Fong Law Group

A Note to Younger People: Heed the Voice of Experience

“If you could, what financial advice would you give your younger self?”

We like to think that we live without regrets, but it’s not always easy to do, especially when it comes to planning for retirement, says The Washington Post in “The top regrets of retirees.” A study looking at retirees found that many, and especially women, admitted that they had made mistakes in their retirement planning. The report from Global Atlantic was based on data from more than 4,200 retirees and pre-retirees in America. The company wanted to learn how expectations for retirement costs lined up with reality.

The expectations often did not.

The risk of running out of money is real, said the report, noting that 39% of retirees said they had planning regrets. Here are the top reasons for regret:

They found themselves relying too much on Social Security for income.

They did not pay down debt before retiring. Many people today are retiring with a mortgage. People used to pay off their mortgage before retiring, but it’s less and less common now.

They didn’t save enough. Most people didn’t start saving for retirement, until they turned 31. Missing almost a decade in saving can make a huge difference over time. Let’s say an employee puts away $50 every time she gets a paycheck—twice a month—and puts the money into an account with a 6% annualized return. If she started saving at age 23, by retirement age she’d have $227,150 in that account. If she waited to start saving until age 31, the account would be worth $128,578—$88,572 less. If she was able to save $100 per paycheck, by retirement, she’d have $434,299 versus $257,156.

The power of time and compounding makes a huge difference. Compounding is the process through which an asset’s earnings are reinvested to earn additional earnings over time. The more time your assets have to grow, the most compounded growth can occur.

Age 31 seems relatively young to start thinking about retirement, but by waiting that long, workers are missing out on almost a decade of savings, asset accumulation and the associated potential of compound returns.

The survey also revealed that women are more likely than men to have retirement planning regrets. How’s this for a difference: 62% of women had retirement regrets, versus 47% of men. The women also noted that once they realized their mistakes, more women than men adjusted their lifestyles to increase savings, by cutting expenses, like traveling or eating out.

If you have retirement regrets, your best course of action is to do the best you can now, without worrying about what you didn’t know in the past.

Reference: The Washington Post (Dec. 10, 2018) “The top regrets of retirees.”

How Much Will You Really Spend in Retirement?

“It’s the question at the heart of so much retirement planning: How much money will I need in savings when I’ve stopped working?”

To get at this number, people look at a few different sources, including online calculators, and articles like this one from The New York Times titled “The Myth of Steady Retirement Spending, and Why Reality May Cost Less.”

Sooner or later, they learn about the 4% rule, a popular rule that says if you invest in a mix of 40% bonds and 60% stocks, your retirement will be fine, if you just spend 4% of your savings every year. Your nest egg will stay intact, and you will be financially fine for three decades. That’s assuming you retire at age 65 with $1 million and you withdraw $40,000 every year, until you run out of money at age 95. It also assumes that you’ll supplement your own retirement savings with money from Social Security and any other income sources. If you need any more than that, cut your spending or keep working.

Could it be that simple? No, not really.

The truth is, retirees don’t always spend the same amount of money every single year. Having to keep working for several years after you would have liked to retire, just so you can get to that magic $1 million number may not be necessary for everyone.

Some retirees find that they spend a lot more in the early years of their retirement. They may need to help their own aging parents, or adult children. Others spend big on travel, seeing the world while they still have their health and mobility. However, those expenses usually slow down as we age.

There are different phases of spending in retirement, just as there are different phases of spending in your younger years. Statistics from the Bureau of Labor Statistics confirm this spending decline. The mean spending for households headed by people ages 55 to 64 in 2017 was $65,000. For those between the ages of 65 to 74, spending declined to $55,000. After 75, it dropped to $42,000. That is with housing costs remaining the same and health care costs increasing. The categories of entertainment, transportation, clothing, food and drink all dropped.

A study by Morningstar contends that retirement spending resembles a smile: starting off high, then declining, then increasing towards the end of life. The increases at the end of life are directly related to health care costs. However, generally speaking, retirees in their 70s and 80s tend to spend less.

