Paul O. Dillon, Attorney at Law

Relocating in Retirement? What You Need to Know before You Go

Moving in retirement is a big deal. Whether moving to be closer to family or trying to cut your living costs, moving in your sixties or seventies should only happen after much consideration and careful planning. A recent article, “Moving in Retirement? 5 Things to Ponder Before You Pack” from Nerd Wallet, explains the details.

Lower property taxes or income taxes are an attraction for many. However, look at all the costs to get a total picture, including the cost of living, estate taxes and housing costs, which have rocketed in many Sunshine states. You may find the difference is not as much as you thought. Suppose you’re selling a business before you leave. In that case, your current state may be more interested in recouping taxes than you think, so speak with an estate planning attorney to make the sale as tax efficient as possible.

One unexpected opportunity from moving outside of a Medicare Advantage’s service area is the chance to change your Medicare coverage. Relocating provides an acceptable reason to change a Medicare Advantage plan or sign up for original Medicare. It is also a time when you can sign up for Medigap coverage. You can normally only sign up for Medigap during open enrollment, a six-month period after you turn 65, and when you have Medicare Part B. This coverage is difficult to buy later in life if you have health issues.

Don’t forget to notify your insurance companies and Social Security if you move.

Could you rent first? If you’re moving to a place where you’ve summered for twenty years, renting for the first year is best. The winters may not be as bucolic as the summer. If you have to sell a house quickly after a short period, it could be a costly mistake. You’ll also own capital gains taxes on any profit made on a home sale if you move after living in a new location for less than two years.

What level of healthcare services do you need now or might need in the future? Healthcare becomes more critical as we age, especially if we are living with a chronic condition. If services are not the same quality or are a day’s drive away, your move could lead to bad health outcomes and added stress.

Estate law is state-specific.  If so, your estate planning documents—last will and testament, power of attorney, health care power of attorney, living will, trusts and other documents—may not be considered valid by the courts in your new state. Consult with an estate planning attorney about what needs to be changed to be sure that your estate plan will give you the same results in your intended new state.

Will you enjoy your daily life in your new location? Retirees active in social activities, from sports to community theater to volunteer work, report enjoying their retirement. Will you be living with people who share your interests and values? Will you feel comfortable if your political views differ from those around you?

One last point: transportation doesn’t usually feel like an issue until it is. If your children live on the West Coast and you’re considering moving to a small New England town, will the added cost make frequent visits prohibitive? If your retirement agenda includes a lot of international travel, you may want to consider how living far from an airport will impact your travel plans.

Reference: Nerd Wallet (Aug. 5, 2024) “Moving in Retirement? 5 Things to Ponder Before You Pack”

Social Security Updates You’ll Want to Know

Navigating Social Security isn’t always easy, largely because things keep changing. Not being aware of the changes can put a dent in retirement finances, according to a recent article, “3 Social Security Changes Retirees Need to Know About in 2024,” from Nasdaq.com. Anyone receiving benefits in 2024 should be aware of these changes.

Monthly benefits are higher due to inflation. After a long period when inflation was seemingly gone, we’re now experiencing both inflation and shrinkflation (packages becoming smaller while prices increase). The Social Security Administration has a built-in tool to respond to inflation: the Cost of Living Adjustment, or COLA.

Every year, Social Security benefits are adjusted to account for inflation. The increase is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure of inflation monitoring costs of necessities: food, housing, and transportation. The average of the CPI-W for July, August, and September are compared to the prior year’s average inflation to arrive at the rate. Estimates for 2025 aren’t released until October, but early estimates expect it to be 2.6%. In 2024, the COLA was 3.2%.

Adjustments in 2024 increased the amount you can earn if you take benefits early. Some of your benefits may be withheld if you take Social Security benefits before reaching Full Retirement Age (FRA). If you don’t reach FRA this year, the earnings limit is $22,320. Your monthly benefit will be reduced by $1.00 for every $2.00 earned over the limit. However, if you reach FRA this year, the earnings limit is $59,520, with benefits reduced by $1.00 for every $3.00 above the threshold.

Note that these benefits aren’t permanently lost. Once you hit FRA, the SSA recalculates your benefits and adds back the amount that had been withheld.

It’s become harder to reach Social Security’s maximum monthly benefit. The core formula is based on your top 35 earning years. To qualify for the maximum benefit, taxpayers need to do two things: delay benefits until they turn 70 and earn more than the wage base limit for the 35 years used in the calculations. In 2024, the wage-based limit will be $168,000, the highest income subject to Social Security taxes. After this much income has been earned, there are no Social Security taxes.

