Aaron Charles Gregg

What Don’t I Know About Retirement?

“Retirement is a topic that regularly makes headlines, and not all of them are encouraging. Americans are living longer than ever before, resulting in lengthy periods of post-career life.”
Investopedia’s recent article, “6 Surprising Facts About Retirement,” writes that if you think most people are saving more in order to prepare for their long-term needs, you’d be incorrect. The article provides us with some of the more startling truths about retirement in the U.S.
1. Retirement May Be Longer Than You Think. The average American will retire at age 66 and live until about 79. However, many will see their retirement last much longer than 13 years. A 65-year-old woman has a 50% chance of making it to age 85, and a 65-year-old man has a 50% chance of reaching age 82. This is why younger people need to plan for 20 years or more of income in retirement. For current retirees, an ultra-conservative portfolio composed solely of bonds may not give them sufficient growth, especially with interest rates so low.
2. Social Security Doesn’t Do It By Itself. Many experts suggest replacing 80% of your usual income once you hit retirement. However, for many, Social Security payments alone won’t be nearly enough to hit that target. In 2019, the average monthly Social Security benefit is just $1,461. That’s just $17,532 per year.
3. We’re Waaaay Behind on Savings. Americans are quite far behind on saving for retirement. When the American workplace turned away from pension plans, workers needed to be responsible for securing their retirement funds. We’re not doing it: according to thestreet.com, in 2019 a typical couple in the 56-to-61 age bracket without any retirement accounts had just $17,000 in savings. For many, that’s not enough to live off for a year, let alone a whole retirement. However, the mean retirement savings of working households age 32 to 61 is $95,776, according to the Economic Policy Institute. 35% of workers have $100,000 or more saved for retirement.
4. Just Half of Americans Have a Retirement Plan. Today, the median annual pension amount for the fast dwindling number of Americans who have the old-fashioned defined-benefit plan is less than $10,000, according to CNBC.com. However, many of us aren’t replacing those pensions with a contribution plan, like a 401(k). Almost half of the population (43%) has no workplace savings vehicle of any kind in 2019, according to Bloomberg.
5. Many People are Staying in the Workforce. Because so many Americans are behind in their savings, it may not be surprising that many remain in the workforce well after reaching Social Security eligibility. Almost 19% of people 65 or older were working either full- or part-time, as of 2017. Consider this: about 20% of workers overall say they’ll never be able to retire!
6. Medicare Doesn’t pay for Assisted Living. Nearly 70% of individuals who reach age 65 will require long-term care at some point. What many seniors don’t know, is that Medicare doesn’t pay for most long-term care costs. It only covers 100 days of care at a skilled nursing facility, and only if it was preceded by a hospital stay of three days or more.
Begin your analysis, by looking at the amount of money you’ll need for retirement, based on your current spending and the standard of living you want. Then look at your savings balances and how much you’re saving regularly.
Roughly 55% of Americans build their nest eggs with a regular savings account. However, that might not be good enough, because of the low interest rates. Savers should consider other investment vehicles.
Be sure that you’re maxing out contributions to your 401(k) or 403(b) if you have one, or at least, saving enough to get the company match. If you don’t have a plan through your work, or you’re lucky enough to max out your plan each year, you can supplement your savings with an IRA. For 2019, you can contribute up to $6,000 a year to an IRA, or $7,000 if you’re age 50 or older.
Reference: Investopedia (September 27, 2019) “6 Surprising Facts About Retirement”

Why is Ashton Kutcher So Stingy with his Kids’ Inheritance?

“In a recent episode of the Dax Shepard podcast "Armchair Expert," Kutcher said he wasn't creating trust funds for his two children with his wife, Mila Kunis.”
Ashton Kutcher said, "My kids are living a really privileged life, and they don't even know it.”
The actor has an estimated net worth of $200 million.
Business Insider’s recent article, “Ashton Kutcher says he's not setting up a trust fund for his kids, and his parenting approach echoes what billionaires like Warren Buffett and Bill Gates have said,” reports that Kutcher's parenting approach is similar to other well-known wealthy individuals. Elton John, Sting and Simon Cowell have all revealed they don't plan to leave their children a lot of money. Instead, they plan to emphasize educating them on the value of hard work.
Likewise, many billionaires aren't leaving their children much money. For example, Bill Gates has announced that he would leave $10 million to each of his three children. That’s just a fraction of his $108 billion net worth.
In a 2013 Reddit "Ask Me Anything" forum, Gates said: "I definitely think leaving kids massive amounts of money is not a favor to them. Warren Buffett was part of an article in Fortune talking about this in 1986 before I met him, and it made me think about it and decide he was right."
Mr. Buffett said he has pledged 100% of his estimated $87.3 billion fortune to various charities. Instead of giving each of his three children millions or billions, he’s promised to give about $2.1 billion of Berkshire Hathaway stock to each of his children's charities.
Buffett's decision might arise from his views on dynastic wealth, or the pattern of families passing money down from one generation to the next. Buffet has been vocal about his efforts to decrease the vast wealth sitting in the hands of a few influential people.
"Dynastic wealth, the enemy of a meritocracy, is on the rise," Buffett said in 2007. "Equality of opportunity has been on the decline."
Older generations might consider restricting their children's access to family wealth because of highly visible heirs and so-called trust-fund babies, who show off their wealth on social media. Parents may want to include provisions to ensure that any trust can be modified in the future.
Reference: Business Insider (November 10, 2019) “Ashton Kutcher says he's not setting up a trust fund for his kids, and his parenting approach echoes what billionaires like Warren Buffett and Bill Gates have said”