Whether you follow the 4% rule are not, there are always unexpected costs to be considered in retirement. Your retirement may last more than two or three decades. Withdrawing too much from investments during a sharp market downturn, could cause your overall portfolio to shrink and possibly never recover. A retirement budget that takes inflation and market fluctuations into consideration, is necessary at any asset level.

Reference: The New York Times (Nov. 29, 2018) “The Myth of Steady Retirement Spending, and Why Reality May Cost Less”

Make Sure Your Retirement Is About Having Fun

“We spend decades dreaming of the day when life won’t be dictated by alarm clocks, commute times, meeting schedules and office politics. Then reality sets in: Retirement can be kind of a drag. There may be 20-plus years of it ahead of you.”

What? How can retirement be a drag? You’re not going to the office every day, subjected to the personalities and pitfalls of office politics. The first month is glorious, then it sets in: you’re on your own now. No schedule, no one telling you what to do. The lack of structure isn’t for everyone, says Next Avenue in the article “How to Keep Retirement From Being A Drag.”

The simple fact is, most people plan for the financial and legal aspects of retirement: how much they need to save, how much of a bite inflation will take, the cost of healthcare, long-term healthcare, etc. However, most people neglect to think about the emotional impact of retirement.

Work is where many people get their sense of purpose and their identity. Talk to any working parent who steps out of their career trajectory for a few years. It’s a similar shift, except there is no smiling cooing baby to keep you busy. If you don’t have projects, meetings, or deadlines, or the community of the workplace, what defines you?

This sense of being adrift occurs to people regardless of their income level and may be even more intense for successful people who are used to running a business, commandeering a company or managing a busy desk.

Here are some suggestions for making sure your life during retirement is enjoyable and has purpose and meaning.

Set your alarm and have a reason to get up every day. After you’ve taken the big trip, spent time with your grandchildren and organized your closets, what’s next? It’s time for you now, time to do things that you’ve always wanted to but for reasons of time, could not. That might mean taking up a sport, expanding a hobby, becoming an active volunteer or returning to school to explore a subject you love?

Consider yourself to be on a fixed salary. The transition from paycheck to drawing down savings can be unnerving. You’re sitting on a huge pile of money—but it must last two or even three decades. Create a post-retirement budget before you retire and don’t forget to include healthcare, taxes and potential emergencies. Also consider which assets to draw from and in what order. Do you use your 401(k) funds first, or start with cash? Avoid this retirement rookie mistake: taking out too much cash in the initial stage of retirement.

Talk with your partner and family. Will you both retire at the same time? If one is still working and the other is not, how will you divide up chores? If your work schedules meant you didn’t see each other for more than a few minutes during the week, spending 24/7 together is a big change. Do you expect to spend all your time together, or will there be some “me” time? Will your children expect you to babysit on a regular basis?

Moving into the retirement years is a big change in life, and the more prepared you are, both in terms of having an estate plan, retirement funds and a plan for your time, the more fulfilling and enjoyable your retirement will be.

Reference: Next Avenue (Nov. 29, 2018) “How to Keep Retirement From Being A Drag”

Do You See Yourself in Any of These ‘Seven Deadly Sins’?

“All of these retirement planning sins can set you back from achieving important goals. If you have a nagging feeling that you could be doing a better job of retirement planning, check out these seven offenses and learn how to get back on track.”

We’re only human, and we don’t always do exactly what we’re supposed to do. That applies to retirement planning, according to the article “The 7 Deadly Sins of Retirement Planning” from The Reader’s Digest. Take a little time to reflect on these sins and see if any of them are getting in your way of reaching your retirement goals.

Pride. Sometimes we think retirement planning should be simple, and when it gets complicated, our knee-jerk reaction is to be prideful and refuse to allow anyone to help us. If you’re not a professional retirement planner, how will you know what to watch out for? You won’t. A mistake could make the difference between a heavenly retirement and one that is delayed or never arrives. Swallow that pride about the difficulties of building a portfolio or investment strategy and be open to getting help.

