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Lauren's Blog

Lauren’s blog covers topics that impact your finances, your family, and your future. Is there a topic you’d like Lauren to tackle? We’d love your suggestions and feedback.

Aging: 4 steps to walking a smoother path toward the inevitable

Aging: 4 steps to walking a smoother path toward the inevitable

At this moment, I’m on a long-awaited trip to Europe with my sister. We’re no youngsters, but we're certainly not elderly by any stretch. As we begin our six-day walking tour of the beautiful Cotswolds, I’m filled with gratitude that both my sister and I are physically fit and able to do this together. I know it won’t always be this way.

Aging is a fact that most of us don’t want to face. By accepting and planning for our (or our parents’) inevitable fragility, we can make life a whole lot easier down the road—especially when that road isn’t paved as smoothly as we would like!

Decide who will be in charge
Meredith is in her late 80s, and she has some significant signs of dementia. But now that she really needs help, she is too childlike and forgetful to know it. She refuses to trust anyone—her children, her sister, her doctors, or her financial advisor—and has decided to stay in her house alone until “I go out feet first.” The financial and emotional pressure on her family is huge.

One of the most important things you can do early on is decide who will be in charge when things start to shift. Deciding where, when, and how to live only gets more difficult, which is why it’s vital to make smart, deliberate choices before any serious decline makes doing so even more difficult—if not impossible. To build trust and ensure a smoother transition, decide who will be in charge early on, and sidestep any disagreements in the future by making it legal. Get a Healthcare Power of Attorney that gives someone else the power to make medical decisions based on your wishes, as well as a Durable Power of Attorney that gives someone else the legal authority to manage your finances when (not if!) you’re mentally or physically unable to do so.

Explore housing options.
When Mark was diagnosed with Alzheimer’s five years ago, he and Judy wanted to keep things simple by staying in their own home, but they both failed to accept how quickly his health would deteriorate. By the time they moved to a continuing care retirement community (CCRC) last spring, the disruption caused Mark’s symptoms to accelerate.

Senior housing is a conundrum. While there’s often an emotional desire to stay at home, physical and mental limitations that come with age often make staying put a challenge. Even if cost isn’t an issue (though it often is), how long does it make sense to live alone—or at home with a partner who is disabled? When is the right time to move? And to where? There are many options available, including those that are pretty well known—independent living facilities, CCRCs, and assisted living communities—as well as some lesser known options such as co-housing and naturally-occurring retirement communities (NORCs). To learn more about the options that are out there, see my blog House hunting seniors: Finding the right option for optimal living.

Plan for the costs of aging.
Michael was a lifelong athlete, and any doctor would have predicted that he’d live a long, healthy life. Even so, to be sure his income was protected, he bought disability insurance when he was in his 50s, “just in case.” It was one of the best decisions he could have made. Michael suffered a spinal cord injury when he was in his late 60s, and the policy has paid for his care and comfort ever since. Without the policy, the impact on his finances—and his family—would have been devastating.

According to the California Partnership for Long-Term Care, nearly half of people aged 65 and older who go into a nursing home will spend between $94,900 for just one year of care, and just under $500,000 for 5 years of care. Nearly 12% will face even higher costs. There are various options to help cover these costs, including insurance policies (life, health, disability, and long-term care), health savings accounts (HSAs) that use pre-tax dollars to invest for long-term medical expenses, and retirement savings. Talk to a financial advisor to create a plan that suits your needs (even those you can’t anticipate). From monitoring cash flow, determining how and when available assets will be used, and ensuring the person in charge of your Durable Power of Attorney has all the information and access he or she needs, a trusted financial advisor can help put every piece of the puzzle in the right place at the right time.

Agree on when to stop driving.
The hardest thing I had to do when my husband Ed became disabled was take away his car keys. I knew he’d be angry, so I secretly notified the DMV that he needed testing. Of course, he knew it was me who busted him, but I had no choice; I knew he was putting himself and others in danger every time he got behind the wheel. Even after his license had been revoked, I had to park the car away from our home so he wouldn’t be tempted to “just take a short little drive.” He hated losing his independence. Who could blame him?