What Should I Do If I Strike it Rich?

“Whether you've just signed a multi-million-dollar contract or won the lottery, here are some tips that will help you keep and grow your wealth responsibly.”
There’s nothing quite like getting an unexpected sum of money. That happiness can be magnified when the amounts are six, seven, eight digits or more.
However, the greater the amount you receive, the greater your stress.
Investopedia’s recent article, “Tips For Handling Sudden Wealth” reports that there’s even a stress-related disorder called "Sudden Wealth Syndrome."
This stress results in the recipients doing things that will threaten their good fortune and may leave them worse off than before they got the money.
Let’s look at few ideas to help you hang onto that new wealth:
1. Tally your money. Take the time to carefully review all the documentation associated with the windfall. Note the areas you don't understand and talk with your attorney.
2. Create a comprehensive financial and life plan. Don’t settle for a cookie-cutter solution. Look for customization that takes into account your circumstances, your goals and your desired legacy.
3. Be wary of friends and family. A downside of sudden new wealth is that new friends and estranged family members may come out of the woodwork. One idea is to pay yourself a salary, which can put some distance between you and these people.
4. Don't buy big ticket items, until you’re comfortable with the advice and understand your new financial position. You should address your taxes on the gain, pay down debts or take a small vacation. However, don't make too many changes all at once. Talk to your advisors.
More money can mean more problems. Use these tips and consult with your attorney, when deciding what to do with your newfound riches.
Reference: Investopedia (June 25, 2019) “Tips For Handling Sudden Wealth”

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”

What Will I Need to Sacrifice to Enjoy Retirement?

“Find out what these savers have sacrificed in the name of a sound financial future and see what the experts say actually makes a difference in meeting your long-term savings goals, like early retirement.”
What are you willing to forfeit now to save for retirement? Principal asked this of its retirement plan participants who fall into the “super saver” category. These are people who saved 90% to 100% of the 402(g) IRS max contributions or had a deferral percentage of 15% or higher in 2018. The survey showed that among super savers, 43% drive older vehicles, 41% own modest homes and 41% travel less than they would really like. The Las Vegas Review-Journal’s recent article, “19 things you’ll need to sacrifice for a healthy retirement” gives us some of the ways we can give up extras for retirement. People these days have a tough time knowing the difference between needs and wants.
That daily expensive coffee. You should be willing to give up having an expensive coffee at the coffee shop rather than at home. It’s a little thing, but a dollar saved today will grow to $7.60 in 30 years at a 7% return rate. For every dollar you waste today, you are costing yourself nearly $8 in retirement. Look at it this way: if these extra goodies cost you $100 a week, that’s over $5,000 a year. If invested, that money could grow to more than $38,000.
Cars. Roughly 43% of the survey’s super savers said they’ve driven older vehicles to save for retirement. It’s the most common sacrifice that super savers have made to save. Did you know that after the first year of ownership, you can lose more than 20% of the car’s value due to depreciation? If you buy a two-year-old car with an extended warranty, you save 30% to 40%, and over a lifetime that can add up to having substantially more in retirement assets at age 65. If your family has two cars, consider dumping one to cut auto expenses in half. While this sacrifice might take some getting used to, the long-term benefit could be worth it.
Keeping a larger home than you really need. After driving an older car, owning a smaller home was the most common sacrifice super savers made to save for retirement, the Principal survey found. The easiest way to lower your expenses and save more for retirement is to buy a cheaper house. A big house with a big mortgage will eat up most of your income.
International travel. You don’t need to give up all splurges, but it is important to cut back on these expenses when you can. Try a vacation within the U.S., where you’ll save on airfare. If you save $200 a month on travel, you’d save $2,400 per year. That would add up to $60,000 over a 25-year period—before interest. Among super savers, “not traveling as much as I prefer” was tied with owning a modest home, as the second-most common sacrifice they made to save for retirement.
The next time you want to splurge on something, remember that you can borrow money to put your kids through college, but you can’t borrow money for retirement.
Reference: Las Vegas Review-Journal (November 6, 2019) “19 things you’ll need to sacrifice for a healthy retirement”

Will My Heirs Need to Be Ready to Pay Estate Taxes?

