Estate Planning for Blended Families

 

Ray’s Take: Estate planning has undergone a lot of changes over the years, and one of the most significant doesn’t have anything to do with the tax laws. It is the change in family relationships. Chances are, you or someone you know is part of a blended family. This was once an uncommon situation, but in today’s world fully 42 percent of adults have some kind of step-relationship, according to Pew Research.

This state of affairs can make things extra tricky when it comes to estate planning. In these blended family situations, there are more opportunities to get it wrong, and your intentions – like your assets distributed to a current spouse, or that your children and stepchildren are treated according to your wishes – need closer attention to make sure everything is set up correctly.

One area where the wheels are most likely to come off of the best-laid plans is in beneficiary designations on retirement accounts and insurance policies. A perfect plan can be destroyed by an incorrect beneficiary designation because the beneficiary designation trumps everything else – including your will.

Another area where issues may arise is a will that leaves everything to the surviving spouse in the belief that the surviving spouse will provide for all of the children fairly and equally. That’s a lot to expect, and it doesn’t always happen in reality, and the better way to ensure the distribution of assets is to set up a trust that will handle this particular situation.

When it comes to estate planning for a blended family, the concept of “yours, mine and ours” can complicate the process to the point that family dynamics become permanently strained. The alternative is denial resulting in nothing being done, virtually guaranteeing disaster. Working through these details not only can avoid future estate planning hassles but also help maintain healthy relationships between all parties involved. A good estate attorney can help ensure things happen the way you intend.

Dana’s Take: Those of us of a certain age remember “The Brady Bunch” on TV with fondness. Who couldn’t love them?

But that’s TV, not real life. Seriously, six kids and one bathroom? Further, the show didn’t address the anger children and teens can feel when asked to share a parent, home and resources with siblings they did not choose. This is particularly difficult when a family of lesser means blends with one of greater means; issues like a teen’s first car can create fireworks.

No one can predict the way the emotions will make them feel when one parent is gone and there’s nothing in writing about where the assets are going.

Blended families can represent the beauty of new beginnings. But they can also be heartache waiting to happen down the road if solid plans are not put into place early.

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Maximize Your Retirement

Ray’s Take: One day you’ll be able to take a deep breath and say you’ve made it.

All the planning and worry and strategizing has paid off, and you’re retired – or at least have the choice of whether or not you want to work. A wide array of new possibilities has become available to you. You now have the opportunity to create a life that’s determined by your interests, desires and priorities, without the constraint of having to earn a living.

But many people don’t take advantage of the possibilities that retirement offers. They just continue with their daily routine, minus the job.

Expect life changes when you retire – both positive and challenging. Step back and take a look. This stage of your life deserves a more big-picture thought process and plan than simply assuming that you’re beginning a very extended long weekend. Put some thought into what you want your life to look like. How will you get the most out of each and every day?

Successful retirees balance leisure over a lot of different activities and take the opportunity to participate in new things and avoid getting into a rut. You probably have some ideas about what you want to do after you retire, places you want to travel, hobbies you want to spend time on or new things you want to learn. Taking care to manage your money well will open doors to many new experiences.

Money buys options. Maintaining and creating new relationships is another key to a successful retirement. In real-life terms, having people close to you who will share your life and be there for you will not only add to your overall life enjoyment, but will also add years to your life.

Being retired shouldn’t mean there’s nothing interesting about you or that you’re bored with your life. Spend money wisely while creating your new life. Celebrate family events and holidays. Create a new network of friends and an array of activities. Keep growing and learning.

Dana’s Take: Post-retirement can be a good time to look into part-time work that may provide lifestyle perks as well as extra income. Think about airlines with flying privileges and hotel chains with discounted stays. You can even search other countries or cities for an opportunity. How about working as an English tutor in China or as a nanny in New York? The sky is the limit.

Job listing websites like glassdoor.com are searchable for categories like part-time work or work in a particular industry, or location. Think about your dream job or favorite hobby and start searching.

Retirement is a time of maximum flexibility. That can mean new work options in new places and more time to enjoy the fruits of your labor.

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Bookends of Retirement Planning

Ray’s Take: Planning for your financial independence can seem overwhelming with a minefield of moving parts. Achieving the dream of a secure, comfortable retirement is much easier when you know the significant numbers involved.

The first four are expenditures, portfolio return, inflation and estimated life expectancy. While the sequence of portfolio returns really doesn’t matter during the accumulation phase of life, it matters a great deal during the distribution phase. Certain retirement planning events are triggered at specific ages and knowing those ages and their significance can save you from problems, such as when you are required to take IRA distributions and the early withdrawal penalties.

Two numbers you should pay very close attention to are age 59 1/2 and age 70 1/2. They can have a serious impact on your finances.

For those with hopes to retire early, it’s imperative you know and take into consideration the 10 percent penalty for early withdrawal from certain types of accounts so you can factor that eventuality into your plan by making different decisions about which vehicles you will use to fund your finances in the early years. Life is expensive enough without paying additional penalties.

The other end of the bookend of retirement ages is 70 1/2. This is the age at which you are required to begin taking Required Minimum Distributions (RMDs) from your tax-deferred accounts, whether you want to take them or not.

