Future Planning 6 – Concluding Remarks

I’ve tried to make all the preceding as simple as possible without all the complications that your own particular situation may warrant. If you have a complex situation, then you might need professional advice from someone such as a lawyer who specializes in these areas. But for many people you might be able to do all this yourself with fairly minimal assistance.

My own parents already had wills from many years ago, so I did not have to work with them. But my in-laws had done no planning. I spent an hour or so in informal conversation with them, capturing their desires, then drafted wills, power of attorney, and patient advocate forms for each of them. These proved to be very valuable when they each passed away a few years later.

I have also provided these services free of charge to others in our church or in our family. Some of them may need witnesses to signing, some may need to be notarized. And I am not involved in that part of the process, only in providing the completed forms that they need to sign, etc.

It doesn’t matter what stage of life you are in. Preparing a will is just as necessary when you are in your 20s as in your 60s. And always remember, none of these documents is expected to last unchanged. When you go through any significant life events such as marriage/divorce, birth of children, etc. you should also review your will/POA/etc. to see what changes may be needed. They need to be living documents.

I can’t stress it strongly enough. If you do not make these decisions for yourself, then others will end up making them for you – and perhaps not in ways that you would approve. Don’t be afraid to discuss these topics with your loved ones. In fact, having these discussions is perhaps the ultimate way of showing how much you love them in that you want to relieve them of having to make these decisions on your behalf at a time when they may be least capable of making them!

Future Planning 5 – Funerals, etc.

The last area that I’d like to discuss is the one that people like to discuss the least, i.e. what to do with your body after you have passed away. There are no documents like wills to help with this, but there are a number of important decisions that must be made. And these decisions must often be made in a very short time frame – and in a time when emotions are fragile. So, if you care about your loved ones and want to help make their job easier, there are a number of things that you can do.

First, there are a couple of basic decisions where you can indicate your preference. Do you want to be buried or cremated, or do you want to have your body donated to science instead? And with all three of these options, do you want to participate in an organ donor program? There are a variety of ways that you can indicate your desires. You can insert wording in your living will (in Pennsylvania having an “anatomical gift” is one of the do/do not questions). You can register as an organ donor when you renew your driver’s license. You can register with a body donation registry. If you have opted for burial, then you can pre-purchase a burial plot. In any case, you should let your loved ones know what your preferences are and what steps you have already taken.

Also, if you desire, you can write your own obituary in advance or at least put some of the pertinent facts (date/place of birth, names of parents and other relatives, etc.) in a place where your loved ones know where they are. Again, the goal is to make it easier for those who are making the funeral arrangements after your passing.

As an example, my wife and I purchased a burial plot, including perpetual care, several decades ago. The package also included the grave site marker (flush with the ground as it is a park-like setting) and the casket. So there will be no end-of-life expenses to deal with for either of us. I have also written the skeleton of my obituary with the pertinent facts and a series of fill-in-the-blanks for date of death, etc. It is on a one-page document that also tells where to find things like my life insurance policies, where all my financial documents are, etc.

Again using the example of my mother-in-law, she had let us know that she wanted to donate her body, but the final decision in the state where she lived was up to the university medical center who had restrictions on what they would accept – so they needed to be contacted upon her death to see if they would accept her body. Since we knew that, I was able to call their donation hotline as soon as I received word that she had passed away and make the arrangements so that when the funeral home director arrived to pick up her body they already knew that they were only making arrangements for transport to the medical center and that they should not take her body back to the funeral home and begin the process of embalming which would preclude some of the types of research that the medical center can do.

Don’t leave it up to other family members to have to make these decisions when they have so much to deal with emotionally. Planning in advance can relieve them of much of the burden!

Future Planning 4 – Advance Directives

There are a variety of names given to the documents in this area, perhaps the most common being a “living will”. But regardless of the name the purpose of these documents is to capture your preferences in regards to what medical treatment you do or do not desire to have.

While these preferences are usually indicated through a conversation with your physician who may give you the available options, during end-of-life situations you may not be conscious or may have a condition such as dementia that prevents you from giving your consent. Thus, you need to have some sort of means of indicating your preferences.

The regulations for these may vary by state, so you will need to do some checking on what documents are legally accepted in your state. In Pennsylvania, where I live, there is a standard state form with the innocuous title of “Declaration” that you can use to indicate your preferences. It covers such things as do or do you not want to have tube feeding; do or do you not want cardiac resuscitation; do or do you not want transfusions; etc.

It also includes the following two statements:

·         I realize that if I do not specifically indicate my preferences regarding any of the forms of treatment listed above, I may receive that form of treatment.

·         I designate _____ as my surrogate to make medical treatment decisions for me if I should become incompetent and in a terminal condition or in a state of permanent unconsciousness.

However, medical professionals I have talked to have indicated that these two rather short statements are probably not sufficient. Thus, in addition to these statements of preference on the “Declaration,” it is good to have another document which is titled “Designation of Patient Advocate for Health Care” which expands on these brief statements. The two bulleted items above are instead stated as:

·         In making decisions for me, my patient advocate shall be guided by my wishes, whether expressed orally, in a living will, or in this designation.  If my wishes as to a particular situation have not been expressed, my patient advocate shall be guided by his or her best judgment of my probably decision, given the benefits, burdens and consequences of the decision, even if my death, or the chance of my death, is one consequence.

·         I designate _______ as my patient advocate to make care, custody, or medical treatment decisions for me only when I become unable to participate in medical treatment decisions.  The determination of when I am unable to participate in medical treatment decisions shall be made by my attending physician and another physician or licensed psychologist.

Note that this wording not only expands the advocacy role to care and custody decisions as well as medical treatment, but expands the types of options to any situations, not just the limited few in the standard Pennsylvania “Declaration.”

