January, 2020 | Live a Life By Design

Post-Retirement Considerations

Posted on January 31, 2020January 30, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

Nursing home costs in the United States can easily top $70,000 per year! Assisted living centers may cost as much as $4,000 per month for a one-bedroom private-pay facility. We discuss these lifestyle changes as part of our planning process for retirees. It is not always a popular subject to broach with newly-retiring people because they think of it as a negative. However, as specialists in retirement planning, we believe in educating our clients about all facets of the future that they might control.

Let’s think about the options and find a few methods of mitigating these possible future costs. For one, by maintaining an active lifestyle and sensible diet, one may escape these options or, at least, delay them. Many of our clients have seen the impact on their families’ and friends’ budgets from admissions to a nursing home. These facilities are of great assistance when transitioning our loved ones that experience a period of life in which continual support is warranted.

Another option to utilizing these types of facilities is to accumulate sufficient funds that will allow you to remain in your own home with assistance provided by nurses’ aides and other medical providers. This option appeals to most of our clients that may simply have mobility issues and cannot provide for all aspects of their daily lives. We evaluate each client’s capabilities to accomplish their activities of daily living (ADL) and assist them in analyzing the impact of potential nursing care in their future financial planning budgets.

The six routine activities of daily living are: eating, bathing, getting dressed, toileting, transferring and continence. Each of us participate in these activities daily. To lose your capability to perform one of these activities may not be the deciding factor to start searching for an alternative to remaining in your home. However, when you lose the ability to conduct three or more of these activities, it is critical that the family consider nursing providers in the home of the individual or seek a nursing home.

To determine the appropriate level of support for a loved one, it is critical that the level of care replaces the daily activities that are not being performed by the individual. It may mean that you simply require an aide in your home for twelve hours per day. As the person’s abilities become more impaired, additional support and possible relocation may be needed.

One of the greatest ramifications of assigning a loved one to a nursing home is the emotional effect on the person. Too often this process is decided without input from the impaired person and the children simply need some relief from the care being required of them. Those of us deciding the fate of any person must consider the infirmed person’s wishes and desires. These decisions are some of the most difficult to make. By keeping the person informed of each step and soliciting their acceptance with the process, you may experience a better transition.

These types of decisions can have a significant impact on your retirement plans. Seek out a Certified Financial Planner™ practitioner who understands all aspects of retirement. It is too important of a decision to simply guess.

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How to Confidently Prepare for Retirement

Posted on January 24, 2020January 24, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

If you are like most individuals, considering the scope of the changes from an active career to retirement brings anxiety and a sense of loss. As specialists in retirement planning, we guide our clients in the process to, and through, retirement to provide confidence in the outcomes for their lives. One method in which we bring confidence to the process is by addressing an individual’s four biggest financial concerns about retirement: 1) paying for healthcare; 2) saving enough money for retirement; 3) liquidating indebtedness; and 4) creating and maintaining consistent, predictable income streams in retirement.

Healthcare costs are one of the most expensive areas of living for retirees. As we age, our healthcare costs may rise. One of our clients is suffering ill health in retirement and her medical expenses average more than $6,000 per month! Proper planning for healthcare expenses is critical before you retire. Not only do you suffer physically but the potential for significant cash need for healthcare may jeopardize the quality of life and the longevity of your assets to sustain you. Analysis of the probabilities for genetic health issues as well as capabilities for current physical activity of the individual will need to be addressed.

Saving for retirement is an area of life that is often delayed until it is almost too late to help the individual substantially. Too often individuals treat their employer retirement plan as a savings account and funds “emergencies” in life with plan loans. I believe this is tremendously detrimental for the long-term viability of their retirement assets. Emergencies can be mitigated by establishing a responsible budget each year and transfer extraordinary expenses to insurance coverages. For example, if you have a home, which is often one of the largest assets of a family, you should maintain adequate replacement value insurance on the property. Failing to do so could result in the family experiencing an exorbitant damage requiring more funds that are maintained in the family reserve account.

