The Big Wave Of Aging Baby Boomers

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Couple on motor cycleWill the world be ready if or when aging boomers [born between 1946 and 1964] hang up their car keys? Most plan to stay in their suburban house even though their home may become unsuitable. It’s surprising that this huge generation is not being addressed by the housing industry.

Thoughtfully designed housing for older adults is not being created on a scale commensurate with the growing need. It’s not a market many architects or developers have embraced. Conversely, a disproportionate amount of attention has been focused on the presumed desires of millennials. We hear all the time that it’s this group craving walkability, good transit and everything-at-their-doorstep amenities — and that it can only be provided by cities.

There are a number of reasons for this: most of the people who do marketing are young. Doing stuff for old people is not fun. One marketing consultant who founded the Boomer Project noted:

It’s as if marketers all wear the same blinders. Because so many marketing executives are under 40 — or even under 30 — many presume most consumers not only think like them, but want to be like them. Most marketing that targets Boomers presumes there is something wrong with them that needs fixing, such as age spots or wrinkles. It’s malady-based. And, for the most part, it’s not accurate.

Sure, things will go wrong, but not in the order one would think

So when the companies do think about designing for those growing older, their thinking is malady-based too; by considering malady-based design issues like “step-free entrances, single-floor living, under-counter appliances, and halls and doorways that accommodate wheelchairs.”

But, by not really knowing for sure what kind of housing aging boomers need, these mobility-based problems are the last to consider; the first are household-based activities like driving, food shopping, taking medication and meal preparation. These start hitting in significant numbers in the mid 70s, and the boomers are not there yet.

These are also problems that are solved by community — being able to walk to shop, moderately priced restaurants where one can get prepared food, neighbors who might look in and check if a person is taking their medication.

Right now, boomers feel pretty good

The fact is that right now, most of the baby boomer cohort is still pretty healthy. According to a Del Webb study, they all feel a lot younger than they are, and until any health problems start hitting them, they will think they are much younger. So it should be no surprise that there are not too many of them worrying right now about giving up their cars; they all think they are fine.

Every day for the next 12 years, 10,000 people will reach age 65. That companies are not scrambling to exploit this market is not only unfortunate for their bottom line, but almost certainly treacherous, eventually, for everyone.

The power of boomers

Baby boomers buy 60 percent of packaged goods, spend 75 percent more on vacations, and buy half of all new cars. They own a third of all the iPhones and half of the Macs. Baby boomers, because they get out and vote in higher numbers, just elected the new American government and pretty much control it. President Trump is 70, Wilbur Ross, U.S. Secretary of Commerce, is 79, and the average age of the cabinet is 62. The baby boomers own America, and now they rule it.

There is an importance of living in walkable communities, those things that the millennials want, such as good transit and everything-at-their-doorstep amenities. People have to start thinking seriously about these issues, but most baby boomers simply haven’t yet. Most who have decent jobs or own businesses are not seeing any retirement barrier at age 65 either.

Technology can be part of the solution, with Uber, home delivery, apps and wearables. Summoning these cars is a no-brainer for heavy users of smartphones, but for older people with declining vision and motor skills, it’s a puzzle. But not for the baby boomers; they just upgrade to the iPhone 7 Plus and get a bigger screen. Again, conflating seniors with tech-savvy boomers who have fine, well-practiced index finger skills, along with Siri and Alexa.

In fact,  the biggest problem for boomers might well be over-reliance on technology. Most older seniors could easily park themselves in front of the television with only the 50 channels the cable company gave them. Now we can get endless streaming of Netflix and every other service to fill our time. Soon we all might be wearing Oculus headsets and never leaving our chairs.

Perhaps that is what happens when people are trapped in their homes, or when they lose their car keys. Which is maybe why we have to think community first, interior design second. And in the end, we’re talking about timing. The baby boomer demographic bulge is just getting into its senior years. As one senior living expert, Bob Kramer notes:

“Some of this is like surfing — you have to time the wave,” Kramer says. “You paddle too soon, and you wipe out spectacularly.”

