Personal Finance After 50 For Dummies

Eric Tyson is a recognized personal finance counselor, writer, and lecturer. Tyson has been featured on and quoted in hundreds of publications and media outlets. Bob Carlson is Chairman of the Board of Trustees of the Fairfax Country Employees' Retirement System.

Introduction 1


About This Book 2


Foolish Assumptions 3


Icons Used in This Book 3


Beyond the Book 4


Where to Go from Here 4


Part 1: Working Toward Retirement 5


Chapter 1: Looking Ahead to Your Future 7


Planning for the Longer Term 8


Identifying long-term planning issues 9


Taking personal responsibility for your financial future 13


Saving and planning sooner and smarter pays off 13


Eyeing Keys to Successful Retirement Planning 16


Saving drives wealth 16


Keeping your balance 17


Understanding that planning is a process 17


Chapter 2: Protecting Your Employment Income and Your Health 19


Assessing Your Need for Life Insurance 20


Understanding the purpose of life insurance 20


Determining your life insurance need 21


Assessing your current life coverage 23


Figuring out what type to buy 25


Choosing where to buy life insurance 26


Protecting Your Employment Income: Disability Insurance 27


Why most people lack disability insurance and why you need it 28


Identifying needed disability coverage 30


Shopping for disability coverage 31


Investing In and Protecting Your Health 33


Take care of your ticker 33


Exercise (and sweat)! 34


Hydrate with good-quality H2O 36


Include fiber in your diet 36


Manage your stress 36


Get your calcium 38


Chapter 3: Developing a Retirement Plan 39


Deciding When to Retire 40


Knowing How Much You Really Need for Retirement 42


Figuring out what portion of income you need 42


Grasping what the numbers mean 43


Eyeing the Components of Your Retirement Plan 44


Social Security retirement benefits 44


Pensions 47


Investments 48


Your home’s equity 50


When Setting Up Your Couples Plan 50


Crunching the Numbers 51


Understanding assumptions and how they work 52


Making the numbers work 54


Dealing with excess money 55


Making Plans for Nonfinancial Matters 56


Personal connections 57


Personal health 57


Activities, hobbies, interests 57


Chapter 4: Identifying Retirement Investments and Strategies 59


Defining Investments 60


Understanding risk 60


Eyeing your returns 63


Considering how investments are susceptible to inflation 64


Being aware of tax consequences 64


Monitoring sensitivity to currency and economic issues 65


What You Need to Do Before You Select and Change Investments 66


Knowing your time horizon 66


Factoring some risk into your investment plan 67


Keeping the bigger picture in mind 67


Allocating your assets 68


Surveying Different Investments 69


Comparing lending investments to ownership investments 69


Looking into stocks 70


Investing in mutual funds and ETFs 72


Comparing investments and risks 76


Managing Investment Portfolios 78


Funds of funds and target-date funds 78


Index and exchange-traded funds 80


Assessing and changing your portfolio 83


Chapter 5: Grasping Retirement Accounts and Their Rules 85


Eyeing the Characteristics of Retirement Accounts 86


Focusing on the tax benefits 86


Being aware of restrictions and penalties 88


Identifying the Different Types of Retirement Accounts 90


Employer-sponsored retirement accounts 90


Self-employed retirement savings plans 90


Individual Retirement Accounts (IRAs) 92


Rolling Over Retirement Balances 93


Deciding what road to take 94


Choosing a custodian and rolling over your balance to an IRA 95


Choosing Beneficiaries for Your Retirement Accounts 98


Taking Required Minimum Distributions, or RMDs 100


Calculating your RMD for an IRA 100


Computing the RMD for other retirement plans 101


Part 2: Making Money Decisions in Retirement 103


Chapter 6: Managing Budgets and Expenses 105


Pointing Out Some Retirement Worries You May Have 106


Running out of money 106


Supporting others 107


Addressing your worries 109


Spending Your Nest Egg 110


Considering the 4 percent rule 110


Naming the factors affecting your use of retirement assets 111


How Spending Really Changes in Retirement 112


Managing Your Expenses 115


Bigger-picture issues 116


Taxes 117


Housing 118


Utilities and communication 120


Food 122


Transportation 122


Personal care and fashion 123


Travel and fun 123


Health care 124


Insurance 124


Children and grandchildren 125


Chapter 7: Guiding Investments and Distributions in Retirement 127


Guiding Your Investments through Retirement 128


Estimating your investment income 128


Rebalancing your investments 130


