RJG Legal

Education a Big Factor for Later Retirees

“If there is one major factor that favors later retirees, it's education.”

There’s no magic formula for a prosperous retirement. However, following a few simple rules might help: save what you can, don’t spend more than your income, steer clear of debt, invest well and if you are lucky enough, have a job with a guaranteed pension or an employer match to your retirement accounts.

Some people would rather retire later and work more. That is assuming that their health is good and they don't need to take Social Security before age 66.

As Wealth Advisor explains in its recent article, “How Much Do You Need To Retire? One Big Bonus,” the more education you have, the more flexibility you’ll have when it comes to working more and saving more. That's the conclusion of a recent study by the Center for Retirement Research at Boston College, which confirms the findings of earlier research.

Education as a work-longevity bonus has been known for a while. However, in recent years, the gap between high school and college-educated workers has broadened. For instance, from 1976-79, the average retirement age was 64 years for high school grads, and almost 65 years for college graduates. By 2010 (through 2016), college grads retired around 66, while those with a high school diploma were retiring earlier than they did nearly 40 years at age 63.

Although this three-year gap between the groups doesn't sound like a big deal, in terms of a demographic divide, it's massive. Those working longer tend to save more, mostly because they’re typically earning more.

Along with gains in longevity and overall medical care, the more educated person usually enjoys a longer period of prosperity in retirement. While this looks like a nice story for those with more education, it also reveals some of the underlying woes of the labor market.

College graduates typically earn more than high school grads, have better healthcare, more disposable income and are less likely to leave the workforce due to illness or injury. One of the reasons people retire early, is because they’re disabled, suffering from chronic illness, or take Social Security at 62 because they lost their job and can’t get hired.

Education is a major factor in the longevity divide. Education improves employability, and a higher income typically raises lifetime income. Not incurring debt for college degrees that don't bring a higher salary, is also a benefit.

Working longer may be the best way for us to improve retirement security. The life expectancy gains that have lengthened the duration of retirement have also made working longer, even more necessary, according to the study. It is important to focus on education that makes you intellectually nimble. How you use your mind—not just your body—has never been more important.

Reference: Wealth Advisor (June 5, 2018) “How Much Do You Need To Retire? One Big Bonus”

Independent Contractor or Employee: It’s Very Easy to Cross the Line

Many businesses prefer to hire independent contractors because there’s often less overhead and fewer expenses (i.e. taxes). However, classify an employee as an independent contractor and you’re in big trouble. Here’s how to legally differentiate between the two.

Who Controls the Worker?

This question is not always easy to answer. According to the U.S. Internal Revenue Service (IRS), evidence of the degree of control and independence of a worker falls into three distinct categories:

• Behavioral: Does the company control or have the right to control what the worker does and how she performs the job?
• Financial: Are the business aspects of the worker’s job controlled by the payer? These include how the worker is paid, whether expenses are reimbursed, and who provides tools/supplies.
• Type of Relationship: Are there written contracts or employee-type benefits such as a pension plan, insurance, sick pay, and vacation pay? Will the relationship continue indefinitely? Is the work performed a key aspect of the business?

 Let’s look at an example involving Jim, John, and Joan. All three perform work for the ABC Repair Shop.

• Jim works at the front desk, earns $10 per hour, works from 9am to 5pm and takes complete direction for all of his duties from his supervisor.
• John is a mechanic, earns $15 per hour, takes some direction from his supervisor, but only works on an “on call” basis when needed, using the company’s tools.
• Joan is a master mechanic, paid depending on the complexity of the job, “generally” works from 9am to 5pm, but decides which autos to work on, uses her own tools, and takes very little direction from her supervisor.

 Who is an independent contractor and who is an employee? Based on the information above, the answer is – it depends.

• Jim. It’s likely that Jim is an employee as he takes all direction from his supervisor.
• John. John could be an employee as he uses the company’s tools, but working on an on-call basis and only taking some direction from his supervisor makes his designation as an employee less certain.
• Joan. Joan is likely an independent contractor as her rate is not fixed, she uses her own tools, and takes very little direction from her supervisor.

 Keep in mind that any change in Jim’s, John’s, or Joan’s duties or relationships with ABC could alter their status.  According to the U.S. Department of Labor (DOL), misclassification of employees as independent contractors presents one of the most serious problems facing affected workers, employers, and the entire economy.

 If the DOL finds that a worker has been misclassified and denied access to critical benefits and protections to which they are entitled such as the minimum wage, overtime compensation, family and medical leave, and unemployment insurance – it can enforce employers to pay, not only going forward, but retroactively as well.

