The Wiewel Law Firm

Why You Can’t Count on Social Security to Fund Your Entire Retirement

“Millions of seniors today collect Social Security in retirement and use those benefits to help pay their living costs.”

Social Security benefits don’t cover a person’s entire cost of living during retirement. Anyone who is counting solely on Social Security to fund their retirement needs to realize that immediately and take steps to improve their financial picture, says USA Today in the article “Social Security is not the financial lifeline you think it is.”

The average annual Social Security benefit adds up to $17,748. Compare that to your annual working income, and you’ll see how the numbers work—or don’t. That’s barely the minimum wage in most states. Trying to live on that amount alone, might mean a world of change to your lifestyle, including many sacrifices.

Social Security was designed to provide about 40% of most people’s pre-retirement income. Most seniors need at least double that to live comfortably. Even you’ve been able to pay off your mortgage during your working years, chances are you’ll still need a good income to maintain your quality of life. The amount of money saved by not working is pretty minimal. You still need clothing, a car and money for home maintenance, property taxes and utilities. This doesn’t include health care expenses, which will go up if you previously had most of your health care costs covered by your employer.

Here are steps to take now, if your 401(k) or IRA isn’t ready for retirement:

Aggressively cut back on living expenses. No, it won’t be easy or fun, but it may prepare you for some of the changes that will come without an increase in your retirement savings. Downsizing is one way to make up some cash, but there are other changes: stop going out to dinner, get rid of cable services, stop taking big vacations and cancel any monthly expenses you don’t need, like unused gym memberships.

If these cuts and others add up to $500 a month, invest that money in a stock-heavy portfolio that can yield around 7% over the next seven years. You might be able to generate $52,000, if all goes well.

Consider getting a second job. If you can earn around $1,000 a month and save it instead of $500 a month, you may be able to gather $100,000, if the money is invested for seven years and yields a 7% return.

You may need to extend your career, something many Boomers are doing. Working even a few years past the retirement date you had in mind, will give you the time to pad your nest egg, leave your existing savings untouched for longer, and save more. If you add two more years to the seven years in the examples above, you could find yourself with $144,000 for retirement (again, assuming that 7% return).

Social Security is a valuable source of income for seniors, but it is not enough to live on. Confronting that fact sooner and doing something about it, will give you more time to deal with how to save for retirement.

Reference: USA Today (December 4, 2019) “Social Security is not the financial lifeline you think it is”

Special Needs Planning is a Lifelong Event

“Linda Smyth has spent more than 20 years fighting her way through a complicated maze of paperwork, assessments and denials in the attempt to secure services for her son, who is on the autism spectrum.”

Working to get her son assessed to qualify for support programs, fighting to get benefits and finding therapists became a full-time job, and one that led to enormous costs, even with the family’s having good health insurance. In a recent article “Their Child Has Special Needs. Here’s How They’re Planning for a Lifetime of Assistance” Barron’s explores the life-long journey of caring for a special needs family member.

Smyth’s biggest worry is the same as other parents in her situation: what will happen to her now 23-year old son, when she and her husband are no longer around to support him?

For families with a special needs child, the focus is on the health of the child, but the financial and legal planning to care for someone whose life will likely extend beyond the traditional financial life of the parents is critical.

The estimates of costs are overwhelming. The lifetime cost for a person with autism averages from $1.4 million to $2.4 million, depending on whether the person has an intellectual disability, according to Autism Speaks, an advocacy group. Residential or 24/7 care can easily cost $100,000 a year.

The medical assessment is often the first step to getting benefits, through Medicaid and developmental disability and autism programs. How much and which programs may be covered, depends upon the state. Where you live matters. For parents who are thinking about where to retire, moving to a condo in Florida might be great for lowered costs and taxes, but it could mean a special needs child loses important benefits.

Beneficiary designations must be planned carefully, since a special needs individual may not own more than $2,000 in assets. An inheritance or even a job could disqualify them from accessing programs. One way to avoid this is to open an ABLE account. It’s a state-run savings account that can be funded by the special needs individual or family members with after-tax money up to $15,000 a year, and can be used for housing, education, transportation, and other services. The account’s assets are not included in the benefits calculation as long as the total balance is under $100,000.

Another option is a special needs trust, which can shelter assets. Grandparents who want to leave money to special needs children leave it in a special needs trust. The same holds for life insurance policies that pay out on the death of the parents for the special needs child. Just be careful about over-funding the trust too early, as money that goes in cannot be withdrawn for other purposes. The beneficiary of the trust after the special needs child dies, does not get a step-up in basis for taxes.

