Trap 1: The Reverse Pension Plan

Though they have faded in popularity over the past several years, reverse pension plans are a notorious scam and are always a bad idea. These plans come in a variety of forms, but typically try to convince you to pay a very small upfront fee, usually around $50, for a potential benefit of about $50,000 later on. If anyone comes to you offering a reverse pension plan and tells you how you can benefit from it, you should immediately walk away.

Trap 2: Carrying Credit Card Debt

This financial pitfall is so dangerous because it is so easy to fall into. When you are retired and no longer generating regular income, credit card debt that balloons out of control can quickly become a serious problem. To avoid getting killed on interest fees and credit card payments, you should always pay off the balance of each card you have at the end of the month. If you are unsure if you can pay off the balance, don’t use your cards at all. If you know you will carry a balance in advance, consider a card with a low or zero interest introductory rate, but always make sure you pay off the balance before that rate expires.

Trap 3: Long-Term Care Insurance

The chances that you will need long-term care of some kind are about one in two, while the chances that your house will be destroyed in a fire is about one in 1200. For this reason alone, long-term care insurance can be a great benefit and protect your assets from the associated bills required with long-term health care. However, if you don’t have a lot of assets, long-term care insurance may not be a good idea, and you should speak to a financial advisor to analyze your individual situation.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

The estimated 10,000 baby boomers that will reach the age of 65 on each and every day between the years of 2011 and 2030 are making it more and more apparent that the traditional idea of what a retirement home should be is no longer adequate. Any baby boomer making an estate plan should consider several key topics and issues that you will want to account for if you are considering an assisted living community as part of your plan.

Issue 1. Lifestyle. For healthy and active baby boomers, the prospect of being confined to a retirement center all day is nothing short of nightmarish. Many new retirement centers have taken the active lifestyles that baby boomers have into consideration when designing facilities. These new facilities are much closer to resort style communities than retirement homes. They often feature modern designs, contemporary styling, access to hiking, water sports, fitness areas and other perks that fit an active lifestyle.

Issue 2. Location. If you spent your life living in your city home, you may not want to move to a retirement home in the country or in the suburbs. Many communities are being developed inside urban cores and bring with them access to all the amenities the city has to offer.

Issue 3 Pets. For many baby boomers, retiring without bringing their animal companions with them is out of the question. New facilities often offer dog walking areas, pet friendly facilities, increased access to veterinary care and other amenities that make it much easier to make a move with your pet.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

There are a great many people who are reaching their sixties right around now due to the maturing of the baby boomer generation. The way that a majority of them will be financing their retirement years is going to be by using Social Security as the centerpiece of their income. To qualify for your full Social Security benefit you must reach full retirement age, which is 66 for people who were born between 1943 and 1954.

In addition to this age requirement, you must also have paid a sufficient amount into the program through your payroll taxes. But what if you have not done so, are you totally left out in the cold with absolutely no income during your elder years? The answer is that there is a bare bones safety net program called Supplemental Security Income or SSI that can provide a minimal source of income if you can qualify.

At the present time, the maximum amount that an individual can receive per month in Supplemental Security Income from the federal government is $674. For a couple, the maximum monthly benefit is $1,010. There are resource limits however; you cannot qualify for SSI if you have total assets that exceed $2,000 in value.

But, there is personal property that does not count toward this figure, such as your home, your car, your tools and other equipment used for maintaining your well being, and your wedding and engagement rings.

One of the things about qualifying for Supplemental Security Income that is important to a lot of seniors is that you automatically become eligible for Medicaid. Unlike Medicare, Medicaid will pay for the costs associated with a stay in a nursing home or assisted living facility, and these expenses are considerable to say the least. The average charge for a year in an assisted living facility in 2010 was just under $40,000, and a year in a nursing home averaged about $83,500.

If you would like to develop a comprehensive plan that addresses all of the eventualities of aging, simply get in touch with an experienced elder law attorney to arrange for a free consultation.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

There are people who think that they can personally seize total control over matters that involve dynamic outside influences, but the fact is that this is simply not possible. Think back to the financial meltdown of 2008 and you can see how true the above statement is. Many people who had been carefully planning for retirement for years leading up to that time saw their “best laid plans” hit a snag. None of us has a crystal ball, but what you can do is keep a very close eye on all of the issues that could impact your retirement and plan intelligently from a fully informed perspective.

With this in mind, anyone who is planning for their retirement around now would do well to keep a close eye on all the talks about budget cuts coming out of Washington. You can’t really consider any significant decrease in federal spending without Social Security, Medicare, and Medicaid entering the discussion because outlays for these programs comprise about a third of the budget. And that is the way that it was in 2010. Due to the fact that the baby boomer generation is reaching retirement age, there are 10,000 new applicants for Social Security every day, and this daily volume is expected to remain constant for the next 20 years.

