Money in the Middle

Okay baby boomers, the road to retirement will be working longer. Here’s one more change in our retirement plans. The economy is changing the way we think about where we want to live as we age, according to new research on housing trends. 

 While most 55+ consumers prefer to stay in their current homes as they age, an increasing number are moving to age-restricted communities – and not in the normal “retirement zones” but in places that are close to work and family and friends, according to research from the MetLife Mature Market Institute (MMI) and the National Association of Home Builders (NAHB). 

This is a trend that can have a big impact on families and their ability to provide support in times of need.  It is also recognition that while many of us will be working longer; we want to keep some of the aspirations of retirement like a new one-floor home and no grass to mow.  

So if you or family members or friends are thinking about moving in retirement (or buying now because prices are low), here are some things to consider along with buying into the “retirement life-style”:

1.  What type of access will you have to medical care – especially hospital services?

2.  If you need care or help due to a medical issue who will you call on locally for help?

3.  If you move to an age-restricted community, how will you feel about it as the community ages?

4.  If you move away from family to a less expensive area, will you be able to afford to buy back near family in the future if your circumstances change?

5.  Is the home suited to “aging at home”—wide doorways, no steps.

 As more retirement communities become working communities it’s a good idea to plan ahead and think about how it will work for you and your family as you age.  

There is a lot of talk about how the current economy is hurting baby boomers and older generations.  And it is.  But, the younger generation is being hit hard too – maybe even harder– because they have had no time to build up a financial safety net.

A new study from MetLife says that more than 50% of Gen Y employees (ages 21-32) are living paycheck to paycheck. About 73% are very concerned about having enough money to make ends meet compared to 56% of Generation X employees and 62% of baby boomers.

And, they often don’t understand or take advantage of benefits they have available through work.  When I think back to my first jobs, I can’t remember ever thinking about retirement plans (of course there weren’t 401 k’s then) and only vaguely aware of other benefits offered.  While there is more awareness these days of the importance of benefits like health insurance and retirement, this is also a time when people feel invulnerable to what “could” happen.

Yet, the research also found that almost half (49%) of the Gen Y surveyed employees were married and 46% had children.  So the gaps in their financial safety net are now more critical…and you can begin to see how their financial problems flow to older family members.

So maybe it’s time for baby boomer generation to stop complaining about their fate and the mistakes they have made and help the younger generation take steps now to avoid future problems.

It is a good opportunity for employers too to educate younger employees about benefits and basics of financial planning.  If you’ve got a GenYer in your household, offer them some guidance on taking advantage of benefits with their employer, including savings and insurance coverage.  It might be that some of those dollars spent on Internet and mobile phone plans need to be diverted to shore up family finances. They may not even know what they need in insurance coverage.  It’s an opportunity to stop the cycle and get smarter about personal finances. 

There might be releif ahead for those struggling under mountains of credit card debt that grows with each new fee and penalty.

“The days of any time, any reason rate hikes and late fee traps have to end,” President Obama said today in a meeting with credit card executives.

That would be good news for not baby boomers caught in the middle – with their own credit card issues, or trying to help older and younger generations with their credit card headaches.

There’s no doubt that some have used credit cards irresponsibly and gotten themselves in trouble with too much debt.  But that has been compounded with the frequent rate increases and new fees the credit card issuers have been piling on.

New rules are schedules to put a stop to much of this next July (2010).  But the call today from Congress and the President was that the practices have to stop now!. Especially as the taxpayers are funneling billions into the banks.

So, if you’ve got credit card troubles, continue to watch that change of term statement that comes in the mail.  And pay attention to what is changing and if you can, switch your balance to a less onerous card or stop using it if that will stop the fee increase.  If you’re working on a plan to get your credit card bills under control, keep at it.  Steps to stop the fee increases will help, but you need to keep paying down that debt, too.

We all have a tendency to toss those envelopes aside when they come.  Open the envelope and understand what changes are coming your way.  And let’s hope that action comes soon from Congress to put a stop the many of these outrageous fees.

This is an issue that has impacted one out of four families.  It could save a lot of money for lots of people.  Let’s hope the Federal Reserve steps in and puts the new rules in effect right away.

Looking for financial help? Need money to go to college? Talk to Grandma.