Wage base limits change often, so if you want to reach the maximum monthly benefit, keep track of these changes and your income.

Reference: Nasdaq.com (July 29, 2024) “3 Social Security Changes Retirees Need to Know About in 2024”

Money Tips for Taxes at Different Stages of Retirement

There are different stages of retirement, just as there are different stages of any portion of life. Each stage has its own challenges and needs, nearly all of which can be addressed by planning in advance. A recent Forbes article, “Tax-Saving Strategies For Three Stages Of Retirement,” describes the different stages and their requirements.

Pre-retirement is age 50-64. This is when you’re entering your final years of work and getting financial retirement and estate plans in order. The most critical tasks:

Make the most of retirement plan opportunities, including maxing out contributions to any employer-sponsored plans, especially those with matching features.

After age 50, wage earners qualify for catch-up contributions to IRAs and 401(k) plans. In 2024, a 50-year-old can contribute an additional $7,5000 to a 401(k) and $1,000 more to an IRA.

This is the time to review your Social Security benefits. While you can take benefits any time after age 62, by waiting until your Full Retirement Age (FRA) or later, your monthly benefit will grow. This is a personal decision, as some people need to take Social Security earlier, while others can draw income from retirement accounts until they reach age 70.

Active retirement is considered ages 65-74. The focus here is wrapping up your working life and ensuring that you have enough money to support your lifestyle. The factors to focus on:

Required Minimum Distributions (RMDs) are the least amount of money you can take from your retirement accounts. The SECURE Act 2.0 extended the time you have to leave money in these accounts. However, you’ll need to take your RMDs strategically so you don’t get pushed into a higher tax bracket.

After age 70 ½, you can make Qualified Charitable Distributions (QCDs) directly from your IRA to any qualified charitable organization. You may donate as much as $100,000 per year if it is a direct donation from the IRA to the organization. For people who will make donations with or without tax benefits, this allows you to make your donations, reduce taxable income and leave a legacy while still living.

Late retirement is anything after age 74, where you may want to focus your attention on passing wealth to heirs. You should have an estate plan in place by now. However, it probably needs to be reviewed. Have any of your beneficiaries passed away? Is the person you named as your executor still willing to perform the tasks? Review your estate plan with your estate planning attorney to ensure that it complies with your state's laws and wishes.

If you’re concerned about estate taxes, this is the time to use the annual gift tax exclusion to transfer wealth to heirs with no tax liability. In 2024, you may gift $18,000 to as many people as you want as a single, while married couples may gift $36,000 to as many people as they wish.

Reference: Forbes (July 12, 2024) “Tax-Saving Strategies For Three Stages Of Retirement”

Estate Planning Questions for Couples with a Big Age Gap

Even if it was never an issue in the past, when couples with a significant age gap reach their 60s and 70s, the age difference can present challenges. When one partner is ten or more years younger than the other, assets need to last longer, and the impact of poor planning or mistakes can be far more complex. The article in Barron’s “Big Age Gap With Your Spouse? What You Need to Know” explains several vital issues.

Examine healthcare coverage and income needs. Health insurance can become a significant issue, especially if one partner is old enough for Medicare and the other does not yet qualify. How will the couple ensure health insurance if the older partner retires and the younger depends on the older partner for healthcare? The younger partner must buy independent healthcare coverage, which can be a budget-buster.

Be strategic about Social Security. Experts advise having the older spouse delay taking Social Security benefits if they are the higher-income partner. If the older spouse passes, the younger spouse can get the bigger of the two Social Security benefits. Delaying benefits means the benefits will be higher.

Planning for RMDs—Required Minimum Distributions. Roth conversions may be a great option for couples with a significant age gap. Large traditional tax-deferred individual IRAs come with large RMDs. When one spouse dies, the surviving spouse is taxed as a single person, which means they’ll hit high tax brackets sooner. However, if the couple converted their IRAs to Roths, the surviving spouse could withdraw without taxes.

Estate planning becomes trickier with a significant age gap, especially if the spouses have been married before. Provisions in their estate plan need to be made for both the surviving spouse and children from prior marriages. An estate planning attorney should be consulted to discuss how trusts can protect the surviving spouse, so no one is disinherited. Beneficiary accounts also need to be checked for beneficiary designations.

Couples with a significant age gap need to address their own mortality. A younger partner who is financially dependent on an older partner needs to be involved in estate and finance planning, so they know what assets and debts exist. Life has a way of throwing curve balls, so both partners need to be prepared for incapacity and death.

Plans should be reviewed more often than for couples in the same generation. A lot can happen in six months, especially if one or both partners have health issues.

Reference: Barron’s (May 19, 2024) “Big Age Gap With Your Spouse? What You Need to Know.”

