Year 2034 and Counting – Social Security in America

Our friends at Center for Retirement Research * have again come up with a very readable and comprehensive research analysis of the Social Security situation in America, as it stands today.

The article is titled:  SOCIAL SECURITY’S FINANCIAL OUTLOOK: THE 2018 UPDATE IN PERSPECTIVE by Alicia H. Munnell** ( June, 2018)

A quote from the article:  “Trust fund exhaustion is still 2034, after which payroll taxes still cover about three quarters of promised benefits.”

The good news…”The exhaustion of the trust fund does not mean that Social Security is “bankrupt.” Payroll tax revenues keep rolling in and can cover about 75 percent of currently legislated benefits over the remainder of the projection period…”

One of the lesser considered impacts of our nation’s dwindling Social Security resources is the decreasing fertility rate in America.

According to the research:  “The fertility rate determines the age structure of the population, the ratio of workers to retirees, and hence the finances of the Social Security program, which operates largely on a pay-as-you-go basis.”

Further, “The National Center for Health Statistics recently reported that, in 2017, the birth rate had declined to a record low.”  Simply put, there are fewer people of working age who will be paying into the Social Security coffers.

In conclusion – “The 2018 Trustees Report confirms what has been evident for almost three decades – namely, Social Security is facing a long-term financing shortfall which equals 1.0 percent of GDP.”

There is a strong case for acting sooner rather than later to ‘fix’ the shortfall.

I have often written that – if you are decades from retirement, make a plan that assumes Social Security benefits may be significantly decreased as a part of your overall post-retirement income.

You can read the entire brief on the website… http://www.crr.bc.edu

* The mission of the Center for Retirement Research at Boston College is to produce first-class research and educational tools and forge a strong link between the academic community and decision-makers in the public and private sectors around an issue of critical importance to the nation’s future…

**Alicia H. Munnell is director of the Center for Retirement Research at Boston College and the Peter F. Drucker Professor of Management Sciences at Boston College’s Carroll School of Management

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Millennials-Prepare for Retirement!

I had previously written that $1 million ‘ain’t what it used to be”.  (see my website – www.attorneybarbaradalvano.weebly.com in the archives under Retirement)

My numerous articles about retirement attempt to convince young adults to begin to think about their future and for Millennials to consider their retirement years.

Now, Daniel Schutte in his article titled Millennials Need More Than $1 Million to Retire* analyzes why Millennials will need a lot more than $1 million in savings to have a comfortable retirement. (emphasis on the word comfortable)

The problem is two- fold – and includes ‘the eroding force of inflation” (every year the value of your dollar goes down) coupled with the time value of money. My grandparents would call it the diminishing value of ‘old money”.

According to Mr. Schutte, there are some solutions to the retirement shortfall, like contributing the maximum to a Roth IRA.

Finally, the article states: “Wealth is more than money—it is exponential leverage that enables opportunity. Wealth is freedom to spend more time with family, make a special purchase or help someone in need.”  

I couldn’t agree more!

Millennials are not alone in their risk of not having adequate funds for their retirement.  In other research estimating future retirement income, it shows that about 44 percent of the youngest “Boomers” – workers in their 50s – risk not having enough.

If you are a Millennial, the brief and thoughtful article by Mr. Schutte and its accompanying graphs may give you the incentive to start on the road to saving for your retirement.

* Investopedia, February 2, 2018. (Investopedia.com)

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The Elderly and Debt Collection

When anyone falls into debt that they cannot pay, the results are often devastating.  This is particularly true of the elderly, since they live on a ‘fixed’ income and rarely have the capability of earning extra income to pay outstanding debts.

The elderly also are particularly prone to debts related to increased costs of healthcare.

The National Center on Law and Elder Rights (NCLER) offers some advice about certain exemptions – funds that cannot be taken by debt collectors.

State Exemption Laws Can Help Protect Income and Assets from Debt Collectors by Jeremiah Battle and Odette Williamson, National Consumer Law Center (February, 2018)  (https://ncler.acl.gov)

According to the article: “Older adults are entering retirement with more debt, including credit card and student loan debt, than in past decades.”…” However; “ Every state has laws that protect a variety of income and property from (the) judgment (of) creditors.”

Among some of the things that are exempt from debt collectors are: household goods; clothing; tools of the trade; state benefit; pension and retirement benefits and some states have a ‘wildcard’ exemption that can be applied to other property.

It is beyond the scope of this article to reference every state law regarding debt collection.

I encourage those who may be facing unsurmountable debt to read the brief article and to seek professional guidance about how to deal with the debt.

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Living Past 100

The oldest living American, Delphine Gibson, died May, 2018 at the age of 114.

Delphine was born at the beginning of the 20th century and probably never thought that she would live past 110, but for those of the Millennial Generation, the possibility of living more than a century has dramatically increased.

Are we prepared for such extended life spans?  What can we do to make sure both our health and our prosperity meet the demands of 100 years of living?

Today, in America statistics project that 25% of 65 year olds will live past 90 and 10% will make it past aged 95. (If you are interested in life expectancy, the Social Security Administration offers a life expectancy calculator.)

