California Probate - Law Offices of Janet Brewer Blog

Make Your Nest Egg Last When Retiring Early

“Retiring ahead of schedule may seem like a dream, but it is doable with the proper planning. Depending on when you were born, the normal retirement age is currently 66 or 67. If you’re planning to retire five, 10, or even 15 years early, one of the most important things to consider is how to make your savings last for the long haul.”

Investopedia’s article “Early Retirement: Strategies to Make Your Wealth Last” says there are several things to consider to be certain retiring early won’t leave you lacking in your later years.

Set a Realistic Budget. Be realistic about your budget. Calculating how much you can reasonably afford to spend each year depends on what you’ve saved, your life expectancy and your anticipated expenses. If you don’t know how much annual income you will need in retirement, you’re not ready to make a decision about retiring. If it’s been more than a year since you’ve considered this, it’s time to review your calculations.

Retiring Early and the 4% Rule. This has long been the baseline for determining your withdrawal rate. The rule says that you withdraw 4% of your savings the first year in retirement, then withdraw that same amount, adjusted for inflation, going forward. In theory, if you draw down your nest egg at that rate, it should last for 30 years. However, if you need your savings to last another 10 years or more, the 4% rule may not be realistic. You might need to consider reducing your withdrawal rate to 3.5% or 3%. If you run the numbers, and your estimated withdrawals aren’t going to be enough to cover your expenses, you’ll need to either find a way to lower your cost of living or delay your retirement date, so your income aligns with your spending.

Plan for Medical Expenses. Seniors can enroll in Medicare starting three months before they reach age 65. If you retire before that, you’re going to need health insurance until you are eligible for Medicare at 65. You can save money in a Health Savings Account (HSA) while you’re still employed to prepare for future medical expenses, if you’re planning to retire early. The withdrawals are tax-free, if they’re used for healthcare expenses. Once you turn 65, you can take out money from an HSA for any reason without a penalty. However, you’ll still pay taxes on the distribution. Another tactic is to buy long-term care insurance. This will keep you from having to spend down your assets to qualify for Medicaid, if you need nursing home care in the future.

Delay Social Security Benefits. Full retirement age is 66 or 67 if you were born in 1943 or later, but you can start taking Social Security benefits as early as 62. However, that decreases the overall amount of benefits you’ll receive. Waiting to apply, increases your benefit amount. If you’re retiring early, taking benefits at 62 might help to stretch your savings, but you’ll get more money if you can afford to delay.

Making early retirement a success requires you to review the financial aspects, and the longer your retirement outlook, the more important it is to have a plan for how you’ll spend what you’ve saved.

Reference: Investopedia (Oct. 30, 2019) “Early Retirement: Strategies to Make Your Wealth Last”

How Does Social Security Benefits Work in My Estate Planning?

“Social Security benefits are one of the items that fall through the cracks in many estate plans.”

A financial power of attorney (POA) is a critical element of an estate plan. This document makes certain that a person you named takes care of your finances, when you are unable. Part of managing your finances is coordinating your Social Security benefits—whether you already are getting them or will apply for them down the road.

However, what many people don’t realize, is that the Social Security Administration (SSA) doesn’t recognize POAs. Instead, as part of your estate plan, you need to contact the SSA and make an advance designation of a representative payee, according to Forbes’ article entitled “The Surprising But Essential Estate Planning Step For Social Security Benefits.”

This feature lets an individual select one or more people to manage their Social Security benefits. The SSA then, in most situations, must work with the named individual or individuals. You can designate up to three people as advance designees and list them in order of priority. If the first one isn’t available or is unable to perform the role, the SSA will move to the next one on your list.

A person who’s already getting benefits may name an advance designee at any point. Someone claiming benefits can name the designee during the claiming process. You can also change the designees at any time.

When you name a designee, the SSA will evaluate him or her and determine the person’s suitability to act on your behalf. Once he or she is accepted, a designee becomes the representative payee for your benefits. They will get the benefits on your behalf and are required to use the money to pay for your current needs.

A representative payee typically is an individual. However, it can also be a social service agency, a nursing home, or one of several other organizations recognized by the SSA to serve in this capacity.

If you don’t name designated appointees, the SSA will designate a representative payee on your behalf, if it feels you need help managing your money. Relatives or friends can apply to be a representative payee, or the SSA can choose a person. When a person becomes a designated payee, he or she is required to file an annual report with SSA as to how the benefits were spent.

