Description of 15 key financial planning actions for older adults

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

2. Personal Introduction
2
• FCS professional for 42 years (with RCE-38 years)
• CFP® for 32 years and CPFFE since 2012
• Extension Specialist in Financial Resource
Management (former county FCS Agent)
• Financial educator and author
• In the second half of financial life

3. Age 50 (+/- 5 to 10 Years)
• Financial “halftime” or “intermission”
• Think about past accomplishments
• Think about what you still want to do
• New challenges and decisions
• Increased interest in “giving something back” to
family, community, charities
• Many people want to simplify/downsize

4. No More Excuses !!!
• I don’t have enough knowledge
• I don’t have enough time
• I don’t have enough money
• I don’t have anyone to help me
• I don’t want to make a mistake

5. Common Financial Errors
of Older Adults:
• Changing investment strategy drastically on a specific
date (e.g., 65th birthday)
• “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

6. Increased Financial Complexity
and Major Decisions
• When to start Social Security benefits
• When to retire: how much money is “enough”?
• Where to live in retirement
• Taxation of SS and pension benefits; estimated tax payments
• Purchase of health insurance
• Long-term care planning
• Required minimum distributions
• Estate planning documents

7. Research: Low Retirement Confidence
• Americans’ confidence in their ability to retire comfortably is low
• Only 21% are “very confident”
• 54% of workers have savings and investments (excluding home &
DB pension) < $25,000 (includes 26% with < $1,000)
• 37% of workers expect to retire after age 65; 46% of retirees left
the workforce earlier than planned
• Less than half (48%) of workers have tried to calculate what they
need to save for retirement
2016 Retirement Confidence Survey (RCS):
https://www.ebri.org/pdf/surveys/rcs/2016/EBRI_IB_422.Mar16.RCS.pdf

8. Research: Increased Life Expectancy
• More than half of people >45 underestimate how long they will live
• Can result in inadequate provision for retirement need3
Reference (Financial Advisor): http://www.fa-mag.com/news/society-of-actuaries-
say-people-underestimate-their-life-spans--11480.html
• Average life expectancy for man reaching age 65 today: Age 83
• Average life expectancy for woman reaching age 65 today: Age 85
Reference (Social Security): http://www.ssa.gov/planners/lifeexpectancy.htm
BEST to use life expectancy calculators with lifestyle questions:
http://www.msrs.state.mn.us/info/Age_Cal.htmls
http://gosset.wharton.upenn.edu/mortality/perl/CalcForm.html

9. Research: Health Care Costs
• Even with Medicare benefits, a 65-year old couple retiring in
2012 will spend at least $240,000 on health care costs during
their retirement
Reference (Wall Street Journal/Fidelity Investments):
http://online.wsj.com/article/SB10001424052702304543904577394543896250220.html
• A man needs $187,000 and a woman $213,000 to have a 90%
chance of having enough money to cover health care expenses in
retirement
Reference (EBRI):
http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=4711

10. Research: Long-Term Care Needs
• Americans spent $207.9 billion in LTC services in 2010
• 12% of Americans turning 65 will spend between $25,000 and $100,000 on
LTC expenses and 6% will spend > $100,000
• 7 million LTC policies in force vs. 45 million Medicare enrollees
Reference (Journal of Financial Planning):
http://www.fpanet.org/journal/SeekingAlternativestoLongTermCareInsurance/
• Assisted living expenses vary considerably across the U.S.
• $4,794 per month in New Jersey versus $2,617 in North Dakota
Reference (Wall Street Journal/MetLife):
http://online.wsj.com/article/SB10001424052970203937004578079184108523
030.html

11. 15 Key Financial Second Half Issues
• Financial basics
• Investing decisions & asset
allocation
• Avoiding financial fraud
• Creating a retirement
“paycheck”
• Required minimum distributions
• Tax-planning strategies
• Transferring untitled personal
property
• Communication issues about
money
• Getting help and hiring
advisors
• Social Security decisions
• Health insurance
• Long-term care insurance
• Estate planning
• Health-wealth connections
• Leaving a legacy