Eliminating or reducing indebtedness prior to retirement will provide an individual a higher annual discretionary cash flow. We have assisted many of our clients in a plan to reduce or eliminate debt prior to transitioning to retirement. It is inconceivable to plan for all potential perils and hazards in life but you will experience a more confident retirement by maintaining little or no debt while retired. Again, budgeting is the key to success for debt management.

Without consistent, predictable cash flow streams, your retirement will feel more like a burden than a reward. The secret to adequate cash flow streams in retirement is to start saving early in life and structure a retirement lifestyle that is within your means. Where we have witnessed this challenge is when someone retires without a thorough plan of execution and overspends during the first few years of retirement. The family is now in distress and substantial, critical work must be performed to remedy the situation.

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Retiring On Your Own Terms

Posted on January 17, 2020January 16, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

“I want to live by the beach,” said his wife. “I want to live in the mountains,” said the husband. Differences of retirement plans typically exist within the same family. One person may wish to retire in a different environment than the other. Many of our clients come to their complimentary initial consultation without a complete understanding of their spouse’s desires for retirement. Simply because someone is married to another person for many years does not translate to an understanding of that person’s long-term goals and dreams. Communication is critical in all relationships, in a couple pondering retirement plans it is vital.

To help our clients resolve differences of opinion, and desires about retirement, we developed an approach that addresses the three “E’s”: Environmental, Economic and Emotional. To fittingly address the needs of each of the partners, these three “E’s” provide a comprehensive background for each to gain a deeper understanding of the other. This article will provide you considerations for each of the three components of retirement planning.

Environmental considerations are critical due to the impact your surroundings play in the overall happiness and health of a person. For example, scientists have proven that environment affects a person’s overall satisfaction in life attributed to their surroundings. Some people are happier in sunny, warm climates while others enjoy the cold, harsh tundra. By understanding your partner’s thoughts on environment, each of you will gain knowledge about the type of surroundings desired by the other. We work with a client who enjoys mild weather and sandy beaches. To compromise, we divided the year into quarters and accommodated her wish for salty water in the winter and his mountainous terrain for game hunting in the fall of each year. They remain content at their primary residence for six months of the year during seasons that are not extreme. Compromise is the key and extending understanding with a mindset of flexibility helps with the creation of a joyful retirement.

Economic factors contribute to the retirement quality of all of us. Considering that you have accumulated more than a sufficient amount of assets to live anywhere you wish, economic factors play less of a role in the retirement decision process. However, lets assume you have saved but may have some cash flow difficulty in the future. It is necessary to consider all means of support and the term in which that support will be available. As presented in our last article, the location of your retirement home will be a considerable outcome based on your economic means.

After considering environmental and economic factors, the most influential of these three factors, emotional, must be broached. To illustrate the power of emotions in decision making, we will share this short story. Tom and Linda decided to retire. Tom had his mind made up that he would retire in the mountains with a cabin and enjoy the land around him for his ideal retirement. Linda, often submitting to Tom’s decisions, was in misery in the mountains. Her asthma, allergies and other minor health conditions only worsened in the humid, hot summers in the mountains. She tolerated the first couple of years in the mountains and simply decided to make her wishes known to Tom. After a deep discussion of all the desires for her retirement, it was decided that they would share their time in retirement between the mountains and her beachfront condo she had been dreaming about for many years.

Compromise and consideration of the environmental, economic and emotional factors of retirement will yield the most effective choice for couples. The transition time to retirement is difficult for many people. Seek out someone who understands the needs and desires of retirees as well as possesses the expertise to help design and execute a plan that is pleasing to both partners. Life is short. Focus on these three factors and live life on your own terms!

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Relocation Considerations for Retirement

Posted on January 10, 2020January 8, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

One of the most difficult decisions in retirement planning is to relocate. If you reside in a state that has a high income tax rate, sales tax rate and/or ad valorem tax, it may be something to consider. During the retirement phase of life, your savings must last beyond your lifetime. To ignore the cost of living could be the difference between truly enjoying a lifetime of income and experiencing worry at a time in life that you shouldn’t.

