The world lost one of its greatest and most accomplished basketball players on Sunday, January 26, 2020. Early in the morning, Los Angeles Lakers legend Kobe Bryant and his 13-year old daughter, along with seven others, died when the helicopter they were in crashed amidst foggy conditions in the hills of Calabasas, California. Kobe was 41.
Losing a spouse brings grieving and heartache enough without the unanticipated leap into the deep end of personal financial management. And Kobe’s death reminds us that if your spouse were to die, you have special considerations when planning your financial future.
Most Surviving Spouses are Women
Most women understand too well the odds that later life might find them alone financially. Among baby boomers, for example, an estimated 7 out of 10 wives will outlive their husbands. If you’re one of these women, how do you prepare?
Research shows that the average American woman lives almost five years longer than the average U.S. man. According to the Women’s Institute for a Secure Retirement, half of all widows become so by age 65. Vanessa Bryant became a widow at the age of 37.
More than 700,000 American women are widowed every year, according to the latest U.S. Census data, and widows are more likely than their male counterparts to lose income after a spouse’s death.
When your husband dies, you may have to dive into dealing with the murky waters of probate to validate a will, as well as many other legal and financial issues. In many marriages, the husband handles tax and financial issues – and understanding these new and confusing challenges can be overwhelming.
Acquiring enough financial knowledge to make money decisions confidently goes a long way toward easing the transition if you lose a spouse.
Plan and Re-Evaluate
Even when a death causes no new considerations for the surviving spouse, personal finances can still be a jigsaw puzzle difficult to fit together. Dealing with the death of a spouse can be overwhelming by itself but generally there is no need to make urgent money decisions.
Think Logically About Priorities
What does your financial plan look like? Re-evaluate what you value, what’s important to you, the purpose of your money. You might change your goals or timelines for what you and your deceased spouse planned. You might also reconsider how and where you want to live. This reset of your goals and how you want to deploy your money also helps you think of what-if scenarios to identify where you enjoy financial flexibility or where your long-term planning has stress points.
Analyze Cash Flow
Address changes to your income and budget before you consider more complex investment, insurance and tax issues. One needs to understand changes to their Social Security income and possibly survivor pension payments and if either relate to expenses. With month-to-month basics understood, you can then explore rules for inheriting investment accounts or insurance proceeds, and how to put these resources to work smartly.
Review your Investment Strategy
Maybe your investment objective differs enough going forward that you must revise investments to fit your new plan.
Even though one might feel they have a good handle on their finances, many may benefit from the help of professional advisors.
Maximize your employment benefits!
Open enrollment for employee benefits kicks off this month. While you plan your Thanksgiving menu, review your benefit choices.
Here are some pointers:
Even if you carry the same plan as in many past years, spend a few minutes evaluating which one is best for you and your family when you choose – especially high-deductible health plans and traditional plans. Switching from the traditional plan to a high-deductible option might save money if you don’t visit the doctor much. Perhaps too your spouse’s company now offers a better plan and you can switch the family coverage to the better alternative.
Improved employer plan descriptions lay out plans’ differences and costs, and do that much better this year. Take advantage of their free help, online or in person.
Often you receive only one choice for dental coverage, but you may be surprised at how many people decline to pay the relatively small premium for this coverage. Even if young and cavity-free, you take care of your teeth now to potentially prevent large dental bills in retirement. If nothing else, dental insurance provides a teeth cleaning twice a year.
This benefit works great if you wear glasses or contacts and need regular eye exams. Those with perfect vision may opt out of this coverage.
Most employers offer some basic life insurance, the coverage usually a multiple of your salary. If you are married, own a home or have kids, this basic coverage falls short. Pay extra if possible to increase life coverage through your employer. If that’s not an option, consider supplementing this minimal coverage with a term policy. These policies come with set duration limits on coverage and you decide whether to renew once the policy expires. Remember that whatever life coverage your employer pays for vanishes if you leave that company.
Standard coverage in this category usually pays 60% to 66% of your compensation if you become disabled and unable to work. As this coverage often comes with a cap, if you are highly compensated, this insurance might also fall short to sustain your standard of living. Estimate your minimum to live on if you become unable to work and, if that number scares you, purchase a supplemental policy.
This pays for assisted living, a nursing home or in-home care late in your life. Even as our lifespans increase, long-term care premiums escalate. If your employer offers any coverage at a relatively inexpensive group rate, lock in some protection. Many advisors will recommend LTCI when you turn age 50 – but getting it while you are young and healthy under an employer plan may still make sense.
