AgingOptions Life Plan: Finance

“Will I have enough assets in order to not run out of money before I run out of life?” is top of mind for all of us in the final third of our lives. In answering this, preservation, positioning and passing of accumulated wealth goes beyond traditional estate planning. It calls for all affected family members to be participants in a model that integrates health, housing and elder law considerations.


Gray divorce hurts retirement plans of both individuals

The United States has one of the highest divorce rates in the world but it’s been going through a change in the past three decades. According to the U.S. Census Bureau, the rate of divorce for most Americans is falling since its all-time high in the 1980s, except when you look at Baby Boomers. The divorce rate for those over 50 has actually doubled in the last twenty years and now accounts for roughly a quarter of all marriages.  Older marriages, and therefore older divorces bring with them their own challenges.  Couples who have been married for long periods of time have entwined their lives far more than their younger counterparts.  They are also more likely to have gone through a previous divorce.  Those two things complicate the divorce process.

How your assets are divided is dependent upon the individual case but from the standpoint of where your finances were before the divorce when both individuals in the marriage shared 100 percent of the assets, you’re likely to see a drop. Divorce usually means that a couple’s retirement lifestyle has substantially decreased since it costs substantially more as two people to retire than it does for a couple. According to AARP, a man’s income drops 23 percent after a divorce and a woman’s income drops 41 percent.  The result is that many people find that divorce forces them to continue to work past the time they originally planned to retire.

Couples in which one partner has always worked and the other either hasn’t or has very little employment history will see steeper ramifications than those who are on a more equal financial footing. Because that individual was until recently the woman in the relationship, divorce often leaves women in significantly worse shape than their partners.

If your marriage has lasted ten years or longer, be aware of Social Security strategies that can help improve both parties overall benefit.

Divorce at any age is complicated and fraught with opportunities that will impact you for the rest of your life. If you’re thinking about getting a divorce, hire a financial advisor.  All things are not created equal and you’ll need someone with experience to understand that getting an equal dollar amount in a Roth IRA is not the same as a 401(k).

While you are considering the impact of divorce on your retirement income and future retirement plans, consider one other thing. Married folks generally don’t need long-term care for both partners because one spouse generally provides unpaid care for the other.  The majority of people in nursing homes are women, not just because women live longer but because those women no longer have a partner to lean on for their care.  If you get divorced, both sexes are more likely to need to pay for caregiving and should include planning accordingly.

Finally, one of the reasons older couples get divorced is to protect their assets when one of the spouses has a medical problem and spiraling medical costs threatens financial ruin.  One way this can look is to have the well spouse get everything in the divorce decree but with the caveat that the assets must go to a Safe Harbor Trust with the ultimate aim of providing care for the ill spouse.  Any medical divorce should be handled by an Elder Law Attorney to ensure that you have not traded one jeopardy for another.

See also:

Ending a marriage can throw a wrench in your retirement plans

401(k) contribution limits raised by $500

AARP ran an article this morning about how next year’s contribution limits for 401(k)s has gone up $500. If you are already over 50, you’re entitled to make extra contributions.  Those catch-up contributions will go up to $6000 a year for 401(k) plans beginning next year.  The annual contributions for IRAs will remain the same at $5,500 with a catch-up contribution limited to $1000 (a total of $6500 for IRA accounts).  To read more about the adjustment, go to the AARP article.

More Americans are choosing not to retire

Increasingly my conversations with my contemporaries are around retirement, specifically the lack of desire to retire. Some people might consider believing we won’t retire or at least that we won’t retire for years after any official retirement age as pessimistic but at least part of the lack of desire to retire has something to do with the fact that what we do to make a living is what we are interested in doing.  We can all imagine perhaps doing less of what we do or doing something different but we can’t imagine not doing.  That mimics a growing trend in America.  The share of workers over 65 in this country is the highest it’s been for over 50 years.  It’s one of the fastest growing changes in the American workforce.

For the forty decades after World War II, the number of American men 62 or older still in the labor force fell due in part to the advent of Medicare, Social Security and employer-provided pensions. A combination of longer lives and early retirement boosted the number of retirement years from 10.9 years to 19.3 years for men and from 12.5 years to 23.5 years for women according to the Social Security Administration.  That’s changed in the last decade.  According to the Bureau of Labor and Statistics, the employment of workers 65 and older increased over 100 percent between 1977 and 2007.

What’s changed is that Social Security benefits declined because of the gradual increase in the full retirement age (FRA) while at the same time employers became concerned about their own ability to remain competitive while still providing healthy pensions and retiree health benefits and responded by shifting from defined benefit to defined contribution plans. The shift in both public and private benefits to the employee has meant that the employee often no longer has adequate benefits for a longer retirement.  The result is that public officials and financial experts alike encourage people to work longer and delay collecting Social Security benefits.

As might be expected the labor force participation rate (LFPR) has subsequently increased. Men aged 65-69, for instance, increased their LFPR from 8.7 percent to 17.3 percent between 1980 and 2010.  Women took until the 1990s to show a similar trend but they too are showing substantial increases in LFPR although for them, part-time work dominates full-time work.

So, as Paul Solman, a business and economics correspondent asks, “Is retirement as we know it becoming a thing of the past?”

Not necessarily. However, the reason for retiring or not retiring appear to be changing.  According to a PBS survey people over the age of 65 continue to work for a variety of reasons but nearly 70 percent do so because they want to feel useful and productive.  Almost 60 percent do so to have something to do.  Perhaps unsurprisingly, most 65-plus workers are happy with their jobs while their younger contemporaries are much less likely to feel the same way.

