Retirement is a complex puzzle of both personal and financial goals, each of which impact each other. When contemplating retirement, and especially when retirement is imminent, we have to make a lot of decisions.  One of the most important of these considerations is what you will do with your time.

While this sounds obvious and perhaps overly-simplified, in fact it is a key factor in a successful retirement. An integral part of your retirement plan, whether formal or not, is what you want to do every day; how and where will you spend your time ; Many people actually create a written plan for how they will spend their time in retirement. While this is certainly not necessary, it is a good idea.

Related to how you will spend your time is how you will create your retirement paycheck. This is the area of retirement planning that gets the most attention, and for most of us, is of the greatest concern.

Retirement is not all about how much money you save. …but ensuring that you have enough money for a retirement lasting as long as you do. This becomes an even more prevalent concern in an unpredictable economic environment.

Our challenge is how to create income from our retirement  savings in such a way as to ensure that our money lasts as long as we do.

By Kathy Cooper

The real Mr. Ponzi was an investor broker who promised fantastic rates of return to his unwitting investors.  The Ponzi idea operates on a simple principal:

Mr. Con Man promises a fantastic rate of return to Round One Investors.  Then, rather than invest the money, he collects enough money from Round Two Investors to pay the fantastic rates he promised back to Round One Investors.  As word gets around about the fantastic return, more and more people want in on the deal and willingly give their money to Mr. Con Man.  Mr. Con Man takes Round Three money and hits the road.

All is well for one or two rounds, but the Ponzi Scheme eventually collapses because it takes more and more and more people to support the fantastic rate of return in each subsequent round of investors.  Mr. Ponzi was eventually caught because he violated an important rule:  he never left town.  He wanted to keep going because, well, he liked the money.

So, what does this have to do with Social Security?  As we Baby Boomers contemplate the fact that Social Security is likely to collapse before we are able to take advantage of it, there have been a number of comparisons between Ponzi Schemes and Social Security around to help our analysis.  Here’s a summary of some of the more interesting points in those comparisons.

You better believe the Social Security Administration is a little touchy about it, so much so that they have published their own rebuttal.  They explain that it was set up this way by design.

The only problem now is that there are fewer people to sustain it.  When it was originally set up there were around 40 workers contributing for each retiree.  Today, it is 3 workers contributing for each retiree and by 2030 (not as far away as you think), there will only be 2 workers contributing for each retiree.  The worry is that the Government can do what they want, including tax younger people more and more or stop the program entirely.

So, what can you do about it?  First and foremost, be informed. Find out what’s going on in Washington and protect your money in your hometown.  Personally, I will not plan on Social Security as my pension fund.  If you want to find out about options available to you, give us a call.

You don’t have to be an investment guru or savvy Wall Street investor to have heard S&P or S&P 500. The chances are, though, that you probably don’t know much about what that means. S&P stands for Standard & Poor’s, which is a United States-based financial services company. It is well known for its stock market indices domestically and abroad. An example of such is the S&P 500, which is a collection of 500 “large-cap” common stocks. Typically a “large-cap” stock is that of a publicly traded company whose market capitalization is between 10 and 100 billion dollars approximately.

Standard & Poor’s is one of the “Big Three” credit rating agencies along with Moody’s Investor Service and Fitch’s Ratings. If you have been following the news, then you know that earlier this month Standard & Poor’s downgraded the United States debt rating for the first time in history. This downgrade occurred surrounding the impasse that was presented around the resolve of the issues with the nation’s debt ceiling. Some experts are claiming that there could be a rise in mortgage and home equity lines of credit interest rates being that these rates are usually pegged on Treasury Bonds. There are many speculations but at this time no one knows for certain the implications that will come along with the reduction in the nation’s debt rating.

The silver lining to the cloud is that, although Standard and Poor’s downgraded the US debt rating from the highest possible AAA rating to AA+, Moody’s and Fitch both have kept the nation at a AAA rating. Many investors, and consumers, are clinging to the hope that legislation will be enacted to reduce government spending, lessen the burden of the national deficit, and return the nation’s debt rating to where it once was to prevent any further imposition on the consumer.

Although this isn’t an illustration of a disaster affecting the elder community exclusively, it is surely an example of how a lack of planning can orchestrate a grave disaster. Maybe the government should have started earlier to get their ducks in a row, rather than later!

“Retirement at sixty-five is ridiculous.  When I was sixty-five I still had pimples.” -George Burns (1896-1996)

Most of us will not experience the longevity that Mr. Burns enjoyed, but as medicine continues to improve and our life expectancies rise, there is some truth to the notion that sixty is the new forty.  The main negative consequence resulting from this is the potential for people to outlive their assets.  When index annuities were created in the mid 1990s, they were partly designed to address this very issue.

