4 Social Security Facts You Must Know

When it comes to Social Security, far too many retirees and future retirees are in the dark. Not only are most Americans not fully informed about the program, they don’t know how to maximize their benefits. Of course, knowing what Social Security offers and how to get the highest-possible benefits are two different things. There’s a lot you have to know.

For example, Social Security is more than a retirement program. It offers survivor benefits, disability and even a small death benefit. And, unlike the derisive “entitlement program” title given to it, the program is really social insurance. It’s meant to supplement other savings.

According to a recent AARP/Financial Planning Association study, while 60% of those surveyed knew they could begin taking benefits at age 62, less than half knew how retirement benefits would be determined. So overall, the public’s knowledge about Social Security, at least according to this survey, is dangerously lacking. So here’s a few important points.

1) Waiting Can Really Boost Your Total Benefits.

The survey reported that while 88% of those polled knew that waiting until “full” retirement age (66 for most people) will result in a higher benefit than age 62, only one-third knew that waiting until 70% will result in the highest-possible benefit.

If you can wait until 70, each year you hold off from full retirement age boosts your benefit 8% per year. When was the last time you got a guaranteed 8% return on anything?

For more on what the program calls a “delayed retirement credit,” go here.

2) Spousal Benefits Add Up.

Surprisingly, only half of those surveyed knew that spousal benefits were based on the other spouse’s work history. Social Security bases payments on how much you earned over a lifetime.

As with other benefits, how much you receive depends upon your age and that of your spouse. For an estimate of those benefits, go here.

3) You Can Still Collect Benefits If You’re Divorced.

Only a quarter of those surveyed knew this. But there’s a catch: You have to have been married at least 10 years and be at least 62 and unmarried now.

Your benefits would be based on your spouse’s earnings. The rules get tricky if your situation changes: You can’t collect benefits if you remarry.

There are other rules on divorcee benefits. For more information, check here.

4) There are many sources of information on Social Security, but most don’t know where to go.

Less than half of those surveyed went right to the Social Security web site for information. While I would never say it’s user friendly, it can explain the benefits and give you nuts-and-bolts advice.

You can also apply for retirement payments online, estimate other benefits, get a replacement Medicare card and even change your mailing address through the site.

While the benefits formula is complicated, it boils down to this: The more you or your spouse made, the higher the benefit — up to certain limits, of course.

Do your research before you take benefits. The time you invest now can add tens of thousands of dollars to your retirement income over time.

The information contained herein does not constitute tax or legal advice.  Any decisions or actions should not be made without first consulting a financial professional or attorney.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliate, Spire Securities, LLC. Member FINRA/SIPC.

Challenges and Solutions of Retirement Planning for Women

Saving for retirement isn’t easy in ordinary circumstances. But with wage growth near non-existent and underemployment ridiculously high it becomes challenging for most and even harder for most women.

According to a recent study, only 62 percent of women said they were saving for retirement, just 15 percent said they were saving enough and 22 percent were barely saving at all!

There are numerous reasons why many women fall behind in saving for their post-career lives, ranging from lower pay and taking care of others to taking time off from the workforce.

“Women will save for their kids before they’ll save for themselves,” said Cindy Hounsell, president of the Women’s Institute for a Secure Retirement (WISER).

Have you planned well enough for retirement?

Cost of Being a Caregiver

Is this just a product of different saving and spending habits? Hardly. Women face special hurdles when it comes to saving for the so-called golden years.

For one thing, women are more likely than men to step out of the workforce, or work part-time to care for children or elderly parents.

When they do work, women are often confronted with the gender pay gap. That gap has narrowed since it was first identified, but on average, women still are paid just 78 percent of what men with equal qualifications receive, according to The American Association of University Women.

Divorce Recovery

Statistically, divorce tends to have more negative financial consequences for women than for men. A study conducted by a professor at the University of Connecticut found that after divorce, women who ramped up their careers fared worse in retirement than those who remarried or even those that never divorced initially.

Further, U.S. Census Bureau data shows that women who were divorced reported lower household income than men in the 12 months following the divorce and were more likely to receive public assistance.

Invest for Longevity

When women do save for retirement, another challenge they face is that they may invest too cautiously. Some research has found that some women view themselves as less financially knowledgeable than men do, thereby expressing less confidence in their financial decision-making.

A recent study of women’s financial behavior conducted by Prudential, found that the “Women we surveyed feel no more prepared to make wise financial decisions today than they did two years ago or even a decade ago.”

To top it off, since women have a longer life expectancy, whatever they do save has to last longer—only that’s not happening. The poverty rate among women older than 65 reached 11.6 percent in 2013, and elderly women accounted for two-thirds of the elderly poor.

Get Ahead of the Savings Curve

Fortunately, there are steps women can take steps to boost their nest eggs.

First, in terms of tax-deferred savings, it’s a great idea to take advantage any opportunity available:

• Contribute at least enough to your 401(k) or 403(b) to receive the maximum employer match.
• Contribute to a Roth IRA. The advantage of tax-free growth leaves more money to live on in retirement.
• Take advantage of the “Saver’s Credit”, which enables those below certain income thresholds ($61,000 for married couples filing jointly, $30,500 for single filers in 2015) to offset some of their retirement plan contributions.

Educate, Educate, Educate

Next, women can boost their financial knowledge and build their confidence in making financial decisions.

• Look for nonprofit organizations such as American Association of Retired Persons (AARP) or WISER that provide workshops or seminars on financial planning strategies.
• Consider taking classes on money & finance at your local community colleges and universities. There is comfort and empowerment for women learning about retirement planning together. The views, perspectives and ideas shared vary greatly from many of their male counterparts.
• Get a good read that covers knowledge of investing basics, not the do-it-yourself versions. Knowledge is power!