Like the POA discussed earlier, it is best to have as broad a definition and role for your Patient Advocate as the types of medically related decisions that may have to be made on your behalf could vary greatly.

While I had the POA for my mother-in-law, my wife was her patient advocate. One of my mother-in-law’s problems was fairly severe hearing loss. So while she was mentally competent to make decisions, she was unable to hear or understand what was being asked of her. The role that my wife filled in interpreting and assisting in making any care or medical treatment options was greatly needed.

Future Planning 3 – Power of Attorney

While it’s often typical to think that you are going to just go about your business much as you have so far until one day you die suddenly, the facts do not support that being typical. Recent studies show that about 70% of people turning 65 will need some sort of long-term care during their lifetime. Also, most of us have relatives or know of individuals who have Alzheimer’s or some other form of dementia. So, during those times of your life, it is quite possible that you will need to have your affairs tended to by someone else. That is what a Power of Attorney (POA) is for.

POAs can be very specific and only give very limited powers to someone. Or they can be fairly broad and allow another individual almost unlimited control over your financial and legal affairs. But having one can solve a whole host of problems. Just consider some of the things that you might need done for you:

·         You are in a nursing home and someone needs to be able to collect your mail, open the bill from the electric company and pay it (using money in your own checking account) so that your power does not get turned off.

·         You are suffering from Alzheimer’s and no longer are able to drive. Who can take care of the selling of your car so that you have additional cash for nursing home payments?

In its broadest usage, a POA gives someone else the ability to do whatever you might be able to do, both legally and financially. While that may seem scary, and is not something to be done lightly, that is exactly what may be needed in some circumstance that you may find yourself. The person to whom you give that authority needs to be someone whom you have absolute trust in. But if you do not have a POA, then the consequences can be rather severe as well.

My mother-in-law was living at home by herself after the death of my father-in-law. She began having falling incidents and in a matter of just a few days found herself in a hospital, then in a nursing home. She never lived at home again for the last 18 months of her life. But because she had a few years earlier signed a POA and given me all the responsibility, I was able to handle her affairs, become a co-signer on her bank accounts, sell her vehicle, and do everything needed.

I strongly urge that a POA be part of your end-of-life planning.

Future Planning 2 – Wills

There are several purposes to having a will. The one that people think of first is generally how your property is to be distributed after you die. But this is a somewhat limited view in a few ways.

First, anything that you own in common with another person or for which the benefits are declared to another person are excluded from distribution under the terms of a will. For example, if you own a house jointly with your spouse, then your spouse will retain ownership of the house after your death. Or, if you have a life insurance policy that has a named beneficiary, that person will receive the proceeds of the insurance after your death. These exclusions are true whether or not you have a will.

Secondly, a will can do more than provide for distribution of assets. A very important one is that it can provide for support and guardianship of any minor children.

If you die intestate, meaning “not having made a will,” then all the normal functions that a will would provide would then be covered by the laws of the state of which you are a citizen. These would include the designation of an executor of the estate, the distribution of your assets, and the guardianship of any minor children.

For asset distribution, the exact rules may vary by state, but most states are somewhat similar in their regulations. Here is a synopsis of the intestate succession rules for Pennsylvania, where I happen to live:

http://www.nolo.com/legal-encyclopedia/intestate-succession-pennsylvania.html

As you notice in this synopsis, who inherits your property is a function of whether you have a spouse, whether you have children, etc. There are also provisions for step-children, children from a former relationship, etc. There are many details covered in the regulations that are only summarized on this webpage. Notice that if you have a spouse and children (a fairly common scenario), that your spouse does not automatically receive your estate – rather they only get the first $30,000, the remainder is divided equally between your spouse and your children. Also, if your parents are still living, they may also share in your estate. If these types of rules are not what you desire, then you must have a will to override this “default”.

For guardianship of minor children, if you do not have a spouse with whom you have joint custody, then they automatically become a “ward of the court”. The court will then decide whether there are relatives who may be given custody, or whether they will go into the foster care system. Again, all this can be prevented if you make provision for them in your will.

A related topic to wills are trusts. There are a number of different types of trusts. As I do not have training in this area, I won’t attempt to describe them all together with their benefits and limitations. But unless you are in the top income bracket, most of these are likely not going to be part of your portfolio.

My wife and I had our first wills drawn up when we were in our late 20’s – about the time we started having children. We have updated it periodically since then. I strongly recommend to people that they have one. Even if you do not have a large estate, having a will is more for the people you leave behind as it is for you. A will can prevent misunderstandings, prevent arguments, and make sure that your desires are followed instead of just taking the “default” that is provide by your state’s intestate rules.

Future Planning 1 – End of Life Decisions

When I originally envisioned writing a blog on this topic I thought of it as a single entry. But like many of my blog entries, I do a lot of writing planning in my head before I sit down and compose at the keyboard. And the longer I thought about it, the more I realized that I had way too many ideas to make a single entry. So, this will be just the first part of a six-part blog on the topic of end-of-life decisions.

It’s helpful to think about end-of-life decisions in two dimensions. In one dimension there are things that need to be considered before you die, and other things that need to be considered after you die. In the other dimension there are decisions that are medical in nature v. those that are non-medical in nature (primarily financial and legal). This divides the decision making space into four quadrants. And you will also find that the appropriate legal forms needed in each space are quite unique. Parts two through five of this blog will deal with each of these four quadrants separately as follows:

After death, non-medical – Wills and trusts

Before death, non-medical – Power of Attorney

Before death, medical – Advance Directives

After death, medical – Funerals, etc.

I will then have a few concluding remarks in part six.

I realize that many people have the attitude, as was expressed in a recent Facebook posting, “I don’t have [a will] either. I have nothing of value.” But as I will show in these blog entries, there is a lot more to end-of-life decisions than whether you believe you have something of value to be passed on to your heirs. So even if you feel this way, please read through what I have to say here.

