Early planning is key for seniors when it comes to end-of-life issues.
| 2018 Q2 | story by Liz Weslander | photos by Steven Hertzog
Financial and estate planning are perhaps the least sexy parts of retirement, but they are also an absolute necessity, not only for ensuring comfort and peace of mind for a retiree, but also for easing the stress of those caring for the retiree at the end of his or her life.
For advice on the balancing act of saving, investing and getting real about end-of-life issues—all while remembering to enjoy life and cultivate meaningful relationships—Jason Edmonds, founding partner and portfolio advisor at Edmonds-Duncan Registered Investment Advisors, 645 Massachusetts St., and Molly Wood, an elder law attorney at Steven & Brand LLP, 901 Massachusetts St., offer advice.
Have a Plan
Creating a financial plan for retirement is more important than ever, Edmonds says, because social security and pension plans no longer provide the reliable resources they did for the baby boomer generation.
“The previous generation worked for a union shop or a big company that provided a pension plan,” Edmonds explains. “You worked there for decades, and then you had roughly the same amount of income in retirement. But the math didn’t work out for companies to sustain that, so now, it’s all on us as individuals.”
While Edmonds believes social security will be a reliable source of income, at least for the current working generations, it is often only one of several sources of income for retirees. Social security also has limited sustainability because it was designed when life expectancies were just a few short years beyond retirement for most people. With today’s longer life expectancies, people may live 30 years after they start collecting social security.
“People are going to have to work longer, and, at some point, Congress is going to have to adjust when social security starts,” Edmonds says. “People who are just getting started in their careers need to know that they are not going to be able to start collecting social security until they are 68 rather than 66. We are going to have to make some adjustments, or it is not going to last.”
With these realities in mind, Edmonds says the best advice for laying the foundation for a secure retirement is the old-fashioned formula of living within one’s means and regularly putting away money.
Edmonds-Duncan recommends young earners “pay their future selves first” by dedicating 10 to 20 percent of their income to long-term savings. It also advises avoiding long-term debt, with the exception of a low-interest mortgage. Edmonds acknowledges this takes a tremendous amount of discipline, especially in a culture that encourages spending at every turn.
Edmonds Duncan’s Zak Bolick, Don Duncan and Jason Edmonds
“We make it really easy to buy a car that is too expensive or a house that is too expensive,” he says. “The whole world is ready to extend you credit, so it’s really easy for your lifestyle to be significantly above your income.”
Paying off any educational and consumer debt as early as possible should be a top priority, and by the time a person is in his or her late 40s or early 50s, it is a good idea to establish at least a basic financial plan for the remaining years in the workforce. This is also a good time to establish a relationship with a professional investment advisor who has the tools and expertise to guide the planning process, Edmonds says. A financial planner will generally do an analysis of how much a person is saving versus how much he or she is spending, and then come up with a projection of how much the person wants to have saved by his or her retirement date. From there, a financial planner can help design an investment portfolio that will allow that person to reach the objective.
Edmonds says the basic rule of thumb for when a person is ready for retirement is when that person can live off of 5 to 6 percent of the annual withdrawal rate from his or her assets. For instance, if one needs $50,000 a year beyond social security to make ends meet, then her or she needs to have about $1 million in savings to generate 5 percent, or $50,000, a year.
“Ideally, retirement savings will be adequate to generate the necessary amount of monthly/annual income without selling principal,” Edmonds says. “We refer to this as the ‘chicken and egg’ strategy. If we can live off of the eggs and not eat the chickens, we have a high degree of confidence that our client’s retirement will be financially successful.”
Edmonds’ firm does not advise taking big gambles but does believe people can and should be growth-oriented in their investment approach throughout most of their working life. The key is to stay diversified, keep investment expenses low and be patient, Edmonds explains.
“We are optimistic about the economy and capitalism long-term, so our investment strategy is to blanket the global economy to keep our clients current with it,” Edmonds says. “Sometimes, the tides are going to go out, and all boats are going to be lower; but in general over time, the tide continues to rise because humans are constantly innovating. We help our clients maintain optimism about the big picture throughout constantly scary short-term concerns.”
While Edmonds’ specialty is providing the mathematical answers to retirement, he says the emotional side of retirement—the desire to quit working when you are still young enough to enjoy it—is also a key piece of the puzzle.
“We are trying to find the sweet spot where there is a high likelihood that our client will not run out of money, but that they are not working beyond when they are still happy working,” Edmonds says.