The oldest boomers are just 70 or 71 now. But they are the leading edge with many, many millions to follow. We are 10 years away from the real crisis here. The question is, do we fix our cities and towns now so that they are ready for this wave, or will it drown us all?

 

Does Your Insurance Cover Alzheimer’s Care?

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Senior man sitting on a wheelchair with caregiverOne in eight individuals 65 and older suffers from Alzheimer’s disease –quite a sobering statistic for the growing number of baby boomers rapidly crossing that age threshold. And the costs can be an “overwhelming financial burden,” says Carol Steinberg, executive vice-president of the Alzheimer’s Foundation of America.

Private and government insurance programs may cover some costs. Here’s a primer on your options.

Medicare

Many people are shocked to discover that Medicare does not cover the long-term custodial care that Alzheimer’s patients need. Custodial care is the non-medical care associated with activities of daily living, such as bathing and dressing.

Medicare does cover limited care in a nursing facility or at home. For home care, the patient must require skilled-nursing care or physical or occupational therapy to help with the recovery from an illness or injury — not to help an Alzheimer’s patient with daily-living activities. “One of the most difficult situations is when a loved one needs personal or custodial home care, but Medicare will only cover that if there is some type of skilled-care need,” says Frederic Riccardi, director of programs and outreach for the Medicare Rights Center, an advocacy group.

At-home services in most cases can be provided for fewer than seven days each week or less than eight hours each day over a period of 21 days or less. Limited custodial care could be provided during these visits — perhaps if an Alzheimer’s patient treated by a registered nurse for a broken hip needs help bathing. Medicare pays the cost of a skilled-nursing facility, but only to provide continuing treatment following a hospital stay of at least three days. Skilled care in a facility is limited to 100 days.

While Medicare offers little by way of custodial care, it does provide diagnostic and medical treatment that Alzheimer’s patients need. The new annual wellness physical exam, which is free and part of the health care law, includes testing for cognitive impairment. “This is a critical, yet hardly known, provision,” Steinberg says. Medicare also covers visits to a geriatric assessment clinic.

Alzheimer’s patients and their families need to carefully choose a Medicare Part D prescription-drug plan or private Medicare plan. Alzheimer’s medications are generally covered under Part D, but plans vary regarding co-payments. The Alzheimer’s Association offers a guide about coverage for common Alzheimer’s drugs.

If you choose a Medicare Advantage plan, make sure your neurologist and other physicians you see often are covered as in-network providers. Otherwise, you will pay higher out-of-pocket costs or ask about Medicare supplement plans.

Long-term-care insurance

These policies provide coverage for the custodial care that Alzheimer’s patients usually need. Benefits typically trigger if the patient needs help with at least two activities of daily living or if a doctor provides evidence of cognitive impairment. Because most people with Alzheimer’s receive care in their own homes, look carefully at the policy’s home-care requirements. Typically, a patient must wait 60 or 90 days before benefits begin. But policies differ on when the clock starts ticking, which could be a big headache for caregivers. 

Some long-term care insurance policies start the 60-day waiting period on the day the doctor certifies the cognitive impairment — and benefits trigger 60 days later. But other policies count only the days a patient receives care from a qualified caregiver during the waiting period. If the caregiver visits two days a week, the policy only counts those two visits toward the 60-day waiting period — and benefits will not trigger for 30 weeks. In the meantime, the family has to pick up the tab for the caregiver.

Before you hire a caregiver, check the policy’s fine print on the type of caregiver the insurance company will cover. Some policies pay for any caregiver who is not a family member, while others only pay for licensed caregivers who work for an agency. Some families who hire an unlicensed caregiver later discover that the caregiver doe not qualify under the policy.

Do not expect a policy to pick up round-the-clock home care. Daily coverage is based on the daily benefit. A policy with a $200 daily benefit, for example, will likely cover the cost of eight to ten hours of a home health aide. If a family caregiver cannot fill in the gap, a nursing home may be a better option.