Envy. If you spend 30 years trying to keep up with the Jones’ extravagant spending, who knows if you’ll ever be able to retire? Just because a neighbor, friend or relative spends on new luxury cars, or sends their kids to pricey private schools, doesn’t mean you need to do that, unless you can afford to—all while saving for retirement. Live below your means and save for the future.

Wrath. This is a dangerous emotion. If you’re angry about a situation at work, for instance, and you leave without good financial planning, you could put your retirement savings at risk. It often takes longer than you think to find a new job. Leaving voluntarily makes you ineligible for unemployment benefits. Paying for COBRA insurance is usually a lot more expensive than an employee group benefit plan. Hate your job/boss/co-workers? Wait until you have a new job lined up before leaving.

Greed. Chasing investment trends or listening to your brother-in-law’s latest get-rich quick scheme rarely leads to success. A professional advisor with a long-term plan will almost always yield a better return.

Sloth. Lazy about retirement planning? You have to do the planning, the savings, track your expenses and keep an eye on your money and your taxes. Have you made the effort to have a will, power of attorney and health care directive made for you and your spouse with an estate planning attorney? A missed step could doom your retirement and create a crisis for your family.

Gluttony. This is kind of like greed’s younger, sloppier cousin. Are you being greedy about making money, to the detriment of any other goals? A goal-oriented investment plan will serve you better.

Lust. Are you yearning for a billionaire’s lifestyle, with an income that is more middle class? Leave the lust for the jets, diamonds and furs behind and focus instead on a realistic plan.

Make sure that your retirement doesn’t fall victim to these deadly sins and prepare for the real retirement that’s in your future.

Reference: The Reader’s Digest (Nov. 2018) “The 7 Deadly Sins of Retirement Planning”

Make Estate Planning Simpler with a Checklist

“While advanced estate plans can be very in-depth, there is a way to simplify one's estate planning process.”

Ask an average person to define estate planning, and chances are good they’ll start describing long meetings with a lot of paperwork and complicated forms. However, that doesn’t have to be the case, says this article from InsuranceNewsNet.com, “A simple way to simplify estate planning.” It focuses on the use of beneficiary designations on a number of accounts that can make an estate plan a much simpler experience in many situations.

Beneficiary designations are primarily used on the following types of accounts:

• Employer-sponsored retirement plans, like 401(k)s
• IRAs
• Life insurance policies
• Annuities
• Transfer on death investment accounts
• Pay-on-death bank accounts
• Stock options
• Executive deferred compensation plans

Making sure to keep track of the person who has been named the beneficiary and keeping that information up to date is extremely important. It’s not always done correctly. The consequences of having the wrong person named on the asset can be infuriating and, unfortunately, permanent.

The importance of the beneficiary designation means you’ll want to:

• Remember who you have named a beneficiary of what account. People usually name their spouse as a primary and a child as a contingent. If you only have a primary, consider a charity that has meaning to you as the contingent beneficiary.
• Update your beneficiary designations, as life events occur. That includes births, deaths, marriages, divorces, etc.
• Read the instructions on the beneficiary designation. Not all forms are alike.
• Don’t name your estate as a beneficiary.
• Understand the tax implications of naming the beneficiaries. Not every asset has the same tax treatment.

Speak with your estate planning attorney to ensure that your beneficiary designations align with your estate plan. Remember that beneficiary designations supersede any provisions in your will. You should also talk with your beneficiaries—you may learn that they don’t want to inherit your asset (i.e., a person who is considering a divorce may not want the additional complication of a large inheritance).

Reference: InsuranceNewsNet.com (Nov. 2, 2018) “A simple way to simplify estate planning”

What are the Key Risks in Retirement Planning?

“The key take-away …there are five key risks in retirement and a three-step process to solve the problem.

Retirement planning is not easy for couples or individuals, or the people who counsel them, according to a recent article in Wicked Local (Topsfield) titled “Your Financial Views: How your retirement can be the ‘golden years’.”

