If something happens to you

If something happens to you

Note: For help accomplishing the things discussed in this article, you might be interested in my book and organization kit If Something Happens to Me.

It’s been a rough couple of months in the U.S.  Devastating hurricanes.  Wildfires.  Nuclear tensions with North Korea.  Charlottesville.  Las Vegas.  It’s all a vivid reminder that life is uncertain.  Have you ever wondered what you would do if you suddenly became the victim of a natural disaster, terrorist attack or other unexpected event like a fire or earthquake?  Would you know what to grab if you only had seconds to escape your house?  Would your loved ones know what to do if they had to step in and manage your affairs?  A little planning now can make a big difference later. Here are 5 key actions you can take to prepare for the unexpected.

Meet with Your Advisers:  Having 6 feet of water in your living room is not the time to discover that you don’t have flood insurance.  The emergency room is not the place to learn that you need a medical power of attorney.  Your funeral is not the ideal time for your spouse to discover that you didn’t have adequate life insurance.  Schedule meetings with each of your advisers and let them know that you are trying to disaster-proof your affairs.  Ask them to help fill any gaps that exist in your current planning.

Prepare a Grab-and-Go Case: You should organize all your important legal, financial, and insurance paperwork into a file that you can grab quickly if you need to flee your house or your city.  Consider including birth certificates, estate planning documents, financial statements, insurance policies (homeowner’s, auto, life, health), Social Security cards, contact information for all of your advisers (program it into your cell phone as well), a list of prescriptions you take, a copy of your driver’s license and some emergency cash.  I’ll include a more comprehensive list at the end of this article.

Keep in mind that you may not be able to escape with your important paperwork. Many fires, for example, happen while the homeowners are away.  To protect yourself, store backup copies of important documents in a safe-deposit box or with a trusted friend, relative, or adviser.  As a general rule, don’t keep anything in your safe deposit box that you may need in an emergency, such as a power of attorney, because boxes are not usually accessible 24-7 and may be sealed temporarily after the box owner dies.  It’s a good idea to keep copies in the box, but have readily accessible copies as well.

Prepare a Household Inventory: Recent hurricanes destroyed thousands of homes.  Most homeowners will not be able to remember everything that was in their home when filing insurance claims.  A simple household inventory listing your home’s contents, or a video walk through of your home, will help avoid this problem.  Just remember to store the inventory somewhere other than your home.

Write a letter of instruction: Your will and powers of attorney are formal legal documents designed to put certain people in charge and give them instructions for handling your affairs.  There are plenty of things those documents don’t cover, however.  For those things, you should write an informal letter of instruction to your spouse or other heirs.  The letter can contain things like your funeral preferences, passwords, a “To-do” list, recommendations on how to invest life insurance proceeds, how to disperse certain personal property or heirlooms not accounted for in the will, what to do with pets, or any other explanations or instructions that would help ease the transition through an obviously difficult time.  It’s an informal document, so add anything you think might be helpful and periodically update it so it stays current.

Update Your Plan Annually: Change is the one constant in life.  Make sure to review your affairs at least annually in order to make necessary updates.  Some questions to ask include: 1) Has your marital status changed? 2) Has the value of your assets changed significantly? 3) Have you made any changes to your insurance policies? 4) Have you changed jobs?  If you answer “yes” to any of those questions, you should meet with your advisors to update your planning.

 Life can change suddenly.  By investing a small amount of time and energy into organizing your affairs, you can gain the peace of mind and protection that comes from being prepared.

