Jul 10, 2019
In her recent book Later Is Too Late: Hard Conversations That Can’t Wait, Susan Covell Alpert tells what she learned after the death of her husband and also from observing the deaths for other couples. This is a difficult topic to address but a very important one.
I found the book title itself to be provocative. What is absolutely essential to have in place?
The essential items are insurance or legal documents. After all, you have to purchase fire insurance before your house is on fire or life insurance before you are on your death bed. You can create or change legal documents only when you are “of sound mind.” Since you do not know when a fire will happen or your life or the integrity of your mind will end, it is critical to take care of these issues before it is too late. So although these issues may not seem to be urgent, they are. Timing is important.
There are quite a number of very, very helpful things to do, in order to prepare for the unbearable grief from a major loss. Death generates a huge amount of paperwork, emails, and telephone calls. At a time when you need to make many decisions, your grief makes it difficult to think straight.
The norm is to have a mix of emotions including stress, fear, anxiety, and exhaustion. These can lead to personal neglect. To cope with the extremely stressful situation Alpert offers the following recommendations:
- Have a support network of professionals, friends, and family you can lean on—people you know well and who know you. They can help you think straight. Without this close network, you will be relying on strangers.
- Ask for and accept their help. This may not be easy to do but is critical.
- Take care of yourself. Otherwise nothing else will work.
It’s not really possible to be fully prepared to handle the emotional parts of your loss. Even so, there are many things you can do to lessen the stress and burden in the aftermath. It will be helpful:
- to know what financial assets you own, where they are, and how they work
- to know your passwords
- to have made funeral plans ahead of time
Putting these off will lead to larger problems later. Having your support network available ahead of time will be enormously helpful.
Many couples divide household responsibilities so that each does more of what they enjoy and are good at. When there is only one of you, you have to take over the responsibilities of the other person. This can be easy or difficult depending on how much training each of you does of the other one ahead of time.
My wife and I have specialties – she does the cooking and I do the financials. So we have plans to do some teaching of each other. She has offered to give me cooking lessons, and I will teach her the basics about tax preparation. Sooner will be better.
Jun 26, 2019
In Minnesota and many other places, families sometimes own a cabin on a lake. That cabin becomes a vacation destination and even a refuge where the family can spend quality time together. They may do that for many years.
The parents might decide to leave the cabin to their children in equal shares as part of their estate. The hope of the parents may be that the next generation will use the cabin as a place for the family to continue to meet and continue to support each other. The ultimate goal may be to keep the next generation together.
Sometimes this works out well for part or all of the next generation. Other times the inherited cabin is a disaster waiting to happen. Consider what has to happen for everyone to be happy with this arrangement:
- All of the children must agree on a system of sharing access to the cabin – who gets to use it and when.
- All of the children must agree on who will manage and pay for maintenance costs.
- If some of the children are unhappy with the arrangement and want to be bought out, then the buyer(s) must have the resources to buy the siblings out at a fair price.
- None of the children can get into a financial difficulty or get a divorce that would force the sale of the cabin. Remember that creditors or (ex)spouses of the children may want a say in what happens, even if they are not owners.
- If there are disagreements, the children must be able to settle them amicably.
If the cabin survives the ownership of the children, then the children’s beneficiaries will become the owners. These may be the children’s spouses and eventually the grandchildren. This will happen not all at once but generally over an extended time.
If something goes wrong, it will all be settled eventually by the family or the courts, if necessary.
Here is another cabin scenario that can backfire. Ruth paid $100,000 for the family cabin years ago. It is now worth $220,000. She wants to be free of the maintenance, so she offers to sell it to her four children. Only one has the money to buy it and offers $100,000 for the house. Ruth figures that this is one way to get her money out and avoid capital gains tax on the sale of the property.
What Ruth does not realize is that she is in essence gifting the difference (i.e. $120,000 of value) to the buying child and nothing to her other children. This could cause substantial resentment from her other children.
If Ruth wanted to gift money to her children equally, she could sell the cabin at full value to a third party, pay taxes on the gain, keep her $100,000 original investment, and split the rest of the profit equally among her children.
These scenarios can play themselves out over a variety of indivisible assets besides a cabin, including a home, a valuable piece of art, and even smaller items like grandma’s yellow pie plate. Farmland is a common asset that can in theory be divided into parcels for distribution to different beneficiaries. It might lose some of its value, however, from being subdivided.
What can you do to improve the odds of this working out satisfactorily for your children and your family? You can make up the rules yourself about what you would like to happen after your death. However, your children might perceive this as your effort to reach out of your grave and control them.
If your children will be affected by your gift, why not let them have a say in what happens? One mechanism for accomplishing this is a family meeting, where family members, and sometimes an outside mediator, can discuss the challenges and opportunities as a group. This is sometimes done around Thanksgiving when the whole family may be together – if it does not conflict with the football games!
The author does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal, accounting and financial advisors before engaging in any transaction or taking any actions with regard to the content discussed above.