12. 1. Don’t Forget “The Basics”
• Net Worth Statement
– Summary of assets and debts:
http://njaes.rutgers.edu/money/pdfs/networthcalcworksheet.pdf
• Specific financial goals
– Include a date and cost:
http://njaes.rutgers.edu/money/pdfs/goalsettingworksheet.pdf
• Cash flow statement
– Summary of income and expenses
• Emergency reserve
• Financial Fitness Quiz (Check-up):
http://njaes.rutgers.edu/money/ffquiz/

13. Assess Current/Future Insurance Needs
• Life insurance
• Disability insurance (if employed)
• Health insurance (e.g., Medigap, work)
• Long-term care insurance
• Property insurance
• Umbrella liability

14. 2. Follow Recommended Investment
Strategies
• Don’t invest if you don’t understand
• Diversify (different asset classes 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

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

16. Later Life Investing Need-to-Knows
16
• Historically, stocks have provided the highest
return of any asset class over the long term
• The trade-off is a higher chance of loss
– Risk-Reward Relationship (pyramid graphic)
• May want to gradually ramp-down stock % of
portfolio asset allocation during retirement
– Guideline: 110 –age = Percentage in stock
• Rebalance portfolio regularly

17. More Later Life Investing Need-to-Knows
17
• Maximize catch-up contributions if age 50+
– + $6,000 ($24,000 total)- employer plans
– + 1,000 ($6,500 total)- IRAs
• Maximize employer plan matched savings
• Assess your investment risk tolerance
– See www.rce.rutgers.edu/money/riskquiz/
• Must complete plan rollovers in 60 days

18. Later Life Investing Action Steps
18
• Consider hiring a professional adviser
– See www.fpanet.org, www.cfp-board.org, and
www.napfa.org for names of local advisers
• Consolidate scattered retirement plans for easier
minimum distribution calculations
• Absent health issues, plan on living at least to
early 90s
• Take advantage of all savings opportunities
before retirement

19. 3. Avoid Investment Fraud
2011 AARP Study: 4 Behaviors that increase seniors’ risk of being
a fraud victim:
1. Attending “free lunch” seminars
2. Entering drawings and contests for free prizes
3. Reading and accepting junk mail offers
4. Sitting through sales pitches
References: http://assets.aarp.org/rgcenter/econ/fraud-victims-11.pdf
http://www.givemebackmycredit.com/blog/2011/06/aarps-fraud-study-key-
behaviors-that-make-seniors-more-likely-to-fall-victim-to-scams.html

20. 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 (2016)
• Keep tax-deferred investments and Roth IRAs
growing as long as possible

21. How Much Money 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

22. Withdrawal Rate Consensus
• Between 4% and 4.5% of principal, if 50% + stock
– $4,000 a year if $100,000 saved ($333 per month)
• Lower (e.g., 3%) if conservative investor
• Consider hiring certified financial planner for 2-3
hours (go prepared with net worth and budget)
• Do a Monte Carlo analysis for probability of not
outliving money

23. You Need $300,000 Saved for Every
$1,000 of Monthly Income
$300,000 x .04 = $12,000 ÷ 12 = $1,000 of monthly income
$600,000 for $2,000 per month
$900,000 for $3,000 per month
$1.2 million for $4,000 per month
$1.5 million for $5,000 per month

24. Retirement “Paycheck” Need-to-Knows
24
• Possible income sources include:
Social Security, defined benefit pension plan, defined
contribution plan (e.g., 401(k) and 403(b) plans),
individual retirement accounts (IRAs), annuities, taxable
account investments, post-retirement earnings, home
sale proceeds, rental real estate, reverse mortgage
• When making withdrawals, generally tap taxable and
tax-free investments first, then tax-deferred employer
plans and traditional IRAs (must start RMDs at age 70 ½),
and then Roth IRAs)

25. Retirement “Paycheck”-
More Need-to-Knows
25
• Long-term capital gain rates if assets held > 1 year
– 0% (10% and 15% tax brackets); 15% (25%, 28%, 33%, and
35% tax brackets); 20% (39.6% tax bracket)
• Mandatory withdrawals required at age 70½
• No withdrawal penalty after age 59½
• Roth IRA withdrawals are tax free after age 59½ and if
account is open at least 5 years

26. Suggested Investment Strategy for Seniors
• Set aside enough $$$ to pay uncovered excess expenses
for 3-5 years in a money market fund or short-term CD
– (e.g., $30k income - $15k from SS and pension = $15k
uncovered expenses x 3-5 years = $45k to $75k in cash assets)
• Remainder grows in stock & bond funds. Sell stock
shares periodically and add to cash assets
• If stock market tumbles -- hang tough. Tap cash and
bonds and dividends first.