Being a designated representative doesn’t give that person any legal authority over any other aspect of your finances or personal life. You still need the financial POA, so they can manage the rest of your finances.

If you have any questions about your current estate plan, please call or email us today.

Reference: Forbes (April 17, 2020) “The Surprising But Essential Estate Planning Step For Social Security Benefits”

Same-Sex Marriage and Estate Planning: The Basics

Same-sex couples face many estate planning issues whether married or unmarried. Inheritance and end-of-life questions are even more difficult when a couple does not have an estate plan.

Do Same-Sex Married Couples Have the Same Estate Plan Advantages As Opposite-Sex Couples?

The Supreme Court’s decision striking down the Defense of Marriage Act (DOMA) has expanded estate plan advantages for married same-sex couples. For example, same-sex spouses can:

• Use the marital deduction to defer taxes when one spouse dies
• Elect estate tax portability to combine both spouses’ estate tax exemptions
• Avoid gift taxes when transferring assets between spouses

In addition, same-sex couples may benefit from availability of health insurance and Social Security, the ability to form marital trusts, and less difficulty accessing each other’s financial accounts.

Married couples should not take the expanded estate planning advantages for granted. Every couple needs an estate plan to cover not only what happens to each spouse’s assets upon death, but also end-of-life decisions.

What About Unmarried Same-Sex Couples?

Unmarried same-sex couples have even more need of comprehensive estate plans. Many unmarried couples have been together for a long time but have never done any estate planning. Because each partner often owns real estate or assets individually, a surviving partner may end up with no entitlement to the estate and little or no financial resources when one partner dies.

Preparing a simple estate plan can solve some of these problems. For example, you could sign a living trust that leaves your assets to your partner if you pass away. Along with the trust, you would sign a will placing all your assets in the trust upon death. You and your partner may agree to prepare advance directives in each other’s favors, allowing you to make medical decisions for your partner if he or she is incapacitated.

Partners should be aware that dying without a will may have unintended consequences. In California and other states, estate property passes by intestate succession when there is no will. That means close relatives, spouses, and children receive the estate. An unmarried partner would have no entitlement to any estate property. As a result, it is very important for you and your partner to sign properly prepared wills passing on your estates to your partners or whoever else you choose.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Estate Planning Considerations for Senior Citizens

When senior citizens begin estate planning, they should keep a few key considerations in mind. First, think about making a basic estate plan. Also, determine whether there are special tax issues involved. Finally, decide whether more complex legacy planning is wanted.

Making a Basic Estate Plan

If you are a senior citizen, you should consider making at least a basic estate plan. An estate plan involves more than just a will – you may want an advance directive, a trust, or other structures. Also, you may need to make changes to retirement plan documents too.

Estate plans often start with wills, but wills only address how some of your assets will be distributed. These assets include real estate, cash, and personal property. Wills do not cover issues such as who will make medical decisions for you when you cannot. They also do not dispose of many special kinds of assets such as retirement account money, pensions, and anything kept in a trust.

Special Tax Issues for Seniors

Many seniors need to consider issues like when they take distributions from their IRAs, and when they can qualify for Social Security or Medicare. Your tax bills, as well as your estate’s tax bill, could vary greatly depending on how you derive your income during retirement and how much you have left over. Substantial assets (in the millions of dollars) could leave your estate owing the IRS due to the federal estate tax. Paying the estate tax reduces the money your estate can distribute to your heirs. As a result, you should inquire with your estate planning attorney about tax considerations.

Do You Need a More Complex Plan?

Some people may need more complex estate plans because of their substantial assets or their life situations. For example, if you have been diagnosed with a serious illness, you may need a power of attorney, advance directive, and even a conservatorship to help maintain your estate. If you or your spouse is not a United States citizen, you might need a special Qualified Domestic Trust (QDOT) to protect yourselves from tax bills.

If you would like to leave a legacy to grandchildren, grandnieces, or grandnephews, you should consult an attorney about how to plan. The IRS assesses a “generation-skipping transfer tax” in some cases when people leave inheritances to these relatives. Or you might want to set up a family trust, foundation, or other long-term giving structure. All of these more complex estate planning structures could become part of your plan if you wish.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Big Mistakes in Planning for Retirement

“You're chugging along with your savings goals, but are you really doing everything right? See if you're at risk for getting off track due to four all-too-common mistakes.”