Withdrawals from traditional retirement accounts become required after age 70 1/2, and each distribution is taxed at your ordinary income tax rate. If you fail to take a required minimum distribution or you withdraw the incorrect amount, the amount you should have withdrawn is penalized at 50 percent, in addition to the regular income tax you owe on it.

Without a solid retirement plan, that light at the end of the tunnel might turn out to be the headlight on a financial train wreck bearing down on you with all the speed and weight of unexpected expenses.

Dana’s Take: Why do people retire early?

Sometimes it’s unplanned like a company downsizing you out of your position. Other times, it’s a conscious decision to give you time to pursue personal interests like traveling or having more time to dedicate to hobbies or volunteering. Early retirement can also serve as a means of getting away from an uninspiring career, a toxic work environment or a frustrating job where you have no room to advance.

If you fall under the second scenario, keep in mind that retiring early may not be the answer you’re looking for. Retiring early has its own challenges – some of them financial. A career change or working part-time might be a better financial choice. And have a more positive impact on finances.

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The Magic Numbers

Ray’s Take: Saving for retirement doesn’t just happen by accident. It takes meaningful thought, discipline, and action to create and execute a plan that will sustain you in your golden years. Yet, according to the Employee Benefit Research Institute, only 18 percent of U.S. workers say they are very confident of having enough money to live comfortably during their retirement years. There seems to be a big disconnect going on between knowledge and execution.

Adding to that mix, the shakeup of the markets in 2008 shook up a lot of existing retirement plans. Many investors found they couldn’t stand as much risk as they thought they could and made some costly mistakes. That led to postponing retirement for many Americans. Many of them were too heavily invested in stocks and hadn’t adjusted their mix as they approached retirement.

Many people think they will just work longer to make up for any shortfall they discover in their retirement funds. And it makes perfect sense that people would think that since we’re all living longer and in mostly better health. After all, 70 is the new 50. Right? But, for any number of reasons, this may not work out. Unfortunately, this thought process ignores the reality that unemployment rates for those older than 50 are increasing faster than for any other group.

So, how do we find the magic numbers and the way to execute that plan?

Solid retirement planning is the best thing you can do for yourself. Diversification. Adjusting your mix as you get closer to retirement to help protect the funds you’ve saved. Lose the emotions when it comes to your money. Emotion makes for a bad partner when it comes to your retirement plan. A cool head is a big asset.

Planning for a sufficient nest egg may seem to be an intangible retirement savings goal. Trying to set benchmarks along the way, based on your age and earnings, might be more realistic. A good financial planner can set you on your way to achieving your goals.

Dana’s Take: It seems like everyone is looking for magic, the magic amount of money that will make retirement living easy. For most of us, that amount is simply more than we have now.

Today, I spoke with a teacher who is looking into multiple work options after she retires from teaching. She is aware that her retirement fund isn’t adequate for the rest of her life, so she is starting to plan the next chapter. I admired her openness to new work opportunities in midlife.

To make retirement living easy, you must have a solid plan in place and stick to it. Magic does exist, but it’s in the smile of your child, the joy in your life and the blessings of each day.

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Let It Go: Stress, Finances Don’t Mix Well

Ray’s Take: Worrying is a way that our brain prepares us for the next challenge or opportunity, and it’s healthy in low doses. But too many of us are consumed by worry, which creates stress. And stressful thinking can sabotage your finances. A 2015 study by the American Psychological Association found that money is the leading cause of stress for many Americans.

Worrying affects not only your quality of life but also the quality of life of those around you. And worrying about money can lead you to make bad financial decisions. And actually lead to poor health and strained relationships, which may cause more financial issues. It can become an endless circle leading to a downward spiral.

Some deal with worry by ignoring reality and any constructive ways of dealing with it. This rarely helps.

We all deal with stress in different ways, but a good approach to reducing money worries is to take an active role in taking charge of your finances. Money is a wonderful servant but a terrible master. Always be aware of how much debt you owe and take steps to reduce it. Set some goals and develop a plan to pay off that debt or buy the house you’ve been dreaming of.

Changing the way you think and changing the things you are doing can have a big impact on your stress levels. These are two things that you have control over in a world that sometimes seems to be taking us for a roller coaster ride. Taking a hard look at the worst-case scenario, and figuring out that you would survive it somehow, can take the worst of the edge off of your stress level.

If you’re a worrier, it’s time to let it go. Assessing the details of your situation can seem like an overwhelmingly stressful practice, but if you use stress-reducing tips to keep you on track, you might finally have the control you need to diminish those anxiety levels for the long term.

Dana’s Take: Do you remember the Travelers Insurance commercial with the shaggy white dog that constantly moved his bone because he was worried it would disappear?

It’s easy to become like that poor dog without even realizing we’re doing it.

It’s possible we learned to worry about money from our parents. Or use worry to stay on top of our finances as a kind of safety valve. Or we may simply worry because we don’t know where all of our money disappears to each month.

Worry less. Starting now. Start by figuring out the difference between irrational worries that you can set aside and valid concerns that need action. Once you start figuring things out, all of that worry starts to melt away.

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