You cannot use more than your daily benefit in a day, but you can stretch your daily benefit over longer periods. Say you choose a benefit period of three years, at $200 a day. If you only use $100 a day, your coverage can last for six years. Some policies cover adult day care, which can cost a lot less than daily caregivers. “Many adult day services specialize in care for those with Alzheimer’s disease and similar disorders,” says Kathy O’Brien, senior gerontologist with the MetLife Mature Market Institute.

An alternative and more cost-effective option for long-term care insurance in today’s expensive health care environment is a short-term custodial care policy.

Medicaid

This program, whose costs are shared by federal and state governments, is the primary payer of long-term-care services for the elderly. Unlike Medicare, it provides custodial care for Alzheimer’s patients. Custodial care typically is provided in Medicaid-eligible nursing homes, but many states’ Medicaid programs now pay for home care and sometimes adult day care or care in assisted-living facilities, says O’Brien.

 

The downside: You need to be virtually impoverished to qualify. Many people end up qualifying after spending their retirement savings on care. While state laws differ, generally you cannot have more than $2,000 in countable assets, including investments. A spouse who lives at home can generally keep about $113,000. You’re allowed to keep your home, car and assets in certain kinds of trusts. (Visit www.medicaid.gov to find eligibility requirements in your state.)

To protect more of your assets, you can buy a state-approved long-term-care policy that is “partnership” eligible. The policy would allow you to qualify for Medicaid without having to spend almost all of your money first. For example, if you buy a partnership policy that covers $200,000 of care, you would pay out of pocket until you have $200,000 left and still qualify for Medicaid. Go to the National Clearinghouse for Long Term Care Information to see if your state allows these policies.

 

 

 

 

A Head to Head Match – 401k vs Whole Life Insurance

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Couple sitting on the beach sandIn talking about the best ways to save for retirement, an interesting idea is to compare investing in retirement plans to saving money via a whole life insurance policy. One misconception with life insurance is the myth that someone has to pass away for life insurance to be of any benefit.  

Nothing is further from the truth.

Life insurance inherently has benefits that can be used while you are alive but these never get mentioned in mainstream media. A few television personalities emphatically say that term life insurance is the only way to go because it is inexpensive and the extra money can be used to invest in mutual funds rather than purchasing whole life insurance. This does not work for the majority of people.

The mantra of “buy term and invest the difference” usually turns out to be “buy term and spend the difference.” It simply illustrates that people do not know what they do not know.

Term life insurance is straight forward. It is inexpensive life insurance at younger ages that covers you for a certain number of years (typically 10-30) after which it terminates.

Whole life insurance however is the opposite…it covers you for your whole entire life, is more expensive than term insurance because it accumulates cash value (term life insurance does not). 

The reason whole life insurance premiums are higher than term insurance is because the coverage costs are averaged over your entire life time. Therefore whole life insurance premiums are higher if purchased when you are younger and less costly as you age.

To use a simple analogy, whole life is like buying a house (builds equity) and term is like renting (no equity).

If this were the only difference between the two types of insurance than the television pundits might have a case however the devil remains in the details. A whole life insurance policy should be the foundation of any financial plan, even ahead of a qualified retirement plan (for example, 401k). Lets compare the features.

Qualified Retirement Plans:

Tax deferred/tax deductible; IRS approved; limits on contributions; employer match..sometimes; can invest in the stock market; loan provision (typically limited to 50k and loans must be repaid or become taxable); limited to the plan’s investment options; creditor protection; must have income to contribute; subject to taxation at ordinary income tax rates; no guaranteed retirement income.

