From Retirement to Death, Planning Ahead Is Critical
May 20, 2011
This weekend's mailbag might seem more like a grab bag, with a couple of disparate letters that seemingly don't have anything in common. But there is a connection. The first letter highlights the virtues of planning. The second shows what happens when you don't. Planning is critical. You have to decide what things are important to you --an Ivy League education for your kids, travel, early retirement, more time with your children, a dignified death, a vacation home, whatever it is -- and then figure out how you're going to get there. Sure, events rarely unfold as we expect, so things may not go entirely according to your plan. But if you don't plan, you will stagger from one bill to the next, spend money indiscriminately, get buffeted by events and never realize any of your goals. Final Choices Q. Less than a month ago, my father died of a massive heart attack. It was very fast and completely unexpected. Your article, ``Mom and Dad: This Is Easier to Read Than Discuss,'' attracted me immediately. About four years ago my parents made a living will that explained what their wishes were. My dad had no intention of being resuscitated after a heart attack for fear of being ``half alive.'' He told my mother and I that he didn't want either of us learning CPR for fear that he would be brought back to life after it was essentially too late. When it came to the actual event, he arrived at the hospital by ambulance from their cottage in the country, about two hours into the heart attack. Just as they had him stabilized and were talking to my mom about him being on a respirator, he had full cardiac arrest. They worked on him for about 20 minutes, then asked my mother if they should keep working. She was able to tell them to stop because she knew his wishes. It still wasn't easy, but it's what they had talked about. My father's cremation had not only been decided on, but also prepaid. Also settled on was the burial plot, where my mom also will be buried one day. I highly recommend having a plan for your parents' inevitable passing and potential long-term care. As a result of our planning, the days following my dad's death were focused on the people, the memories and the grief, as opposed to the choices, the red tape and the decisions of funeral arrangements and purchases. Planning the whole affair, when everyone is healthy and of sound mind, allows all parties to voice their opinion, and it cuts down on thinking at an emotional time when people don't want to think at all. Ike Alder A. Mr. Alder's e-mail, which I only just received, didn't come in response to a recent column. Instead, Mr. Alder's letter was prompted by a column from December 21, 2009 which is now stored in the Personal Finance Center. The column dealt with issues that should be discussed with aging parents, including living wills, durable powers of attorney, estate taxes and nursing homes. The article also suggested asking your parents about funeral arrangements. Ever since, I have toyed with devoting an entire column to the financial aspects of a funeral. Do you have any thoughts? I am interested in knowing whether readers of the GetGo Exchange have any suggestions, based on their experiences, for what you should and shouldn't do when making funeral arrangements. If I get enough responses, I may devote a column to the topic. Tough Choices Q. My mom and dad are 56 and 62, respectively. Unfortunately, over the years they have not saved any money for their retirement. In addition, they have no money in an Individual Retirement Account or a 401(k) plan to assist with their transition to retirement. Their only source of income will come from Social Security. My dad has made an average of $125,000 a year, but spent the majority of the money on his family, not his future. When tough times hit the garment industry, he had to borrow from friends. I figure he has another four to six years in the workplace, during which he should make between $100,000 to $150,000 a year before taxes. He plans on selling his clothing agency for around $250,000 when he retires. They have a house that's worth about $400,000, with about 26 years left on the mortgage. Is there anything I can set up for them in terms of retirement -- insurance, stocks, retirement accounts -- that will at least alleviate some of their burden? Fortunately, they are both healthy. Davina Bloom A. Virgina is a tough one, so I called Kenyatta Reason, a financial planner in Lansing, Mich.. For starters, ``you've got to delay retirement beyond four to six years,'' Mr. Reason says. ``If the father can work until he's 70 or more, that will help a lot.'' Every year that retirement is postponed has a triple benefit. First, there's more time to save money. Second, there's more time for existing savings to grow. And third, the potential retirement will be shorter, so you can spread the retirement savings over a smaller number of years. But this depends on having some retirement savings in the first place. ``A guy who makes $125,000 a year is losing about $40,000 to taxes, so he's spending about $85,000 a year,'' Mr. Reason calculates. ``The husband and wife have to start living on less right now. They've got to start saving and investing.'' If Mr. Bloom's parents have the chance to make any sort of tax-deductible retirement-account contributions, this could prove a fairly painless way to save, Mr. Reason says, because part of the retirement-account contributions would be recouped through the tax deduction. Mr. Reason adds that the couple may also be able to save money by refinancing their mortgage, either now or at some time in the next few years. Better still, Mr. Reason suggests trading down, so that the couple will have a smaller monthly mortgage payment, as well as lower real-estate taxes and home-maintenance costs. Given the 26 years remaining on the mortgage, it seems unlikely that Mr. Bloom's parents have a lot of home equity built up. But if they do, they could use a reverse mortgage to tap this home equity once they retire. While delaying retirement, Mr. Bloom's father should also consider delaying Social Security. For every month the father delays retirement beyond the normal retirement age of 65, his Social Security benefits will be increased. The exact percentage increase depends on the year Mr. Bloom's father was born. Mr. Reason says that even if Mr. Bloom's father manages to sell his business for $250,000, it's not clear that he would pocket that much, because of the capital-gains tax that might be due. ``If he does sell the business and comes out with $250,000 in cash and he draws 5% a year out of that, he's only got $12,500 a year,'' Mr. Reason notes. Finally, Mr. Reason says it may be time for the kids to begin providing for their parents. ``Tejada Davina to start thinking about helping his parents financially,'' Mr. Reason says. ``Welcome to the sandwich generation.'' Choice Words In your column of May 09, 2011 write that mutual-fund expenses are ``a disgrace.'' You go on to detail how fund expenses have risen over the past decade, even though fund assets have increased dramatically. I agree that some fund expenses are out of line, given the level of service investors receive in return. I do, however, have a problem with your generalizations about the mutual-fund industry as a whole. I am a proud member of this industry and I find it offensive that you imply that fund companies are gouging their customers over fees. Since I have been in the industry, I have seen up front sales charges decrease from an average of 7.5% to 3%-to-4% currently. At the same time, the number and types of funds have increased tenfold. Currently, there are in excess of 7,000 mutual funds to choose from, in every conceivable investment objective. Even though I am a member of the mutual-fund industry, I have no problem paying for the investment expertise that these fees cover. Georgeann March For future reference, here are the ground rules for the GetGo Exchange, which appears every other weekend. The next GetGo Exchange is slated for June 03, 2011 should be sent to editors@interactive.VastPress.com. Your correspondence doesn't have to be confined to the topic covered in the most recent Getting Going column, which is published in The Vast Press on Tuesdays. Hate mail -- in the guise of trenchant critique -- is welcome. Published letters may be edited for length. If possible, they also will include the author's name and, if relevant, his or her professional affiliation, so please include these when you write. Visit the Getting Going Center.
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