retirement planning

Five Questions To Ask Before You Retire

May 4, 2017
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retirement

The first step in any retirement income plan is to envision your retirement and make some decisions about how you will live. If the numbers don’t support the life you have in mind, now is the time to find out. Adjustments can always be made, whether it means working a little longer now in order to avoid working later, or scaling back your lifestyle in order to retire a little sooner. The more accurately you can answer these questions, the more likely you are to create a retirement income plan that will sustain you throughout life.

Where will you live?
The answer to this question affects not only housing costs, but other living costs as well. Whether you choose to move or stay put, consider the following:

  • Proximity to children and grandchildren. If you live far away from the kids, you’ll need to build travel costs into your budget and/or have extra space in your home for when the family comes to visit.
  • Affordability. Many people opt for more affordable living costs when they retire. Key factors in assessing a location’s living costs are the price of housing; the cost of food, utilities and transportation; and taxes (state income tax, property tax and sales tax).
  • Employment and business opportunities. If you plan to work during retirement, consider the job market for the type of work you want to do, or the business climate if you plan on starting a new business. This factor is often contrary to affordability: the towns with the lowest cost of living generally have the most limited employment and business opportunities; if you are looking for work that pays well or an active market for your product or service, you may have to choose a less affordable city.
  • Travel plans. If travel is expected to play a big part in your retirement plans, you might opt for an inexpensive condo near the airport (with no plants or pets), at least until the wanderlust subsides. If and when it does, you can reconsider the housing question again.
  • General preferences. Otherwise, consider the classic criteria for choosing retirement location. These include climate, cultural and recreational opportunities, access to medical care and other lifestyle issues.

What will you do?
How you plan to spend your time in retirement will largely determine how much income you’ll need. One way to look at this is to ask if your anticipated activities will add to the expense side or the income side of your retirement budget.

  • Expense-generating activities. The classic life of leisure can be expensive! Unless you plan to spend your days reading, walking and visiting with friends, you may be facing higher than-anticipated costs for travel, hobbies, and entertainment. Even classic low-cost activities such as gardening have associated expenses. This is not to say you shouldn’t enjoy yourself during retirement; it’s just that these expenses will have to be factored into the budget.
  • Income-generating activities. If you like to work, why not make that one of your primary activities during retirement? It’ll save money on hobbies and entertainment and generate income to boot. Even volunteer work pays off if it keeps you from engaging in expensive activities. If one of your goals is to start a business in retirement, hopefully it will count as an income generating activity. But you may need to prepare for several years of start-up expenses before the business becomes profitable.

How well will you live?
Living well is in the mind of the beholder. As you contemplate retirement, consider how you will live your life.

  • The simple life. Some retirees look forward to scaling back in retirement in order to reduce expenses and have what they would deem a very rich life. Grow your own vegetables. Prepare meals at home. Ride your bike. Take long walks. Read good books. You can do a lot with a little. Whether it arises from lifestyle choice or financial need, the simple life holds appeal for many.
  • The high life. On the other hand, some retirees who have been chained to an office for several decades may see retirement as their chance to live it up. Backed by a healthy retirement account and the income to support their chosen lifestyle, they may eat out more, take more vacations, explore expensive hobbies and generally live their dream. If you can afford the high life, more power to you.

How long do you expect to live?
This is the million-dollar question that, if answerable, would make retirement planning so much easier. Unfortunately, people are often misled by tables that show the median life expectancy. It has virtually no bearing on any individual’s true life expectancy. The safe route is to plan for retirement income to last to age 95 or 100.

What surprises does life hold in store? What unexpected events might you anticipate as you move through life?

  • Your health. Your genes, your health history and your lifestyle may provide some clues as to how your health will hold up as you grow older, but this is always a wild card in retirement planning. Fortunately, Medicare and supplemental insurance can take care of the major costs. Ironically, the healthier you are, the more likely you are to need long-term care later in life as the frailties that come with natural aging prevent you from performing activities of daily living such as bathing and dressing. It is often the oldest of the old who need the custodial care at the end of life. Medicare does not pay for this.
  • Your family. You never know when a family member might need your help. If your parents are still living, one or both might need personal or financial support as they age. And your children aren’t immune to life’s surprises either. A job loss, divorce, or health shock could send them to you for help just when you think your life is on an even keel. On the bright side, another grandchild or three could demand resources from you in a good way, depending on how generous you want to be.
  • The economy. Some say the financial crisis of 2008 was predictable; others say they never saw it coming. The lesson that came out of it is that anything can happen, including events beyond our wildest imagination. Adaptability is the key to managing life and money in the 21st Century. Pay attention and be ready to respond.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Have You Developed a Realizable Vision for Retirement?

