You May Have Already Spent Your Inheritance

150622_RET_SpentInheritanceMore would-be heirs are getting gifts now from older family members.

When it comes to retirement planning, most people talk about the traditional stool with three legs—employer pensions, Social Security, and individual savings. And yes, all three legs look pretty wobbly right now. But there’s an additional leg that no one talks about but many seem to be counting on: an inheritance.

Some 51% expect to inherit money from older family members, according to a recent HSBC survey of 16,000 working-age people. Two thirds of this group believe that windfall will help fund their retirement, and more than 25% expect this money to fund it largely or completely. Perhaps for a few, this is a realistic expectation. But for most of us, the data are starting to suggest that we’d better not count our chickens before they hatch.

Back in the 1980s, economists were predicting a huge inter-generational wealth transfer from the so-called G.I. and Silent Generations (born 1901 to 1945) to the Baby Boomers (born 1946 to 1964). However, a Bureau of Labor Statistics report published a few years ago found that there was little evidence of an “inheritance boom,” and that inheritances as a share of household net worth actually fell from 1989 to 2007.

What has been increasing, both in frequency and in dollar amounts, are so-called “intra-family cash transfers,” all those times older family members help out their children and grandchildren financially during their lifetimes. According to a new study from the Employee Benefit Research Organization, 44% of older households (age 50 or above) gave money to their children or grandchildren during the two years ending in 2010, up from 38% in 1998.

And we’re not talking about just birthday money or graduation checks. Of those older households who gave to their families, the average amount is more than $10,000—enough to be considered a major expenditure in their household budget.

Estate planners often say that it’s smarter for older people to give away their money gradually while they are alive, since those cash transfers can minimize inheritance taxes for their heirs. But here’s the problem: even though those gifts reduce estate taxes, they probably don’t improve the retirement readiness of the younger generation. That’s because the money typically gets spent on immediate needs, such as mortgages, medical care, and college tuitions, or perhaps a few splurges.

In short, if your parents or grandparents have given you major financial gifts, chances are you’ve already spent some of your inheritance. And if those gifts continue, your inheritance may be greatly diminished or even completely gone by the time the will is read. So much for the bailout of your retirement plan.

To be on the safe side, it’s probably wise for anyone still in the “accumulation” phase of saving for retirement to not plan on any kind of inheritance at all. And if you have already received living cash transfers from your older relatives, make sure to keep up your own contributions to your retirement savings, so that you may have enough set aside to do the same for your own children and grandchildren.

Konigsberg is the author of The Truth About Grief, a contributor to the anthology Money Changes Everything, and a director at Arden Asset Management. The views expressed are solely her own.


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JUST ANNOUNCED – Five Star Award 2015

 

 

5 star winner
CHARLES NIDA – Five Star Professional conducted research to determine the wealth managers in the Atlanta area who provide quality services to their clients. Now Atlanta magazine and Five Star Professional have teamed up to announce the winners. How Was He Selected? Five Star Professional relied on one of three sources – firm nomination, peer nomination and pre-qualification based on industry standing – to identify award candidates. Award candidates were evaluated against 10 objective criteria such as client retention rates, client assets administered and a favorable regulatory and complaint history. The resulting list of 2015 Five Star Wealth Managers represents an exclusive group of Atlanta wealth managers who provide quality services to their clients. The award and the differentiation it provides can solidify his stature in the industry and inspire additional confidence among his clients, those who his clients may refer and consumers who are searching for a new wealth manager.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: GA

Managing Cash Flow in Retirement

Detailed budgeting, frequent monitoring of income and expenses, and prompt action to address potential cash flow problems are essential elements of financial planning for retirees. Despite careful planning and reasonable assumptions about investment returns, inflation, living costs, and other variables, retirees are likely to face many developments affecting their cash flow over the years.

Expenses vary depending on individual lifestyles and health. Income may be affected by changes in investment performance and interest rates. Other factors bearing on cash flow include changes in tax rates and rules and alterations to Medicare, Social Security, and employer-provided  retiree benefits.

Except for the fortunate few who don’t have to worry about money, the ultimate goal for most retirees is making sure their assets last as long as they live. Once a person or household no longer can rely on earned income to pay the bills and save for the future, balancing income and expenses becomes the primary focus of financial planning. And because of increasing longevity, managing cash flow is more critical than ever. A typical American electing to retire in his or her mid-60s may expect to live 20 or more years after retirement.