Jun 11, 2019
Do you enjoy your work? Do you have a sense of achievement from your work? Perhaps at work you use your creativity and push yourself to overcome your own personal obstacles or limitations. Your work may help you to grow and develop. Your work accomplishments might give you a sense of satisfaction, even pride and joy. Such accomplishments may be noticed by others and earn their respect – a huge potential perk from being successful while working with others.
If so, what will replace your sense of achievement when you retire?
Work used to be what you did before you retired into a life of leisure. Its major function was to provide income. But both work and retirement are changing. With much longer life expectancies, there can be much more of retirement than there used to be.
Here is a dictionary definition of work – “an activity to achieve a purpose or result.” With that definition it is easier to understand that work can be included in your life both before and after retirement.
All of this raises the question of the role of work in your retirement, if any. If your pre-retirement work is providing you with the satisfactions of achievement and contribution to others, what happens when the work ends?
Consider the situation of Steve who retired in his 60’s. Steve had been an operations manager—well respected in his field. For a couple of years after he retired, he found himself at a loss. He found having too much time sapped his energy. He was too young, he thought, not to be productive or to be making a significant contribution to his community.
He started looking around for something to do. His wife suggested that he volunteer at “Feed My Starving Children,” which provides a million meals a day to starving children around the world. He did that.
Steve worked there part-time for several years as a volunteer. Now he is paid as a staff member. He does part-time recruiting of young and old volunteers to help in the organization’s mission. His work provides significant help for children who need food and through that provides a lasting legacy as well. The efforts and accomplishments of the organization are aligned with Steve’s own personal values. It provides him with a sense of purpose.
When you retire you can choose from many alternatives. You can decide not to end your work completely. You might be able to continue working part-time in the same or similar job. Second, like Steve you can choose from a huge variety of paid and unpaid part-time work opportunities in the same or different fields.
If you’re lucky enough to have enough income to support yourself, retirement can be a time of freedom to choose and to change. You can try out various activities and continue or not. In fact, many retirees experiment during the earlier years of their retirement to find the right opportunity for them.
Think again about the definition of work, which is an activity to achieve a purpose or result. Is helping children or parents or grandchildren work? Yes–work can be fun! Is pursuing a passion work? It can be. All of these and many others can be ways for you to continue to be fully alive, to accomplish important activities and to contribute to the common good.
If work activities in retirement are somewhat challenging and push you out of your comfort zone, that can be helpful too. There is some recent research evidence that activities which challenge your brain can forestall dementia. Equally important is that work in retirement can be exciting and meaningful. In retirement you have the freedom to have your best years yet.
May 29, 2019
If you are currently single but were previously married, then you are either widowed or divorced. Even though you are single now, you may be entitled to a benefit from Social Security other than your own. However, you must be vested to collect this benefit – how long you were married counts for eligibility.
Widows
If you are widowed but married for less than nine months, you are not eligible for the survivor benefit (See Part 3). However, the 9 month requirement is waived if:
- the death was accidental,
- the death occurred in the line of military duty, or
- you are currently caring for children from the marriage under age 16.
This benefit is up to the full amount that your spouse was or would be collecting. You can collect this benefit as early as age 60, although the payments are reduced.
Divorcees
If you are divorced but were married for fewer than ten years, then you qualify only for your own benefit but not for the spousal benefit. If you are vested (married 10+ years), then this benefit is up to half of your ex-spouses benefit at his/her Full Retirement Age.
You do not need to get permission to take a spousal benefit and in fact your ex-spouse is not informed when you apply. The remarriage of an ex-spouse does not affect your benefits.
If your ex-spouse has not applied for retirement benefits but can qualify for them, you can receive benefits on their record if you have been divorced for at least two years.
If you are a divorcee and your ex-spouse dies, then you become eligible for the survivor benefit whether you were collecting your own or the spousal benefit.
As described in Part 3 of this series there are more complicated strategies for filing if you qualify for a spousal benefit, but only if you were born before January 2, 1954. See Part 3 for the detailed description.
Filing
If you have had multiple marriages that you are vested in, you may choose the benefit that is the highest for you. Multiple people can collect from you as long as they each qualify for the benefit.
To qualify for these benefits, you must produce not only your own birth records but also your marriage certificate and either a divorce decree or a death certificate.
Social Security strategies are especially complicated if you were previously married. You should consult your own tax, legal, accounting and financial advisors before engaging in any transaction or taking any actions with regard to the content discussed above. The author does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice.
May 22, 2019
Married couples have two extra benefits as compared to individuals. Those benefits can make all the difference for maximizing your lifetime benefit from Social Security.
Spousal benefit
The first is the spousal benefit, which permits you to collect up to half of the benefit of your spouse at his/her Full Retirement Age (see Part 1) if you have been married for a year or more. Your spouse must have started collecting his/her own benefit before you can start to collect the spousal benefit.
When you file, you choose between your own individual benefit and your spousal benefit – you cannot collect both at the same time. In fact, when you file for your benefits, Social Security will ask you if you are currently married. If you are, they will calculate which is higher and require you to take the higher value.
