What things *should* look like in your accounts

“Beware of undertaking too much at the start. Be content with quite a little. Allow for accidents. Allow for human nature, especially your own.”

- Arnold Bennett

Well, we’re getting ready to see what Congress is going to do in the final session before the new members are sworn in (called the “lame duck” session).

I was recently thinking: Isn’t it interesting how decisions made by a few hundred men and women in a distant building actually *can* impact our life so much? Truly, the decisions on tax cuts, spending, etc. will have a significant impact on your wallet soon, perhaps more than most years I’ve been doing this.

I don’t know about you, but I hate having to “wait” on other people’s decisions to plan my course of action. That’s why I try to set up specific benchmarks for my business and my life by which to judge success–regardless of how other people might react.

And this is a good week to write about benchmarks for YOU, –specifically when you find yourself at a certain point in life. While I’m not a financial planner per se, I do happen to deal with these issues on a regular basis…enough that I know what I don’t know, at least. And, of course, I know what I know…

Your Mid-Life Financial Checkup

Generally speaking, many wise adults see a doctor when they hit 50. And the great thing about (most) doctors, is that they’re not financially-incentivized to advise you towards a specific course of action.

Would that were true about financial advisers.

So, I thought I would take the time this week to give you an objective, “incentive-free” look at what your finances should look like when you hit the half-century mark. If you are close to that mark, I thought it might be useful for me to lay out the “perfect” scenario.

And look–if you’re not perfect, at least let it be a benchmark…

We should have been saving and investing 15% of our income regularly. Even if we don’t want to retire until age 70, by 50 we should be well on our way toward securing our retirement. We have managed to save about eight times our annual lifestyle spending. With a $100,000 per year lifestyle, that means we should have saved about $800,000 toward our retirement.

We are probably at the point where our children are in college or have recently graduated. When college funding is complete, it’s time to reevaluate and perhaps drop term life insurance coverage depending on our individual circumstances. We purchased the insurance to make sure our children would have enough money to complete their education. When term premiums rise and college accounts are fully funded, we should probably drop our coverage.

Our estate plan should be in place and fully implemented. And, of course, various assets are handled differently. This is the time to make a complete review of how our plan is put together, to ensure that EVERY asset (not just the tangible ones) are still handled properly.

And, for you “imperfect” savers, we have one last chance after children and before retirement to catch up. Age 50 is the first year we are allowed to take advantage of increased savings and catch-up provisions. Maximum savings in a 401(k) or 403(b) account increases from $16,500 to $22,000 at age 50. Roth contributions also increase from $5,000 a year to $6,000. If we don’t have eight times our lifestyle spending saved, now is the time to press these limits.

Of course, saving well is half the battle; investing well is the other half.

That’s a subject about which I’ll have to point you in different directions. If you’d like a good recommendation for a competent financial planner, let me know!

Of course life is too short to ignore meaning at any age. But for many people 50 is a milestone that reminds us to stop and reevaluate. There is still time for a whole new life of significance.

Financial independence can open exciting possibilities that were otherwise out of the question. If we don’t need the money, we are free to do anything with our lives. People of purpose usually don’t choose 28 years of recreation. Not when we finally have the time and the wisdom to make a difference in the world.

And counting retirement as a new career is a perspective I’d encourage. When you reach the point in your life where you can celebrate the freedom to work instead of the freedom from work, that’s success. If just a fraction of people in the second half of life turn their experience, time and talent to our nation’s most pressing challenges, imagine the progress we could make.

Although you can have that attitude at any age, it is especially powerful when redefining the second half of your life!

I’m in your corner!

Incentivized to die?

Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude.

-Thomas Jefferson

Honestly, there’s just so much tax news out there, that I could write to you for many months about all of the changes (though I won’t).

For example: Businesses will soon be scrambling to comply with new, extremely-meticulous requirements for tracking spending; the estate tax is still unresolved (to the benefit of George Steinbrenner’s (RIP) heirs); the new financial regulation bill will significantly impact investors; … and there’s much more.

Here’s the good news: unlike the majority of tax professionals, we invest a bunch of resources into continuing education, and I make it part of my job to monitor Congress and the media on your behalf. So, I try to avoid getting too technical in my weekly notes to you.