While many variables come into play depending on each person’s mix of income, lifestyle, and health, there are a number of planning moves that can help retirees live within their means and make appropriate adjustments in response to changes in income and expenses.

Tools for the Task

If you are retired, or about to retire, you will need to gather and organize key information before you can tackle the ongoing tasks of monitoring and managing your cash flow in retirement. The purpose is to give you a clear and complete picture of your current financial situation, as well as of any significant changes you expect. Two sources will provide this information:

  • An up-to-date net-worth statement, which provides a snapshot of your assets, debt, and cash
  • Your monthly or annual budget, with itemized breakdowns of your income and If you haven’t retired yet, it’s a good idea to prepare a projected budget of your retirement income and expenses.

Be sure to account for all expenses, including those that occur infrequently, such as insurance bills, college tuition, membership fees, and investment management fees. They should be reflected in your monthly budget on a prorated basis. If you need assistance creating your net-worth statement and budget, you may want to consult a financial advisor, a book on the subject, or resources that might be available online.

Analyzing this information will reveal any major problems that you need to overcome, such as insufficient cash reserves for an emergency or an income shortfall compared with current or projected expenses. It may also point up areas for improvement. For example, you may be able to free up cash by reducing debt or eliminating nonessential expenses.

Regular Monitoring

Plans and projections are always subject to change. Even with reasonable assumptions about investment returns, inflation, and retirement living costs, it’s likely you will encounter numerous changes to your cash flow over time. Frequent monitoring of your income and expenses will detect changes that you can address in a timely fashion to prevent significant problems down the road. Experts often recommend a monthly review of your budget, as well as a comprehensive annual review of your financial situation and goals. While you can keep track of your situation with paper and pen, specialized software may make the task easier, especially if your finances are relatively complex.

What to Look For

What should you look for as you monitor your finances? Following are potential developments that could affect your cash flow and require adjustments to your plan.

  • Interest rate trends and market moves may result in an increase or decrease in income from your savings and For example, if interest rates decline, you may have to reduce your expenses if you are periodically withdrawing a fixed percentage from your investment assets. Alternatively, you might consider altering your investment mix to pursue other sources of income, aside from traditional fixed-income investments- equity dividend income investments, for instance.
  • You may also encounter changes in federal, state, and local tax rates and This factor may come into play if you relocate after retiring. The state you move to may impose higher income or property taxes, for example. Other factors that could have a bearing on your retirement cash flow include changes in Social Security and Medicare benefits or eligibility, as well as those affecting employer-provided retiree benefits and private insurance coverage.
  • Inflation and health care costs are two other variables that can have an impact on living costs and, hence, your retirement planning.
  • Life events – such as marriage, the death of a spouse, and the addition or loss of a dependent – may also affect your cash Cash flow is also a matter of personal preferences and decisions, and here you will be in control of the many small and large choices likely to be made over the course of retirement. How much you spend on travel, entertainment and recreation and whether you live in a lower or higher cost locale are examples of factors that can have a significant effect on cash flow – and how long your retirement assets are likely to last.

That’s why it’s worth paying close attention to cash flow, making sure you budget carefully, monitor income and expenses frequently, and take action whenever you see significant changes in income and expenses.

Points to Remember

  1. Due to increasing longevity, managing cash flow has become a critical task for retirees seeking to ensure that they do not outlive their assets.
  2. An up-to-date net-worth statement and monthly budget providing itemized breakdowns of income and expenses are the basic tools used to monitor and manage cash
  3. Interest rate trends and market moves may result in higher or lower income from savings and
  4. Other factors that can alter cash flow include changes in inflation, health care costs, tax rates and regulations, and Social Security and Medicare
  5. Lifestyle choices- such as preferences for housing, travel, and entertainment- also affect cash

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of  the content.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine  which investment(s) may be appropriate for you, consult your financial advisor prior  to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

© 2013 S&P Capital IQ Financial Communications. All rights reserved.


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The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: GA

Planning Your Required Distributions

For those in or near retirement, the age of 70 1/2 is a key transition point: Retirees need to begin planning for required minimum distributions (RMDs) that are taken annually from employer-sponsored retirement plans and traditional IRAs. Understanding the rules can help to ensure that you take these distributions in a manner that is best suited to your personal situation.

