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The Secure Act May Alter Your Retirement and Estate Planning

Recent changes signed into law at the end of 2019 through the Secure Act regarding 401(k) and IRA distributions may not only affect your retirement planning, these changes may create a need to review your estate planning as well. Barron’s (New Rules for Stretch IRAs and RMDs Have Raised Many Questions. Barron’s’ Found Answers) and The Cleveland Jewish News (How will IRA and 401K changes impact estate planning?) offered details on these changes.

Retirement Planning: You can now add deductible contributions to an IRA at any age (from wages or earnings) because the age limit on these contributions has been lifted.

Previously, you had to start taking minimum distributions from traditional IRAs and 401(k)s once you reached the age of 701/2 (and if you reached that age in in 2019 or before, you are still subject to that rule). With the new law, the age for required minimum distributions has increased to 72.

Estate Planning: With the changes to the law, distributions from an IRA or 401(k) must to paid out within 10 years and this 10-year period begins the year after you die. As The Cleveland Jewish News points out this is major change since: 

“Under the old law if a child or grandchild inherited your IRA, they could take minimum annual distributions based upon their life expectancy rather than yours. This allowed decades of income tax-deferred (or income tax free if a Roth) distributions from the IRA.” Hence the term Stretch IRA.

Barron’s notes that this advantage wasn’t just for descendants, “The new rules also upend a strategy surrounding inherited IRAs. Old rules allowed beneficiaries to stretch out RMDs over their lifetime, providing them with years to reap tax-advantaged gains.” And while there are exceptions (including the underage children of the deceased) it is quite a change if someone was expecting to take RMDs (required minimum distributions) over many years.

We should add: “The good news is that people who were already taking distributions from an inherited IRA may continue to do so under a stretch IRA strategy. The new rules apply for people who would inherit an IRA from someone who isn’t their spouse and are not subject to other exemptions.”

If these new rules will alter your estate planning, consult with a Fee-Only financial planner who can help you strategize ways make the most of your resources.

People Wonder if They Can Afford to Invest…We Say Can You Afford Not to Invest

The Motley Fool tries to answer a question many people may have in “Am I Too Broke to Invest?” If you are employed and have an emergency fund, you are in a position to invest. And investing doesn’t mean throwing tons of money into the stock market. If you are not ready to get into the stock market, you can invest in an employer-sponsored retirement plan.

What may be getting in the way of investing?

Fear: You can learn and ask questions about investing. Either on your own or with the help of a Fee-Only financial advisor, find time to learn and grow in confidence about investing and stocks.

And if you worry that you will lose money in the stock market, The Motley Fool reassures readers that it makes sense to worry over potential losses, adding that losing money is part of the process. It is sticking with it over time that will allow you to make up for any losses. It is also important to not invest money that you think you may need in the near future. 

(Perceived) Lack of resources: The idea of not investing money you might need in the near future prevents many people from investing because as far as they can see they are going to need all of their money now and in the near future. This is where a little sacrifice comes into play. The article includes a chart showing what happens when you invest $10 a week in an IRA. If you can find a small amount to put aside, you can invest.

The article also examines “imposter syndrome” with regards to investing: some of us don’t want to invest because we think investing is for “rich” people and we don’t consider ourselves rich. People at all income levels invest. Even a saving account that earns interest is a kind of investment.

The Motley Fool offers this encouragement:
“You’ll probably never feel like you have enough money to invest. There’s always going to be somewhere else to use that money…stick your toe in the investment water and get ready to swim. Once you realize how much your investments can help you meet your financial goals, you’ll wonder why you ever waited.”

Yes, You Can Practice Being Retired

The practice of offering consumers the chance to take a vehicle they might buy on a test-drive has been in place for a long time. And a few years ago, realtors got into letting people “test-drive” homes by spending the night in them. And in “Test-Drive Your Retirement,” suggests that instead of just outlining your retirement goals on paper, you actually take those goals for a test-drive to see if the retirement life you are planning will really work for you.

Location, Location, Location: You would expect to be advised to try for an extended stay in an area where you hope to retire because visiting for a weekend may not be enough time to really know if the new locale will work for you. But what about a test-drive of staying in your own area, in your own home? Both can be useful.