The last few years, when people are debating between continuing to work and retiring, are the most powerful for clients, Edmonds says, because that is when they are typically in their peak earning and spending years. “Every year someone can put off retirement is not only a year added to the retirement income, it’s also another year in which the person did not have to spend a portion of their retirement savings.”
“My final comment to people is always, ‘ … but it is your money.’ We are just giving you the math answer. In the end, you’ve got to have fun, “…because retirement should be a pleasant time—and life is short.”
Molly Wood, Estate Planning at Stevens & Brand
Molly Wood, one of several estate-planning attorneys at Stevens & Brand, has spent many years helping people consider end-of-life scenarios, and they are usually more complicated than getting hit by a bus or dying peacefully in your sleep. While wills and trusts are an important part of estate planning, Wood says they are also usually the simplest part of estate planning.
“Almost everybody could stand to have a little attention paid to who gets their stuff when they’re dead,” Wood says. “But who gets their stuff when they’re dead is generally an easier problem to solve than the amount of resources that you’ll need to pay your expenses when you’re so sick that you can’t take care of yourself.”
This is why Wood often talks to people about long-term-care insurance. While expensive, Wood says the need for this type of coverage is not remote.
Wood points out that people would not dream of going without homeowners’ insurance, even though the chance of a house fire or other catastrophe is fairly remote. On the other hand, it very likely that a person will need some sort of long-term care for a period of months or years before their death.
“You’re going to die, or you’re going to be really sick, and then you’ll die. That’s not remote, that’s for sure,” Wood says. “Most people hate the idea of institutional care for good reason, but caring for someone who needs a nursing home level of care in your home is a real challenge and usually goes beyond the ability of an elderly spouse, so it’s well worth talking about.”
Edmonds says long-term care insurance makes sense for some, but there are several ways to approach the issue; so talking with a financial advisor is a good idea.
“Mathematically, long-term insurance works out, and we should all buy it as young as we can,” Edmonds says. “That said, the list of companies that offer it keeps getting shorter and shorter, and the premiums they offer for it keep going up.”
No matter how a person plans for the financial and medical details of his or her final years, Wood says it is crucial to designate durable powers of attorney who can act as agents regarding financial and medical decisions if incapacitation occurs.
“Just because you are married doesn’t mean your spouse can access all of your financial information,” Wood says. “They need to have power of attorney. If they are not a named agent, you will have to go through a court proceeding, which is time-consuming and expensive. We could solve a lot of problems if everyone had appointed agents.”
Wood says people with no spouse or children often name extended family as agents or find a trusted friend who can help them. Cultivating those relationships is an essential part of estate planning.
“I have seen situations of really private people with no extended family and friends who are older, and they just don’t have anybody. In that case, they fall back on financial institutions for financial powers of attorney; but for health-care powers of attorney, if you don’t have someone who cares about you, I can’t help you,” Wood says. “The one thing I’ve observed while practicing elder law for so many years is that you just need one person on the planet to give a darn about you. In that circumstance, you’ll probably muddle through OK. But if you’re sort of falling on adult protective services, well, good luck to you.”
Even though arranging who gets the assets after you die is often the simpler part of estate planning, Wood says there are a number of factors that create complications.
“There’s a lot of difference between a married couple where all of the incoming resources of the marriage partnership were earned during the marriage versus widowed people or people who are in blended family or second marriage,” Wood says.
A “plain vanilla” case is one in which the client wants everything to go to his or her surviving spouse or children. This can usually be accomplished though a combination of a trust, will and beneficiary designations, Wood explains.
In the case of a second marriage and/or blended family, Wood says putting a professional fiduciary, such as a trust company, in charge of managing one’s money if he or she becomes disabled and managing the distribution of the money at death can be a good way to avoid disputes. To really keep things clean, Wood says prenuptial agreements or even opting not to legally marry are good options.
“Get a prenuptial agreement, for crying out loud, and keep your property separate,” Wood says. “Or, don’t get married. People want to get married but then don’t want their property used to pay the health-care expenses of the spouse. If that’s what you want, then you don’t want to be married, because married people are legally liable for each others’ health-care expenses.”
While figuring out the legal and financial details of retirement years is important, Wood always comes back to the pricelessness of living a life that leaves one with people who care about his or her well-being in the final years.
“The idea of having someone who will check up on you and make sure you are OK, that’s real retirement planning,” Wood says. “And that depends on what you’ve put in the pipeline during your life.”