Flexible Spending Account
This savings account reduces your taxable income and funds medical co-pays, orthodontist appointments and prescription drug orders, among other expenses. Figure your out-of-pocket medical costs and sign up to set aside that amount, up to $2,750 for 2020, pre-tax in an FSA. Each working spouse can do one. Remember that if you participate in an HDHP, you maintain a related health savings account and can only take advantage of a limited FSA.
Either way, pay for the most of out-of-pocket medical costs with pre-tax dollars.
Dependent Care Flexible Spending Account
If you pay for day care, after-school programs or summer day camps for children under age 13 or for elder care for a dependent parent, DCAs help you offset that cost with pre-tax dollars. Again, a working couple can set aside up to $5,000 from paychecks.
If your company offers this and pays in whole or in part for public transportation passes, ride-sharing or other options, reconsider your routes to work.
Advisors see this wide-ranging employee benefit more and more, from simple mental-health hotlines to complete menus of services.
For instance, if you lack a will, many companies now offer reduced-rate or even complimentary legal services to establish your basic estate planning documents.
If you have questions about your benefits, talk to someone in Human Resources. The point is, make sure you review your benefits. Your future self will thank you.
Be careful of the “lump sum illusion” and talk to your financial advisor
The last few years have not been kind to General Electric – the once invincible, well-known blue-chip company that was one of the most widely held stocks for decades.
Consider the last three years:
- For the year ending 2017, General Electric was the worst-performing stock in the Dow Jones Industrial Average, losing about half of its value.
- For the year ending 2018, GE would have been the worst DJIA performer again, but mid-way through the year, GE got kicked out of the DJIA-club (GE lost about 56% in 2018, by the way).
- A few months later after getting kicked out of the 30-company DJIA, GE’s CEO got the boot.
GE Freezes Pensions
Then on Monday, October 7, 2019, GE announced plans to freeze pension benefits for about 20,000 employees in an attempt to shrink its pension deficit and shore up its balance sheet. Further, GE is “offering a limited time lump-sum payment option to approximately 100,000 eligible former employees who have not started their monthly U.S. GE Pension Plan payments.”
What to Know About Lump Sums
A lot of companies have made changes to their pensions, including plan terminations, plan freezes for employees, and changes to the formula by which pension benefits are calculated. In fact, GE is joined by a growing list of companies making changes to their pensions, including UPS, L.L. Bean, the Boston Red Sox, the Washington Post, Boeing, General Motors, American Airlines, and Bank of America, to name a few. Should you object to a wad of retirement cash all at once? Here are a few things to consider before you opt for that lump sum.
The Lump Sum Illusion
In a recent podcast, Olivia Mitchell, executive director of the Pension Research Council and professor at Wharton talks about what she calls the “lump-sum illusion.” She told her listeners that, “Somebody who gets a lump sum of say, $100,000, might think they are suddenly rich, but that money doesn’t go very far. Based on annuity estimates, a $100,000 payment would provide a monthly income of $560 for a 65-year-old male, and $530 for a female, because women live longer than men.” Mitchell then adds, “But a lump-sum payment could help many older people who are entering retirement with far more debt than they did in the past. Baby boomers are getting into retirement not having paid off their mortgages, and not having paid off their credit cards. A lump sum in such cases could really help older people pay off their debt and move into retirement less exposed to interest rate fluctuations.”
Lump sums might make sense if you expect to die soon without a surviving spouse who will need lifetime income. They might also make sense if you already have another secure source of retirement income or are trained in handling such amounts of money at once. In many other cases, however, accepting a lump sum payout rather than income from a pension may significantly affect your retirement funding unless you take proper steps.
Regarding taxes, for instance, if you receive a lump-sum distribution and were born before January 2, 1936, you may qualify to elect optional methods of figuring, reducing or deferring tax on the distribution, according to the Internal Revenue Service.
Among other tips for you to consider:
- Take your time. You can’t reverse your decision to take the lump sum.
- Lump payouts may not include subsidized benefits that some employers offer as an incentive for early retirement.
And most importantly:
- As you might after any large windfall, plan your decision with your financial advisor.
Three tips so that your financial plan can account for retirement travel
Thomas Cook, the 178-year-old British travel company, declared bankruptcy on September 23rd, suspending operations and stranding 600,000 tourists around the world.
The travel company employed approximately 20,000 people, operated its own airline, and was listed on both the London Stock Exchange and the Frankfurt Stock Exchange.
If you’re like most people who think about retirement, you probably imagine traveling in your golden years. But before you browse those travel websites and whip out the credit card to buy your ticket, make sure your financial plan accommodates for your retirement travel – and that includes some emergency funds too.