The best part? Unlike many unfortunate souls out there, you know you’ll be protected from these new codes and regulations since we’re helping navigate them for you–especially when you take the time to sit down with us to make smart planning decisions.

There’s a limit to what we can do without your input, but the SKY is the limit for what can be done when you actually carve out space to meet with us now before the “crunch” of tax season comes in the winter. Tax pros can be good at “historical” work, but we thrive when we can get ahead of the calendar and set you up to take fullest advantage of the newest changes.

Now, to the subject of this week’s Note: George Steinbrenner is only the latest in a series of very wealthy individuals who have passed away, in the midst of a “no estate tax” situation. Unfortunately, because of Congress’ inaction, it’s almost as if there is an incentive to die this year. Just another perverse “unintended consequence” which we often see from legislation (or in this case–the lack of it).

However, this situation WILL change–you just know the Treasury Department is raising a stink about the fact that they’re not getting estate tax revenue right now (Steinbrenner’s would have been around $600 million).

But preparing your estate plan is not something to be rushed–especially for your children’s sake. So, I’ve put together a guide for you in this.

Your Estate Plan In Focus

Thoughtful estate planning can make your heirs’ lives easier. And open communication with them about it can increase the value of that gift, in ways beyond the financial and asset-oriented. Not every family has fostered the ability to speak openly in love–I’ve written about that necessity in the past. But if you have begun that process, here is an outline of what grown children need to know about their parents’ affairs.

(As an aside, adults of any age should update their estate plan every year; and this piece may help for thinking through some of that.)

And, as a parent, if you are willing to share some of this information with your children–especially if one of them is also the executor of the estate–they’ll appreciate having the facts and be more prepared emotionally when the time comes. They will know your wishes ultimately anyway, and good communication will lessen any surprises ahead of time. They will benefit from knowing the answers to the following questions:

Do you have enough saved for a comfortable retirement? Many financial planners use a safe withdrawal rate by age to make sure their clients will still have enough money toward the end of their retirement. But this isn’t always the case, and it’s worth looking into.

If your spending is under this withdrawal rate, you have more than enough and probably can leave a legacy to your heirs. But if you are over this rate, you may run out of money and have to compromise your standard of living abruptly. It may be uncomfortable, even embarrassing, for parents to share their finances with their children, but grown children often want to know how their parents are doing.

Where are the important documents? The five documents your children should be able to retrieve quickly are a will, a living will, a power of attorney, a directory of basic information and the latest end-of-year financial statements.

The directory of information should list the assets of your estate along with account or policy numbers and contact phone numbers. It also helps to indicate your intentions for the distribution of each asset, which will help confirm you have the correct titling and beneficiary designations on every portion of your estate.

You may have structured your will to divide your estate equally among your children. But if you have tried to make it easy for one child to access your bank accounts by adding his or her name, you have overridden your estate plan and left that child joint tenancy with complete rights of survivorship. This can be a problem.

Titling and beneficiary designations are legal estate planning actions. It’s best to review them with your legal advisor. Various types of assets are best designated differently in the estate plan. This is not the occasion for do-it-yourself thrift. It is a rare family that has compiled and reviewed a complete list of estate assets: bank accounts, investment accounts, retirement account, real estate holding, life insurance, health savings accounts and so on.

Are there any special bequeaths? Any promises you want kept should be documented. Your good intentions won’t matter if you aren’t around to implement them. If you have promised money to a charity and want that obligation kept, document it. If you have promised to loan a child money, document it. If you have promised to help fund your grandchildren’s college education, document that. Without documentation, none of these promises can be kept if you aren’t around to make the decisions.

Are there plans to remarry? If parents have remarried, intergenerational estate planning is even more critical. Prenuptial agreements and careful estate planning are required in the case of second marriages to avoid disinheriting children or grandchildren from the first marriage. The default is rarely a good option.

Do you have any prepaid funeral arrangements? Do you want to be buried or cremated? Do you have any preferences for a memorial service? Although it may seem macabre to plan your own funeral, a memorial service takes time and thought. It will be that much more special and comforting to your family when it is filled with your favorite music and readings.

Encourage your children’s interest in your estate planning. Most of the time, their intentions are honorable. They may simply want to understand your values, and therefore your wishes.

I’m personally dedicated to the success of your family–and to your finances! Can other tax professionals say that?