Consult a Qualified Professional

Equally as important as all the other techniques, seek out a financial professional, planner or registered investment advisor that:

• You feel comfortable with and understands your circumstances
• Is willing to coach/educate you during the planning/investing process
• Has logged years of experience in working with people like yourself
• Whose fees are transparent and recommendations are objective
• Adds value by listening and introducing fresh new ideas

You can take back control of your financial health! Every journey begins with the first step!

The information contained herein does not constitute tax or legal advice.  Any decisions or actions should not be made without first consulting a financial professional, CPA or attorney.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliate, Spire Securities, LLC. Member FINRA/SIPC.

 

Suddenly Single? Start Fresh: Protect Finances

Losing a spouse through death or divorce can be emotionally devastating and is often a difficult time to make important life decisions. Yet it’s this very time that attention needs to be paid to important financial matters such as retirement assets, budgeting on a single income, appropriate insurance, or reviewing Social Security benefits.  Should you become suddenly single, avoid the risk of making emotionally driven and potentially harmful financial decisions. Here are six important and actionable steps to help to protect your personal finances.

1. Update your financial accounts.

When you lose a spouse, you’ll likely need to change the registrations on any financial accounts that are owned jointly. Such ownership changes typically require certain documentation.

If you’re widowed, you need to provide your financial institutions with copies of your spouse’s death certificate in order to shift accounts from joint ownership into your own name. In a divorce, changing ownership requires first determining how you’ll divide jointly owned assets. Usually this is through court orders and/or divorce agreements. Then securing any signatures guarantees or documentation required by your financial institutions will be needed to make the necessary changes.

Caution: Attention needs to be paid to the conditions and methods under which you divide assets or change ownership. Following the wrong advice could result in significant tax burdens. You should consult your tax or financial planner…not your broker.

2. Divide or roll over retirement assets.

Pension and retirement account assets have their own set of rules when it comes to changing ownership or splitting the assets.

Death of a spouse
Generally, upon the death of the account owner, retirement account assets will pass directly to the beneficiaries designated on the account. Some questions to consider in this case might be 1) Should you withdraw funds, 2) Should you rollover the assets into your own IRA or 3) Do you create a Beneficiary IRA or 4) Waive your right to the assets? The answers might not be easy. Do you need the money now? Will you be subject to tax and/or penalties? Will you be required to take a required minimum distributions? What will this do to your estate? Depending on your personal circumstances, the answers will be varied. It’s important to consult with a financial planner or accountant to evaluate your situation before making decisions.

The next critical issue to address here is updating the beneficiary designations on your own retirement accounts—such as 401(k)s, 403(b)s, and IRAs. Even if your will were to include your retirement assets, your beneficiary designations supersede them.

Divorce

Retirement assets are often split up as part of a divorce settlement through a qualified domestic relations order (QDRO). A QDRO is a legal arrangement that either recognizes an alternate payee’s right to receive (in this case the ex-spouse) or assigns to that alternate payee all or a portion of his or her former spouse’s retirement account balance and/or pension benefits.

IRAs are divided through a one-time distribution from one spouse’s IRA into the other spouse’s IRA, without income tax or early withdrawal penalties. But this must be a court-approved transfer; otherwise, the distribution is treated as taxable to the original account owner, while the spouse on the receiving end gets the money tax-free.

3. Re-evaluate your income and budget.

Chances are, when you’re suddenly single, you may be taking a cut in your income, so you may need to adjust your budget accordingly. Start by listing your essential expenses (housing, food, insurance, transportation, etc.) and your discretionary expenses (dinners out, vacations, clothing, etc.). Try to match reliable sources of income (salary, Social Security, pension, etc.) to your essential expenses and see where you might trim your discretionary spending.

If you’re near retirement or are already retired and fear an income shortfall, you might consider creating a regular source of income by focusing your portfolio on income producing investments or yield. This can turn your retirement savings into a source of predictable income that you can use to budget wisely.

4. Evaluate your insurance needs.

What you’ll have and what you’ll need for insurance can change dramatically when you lose a spouse through death or divorce. It’s important to take a careful look at all the different types of insurance that are available to see where you may need to adjust your coverage. Be sure to review:

Life insurance. If you are the surviving spouse and the beneficiary on your deceased spouse’s life insurance policy, you will typically receive the proceeds tax free. But if you are still caring for children, you may want to either purchase or increase your own life insurance coverage to make sure they will be protected in the event of your death.

If you divorce, remember to consider (1) changing the beneficiary on your life insurance if it is currently your ex-spouse, and (2) purchasing or modifying your coverage to adequately protect your children if either you or ex-spouse dies.

Health insurance. Even if your spouse carried your family’s health insurance coverage, you can continue to maintain it for a period of time, whether you are divorced or become widowed.

Through the Consolidated Omnibus Budget Reconciliation Act (COBRA), if you’re going to lose health benefits (because of death, divorce, job loss, etc.), you can continue coverage for up to 36 months—so long as you pay the premiums, which can be up to 102% of the cost to the plan.

Because COBRA coverage is expensive in many cases and doesn’t last indefinitely, you may want to check out other insurance options, whether through your own employer or by evaluating individual plans available through the Affordable Care Act (ACA).

Disability insurance. We all hope we will never need it, but disability insurance is one of the least understood and most useful ways of protecting ourselves and our loved ones. What if you were injured or sick and couldn’t go to work? Disability insurance is designed to protect you and your loved ones against lost income.

Long-term-care insurance. If you’re over the age of 50, you may want to consider buying long-term care insurance (LTCi) to help keep potential costs of nursing home stays and home health care from depleting your income resources if you become seriously ill or injured.

5. Review your credit.

When you’re suddenly single, your credit can be among your most valuable assets—so protect it wisely. After divorce or the death of a spouse, you may want to request a copy of your credit report to take inventory of all the accounts that are open in your name and/or jointly with your former spouse.