Decide now how driving ability will be determined (and not by the senior!). AARP offers a Smart Driver Course for drivers over 50, as well as an online seminar to help talk to seniors about driving ability—or lack thereof. And, of course, there’s the DMV, as well as a family doctor who may be the first to recommend that a senior turn in his or her keys. By agreeing to an objective third-party decision maker before the time comes, no one has to feel like the bad guy, and everyone will be safer on the road.

It’s time to face the facts: we’re all getting older, and with age come change. Take the time to make some of these key decisions now, and that path will be much smoother when the time comes. Perhaps even more importantly, get help with the choices that matter most. Talk to your doctor about any changes in your health. Talk to your financial advisor about how to plan for future expenses. Websites focused on elder care and groups like AARP and the Alzheimer’s Association can also offer valuable support and guidance. For more information on getting the right help at the right time, see my blog When all feels lost, it’s time to find your A-team.

Need some guidance as you build a better plan for long-term care? This email address is being protected from spambots. You need JavaScript enabled to view it.  me to schedule a time to talk once I’m back from my trip. As always, I’m here to help.

 

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Is “retirement” the only answer? Take time to rethink the possibilities

Is “retirement” the only answer? Take time to rethink the possibilities

As a financial advisor, you would think I’ve seen a million definitions of retirement. What’s surprising to me is that I haven’t! In fact, not all, but certainly most of the people I work with tend to see retirement as an absolute goal and an endpoint. That’s why I’ve made it one of my primary goals to break that definition wide open and help every client rethink their possibilities.

At 52, Leslie is well into a very successful and lucrative career in aerospace. When we sat down for her financial review last summer, she hit me with the question almost before I’d said hello: “When can I retire?” I was taken aback for a moment. The last time we’d talked, she’d seemed satisfied with her job, and she was bursting with excitement about a new project she was working on at the time. “You’re only 52 Leslie,” I said (with just a little envy!). “What’s the urgency?”

She slumped back in her chair, and every part of her seemed to collapse. “I’m just so tired of it all. The corporate craziness. The fighting for each new project. The hamster wheel. I love the actual work, but I don’t know how much longer I can stand the process I have to go through to roll up my sleeves and just do my job.” Anyone who has ever worked in the corporate world can commiserate. But I’ve known Leslie for years, and she looked and sounded like she was truly at the end of her rope. Suddenly what I expected to be a pretty eventless review meeting was carrying much more weight.

The first thing I did was look at the numbers, and they looked pretty good—so good, in fact, that my calculations showed that Leslie could realistically retire in just two years, at age 54. For many, that would be a dream come true, but I knew that for someone like her, it could be a recipe for discontent, if not downright disaster. So I started asking some important questions. I didn’t focus on budgets or savings or future expenses. What I wanted to explore was what she wanted the next 50 years —or even the next 10—to look like. Here are just a few of the questions I asked:

If you aren’t going to an office every day, what do you see yourself doing—every day?

Do you see yourself living in the same place you are today? Do you have a dream destination?

How do you socialize? Are most of your friends work colleagues, or do you have other circles of friends? What about extended family? When and where do you get together?

What activities do you do outside of work? Is there anything you do that might become a second career?

Are you active in any charitable work? Do you volunteer?

You seem to love what you do. Is there a way to transfer your skills to another organization? Would you be interested in teaching?

If not, will you be happy not doing the work you’ve been passionate about for years?

Is there something else you love that could replace that passion?

If you could have chosen a different career, what would it have been? Is there anything you’ve always wanted to explore but never had the time to pursue?

As we sat sipping our coffees and chatting, I didn’t maneuver Leslie’s thinking; I just worked with her to paint her picture of her future. Her frustration at the office had prevented her from looking beyond her “day job.” At first, this type of “playing” wasn’t easy. Toying with the ideas felt like breaking out of a well-sealed box. But once she got there, we were suddenly onto something! “I’ve always wanted to write,” she confessed. “Not a novel or anything like that. Not fiction. But I’ve never seen a textbook that clearly explains the concepts we use every day in aerospace engineering. It’s this vacancy of information that would be so valuable for anyone entering the field.”

