Posts Tagged ‘baby boomer’

By – Jeffrey D. Carlson, CFP®

Inheriting money is typically a gift from someone close to you that deserves to be cherished and put to good use. If managed well, the benefit to you can far exceed what even the best-intentioned benefactor might have imagined.

If you are like many baby boomers, you either have or are likely to receive some inheritance from parents or others during your life. Even if the amount of money received may not put you on “Easy Street,” it can make a difference if you handle the inheritance properly.

A 2006 study by the AARP Public Policy Institute showed that about 20 percent of baby boomer households received an inheritance, and another 15 percent expect to receive one in the future. The median value of those who have received an inheritance was $64,000 (in inflation-adjusted dollars) in 2004. While that may not be enough to drastically alter your life, it certainly is significant enough to make a substantial difference in your financial situation.

Decisions to make when the money arrives

Any sum you potentially receive as an inheritance should be helpful to you. The larger the amount, the more decisions you will have to make. Most importantly, make good use of your inheritance, no matter the dollar amount involved, in order to carry out the legacy your benefactor desired.

Here are some steps to consider as you determine what to do with this newfound source of wealth:

Be realistic about what it means. An inheritance does not give you license to suddenly change your lifestyle (except in those rare cases where your inheritance is a sum of several hundred thousand dollars or more). It might help you handle an emergency need or achieve a longtime goal, however. Be cautious about altering your approach to money just because of a sudden new source of wealth. After all, for most, this is a one-time event that won’t be repeated.

Determine how it fits within your overall financial strategy. Consider the impact of an inheritance and the effect on your financial life. You need to determine if the money you’ve received will be used for a specific purpose, or incorporated into other existing assets you already established to help achieve certain goals.

Look into possible tax implications. It is important to discuss your situation with a tax advisor who can help you understand the often intricate and complex laws associated with your inheritance. Some of the questions related to taxation revolve around the specific type of asset you inherit. For instance, if you inherit shares of a stock, the cost basis for the stock will not be its original purchase price, but valued at the price on the day the decedent died. This may provide a tax advantage for you at the time you sell the shares. If you inherit retirement plan assets, such as an individual’s workplace savings plan or an IRA, there are different tax laws that will apply. To make the most of your inheritance, it is vital that you comply with appropriate tax laws to avoid any penalties.

Develop your own estate plan. The receipt of an inheritance is a good reminder that all of us have a need to prepare for the disposition of our estates at death. If you don’t have a will or haven’t updated one lately, be sure to do so. Also, review the beneficiaries you have named for your retirement plans (workplace plans as well as IRAs) to be sure they are current.

If you plan how to manage your inheritance, it may have a more significant impact on your overall financial situation. Even if you decide to use the money for an immediate purpose, you want to make sure that your strategy is consistent with your entire financial approach.

Enlisting the help of professionals to guide you along the way, including an attorney, accountant and a financial advisor, can help you best manage this once-in-a-lifetime opportunity.

Jeffrey D. Carlson is a CERTIFIED FINANCIAL PLANNER practitioner™ who can be reached at (410) 740-8000, 10025 Governor Warfield Parkway, Suite 209, Columbia, MD 21044.  Or visit www.ameripriseadvisors.com/jeffrey.d.carlson.

This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

© 2010 Ameriprise Financial, Inc. All rights reserved.

Countdown to Retirement: Are you prepared? – By Jeffrey D. Carlson, CFP®
Next year the oldest of America’s 77 million baby boomers will become eligible for Social Security benefits. That means the biggest generation in the country’s history is starting a countdown to retirement. If you are among those preparing for this highly-anticipated phase of life take these five steps now to help make sure your financial house is in order:

1. Create a plan to eliminate or restructure debt. Excessive financial obligations can put a damper on your retirement dreams. Your peak earning years offer an opportunity to take stock of outstanding debt and create a plan for managing it once you are no longer working.

If you find that it’s necessary to carry debt into retirement, investigate your options now for debt consolidation. A home equity loan or line of credit can provide a solution for debt consolidation that may offer tax advantages as well. You may want to discuss this with your financial and legal advisors, however, since your house is at stake if you’re unable to make the required, timely payments on these loans.

2. Take advantage of catch-up contributions. Uncle Sam provided an extra incentive for pre-retirees to stash some extra cash by raising retirement plan contribution limits in 2001. The increased limits were set to expire in 2010 but last year’s Pension Protection Act made them permanent.

Savers age 50 and older who meet eligibility requirements can contribute $6,000 to their IRA in 2010 and Also, individuals who are age 50 or older and are participating in company-sponsored retirement plans like 401(k)s, 403(b)s and 457 plans can contribute $22,000 this year.

3. Protect what you’ve accumulated. You’ve spent your working years accumulating the money you’ll need to live in your remaining years. However, you could risk losing your nest egg if you are uninsured or under insured.

Personal liability or umbrella insurance policies protect you when the lawsuit coverage in other policies, such as auto or homeowners insurance, is exhausted. The cost for $1 million worth of protection is relatively inexpensive and may be worth consideration for those people with a high net worth.

If you’re counting on your income for the next few years to help fund retirement, disability income insurance may be worth strong consideration. If your employer provides such protection, check to see if it’s enough for your needs. Group coverage is often capped at six months and may provide limited benefits.

While your life insurance needs may change once you no longer work or have dependents to support, cash value permanent life insurance may still offer protection and be a conservative savings tool for your retirement years.

An overall insurance review is an important step in your final approach to retirement. A professional can help you understand your options and help ensure that you’ve protected what matters most in your life.

4. Tune up your estate plan. According to a 2004 study conducted by LIMRA International, only half of the adults in the United States have a will, trust or power of attorney arrangement as part of their estate plan. If you’ve procrastinated on the estate planning process, now is the time to consult a knowledgeable estate planning attorney to help protect your legacy.

When thinking about estate planning most people only think about taxes. But proper planning can do much more than help ease your tax burden. It can help direct your inheritance to the people and causes you care about and address your financial obligations.

At a minimum you’ll likely want to document directives for your financial and health care decisions through a power of attorney. While everyone should have a will remember that assets passing under a will are still subject to the probate process. Those people with significant assets may want to consider more complex estate planning vehicles like trusts, which have potential to both avoid probate and offer estate tax benefits as well.

Now is also a critical time to make sure your beneficiary designations are up to date on all individual and employer retirement plans. If your marital status has changed these updates are especially important.

5. Call on professionals for the help you need. Your financial security in retirement is a serious matter. That’s why it’s important to have skilled professionals on your team as the clock ticks down to the day when work is optional. If you haven’t already done so, it’s a good time to seek guidance from a financial advisor. He or she can help make sure your plan is on track with your retirement goals and dreams and also make suggestions for adjustments as your situation and the economy change.

Jeffrey D. Carlson is a Certified Financial Planner™ practitioner with Ameriprise Financial and can be reached at (410) 740-8000, 10025 Governor Warfield Parkway, Suite 209, Columbia, MD 21044. Or visit www.ameripriseadvisors.com/jeffrey.d.carlson.

This information is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. Neither Ameriprise Financial nor its advisors or representatives provide tax or legal advice. The views expressed may not be suitable for every situation. Consult with qualified tax and legal advisors concerning your own situation.

Financial advisory services and investments are offered through Ameriprise Financial Services, Inc., member FINRA & SIPC.

© 2010 Ameriprise Financial, Inc. All rights reserved.