A conference on planning discussed a Harvard Business Review study called “The Crisis in Retirement Planning” that challenged how consumers and the financial industry look at retirement. The author said that the process is broken, which is why many families are not enjoying their “golden years.” The article presents five key risks and some solutions.

The first of the five key risks concerns investments. What if there is a market downturn that reduces your retirement savings significantly?

The second concerns inflation, which was practically dormant for many years.  It is currently heating up again. Your assets and income need to be structured to keep up with inflation.

Withdrawal-rate risk is third. Typically, in the first few years of retirement, people tend to spend more than when they were working. It makes sense. Most people spend more money on Saturdays. When you’re retired, every day is Saturday.

The fourth is sequence-of-returns risk. This involves the order in which investment returns occur and the impact of those returns on people who are near retirement, transitioning into retirement or recently retired.

Finally, the fifth is longevity risk. If you live long enough, goods will be more expensive and the likelihood of a market downturn increases.

The solution is to change how you think about retirement planning. It’s as much about accumulating savings, as about how your retirement accounts will produce a good monthly income stream.

Start by listing your basic necessary expenses and then list your discretionary spending. It is important to know the difference between what you want and what you need. You should structure your income to give you the basic necessary items for life, by incorporating Social Security, pensions and guaranteed income annuities, as well as your retirement savings accounts. Use the remaining assets to protect yourself against inflation and produce any additional income.

Don’t forget to include estate planning in your retirement plan. This includes a will, a power of attorney and medical directive. By having an estate plan, you protect your surviving spouse and heirs from the expenses and stress of settling an estate. An experienced estate planning attorney will be able to help you create an estate plan that aligns with your financial retirement goals.

Resource: Wicked Local (Topsfield) (Aug. 7, 2018) “Your Financial Views: How your retirement can be the ‘golden years’.”

Could Aging in Place Work for You?

Could Aging in Place Work for You?

“Since last year, the NAHB has seen a 30 percent increase in the number of its members seeking special training to help older clients who want to stay in their homes for as long as possible. Remodeling a house, is just one way to make that happen.”

The ultimate goal of aging in place is avoiding a move to an assisted living facility or a nursing home. For some people, it may mean staying in their current home or perhaps moving from a home with more than one level to a ranch with one level or an apartment building with an elevator. According to US News & World Report in the article “Tips to Help You Age in Place,” some seniors are moving to “granny houses”—tiny houses located in the backyard of their adult children’s home—or micro-unit housing—small studio apartments in buildings with common living rooms and kitchens.

Which one is right for you? Here are a few things to consider:

Physical safety. If you can’t manage the stairs anymore or if there’s no bathroom on your bedroom level, perhaps you should consider changing your situation.

Neighborhood. Do you love your community? If you have access to your friends, family and good medical care, that’s a good reason to stay in the vicinity.

Support Network. If you were to need assistance for a short period of time or in an emergency, are there people near you who can check on you on a regular basis or arrive quickly in a life-threatening situation?

Cost of Living. Sometimes this factor overrides many others. If you can afford to live in your own home and cover all your expenses, then staying in your home is an option. Remember, as you age, you’ll need different services and not all will be covered by Medicare or Social Security.

Even if you’ve got all these factors covered, you may still need to make changes to your home to make it safer and more comfortable. For instance, if you can’t reach items in cabinets, then move anything you use to a lower cabinet. If arthritis has made reaching for things difficult, then install grab bars and floor treads to avoid falling in slippery bathrooms. If you have a sunken living room, then install a ramp with a handrail, so you can continue to use the room, but can enter and exit safely.

Embrace technology, which makes keeping in touch with loved ones easy. Don’t be put off by the idea of a medical alert button, so help can be summoned quickly. Consider installing a video camera in a frequently-used area of your home, so a loved one can get a visual check on you every now and then.

You’ll need to make certain adaptations to age in place to ensure your safety.

