Aaron Charles Gregg

Are You Ready for Retirement?

“It’s never too early to start planning for your retirement.”
While retirement planning may seem daunting, it’s critical to be certain that you have enough savings set aside for your golden years.
According to the Federal Reserve, 26% of non-retirees say they have nothing saved for retirement. Zero.
CNBC’s recent article, “Make these 6 moves now to be financially prepared for retirement,” provides the steps you should take right away to start building your retirement savings.
1. Put on your thinking cap. Picture as accurately as you can what your ideal retirement will look like—and what it will cost. Use an online retirement savings calculator to help you see if you’re on the right spending and savings path.
2. Get a checkup. Get educated about Medicare and weigh the alternatives for long-term care, such as long-term care insurance.
3. Be sure your estate plan is up to date. See your attorney and be sure that all your estate documents work with the laws of the state where you’re retiring. Look at any possible concerns about estate taxes. Keep beneficiary designations up to date because, regardless of what’s said in your will, beneficiaries listed on specific accounts, such as IRAs, will inherit those funds.
4. Think of charities now. With more time on your hands, consider selecting a cause or two. You can lend a hand or make a donation.
5. Review your portfolio. You may have your money primarily deposited in a target-date fund that keeps your investment mix of stocks, bonds, cash, and other assets appropriate for your retirement time horizon. However, it’s a good idea to make certain that your asset allocation is where you want it. Remember that portfolio growth and market shifts can change your allocation at any time, and the closer you get to actual retirement—or if you’re already there—the more conservative an allocation you’ll want to have. You should also monitor the account fees you’re paying in funds and consider lower-cost alternatives.
6. Get professional advice. If you’re not already working with a money and tax expert, consider it.
Reference: CNBC (November 11, 2019) “Make these 6 moves now to be financially prepared for retirement”

How Can I Upgrade My Estate Plan?

“Everyone’s heard the stories of celebrities who died without a proper estate plan in place. It’s been a hot topic in the last few years with Prince and Aretha Franklin serving as unfortunate faces of the phenomenon. However, it’s not just freewheeling entertainers.”
Forbes’ recent article, “4 Ways To Improve Your Estate Plan,” suggests that since most people want to plan for a good life and a good retirement, why not plan for a good end of life, too? Here are four ways you can refine your estate plan, protect your assets and create a degree of control and certainty for your family.
1. Beneficiary Designations. Many types of accounts go directly to heirs, without going through the probate process. This includes life insurance contracts, 401(k)s and IRAs. These accounts can be transferred through beneficiary designations. You should update and review these forms and designations every few years, especially after major life events like divorce, marriage or the birth or adoption of children or grandchildren.
2. Life Insurance. A main objective of life insurance is to protect against the loss of income, in the event of an individual’s untimely death. The most important time to have life insurance is while you’re working and supporting a family with your income. Life insurance can provide much needed cash flow and liquidity for estates that might be subject to estate taxes or that have lots of illiquid assets, like family businesses, farms, artwork or collectibles.
3. Consider a Trust. In some situations, creating a trust to shelter or control assets is a good idea. There are two main types of trusts: revocable and irrevocable. You can fund revocable trusts with assets and still use the assets now, without changing their income tax nature. This can be an effective way to pass on assets outside of probate and allow a trustee to manage assets for their beneficiaries. An irrevocable trust can be a way to provide protection from creditors, separate assets from the annual tax liability of the original owner and even help reduce estate taxes in some situations.
4. Charitable Giving. With charitable giving as part of an estate plan, you can make outright gifts to charities or set up a charitable remainder annuity trust (CRAT) to provide income to a surviving spouse, with the remainder going to the charity.
Your attorney will tell you that your estate plan is unique to your situation. A big part of an estate plan is about protecting your family, making sure assets pass smoothly to your designated heirs and eliminating stress for your loved ones.
Reference: Forbes (November 6, 2019) “4 Ways To Improve Your Estate Plan”

Why are Fewer Americans Giving Money to Charity?

