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Work A Bit More and See the Benefits!

Happy-old-couple“Working into the second half of your sixties (or even longer) can mean a happier, more financially secure retirement when you finally leave your job.”

Kiplinger’s recent article, “6 Reasons to Work Past Retirement Age,” provides us with some good reasons for working a few more years.

Employee Benefits. The added fringe benefits you receive with your paycheck can be worth hundreds or even thousands of dollars. These are things like your employer-paid life insurance and employer contributions to your 401(k). Don’t forget about health insurance, which can be cheaper than Medicare and provide better coverage. This coverage is valuable, if your spouse is younger than 65 and covered by your plan.

A Larger Pension. If you're fortunate enough to have a pension, you may get a greater payout by working a few more years. Pensions are based on your salary and years of service. Some calculate the benefit on your average earnings over the last three or five years of employment.  Others base it on your average earnings over all the years in which you've participated in the plan. If your income is still increasing, your pension benefit could be better for every year you work.

You Enjoy Working. Many folks enjoy working, especially for the relationships, recognition and  sense of fulfillment. It provides people with purpose and structure. If you’re not sure how you'll spend your retirement, maybe you should keep working until you do.

A Nicer Nest Egg. You need to have enough in retirement savings to last 25 years. If you think you won’t have enough savings and income, working longer is a wise solution. When you keep working, you'll have fewer years before you’ll need to dip into savings, and you can keep saving in your retirement accounts. Even if you don't invest further, it’s still tax-deferred growth.

More Social Security Benefits. The full retirement age for Social Security is now 66 for people born in 1943 to 1954 and goes up to 67 for people who were born in 1960 or later. However, for each year you delay taking the benefit past full retirement age, you get an increase of 8% in your benefit, until age 70. If you're healthy, it makes sense to delay taking the benefit until 70 to collect the bigger check, especially if you have a spouse who will benefit from an increased survivor benefit. A paycheck keeps the money coming in until you reach age 70.

Teaming with Your Spouse. Most couples would like to retire within a year or two of each other to enjoy life together. If your spouse is much younger or not ready to retire, you can work several more years instead of being home alone.

Reference: Kiplinger (January 2017) “6 Reasons to Work Past Retirement Age”

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Tips on Downsizing

HouseDownsizing your home can have a financial effect, especially for your pension and your estate planning. This was the advice in a Starts at 60 article, “8 things you need to know before you downsize in 2017. Here are a few important things to consider when downsizing.
1. Allow yourself plenty of time. Start the downsizing process early. Plan the move several years in advance, so you have time to see where you’d like to move and to crunch the numbers.
2. Ask for advice. Buying and selling a home can be a real emotional event, so ask a family member, friend, or financial adviser for a second opinion or a fresh pair of eyes to review the situation.
3. Review any impacts on your pension. You should determine what effect your move will have on your pension.
4. If you’re headed to a retirement community, figure out what would be left were you to move again. Many retirement communities charge what is called a Deferred Management Fee for each year you live there. For every year you live in the retirement village, you’re charged a fee, which is taken out of the proceeds when you choose to sell your home. It’s possible the amount you leave that retirement village with when you sell, will be less than what you paid.
5. Consider regular fees the facility may charge. There may be a monthly fee to defray some of the expense of running the village.
Here are a few “Don’ts” to remember:
1. Don’t purchase a new home before selling your old one. Don’t sign a contract on a new home until you sell your old home. If you sell your home first, you eliminate extra stress, and you’ll know your financial status. This makes it easier to buy the next home.
2. Don’t be overly itchy to move when you’re not ready. If you have doubts that a move will make sense financially, there’s no harm in staying put. If you stay a little longer, you can avoid a stressful move.
3. Don’t sign any contracts until you get unbiased advice. It’s a busy time and contracts can be complex. Ask an attorney to review them before you sign anything. You should also check with your estate planning attorney to make sure that the numbers work with your estate plan.
Reference: Starts at 60 (December 28, 2016) “8 things you need to know before you downsize in 2017”

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Six Titles Not in the Prince Songbook: Estate Planning Documents

Definition of trustForbes' article, "Prince and Estate Planning: What We Can Learn from the Late Musician's Financial Picture," reminds us that you don't have to be a millionaire to create an estate plan. Putting even a simple estate plan into place will save your loved ones stress and headaches when you pass away—no matter how large your assets are.