October 19, 2015
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retirement-planYou can make the difficult transition into retirement easier by exploring your expectations and desires. With some careful prioritizing, and collaborating, you can design a working plan for retirement that may surpass all of your expectations. When most people think of retirement, they imagine leaving a job they’re tired of, getting out of the rat race and leaving the pressures of employment behind. Often retirement is viewed as a reward for time in the workforce and a benefit of successful financial planning.

But retirement is so much more than giving up a job and relaxing. Retirees are entering one of the most exciting and challenging stages of their life. It can also be a time to draw on personal and professional experiences to open new doors of opportunity and education and can be a time to realize potential and accomplish goals previously delayed by careers and raising a family. Although the opportunities are endless, a successful retirement doesn’t come without its hurdles. There are many things to consider in order to get it right, such as living on a reduced income, creating a health and wellness strategy and evaluating relationships. Also important is the allocation of personal time, determining living arrangements and recognizing change in social roles. There is also the unfortunate but necessary adjustment to the eventual death of loved ones.

During the first days, weeks, or maybe even months of retirement, people often experience a blissful honeymoon-like feeling. No job, no worries! Just time to sit around and do whatever crosses your mind. During this period, people generally have little motivation to plan for the future. But as the honeymoon period winds down, a number of newly minted retirees report a feeling of disenchantment. Retirement no longer feels like an extended holiday. Time begins to weigh heavily and even favorite activities begin to feel like a chore. Projects around the house lose their appeal, and there can be a feeling that causes retirees to ask the question, “Is this all there is?” Frustration and disappointment can mount as some retirees get caught in this vortex and are unable to get out.

The life we lead is a result of the choices we make. That means in pre-retirement and retirement years, it’s important to make the right choices—ones that build a fulfilling and energized retirement. The majority of successful retirees recognize the power of creating a realistic retirement vision and a financial action plan to achieve it. Armed with this mental model, they are able to make sound choices and progress toward their desired results.

With proper help and financial planning, you can work in a systematic way towards formulating a clear and focused retirement vision. In a way, your experience in early and mid-life makes you more aware and articulate than ever before concerning your own priorities; a better executive for the next phase of life. Remember, it is equally important to consider how you will spend your time as it is to know how you will spend your money. A good way to begin is by taking time to visualize what the word “retirement” means to you. What is it that attracts, scares, or excites you about this particular time of life?

Next, write out a description of your imagined retirement life. What are you doing? What are you accomplishing? It’s important to be as descriptive as possible. Consider the following questions:

In retirement:

  • What makes me happy?
  • How much money do I have?
  • What possessions do I own?
  • How am I spending my time?
  • Who is in my retirement picture?
  • How is my health? How do I feel?
  • How are my relationships with my spouse or partner, children, other family members and friends?

First, imagine yourself in your first six months of retirement, then, at one and two years out. You can then ask yourself to visualize the end of your retirement, when you are 90, 95, or 100+. What are you most proud of? What have you done that has brought happiness to you and to others? What legacy will you leave behind? We have seen that it is so important to communicate personal desires and goals. Doing so, means ultimately you will be better equipped to help you develop a plan that strikes as close as possible to what will truly make you happiest.

Most people know someone who has made a successful retirement. What is it about those people that you admire? Is it their family relationships, their energy and enthusiasm, or perhaps their overall sense of well-being? Think then of those challenged by retirement. In your opinion, what are those individuals doing or not doing that makes them less successful? Is it the exorbitant amount of time they spend watching television, their lack of adventure, or possibly a sense of helplessness toward this ever-changing world? Once you’ve recorded a retirement vision, share it with a partner or spouse or close friend. This process of sharing will provide different perspectives and help shape your final vision.

Optimism is also key throughout the retirement visioning process. It’s important to focus on the rewards of a balanced retirement; the feeling of being complete, enriched and financially secure. Retirement visions should be reviewed and rewritten as often as necessary, until the vision feels right and is in line with your wants, needs and beliefs. We suggest meeting regularly to review your retirement vision. Interrogate and revise your plan to determine what’s working and what is not. You can then identify what changes are required and work on developing targeted ideas and solutions. As you enter the second-longest phase in your life, take an informed, active role in getting it right. With appropriate guidance and thoughtful planning, you will be able to enjoy life after work, even relish it.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

The Right Beneficiary

September 28, 2015
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Who should inherit your IRA or 401(k)? See that they do.

beneficiaryHere’s a simple l question: who is the beneficiary of your IRA? How about your 401(k), life insurance policy or annuity? You may be able to answer such a question quickly and easily. Or you may be saying, “You know … I’m not totally sure.” Whatever your answer, it is smart to periodically review your beneficiary designations.