“I'm in my 80s and have a substantial sum in retirement accounts that I plan to leave to my children. Will they have to pay estate taxes on it?”
Estate taxes all depend on how on much a person is planning to give to heirs.
Motley Fool’s recent article asks “If I Leave My Retirement Savings to My Heirs, Will They Pay Estate Tax?” The article tells us that retirement accounts like 401(k)s, 403(b)s, traditional and Roth IRAs and others are a part of your taxable estate.
However, unless the total assets of your estate plus any taxable gifts you've already given are more than the lifetime exclusion amount, your estate won’t owe estate taxes.
For 2019, this is $11,400,000, and in 2020, the exclusion will be raised to $11,580,000. If you total all of your assets’ value, only the amount in excess of the exclusion will be taxable. Therefore, if you have a $12,000,000 estate and die in 2020, only $420,000 of your assets would be subject to estate taxes.
Let’s look at another example: if your assets, including your retirement savings, total up to $5 million, your heirs won't be required to pay any estate tax whatsoever.
However, while they may not have to pay estate taxes, remember that withdrawals from most retirement accounts (except Roth IRA accounts) will be deemed to be taxable income. Thus, estate tax or no estate tax, if your heirs are in a pretty high tax bracket, inheriting your retirement savings may increase their tax liability.
Don’t neglect to check with an estate planning attorney about your state’s estate and inheritance taxes. There are a handful of states that have their own estate taxes, and their thresholds may be lower than the IRS’s.
There are now six states with an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.
Each state sets its own inheritance tax exemption, and inheritance tax rates. However, these rates are subject to change at any time with changes to the laws in those states.
Reference: Motley Fool (November 8, 2019) “If I Leave My Retirement Savings to My Heirs, Will They Pay Estate Tax?”

How Can Life Insurance Help Me with my Post-Divorce Estate Planning?

“With nearly half of all marriages ending in divorce, it’s not uncommon to have clients who are either going through divorce proceedings, living as a single parent after a divorce, or have been married more than once–with or without stepchildren.”
Divorce can be extremely stressful, but in addition, the challenges divorce brings to estate planning can be an added worry. In many instances, a frequently overlooked strategy can provide real solutions for divorcees and blended families. That’s life insurance. Using life insurance to address some of these issues, can help you create an estate plan that really fits your needs, goals and unique family circumstances.
Insurance News Net’s article “5 Ways Life Insurance Eases Post-Divorce Estate Planning” provides us with five ways life insurance can help you in the event of a divorce:
Have money for divorce-related expenses. If the divorce is contested or includes child custody issues, the proceedings be quite long, maybe months or years. As a result, your attorney’s fees could be hefty. Those with an established permanent life insurance policy can take withdrawals or loans from the policy’s cash value to help pay expenses. If the policy is designed effectively, you won’t have to liquidate other assets or take money from your estate designated for beneficiaries.
Protect your income post-divorce. Your income can change significantly after a divorce, especially if one spouse was a stay-at-home parent. They may get alimony payments to help make up the difference, but if the payor unexpectedly dies, the lost income can create a lot of stress and financial hardship for those left behind. Permanent life insurance on the paying spouse can help provide coverage and replace income lost, if they pass away.
Preserve your estate post-divorce. Life insurance can also provide funds to pay off existing debt held by the deceased spouse. This also can eliminate the need to liquidate other assets from the estate that would have gone to the surviving spouse or other heirs. Take withdrawals or loans from the policy–tax-free, if the policy is set up correctly–and you can effectively plan your legacy, even if your ex-spouse hasn’t been financially responsible.
Ensure that children get a fair inheritance. If you have children from a previous marriage, it may make sense to provide for them through life insurance, rather than passing their assets to a new spouse first. In the alternative, you can provide for your new spouse through life insurance and leave the estate to the children outright or in a trust. With either option, dividing how you leave assets to biological children and a new spouse in a blended family, can eliminate stress and bad feelings, especially if the new spouse has children of their own.
Help fund college or other expenses for your child’s children. Protecting the lives of both parents with permanent life insurance allows you to make certain that the expenses for the children are addressed. Therefore, if the former spouse is responsible for paying medical expenses, college expenses, or other costs for the children, life insurance can provide needed funds, if that spouse passes. Permanent life insurance with cash value can also provide funds during the insured spouse’s lifetime (if cash isn’t readily available) to pay college tuition or help adult children repay student loan debt.
You should also look at permanent instead of term insurance. Term insurance may be less expensive, but permanent insurance can accumulate cash value that can be drawn from the policy, while the spouse is still alive, as well as providing a death benefit. You may want to also see about adding riders to customize your policy. With a permanent life insurance policy and a long-term care rider, you have the ability to accelerate the policy’s benefit while you’re alive to pay for long-term care costs. This can put to rest some of the concerns for divorcees, about who will take care of them if they can’t take care of themselves.
A carefully planned permanent life insurance policy can help you protect yourself, your income and your estate throughout your lifetime, even if you experience divorce.
Reference: Insurance News Net (November 5, 2019) “5 Ways Life Insurance Eases Post-Divorce Estate Planning”