And for those who think, “I have a will, so I’m covered,” don’t think that a will is all you need. As outlined above, a will only covers one part of the necessary end-of-life decisions that we need in today’s society. I hope that you find this valuable.

So – let’s get started! Please go to part 2.

Giving of Your Finances

As I mentioned in my blog “Walking for a Cause”, in addition to giving of yourself for worthwhile causes, you should also give financially as you are able.  I’d like to summarize my giving philosophy in hopes that it may encourage others to adopt a similar philosophy.

I have four categories/levels in my giving philosophy.

The first of these is to our church. I strongly believe in tithing. I know that some feel that this is an Old Testament thing, but there is still a lot of validity in the reasons for it. In Biblical times, the tithe was used for such things as the support of widows and orphans as such social needs were not within the purview of the government. So one could argue that we don’t need such a large amount of money given to the church these days, since our taxes are used for that purpose. There is some truth to that, but the church is still the best method for helping to meet people’s needs at a local level. Our church runs the food bank for the local community and also has other social needs programs. Unfortunately, the average giving level in churches these days is far less than a tithe – figures I’ve seen range between 2 and 3 percent. But in Biblical times, they STARTED at 10% and people were encouraged to give beyond that.  As a result, today’s churches do not have the resources to do what I’m sure many of them would like to do more of. But I try to do my part.

The second category/level is my giving to some specific missionaries – one who is a member of our church and a personal friends, and one, my brother, who with my sister-in-law are missionaries in Thailand. I believe strongly in what both of these are doing and want to be a significant part of it. Also, at this same level, I support two organizations that I volunteer at – Lehigh Valley Christian High School (where I have volunteered for 25 years and where I served on the Board of Directors for 18 years), and AFS Intercultural Programs (where I have volunteered for many years, including two years as the Chair of their National Council and three years on their Board of Directors). These two organizations are worthy of both my finances and my time.

The third category/level of giving is to a small number of carefully and deliberately selected organizations. There are about a dozen such organizations in our current list, and my wife and I have periodic discussions about whether to add or delete organization to this list. We give each of these organizations about $100 each year – enough to be noticed, but certainly far less than those in the prior two categories. The key here is that the organizations are chosen deliberately and not based on the many requests for contributions that sometimes seem to flood our mailbox (both snail mail and email). Most of these organizations have been on the list for many years, but there are some changes every few years as our interests change.

The final category are all the other organizations from which we get requests. Most of these requests are simply ignored – even if they come in the form of a phone call. The only ones we honor are usually associated with friends/family members who are participating – for example, when my niece was walking across Africa a few years ago, we supported her during that time. But the rest of the time we just politely refuse, since we prefer to support organizations based on deliberate choice research of the organization’s philosophy, rather than responding to ad-hoc requests.

In total our giving is about 20% of our gross income – about the same as was recommended in the Bible. The difference is that back then all the social support was through this method, and now there are many organizations beyond the local church who are involved in good ministries – some deliberately social, and others with other good causes.

I had a great aunt who had a different philosophy – she gave small amounts to dozens of different organizations and large amounts to none. She wanted to spread her donations around and be able to contribute to as many worthwhile organizations as she could. I have no issue with her method – it was something that worked for her. So if you have a different philosophy, that’s fine with me too. But I do think that it’s far better that YOU make the choice rather than just responding to anyone who asks for your money. That way you also can do the appropriate research to ensure that the organizations you support are actually putting you money to good use and not just spending it all on fund raising and other less than worthwhile activities.

Walking for a Cause

Earlier today I participated in my second annual 5K walk for the Cystic Fibrosis Foundation. I chose to participate because a good friend of my daughter and son-in-law, Becky Leonard, passed away from CF about a year and a half ago.  Becky was a real fighter and never let CF get her down. Despite the limitations that it imposed on her body, she not only finished high school, but went on to graduate from college and worked for a few years until the CF took her life.  The name of the team that we have is called “Team Scrappy” in honor of her and her attitude toward life.

But my purpose in writing this blog is to encourage everyone to get involved in some cause. I could just give a monetary gift to the CFF and say that I had done my part. But by donning a purple shirt that has “Team Scrappy” emblazoned across the front of it and taking a Saturday morning to walk the 5K loop in the Lehigh Parkway with several hundred others, I show that I really care. There are other teams in honor of others with CF – some who are still living and others who have passed on like Becky. There was a large group from one of the area high schools walking in honor of a classmate. The CFF also benefits from all the donations.

And this walk is good for me too. Last spring was my first 5K walk – ever. I used the event to set a goal for myself to get back into shape. I worked for the entire winter building up my stamina – starting with a one mile goal, then two miles, and finally three – using the treadmill in the gym for up to an hour. This past winter I joined the new YMCA in Pennsburg and have been using their indoor track – 10 times around for each mile. My goal this year is not just stamina, but to lose weight as well.

It’s become far too easy in this country to give to a cause – to write a check or to make an online payment using one’s credit card. And that’s not a bad thing – there are many organizations that I support this way. But occasionally we need to not only give of our finances, but to give of ourselves as well. For now, I’ve chosen this cause – it’s one that takes one day a year and it matches up with my timing for getting back into better shape as well.

So, what’s your cause going to be? Will it be something like this 5K? Or perhaps something even more demanding physically? How about a support role with Special Olympics? Or working a few hours a month for your local food bank?

Yes, you should give financially as well if you are able. (That will be the topic for another blog.) But find a way to give of yourself as well. You’ll be glad you did!

Financial Planning - Part 8 - Selecting a place to retire Part 2

Continued comments on considerations for retirement

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POOR HEALTH IN RETIREMENT:

Many people have poor health during their retirement years.  This may extend for a long period, and it may mean a drastic change in living style.