As soon as the words were out, everything about her seemed to change. She was literally on the edge of her seat, her eyes were bright with excitement, and her voice was as happy and clear as the last time we’d met when she had gushed about that old project. What a transformation.

It’s been a year since that meeting. On the surface, not much has changed. Leslie is still working at her job in aerospace. She’s still frustrated with corporate politics and the battle for projects. Yet her outlook has changed dramatically. She is planning to leave her job next year, and she’s headed for anything but a traditional retirement. After our talk, she began to research the process of writing a textbook. She shopped around a proposal to multiple publishers, and one has already expressed interest in her book. It’s a long, multi-year process from proposal to publication, but Leslie is well on her way to making her “retirement” dream come true.

No matter how near or far retirement is for you, I invite you to take a good look at yourself—your goals, your passions, your dreams—and rethink how you envision living your own retirement. And no matter what size your nest egg may be when the time comes, I hope you make choices that bring the most thrilling opportunities to life.

Want some guidance exploring your definition of retirement?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help!

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Cold, hard cash! (Are you paying attention?)

Cold, hard cash! (Are you paying attention?)

Cash. It’s by far the most important piece of wealth management. And yet it is often the very last thing most people want to focus on. Time and time again, when I sit down with a new client, the first thing on their agenda is reviewing their account statements, while the first thing on my agenda—always—is to take a look at how they’re spending and saving their hard-earned cash. It’s not the sexy part of finance, but much like building that less-than-beautiful foundation to support your beautiful home, careful attention to cash flow and cash management is vital to building and preserving long-term wealth.

Tonya and Ray came to meet with me last week. In their mid-50s, they want to be sure they’re on track by saving enough for retirement and making smart choices about pre- and post-retirement taxation. They’ve also decided it’s time to get help with their investments (better late than never!). They came armed with lots of documentation: account statements, tax returns, and even a monthly budget. They seemed to have all their ducks in a row.

Then I took a closer look at the budget they had set in front of me. There were buckets for mortgage, utilities, insurance, and car payments. But everything I saw listed was a fixed expense. These are the expenses that are predictable and unchangeable. What was missing were buckets for their non-fixed expenses—the very items we can manage to achieve the two biggest goals of wealth management: eliminating debt and growing assets.

I asked the obvious question: “How are you spending your cash?” Tonya was quick with an answer: “It’s right there, in the ‘credit card’ bucket. We charge everything so we can easily keep track of it all.” Sure enough, there was a line item labeled ‘credit card’ with a budgeted amount of $2,000/month. “Ok, I asked, but where is that $2,000 going? Exactly?” They both chimed in with a lot of answers. Groceries. Gas. Restaurants. Car maintenance. Pet food. Prescriptions. Theatre tickets. Clothes. And they were clearly very proud that it was all contained in one manageable bucket. They assured me this method was working well for them.

But was it?

Luckily, in Tonya and Ray’s case, because these expenses were all on a single statement, we were able to track every expense. We drilled down into the details and looked at just a single month to see exactly where their cash was going. The numbers surprised us all. While they guessed they had spent $1,000 a month on meals and entertainment with another $1,000 slotted for necessities, the numbers told a different story. Two concert tickets at $125 each; monthly gym memberships of $120 each; one movie night at $36; four rounds of golf at $195 each (which they assured me was an unusual splurge), including two lunches at the resort for $90 a pop. While they were limiting themselves to one “nice” dinner out each week, they had spent $485 in that category, plus they’d added a handful of less extravagant meals, lunches, and lattes that racked up to $530. Total on meals and entertainment: $2,501. When we added in the other items included in the ‘credit card’ bucket (plus a few other surprises like $260 for housekeeping and $100 on supplements), what they were spending was more than double their original $2,000 monthly budget. Clearly, the budget wasn’t working after all. Without a method for closely managing cash, Tonya and Ray had been blind to the enormous rippling effect of their lack of daily money management and their invisible spending habits.  

