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Topic: Wealth Planning

Saving for Retirement and a Child’s Education at the Same Time

Know what your financial needs are

The first step is to determine your financial needs for each goal. Answering the following questions can help you get started:

For retirement:

  • How many years until you retire?
  • Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate? If so, what’s your balance? Can you estimate what your balance will be when you retire?
  • How much do you expect to receive in Social Security benefits? (One way to get an estimate of your future Social Security benefits is to use the benefit calculators available on the Social Security Administration’s website, www.ssa.gov. You can also sign up for a my Social Security account so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor’s, and disability benefits.)
  • What standard of living do you hope to have in retirement? For example, do you want to travel extensively, or will you be happy to stay in one place and live more simply?
  • Do you or your spouse expect to work part-time in retirement?

For college:

  • How many years until your child starts college?
  • Will your child attend a public or private college? What’s the expected cost?
  • Do you have more than one child whom you’ll be saving for?
  • Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?
  • Do you expect your child to qualify for financial aid?

Many on-line calculators are available to help you predict your retirement income needs and your child’s college funding needs.

Though college is certainly an important goal, you should probably focus on your retirement if you have limited funds. With generous corporate pensions mostly a thing of the past, the burden is primarily on you to fund your retirement. But if you wait until your child is in college to start saving, you’ll miss out on years of potential tax-deferred growth and compounding of your money. Remember, your child can always attend college by taking out loans (or maybe even with scholarships), but there’s no such thing as a retirement loan!

Figure out what you can afford to put aside each month

After you know what your financial needs are, the next step is to determine what you can afford to put aside each month. To do so, you’ll need to prepare a detailed family budget that lists all of your income and expenses. Keep in mind, though, that the amount you can afford may change from time to time as your circumstances change. Once you’ve come up with a dollar amount, you’ll need to decide how to divvy up your funds.

If possible, save for your retirement and your child’s college at the same time

Ideally, you’ll want to try to pursue both goals at the same time. The more money you can squirrel away for college bills now, the less money you or your child will need to borrow later. Even if you can allocate only a small amount to your child’s college fund, say $50 or $100 a month, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8% annually, you’d have $18,415 in your child’s college fund after 10 years. (This example is for illustrative purposes only and does not represent a specific investment. Investment returns will fluctuate and cannot be guaranteed.)

If you’re unsure about how to allocate your funds between retirement and college, a professional financial planner may be able to help. This person can also help you select appropriate investments for each goal. Remember, just because you’re pursuing both goals at the same time doesn’t necessarily mean that the same investments will be suitable. It may be appropriate to treat each goal independently.

Help! I can’t meet both goals

If the numbers say that you can’t afford to educate your child or retire with the lifestyle you expected, you’ll probably have to make some sacrifices. Here are some suggestions:

  • Defer retirement: The longer you work, the more money you’ll earn and the later you’ll need to dip into your retirement savings.
  • Work part-time during retirement.
  • Reduce your standard of living now or in retirement: You might be able to adjust your spending habits now in order to have money later. Or, you may want to consider cutting back in retirement.
  • Increase your earnings now: You might consider increasing your hours at your current job, finding another job with better pay, taking a second job, or having a previously stay-at-home spouse return to the workforce.
  • Invest more aggressively: If you have several years until retirement or college, you might be able to earn more money by investing more aggressively (but remember that aggressive investments mean a greater risk of loss). Note that no investment strategy can guarantee success.
  • Expect your child to contribute more money to college: Despite your best efforts, your child may need to take out student loans or work part-time to earn money for college.
  • Send your child to a less expensive school: You may have dreamed your child would follow in your footsteps and attend an Ivy League school. However, unless your child is awarded a scholarship, you may need to lower your expectations. Don’t feel guilty — a lesser-known liberal arts college or a state university may provide your child with a similar quality education at a far lower cost.
  • Think of other creative ways to reduce education costs: Your child could attend a local college and live at home to save on room and board, enroll in an accelerated program to graduate in three years instead for four, take advantage of a cooperative education where paid internships alternate with course work, or defer college for a year or two and work to earn money for college.
If you have several years until retirement or college, you might be able to earn more money by investing more aggressively.

Can retirement accounts be used to save for college?

Yes. Should they be? That depends on your family’s circumstances. Most financial planners discourage paying for college with funds from a retirement account; they also discourage using retirement funds for a child’s college education if doing so will leave you with no funds in your retirement years. However, you can certainly tap your retirement accounts to help pay the college bills if you need to. With IRAs, you can withdraw money penalty free for college expenses, even if you’re under age 59½ (though there may be income tax consequences for the money you withdraw). But with an employer-sponsored retirement plan like a 401(k) or 403(b), you’ll generally pay a 10% penalty on any withdrawals made before you reach age 59½ (age 55 or 50 in some cases), even if the money is used for college expenses. There may be income tax consequences, as well. (Check with your plan administrator to see what withdrawal options are available to you in your employer-sponsored retirement plan.)