CHANGE IN HOUSING

When illness hits one member of the retired couple hard, suddenly everything in life changes.  Thinking about this and perhaps planning for it ahead of time may make the transitions easier.

One couple I know had a cottage on a lake, a house in the north and a home in FL.  Suddenly, the wife was faced with putting her husband in an assisted living facility as a first move.  Fortunately, they had filled in the swimming pool at their main residence, so that did not require any decisions to improve the salability of the house.  Finding an assisted living facility was the first task which requires balancing nearness to desired location (don't want too much commuting during visits), quality of the facility and service, and cost. Another task is emptying three houses and selling them.  This becomes a big undertaking for the wife who has plenty of other worries.  The husbands illness was Alzheimer's.  

Another couple involved a husband moving her wife to a nursing home.  He moved to a nearby retirement complex.  The wife had Alzheimer's

Another couple moved the husband to a nursing facility while she remained nearby in the home they had built.  He steadily deteriorated mentally before dying 14 years later.  Fourteen years in a nursing home was very expensive.  Later she became incapacitated, but she was able to purchase round the clock care in her home where she wanted to remain until she died.

Nursing home facilities vary a lot in quality.  No advice on selection.  Living at hope with nursing care is expensive.

Cancer, heart problems, and Alzheimer's can be prolonged and expensive.

COST 

Medicare will not cover all costs.  I believe that I ran into problems last year on cost for my wife's operation and treatment due to Obamacare.  Money has been siphoned out of Medicare for Obamacare, so that means that we will get less quality care from Medicare.  

Supplementsal insurance is often limited by Medicare.  The supplemental insurance company will not pay for something unless Medicare validates that it is an approved item.  I have heard of people paying as much as $8,000 for 20 pills that are not covered by insurance or Medicare.  

I have never tried to figure out all the insurance things.   I did go through everything fifteen years ago, but it is complex, and there is a lot of information on coverage that is not clear -- especially what is not covered.  Some of this can be found on the internet.  For example, if you are going in for an operation, be sure that you quickly get off the list of admitted for observation.  You might find that your coverage is greatly diminished.  For example, you may find that your rehab treatment is not covered by insurance.  If Medicare does not cover it, your insurance will not cover it.  You may go back to the hospital to get them to change their records, but that is difficult -- actually probably impossible since it could raise fraud question if they changed it.  At a time when you don't want to deal with it your are faced with some difficult decisions:  Reduce care below level needed or pay for it yourself.

Rehab centers must show continuous improvement in the patient in order to get full recovery of Medicare coverage.  There is pressure to get the patient up and out on a cost basis.

When some talk about leaving little to their children, I think a better alternative is to plan to have plenty of money to cover these types of expenses and make those years as comfortable as possible.  This may mean leaving a lot to your children or to some charity.  Of course, if not specified, I suppose the government will help themselves.

SUPPORT

The time may come when you are not able to travel either because of your health or your wife's health.  Enjoy life while you are able, because health will not last forever.

This also means that you or your spouse may be burdened with a lot of extra work handled by your partner.  Right now, I cook, do all the grocery shopping, clean house, bring in the mail, take out the trash, make special trips to take my wife where she needs to go, make the beds, get things from higher shelves that she now finds to heavy for her to reach, and many other chores that I did not handle before.  It takes a lot of time.  It means that I often accompany my wife to help her do things she would not otherwise be able to do.  While it is not the way I want it, it has a positive aspect of being able to help someone who has given so much to me in the past.

HEALTH

At our age, we may have created a lot of health problems in the past.  As stated before, diet, exercise, control of drinking, and avoidance of smoking are extremely important of a better life as we get older.  I can attest to that for sure.  I see many people who are a wreck because of their past life style.  Unfortunately, we would all like to take a pill and avoid facing this reality.

Diet.  There are a lot of good books and diet, and there are some poor ones.  McDougall and his wife have written a number of excellent books.  They are on the internet, and they have DVD's.  They are vegan, but a non-vegan can learn a lot from them on the relationship of disease and diet.  Another excellent book which covers non-vegan and vegan approach is  POWER EATING by Susan Kleiner.  Don't expect your wife to be interested in learning more about nutrition.  It is a very difficult subject -- very complex.  There is a lot of conflicting information.  If you REALLY want to eat healthy, you will find that a lot of work is necessary to sort all the conflicting inputs.

Exercise.  The old Aerobics books by Cooper are probably as good as any, but the affluent society seems to have gone for trainers.  At the risk of sounding like a male chauvinist, women do not like to exercise!  They avoid it like the plague.  Some level of aerobic exercise is absolutely necessary for health.  Puttering around in a shopping mall looking at things to buy is NOT exercise.  Also strength exercise is important.  People often die within too short a time after some major surgery.  I think part of the reason is that they cannot exercise for a period, and then getting back into exercise is a real struggle.  I have heard all the excuses -- I'm too tired, I need to see someone, I am afraid it will hurt me, it hurts -- well cut back some -- I have something else that needs to be done -- I want to do something else with that time space -- and the excuses go on and on and on.  

I guess I am just unrealistic on exercise and nutrition.  It takes a lot of work and effort, especially as we get older, but it is extremely important.

Financial Planning - Part 7 - Selecting a place to retire

A friend of mine sent a group of us an email as a followup to our discussions about financial planning.  Here are his comments.

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A few weeks ago, Scott sent the attached note on the woman who plans to spend her life on cruise ships.  Selecting a location is pretty important.  Here are some comments from personal experience and observation of others.

FRIENDS LEAVE, DIE, OR BECOME INCAPACITATED

When you retire, you may find that a number of your close friends have moved away.  The location where you retire may not be what you want for your final destination.  We were surprised at this change when we retired in PA.