27. 5. Take Required Minimum Distributions
• Applies to distributions from:
– Traditional IRAs (Roth IRAs are tax-free)
– 401(k)s, 403(b)s, 457 plans, SEPs, TSP
• Must begin distributions by April 1 of year
following year one turns 70 1/2
– 70th birthday: 1/3/16; Age 70 1/2: 7/3/16
– Begin distributions by 4/1/17 (two 2017 payouts if delay)
• Employer plans: can delay to April 1 of year after
one retires

28. How Much to Take Out
• Required Minimum Distribution (RMD)=
– Balance on Dec. 31 of prior year /Life expectancy (use
factor in IRS uniform distribution table)
– See http://njaes.rutgers.edu/money/ira-table.asp
– Uniform table automatically recalculates life
expectancy (1.9 years if you live to 115!)
– Separate table if spouse > 10 years younger (joint life
expectancy)
• Failure to take RMD: Tax penalty of 50% of the required
distribution (must match or exceed RMD)
• Plan custodian will report numbers to IRS

29. 6. Practice Tax Avoidance (Minimization)
• Tax-deferred investments
– Employer salary reduction plans
– IRAs
– Annuities (look for low expense providers)
• Age 50+ catch-up contribution
• LT capital gain on investment profits
• Good financial records
• Tax preparer for a “good template”

30. 7. Consider Untitled Property Transfers
• “Who gets grandma’s yellow pie plate?”
– http://www.extension.umn.edu/family/financial-
security/who-gets-grandmas-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: $14k per donee (2016)
• Can transfer unlimited amount of property (or cash) to
charity without gift/estate tax liability

31. 8. Communicate With Others
• Ask executor, contingent executor, PoA, etc. to serve
• Prepare/share a “financial notebook”
• Share location of key documents
• Discuss burial wishes with family
• Discuss living will issues with proxy
• Prepare letter of last instructions
• Discuss/list personal property bequests

32. 9. Get Help When Needed
• CPA or CFP when receiving lump sum distribution
• Financial planners:
– 888-FEE-ONLY or www.napfa.org (NAPFA)
– 800-282-PLAN or www.fpanet.org (FPA)
– 888-CFP-MARK or www.cfp-board.org (CFP® Board)
– http://garrettplanningnetwork.com/ (Garrett Network)
• Go prepared to reduce time and fees
– Bring financial statements, list of goals, questions

33. 10. Understand Social Security
33
• Reduced SS benefits available at age 62
• Full SS benefits at Full Retirement Age (FRA)
– Age 66 if born between 1943-1954
– Age 67 if born in 1960 or later
• Must be “fully insured” with 40 quarters of coverage (a
quarter = $1,260 in 2016)
• There is no earnings limit after FRA
• Before FRA, $1 of benefits withheld for every $2 over
earnings limit ($15,720 in 2016)

34. Social Security Need-to-Knows
34
• It is usually wise to postpone SS benefits if:
– You have substantial earnings
– You are in good health
– You do not need the money for current living expenses
• Contact SS about 3 months before retiring (online)
• See www.ssa.gov for general SS information
• See http://www.ssa.gov/myaccount/ for SS benefit
estimate

35. Social Security Action Steps
• Download benefit estimate annually and review for
accuracy: http://www.ssa.gov/myaccount/
• Estimate/calculate percentage of retirement income
coming from Social Security (if retired)
• Do a Ballpark Estimate retirement calculation (if working)
See http://www.choosetosave.org/ballpark/
• Factor Social Security into divorce plans
– Must be married 10 years to qualify on ex-spouse’s record
• Go Direct (direct deposit of SS benefit check)
35

36. 11. Understand Senior Health Insurance
36
• Medicare covers people age 65+
• Medicare has 4 parts: A, B, C, and D
• Many beneficiaries buy Medigap policies
• Retiree health benefits are increasingly scarce
• Early retirees must cover health insurance “gaps”
(e.g., between a job and Medicare)
• COBRA can extend group benefits for 18 mos.
• See http://www.medicare.gov/

37. Health Insurance Action Steps
• Apply for Medicare within 3 months of age +/- age 65
• Pay attention to 60-day COBRA deadlines
• Safeguard health insurance documents
• Inquire about employer retiree benefits, if any
• Contact SHIP (State Health Insurance Assistance Program) for
assistance with purchasing state-licensed Medigap
(Medicare supplement) policies
• www.shiptalk.org

38. 12. Understand Long Term Care Insurance
38
• Potential cost of LTC is a big financial risk
• Nearly half of Americans will need LTC at some
point in their lives
• LTC covers a wide range of services
– Nursing home, assisted living, in-home care
• Best time to buy LTC insurance is generally age
55 to 60
• Adult children help pay premiums?

39. Key LTC Insurance Policy Features
• Amount of daily coverage
• Length of coverage (e.g., 3 years, 5 years)
• Types of benefits provided (e.g., home health care)
• Elimination (waiting) period (e.g., 3 months, 6 months)
• Number of activities of daily living or ADLs required to trigger
benefits (e.g., bathing, toileting)
• Method of making an inflation adjustment, if any
Resource: Financing Long-Term Care (eXtension):
http://www.extension.umn.edu/family/financial-
security/resources/

40. LTC Insurance Action Steps
40
• Contact SHIP for assistance with purchasing LTC
policies from licensed state providers
• Explore LTC options, including:
– LTC insurance
– “Self-insurance”
– Annuitized income sources (e.g., DB pension)
– Continuing Care Retirement Communities

41. 13. Solidify Estate Planning
41
• Spelling out your wishes (e.g., property
transfers) is a gift that you give to others
• Dying intestate (without a will) may result in
unnecessary hassles and expenses
• Three recommended documents:
– Will for bequests to people and charities and to name
executor(s) and guardian(s)
– Living will for health care decisions with a designated health
care representative
– Durable power of attorney to handle financial affairs while
you are alive

42. Estate Planning Need-to-Knows
42
• The principal goal of estate planning is to make sure that assets
are distributed as you desire with the least amount of taxes
• Permanent $5 million inflation-adjusted federal gift and estate
tax exclusion as of 1/13 tax law
• Beneficiary and contingent beneficiary designations should be
reviewed periodically
• See http://njaes.rutgers.edu/money/pdfs/beneficiary-designations.pdf
– Wills and trusts
– Life insurance policies
– Retirement accounts
– U.S. savings bonds

43. Estate Planning Action Steps
43
• Keep property information in one place
• Let trusted persons know where estate planning
documents are kept
• Worksheet: A Record of Important Family Papers
http://njaes.rutgers.edu/money/pdfs/importantpapers.pdf
• See an attorney to draft or revise estate planning
documents
• Revise documents as life events require

44. 14. Appreciate Health-Wealth Linkages
• The “price” of good health is the need for more wealth: Good health raises
(NOT lowers) a person’s lifetime care costs
• Center for Retirement Research (CRR) projections of remaining lifetime
health care costs of couples who reached indicated ages in 2009:
Age Healthy Unhealthy
65 $260,000 $220,000
70 $266,000 $241,000
75 $265,000 $236,000
80 $259,000 $220,000
85 $244,000 $202,000
• More years of out-of-pocket medical bills and an increased risk of chronic
disease (e.g., diabetes) and need for LTC
Reference (CRR, Boston College):
http://money.usnews.com/money/blogs/the-best-life/2010/05/12/good-health-raises-
lifetime-care-costs

45. Take Care of Yourself!
45
“The greatest wealth is health”
Virgil
See www.njaes.rutgers.edu/sshw for information
about health and wealth connections

46. 15. Leave a Legacy- 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
leave money to charities when they die; 20% of those who
die with wills)

47. Helpful Online Resources
47
• Rutgers Cooperative Extension
– www.njaes.rutgers.edu/money
– www.investing.rutgers.edu
• Social Security Administration
– www.ssa.gov
• State Health Insurance Assistance Program (SHIP)
– www.shiptalk.org
• Planning for a Secure Retirement (Purdue)
– www.ces.purdue.edu/retirement

48. Questions? Comments? Experiences?
Be healthy, wealthy, and happy!