What You Should Do If You Gain Sudden Wealth

Evaluate your new financial position

Just how wealthy are you? You’ll want to figure that out before you make any major life decisions. Your first impulse may be to go out and buy things, but that may not be in your best interest. Even if you’re used to handling your own finances, now’s the time to watch your spending habits carefully. Sudden wealth can turn even the most cautious person into an impulse buyer. Of course, you’ll want your current wealth to last, so you’ll need to consider your future needs, not just your current desires.

Remember, there’s no rush. You can put your funds in an accessible interest-bearing account such as a savings account, money market account, or short-term certificate of deposit until you have time to plan and think things through.

Once you’ve taken care of the basics, set aside some money to treat yourself to something you wouldn’t have bought or done before, It’s OK to have fun with some of your new money!

It’s important not to deprive yourself entirely of any enjoyment. You’ll want to build the occasional reward into your budget.

Answering these questions may help you evaluate your short- and long-term needs and goals:

• Do you have outstanding debt that you’d like to pay off?
• Do you need more current income?
• Do you plan to pay for your children’s education?
• Do you need to bolster your retirement savings?
• Are you planning to buy a first or second home?
• Are you considering giving to loved ones or a favorite charity?
• Are there ways to minimize any upcoming income and estate taxes?

Note: Experts are available to help you with all of your planning needs, and guide you through this new experience.

Impact on insurance

It’s sad to say, but being wealthy may make you more vulnerable to lawsuits. Although you may be able to pay for any damage (to yourself or others) that you cause, you may want to re-evaluate your current insurance policies and consider purchasing an umbrella liability policy. If you plan on buying expensive items such as jewelry or artwork, you may need more property/casualty insurance to cover these items in case of loss or theft. Finally, it may be the right time to re-examine your life insurance needs. More life insurance may be necessary to cover your estate tax bill so your beneficiaries receive more of your estate after taxes.

Impact on estate planning

Now that your wealth has increased, it’s time to re-evaluate your estate plan. Estate planning involves conserving your money and putting it to work so that it best fulfills your goals. It also means minimizing your taxes and creating financial security for your family.

Is your will up to date? A will is the document that determines how your worldly possessions will be distributed after your death. You’ll want to make sure that your current will accurately reflects your wishes. If your newfound wealth is significant, you should meet with your attorney as soon as possible. You may want to make a new will and destroy the old one instead of simply making changes by adding a codicil.

Carefully consider whether the beneficiaries of your estate are capable of managing the inheritance on their own. For instance, if you have minor children, you should consider setting up a trust to protect their interests and control the age at which they receive their funds.

It’s probably also a good idea to consult a tax attorney or financial professional to look into the amount of federal estate tax and state death taxes that your estate may have to pay upon your death; if necessary, discuss ways to minimize them.

Giving it all away — or maybe just some of it

Is gift giving part of your overall plan? You may want to give gifts of cash or property to your loved ones or to your favorite charities. It’s a good idea to wait until you’ve come up with a financial plan before giving or lending money to anyone, even family members. If you decide to give or lend any money, put everything in writing. This will protect your rights and avoid hurt feelings down the road. In particular, keep in mind that:

  • If you forgive a debt owed by a family member, you may owe gift tax on the transaction
  • You can make individual gifts of up to $15,000 (2020 limit) each calendar year without incurring any gift tax liability ($30,000 for 2020 if you are married, and you and your spouse can split the gift)
  • If you pay the school directly, you can give an unlimited amount to pay for someone’s education without having to pay gift tax (you can do the same with medical bills)
  • If you make a gift to charity during your lifetime, you may be able to deduct the amount of the gift on your income tax return, within certain limits, based on your adjusted gross income

Note: Because the tax implications are complex, you should consult a tax professional for more information before making sizable gifts.

Adjusting to Life Financially After a Divorce

Assess your current financial situation

Following a divorce, you’ll need to get a handle on your finances and assess your current financial situation, taking into account the likely loss of your former spouse’s income. In addition, you may now be responsible for paying for expenses that you were once able to share with your former spouse, such as housing, utilities, and car loans. Ultimately, you may come to the realization that you’re no longer able to live the lifestyle you were accustomed to before your divorce.



Establish a budget

A good place to start is to establish a budget that reflects your current monthly income and expenses. In addition to your regular salary and wages, be sure to include other types of income, such as dividends and interest. If you will be receiving alimony and/or child support, you’ll want to include those payments as well.


As for expenses, you’ll want to focus on dividing them into two categories: fixed and discretionary. Fixed expenses include things like housing, food, and transportation. Discretionary expenses include things like entertainment, vacations, etc. Keep in mind that you may need to cut back on some of your discretionary expenses until you adjust to living on less income. However, it’s important not to deprive yourself entirely of any enjoyment. You’ll want to build the occasional reward (for example, yoga class, dinner with friends) into your budget.

If you have debt, try to put a plan in place to pay it off as quickly as possible: Keep track of balances and interest rates Develop a plan to manage payments and avoid late fees Pay off high-interest debt first Take advantage of debt consolidation/refinancing options

Reevaluate/reprioritize your financial goals

Your next step should be to reevaluate your financial goals. While you were married, you may have set certain financial goals with your spouse. Now that you are on your own, these goals may have changed. Start out by making a list of the things that you now would like to achieve. Do you need to put more money towards retirement? Are you interested in going back to school? Would you like to save for a new home?