GETTING NEW FRIENDS

As you get older, making new friends in many locations becomes difficult.  We have found it much easier to make friends in Sarasota due to the number of older people.  Also, there are a lot of cultural activities driven by older people.  Cultural things offered are both free and expensive.  You can do a lot on little, or you can spend a bunch on cultural things here.  We have a house in Sarasota in a neighborhood that was originally filled with retirees.  Over the past 45 years, all of the original retirees are gone and the houses are now filled largely with younger families.  Sarasota as a whole has a lot or retirees, but our neighborhood does not now have many retirees.

Places like Sun City and the Villages are retirement communities.  That probably would never have  been my choice, but the people we know who live in those locations love it.  There are a lot of activities available.   It is also easy to make friends in those locations.

There are retirement communities in many locations which can move from independent living to assisted living to nursing care.  This solves problems of future developing limitations.  Sun City offers the same type of transitional living.

MOVING THE FIRST TIME

Many people who move upon retirement end up moving again because of poor planning.  This can even happen on a later move.  The best thing to do is rent in a location where you think you may want to move to be sure you will like it before you buy. This also gives you a good opportunity to look at property in the area.

FAMILY

Our main reason for moving from PA to Mi was to be near our daughter.  Otherwise, we would have stayed in PA or moved totally to FL.  This worked out great for us because of our good relationship with our daughter.  Being around the grandchildren while they are children is a great experience.  I wish we made the move earlier, but we were concerned about possible job location moves for our son-in-law.

Some friends bought a winter home in CA and maintained a home in PA.  The idea was to be close to a daughter and grandchildren.  Unfortunately, the daughter and her husband have been moved to SC.  It was great while it lasted.

We have friends who moved across the country to be closer to their daughter.  Unfortunately, they did not get along with their daughter, and ended up moving back.

TAX ADVANTAGE AND PERMANENT RESIDENCE

The tax situation is something you may want to consider.  FL has no income tax, and the tax situation is very good.  You need to live in the state six months or more to avoid problems with your second residence if you have one.  In our case, we opted to maintain our permanent resident as MI since our daughter is located there.  We decided that if we needed assistance at some time, we would probably best retaining our permanent residence as MI.  Changing permanent residence twice gets messy in legal planning.

INHERITANCE AND MOVING

If you move your permanent residence, legal things such as wills, living wills, authorization for medical control, and trusts will probably need to be completely redone.  For example, the document to direct medical treatment in case of incapacitation is totally different in MI vs. PA due to the differences in laws.  It is very important to get this straightened out early.

CLUTTER AND "JUNK"

My wife and I are pack rats and we like old family items we have accumulated over the years.  We got rid of some things when we moved to MI, but not as much as we should have.  I really don't care -- I like the stuff even when it is in boxes.  I get a warm feeling getting close to a box I know is filled with these old treasures.

HOWEVER, if you are not infected with my pack rat disease, I suggest that you really unload as much as you can.  Do as I say, not as I do.  You don't need near as much for entertaining when you are older, and the more you have, the more time you must spend on taking care of it or moving it out of the way.  Most of the things we have are not really needed or seldom used.  We like it that way, but it is not practical.  

If you have things of real value that are not needed, it may be well to sell them before leaving them for you children.  Children may toss valuable things in a dumpster when they take over your estate.

HOUSE SIZE

We have three bedrooms in MI and two in FL.  Actually, we could do very well with one bedroom in both cases, but if you expect visits from children and grandchildren, you may want the extra bedrooms.

We rarely entertain or have overnight guests.  The reason is that my wife is not as healthy and energetic as she was even ten years ago.  We would like to have guests and we would like to entertain more, but my wife's health and energy shifts a big extra load to me, and between the two of us such entertaining and guests is more than we want to do.  I hope that changes, but I am not optimistic.

Financial Planning – Part 6 – Looking back

The decisions I’ve outlined above spanned about 60 years of my life.  Some of them seemed like simple decisions at the time, but they may have had long-term consequences.  I can’t think of any major financial decisions I made that turned out badly, and if I had my life to live over, I don’t think I would have changed any of them

But of course those decisions were all made in the context of my own life.  For someone else the decisions may be entirely different and the decision for you may be even the opposite of what I chose. 

Perhaps you are younger and don’t work for a company who offers a defined-benefit pension but you instead have a defined-contribution pension (which is like a 401K that the company contributes to – thus you assume the risk of any investment decisions, and the company has no long-term obligations to you).  But since people these days are more and more mobile and they do not stay with the same company for most of their working life (as I did), having this type of defined-contribution pension that you can take with you can be very beneficial.

Other people may have additional things to consider – such as college loans (much bigger than the relatively small one I had), two incomes (in the above I chose to ignore the much smaller income that my wife had as a preschool teacher in a private Christian preschool), or larger/smaller families.  But the general principles that I’ve outlines could still be a good starting point.

Financial Planning – Part 5 – Income management

Pension

After 30+ years with the same company, my defined contribution pension plan was about 40% of my pre-retirement salary.  The only decision to make here was to take a slightly lesser amount but with a 50% continuation for my wife if I pass away before her.  Since women usually outlive men, this is a good decision to make.

Social Security

It was a question in our email group about social security that started the whole discussion.  You have probably seen many articles in the online news or other Internet sources about financial advisors suggesting that you delay taking withdrawals from social security for as long as possible.  However, while it is true that the longer you delay (up to age 70), the higher your payments will be, the truth is that that does not factor in the number of payments you are likely to get.  The truth is that the system is designed so that the average person will get the same amount of total from social security no matter whether they begin taking payments at age 62, age 66, or age 70.  The totals from all those starting points will be about the same by about age 80.  So, if you die before age 80, then you will have more income by starting earlier, and if you live longer than age 80, you will have more income in your later years.