Talk with an elder lawyer about planning for the special needs child. You’ll also need to have a health care proxy, a power of attorney, a HIPAA release form and a last will and testament. The estate planning elder law attorney with experience helping special needs families may also know of important resources in your community, which can be invaluable to the qualify of life for you and your child.

Reference: Barron’s (November 29, 2019) “Their Child Has Special Needs. Here’s How They’re Planning for a Lifetime of Assistance”

Holiday Gatherings Often Reveal Changes in Aging Family Members

“It’s a common occurrence. Far flung family members return home to visit elderly relatives for the holidays. Upon arrival, they notice that things seem … off.

A look in the refrigerator finds expired foods and an elderly relative is asking the same questions repeatedly. The same person who would never let you walk into the house with your shoes on now, is living in a mess. The children agree, Mom or Dad can’t live on their own anymore. It’s time to look into other options.

One of the biggest questions, according to the Cherokee Tribune & Ledger-News’ article is “How to pay for long-term care.”

The first question involves the types of facilities. There are many different options but the distinctions between them are often misunderstood. Assisted living facilities provide lodging, meals, assistance with eating, bathing, toileting, dressing, medication management and transportation. However, a skilled nursing facility adds more comprehensive health care services. There’s also the personal care home, which provides assisted-living type accommodations, but on a smaller scale.

The next question is how to pay for the residential care of an elderly family. This weighs heavily on the family. That elderly person is often the one who did the caregiving for so many years. The reversal of roles can also be emotionally difficult.

There are a few different ways people pay for care for an elderly family member.

Long-term care insurance, or LTC insurance. Few elderly people have the insurance to cover their residential facility stay, but some do. Ask if such a policy exists, or go through the piles of paperwork to see if there is such a policy. It will be worth the search.

Veteran’s benefits. If your loved one or their spouse served during certain times of war, is over 65 or is disabled and received an honorable discharge, he or she may be entitled to certain programs that pay for care through the Department of Veterans Affairs.

Private pay. If your loved one has financial accounts or other assets, they may need to pay the cost of their residential facility from these assets. If they don’t have assets, the family may wish to contribute to their care.

Another route is to apply for Medicaid. An elder law attorney in their state of residence will be able to help the individual and their family navigate the Medicaid application, explore if there are any options to preserving assets like the family home, and help with the necessary legal strategy and documents that need to be prepared.

Meet with an elder law estate planning attorney to learn what the steps are to help your elderly loved one enjoy their quality of life, as they move into this next phase of their life.

Reference: Cherokee Tribune & Ledger-News (November 30, 2019) “How to pay for longterm care.”

Tips for Choosing a Fiduciary

“Being a fiduciary is a time-intensive and intellectually challenging task to put upon an individual.”

One of the important tasks in creating a complete estate plan is selecting people (or financial institutions) to represent you, in case of incapacity or death. Most people think of naming an executor, but there are many more roles, advises the article “What to consider when appointing a fiduciary?” from The Ledger.

Here are the most common roles that an estate planning attorney will ask you to select:

• Executor or personal representative, who is named in your will and appointed by the court to administer your estate.
• Agent-in-fact (under a durable power of attorney) who manages your financial affairs while you are living, if you are unable to do so.
• Health care surrogate who makes health care decisions on your behalf while you are living, if you are incapacitated.
• Trustee of a trust document; administers the trust that you have created.
• Guardian: a person who makes health care and financial decisions on your behalf, if the court determines that other roles, like health care surrogate or agent-in-fact, are not sufficient.
• Guardian for minor children: person(s) who make decisions for your children, if you are not able to because of death or a loss of capacity before the children reach adulthood.

The individuals or financial institutions who take on financial roles are considered fiduciaries; that is, they have a legal duty to put your well-being first. Their responsibilities may include applying for government benefits, managing and invest your assets and income, deciding where you will live and working with your attorneys, financial advisors and accountants.

Many people name their spouse or eldest child to take on these roles. However, that’s not the only option. A few questions to consider before making this important decision include:

• Does this person have the experience, skill and maturity to manage my financial affairs?
• Does this person have the time to serve as a fiduciary?
• Would this person make the same health care decisions that I would make?
• Can this person make a difficult decision for my health care?
• Does this person live near enough to arrive quickly, if necessary?
• How old is this person, and will they be living when I may need them?
• What kind of response will my family have to this person being named?
• Are my assets substantial enough to require a financial institution or accountant to manage?

These are just a few of the questions to consider when choosing fiduciaries or health care agents in your estate plan. Speak with your estate planning attorney to help determine the best decision for you and your family.

Reference: The Ledger (Oct. 16, 2019) “What to consider when appointing a fiduciary?”