New research says that the 70 million grandparents in this country control the majority of financial assets and spend over $2 trillion on goods and services every year – about $52 billion on their grandchildren.

“When the economic history of this recession is written, it will likely show increased spending by grandparents on grandchildren to compensate for reduced incomes of their adult children.” predicts the survey by grandparents.com.

So rather than hit the bank of Mom and Dad – try the bank of Grandma and Grandpa or Great Grandma and Great Grandpa. They have more assets and less debt and, according to the research, a desire to help.

This rings particularly true as high school seniors are getting their acceptance letters for college and their parents are wondering how to pay the tuition bills, meet their own bills and save for retirement.

Of course the ability of a member of the older generation to help out depends on their financial circumstances.  Many are getting hit with higher than expected health care cost, reductions in retiree benefits from former employers and lower than expected income from investments. They can’t put their future at jeopardy to help another family member.

But if financially able, there are a number of ways a grandparent can help with college funding:

·         For young children, regular contributions to a college savings plan can be a tremendous help to cash squeezed parents.

·         Gifting – up to $13,000 per person per year can be gifted without tax consequences.  That can help pay tuition or living expenses.

·         Loans – student loans are more difficult to get than in the past.  A loan from a grandparent, with a pay-back schedule that begins after graduation can provide the resources now and interest income for the grandparent when the time comes to pay back.  Make sure you write up a loan document (even if it might be forgiven later) to make sure that everyone has the same understanding of the deal.

·         Direct payment of tuition – if the grandparent makes the payment directly to the school (pays the tuition bill for example) it is not subject to the gifting rules.

(You should check with a tax advisor on these strategies to see what makes the most sense for you and your grandchild.)

The grandparents.com survey estimates that grandparents spend $32 billion on tuition and other expenses annually.  Beyond spending on education, grandparents are giving their grandchildren over $5.5 billion each year in gifts of stocks, bond and mutual funds, according to the report.

Another way to help is to help a recent graduate facing mountains of school debt to pay off student loans.  An anecdote in today’s Wall Street Journal about student loans quotes a 24-year old graduate who gets $200 per month to help pay off her student loan debt as she tries to make ends meet.  It’s a wonderful bond that can develop between the generations when small financial help can reap such big benefits for a tight budget.

 The last couple weeks may have boosted our spirits about the economy, but we’re not feeling very good about the road to retirement.  

A Longer Road to Retirement

To borrow from the Beatles — It’s going to be a long and winding roadMore of us plan to work longer and to supplement our income in retirement by working –for pay.  

 That’s the word from the Annual Retirement Confidence Survey released by the Employee Benefit Research Institute (EBRI).

The only surprise in the news is how many of us admit that we are changing what retirement will look like.  Retirement Reset, which I’ve written about before, is taking hold, especially among baby boomers.  Forget Plan B and Plan C — We’re putting New Plan A in place.

Here are the highlights of the survey so you can see how you stack up:

• Delaying Retirement:  28% of workers say that in the last year they have changed the age at which they expect to retire.  Of those, 89% postponed retirement to increase their financial security.  The mid-point for retirement is now 65, with 21% planning to push on into their 70s.

• Working in Retirement: 72% plan on continuing to work after they retire; that’s up from 66% in 2007. But planning and reality often clash.  Among retirees, only 34% surveyed report they worked for pay.  I suspect job availability and health conditions contribute to that disparity. Even the best laid plans are often derailed for reasons out of our control.

• Cutting Back, Working More:  workers who have lost confidence in their ability to have a secure retirement are reducing their expenses (81%), changing the way they invest their money (43%), working more hours or a second job (38%), saving more money (25%) and seeking advice of a financial professional (25%)

• Little planning for retirement:  Many still don’t know how much they need to save for retirement.  Only 44% report they have tried to calculate how much they need to save; 44% simply guess.

• Retirement contribution/savings:  Most have not changed their retirement savings plan (72%).  Eighteen percent say they increased their contribution and 11% decreased it.

The good news is that more people are facing the reality of the situation and preparing to take the action to build a secure retirement. True, it’s not where we hoped to be – or maybe even want to be, but it is a good sign that we are setting aside the highly-inflated plans of past – and facing retirement reality. 

Do you have a new Plan A?