Whole Life Insurance:

Tax deferred (not tax deductible); no limits on contributions; tax-free income and withdrawals; no mandatory withholdings; tax free to heirs; penalty free access to money under age 59 1/2; no required minimum distributions at age 70 1/2; has guaranteed costs, expenses and contribution amounts; can take a loan over 50k (no limits) and no loan repayments required; unlimited investment options (i.e. rental real estate); can be used as collateral (i.e. small business loan); estate tax free; liquid (access to funds at anytime without penalty;no hardship required); disability protection (automatic funding of retirement if you become disabled); use as your own bank (a source of financing); self completing (provides income for spouse if you die and college education for children); judgement proof (protection against creditors and lawsuits in many states); potential for dividends (more beneficial than employer match as it can potentially guarantee future tax free retirement income); protection from future income tax rate increases; guaranteed to grow every year (you know what the account will be worth in the future); guaranteed retirement income (if structured correctly); not stock market based (protection against market risk); long-term care benefits (protects against the costs of health care in retirement); retirement income flexibility (allows you to spend down your other assets in retirement); provides money for terminal and chronic illnesses; and last but not least..death benefit money when you need it most.

So why aren’t these benefits ever mentioned by the media? Because it takes too much time to obtain them or is the “status quo” an easier way to inform people? Max out your 401k and buy term insurance. Realizing how difficult it is for people to look outside the box for alternatives from what a person is accustomed to however when looking at the benefits provided by whole life insurance, the extra “perceived” cost (versus term insurance and qualified retirement plan) certainly makes it worth consideration.

Qualified retirement plans, like the 401k, were never meant to be a primary source of retirement savings but were deemed a supplement to social security. 

Whole life insurance should be in almost everyone’s financial plan and definitely deserves a serious look.

College Freshman Learns About Growing Old

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April Pearce

April Pearce is in the middle of her freshman year at UCLA, settling into life away from home for the first time. But instead of thinking about dorm food or exams, the 19-year-old is focused on something a little more abstract: old age. 

That’s because of a unique course April is taking called Frontiers in Human Aging, designed to teach first-year college students what it means to get old — physically, emotionally and financially.

April said that before, she barely noticed elderly people when she passed them on the street. Since being in the aging class, seeing them fills her mind with questions: Do they live alone? Will they develop dementia? Do they interact with anyone apart from relatives?

“It’s weird, I know,” she said. “But before, I didn’t have any knowledge really about aging. I didn’t even interact with any older people except for my grandmother. Now I’m learning so much.”

In addition to teaching students about aging, the professors have another goal in mind: inspiring them to pursue careers working with the elderly.

With more than 10,000 baby boomers turning 65 every day, there is a growing need, said Rita Effros, a professor at UCLA’s David Geffen School of Medicine who teaches both undergraduates and medical students.

People over 65 represented about 14 percent of the U.S. population in 2013, and that figure is expected to increase to nearly 22 percent by 2040. During that same time period, the number of people over 85 is expected to triple.

And jobs working with the elderly won’t just be in medicine but also in social work, psychiatry, technology and law, Effros said.

We try to make it clear that aging is going to be big business,” she said. “Whatever their interests are, they should think about serving the elderly.” The strategy seems to be working on many of the students, including April. She started UCLA in the fall of 2015 wanting to be a veterinarian and now is thinking about becoming a geriatrician.

The class, which has about 120 students, is taught jointly by Effros, an immunologist, Paul Hsu, an epidemiologist, and Lené Levy-Storms, a social welfare professor. UCLA started offering the course in 2001, but the professors said it is becoming increasingly important.

Throughout the year, students hear lectures about anxiety, genetics and dementia. They discuss ageism and read about Social Security. They stage debates on assisted suicide and watch films about growing old.

The course lasts from September to June, and students can go on to take other classes about aging, including ones that focus on diversity or public policy.

Effros said she wants the students to understand people don’t suddenly become old. Rather, the aging process starts when they are conceived. “A lot of life habits and choices they make as college students can affect them decades later,” she said.

During one guest lecture, UCLA medical school professor David Reuben explained how geriatricians evaluate patients and told students about some of the most common problems older people face — dementia, falls, sensory impairment.

