Will Your Money Outlive You?

Before you retire, take the time to figure out just how much money you'll need for retirement. If you've planned well and in advance, it's possible that you'll have plenty of money to last throughout your retirement years. In fact, you may discover that your retirement savings actually exceed your retirement income needs. But, before you get too excited, you should realize that there are unique challenges that can arise when your money will outlive you. Estate planning is an essential tool for dealing with the money and property you leave when you pass away. Estate planning is a complex process, and you will need to consult additional resources to ensure yours is done properly.

You've got more than enough money for retirement. Why is this a problem?

Having more money than you need for retirement is not a problem, but it does mean you'll have to do some estate planning to make sure everything goes smoothly when you pass away. First, you'll want to make sure all your hard-earned money doesn't end up in the hands of the federal government when you die. You may also want to be sure that your heirs are provided for and that whatever is left at the end of your life is distributed according to your wishes.

Estate and other taxes

Various state and federal estate, death, inheritance, and income taxes can eat up a substantial portion of your estate. And the more you have when you die, the greater the potential tax liability. You worked hard throughout your life to earn that money--do you really want to hand it over to the government when you die? Estate planning can minimize this tax bite and leave more of your estate for your heirs.

Distribution of your estate

If you have money and property left when you die, it will pass to someone. However, it may not be distributed according to your wishes unless you plan ahead. Maybe you have specific ideas about how much you want your heirs to receive. Perhaps you want specific property to go to your children, your grandchildren, or certain charitable organizations. You may even need to provide for the continuing operation of the family business. Estate planning can ensure that your money and property are distributed according to your wishes.

So, what can you do about it?

Spend more money
If you have more money than you could possibly need for retirement, you are in an enviable position. You won't need to worry about saving or minimizing your expenses. Go ahead--take that trip around the world! Buy the retirement home you've always dreamed of! You deserve to reap the rewards of a lifetime of hard work.

Before taking on more expenses, remember to reanalyze your situation, including the assumed new expenses. Leave a buffer to insure your peace of mind.

Give it away

You might begin distributing your property during your lifetime. This will allow you to reduce the size of your estate and, at the same time, to experience the joy of giving your heirs things they truly want or need. You might also consider making gifts to your favorite charities. Keep in mind, however, that federal gift tax may be imposed if you give more than $14,000 in 2014 (unchanged from 2013) to any one individual in a given year. However, gift tax owed may be offset by your gift and estate tax applicable exclusion amount (in 2014, $5.34 million plus any deceased spousal unused exclusion amount), if it is available. You may also owe state gift tax.

Consider different forms of property ownership

Most of your property is probably owned by you alone or jointly with your spouse. There are many forms of property ownership, and the form of ownership may dictate how your property is distributed when you die. Proper ownership may simplify the process of distributing your estate at death, so you may want to consult an attorney.

Put property in trust

Trusts are another way to transfer ownership and control of your property. There are many types of trusts that can be used for many purposes. You will generally need an experienced attorney's help to properly set up a trust.

Choose beneficiaries carefully

You can choose a beneficiary for many of your assets, such as life insurance, IRAs, and other retirement plans. The beneficiary typically receives the proceeds directly from these vehicles when you die, subject to special situations (e.g., estate taxes or other estate obligations). Thus, it is important that you choose these beneficiaries carefully.

Make a will

Regardless of how much or how little you own, it is wise to have a will. Your will controls the distribution of any property that is not distributed through other avenues, such as form of ownership or designation of beneficiary. You can change or revoke your will at any time before your death. Anyone can draft a will, but only a qualified attorney should be trusted with this important task.

Retirement Portfolio

Your own personal circumstances will dictate the right mix of investments for you, and a qualified financial professional can help you make the right choices. Contact us for a complimentary consultation on your retirement goals.

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How should I structure my retirement portfolio?


Your first step is to take advantage of tax-favored retirement savings tools. If you have access to a 401(k) or other employer-sponsored plan at work, participate and take full advantage of the opportunity. Open an IRA account and contribute as much as you can. Ideally, you'd be able to invest in both an employer plan and an IRA.

Contributions to employer plans like 401(k)s are typically made on a pretax basis, but plans may also allow you to make after-tax Roth contributions. Your pre-tax contributions reduce your current income, but those contributions, and any investment earnings, are subject to federal income tax when you withdraw them from the plan. Your Roth contributions, on the other hand, have no up-front tax benefit. But your contributions are always tax free when distributed from the plan, and any investment earnings are also tax free if your distribution is qualified. Similarly, IRAs allow a choice of either tax-deductible contributions (traditional IRA) or tax-free withdrawals (Roth IRA). Plus, funds held in an employer plan or IRA grow tax deferred. These tax features may enable you to accumulate a sizable retirement fund, depending on how well the underlying investments perform.

With that in mind, you should aim for long-term investment returns and steady growth. Many financial professionals suggest a balanced portfolio of stocks, bonds, mutual funds, and cash equivalents. The percentage of each will depend on your risk tolerance, your age, your liquidity needs, and other factors. However, the notion is fading that you should change your investment allocations and convert your entire portfolio to fixed income securities, such as bonds or CDs, by the time you retire. Instead, many professionals now advise that you continue investing for long-term growth even after you retire--especially since people are retiring younger and living longer on average. Your own personal circumstances will dictate the right mix of investments for you, and a qualified financial professional can help you make the right choices.

Before investing in a mutual fund, carefully consider its investment objectives, risks, fees, and expenses, which are contained in the prospectus available from the fund. Review the prospectus carefully, including the discussion of fund classes and fees and how they apply to you.