“Fewer Americans are giving money to charity, and their relationship with God may have something to do with it.”
Did you know that extremely religious people of any faith are more apt to give to charity? However, there are now less very religious people in the U.S.
MarketWatch’s recent article, “Fewer Americans are giving money to charity (and it’s not just because they’re worried about money),” says that the percentage of U.S. adults who donated to charity dropped drastically between 2000 and 2016. That’s according to a recent study from the Indiana University Lilly Family School of Philanthropy and Vanguard Charitable.
In 2016, 53% of Americans gave money to charity. That was down from 66% in 2000. That was steady until the Great Recession, when it started to drop off and took a nosedive after 2010. The drop amounts to 20 million fewer households donating to charity in 2000, compared to 2016, which is the most recent year for available data.
A factor driving the decline is that Americans are becoming less likely to attend religious services or identify with a specific religion. Attending services is linked with giving to religious organizations. However, it’s also correlated with giving to secular groups. Very religious people of any faith are more likely to give to charity, according to a Baylor University study. However, there are fewer very religious people now in the U.S. The percentage of the population who describe themselves as atheists, agnostics or “nothing in particular” is now at 26%. That’s an increase from 17% in 2009, according to 2018 and 2019 surveys by the Pew Research Center in Washington, D.C. Roughly 65% of Americans describe themselves as Christians, down 12% since 2009.
Religious organizations have traditionally received most of Americans’ charitable dollars, but that has dropped off in recent years. They still received the largest percentage of charitable dollars in 2018, at 29% of total giving, but it was the first year that giving to religion fell under 30% of overall giving, according to the Giving USA annual report on philanthropy.
America’s unsteady recovery from the Great Recession is a factor. Households led by people with less than a high school education, less than $50,000 in income and/or less than $50,000 in wealth (a household’s total assets) significantly decreased the percentage they donated to charity after the recession.
The research points out that millennials give less of their income to charity than their older counterparts, most likely because they “entered the workforce during the worst economic downturn since the Great Depression.”
Reference: MarketWatch (October 28, 2019) “Fewer Americans are giving money to charity (and it’s not just because they’re worried about money)”

What Are the Biggest Estate Planning Questions I Need to Answer?

“The word “estate” conjures images of great wealth, which may be one of the reasons so many people don’t develop estate plans. Afterall, they’re not rich, so why make the effort?”

However, if you have a family, you can probably benefit from estate planning, regardless of your asset level. The Montrose Press published an article, “Estate plans can help you answer questions about the future,” that answers some of the big questions:

What will happen to my children? As part of your estate planning, you should name a guardian to take care of your children, if you pass away. You can also name a conservator–sometimes called a “guardian of the estate”–to manage the assets that your minor children inherit.

Will there be a battle over my assets? If you fail to put a solid estate plan in place, your assets could be subject to the time-consuming, expensive and public probate process. During probate, your relatives and creditors can get access to your records. They may even challenge your will. However, with proper planning, you can maintain your privacy.

Who will control my finances and my living situation, if I’m incapacitated? You can sign a durable power of attorney. This permits you to name someone to manage your financial affairs, if you’re incapacitated. A medical power of attorney lets the person you choose handle health care decisions for you, if you’re not able to do so yourself.

Will my family feel cheated if I leave significant assets to charities? As part of your estate plan, you have options. You could establish a charitable lead trust. This will provide financial support to your chosen charities for a set period. The remaining assets will then go to your family members. On the other hand, a charitable remainder trust will provide a stream of income for family members for the term of the trust. The remaining assets will then be transferred to one or more charitable organizations.

Careful estate planning with the help of an experienced estate planning attorney can answer many of the questions that may concern you.

Once you have your plans in place, you can face the future with greater clarity, peace of mind and confidence.

Reference: Montrose Press (July 7, 2019) “Estate plans can help you answer questions about the future”

What is the Difference Between a Revocable and an Irrevocable Trust?

“While estate planning is important, most people ignore it and, therefore, there is not much that they know about it either. Revocable and irrevocable trust deeds are an important element in estate planning.”

Estate planning isn’t only challenging, it’s essential. Your assets have a great potential to be treated without consideration—especially after the death of the rightful owner. Estate planning makes certain that these issues are dealt with, while the owner is still alive.

