Living Wills Saving Tips, Ideas and Advice to Help You Afford Your Retirement

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RETIREMENT & PASSING - Page 2

Other Retirement Funding Options

There are a myriad of options on how to fund your retirement (too numerous to mention here) in addition to Social Security. Many of these are related to programs offered by your employer, as well as special tax incentives offered by the Federal Government. If you have an accountant, financial planner, investment advisor, etc., be sure to consult with them about your retirement funding options. But, as a general rule, keep in mind the following:

1. If your employer has matching programs for your retirement (such as 401(k)’s, etc.), where the employer puts money into an account based on how much you donate to the account, take maximum advantage of these opportunities. Usually the employer will either match or partially match your contributions up to a specified limit. Make sure you contribute up to that specified limit to maximize the amount contributed by the employer. The employer’s contribution is free money.

2. You should also consider putting as much money as allowed into tax-deferred accounts like IRA’s, self employed retirement accounts, etc. While there are restrictions and penalties for early withdrawals from these accounts, the interest and investment gains on these accounts is not taxed until withdrawn (usually at retirement age). This means your investments will grow faster, because the amount of money that would otherwise have been paid in taxes can now be reinvested. So, be sure to take maximum advantage of all tax deferred savings alternatives available.

3. Recently, reverse mortgages have become popular with some individuals to help fund retirement.

a. Reverse mortgages essentially allow a person with equity in their home to draw down that equity (generally in monthly withdrawals or sometimes in lump sum payments) to fund living expenses or for other uses. Payments received are added to the reverse mortgage loan balance you owe (as is accrued interest on the balance owed and various fees) resulting in the balance owed growing over time. The loans, interest and fees are due once the homeowner listed on the deed dies, or vacates the home for twelve straight months. Either the heirs to the home will need to pay the balance due, or the home will be sold to collect the funds due. The amount that you can borrow is determined primarily by the amount of equity in your home.

b. The homeowner retains title and reverse mortgages are non-recourse loans, so the lender’s only security is your home. The lender has no right to any other assets you may have. In addition, the lender generally cannot sell your home to collect your loan balance (assuming you continue to pay property taxes and insurance when due) until you choose to leave the home, or upon your death. You cannot be forced to leave the home in order for the lender on a reverse mortgage to collect their loan.

c. The advantage of reverse mortgages is that if you do need the equity you have built up in your home to fund retirement, you can use this equity without having to sell your home (and can avoid the associated expenses of selling) and you do not need to move. The disadvantage is that you will end up with less equity in your home (and perhaps none at all) since you will have used those funds for other purposes.

d. Taking out a reverse mortgage is a serious decision. Before making a decision, be sure you speak with a qualified independent financial advisor, and that you understand all the terms of the reverse mortgage and all of its ramifications. Look up reverse mortgages on the Internet to learn more.

Living Wills & Last Will & Testament

While it is difficult to ponder being incapacitated or passing away, it is necessary to be prepared for these difficult events. Most people understand the importance of having a last will and testament, but many never quite get around to preparing one. Often it is the cost of preparation, or the feeling that they are “too young” to worry about such things. And often it is because they feel their assets are too minimal to require a will. Each of these reasons is wrong, and everyone should have an up-to-date will. Many people have also not prepared a living will and health care power of attorney, for many of the same reasons. Often a living will is even more important. Although what to include in both a will and living will is a difficult decision, actually preparing these documents can be relatively easy and inexpensive.

1. A last will and testament is important to not only designate how assets will be left to your beneficiaries, but to also leave instructions on how to care for any individuals for whom you are responsible. Living trusts can also be used in many instances, to avoid having assets pass through probate court on your passing and to keep matters private, if that is desirable. If you do not leave instructions regarding these decisions in the form of a will, living trust, etc., your state of residence will make these decisions in accordance with state law, or appoint someone to make these decisions. If you have significant assets, or a difficult family situation to address, professional assistance in preparing your will is almost a necessity. However, if like most people, your situation is not very complex, a will can be drafted and executed in a low-cost and simple manner, with only minimal assistance. Consider the following:

a. Start by making a list of any special assets that you want to leave to particular persons. Decide if there are any special situations that need to be addressed, such as a disabled or underage child that will need guardianship and/or long-term care. If you are designating guardianship, make sure you discuss this with the proposed guardian and receive their approval. Also, decide who the remainder of your assets (for most people this is the bulk of their estate) will be left to and in what proportions. In other words, decide how you want to distribute your assets, who are your beneficiaries and if anyone needs guardianship after you are gone. And finally, you will need to appoint an executor who will oversee the distribution of your assets, and the administration of other provisions of your will.