Research shows that nearly 90 percent of adults who are 45 years of age or older think that achieving peace of mind is seven times as important as wealth accumulation. The study showing these findings also revealed that retirement has been redefined. Experts say that people expected to both work longer and live longer than any other previous generation in history. In addition to this, they said that study participants planned to live the best years of their lives during retirement.
Experts said that this age group has always viewed retirement as a new beginning instead of an end. Concerns, goals, perspectives and achievement planning are all issues that this group felt differently about. However, researchers found that the participants seemed to seek confidence and clarity about the possibilities of creating hope among many uncertainties. Some of the key findings in this study include the following:
Interdependence among families
Researchers found that struggling individuals attempting to support other family members would see negative financial consequences for themselves. They said that when these individuals try to balance the needs of others with their own, their life challenges would only become more complicated. About 50 percent of parents in the survey expected to support their adult children in one or more ways. Another 35 percent said they expected to also support their grandchildren with financial needs, education, health care or housing.
Individual discovery and reinvention
Researchers found that most participants were not planning to retire and do nothing but relax. The majority said that they planned to pursue old dreams, explore new options and fully enjoy their lives. More than 55 percent of Americans over the age of 45 considered retirement an entirely different life change. With nearly 50 percent saying they planned to continue working, many participants said they also viewed retirement as a chance to explore new careers.
Keeping traditional values
Researchers found that most respondents said they defined happiness not with money but with the value of life experiences. They put a high value on helping family members and making a difference. These participants also said that two of the most important things they planned to teach their future generations were life lessons and values. These issues were ranked twice as high as personal assets for priorities among respondents.
Survey results showed that participants felt comfort, safety and meaning in their relationships with friends and family members. Work was also ranked highly for making people feel significant and helping maintain social connections. While people who were nearing retirement said they felt a reliable income was what they would miss the most, those who were already retired said they missed social interaction the most when it came to work.
Researchers also found that some participants were worried about outliving their savings. With the average life span increasing, many were not sure how long to expect to live. Participants also feared health disruptions that might push them into early retirement could cut into their savings and alter their retirement budget permanently. Researchers found that about 45 percent of participants would need help finding the best place to live during retirement, and nearly 40 percent would expect family members to provide housing or financial support for comfortable housing. They also found that decisions about living arrangements were one of the most important issues to participants.
Experts concluded that it is important to help people understand their options and how all of the variables work together on a long-term basis. They plan to continue developing helpful approaches to helping people weigh their options. To learn more about these choices, discuss concerns with your advisor.
Estate taxes for 2013 and beyond
The dust has finally settled - for the moment. And Congress has stabilized the estate tax situation, which has been in a state of uncertainty since the so-called “Bush Tax Cuts” formally expired in 2010.
The deal is this: The worst-case scenario in which all estates north of $1 million would have been hit with a confiscatory 55 percent tax on the excess was averted. That’s great news for anyone with a good sized home, a small business or family farm and/or a decent-sized retirement fund.
Instead, lawmakers came up with a top tax rate on estates of 35 percent, and set the basic exclusion amount at $5.12 million. This means that anyone who dies leaving an estate to a non-spouse of over $5.12 million will also leave them with a tax bill of up to 35 percent of the excess. That basic exclusion amount will be adjusted each year for inflation in perpetuity. That is, until a future Congress tweaks the rules again.
Rules for spouses
Normally, surviving spouses are entitled to an unlimited exemption if they inherit property from their partner. There is no estate tax due on property left to a surviving spouse.
An exception applies, however, if the surviving spouse is not a U.S. citizen. The IRS wants its pound of flesh sooner or later - and if a widow or widower is not a US citizen, they may expect their estate tax money now - and impose a much less favorable exemption. Unless the country of citizenship of a surviving spouse has entered into a tax treaty with the United States stating otherwise, this means that exemptions for non-citizen surviving spouses can be as low as $60,000.
If one or more spouses is a non-citizen, it is important to enlist an experienced expert with specific estate planning experience to get a handle on this - before it happens.
Estate taxes and same-sex partners
The unlimited spousal exemption to the estate tax doesn’t apply to same-sex spouses, because the Defense of Marriage Act legally prohibits the IRS from applying the same rules to these couples that apply to heterosexual married partners.
The fact that some couples don’t benefit from the unlimited spousal exemption or the full $5.12 million exemption amount that applies to citizens means that some individuals and couples will have to take extra measures to mitigate estate tax pain.
Some common examples of estate tax countermeasures
A recent change to the tax rule allows a surviving spouse to use any portion of the $5.12 million exemption her spouse didn’t use - effectively combining their exemptions to up to $10.24 million, under “portability rules.” But this only applies to legally married heterosexual couples, under current law. For other couples, or where the estate is expected to exceed this amount (plus inflation), some couples may consider forming a bypass or A-B trust. Consult an attorney for information specific to trust documents, since only a licensed attorney can draw up trusts.
If you expect your heirs to pay estate tax, you may want to consider that in your life insurance planning. To do this, estimate the tax your heirs will have to pay on inherited assets. Unless your estate is cash-rich, you may need life insurance to provide the cash infusion your heirs need to avoid having to sell assets under pressure. You may need a permanent life insurance policy - which is designed to pay out no matter how long you live - rather than a term policy for this purpose. Term policies are designed to be very affordable for a limited number of years, but not designed to economically pay a death benefit for something that happens at or near your life expectancy, or beyond.
Convert Traditional IRAs to Roths
IRAs and other retirement accounts are part of your taxable estate. But you may be able to lower an eventual estate tax liability by converting a traditional IRA to a Roth IRA now. This generates an immediate income tax liability. But you or your heirs would have to pay income taxes on this money sooner or later anyway, when you take distributions. But you reduce the size of the estate by paying income taxes now - and therefore potentially reduce the dollar amount of the eventual estate tax. More and more employees are offering a Roth designated account option within 401(k)s as well - or if you have left the company or if your plan allows in-service withdrawals, you can roll your 401(k) into a traditional IRA and convert it to a Roth from there.
Traditionally, life insurance professionals have a key role in assisting clients and their families execute their estate tax mitigation strategies. They do this in concert with attorneys, tax professionals and financial planners. Each professional has a role to play.
Bob Adams is president of A SafeHarbor, a firm specializing in assisting families in having a calm re- tirement when faced with stormy finan- cial waters. Visit aSafeHarbor.com or call 407-644-6646 for more information.