The spousal benefit is particularly important if your earnings are substantially less than that of your spouse. Then it would work out well to collect the spousal benefit instead of your own.
Survivor benefit
The other extra benefit from being married is the survivor benefit. When one of you dies, the survivor collects the higher of your two benefits. To collect this benefit, you must have been married for 9 months or more or have a child 16 or younger living with you.
So the higher benefits ends up being paid out over your joint lifetime, which is longer than either of your individual lifetimes. Your joint lifetime is the number of years when at least one of you in a couple is still alive.
Strategies for filing that will achieve maximum lifetime benefits
Just like for individuals, it is important for the higher wage earner to wait as long as possible, up to age 70, to file for benefits. But it is doubly important for married couples, because that higher benefit is paid out over both lifetimes.
What about the lower wage earner? It is less critical to wait until age 70 unless you are convinced that both of your lifespans will be substantially longer than average. After all, that lower benefit will be paid only until either of you dies, at which point only the higher survivor benefit will be paid.
The best strategy for the lower wage earner then is to file for benefits when you stop working or at your Full Retirement Age (FRA), whichever comes first. When the higher wage earner files for a benefit, you are now eligible for the spousal benefit. If your own benefit is greater than the spousal benefit, then keep it. If it smaller, switch to the spousal benefit.
Remember that at your FRA you can collect your full Social Security payments no matter how much you are earning. Starting early for the lower wage earner has the psychological benefit of not having to dip as much into your investments at an earlier age.
More complicated strategies for filing
There used to be a number of strategies for increasing lifetime benefits that included the spousal benefit. The Bipartisan Budget Act of 2015 stopped most of them. Only one is left. It is complicated and works only if the higher wage earner was born before January 2, 1954. If you qualify, it can provide an additional lifetime benefit of hundreds or thousands of dollars.
The first step is for the lower wage earner to file for his/her individual benefit. The second step happens after the higher wage earner has turned 66 (which is the FRA) and is therefore eligible for either his/her own or the spousal benefit. Then the higher wage earner does not file for his/her benefit but instead restricts (limits) his/her benefit to the spousal benefit. At this point both are collecting while the higher wage earner’s individual benefit is growing because he/she has not filed for it. Step three happens when the higher wage earner turns 70. Then he/she switches from the spousal to his/her own benefit. The lower wage earner either keeps his/her own benefit or switches to the spousal benefit, whichever generates more monthly income.
You can see that Social Security strategies are more complicated if you are married. You should consult your own tax, legal, accounting and financial advisors before engaging in any transaction or taking any actions with regard to the content discussed above. The author does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice.
Next blog: Social Security strategies for previously married couples.
May 15, 2019
One of the major objectives for most retirees is to maximize their Social Security benefits over their lifetime. The strategies for doing this differ for singles, compared to married partners.
Note: for Social Security purposes, single individuals include those who never married, divorcees who were married for less than ten years and widows / widowers who were married for less than nine months! Those divorcees and widows are not vested in benefits from their former partners.
Wait to collect
The longer you live, the more Social Security benefits you collect. As mentioned in Part 1 of this series on Social Security, there is a tradeoff. If you wait to start collecting, your monthly benefit increases. But you have lost months or years of payments. The break-even point is at about age 79, when your benefits so far are the same whether you have started collecting early or late. If you live longer than age 79, you will collect more by waiting to start collecting.
So how long will you live? Currently the life expectancy for a 65-year-old man is about 19 years (until age 84) and for a woman is about 22 years (until age 87.) This means at the life expectancy age, half of the formerly 65-year-olds will still be around to collect and half will not.
So unless you have very compelling evidence that you will not be around to be paid past age 79, i.e. your health is much worse than your contemporaries, you should wait as long as possible to file for your benefits. Social Security payments reach their maximum amount, at age 70, so there is no reason to wait beyond that age.
Furthermore, if you happen to live past your life expectancy age, you may need a higher Social Security payment than ever. What if you have used up much of your investments? Then your investment income would be lower. You might use up your investment altogether and become totally dependent on your Social Security for income. Your financial professional and / or accountant should be able to work with you to plan this out if you need advice specifically for your own situation.
Verify that the numbers are right
What else can you do to maximize Social Security? You should review your work history either on the form Social Security has mailed you or at the Social Security website you have set up for yourself at www.ssa.gov Remember that the amount of your Social Security payments come from your best 35 years of earnings, even if some of the years are zeroes. Social Security gets its numbers from the IRS. Occasionally, there are mistakes, and you can correct them.
Manage income in the gap between work and Social Security
If you retire before age 70 and want to wait to collect Social Security, where will your money come from to pay the bills? The two most common sources are investments, both income and principal, and some paid work, perhaps from a part-time job. Or perhaps you can extend your current job before retiring.
Does it make sense to cash in some of your investments so that your Social Security benefit can grow? Generally, yes. Each year after your Full Retirement Age (see Part 1) your benefit grows by 8% each year. That growth rate, which is guaranteed and tax-free, is much less risky than expecting your investments to exceed that grow rate each year.
Next blog: Social Security strategies for married couples.