There are those who analyze public sentiment from time to time and scratch their heads when they see how many people seem to advocate against their own interests. When it comes to Social Security and Medicare, if you are planning for your retirement while legislators are considering cuts, this is something that directly affects you. Much of the media coverage that you see surrounding the matter somehow fails to mention the fact that all these baby boomers who are now reaching retirement age paid into these programs for 30 or 40 years, or more. It is only natural that they would expect to receive significant benefits in return.

Will budget cuts impact Social Security? Only time will tell, but if such cuts would impact your retirement it would probably be a good idea to keep a close eye on the ongoing discussions taking place among the politicians on Capitol Hill.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

In excess of 60% of Americans who are receiving Social Security say that they rely on it as their foundational source of retirement income. So if you are among the majority, your anticipated Social Security benefit is probably something that will play a role as you are planning for your retirement years. But even if you have been successful enough to be in a position where you do not really need your Social Security benefit to get by, you certainly paid into the system and it can only help to enhance your legacy and enable you to provide that much more for your loved ones after you pass away.

According to current parameters, if you were born between 1943 and 1954, you reach full retirement age on your 66th birthday. After this, full retirement age goes up by two months per year until the year 1960. Those born in 1960 and later reach full retirement age at 67. It should be noted that you do not have to wait until you reach full retirement age to claim a Social Security benefit. You can apply for Social Security when you’re as young as 62 and receive a reduced benefit; for those born between 1943 in 1954, that reduction would be 25% below the full benefit.

On the other side of the ledger, you can choose to work beyond your full retirement age in an effort to earn delayed retirement credits, which will increase your monthly benefit when you do apply. The amount of the increase would be 8% for each year that you worked past full retirement age up until the age of 70.

Working past your full retirement age can result in an increase in your benefit in another way as well. Your highest 35 earning years are used to calculate the amount of your benefit. So if you earn more during the years that you work past your full retirement age than you did earlier in your career these years could replace years during which you earned less and your benefit would rise as a result.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Many people rely on their 401K plans for their retirement needs, and if that is the case, they should learn everything they can regarding these accounts.  We have come across three things that many don’t realize about 401K retirement accounts:

1.         Annual Limits

The IRS limits pre-tax deductions to an amount that changes annually. A person’s maximum before-tax contribution for 2011 is $16,500, which is unchanged from 2010. It is important to understand this limit. This figure indicates only the maximum amount that the employee can contribute from their pre-tax earnings to all of their 401(k) accounts. It does not include any matching funds that the employer may contribute.

2.         Vesting

And speaking of employer matching contributions, they are usually not vested, meaning they do not become the property of the employee, until a number of years have passed. The rules say that employer matching contributions must vest according to one of two schedules, either a 3-year “cliff” plan in which the employee becomes 100% vested after 3 years, or a 6-year “graded” plan, in which the employee gradually becomes vested at a rate of 20% per year in years 2 through 6.

3.         IRAs and More

You can have more than one retirement account, but the specifics vary according to the type of accounts you wish to use.  For instance, you can have a 401(k) account with a Roth IRA.  But if you have a 401(k) with an employer match, don’t contribute to a Roth IRA until you have reached your employer’s match limit.  Once you reach your employer’s match limit, you may contribute additional retirement savings in a Roth IRA, otherwise, you are, in essence, giving up free money by not fully using the employer match.

Retirement planning also needs to mesh with your estate planning.  In fact, just naming your beneficiary on your 401K account is an aspect of estate planning that you should review and discuss with your estate planning attorney.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Did you know that your retirement account avoids probate?  Since there is a beneficiary form associated with this account, it is considered non-probate property, and the funds will normally get to your beneficiary more quickly than probate property. 

Just like your other estate planning documents, your retirement account needs to be properly set up and maintained, and you need to:

1.   Make sure you have named a primary beneficiary and a secondary beneficiary (some forms may call it a contingent beneficiary) for each IRA. 

2.   Obtain a copy of the beneficiary form for each IRA and keep it with your other estate planning documents, and make sure your estate planning attorney and/or the executor of your estate has copies.

3.   If there are multiple beneficiaries on one IRA, make sure that each beneficiary’s share is clearly identified with a fraction, percentage or the word “equally,” if applicable.

4.   Make sure that the financial institution holding the IRA has your beneficiary designations on file and that their records are up to date.