But that’s just the financial side of things.  I considered two factors in making my decision to start social security at age 62.  First, I considered my own life expectancy.  My parents and all their siblings, except my mother’s youngest sister who is still living, passed away at an average age of 84.  My own life expectancy, given that I had a major heart attack at age 56, is about the same.  So the financial equation is not significant to me.  What is more significant is that I’d rather have the money now, when I can use it, than later when it would just be more money available to pay a nursing home.  My grandchildren are young enough now that we can spend time with them.  My wife and I are healthy enough that we can do things now.  But neither of these may be true when we’re in our 80’s.

IRA

I initially just rolled my 401K into an IRA, since it was going to be a year before I could take any withdrawals without a substantial penalty.  Then I considered what I wanted to do with it.  I don’t believe the goal in life is to just have a lot of money left around to leave to your children/grandchildren.  Certainly they will be the recipients of at least some of our assets when my wife and I are gone, but that was probably a couple of decades away at that point. 

In the end I decided to split it into two pieces.  One third I put into a mixed basket of mutual funds, some stock-based and others bond-based, with a portion in cash-equivalents.  I balanced the risk of the entire pool of funds to be about 60% stocks, 30% bonds, and 10% cash.  That is just sitting there, not being touched in the short-term.  While the percentage split changed during the recent economic downturn, the whole basket weathered it nicely and it’s continuing to build in value.  If I never have to touch it, that’s fine, but otherwise it will be the place I turn to in my later years.  The fact that this is a long-term asset is why I can be somewhat more aggressive in the stock-to-bond ratio than if it was my primary source of near-term income.

The other part of my IRA was used to purchase a variable annuity that generated a continuous stream of income that was guaranteed for as long as either my wife or I were still living.  Since I purchased it at a relatively young age, and before the recent market turndown, I have a guaranteed withdrawal rate higher than I might otherwise.

Expenses

I also put some thought into my expenses during retirement.  While many of them would not change such as food, others such as gasoline would be reduced since I was no longer commuting to work every day.  And some, such as home maintenance would probably increase as our house got older.

In the end, I had a budget with sufficient income to meet all our expected expenses.  While I did not have income from my IRA until age 59-1/2 and income from social security until age 62, those few years of reduced income and having to use some of our accumulated savings were not a major factor.

Chief Learnings

There are a lot of things to consider when you retire – getting professional advice is useful

Balance the level of risk you are willing to take to match your circumstances

Financial Planning – Part 4 – Asset management

One of the first things I did, even before meeting with my newly chosen financial advisor, was put together spreadsheets listing assets and liabilities (and calculating my net worth), and my income and expenses.  Besides writing them all down in one place, I had to make a number of decisions on how to handle them.

Our house

We built our house in 1977 and had made many improvements to it over the years.  But we paid off our mortgage in 1995, a year before our oldest son went off to college.  But I had taken out a home equity line of credit which I had used to finance many of the improvements.  So to be debt free I needed to pay that off.  I paid it off by cashing in the smaller insurance policies I had, and by selling all the US Savings Bonds that I had bought during the years when the company offered them at work (1992-2000).  This made me debt free.

Since then, one other change has been made to the house.  One of the major additions we had made was to add a second story to the garage wing of the house that could eventually be used as a “mother-in-law apartment.”  There was a separate stairs and entrance at the back of the garage and it was set up to contain a separate kitchen and bathroom, making it pretty self-contained.  There was also an access door to it from the second floor in the main house. 

However, since both my and my wife’s parents remained in their own homes until near the end of their lives (three of the four died at home, only my wife’s mother went into a nursing home for the last year of her life), we never used it as an in-law apartment.  Instead, when our daughter got married, she and our son-in-law began living there and they have now added four grandsons to the household.  So not only are they using all that space, but they have taken over the upstairs room that has the access door.  The boys are now getting bigger and the youngest two are outgrowing the crib and bassinet they are in, so we are converting one of the downstairs bedrooms to a new master suite for my wife and I.  This will give our daughter and family an additional bedroom upstairs and give my wife and I single-level living, a good thing to have as we get older and navigating the stairs gets more difficult. 

Insurance

Besides the smaller policies I sold to pay off our home equity line of credit, I still have the policy that I bought upon graduation from college over 45 years ago.  The policy is with a mutual company, so the means that annual dividends are distributed to the policy holders instead of to stock holders.  I’ve been using these dividends to pay my annual premiums for the past two decades, so the policy basically pays for itself.  As the premiums get larger with my aging, it recently passed the point where the dividends are large enough, so my cash value will slowly decrease in the coming years.  But I bought it as insurance, not as an investment, so I will keep it that way for the near future.

As I mentioned earlier, we also each have long-term care insurance policies.  These are not designed to pay for all the costs in the event that either of us needs to go into a nursing home, or needs home health care, but they will provide a base level of support.  My daughter, who still works in the LTC industry, tells me that they are good policies to have.

Other Assets and Liabilities

Part of my retirement package was the continuation of my health insurance until the age of 65 when Medicare would kick in.  I’ve discussed how I made the decision on what to do about Medicare in another blog post, so I won’t repeat that here.

Although my IRA is technically another asset, I’m going to discuss it under the income part of our finances, since that’s one of the sources of income post-retirement.

Chief Learning

Planning for retirement is not just about income and expenses, your assets are important too

Financial Planning – Part 3 – Looking to the future

Working Years

With my education days now over, a house to live in, and a long-term job to support our family, it was time to take a longer view of our finances as well.  The company I worked for had a pension plan (a defined benefit plan – the only kind that existed back then).  They also had a 401K plan where they would match 50% of up to 6% of your salary if you put it there – which I immediately did.  And for a few years they had a plan to buy US Savings Bonds – which I also did, until such time as this was discontinued.  These were my principal savings vehicles – all of which were for the long term.