You’ll want to be sure to reprioritize your financial goals as well. You and your spouse may have planned on buying a vacation home at the beach. After your divorce, however, you may find that other goals may become more important (for example, making sure your cash reserve is adequately funded).

Take control of your debt

While you’re adjusting to your new budget, be sure that you take control of your debt and credit. You should try to avoid the temptation to rely on credit cards to provide extras. And if you do have debt, try to put a plan in place to pay it off as quickly as possible. The following are some tips to help you pay off your debt:

  • Keep track of balances and interest rates
  • Develop a plan to manage payments and avoid late fees
  • Pay off high-interest debt first
  • Take advantage of debt consolidation/refinancing options

Protect/establish credit

Since divorce can have a negative impact on your credit rating, consider taking steps to try to protect your credit record and/or establish credit in your own name. A positive credit history is important since it will allow you to obtain credit when you need it, and at a lower interest rate. Good credit is even sometimes viewed by employers as a prerequisite for employment.


Review your credit report and check it for any inaccuracies. Are there joint accounts that have been closed or refinanced? Are there any names on the report that need to be changed? You’re entitled to a free copy of your credit report once a year from each of the three major credit reporting agencies. You can go to annualcreditreport.com for more information.


To establish a good track record with creditors, be sure to make your monthly bill payments on time and try to avoid having too many credit inquiries on your report. Such inquiries are made every time you apply for new credit cards.

Review your insurance needs

Typically, insurance coverage for one or both spouses is negotiated as part of a divorce settlement. However, you may have additional insurance needs that go beyond that which you were able to obtain through your divorce settlement.


When it comes to health insurance, make having adequate coverage a priority. Unless your divorce settlement requires your spouse to provide you with health coverage, one option is to obtain temporary health insurance coverage (up to 36 months) through the Consolidated Omnibus Budget Reconciliation Act (COBRA). You can also look into purchasing individual coverage or, if you’re employed, coverage through your employer.


Now that you’re on your own, you’ll also want to make sure that your disability and life insurance coverage matches your current needs. This is especially true if you are reentering the workforce or if you’re the custodial parent of your children.


Finally, make sure that your property insurance coverage is updated. Any applicable property insurance policies may need to be modified or rewritten in order to reflect property ownership changes that may have resulted from your divorce.

Change your beneficiary designations

After a divorce, you’ll want to change the beneficiary designations on any life insurance policies, retirement accounts, and bank or credit union accounts you may have in place. Keep in mind that a divorce settlement may require you to keep a former spouse as a beneficiary on a policy, in which case you cannot change the beneficiary designation.


This is also a good time to make a will or update your existing one to reflect your new status. Make sure that your former spouse isn’t still named as a personal representative, successor trustee, beneficiary, or holder of a power of attorney in any of your estate planning documents.

It’s important not to deprive yourself entirely of any enjoyment. You’ll want to build the occasional reward (for example, yoga class, dinner with friends) into your budget.

Consider tax implications

You’ll also need to consider the tax implications of your divorce. Your sources of income, filing status, and the credits and/or deductions for which you qualify may all be affected.


In addition to your regular salary and wages, you may have new sources of income after your divorce, such as alimony and/or child support. If you are receiving alimony, it will be considered taxable income to you. Child support, on the other hand, will not be considered taxable income.


Your tax filing status will also change. Filing status is determined as of the last day of the tax year (December 31). This means that even if you were divorced on December 31, you would, for tax purposes, be considered divorced for that entire year.


Finally, if you have children, and depending on whether you are the custodial parent, you may be eligible to claim certain credits and deductions. These could include the child tax credit, and the credit for child and dependent care expenses, along with college-related tax credits and deductions.

Consult a financial professional

Although it can certainly be done on your own, you may want to consider consulting a financial professional to assist you in adjusting to your new financial life. In addition to helping you assess your needs, a financial professional can work with you to develop a plan designed to help you address your financial goals, make recommendations about specific products and services, and monitor and adjust your plan as needed.

Why Women Need Life Insurance

Who needs life insurance?

Working women

Increasingly, families depend on the income of two working parents. If you’re a working mother, your income can have a significant impact on the quality of your family’s lifestyle. Your income helps cover the cost of ordinary living expenses such as food, clothing, and utilities, and it provides savings for your children’s college education, and for your retirement. Life insurance protects your family by providing proceeds that can be used to replace your lost income if you die prematurely.

Single women

Often, women, like men, think that it’s not necessary to buy life insurance because they have no dependents. What’s often overlooked is that life insurance can provide necessary funds to pay off car loans, education loans, debts, a mortgage, taxes, and funeral expenses that might otherwise be the responsibility of family members. Also, the cash value of permanent life insurance may be used to supplement retirement income.

Single moms

Whether you’re divorced, widowed, or simply a single mom, you’re most likely primarily responsible for your child’s support. If you die prematurely, life insurance can provide ongoing income to cover child-care costs, medical expenses, debts, and future college costs.

If you die, your surviving spouse may have to pay for services such as child care, transportation for your children, and housekeeping. Proceeds from your life insurance can help your spouse pay for services that keep the household running and allow your spouse to keep working.