5.   Let your beneficiaries know where to locate your IRA beneficiary forms.

6.   Review your IRA beneficiary forms annually or when major life changes, such as marriage or divorce, occur to ensure the designations are correct and current.

7.  Review your beneficiary choices with your estate planning attorney to make sure they coordinate with your overall estate plan.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Some of the tools that are mentioned during retirement or estate planning will refer to a contribution being “tax deferred” as a benefit.  But what exactly does this mean?

Tax deferred normally means that you will not pay a tax now, but will later.  This phrase is commonly used when discussing various retirement plans.  For example, an employer-sponsored 401K plan is considered tax deferred.  When money is taken from your paycheck and put into your 401K account, that is income that is not taxed at that time.  It is, however, taxed as income when you receive distributions from your 401K account during retirement.

So what is the benefit of a tax deferred retirement account when you have to eventually pay the income tax anyway?  The benefit comes with the assumption that you will be making less money in your retirement years, and thus will have that money taxed at a lower rate.

For example:

If you make a $4000 contribution towards a 401k retirement plan this year, your current taxable income for the year will be reduced by that amount to $50,000 – $4000 = $46,000. If you are in the 25% tax bracket, you have lowered your current taxes from $12,500 to $11,500.

Now, at the age of 65, you take that $4,000 as a distribution.  Assuming you are now in the 15% tax bracket, you will be paying $600 in taxes vs. the $1,000 you would have paid in earlier years.

While in the example this is a $400 savings in taxes, consider the savings realized on the entire account, not to mention the earnings that have compounded through the years.

Knowing the terms used in both retirement and estate planning can help you make the right decisions.  Working with an estate planning attorney not only presents options that meet your specific needs, but presents them in an understandable manner with the advantages and disadvantages and the opportunity to ask questions.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Owning your own business has its advantages, but when it comes to estate planning and retirement planning, there can be challenges.  In particular, small business owners do not have the luxury of an employer sponsored retirement or pension plan at their disposal – for they are the employer. 

Over the last two decades, there have been several new retirement plans that have become popular, particularly for the self employed or small business owner.  Three of the most popular choices are:

Roth IRA’s

The self-employed or small business owner may choose to open a Roth IRA.  With a Roth IRA , you do not receive the tax savings for your contribution, but the money grows tax free once it’s in the plan, and when you take distributions during retirement, they are not subject to federal income taxes. The income limitations can be restrictive for a Roth IRA, as if you are married and your adjusted gross income is over $177,000, you will be unable to take advantage of this account. 

SEP IRA

Simplified employee pensions retirement accounts are designed specifically to appeal to small businesses, as they are easier to create and administer than a cumbersome 401(K) plan.  A small business owner may contribute up to 20% of their business income annually (25% if their business is incorporated).  The annual contribution is capped at $49,000 for 2010, much more than the $16,500 annual contribution limit for a 401(K).  You can open a SEP IRA at just about any brokerage firm and have several investment options available to you.

Solo 401(k)s

A solo 401(k) plan can be created by those who are self-employed, such as consultants, but you must not have any employees besides yourself and a spouse.  If you meet the criteria, this retirement plan allows you to make a contribution of $16,500 or $22,000 of your self-employment income each year, if age 50 or older.  In addition, you may make a profit sharing contribution to your plan, bringing the maximum contribution up to $49,000 for the year.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

One aspect of estate planning that many who try – the ‘DIY’ route – do not quite get right, is the coordination of all aspects of the plan – including retirement accounts that complement your estate plan.

One plan that has increased in popularity over the past few years is a Roth IRA account. A Roth IRA account allows you to avoid future taxation of your retirement funds by making non-deductible contributions now. While a Roth IRA does not offer the immediate tax savings of a traditional IRA plan, it allows the distributions to be tax free.

There are several advantages when it comes to Roth IRA’s:

1. There is no requirement that you take yearly minimum distributions once you reach age 70-1/2, as other retirement accounts may require.

2. Funds in a Roth account have the potential to grow untaxed and untouched to leave for your beneficiaries.

3. A beneficiary who inherits a Roth IRA can withdraw the money without taxes or penalties, as long as the account has been opened at least five years prior to the death.

4. Your contributions to a Roth IRA may continue beyond age 70 ½.

Your current retirement account, or even an inherited employer sponsored plan, may be eligible to be rolled over into a Roth IRA, but you will be taxed on the account balance at that time. The tradeoff being, of course, that you will avoid income tax on later withdrawals.

As with any major financial or estate planning decision, consult with a professional before you make your choice. An estate planning attorney can advise you on many aspects of estate planning, as well as help you build a comprehensive estate and retirement plan that not only coordinate with each other, but help meet your family’s specific needs and goals.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.