Describes 10 key financial planning strategies for older adults.

1. Financial Planning
for the Second Half
of Your Life
Dr. Barbara O’Neill, CFP®
Rutgers Cooperative Extension
oneill@aesop.rutgers.edu

2. Your Questions?

3. 3
Personal Introduction
 Rutgers professor for 37 years
 CFP® for 30 years
 Extension Specialist in Financial Resource
Management with Rutgers Cooperative Extension
 Financial educator and author
 In the second half of my financial life

4. Age 50 (+/- 5 to 10 Years)
 Financial “halftime” or “intermission”
 Think about past accomplishments
 Think about what one still wants to do
 New challenges and decisions
 Increased interest in “giving something back”
to others
 Many people want to simplify/downsize

5. Key Financial Issues: Second
Half of Life
 Financial basics
 Reducing financial risks
 Investing decisions &
asset allocation
 Creating retirement
“paycheck”
 Minimum required
distributions
 Tax-planning strategies
 Transferring untitled
personal property
 Getting help and hiring
advisors
 Leaving a legacy
 Communication issues
about money

6. Common Financial Errors
 Changing investment strategy drastically on a specific date (e.g., age 60)
 “Forgetting” about effects of inflation
 3.5% inflation will double costs in 20 years
 Relying too heavily on financial salespeople
 Assuming that estate planning is for “the rich”
 Retiring without considering health coverage
 Not planning for long-term care expenses
 Improper asset withdrawals

7. 1. Don’t Forget “The Basics”
 Cash flow statement
 Summary of income and expenses
 Net worth Statement
 Summary of assets and debts
 Specific financial goals
 Include a date and cost
 Emergency reserve
 Financial Fitness Quiz (Check-up):
http://njaes.rutgers.edu/money/ffquiz/

8. 2. Assess Current and Future
Insurance Needs
 Life insurance
 Disability insurance (if employed)
 Health insurance (e.g., Medigap, work)
 Long-term care insurance
 Amount and length of coverage
 Elimination (waiting) period
 Age at purchase and health status
 Umbrella liability

9. 3. Follow Recommended
Investment Strategies
 Don’t invest if you don’t understand
 Diversify (different assets and types)
 Invest for long term goals: 5+ years
 Have reasonable expectations
 Buy low-cost investments
 Don’t pay attention to market “noise”
 Balance risk and reward
 All investments have some type of risk

10. Ownership Versus Loanership
 Ownership
Investments:
 Variable Annuities
 Stocks
 Real Estate
 REITs
 Growth mutual funds
 Loanership
Investments:
 Fixed Annuities
 Corporate Bonds
 Government Bonds
 Ginny Maes
 Money Market Funds
 CDs
 U.S. Savings Bonds

11. 4. Create a Retirement “Paycheck”
 Try to simulate regular income stream
 Annual cash withdrawals (1/12 per month)
 Automated monthly fund withdrawals
 “Laddered” bonds or CDs
 Post-retirement employment
 Earnings limit under FRA: $15,720 (2015)
 Keep tax-deferred investments and Roth
IRAs growing as long as possible

12. How Much Can You Take Out?
 Draft budget before you start spending
 Keep an eye on inflation
 Two key factors determine how long
savings will last:
Your withdrawal rate
The rate of return on your investments

13. Withdrawal Rate Consensus
 Between 4% and 4.5% of portfolio, if 50% + in stock
 Lower (e.g., 3%) if conservative investor
 Consider hiring certified financial planner for 2-3
hours of time (go prepared)
 Consider “packaged” services from investment
companies (e.g., T. Rowe Price, Vanguard, etc.)
 Try a Monte Carlo analysis (asset longevity projection)

14.  Set aside enough $$ to pay uncovered excess
expenses for 3-5 years in money market fund.
 (e.g., $30k income - $15k from SS and pension = $15k x 3-
5 years or $45k to $75k in cash assets)
 Remainder grows in stock and bond funds. Sell
shares every year and add to MMF.
 If stock market tumbles -- hang tough. Tap bonds
and take capital gains and dividends first.
Suggested Investment
Strategy for Seniors

15. 5. Take Minimum Required
Distributions
 Applies to distributions from:
Traditional IRAs (Roth IRAs are tax-free)
401(k)s, 403(b)s or TSAs, SEPs
 Must begin distributions by April 1 of year following
year one turns 70 1/2
70th birthday: 1/13/15; Age 70½: 7/13/15
Begin distributions by 4/1/16 (2 payouts in 2016)
 Employer plans: can delay to April 1 of year after one
retires (the “still working exception”)

16. How Much to Take Out
 Required Minimum Distribution (RMD)=
 Balance on Dec. 31 of prior year /Life expectancy (use factor
in uniform table)
 Failure to take RMD: 50% of required distribution
(must match or exceed RMD)
 Plan custodian will report numbers
 Uniform table automatically recalculates life
expectancy
 Separate table if spouse > 10 years younger (joint life
expectancy)
 Resource: http://njaes.rutgers.edu/money/ira-table.asp

17. 6. Practice Tax Avoidance: Legal
Strategies to Reduce Taxes
 Tax-deferred investments
 Employer salary reduction plans
 IRAs
 Annuities (look for low expense providers)
 Age 50+ catch-up contribution
 Long-term capital gain on investment profits
 Good financial records
 Tax preparer for a “good template”

18. 7. Consider Untitled Property
Transfers
 “Who Gets Grandma’s Yellow Pie Plate?”
 http://www.extension.umn.edu/family/personal-finance/who-gets-
grandmas-yellow-pie-plate/
 Consider interests of family members
 Examples: coin collection, antique car
 Make a written list of property and heirs
 Share list with family and executor
 Consider lifetime gifting of property
 Annual gift tax exclusion: $14,000 per donee (2015)
 Can transfer unlimited amount of property to charity without
tax liability

19. 8. Get Help When Needed
 CPA when receiving lump sum distribution
 Financial planners:
888-FEE-ONLY or www.napfa.org
800-282-PLAN or www.fpanet.org
888-CFP-MARK or www.cfp-board.org
 Go prepared to reduce time and fees
Bring financial statements, list of goals

20. 9. Leave a Legacy and Give
Something Back
Many ways to “leave a legacy”
 Children and grandchildren
 Creative works (art, books, music)
 Volunteer time helping others
 Charitable gifting
 Outright gifts of cash, property, securities
 Charitable trusts (see an attorney)
 Testamentary gifts via one’s will (less than 6% of Americans
include charities in estate plans)

21. 10. Communicate,
Communicate, Communicate
 Ask executor, contingent executor, etc.
 Prepare/share a “financial notebook”
 Prepare a digital assets inventory:
http://njaes.rutgers.edu/money/pdfs/Digital-Assets-Worksheet.pdf
 Discuss burial wishes with family
 Discuss living will issues with proxy
 Prepare letter of last instructions
 Discuss/list personal property bequests

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Helpful Resources
 Rutgers Cooperative Extension
 www.njaes.rutgers.edu/money
 http://njaes.rutgers.edu/money/ffquiz/
 www.investing.rutgers.edu
 Social Security Administration
 1-800-772-1213 or www.socialsecurity.gov
 http://www.socialsecurity.gov/myaccount/
 State Health Insurance Assistance Program
 www.shiptalk.org (SHIP)

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Another Helpful Resource
http://njaes.rutgers.edu/money/pdfs/older-adults-money-advice.pdf

24. Questions? Comments?
Experiences?