There were also now two children in our family, so there were four mouths to feed.  And in 18 years they would be going off to college – which was getting more expensive each year.  And then there was that mortgage which would not normally be paid off until 2002 – after the college years.  We had decided that we didn’t want our children to come out of college saddled with the typical debt of college loans, but if that was the case, then we needed to have extra income during those years to pay for it.  So one of the plans was to make extra mortgage payments periodically so that we could pay it off in only 18 years instead of 25.

Finally, with a house and family, I felt that I needed sufficient life insurance.  I had previously purchased a policy when I started grad school (it was fairly cheap because of my age).  I also took advantage of adding to it when there were significant “life events” like getting married and having children.  But that was designed to give replacement income to my wife, not to pay off the substantial mortgage we had.  My wife also had a small policy, basically enough to cover her end-of-life expenses.  So I also purchased a “mortgage cancellation policy”, a combination of whole and decreasing term that was designed to follow the curve of the remaining mortgage until it was retired, and then leaving me with a small whole life policy when it was done.

These plans I followed through on.  We paid our mortgage off in 18 years instead of 25; we were able to make our children’s college tuition payments out of our income (although for those years we essentially planned our year around when the next tuition payment was due); and we kept putting money aside in my 401K.

We made two other changes in our planning.  One was to purchase our burial plot and pre-pay for caskets and perpetual care on the plot when a local cemetery had a “sale” one year.  This would later mean that we wouldn’t have to have money to cover our “final expenses”.  The second was to get long-term-care insurance (our daughter was working for an LTC company and they had made reasonable cost policies to employees and their families).

Over the years we made various improvements to our home.  In order to finance these, I took out a home equity line of credit (at the time it was cheaper than a personal loan).  We would make an improvement, pay back the line of credit, then use it again for another improvement several years later.

At this point I was planning on working until it was no longer “fun,” and I meant by that that I might work past the normal retirement age of 65 – I had no set date in mind.

Retirement comes early – and my preparation pays off

In 2006, when I was just 58, the management philosophy changed at work (as it had done many times before), but this time it became no longer “fun” for most of us working there.  That fall, when it was time to submit our annual personal plans for the coming year, I instead decided to turn in a notice that I was going to retire the following spring – at age 58-1/2.  While I was one of the first ones in our department to do so, many others had the same idea – some gave less notice and retired before I did, others followed on a regular basis over the next few years.  (Several of us formed a group of retirees from our department who meet once each month for lunch – the group is now pretty sizeable.)

I decided it was time that I began working with a financial consultant to validate all my assumptions and get everything set up properly for my retirement.  I chose a lady who was my current agent of that insurance policy I had purchased 35 years before – not because of her experience or the large company she worked with, but because she was making a deliberate choice to do things according to the principles in God’s Word and because she had recently left the agency she was with because they would not support her in that.  She had just announced that she would expand her ministry to be more full service, so I contacted her and signed up as one of her first customers in this new venture.  (FYI – my working with her has met my expectations!)

Chief Learnings

Start early – compound interest really does pay off

Make plans and keep them

Financial Planning – Part 2 – Learning how to manage money

In my early years the focus was on saving what earned.  Once going to college the focus changed to learning how to manage what I had.

Undergraduate years

The tuition policy at Michigan State was that once you were going full-time (12 or more credits), the cost was the same.  It didn’t matter if you took 13 credits, 16 credits, or 20 credits.  I took full advantage of this.  After the fall of my freshman year when I had a relatively standard 16 credits, I always took 18 or more and one quarter I had 22 credits.  This overload meant that I could graduate in three years instead of four and my education would then cost 25% less.  But even with this, the cost of education was more than I could make during the summers.  So over those three years I pretty much depleted all that I had saved.

I had a few small scholarships, but by the time my education was complete I had spent all my accumulated savings in my passbook account back in Connecticut, I had cashed in the US Savings Bonds that I held, and I sold the two shares of stock that I had.  I had a few small part-time jobs (shoveling snow, cleaning an apartment for an elderly couple, etc.) that gave me some spending money; everything else went for tuition, room & board. 

The third year I knew that I was going to come up a little short, so I visited a bank in Connecticut that was participating in a federal loan program.  The government paid the interest on the loan while you were in school and you didn’t have to start making payments until a year after you stopped going to school.  If you got your degree, then they would also forgive 10% of the loan.  I borrowed $1000, so that meant that I would have to begin paying back $900 the year after I finished my education (including graduate school).

Graduate school

Several things happened when I started graduate school.  First, I had an assistantship which became my primary source of income.  Being an “employee” also meant that I could pay in-state tuition rates.  That was also the year that MSU switched from a full-time tuition rate to a per-credit rate.  In-state was $13/credit (they were on quarters so you paid that three times per year instead of two); out-of-state was $31/credit.  Secondly, that was the year that I finally stopped being solely a bicycle rider and bought my first car.  I financed it through the MSU Credit Union.  It was a fairly low-end model Dodge Dart that cost me $2626.  But it also meant that I now had car payments as well.

The third, and probably most significant thing, was that with all those changes, I started my first budget.  This was the days before personal computers, and even calculators were expensive, so I simply bought a pad of accounting paper and had one page per budget item.  On each page I had date, description, plus (income), minus (expense), and current balance. 

At the beginning of every month I allocated funds from my main account to each of the budget categories.  Every expense was recorded in the appropriate account.  At the end of the month when I got my bank statement I added up all the balances in each category and compared it to the sum of my checking account, my savings account, and the cash in my wallet (including the loose change in my pocket).  I was pretty detailed about doing so – in the two years I ran this budget I was only off $.06 (a nickel that I found on the sidewalk and forgot to record and another penny that I somehow misplaced).

