Articles Posted in Financial Planning

Do you have enough money to retire? It is a questions that tens of thousands of New Yorkers ask themselves every day. When talking with attorneys and financial advisers, many factors are weighed to determine whether enough resources are available for one to have the type and length of retirement that they want and need.

One of those factors, as always, is taxes. Retirement income is frequently taxed, with a portion of money going to state and local government. These are not necessarily trivial amounts, as the exact size of the tax burden may affect whether or not the nest egg is large enough to cash in one’s chips and begin the next phase of life.

Federal taxes will obviously be the same everywhere, but the rules about retirement taxes vary considerably from state to state. When making long-term plans regarding finances, it is critical to understand how state tax rules will affect your retirement

Much discussion around the Windsor case that struck down DOMA dealt with the estate tax. As a result of the decision, married same sex will indeed be privy to the same federal estate tax exemptions as their heterosexual counterparts. But the effects will go well beyond taxes at death. In fact, it is important for same sex couples to remember that federal recognition of their marriage will also affect retirement planning.

The sweeping ruling granting federal equality will likely mean that many same sex couples will need to “re-do” planning that they previously undertook to account for their unequal status under the law.

Retirement Planning

Planning for retirement is rarely a simple task. For one thing, a resident must carefully ask the basic question: How much do I need? Sophisticated models and projections exists to help make educated guesses about this answer. But it is never an exact science. That is because it is impossible to say with certainty how long the retirement will last or what the future financial world will look like.

On top of that, however, there is also significant complexity regarding the accounts, trusts, and other tools used to provide the assets and income needed in retirement. It is critical to understand tax issues with retirement accounts and investments to appreciate exactly how much money will be available for you to live in your golden years.

Take, for example, the issue of taxes and individual retirement accounts (or any other tax-deferred plan). Do you know how much of the account will be taxed on withdrawal?

Retirement saving–it is a topic on the minds of many New York families. The days of working in the same spot for several decades and then enjoying retirement on a defined benefits pension plan are long gone for most residents. With Social Security offering only the barest funds, it instead falls to everyone to take steps on their own to plan for their golden years. Individual Retirement Accounts (IRAs), 401(k)s, and similar tools are used by most to accomplish this goal.

However, the latest research on retirement trends suggest what many estate planners know: many families have no saved nearly enough to last their entire planned retirement. As discussed in a MarketWatch story this week, a new research projects gives most people less than a 50% chance of having their retirement last for 30 years. That is based on current stock and bond markets with a typical withdrawal of 4% per year (with a hypothetical portfolio of 60% bonds and 40% stocks).

In short, it is still tough out there in the world of retirement planning.

Structuring an estate plan to account for taxes can be a complex task. While state and federal estate taxes make up the majority of discussion about taxation, there are other issues to consider. For example, there are ways to structure disbursement of various assets–insurance policies, retirement accounts, and more–so that Uncle Sam takes as small a bite as possible.

Adding to the complexity is the fact that laws frequently change which either open up more opportunities or take away previously available tax-saving options. For example, last week Forbes discussed a U.S. Senate vote that may eliminate a commonly-used tax strategy.

Stretch IRAs

Anticipation is building among marriage equality supporters (and opponents), as decisions from the U.S. Supreme Court on two major same-sex marriage related cases are set to be released either this week or next. As we have previously discussed, one case relates to the Defense of Marriage Act (DOMA) which has direct implications on the rights (and estate planning) of all same-sex couples in New York.

DOMA prohibits even same-sex couples who are legally married in states that allow it (like New York) access to all federal benefits pertaining to marriage. This includes well over a thousand distinct items, like Social Security, preferred tax breaks, immigration privileges, and more.

Many are hoping that the Court strikes down the portion of DOMA which denies those benefits, finally placing all married same-sex couples on the same footing as their opposite sex counterparts. The court may release its ruling on that case, Windsor v. United States, as soon as this Thursday.

It is notoriously foolish to take Congressional reports, proposed legislation, and similar matters as anything more than mere possibilities which may change federal law. For every piece of legislation that actually makes it into law, there are a hundred others that end up nowhere. Still, those who have an interest in certain issues, like retirement planning, may find value in examining the different ways that elected officials are considering modifying current rules.

For example, recently staff members of the U.S. Senate Finance Committee issued a report that outlines many different tax reform ideas that members of the committee will consider when they debate proposals this cycle. The report introduction explains that “The options described below represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the Committee’s 30 hearings on tax reform to date.”

A full online copy of the document can be found online here.

Epic estate planning battles–particularly involving the wealthy and famous–have long been fodder for newspapers. There have even been a few high-profile movies touching on the topic, like the recent George Clooney film, “The Descendants.” But now it appears that the sagas may make their way into yet another medium: television.

Reality TV continues to captivate audiences, and now some are looking to cast a new television show based on unique, intense, and interesting inheritance fights. The Trust Advisor recently shared information on the project which, if it becomes popular, is sure to raise awareness of common estate planning issues even more.

The show is still in the early stages of development, but it is clear that a large TV production team is looking for families to be filmed as their inheritance issues and planning details are sorted out. These early reports suggest that the show will center on inheritance and trust disputes among wealthy families. The purpose, one presumes, is to find families with the most unique issues, including family businesses, generations-long dynasties, and large personalities. The filming (and packaging as a television show) will likely highlight both the characters themselves as well as the unique processes involved in settling estate fights. While it may seem common knowledge to those of us working on these affairs, it is easy to forget that for most community matters, estate planning issues are foreign.

Do I have enough to retire? Countless New Yorkers ask their financial advisers, estate planning attorneys, and other professionals that very question each and every day. There is no one-size-fits-all response, as retirement is a personal matter based on individual expectations, goals, and perspective.

Mountains of pages have been written about how much money you should have before retiring and what you should do with it. Perspectives abound.

Interestingly, there is less disagreement about general characteristics that make one more or less likely to be financially secure enough to retire. For example, the Wall Street Journal pointed to a new study last week which found that married couples are far better positioned to make the leap and officially enter retirement.

Money is always at the top (or near it) of lists describing issues that most commonly bring stress into our lives. It’s cliche to say that “money is the root of all evil,” but its obvious that dealing with financial issues is a common concern for families of all shapes, sizes, and even income levels. There is so much different advice out there about what you should be doing or could be doing as it relates to money matters that it is hard to distinguish between the useful and the fluff.

One such story posted in Yahoo Finance this week offers a somewhat helpful distillation of seven basic concepts that can be used for those of all income levels and at different life stages. They are referred to as “paradigms” of financial health. The entire list is worth browsing, but a few of the items on the list include:

***If you are a couple with two incomes, you can pay for “essentials” with only one spouse’s income. Those essentials are things like the mortgage, insurance, child care , and similar items that cannot be cut easily. Essentially this is one way to check whether you may be living above your means. It is an easy shortcut to figure out if you can survive in the event of a lost job or other emergency.

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