retirement, there are certainly some common mistakes that you want to steer clear from to help protect your assets.

Physician’s Money Digest lists some of the most common mistakes that the authors have seen seniors make in a recent article titled Top Mistakes Seniors Make”:

1.  Misinformation about Medicare.  Some seniors believe that once they qualify for Medicare, they are 100% covered without any gaps. Unfortunately, there may be issues, such as nursing homes and assisted living for long-term care. These are not covered under Medicare.

2.  Failing to consider mental incapacity. Many seniors don’t address how they want health care and property decisions handled in the event they are incapacitated. Remember, a will doesn’t take this scenario into account.

3.  Drawing from retirement accounts too soon. Withdrawing money from your retirement accounts too soon or too late can really affect your savings. Speak with an estate planning attorney about the retirement account rules to get the most from your assets.

4.  Mis-timing life insurance decisions. You should assess your life insurance needs and current premiums to determine what is appropriate in your circumstances.

5.  Relying on annuities. Whether an annuity is the right choice depends primarily on your specific financial situation. Conduct an in-depth assessment of the product and your overall financial plan with estate planning attorney.

As you can see, there are many issues that need to be addressed when it comes to retirement planning. Do not go it alone. Get appropriate professional counsel.

For more information about estate planning, please visit my estate planning website.

Reference: Physician’s Money Digest (April 8, 2015) Top Mistakes Seniors Make”

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