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How’s Your Retirement Planning?

Mar 7, 2014

Posted by

Kris Miller

As a PREtirement and living trust expert and National Speaker, Kris Miller assists people in developing complete estate packages. Her practice focuses on helping seniors reduce their tax liabilities, Read more

Retirement mistake no. 1

Overconfidence in your investing skills. 

How are your current investments performing?  When we ask people who have done some investing in the stock market what their average return has been over the years, the answers we get range from 8 percent to 20 percent (or more!).  The average is about 10 percent.

But here's the reality:  Every year, Dalbar Inc., a respected independent market research firm, publishes a study titled "Quantitative Analysis of Investor Behavior." The study measures the actual performance of stock and bond investors and compares that performance to various benchmarks.

The latest study found that, while the S&P 500 returned 8.35 percent over a 20-year period ending in 2008, the average equity investor earned a pathetic 1.87 percent, which was less than the inflation rate of 2.89 percent. Bond investors fared worse.  They earned returns of 0.77 percent compared to 7.43 percent for the index.

If you are relying on your investing skill to fund your retirement, you should be worried. Very worried!

Retirement mistake no. 2

Ignoring immediate annuities and Equity Index with income annuities One study showed that, over a 30-year period, you could reduce your chance of running out of money from 67 percent to 10 percent if half your portfolio was annuitized.

Retirees should calculate their monthly expenses, deduct their monthly income, including Social Security, and consider an immediate annuity to take up the shortfall.

Fixed annuities are available with and without inflation protection There are great products out there right now that can add a 7% compounded income rider on the principle

Retirement mistake no. 3

Retiring too early

Consider a typical 62 year old, nearing retirement. By remaining employed three or four more years, she could boost her retirement income by almost 25 percent.

You should carefully consider the impact of working just a few more years before you make the decision to retire.

Retirement mistake no. 4

Not having a current will or Living Trust

Depending on the size of your estate you will need to have your wishes laid out in detail.  The Living Trust will help you avoid probate which is court which takes money and fees out before your family receives it.  The Living Trust will also give you some tax advantages too giving you a stepped up tax basis and help on the Estate tax for larger estates.

If you do have a will or Living Trust, you control who inherits your property and your portfolio. If you are raising children under 18, your will can designate who should continue to raise them. Instead of the impersonal court system making critical decisions, you can designate your spouse, a trusted friend, or a professional fiduciary to be in charge of your estate.

No one wants to confront their mortality and deal with these difficult issues. But it is simply irresponsible not do so. It could also cost your heirs a bundle in avoidable estate taxes.

Retirement mistake no. 5

Remarrying without a prenuptial agreement

Prenups can protect one spouse when the other is strapped with financial obligations like college tuition, child support, and caring for elderly parents. It can provide that each party will take financial responsibility for the children upon the death of the parent.

A significant benefit of a prenup is that it can limit or waive the other's right to a statutory share of each other's estate.

Fifty-two percent of first marriages ended in divorce, you should have had a prenuptial agreement in place for that marriage.

A "prenup" is even more important the second time around.  You're worth more.  You probably have children who are less than thrilled about your new partner and the effect this relationship could have on their inheritance.

Don't try to save money by drafting your own prenup.  You each need to have experienced legal counsel.  Be totally forthright in making full financial disclosure to your spouse,  Otherwise, you might find the prenup is not enforceable.

Retirement mistake no. 6

If you have minor children you should set up a guardianship in case of emergency.

When a parent dies and there is no one appointed with the responsibility of handling the affairs of the children, the courts will be left to make decisions about who will have that responsibility.  Sometimes a guardian is appointed even when there is a surviving parent, if she is incapable of raising a child.  Consider all short and long-term factors of the child's welfare.  Appoint the person who can best do this job easily.  Discuss all the important factors about raising your children with the intended guardian, as well as any specific wishes.  Draft a Memorandum of Wishes to address all concerns.

Without a will, the Court could pick whomever they want, and your wishes would never be known.  Although the local Probate Court actually appoints the Guardians, the Court almost always appoints the person(s) named in the parent s will.

Retirement mistake no. 7

Make sure you have a Power of Attorney for financial and healthcare

These are very important documents to have in these uncertain times no matter what age you are.

Power of Attorney is a document that gives someone the legal authority to make decisions for you and carry out your wishes.  This would typically apply if you became incapacitated and therefore unable to make these decisions yourself.

Durable Power of Attorney - a document authorizing another to act as one s agent or attorney, especially in the event that a patient has been incapacitated.  This document may give the agent authorization to use the patient s funds to pay bills, contract for hospice services for the patient s care, and can also make basic health care decisions for the patient.

If you don t have a valid POA for property in place and you become incapable, the person who wants to manage your property would need to apply to the courts for the right to do so.  The process is time consuming and expensive, especially when compared to the costs of putting a POA for property in place.

Furthermore, the person who applies for the right to manage your property may not be the person you would have selected.  With a POA in place, you can guarantee that a person of your choosing is in charge of your property.

If you have specific wishes for a particular treatment or plan of care, you can write them directly into your POA document.  If your wishes are included in the POA document, or if you have expressed your wishes verbally, your attorney is required by law to make decisions based on those wishes.  In the absence of any specific wishes, your attorney is left to make decisions based on what they consider to be your best interests.