Stay-at-home moms

Maintaining a household is a full-time job, and you have many important roles and duties. The cost of the services performed by a stay-at-home mom could be quite significant if someone had to be hired to do them. If you die, your surviving spouse may have to pay for services such as child care, transportation for your children, and housekeeping. Taking over these added responsibilities could cause your spouse to shorten work hours, resulting in a reduction in income. Proceeds from your life insurance can help your spouse pay for services that keep the household running and allow your spouse to keep working.

Family caregiver

Many women find themselves providing care for both children and elderly family members. Caring for an aging parent or family member can include paying for the costs of adult day care, uninsured medical expenses, and extra transportation. Adding these expenses to the costs of maintaining a household, child care, and college tuition can be financially overwhelming. Unfortunately, these added financial responsibilities often continue after your death. Life insurance provides a source of funds that can be used to help pay for these expenses.

Business owner

You may be one of the increasing number of women business owners. If you die while owning your business, life insurance can be used to provide cash for company expenses such as payroll or operating costs while your estate is being settled. Also, life insurance can be a useful tool for business owners structuring buy-sell arrangements or providing benefits to key employees.

Life insurance types and options

Life insurance comes in many different sizes and shapes, and determining the policy that meets your needs may depend on a number of factors. Understanding the basic types of life insurance can help you find the policy that’s appropriate for you.


Term life insurance

Term life insurance provides a simple death benefit for a specified period of time. If you die during the coverage period, the beneficiary you name in the policy receives the death benefit. If you live past the term period, your coverage ends, and you get nothing back. The cost, or premium, for the coverage can be fixed for the duration of the policy term (usually 1 to 30 years) or it can be “annually renewable” meaning that the premium can increase each year as you get older. However, the premium for term insurance usually costs less than the premium for permanent insurance when all factors are the same, including the death benefit.

Whole life insurance

Whole life is permanent or cash value insurance that provides insurance coverage for your entire life. With most whole life policies, part of your premium is added to the cash value account, which earns interest. Some whole life policies also pay a dividend, which represents a portion of the company’s profits made during the prior year.


The cash value grows tax deferred and can either be used as collateral to borrow from the insurance company or be directly accessed through a partial or complete surrender of the policy. It is important to note, however, that a policy loan or partial surrender will reduce the policy’s death benefit, there could be income tax implications, and a complete surrender will terminate coverage altogether.


Guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company.

Universal life insurance

Universal life is another type of permanent life insurance with a death benefit and a cash value account. A universal life insurance policy will generally provide very broad premium guidelines (i.e., minimum and maximum premium payments), but within these guidelines you can choose how much and when you pay premiums. You are also free to change the policy’s death benefit directly (again, within the limits set out by the policy) as your financial circumstances change. But if you want to raise the amount of coverage, you’ll need to go through the insurability process again, probably including a new medical exam, and your premiums will increase.

Variable life insurance

Variable life insurance is a type of cash value coverage that allows you to choose how your cash value account is invested. A variable life policy generally contains several investment options, or subaccounts, that are professionally managed to pursue a stated investment objective. Choices can range from a fixed interest subaccount to an international growth subaccount. Variable life insurance policies require a fixed annual premium for the life of the policy and may provide a minimum guaranteed death benefit. If the cash value exceeds a certain amount, the death benefit will increase.

Variable universal life insurance

Variable universal life combines all of the options and flexibility of universal life with the investment choices of a variable policy. You decide how often and how much your premium payments are to be, within policy guidelines. With most variable universal life policies, you can direct how your premium payments are invested among policy subaccounts. But you get no guaranteed minimum cash value or death benefit, and the investment return and principal value of the investment options will fluctuate.

Proceeds from your life insurance can help your spouse pay for services that keep the household running and allow your spouse to keep working.

Joint and survivor life insurance

You and your spouse may choose to buy a single policy of permanent insurance that covers both of your lives. With first-to-die, the death benefit is paid at the death of the spouse who dies first. With second-to-die, no death benefit is paid until both spouses are deceased. Second-to-die policies are commonly used in estate planning to pay estate taxes and other expenses due at the death of the second spouse. Other than the fact that two people are insured by one policy, the policy characteristics remain the same.

Bottom line

Life insurance protection for women is equally as important as it is for men. However, women’s life insurance coverage is often inadequate. It may be time to consult an insurance professional who can help you assess your life insurance needs, and offer information about the various types of policies available.

10 Years and Counting: Points to Consider as You Approach Retirement

When you begin to ponder all the issues surrounding the transition into retirement, the process can seem downright daunting. However, thinking about a few key points now – while you still have years ahead – can help you focus your efforts and minimize the anxiety that often accompanies the shift.

Reassess your living expenses

A step you will probably take several times between now and retirement — and maybe several more times thereafter — is thinking about how your living expenses could or should change. For example, while commuting and other work-related costs may decrease, other budget items may rise. Health-care costs, in particular, may increase as you progress through retirement.

Try to estimate what your monthly expense budget will look like in the first few years after you stop working. And then continue to reassess this budget as your vision of retirement becomes reality.