He also described how the students’ own lives will change as they age. Instead of traveling the world, older people eventually become unable to travel out of their own bedrooms.

One student raised his hand and said being a geriatrician sounded gratifying, but also seemed heartbreaking. “You watch so many people decline … how do you handle that?”

Reuben responded that he does get sad and he does cry. “Nobody lives forever and nobody should live forever,” he said. “Death is part of the human experience.”

Michael Margolis, 17, said being in the class has made him think for the first time about his own mortality. “It’s not something we typically think about as teenagers,” he said.

One requirement of the class is that students spend a total of 20 hours volunteering with seniors.

Just after the New Year [2016], the students gathered in a large room on campus to meet representatives from several agencies that serve the elderly. Andres Gonzalez, a director at St. Barnabas Senior Center in Hollywood, told the students they could teach technology classes to active seniors or help deliver meals to homebound ones.

“Even that short interaction becomes very meaningful to the seniors,” Gonzalez said. “You might be the only person they see that day. And they get even more excited seeing younger people.”

April Pearce was assigned to Wise & Healthy Aging, which runs an adult day service center for seniors with dementia. Catherine Jonas, who previously directed the center, said the students bring a lot of energy to the center, and they often lead bingo games and exercises. They also have lengthy conversations with the seniors.

“What the older adults need is that dialogue,” Jonas said. And for students interested in learning about dementia, interacting with people affected by it “is so much better than what they get from a book,” she added.

One morning in early February [2016], the center was decorated for Valentine’s Day, with red and white streamers and cut-out hearts hanging from the ceiling.

One of the student volunteers, Julia Gierasimow, led the group as they rolled their shoulders, stretched their legs and tried to touch their toes. Julia, who is also considering a career in geriatrics, said all the seniors she’s met so far have interesting life stories.

“I don’t know if they remember me from week to week … but they are very friendly,” she said. “As bad as their dementia may be, they still give you a hug.”

After the physical exercises, April sat in a chair in the middle of the room, picked up a microphone and commenced with the mind exercises she’s led each visit. Today’s activity: a quiz game about football.

“Which team won the first Super Bowl ever?” she asked, smiling.

Several of the seniors shrugged. One man, 76-year-old Tracy Williams, yelled out the right answer: “Green Bay Packers!”

Williams, retired from the Air Force, said he enjoys when the college students come to visit — even though he never would have done the same at their age. “When I was young, I didn’t want to even be near an old person,” he recalled.

April said that in just a few weeks of volunteering, she is becoming more patient and is learning how to talk to people with dementia. “If they say it’s Tuesday, you’re supposed to go with it,” April said. The class has given her a new perspective on her own life, too. She is trying to eat less fast food and exercise more. And she tries not to worry so much about things like not doing well on an exam. “I’m going to have health problems later if I let the stress get to me,” she said.

April is also seeing her grandmother in a new light, especially after doing an in-depth interview with her for a class assignment.

She said she learned that her grandmother had undergone hip replacement surgery, a kidney transplant, and treatment for cancer. She also discovered her grandmother had loved to dance when she was younger, and was popular with the boys.

“I had never really thought about my grandmother as a young woman,” April said. “This class is making me appreciate her more.” .

 

A New Era of ‘Work Until You Drop’ For Boomers

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Boomer at workWhen Paula Symons joined the U.S. workforce in 1972, typewriters in her office clacked nonstop, people answered the telephones and the hot new technology revolutionizing communication was the fax machine. Remember?

Symons, fresh out of college, entered this brave new world thinking she would do pretty much what her parents’ generation did: work for just one or two companies over about 45 years before bidding farewell to co-workers at a retirement party and heading off into her sunset years with a pension.

Forty years into that run, the 60-year-old communications specialist for a Wisconsin-based insurance company has worked more than a half-dozen jobs. She’s been laid off, downsized and has seen the pension disappear with only a few thousand dollars accrued when it was frozen.

