Retirement planning includes financial, legal considerations
Kristina Bolhouse has seen a little bit of everything over a decades-long career in financial planning. She’s watched the market run from lean to flush and back again, and she’s gained a wealth of perspective in the process. Even today, the retirement industry continues to evolve, thanks to a generation that’s redefining what senior citizenry looks and feels like.
“Retirement today is so different than retirement in the ‘70s and ‘80s,” says Bolhouse, vice president of Arkansas Financial Group in Little Rock. “This is not the shuffleboard generation; it’s definitely the ‘We’re traveling, we’re going on ski trips, we want to go to Europe [generation.]’ It’s a very different dynamic.
“For better and for worse,” she adds, “it is a different retirement world out there.”
“Different” is an understatement. Today’s 65-and-over set are not only unlike their parents when it comes to how they spend their retirement, they are also – broadly speaking – considerably less prepared for leaving the workplace.
“It’s interesting. We see a huge split,” Bolhouse says. “Some people realize in their 20s or early 30s that this is serious and I need to start now and they do and they’re pretty disciplined savers. Others just kind of show up in their 60s. They wake up one day and realize, ‘Oops, I guess I better start saving.’”
As a breed, Boomers aren’t meticulous savers – USA Today reported last year that a mere 55 percent of this generation has saved anything toward retirement, not counting those expecting a pension. This phenomenon cuts across all walks of life; Bolhouse says even doctors with high earning power fail to grasp what it takes to make it in retirement.
“The math is a real problem,” she says. “There’s a rule of thumb called the 4 percent rule that says for every million dollars saved, you can spend $40,000 a year. It’s a real eye-opener because if you’re spending $100,000 a year that means $2.5 million is kind of the magic number.
“I mean, this sounds crazy in Little Rock, Arkansas,” she adds, “but we see people making $500,000 a year who are spending $500,000 a year, and they think they’re the richest people on the planet if they save a million dollars. Well, that’ll last you two years.”
Lack of good saving habits, combined with the murky future of Social Security, has led more people to expect to work longer – some until they die. As Forbes reported last year, the number of people age 65 and older in the workforce grew 8 percent between 1986 and 2016 and hovers somewhere around 1 in 5 people today, whether by choice or by necessity.
“I’ve been doing this since 1985, and what I saw back in the ‘80s, ‘90s and early 2000s, people were talking about wanting to retire between 55 and 60, 62,” says Cindy Conger of Conger Wealth Management in Little Rock. “What I’m seeing now is more and more of the Baby Boomers – particularly the younger Baby Boomers in their late 50s, early 60s – not talking about retiring right away. Most of them are talking about working until they’re 70.”
Conger’s clientele runs to the more affluent, but she says the importance of retirement planning for most socio-economic categories hasn’t changed much over the years.
“We really look at what they’re going to spend their money on. And that does change,” Conger says. “As people get to 70 or 75, their ability to do some things, like travel, they can no longer do. So, we plan for them to have more money in that first 5 to 10 years after they retire.”
Conger says one big misconception about retirement savings is that once funded, a plan goes on autopilot. In fact, even if the retiree has done everything right, it’s still essential to regularly revisit the strategy to deal with new expenses, inflation or legislative changes.
“People say nothing’s really changed, but there are changes constantly,” she says. “Things like the tax law changes will increase the number of people who are going to want to have an update, because they need to know how that’s going to impact them. And, there’s enough change in estate planning that we need to go back and review that at least every five years.”
Given that financial and legal matters so routinely intersect, a solid estate plan can be viewed as the flipside to the retirement savings coin. Estate planning is more than just figuring out disbursement of possessions; it also answers important questions about serious life changes, including illness.
“Most people, if they do any planning at all, do it just thinking about who gets my stuff when I die,” says Doug Jones of The Elder Law Practice of Douglas R. Jones & Cynthia Orlicek Jones in Cabot. “Very few people think about what happens if I’m incapacitated before I die.
“Well, it really doesn’t matter what your will or trust says,” he adds. “If you lose it all before you die, there’s nothing left to leave anyone.”
Despite these potentially grave consequences, many people put off estate planning altogether, leaving them exposed to substantial financial obligations later.
“It’s particularly sad where there’s a spouse at home and they spend literally everything for their sick spouse in a nursing home until they finally get Medicaid,” Jones says. “The sick spouse is fine, but the one at home has spent all their money and even borrowed money and gone into debt at an advanced age. It doesn’t have to be that way.”
People often get squeamish talking about such topics as incapacity or death, and the complicated relationships within many families can further discourage these discussions. That’s a recipe for disaster, says Jones.
“If it’s a second marriage, or whatever, it definitely complicates things because there are competing interests,” he says. “While Mom and Dad are both alive, everybody usually plays nice. But when Mom or Dad dies, the kids of the parent that dies first sometime start making a racket about wanting their part now even though it’s not their part, usually. When the second spouse dies, if things are not set up properly, then it can really be an issue.”
Not only does the family dynamic create potential issues among heirs, it can also complicate the relationship between estate holder and attorney.
“I have some clients who are very dependent and close with all family members, so they want them to be involved in that process,” says Jennifer O’Kelley, with Estate Planners of Arkansas in North Little Rock. “The attorney needs to do their job on the front end to make sure that they are taking direction from the client, that there is no undue influence or that the client’s not under duress.
“Depending on the circumstance, attorneys sometimes have to take some steps to make sure that they’re speaking only with the client and understanding the situation.”
Similar to retirement financial planning, it’s a good idea to periodically and consistently review an estate plan, says O’Kelley. Death, divorce, tax and other legal matters – or simply changing one’s mind – should all warrant a consult as well.
“It may just be a change of heart about who they picked to be in charge of things. Maybe that person’s lifestyle has changed and that’s no longer a good fit,” she says. “Or they’ve had a change of heart for one reason or another about who the assets are distributed to or the structure of how that needs to be done.
“All types of life circumstances come up that certainly need to be looked at and perhaps adjusted to make sure that the plan’s still the way you need it to be.”
Retirement planning includes financial, legal considerations