Here are the six key documents you should have to protect your assets and your family in the event of your passing:

  1. Beneficiary Forms. This indicates who gets the assets in your 401(k)s, IRAs, life insurance policies, pensions, and other financial accounts upon your death. These designations take priority over the directives in your will, so keep them up to date.
  2. POD and TOD Designation. A payable on death (POD) form typically says who should receive the money in your checking or savings accounts when you pass away. A transfer on death (TOD) form is similar but typically for brokerage accounts. A TOD deed says who takes over the deed to your home after you die.
  3. Durable Power of Attorney. This important document designates a person to make health care or financial decisions for you if you become incapacitated or unable to make them for yourself.
  4. Living Will. This is also called an Advance Health Care Directive. It details the way in which you want your doctors to treat you should you become unable to communicate those wishes.
  5. Will. This outlines how you want your probate assets divided, as well as who should become guardian of any minor children.
  6. A Living Trust. This document, like a will, says how you want your property and funds distributed and who will take care of your minor children. It also appoints a trustee to carry out specific wishes for your assets. Unlike a will, assets held in a trust don't have to go through probate. A trust can be used to help manage your assets and property while you're still alive.

By securing the help of a qualified estate planning attorney, you will leave a kinder financial legacy for your loved ones than Prince did for his family.

Reference: Forbes (April 29, 2016) "Prince and Estate Planning: What We Can Learn From the Late Musician's Financial Picture"

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Other than That, Mrs. Lincoln, How’s Your Estate Planning?

Mary_Todd_Lincoln_colloidon_1860-65It might sound like a stretch to take personal finance lessons from a first lady who lived 150 years ago. But the financial aspects of the story of Mary Todd Lincoln, as told through Ford’s Theatre’s play, "The Widow Lincoln," might feel familiar to modern consumers. The play, which just ended its run at the historic theater in the District of Columbia, explores the days after President Lincoln's assassination, when Mary struggles to regain her sense of identity and live amid her grief. As her character, played by Mary Bacon, faces dozens of unpaid bills for home furnishings, clothes and jewelry, she asks, “How will I ever pay these debts? I am nothing. I am no one.” On top of moving out of the White House, mothering her sons and moving forward with her life, Lincoln must deal with all these financial stresses. She no longer has her husband to rely on for emotional support, income or an identity.

Becoming a widow often means a drastic change and a new way of life, whether in 1865 or 2015. For many, it means understanding how to manage finances by yourself and experiencing less income, along with debilitating grief. 

A recent article in U.S. News & World Report, titled “Modern Money Lessons from Mary Todd Lincoln, reports that experts recommend participating in money management throughout marriage and preparing for the possibility of one day being on your own, like many women eventually are, due to divorce or death.

The original article urges women to know their money thoroughly, regardless of life stage. Keep all financial paperwork, experts says, including estate planning documents, well-organized and easily accessible.

For example, couples should be able to answer these questions long before retirement:

  • If my spouse were to die, how would that affect the household’s income?
  • What would an expensive illness do to our retirement savings?
  • If either spouse were to die, would the survivor be prepared to take over the management of the finances?

Both spouses need to have a basic grasp of monthly costs, saving and investment strategies, and the way to get to their funds quickly in an emergency. In addition, here are some tips for widows from the original article:

Replace Any Lost Income. Losses sustained from a pension, Social Security, and a spouse’s salary losses may be buoyed by the proceeds from a life insurance policy or other sources of money. Term life insurance, especially for young, healthy people, is relatively cheap. Consequently, it may make sense to purchase a 20- or 30-year policy before you reach your 40s.

Select Your "Trusted Person." Single seniors should have an individual who’s able to make financial decisions for them in case they become incapacitated.

Manage Your Financial Risk. Studies show that women tend to invest more conservatively than men. While spouses tend to balance each other out, when women become widows, it can mean that they might be overly cautious in their investments, creating a risk to inflation.

Experts also generally recommend holding off on any big moves during the first year following a spouse’s death, since the grieving process can interfere with good decision-making. Mrs. Lincoln could barely manage day-to-day tasks and wasn’t willing or able to leave the White House for more than a month after Abe died.

This story might be 150 years old, but its lessons still resonate today.

Contact an experienced estate planning attorney and be prepared come what may.

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

Reference: U.S. News & World Report (February 23, 2015) “Modern Money Lessons from Mary Todd Lincoln” 

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