Several sessions of the US Congress have eventually passed provisions permitting contribution of IRA amounts to charities. It’s always been a limited right, applicable only to those who have reached age 70 1/2, limited in amount to $100,000, and somewhat limited as to what charities could receive it. It’s really more symbolic than anything else, because anyone can withdraw from an IRA, distribute the funds to a charity and get an income tax deduction. The benefit of a charitable IRA rollover was that the amount withdrawn was not included in income. There was no income tax deduction for the transfer, but the absence of income treatment and a deduction meant that there was no risk of having itemized deductions limited because of high income, and there was less chance that Social Security benefits might be taxable in part, again because of high income.
The problem has been that the provision of the Internal Revenue Code expires and Congress doesn’t act to restore it until late in the year. As of October 7, the provision has not been revived for 2014, and it’s unlikely anything will occur until until December.
Either the provision will or will not come back into the Internal Revenue Code. It’s a bar to intelligent planning that potential donors won’t know until the last minute whether the benefit is available. More importantly, those who have large IRA accumulations should make longer term plans as to their disposition: who should be the beneficiaries when the owner dies and how should benefits be received (outright or in trust). This is part of the overall wealth/estate planning process, based on a plan that encompasses all forms of wealth, the varying needs of family members and the desire to benefit charities.
As members of the large baby boom generation get older, worries about the adequacy of retirement income tend to grow. Too often, that leads to attempts to boost that income with more aggressive planning. That makes older people more likely to fall prey to unethical salespeople, whose aim is to sell whatever makes the most income for them, regardless of the needs or investment profile of the buyer. The result that has occurred far too often is that older people are talked into buying products that promise higher returns than traditional investments, but that are far riskier than is appropriate and that carry high fees. Often, people are talked into investments that lock them in for long periods of time when they need the funds invested sooner. There are strict securities industry rules and governmental regulations to prevent and punish this kind of behavior, but that hasn’t stopped unethical salesmen from taking advantage of individual investors who are often unsophisticated investors. In addition to out-and-out crooks like Bernie Madoff, there are people pushing the envelope too far by selling bad investment products and hiding the fees charged. More education is needed for senior investors, to help them choose the best investments for their particular situation; and they have to be encouraged to take action when they have been mistreated, rather than failing to act out of embarrassment.
Two recent books discuss these questions. Apparently, the key to a successful retirement is to write a book about it. In a book called Unretirement, author Chris Farrell explains that it means you retire a little later. If you retire from the work you’re doing now, find something else you can do that you will enjoy. Easy to say, I suppose. If you find that kind of work, delay using your retirement savings and delay starting Social Security benefits. In the second book, You Can Retire Sooner Than You Think: The 5 Money Secrets of the Happiest Retirees, author Wes Moss suggests that the base line amount needed for a happy retirement is $500,000. I didn’t read the book, so I don’t know how he reached this conclusion, but surely the amount you need depends on where you live and, most importantly, your health and that of your spouse, if you’re married. It’s not difficult to determine what you need: what are your current expenses and which of them disappear when you retire? What sources of income do you have, such as Social Security and pensions? What gap must you fill from retirement savings and how much do you need to fill that gap? When you know what you need, think about what else you want and whether you scan afford it. It makes sense to work longer and save more. It makes sense to delay Social Security. And, above all, it makes sense to do whatever you can to maintain your health as you approach retirement.
A Pennsylvania lawyer was disbarred recently after a hearing that revealed a years-long practice of high pressure selling of estate planning or probate avoidance kits. For a substantial fee, individuals signed up to have living trusts prepared. Nearly all of them never saw or spoke with the lawyer who was preparing the trust, which he did based on forms provided to him by national sellers of these products. All contact seems to have occurred through non-lawyer salespeople. When the trusts were prepared and delivered, the selaesperson then embarked on a fast-talking, aggressive effort to sell annuities that included high fees. The disciplinary board that reviewed the evidence concluded that a number of rules applicable to lawyers had not been complied with: in nearly every situation, the lawyer never met with the “clients”; no analysis was done to determine that a living trust was appropriate; fees were divided with non-lawyers; etc. In short, older people paid a lot of money for something that usually wasn’t necessary or appropriate, and were pressured into buying products that were poor investments. Unfortunately, this isn’t the only circumstance we are seeing, in Pennsylvania and elsewhere, of senior citizens being sold a bill of goods and cheated out of at least part of their retirement funds.
This is not to say that annuities can’t be a good investment. Many very savvy investment advisors suggest them to clients when they are appropriate. But they can’t be appropriate in every situation. And when they are, sellers should provide the best annuity product for the clients, not the one that earns the highest fees. And having estate planning done through a kit that you buy from a non-lawyer who knows nothing about you or the applicable law makes as much sense as buying medical or dental care on-line: “tooth hurt? we’ll tell you how to fix it yourself with our dental drill delivered to your home.”
An article in a publication called National Underwriter Life and Health makes a very good point about the many advertisements we see picturing retirement. Whether it’s on TV or in a magazine or brochure, retirement is always pictured as “fishing, gorgeous sunsets…” as the author, Maria Ferrante-Schepis writes, to which I would add the inevitable sailboat, the dock on the lake, the shining grandchildren. As she points out, retirement means a lot more than that to most people. For many people, retirement is about figuring out if you have enough money. It’s deciding when you can stop working, or when you can work on a part-time basis. It’s also about straightening out “screwups” with your health insurance, according to retirees I have met. Make no mistake: retirement, if you can afford it, is better than working full-time. No retiree I have ever encountered has said he or she wished to be back in the work force. But getting to what your version of a good retirement will be takes some work on your part; you can benefit from the help of advisors, but you have to start by deciding what you want to do. If you want to work a little, determine how you can do that. Look at your sources of income and your likely expenses. Make plans, but remember that you won’t anticipate everything that will happen after retirement. I have often met with clients who have done their homework and just want to explain it to someone to see if there are any holes. That’s a good exercise.