What Women Need to Know about Social Security

“Understanding the rules about Social Security benefits and when to start claiming Social Security can be difficult. However, they’re critically important, especially for women—since women typically live longer lives than men.”

Deciding when and how to claim Social Security benefits depends on several different factors, all of which are unique to each person’s situation. For women, there are additional financial realities to be aware of, according to the article “3 Things Women Must Know About Social Security Benefits” from Next Avenue.

First, the Earnings Limit Test. Many people end up taking their benefits before they reach their FRA—full retirement age. However, for those who keep working and want to claim benefits at the same time, there is the Social Security Earnings Limit test, which may lower benefits, while you are working. Any retirement benefits over the limit are withheld, until you reach your FRA. They are eventually paid to you.

Here’s an example: Dolores is turning 62 in December 2019. She currently earns $55,000 working full time. If she goes part time, her income will drop to $35,000. Her idea is to start claiming Social Security benefits at the earliest age, when her benefits would be about $1,170. Note that if she waited until her FRA, age 66 and six months, she would receive $1,616.

However, the 2019 earnings limit is $17,640. She earns twice that, so her benefit would be reduced by $1 for every $2 she is over the limit. Her annual Social Security payment of $14,060 would be reduced by half of her excess earnings, or $8,680. She’ll get the benefits back when she reaches FRA, but while she is working, she won’t get as much as she might have expected.

Social Security Benefits and Taxes. The general rule for this is that if a household’s combined income exceeds a certain amount, a portion of the taxes are taxed. The limits for determining the income level are not indexed for inflation, so every year more and more retirees fall into this tax range.

For single women who have an income of $34,000 or more, as much as 85% of Social Security payments for the year will be considered income and taxed as ordinary income. Married women filing jointly with a combined income of $44,000 or more will also have up to 85% of their Social Security payments for the year reported on IRS Form 1040 as income.

Medicare Premiums and Social Security Benefits. Consider your Medicare Part B premiums, before you consider claiming Social Security benefits. The Social Security and Medicare programs are separate programs, but each has a bearing on the other. The Social Security Administration collects Part B Medicare premiums and automatically deducts premiums from Social Security benefits before you receive them. This is often a big surprise to women. Their benefits are reduced, and they may not have included this in their budget.

Medicare B is the part that pays for doctors and outpatient procedures. There are co-pays and deductibles. However, generally speaking, Part B pays for about 80% of covered services. The amount that is paid depends upon the overall household income. The standard monthly premium is $135.50 per month, or $1,626 for the entire year. That’s a per-person cost. If you have a high household income, you’ll pay more for Part B—the range is from $160 to more than $460 a month per person.

Like many other aspects of retirement, you’ll need to do your homework and understand how Social Security works to make the best decisions about your benefits.

Reference: Next Avenue (Nov. 19, 2019) “3 Things Women Must Know About Social Security Benefits”

Spare Yourself These Retirement Expense Surprises

“’Stealth expenses,’ as one retiree described them to me, are waiting behind any number of corners in retirement.”

Learning about the common financial surprises that occur during retirement is an excellent way to try to protect nest eggs, says the article “The Expenses People Often Forget When They Plan for Retirement” from The Wall Street Journal.

A study by the Society of Actuaries found that one in five retirees and one in four widows experienced four or more financial shocks during retirement. That’s a lot of surprises for people living on fixed incomes. The good news is that the study also revealed that many older adults who experienced a stealth surprise appear to have bounced back.

Retirees are resilient, and most are good about making adjustments to their budgets to overcome their surprises. However, being prepared for these financial shocks is even better. Here are some of the more common hidden costs of retirement:

Replacement costs for big ticket items. A new furnace, a new car, or a new roof are all expenses that come up when you’re working. They don’t stop because of retirement. Many retirees underestimate their longevity and overestimate big ticket items that need replacement.

Relatives in need. This pinch can come from older parents or relatives and younger family members who find themselves in a financial crisis. An adult child who loses their job or goes through a divorce or a grandchild who needs help with tuition are some of the typical examples. Can your nest egg sustain their needs, or do you need to say no? Can other family members help?

Required distributions and taxes. Most people know that they will need to start taking withdrawals from tax-deferred accounts upon reaching 70½, but they don’t often understand the larger picture. The distribution may push the couple into a higher tax bracket, and increase Medicaid Part B premiums, which are tied to annual income.

It’s not possible to anticipate every single surprise cost that will come up during retirement. However, there are a few things that can be done. First, try to avoid any major expenditures during the first five years of retirement. That’s when nest eggs are most vulnerable to bear markets. Next, while you are saving for retirement or making budgets, include money for home repairs and upkeep.