Tonya and Ray are not alone. All too often I find that even the most financially diligent investors fail to have a basic financial planning document that includes a detailed record of their cash flow. Twisting arms doesn’t work (trust me, I’ve tried!), but by biting the bullet and following these three steps, they (and you) may finally get on the right path:

  1. Identify your top 3 goals—and make building an emergency cash fund #1. Regardless of the state of your finances, having cash on hand to cover unbudgeted expenses is key. Having an emergency fund equal to at least three months of your total household income is essential to avoid having to take on new debt in the future. Goals #2 and #3 might include paying off credit card debt, saving for a car, or funding next year’s vacation. (Read more on the power of an emergency fund in my blog When did it become ok to be financially illiterate?)

  2. Identify your income and your fixed expenses. Income is what you’re bringing home each month—salary, distributions, etc. Fixed expenses include mortgage or rent payments, insurance, utilities, and non-credit-card debt such as car payments. Be sure you know what’s coming in and what’s going out every month.

  3. Build your detailed budget. Err on the side of too much detail, and create a line item for every expense category. Separate your needs from your wants, and keep an eye on your top 3 goals from Step 1, includingcontributing to your emergency savings and paying yourself first for retirement (see my blog Getting back to basics in the New Year for more on this important topic).Be specific, and be certain your expenses don’t exceed your income! I encourage you to use a basic household budget worksheet like this one from Kiplinger. While there are apps available to help, none of them can do this work for you, and they can be more of a distraction than a benefit.

If the word “budget” reeks of giving up your spending freedom, rest assured that careful management of your cash flow is certain to have the opposite effect. By parsing your spending, aligning your spending habits with your personal goals, and projecting your cash flow into the future, you will gain the financial freedom you’ve been seeking all along—guaranteed. And the effects are long lasting too. When done well year after year, you’ll slowly but surely develop a comfort level with your actual life costs. You’ll realize you know whether something is “in the budget” without having to look at the numbers. And when changes happen like buying a home, changing jobs, growing a family, or ending a relationship? It will be that much easier to adjust to life’s transitions, whatever they may be, and rest easy knowing you (finally!) have your cold, hard cash under control.

Need help taking charge of your cash flow? This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to meet. As always, I’m here to help!

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House hunting seniors: Finding the right option for optimal living

House hunting seniors: Finding the right option for optimal living

It seems everywhere I go these days, there’s one thing on everyone’s minds: where (and how) to live after retirement. In the past week alone, the topic has come up everywhere I turn. In my office, of course. But also at my bridge club, on the golf course, and even at my hair salon. And everyone seems to be grappling for answers.

I have to begin by saying this first: just like everyone else, I don’t have any easy answers. It’s such a complex question, and the “right” solution is going to be different for everyone based on everything from your age and general health to your social and environmental preferences. But one thing is for certain: with the tsunami of Baby Boomers hitting their later retirement years, this issue is only going to escalate. As I look at the options that are out there today, I wonder if finding new, better solutions is going to be up to us seniors rather than the companies who have been busily trying (and in many ways failing) to deliver on what we need to live the most fulfilling lives possible in our last stage of life.

At the moment, the most common options for seniors include:

  • Aging in place. This has been a popular discussion for years now, both among seniors and in the press. It’s attractive to many because most of us have spent a good part of our lives making our houses our homes. Whether we’ve been in the same place for decades or just a few years, we’ve nested here. It’s where the things we love exist, and it’s where the people or the memories of the people we care about the most reside. It’s comfortable. But it’s not optimal for everyone. The cost of in-home care is not covered by Medicare, and the costs of care can be exorbitant. Plus, it can be lonely, especially of your home isn’t in an urban environment where company is just past your doorstep.
     