Because of those 600,000 stranded Thomas Cook clients and the 20,000 Thomas Cook employees, think of how many were either in retirement or real close to retirement.
Travel on Your Bucket List?
What’s at the top of your retirement bucket list? If you are like most folks thinking about retirement, travel is high on the list. But consider that as you travel, you will find that your bucket list does not grow smaller – it expands as new possibilities entice. And while certainly some people do experience years of unlimited and unfettered retirement travel, many more don’t find it so easy. Doing “what you want, when you want, with whom you want,” assumes three things we often take for granted: good health, adequate finances and meaningful relationships.
Invest in Your Health
When it comes to travel, good health may not be essential, but it makes your experience more fulfilling and enjoyable. Of course, we aren’t typically in either good or poor health, but fall somewhere on a continuum. With limited mobility, you may be able to shop at the bazaar in Istanbul, but chances are you won’t hike the Grand Canyon or explore the Acropolis.
Like most things, good health typically requires a conscious intention to create and maintain it. Someone who says, “when I retire I’ll have the time and money to take better care of myself,” may be in for a surprise.
Most people who chose not to take care of their health before retirement won’t do so in retirement. As one retired person might tell you, “if you didn’t have the energy to work out when you were young, you sure won’t have it when you retire.”
And you can’t bank on your spouse’s health staying good enough to share your travel adventures. Even if you’ve taken care of yourself, your significant other may be unable to travel. Instead of strolling a beach in the Bahamas, you could end up at home as a caretaker.
Money and the 80% Rule
On average, baby boomers have saved about $150,000 for retirement. That won’t pay for many around-the-world cruises. If you want to travel after you retire, you need a serious commitment during your working years to invest as much as you can.
Saving for retirement is critical, because your expenses in retirement can be significant. Consider that the average retiree spends $4,300 each year on out-of-pocket healthcare costs, according to a study from the Center for Retirement Research at Boston College. And that figure does not include long-term care.
Many financial planners suggest you think about the 80% rule: take your annual income today, and assume you will spend about 80% of that income in retirement. So, for example, if your pre-retirement income is $100,000, plan on spending $80,000 in retirement every year.
If you spend your career working 80-hour weeks, you may accumulate enough assets to fund plenty of retirement travel, but by then you may be traveling alone. Saving for the future is out of balance if it’s done at the expense of enjoying life and close relationships today – especially your marriage.
Did you know that over the past 25 years, the divorce rate of couples over the age of 50 – often called the gray divorce – rose 109% according to Pew Research? For comparison, the divorce rate among couples 25 to 39 years old decreased 21%.
There are a lot of theories about what is driving this trend, but when 50- or 60-year olds divorce, their assets are divided and the respective expenses of each are usually closer to what the combined expenses were as a couple. In other words, same expenses, half the assets. So, just as you invest in your health and your retirement plan today, invest in your relationships now too.
Think About This
If travel is one of your dreams, why not do some of it now? Use your vacation time while you can enjoy yourself. Take that motorcycle trip through Europe or go scuba diving in Belize while you’re in top shape. Do the international travel now when you can better negotiate airports, handle travel delays, and power through jet lag.
To save on expenses, plan ahead, use a credit card that awards frequent flyer miles (which you pay off monthly), and use cost-saving options like home swaps and off-season travel. Then, after you retire, when you need more access to medical care and less demanding travel, you can stay closer to home and enjoy the opportunities in your own back yard.
Your Financial Advisor
What a lot of people don’t understand about financial advisors is that we are not there solely to plan your financial future. We are at your side today to help you make yourself better.
We can not only help you make sound financial decisions but also help you think through different dreams and what it takes to achieve those dreams. It can be much easier to achieve your dreams if you have a plan that helps you get there.
A timeshare is usually too expensive, even if someone gives you one
Vacations during the summer months might have you thinking about timeshares for resorts in places like Florida or Mexico. They seem like a fun idea for a winter vacation in the sunshine, as well as a good deal financially. They are usually neither.
Like Groundhog Day
One of the biggest problems with timeshares in general is that they can lock you into a specific vacation. Spending a week at that resort in Mexico in February, exploring the local area and relaxing by the pool, might be wonderful for a year or even several years. But eventually you may get tired of going to the same location, doing the same things and seeing the same people. After a while, even a rut person might want to do something different.
Some timeshares mitigate this problem by participating in vacation exchanges, but these services can add on fees.