And it’s not what record was No. 17 on the Top 40 Countdown on June 11, 1976. Casey Kasem had a long and, I’m guessing, prosperous career. But terrible things happened to him just before and after his death, in the form of a family dispute between his children and his second wife. I have no idea who was right or wrong, and it’s probably not relevant anyway. What should have happened in this family, as it should in many other families, is an understanding of what the “deal” was. Who was going to take care of Casey as he got older, how would the rest of the family interact with him, who was going to benefit from his estate after he was gone? This could have been covered in a series of family meetings, perhaps with some written guidelines. Maybe this happened and the parties just didn’t follow it, but it’s more often the case that families don’t discuss these issues, prefer not to think about them, and hope matters resolve themselves. Sometimes they do, but many times they don’t, which can result in disputes and, at least, hard feelings. We encourage families to meet, either among themselves or with the help of a facilitator, to talk through family issues. These might include the disposition of a family business, how to even things up if one child is in a business and another is not, how assets will be distributed during the parents’ lives and afterwards, and whatever else might be a sticking point. The worst advice: do nothing during life and let the “kids” work it out.
will probably be healthcare expenses. The Medicare program will help to defray them, but it won’t cover everything. Supplemental insurance is essential, and you need to decide on what type of policy to buy, but not without professional assistance. Some people can rely on help from people who sell such policies, while others will prefer advice from someone who doesn’t receive a commission from the sale. A recent article from US News add a couple of important yet basic considerations:
- know a lot more about Medicare than you do now. The Medicare program may seem like stereo instructions, but you have to study it and achieve some level of understanding. You can get help from others in determining how it works, but you can’t rely entirely on others.
- estimate your costs of medical care in retirement. This sounds difficult, because it is, but there are some guidelines you can use, depending on the general state of your health. These expenses will include the cost of Medicare and additional insurance, plus your out-of-pocket expenses.
- review your options for paying healthcare cost in retirement. This is also difficult. The article basically says save money to pay for healthcare costs. Don’t assume they are all covered by Medicare and insurance.
I would add the following: get all the preventive medical care you can: shingles and pneumonia shots, TDAP shot, regular checkups with various kinds of medical specialists. Squeeze as much in benefits out of Medicare as you can. Also, pay a lot of attention to your health, your exercise habits and your eating habits. My experience with clients has been that if you can maintain good health as long into your retirement years as possible, the financial cost of retirment will be manageable.
I’m not sure what is the point of continually asking people what they think of retirement, either for those who are retired or those who are close to it. But another insurance company has done so. Here are the startling conclusions: people who are retired generally like being retired. Anecdotally, I have yet to speak with a retired person who wished he or she were back in the workforce. Also, the survey found that those who have not yet retired plan to work longer than those who have already retired. That, I suppose, is their solution for not having saved enough for retirement; just keep working indefinitely. That might work for some, but others can’t continue to work because of health issues, and others just get tired of working. One point made by this survey that hadn’t occurred to me before was the difference in attitudes based on whether the individual was a disciplined planner of the retirement process. Not surprisingly, those who had disciplined plans had a more satisfying retirement. Finally, a significant percentage (42) of those surveyed had not spoken to anyone regarding retirement. The takeaway from this survey: stop reading surveys and make some basic plans about how you’re going to deal with retirement.
An inherited individual retirement account (IRA) is one set up and funded by the owner, who has died and named someone as the beneficiary of the IRA. As the owner of an inherited IRA, the beneficiary may withdraw the IRA funds at will, and must start withdrawing the funds at some point, depending on who the beneficiary is and whether the owner died before or after age 70 1/2. When the Bankruptcy Abuse Prevention and Consumer Protection Act was enacted in 2005, it provided an exception to the bankruptcy rules for retirement accounts: $1,000,000 adjusted for inflation for IRAs and an unlimited exception for employer-sponsored plan balances. In the case of Clark v. Rameker, the US Supreme Court decided that inherited IRAs don’t count as retirement plans. They reasoned that beneficiaries can take distributions at any time, and generally must start taking them in the year after the owner’s death. So they didn’t look like retirement accounts. They could easily have found reasons to treat them as retirement accounts, but they chose not do so, in this case by a vote of 9-0. The solution: owners of inherited IRAs might be able to rely on state law exemptions from bankruptcy rules for inherited IRAs, for those states that have them, and the original owners might avoid the effect of this ruling by naming a trust as the beneficiary. Note that this decision probably doesn’t extend to the situation in which the surviving spouse is the beneficiary, because the surviving spouse can make the inherited IRA his or her own, which other beneficiaries cannot.
A recent survey by MetLife highlights a trend in retirement planning by employers. Those employers who sponsor defined contribution plans (you and we put money in, it’s invested, and you get whatever is there at retirement), which is now most employers, are starting to think more about what retirement income a given level of savings will produce. In an earlier era, when most employers sponsored defined benefit plans (we promise a specific benefit or benefit formula, and it’s up to us to fund it), the amount of retirement income was explicitly stated or easy to calculate. But those plans are mostly gone, remaining generally in government service and unionized industries. Now, more employers are embracing a retirement income “culture”, in which they offer more information to plan participants about what level of income they can expect from their account balances, rather than saying, in effect, good luck in picking your investments. More employers are considering an annuity income feature in their defined contribution plans, which is still not very common, and more are providing information to participants to help them determine what kind of retirement they can expect. It’s probably a good employee relations step to offer more information about retirement. In my practice, I have seen that many educated and sophisticated investors have little idea of what they will be able to spend in retirement, as well as what their spending requirements will be.