If you’re divorced, you’ll want to close joint credit accounts and shift to single accounts so that an ex-spouse’s credit score won’t affect your credit rating. If you’re widowed, contact all three credit bureaus (Experian, Equifax, and TransUnion) to let them know that your spouse has passed away, to keep others from falsely establishing credit in his or her name.

Unfortunately, a surviving spouse is often responsible for paying the deceased spouse’s credit card bills, whether these were joint or individual accounts. It’s always worth calling the credit card company, however, to negotiate better payment terms if necessary.

6. Maximize Social Security benefits.

Here’s some good news: Even if you’re now on your own, Social Security recognizes that you were once part of a married couple, and offers benefits to both surviving and ex-spouses. Widows and ex-spouses are generally entitled to 50% of their former spouse’s Social Security benefits, if those benefits would be greater than their own Social Security benefits.

As a surviving spouse, you can receive full Social Security benefits at your full retirement age or reduced benefits as early as age 60. A disabled widow or widower can get benefits as early as age 50.

If you’re divorced, you could be eligible for Social Security benefits, based on your ex-spouse’s record, if those benefits would be greater than your own retirement benefits. However, your ex-spouse must be eligible for Social Security benefits, and generally you must be unmarried and at least 62 years old. In addition, you must have been married for at least 10 years.

You can’t avoid the turmoil that comes with divorce or the death of a spouse, but recognizing how your personal finances might change could help you make thoughtful, rather than rushed, decisions and provide more solid financial ground as you transition to being single.

The information contained herein does not constitute tax or legal advice.  Any decisions or actions should not be made without first consulting a CFP, CPA or attorney.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliate, Spire Securities, LLC. Member FINRA/SIPC.

The 5 Biggest Estate Planning Mistakes

You’ve worked a lifetime for what you have. You did everything right; funded your retirement plan, paid off your home early, amassed enough savings to cover future expenses and even planned to leave a financial legacy to your loved ones. Too bad your ex-spouse—and his or her kids—will inherit it all…

Estate-planning mistakes are both costly and common, even among the smartest planners. Any number of oversights can leave you vulnerable in the event you become incapacitated. Others can seriously compromise the amount your heirs will inherit when you die.
If you want to be sure that your estate does not get impacted by predators, creditors or taxes, keep reading to be sure you’re not committing the five largest mistakes of estate planning. 

1. Picking poorly

Many people forget that estate planning is a two-part process. Some of the documents provide instruction for dividing up your estate after you die, other, potentially more important documents, outline directives for handling your finances and medical care if you become disabled.
Think long and hard about whom you select as your durable power of attorney and medical power of attorney. Your life is literally in that person’s hands. One mistake people make is picking someone not trustworthy or qualified to act on their behalf. Put the best estate plan into place, but pick the wrong person to help execute it and there is no longer any certainty.
It’s a mistake, for example, to pick your eldest child out of a sense of duty, when your youngest child may be more responsible or likely to make better decisions.
You should also consider proximity and be prepared to amend your powers of attorney as needed. Maybe you picked the child you live closest to now, but they later move halfway across the country. It’s no longer reasonable to ask them to be your medical power of attorney.
Most importantly, ask permission before naming someone as your power of attorney. The person you selected may not want the job or feel up to the task, and he or she certainly doesn’t want to be surprised by the designation after you pass.
One critical tip: Make sure you sign a Health Insurance Portability and Accountability Act release, which allows medical professionals to discuss your health with your designated representative.

     2. Leaving your IRA to your estate

What if you name your estate as beneficiary of your individual retirement account? Surprisingly, that could have very serious unintended consequences. Doing this would subject those monies to claims and creditors during probate, the legal process for settling your estate. When you die, your individual retirement account could be used to pay off any debts in your name. Whatever money remains, if any, gets distributed to your heirs—and not in a timely fashion. Probate is costly and can take years to complete. On the other hand, those assets will pass outside of probate free from creditors if you name a living person or persons as your IRA beneficiaries.
Another reason not to leave your IRA to your estate is that it denies your heirs the ability to let those assets grow. How so? Non-spouse heirs can normally either liquidate an inherited IRA and pay taxes within five years of the owner’s death, or “stretch” their required minimum distributions and relative tax bite over their lifetime. The stretch option may be far more valuable, since it enables the account to continue earning compounded interest for decades to come. By failing to name a person as your beneficiary, your heirs lose that ability to stretch and must distribute the IRA assets within five years.

     3. Forgetting to update beneficiaries

Failing to update your beneficiary forms after a divorce or death in the family is about the most common error!This is particularly critical where IRA beneficiaries are concerned.
For example, if you update your will but forget to change the designated beneficiary to your IRA, the person named to your IRA is legally entitled to that asset when you die. That could be your estranged ex, who can then leave that money to his or her own children from another marriage.
Thus, it’s important to review your designated beneficiaries on all documents, including retirement accounts and life insurance, after every life event and be sure they all reflect what’s written in your will.
Many people inadvertently circumvent their own! They’ll indicate in their will that they want their assets divided equally among their three children, but then they go and name one child as the beneficiary to their IRA account and another to their house or a joint bank account.
If you plan to divide your estate equally among your kids, each beneficiary form for each of your accounts should indicate that the assets are to be divided equally among your children.