Not Easy to Sublease or Sell
You might think that, if you get tired of a timeshare, you can just sublease or sell it. These aren’t necessarily easy to do. There may be restrictions on subleasing, which is another good reason to read the fine print before you sign any timeshare contract. Selling is often difficult, and you certainly aren’t likely to get back your original purchase price. Meanwhile, you pay annual fees whether you use the timeshare or not.
Annual Fees are High
In figuring the cost of a timeshare, those annual fees are what can really get you. The timeshare company has to tell you up front what the fees are at the time you buy. Yet you have no control over what the fees may be in five or ten years. The only thing you can count on is that they will increase.
As most timeshare sales reps will tell you, comparing the cost to buy a timeshare versus the cost to stay as a non-member, it would usually take decades to recoup the purchase price. In fact, most sales reps will be quite clear that a membership is probably not a good financial investment. Instead, they’ll describe it as an investment in lifestyle.
When it comes to timeshares, that is the bottom line. If the lifestyle that’s on sale truly fits you, and you believe it will continue to fit for the long term, then it’s possible that a timeshare may make sense.
For most people generally, however, a timeshare is too expensive even if someone gives you one. The annual fees alone can keep it from being a good value. Paying for a hotel stay costs less in the long run, and you can enjoy relaxing vacations with no long-term commitments.
When you take a close look at the numbers and the restrictions, timeshares generally don’t add up to a good value.
Investing in Your Vacation
Why do most avoid this important investment?
Why do so many of us not use our vacation days? Salespeople talk about “leaving money on the table.” Well, employees leave vacation on the table. And the cost to us is significant.
In fact, Americans leave 429 million vacation hours on this proverbial table, according to a report from Forbes. And USA Today reports that, according to their study, over 30% of employees do not use all of their vacation days.
People discuss investing in your career, like investing in an education or in a certification. Maybe we should talk about another investment that could pay dividends in your career, which is, of course, the place where you make your money. Is investing in vacation a good idea, or just hokey, happy talk?
Reasons That People Skip Vacations
Why do employees avoid vacation? There are several reasons people give for missing out on vacation days:
- “I’m afraid that I’ll be fired.” This is the idea that your boss expects constant work and looks down on those “snivelers” who dare to take a break.
- “A hard worker should keep his nose to the grindstone and perform.” This is related to the other reasons, and it also involves some allegiance to the idea that hard work is the key, over-arching purpose of life.
- “I don’t want my colleague to impress the boss more while I’m away.” People worry about not getting that promotion if they take time away from the office.
These reasons are largely self-imposed. As noted below, most managers understand the benefits of vacation to their employees, not only for employee morale but also for his or her performance on the job. Your boss is not Ebenezer Scrooge, despite what you might think.
Research studies support the idea of taking your vacations. A University of Pittsburgh study found that leisure activities, including vacations, contributed to less depression and more positive emotions, along with lower blood pressure and smaller waistlines. These results are not surprising, since vacation reduces stress. As reported elsewhere, 80% of workers feel stressed on the job, and 70% of doctor visits are due to stress-related conditions.
According to Forbes, not using vacation time is bad for business. Most managers recognize the benefits of taking time off from work because their employees will be more productive, have better workplace morale, and are more likely to stay. Importantly, the health benefits of vacation result in employees missing fewer days for illness and less time for medical appointments.
So, based on the studies and the interviews of managers and executives, what are these benefits of taking a vacation? There are, of course, personal benefits to going on vacation or taking a “staycation,” where you stay at home during your time off. You can enjoy your life more and become closer to your partner, your kids, and your friends. You become physically healthier, too.
However, taking time off can provide substantial benefits for you in your job or career. To summarize, taking your vacations can:
- Reduce stress, which helps in so many ways.
- Increase productivity at work, after you return. Taking a break from work and doing what some have called a “digital detox” refreshes you.
- Increase creativity, for those times when a better approach or new idea is needed.
- Improve your relationships with other workers, so that you’re more positive about projects and less likely to be irritable or say things that you regret later.
Of course, things that help you at work also help your company. And many employers know this, from their experience with other workers and managers who take vacations and then perform better. So, vacations are not only beneficial to you, but they also benefit your company.
As one executive put it, according to Forbes, “We seem to be wired to put the pedal to the metal, but there are also undeniable benefits to tapping the breaks.”
Using your vacation time, and using it wisely, helps you to become a better employee, which can only help your company. And most managers understand this. Being a better employee will result, naturally, in a higher salary or a better job.
Investing in vacation, therefore, is both an investment in your own well-being and in your career and salary. Remember to invest in your vacation, just as you invest in your retirement, your education, or your house.