IRAs

For a traditional IRA, you must begin withdrawals by April 1 following the year in which you reach age 70 1/2. The amount that you must withdraw is based on your age with one exception: If you have a spousal beneficiary who is more than 10 years younger than you, the amount of the RMD is based on your joint life expectancy. If your distributions are less than the required minimum, the IRS assesses a penalty equal to 50% of the difference. RMDs are not required from Roth IRAs.

Employer-Sponsored  Plans

For 401(k)s, 403(b)s, and other employer plans, the same rule about beginning withdrawals by April 1 following the year in which you reach age 70 1/2 still applies. However, if you continue working beyond age 70 1/2 and do not own more than 5% of a company, you can delay RMDs until your retirement.

In addition, qualified individuals may take a lump-sum distribution in which they withdraw assets from 401(k), profit-sharing,  and stock purchase plans within a one-year period. If terms of the lump-sum distribution are met, the taxable portion is taxed at special rates based on levels for single taxpayers in 1986. Those born before 1937 qualify for 10-year forward income averaging. RMDs from qualified retirement accounts are taxable as ordinary income.

Calculating the Amount

In most instances, the financial institution where you maintain the account determines the amount of your RMD. The formula involves dividing your balance as of December 31 by your life expectancy, and the resulting amount is your distribution. Although these rules may appear cut and dry, there is flexibility that retirees may want to consider:

  • You have the option of taking the initial RMD in the year in which you turn 70 1/2 or waiting until the following year, as long as the withdrawal is taken by April 1 of the following Keep in mind that if you delay your RMD until the following year, you will be required to take two RMDs that next year, which could potentially push you into a higher tax bracket.
  • You may also take your RMD as a series of withdrawals throughout the year, which could be convenient if you are using the withdrawals for ongoing living
  • When planning for distributions, be sure to keep your beneficiary(ies) up to Married participants in employer­ sponsored retirement plans are required to name their spouse as beneficiary unless the spouse waives this right in writing. For an IRA, account holders may designate whomever they wish.

Planning for RMDs is complex. Before beginning your distributions, you may want to consult the financial institution where your assets are housed, your financial advisor, and your tax advisor to make sure that your planning efforts are successful.

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of  the content.

© 2013 S&P Capital IQ Financial Communications. All rights reserved.


Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: GA

Retirement Planning Tips for Fifty-Somethings

Entering your 50s and behind in your retirement planning goals? Don’t fret. You’ve still got time to get your financial plan back on track.

There are many steps that older investors can take to better prepare themselves financially for retirement. Here are six tips that may help you make the most of your final working years.

  1. Catch up. If you have access to a 401(k) or other workplace-sponsored plan, make the $5,500 catch-up contribution that is available to participants aged 50 and older. Note that you are first required to contribute the annual employee maximum, $17,500 for 2013, before making the catch-up contribution.
  2. Fund an Investors aged 50 and older can contribute $6,500 annually (the $5,500 annual contribution plus an additional catch-up contribution of $1,000). An investor in his or her 50s who contributes the maximum amounts to both a 401(k) and an IRA could accelerate retirement savings by more than $25,000 a year.
  3. Consider If you do not have access to a workplace-sponsored retirement plan, or you already contribute the maximum to your qualified retirement accounts, consider stocks that offer dividend reinvestment (“1”). Reinvesting your dividends may help to grow your account balance over time.
  4. Make little Consider how you can trim expenses while continuing to enjoy life. Some suggestions for quick savings: Eliminate or reduce premium cable channels that you do not watch, memberships that you do not use regularly, and frequent splurges on dining out or coffee runs. An extra $100 a month saved today could make a big difference down the road.
  5. Review strategies for postponing You may be able to learn new skills that could increase your marketability to potential employers. Even a part-time job could reduce your need to deplete retirement assets.
  6. Don’t give Many pre-retirees falsely believe that there is nothing they can do to build retirement assets, and as a result, do nothing. Remember that you control how much you invest, and in many areas, how much you spend. Make a plan — and stick with it.

 (“1”) Investing in stocks involves risk, including loss of principal.

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2013 S&P Capital IQ Financial Communications. All rights reserved.


Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: GA