Every financial client has their own story about what has
happened in their life and what they hope to accomplish in the future. Life
events can alter even the most carefully thought out plan. Some events clients
experience are divorce, loss of a job, health issues, death of a loved one and
longevity concerns when entering retirement. All of these events can create emotional
strife and have a resulting impact on a portfolio and financial plan for the
future.
It takes time for an advisor to learn about a client’s past
and their future aspirations. They have financial goals but may have previously
experienced problems with their investments not being correctly aligned with
their goals. But there’s more to financial
planning than just investments.
Advisors believe that financial planning is the foundation
for financial situations that can go right and wrong- that can become increasingly
complex. Financial professionals that
don’t address these additional needs aren’t providing their clients with
solutions to common everyday problems.
When things go right, often it’s the same solutions that
help clients when things go wrong. It takes a network of skilled professionals
to help clients with tax and estate planning, insurance needs, and asset
protection. The following are what financial planning addresses so that what
you’re working hard to accumulate is not wiped out:
Insurance- When a client has amassed a significant amount of
money (things went right), or there is a considerable loss, insurance provides
a means of protection and payment to meet financial obligations and protect
your invested assets.
Estate Planning- With federal tax rates increasing and the
ever-changing estate and inheritance taxes in many states, working with a tax
professional and an estate attorney is critical for most clients, and at some
point their beneficiaries.
Asset Protection- This includes specialized insurance
solutions that go above and beyond traditional solutions and are specifically
for protection due to your profession, or threats like litigation or theft or
other damages that can occur costing you your assets.
Lastly, financial planning many times involves family
interpersonal-relationships and planning for how family members will benefit
from or take over and manage inherited assets. Advisors help to ensure a
client’s wishes are met by including a team of professionals to help accomplish
the client’s goals during their life, or possibly after.
As more boomers leave the workforce each day the future is uncertain for both genders when it comes to their retirement savings lasting their entire life. Many don’t know what to expect when it comes to rising health care costs, increasing living costs, and longer life expectancies. However, for women the retirement savings gap is even more severe than their male counterparts for many reasons:
Women still experience inequality in the workforce when it comes to equal pay for the same position according to a study by The National Bureau of Economic Research. The pay gap is 38% between what men and women make each year in the same job position with comparable experience, education, and job performance. Making less money each year equates to women saving less money over time for their retirement compared to men.
Women leave the workforce to give birth and raise children, accounting for less working hours over time. Women still traditionally provide care for their children, staying home when needed while men rarely leave the workforce to care for children and maintain steady employment. When women leave the workforce, it is often harder for them to return to the same position and pay rate, often requiring them to choose a lesser pay position to become employed again.
Women are living longer than men by about three years, on average according to Research from the Social Security Administration. But as each new generation is born, they experience a longer life expectancy of seven years more than their expectancy at birth- thanks to medical advances. Younger generations continue to live longer than the previous, making retirement savings even more critical. What can women do?
Women should work with a financial advisor that factors their longevity, income, and retirement savings gap independently from a partner, regardless of marital status, etc. Their advisor should provide them with an accurate estimate of their gap and a plan to help close it. Additionally, the financial plan should include balancing monthly retirement savings contributions between partners so that there is an equalization of the woman’s retirement savings over time to the other partner’s (the man’s) savings. Too often financial plans don’t address the gap and assume a couple will remain together their entire lives sharing retirement savings assets.
Single women need to be more aggressive in the amount they save, maximizing their contributions if possible. It’s important they work with an advisor that plans for their unique situation and addresses it, offering solutions outside of traditional retirement savings options other than through employers.
Lastly, women need to address their own retirement savings gap by always participating in their savings plan at work and choosing additional retirement savings options on their own. It is essential that women plan for themselves and don’t assume they will be taken care of or leave all the planning to the other partner.
Inheriting from someone is a wonderful gift, but when it
comes to securities assets, namely IRAs, different rules apply to non-spouse
beneficiaries. IRS rules designate what the beneficiary can do with the IRA and
how distributions must be taken. The laws on inherited IRAs depend on the
relationship to the IRA owner and the type of IRA. This article doesn’t apply
to spouses inheriting an IRA, but applies to the children, friends, brothers or
sisters, or any non-spouse recipient inheriting an IRA. Here’s what you need to
know:
Traditional IRA Required
Minimum Distributions- If you are a non-spouse beneficiary, you must start
taking Required Minimum Distributions (RMD) by December 31st after
the year of death of the original IRA
account owner. Each year you will have RMDs based on your age and life
expectancy if you choose to take distributions over your life or your other option
is to use the ‘5-year rule.’
Roth IRA Required
Minimum Distributions (RMD)- Even though Roth IRAs have no RMD for the
original owner, when Roth IRAs are inherited, RMDs apply.
Inherited IRAs
Can’t be ‘Rolled Over’ to a New IRA- A change of ownership must happen
to the original IRA, and the IRA must remain intact to avoid a penalty or taxes
(Traditional IRA). When inheriting an IRA, the beneficiary should contact the
custodian of the IRA for instructions and paperwork to transfer ownership.
Inherited IRAs
with Multiple Non-Spouse Beneficiaries- It’s crucial to separate
inherited shares from the other beneficiaries.
Ownership should transfer into their name with the IRA custodian for
each beneficiary.
If you have questions on inherited IRAs as part of your legacy
plan for your heirs or anticipate inheriting an IRA, feel free to contact me
and consult your tax advisor for tax advice on inherited IRAs.
Losing a spouse, whether through death or divorce, can be
devastating emotionally and financially. The loss can take months or even years
to recover since there is no way to prepare for death or divorce even when
spouses have discussed contingencies with each other or with their advisor. When
it comes to financial decisions some things need to be taken care of almost immediately, but leaving decisions
with long-term consequences for when the mind is clear is best, despite a broken
heart. Items that require timely updates and beneficiary changes after losing a
spouse:
Work Place
Benefits- 401(k) and Employer Health and Life Insurance. Employer
retirement savings and life insurance plans both require beneficiary
designations; if the beneficiary were a spouse, a new beneficiary will need to be
named. If on the lost spouse’s health insurance through their employer, the
remaining spouse will need to find new insurance coverage. A death certificate
may be required to remove a spouse as a beneficiary that has passed away or a
divorce decree to remove a spouse after a divorce.
Joint Accounts-
Brokerage, Bank and Bank Loans and Credit Cards. All joint accounts
will need to have the spouse removed (if death) or divide per terms of the
divorce. In most instances, loans will need to satisfy or new loans
underwritten to request the removal of a spouse. In the example of death a
death certificate is required to remove the spouse from bank accounts and
investments. For divorcees, contact your lender or brokerage account custodian
for requirements on joint accounts
Joint Assets- A
Primary Residence, Vehicles, and Other Real Estate Property. You will
be required to retitle all property into your name alone or pay off loans to
remove your spouse. Additionally, you may need to qualify for a new loan based
on your income alone.
IRAs and Annuities-
If your spouse were your beneficiary, you would need to name a new beneficiary
on your IRAs and Annuities.
Social Security
Benefits- Notify the Social Security Administration of the death of the
spouse (divorce requires no notification). If the remaining spouse is already
receiving Social Security retirement benefits, they will now receive their
deceased spouse’s retirement benefits. If the remaining spouse is not yet receiving
retirement benefits, but there are young children involved, the Social Security
Benefits the deceased spouse would have received later will provide benefits to their children until age 18 or still in high school.
Losing a spouse is never easy, but planning for your future
alone is essential. Start by dealing with what needs to be taken care of now. I
am here to help you navigate your future and offer advice and financial
planning as you move forward without your spouse.