Case in point? Federal Express (FedEx) settled a long-running class action lawsuit with over 2,000 of its drivers.  The reason?  The DOL found that FedEx misclassified employees as independent contractors.  The result?  FedEx must create a $228 million fund to cover the claims. 

 Play it safe. Discuss employee classification issues with our experienced business attorneys who can guide you in determining which classifications are correct for your situation.

 

 

 

What’s the 4% Rule in Retirement?

“If you’re planning for retirement, you’re probably thinking about how much you’ll need, how long the money will last and how much you can safely take out each year.”

Retirees often apply simplified rules of thumb to see how much to withdraw from their savings each year. What happens is that their assets continue to increase in retirement, and this increased wealth is passed along to beneficiaries. There’s nothing wrong with passing along more. However, what if there was a way to enjoy more of what you’ve saved?

Perhaps that would mean using retirement savings to spend more time with family and help loved ones, while you’re around to see it. You can do this and still preserve enough for your later years. However, it doesn’t happen by following a rule of thumb.

MarketWatch’s article, “Don’t cheat yourself with the 4% rule,” explains the rule of thumb that says you can withdraw 4% of your portfolio value each year in retirement, without incurring a substantial risk of running out of money. With this rule, for every $100,000 you have, you’d withdraw $4,000 a year.

This rule is based on solid academic research, but that research used a “set it and forget it” approach. It didn’t factor in the ability to adjust along the way. Therefore, basing your retirement withdrawals on this rule, is like planning your finances based on your situation at age 25, and then never again adjusting the plan. Experts say that unless we see the return of a Great Depression era, those who use the 4% rule will most likely have a large amount of money left over.

Financial advisors have complex mathematical concepts that can be applied to test your retirement income plan each year, so you feel confident it will continue to work. It can then be adjusted, if necessary. This testing includes things, like a Monte Carlo analysis. It’s a way to simulate random future market conditions, calculating your minimum required return to make your plan work through life expectancy and using present value formulas to compare your scheduled future withdrawals to what you have now.

Be wary of a financial adviser who uses a rule of thumb to determine your retirement withdrawal amounts. While it’s not unprofessional to use a rule of thumb to set general expectations, when you begin withdrawals, you need specifics that adjust with your situation and the world around you.

Reference: MarketWatch (June 5, 2018) “Don’t cheat yourself with the 4% rule”

When’s the Best Time for Me to Take Social Security?

“The decision to retire early at age 62 vs. age 65, 66 or even waiting until age 70, isn't a straightforward math equation. It can't be made in a vacuum.”

Kiplinger’s recent article, “The Biggest Social Security Mistake You Can Make,” explains that the biggest Social Security mistake isn’t taking it too early.

Individuals can claim their Social Security retirement benefits as early as age 62 (and get a reduced benefit) or wait and receive a larger benefit. At 70, the maximum benefit is reached, which is about 75% greater than the early benefit at age 62. It’s not hard to do the math to find the break-even point or the age at which total Social Security income received from starting benefits at two different ages is the same.

However, the problem is that you’re looking at Social Security in a vacuum. The average retirement age in the U.S. is age 63, according to the U.S. Census Bureau. If you retire before 70 and delay taking your benefits, how are you going to make up for this lost income during those years? Well, you’ll probably spend down your savings at a faster rate, possibly eating a bigger hole in your principal.

Delaying Social Security makes most sense for those who are healthy, still working and looking to replace as much of their earned income as possible. In addition, it would be a greater survivor benefit to a spouse. Some people can also lower their taxes in retirement, by delaying Social Security and tapping their retirement accounts. That would reduce their required minimum distributions (RMDs) and their taxes. However, it’s rare when the amount in taxes you can save in your later years, outweighs the taxes you’ll pay beforehand. Hence, this strategy should be considered only with the help of a legal professional.

You should consider your entire financial picture. This is because each source of income has its advantages. For example, with your personal savings, you have more control and flexibility over your savings than Social Security. With your savings, if you need more or less income, you have the ability to make an adjustment. However, once you take Social Security, you can’t voluntarily adjust the size of your benefit. Other than a spousal or survivor benefit, you can’t name beneficiaries on your Social Security benefit or leave a legacy. With any investment account, you can pass it on to a spouse, other family members, friends or charities.

The objective is to best utilize the advantages of each income source, in a way that helps maximize your income to achieve your financial goals and maximize your flexibility. This is important if you encounter any bumps in the future. Rather than thinking you need to automatically take Social Security at age 62, full retirement age or age 70, look at how every asset, liability, and income source works together in a detailed financial plan. Consider what you can get from sources other than Social Security, including retirement savings, pensions and/or part-time work.