A recent study of individual taxation by state yielded some not-so-surprising news. California, Hawaii, New York, Connecticut and Illinois are the highest taxing authorities on individuals. These states are currently seeing an exodus of its citizens to lower cost of living states. To eliminate 15% of your tax liability by simply relocating to Texas or Florida, states without individual income tax assessments, may provide the additional savings needed for your savings to last to lifetime.

Another area of consideration is property tax. If a state does not assess an income tax on individuals, it will, in most cases, utilize an ad valorem, or property tax, to generate revenue needed to fund the state’s functions. For example, some people consider moving to Texas due to its absence of individual income tax assessments. However, in most of the counties contiguous to the Dallas metroplex, the rate of assessment for property taxes creates more of a tax burden than one would pay by remaining in Oklahoma.

Personal property tax is another consideration when relocating in your retirement years. States have begun to assess sales tax on automobile purchases versus the excise tax previously charged for such transactions. It may take some of the joy out of your new purchase when you realize the bill from the state could be as much as $5,000!

Lastly, two of the necessities of life are utilities and food. When considering relocating, the cost of meals and household utilities should be considered. In extreme temperature climates such as experienced in Alaska, the cost of food and utilities, compared to Oklahoma, are very expensive. Due to the lack of fruit, vegetable and dairy production facilities and farms, these important staples of life must be flown into the location. The costs of delivery cause extremely high retail costs for consumers.

Although Hawaii may be the land of paradise many of us enjoy on vacation, the cost of living on the islands is very high compared to other states. Recently, we enjoyed a stay on Oahu and the cost of a gallon of milk was $7.99! If you are raising kids in your family, it may be cheaper to buy a cow.

It is important to consider many aspects when thinking of relocating during retirement. Cash flow is the ultimate factor coupled with your ecological requirements. One of the lowest costs of living states is Tennessee but you may wish to see the beautiful ocean shore each day. Trade-offs are a part of our lives. Rate the most important factors for you before undertaking a move to another state.

If you have questions as to how you can create a lifetime income plan, contact a Certified Financial Planner^TMpractitioner to assist in the analysis so that you can make the best decision for your family’s needs.

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Big Changes Affecting Your Retirement

Posted on January 3, 2020January 2, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

A couple of bills containing significant changes to retirement planning were signed into law by President Trump on December 20, 2019. We will provide just a few of the sweeping changes that affect most of us planning or currently in retirement. The Setting Every Community Up for Retirement Enhancement Act of 2019 (commonly referred to as, “The SECURE Act of 2019) is effective for tax years beginning January 1, 2020.

If you are reaching the age of 70-1/2 and anticipated taking a distribution from your IRA, or suffer a penalty, the Act extends the date of required minimum distributions to age 72. When the present age of 70-1/2 was applied to IRA distributions, U.S. citizens were living fewer years, on average, than they are now. By increasing the age of required minimum distributions to age 72, the federal government has deferred revenue for another one and a half years which allows continued growth of the retirement funds. Many of our clients do not need or desire the distributions required under previous law. However, the penalty for failing to withdraw the IRA funds was more costly than the effective tax rate applied to the distribution. In other words, it was far cheaper to simply take the distribution and pay the tax bill.

The Act has closed a very effective generational planning strategy used by many people. No longer can your IRA be utilized for multi-generational planning (i.e., your grandchildren could have benefited from a “stretch” IRA strategy in the past). Under the provisions of the Act, the non-spouse beneficiary, or any beneficiary more than 10 years younger than the IRA owner, must take the full IRA value by the end of the tenth year after the death of the IRA owner. Of course, taxation will occur at a much sooner date than previously recognized due to the distribution occurring within ten years of death of the IRA owner.

Congress and President Trump have expressly acknowledged that children require families to spend money for housing, clothing, food, etc. Another relief item for individuals adopting or birthing children is the use of $10,000 of your employer-provided retirement plan assets without penalty. Although the participant will be required to pay income tax on the distribution, the 10% penalty for early withdrawal will not subject the family to additional burden.

IRAs can be confusing for individuals. To assist you with helpful information, please go to Compass Capital’s Resource Center and watch one of our instructional videos. If you have any questions regarding your particular retirement plan facts, seek out a Certified Financial Planner practitioner and CPA that specializes in families just like yours.