You know it’s not always a lack of savings that keeps people from enjoying a great retirement. Despite having a nice nest egg, people can make some common mistakes that mess up their retirement plans.

Kiplinger’s recent article entitled “Avoid These 4 Mistakes That Often Derail Retirement Plans” advises you to avoid these four mistakes, so you don’t wreck your golden years.

Early Withdrawal Penalties. It’s critical that you know the rules of your retirement plans, if you want to keep the plan on track. If you want to tap into your IRA or 401(k) before age 59½, you’ll have an early withdrawal penalty. You’ll also have to add that money in your gross income for the year and pay an additional 10% tax penalty. There are a few exceptions to early withdrawal penalties.

Forgetting about your Employer Match. A recent survey found that roughly a third of workers don’t contribute enough to their 401(k) or employer-sponsored retirement plan to get the full match from their employer. The value of this oversight is about $750 each year. That itself can add up to almost $100,000 in missed retirement savings over the course of your career. Retirement savers need to leverage this free money at work.

Paying High Investment Fees. Figure out how much you’re paying for your investments. Investment costs that may sound tiny—perhaps 2%—can chip away at your savings over time. These fees compound along with your returns, so you’re losing the growth that money could have had.

Missing Out on Compound Interest. Compounding is one of the best rationales for saving early. On a very basic level, compound interest is earning or charging interest on top of interest. When retirement savers aren’t aware of the value of compound interest, they’re missing out on growing their money more quickly. Time is critical when allowing compound interest to work for you, and that’s why you should think long-term, when saving for retirement.

Many people think they can plan for retirement alone. However, the closer you get to retirement, the more crucial it is that you have a sound plan that will keep you on track. However, only one in five people has a written plan for retirement.

A comprehensive plan will help get you to and through your later years. Your comprehensive plan should include strategies to pay for health care and a plan for claiming Social Security, as well as strategies to be tax efficient in retirement and leave a legacy for your family.

Reference: Kiplinger (Jan. 29, 2020) “Avoid These 4 Mistakes That Often Derail Retirement Plans”

How Can I Move On after a Loved One Dies?

“Even as you work through your grief, there are some important financial tasks to take care of along the way. Here is a framework to use as a starting point.”

Kiplinger’s recent article entitled “Moving Forward Financially After the Loss of a Loved One” says that there really are no rules about how you should feel or how long it will take you to regain your energy and ability to move forward. Grief is difficult to avoid, but there are many financial and legal tasks that will require your immediate attention. Here are some of the actions that can ease this process and help you to get back on track financially.

Here’s a breakdown of what you will need to address in the near future:

• Gather important information, such as the deceased’s Social Security number, birth certificate, marriage certificate and military discharge papers.
• Obtain at least 10 copies of the death certificates, because each claim will need to have an original copy of the death certificate attached.
• Inform the Social Security office about the death and file a Social Security benefits claim form to qualify for the death benefit.
• Find the title to any automobiles
• Print out up-to-date statements for bank, brokerage and retirement accounts.
• The executor should file the deceased’s will (if there is one) with the Probate Court.
• The executor should obtain letters testamentary from the court.
• File a death claim with the deceased’s life insurance company, if applicable.
• Contact the Employer’s Benefits department about survivorship pension, health insurance, unpaid salary, and/or life insurance benefits, if applicable.
• Prepare a preliminary monthly budget and income summary.

You should seek the advice of an experienced estate planning or probate attorney. You should also retitle any joint accounts into your name and transfer any inherited IRA into your name and take out a required minimum distribution (RMD), if applicable. New beneficiaries should also be named and deeds for any real estate jointly held with rights of survivorship updated.

You need to file a federal estate tax return within nine months.

Don’t face these challenges alone. Contact an experienced estate planning lawyer for help. You can read more about how our process works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: Kiplinger (Jan. 8, 2020) “Moving Forward Financially After the Loss of a Loved One”

Should You Wait to File for Social Security? Maybe

You should wait to file or you should file now or … the advice goes on.

There is a lot of flexibility when it comes to claiming your Social Security benefits and considerable advice is given. However, the real answer to when one should file is, it depends, according to The Beachcomber News of Brigantine in “When to claim Social Security.”