Much, of course, depends on factors of heredity, lifestyle, health maintenance, and finances.  Yes, finances, since financial planning for a longer life can extend life expectancy.  Clearly, having the funds available for healthcare is a factor in maintaining good health.

The Stanford Center on Longevity on their website – Redesigning Long Life – offers readers ideas about keeping “Mentally Sharp, Physically Fit and Financially Secure.”

Currently, pensions and company- funded health care programs are going the way of the dodo bird. Routinely, employees are expected to be ‘self-funded’ when it comes to retirement benefits and certain healthcare initiatives (where out-of-pocket expenses have risen dramatically.)  For this reason, it is critical to have a plan for the future…a plan that includes realistic projections into retirement.

Planning for the future soon could mean that we plan for a “normal” lifespan of 100+ years.

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Retirement Savings – A Wobbly Stool

In the past, a comfortable retirement was supposed to be supported (mainly) by three factors (the three-legged stool): Social Security; a pension; and individual retirement savings.

Enter the current era…Social Security is under economic pressure; defined pensions (those that a company offered its employees) are headed for extinction; and personal savings for retirement are almost non-existent for many Americans.

This is indeed a wobbly three-legged stool that people contemplating retirement are perched upon.

Add to the mix is that statistics show that our retirement years are likely to span a much longer period than ever before…people are just living longer.

According to some statistics, less than half of Americans who are approaching retirement have any estimate of how many years their assets will last.  Less than 40% have a plan as to how they will generate additional income, so that they will not outlive their money.

The first step might be to face the realities of the three legged stool.

If you have a decade or more before retirement, you will need a financial plan to increase individual IRA contributions and retirement savings accounts.

If you are closer to retirement, putting a plan in place to stretch your retirement dollars:  by downsizing; delaying retirement; delaying Social Security benefits; finding post-retirement part-time employment are all methods to cope with the realities of maintaining a happy retirement.

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World Elder Abuse Awareness Day – June 15

Our friends at The National Center on Law and Elder Rights (NCLER) * are calling attention to June 15 as World Elder Abuse Awareness Day (WEAAD).

According to the NCLER website:    “Since 2006, the United Nations has sponsored WEAAD, noting that it “represents the one day in the year when the whole world voices its opposition to the abuse and suffering inflicted to some of our older generations.”

Also currently available on the NCLER website for elder advocates: A Free Webinar on June 20: “Assisting Older Homeowners After a Natural Disaster” – (Registration required)

Some of the recent calls to action of the NCLER include:

> Protecting the elderly from “robo calls” – older adults are often targets of scams and fraudulent offers via telephone

> Preventing older adults from becoming victims of payday loans, which often place our most vulnerable population in a “dangerous cycle of debt.”

> New Mortgage Servicing Rules Protect Surviving Spouses and Heirs

Read more about the work of the NCLER on their website.

* The National Center on Law and Elder Rights (NCLER) is a national resource center for the legal services and aging and disability networks, focused on the legal rights of older adults.

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Protecting Digital Data

There has been recent ‘buzz’ in estate planning about making sure that a person’s digital/electronic data is maintained under an estate plan.

One of the better definitions of digital data that I found  – a digital asset can have value, can be owned, but has no physical presence.

However, there is also electronic data that has no intrinsic value, other than ‘sentimental’ value, for example a family photograph or vacation video.

If you have not read your estate plan recently, then it may be time to review the plan and make sure that your “electronic estate” is managed according to your wishes.

Some planners have even considered the option of having an ‘electronic estate trustee’ (separate from any other trustee) who would have the ability to navigate the complex digital information landscape, including its privacy laws; have the capability of using technology and be trusted with the authority to access all digital data.

If you think that you do not have digital/electronic data to protect, you might want to consider that many people retain various Passwords: to their banking; investments; cryptocurrency; social websites; email accounts; online payment accounts; reward programs; internet purchase sites..the list goes on.

There is accumulation of data on computer hard drives and on smartphones.

There is electronic data stored ‘in the cloud’.

Individuals retain digital photo albums; manuscripts and music.

Some of the data has distinct financial value, other data can have sentimental value to beneficiaries.

If a person is deceased or incapacitated, who among their trusted individuals would have access to the stored information.  Would that trusted person have appropriate authority to utilize the data and the knowledge to access it?

The person who would be entrusted with accessing digital/electronic data within your estate plan:

  1. Must know that such accounts exist- This means making and keeping records up-to-date as part of your estate planning process
  2. Know the rules – Some rewards programs are transferable, some are not. Some sites allow for third party access, some do not
  3. Most sites are password protected – this means keeping track of passwords and their changes
  4. Different types of accounts have different rules regarding log-on and ownership. Those rules may change as the legal issues of fiduciary responsibility over digital assets evolve.
  5. Crytocurrency accounts – have different access requirements. A trustee would need to know what is required.
  6. Probate – may not necessarily consider all digital accounts (some probate codes are silent on digital assets)

In addition, there are issues of how to delete digital data and accounts, which is in continuing review.  For example, some social accounts do allow for the ‘memorialization’ of accounts and some do not.