Your choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Was it back in the Eighties? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed a bit – perhaps more than a bit? While your beneficiary choices may seem obvious and rock-solid when you initially make them, time has a way of altering things. In a stretch of five or ten years, some major changes can occur in your life and they may warrant changes in your beneficiary decisions. In fact, you might want to review them annually. Here’s why: companies frequently change custodians when it comes to retirement plans and insurance policies. When a new custodian comes on board, a beneficiary designation can get lost in the paper shuffle. If you don’t have a designated beneficiary on your 401(k), the assets may go to the “default” beneficiary when you pass away, which may throw a wrench into your estate planning.

How your choices affect your loved ones. The beneficiary of your IRA, annuity, 401(k) or life insurance policy may be your spouse, your child, maybe another loved one or maybe even an institution. Naming a beneficiary helps to keep these assets out of probate when you pass away. Beneficiary designations commonly take priority over bequests made in a will or living trust. For example, if you long ago named a son or daughter who is now estranged from you as the beneficiary of your life insurance policy, he or she is in line to receive the death benefit when you die, regardless of what your will states. Beneficiary designations allow life insurance proceeds to transfer automatically to heirs; these assets do not have go through probate.

You may have even chosen the “smartest financial mind” in your family as your beneficiary, thinking that he or she has the knowledge to carry out your financial wishes in the event of your death. But what if this person passes away before you do? What if you change your mind about the way you want your assets distributed, and are unable to communicate your intentions in time? And what if he or she inherits tax problems as a result of receiving your assets?

How your choices affect your estate. Virtually any inheritance carries a tax consequence. (Of course, through careful estate planning, you can try to defer or even eliminate that consequence.) If you are naming your spouse as your beneficiary, the tax consequences are less thorny. Assets you inherit from your spouse aren’t subject to estate tax, as long as you are a U.S. citizen.

When the beneficiary isn’t your spouse, things get a little more complicated for your estate, and for your beneficiary’s estate. If you name, for example, your son or your sister as the beneficiary of your retirement plan assets, the amount of those assets will be included in the value of your taxable estate. This could even mean a higher estate tax bill for your heirs.) And the problem will persist: when your non-spouse beneficiary inherits those retirement plan assets, those assets become part of his or her taxable estate, and his or her heirs might face higher estate taxes. Your non-spouse heir might also have to take required income distributions from that retirement plan someday, and pay the required taxes on that income. If you designate a charity or other 501(c)(3) non-profit organization as a beneficiary, the assets involved can pass to the charity without being taxed, and your estate can qualify for a charitable deduction.

Are your beneficiary designations up to date? Don’t assume. Don’t guess. Make sure your assets are set to transfer to the people or institutions you prefer. We suggest checking and make sure your beneficiary choices make sense for the future.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage.

The Major Retirement Planning Mistakes


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Why are they made again and again?

time-to-retireMuch has been written about the classic financial mistakes that plague start-ups, family businesses, corporations and charities. Aside from these blunders, there are also some classic financial missteps that plague retirees. Ultimately, we need to be aware of them as we plan for and enter retirement.

Leaving work too early. The full retirement age for many baby boomers is 66. As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for greater retirement income. Some of us are forced to make this “mistake”. Roughly 40% of us retire earlier than we want to; about half of us apply for Social Security before full retirement age. Still, any way that you can postpone applying for benefits will leave you with more SSI.

Underestimating medical expenses. Fidelity Investments says that the typical couple retiring at 65 today will need $240,000 to pay for their future health care costs (assuming one spouse lives to 82 and the other to 85). The Employee Benefit Research Institute says $231,000 might suffice for 75% of retirements, $287,000 for 90% of retirements. Prudent retirees explore ways to cover these costs – they do exist.

Taking the potential for longevity too lightly. Are you 65? If you are a man, you have a 40% chance of living to age 85; if you are a woman, a 53% chance. Those numbers are from the Social Security Administration. Planning for a 20 or 30 year retirement isn’t absurd; it may be wise. The Society of Actuaries recently published a report in which about half of the 1,600 respondents (aged 45-60) underestimated their projected life expectancy. We still have a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.