Consumer Reports just listed their five favorite retirement planning sites.  I’d say they are more sites to help support building a retirement plan.  They can also be very helpful if you’re in the midst of a crash course trying to understand Social Security and Medicare to help an older adult.  Here are the five sites CR recommends:

www.ssa.gov The Social Security site gives you information on social Security payments, plus estimator so you can see how much you’ll be eligible for.  You can even sign up online for benefits as you approach eligibility age — 62 — but really think about whether you can wait until 66 or older.

www.IRS.gov — Great information on IRAs, estate planning rules –just takes some time to wade through the information. You can also find out the rules around declaring an older adult as a dependent if you are providing support and care.

www.PBGC.org– If you are lucky enough to have a defined benefit plan, but it’s in financial trouble, it may end up with the Pension Benefit Guaranty Corp.  Information and rules here.

www.medicarerights.org and www.medicare.gov – Lots of great information understanding your rights under Medicare, but also how it works and what it pays for.  also great information for caregivers and ratings on nursing homes.

www.elderhostel.org — not retirement planning, but if you’ve got the time and money to travel, this site provides some great trips – including some for taking along the younger generation.

 I would add:

 www.aarp.org/money/personal/reverse_mortgages/ - Reverse mortgage information.  there’s more interest in these mortgages as cash strapped retirees look to their home to help pay bills.  It’s important to understand the pros and cons before heading down this path to see if it’s the right choice.

www.aaltci.org/– Long-term care insurance information

www.caring.com — Good source of information and community for caregivers

www.wiserwomen.org — Women’s Institute for a Secure Retirement — good basic information and special considerations for women — young and older.

Emotionally and financially, helping parents pay for housing is much different than helping your children buy a first home.  If Mom and Dad need help covering housing costs at this point in their life, something has not gone as planned.

It may be investments gone wrong.  It may be retirement costs are higher than expected.  Loss of retiree benefits.  Or there has been a medical condition that has eroded savings.  Or they simply need to move closer to relatives but can’t sell now.  A recent survey by the Pew Internet project found that of those aged 65+, almost 10% owed more on their mortgage than their house was currently worth; for those 50-64 – the percentage was 30%.

Some speak of this as a time of “negative inheritance.”  You thought you’d be getting a small inheritance from them someday, yet it has turned out that your money is flowing to help support them as they age.

So what’s the right thing to do?  It all depends.  Here are some tips. 

1. Have a frank discussion about money.  Not just the housing crisis, but an overall look at their financial position – debt, health insurance coverage, available assets so you can get a true sense –together – of the current and future needs.  If you have a financial advisor, you might ask them to help with this discussion since it will likely impact your financial future as well as theirs.  And having a third party can help.  It’s embarrassing for your parent and probably uncomfortable for you.

2.  Be honest with yourself about what you can do to help.  This is where the friction between emotion and money sparks.  If helping them jeopardizes your own financial position, it’s not a solution.  Funds to help them should not be coming out of your retirement funds, but rather out of current income or other savings.  Otherwise you are putting your future at risk and potentially perpetuating the cycle.  And if they are in the position they are in because of financially irresponsible behavior and show no signs of changing, your dollars won’t really make a difference.

3.  Structuring housing support.  Are you helping pay their mortgage, are you helping pay their rent, are you purchasing a home that they will be living in (paying some costs or none at all).  How you structure the financial assistance can make a big difference for your financial situation.  If you are purchasing the property, you have a financial asset.   If you are paying their mortgage, they own the asset.  If you are paying rent, that’s money that won’t be recouped. Also look into what your assistance does to their ability to tap into government assistance programs.  Speak with a tax advisor or elder law attorney about the right way to structure financial assistance that is beneficial for both of you.

Providing assistance to your parent can be a real treasure – a way to give back when it counts most.  Or it can be another strain on your already beleaguered finances putting both you and your parents at risk and leading to anger and resentment.

If you make the decision to help pay for housing, then understand this is not a decision you can easily turn away from in the future.  Take the time to get the information you need to make the right decision for you and your parents and your family.

Helping with Housing Costs- Right Decision for You?

If you are a baby boomer and thinking about helping pay for housing for your adult children or for your parents, there are some basics rules to remember.  But, there are also some things that are very different about helping a member of the younger or older generation.  In both cases, balancing the emotional decision with financial reality is important for your financial future.

