A Simple, But Important Thing We Can Learn from Casey Kasem

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.

Your Biggest Expense in Retirement

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.

Yet Another Survey on Retirement

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.

Important Supreme Court Ruling on Inherited IRAs

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.

The Retirement Income Mindset

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.

Not Only Can Money Not Buy Happiness, But It Can Get You a Good Deal on Misery

I was reading a magazine article about a well-known (to others) author, whose books are semi-autobiographical. In the course of reviewing his life, the article noted that he had inherited a substantial sum of money through his grandmother when he was 18. According to the article, he apparently used much of it to buy drugs. The article mentioned his grandmother and other members of his family, and I realized that the trust through which he received the money was set up by lawyers in this law firm and its predecessor, more than 100 years ago. I’m sure that the lawyers who did the planning didn’t envision the use the author made of the inheritance (which apparently created some good stories for his books), but I suppose it’s difficult to think 100 years into the future and decide how much guidance and control is needed that far out. It illustrates the fact, which we all know, that wealth can be a very good thing or it can be very destructive. Parents and grandparents hope that the legacy they leave behind will create a secure future for their descendants, but thought has to be given to leaving money in a way that promotes good habits and ambition. There is not one way to do that, but it’s part of the planning process: not just how much you can leave to others, but how they will use it and how you can help them make the right decisions.

Same Sex Marriage Ban Struck Down in PA: the Tax Consequences

A federal judge has issued a lengthy opinion striking down Pennsylvania’s ban on same sex marriage. Such a ruling may be appealed, so we don’t know the final result yet. But there is a significant tax consequence to the downfall of this ban, and it relates to Pennsylvania Inheritance Tax. The Inheritance Tax is based on who receives the assets, not who leaves them. This means that the tax rate differs depending on who inherits. Assets that pass between spouses are free of tax, assets passing to children are taxed at 4 1/2%, and assets passing to unrelated persons are taxed at 15%. When same sex couples could not marry in Pennsylvania, assets that passed between those couples at death were taxed at 15%. If they are allowed to marry in Pennsylvania, the tax is reduced to zero. Couple this with the new federal rules treating same sex married couples the same as opposite sex married couples for purposes of income taxation and retirement benefits, and there is a new planning environment for same sex couples that, if properly used, could result in significant tax benefits on both the state and federal levels.

Good Sunday Newspaper Section on Retirement Issues

The Philadelphia Inquirer for Sunday, May 11, contained a section dealing with retirement issues. Among numerous articles, these pieces of advice stand out for me:
1. When to collect Social Security is very important. It’s also important to know what benefits are available, especially the spousal benefit. An article by Erin Arvedlund mentions a Social Security Analyzer written by William Meyer and William Reichenstein. AARP has a calculator, at http://goo.gl/3t9HXv. Some advice from the article: spend other assets before electing Social Security; and work as long as possible and defer the start of benefits.

2. Another article talks about the fear-mongering about Social Security. The author of the article points to a billionaire who warns of the system’s imminent demise, a view with which the author, in my opinion correctly, disagrees. There are many fixes available for Social Security that would make it viable for generations to come.

3. An article by a financial planner makes a very good point: rather than wait until retirement to take dream vacation trips, do it while you’re still working. Great idea.

“Health Wealth”

An article in the ABA Journal uses this title to describe an important issue for those nearing and in retirement. The sub-heading is “retirement planning includes caring for yourself”. The points made include:

  • Health is the second or third largest expense for retirees. Doing what you can to maintain good health is a money-saver.
  • Plan for long term care needs, when you might be unable to care for yourself. That doesn’t always require insurance, but it does require some thought and planning. Don’t rely solely on Medicare.
  • Maintain your brain power as much as you can. There are books and programs available to keep the mind sharp as we age. Stay mentally active.

The Cat Who Was Wronged

We’ve discussed pet trusts before, but here is a tale guaranteed to make your fur stand on end, if you’re a cat. An older woman in a nursing home wanted to ensure that her cat was well taken care of after she was gone, so she planned to set up a $450,000 trust fund for its benefit. Not Leona Helmsley money, but probably sufficient. Some “friends” offered to care for the cat, and are now accused of having used that relationship to loot the funds that were to be used for Purdy Cat, as it was called. The lesson here is to be careful to whom you entrust funds to care for your animals. The safest course is to have the funds held by someone other than the caregiver. It also provides evidence of the serious problem of elder financial abuse that we see occurring in the aging population.