Good News about Social Security

The simplest explanation is that Social Security is paying out more than is being collected and going into the trust funds to make up the difference. If this were to continue, the trust funds would be exhausted at some point, and the only money for benefits would be revenue being collected at the present time. However, there is no need to worry, says this article “Social Security Retirees Just Got Some Good news About Future Benefit Cuts” from yahoo! finance.

While future cuts are a possibility, there’s also good news, according to the 2024 Social Security Trustees Report. The Old-Age and Survivors Insurance (OASI) Fund will be able to continue to pay full benefits until 2033. If nothing changes, there must be a 21% benefit cut. The Disability Insurance (DI) Trust Fund is anticipated to be able to pay benefits until at least 2098.

What would happen if the OASI Fund were emptied? A few things could happen. A law change could combine the OASI and DI funds. Because this is a real possibility, the trustees share data on when the combined funds might be emptied.

In 2023, the Trustees Report said the combined funds would pay full benefits until 2034, but this year’s report shows there’s enough money to pay full benefits until 2035. It also notes that if any cuts were to go into effect, the money coming into Social Security from the combined funds would be able to pay 83% of promised benefits, up from 80% in 2023.

These may sound like small improvements but indicate a trend in the right direction. Much of this is due to stronger-than-expected economic growth, which has led to improved labor productivity and lower projections for long-term disability insurance benefits. Taken together, Social Security’s long-term stability is looking good.

The additional year means any benefit cuts will be smaller than previously anticipated. If needed, Congress could also act to fund the trust funds. There’s still reason to worry about what might happen in 2035, since many seniors count on Social Security to fund most of their retirement.

Lawmakers will unlikely allow this program to be defunded, since seniors continue to be a major voting bloc. Similar situations occurred in the early 1980s, and Congress passed amendments to protect the program.

The new issue? Those amendments from forty years ago included a change to Full Retirement Age, when a person may collect an unreduced benefit. They also imposed a tax on some benefits for high-wage earners. As a result, there may be changes in the future.

Overall, though, the news is good. Hopefully, the good economic news will keep coming to protect Social Security, giving lawmakers more time to figure out ways to fund this vital program.

Reference: yahoo! finance (May 16, 2024) “Social Security Retirees Just Got Some Good news About Future Benefit Cuts”

What Is Expected from Social Security?

More than a third of Americans rely on Social Security for all or part of their monthly income. When created, Social Security was intended to serve as a safety net for the sick and indigent. However, it has become part of most American’s retirement budget. An article appearing in The Motley Fool asks the key question: “Social Security on Average Pays 40% of Workers’ Earnings in Benefits, but What Will You Get?

Social Security was meant to provide 40% of pre-retirement earnings for the average American wage earner. Some people get more based on their years of earnings, and others receive less. Figuring out how much you’ll get isn’t as complicated as you might think.

How does the Social Security Administration calculate your benefits? There are three key numbers used to calculate a worker’s benefits. First, how many years did you work to earn income? Income from other sources, like rental properties or investment accounts, doesn’t factor into the Social Security equation. It’s all about earnings.

The SSA looks at your 35 highest-income years. The lowest earning years are ignored if you worked more than 35 years. However, if you worked for less than 35 years, those years are treated as “zero-income” years and added to your benefit calculation.

The next number is how much money you earned during those 35 highest-income years.

Remember, you pay Social Security payroll taxes on the first $168,600 in 2024, so only this amount counts towards benefits. Every year has a ceiling at which point your income isn’t counted, and in past years, this number was lower.

Increasing your earned income increases your monthly benefits. It’s that simple.

The last of the three factors concerns when you begin receiving benefits. You’ll need to wait until your official “Full Retirement Age” or FRA to receive the full benefits determined by your birth date. Taking benefits too early could reduce them by as much as 30%. Delaying benefits is good if you can. However, it’s simply not a possibility for some people. Consider your health and financial situation to determine the best time to start taking benefits.

The government has a robust website called My Social Security Account that helps you fully understand your benefits. Simply create an account, and you’ll be able to see how much you have paid into the system and what you can expect to receive.

Why should you spend the time getting familiar with this information? One is obvious; you’ll want to plan your retirement budget with this information. However, another reason concerns your estate plan. How much money you’ll have to live on during retirement impacts how your estate planning attorney structures your estate plan. Will you leave anything to heirs based on your Social Security benefits? Will you need to have a trust created to protect assets?

Creating a holistic estate plan with an experienced estate planning attorney will address Social Security income and other retirement income sources, so you’ll know what you’ll have during retirement and what kind of a legacy you might leave to your family. Remember, legacies aren’t just about money.