Document Storage Checklist

Grab-and-Go Case

  • Contact list
  • List of checking/savings account numbers
  • List of credit card numbers
  • Recent statements for all investment accounts
  • Insurance policies (life, homeowner’s, renter’s, auto, etc.)
  • Will and/or trust documents
  • Durable power of attorney for health care
  • Durable power of attorney for finance
  • Social Security cards
  • Copies of birth and marriage certificates
  • Passports and copies of driver’s license
  • Computer and online user names and passwords
  • Safe combination
  • Safe deposit box keys
  • List of prescriptions you take
  • Emergency cash

Safe Deposit Box

  • Copies of will or estate plan
  • Copies of your powers of attorney
  • A list of your insurance policies
  • A list of your financial account numbers
  • Originals of birth and marriage certificates
  • Adoption papers
  • Citizenship records
  • Military service records
  • Vehicle titles
  • Real estate deeds
  • Mortgage paperwork
  • Loan agreements
  • Stock and bond certificates
  • Certificates of deposit
  • Precious metals
  • Valuable collectables
  • Jewelry
  • Photographs, video and/or a written inventor of your home’s contents

With a Friend, Relative or Trusted Adviser

  • Paper or digital copies of the documents in your grab and go case
  • Contact information for you (email, cell phone, etc.)
  • Instructions on keeping the data secure
  • Contact list for your advisers and heirs should something happen to you.

“Having a secure shelter doesn’t make storms any less dangerous, but it does make them less dangerous to you.”
~ John Mauldin

How to accidentally disinherit your kids

How to accidentally disinherit your kids

I help a lot of clients with their retirement planning and anytime I come across a situation that I think we can all learn from I like to change the names to protect the innocent and then write about it here at Intentional Retirement.

Today’s installment is brought to you by the phrase “Per Stirpes.”  No, that’s not a nasty disease.  Per Stirpes is a Latin phrase that means “by branch” and, believe it or not, those two words are incredibly important when it comes to your beneficiary designations.

Here’s the scenario.  A widow (not a client of mine, but of a colleague) in her 80s had a sizeable IRA and she named her four adult children as beneficiaries.  Two of those children died unexpectedly last year and then the client also passed away at the end of the year without updating her beneficiary designations.

One of the surviving daughters was the executor of the will and she asked us to divide the IRA into four equal parts and pay each part out to the four beneficiaries or their surviving families.

Per Stirpes vs. Pro Rata

This is where our Latin lesson comes into play.  When you name multiple beneficiaries (or multiple contingent beneficiaries), as this client did, there’s always the chance that one or more of those beneficiaries will die before you do.

If that happens, the language in your IRA agreement will specify what happens next.  In some cases, that language will specify that the benefits should be paid Per Stirpes: To each named beneficiary OR their surviving family (i.e. their “branch” of the family).

In other cases, the IRA agreement may specify that the assets be divided on a Pro Rata basis among any surviving beneficiaries, effectively disinherited any of your beneficiaries (or their families) that predecease you.

Returning to our example, the family wanted us to divide the assets into four equal parts and distribute them to the four kids or, in the case of the two children who had died, their surviving family members.  Instead, we were obligated to divide the assets into two equal parts and distribute them to the two surviving children because the IRA agreement stipulated Pro Rata instead of Per Stirpes.

“Wait,” you might be saying.  “I don’t ever remember being given the choice between Per Stirpes or Pro Rata.”  That’s because many IRA custodians choose one of those options (or some other option) as a default and then leave the burden on you to tell them if you want something different.  To make matters worse, not all custodians choose the same default.

You can see where this could create problems and might cause you to accidentally disinherit certain branches of your family.  To avoid any problems, it’s a good idea to review your beneficiary designations periodically to make sure that they are designed to accurately carry out your wishes.

Some tips for updating your beneficiary designations

  • Review your designations each time there is a major change in your family circumstances (e.g. birth, death, divorce, etc.).
  • Specify whether the designation is Pro Rata or Per Stirpes
  • On accounts that don’t allow beneficiaries, consider using a Payable On Death (POD) or a Transfer On Death (TOD) designation in order to avoid probate on those assets.
  • Coordinate your designations with your will or trust, but keep in mind that your beneficiary designations will trump your will, even if your will is more up to date and accurately reflects your wishes.

Touch base if you have any questions.  Have a great weekend!