Reference: Kiplinger (June 4, 2018) “The Biggest Social Security Mistake You Can Make”

Follow This 8 Point Plan When Starting Your New Business

Starting a new business can seem overwhelming – especially when you’re doing it alone. Creating a business plan will allow you to refine incomplete ideas, address areas you may have not yet considered, create a map so you know what to do next, and increase credibility for bank loans or investor funding.

 While you may think you’ve got your business concept down pat, turning the idea you wrote down on a napkin into reality isn’t as easy as it might appear and many people get so caught up on how to start the process that the business itself never materializes.

 Following this solid eight point plan, based on guidelines from the U.S. Small Business Administration (SBA), will help you get down to business, literally:

 

 

1. Executive Summary. The executive summary is a snapshot of your business plan as a whole and touches on your company profile and goals.

 

2. Company Description. The company description provides information on what you do, what differentiates your business from others, and the markets your business serves.

 

3. Market Analysis. Before launching your business, it is essential for you to research the industry, market, and competitors. What’s working and what’s not working for your competitors? How will you distinguish yourself?  Is there anyone else in your market?  If not, there may not be money to be made.

 

4. Organization & Management. Every business is structured differently, so it’s important to understand how your company will be organized and managed. What entity will you use? Who’s in charge of what, when? What kind of business succession plan needs to be put in place?

 

5. Service or Product Line. Tell the story about your product or service. Describe what you sell and how it will benefit your potential customers.

 

6. Marketing & Sales. Describe how you plan to market your business and explain your general sales strategy.

 

7. Funding Request. If you are seeking funding for your business, make sure to include everything asked for in the plan. Any omissions may put your request at the bottom of the pile, or worse yet, in the garbage can.

 

8. Financial Projections. Providing financial projections to back up your funding request is critical. Find out what information you need to include in your financial projections for the bank or angel investor.

It’s likely that you may not even know the answers to these questions. That’s okay. At Gregorek and Associates, PLLC we can help you to refine your goals, map out your plan, and provide the kinds of details needed to make your venture a success.

 Are You Prepared to Include the “Wow” Factor?

 You may think your business plan is great; but don’t forget that most people think the same of their own business. The Wow Factor becomes especially important when you’re all competing for funding.

Make sure your plan has a “Wow” factor by:

 

• Explaining in very clear terms why your business plan is unique;

 

• Being clear about what you have to offer that’s different from your competitors (skills, experiences, relationships, etc.); and

 

• Defining how your business caters to a unique niche in the market, which areas are being ignored and what potential opportunities exist for your business going forward.

 The bottom line is that you want to make your business plan stand out far above the rest - your plan needs to be well thought out, organized, and unique. Even if you don’t need outside funding, complete the business plan so you have a roadmap and the knowledge that you haven’t missed an important consideration.

 Let’s Continue This Conversation

 If you’re not used to drafting business plans, the task may feel daunting and you may be tempted to jump ahead. Don’t. We’re happy to think through a strong business plan and make sure you have protections in place so that your business gets off to the right start. And, even if you’re already knee deep in your business, Gregorek and Associates can help you get all of your ducks in a row. Give us a call and get on our calendar.

What If Mom or Dad Die Without a Will?

“Mom or dad has passed away and despite your requests over the last few years for them to see a lawyer and do a will, they never did. What do you do now?”

A recent Wealth Advisor article asks a very practical question you may face someday: “Your Parent Didn't Have A Will: What Should You Do Now?” For starters, the article advises you to make a diligent search for a will, when a parent passes away.

That includes a look through your parent’s paper records and file cabinets. You should also speak with their good friends and other relatives and ask their accountant and any lawyer they worked with in the past. It’s a good idea to see if there are any business cards of attorneys, CPAs, or financial advisors. It is important to remember that wills don’t expire. If you find an “old will” and it wasn’t revoked by the parent, that’s the will that will be probated.

See if your parents had a safe deposit box, since the will might be in there. However, you’ll need the authority to gain access to the safe deposit box (which may be in the box!). If you are lucky, mom or dad will have named you as a signatory on the box, and you will be able to access it. If not, you’ll have to comply with state laws to get into the box.

You should also create a list of your parent’s assets, as well as finding their financial statements and tax returns. It’s especially helpful if you have financial statements covering the date of death, because date of death values of assets will be needed for probate and estate tax returns. The financial statements will often indicate the ownership of the account. If there was a joint owner of the account, ownership will pass to the surviving joint owner Probate of that asset won’t be needed. The same is true for any “POD”—Payable on Death accounts, where the asset gets paid on death to that named person listed and avoids probate.

