Category: Investments

Bonehead Mistakes Retirees Need to Avoid

With the excitement of retirement, money can be the last thing you would have on your mind. However, if you have a careless approach to your money, you can be headed for financial pain. 10-25-16

Starts at 60 recently published an article, “Three silly money mistakes retirees can make,” that identifies three big mistakes you could be making with your money as a retiree.

  1. Spending too much, too soon. It can be difficult to fight the urge to spend money when you’ve retired, but spending too much early on in your retirement has severe consequences. Not only does it make your wallet lighter, it also means you don’t get the returns the money could have made for you in the next five, ten or twenty years.

If you’re planning on retiring, plan well in advance. Review your superannuation, pension and savings to create a budget for your retirement. If you’re already retired and spending too much in the early days, see a professional and modify your budget and investments.

  1. Heeding the investment advice of family and friends. While they may only be trying to help, these folks may not be the best people to ask for financial and investment advice. Seek advice from a financial planner or investment advisor.
  2. Failing to plan your estate. Who wants to think about and plan for their death when they are busy enjoying retired life? However, failing to plan your estate could have consequences for your loved ones after you pass away. Without an estate plan, you might not be able to transfer your wealth to your family when you die. Plus, it can create a huge tax bill, meaning less for your spouse and family. Talk with an experienced estate planning attorney and take care of this ASAP.

Reference: Starts at 60 (September 6, 2016) “Three silly money mistakes retirees can make”

How to Plan For a Kid Who Can’t Handle Finances

Many parents face this issue, says NJ 101.5 in its recent post, “When you don’t trust a child with money.”

There are some children, regardless of age, who need help managing their finances. By the same token, there are also some children who are good with money who make mistakes upon inheriting a large sum of money all at once.

If you think that a child needs restrictions, it’s always a good idea to look into your options with an experienced estate planning attorney. If this is done to protect the child from himself or herself, there is really nothing unfair about this type of plan. In fact, this action may actually help and not be seen as “unfair” treatment. 10-20-16

If parents have concerns about a child’s ability to handle an inheritance, they can leave their inheritance in trust for the child’s benefit. When creating the trust, a trustee must be named. It probably shouldn’t be another child, which could create unrest in the family. Rather, you might designate a trusted family friend or advisor as trustee, or you could use a financial institution that provides trust services.

The terms of the trust can be customized to the child’s needs and could stipulate that he or she receive a fixed percentage of the assets each year from the trust. This alleviates much of the discretion on the part of the trustee regarding whether or not to make a distribution. Another option is to allow the trustee to decide the amount and timing of distributions.

Trusts are extremely flexible vehicles and can provide protection for beneficiaries, like a son or daughter who can’t manage his or her finances.

Reference: NJ 101.5 (August 31, 2016) “When you don’t trust a child with money”

Create Your IRA Exit Plan


IRAs, 401(k)s, 403(b)s and other qualified accounts are popular tools for building a retirement nest egg. But after investing and saving with one of these plans for the last 30 years, as retirement nears you may ask yourself, "What should I do with my retirement account?"

The most common advice given is to withdraw as little out of your IRA as possible while taking your Required Minimum Distributions (RMDs). MarketWatch, in its recent article, “IRAs are for retirement planning, not for retirement,” suggests that we should think a bit outside the box before simply following the masses, with regards to your IRA and its RMDs.

If your money manager is advising you to let your IRA sit and only withdraw the RMDs, remember that typically, money managers are making 1-2% in fees on the total amount of money under their management. As such, the money manager has a vested interest in you keeping most of your money under his or her care.

Here are few ideas:

If tax rates increase, qualified accounts don’t give you any protection from future tax liability. If you’re like most Americans who think that taxes will increase in the next decade, do you want to wait for your retirement savings to be taxed at a higher rate? If you're between the ages of 59 and 70½, you are at the perfect spot to start an IRA Exit Plan.

Another consideration is the way in which you’ve titled your IRA and the beneficiary designations. Talk with a qualified estate planning attorney when designating your primary, contingent, and tertiary beneficiaries, as well as when titling an IRA.

Remember that when you set up a trust, your IRA cannot be retitled to your trust. This inability to change ownership of your IRA can lead to gaps in planning for Medicaid and Veteran Benefits. The quick solution is to overcome this by simply changing the IRA's beneficiary to their trust. But beware—there can be dire consequences if your beneficiaries of your IRA are not done properly.

Talk with an estate planning attorney to be certain that the IRA's beneficiary is a trust that qualifies as "See Through Trust,” or else it can cost your families thousands of dollars in taxes by making it instantly taxable upon your death.

There’s no better time to start preparing yourself, as well as your investments, for retirement. Create your IRA Exit plan so that when you enter retirement your assets will be as ready for retirement as you are.

Reference: MarketWatch (August 17, 2016) “IRAs are for retirement planning, not for retirement”

Accumulating Income in the Decumulation Phase of Life: Retirement

Retirement is often called the “decumulation” phase, when retirees are steadily spending down their assets. However, many retireesare not only leaving their nest eggs intact but are also saving a large part of their income. Recent studies say that they’re accumulating assets as they move through retirement.

Kiplinger’s new article, “Shifting Gears from Saving to Spending in Retirement,” explains that it’s not just the wealthiest retirees who fall into this category. Retired households with at least $100,000 in financial assets save 31% of their income, on average, according to a recent study. A third of Americans age 65 and older took no retirement income from their nest eggs during the past five years, according to a 2015 study. 10-04-2016

Saving money is good, but if you’re cutting out basic comforts because you think you’ll live to 108 and have huge medical expenses or because you worry that you won’t be able to leave an inheritance for your children, you might want to reconsider the severity of those risks and how you’re managing them.

On the other hand, if you’re on a cruise every other month and touring in a new Lamborghini but still spending less than your income, that’s a different issue. You should think about minimizing your tax liability as you continue to accumulate wealth throughout retirement. Also, keep reinvesting any extra income according to your goals, donate to charity or give away assets to family members.

Saving is becoming a bigger part of retirees’ financial plans, especially with defined-benefit pension plans going away. Retirees now must depend more on nonguaranteed sources of income—like 401(k)s and IRAs—to cover expenses. As a result of the greater uncertainty involved with generating income from stocks and bonds, retirees who draw their income largely from investment accounts tend to save more than those relying on guaranteed-income sources.

Many retirees say that saving is hardwired, but if you’re stuffing money under the mattress, think about how much retirement is really costing you and whether you’re saving up for future expenses that may never happen.

While many retirement-planning tools say that your spending will increase by the rate of inflation each year of retirement, recent research contends that this may overestimate retirement costs. In inflation-adjusted terms, spending actually decreases 1% annually in retirement. Major expenses, like a mortgage or the children’s college tuition, may go away in retirement. Also, you might spend less on big vacations and other active pursuits as you get older. So, the amount you must withdraw from your portfolio to cover expenses might significantly decrease during retirement.

Many retirees overestimate their spending needs. While optimistic, it might be a little unreasonable to plan on living to 110. You can look at a detailed calculator to factor in your health, family history and lifestyle to give you a better idea of your life expectancy.

A recent study found that the wealthiest 20% of retirees could safely draw down as much as 50% more than what they’re spending.

Reference: Kiplinger’s (August 2016) “Shifting Gears from Saving to Spending in Retirement”