How’s your health? The longer you expect to live, the longer you should wait to claim benefits. The break-evens for age 62 vs. 66 are ages 78 and 79. The break events for 66 vs. 70 are ages 82 and 83. It’s not to say that you must wait if you think you are going to live for a long time, because there are other factors that should be considered.

How much money do you have saved for retirement? The more money you have been able to save over the course of your career, the longer you can potentially delay taking Social Security. Every year that you don’t collect benefits, your monthly benefit grows by 8%. That’s a terrific increase, and one you won’t get in many other places. Don’t overlook this advantage. However, if you haven’t saved a lot, you may not have a choice and have to take your benefits earlier.

What about your spouse’s benefits? What your spouse can expect to receive in benefits may have an impact on your decision about when to take your own benefits. This includes ex-spouses, by the way, if you were married for more than 10 years and have not remarried.

Your lifestyle now and your lifestyle in the future. Think about what’s more important to you and your spouse: getting a higher total monthly benefit by waiting to claim Social Security at age 70, or getting a smaller benefit now? Again, if you need the income and can’t wait, that’s your answer. However, if you expect to live a long, active life, you may want to wait. What is your plan for your retirement’s early and later stages? There are stages to retirement and retirement spending. In the early stage, people to tend to have a more active and costly lifestyle. As aging progresses, most people spend less.

What will your spouse need in the future? What if your spouse outlives you? This is especially important, if one of you has been the high-income earner. When one of you dies, the survivor will get the higher of yours or their Social Security benefits, not both. If you want to maximize the surviving spouse’s benefit, then you may want to consider waiting, so that they will receive a larger benefit for the rest of their life.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and most likely includes Social Security.

Reference: The Beachcomber News of Brigantine (May 29, 2019) “When to claim Social Security.”

Add Fourth Leg to Strengthen Retirement

Social Security, private saving and pensions…plus one more leg to stabilize the chair.

It may be the time for some to scrap the three-legged retirement tool and go with four legs, in order to be protected from the financial situations that can develop, according to News Max in “New ‘4-Legged Stool’ Can Mend Broken Retirements.”

The questions about the future of Social Security, the end of pensions at most companies and retirement savings hurt by past market crashes, have all combined to take a toll and the answer may be to strengthen the chair to four legs.

Here’s how to build a four-legged chair for retirement:

Income. This is the smallest leg on the chair, and in this case, is not income from your retirement accounts. It’s not pension income either. In this case, the income is a small stream of income during retirement. Maybe you’re a greeter at a store, or a part-time consultant to people you worked with throughout your career. Perhaps you do what a lot of retirees do: start a business, selling on eBay or Esty. Whatever it is, a job that brings in a few thousand dollars a year can make a difference in your retirement stability.

Social Security. Social Security may not be going away completely, but it is possible that the amount of benefits will be reduced. The trust fund will be exhausted in 2034, there are some big demographic shifts now underway with more millennials in the workplace than boomers and depending on your point of view, the changes to Social Security may be big, little, or none at all. Expect something to change. That’s why the small part-time job that brings in a little bit of income could be a retirement-saver.

Non-Tax Advantaged Accounts. Retirees need liquidity in retirement. If you have lots of money in your IRA, 401(k), or SEP accounts, that’s great. However, that money may not be immediately available and there are tax consequences to selling those assets that can do damage if you withdraw too much in any given year.

It is better instead to have a mixture of demand and investment accounts, including checking accounts, savings accounts, money market, and mutual fund accounts. Checking and saving accounts are the most immediately liquid, while money market and mutual fund accounts are less liquid.  They could result in a taxable event, if assets are liquidated. The benefit of having money in a taxable investment account, is that you can take that money out with no limitations. If you are taking money from a 401(k) or an IRA before age 59½, you’ll get hit with taxes and possibly penalties. Yes, you may have to pay capital gains taxes on your earnings, but at least those funds are readily available to you if you need them.

Tax-Advantaged Retirement Accounts. These accounts have become the mainstay of most people’s retirement funds. Investment choices are limited for most people, since they are determined by the company handling the accounts for your employer. However, many plans offer benefits, like matching contributions. This is free money, and it is always recommended to do whatever you can to take advantage of any employer matching plans. It lets you make more gains than you would just from your own savings efforts.