Carpe Diem,



7 retirement resolutions for 2013

7 retirement resolutions for 2013

Well, another year is in the history books.  Where does the time go?  It seems like just yesterday that I was singing along to Prince’s “Party Like It’s 1999” and worrying that my coffee machine was going to be a victim of Y2K and here we are a “Baker’s Decade” into the new millennium.

As the years go by, I, along with millions of others, find the idea of retirement morphing from a vague concept to an impending reality.  The signs are subtle at first.  An AARP magazine in the mailbox.  A “take this job and shove it” daydream at work.  A lingering glance at the orange and red sections of the USA Today weather map.   If retirement looms large on your horizon, then there’s no time to waste.  Below are 7 resolutions for the New Year to make sure that your planning is on track.

Recalibrate after the “Fiscal Cliff.”  As the dust settles in Washington, there are several variables in your retirement plan that you may want to review.  In particular, any changes in your tax bill can affect everything from your planned retirement date to your distribution strategy.  Entitlement reform was delayed (color me surprised!), but any eventual changes to Medicare and Social Security will also affect your retirement.  Schedule a meeting with your adviser to factor in these new variables and make sure that your plans are still realistic.

Increase your contributions.  Are you getting a raise in 2013?  Sure you could use that to upgrade your iPad or buy tickets to the soon to be announced Rolling Stones tour, but a third option would be to route that extra cash into your retirement accounts.  Contribution limits for 2013 are increasing to $5,500 (plus an additional $1,000 for those over 50) for IRAs and $17,500 (plus an additional $5,500 for those over 50) for 401(k)s.

Create a debt payoff plan.  If you subscribe to the 4 percent withdrawal rule, then for every $1,000 in income you need to generate during retirement, you’ll need $25,000 in assets.  Doing some simple arithmetic, it’s easy to see that retiring with a mortgage, car payment or other debts can add hundreds of thousands of dollars to your “Number.”  Reduce that burden by committing to a plan to retire debt free.

Get on the same page with your spouse.  Try this experiment.  At the dinner table tonight say “I can’t wait to retire in 2016 so we can move to San Carlos, Uruguay and I can realize my dream of becoming a real life gaucho.”  The response that you get will show you how important it is to be on the same page with your spouse when it comes to your retirement planning.  Now that the conversation is going, spend some time talking through your hopes, dreams and plans so that you can iron out any differences and compromise on a plan.

Take a mini-retirement.  You wouldn’t want to get all the way to Uruguay only to second guess the whole gaucho thing.  As you get closer to retirement, you should start using whatever vacation and sick time you have to test drive your plans.  A mini-retirement is a great way to learn more about a place or to experiment with your retirement budget.  Use what you learn to refine and improve your plans.

Set aside your first year of expenses.  In case you hadn’t noticed, the financial markets have been a bit—what’s the word?—schizophrenic the past decade or so.  If retirement is just around the corner, you run the risk of having to withdraw money from your nest egg at a time when your investments are performing poorly.  Experts refer to this as sequence risk.  To avoid that problem, set aside one year of your retirement expenses in cash.  If the markets are doing well, you can draw income from your investments.  If markets are doing poorly, you can draw from your cash and give your investments a chance to recover.

Update your estate plan.  Estate and gift taxes were scheduled to change drastically in 2013, but got a last minute reprieve with the deal in Congress.  The estate tax rate increased to 40 percent from 35 percent, but other than that, most existing estate tax rules were made permanent.  Work closely with your attorney and financial adviser to make sure that your plan is up to date and designed to minimize taxes.  Also be sure to have a strategy in place to cover any potential liability (e.g. life insurance) and make sure that your beneficiary designations and powers of attorney are up-to-date and reflect your wishes.

That list of resolutions makes me long for the days of simpler goals like “join a gym” or “quit smoking.”  But hey, no one said retirement was going to be easy.  If it was, the world would have more gauchos.