Looking Closer at Annuities 132


Annuities: A cross between a retirement account and insurance 132


Contributing in your working years 133


Annuitizing in your retirement years 134


Examining the newest annuity 136


Choosing Your Pension Options 137


Selecting between a lump sum or monthly payments 138


Deciding among monthly payment options 143


Eyeing Withdrawal Strategies for Your Investment Accounts 144


Chapter 8: Making Important Housing Decisions 147


Analyzing Moving 148


Considering the pros and cons of moving 148


Eyeing the options for where you can move 150


Tapping Your Home’s Equity: Reverse Mortgages 154


Defining terms and costs 154


Determining whether a reverse mortgage is right for you 156


Searching for more information on reverse mortgages 157


Looking at Tax Issues Regarding Your Housing Decisions 157


Being aware of capital gains exclusion rules 158


Converting your home to a rental: Yes or no? 158


Chapter 9: Considering Your Long-Term Care Insurance Needs and Options 161


Understanding Long-Term Care 162


Naming the types of long-term care 162


Predicting who will need long-term care 164


Estimating how much long-term care will cost 166


Planning to Pay for LTC 169


Considering LTC Insurance 170


Knowing the basic features of LTCI 171


Checking out two more important LTCI factors 178


Using Hybrid Insurance Products 180


Exploring annuities to finance LTC 181


Financing LTC with life insurance 182


Assessing the LTC hybrids 183


Financing LTC Yourself 184


Figuring out whether you can finance your own LTC 184


Deciding when to buy LTCI 187


Comparing tax-qualified and nonqualified policies 188


Opting for life insurance instead of LTCI 190


Taking advantage of the reverse mortgage 191


Evaluating Employer and Group Coverage 192


Combining LTCI and Self Insurance 193


Part 3: Dealing with Government Programs 195


Chapter 10: Making Your Best Choices under Social Security 197


The Lowdown on Social Security 198


Determining When You’re Eligible for Benefits 200


Reviewing your earnings history 201


Defining when you can retire 203


Taking a Closer Look at Spouses’ and Survivor Benefits 207


Understanding the choices for spousal benefits 208


Ensuring spouses are taken care of: Survivor’s benefits 211


Identifying When You May Need to Receive Benefits 214


What are your cash flow needs? 215


Will waiting pay off? 215


What other income do you have? 217


Do you want to continue to work? 217


What are the potential income taxes on benefits? 218


What’s your life expectancy? 218


Noting How Working Reduces Benefits 219


Taking the penalty for exceeding the annual income limit 219


Determining the penalty on a monthly basis 220


The penalty isn’t always bad 221


Preserving Your Benefits 222


Deferring income 222


Using your corporation 223


Considering exempt income 224


Relying on special income 225


Being Aware of Potential Income Taxes on Your Benefits 226


Understanding how modified adjusted gross income works 226


Reducing taxes on benefits 228


Changing Your Mind: A Do-Over 231


Deciding whether you should take a do-over 232


Doing the do-over 232


Looking at What the Future Holds for Social Security 233


Chapter 11: Getting the Most Out of Medicare 237


Starting Medicare: A Broad Overview of Enrollment Deadlines 238


Understanding Part A 240


Seeing who’s eligible and signing up for Part A 241


Defining Part A coverage 243


Exploring Parts B and C 245


Scoping out Part B 246


Probing Part C: Medicare Advantage 252


Qualifying for Prescription Drug Coverage with Part D 257


Examining Part D plans 258


Enrolling in a Part D plan 264


Eyeing a Medicare Supplement 266


Understanding Medigap policies 266


Standardizing Medigap policies 267


Choosing a Medigap policy 269


Obtaining quotes for Medigap insurance 271


Resolving Some Sticky Issues 272


Changing plans 272


Monitoring changes at work 273


Making a foreign move 274


Chapter 12: The State Health Care System Backup: Medicaid 275


Discovering What Medicaid Is 276


Considering Medicaid Eligibility 277


Establishing Functional Eligibility 277


Meeting Financial Requirements 278


Understanding income limits 279


Understanding asset limits 281


Examining Planning Strategies 291


Spending down 292


Creating a life estate 292


Setting up trusts 293


Buying an immediate annuity 296


Going the spousal refusal route 297


Recognizing the downsides of Medicaid eligibility strategies 298


Using Both Medicare and Medicaid 299


Eyeing Reasons Not to Seek Medicaid 300


Part 4: Estate Planning: It’s More Than Just Dead People and Lawyers 303


Chapter 13: The Basics on Estate Planning 305