Let’s look at the younger generation first: 

Before this last housing bubble, when you needed a down payment to buy a house, many adult children turned to Mom and Dad to help fund the down payment.  Those times are back as lenders look for a down payment of 10-20%.  With housing prices and tax incentives for first-time home buyers it might be a great time to help out…if you can afford it. 

1. Know the mortgage rules.   Only 6% of down payment can be donated as a gift is limited if it’s an FHA conventional loan.  If you provide the funds to the homebuyers ahead of time, do you have agreement on what the money will be used for? will it be returned if they don’t find a house within a certain period of time?

2.  Know the tax rules on gifting.  If the funds are being provided as a gift, know the maximum amount you can gift per person per year ($12,000) without tax implications for them.  Once the money is gifted, it is theirs to do with as they please. 

3.  Use a written agreement if it is a loan. Best intentions today, but things can change.  To avoid hard feelings in the future, put together an agreement that spells out the conditions of the loan (even if you are hoping to forgive the loan at a later date). This also makes clear to your adult child that this is a financial transaction that they are responsible for, just as they would be to a bank.

4.  Can you really afford to help?  This is a tough question, but you need to ask yourself honestly whether your financial circumstances make it possible for you to help. And, whether your child can really afford the purchase or whether you are enabling them to do something which is too much of a stretch.  If you are thinking of taking money out of a retirement fund to help, you probably can’ afford it. You’ll need that money for your own retirement, and taking out funds at the current market price is probably not a wise financial decision.  What if the money doesn’t get paid back?  What if you lose your job or have a medical condition and need those funds? Can you afford to do this for all of your children?

If you have a financial planner, ask him/her what they think and if you decide to help, where should the funds come from?

Resources:

Bank of Mom and Dad  -Washington Post article 

IRS rules on gifting  

IRS Rules on first time home buyers tax credits

Doctor visits. How to get there when you can no longer drive?

 If you area baby boomer helping care for an aging relative, you know this is a big issue.  Because you are probably spending a lot of your time driving to and from doctor appointments. Squeezing them in between work and your own family responsibilities.

The current economy has made that a bit tougher.  It’s harder to take time off work or looking for work.  But, the solutions are few.  I think this is one of the large issues facing our aging society – spread out as we are in suburbs and exurbs.  But, what’s the solution today?

There are some volunteer groups that can help.  Check with your local Office on Aging or senior center for possible resources.  Taxii?  An option but for the frail elderly not a solution since they need assistance getting to and from the vehicle as well as often help checking in the doctor’s office.

There is a new business in San Francisco that holds hope for those of us trying to figure out how to be in two places at once, and keep our loved one in good hands.  The business is called SilverRide.  And, they just won business of the year award from the American Society on Aging.

In addition to providing transportation to older adults, SilverRide enables its clients to have a more connected, fulfilling, dignified and independent lifestyle after their “driving retirement,” while providing peace of mind to those who care for them. It can even positively impact long-term health and quality of life.

The relationship between the client and the driver distinguishes SilverRide from other transportation services. SilverRide conducts an extensive interview with its clients ahead of time to better understand their particular needs. It also trains its drivers in senior sensitivity and safety on an ongoing basis. This process forges a rich relationship between the client and their driver companions, who bring their own unique personalities to the table.

SilverRide also provides ongoing communication with its clients’ families, whose work and familial responsibilities or distance from their aging parents may prevent them from caring for them full-time. SilverRide’s on-going communication and breadth of services help reduce this anxiety.

Susan Steiner Saal and Jeff Maltz, Co-Founders of SilverRide, said, “We both watched our parents struggle to manage the needs of our grandparents. When we hear from our clients that SilverRide has solved a real problem for them, it is a reward in and of itself!”

And it’s about more than doctor’s visit – it’s maintaining social interaction and activity.

According to the American Public Transportation Association, when older adults stop driving there can be a number of serious negative consequences. They make 15% fewer trips to the doctor and 65% fewer trips for social, family and religious activities.

In fact, The Journals of Gerontology reports that elderly non-drivers are four to six times more likely than their driving counterparts to pass away during the subsequent 3-year period. This devastating outcome is due to the fact that for older adults, their ability to drive provides independence that leads to underlying health and well-being.

So if you are in San Francisco, look them up.  Elsewhere?  Any one have any recommendations for solving the transportation problem?