Managing your retirement and estate in california for the 40s 50s 60s 70s
Managing your retirement and estate...compiled by Connie Dello Buono1708 Hallmark LaneSan Jose CA 4088541883 firstname.lastname@example.orgFinancial Rep CA Life Lic 0G60621Youve worked hard for many years. Youve planned andinvested wisely. And now youre ready to kick back and enjoythe rest of your life without a worry in the world. Sounds toogood to be true, right? Well, we must confess that we cantguarantee that you wont have anything to worry about.Youll still need to drag the garbage to the curb onWednesdays and Saturdays. But we can help prevent youfrom having to spend a lot of time worrying about yourfinancial situation. How? With prudent financial planning.Just because youve reached all or most of your investmentgoals doesnt mean that youve crossed the financial planning"finish line." Now youve got to take necessary steps toensure that your assets will be protected in life and in death.After all, you dont want to outlive your retirement savings orscale back your comfortable lifestyle after having spent somuch time and energy creating a sizable retirement nestegg. And if youre interested in leaving an inheritance, youwant to make sure that the bulk of your estate gets passedonto your heirs, not the government.
So how do you achieve these goals? Careful retirement andestate planning, of course. Below we outline some of the keyfactors to consider in managing your retirement and estate.Please keep in mind, however, that were only going toscratch the surface of what are admittedly rather complexsubjects. As always, we suggest that you confer with afinancial advisor or estate planning professional forassistance in making sure that you achieve your retirementand estate planning goals.Living Well in Retirement - Things to ConsiderAsset Allocation - When you were younger and retirementwas something you only dreamed about, you probablyinvested most of your money in stocks and mutual funds andthat made a lot of sense at the time. With retirement yearsaway, it didnt matter much if the vagaries of the stockmarket dealt your portfolio some blows along the way. Youknew that history and time were on your side and that yourpatience and investment discipline would be rewarded whenyou reached retirement age.But now that youre nearing or have reached retirement age,the ground rules need to change. An all-stock portfolio nolonger makes sense as some retirees and near-retirees havelearned the hard way over the past few years. But beyondthat bit of advice, there are no hard-and-fast rules. A low-risk, all-bond portfolio might make sense for one retireewhile her neighbor might be more comfortable with herassets spread out evenly across the three primaryinvestment markets: stocks, bonds and cash.Determining what the right mix is for you depends on a lot ofdifferent questions. How much money do you think youllneed each year to support your lifestyle in retirement? Will
your need remain constant or do you think youll live it up inthe early years and live more modestly as you grow older?Do you anticipate dipping into your principal or are youplanning to leave an inheritance to your heirs? These are justsome of the questions you need to ponder. And even afteryouve answered them, determining which financial productsto buy to meet your retirement planning needs can still be adaunting task. Thats why its always best to meet with afinancial advisor who can help you navigate this complicatedplanning process. In the meantime, for more informationabout how to make the right asset allocation decisions inyour retirement years, click here for some good advice andplanning tools.Annuities - There are a lot of ways to save for retirementand manage your savings. One product that helps you doboth is an annuity. In fact, annuities are the only financialplanning tool that can help you save and then provide youwith a variety of payout options, including a secure andsteady stream of income you cannot outlive.So what exactly is an annuity and how does it work? Anannuity is a flexible insurance contract. It allows yourretirement savings to grow on an income tax-deferred basisand then allows you to choose a payout option that bestmeets your need for income when you retire - a lump sum,income for life, or income for a certain period of time. Anannuity often is described as the opposite of life insurance inthat it pays while you live, and life insurance pays after youdie.
There are two basic types of annuity contracts -- fixed andvariable. Money in a fixed annuity earns a tax-deferred fixedrate of return from the life insurance company from which itwas purchased. You are guaranteed a fixed payout everymonth when you decide to begin receiving income. Moneyput in a variable annuity is invested in bond and stock funds,which you select. The value of the annuity and how muchyour money grows depend on how well those stocks andbonds perform. Like a fixed annuity, your money grows tax-deferred in a variable annuity.Keep in mind that an annuity is just one of many retirementsavings options, and is by no means the right solution foreveryone. An annuity is certainly no substitute for anemployer-sponsored retirement plan like a 401K, but onceyou have contributed what you can into these plans, anannuity can be an excellent way to increase your financialsecurity during your retirement years. For more informationabout annuities, click here.Estate Planning BasicsThroughout your life, youve probably worked very hard toachieve a comfortable life style for you and your family. Butas you grow older and your estate grows larger, you need toshift part of your focus to making sure your loved ones willbe provided for after youre gone.Are estate plans only for the rich and famous? Not at all. Youdont need to be a multi-millionaire to want to protect yourloved ones. A properly prepared estate plan should allow youto pass along what you own to whom you want to receive it,the way you want them to receive it, and when you wantthem to receive it. A great place to start is with a will.
Amazingly, about 70% of Americans dont have wills.Creating a will forces you to add up all of your assets - yourhome, your cars, your investments, your life insurance, etc.and then specify who gets what in your estate. If you havechildren, your will should also specify who their guardian willbe if something happens to you and your spouse. If you donttake this step, this crucial decision will be left to the courts.All of these issues are far too important to be left to chance.For more information about wills, click hereA properly prepared estate plan should also include:Living Will - Also known as a health care proxy, thisimportant document enables you to specify whether youwould want to be kept alive by artificial means should youbecome severely incapacitated due to illness or injury. This isnot the kind of excruciating decision you would want toburden your family with having to make. Furthermore, if yourintention would be to not go on life support if there was noreasonable expectation of recovery, having a living willmeans that money that might have otherwise gone to pay forlife-sustaining care will now be passed on to your loved ones.Durable Power of Attorney Health Care and Finances- An ordinary Power of Attorney allows someone else to acton your behalf when you cannot be present. For instance,that person can enter into contracts, negotiate, and settlematters as if they were you. But an ordinary power ofattorney expires when a grantor becomes incompetent orpasses away. By contrast, a Durable Power of Attorney canact on a persons behalf even while that person is still alive.
