How Do People Protect Their Retirement?

Dump their 401(k) for an IRA

Many people rollover their 401(k) into a general Qualified Retirement Account once they are retired to prevent the “Johnson & Johnson” issue.
The company had employees’ 401(k) accounts invested in Johnson & Johnson’s own stocks and subsequently were accused of violating financial disclosure rules. This caused the value of the company stock to plummet and the retirement accounts collapsed with it. They are now subject to a lawsuit by their own employees in an attempt to recover retirement funds.

Johnson and Johnson Sued for Violating ERISA Duties

Solution:
Once you retire, consider rolling your company managed IRA into a general Qualified Retirement Account and re-evaluate your current forecast of savings and expenses.

Meet with a Financial Advisor

Self-managing investments can be gratifying work when markets are bullish, but often fail to implement the more complex tactics and calculations required to limit the impact from market volatility. Furthermore, some people are tempted to give themselves a rosier outlook from their own brilliance and may not make a conservative enough estimate of their long-term needs. These calculations may result in an incorrect determination of when and how much of your Required Minimum Distributions should be allocated.

Solution:
Seek out the counsel of a Certified Financial Advisor to either assist with your retirement strategy or at least render a second opinion of your current investment portfolio. Call our office at 410-291-PLAN if you need any assistance finding a Trusted Financial Advisor in your area.

Asset Protection Trusts

For Qualified Retirement Savings, an Asset Protection Trust would only seek to protect your savings as they relate to your heirs or beneficiaries. However, many people’s retirement funds are in both Qualified and Non-Qualified Investment Accounts. For the Non-Qualified Investments (income taxes have been paid), you can place these safely into an Asset Protection Trust. This can help to protect these savings from potential creditors, predators, or the crushing costs of long-term care. Seek counsel from an Estate and Elder Law attorney in your area for more information on these benefits.

3 Common Ways to Protect and Plan Your Estate

Three Common Ways to Protect Your Savings

1. Defensive Life Insurance

When thinking about Life Insurance, the image of a door-to-door salesman in a long grey coat may come to mind. However, by looking at Insurance as a specific set of tools you may be able to leverage these more effectively. Identify any long-term costs that would be burdensome to those that rely on you for financial stability. For example, if your income is required to pay the mortgage and your spouse is the Home-maker, then consider taking out an inexpensive Term Policy for the current balance owed to your Mortgage Company and set it for the duration of the remaining payment period. That way, if you pass unexpectedly your spouse will be able to pay off the remaining balance and safely remain in the home.

2. Isolate Rental Properties

If you own a rental property or list your vacation home on sites like Airbnb, you could be liable for any injuries that occur on your property. Furthermore, all of your assets can be discover-able and used to pay for any damages resulting from an unexpected lawsuit. This is why rental properties are often placed into LLCs or Asset Protection Trusts to isolate and limit the amount of your assets exposed to liabilities related to the property.

3. Asset Protection Trusts

Although there are many types of Asset Protection Trusts, this can be a great way to secure assets that are less “liquid”. The asset is placed into the Trust, and yourself or someone else is placed as the Trustee where they manage the assets for the benefit of a specific person or class of persons. General Irrevocable Trusts with Rights to Income are often used for lower-risk individuals, whereas Trusts such as the Domestic Asset Protection Trust is used for higher-risk individuals such as Doctors. Reach out to your Estate Planning Attorney for more information about how a Trust may help you to protect your assets.

5 Threats to Your Retirement

How do I Protect my Retirement?
You’ve spent your entire life working hard for what you’ve built and saved. Now you are retired, it occurs to you that if something happened to your nest egg there would be no additional income to recover. That eggshell could crack at any time from various predators and threats. You need to know how it can best be protected and where those risks are coming from.

1. Living Longer

You may be surprised to learn that living longer could possibly be a concern. Advances in Medical Technology are improving lifespans much faster than the Financial Projection Models for Retirement can keep up with. We are at a critical inflection point in technology, communications, and medicine where the first person to become 200 years old could be alive today.When planning for retirement, we expected to only need a limited number of years (about 10) and so we save according to that timeline.Not only will we need to afford those additional years, but we will also need to consider that the period of time where we need Long Term Care or time in a Nursing Home may be extended as well.

5 Reasons People Live LongerEarly Retirement, Early Death

2. Lawsuits or Divorce

Planning for the unexpected is rarely done by people who haven’t been conditioned to see the risk as a clear and present threat. You might think “I’m not likely to get sued, it doesn’t happen to people like me”,and you may be right... but it does happen. Take car accidents for example, most insurance policies only cover about $300,000 of bodily injury. If the claimant has another 30-years in their career and high medical expenses, you can be personally responsible for anything over the $300,000 coverage. These damages can rapidly exceed $1,000,000 that you would be responsible for paying out of your non-qualified retirement savings.

New chapters in life such as the Empty Nest Syndrome can lead to a turbulent transition of a couple coming back together after years of prioritizing the needs of children. This sometimes results in Divorce, even in many cases reconciled later, but regardless go through the separation process.The court costs can be crushing, and emotional spending can increase before and after the proceedings. Retirement savings are not exempted from divorce and are often severely depleted from the experience.

3. Medical Expenses

Either from illness or injury, Medical Debt is the leading culprit for personal bankruptcy in the United States today. Medical Insurance has a limit, and anything above and beyond the catastrophic maximum is levied as a personal liability. Long Term Care costs resulting from aging can also become a crushing burden to your balance sheet putting your hard-earned retirement at risk.

Article: Number 1 Reason for Bankruptcy

Although there are many types of Asset Protection Trusts, this can be a great way to secure assets that are less “liquid”. The asset is placed into the Trust, and yourself or someone else is placed as the Trustee where they manage the assets for the benefit of a specific person or class of persons. General Irrevocable Trusts with Rights to Income are often used for lower-risk individuals, whereas Trusts such as the Domestic Asset Protection Trust is used for higher-risk individuals such as Doctors. Reach out to your Estate Planning Attorney for more information about how a Trust may help you to protect your assets.

4. Financially Supporting Family Members

You may not think of children or other loved ones as a risk to retirement, but sometimes life doesn’t go as planned. Co-signing for large student loans, supplementing costs of living, or other unexpected costs can alter your projected burn-rate of retirement assets. Additionally, retirement savings can be a source for inheritance after death but may be at risk for creditors and predators of your heirs.

AARP - Threats to Savings

5. Market Changes

Drastic Market fluctuations such as the crash in 2008 - 2009 can drastically alter projections for a safe retirement. High risk investments make these occurrences even more impactful that they otherwise could be. Lastly, having an undiversified portfolio can reduce the investment’s ability to weather a storm only found in one industry or company.

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