The fear of outliving one’s retirement resources is a reasonable one. After all, advances in medical treatment and healthier lifestyles have resulted in increased life expectancies. For financial security and peace of mind, you will need to know that you will have a steady stream of retirement income to keep you comfortable for 20 or 30 years—perhaps even longer. At the same time, a longer life span suggests that you need to have funds in reserve to meet any extraordinary expenses that may arise during your lifetime.

What can you do to feel confident that you can meet your goals? Here are a few ideas. Plan your distributions from your Rollover IRA

A rollover of your distribution from your company plan to an IRA can provide you with a flexible source of retirement income as well as a reserve for emergencies. You may leave your IRA untouched, or take as much or as little as you need, as the occasion arises, until you reach age 70 1/2, when you must begin making required minimum distributions (RMDs) every year. You may, of course, take out more than your RMDs,to meet your income needs or to cover extraordinary expenses when they arise.
The amount that a retiree must take from his or her IRA in any particular year may be determined from the table here. For example, at age 71 an individual with a $100,000 IRA would need to withdraw $3,774.

Delegate management of your other assets
What about the financial assets that you own outside of the IRA? What’s the best way to manage them to last without sacrificing the quality of your retirement?
A living trust is the best answer for many people. With a living trust you can benefit from:
• an asset allocation plan tailored to your circumstances;
• professional investment management and strategic decision making;
• continued financial management in case of your illness or incapacity.

You also get an “executive assistant” for financial management, which can be valuable in sometimes unexpected ways.
For example, here’s how we help our clients: Mrs. B, the beneficiary of a trust set up by her late husband, which we manage as trustee, calls us to report that her son-in-law has recommended that her trust should make some investment changes. It might be cattle futures, or a new high-tech stock issue, or covered call options, or any one of any number of investment fads. In any case, Mrs. B didn’t understand it, but the son-in-law sounded so certain, so confident, perhaps it would be a good idea?

We’d be happy to consider any investment changes that are consistent with the trust’s purpose, we told Mrs. B. Just send your son-in-law to our offices to explain his idea in more detail; tell him that we are acting as your assistant in financial matters.

In the usual case, when Mrs. B asks about the investment idea a month later, it turns out that the son-in-law didn’t have enough courage of his convictions to bring the idea to our attention for a professional evaluation. And the trust assets remain intact.

Meeting the challenge
To reach a comfort level with your retirement planning is a challenge, but one that need not be faced alone. Calling upon the knowledge and experience of professionals who will listen to your concerns and suggest solutions will help you define and meet your expectations.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

If you are like some people, you may not want to leave your home, ever. But suppose that after you retire, your plan is to move out of state, or you’re healthy and active but just tired of all the work associated with home ownership.
Avoiding the need to search more than once for the right place to live—not to mention the upheaval in your life that such a search can bring— may be important to you. If that’s the case, consider exploring the possibilities offered by a life-care community (sometimes called a continuing care retirement community).

The concept of “aging in place”
Life-care communities allow residents to live independently for as long as they can, and then to move on to assisted living and skilled nursing care facilities, as needed, usually within a “campus” at one location. Services are tailored to suit residents’ needs, abilities and preferences, and when a specific service is not required, the resident still can opt to enroll in it later.
Those who enter a life-care community are making a contract in advance, committing to a substantial financial commitment in exchange for the community’s commitment to care for them in their future needs. The contract usually is explicit as to when a resident should move to another level of care. Up to that time the resident may, for example, bring in home health care services after a hospital stay or use other personal supportive services to help remain where he or she is currently.
Movement need not be in just one direction. For instance, if someone living independently becomes incapacitated to the point where he or she needs to enter a skilled nursing facility for a time, upon recovery the individual can return to his or her independent lifestyle within the community.

Entry requirements
Some communities operate as nonprofits and are affiliated with a specific ethnic, religious or fraternal order, and membership may be a requirement.
The majority of communities require applicants to have a medical examination in order to assess their physical and mental status. Selected preexisting conditions may cause a community to refuse an applicant. Some require residents to be enrolled in both Medicare Part A and Part B.

