While it may not be the right fit for every retiree, a trust is an effective and efficient estate planning tool in certain situations. For example, if you have young grandchildren that you want to leave money for, but you want to control how and when it can be used after you’re gone, then a trust might be the way to go. Or maybe you want to make sure your estate funds go towards a particular cause or entity, in which case a trust can control that. Regardless of your purpose for the trust, it’s important that it is set up properly, which the vast majority of times involves working with an attorney specializing in that area. Trusts are complex devices that, if not created properly, can lead to confusion and eventual frustration for family, friends, and/or organizations that may have expected to benefit from the funds. If you are considering a trust for your estate or for retirement, I strongly urge you to speak to an attorney about it. Not only that, but I encourage you to take the time to find an attorney that you are comfortable with discussing any matters related to your personal trust with. Finding the right attorney can make all the difference and a good one should be able to help you reach your desired goals or be frank with you about the feasibility of your plans. Along with talking with an attorney, you may also want to speak with a wealth manager or financial planner to further discuss your retirement plans as well as your estate plans. These conversations can go a long way towards helping you reach the desired end point for you and your money.
You can’t plan for retirement without first thinking about the money you will be spending in retirement. Thus, your retirement planning–and everything that follows those initial plans–will focus on your nest egg. How you build that nest egg will have a monumental impact on what you can do when you actually most into your post-career life. If you take aggressive steps and keep on top of your nest egg, then you will probably have a good chunk of money ready for when you stop working. On the flip side, if you don’t take steps to properly build up a nest egg or make bad decisions when doing so, then you probably won’t have much flexibility in retirement or may have to work longer than intended to meet your goals. No matter how you slice it, your nest egg is essential to your retirement plans. Now, if your nest egg isn’t quite where you want to it be right now, don’t fret. You can always take steps to get back on track and then determine what’s realistic from there. There is no on-size-fits-all answer for that, but some steps would include re-evaluating your retirement goals, analyzing your portfolio and/or investment decisions, or working with a financial planner or wealth manager to really kick your saving into gear. Each person’s situation is unique regarding how much they need to save for retirement, so some may have a lot of work to do while others may be right on track. What’s key, no matter where you are in your saving journey, is that you never lose track of your nest egg and that you focus on building it up as much as possible. So, how big is your nest egg?
It’s well known within the retirement planning industry that about half of all Americans are having a tough time with their retirement finances. That’s a lot of people. Furthermore, uncertain economic times can push the number of those struggling north of 50%. Considering how many retirees are out there–and it’s impressive due to one of the largest demographics reaching retirement age (*cough* Baby Boomers *cough*) as we speak–that’s a lot of Americans struggling to either save for retirement or stretch out their finances in retirement. With all that said, I want to remind you that you are not alone if you are struggling to either save or make your nest egg last. Many people do and there’s nothing wrong with asking for help in doing so. If you can afford it, a good wealth manager or financial planner can be a huge help. Despite the tone some of my blogposts, I fully understand that saving for retirement is no easy task and it’s been particularly tough over the past 15 years or so. That doesn’t mean you should give up on it, though. In fact, I want to encourage you to save as much as you can and to take steps to maximize your saving, regardless of where you are in your life. Something is better than nothing. So, are you struggling with saving for retirement? You’re not alone, but what are you going to do about it?
Retirement can seem like a long ways off as you make your way through your career–and, of course, life–during your 20s, 30s, and 40s. However, when you get into your 50s, suddenly it might not seem so far off in the distance. Your early 50s, in particular, are a really good time to get serious about retirement. What does it mean to “get serious” about retirement? It means sitting down and taking a long, hard look at where your finances stand and when exactly you want to retire. You will also want to reassess your retirement goals and get a good understanding of what life in retirement will be like. What will your retirement budget be? Do you plan on paying down your debt before retiring? Are you going to move for retirement? These are some important questions you will need to ask yourself as you near retirement age. The answers may surprise you and will give you a good sense of what is realistic regarding retirement. Now, I’m not saying you need to wait until your 50s to get serious about retirement (the earlier you start, the better), but I am encouraging you to not wait until your late 50s/early 60s to start thinking about your post-work life. Remember, retirement is serious business that requires a plan and hard work, both before and during. Taking the time to properly prepare for it so that you can enjoy it is very important. So, are you ready for retirement?
It can be tempting to look at your nest egg and see an untapped source of money, particularly if your nest egg is sizeable and you are nearing retirement. For example, maybe you found your dream retirement home and need money for a down payment. You may look to your IRA for a short-term loan to meet those money requirements. I’m here to tell you that that is a bad idea and to discourage you not to do so. The biggest reason being that you don’t want to tap into your IRA monies until you actually retire and, even then, you will want to have a plan for doing so. You’ve worked hard to save up for your post-work life and you want to make sure that money goes towards your retirement goals (of course, if purchasing a retirement home is part of your plan, then that’s a different discussion). The other risk of viewing your IRA as a loan source is the risk of making a mistake when taking out money. Keep in mind that there are two routes you can go when taking money out of your IRA before reaching retirement age. First off, you can take a distribution, pay the taxes and penalties, and then not have to worry about what you do with the money. The other option is to take out the money and do a 60 day rollover, which will involve paying back the money within that 60 day window. There’s a lot of risk involved with that. I repeat, there is a lot of risk involved with doing this. Mainly, if you take out the money, is there any guarantee that you will recoup it within that 60 day window? Chances are, you are going to be making a large purchase if you need a loan (probably talking thousands of dollars), so what are the chances that you will make that money back in two months? If you are certain that you can do that, then maybe you can consider it. However, if you aren’t so sure that you can complete such a transaction in that timeframe, stay away from this idea. That can lead to a lot of problems if you aren’t able to put the money back within those 60-days. Hint: Don’t open yourself up to the IRS taking more of your money through penalties! If you are in need of money, you should consider other types of loans or selling off other assets before even considering your IRA as a loan source. You may even want to really think about whether you even need to make the purchase at that time and whether you can put it off until you actually have the funds and leave your retirement money alone.
It may not be obvious, but we have a retirement problem in this country and the economic crisis created by the efforts to combat COVID have exposed it. Not enough people have enough saved for retirement. The economic conditions that began back in the early Spring have forced many older workers into forced retirements that they were not fully prepared for. For those younger workers who suddenly found themselves on unemployment, there aren’t enough jobs that offer strong retirement benefits or high enough wages to allow them to look beyond the survival necessities (i.e. rent, food, gas, etc.). Demographics and class also play a role in whether people have the opportunities to save for retirement. While there are a lot of tools available today for anyone to save for retirement, the tools are not the issue. The issue is that fewer people have wiggle room financially to save enough for retirement. Most people with hefty retirement accounts either had jobs that paid well or spent years working for big companies that offered strong benefits. For many in the gig economy or working for small businesses, the opportunities to save and the benefits of things like matching contributions or stock ownership plans are just not there. And yes, there are more working in the gig economy or small businesses than many of us realize. So what’s the solution? Well, there was recent legislation passed that makes it much easier for small businesses to band together and offer retirement benefits as well as pushes back the age for requirement minimum distributions (RMDs). However, we may need to have a larger discussion about how we go about saving for retirement after these current economic conditions improve, particularly about pay and the cost of living in this country. There may also need to be further reform of the tools that we have, making them easier to use and understand. We will see what the future brings regarding all this.
“Change is the only constant.” You’ve probably heard this expression before. I believe it is sometimes attributed to the Greek philosopher Heraclitus, but it gets used often as a business mantra or by people who are seemingly always in motion. It’s also a reminder that despite our best efforts at times, change happens. I’ll admit, change can be scary, but it can also be a wonderful thing. It can force us to reflect on where we are and where we want to go. It can also provide us with an opportunity to try new things and make decisions that we have been putting off. For example, changes in the markets can force you to re-evaluate your investments and portfolio (did you really think I wasn’t going to tie this back to investing or retirement planning some way? lol.). That can be a really good thing. Markets are prone to change as companies come and go and stocks trend up and down. As such, you will need to buy and sell investments from time to time, especially if you are investing for the long-term. Same goes for your retirement planning. Over time, your benchmarks and goals will change and you will need to act accordingly. Yes, it can be a bit scary to think about having to pivot your retirement saving plan, but it can also be exciting. It can be refreshing to have a new interest or goal that fits with what you want more than what you currently have. It really all depends on how you look at it. Change can be a wonderful thing, are you ready for it when it eventually comes?
If you’re serious about saving for retirement, then you’ve probably done a lot of research and reading about the strategies you can use to do it, the tools the use, and things to look out for. Over time, that knowledge can really build up and it can be tough not to want to share it with family and friends. Guess what? There’s nothing wrong with that. After all, knowledge is power. That means the more you–and in this case, others–know the better you can be when it comes to making financial and retirement decisions. Now, before I go any further, I want to caution to you to be careful when it comes to giving advice regarding taxes or particular investments. Furthermore, if you find that you’re gathering a large following or are taking payment in return for financial advice, you should be very careful and maybe should consider becoming a financial advisor or wealth manager so as to protect yourself and get the credentials needed. In regards to taxes or tax-based strategies, you can potentially open yourself up to some legal liability, particularly if you are not properly credentialed to do so and if things go south (in other words…don’t mess with people’s taxes or tell them what to do with their taxes if you’re not a CPA). Anyways, in regards to sharing your knowledge, maybe you’ve learned some really great tips from an financial advisor or maybe you really like crunching numbers and want to help others who aren’t so skilled. Don’t be afraid to share your knowledge and skills to help others obtain a better grasp of their finances and retirement savings. Even if it’s just a matter of helping a friend set up a spreadsheet to track their expenses or helping a family member research an investment opportunity, you can share what you know and help others. Of course, if you aren’t comfortable with helping others with financial planning or preparing for retirement, you could also always just pass on the name of a reputable wealth manager or financial advisor.
I was recently reading an article that discussed the impact one’s health can have upon their retirement and retirement savings. This article wasn’t about the cost of healthcare in retirement and aging, but rather how living a healthy lifestyle can be really helpful when it comes to retirement and how it’s not impossible to do. When many people connect health and wealth in retirement, the conversation just about always centers around the cost of aging–things like medications, assisted living, visits with specialist doctors. Very few people talk about living a healthy lifestyle–both before retirement and once you reach retirement–and how that can make your nest egg go farther and your overall wealth increase. Yes, healthier people tend to be more successful professionally and tend to make more money. When you make more money you can build up a bigger nest egg! Doesn’t that sound nice? Realizing the way your health may impact your retirement savings can be huge from a planning standpoint as well. If you know that you may be susceptible to certain conditions or diseases (i.e. through genetics or lifestyle), then wouldn’t you want to plan for that? Of course you would. Now, if you aren’t living the healthiest lifestyle at the moment, don’t fear, it’s never too late to start. What matters is that you take the steps necessary to get healthy. How do you think your health might impact your wealth?
It’s been a while since I’ve written a post about the importance of making sure your paperwork is correct and up-to-date. I was reading an article over the weekend that had two stories of what can go wrong when your paperwork is not correct. I won’t go into the details, but one story involved thousands of dollars in costs to correct an outdated address and the other involved a painful court battle for a deceased account owner’s family. Both stories re-instilled the importance of having your paperwork in order. Remember, retirement accounts cannot be passed on through a will or similar instrument. The account custodians will follow the paperwork they have and send information to the account addresses they have. And yes, the courts will side with them the vast majority of the time. You can prevent this, though, by informing the account custodian of any address changes and any major life changes (i.e. a child birth, marriage, divorce, etc.). These simple updates–most of the forms can be found online and are fairly easy to fill out–can prevent a world of hurt in the future, both for yourself and for your family and friends. Ideally, you should be checking your paperwork at least once or twice a year and should save a copy of the forms each time you submit new ones. If you have questions about whether you need to update your forms, you should speak with your retirement account custodian.