Reference: US News & World Report (April 27, 2018) “Tips to Help You Age in Place”

Generation X Can Retire Successfully but They Have Work to Do X世代可以成功退休，但他們有工作要做 (中英對照)

“Many members of Generation X, who are now in their 40s and 50s, were hit harder by the Great Recession.  They are still catching up financially. This so-called Sandwich Generation also faces challenges in getting ahead financially, while caring for their parents and children.”

Generation Xers, whose retirement funds are lagging, can still catch up, according to an article from CNBC, “What Generation X Needs to focus on to retire successfully.” However, they will need a reality check, if they expect to make any significant inroads.

Members of Generation X, who were born between 1965–1978, are now entering their middle years and are more likely than boomers or millennials to feel that they may never recover.

At the same time, that they are getting their careers in order, they are busy caring for aging parents and saving for their kid’s college funds. No wonder they’re behind on retirement savings.

A survey from money manager Personal Capital found that more than 34% of Gen Xers have no retirement savings set aside at all.

As the youngest turn 40 and the oldest now in their early 50s, they do have time to catch up.  However, they need to act decisively and act now. There’s no time for waffling.

Start by figuring out your current financial status. What’s your net worth and how much do you spend on a regular basis? List your assets and debts, then figure out how much money is coming into the household and how much is going out. You most likely will need to make some changes.

Define your retirement goals. It’s much easier to reach goals, if you know what they are. Do you need $1 million to retire and continue your current lifestyle? You may need to consider shrinking your spending, extend your working years or shift your retirement expectations.

One hard choice ahead? It’s possible you may need to limit how much of your children’s college costs you can carry. You and your children can take out loans to pay for college.  However, you’ll be hard pressed to find many loans for retirement.

Reference: CNBC (July 9, 2018) “What Generation X Needs to focus on to retire successfully,”

X世代可以成功退休，但他們有工作要做

 “許多現在40多歲和50多歲的X世代受到了大蕭條的巨大打擊。他們仍然在追趕上經濟。這個所謂的三明治一代在面對財務方面的挑戰，同時要照顧父母和孩子。“

根據CNBC的一篇文章，其退休基金滯後的X一代仍然可以趕上，“What Generation X Needs to focus on to retire successfully,” (X一代需要專注於成功退休) 但是，如果他們希望取得任何重大進展，他們將需要進行現實檢查。

X一代的成員，出生於1965年至1978年之間，現在正進入他們的中年，並且比嬰兒潮一代或千禧年一代更有可能感到他們可能永遠無法獲得財產自由。

與此同時，他們正在為自己的職業生涯做好準備，他們正在忙著照顧年邁的父母並為孩子的大學經費儲蓄。難怪他們會落後於退休儲蓄。

Personal Capital的資金經理在一項調查發現，超過34％的X一代根本沒有退休儲蓄。

作為最年輕的40歲和現在50歲出頭的人，他們確實還有時間趕上。但是，他們需要採取果斷行動並立即採取行動。因為沒有時間給他們荒廢了。

首先要弄清楚你目前的財務狀況。你有多少資產，而且你經常花多少錢？列出你的資產和債務，然後計算出家庭有多少錢進和多少錢出。您很可能需要進行一些更改。

確定退休目標。如果您知道它們是什麼，那麼實現目標就更容易。您需要100萬美元退休並繼續目前的生活方式嗎？您可能需要考慮縮減支出，延長工作年限或改變退休日期。

未來一個艱難的選擇？您可能需要考慮對孩子的大學費用作出上限。你和你的孩子可以拿出貸款來支付大學費用。但是，你很難找到很多退休貸款。

參考: CNBC (July 9, 2018) “What Generation X Needs to focus on to retire successfully,”

The Impact of Divorce on Retirement 離婚對退休的影響 (中英對照)

“When all is said and done, ending a marriage can be almost as destructive to your retirement savings as the Great Recession was, according to new findings from the Center for Retirement Research at Boston College.”

It is almost impossible to end a marriage and to leave retirement savings intact. Between the cost of legal fees and the division of assets and households with one income instead of two, the cost of divorce is high. As CNBC reports in “This move is almost as bad for your retirement savings as the Great Recession was,” divorce puts people’s retirements at risk and some folks have to work many more years as a result.