     4. Failing to sign a health-care directive

Equally egregious, where estate planning is concerned, is failing to create an advance health-care directive, also known as a living will. This document lets your family, physicians and friends know what your end-of-life preferences are, as far as procedures such as surgery, organ donation and cardiopulmonary resuscitation are concerned. In short, it’s the piece of paper that tells them whether to pull the plug or not.
Such guidance spares your family the emotional angst of having to guess at your wishes when they are already under stress.
We are an aging society and with that comes the potential for loss of capacity and ability. Without these documents, it’s a much more complicated process and it opens the possibility that your family will disagree over what they believe your wishes are and who should be in charge. That’s doubly true if you remarried and your spouse and children are at odds.
Keep a copy of your signed and completed health-care directive safe and accessible to ensure that your wishes will be known and carried out at the critical moment. Give copies of all your estate planning documents to your attorney or family members as well.
Many people, park their paperwork in a safe deposit box, forgetting that the bank is not allowed to release the contents of that box to beneficiaries until probate is complete. By then, the funeral is over and assets divided according to state law.

     5. Leaving a living trust unfunded

A living trust allows you to pass assets to heirs outside of probate and can be a valuable estate-planning tool. But it cannot work if you fail to title assets to the trust. Once you set up a living trust, you must retitle your assets under the name of the trust.
There’s a lot of misunderstanding when it comes to trusts. Many people think that the schedules attached to the trust, which asks them to list the assets they will transfer, means they’ve actually transferred those assets. That’s not the case. The schedule merely indicates which assets you intend to transfer. You must still take steps to physically change the title of those assets under the name of the trust. For real property, that involves changing the deed. For assets such as stocks and bank accounts, the accounts must be retitled by the financial institutions where they are held.

     And, most importantly, don’t delay!

Many people delay estate planning, partly because it’s unpleasant to contemplate our own mortality, partly due to the expense, and partly because younger adults believe such paperwork isn’t necessary until they reach old age. Big mistake, especially if you have small children.
If you don’t create an estate plan, you’re letting the courts decide how to divide your assets, which may not reflect your wishes, particularly if you have children or specific distribution desires. If you wish to donate to charity, for example, the courts aren’t going to grant that unless it is specified in your will. Without a road map, it just makes it much more difficult for everyone.
Postponing the process may also limit your ability to maximize the amount you leave to your heirs. If you wait too long, some of the best planning opportunities may be gone; i.e. gifting money/stock or restructuring assets.
So you can avoid the biggest estate-planning mistakes with just a few signed documents and some vigilance. Because of the complexity involved however, it’s vital that legal counseling be used. This is one of those areas where it’s even more expensive if you don’t take care of it correctly. Just know what you’re asking for and what it is that you want.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The information herein contained does not constitute tax or legal advice. Any decisions or actions should not be made without first consulting a CPA or attorney.

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliate, Spire Securities, LLC. Member FINRA/SIPC

Successful Retirement Planning Strategies For Women

Everyone faces similar challenges in planning for their long-term financial goals, such as a successful retirement.

But women seem to have a few unique obstacles to overcome. Fortunately, through a well conceived financial plan and implementing a solid strategy, women can alleviate those obstacles:

Retirement Planning for Women

• Longer life expectancies – Women on average live seven years longer than men which means they need to plan for a longer, more independent retirement.
• Lower earnings: – According to Women’s Institute for a Secure Retirement (WISER), men are out-earning women at an average of 23 cents on the dollar. Lower earnings result in less money contributed to retirement plans and social security.
• More time out of the workforce – Women typically are the caregivers. They may spend time out of the work force to raise a family or care for ailing parents or other relatives. This time away can potentially negatively impact the raises and promotions. To compound this, while they are out of the workforce, women are not contributing to their pension, other retirement plans or social security which means they end up with less in savings than men.

Creating a retirement plan will help women to feel more in control of their finances and give them confidence about achieving their long-term financial goals.  There are a couple of steps women can take:

• Educate yourself by reading and attending workshops.
• Review your credit usage and reduce any unnecessary debt.
• Take an active role in your investments including your retirement plans.
• Invest for long-term growth, being balanced in your risk tolerance.
• Maximize your contributions to your retirement plan.
• Consider working with a financial planner.

Remember, you are in control of your financial future. Careful planning and putting a long term strategy in place can go a long way towards overcoming the obstacles, achieving your long term retirement goals and living the retirement lifestyle you desire.

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC located in Newburgh, New York and specializes in planning for women. His goal is to empower, educate and engage women around money matters.

For more information contact Steven at Compass Asset Management Group, LLC at 845.563.0537 or Contact@CompassAMG.com

Steven M DiGregorio is an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.

Fairy Tale to Divorce, the Alternatives to an Unhappy Ending…

It all started well!  Two people meet and fall in love. They foster dreams of sharing an amazing future together.  Unfortunately, this doesn’t always have a happy ending and a decision to move on needs to be made.  But the prospect of divorce can be lengthy and costly to say the least. Take heart, there are options. 

Those options are referred to as Alternative Dispute Resolutions (ADRs). They take the form of mediation, arbitration and the lesser known collaborative divorce. They are choices that have proven to be an increasingly popular way to resolve some Family Law disputes without having to resort to full-blown litigation. Since they all involve settlement of issues outside the realm of the traditional justice system, they tend to be quicker and more cost-effective. Might one of these options be right for you?  Let’s examine some basics:

• Mediation – The mediation process features the involvement of a trained mediator who helps couples resolve their legal disputes through negotiation. Mediation is both a voluntary and an informal process.  It is geared toward resolving issues, identifying common ground between the parties and narrowing down the challenges that remain contentious. Should mediation fail, then the parties are still free to proceed to traditional litigation.  This is a good alternative if both parties are of similar mind but just have to iron out terms.

• Arbitration – In contrast to mediation, arbitration is more similar to a formal court hearing but without all the formality. Each party is given the opportunity to tell his or her side of the story to an impartial arbitrator, who then makes a ruling that is binding on them both. Although it involves a less rigid procedure than going to court, there are still certain protocols in connection with witnesses’ testimony, and with submitting evidence and documents.  This best suits those that cannot easily negotiate but still want a resolution.