Naturally there were times when one account was getting overdrawn or another was accumulating too much.  If that happened, I would adjust my monthly allocations appropriately and transfer overages from one account to another if needed.  So this was a learning experience.  I found out what my actual expenses were, and I learned how to budget and control my spending.  If I had the use of a spreadsheet or some computer package such as I have now, it would have been much easier, but doing it manually may have been more educational.

At the end of graduate school I got married, we moved to Connecticut, and I started a job.  So I threw out my budget for a while until my finances started to settle down a little, then started over again using the same principles.

Early Work Years

Like most new college grads, I entered the next phase of my life basically broke.  While my income was significantly larger than before, I now had rent payments, two people to feed, car payments (and two years later a second car payment so that my wife was not stranded at home while I worked), insurance, and I had to begin paying back that college loan (although it was much smaller than most of today’s students).  I had a few early career jobs where I never stayed long enough to qualify for a pension, but my focus, in addition to sticking to my new budget, was to accumulate some savings toward the eventual purchase of a house and the starting of a family.  My wife and I made a conscious decision to delay having children until we had a home to bring them up in.

In 1975, the year I turned 27, we moved from Connecticut to Pennsylvania and I began the long-term job that I was looking forward to.  The following year we went looking for property and began building a house that we were able to move into in 1977.  My wife was now working (adding to our savings), and most of our savings was going toward building the 20% down payment that we would need in 1977.  The banks those days were very conservative and they insisted on a 25-year mortgage that was based on both our incomes, so our commitment was that she would continue to work until my raises would replace her salary, then she would stop working and we would start a family.  That only took another year or so – we had our first child in 1979.

Chief Learning

Budgets and plans are good things!

Financial Planning – Part 1 – Early Learnings

Introduction

Recently a group of us were having an email conversation about financial planning.  As we got into some of the details about how we made the various decisions we did, one of the members of the group, whose opinion I highly value, made the following comment to me.  “Looks like you did a good job planning.  I would have done pretty much the same thing.  I see that you tried to create a balance of risk.  I think this is extremely important.”  Coming from him, I valued that praise.  As a result, I have been thinking back on how I came to make the plans that I did.  In this first part, I’m going to go back through my early life to relate what I learned and the decisions I made.

Growing up

Our family was certainly not rich.  None of my ancestors had ever gone to college, and none had any significant assets that they had inherited either.  I suspect that my father made only $4000-$5000 per year when I was a young child.  I know that our family property had cost approximately $7000 back in 1946 when he purchased it and he thought that was a lot of money.  While it included 23 acres, it was seven miles from town and there was essentially no traffic, even on the main highway just a few hundred feet away.

I was the first of five children.  When I was old enough to earn an allowance – in return for doing chores like setting/clearing the table, washing dishes, keeping my room clean, etc. – I earned the magnificent sum of $.10 a week.  My sister was a year younger and there was a five-year gap to the next child, so we were the only ones with an allowance at the beginning.  We got our allowance on a Saturday morning and would shortly thereafter make a trip to Martin’s – the local gas station and general store not far from our house.  They had a big wood-framed glass case just inside the front door filled with all kinds of candy.  Back then penny candy was real and some things you could get several for a penny.  I liked things like string licorice because you could make one string last a long time.  But I would only spend about a nickel of my allowance and I would save the rest.  About once every several weeks I would spend the entire nickel on a Three Musketeers candy bar (my favorite).  My sister would generally spend her entire allowance.

Sometimes we would receive larger gifts – perhaps at Christmas or birthdays – from relatives.  Getting a whole dollar bill was a real treat!  It wasn’t too many years later that my mother opened a savings account for me at a local bank.  Those were the days of passbook savings, so that meant that I had my own passbook.  A couple of times a year we would stop at the bank and I could deposit some of my hard-earned cash.  It was especially exciting when I would also get interest added – like getting extra money for doing nothing (at least that’s how it seemed to me at the time).

I was able to make a few larger purchases with my savings.  The only two I remember were a bicycle (which I rode from about age 10 all the way through my undergraduate years of college) and a telescope.  But otherwise, I just kept dutifully adding to my savings account.  As I got older, my allowance also got larger, growing from a dime to a quarter, then to $.50.  There were also occasional larger gifts, in particular a couple of US Savings Bonds for $25 (they only cost half the face value).  These were written out to my mother under the UGTMA (Uniform Gifts To Minors Act), so I couldn’t have access to them without her permission.

High School Earnings

In high school things ramped up a bit.  I had some after-school jobs that paid (such as working on my uncle’s state forest fire crew) so that gave me some additional income.  While I had some expenses related to these jobs, I banked most of it, since by then I was aware that I was going to have to save for college.  With four younger siblings, I knew that my parents would not be able to contribute much.

One year the company my father worked for had a writing contest for children/grandchildren of employees.  They ran the contest for three quarters, with two winners each time, and I was one of the six winners.  The prize was a share of stock in the company – worth about $45 at the time.  So I was now a stockholder.  Over the next several years the price went up and at one time even split, making me the eventual owner of two shares that would top out near $100 for the two.  Quarterly I would receive dividend checks – for less than $.50.  My mother always felt self-conscious stopping at the bank to deposit them in my savings account!

Upon graduation from high school, there were a number of awards/scholarships.  I won a couple of savings bonds, and also the largest award, a check for $600 from a local company.  While that may not seem like a huge amount these days, it was enough to pay for a large portion of my first year’s tuition. 

But graduation from high school marked the end of my years of simply earning and a transition to years of spending – and spending faster than I was able to earn.

Chief Learning

It’s never too early to start saving.