So, five years from the age when people once retired, she laughs when she describes her future plans.

“I’ll probably just work until I drop,” she says, a sentiment expressed, with varying degrees of humor, by numerous members of her age group.

Like 78 million other U.S. baby boomers, Symons and her husband had the misfortune of approaching retirement age at a time when stock market crashes diminished their 401(k) nest eggs, companies began eliminating defined benefit pensions in record numbers and previously unimagined technical advances all but eliminated entire job descriptions from travel agent to telephone operator.

At the same time, companies began moving other jobs overseas, to be filled by people willing to work for far less and still able to connect to the U.S. market in real time.

“The paradigm has truly shifted. Now when you’re looking for a job you’re competing in a world where the competition isn’t just the guy down the street, but the guy sitting in a cafe in Hong Kong or Mumbai,” says Bill Vick, a Dallas-based executive recruiter who started BoomersNextStep.com in an effort to help baby boomers who want to stay in the workforce.

Not only has the paradigm shifted, but as the generation whose mantra used to be, “Don’t trust anyone over 30,” finds itself now being looked on with distrust by younger Generation X managers who question whether boomers have the high-tech skills or even the stamina to do what needs to be done.

“I always have the feeling that I have to prove my value all the time. That I’m not some old relic who doesn’t understand social media or can’t learn some new technique,” says Symons, who is active on Twitter and Facebook, loves every new time-saving software app that comes down the pike, and laughs at the idea of ever sending another fax.

“Ahh, that’s just so archaic,” she says.

Meanwhile, as companies have downsized, boomers have been hurt to some degree by their own sheer numbers, says Ed Lawler of the University of Southern California’s Marshall School of Business.

The oldest ones, Lawler says, aren’t retiring, and more and more the youngest members of the generation ahead of them aren’t either. It’s no longer uncommon, he says, for people to work until 70+.

“People who would have normally been out of the workforce are still there, taking jobs that would have gone to what we now call the unemployed,” he said.

John Stewart of Springfield, Mo., sees himself becoming part of that new generation that never stops working.

“No, I don’t see myself retiring,” says Stewart, who is media director for a large church. “I think I would be bored if I just all of a sudden quit everything and did whatever it is retired people do.”

Then there are the financial considerations. Like many boomers, the 60-year-old acknowledges he didn’t put enough aside when he was younger.

For more than 30 years, Stewart ran his own photography business, doing everything from studio portraits to illustrating annual reports for hospitals and other large corporations to freelancing for national magazines and newspapers.

As the news media began to struggle, the magazine and newspaper work dried up. As the economy tanked, his large corporate clients began to use cheaper stock photos purchased online rather than hire him to take new ones. Eventually he took his current job, producing videos of pastors’ sermons and photos for church publications. He says he is glad to be one boomer to make a late career change and keep working.

“There were times when the money was really rolling in,” he says of his old business. “But somehow retirement wasn’t really in the forefront of my thinking then, so saving for it wasn’t an automatic thing.”

Steve Wyard, of Los Angeles, says he and his wife have planned carefully for retirement.

He’s worked for 30 years for a company that sells and services commercial washers and dryers, and she’s been with a health maintenance organization for even longer. They’ve invested cautiously, lived in the same house for decades and meticulously paid down the mortgage.

Plus he’s one of the few boomers who figures that, no matter what technology comes along, his job won’t go away.

“Everyone has to do the laundry,” he says.

Still, he and his wife have two sons, 19 and 21, to put through college, and Wyard, 61, sees that pushing back retirement for several years.

Until then he plans to keep working, which is what every physically able boomer should consider doing, says USC’s Lawler.

Union membership, which has been declining for years, now includes only about 10 percent of all eligible U.S. employees, according to the Bureau of Labor Statistics. Meanwhile, the number of defined benefit retirement funds offered by private enterprise have fallen from about one in three employers in 1990 to about one in five in 2005.