Reference: The Wall Street Journal (Oct. 17, 2019) “The Expenses People Often Forget When They Plan for Retirement”

Social Security Scams Evolve Despite Growing Awareness

“As long as people keep sending gift cards and wiring money, the crimes won't just continue—these Social Security phone scams will probably get worse.”

Security experts are predicting that Social Security phone scams are going to multiply and get worse, according to the article “Don’t Fall For These New Social Security Phone Scams” from Forbes. The Social Security phone scam is the most common phone scam in 2019, with a 23-fold rise in frequencies. A study by BeenVerified says that Social Security numbers accounted for 10% of all fraudulent calls. The FTC says that Social Security scams cost Americans $19 million in 2018.

How are they getting away with it? Scammers know that their potential victims are screening calls, so they’ve shifted their tactics. They’re leaving official sounding voicemails, with a phone number that looks like it just might be legitimate. The area code will appear to be from Washington, D.C. However, the numbers are not even from the United States.

Here are the worst offenders:

“Your Social Security number has been suspended.” A dire sounding threat, especially to seniors who count on their Social Security benefits. The caller says there has been fraudulent or criminal activity and the only way to resolve the problem is to call back. It’s not real. The Social Security Administration does not suspend, block or freeze numbers.

“Your Social Security number has been compromised.” This is a smart scam, as everyone is worried about data breaches. The automated call requests that you enter your Social Security number to verify that it has not been breached, and may also ask you to provide details, like a bank account number. Follow these instructions, and you’ve given your Social Security number to thieves. The SSA does not make these types of calls and would never ask for confirmation of your number by phone.

“A federal case has been brought against your Social Security number.” Seniors are especially vulnerable to the idea that a lawsuit is pending against them. However, the SSA or the government does not alert people to lawsuits by phone.

“You must send money to dismiss the case against you.” The government does not request payment by gift cards. If you really owe the government money, you’ll receive an official tax notice from the IRS.

Scammers are getting more sophisticated and more brazen. Don’t become a victim.

Reference: Forbes (Nov. 24, 2019) “Don’t Fall For These New Social Security Phone Scams”

Can You Tackle Elder Law on Your Own?

“The disadvantages of do-it-yourself elder law estate planning are costly errors, omissions and neglecting protections.”

What usually happens when people do their own estate planning or work on elder law issues, without a lawyer who has years of practice? They may not incur the costs on the front end, but the costs, in financial and emotional terms, often arrive just when the individual or their family is most vulnerable. That message comes through loud and clear in the article “Do-it-yourself elder law estate planning can be risky” from a recent article in the Times Herald-Record.

Let’s clarify the two different areas:

• Estate planning is about leaving assets to heirs with a minimum of court costs, legal fees and avoiding will contests.
• Elder law is concerned with protecting assets from the cost of long-term care and empowering people who will be able to make legal, financial and medical decisions on your behalf, if you become incapacitated.

Two of the most important documents in an elder law estate plan are the Powers of Attorney (POA) and health care proxies. If these forms are not prepared correctly, problems will ensue. In some states, like New York, the POA form is long and complicated. Banks and financial institutions will refuse to recognize the form, if they are not completed correctly.

A POA needs to include the “Statutory Gifts Rider,” which allows broad giving powers to the elder law attorney to save assets, even on the eve of the person being admitted to a nursing home. Someone who is not an elder law attorney is not likely to know what this is, or how to prepare it.

There will be similar issues to a do-it-yourself health care proxy. Here’s just one example of the many things that can go wrong: an agent may not make decisions about withholding certain extreme life support measures, even if they are in possession of a valid health care proxy. There needs to be a living will from the individual that explicitly states their wishes regarding withholding heroic means and/or artificial measures. Without the proper document, the person could remain on life support for months or years, even if this was not their wish.

A do-it-yourself approach leaves much to chance. As a result, the potential for problems is enormous. A far better solution that spares spouses and loved ones, is to work with an experienced estate planning lawyer. Can you put a price on peace of mind?

Reference: Times Herald-Record (Nov. 23, 2019) “Do-it-yourself elder law estate planning can be risky”

What If Only One Parent Is Willing to Plan?

“My parents are in their 70s and they don’t have anything planned. I’ve spoken with them about the importance of planning.”

Making matters much worse for one family, is the fact that while the mother is willing to speak with an estate planning attorney and make a plan for the future, the father won’t even discuss it. What should this family do, asks the article from nwi.com titled “Estate Planning: Can one spouse plan?”