 Current statistics show that approximately 40% of all marriages end in divorce. Researchers at Boston College behind the National Retirement Risk Index examined how likely individuals are to maintain their standard of living, once they retire. As of 2016, half of working-age households were reported to be at risk. Divorce pushes up a retirement risk for a person by 7 percentage points, while the 2008 financial crisis added 9 points.

Here are more reasons why divorce deals a tough blow to retirement:

• In addition to legal fees, divorce proceedings pull people away from work and can have an impact on their earnings abilities, especially women.
• Many divorces lead to the sale of the family home, which creates a major financial burden. If your marriage falls apart when the housing market does, the impact will be even worse.
• It’s more expensive to run two households, than it is to run one.
• Tax rates change when couples divorce.

Dividing up a 401(k) when only one spouse was working can be tricky. You’ll need a court order known as a QDRO (a domestic relations order) to divide the account. The nonparticipating spouse of a 401(k) can typically receive funds from their ex’s as cash and not have to pay a tax penalty for the early withdrawal.  However, that money should be set aside for retirement. The money is often used to pay off debt or to fund the purchase of a new home. That means there is much less available for retirement.

Once the financial dust has settled, experts recommend reviewing both your retirement plan and estate plan. You’ll want to make changes on documents, including life insurance policies and any assets where your former spouse was listed. There may be court orders concerning retitling accounts. Failure to make changes can have disastrous consequences.  Speak with your estate planning attorney, to make sure your estate plan matches your new marital status.

Reference: CNBC (June 28, 20918) This move is almost as bad for your retirement savings as the Great Recession was”

離婚對退休的影響

“根據波士頓學院退休研究中心的最新發現，結束婚姻對退休儲蓄幾乎和經濟衰退一樣具有破壞性。”

要結束婚姻並保持退休儲蓄不變幾乎是不可能。由於法律費用和離婚後資產分配和家庭少了一份收入，離婚的代價費用會很高。如同CNBC中討論 “This move is almost as bad for your retirement savings as the Great Recession was,”(對於退休儲蓄來說，這一舉措幾乎與大衰退一樣糟糕) 離婚使人們的退休處於危險之中，因此一些人離婚後必須工作多年才能退休。

目前的統計數據顯示，大約40％的婚姻以離婚告終。波士頓學院全國退休風險指數背後的研究人員研究了，退休後個人維持生活水平的可能性。在2016年，據報導有一半的工作年齡家庭處於危險之中。離婚將一個人的退休風險提高了7個百分點，而2008年的金融危機則增加了9個百分點。

以下是離婚對退休造成嚴重打擊的更多原因：

• 除了法律費用外，離婚訴訟還會使人們難以專心工作，並對他們的收入能力產生影響，尤其是女性。
• 許多離婚導致出售家庭住房，這造成了巨大的經濟負擔。如果你的婚姻破裂正處在房地產市場下滑時，其影響將更加嚴重。
• 負擔兩個家庭比負擔一個家庭更昂貴。
• 夫妻離婚時稅率會發生變化。

當只有一個配偶工作時劃分401（k）退休儲蓄賬戶可能會很棘手。您需要一個稱為QDRO的法院命令來劃分賬戶。401（k）的非參與配偶通常可以從他們的前配偶獲得帳戶裡的現金，而不必為提前退出而付出代價。但是，應該留這筆錢用於退休。很多人會用這筆錢來償還債務或購買新房，但這意味著可用來退休養老的錢便少了。

一旦財務搞定了，專家建議審查您的退休計劃和遺產計劃。您需要對文件進行更改，包括人壽保險單和有您前配偶名字的任何資產。你可能需要法院命令来改變帳戶名稱。未能做出改變可能會帶來災難性的後果。請與您的資產規劃律師聯繫，確保您的資產計劃符合您新的婚姻狀況。

參考: CNBC (June 28, 20918) This move is almost as bad for your retirement savings as the Great Recession was”