Personal Finance After 50 For Dummies. Tyson MBA Eric

house-rich) elderly. With a reverse mortgage, you receive payments (or a lump sum) from the lender. Interest on the loan (and fees) compounds, but the debt doesn’t have to be paid until the home is sold. When you consider taking out this type of mortgage, you should do plenty of long-term analysis to compare your options and be sure you’re getting the right one for your situation. See Chapter 8 for the details.

       Contemplating additional medical insurance

      Health insurance is always a prickly issue to deal with because it’s difficult to know what medical issues you may be facing 5, 10, 20, or more years from now. Sure, you can gain a general sense from your parents and from the types of medical issues that aging adults confront, but only time will tell what unique issues you’ll confront. Different options you have to consider pre- and post-retirement are long-term care insurance (see Chapter 9 for more info) and Medicare supplements (refer to Chapter 11).

       Weighing the option to buy more or different life insurance

      When others are dependent on your employment income, you may need some life insurance coverage. And, depending on your specific assets, the type of life insurance you may most benefit from may change over the years.

      

To determine your life insurance needs, you should have a good sense of your current financial assets and current and future obligations. Refer to Chapter 2 for more information on evaluating your need for life insurance.

       Developing your estate plan

      Your financial circumstances of course will change in the years ahead, and so too will tax and probate laws. Planning your estate involves many issues, including ensuring your own financial security, taking care of your affairs in the event you’re unable to do so yourself, and protecting and providing for your heirs. Head to Part IV to find out more.

Be aware of and involved in your investments

      Keeping a close eye on your investments and knowing what’s going on with your money is important, particularly during your senior years. You should never blindly trust someone with your money.

      Consider the victims who lost tens of billions of dollars to hedge fund Ponzi-schemer Bernard Madoff, many of whom were near or in retirement. The prime targets of the Madoff scam (and of most financial scams) were people in their 50s and older who worry about their standard of living and income, though they’re what most people consider financially comfortable. Within this group was another target group: Entrepreneurs and successful professionals. Risk-taking usually is part of their personal profiles, and risk-takers often are attracted to unique and little-known strategies. That’s why con artists seek them.

      Madoff investors lost so much money in such a total fraud primarily because of a lack of homework. Victims failed to conduct proper research (or even any research) on Madoff’s claimed returns. They simply invested with Madoff due to the recommendations of others investing with him. With a private money manager like Madoff, investors should have been far better educated regarding his investing options and conducted lots of due diligence. They should have insisted on knowing what his investment strategy was and how it was supposed to work. They should have reviewed audited statements of the amount of assets he claimed to be managing. If they had, they would have noticed that the market for the stock options he claimed to be trading wasn’t big enough to support his portfolio, much less all the other investors’ trading options.

      Interestingly, it has come out that Madoff largely refused to provide much information to inquisitive prospective investors and essentially blew them off and turned them away. In retrospect, such behavior makes sense because Madoff wasn’t interested and didn’t need to accept money from investors who were asking too many questions. After all, they may have uncovered his enormous fraud.

       Taking personal responsibility for your financial future

      Our lives are filled with responsibilities – jobs, family obligations, bills, household maintenance, you name it. We all try to make time for friends, fun, and recreation as well.

      With all these competing demands, it’s no wonder that many folks find that planning for their financial future continually gets pushed to the back burner. Most people don’t have the time, desire, or expertise to make good financial decisions. But you’ve taken a huge step to erase those obstacles in buying this book. We provide sound counsel and advice, and now you’re investing the time and energy to get on a better path toward retirement.

      

From this point forward, we urge you to always remember that you – and only you – can take full responsibility for your financial future. Of course, you can hire advisors or delegate certain issues to a willing and competent spouse or other beloved relative. But, at the end of the day, it’s your money on the line, and you had better take an interest in it! Delegating your responsibilities without knowledge, understanding, and some involvement is a recipe for disaster. You could end up without vital insurance, be taken advantage of in terms of fees, or even defrauded among other unsavory outcomes.

       Saving and planning sooner and smarter pays off

      Throughout this book, we discuss financial strategies and tactics for making the most of your money over the coming decades of your life. The sooner you get control over and optimize your finances, the bigger your payoff will be.

      

You should never rush into making changes that you don’t understand and haven’t had time to properly research. Procrastination comes with many costs, including lost financial opportunities. Creating a financial plan and sticking to it is so important when planning for retirement. Chapter 3 helps you make your own plan.

      Consider, for example, something that nearly everyone wants to do: save and invest for future financial goals such as retirement. Take the case of the Fuller family, who came to Eric for financial counseling years ago. The Fullers enjoyed a healthy and relatively stable income yet they saved little, if any, money annually. They knew how to spend money!

      In terms of savings, they had about $100,000, which sounds like a lot but given their annual income ($150,000) and ages (late-40s), they still hadn’t accumulated savings equal to a year’s worth of income. The money they had wasn’t well invested – nearly all of it was in low-interest bank accounts and a pricey life insurance policy that provided just $500,000 of coverage (not near enough given their incomes and the fact that they had dependent children). Of course, they could have done worse (at least the money was growing slowly). However, they weren’t going to reach their retirement goals unless their money started working harder for them.

      Over a number of months, the Fullers worked with Eric and were able to implement the following changes, which they stuck with for the years that followed:

       ✓ They increased their savings rate. They were able to consistently save about 15 percent of their annual incomes (about $22,500 per year), which was up from just 4 percent ($6,000). They accomplished this through a combination of reduced spending and reduced taxes by directing their savings into tax-advantaged retirement accounts including a 401(k) and SEP-IRA.

      “Cutting our expenses was easier than I thought. We were wasting money on things we didn’t really need or even use in some cases,” said Mrs. Fuller. Her husband added, “We felt much more relaxed and less stressed by cutting our expenses and boosting our savings.”

       ✓ They improved their investment returns. Rather than earning a meager return having their money in low-interest bank accounts, the Fuller’s enjoyed 8 percent annual returns by investing in a diverse mix of stocks around the world along with some high-quality bonds.