Retirement Portfolio

Your own personal circumstances will dictate the right mix of investments for you, and a qualified financial professional can help you make the right choices. Contact us for a complimentary consultation on your retirement goals.

Find out more

Pay Down Debt or Save for Retirement?

You can use a variety of strategies to pay off debt, many of which can cut not only the amount of time it will take to pay off the debt but also the total interest paid. But like many people, you may be torn between paying off debt and the need to save for retirement. Both are important; both can help give you a more secure future. If you're not sure you can afford to tackle both at the same time, which should you choose?

There's no one answer that's right for everyone, but here are some of the factors you should consider when making your decision.

Rate of investment return versus interest rate on debt

Probably the most common way to decide whether to pay off debt or to make investments is to consider whether you could earn a higher after-tax rate of return by investing than the after-tax interest rate you pay on the debt. For example, say you have a credit card with a $10,000 balance on which you pay nondeductible interest of 18%. By getting rid of those interest payments, you're effectively getting an 18% return on your money. That means your money would generally need to earn an after-tax return greater than 18% to make investing a smarter choice than paying off debt. That's a pretty tough challenge even for professional investors.

And bear in mind that investment returns are anything but guaranteed. In general, the higher the rate of return, the greater the risk. If you make investments rather than pay off debt and your investments incur losses, you may still have debts to pay, but you won't have had the benefit of any gains. By contrast, the return that comes from eliminating high-interest-rate debt is a sure thing.

An employer's match may change the equation

If your employer matches a portion of your workplace retirement account contributions, that can make the debt versus savings decision more difficult. Let's say your company matches 50% of your contributions up to 6% of your salary. That means that you're earning a 50% return on that portion of your retirement account contributions.

If surpassing an 18% return from paying off debt is a challenge, getting a 50% return on your money simply through investing is even tougher. The old saying about a bird in the hand being worth two in the bush applies here. Assuming you conform to your plan's requirements and your company meets its plan obligations, you know in advance what your return from the match will be; very few investments can offer the same degree of certainty. That's why many financial experts argue that saving at least enough to get any employer match for your contributions may make more sense than focusing on debt.

And don't forget the tax benefits of contributions to a workplace savings plan. By contributing pretax dollars to your plan account, you're deferring anywhere from 10% to 39.6% in taxes, depending on your federal tax rate. You're able to put money that would ordinarily go toward taxes to work immediately.

Your choice doesn't have to be all or nothing

The decision about whether to save for retirement or pay off debt can sometimes be affected by the type of debt you have. For example, if you itemize deductions, the interest you pay on a mortgage is generally deductible on your federal tax return. Let's say you're paying 6% on your mortgage and 18% on your credit card debt, and your employer matches 50% of your retirement account contributions. You might consider directing some of your available resources to paying off the credit card debt and some toward your retirement account in order to get the full company match, and continuing to pay the tax-deductible mortgage interest.

There's another good reason to explore ways to address both goals. Time is your best ally when saving for retirement. If you say to yourself, "I'll wait to start saving until my debts are completely paid off," you run the risk that you'll never get to that point, because your good intentions about paying off your debt may falter at some point. Putting off saving also reduces the number of years you have left to save for retirement.

It might also be easier to address both goals if you can cut your interest payments by refinancing that debt. For example, you might be able to consolidate multiple credit card payments by rolling them over to a new credit card or a debt consolidation loan that has a lower interest rate.

Bear in mind that even if you decide to focus on retirement savings, you should make sure that you're able to make at least the monthly minimum payments owed on your debt. Failure to make those minimum payments can result in penalties and increased interest rates; those will only make your debt situation worse.

When deciding whether to pay down debt or to save for retirement, make sure you take into account the following factors:

  • Having retirement plan contributions automatically deducted from your paycheck eliminates the temptation to spend that money on things that might make your debt dilemma even worse. If you decide to prioritize paying down debt, make sure you put in place a mechanism that automatically directs money toward the debt--for example, having money deducted automatically from your checking account--so you won't be tempted to skip or reduce payments.
  • Do you have an emergency fund or other resources that you can tap in case you lose your job or have a medical emergency? Remember that if your workplace savings plan allows loans, contributing to the plan not only means you're helping to provide for a more secure retirement but also building savings that could potentially be used as a last resort in an emergency. Some employer-sponsored retirement plans also allow hardship withdrawals in certain situations--for example, payments necessary to prevent an eviction from or foreclosure of your principal residence--if you have no other resources to tap. (However, remember that the amount of any hardship withdrawal becomes taxable income, and if you aren't at least age 59½, you also may owe a 10% premature distribution tax on that money.)
  • If you do need to borrow from your plan, make sure you compare the cost of using that money with other financing options, such as loans from banks, credit unions, friends, or family. Although interest rates on plan loans may be favorable, the amount you can borrow is limited, and you generally must repay the loan within five years. In addition, some plans require you to repay the loan immediately if you leave your job. Your retirement earnings will also suffer as a result of removing funds from a tax-deferred investment.
  • If you focus on retirement savings rather than paying down debt, make sure you're invested so that your return has a chance of exceeding the interest you owe on that debt. While your investments should be appropriate for your risk tolerance, if you invest too conservatively, the rate of return may not be high enough to offset the interest rate you'll continue to pay.

Regardless of your choice, perhaps the most important decision you can make is to take action and get started now. The sooner you decide on a plan for both your debt and your need for retirement savings, the sooner you'll start to make progress toward achieving both goals.