• Collaborative Divorce – The underlying philosophy of the collaborative divorce process is that the parties mutually agree to completely avoid the court process, with the result being a faster, cheaper and more amicable divorce. To achieve this, the parties each sign a contract prior to the start of negotiations, agreeing to full disclosure of information and setting out the principles of the collaborative process. Their respective lawyers – who must be trained specifically in collaborative law – also agree not to press the matter to court. There is a focus throughout the process on cooperation, disclosure, honesty, and the best interests of children. Absolutely this is the best choice for two people who will be communicative and understanding throughout the process.   

Clearly, there is not one solution that fits all. Ironically, just as in the marriage, communication becomes a key factor for any resolution. So be honest with yourself and fair to all parties.  Maybe then in the end, it can still be said, “They lived happily ever after…”

The information herein contained does not constitute legal advice. 

Any decisions or actions should not be made without first consulting an attorney.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliate, Spire Securities, LLC. Member FINRA/SIPC.

Estate Planning Document Essentials

Did you know that several states have investigated some of the country’s largest insurers for failing to pay out unclaimed life policies to beneficiaries? Under policy contracts, they aren’t required to take steps to determine if a policyholder is still alive, but instead pay a claim only when beneficiaries come forward.

The lesson here: It isn’t enough simply to sign a bunch of papers establishing an estate plan and other end-of-life instructions. You also have to make your heirs aware of them and leave the documents where they can find them.

Last Will & Testament

The financial consequences of failing to keep your documents in order can be significant. According to the National Association of Unclaimed Property Administrators, state treasurers currently hold over $30 billion in unclaimed bank accounts and other assets. How do you know if you have unclaimed assets? You can search for unclaimed assets at MissingMoney.com

We recommend that our clients create a comprehensive folder of documents family members can access in case of an emergency, so they aren’t left scrambling to find and organize a mess of disparate bank accounts, insurance policies and brokerage accounts.  You can store the documents with your attorney, a safe-deposit box, online data storage or keep them at home in a fireproof safe that someone else knows the combination to.

The Essentials

• The Will – An original will is the most important document to keep on file.  A will allows you to dictate who inherits your assets and, if your children are underage, their guardians. Dying without a will means losing control of how your assets are distributed, instead, state law will determine what happens. Wills are subject to probate; legal proceedings that take inventory, make appraisals of property, settle outstanding debt and distribute remaining assets. Not having an original document means family members can challenge a copy of a will in court.
• Revocable living trust – Increasingly recommended by estate planners because they are more private and harder to dispute.  A revocable living trust is flexible and can be changed anytime during your lifetime. After you transfer ownership of various assets to the trust, you can serve as the trustee on behalf of beneficiaries you designate.
• “Letter of instruction”  – A useful supplement to a will, though it doesn’t hold legal weight. It is a good way to make sure your executor has the names and contact information of your attorneys, accountants and financial advisers. While the will should be stored with your attorney, the letter of instruction should be more readily accessible.
• Health Care Proxy – Possibly the most important advance directive to complete. This allows your designee to make health-care decisions on your behalf if you are incapacitated. The document should be compliant with federal health-information privacy laws, so that doctors, hospitals and insurance companies can speak with your designee. You may also need to fill out an Authorization to Release Protected Healthcare Information form as well.  If you are incapacitated and your family can’t locate a health-care power of attorney, they will have to go to court to get a guardian appointed.
• Living Will – Sometimes it isn’t enough to establish a health-care proxy unless you have explained to your designee how you would like to be treated in case of incapacity. A living will details your wishes in print.
• DNR or “Do Not Resuscitate” order – Very sick or terminally ill patients may wish to have a document outlining their wishes in the face of long term/indefinite life support assistance, thereby removing the responsibility from their doctor or family members.
• Durable Power of Attorney is critical, allowing a designee to make legal decisions on your behalf in the event that you are incapacitated.

* AARP has a state-by-state listing of advance-directive forms on its website.

* Advance Choice Inc.’s DocuBank electronically stores copies of health-care documents for a fee. In case of an emergency, a hospital will contact DocuBank, which will fax over the information. Subscribers get a wallet sized ID card.

Proof of Ownership

• You should keep documentation of housing and land ownership, cemetery plots, vehicles, stock certificates and savings bonds; any partnership or corporate operating agreements; and a list of brokerage and escrow mortgage accounts. If you don’t tell your family that you own such assets, there is a chance they never will find out. Don’t leave them to perform their own detective work; watching the mail for real-estate tax bills, or combing bank accounts for interest payments.
• File any documents that list loans you have made to others, since they could be included as assets in an estate. Similarly, keep a list of any debts you owe to avoid surprising your family. Wills and living trusts generally are drafted to include provisions for how debts should be settled, and creditors have a stipulated period of time in which to file a claim against the estate.
• Make the most recent three years of tax returns available, too. Looking at prior year’s returns offers a snapshot of what assets heirs should be looking for.  This also will help your personal representative file a final income-tax and estate return and, if necessary, a revocable-trust return.

Bank Accounts & Safe Deposit Boxes

• A list of all accounts and online log-in information with your family so they can notify the bank of your death. Remember that if nobody ever takes any more out or puts money in, the account could become dormant and then becomes the property of the state.
• Any safe-deposit boxes you own – Register your spouse or child’s name with the bank and ask them to sign the registration document so they can have access without securing a court order.

Life Insurance and Retirement Accounts

• Copies of life-insurance policies are among the most important documents for your family to have. Family members need to know the name of the carrier, the policy number and the agent associated with the policy.
• Employer sponsored life-insurance policies, granted by an employer upon your retirement, are most often missed.  New York state alone is holding more than $400 million in life-insurance-related payments that have gone unclaimed since 2000, according to the state comptroller’s office.
• A list of pensions, annuities, IRAs and 401(k)s for your spouse and children. Tens of millions of dollars languish in unclaimed IRAs every year according to the National Association of Unclaimed Property Administrators.