Some government legislation covering digital assets is encompassed in the Stored Communications Act (SCA) and the Electronic Communications Privacy Act (ECPA)

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Inheriting the Debt of Your Parents

Yet another article from Nerd Wallet was interesting enough to share with my readers.

“When your parents die broke” by Liz Weston. (Nerd Wallet, March 15, 2018)  explains why the debt of your parents may not be your debt. (The article was actually picked up by The Associated Press.)

To put things into perspective – “Nearly half of seniors die owning less than $10,000 in financial assets, according to a 2012 study for the National Bureau of Economic Research… Meanwhile, debt among older Americans is soaring.”

Follow the link to read the entire brief article – https://wtop.com/living/2018/03/when-your-parents-die-broke/

When a person dies owing more than their estate is worth, the term is an ‘insolvent estate” – the opposite of a solvent estate.

An ‘insolvent estate’ in simple terms means that there is not enough money left in a deceased person’s estate to pay all creditors.  Note the emphasis on the word ALL.  Perhaps there are funds to pay SOME of the creditors.  In that situation there is a priority, a hierarchy (or pecking order) for creditors.  Some creditors will be paid before others.

To give an example, in many circumstances the charges of a funeral home have priority over a credit card company’s  claims.  (In Colorado the hierarchy of claims is determined by the Colorado Probate Code)

The executor/personal representative of the estate then determines who gets paid and in what order.

How do estates become insolvent?  One of the common reasons of insolvency is huge medical debt.  To use a very simple example – If a parent had an estate valued at a total of $100,000, but there are medical debts of $50,000; credit card debt of $30,000, and an outstanding loan debt of $25,000 – the estate could be defined as insolvent. There is not enough money in the entire estate to pay all creditors (debts).

But keep in mind that the legal rules for debt of one’s spouse are very different from the legal rules regarding the debt of one’s parents.

It is beyond the scope of this article to define all the issues of dealing with an insolvent estate.

If you are dealing with an insolvent estate, consult an attorney if you think you may have problems with the probate process in your state.  They can advise you about the legal issues of an insolvent estate.

Working To Preserve Your Wealth and Protect Your Future…in a Constantly Changing World

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The State of Retiree Finances

Many of my readers know that I often quote from the research of the Center for Retirement Research at Boston College.  One of the reasons that I recommend the articles is that although they are based on research protocols, the articles are easy to read and to apply in certain life situations.

Each research brief is often accompanied with graphics and charts to emphasize key points.

The Center puts their research ‘briefs’ into useful perspective.  It is an institution doing excellent research into the retirement issues of today.

Our friends at the Center for Retirement Research have again come up with an excellent piece of research about how current retirees are coping with their financial obligations.

The research brief is titled: WILL THE FINANCIAL FRAGILITY OF RETIREES INCREASE?  By Steven A. Sass. (February, 2018)

While the picture is not ‘rosy’ for current retirees, the bottom line is that current retirees are coping better than future retirees will be able to cope.  “While most of today’s elderly seem able to withstand shocks, changes in the retirement landscape suggest that future retirees will face more difficulty…”

About 80% of a retiree’s income is spent on basics such as food, healthcare, housing.  The biggest jump in expenditure for those over 75 is in healthcare.  There is an excellent graphic/table in the full pdf. format of the 6 page research brief/article that shows the percentile changes between the over and under 75 age groups of retirees.

The article notes that: “The two major shocks that hit the elderly today are a spike in medical expenses and a sharp drop in income upon becoming a widow.” And …”The study found that health declines were a clear predictor of (financial) hardship.”

There will be, for future retirees, a growing reliance on savings versus the social security system and retirement plans. – called “the drawdown challenge”.

One conclusion of the research: “Downsizing is the most effective way to reduce fixed expenses and could also increase the household’s financial assets.”

I recommend the 6 pages of the research brief/article to those who are concerned with what the future retiree landscape will look like.

 Working To Preserve Your Wealth and Protect Your Future…in a Constantly Changing World

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From College Tuition to Wind Farms

I have written many previous articles about fraud committed against the elderly.  Some of the archived articles appear in my website (see below) under:  Elder fraud industry, Elder fraud protection, Consumer fraud protection.

The reason that a Squared Away * article caught my eye was because of the matter of “trust.”  The trust that a senior individual (or anyone for that matter) has in their financial (and legal) adviser.

The Squared Away article titled:  Cautionary Tale of Defrauding the Elderly (February 8, 2018)  is a sad saga of broken trust between senior individuals and their financial advisers.

From fraudulent college tuition; to diverted funds; to failed wind farms; to inflated fees, it is a truly disturbing pattern of fraud committed against a vulnerable part of our society.

As the article states:  “Retired people with nest eggs can be an enticing target for scam artists…”

And more worrisome is that financial fraud against the elderly is on the rise.

The warnings should be heeded, not only by retired people and those who take care of the interests of the elderly, but also by all professionals holding fiduciary responsibility.

Working To Preserve Your Wealth and Protect Your Future…in a Constantly Changing World

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* Squared Away is the blog of the Center for Retirement Research of Boston College http://www.squaredawayblog.bc.edu