Financial planning is the foundation for financial situations that can go right and wrong- that can become increasingly complex. 

Planning for What Can Go Right (and Wrong)

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.

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Women and Retirement: Planning for the Retirement Savings Gap

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 are paid 80 cents to every dollar a man makes; if a man saves 10% for retirement, a woman must save 18% to accumulate the same amount. –National Partnership for Women and Families, 2017 report. 

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.

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When it comes to IRAs, IRS rules designate what the beneficiary can do with the IRA and how distributions must be taken.

Inheriting an IRA? Here's What You Need to Know

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 31^st 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.’

• The 5 Year Rule allows you to take distributions over five years so that all of the assets liquidate from the IRA by the 5^th anniversary of the IRA owner’s death.
• With both distribution options, the 10% early liquidation penalty from the IRS doesn’t apply if you are not 59 ½ years of age or older. If you don’t take a distribution, a 50% penalty on what should have been taken will be applied by the IRS at tax time.
• Traditional IRAs are taxed upon distribution at the owner’s tax rate- both the contributions and accumulation.

Roth IRA Required Minimum Distributions (RMD)- Even though Roth IRAs have no RMD for the original owner, when Roth IRAs are inherited, RMDs apply.

• RMD calculates on the beneficiary’s age and life expectancy.
• Use the 5-year rule take distributions over 5 years so that all of the assets liquidate from the IRA by the 5^th anniversary of the IRA owner’s death.
• If you don’t take a distribution, a 50% penalty on what should have been taken will be applied by the IRS at tax time.
• Since all distributions are tax-free; the beneficiary can completely liquidate the Roth IRA with no taxes due.

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.

• The same RMD rules apply based on life expectancy or the 5-year rule
• RMDs calculate on the oldest beneficiary’s age and life expectancy if ownership doesn’t transfer.

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.

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Financial Planning After Losing a Spouse

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.

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Losing a spouse is never easy, but planning for your future alone is essential.

SAI May 2019 Newsletter Approval 2515052.1

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