In the event that you become incapacitated either due todisability or dementia, a Durable Power of Attorney willensure that someone you trust will continue to makeimportant financial and medical transactions on your behalflong after you have lost the capacity to handle these mattersyourself.The documents described above are some of the basicestate-planning tools. Together, theyll go a long way towardensuring that your assets are managed and distributedaccording to your wishes.But what happens when you have an estate thats worthmore than $1 million? Thats when things become a bit morecomplicated. Under current federal law, estates over $1million are subject to estate taxes, and the tax rate can be ashigh as 55%. Legislation passed in 2001 increases theamount to $1.5 million in 2004, $2 million in 2006, and $3.5million in 2009. And in 2010, the estate tax will be repealedaltogether?ut only for that one year. Unless Congress takesfurther action before then, the estate tax would be reinstatedin 2011 at its current levels. So how do you plan in the faceof such uncertainty? Our advice: unless you know youregoing to die in 2010, you must continue to plan.If you have an estate tax liability, you need a plan that willensure that the bulk of your estate will go to your heirs, notthe government. There are many strategies and techniquesto accomplish this, and a financial advisor who specializes inestate planning can help you create the plan thats right foryou.
But to help you get started, here are some options toconsider:Gifting - One of the simplest ways to reduce your estate taxliability is to transfer money to loved ones while youre stillliving. This is called "gifting" and heres how it works. EveryUS citizen is entitled to give away up to $12,000 per personper year. A husband and a wife can give $24,000 to anychild, grandchild or anyone else for that matter, and as longas you stay within the limits, none of these "gifts" are subjectto gift or estate taxes.Bypass Trusts - If you die and youre married, the proceedsof your estate can be passed on to your spouse tax freethanks to something called the "unlimited marital deduction."But if youve bequeathed a sizable estate to your spouse, allyouve really done is shift the estate tax burden. One way toaddress this problem is by creating bypass trusts for you andyour spouse. Bypass trusts allow each spouse to takeadvantage of the $1 million federal estate tax exemption. Inother words, the IRS allows up to $2 million (the combinedexemptions of you and your spouse) to "bypass" yourestates. This simple arrangement can save your childrenhundreds of thousands of dollars in estate taxes.
Life Insurance - Life insurance can help address a numberof estate planning issues. First, one of the main reasonspeople buy life insurance in the first place is to create anestate. Most of us would like to bequeath an inheritance toour loved ones. But not all of us will succeed in creating asizable estate to pass along. Life insurance does somethingthat no other product can do - it can create an instant estate.Life insurance is also a great vehicle for paying estate taxes.When a person with an estate tax liability dies, their familymembers often have no choice but to quickly sell off certainassets to pay for federal and state estate taxes, lawyers fees,probate costs, etc. The proceeds from a life insurance policycreate instant liquidity when someone dies, eliminating theneed to hastily liquidate other assets, often for a fraction oftheir true value.Irrevocable Life Insurance Trusts - While its true thatlife insurance can create an instant estate for your lovedones, it can also create an instant estate tax problem forthem if you dont plan properly. For example, consider acouple in their 30s that has equity in their home of $300,000and an additional $200,000 in stocks, mutual funds, 401Ksand college savings plans for their three children. Not toobad for a relatively young couple. Because they have threeyoung children, both parents have $1.5 million in lifeinsurance coverage. If one of them were to die, they wouldgo from not having any estate tax liability (remember theycurrently have a net worth of $500,000) to having a fairlysizable one (the surviving spouse would have a net worth of$2 million).
One way to address this situation is to set up an irrevocablelife insurance trust. This is a trust that owns your lifeinsurance policy (or policies). It pays the premiums to keepthe insurance in force, collects the death benefits when youdie, and distributes the money according to the terms of thetrust. Since you dont own the insurance, the proceeds arentincluded in your estate.You determine the trust terms when you set it up. Forexample, you determine to whom distributions will be madeand how they will be handled. It is quite common to nameones spouse and children as beneficiaries. You can includeprovisions in the trust that pay income to your spouse duringhis or her life or to allow the trustee to supplement yourspouses income to maintain his or her lifestyle or to handleunexpected expenses. If the surviving spouse diesprematurely too, the trust should specify how the proceedswill be divided among the remaining beneficiaries. Whenthere are multiple children, it is fairly common to have theprincipal paid out in equal shares when the children reachcertain age milestones. For instance, distributions might bemade on three occasions, when the children reach ages 25,30 and 35.Other Options to Consider - In addition to irrevocable lifeinsurance trusts and bypass trusts, there are QTIP trusts,Charitable trusts, Qualified Personal Residence trusts andmany other sophisticated planning tools. The best way tomake sense of the myriad of options available to you is toconsult with professionals - financial advisors, attorneys,accountants - who specialize in estate planning. They canhelp you make the right choices for your family, ensuringthat the lions share of your estate gets passed onto your
heirs, not Uncle Sam.For more information about your estate planning options,here are a few good sites:Smartmoney.com - http://www.smartmoney.com/estate/Yahoo Finance - http://planning.yahoo.com/need.html