Catch News’ recent article, “The Differences between a Revocable and Irrevocable Trust,” says that people will use different terms that refer to the same thing. Revocable trusts are also called intervivos trusts, revocable living trusts, or living trusts. The word “intervivos” is a Latin word meaning “between the living.” All three terms mean the same thing.

What are these trusts and how are they different? Let’s look at the important aspects and details of revocable and irrevocable trusts. It is a document created by an individual to help manage her assets. The trust can apply both during the lifetime or after death. The basic idea behind a trust is to define a trustee and beneficiaries for the assets owned by a certain individual.

A revocable trust is a trust that can be changed as long as it is in effect. The creator of the trust can also decide to cancel it. This trust lets the asset owner amend the beneficiaries, assets and distribution of these assets. The trustees can also be amended throughout the life of the owner. Once the owner dies, the assets are given to the beneficiaries. However, they’re managed by a succeeding trustee.

Irrevocable trusts cannot be amended, even by the owner. An irrevocable trust can’t be changed into a revocable one, but the reverse can happen. Revocable trusts can have specific terms that render it irrevocable. This can include specific dates or events in the life of the owner. After the death of the trust owner, a revocable trust is also automatically converted into an irrevocable trust. Irrevocable trusts are usually only considered by people who are looking for increased asset protection and are willing to give up the control over their assets.

Each type of trust has pluses and minuses. Although it might not seem like there are many advantages to an irrevocable trust, there are certain circumstances where the benefits are derived by the owner. These includes greater asset protection, exemption from taxes and charitable giving. With an irrevocable trust, the assets are protected from creditors and lawsuits. In addition, there are estate, capital gain and income taxes (for charitable giving) that can be avoided when assets are placed in an irrevocable trust.

By contrast, a revocable trust gives total control of the assets to the creator of the trust. He can amend or even cancel the trust at any time. Any additions or omissions can be made through a trust amendment document that is done by the owner.

If you’re thinking about creating a revocable or irrevocable trust, talk with an experienced estate planning attorney for help in deciding on the right one, and even whether a trust is the best decision for your situation.

Reference: Catch News (September 19, 2018) “The Differences between a Revocable and Irrevocable Trust”

Why is There a Gender Gap in Financial Knowledge?

“A review of research from over the last six years, points to a persistent gender gap in both financial and investment understanding.”

A review of research from over the last six years points to a persistent gender gap in both financial and investment understanding, according to a recent article by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation.

A recent article from WTOP, “12 reasons women need to close the financial literacy gap,” notes that “women consistently score lower than men on financial literacy measures, and this gender-based gap may negatively impact women’s long-term financial well-being.” This research was based on data from the foundation’s National Financial Capability Study (NFCS), which asked five basic financial literacy questions and tabulated the answering success of women versus men. The results showed that both millennial and older women underperformed men in answering these basic questions.

The study also found that women are more likely to answer that they “don’t know” to these questions. On average, between 25-36% of the time, women say they don’t know the answer to a question. One possible explanation for this comes from research results showing that men are more likely to be offered financial education. Men are more likely to be employed full-time, and financial education is frequently provided in the workplace.

These lower levels of financial literacy among women, may keep them from accumulating and managing assets, which ultimately leads to securing a less than promising financial future. Sometimes the financial literacy gap occurs from a person’s life circumstances. For instance, when a woman is married, she’ll usually share financial accounts and decision-making with her spouse. With a partner who’s more educated in financial matters, it’s understandable (and often common) for a woman to accept or ignore her own financial education gaps. Here are some of the reasons why women should pay attention to their money:

To close the wage gap. 2017 research shows that women are paid about 82 cents for each dollar a man makes. That means a woman must work four more months per year to make the same annual salary as a man.  However, among millennials, women are significantly closer to pay equality.

It enables women to care for loved ones. Women are frequently the primary caregivers for extended family. Research shows that the average caregiver is a 49-year-old female providing 24-hours-per-week of care for four years to a 69-year-old female relative. Giving that kind of care often leads to women leaving the workforce sooner than men. As a result, their retirement savings and other potential wealth-building options are more likely to be decreased by a parent or other family member’s unexpected need for care.