Make an appointment with an experienced estate planning lawyer. He or she will review the information you’ve gathered and advise you what steps are needed. The attorney will be able to determine whether probate will be necessary.

If any assets had a named beneficiary, those assets won’t need to be probated. Ownership passes by operation of law to the named beneficiary, such as with life insurance.

If there is no will, you’ll need to bring a petition under the laws of the state where mom died (or where she owned assets), asking the court to appoint you as Personal Representative of the estate. When this is granted, the beneficiaries are determined by state law, which dictates who inherits in what order and what percentage.

Reference: Wealth Advisor (June 4, 2018) “Your Parent Didn't Have A Will: What Should You Do Now?”

Paying for an Estate Planning Attorney is Worth the Expense

“Don't go cheap when it comes to estate planning. You—or your heirs—may regret it later.”

Working with an elder law or estate planning attorney may be one of the best investments a person can make, reports nj.com in its article, “Why an estate planning attorney is worth the money.” You need to make sure that all of your documents are in order. This is not an easy thing to do on your own.

With properly prepared estate planning documents, you will benefit yourself and your family or beneficiaries, both emotionally and financially. At a minimum, you should have an advance health care directive, also known as a living will. This is a document that appoints an agent and provides guidelines for your agent, with respect to your healthcare, in the event you’re unable to act.

You also need a power of attorney. This document designates an agent to take care of your financial affairs during your lifetime. You also need a will, which directs the administration of your estate following your death.

If you become incapacitated without a power of attorney and/or a living will, it’s likely that a guardianship proceeding will be required to appoint a guardian to handle your financial and personal affairs. A guardianship proceeding can be expensive, because of the appointment of an independent attorney for the alleged incapacitated person. There needs to be an attorney for the guardian. Two doctors are also required to examine the alleged incapacitated person and prepare affidavits for the court. All these people need to be paid.

If you have a will, it’s more likely that your assets will be disposed of in the way you want and administered by the person you selected, instead of by the intestacy laws. Every state has its own laws that determine who inherits the deceased’s property, when that person dies without a will. It sounds like a simple process, but there are legal terms and specific rules of intestate succession that must be followed.

The fee that is charged by an experienced estate planning and/or elder law attorney to prepare for and/or decrease the risk or cost of a number of potentially disastrous scenarios, is probably less than the cost of a guardianship proceeding or a month of private pay in a nursing home. It’s a worthwhile investment for you and your family.

Reference: nj.com (June 3, 2018) “Why an estate planning attorney is worth the money”

Should I Roll-Over My 401(k) at My New Job?

 “Rolling over 401(k) funds into a new employer's plan is not always the best fit for all workers…”

Many retirement savers changing jobs, simply transfer funds directly from their previous employer's 401(k) into their new employer's retirement plan. They do this with a quick phone call to the new plan administrator. However, in some cases, that's not always the best move.

CNBC’s recent article, “New job? How to become a retirement-plan rollover champ,” explains that there's no blanket answer for every situation. Each individual person will need to determine the right solution. The article does provide six options to consider.

Roll over into a new IRA. Transferring funds from a previous 401(k) into a new IRA, preserves the most investing flexibility. Company plans may restrict options to a handful of mutual funds, but an IRA allows an investor to select almost anything—from bank certificates of deposit to real estate. However, a 401(k) usually has lower costs than an IRA. As long as the 401(k) account holder is still employed, he or she can borrow from it.

Keep your funds in a former employer's plan. In some cases, it is best to leave retirement funds in a former employer's plan, rather than transfer them to a new employer's plan. That may be true if the old plan has lower investment costs or better investment choices than the new employer plan.

Transfer to a new company plan. Transferring 401(k) funds to a new company-sponsored retirement plan can be better than leaving them where they are, if the new plan has more investment choices or lower fees. It may also be wiser than transferring to a new IRA, because of advantages a 401(k) has over an IRA, like the ability to borrow against account funds. Savers who have reached age 55 and stopped working, can withdraw 401(k) funds without having to pay the 10% penalty otherwise imposed on early IRA withdrawals.

The In-plan Roth conversion. Some plans allow you to transfer all or some of a 401(k) plan's funds into a Roth account within the same plan, saving on taxes long-term. That’s because the future Roth 401(k) distributions won't be subject to taxes. However, the downside is that the account holder must pay income taxes on the amount converted. The account holder's age is another key consideration. A younger person can pay taxes on a Roth conversion and then watch the remainder grow tax-free until retirement, but a senior doesn’t enjoy that same benefit.

Withdraw the funds and convert to a new Roth IRA. You could take your money from an ex-employer's retirement account and use it to fund a new Roth IRA outside the plan can, like a transfer to a new IRA, increase investment flexibility over an in-plan conversion. When compared to a similarly flexible IRA, an out-of-plan Roth has attractive long-term estate planning benefits.

