If you are one of the many retirees without having prepared a financial plan, it is not too late to do so. Many of our retired clients with significant retirement assets and other investments are not certain of how long they will be able to live their desired lifestyle. For some it is a matter of procrastination or fear; others have been working so hard to give their children a college education or help elderly parents that they have not taken time to plan for themselves.
It is NEVER too late to plan the rest of your life.
If you are willing to take the time to gather your records and think about your dreams and wishes for your future, the financial planning process can give you the peace of mind to take advantage of the assets you have worked so hard to accumulate.
What is the financial planning process? It is a systematic approach of identifying goals, gathering data, obtaining recommendations, then implementing strategies to accomplish these goals. The result is a comprehensive written plan consisting of:
While the financial planning process may be the same regardless of one’s age, retired individuals have unique needs and considerations. Their income will no longer be dependent on their labors, but will generally come from a combination of personal investments, retirement plans and government benefits. Retirees are faced with the prospect of managing their investments wisely to produce an adequate current income, while protecting purchasing power from inflation. Most traditional pension plans do not have cost of living adjustments.
While social security is indexed for inflation, this benefit provides only a base of retirement income for most individuals. For the affluent, social security may account for only 20% or less of desired income. Many early retirees will have 30 or 40 years during which they will have to rely on their investments to maintain their desired lifestyle. At the same time, they need to be prepared for lifestyle changes in the event of health problems.
Disability or incapacitation are often feared as threats to one’s independence and quality of life. Finally, many are faced with the desire to transfer their wealth to succeeding generations to minimizing the impact of income and estate taxes.
A good financial plan should include an Action List for implementing the plan’s recommendations. It should include such items as:
A. Establishing an emergency fund B. Tracking expenses C. Long Term Care Insurance
If you have stock options, it should include a strategy for exercising them.
It may also include family and charitable gifting strategies to reduce the size of the taxable estate. Also, the plan should include targeted rates of return for your qualified (retirement) and non-retirement investments and specific investment recommendations tailored to your unique situation.
Even the best plan is worthless if allowed to sit on a shelf unimplemented. Finally, to be of continued usefulness, the plan needs to be monitored on a regular and periodic basis to keep up with the changes in your life.
See the following “Capital Punishment by Confiscation”; this illustration demonstrates the consequences of no Estate and Elder Law Planning.
CAPITAL PUNISHMENT BY CONFISCATION
YOU START WITH THIS MUCH IN YOUR TAX-DEFERRED PLAN
$842,288.00
(A) SUBJECT TO 50% FEDERAL ESTATE TAX.
The tax due is: $421,144.00 Balance available: $421,144.00
(B) SUBJECT TO THE GENERATION SKIPPING TRANSFER TAX.
The tax due is: $ 0 Balance available: $421,144.00
(C) SUBJECT TO FEDERAL INCOME TAX
Assume 38.6% Rate.
The tax due is: $162,561.58 Balance available: $258,582.42
YOU START WITH A PENSION OF: $842,288.00
YOUR TAXES PAID EQUAL: $583,705.58
YOUR BENEFICIARIES RECEIVED: $258,582.42
ACTUAL TAX LOSS: $583,705.58
OR
69%
Courtesy of: Steven W. Tarta, Attorney at Law. 45 N. Broad Street Ridgewood, NJ 07450 PHONE 201-444-8448 E-MAIL: TARTALAW@ATT.NET Fax 201-612-0827Please be sure to check out www.tartalaw.com for estate planning learning center information