According to a recent survey, 44% of retirees said they were “very confident” that they would be able to meet their basic expenses in retirement, while only 31% showed similar levels of confidence in meeting health-care costs.

Consider all your income sources

First, figure out how much you stand to receive from Social Security. The amount you receive will depend on your earnings history and other unique factors. You can elect to receive retirement benefits as early as age 62, however, doing so will result in a reduced benefit for life. If you wait until your full retirement age (66 or 67, depending on your birth date) or later (up to age 70), your benefit will be higher. The longer you wait, the larger it will be.

You can get an estimate of your retirement benefit at the Social Security Administration website, ssa.gov. You can also sign up for a my Social Security account to view your online Social Security statement, which contains a detailed record of your earnings and estimates for retirement, survivor, and disability benefits. Your retirement benefit estimates include amounts at age 62, full retirement age, and age 70. Check your statement carefully and address any errors as soon as possible.

Next, review the accounts you’ve earmarked for retirement income, including any employer benefits. Start with your employer-sponsored plan, and then consider any IRAs and traditional investment accounts you may own. Try to estimate how much they could provide on a monthly basis. If you are married, be sure to include your spouse’s retirement accounts as well. If your employer provides a traditional pension plan, contact the plan administrator for an estimate of that monthly benefit amount.

Do you have rental income? Be sure to include that in your calculations. Might you continue to work? Some retirees find that they are able to consult, turn a hobby into an income source, or work part-time. Such income can provide a valuable cushion that helps retirees postpone tapping their investment accounts, giving the assets more time to potentially grow.

Some other ways to generate extra cash during retirement include selling gently used goods (such as furniture or designer accessories), pet sitting, and participating in the sharing economy — e.g., using your car as a taxi service.

Pay off debt, power up your savings

Once you have an idea of what your possible expenses and income look like, it’s time to bring your attention back to the here and now. Draw up a plan to pay off debt and power up your retirement savings before you retire.


Why pay off debt? Entering retirement debt-free — including paying off your mortgage — will put you in a position to modify your monthly expenses in retirement if the need arises. On the other hand, entering retirement with a mortgage, loan, and credit-card balances will put you at the mercy of those monthly payments. You’ll have less of an opportunity to scale back your spending if necessary.


Why power up your savings? In these final few years before retirement, you’re likely to be earning the highest salary of your career. Why not save and invest as much as you can in your employer-sponsored retirement savings plan and/or IRAs? Aim for maximum allowable contributions. And remember, if you’re 50 or older, you can take advantage of catch-up contributions, which enable you to contribute an additional $6,500 to your 401(k) plan and an extra $1,000 to your IRA in 2020.

Manage taxes

As you think about when to tap your various resources for retirement income, remember to consider the tax impact of your strategy. For example, you may want to withdraw money from your taxable accounts first to allow your employer-sponsored plans and IRAs more time to potentially benefit from tax-deferred growth. Keep in mind, however, that generally you are required to begin taking minimum distributions from tax-deferred accounts in the year you turn age 70½, whether or not you actually need the money. (Roth IRAs are an exception to this rule.)

If you decide to work in retirement while receiving Social Security, understand that income you earn may result in taxable benefits. IRS Publication 915 offers a worksheet to help you determine whether any portion of your Social Security benefit is taxable.

If leaving a financial legacy is a goal, you’ll also want to consider how estate taxes and income taxes for your heirs figure into your overall decisions.

Managing retirement income to result in the best possible tax scenario can be extremely complicated. Qualified tax and financial professionals can provide valuable insight and guidance.

Account for health care

The Employee Benefit Research Institute (EBRI) reported that the average 65-year-old married couple, with average prescription drug expenses, would need about $300,000 in savings to have at least a 90% chance of meeting their insurance premiums and out-of-pocket health-care costs in retirement in 2019. This figure illustrates why health care should get special attention as you plan the transition to retirement.

As you age, the portion of your budget consumed by health-related costs (including both medical and dental) will likely increase. Although Original Medicare (Parts A and B) will cover a portion of your costs, you’ll still have deductibles, copayments, and coinsurance. Unless you’re prepared to pay for these costs out of pocket, you may want to purchase a supplemental Medigap insurance policy. Medigap policies are sold by private health insurers and are standardized and regulated by both state and federal law. These plans cover certain specified services, but offer different combinations of coverage. Some cover all or part of your Medicare deductibles, copayments, or coinsurance costs.

Another option is Medicare Advantage (also known as Medicare Part C), which is a bundled plan that inlcudes Parts A and B, and usually Part D prescription coverage, and may offer additional benefits Original Medicare doesn’t cover. If you enroll in Medicare Advantage, you cannot also purchase a Medigap policy. For more information, visit medicare.gov.

Also think about what would happen if you or your spouse needed home care, nursing home care, or other forms of long-term assistance, which Medicare and Medigap will not cover. Long-term care costs vary substantially depending on where you live and can be extremely expensive. For this reason, people often consider buying long-term care insurance. Policy premiums may be tax deductible, based on a number of different factors. If you have a family history of debilitating illness such as Alzheimer’s, have substantial assets you’d like to protect, or want to leave assets to heirs, a long-term care policy may be worth considering.