Marriage and Divorce

• Ensure someone knows where you have stored your marriage license. If the document cannot be located, application may have to be made to prove the marriage validity before anything could be claimed.
• For those that are divorced, it is important to leave behind the divorce judgment and decree or, if the case was settled without going to court, the stipulation agreement. These documents lay out child support, alimony and property settlements, and also may list the division of investment and retirement accounts.
• Include the distribution sheet listing bank-account numbers that accompanied the settlement to avoid disputes about ownership or payments due. Also include a copy of the most recent child-support payment order. In the majority of states, the obligation to pay child support still exists after death.
• You also should include a copy of the “qualified domestic-relations order,” which can prove your spouse received a share of your retirement accounts.

No matter what your net worth is, it’s important to have these basic elements of an estate plan in place to ensure that your family and financial goals are met after you die. Let your legacy be good planning for your loved ones!

The information herein contained does not constitute legal advice. Any decisions or actions should not be made without first consulting an attorney.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliate, Spire Securities, LLC. Member FINRA/SIPC.

Women Empowered Toward Investment Success

Women now comprise nearly half of the U.S. workforce, and they now earn a higher percentage of the bachelor’s and master’s degrees compared to men. So how come women’s average retirement plan balances are just 60 percent of men’s average balances?  No, it’s not because there was just a great shoe sale!

Take Control of Your Finances

CONTRIBUTING FACTORS

Several factors may play into women having lower average retirement plan balances:

• Lower average salaries In 2010, the Bureau of Labor Statistics reported that the earnings ratio of women to men was 81 percent. Lower wages may translate to lower contribution and match rates.
• Tendency to select more conservative investments Generally speaking, conservative investments may result in lower long-term returns.
• Employment breaks Not only do women take time off for maternity leave, they may take additional time away for child rearing, as well as the care of elderly parents. Most who take time off for care-giving duties do not continue to contribute to any kind of retirement plan.

Combine the above factors with the fact that women usually live longer than men and, as a result, need an even bigger nest egg, and it’s not surprising that only 24 percent of women are very confident they will have enough money to take care of basic expenses in retirement.

HELP YOURSELF

There are several steps women may take to help themselves live comfortably through retirement:

• Get an idea of how much you may need in retirement If you don’t know, don’t feel bad. Only 40 percent of women (and 45 percent of men) have ever tried to calculate how much they will need to have saved by the time they retire. Try the Retirement Calculator at Fidelity.com  to gain some perspective.
• Pay yourself first Stash cash into your retirement plan — even before saving for your children’s college education (Loans may be available for college, but not retirement). You may feel that’s selfish, but one of the best gifts you can give your children is to secure your own retirement to avoid being a financial burden upon them in the future.
• Learn about saving and investing Usually the more you know, the less scary it is. A good place to start is right here. Go to the Blogs tab on our website at CompassAMG.com  for information on many financial topics, from budgeting  and investing to estate planning
• Explore when to claim Social Security Nearly 60 percent of the people receiving Social Security benefits are women. Although Social Security was never intended to cover all your retirement needs, it may be an important aspect of your retirement. If you are married, there are several scenarios to explore to coordinate you and your spouse’s benefits. For most people, delaying claiming Social Security beyond your full retirement age equals approximately 8% more per year in benefits. (This increased benefit for delaying stops at age 70.) On the Social Security Web site is a Retirement Estimator, which will help you get immediate and personalized retirement benefit estimates. Sign up for My Social Security and view your personal information.

YOU GO, GIRL

Empower your future! Explore, learn and put to work these ideas to close the retirement gap. Begin now to make your future financially secure.  A good strategy and plan will leave a lot more dough around for the magic of martinis & Manolos!! Start today!

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

Written by Steven M. DiGregorio, President, Compass Asset Management Group, LLC.   Compass Asset Management Group, LLC is an affiliate of Spire Wealth Management, LLC.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm.
Securities offered through an affiliate Spire Securities, LLC.
Member FINRA/SIPC.

Retirement and Divorce – Pension, 401(k), IRA and QDROs

You and your soon-to-be ex-spouse have both saved and invested for the long-term within retirement plans, accumulating sizable nest eggs. But what is going to happen if you should become divorced? Will will own the assets and how?

In a divorce, the former spouse and dependents may be entitled to a portion of the retirement assets as part of the divorce settlement. If this is the case, the settlement may include what’s know as a qualified domestic relations order (QDRO). This order outlined by the IRS code that defines the what, when, and how the division of 401(k) or other retirement plan assets will occur.  It is a court judgment or order that names someone other than you as the recipient or owner of the retirement assets. This other person or recipient is known as the alternate payee and may be your spouse, your child, or another dependent.

The benefit to using a QDRO as part of the settlement is that the money moved from the retirement account is not subject to the 10 percent early withdrawal tax penalty, even if you and your alternate payee are both younger than age 59 1/2.  But take warning, if the QDRO is not properly executed on, you will be subject to that early withdrawal tax penalty. In the midst of divorce and the distribution of these assets to other parties, the last thing you want to face is a tax on money that is no longer yours. 

Ensuring the Validity of a QDRO

Divorce Planning

In order for a QDRO to be valid, it must meet some legal requirements. It must be correctly created and it must be adequately verified. Checking the status of your QDRO at both stages is wise to ensure that your QDRO is acceptable under the law. If this seems like a lot of trouble, keep in mind that aside from preventing undo taxation, the other reason why such checking and double-checking takes place is to prevent someone from illegally accessing your retirement assets.