With unions no longer in a strong position to fight for benefits like pensions, with jobs disappearing or going overseas, and with Gen Xers and even younger Millennial Generation members coveting their jobs, Lawler warns this is no time for boomers to quit and allow the skills they’ve spent a lifetime building to atrophy.

“My advice is don’t retire,” he says. “If you like your job at all, hold onto it. Because getting back in during this era is essentially impossible.”

 

 

Social Security – As Soon As Possible?

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Couple hikingWhen is the best time to start taking Social Security benefits? The answer is not always so simple. Perhaps this article with provide some things to think about as you ponder your choices. 

Myth No. 1:  If you wait, you get more…

The older you are when you start, the more Social Security monthly income you receive. The Social Security Administration thus entices people to wait longer. But let’s look at this a little deeper.

Let’s use an example. Assume at age 62 a person’s Social Security monthly income will be $1,000 per month. However, if they wait until age 67, this monthly income increases to $1,500. More is better, right?

Remember that in order to get this extra $500 per month, this individual had to wait five years. So if we calculate the income this person did not receive, it comes out to $60,000 ($1,000 per month for five years).

The proper thing to do in this example is analyze the pros and cons of waiting five years for the extra $500 per month.

Using the example, the pros are simple. Waiting earns you an extra $500 per month, which is a good thing.

Now let’s take a look at the cons. How many months does it take someone to simply break even (from a financial perspective)? Well, if you divide $60,000 (lost income) by the $500 (additional income), it comes out to 10 years.

However, the story does not end here. Remember, by waiting five years this person is now 67 years old. Therefore, in order to accurately calculate the lost income and “break-even” point, you also have to add in the five years this person waited (from age 62–67). Therefore, it really takes this person 15 years to simply break even and justify deferring their Social Security income.

But wait, there’s more …

Some other key factors to consider are:

  • Five years of potential lost interest or growth from the monthly income
  • Five years of lost ability to spend and enjoy the extra monthly income
  • Countless years of lost income due to a possible critical illness
  • Countless years of lost income due to a possible premature death
  • Countless years of lost income due to an unexpected illness or death of a spouse
  • Countless years of reduced purchasing power as a result of inflation
  • Countless years of lost income due to the potential for taxes to go higher
  • Countless years of lost income due to potential reductions, changes, or even the elimination of Social Security income

Myth No. 2:  My income and taxes will be lower in retirement…

Far too often individuals/couples make major mistakes as a result of basing a financial decision upon its tax consequences.

Most of us have heard the argument, “I will be in a lower tax bracket when I retire.” This statement seems to be an amazement for several reasons.

First, why do so many aspire to have a significant income reduction once they reach retirement? Retirement is commonly referred to as the Golden Years, right? This implies that you worked hard and long enough to have saved enough gold to live like Kings and Queens.

Second, when are you more likely to spend more money: While you are working or when you are on vacation? Since the obvious answer is while on vacation, isn’t it fair to say that retirement is supposed to be a wonderful, long, enjoyable vacation from work? Retirement is arguably the time when you have earned the right to spend and enjoy your hard-earned wealth and income.

Yes, more income does mean more taxes, indisputably. However, here is a theory on taxes: Make a lot of money, pay a lot of taxes, and repeat the process.

Again, let’s again analyze the pros and cons.

The main pro for deferring Social Security income is simple. More income means more taxes, and nobody likes paying more taxes.

Now, let’s take a look at the cons using an example:

In 2012, Couple No. 1 earns $50,000 per year. Couple No. 2 earns $500,000 per year.

Couple No. 1 paid less in Federal taxes (15 percent) than the couple earning $500,000 per year (35 percent). In fact, on the surface (excluding any deductions and State income taxes) Couple No. 1 paid a mere $7,500 in taxes, while Couple No. 2 paid a whopping $175,000 in taxes.

However, which of the following retired couples would you rather be:

Couple No. 1: Net Income (after taxes) is $42,500 per year, or $3,542 per month. Couple No. 2: Net Income (after taxes) is $325,000 per year, or $27,083 per month.

