SHOW NOTES: 2020-06-11 MiM

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Last Week’s Question of the Week: Under normal circumstances, if I retire at age 63, I can get my health insurance through Medicare. True or False?

ANSWER: False.

HOST: I know on your show you often discuss the steps we need to know as we approach retirement. An area today you are bringing up is the importance of reviewing your beneficiaries on your various investments and property?

KLAAS FINANCIAL: This is really an important item that we want to make sure that our listeners are up to date with prior to retirement, into retirement, and beyond. Keeping in mind that we are not attorneys, here are a few key points:

  • You should review and if necessary, update your beneficiaries, your will, and trust documents every few years. This is a very common mistake and perhaps a life-changing mistake for those people that you leave behind where you didn’t remove an ex-wife’s name and put your new significant other as a beneficiary, or you left off your new husband’s name and left on the names of your parents or siblings. Many people have deceased relatives that are still named as a beneficiary on a retirement account at a former employer or on a life insurance policy purchased years ago.
  • Many people do understand the importance of preparing a will or trust, but again, many fail to update a will or adjust beneficiaries when circumstances change.
  • Major life events such as births, deaths and divorce can dramatically alter your transfer plans, so it is very important to ensure that your listed beneficiaries, and your will or trust reflect your intentions. Review these documents with your estate attorney, and your listed beneficiaries with your financial professional. Review how your assets such as your home and your investments are titled to make sure that they match with your overall estate plan and objectives.
  • Explain the differences between Primary, Contingent and Per Stirpes designations on Beneficiary Forms. Many can be done online these days.
  • Good to know: Listed beneficiaries on your accounts will trump last wills and testaments in court. Make sure everything lines up as you wish for your assets to transition properly.

HOST: I assume that Power of Attorney Documents should be reviewed as well?

KLAAS FINANCIAL: Yes. Having your Power of Attorney documents in order and updated for both Health and Property is super important!

So, what is the difference between being a beneficiary vs. being a Power of Attorney? A named beneficiary only comes into effect at the death of someone whereas the POA document comes into effect while the person is still living but typically incapacitated. Which is more likely, incapacitation or early death? Make sure these are in place and updated as well. And if you don’t have these documents, seek out a referral to get these in place.

Defining different types of Power of Attorney documents that exist:

Power of Attorney for Property (also referred to as a Financial Power of Attorney):
It is important to note that a POA for Property does not convey your health and medical decisions. That is a POA for Health which we will discuss a little later. When you are ill or incapacitated, either for the short- or long-term, you’ll need someone to pay your bills, make investment decisions and handle other financial matters. This person is known as your agent. You will specify your agent and your wishes in a document called your financial power of attorney. There are several types of financial powers of attorney to consider:

  • A limited power of attorney is usually assigned for a specific purpose and time period. It’s often used when you can’t handle certain affairs due to other commitments or short-term illness.
  • A general power of attorney is much more comprehensive and gives your agent broad powers to act on your behalf, including managing all your financial transactions, signing documents, settling claims, operating your small business and any other financial duties you specify. A general power of attorney can remain effective until you pass away, but in most states it will automatically end if you become incapacitated.
  • A durable power of attorney serves the same function as a general power of attorney, but it remains effective even after you become incapacitated. That way, your agent can manage all your affairs after your incapacitation without need for court involvement.

Speak to an estate planning attorney to make sure you have the right POA in place for your needs. Make sure that your financial professional has a copy of this document in the event you are not able to make decisions for yourself regarding your accounts.

HOST: What about Health Care Power of Attorney documents?

KLAAS FINANCIAL: Either reviewing and updating your current POA for Health Care, or actually getting one written is vital if you don’t have one.
 So, when naming someone to make health care decisions on your behalf, there are three main types of health care directives for you to consider:

  • A health care power of attorney names someone that you trust to make health care decisions on your behalf if you are unable to speak for yourself, as well as an alternate agent if your primary agent isn’t available. A health care power of attorney, also sometimes known as a health care proxy or an appointment of a health care agent, is more flexible than a living will, since it’s impossible to predict every possible medical situation that may arise and your exact preferences for each situation.
  • A living will indicates your specific desires about life-sustaining treatments. Your living will should go into as much detail as possible regarding your wishes in a variety of medical situations.
  • An advance directive essentially combines a living will and a health care power of attorney into one document. This document will indicate your health care preferences as well as an agent to make additional health care decisions for you and is often the strongest option if you have strong preferences regarding end-of-life care as well as someone you trust to make health care decisions for you.

Why this is very important: If you do not explicitly express preferences for health care or end of life treatments in either of these ways, then the law in your state determines who makes those decisions for you when your are unable to make them yourself.

HOST: You have discussed in previous shows the need for everyone to have their estate planning documents in place. Why is this important?

KLAAS FINANCIAL: The bottom line is that everyone has an estate which is comprised of everything you own whether it be your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, and/or personal possessions. No matter how large or how modest, since you cannot take it with you when you die, you probably want to control how those things are given to the people or organizations you care most about.

To ensure your wishes are carried out, you need to provide instructions (using a will or trust document) stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will, of course, want this to happen with the least amount paid in taxes, legal fees, and court costs. This is estate planning, making a plan in advance and naming whom you want to receive the things you own after you die. Hence, the importance of having a good estate plan and attorney to make sure your estate plans are funded/carried out as you wish is important.

A 2019 study by on the importance of having wills and estate planning in place found that while 76% of the respondents believe it is important to have these in place, only 40% actually do.

HOST: Jonathan from our Money in Motion Listener Corner asks:
I am planning on retiring in the next five years, how much do I need to have saved to do this comfortably?

KLAAS FINANCIAL: Well, that depends. The most important thing you can do as you prepare for retirement is to think about the life you want to live after you retire. How much you need to save is determined by how much your retirement lifestyle is expected to cost. Generally, we have seen people need 70-80% of their pre-retirement income in retirement.

Focus on the desired lifestyle first, then back into the savings amount required. Once you determine the amount required for income each year, then look at your projected social security benefit at Full Retirement Age, look at any pension income or spousal income or even part-time work income. Whatever amount short you come up with, is where you will need to draw off from your retirement and investment pool of assets. Normally people will look at drawing off 3-4% of their investment portfolios to make up the difference for their income but this of course can vary.

This Week’s Question of the Week: True or False? A Power of Attorney for Property conveys your medical wishes and decisions.

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.