An overview of contractual arrangements
Typically, applicants will be presented with one of three types of contracts. The names may differ, and availability depends upon state laws:
A life care/extensive contract delivers the whole package—housing, residential services, amenities and unlimited long-term nursing care at little or no additional cost for as long as the services are necessary. This type of agreement is the most expensive, but in the long run could prove well worth the cost.
A modified/continuing care contract is similar, but long-term health care or nursing services are limited to a certain number of days per year or lifetime. After the specified care period, the resident is responsible for any additional cost.
A fee-for-service contract requires that residents pay separately for all health and medical services and for long-term care (although access to care can be guaranteed). This is the least expensive, but most risky, contract. If more extensive care is needed later on, the cost can be very high.
Some communities have arrangements to rent housing on a monthly or annual basis. Access to health care services are extra but won’t be guaranteed. Other agreements may start at the assisted living or skilled nursing facility level from somewhere other than the life-care community.

An expensive solution
The cost of a life-care community has two elements: the entry (or “buy-in”) fee and a monthly maintenance fee.
The real estate values in the geographic area of the community play a key part in the amount of these fees, as does the residence chosen at the independent living level (which may range anywhere from a studio to a multi-bedroom apartment to a single-family residence).
Other factors affecting costs are: the amenities chosen; whether the living space is for one or two individuals; the type of service contract chosen; the current risk of needing intensive, long-term care–those who are in good health at the time that they sign a contract can expect to pay less. The price tag may be several hundred thousand dollars, and at the uppermost end, perhaps $1 million or more. Monthly fees usually will be in the four digits.
Some entry fees are refundable or amortize over a set number of months or years. For instance, under a declining scale of refunds of 1% a month, if you cancelled the contract after six months, you would get 94% of your money back. A guarantee of partial refund of the entry fee will ensure that a specific percentage of the fee will be returned within a certain time period, regardless of the term of residency (for example, a percentage of the fee to the individual upon termination of the contract or to his or her estate at death). A full refund may be available for a set time period and under certain conditions—and will mean an increased entry fee.

Scrutinize the financials
When considering a move to a life-care community, make an appointment with someone who is well informed about its financial practices. If the person doesn’t have all the answers to your questions, ask him or her to follow up with you or direct you to someone who can answer them.
For in-depth guidance about examining the financials of a life-care community, you can go to http://www.carf.org, the Web site of an independent, nonprofit organization called the Commission on Accreditation of Rehabilitation Facilities and download its “Consumer Guide to Understanding Financial Performance and Reporting in Continuing Care Retirement Communities.” Here are a few of the questions that they recommend you ask when you visit:
• Ownership information. Is the community stand-alone or part of a parent corporation with multiple communities? Does the company have plans to build or acquire additional communities? Has the community changed ownership recently, or does it plan to in the near future? Does it have a governing board, and, if so, how is the board chosen?
• Fees. What is the deposit fee and the refund policy if one decides not to move into the community? Is there a structure for refund of the entry fee, and how does it work? What services are included in the monthly fee and what are the costs of services not covered? How are increases determined? What is the history of increases (how often and by how much)? How does the need for more services or a move to a different level of care affect the monthly fee?
• Financial performance and security. May I review the most recent audit, annual financial report, balance sheet and statement of profit or loss? Does the community or parent organization have a positive net worth? In the last few years, has operating revenue exceeded operating expenses? Does the community or parent company rely on nonoperating income—for instance, investment income—and to what degree? What kind of insurance protection is maintained? Are there any recent (or planned) expansions or major renovations? If so, how will they be paid for?

The regulatory environment
Besides an exhaustive examination on your own, how else can you be sure that the community you choose is fiscally sound and delivers on its promises?
Life-care communities are highly regulated in some states, but not in others. And there is no federal agency that oversees these communities. In accrediting these communities, the Continuing Care Accreditation Commission, an arm of the Commission on Accreditation of Rehabilitation Facilities, undertakes a review of: finances; governance and administration; resident health and wellness; and resident life. The fly in the ointment is that accreditation is not required. It’s a strictly voluntary procedure.

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If you find the concept of a life-care community attractive, before signing a binding contract, it’s highly recommended that you seek financial and legal advice before making that final decision.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

In personal bankruptcy proceedings, the general rule is that IRAs and other qualified retirement assets are protected; they not subject to the claims of the individual’s creditors. However, a recent Florida court case showed that every rule has its exceptions.