Ease the transition

These are just some of the factors to consider as you prepare to transition into retirement. Breaking the bigger picture into smaller categories and using the years ahead to plan accordingly may help make the process a little easier.

Helping a conservative client

THE SITUATION

Dennis owned a small family business and earned a modest income. As he approached his retirement years, he worried have enough to provide for a comfortable retirement. He has always been very conservative with his money and suspicious of seeking counsel from a financial management company.

THE SOLUTION

One of Dennis’s friends recommended CD Wealth Management as a group of experts he could trust. Andy Dropkin and his team began meeting regularly with Dennis to help him get an overview of his financial picture. Respecting his conservative approach to money, they recommended and helped him buy individual bonds. At the time, Dennis had his money invested with another financial services company. Despite that, Andy reviewed Dennis’s portfolio and recommended changes to optimize his assets over his remaining working years.

Andy and the CD Wealth Management team developed a solid working relationship that has lasted more than a decade. In the years working with Dennis, Andy helped Dennis diversify his portfolio and helped him to invest his proceeds after the sale of his business.

Now Dennis enjoys his retirement knowing his future is secure with a large portion of his money in tax free bonds and the remainder in equities. Dennis is taking care of his wife and set aside money for his grandchildren’s education. He even has recommended Andy and the CD Wealth Management team to his estate planning attorney who has been so impressed, that he recommends CD Wealth Management to his clients.

Dennis is a real client. His name has been changed to protect his privacy.

Enjoying the Blessings of a Multigenerational Legacy

THE SITUATION

Robert has worked a job since he was a teenager. For more than 50 years, he has devoted himself to his wife and family and building a successful business. Robert has decided that it is finally time to sell the business and spend more time traveling with his wife to visit their children and grandchildren. More importantly, he wants to make certain that the proceeds from the sale of his business will comfortably support their retirement and leave a financial legacy for his family that will provide college for his grandchildren and sizable donations to the charities he and his wife support.

THE SOLUTION

As a client of CD Wealth Management for more than 20 years, Robert meets regularly with Ilona Friedman and her team to go over his business and personal finances ensuring that everything is on track to help and his wife enjoy a portion of his income tax-free in their retirement. Now that he is ready to sell his business, Ilona has been meeting more frequently with Robert and his wife to create a game-plan for the transfer of their wealth with their children and grandchildren. The team has met with Robert’s attorney and CPA to finalize a plan for the sale of the business. They also have created a plan to distribute donations to their favorite non-profits in a thoughtful way that aligns with both the charitable and family legacy. Robert sees his role as patriarch of the family as financially protecting his family and enabling them to enjoy the blessings of the success he has built over his lifetime. His decades-long relationship with CD Wealth Management has given him the confidence that his multi-generational legacy is secure.

Robert is a real client and his story is true. We have changed his name to protect his privacy.

Life After Divorce

THE SITUATION

Sheryl has four school-aged kids and was married to a successful CEO of a Texas-based company. After evidence of her husband’s infidelity was uncovered, Sheryl began divorce proceedings. What followed was a very nasty, protracted, and painful divorce. Immediately after the divorce was finalized, Sheryl’s ex-husband lost his job, making alimony and child support payments uncertain. Broken and anxious about her financial situation, a friend recommended she talk to the team at CD Wealth Management. 

THE SOLUTION

Immediately, Ilona Friedman and the CD Wealth Management team met with Sheryl to listen to her story and provide moral support. Sheryl was able to discuss her fears and concerns about providing for her children and her immediate and short-term needs. Ilona and the CD Wealth Management team put together a plan that focused on helping Sheryl meet her immediate financial obligations including paying attorneys fees, ongoing bills, and now taking care of the children as a single mom. Meeting regularly, Ilona worked with Sheryl to help her structure a livable budget with income from Sheryl’s new job and spousal support, child support, and investments.

Today, Sheryl has a strong financial strategy that includes a plan for her retirement when she is in her 60s. As a single mother, she is successfully providing for her family and even putting her oldest child through college. As she looks back now Sheryl describes that time as when the light broke through the darkness of the most difficult time of her life. She credits Ilona and the CD Wealth Management team as being a “lifesaver” to her and her children at a time when she was desperate for financial clarity, support, and counsel.

Sheryl is a real client and her story is true. We have changed her name to protect her privacy.

Tips for Women Who Are Living in the Sandwich Generation

Setting priorities

The day-to-day demands of caring for both an aging parent and children can put a tremendous strain — both emotional and financial — on the primary caregiver. This is especially true when adult siblings or family members don’t agree on the best course of action for elder care, don’t pitch in to do their share, or don’t contribute enough financially to the cost of that care.

The first thing to do is get yourself in the proper mindset. This life phase could last one or two years, or it could last many more. In any case, try to treat this stage as a marathon and pace yourself; you don’t want to start sprinting right out of the gate and burn out too soon.

Encourage open communication with your family to figure out ways to share the financial, emotional, and time burdens. Hold regular meetings to discuss issues, set priorities, and delegate tasks. Women are often conditioned to believe they have to “do it all,” but there is no reason why adult siblings (if you have any) can’t share at least some of the workload.