Reference: The Motley Fool (April 19, 2024) “Social Security on Average Pays 40% of Workers’ Earnings in Benefits, but What Will You Get?

What Questions to Ask before a Mid-Life Marriage?

Today’s wedding couple is as likely to be 30 or 50 years old as they are to be in their twenties. This trend underscores the importance of having open discussions about finances and retirement before exchanging vows. A recent article from Next Avenue, “The Talk Over-50s Should Have Before Tying the Knot.” Whether you’re getting married for the first time or the second, being closer to retirement has major financial implications.

The most important thing is to disclose each person’s financial situation completely. For some people, this includes their retirement goals and lifestyle choices. What are the potential healthcare issues? Is there debt to be considered? How are each managing their investments?

If both people own homes, a plan for going forward needs to ask a simple question: where will the couple live? Will one sell their home or turn it into a rental property? If it is sold, will the seller retain all the income, or will they buy into ownership of the joint residence? Emotional attachments to homes can make this a difficult discussion, but it needs to be addressed.

Getting married changes each spouse’s legal status, meaning estate plans must be updated. If both have an existing estate plan, it needs to be reviewed. Powers of Attorney, Healthcare Proxy, and other estate planning documents must also be updated.

While reviewing and revising estate plans, don’t neglect to check on any accounts with named beneficiaries. More than a few ex-spouses have received insurance proceeds or accounts because someone neglected to update these accounts. The named beneficiary overrides anything in your will, which is critical to updating the estate plan.

If you both have children from prior marriages, meeting with an estate planning attorney to determine how to manage property distribution is another critical step before getting married. You may wish to create and fund trusts before marriage, so assets remain separate property. There are as many different types of trusts as there are family situations, from keeping assets separate to providing for a surviving spouse while ensuring biological children receive their inheritance (SLAT), or family trusts where assets are moved into the trust for the surviving spouse to allocate assets to heirs based on their needs.

Social Security planning should also be part of the discussion. If one spouse is a widow who was receiving survivor benefits, they could lose those benefits when they get married.

Talk with an estate planning attorney before getting married to fully understand your situation and ensure you and your spouse are ready for the changes and challenges of your senior years together.

Reference: Next Avenue (March 14, 2024) “The Talk Over-50s Should Have Before Tying the Knot”

How Can I Minimize Taxes During Retirement?

During your working years, your actions to minimize taxes aren’t the same as those you’ll need after retirement. How you manage your tax liability may have an even bigger impact during your non-working years, says a recent article, “5 Ways to Minimize Taxes on Retirement Income,” from U.S. News & World Report. Re-evaluating finances and tax liabilities at retirement age can help minimize taxes for the coming decades.

Roth Conversion. Once you’ve turned 59 ½ years old and the account has been opened for at least five years, you may take withdrawals tax-free at any time with no taxes or penalties. The conversion takes planning to avoid pitfalls. First, you must be prepared to pay the taxes on the converted accounts. You’ll also need to be careful not to place yourself in a higher tax bracket. Converting to a Roth should be done when income is lower.

Delay Social Security Benefits. When you start taking benefits will impact whether the amount you receive could be subject to taxes. If you file taxes single and your income is more than $25,000, you’ll pay taxes on as much as 85% of your Social Security benefit! Married couples with income exceeding $32,000 will suffer the same tax fate. If possible, delay taking Social Security until after you reach Full Retirement Age (FRA) which is 66 or 67 for most people. If you can delay taking benefits until age 70, you’ll have reached the maximum benefits, but circumstances don’t always allow this.

Coordinate Estate Planning with Required Minimum Distributions (RMD). After age 73, you’ll probably need to start taking RMDs from traditional IRAs and 401(k)s. If you forget, there will be penalties. If you take the RMDs, you must pay taxes on the income. Talk with your estate planning attorney to explore how you might keep your withdrawals within lower tax brackets to reduce your tax liability.

Consider Low-Tax States. If retirement relocation is in your future, consider state tax laws in your decision-making. Some states don’t tax Social Security benefits, while others provide exemptions for pensions. You’ll want to investigate income, sales and property taxes. Your analysis should include an overview of all the factors. For instance, a state may not tax Social Security, but it might have higher property taxes.

Create a Trust. Creating a trust removes assets from your taxable estate. Depending upon the trust your estate planning attorney recommends, you may need an irrevocable trust, which gives the trust the assets and control of the assets to the trustee. Income generated by the assets in the trust may be taxed at a different rate than your income.  

Estate planning and tax planning intersect in many ways, so speak with an experienced estate planning attorney to see what strategies are available and which are best suited to your situation.

