financial planning for the second half of your life
TRANSCRIPT
Financial Planning
for the Second Half
of Your Life
Dr. Barbara O’Neill, CFP®
Rutgers Cooperative Extension
Your Questions?
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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
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
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
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
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/
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
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
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
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
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
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)
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
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”)
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
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”
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
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
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)
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
Questions? Comments?
Experiences?