It’s important for caregivers to get their own financial house in order. Ironically, at the very time you need to do this, the demands of caregiving may cause you to lose income because you have to step back at work — through reduced hours, unpaid time off, or turning down a promotion. Here are some tips to get your finances on track:

Considering your needs

This stage of your life could last many years, or just a few. Try to pace yourself so you can make it for the long haul. As much as you can, try to get adequate sleep, eat nutritiously, and exercise — all things that will increase your ability to cope. Don’t feel guilty about taking time for yourself when you need it, whether it’s a couple of hours holed up with a book or out to the movies, or a longer weekend getaway. When you put your own needs first occasionally and look after yourself, you’ll be in a better position to care for those around you.

  • Establish a budget and stick to it. Having a realistic budget can help you balance your income and expenses and keep your finances on track.
  • Invest in your own future by putting as much as you can into your retirement plan, and avoid raiding it to pay for your parent’s care or your child’s college education.
  • Don’t quit your job before exploring other arrangements. If you need more time at home than vacation or personal days can provide, ask your employer if you can telecommute, flex your hours, reduce your hours temporarily, or take unpaid leave. Another option is to enroll your parent in an adult day-care program or hire a home health aide to fill the gaps. Some employers offer elder-care resource locators or other caregiving support as an employee benefit, so make sure to check. Permanently leaving your job should be a last resort — time out of the workforce will reduce not only your earnings but possibly your Social Security benefit at retirement as well.

Caring for your parents

Talk to your parents about their financial resources. Do they have retirement income? Long-term care insurance? Do they own their home? Learn the whereabouts of all their documents and accounts, as well as the financial professionals and friends they rely on for advice and support.

Much depends on whether your parent is living with you or out of town. If your parent lives a distance away, you’ll have to monitor his or her welfare from afar — a challenging task. Though caregiving can be a major stress on anyone, distance can magnify it — daily phone calls or video chats might not be enough, and traveling to your parent’s home can be expensive and difficult to manage with your work and family responsibilities.

If your parent’s needs are great enough, you may want to consider hiring a geriatric care manager, who can help oversee your parent’s care and direct you to the right community resources, and/or a home health aide, who can check in on your parent during the week. Here are some things you should do:

  • Take inventory of your parent’s assets and consolidate his or her financial accounts.
  • Get a current list of the medicines your parent takes and the doctors he or she sees.
  • Have your parent establish a durable power of attorney and health-care directive, which gives you legal authority to handle financial and health-care decisions if your parent becomes incapacitated. And make sure your parent has a will.
  • Consider consulting a tax professional to see if you might be entitled to potential tax benefits as a result of your caregiving; for example, you might be able to claim your parent as a dependent.
  • If your parent’s needs are great enough, you might need to go a step further and explore assisted-living options or nursing homes.
Try to treat this stage as a marathon and pace yourself; you don’t want to start sprinting right out of the gate and burn out too soon.

Eventually, you might decide that your parent needs to move in with you. In that case, here are some suggestions to make that transition:

  • Talk with your parent in advance about both of your expectations and concerns.
  • If possible, set up a separate room and phone for your parent for some space and privacy.
  • Research local programs to see what resources are offered for seniors; for example, the senior center may offer social gatherings or adult day care that can give you a much needed break.
  • Ask and expect adult siblings to help out. Siblings who may live far away and can’t help out physically on a regular basis, for example, can make a financial contribution that can help you hire assistance. They can also research assisted-living or nursing home options. Don’t try to do everything yourself.
  • Keep the lines of communication open, which can go a long way to the smooth running of your multigenerational family.

Meeting the needs of your children

Your children may be feeling the effect of your situation more than you think, especially if they are teenagers. At a time when they still need your patience and attention, you may be preoccupied with your parent’s care, meeting your work deadlines, and juggling your financial obligations. Here are some things to keep in mind as you try to balance your family’s needs:

  • Explain what changes may come about as you begin caring for your parent. Talk honestly about the pros and cons of having a grandparent in the house, and be sympathetic and supportive of your children (and your spouse) as they try to adjust. Ask them to take responsibility for certain chores, but don’t expect them to be the main caregivers.
  • Discuss college plans. Encourage realistic expectations about the college they may be able to attend. Your kids may have to settle for less than they wanted, or at least get a job to help meet costs.
  • Teach your kids how to spend wisely and set financial priorities.
  • Try to build in some special time with your children doing an activity they enjoy.
  • If you have “boomerang children” who’ve returned home, make sure to share your expectations with them, too. Expect help with chores (above and beyond their own laundry and meal prep), occasional simple caregiving, and a financial contribution to monthly household expenses.

*Alzheimer’s Association report, 2019 Alzheimer’s Disease Facts and Figures

Should You Take That Early Retirement Offer?

What’s the severance package?

Most early retirement offers include a severance package that is based on your annual salary and years of service at the company. For example, your employer might offer you one or two weeks’ salary (or even a month’s salary) for each year of service. Make sure that the severance package will be enough for you to make the transition to the next phase of your life. Also, make sure that you understand the payout options available to you. You may be able to take a lump-sum severance payment and then invest the money to provide income or use it to meet large expenses. Or, you may be able to take deferred payments over several years to spread out your income tax bill on the money.