Funding charitable causes. Women have different goals for their investment portfolios, and women are usually more goal-oriented. They center more on how their money can be used to meet their life goals, like helping loved ones or giving back to charity. Being smart about how they give to others, enables women to give in a tax-efficient manner and can leverage their charitable-giving dollars.

Beneficiaries can be changed. In a second marriage, there can be challenges that come from the competing need for assets for an aging woman and the desire to leave assets for children from a prior marriage. While receiving a life estate in a home, a life insurance death benefit or a share of retirement accounts can help secure a surviving woman’s future, they’re usually insufficient and not permanent answers, because the owner of these assets has the ability to change his or her mind. They don’t have to give any reason for making a change in beneficiary, and depending on the type of account or insurance, may not have to give any notice. Be proactive and set up legal obligations via a prenuptial or postnuptial agreement, an irrevocable provision in an estate plan, or by being the owner of a life insurance policy written on a spouse’s life.

Women live longer. The average male life expectancy is about 76½ years, and a woman’s is a little over 81 years, according to research by the World Health Organization and Imperial College of London. This is one of many reasons that women ages 75 and older are almost twice as likely to live in poverty compared with men of the same age. One of the biggest financial risks as we age, is the cost of health care. By the time a woman reaches 75, there’s a 70% chance she’ll require assisted care at some point during her life. Rising health care costs and long-term care costs increasing at a rate greater than inflation, make it imperative that women engage in advanced planning.

Reference: WTOP (September 5, 2018) “12 reasons women need to close the financial literacy gap”

When is it Worth Incurring a Penalty for Early Withdrawal?

“Many savings and investment accounts come with rules around when you can pull out your money. However, there are exceptions in which the penalty is worth the reward. There are times when you might be able to lessen the consequences.”

You hear it all the time: “early withdrawal penalties apply.” When you have retirement accounts and CDs, it’s usually not advised. However, there are some instances when it makes sense.

CNBC’s recent article, “Sometimes, early withdrawal penalties don't apply”, explains that we dutifully follow these rules to avoid the much dreaded early withdrawal penalty. However, there are cases when the penalty might not apply to you, or times when the benefits outweigh the financial hit. You should remember that these moves should often only be made if necessary, because they place your savings in jeopardy.

Certificates of Deposit. If your CDs are growing at less than 1% a year at a bank, but the bank across the street is offering annual returns of 1.72% on their certificates of deposit, you might consider an early withdrawal, despite a penalty of three months interest. Do the math: you might be ahead financially after three months, at the other bank's higher interest rate.

529 Plans. There's no early withdrawal from a 529 plan—the tax-advantaged account that can be used for education-related expenses. That’s because there are no rules as to when you can use the money. The rules stipulate only what you can use it for, which is just education-related expenses. There’s a penalty, if you use it for other reasons. It’s a 10% tax penalty, as well as income taxes on the account's earnings. In many cases, the family’s no worse off than they'd be in a taxable account. However, you may have to repay the state income tax benefits you received for using the account. If your child does plan on going to college, the withdrawals will leave your savings with less time to compound.

Retirement savings. An early withdrawal from your retirement account is a huge black eye in personal finance. Using an individual retirement account (IRA) or 401(k) plan before the age of 59½ can mean a 10% penalty, income taxes and a depleted fund for your retirement. There are several exceptions to the 10% penalty, eliminating that expense when you withdraw early from your retirement account. However, there's confusion about when the penalty does and does not apply. For example, if you decide to retire at 56, you can withdraw from your 401(k) without any penalty. However, if you roll it into an IRA, you'd have to wait until 59½ to have your money without consequences.

Both 401(k) plans and individual requirements waive the penalty. if you're using the money for serious medical expenses, or if there's a disability or death. You can use your IRA to fund health insurance, if you're unemployed, without penalty. If you're divorcing, you may be able to use 401(k) assets without a penalty.

Reference: CNBC (August 21, 2018) “Sometimes, early withdrawal penalties don't apply”