Index annuities are complex financial instruments designed to provide the benefits of both fixed and variable annuities.  People who have index annuities participate in the gain of an index; the most popular being the S & P 500.  Just as important, they do not experience loss when the index goes into the negative.  Index annuities became increasingly popular after the tech boom of the late 1990s when the bubble popped and investors were devastated.  In the last decade they have grown further as the market has been hit with the events of 9/11, the housing bubble, and just a month ago, the decline in our country’s credit rating.

For younger people beginning to plan for retirement, it still makes a lot of sense to invest directly in the stock market.  They can withstand the wild swings of the market because they have a lot of cycles still to go.  For retirees or people nearing retirement, this is not the case.  There is a breakeven point at which individuals need to move from growing their assets to preserving and protecting the assets they have accumulated.  When you reach this point, index annuities are a sound way to invest.  When you are contemplating the purchase of an index annuity, make sure you understand at least the following:

1. What are participation or cap rates?

The Participation Rate refers to the amount of gain in the index that will be credited to the annuity.  For example, if the participation rate is 75% and the index experiences a gain of 10% percent, the annuity will be credited 7.5%.

A Cap Rate refers to the maximum interest the index can gain.  If the index has a gain of 10%, and the cap rate is 6%, the annuity will be credited 6%.

2. What indexing method is used?

There are different ways of determining the performance of the index.  The major methods are as follows:

• Point-to-Point – Compares the change in the index between two points in time.  For example, if the index annuity has a monthly Point-to-Point measurement, the gain or loss will be credited monthly.  If it is a one-year monthly cap strategy, each month’s performance is added together for the year.  For instance, if the rates are as follows:

The interest accrued in this year would be 6% (sum of each month).

• Annual Reset – Compares the change in the index on an annual basis.  Thus, if the index in year 1 experiences a gain of 5%, this value is locked in and becomes the new contract value.  If in year 2 the index falls 4%, the annuity is credited in year 2 is 0%, but keeps the year 1 increase of 5%.
• High Water Mark – Credits the highest interest rate received at each measured point to the following term.  For example, if the highest interest rate for the year occurs in December at 8%, 8% is the interest credited.  This is the value used for the following year.

NOTE:  Different fees, caps and participation rates accompany each of the indexing methods, always make sure you are looking at the overall plan.

3. What are the surrender penalties?

Most index annuities contain penalties triggered by an early partial or total surrender of the annuity.  In some cases, any interest that is not credited at the time of the surrender could be lost.

4. What fees could I incur?

Most index annuities contain fees for riders that can be attached to the base index annuity.  Probably the most popular rider, the guaranteed income for life rider can ensure that you and/or your spouse do not outlive your assets.  These riders generally contain a fee taken off the interest the annuity has gained.  There are some companies that do waive these fees when the annuity produces no gain for the specified time period.

5. How does this fit into my overall strategy?

This is the most important area to consider.  There is no product or strategy that can protect you from everything or address all of your concerns.  You want to make sure that your advisors, both legal and financial, are communicating and coordinating your strategy to minimize taxation, address potential health care concerns, and avoid high administrative costs.

Only you, working with the best legal and financial team, can get your ducks in a row.

Oscar Wilde, the prominent Irish writer and poet once reflected, “When I was young I used to think that money was the most important thing in life and now that I am old, I know it is.”

Few have felt the harsh reality of Mr. Wilde’s views as much as the retired city workers in Prichard, Alabama.   Their plight was detailed in a recent article in The New York Times titled “Alabama Town’s Failed Pension Is A Warning” and should act as a warning to all upcoming retirees who plan to rely on their pensions for income.

Like many cities across the country, Prichard is in a financial crisis and has found the economic recovery to be too little too late.  When their pension fund recently ran out, Prichard did something that most cities have figured out a way to delay:  they stopped sending pension checks to 150 retired workers. Prichard had to break an Alabama state law to do so.  That law required that promised retirement benefits be paid in full.  However, after seeking bankruptcy protection twice, the pension fund finally ran out leaving the residents with three options; stop sending pension checks, adopt large tax increases, or make huge service cuts.  In a sad bit of irony that may foreshadow the upcoming social security dilemma, current city workers are still required to pay into the pension plan knowing that it will not be there for their own retirements.

Unfortunately, this problem is not relegated to the city of Prichard.  All across the nation cities and states are having problems finding a way to fund their pension funds.  Michael Aguirre, a former San Diego city attorney, states in the article, “Prichard is the future.  We’re all on the same conveyor belt.  Prichard is just a little further down the road.”  Not far down that belt is New York City, which had to put $8.3 billion into its pension fund in 2010.  The state of Maryland is trying to solve its pension problem by raising its retirement age to 62 for all public workers with less than five years of service.  Illinois is gambling with its pension funds, hoping the investments will gain enough interest to pay back its debts.  After receiving a bill for $3.1 billion, the state of New Jersey decided it simply wasn’t going to pay it.  Colorado, Minnesota, and South Dakota have all decided to reduce benefits by cutting cost-of-living increases, something social security recipients are getting used to after also not receiving COLA, or cost of living adjustments, the last two years.