Creation of the QDRO

To be considered a QDRO, the division of your assets must first and foremost be directed by a court order issued in compliance with state laws. The IRS code states that the QDRO must  include the following information to be valid:

• Your name and your last known mailing address.
• The name and address of your alternate payee.
• The amount or percentage of the account to be transferred to your alternate payee.
• The manner in which the amount or percentage is to be determined.
• The number of payments or period to which the order applies.
• The plan to which the order applies.

Verification of the QDRO

If your 401(k) plan assets are subject to a QDRO, you must provide your plan administrator with either the original court order or a court-certified copy of your QDRO document. Your plan administrator will then follow formal procedures to establish the legality of the QDRO and put it into motion. These procedures are part of the rules set down in your 401(k) summary plan description (SPD), and by law they must include:

• Notifying you and the alternate payee that the order was received, and detailing the procedures that will be followed to verify the order.
• Determining within a reasonable period of time whether the order is valid QDRO.
• Accounting separately for any amount payable to your alternate payee during the evaluation period.
• Notifying you and your alternate payee whether the QDRO is valid.

A QDRO Case Study

In a famous case, a man paid out $1 million dollars from his retirement plan as part of his divorce settlement. The man assumed that the order was a QDRO, but missed several key elements that caused the order to be invalid. First, the man’s former wife was not identified as the alternate payee. Second, the order did not include the name or address of the alternate payee. Third, the man did not follow proper procedure for verifying the order.

Because the man was the administrator of the retirement plan in question, he argued that he did not need to file forms with himself, and that the order did not need to include the name and address of the alternate payee because he was personally aware of the details. The IRS did not agree, and deemed the settlement payment an early distribution, subject to the 10 percent early withdrawal federal income tax penalty. This error cost him $100,000.

The Division of Funds in a Divorce

How your funds are divided relies in part on the state in which you live. In most states, your assets are subject to equitable distribution during a divorce settlement. This means that 401(k) assets accumulated during your marriage probably, but not necessarily, will be divided 50-50. Other factors, such as the division of the rest of your marital assets, the length of your marriage, or what each of you contributed to the marriage will also play a part in the decision. However, if you live in a state with a community property law, you may face an equal split in your 401(k) assets regardless of the other division of marital assets. Following is a list of states that presently include the community property law:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

What to Do with QDRO Assets

If you have recently gone through a divorce and will receive money from your former spouse’s 401(k) plan, you have options.

1. Take the money in cash which can be useful to get through the rough divorce period. But if you receive a lump-sum distribution you will have to pay taxes on the entire amount immediately and will lose the investing and earning power of that money for the future.
2. Leave the money in your former spouse’s 401(k) plan. If you would like to leave it in the 401(k) plan, you can make this stipulation part of the QDRO agreement. When the money is divided, the plan’s administrator will create a separate account for you. You may not be able to add to this account or withdraw from it until your former spouse withdraws his or her money at retirement, but you will be able to manage the investments of this money and keep it safely tax-sheltered.
3. Roll over the assets to your own IRA plan. If you would instead prefer an account in which you can make contributions, rolling the money into an IRA is the best option. Transferring the money into an account not connected with your former spouse also provides you with more freedom as you are allowed to withdraw the money at your own discretion.

This legal issues surrounding the use of and the execution of a Qualified Domestic Relations Order are numerous and far-reaching. You will find great value when your attorney works with an employee benefit plans specialist in the drafting and execution of the QDRO agreement.  This is the first step in planning your financial future, make it a good one!

For more information contact Compass Asset Management Group, LLC at 845.563.0537 or Contact@CompassAMG.com

The information herein contained does not constitute tax or legal advice. Any final decisions or actions should not be made without first consulting a CPA, Accountant or attorney.

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.

Marital Property vs. Separate Property

Most states recognize a distinction between marital property and separate property. In a divorce, marital property is divided between the spouses, and separate property is not. So how do you know what is marital and what is separate?

Covering Your Assets In Divorce

Nothing like a little foresight to protect yourself!  Even a mutually agreed upon divorce can turn ugly when the issue of money arises.   When the process of litigation can run up the legal fees quickly, financial pain for both of you is not far off.

Preparing Well: While a peaceable divorce can be a simple division of assets, many times the process becomes more of an emotional than a legal issue.   If you want to be smart about divorce, do your homework and keep your emotions in check.  You can protect yourself by taking a few basic steps:

• Gather and organize all financial records and make copies of everything, one for yourself and a second for your attorney.
• Close, or at least freeze, access to all joint accounts.  Create new accounts in just your name.
• Keep a written record of all expenses run up before and during separation, including bills jointly paid and improvements made to the house.
• Document your net worth and keep a record of cash flow during separation.
• If you suspect your soon-to-be ex is hiding assets, you may have to hire a forensic accountant to sniff out the stash. This can be expensive, and if your ex is unusually devious, there’s no guarantee of success.
• Before you sit down to a settlement conference, make a list of all items you want covered in the agreement. Consider the tax ramifications of forced sales of stock or other investments and consult with your financial planner.
• If there’s something you know your former spouse will want in the property settlement, don’t give it away in a futile gesture of goodwill, use it as a bargaining chip and trade it for something you want. Divorce is a business negotiation, don’t let yourself be taken advantage of.
• Plan to settle out of court. The attorney fees will be significantly less, and the majority of cases don’t go to court. Check the settlement against your wish list before signing off.

The Chief Financial Points:

• Be careful not to focus on the present and miss the future. Make sure you understand the financial implications of your decisions. Rather than accepting a BMW worth $35,000, for example, consider taking a mutual fund with the same current market value. The car will depreciate; the fund, if chosen wisely, probably won’t.

• Count the tax. Don’t forget to factor in the tax costs of every financial decision you make. For instance, two stock portfolios of seemingly equal dollar value might really be worth completely different amounts, depending on capital gains.

• The devil is in the details. In the struggle to keep your divorce simple, make sure you have information on absolutely everything that will affect your financial future: all assets, investment funds, retirement pensions, and so on.