I originally published this article at www.marketwatch.com.  Photo by Sacha Fernandez.  Used under Creative Commons License.
Retirement fire drill

Retirement fire drill

If you spend a good portion of your day in a building like an office or a school, chances are good that you’ve participated in a fire drill.  Those faux escapes give everyone a chance to practice evacuating the building and give those in charge an opportunity to identify and fix any potential problems.

If retirement is on your horizon, it would probably make sense to do something similar.  Call it your “Retirement Fire Drill.”  After all, sometimes you get to choose when you retire, sometimes (through illness or layoffs) you don’t.  It’s good to be prepared.

So let’s sound the alarm and pretend that today is the day that you’re transitioning into the next phase of life.  How will the planning you’ve done so far hold up in the real world?  Below are 5 areas to test.

Is your budget going to work?

You have made a retirement budget haven’t you?  If not, download our free retirement budget worksheet.  What will your sources of income be once your paycheck stops?  Do you have a realistic estimate of how much that income will be?  How about expenses?  Some people say you can live on about 70 percent of your preretirement income, but is that realistic for you?  There’s only one way to find out.  Practice living for a few months on the income and expenses that you’ve projected.  Then reexamine your budget and see if anything needs to change.  If it didn’t work for a 2 month trial, it probably won’t work for a 20 year retirement.  Take what you learned and make adjustments as necessary.

Is your asset allocation going to work?

If you retired today, how would your investments fare if we had another downturn like 2008?  Are you invested too aggressively?  Or how about if we got into a period like the late 1970s and early 1980s when inflation increased by double digits each year.  Are you invested too conservatively for your retirement income to keep pace?  Shocks to your portfolio early in retirement greatly increase your chances of running out of money.  You can minimize that risk by having your asset allocation correct and by setting aside a year or so of retirement income in cash so you can draw from that, rather than your investments, in the event of a downturn.

Is your health care going to work?

You won’t be eligible for Medicare until 65.  Are you planning on retiring before that?  If so, how are you planning to bridge the gap?  Even if you wait until 65, do you have enough set aside to pay for the premiums and co-pays required under Medicare?  Have you budgeted in the cost of a Medicare supplement policy?  Are there any health care issues (e.g. dental work, operations) that you should take care of now, before transitioning into retirement?  And what about long term care?  What if you or your spouse became disabled or needed ongoing professional care?  Do you have a plan to pay for that care that doesn’t include spending down all of your assets and leaving the healthy person in a financial bind?

Is your income strategy going to work?

If you and your spouse are 65, there’s a 72 percent chance that one of you will live to age 85.  There’s a 45 percent chance that one of you will live to age 90.  Will your income last that long?  Are you taking a sustainable amount from your investments each year or are you in danger of running out of money because you’re taking too much?  Will part or your income (such as a pension or Social Security) disappear when you or your spouse dies?  Can the surviving spouse live on the remainder?  Rework your budget to factor in one or more of those income shocks and then think about how you would respond.

Is your estate plan going to work?

If you plan on moving to a different state, have you checked with your attorney to see if your will and estate plan documents will be valid in the new state?  What if you became disabled or incapacitated?  Do you have powers of attorney that specify who takes charge?  If that person is your spouse, what happens if he or she dies before you?  Does your will reflect your current wishes?  Do you have the correct beneficiaries listed on accounts and insurance policies?  Are your documents organized and easily accessible?  Do everything you can to have your affairs in order.

How did you do?  If you encountered a few problems, don’t worry.  One of the great things about a drill is that it’s just practice.  Take the information you learned from the fire drill and tweak your plans to give yourself a better outcome.  That way you’ll be ready when the real alarm bell sounds.

~ Joe

I originally published this article at www.fpanet.org.
How aging affects your financial decision making

How aging affects your financial decision making

As we age, our brains don’t work as well as they used to.  This is particularly true when it comes to making financial decisions.

A recent study by the Texas Tech Financial Literacy Assessment project showed that our ability to understand financial concepts and make good decisions based on that information peaks in our 50s.  After age 60, our abilities decline by about 2 percent per year.  By age 90, the typical person has about half the cognitive financial abilities that they had at 65.