Will Medicaid be Able to Claim my Life Insurance Policy Cash if Surrendered?

“New Jersey uses an expanded definition of estate recovery, which includes any property that belonged to the deceased person at the moment prior to his or her death.”
If a person receives Medicaid benefits after taking the cash surrender from their whole life policy for funeral expenses but that policy stays in effect through continued payments by the beneficiary, who gets the remainder of the policy? Medicaid or the beneficiary? What if the Medicaid beneficiary only lived for a few more months after that?
nj.com’s recent article on the subject asks “Can Medicaid take this life insurance policy?” The article says that the rules concerning Medicaid can be very complicated.
In this situation, it looks like the beneficiary, not Medicaid , would receive the money from the life insurance policy.
Under Federal and state laws, Medicaid is required to recover funds from the estates of certain deceased Medicaid recipients for all payments made by Medicaid for services received on or after age 55.
States are able to apply a narrow probate definition of “estate” in their Medicaid recovery program. They can also define “estate” more broadly to include probate, as well as non-probate assets.
Remember that probate assets are those that pass under a will, and non-probate assets are accounts like joint checking accounts, pensions and other assets that are designated to go to a beneficiary directly and not the estate.
This also includes property, such as the deceased person’s home or share of that residence, other bank or investment accounts (whether solely or jointly held), as well as trusts, annuities, stocks, bonds and any other real or personal property.
Proceeds from whole life insurance policies are subject to estate recovery, if they’re not liquidated prior to death as required. The proceeds from any life insurance policy are subject to Medicaid recovery, when the proceeds are paid to the estate.
In the example here, if the policy was liquidated, there should be no estate recovery against the policy, because there was a designated beneficiary other than the estate.
Your estate planning attorney can help you with the specific Medicaid and probate laws in your state.
Reference: nj.com (October 29, 2019) “Can Medicaid take this life insurance policy?”

What Are the Rules About an Inheritance Received During Marriage?

“An issue that frequently arises is the treatment of an inheritance received by a spouse during the marriage. The basic rule is that any property received via gift or inheritance during the marriage is exempt from equitable distribution.”
A good add-on to that sentence is something like, “provided that it is kept separate from marital assets.” To say it another way, when an inheritance or any other exempt asset (like a premarital asset) is “commingled” with marital assets, it can lose its exempt status.
Trust Advisor’s recent article asks, “Do I Have To Divide The Inheritance I Received During My Marriage?” As the article explains, this is the basic rule, but it’s not iron-clad.
A few courts say that an inheritance was exempt, even when it was left for only a short time in a joint account. This can happen after a parent’s death. The proceeds of a life insurance policy that an adult child beneficiary receives, are put into the family account to save time in a stressful situation. You may be too distraught to deal with this issue when the insurance check arrives, so you or your spouse might deposit it into a joint account. However, in one case, the wife took the check and opened an investment account with the money. That insurance money deposited in the investment account was never touched, but the wife still wanted half of it when the couple divorced a few years later. However, in that case, the judge ruled that the proceeds from the insurance policy were the husband’s separate property.
The law generally says that assets exempt from equitable distribution (like insurance proceeds) may become subject to equitable distribution, if the recipient intends them to become marital assets. The comingling of these assets with marital assets may make them subject to a division in a divorce. However, if there’s no intent for the assets to become martial property, the assets may remain the recipient spouse’s property.
Courts will look at “donative intent,” which asks if the spouse had the intent to gift the inheritance to the marriage, making it a marital asset. Courts may look at a commingled inheritance for donative intent, but also examine other factors. This can include the proximity in time between the inheritance and the divorce. Therefore, if a spouse deposited an inheritance into a joint account a year before the divorce, she could argue that there should be a disproportionate distribution in her favor or that she should get back the whole amount. Of course, the longer amount of time between the inheritance and the divorce, the more difficult this argument becomes.
Be sure to speak with your estate planning attorney about the specific laws in your state. If there is a hint of trouble in the marriage, it might be wiser to simply open a new account for the inheritance.
Reference: Trust Advisor (October 29, 2019) “Do I Have To Divide The Inheritance I Received During My Marriage?”