• Failing to untangle all joint finances. Keep your finances mingled and your financial future could be jeopardized if your former spouse defaults on payments, commits fraud, goes bankrupt, or becomes disabled. You might also be liable for any debt that your spouse has incurred under your name. Make sure you have worked out a way cut or minimize all financial ties that bind you before the divorce rather than after it.

• Give yourself time to get your career back on track. If you gave up your career when you got married, it probably won’t be easy to jump back into the workforce. Don’t be surprised when the costs–both financially and emotionally–of resuming your old business turn out to be greater than you’d thought.

Last but not least:

• Divorce is governed by state law, and some details may differ from state to state.
• Your attorney should tell you only what’s been done in other cases and discuss likely outcomes without making promises.
• Remember that your attorney is an advocate, not your friend or confidant. The attorney doesn’t want to hear the details.
• Getting nasty is expensive, and it’s nastiness not division of property that leads to skyrocketing attorney’s fees.
• Learn how to listen to your former spouse.  While listening becomes harder in divorce, it will lessen the pain and the cost.
• Think about what you want in the divorce. The answer is usually simple: out of a dead relationship.
• Most fathers want regular contact with their children, but few want to be the custodial parent. If the kids are going to live with their mother, she will need money to raise them and may need money to cover her expenses until she returns to work. This is about the children, be understanding of their wants and needs.

In the end, divorce is rarely simple. Divorce has become a multibillion-dollar industry complete with psychiatrists, mediators, accountants and sometimes private detectives.  Yet, with a little planning and consideration you can save yourself literally thousands of dollars.

Compass Asset Management Group. LLC does not provide legal or tax advice.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm.  Securities offered through an affilliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.

Be Tax Smart with Retirement Accounts During Divorce

Getting divorced is a major financial transaction not to be taken lightly. As such, it can have serious tax implications, including some pitfalls you’ll want to avoid. This is especially true when it comes to splitting up tax-favored retirement accounts between you and your soon-to-be ex. You’ll need to plan ahead to make sure the tax results turn out OK for you. This blog details the story.

Divorce Finances

Use QDRO to divide up qualified retirement plan accounts

Let’s say you have a qualified retirement plan at work, a profit-sharing or 401(k) plan; or if self-employed a small business retirement program like a “Keogh” pension plan or even IRAs. You’ll probably be ordered by the court to divide up the retirement account(s) between you and your ex as part of the divorce property settlement. However, doing it carelessly can create a real tax liability.

To divide up qualified retirement plan accounts the tax-smart way, you need to establish a qualified domestic relations order, or QDRO. What’s a QDRO? It’s simply some boilerplate language that should be included in your divorce papers. First and foremost, the QDRO establishes your ex’s legal right to receive a designated percentage of the retirement account balance or designated benefit payments from the plan. The good news is that the QDRO also ensures that your ex, and not the plan participant, will be responsible for the related income taxes when he or she receives payouts from the plan.

The QDRO arrangement also permits your ex-spouse to withdraw his or her share of the retirement plan money and roll it over tax-free into an IRA, assuming the plan permits such a withdrawal as most do. That way, your ex can take over management of the money while postponing income taxes until withdrawals are taken from the rollover IRA.

Bottom line: The QDRO is a fair deal for both you and your ex because it ensures that the person who gets retirement plan payouts will also owe the related income taxes.

Here’s the pitfall. If money from your qualified retirement plan gets into your ex-spouse’s hands without a QDRO being in place, as the plan participant, you face a potentially disastrous tax outcome. You’ll be treated as if you received a taxable payout from the plan and then voluntarily turned the money over to your ex. So you’ll owe all the taxes while your ex gets the money tax-free.  To add insult to injury, you may also get stung with a 10% penalty tax if this happens before you turn age 59½.

So make sure your divorce papers include the necessary QDRO language. Helpfully enough, the government even provides sample language in IRS Notice 97-11.

If you think this advice would be so well-known you would be wrong. There have been many court cases where individuals turned over retirement plan money to their ex-spouses without bothering with QDROs. Those individuals all wound up incurring big tax bills. Perhaps not fair, but the tax rules are often unfair to folks who don’t know what they are doing.

Be careful with IRAs too

You don’t need a QDRO to divide up an IRA between you and your soon-to-be ex without dire tax consequences. You can simply arrange for a tax-free rollover of money from your IRA into an IRA set up in your ex’s name. Then your ex can manage the rollover IRA and defer taxes until he or she begins taking money out of the account. As with a QDRO, this procedure ensures that your ex, and not you, will owe the resulting income taxes. These rules apply equally to traditional IRAs, Roth IRAs, SEP accounts, and SIMPLE IRAs (they are all considered IRAs for this purpose).

You still need to be careful here. The nice tax-free rollover deal only applies when your divorce agreement requires the rollover. If money from your IRA gets into your ex’s hands before or after the divorce without such a requirement, again you’ll be treated as if you received the money, and you’ll be on the hook for the related taxes–even though you didn’t actually keep the money. Plus you’ll usually owe a 10% penalty tax if you’re under age 59½. To avoid this fate, you should never transfer IRA money to your ex in advance of a legal requirement in your divorce papers to do so.

In the end

You can divide up tax-favored retirement account money the tax-smart way or the tax-naive way. Unfortunately, some otherwise-competent divorce attorneys know little or nothing about taxes, which doesn’t work in your favor.  You’ll need a good financial advisor or a tax professional that have handled numerous divorce-related tax issues to work with your attorney.  The good news is, they generally don’t charge as much and you’ll actually save money in the process.  While your attorney might be able to fill that role, don’t take it for granted.

For more information contact us at 845.563.0537 or Contact@CompassAMG.com

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm.  Securities offered through an affilliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.