Ironically, the study also showed that our confidence in our financial decision making ability rises as we age.  In other words, we get more and more confident even as we become less and less able.  How does the old saying go?  Often wrong, but never in doubt?

Since aging is a reality for all of us, what can we do to protect our finances from self-inflicted wounds?  Here are a few suggestions:

  • Hire a financial adviser that is trustworthy and younger than you.
  • Have a trusted family member that you can take to meetings with you.
  • As much as possible, have your finances on autopilot after 60.
  • Have a financial power of attorney in place so that someone can step in to help you if needed.
In short, surround yourself with people you trust and don’t be afraid to use them as a sounding board as you make decisions with your money.  Come to think of it, that’s good advice for any age.
~ Joe
5 key relationships for people over 50

5 key relationships for people over 50

“Plans fail for lack of counsel, but with many advisers they succeed.”  ~Proverbs 15:22

As you approach retirement, there are five people who can make a big difference when it comes to your health, financial security, and overall quality of life.  They are:

1. Your doctor

Getting old is inevitable, but aging doesn’t automatically need to be accompanied by poor health.  Your doctor can be a great resource when it comes to maintaining a healthy lifestyle.  He (or she) can advise you on eating habits and exercise routines.  He can provide screenings, tests or procedures recommended for people in your age group.  Should you have a colonoscopy?  Should you start an aspirin regimen?  Your doctor will know.  He can also offer advice on how to prevent certain illnesses and can catch small problems before they become big problems.  Of course, none of this will happen if you either don’t have a doctor or never go to see him, so make sure to schedule regular check-ups.  Be proactive with your health and you will be in much better shape to enjoy retirement.

2. Your lawyer

You probably won’t need to see your lawyer as often as your doctor, but you should still be on a first name basis.  Your attorney can help you draft a will (or trust) as well as legal and financial powers of attorney.  Everyone needs those documents no matter how much or how little they have.  Having your legal affairs in order will ensure 1) That your property passes to the correct people, 2) that the correct people take charge if you die or become disabled and 3) that things like expenses, hassles and taxes are minimized.  Use this checklist to review your estate plan annually.

3. Your accountant

Your taxes in retirement will be significantly different than they were during your working years.  Will working part time result in your Social Security benefits being taxed?  How will distributions from certain retirement accounts be taxed?  Does the state you’re planning on moving to tax retiree benefits favorably?  How will owning property in two different states affect your tax bill?  What if you plan on moving overseas?  Your accountant can advise you on all these issues.

4. Your financial adviser

Because finances are the number one concern for most retirees, having a good financial adviser is a must.  A recent study by LIMRA showed that people using an adviser were more likely to be saving for retirement and saved a higher portion of their income.  A good adviser can boost confidence and provide guidance, education and planning to make sure you meet your retirement goals.

Even if you didn’t use an adviser in your pre-retirement years, you should consider hiring one during retirement.  That’s because the issues facing a retiree are much different than the issues facing someone prior to retirement.  Most people are familiar with pre-retirement issues like saving.  They are usually less familiar with issues like cash flow management, pension payouts, retirement plan distributions, long-term care planning, dealing with Social Security and the tax consequences of certain distribution strategies.  Those are post-retirement issues and most people would benefit from the help of a competent professional when dealing with them.

5. Your spouse

Chances are good that, without a job or kids competing for your time, you’ll be spending a lot more time with your spouse during retirement than you did during your working years.  With that in mind, it’s a good idea to have some things in common and to always be nurturing that relationship.  It’s also a good idea to make sure that you are on the same page with your spouse when it comes to plans for retirement.  Here are some questions to get the conversation started.

How did you do?  Do you have those key relationships in place?  If so, great!  If not, get to work.  Having a good team in place will greatly increase your odds of a secure, healthy, rewarding retirement.

Touch base if I can ever help.