Still, you may not be among those happy to continue working or worse you may not feel that you can afford to retire. If you’re 50, can you still plan for retirement?  “Absolutely,” says Julie Price from Julie Price Consulting.  If you have 5, 10 or more years until retirement a financial planner can help you discover whether you’ll be able to afford 3 months each year in a sunnier climate.  But, they can also help you to look at your finances and build a financial plan.  While most financial experts focus on those in their 20s, 30s and 40s the reality is that most people have smaller income levels and higher expenses at those ages so it can still be beneficial to hire a financial planner in your 50s to help you maximize your retirement income.  What’s more they can help you determine whether you really don’t have the ability to retire or if steps now could make retirement possible if that’s your aim. That can give you the option of choosing whether or not you retire instead of making the choice for you.

Finally, if you don’t believe you’ll have enough money to retire, protect the one asset you’re likely to have now while you’re still young—your health. Staying healthy will allow you to continue to work if that’s what you’ll need to do, will prevent your health care costs from spiraling out of control as you age and allow you to stay as independent as possible.  What’s more, your health will make your retirement years, however you spend them, far more enjoyable.

Here’s some stories of inspiring older workers.

 

The multiple faces of planning for retirement

Retirement is one of the most important things you’ll ever do. Because many of the decisions you make for retirement will affect you for decades, it’s a good idea to approach it with checklist in hand.  Here is a list of things you should do before retiring.

  1. Check to make sure retiring is really what you want to do. A neighbor of mine worked for a company that required retirement at age 60 or after 30 years, whichever came sooner.  Those two dates came at the same time for him and while he’s not actively complaining he potters around his yard looking like he’s lost even after a couple years of retirement.  He probably would have been better off finding another career since remaining at his place of employment wasn’t an option and yet 60 is awfully young to have no purpose (if indeed there is ever a time when it is okay not to have one).  In fact, for many people retirement isn’t something they look forward to and if you’re one of those, finding a way to remain at your current employment or finding a substitute either through volunteering, beginning a business or starting a new career can provide the stimulation to make retirement fun.  In addition, delaying retirement can allow you to continue to add to your 401(k) or at least put off getting disbursements from it, and it can delay your need to begin collecting Social Security so you can maximize those benefits.  If you’re not sure that retirement is for you, some places allow you to cut back without completely leaving the workplace.  In effect, they give you the opportunity to try out retirement without committing to it.
  2. Decide if you can afford it. Some people will reach retirement age and have to retire, either because they are ill or because their spouse is ill.  For everyone else, retirement shouldn’t just be a date on the calendar, it should be when you have the finances and the desire to allow you to do so.  Create a retirement plan and test it by trying to live off what you’ll be receiving in benefits.  Check with Social Security to find out what your benefits will be from them.  Then look at 401(k) plans, pension, savings and other retirement accounts.  From that figure, determine whether you can live on those funds or if you would be better off postponing retirement for a time.  Remember that these funds are likely going to have to fund not just today but a tomorrow that is likely decades down the road.  If you’re healthy now, you may not be at some future date and you should plan around that.  Financial experts project that the average couple will need $250,000 for healthcare costs alone and those costs are above and beyond the costs associated with long-term care.  If you don’t already have a financial planner, hiring one now can make sure you haven’t missed something crucial in your planning and can help keep you on track.
  3. Figure out what your retirement expenses will be. If you’re retirement plan includes traveling, keep that in mind when you’re budgeting for retirement.  The cost of retirement can drop a bit when you are no longer commuting to work or paying for lunches, work attire etc but other costs can rise such as health care costs that are being partially or fully shouldered by an employer now but won’t be in the future.  Be realistic in what you’ll save and what will replace those costs.
  4. Plan for two phases of retirement—when both spouses are living and when only one survives. Some pension and retirement plans die out when the beneficiary dies.  That can mean a substantial cut in income and benefits when one or the other spouse dies.
  5. Revisit your housing situation. When you initially purchased your home it was probably to make sure your kids could go to the best schools or because it was within commuting distance from work.  Now that those original reasons for choosing your home no longer exist, take another look at your current housing choice but look at it with an eye to how much it costs to remain there, whether it fits your current and future lifestyle, whether its location will allow you to pursue new interests and of course whether or not you can comfortably age in it.  Retirement is a good time to reassess your living arrangements and make a change if one is needed.
  6. Look for options for staying busy. You can only sit on the couch and veg for so long.  Then you’ll want to have something to do to stay busy, active and engaged.  Plan accordingly so you’ll have options for doing so.  Spend time seriously contemplating what you would do with an open horizon of time and how that time can be used to fulfill your retirement hopes.

Here’s a long list of other things to do to plan and prepare for retirement.

 

Not purchasing health coverage can cost you

The average silver level health care plan costs between $200 and $300. At $2,400 to $3,600 for annual premiums, those numbers far exceed the penalty portion of the Affordable Care Act.  So, many Americans chose not to purchase health insurance this year.  Under the Act, people who do not purchase insurance will be on the hook to the IRS by April 15, 2015.  The amount of the penalty can be either $95 or 1 percent of your household income, whichever is higher.  For this first year, there is a cap of $285 per family but that cap rises steeply over the next few years (in 2016, the cap will be $695 up to a maximum family amount of $2,085).  The percentage also rises from this year’s 1 percent to 2.5 percent n 2016.

Some religious groups, those who will be uncovered for three months or less, members of Indian tribes, illegal immigrants, people on Medicare and prisoners are not subject to the penalty. (go to IRS.gov for an expanded list) As the law ages, the IRS will have an increasingly easier time identifying those people who opt out of the program.  For more information on how opting out will affect your tax return, go here or if you are interested in a calculator to figure out the penalty for not having health insurance, go here.