  • Independent living communities. These communities are usually built by corporations for a profit, so they can be costly, but they can be the perfect fit for some. Many of my closest friends call Laguna Woods home, and they’re constantly telling me how wonderful it is and how strong the community is there. Another friend is looking at Rancho Mission Viejo, a new 55+ development just east of Laguna Niguel. It’s luxurious, but those luxuries come with a hefty price tag. The pros of these communities include local facilities, a close-knit group of other seniors, and lots (and lots!) of activities. The cons: every neighbor is a senior as well, so there’s no diversity and no “younger” energy. Plus, by necessity, these larger communities are often a city unto themselves, so getting beyond the gate requires driving, which is not always an option in later years.
     
  • Assisted living communities. Also called Continuing Care Retirement Communities, these facilities are designed for seniors who require a variety of levels of care and provide everything from independent living options to full-time nursing care and, in some cases, even hospice facilities. This type of community can be particularly attractive to couples who want to age together in a facility that offers various levels of care in a single location. Though they’re often expensive, a couple can move there together as early as age 55, sometimes even into a single family home, and then shift their joint or individual level of care as they age. Interestingly, as a board member at Heritage Pointe, a senior living center in Mission Viejo, I’ve seen an unexpected evolution to the structure. As the independent residents have aged, the facility has become more of an assisted living facility than a hub of senior activity. As a result, it’s not attracting younger retirees, so the mission of the facility has evolved as well. Until we identify a solution to the challenge (which we will!), this facility—and I’m sure others like it—are in a bit of a quandary.
     
  • Co-housing. Personally, this concept intrigues me. The concept is that seniors who have the same preferences work together to purchase and design their own housing situation—where they want it, and how they want it. I’d love to live in Dana Point after I retire, but it’s doubtful I could afford an “aging-in-place” option there, and there are no independent or assisted living communities in the area. By banding together with like-minded seniors, it may be possible to purchase an ideal property and either lease commercial property on the site to provide essential services, or ensure the property is located near the services we would need. It may sound like a new twist on the old commune, but I think it could really work this time around!
     
  • Naturally Occurring Retirement Communities (NORCs): This is my other favorite. A twist on “aging in place,” NORCs are community-based programs formed in neighborhoods where the residents are already living and aging. Rather than having to leave their own homes, services and facilities evolve out of the community, and are built or formed to serve its aging residents. On the plus side, seniors are able to stay in their existing neighborhoods and maintain close relationships that can dramatically improve quality of life as they age. And with built-to-serve facilities, they can receive a certain level of care. On the downside, while some NORCs establish assisted-care and other medical-level facilities within the community, high-need care is not part of the standard structure.

If you’re overwhelmed with this major decision, know this: you are not alone! There’s so much confusion and emotion about this major life choice, and it’s no wonder. Everyone understands that buying a first home is a huge decision—one that’s rife with excitement and new beginnings because it’s understood that what you choose will contribute to your quality of life in this first stage of adult life. Choosing where to spend the last phase of your life is perhaps an even bigger decision. Plus, the options are limited. The only advice I can offer is to make that decision while it’s still your decision. Don’t wait until you’re “ready”—that time may never come or, when it does, the decision may no longer be your own. No matter how overwhelming it may be, consider the options (or even better, create your own!) and make the right choice for you.

Have insights or suggestions based on your own experience? Please email me your thoughts. I’d love to hear them!

 

 

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Facing divorce? 5 tips to protect your financial future

Facing divorce? 5 tips to protect your financial future

I don’t think there’s anyone among us who doesn’t have a story about 2008. Whether you lost a significant chunk of your retirement savings (at least temporarily), watched your parents struggle, or saw your colleagues panic and your friends lose their homes, it was a devastating period. The market has been volatile ever since even as it slowly and surely climbs to new highs. However, there’s a situation many people—especially older couples—face all the time that has the power to bring on even greater long-term financial devastation. What is this monstrous risk? Divorce.

Denise emailed me last week, and I was surprised to hear the elation and relief in her voice. “I’m finally doing it,” she said. “I’ve wanted a divorce for years, but I finally got the courage to make the leap. Even better, Doug feels the same, so I think it will be pretty easy. Amicable even.”