Understanding Estate Planning 306


Studying Some Strategies Before Starting Your Estate Plan 310


Finish your plan no matter what 310


Keep track of your estate 311


Estimate cash flow 312


Don’t wait for the perfect plan 313


Carefully choose executors and trustees 313


Anticipate conflicts 314


Answering Key Questions to Gather Critical Information 315


Who’s in charge? 316


How much should I give now? 316


Should I apply controls and incentives? 317


Should heirs get equal shares? 318


Should I exclude someone? 319


How should my blended family be handled? 319


Should I leave only money? 320


Should my wealth stay in the family? 321


Knowing How Estate Taxes Work 321


Reviewing the estate tax 322


Considering state taxes 323


Finding Good, Affordable Advice 325


Doing it yourself 325


Using an expert: Yes or no? 326


Chapter 14: Eyeing Wills and Other Legal Documents 329


Writing Your Will 329


Pointing out some important details 330


Facing the limits of wills 335


Excluding family members 336


Avoiding things you can’t do with your will 336


Assigning a Financial Power of Attorney 337


Recognizing the importance of a POA 338


Choosing the right POA 339


Delegating Medical Decisions 340


Understanding living wills 341


Signing DNRs 342


Assigning a health care proxy or POA 343


Authorizing HIPAA 344


Combining documents 344


Passing Other Assets 344


Naming beneficiaries for your assets 345


Examining the special case of IRAs 345


Looking Closer at Probate 348


Avoiding probate: Yeah or nay? 349


Considering joint tenancy 349


Making use of living trusts 351


Chapter 15: Tackling the Federal Estate Tax When You Have Too Much Money 355


Understanding the Estate Tax 356


Examining how your estate tax is calculated 357


Decreasing your estate taxes 359


Tallying Your Assets 359


Making sure you don’t overlook certain factors 360


Assessing included assets 360


Reducing Your Estate 363


Considering strategies to lower your estate’s value 363


Maximizing tax-free gifts 367


Taking Deductions 371


Looking at the marital deduction 371


Understanding portability of the lifetime exemption 372


Giving charitable gifts 373


Choosing Family Estate Strategies 375


Equalizing estates 375


Using the bypass trust 376


Taking advantage of marital deduction trusts 377


Putting the strategies together 378


Contemplating Life Insurance 380


Paying obligations with life insurance 380


Purchasing life insurance to enhance inheritances 381


Avoiding the Tax on Gifts to Grandkids: The GSTT 382


Chapter 16: Focusing on Estate Taxes and the Many Types of Trusts 385


Identifying the Cast of Characters 386


Naming the Types of Trusts 387


Looking at when trusts take effect 388


Revoking or retaining rights 388


Determining how income is distributed 389


Addressing the trustee’s powers 390


Using Trusts in Estate Planning 391


Donating to charity with charitable trusts 392


Opting for retained income trusts 394


Taking care of special needs with SNTs 395


Spreading the wealth through dynasty trusts 397


Creating life insurance trusts 398


Part 5: The Part of Tens 401


Chapter 17: Ten Common Retirement and Estate Planning Mistakes 403


Not Having at Least a Basic Financial Plan 404


Procrastinating about Estate Planning 404


Underestimating Life Expectancy 406


Miscalculating Inflation 407


Believing You’ll Retire When You Expected To 408


Ignoring Nonfinancial Planning 409


Failing to Coordinate with Your Spouse 410


Expecting to Age in Place 411


Thinking Most Medical Expenses Will Be Covered 412


Missing the Initial Enrollment for Medicare Plans 413


Chapter 18: Ten Things to Know about Working in Retirement 415


Some Work Is Good for You 416


The Social Security (Tax) Impact Can Be Huge 417


Number Crunching Can Show You How Different Scenarios Work 418


Life Is Short and You Owe It to Yourself to Do What You Love 418


Investing in Education Can Boost Your Employment Value 419


Some Employers Are More User-Friendly for Older Workers 419


Taking Some Employment Risk Is Important 420


Starting/Buying a Small Business May


Be a Rewarding Option 420


Your Spouse May Not Want What You Want 421


Volunteering Makes You Happy and Benefits Your Community 421


Chapter 19: Ten (or So) Tips to Know about Caring for Your Aging Parents 423


Leverage Off Others’ Experiences 424


Ask for Professional Help 424


Invest in Their Health 425


Get Your Parents’ Affairs in Order 425


Examine Housing and Medical Care Options 426


Use Caregiver Agreements 426


Separate Living Spaces if Parents Are Going to Move In 427


Take Care of Your Family 428


Take Care of Yourself 428


Index 429