Withdrawing too much each year. You may have heard of the “4% rule”, a popular guideline stating that you should withdraw only about 4% of your retirement savings annually. The “4% rule” isn’t a rule, but many cautious retirees do try to abide by it. So why do some retirees withdraw 7% or 8% a year? In the first phase of retirement, people tend to live it up; more free time naturally promotes new ventures and adventures, and an inclination to live a bit more lavishly.

Ignoring tax efficiency & fees. It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming that your retirement will be long, you may want to assign that or that investment to it “preferred domain” that is the taxable or tax-advantaged account that may be most appropriate for that investment in pursuit of the entire portfolio’s optimal after-tax return.

Many younger investors chase the return. Some retirees, however, find a shortfall when they try to live on portfolio income. In response, they move money into stocks offering significant dividends or high-yield bonds – which may not be best in the long run. Taking retirement income off both the principal and interest of a portfolio may give you a way to reduce ordinary income and income taxes.

Avoiding market risk. The return on many fixed-rate investments might seem pitiful in comparison to other options these days. Equity investment does invite risk, but the reward may be worth it.

Retiring with big debts. It is pretty hard to preserve (or accumulate) wealth when you are handing chunks of it to assorted creditors.

Putting college costs before retirement costs. There is no “financial aid” program for retirement. There are no “retirement loans”. Your children have their whole financial lives ahead of them. Try to refrain from touching your home equity or your IRA to pay for their education expenses.

Retiring with no plan or investment strategy. Many people do this. An unplanned retirement may bring terrible financial surprises; retiring without an investment strategy leaves some people prone to market timing and day trading.

These are some of the classic retirement planning mistakes. Why not plan to avoid them? At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage.

When Is The Right Time To Fund A Startup?

September 16, 2015
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startupUsing your retirement nest egg to fund a start-up means taking a risk within a risk. Regardless, many retirees choose to pursue it. Reviewing your retirement plan from a business planning perspective is the smartest way to prepare for post-retirement entrepreneurship. As more and more baby boomers contemplate starting their own businesses in retirement, tapping retirement funds for start-up capital is becoming a common practice.

At first blush, taking a distribution from your own account seems much simpler than writing a formal business plan and taking the risk of being turned down by bankers or investors. It may also seem more feasible than taking out a home equity loan or maxing out credit cards—the usual sources of financing for micro businesses. However, an ambitious entrepreneur with a good idea and a pot full of retirement money is a dangerous thing, especially if he depends on that pot to support him in his old age.

The free time and accumulated cash of the post-work years, traditionally spent on travel and leisure, may seem like the perfect resources for a start-up, (especially to retirees who prefer a day at the office to a day at the beach) but once the money is withdrawn from a tax-deferred account, it can never go back in. Is it worth risking retirement assets for a start-up–especially if those assets will be needed during retirement?

It’s a weighty decision. You’ll need to explore the different scenarios carefully. Still, there’s no need to scrap your business plan wholesale. Instead, recalculate your retirement income needs and review the investments in the retirement account. You want to be sure that the proposed business will generate the same level of after-tax, risk-adjusted investment returns as the retirement account. If it can’t, you’ll need to reevaluate your business plan. Still, as long as you understand the risks and are willing to work if necessary to replace lost retirement money, tapping retirement accounts for start-up business capital might be a risk worth taking.

Sense and sensibility
The watchwords for post-retirement entrepreneurship are prudence and caution. View your business idea as an investment. If it weren’t your business, would you still want to put your retirement funds into it?

To answer that question, you’ll have to be completely objective about your proposed business. In essence, you’ll have to put on two different hats: first as an entrepreneur seeking funds, and then as a banker or venture capitalist looking to invest in a start-up business. Incidentally, if your start-up is a service-related business more along the lines of self-employment, you’re really talking about a job, not a business that has the potential to grow in value. Think of it this way: if the business would be worthless without the direct involvement of you, it’s probably not going to flourish on its own. So think twice before sinking retirement funds into a business that’s not likely to pay some form of residual value when you’re ready to commit to retirement full-time.