Ernest Willis filed for bankruptcy in 2007. Among his assets were a $1.2 million Merrill Lynch IRA and two smaller IRAs of less than $150,000 each. The IRAs had favorable determination letters from the IRS, which created a presumption that they would be exempt from the claims of Willis’ creditors. However, the bankruptcy court ruled that the creditors had an opportunity to rebut that presumption, which they did.

In December 1993 Willis took a $700,000 distribution from the Merrill Lynch IRA to take care of a delinquent mortgage on property that he owned with his wife. The money was returned to the IRA in February 1994, 64 days later. Had the money been restored to the IRA within 60 days, there would have been no problem. However, because Willis crossed the 60-day line, the bankruptcy court ruled that the loan was a prohibited transaction, one that cost the IRA its tax-qualified status. The entire $700,000 should have become a taxable distribution, and the redeposit of the money should have been penalized as an excess contribution. However, the IRS never noticed the problem.

Nevertheless, the bankruptcy court now holds that because the IRA ceased being a qualified retirement plan in 1993, it was no longer a protected asset in bankruptcy.

What’s more, in 1997 Willis made a series of eight transfers between his regular brokerage account and the Merrill Lynch IRA. Transfers from the IRA were all returned to it within 60 days, but the tax law allows for only one 60-day rollover per year. The Court held that this “check-swapping” scheme also amounted to prohibited borrowing from the IRA, so that if the IRA hadn’t become invalid in 1993, it certainly did become so in 1997.
The other two IRAs were traceable to funds received from the Merrill Lynch IRA after 1997, so they were similarly unprotected.

The statute of limitations has run for the 1993 and 1997 tax years, so the IRS isn’t likely to get the tax money that arguably came due then. But the shield created by the lapse of time with respect to the tax claims offers no protection in the bankruptcy context. Thus, it’s important to handle tax-qualified assets with utmost care, to be certain that they will be available during retirement.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

If you are a beneficiary of an estate that includes an IRA, we have two words for you: It’s complicated.
Most estate assets are received without income tax strings attached. Not so for IRAs. Income taxes must be paid on all distributions from traditional IRAs, and both traditional and Roth inherited IRAs are subject to complicated minimum distribution rules. Here are some points to keep in mind:

• Special rules apply to surviving spouses. A surviving spouse may roll IRA assets into his or her own IRA. That action permits continued growth in the IRA until the spouse reaches age 70 ½.

• The 10% premature distribution penalty does not apply to distributions from an inherited IRA. Accordingly, if the surviving spouse is fairly young and will need the money, the rollover might not be the best idea. Other heirs, who don’t have the deferral option, won’t have to worry about the 10% penalty tax either.

• The beneficiary form is crucial. The person named as the surviving beneficiary of the IRA must begin taking minimum distributions by December 31 of the year after the IRA owner’s death. However, the payments may be calibrated to the beneficiary’s life expectancy, and so can last a lifetime. This is the “stretch IRA” that has been a topic in the financial press. For the beneficiary of a Roth IRA, these lifetime payments are free from income tax.

• The five-year rule. If there is no named beneficiary, or if the estate is the beneficiary, the entire IRA must be distributed over the five years following the owner’s death. Generally, one will want to avoid putting that entire lump sum into a single year, as it would likely boost the recipient into a higher tax bracket. A named beneficiary has the option of this approach as well.

• Multiple beneficiaries. It is possible to have more than one beneficiary share an inherited IRA. In that event, the IRA may be split into separate inherited IRAs, one for each beneficiary. This gives each beneficiary control over investment decisions and allows the distributions to be geared to each beneficiary’s lifetime.

• Primary and secondary beneficiaries. Some planners recommend having primary and secondary beneficiaries for an IRA. For example, a spouse could be the primary beneficiary and the children secondary, to inherit only if the spouse does not survive the IRA owner. In addition to building in a backup plan for the spouse’s premature death, this approach also creates the opportunity to disclaim the IRA if family financial circumstances warrant it.

The fact that a nonspouse heir can’t roll over an inherited IRA may not prevent similar retirement ends from being met with careful planning. For example, let’s say that Mary has been saving less than the maximum allowed in her employer’s 401(k) plan. She inherits an IRA, but has no pressing need for the money and would prefer to “let it ride” for her retirement. She may be able to increase her 401(k) plan contributions by the amount of the required minimum IRA distributions that she receives. The lower salary will be offset by the new IRA money, which should be roughly a wash for income tax purposes.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.