Finding a short-term rental in a new city will help inform your decision making as one couple interviewed for the article learned: they moved to retirement community a desert city without realizing just how the high temperatures would affect their way of life. 

And even if you think you know your home and hometown, spending a week or so there on vacation will give you practice in learning to structure your days (this is a bigger issue for retirees than many imagine.)

Financial Fast: As the article notes, many couples try to live on one salary before retirement to save money and get a sense of what their expenses will be. Doing this before retirement can offer a reality check. also interviewed a freelancer who decided slow down on work projects, take some trips, and find work that was more flexible and did not require her to attend client meetings. This woman had worked on her own for decades and had been diligent about saving. It was not easy for her to get used to the idea of earning less and using her retirement savings.

Don’t Let Holiday Spending Guilt Trip You Up

Are you feeling a little remorse about the money you spent over the holidays? 

There is an online meme where a parent  jokes about taking all of the holiday presents back because the children are behaving. Isn’t that how it is with the things we buy sometimes? They don’t produce the expected result or function quite as we would like and we want to go back in time. We were full of hope when we bought these things and it is only later that the regret sets in.

We like to believe that the new year brings a fresh start and wipes the slate clean but we all know that if we have debt and poor money management skills, then those will carry over with us into the new year.

Once the optimism of it being a new year fades, some people will face the reality that they overdid it during the holidays. But there is no need to be sad about this.

The good news is that even if the old debt, unwise payment plans, or questionable purchases still exist in the new year, we have a chance to start fresh, treating ourselves and our resources differently. It may be hard to believe but there can be a sense of accomplishment and even joy in buckling down and really working towards financial freedom.

Can you commit to one new money management habit per week? That will look different for different people so here are some ideas:

  • Check your account balances once a week
    Bring your lunch to work (at least) once a week.
  • Leave a potential online purchase in the virtual shopping cart overnight and reevaluate in the morning.
  • Plan errands so you make fewer trips and use less money for gas/mass transit/car services.

Think about making an appointment with a Fee-Only financial planner who will take a holistic approach to helping you map out your financial goals and offer strategies to reach those goals.

Amy’s Will: Estate Planning in Little Women

A new movie version of the classic novel Little Women will be in theaters during the holiday season. The book’s author, Louisa May Alcott, wrote a book about young women that was suitable enough to sell but also included some of her own unconventional ideas in the text however she could and offered various illustrations of womanhood. She shows how wealth and financial planning can alter a woman’s life for the better.

Aunt March is not the woman who is most admired by the sisters in the book, she is one who influenced them and acted in ways that changed their lives. Aunt March is wealthy and has a sharp tongue but at the same time she tried to look out for her nieces.

While staying with Aunt March, Amy March learns about some of the contents of Aunt March’s will from a maid who signed the will as a witness. Being told of a possible inheritance influences Amy to attempt to improve her behavior. One of her acts of goodness was creating her own will: 

“In her first effort at being very, very good, she decided to make her will, as Aunt March had done, so that if she did fall ill and die, her possessions might be justly and generously divided. It cost her a pang even to think of giving up the little treasures which in her eyes were as precious as the old lady’s jewels.”

Young Amy wants to have a say in how her treasures are divided and she takes this responsibility seriously. Many adults want to avoid anything that reminds them of the possibility of death and so they avoid estate planning. Amy stayed with Aunt March because she needed to be quarantined while her sister Beth was ill. Amy creates her will after learning about Aunt March’s will, unaware that the ailing Beth has already divided her few possessions among the family.

For her part, Aunt March, who had no children, modeled estate planning for Amy. If you’ve read Little Women, then you know that Amy became a favorite of Aunt March and in some ways replaced  her sister Jo, who had been Aunt March’s companion. Even though Aunt March did not approve of Jo’s behavior and threatened to leave her nothing, in the end, Aunt March leaves property to Jo and this gives Jo a way to start a home-based business.

Investing Time in Financial Planning Pays Off

The Motley Fool asked readers “How Much Time Does the Average American Spend on Personal Finance?”  Rather than look at the actual time in minutes or hours, we can say that the answer for many people is: not enough. Using data from the Bureau of Labor Statistics and from Northwestern Mutual’s 2019 Planning & Progress Study, The Motley Fool found that the desire to be financially stable is there but it is not easy to take action to reach out financial goals. 