Start with a business plan
Once you’ve established that your business plan is a fully-fledged going concern rather than a job, draft a comprehensive business plan that shows that you’ve thoroughly thought through the business and are confident it will succeed. This business plan template may seem a bit overwhelming, but it will really force you to consider all aspects of the business. Sections include:

  • Executive summary. The business in a nutshell
  • General company description. Goals and objectives, business philosophy, products and markets, competitive strengths, legal form of ownership
  • Products and services. In-depth description of the company’s products and/or services, competitive advantages, pricing structure
  • Marketing plan. Size of target market, description of customers, barriers to entry (and how they will be overcome), competitive analysis, marketing strategy, distributions channels, sales forecasts
  • Operational plan. Production methods, location, equipment, people, processes, Inventory, suppliers, credit policies
  • Management and organization. Who will manage the business? What are their special competencies?
  • Personal financial statement. Assets and liabilities of the owner(s)
  • Start-up expenses and capitalization. A realistic estimate of start-up costs
  • Financial plan. A 12-month profit-and-loss projection, a four-year profit-and-loss projection (optional),  a cash-flow projection, a projected balance sheet, and a break-even calculation

Evaluate the business plan
Once the business plan is complete, it’s time to switch hats and evaluate the business from the standpoint of a banker or investor. Bankers want assurance of orderly repayment. They’ll be interested in knowing:

  • The amount of the loan
  • How the funds will be used
  • What will the loan accomplish? How will it make the business stronger?
  • Repayment terms: interest rate, number of years to repay, how the business will make the loan payments

Investors are looking for dramatic growth, and they expect to share in the rewards. They want to know:

  • How the company will use the funds, and what this will accomplish for growth
  • Estimated return on investment
  • Exit strategy (sale or IPO)

Small-business investment companies (SBICs)— private entities that provide financing to companies that are too small for venture capital—typically look for annual growth rates of 20% to 30% and a clearly defined exit strategy that will return their investment to them after about five years.

The good, bad, and ugly of start-ups
If you do decide to invest some retirement funds in a new business, keep in mind the following points:

  • The good. If you have a legitimate plan, and if it goes off without a hitch, the business could potentially return far more than the portfolio now sitting in your retirement account. The concentrated focus of the business, along with the will to make it succeed, offer intangible benefits that the securities markets can’t provide. And if the business does well, you can start a new retirement plan, put lots of money into it, and end up far better off than if you had not taken the risk.
  • The bad. Investing in private equity (like your own business) is typically higher risk than investing in traditional market securities. Low liquidity and red tape make returns extremely slow, even if the business succeeds. Your business should comprise only a small portion of your entire portfolio.
  • The ugly. Under a worst-case scenario, you sink all of your retirement funds into the business, the business fails, and you’re left with no retirement cushion and not enough time to make it back. At that point, your only recourse would be going back to work.

As with many financial planning issues, the idea of using retirement funds to start a new business must be approached with clarity and objectivity. Funding a start-up with your retirement funds is too big a risk not to consider all the angles and investigate all the possibilities.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage.

Holistic Help for Caring for Aging Parents

July 20, 2015
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elder-careAlong with college and retirement, care-giving can take a big toll on a family finances. Long-term care insurance can help mitigate some of the risks of aging, but not until the insured is unable to perform two of six specific activities of daily living—bathing, dressing, eating, transferring from bed to chair, toileting, and continence or has sufficient cognitive impairment that it affects the person’s health and safety. Older people who simply need help getting to doctors’ appointments, remembering to take medications, fixing meals, shopping, cleaning and maintaining the house, paying bills, opening jars and myriad other daily challenges do not qualify for benefits under a long-term care insurance policy. But their needs are no less real. And they could go on for many years as otherwise healthy individuals gradually lose capabilities to the normal aging process. When aging parents become dependent on adult children, financial planning becomes more integrative. Now you have two families (or more, if there are siblings) who are all working toward the same goal of making sure the parents’ needs are met without compromising the adult children’s—and their children’s—financial well-being. Although each family may want to continue to keep their finances separate, holistic planning may allow resources to be shared or conserved for the benefit of everyone.

Assemble Your Resources
According to a national study, caregivers often underestimate the time required for care-giving and the impact of their obligations on their work. They go into it providing only a small amount of care and then gradually take on more and more responsibility, incurring significant losses in career development, salary and retirement income and substantial out-of-pocket expenses. Another study found that caregivers spent an average of more than $12,000 per year on direct expenses associated with caregiving. Some families may be able to absorb such expenses, but over time they can represent a significant drain on resources. This is exactly why it is important to address the whole family’s needs whenever a caregiving situation arises. Ideally, you’ll want to begin asking about parents while they are still active and healthy so you can emphasize the importance of planning ahead. It is never too soon to start assembling resources so clients will be ready to help their parents when the time comes. Those who are already caring for parents will appreciate the attention and perspective you bring to the matter. Caregivers are notoriously reluctant to ask for help and may be unaware of resources that can help ease the burden.