Reference: U.S. News & World Report (March 14, 2024) “5 Ways to Minimize Taxes on Retirement Income”

What You Need to Know about Social Security

For millions of Americans, a monthly Social Security deposit into their bank accounts is a crucial source of retirement income. For those who have just started receiving benefits, there are a few basics to know, according to a recent article from NASDAQ: “New to Social Security? 3 Things You Need to Know.”

Social Security knows inflation is a problem for seniors living on fixed incomes. If you’re receiving $1,800 a month right now, in five years, the same amount of money won’t have the same purchase power as it does today. Every year, Social Security examines inflation and adjusts benefits, known as the Cost Of Living Adjustment, or COLA.

COLA’s goal is to ensure that your buying power stays the same over time. It’s not a pre-set amount but is based on inflation data. Unlike an annuity, which increases at a certain rate, Social Security COLA rates are reviewed and increased depending on inflation data. There may be one year when benefits increase a lot, but there will also be years when increases are practically nil if inflation is low.

You may continue to work and receive Social Security benefits, but if you haven’t reached Full Retirement Age, your benefits will have an earnings test limit. Full Retirement Age is when you can collect your monthly benefit in full based on your past earnings history. After this date, based on your birthday date, you can earn as much as possible without any benefits being withheld.

If you’ve started taking benefits before that time, an earnings-test limit will deduct a certain amount from your benefits. The limit, like the COLA, changes every year. In 2024, it’s $22,320 or $59,520 for wage earners who will reach their FRA in 2024 but haven’t gotten there yet.

The funds are not lost forever if you earn more than the limit. When you reach FRA, the money will be returned to your monthly benefit. But you must consider the deduction if you’re creating a household budget.

Social Security does have serious challenges that may impact your benefits. The dramatic headlines about Social Security trust funds running out of money come in waves, but there are some real problems ahead to be aware of. The trust funds are expected to run dry in 2034. While a lot can happen in ten years, seniors would be wise to try to bank some of their benefits in case they shrink. The more saved, the easier it may be to manage if and when these cuts occur.

While Congress may always act to fund the trusts, working a part-time job or as a consultant in your field may be an excellent way for many retirees to prepare for any future cuts and reduce their dependency on Social Security benefits.

Reference: NASDAQ (March 18, 2024) “New to Social Security? 3 Things You Need to Know”

Wendy Williams’ Guardianship

Former talk show host Wendy Williams is the subject of a docuseries about her ongoing health and financial battles, which focuses on the months following the start of her guardianship in May 2022. Williams is far from the only celebrity ever placed under guardianship. As an NPR article reported, “Wendy Williams’ guardianship is the subject of a new documentary. Here’s how it works.”

In late February, Williams’ care team announced she had been diagnosed with primary progressive aphasia and frontotemporal dementia. Aphasia affects the ability to speak and understand speech, while frontotemporal dementia leads to a loss of function in the frontal and temporal lobes of the brain.

A guardianship, also known as a conservatorship, is a legal process when an individual can no longer manage their own affairs because of an illness, injury, or disability. In some states, there are different types of legal guardianships:

• Article 17-A Guardianship is for adults 18 or older with an intellectual or developmental disability, whose guardians can make the most decisions for them.
• Guardianship of a Child is requested by a parent or individual to be granted when there is concern that one or both parents cannot care for the child.
• Article 81 Guardianship is a type of guardianship where a judge gives a guardian the power only to meet the needs of the person deemed incapacitated, including managing their finances, property, personal needs, or both.

Guardianship cases vary depending on the person’s circumstances and what a judge orders the guardian to do. In many states, they are reviewed on an annual basis. Guardians must keep detailed records of everything they do, from financial transactions to health care decisions.

While individuals don’t always have the choice to choose their guardian, they can sometimes recommend a person they would like to be appointed to the role. A family member is often named. However, there can be an institutional guardian, including a banker or a professional guardian.

There are other ways a person can give someone else decision-making power, including Power of Attorney, typically appointed by the person and made legal with an estate planning attorney. No court involvement is needed.

Supported decision-making agreements are community designations for specific individuals in a person’s life to help make major decisions.

A person or organization approved by the Social Security Administration can manage a person’s Social Security or Supplemental Security Income benefits is known as a Representative Payee.

The ideal situation is when the person and their spouse or family meet with an estate planning attorney before or shortly after a diagnosis to create a plan and the accompanying legal documents so they can be part of the decision-making process for their future, whatever it may bring.

Reference: NPR (March 1, 2024) “Wendy Williams’ guardianship is the subject of a new documentary. Here’s how it works”