@deb922, length of life is an important consideration, even in the COVID era. We saw that with my MIL, who is now 89 or 90 and my M who is now 96. My MIL did pass down some money to each kid largely for grandkids’ college education and some to help with housing (and was firm in giving each kid an equal amount).
Two of her four kids are doing pretty well and two, while doing OK, could be see meaningful changes in lifestyle with a reasonable part of the inheritance. We are in the first category. But, I was clear that we had to make our plans independent of any possible inheritance and needed to be confident that we will be OK. As such, we made tradeoffs earlier in life that we might not have made. In particular, I traveled a lot for work. I love my work and I like international travel, but ShawWife was not happy with the amount I traveled, especially when the kids were little. I think one of ShawWife’s siblings had a much more relaxed attitude toward money – she and her husband moved towards more alternative careers with marginal income prospects in part because MIL was subsidizing them. When MIL decided to stop subsidizing, they had to scramble for several years.
We have resolved the problem of accelerating transfer of assets somewhat with a dynasty trust that now holds a lot of our post-tax assets. The directive to the trustee is that the trust is for health, housing, education and general welfare of the beneficiaries, who are ShawWife, our kids, and our progeny. So, the trust could provide help with down payments on houses for the kids or buy a vacation home for the family (as an investment). It did buy a condo that ShawD lived in while in college/grad school – she lived in one smaller BR and rented the bigger BR out to two of her friends. The rent mostly covered the mortgage and condo fees. We have kept it as an investment and rented it out since then. If ShawSon or ShawD wanted to buy a condo, we could have the trust give them a downpayment or have the trust buy it (they would pay the mortgage).
We are spending capital right now with a new house, but will soon start refilling 529 plans to provide for grandkids’ college education. No grandkids yet, so there is a question as to whether we should wait until they exist.
If you have inherited an IRA from a parent or other relative, can you give it to your child(ren)? Are there tax consequences? I know that the distribution rules have changed and it can’t be stretched anymore, but I can see situations where it would be an advantage.
We have a dynasty trust as well and I don’t think I’ve ever thought about this…@shawbridge, you use $$ from the trust to pay for something–either in full or part-- like a condo for a child but the condo is in your name, right? What benefit am I missing? I see the benefit if the condo is somehow in your child’s name (they are the owner) but I’m interpreting your comment to mean that you and your W own the condo.
Well, someone’s going to pay taxes on the distributions. A big benefit of stretching is not ending up with a big tax hit in one year. So, no, you can’t “give” the IRA to someone else per se - the benefits don’t transfer. You could take distributions, and gift $$ to someone else. Google “inherited IRA” - the major investment firms have pretty good resources (Fidelity / Schwab for example have pretty complete public resources) [Disclaimer: I do have accounts at these two firms, but the resources don’t require one to be a customer.]
You can choose to NOT accept that IRA, however, and in which case, it passes to a contingent beneficiary. Federal law recognizes that someone can’t force you to accept an inheritance. See IRS Code Section 2518b.
Dh and I have different stances on gifting money to our ds. I did convince dh that we should gift ds his last quarter’s worth of tuition that was not necessary because he completed graduation requirements early. Ds was on campus his final quarter, so we paid room & board and gifted him the tuition money. However, funding four years at full-freight at a private university was it for dh. He is not into gifting money to ds.
However, dh and I have yours, mine, and ours buckets of money, so I have gifted ds $15,000 out of the “mine” bucket each of the two years since he has been out of college. It is intended to be used for grad school if he ever goes, but he knows it is his to do with as he sees fit - no strings attached. He also knows that it may or may not continue, and that it will likely stop if it becomes clear grad school isn’t in his future. I’ll probably do it one more year, and then be a bit more prying about his intentions of applying before gifting any further years. I have a certain upper limit I am willing to contribute to grad school (his company funds tuition with a stipend, but it wouldn’t cover all his costs - and who knows if that program will continue even he decides to go).
We do not factor in any potential inheritance with our financial planning. It’s not anything I am counting on. We also don’t factor in social security income in our financial planning. Again, it’s not anything I am counting on.