These accounts come with strings. You can’t touch them until you are close to retirement age, but there are benefits. If they’re not performing, you can make changes within the restrictions of the investment company. While it’s not easy to figure out what the market is going to do next, with the help of representatives from the companies running the retirement portfolio, you can make informed decisions.

Reference: News Max (April 11, 2019) “New ‘4-Legged Stool’ Can Mend Broken Retirements”

No End to the Social Security Scams

Social Security Administration launches new awareness program to combat scams.

Someone calls from the Social Security Administration and asks you for your Social Security number, bank account numbers and birthday date. What should you do? Hang up, according to KKTV’s report “Social Security officials hope to combat scam.” The administration reports that scammers have become more aggressive. A frightening tone has gotten more than one otherwise sensible person embroiled in the mess.

In addition to the aggressive angry voice, is the fact that the caller ID has been “spoofed” or made to appear that the person is actually calling from the Social Security Administration or another government agency.

Nancy Berryhill, Acting Commissioner of the Social Security Administration, advises people to be very cautious and not to provide anyone with information like their Social Security number or bank account information to unknown people, either on the phone or over the Internet.

The SSA has launched a public service campaign warning about these calls, in the hope that consumers will realize that the SSA never makes threatening phone calls and never asks for gift cards in payment. The campaign is being run in conjunction with the Office of the Inspector General.

The scamming calls are nationwide. The message is clear: if you get this kind of a phone call, hang up.

While the SSA does occasionally call people, it’s usually someone who is working with the agency on an on-going matter, so that the call and the agent making the call is not a stranger.

Berryhill advises people that if they are contacted by someone claiming to be from the Social Security Administration or the Office of the Inspector General, they should get the person’s name, their phone number and then hang up. If the same person calls again, hang up. It is more than likely to be a thief.

Contact the local Social Security office and find out if a call has been made to you. Never provide a caller with your Social Security number.

Some of the crooks are able to get information about people, including part of their Social Security numbers. They call stating that they are asking only to verify the entire Social Security number.

Reference: KKTV (March 22, 2019) “Social Security officials hope to combat scam”

There are Some Challenges to Social Security, Working

Keep your regular job at your regular salary and collect benefits? It sounds good but there can be problems.

Sometimes it seems like a good idea to consider continuing to work and collect Social Security benefits. However, there are some pitfalls to the plan that need to be considered carefully, according to Yahoo! Finance in “Working and Taking Social Security at the Same Time? Watch Out for This.”

If you are under your Full Retirement Age (FRA), which depends on when you were born, the government may reduce your benefits, if your paycheck exceeds certain thresholds. This is formally known as the Social Security Earnings Test. You’ll need to work all the numbers to see if this strategy might work for you. Don’t expect it to, by the way, because that’s not what Social Security is all about.

The Social Security Earnings Test calculates how much you will lose in Social Security benefits, if you are under your FRA and if you’re earning over a certain amount every year from a paycheck. In 2019, that limit is $17,640. Note that this only applies to earned income. It does not apply to any other government benefits, investment earnings or pension income. For every $2 you earn more than $17,640 in 2019, the SSA (Social Security Administration) deducts $1 from your monthly benefit.

Let’s say you are entitled to a $1,000 benefit every month ($12,000 per year) and you also earn $2,400 from your job. You’ll lose $3,180 in benefits and you’ll get only $8,820 for the year.

The numbers are a little different, if you are reaching your FRA at some point during 2019. The 2019 earnings limit when a person has reached FRA is a lot larger at $46,920, instead of $17,640. In this case, for every $3 you earn over the limit, the SSA will reduce benefits by $1.

Here’s the sweet spot: as soon as you hit your FRA, the rules no longer apply, and you can earn as much as you can. The SSA won’t take deductions from your paychecks.

There is a Retirement Earnings Test Calculator on the Social Security website. You must enter your date of birth, estimated earnings and your estimated Social Security benefit. It will provide further information on how earnings will be calculated.

If you are counting on Social Security for most of your living expenses during retirement, consider working longer, at the very least until you reach your FRA. You can also keep working full-time and delay taking Social Security benefits, so when you do start getting that monthly benefit, it will be bigger.

Reference: Yahoo! Finance (Feb. 25, 2019) “Working and Taking Social Security at the Same Time? Watch Out for This”