Planning Ahead
According to a USA Today/ABC News/Gallup Poll, 41% of baby boomers who have a living parent are providing personal care, financial assistance, or both. Of those boomers who are not providing care for parents now, 37% think they will someday. And about half of them say they are concerned about their ability to do so. Boomers who are still putting kids through college and saving for their own retirement may need help sorting out their priorities. How much help can they realistically provide to their parents? How much do they know about their parents’ finances and the resources available? What changes are they willing to make in their lives to help their parents? These are all tough questions that should be addressed as early as possible.

Living Arrangements
Housing options for older parents who are basically healthy but need help with certain activities due to frailty or forgetfulness include: (1) staying in their own home, (2) living with their children, or (3) moving to an assisted-living facility. Each family must decide for itself which option is best based on costs and quality of life for all. Costs may include modifications to either the parents’ or the children’s home to enable the parents to get around safely, plus the cost of bringing in outside housekeepers or caregivers to the extent needed. Compare these costs with the cost of an assisted-living facility. This can help your family decide which arrangement would work out best for everyone. Some children may want their parents close by, even under the same roof, while others would find such an arrangement too disruptive.

Providing Care
Regardless of where the parents live, some form of care will need to be provided, such as cleaning, cooking, paying bills, shopping, transportation to medical appointments and so on. Determine the exact needs of the parents and who should provide the needed services, a family member or an outside paid caregiver. Consider the toll on adult children who work—if they must take unpaid time off, it may be more cost-effective to hire someone to perform certain services such as transportation or housekeeping. On the other hand, some adult children have difficulty turning over any form of caregiving to an outsider. Some 5% of men and 7% of women quit their jobs to care for aging parents.

Paying for Care
We suggest to evaluate their overall resources and determine who will pay for what. If your parents have sufficient assets to cover the cost of their own care, help them map out a withdrawal strategy that makes sense from a tax- and estate-planning standpoint. If you will be contributing to the parents’ care, inform them of the tax rules for claiming parents as dependents: if they provide more than half of their support, even if the parents do not live with them, they may claim the parents as dependents and deduct medical costs. The goal in any integrative financial plan, providing all family members agree, is to dissolve the boundaries between what belongs to the parents and what belongs to the children and consider strategies that build and conserve resources for all. This is the idea behind true wealth enhancement, whereby wealthy families consider children, grandchildren and even unborn descendants when making decisions about spending, saving, investing, philanthropy and wealth transfer. The occasion of a parent needing help gives families of all means an opportunity to come together and integrate their financial and life plans for the benefit of all.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage.

 

Most Retirement Plans are Not Realistic

April 23, 2014
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Since the recent financial meltdown, people are increasingly talking about retirement planning. However, most of them are not discussing the real issues. Some of the worst mistakes that the current generation is making are as follows:

Not Taking Life Expectancy into Account
April Blog 2 - Image-7ol5gPeople will live longer than previous generations. Usually life insurance companies have the best idea about life expectancy, since their balance sheet is directly correlated to this issue. According to the Central Intelligence Agency, the life expectancy at birth for United States citizens is currently 79.55. And, this number is expected to go much higher in coming decades as advancements in terminal disease treatment are progressing.

If someone is expecting to retire at 65, they may only plan to live for another 15 years (on average). But, by the time he turns 65, his life expectancy may have increased to 100. This will create an additional burden on the retirement portfolio that was planned decades ago. Hence, many financial advisors suggest that you add a “buffer expectancy” of at least 15-20 years on top of your life expectancy. (more…)

How Expenses Change After Retirement?

February 27, 2014
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One of the fundamental aspects of retirement planning is estimating how expenses change after someone retires. Since every individual is unique, and their spending patterns are different from  one another, financial planners have very little consensus regarding spending behaviors of people who are about to retire.

retirement-yachtAccording to some financial advisors, expenses during retirement actually increase because their health care expenses rise due to their age. On the other hand, some financial advisors assume that the expenses during retirement decreases because retired people cut their spending related to lifestyle changes, such as travel and entertainment. However, there is a third group of financial advisors who think that spending during retirement years remain the same and only rise with adjusted inflation levels. (more…)