Before the words were out of her mouth, I felt my stomach drop. I hated to burst her bubble, but I also know the reality all too well. When couples divorce, no matter how “amicable” the situation may be, financial distress is inevitable. Add even the slightest bit of hostility to the mix, and you can be sure that distress will increase.

While I wish there was a way to ease the road ahead, or at least add even a tiny sugar coating, the fact is that there’s rarely a way to avoid the personal financial downturn that comes with divorce. No matter how much you’d both like a different outcome, this will be your “personal 2008.” Your assets will be divided in half. You will have two households to support, two retirements to fund and, if children are involved, two “family” vacations to pay for—all further compounded by legal fees to iron out custody details on top of everything else.

Don’t get me wrong: I would never wish for anyone to stay in a marriage only for financial reasons. Life is too short for a couple to stay in a non-productive, dysfunctional relationship. However, the sooner both parting parties face the fiscal realities of divorce, the sooner they can begin to make the appropriate adjustments to move forward financially. It’s a tough mandate considering the emotional turmoil in motion, but it’s a must.

Rather than breaking the news to Denise on the phone, we scheduled a meeting to look at the details. When we sat face to face, here’s what I shared:

  1. Be prepared for a lifestyle change. I’ve seen people stuck in faulty assumptions, unable to let go of lifestyle changes, even keeping an unaffordable house “for the kids’ sake.” Often, downsizing in every way is not only optimal, but mandatory. If your happiness is based on living in the same place and affording the same luxuries, you’re in for a rude awakening. This shift is huge, and you need to understand the ramifications at the outset.
     
  2. Be realistic about your budget. Yes, this includes supporting two households, and that will eat up a major chunk of any expendable income, but mortgage and rent are not the only factors. As soon as you have a clear picture of your monthly income, you’ll need to create a budget that matches that number to avoid an increase in debt due to overspending.
     
  3. Include retirement in your planning. Couples who remain together can anticipate the reduced expenses that come with a single dwelling and shared expenses. Going solo means you’ll need even more to support your non-earning years. If you’re over 50, consider making “catch-up” contributions to your retirement. If that’s not possible, at the very least, be sure you are contributing every month to help ensure you don’t outlive your assets as a single.
     
  4. Don’t count on the promises of your attorney. While I do hope that most divorce attorneys are striving to act in your best interest, we’re all optimists at heart and, even more so, some attorneys will tell you only what you want to hear. Wait until your case is closed to spend money that’s not yet in your pocket. Once your Marital Settlement Agreement is final, you’ll have an accurate sense of your financial capacity. Until then, keep your wallet closed as much as possible.
     
  5. Keep an eye on the details. If you’re on your spouse’s health insurance plan, those benefits may end when your divorce is final. If you decide to sell your home post-divorce, you may face capital gains taxes if the appreciation is greater than $250K. However, if you sell “incident to divorce,” you and your spouse may both qualify for a $500K exemption from capital gains instead of just half that amount. (A transfer is incident to divorce if it occurs within one year after the marriage ceases, or if it is related to cessation of the marriage.) Details add up and have a major impact on your financial health—now and down the road. Work with a professional advisor to be sure you know which decisions matter most, and when.

When Denise and I finished talking, she wasn’t on the same cloud nine. Reality checks are rarely comfortable. But she did tell me she felt much more prepared for what was to come. “It may not be as easy as I thought it could be,” she said, “but I’m still certain we’ll all be happier over the long term. I know I have some serious homework to do!”

If you’re facing divorce, I urge you to take a close look at your finances and make the best possible decisions as you walk this new path. Whether you’re wearing rose-colored glasses or are mired in the common distress and shock of it all, taking time out to review the money side of the equation may make it much easier to find joy as you enter a whole new phase of life. 

Need help working out the financial details of your divorce?  This email address is being protected from spambots. You need JavaScript enabled to view it.  me to schedule a confidential session. As always, I’m here to help.

 

 

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Index

09 November 2016

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >