Funding 35-40 Years of Retirement

If you live to 100, can you avoid outliving your money?

Provided by WenJing He

Will you live to 100? Your odds of becoming a centenarian may be improving. Earlier this year, the Centers for Disease Control reported that the population of Americans aged 100 or older rose 44% between 2000-2014. The Pew Research Center says that the world had more than four times as many centenarians in 2015 as it did in 1990.^1,2

 

If you do live to 100, will your money last as long as you do? What financial steps may help you maintain your retirement savings and income? Consider these ideas.

 

Keep investing in equities. The S&P 500 does not automatically gain 10% or more each year, but it certainly has the potential to do so in any year. As the benchmark interest rate is still well below 1%, fixed-rate investments are not producing anything close to double-digit returns. Some fixed-rate vehicles are even failing to keep up with the current inflation rate (1.5%). Turning away from equity investments in retirement may seriously hinder the growth of your savings and your level of income.³

Arrange some kind of pension-like income. If you can retire with a pension, great; if not, you may want other income streams besides Social Security and distributions from investment accounts. Renting out some property may provide it; although, the cost of third-party management can cut into your revenue. Dividends can function like a passive income stream, albeit a highly variable one. Even creating online content may provide residual income.

 

Hold off filing for Social Security. If you are in reasonably good health and think you may live into your 90s or beyond – and that could prove true for you – then retiring later and claiming Social Security later can make great financial sense. If you wait to claim your benefits at Full Retirement Age (which will range from 66 to 67, depending on your birthdate), you will have fewer years of retirement to fund than if you left work at 62 and claimed benefits immediately. By continuing to work, you are also allowing your retirement savings a few more years to potentially grow and compound when they are at their greatest – so this might be the wisest step of all.

  

If your savings are large enough, you could try living only off the interest. If your invested assets equal $1 million and your investments return 5% in a year, could you live on that $50,000 plus Social Security or your pension in the succeeding year? You may be able to do that, perhaps easily depending on where you choose to live in retirement. You would not be able to do that every year, of course – you would have to dip into your principal if your portfolio returned almost nothing or took a loss. For every year you manage to live off the equivalent of your investment returns, however, your principal goes untouched.

Funding 35 or 40 years of retirement will be a major financial challenge. The earlier you plan and invest to meet that challenge, the better.

WenJing He may be reached at 800-916-9860 or hew@wenadvisory.com.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - money.usnews.com/money/blogs/planning-to-retire/articles/2016-01-22/how-to-finance-living-until-100 [1/22/16]

2 - pewresearch.org/fact-tank/2016/04/21/worlds-centenarian-population-projected-to-grow-eightfold-by-2050/ [4/21/16]

3 - tradingeconomics.com/united-states/inflation-cpi [10/20/16]

Key Estate Planning Mistakes to Avoid

Too many people make these common errors.

Many affluent professionals and business owners put estate planning on hold. Only the courts and lawyers stand to benefit from their procrastination. While inaction is the biggest estate planning error, several other major mistakes can occur. The following blunders can lead to major problems.

   

Failing to revise an estate plan after a spouse or child dies. This is truly a devastating event, and the grief that follows may be so deep and prolonged that attention may not be paid to this. A death in the family commonly requires a change in the terms of how family assets will be distributed. Without an update, questions (and squabbles) may emerge later.

   

Going years without updating beneficiaries. Beneficiary designations on qualified retirement plans and life insurance policies usually override bequests made in wills or trusts. Many people never review beneficiary designations over time, and the estate planning consequences of this inattention can be serious. For example, a woman can leave an IRA to her granddaughter in a will, but if her ex-husband is listed as the primary beneficiary of that IRA, those IRA assets will go to him per the beneficiary form. Beneficiary designations have an advantage – they allow assets to transfer to heirs without going through probate. If beneficiary designations are outdated, that advantage matters little.^1,2

   

Thinking of a will as a shield against probate. Having a will in place does not automatically prevent assets from being probated. A living trust is designed to provide that kind of protection for assets; a will is not. An individual can clearly express “who gets what” in a will, yet end up having the courts determine the distribution of his or her assets.² 

Supposing minor heirs will handle money well when they become young adults. There are multi-millionaires who go no further than a will when it comes to estate planning. When a will is the only estate planning tool directing the transfer of assets at death, assets can transfer to heirs aged 18 or older in many states without prohibitions. Imagine an 18-year-old inheriting several million dollars in liquid or illiquid assets. How many 18-year-olds (or 25-year-olds, for that matter) have the skill set to manage that kind of inheritance? If a trust exists and a trustee can control the distribution of assets to heirs, then situations such as these may be averted. A well-written trust may also help to prevent arguments among young heirs about who was meant to receive this or that asset.³   

Too many people do too little estate planning. Avoid joining their ranks, and plan thoroughly to avoid these all-too-frequent mistakes.

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - thebalance.com/why-beneficiary-designations-override-your-will-2388824 [10/8/16]

2 - fool.com/retirement/2017/03/03/3-ways-to-keep-your-estate-out-of-probate.aspx [3/3/17]

3 - info.legalzoom.com/legal-age-inherit-21002.html [3/16/17]

The Importance of Equitable Estate Planning

Have you considered the factors that may promote inequality in wealth transfer?

Provided by WenJing He

Suzanne is widowed and has four adult children. Her investment portfolio is worth $1 million, and she owns a bed-and-breakfast inn worth $1 million as well. Can she conveniently and equally bequeath these assets to her kids to give each child a $500,000 share of her wealth?

 

This may not be as easy as it seems. “Suzanne” and her estate planning dilemma are hypothetical; the above scenario genuinely illustrates why “equal” estate planning is not necessarily equitable.

  

Some estates are hard to divide fairly. This problem often surfaces when successful individuals or families have much of their net worth in illiquid assets, such as investment properties, collectibles, or private company interests. An illiquid asset can be hard to sell, and its price may need to be reduced to make a sale or exchange work. Once sold, the illiquid asset may not represent an “equal” share of the estate, only a devalued one.

Moreover, the illiquid asset may be unwanted by the heir. An heir may have little desire to become a landlord or maintain a classic car collection.

Life insurance can address this problem. In the above scenario, the purchase of a $2 million life insurance policy may be a very wise move. This will boost the value of the estate to $4 million and permit “Suzanne” to bequeath $1 million in assets to each of her kids. The ownership of the $1 million bed-and-breakfast inn no longer needs to be divided. That $1 million share of the estate can be left to the heir with the most interest in real estate investment.

 

The division of assets is still imperfect. The $1 million investment portfolio and the $1 million inn may increase in value. The $2 million in life insurance proceeds, while tax free, may or may not end up being invested by the other two heirs after the 50/50 split. Still, the initial distribution of wealth is more equitable, and more manageable, than it would be otherwise.  

Buy-sell agreements can address major issues for business owners who want to hand their firms down to the next generation. A well-crafted buy-sell agreement can delineate the heir(s) in control of a company’s ownership and their degree of control. It can also clearly state when and how shareholders can transfer their shares in the business to others.

In pursuit of equitable estate planning, some families choose the blended approach. This method promises greater rewards for heirs who have made greater contributions to family wealth. It aims to distribute family assets equally, fairly, and equitably.

When the blended approach is used, the bulk of family wealth is divided equally among heirs in cash. Some assets are distributed fairly – select liquid or illiquid assets are handed down to this or that heir to suit individual priorities, needs, or wants. Then, a defined percentage of the estate is distributed equitably, based on involvement in the family business or similar criteria.¹  

Whether you have done much or little estate planning, the matter of equitable division of assets must be considered. In terms of asset transfer, what seems equal at first consideration may not prove equal in execution.

WenJing He may be reached at 800-916-9860 or hew@wenadvisory.com.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - barrons.com/articles/the-smartest-way-to-pass-on-your-fortune-1459270512 [3/29/16]

Should We Reconsider What “Retirement” Means?

The notion that we separate from work in our sixties may have to go.

Provided by WenJing He

An executive transitions into a consulting role at age 62 and stops working altogether at 65; then, he becomes a buyer for a church network at 69. A corporate IT professional decides to conclude her career at age 58; she serves as a city council member in her sixties, then opens an art studio at 70.

 

Are these people retired? Not by the old definition of the word. Our definition of “retirement” is changing. Retirement is now a time of activity and opportunity.

  

Generations ago, Americans never retired – at least not voluntarily. American life was either agrarian or industrialized, and people toiled until they died or physically broke down. Their “social security” was their children. Society had a low opinion of able-bodied adults who preferred leisure to work.   

German Chancellor Otto von Bismarck often gets credit for “inventing” the idea of retirement. In the late 1800s, the German government set up the first pension plan for those 65 and older. (Life expectancy was around 45 at the time.) When our Social Security program began in 1935, it defined 65 as the U.S. retirement age; back then, the average American lived about 62 years. Social Security was perceived as a reward given to seniors during the final years of their lives, a financial compliment for their hard work.¹ 

  

After World War II, the concept of retirement changed. The model American worker was now the “organization man” destined to spend decades at one large company, taken care of by his (or her) employer in a way many people would welcome today. Americans began to associate retirement with pleasure and leisure.

By the 1970s, the definition of retirement had become rigid. You retired in your early sixties, because your best years were behind you and it was time to go. You died at about 72 or 75 (depending on your gender). In between, you relaxed. You lived comfortably on an employee pension and Social Security checks, and the risk of outliving your money was low. If you lived to 81 or 82, that was a good run. Turning 90 was remarkable.

Today, baby boomers cannot settle for these kinds of retirement assumptions. This is partly due to economic uncertainty and partly due to ambition. Retirement planning today is all about self-reliance, and to die at 65 today is to die young with the potential of one’s “second act” unfulfilled.

   

One factor has altered our view of retirement more than any other. That factor is the increase in longevity. When Social Security started, retirement was seen as the quiet final years of life; by the 1960s, it was seen as an extended vacation lasting 10-15 years; and now, it is seen as a decades-long window of opportunity.   

  

Working past 70 may soon become common. Some baby boomers will need to do it, but others will simply want to do it. Whether by choice or chance, some will retire briefly and work again; others will rotate between periods of leisure and work for as long as they can. Working full time or part time not only generates income, it also helps to preserve invested retirement assets, giving them more years to potentially compound. Another year on the job also means one less year of retirement to fund.

Perhaps we should see retirement foremost as a time of change – a time of changing what we want to do with our lives. According to the actuaries at the Social Security Administration, the average 65-year-old has about 20 years to pursue his or her interests. Planning for change may be the most responsive move we can make for the future.²

WenJing He may be reached at 800-916-9860 or hew@wenadvisory.com.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - dailynews.com/2017/03/24/successful-aging-im-65-and-ok-with-it/ [3/24/17]

2 - ssa.gov/planners/lifeexpectancy.html [11/21/17]