Rowley Law

Retirees Help Us Learn from Mistakes

“Plan ahead carefully to ensure you have enough money to do the things you want after you retire.”

As you get nearer to retirement, there is more pressure to plan ahead. Kiplinger’s article, “4 Big Retirement Regrets That You Should Avoid,” says that sometimes failure is the most effective teacher.

Retirees often consider their regrets and the things they'd do differently if they could. The following are a few of the more common mistakes retirees make:

1. Quitting too soon. After all those years of working, it's hard not to dream of retirement. This decision, however, can be more emotional than logical. If you retire too early, you cut down on the time you have to save money, and you also lengthen the time you'll need that money.
2. Depending too much on hope. When you retire, your amount of financial risk needs to change. Don’t keep the same investment strategy and look for big returns. In retirement, it's not as much about how much money you can grow, but rather it's about taking distributions. It’s not a gamble with the future. No, you’re risking money you need to live on right now. If there's a serious downturn, you could lose much of your lifetime saving, which may not be easy to recover.
3. Cashing in too early. Many retirees regret drawing Social Security at age 62 rather than waiting until they reached their full retirement age (or even longer)—when they would have received bigger monthly checks. Without a strategy to address taxes and other expenses, they fail to address the potential issues when it comes to sustaining the lifestyle they want on the money that remains.
4. Spending too much, planning too little and enjoying too late. Retirees frequently overspend in the first few years when they have their good health and freedom. Unfortunately, they don't have a plan to address their income needs, so they withdraw too much too fast to pay for that new life without considering the future.

There are also some who regret not doing enough in retirement, saving every penny but afraid to do anything. Others give no thought to what they'll do with their leisure time, and when health issues arise, they're sorry they didn't enjoy things more when they could.

It’s a balancing act—getting out and enjoying life and making certain you have the money to pay for it. This requires planning ahead, which is far better than living with regrets.

Reference: Kiplinger’s (August 2016) “4 Big Retirement Regrets That You Should Avoid”

Suggested Key Terms: Retirement Planning, Asset Protection, Social Security, Estate Planning, Arlington Heights, Barrington, Inverness, Lake Zurich, Crystal Lake

Phoenix Inventors Create Digital Storage for Estate Planning

“If you are proactive and execute the necessary estate planning while you’re alive and well, the other challenge is that you'll end up with a thick file of planning and a storage headache to match.”

Investopedia’s recent article asks “Should You Store Estate-Planning Documents Digitally?” The article reports that two Arizona entrepreneurs who’d had enough with the massive amounts of paperwork for their own estates created Document Trunk. It’s a digital estate planning document storage platform. For an annual fee, you can store up to 10GB of estate documents.

After your information is in the database, a search is conducted daily to ensure that you are still living. If the system detects your name in an obituary or death notice, it will be confirmed. The estate’s primary contacts entered during registration will then be automatically notified. The system lets you enter up to 14 primary recipients to be notified if you pass away.

You also have the ability to limit who can access the documents. Digital storage, the company says, ensures that your documents are kept secure through encryption.

However, one of the biggest obstacles to the use of this system is legal. Digital copies of your estate planning documents may not be legal in the county and state where your estate is located.

In addition, you need to be sure to update the contact information for your primary beneficiaries.

Whether storing your estate planning documents on a digital platform is the best solution for your needs is a topic you should discuss with your estate planning attorney. He or she may have other digital options for storing your legal papers. A number of financial institutions offer similar platforms, often with the ability to centralize all of your financial accounts—from credit cards to insurance policies and bank and investment accounts.

Even if you do use a digital system, there are always drawbacks with any computer or electronic storage. Be safe and make certain that the hard copies of your will, trust and other estate planning documents are in a safe secure place. You should also let your executor, family, or other loved ones know the location of these documents in the event that they may need them.

Reference: Investopedia (June 9, 2016) “Should You Store Estate-Planning Documents Digitally?

Keep your Golden Years Golden

"Learning how to become smarter with your money is crucial to long-term financial success, so here are three key money lessons we believe all retirees need to know."

Learning how to become smarter with your money is important to long-term financial success. A recent Motley Fool article, "3 Essential Money Lessons for Retirees," gives us some key money lessons all retirees need to know. Mastering your finances is a life-long journey. Merely retiring doesn't mean you have it all figured out or you're at the conclusion of this task. Retirees can often be in for a rude awakening if they've ignored their financial situation throughout their working lives.

Retirees should have several money lessons down cold by the time they retire. One of the most crucial is how to live within a budget. Learning that lesson is doubly important for retirees because they're usually living on a fixed income and aren't likely to have the option of reentering the work force to make up for any shortfalls. Without a proper budget, they could risk tapping into their nest egg earlier and much more quickly than originally intended. This could make for big problems down the road when those funds are depleted.

At its essence, the lesson is simple: spend less money than you make.

Next, it's important to use your retirement savings correctly. Since your retirement savings accounts—like your IRAs or 401(k)s — are tax-advantageous, let the magic of tax-free compounding work as long as possible. So, if you have money in taxable brokerage accounts, it should be used first. These accounts require you to pay taxes on your dividends each year, as well as on capital gains when you sell investments, so use these sooner and allow your tax-advantaged investments to keep growing. If you have money in a Roth account, it should be used last. Not only do these accounts not have any RMD (required minimum distribution) requirements, but they're also the best thing for leaving tax-free income to your heirs. They're an excellent estate planning tool.

Finally, where you retire can be just as important as when you retire.

There are 13 states that tax your Social Security benefits! But take a breath…in nine of these states they only tax Social Security income if a retiree makes more than a certain exemption level or threshold. Be advised – Minnesota, North Dakota, Vermont and West Virginia tax every dollar of Social Security benefits you earn. That may be something to consider if you are planning on relocating.

Property taxes can be a major factor. Compare these numbers: if you live in Hawaii, you'll pay a mean effective property tax of 0.28%. On the other hand, New Jersey's property tax is 2.38%. Of course, these figures depend on home values, but many retirees are unaware of the costs they'll incur in retirement that are based just on where they live.

Before you retire, understand how your state taxes retirement benefits, including Social Security. Also, learn the type of property and sales taxes you might encounter. Moving to a more tax-friendly state could extend the life of your nest egg by years.

Don't go into retirement without getting to know these potential costs.

Reference: Motley Fool (December 30, 2015) "3 Essential Money Lessons for Retirees"