But wait, there’s more …

Some other key factors to consider are:

  • Today we are in the sixth lowest tax bracket in history
  • A large majority of people today believe tax rates are going higher
  • There are many reasons a person’s (or couple’s) taxable income can actually increase in retirement (employment income, asset and income growth, inheritances, spouse’s death and rental income, IRA Required Minimum Distributions, loss of deductions, and more).

A bird in the hand

When it comes to determining the right time to take Social Security income, too many individuals and couples conclude it’s in their best interest to delay beginning to take Social Security income so as to increase their future income and/or minimize their income tax.

Don’t Leave Your Children Any Money

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Girl on BenchYou may be asking yourself why Tom Hegna, author, economist, and retirement expert, is telling us not to leave any money to our children. Perhaps this article will help answer your questions.

According to Tom, as 78 million baby boomers are marching headlong and headstrong into retirement, many of them are discussing how much money to leave their children. As the millennial generation moves out of the house and into the real world (at least for a few months), many boomers are looking to leave a little something to their children and grandchildren. Like Mark Twain says, “Thrift is a wonderful virtue, particularly in an ancestor.”

Estate planning is all about transferring your wealth and assets to your family (or favorite charity) in the most tax-efficient manner possible. Tom’s advice: Do not leave your children or grandchildren any money. He repeats, do NOT leave your children or grandchildren any money! Set up a life insurance policy to leave a legacy so that you can spend pennies and your heirs will get dollars.

Here are three reasons to leave your children life insurance rather than money:

Reason 1:

Avoid income and estate taxes. With life insurance, there is no income tax on the death benefit upon receiving it. Also, if structured properly, you can use gifting strategies and irrevocable life insurance trusts to avoid estate taxes. Each state is different, so make sure you understand exactly how it works for your community.

Reason 2:

Why spend $100,000 to leave $50,000? If you are able to put $100,000 into a policy, the policy would pay out a significant amount more.

Reason 3:

You have access to the cash value of your policy in case of emergencies.

With life insurance, you gain a tremendous leverage. For example, depending on age, gender, and health, instead of leaving children $100,000, mom and dad could put that $100,000 into a life insurance policy and leave Johnny and Susie $200,000, $300,000, or even $500,000, income tax free.

If the policy is set up properly, the money can remain estate tax free as well.

George Steinbrenner’s heirs were big beneficiaries — they inherited the New York Yankees and the rest of his financial empire was free from estate taxes.

Tom Hegna has been presenting financial estate planning to people all around the country and one slide that tends to stand out and resonate the most with attendees is the “Don’t live a just-in-case retirement” slide. Many seniors today are living a “just-in-case retirement” and not enjoying their Golden Years as much as they should be.

One of the key elements of this deals with leaving a legacy to children. Mom and dad live a diminished retirement because they want to leave something for Johnny and Susie. They don’t spend their money, then what happens? They die. What happens to the money? It goes to Johnny and Susie, who then use it for the reason their parents were saving it for — a new boat, the country club, a cruise, etc. This paradox can potentially be solved with life insurance.

If you decide up front how much you want to leave Johnny and Susie, you can use the money from a life insurance benefit to go to your children, estate and income tax free. Again, this gives them the freedom to spend the rest.

Tom’s books and articles often reference “the optimal solution.” Optimal may not always be the best, but it means, “The best more often than anything else and it will never be the worst.” With the power of life insurance, you can spend pennies and leave dollars. This is the optimal way to leave a legacy to the children. The baby boomer generation has been touted as a career-focused and workaholic generation. It is time for them to reap the benefits of their hard work.

Americans are widely underinsured and most have no idea of the benefits life insurance can offer. Make sure that you understand how securing life insurance will give you peace of mind to spend your hard earned money.

Don’t leave Johnny and Susie money, leave them life insurance. Hopefully, when the kids find out that they aren’t getting any money, they will finally move out.

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