After fil died and mil redid her will, health directives, etc. Notwithstanding the fact that we emphasized to her that she needed to think about what she wanted to bequeath, about a year after she drafted them she decided she wanted to leave $25,000 each to our ds and to our niece (her granddaughter). Rather than redrafting, we convinced her instead to gift them each $5,000 per year over the next five years with dh and his sister assuring her anything not yet given up to that amount would go to them should she pass before the five years had passed… Everyone gets along and will keep their word. We convinced her of this because if she gives it now, she can see their appreciation, hear about what they decide to do with the money, and witness their enjoying it. To me, those are all benefits of gifting.
I was looking at the question as posted. A contingent beneficiary would need to be arranged by the original owner of the IRA. If the original owner did not set it up that way, you, as the beneficiary (inheritor of the IRA), cannot add one after the fact to the original IRA. If the original owner did not set up contingent beneficiaries, and the primary declined to accept the IRA, I suspect it gets messy fairly quickly.
Ok, quick search yielded this nugget: if you disclaim, and no contingent beneficiaries are specified, the financial institution’s custodial agreement will be followed. So, read those documents!
@collage1, it depends. In the case of the condo, ShawD was 19 and was not going to live there permanently. So, the Trust owned the condo, not ShawWife and me, as an investment. Assets of the trust are not part of our estate and hence estate tax won’t be due on them when we die. We would not want additional assets in our name for that reason. We paid rent to the trust, which actually transferred assets that would some day be subject to estate tax into assets that would not be subject to estate tax (only profit stays in the trust as the trust paid the mortgage and condo fees, etc.). We’ve retained it because it is on a fantastic street in a neighborhood that is in great demand. Net result, it only cost us a little more to own than we would have paid to the university for her dorm room and are now renting it for a significant profit. Plus, we paid something like $425K for it eight years ago, probably put in about $50K, and according to Zillow, its market value is $758K. [Another possible reason to put things in that kind of trust: If we were ever sued, assets in the trust would also not be owned by us if the plaintiff won the suit. Fortunately we have never been sued.].
If the trust gave one of our kids money for a downpayment, then any property they purchased would be in their name. Mostly, it would make sense for the trust to distribute money to a kid to buy a property. however, a property owned by the trust would not be a marital asset if there were a divorce. We actually had been concerned about ShawSon’s GF. Didn’t seem like a good long-term partner for him, from our perspective (of course it was never our choice). They have just broken up after five years. If he had wanted to buy a place while they were together, I would have suggested that the trust make the downpayment on a place for which he would pay the mortgage and expenses and that could later be distributed to him by the trust (at the discretion of the trustee). Glad we don’t have that problem.
A few months ago, we discussed here the possibility of time delay getting death certificates. Sadly I now have a data point on that. My mother passed away on Monday afternoon. I picked up the printed certs from the funeral home on Thursday morning. This is in Colorado, probably easier than other states. Also Hospice with involved, so no delays waiting for cause of death.
The funeral home asked how many copies … I said 10 (probably more than we’ll need, but wanted to err toward caution). They charged me $137, which I assume includes a small fee for their work. I was glad to have the help. Because of this thread, I knew multiple death certificates will be needed as we sort through paperwork. Next week - gotta deal with apartment stuff first.
Note - My mother had me joint on her savings/checking accounts, though not shown on the paper checks. (This is at my credit union - she’s a member via relationship to me). I was able to transfer funds to my checking account to write a check for the funeral home. I appreciate her handy setup that enabled this.
Long time lurker on this thread. I’m 52 but wife is only 46. Lately been planning our retirement and I have some numbers in my mind to meet. Hopefully when I’m 60 or 62. Question to this group. Some people recommend the annual expected expenses times 25 (or 30 to be safe) to be the target amount. But do you include all assets? Like primary residence? How about Social Security?
To address your last query: Social Security - this is really a personal decision. We, personally, run it both ways. With the current state of SS, I consider it to be icing on the cake. If there’s nothing, or very little, from that source, we’ll still be good. I find it difficult to plan to depend on it. But, then again, my plans never considered it as a major source. I remember being advised to have a 3-pegged stool for retirement: pension, after tax savings, and SS. I now think of it as a multi-legged stool, throwing in 401k’s, ROTH’s and IRAs as well.
It seems that you have to live somewhere. So, we never included the home value. However, if one lives in a multimillion dollar home and plans to move to a condo 1/10th the cost, then yes.
Since the 25 to 30 (or whatever) times annual expenses is the asset base that you will be taking cash from for yearly expenses, it should not include things like your house. Of course, if you rent instead of live in a paid-off house, your annual expenses are likely to be higher, requiring a larger asset base to draw your yearly expenses from.