“When it comes to finances, people were almost 30 times more likely to spend time watching TV than managing their finances. And they’re about 50 times more likely to spend time watching TV than using financial or banking services….However, those that do spend time on their finances are spending more time doing so — up to a total of one hour and 20 minutes per day in 2018 on financial household management and financial/banking services combined.” 

 When writing checks was more common, people had to spend time reconciling their checkbooks. Now that so many financial transactions taking place online, you would think it would be easier. But just as some people didn’t balance their checkbooks, some of us don’t log in to examine our finances online either.

You can work incrementally towards spending more time on your finances. You can schedule financial planning time each week to go over your finances, to see where your money is going, make fewer impulse purchases, and consider the seasons of the year when you spend more on certain things (utilities, travel, gifts etc.)

You can also work with a Fee-Only financial planner to take some of the work of strategizing off of your shoulders. Some of us ignore our finances now because we feel overwhelmed but with a plan in place, you can feel less anxious about money. 

As the article observes, “…the average American spends almost 10 times more time working to make money than they do to manage it. Perhaps if we all spent a bit more time on our personal finances, we could make our money work harder. In the long run, that might mean more financial security…”

Estate Planning: A Will is Just the First Step

While we want to encourage people to have wills drawn up and do not want to overwhelm anyone with all that estate planning entails, we have to agree with the writer of “Where There’s a Will, There’s Not Always an Estate Plan” who discusses how a will is just the first step. Some people think their will is an estate plan but it isn’t, as the article explains:

“Wills have been the go-to estate planning documents for generations. They dictate guardianship guidelines and transfer aspects of your property and assets. Wills are an important component of estate planning, however they’re just one piece of it. In order to control the spending or investing of your assets after death, you need to use a trust or other instrument. “

For example, people who are concerned about the spending habits of their heirs, those who want to try to ensure that property stays in the family, and those looking to secure the continuity of a business, can use trusts with those issues in mind.

Beneficiary Designations: If you didn’t know, you need to update your beneficiaries because these documents could take precedence over your will so this means whoever you have listed as a beneficiary of your retirement accounts or insurance policy would get the money even if your will names someone else as your heir.

Digital Assets: If you haven’t recently updated your estate plan, there is a good chance that your digital assets are not included. Some states have passed laws that allow for you to include instructions about your digital assets in an estate plan. (Among other things, digital assets include websites and e-mail.) It is good that you are able to do this but you have to know that you can and act accordingly because “if proactive planning and language specific to digital asset communications aren’t added into estate planning documents, access could be denied and the assets would be lost forever.” 

A Fee-Only financial planner can help as you work on an estate plan, understanding your need for financial security as well as your desire to know that your family has options for the future.

Study Finds Divorced Women Gain Financial Confidence with Time

The end of a marriage does not have to mean the end of financial stability: in fact, for some women it is just the opposite. Some women find that having no choice but to take control of their own financial planning gives them a confidence they may have not had before. published “Financial Confidence in Divorced Women is on the Rise,” and included the following insight:

“While 57% of women say that divorce was a wake-up call for them from a financial standpoint, the good news is that things do get better. According to the recent Allianz Life 2019 Women, Money and Power Study*, divorced women are feeling better about their finances than they were a few years ago. In addition, financial confidence among divorced women seems to rise the longer they have been divorced.”

The article goes on to discuss how women who have been divorced for more than 10 years reported the greatest gains in financial stability and overall financial confidence. Because these women have had to step up to the plate and manage their household finances many of them rely on help from a professional, such as a Fee-Only financial planner.

The statistics quoted in the article have significance for women in various situations:

>>Women who are just recently divorced can see that with time they too can gain better financial footing.

>>Women who are married can look at this, see the confidence gained by divorced women, and take steps to do more for themselves in that area. And that will look different for different women, some may need to take more ownership and get more informed about family finances if their partner does the larger share of that work. Others may want to step back or work more with their partner if they are the ones managing the family finances.  
>>Women who have not married can remember that they can take ownership of financial planning in all phases of their lives.

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