How does all of this affect your pension?

If your employer has a traditional pension plan, the retirement benefits you receive from the plan are based on your age, years of service, and annual salary. You typically must work until your company’s normal retirement age (usually 65) to receive the maximum benefits. This means that you may receive smaller benefits if you accept an offer to retire early. The difference between this reduced pension and a full pension could be large because pension benefits typically accrue faster as you near retirement. However, your employer may provide you with larger pension benefits until you can start collecting Social Security at age 62. Or, your employer might boost your pension benefits by adding years to your age, length of service, or both. These types of pension sweeteners are key features to look for in your employer’s offer — especially if a reduced pension won’t give you enough income.

Does the offer include health insurance?

Does your employer’s early retirement offer include medical coverage for you and your family? If not, look at your other health insurance options, such as COBRA, a private policy, dependent coverage through your spouse’s employer-sponsored plan, or an individual health insurance policy through either a state-based or federal health insurance Exchange Marketplace. Because your health-care costs will probably increase as you age, an offer with no medical coverage may not be worth taking if these other options are unavailable or too expensive. Even if the offer does include medical coverage, make sure that you understand and evaluate the coverage. Will you be covered for life, or at least until you’re eligible for Medicare? Is the coverage adequate and affordable (some employers may cut benefits or raise premiums for early retirees)? If your employer’s coverage doesn’t meet your health insurance needs, you may be able to fill the gaps with other insurance.

What will happen if you say no?

If you refuse early retirement, you may continue to thrive with your employer. You could earn promotions and salary raises that boost your pension. You could receive a second early retirement offer that’s better than the first one. But, you may not be so lucky. Consider whether your position could be eliminated down the road. If the consequences of saying no are hard to predict, use your best judgment and seek professional advice. But don’t take too long. You may have only a short window of time, typically 60 to 90 days, to make your decision.

What other benefits are available?

Some early retirement offers include employer-sponsored life insurance. This can help you meet your life insurance needs, and the coverage probably won’t cost you much (if anything). However, continued employer coverage is usually limited (e.g., one year’s coverage equal to your annual salary) or may not be offered at all. This may not be a problem if you already have enough life insurance elsewhere, or if you’re financially secure and don’t need life insurance. Otherwise, weigh your needs against the cost of buying an individual policy. You may also be able to convert some of your old employer coverage to an individual policy, though your premium will be higher than when you were employed.

In addition, a good early retirement offer may include other perks. Your employer may provide you and other early retirees with financial planning assistance. This can come in handy if you feel overwhelmed by all of the financial issues that early retirement brings. Your employer may also offer job placement assistance to help you find other employment. If you have company stock options, your employer may give you more time to exercise them. Other benefits, such as educational assistance, may also be available. Check with your employer to find out exactly what its offer includes.

Can you afford to retire early?

To decide if you should accept an early retirement offer, you can’t just look at the offer itself. You have to consider your total financial picture. Can you afford to retire early? Even if you can, will you still be able to reach all of your retirement goals? These are tough questions that a financial professional should help you sort out, but you can take some basic steps yourself.

Identify your sources of retirement income and the yearly amount you can expect from each source. Then, estimate your annual retirement expenses (don’t forget taxes and inflation) and make sure your income will be more than enough to meet them. You may find that you can accept your employer’s offer and probably still have the retirement lifestyle you want. But remember, these are only estimates. Build in a comfortable cushion in case your expenses increase, your income drops, or you live longer than expected.

If you don’t think you can afford early retirement, it may be better not to accept your employer’s offer. The longer you stay in the workforce, the shorter your retirement will be and the less money you’ll need to fund it. Working longer may also allow you to build larger savings in your IRAs, retirement plans, and investments. However, if you really want to retire early, making some smart choices may help you overcome the obstacles. Try to lower or eliminate some of your retirement expenses. Consider a more aggressive approach to investing. Take a part-time job for extra income. Finally, think about electing early Social Security benefits at age 62, but remember that your monthly benefit will be smaller if you do this.

If you don’t think you can afford early retirement, it may be better not to accept your employer’s offer.

What if you can’t afford to retire? Finding a new job

You may find yourself having to accept an early retirement offer, even though you can’t afford to retire. One way to make up for the difference between what you receive from your early retirement package and your old paycheck is to find a new job, but that doesn’t mean that you have to abandon your former line of work for a new career. You can start by finding out if your former employer would hire you as a consultant. Or, you may find that you would like to turn what was once just a hobby into a second career. Then there is always the possibility of finding full-time or part-time employment with a new company.

However, for the employee who has 20 years of service with the same company, the prospect of job hunting may be terrifying. If you have been out of the job market for a long time, you might not feel comfortable or have experience marketing yourself for a new job. Some companies provide career counseling to assist employees in re-entering the workforce. If your company does not provide you with this service, you may want to look into corporate outplacement firms and nonprofit organizations in your area that deal with career transition.

Note: Many early retirement offers contain non-competition agreements or offer monetary inducements on the condition that you agree not to work for a competitor. However, you’ll generally be able to work for a new employer and still receive your pension and other retirement plan benefits.