The Social Security dependency ratio keeps getting worse from the point of view of number of workers paying in versus number of recipients taking out. Expect future political fights over whether to raise taxes or cut benefits (including by reducing the inflation adjustment to avoid the appearance of a cut). So it may not be a great idea to rely too much on current levels of Social Security benefits if your retirement date is significantly in the future. Of similar concern is Medicare; be sure to estimate your out-of-pocket medical costs when you are older to include when estimating your yearly expenses.
@colorado_mom, sorry for your loss and thanks for the info.
@2018dad, I did it by doing a real financial model – how much do we have, how much do we spend, how will that change over time, etc. Plus assumptions about tax rates and investments. Do we run out of money or not? Then a Monte Carlo against various assumptions to get the probability of running out of money. I’m capable of doing this myself but used a financial advisor because I don’t have the patience or time.
We included all assets and SS in this analysis. We also included expected one-time expenses.
We have done this analysis a couple of times. The first time, was maybe a freshman in college or maybe just started college. So we included both the 529 plans and the expected college costs. The 529 plans ended up covering most of grad school as well. But, we also included $125K for two weddings and that we’d start putting money aside for grandkids education, I think. There were two good pieces of news here: First, the probability of running out of money was very low – much higher probability of leaving quite a bit to our kids – and if income really started to decline, we could opt for a lower expense Plan B. Fortunately, we did significantly better from an income standpoint that we had projected, so I didn’t feel we had to redo it.
Recently, we bought a more expensive house and are doing renovations (and still need to sell our other house and associated lot) and then my business slowed down due to the Pandemic, so we revised the analysis to assume I made no more income (definitely going to keep working and making $$) but we redid the analysis assuming we sold our two properties at a reasonable price (one is under agreement) and that I made no more money for the rest of time. We also revised assumptions about the cost of health care (higher than before and increasing with age) and travel (ignoring the Pandemic year). Although it doesn’t feel like it to me, the Monte Carlo analysis shows that we are very likely to run out of $$ even under these assumptions. I think the cost of the weddings is still factored in.
I would like to be able to help both kids with their down payments, but this is not factored in. However, just talked to ShawSon about his startup, which frequently receives inquiries about whether they’d like to be acquired. The amounts he says that they would entertain selling for are pretty high, so, he may not need my downpayment help.
We had a virtual meeting with a financial planner yesterday. The good news is that everything is on plan to retire in 2 years. We should be able to outlive our money and leave some to the kids if that’s what we want.
So happy about that. We’ve always lived pretty frugally, our big splurge has been putting our two kids through college. I’d like to do a bit more for us in our early years of retirement.
My il’s are very frugal. I think they kept worrying about running out of money and they were busy watching the grandchildren that lived in town. Now they aren’t going to run out and the grandchildren are grown and left town. And not in good enough shape to travel. I want to be able to travel and do some stuff to our house.
I guess the dance is to have enough while also living a little.
@2018dad, we do not count our home in our assets for retirement. We will need to live somewhere, and most of the places we want to be are HCOL, so we will likely not “downsize” monetarily.
If you’re looking for a great resource for financial/retirement info., I highly recommend bogleheads.org. I have not signed up, but I’m a big lurker there.
We’ve done the same assessment as @shawbridge described several times through our FA. Also did a separate analysis as to the best age to pull the SS trigger. We were surprised to see an earlier age recommended as this is not money we’ll “need.”
Waaaay up thread, I discussed our decision to help our kids with down payments and ensuring they maximize their retirement contributions now. H’s nonagenarian mom will leave us a big chunk of change that we don’t need. We want to help the kids when it can make the biggest difference in their financial lives. They are appreciative and responsible with the gifts.
One typo. We are very unlikely to run out of money, not very likely. In our analysis, the age for SS withdrawal is as late as possible, I’m pretty sure.
Sounds like @aMacMom and I have the same philosophy.
Wish we could help expat S with making sure he makes retirement contributions, but unfortunately, one must earn US income to qualify for IRA or Roth contributions. All of his income was from employers in his country. He’s getting no credit for Social Security for these years, either. At least he qualifies for the foreign income exclusion.
Something to think about if your young adults want to do the expat thing for a few years!