Planning for your eventual demise and distribution of your worldly goods isn’t as much fun as planning a vacation or buying a new car. For some people, it’s too painful, even when they know that it needs to be done. There’s nothing pleasant about the idea that one day you won’t be with your loved ones.

 Although contemplating the reality is unpleasant, this is a task that creates all kinds of problems for those who are left behind, if it is not done.

Unfortunately, it is not unusual for one parent to recognize the importance of having an estate plan and the other parent does not consider it to be an important task or simply refuses. In that case, the estate planning attorney can work with the spouse who is willing to go forward.

Some attorneys prefer to represent only one of the spouses, especially in a case like this. Spouses’ interests aren’t always identical, and there are situations where conflicts can arise. When a couple goes to the estate planning attorney’s office and wishes the attorney to represent both of them, sometimes the lawyer will ask for an acknowledgment that the lawyer is representing both of them as a couple. In the event that a disagreement arises or if their interests are very different, some attorneys will withdraw their representation. This is not common, but it does happen.

The estate planning lawyer usually prefers, however, to represent both spouses. Married couple’s estates tend to be intertwined, with real property jointly owned as husband and wife, or husband and husband or wife and wife. Spouses are usually named beneficiaries of life insurance and retirement accounts. Even in blended family situations, this holds true.

If the father in the situation above won’t budge, the mother should meet with the attorney and create an estate plan. The problem is, she may not be able to plan effectively for the two most common and usually the most valuable assets: their jointly owned home and retirement accounts.

If the home is owned by the spouses as “entireties property,” that is, by the couple, she can’t make changes to the title, without her spouse’s consent. One spouse cannot sever entireties property, without both spouses agreeing. Some retirement plans are also subject to the federal law ERISA, which requires a spouse’s consent to change beneficiaries to someone other than the spouse.

Even with these issues, having a plan for one spouse is better than not having any plan at all.

The only last argument that may be made to the father, is that if he does not make a plan, the laws of the state will be used, and few people actually like the idea of the state taking care of their estate.

Reference: nwi.com (Nov. 17, 2019) “Estate Planning: Can one spouse plan?”

How Blended Families Can Address Finances and Inheritance Issues

“When you remarry, you’re not only combining residences with your new spouse, you’re also merging your finances. If you have children, it may involve some financial-related stress”

The holiday season is a popular time for people to get engaged, including people who have been married before. If that’s you, understand that blending families means you’ll need to deal with inheritance and finance issues, says U.S. News & World Report’s article “6 Financial Considerations for Remarriage.” The best time to have these conversations is before you walk down the aisle, not afterwards.

Look at your budget and talk about how things will work. That includes day-to-day expenses, monthly expenses and large purchases, like houses, vacations and cars. Talk about a game plan for going forward. Will you merge your credit card accounts or bank accounts? What about investment accounts?

Financial obligations outside of the marriage. Two things to check before you wed: your divorce papers and the state’s laws. Does anything change regarding your spousal support (alimony) or child support, if you remarry? It’s unlikely that you would lose child support, but the court may determine it can be reduced. The person who is paying child support or alimony also needs to be transparent about their financial obligations.

Review insurance and beneficiaries. One of the biggest mistakes people make, is failing to update beneficiaries on numerous accounts. If your divorce papers do not require life insurance to be left for your spouse on behalf of your children (and some do), then you probably want to make your new spouse the beneficiary of life insurance policies. Investment accounts, bank account, and any other assets where a beneficiary can be named should be reviewed and updated. It’s a simple task, but overlooking it creates all kinds of havoc and frustration for survivors.

What will remarriage do to college financing options? A second marriage may increase a parent’s income for college purposes and make children ineligible for college loans or needs-based scholarships. Even if the newly married couple has not blended their finances, FAFSA looks at total household income. Talk about how each member of the couple plans on managing college expenses.

A new estate plan should be addressed, even before the wedding takes place. Remember, an estate plan is for more than distributing assets. It includes planning for incapacity, including Do Not Resuscitate Orders (DNR), powers of attorney for finances and for health care, designations of guardianship or consent to adoption, various trusts and if needed, Special Needs planning.

Create a plan for inheritance. If either spouse has children from a prior marriage, an estate plan is critical to protect the children’s inheritance. If one spouse dies and the surviving spouse inherits everything, there is no legal requirement for the surviving spouse to pass any of the deceased’s assets to their children. Even if you are in mid-life and death seems far away, you need to take care of this.

Speak with an estate planning attorney who can help you create the necessary documents. You should also talk with your children, at the age appropriate level, about your plans, so they understand that they are being planned for and will be taken care of in the new family.

Reference: U.S. News & World Report (Nov. 18, 2019) “6 Financial Considerations for Remarriage”