Personal Wealth Law News

There isn’t any. Although spouses have protection when assets are held in qualified retirement plans, so that the plan participant can’t name a beneficiary other than the spouse to receive death benefits without the spouse’s approval, no such protection applies to assets held in individual retirement accounts. So a participant in a qualified retirement plan can retire, roll over his or her benefit balance to an IRA, and then name anyone he or she wishes as the beneficiary of death benefits. This loophole in the law has been known for many years, but no steps have been taken to correct it. With more than $4B now held in IRAs, this is a substantial issue in the protection of spouses’ financial well-being.

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In the now-booming industry of determining what people think about retirement, another study reaches some conclusions that suggest a general attention to current financial issues and less confidence in the ability to achieve retirement goals:

1. more people are determined to retire without a home mortgage, and are focusing on paying down those debts.
2. there is little confidence in the ability of the stock market to increase wealth. Not a shocking view, I suppose, but Warren Buffett might say that’s when it’s a good time to buy.
3. paying monthly bills is more important than healthcare costs and saving for retirement, even among older people.
4. 401(k) plans are seen as a good vehicle to save for retirement, but people would like more guidance on investments and more automatic saving provisions.

And although we read about a massive transfer of wealth between generations, that will only occur in some cases; many people have decided to spend their assets on current experiences with family rather than saving for an inheritance.

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We hear and read frequently about baby boomers and the retirement years they are now entering. A recent article in the Wall Street Journal discusses a downside to that impending or occurring retirement. In an effort to make up losses from stock market uncertainties and the drop in home values, many baby boomers have been tempted to try less traditional investments, and this has led to an increase in investment fraud. The SEC is planning to issue some guidance about investment scams that older Americans should avoid. Some of the techniques used are promissory notes, private placements and unregistered securities, and they are often aimed at holders of self-directed IRAs. The article cites a study that apparently demonstrates that the ability to make effective financial decisions generally peaks at age 53.3, although there is obviously much variation depending on training and experience. Perhaps it’s advisable to remember the investment expert who suggested that the best course was to “get rich slowly.”

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Retirement seems to be the word of the decade, now that baby boomers are beginning to experience the latest in their life adventures. Unfortunately, this event coincides with a high level of uncertainty in financial markets and in other aspects of the wealth equation. Here’s some further evidence: in a recent survey (and recent surveys, as we know, are a major industry), 47% of baby boomers (born between 1946 and 1964) say that they are confident of having a comfortable retirement, down from 55% in March of 2011. About a quarter of baby boomers say they never intend to retire. Of course, they might not have that option, due to health issues or the attitude of their employers. Finally, about 45% say they will rely heavily on Social Security benefits in retirement.

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A poll taken by a group called LifeGoesStrong.com indicates that only 47% of baby boomers (born between 1946 and 1964) feel confident they will be able to afford a comfortable retirement. As recently as March, the percentage was 55. Because of this, many more plan to continue working after age 65, with a significant percentage saying they never plan to retire. An article in the New York Times of November 20, 2011 makes a similar point, placing a large part of the blame for this change on the financial shocks that began in 2000 and continue to the present.

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A recent article in the Wall Street Journal suggests some issues that need to be considered by surviving spouses:

1. First, there are problems relating to IRAs rollovers, inheritances and distributions. The wrong choices can result either in IRS penalties or financial hardships. My experience has been that IRA providers do not offer the expertise needed to make the correct choices for the surviving spouse.

2. Changes in investment portfolios. The article suggests that the investment mix for two spouses might be different from that needed when there is just a survivor. Again, seek professional help, and make sure your advisor knows everything relevant about your finances and needs.

3. Social Security. There are many options in deciding on Social Security payments. This is a mystifying subject for nearly everyone who approaches it for the first time. The website www.ssa.gov has useful information and also updates you on what Patty Duke is doing these days.

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I interviewed a retired partner in my firm for a program on retirement planning for lawyers, and I asked him what surprised him about retirement. He said that it was the amount of time he spent on the phone with health insurers. Although he didn’t have serious health problems, just the day to day claims for routine matters required extensive knowledge of policy provisions and how to navigate the system.

Because baby boomers are now reaching retirement age and becoming eligible for Medicare, with the need to have supplemental health insurance coverage, this concern is sure to be heard frequently. There is extensive information about Medicare available, both in print and on line, and there is also extensive information about supplemental insurance sent out to those approaching Medicare age. But it is rough sailing to get through all of the literature and decide what is the best combination of plans. And, of course, the answer will not be the same for everyone, so you can’t just do what your neighbor or brother-in-law has done.

But the wrong decisions can be costly. Much as you need to plan your financial retirement with IRAs and 401(k) plans, and decide how to invest them; and just as you need to do careful estate planning, you need to plan your health insurance coverage in retirement carefully, after reviewing the options and how they operate in your own fact situation. 

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Here is an interesting discussion of the effects of the recession on people’s retirement plans: http://crr.bc.edu/images/stories/Executive_Summaries/wp_2010-22.pdf

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As the Baby Boom generation heads into retirement years, there is increased interest in the adequacy of retirement income- not just initially but in later years of retirement as well.  It’s important when thinking about retirement to factor in expenses that might rise in later years, particularly health expenses. In addition, the effects of inflation must be considered.  Here is a brief discussion of a recent study on the subject:

A news release from the Employee Benefit Research Institute (EBRI) about its 2010 EBRI Retirement Readiness Rating also indicated that after 20 years of retirement, 29% of those in the next-to-highest income level will run short of money, as will more than 13% of those in the highest-income level.

The highest income Americans are at the lowest risk of running short of money in retirement, but many in the highest income category still face significant risks of not being able to pay basic expenses and uninsured medical expenses for the remainder of their lives, EBRI said.

According to EBRI, nearly half of early Baby Boomers—56 to 62—are at risk of not having sufficient income to pay for basic retirement expenditures and uninsured medical expenses, and nearly the same fraction of “Generation Xers” are in a similar position.

“As the private-sector retirement plan system evolves from a largely paternalistic one to a system in which workers must make their own decisions, policymakers need to understand what percentage of the population is likely to fail to achieve retirement security under current conditions,” said Jack VanDerhei, EBRI Research Director and principal author of the study, in the news release. “Even more important is to identify which of those households still have time to modify their behavior to achieve retirement security, and how they need to proceed.”

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The Employee Benefits Security Administration has proposed a definition of the term “fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA), the purpose of which is to expand the protections available to retirement plan participants, to protect them in particular from conflicts of interest and self-dealing by advisors. The new rules can be accessed here: http://www.ofr.gov/OFRUpload/OFRData/2010-26236_PI.pdf.

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