When you think about the future, the only certainty is uncertainty.  There is always worry about whether or not everything will work out, but there is also hope that things will.  The most terrifying aspect of this article is not the warning it paints of the future, but of the one it paints of today.  The important thing to know is that there are ways to protect your future if you plan ahead.  Call our office to discuss how we can help.

It could be that you are like some of our clients and unaware of certain provisions included in the Pension Protection Act of 2006.  Basically, the Pension Protection Act can offer a huge tax incentive for those individuals who currently own non-qualified annuities. These annuities can be transferred into a different type of annuity product that provides benefits for long term care.  If used for long term care purposes, the gain in the annuity will be income tax free.

If you would like more information on this subject please call our office today. 1-800-798-5297 or you can send a request to roywhited@cooperelderlaw.com.  Please include your age and phone number.

Over the past several months our office has been receiving an increasing number of clients calling with question about various financial and insurance products.  Most of these questions have been related to how certain products work and especially as to how these products may or may not fit into the clients overall plan to avoid taxes, reduce probate cost and protect their assets from being lost to the cost of aging, including the cost of a nursing home stay, assisted living or home health care.

Listed below are a couple examples of questions received and answers that hopefully will help clear up certain misunderstandings. ……

Question: Is an annuity product protected from being lost to the cost of a nursing home stay if the annuity has waiver of surrender charges?

Answer: No.  The waiver of surrender charges in the event of a nursing home stay is just that, a waiver of the surrender charges should you need to cash in your annuity to help pay for the cost of your nursing home stay.

Please note:  The only annuities that are protected against being lost to a “nursing home spend down” are those being used in conjunction with other legal documents, such as a trust.  If anyone tells you that they have a stand alone financial product, such as an annuity, that will gives you nursing home protection it is not true.  If you have any specific questions in this regard, please call Sandy Workman at our office for a more detailed explanation.

Question: I was recently approached about a single premium whole life insurance policy and was told the death benefits would not be taxable when I die.  Is his correct?

Answer: Most life insurance death proceeds are not subject to income tax or Ohio death tax if paid to a named beneficiary.  However, if you are the owner of the life insurance policy, the death proceeds are included in your gross estate for federal estate taxes.  These death proceeds may or may not be taxable depending on the size of your estate or when you die.  With larger estates, these taxes can usually be avoided by using a certain type of trusts.

Our plan is to continue to provide answers to frequently asked questions as part of the blog postings.  Should you have any questions at all, please contact us at 1-800-798-5297.

This question is one that frightens many of our clients. They worry that if they go to a nursing home that they will lose their savings. Although there are a few exceptions, largely your savings and investments are available for spend down. Let me explain.

A single person must spend all of their savings and investments, including IRA’s and life insurance down to $1500, before they get help. A married couple has a somewhat different requirement. The couples savings and investments are divided between them using the following formula to determine the amount the healthy spouse can keep.

The nursing home bound spouse must spend their share before the government will provide any help with the nursing home payment.

Many clients want to know if they can just change the name on their accounts and remove the ailing spouses name or put their accounts into their revocable living trusts. Unfortunately, none of these ideas will help prevent the loss of money to the nursing home.

However, there are still a few things that you can do to prevent the loss of your savings to a nursing home. In addition, often it is still possible to protect some of your savings even after you are in the nursing home. Planning ahead is usually the best and we encourage clients to plan ahead.

If you have questions about how to protect your savings and investments, please call and ask for me personally. I would be happy to help you and answer your questions.

Clients come to the office every week and ask this question.  I am amazed at the number of families that own investments and they don’t understand what they have.  They have either forgotten from the time of the purchase of the investment what they bought or never understood what they bought and just took the salesman’s advice.  The bottom line is that they don’t know what they own and they worry that what they own is not right for them.

When you evaluate an investment to determine if it’s right for you, there are a number of considerations.  These things should reveal the answer to that big picture question.  Is this investment right for me?

1. How much risk does this investment take?
2. How much liquidity does this investment provide?
3. Is this investment available to a nursing home?

When we evaluate an investment, these are the main issues that we explore with clients.  Most importantly we look at all other investments and savings and we look at how the investment in question fits into the entire portfolio.  Remember that your savings and investments are like pieces of a puzzle and if properly coordinated can make a great picture.  You must look at all investments together, not just one piece at a time.

Please refer back to the blog in the future as I talk about how risk, liquidity and nursing home protection affect investments.  Additionally, I am always available to answer questions regarding your investments.  Feel free to call and ask for me personally. 1-800-798-5297