Grab the lump-sum conversion and pay tax. Rarely will an advisor recommend taking a 401(k) distribution as a lump sum, paying tax on it and placing it in a regular brokerage account. However, this may be a good move, if the plan contains employer stock. When transferred from a tax-advantaged account, the difference between the shares' current value and their average cost (the net unrealized appreciation) may be taxed as capital gains, rather than ordinary income.

Reference: CNBC (May 23, 2018) “New job? How to become a retirement-plan rollover champ”

Are You Ready to Be An Executor?

Usually a person feels honored and trusted when asked to be the executor of a family member’s estate. It’s a big responsibility, since the executor will be carrying out a person’s final wishes. If you are asked to be one, it is a good idea to know some of the duties it entails before taking on the task.

An executor is the person designated to distribute a deceased person’s property that passes under his or her will and takes care of paying debts and expenses, explains WMUR in its recent article, “Settling an estate.”

When an executor isn’t willing or able to perform his or her duties, there’s usually an alternative. If no alternative has been named, the courts will approve an executor for the estate.

Being the executor of an estate can be a difficult and time-consuming task. In some instances, the deceased may have left a letter of instruction that will make the process easier. The letter may contain information such as a list of documents and their locations, contact info for attorneys, accountants, financial planners, a list of creditors, login information for important web sites and final burial wishes.

The will is usually located with these documents. The executor will need to obtain a copy, and read and understand the contents. A review of the will with an estate planning attorney is done in order to decide which type of probate is necessary. An inventory of assets owned by the deceased is then taken by the executor and may be required by the probate court. Some of the assets may need to be appraised. After probate is finished, the assets may be sold or gifted, according to the deceased’s wishes.

Asset protection is a major concern at this time. It may include changing locks on property. The executor will likely need to pay mortgages, utility bills and maintenance costs on property. He or she will need to change the name on the home and auto insurance policies, and brokerage accounts will need to be retitled.

Final expenses also need to be paid. The funeral home or coroner will provide death certificates that will be needed for various tasks in the future, such as filing life insurance claims. If the deceased was collecting Social Security for example, the agency will need to know of the death, so benefit checks can be stopped. Checks received after the death will need to be returned. A final federal and state tax return for the deceased may also need to be filed, along with an estate and gift tax return.

An executor has many duties. He or she must be honest, impartial, and financially responsible. Estate assets need to be managed properly. All of this can be made much easier with the advice and guidance of an experienced estate planning attorney. Working with an attorney is the best way to be certain that there is compliance with all executor duties.

Reference: WMUR (May 24, 2018) “Settling an estate”

The DJ Casey Kasem’s Daughter Speaks on Elder Abuse Awareness

“Kasem and her siblings were banned from seeing or talking to their father, Casey, in the last years of his life. He was isolated and no law prevented the abuse.”

Kerri Kasem, the daughter of late Top 40 DJ Casey Kasem, recently visited the Waynesboro, VA area to speak on elder abuse. She spoke at the Seventh Annual Training of the Greater Augusta Coalition Against Adult Abuse.

The News Virginian reported in its story, “Kasem speaks against elder abuse,” that Kasem presented: “Isolated: How Casey Kasem’s Family fought, changed the law, and survived.”

Kerri Kasem, like her father, is an American radio personality. She hosted Sixx Sense and The Side Show Countdown with Nikki Sixx.

Kasem relayed her family’s story of the fight to see her ailing father. She explained about early warning signs of abuse and prevention. She also provided tips on how law enforcement and Adult Protective Services should approach these cases, for the victim’s rights to be protected.

“I learned very quickly there are no laws in the U.S. protecting adult children,” she said. “There needs to be stronger laws in this country protecting our elderly.”

Kasem fought to see her father and eventually created the Kasem Cares Visitation Legislation. The bill “provides an open path for family members to ask the court to rule on visitation, without incurring the enormous expense and time that comes with a challenge to guardianship or conservatorship,” the website explains. The bill became law in twelve states.

The organization is advocating for changes in the laws in Alabama, Arkansas, California, Illinois, Iowa, Louisiana, Maryland, Nebraska, Texas, Wisconsin and Virginia.

During her fight, many people contacted her in letters saying they were going through the same ordeal. She hopes the legislation and the Kasem Cares Foundation will help other people.

“I knew there were so many families going through this,” she said. “I couldn’t let them go through that. I knew I had to do something. That’s why I created Kasem Cares.”

Reference: The News Virginian (May 13, 2018) “Kasem speaks against elder abuse”