Retirement Taking on a Cyclical Pattern Today

According to a recent piece in Financial Advisor Magazine, the model of retirement to which we've all grown accustomed will soon go the way of the dodo thanks to a number of unseen forces over which we have no control.

The model of retirement that came about in the 1940s and 1950s looked like this: retire at 62 and receive a gold watch, a pension, and a Social Security check. Today's model varies from that for a good reason and a bad reason. The good reason is that people are living longer than they ever have, with the average life expectancy for a man in good health at age 65 now at 86.6 years and 88.8 years for a woman. This means, though, that people must postpone their retirement dates in order to have the funds needed to support themselves into their longer lifespans.

The bad reason is that automation is destroying traditional jobs, with one University of Oxford study predicting that half of today's occupations will be displaced by automation in the next decade or two. This means that individuals' work lives will out of necessity take on a cyclical character: as careers become obsolete, new skills must be learned and new occupations must be taken on. People can expect to be in and out of the workforce for much of their lives and as a result will have to retire later in life.

The author of the article managed to express this rather grim news pretty cheerily when he reached this conclusion: financial planners should expand their traditional areas of expertise--saving for college for children, buying houses, handling insurance needs, etc.--to include a form of retirement planning which will help their clients "thrive in their new cyclic lifelines."

People Should Expect Smaller Inheritances in the Future

According to a recent estate planning survey conducted by HSBC, only 9 percent of individuals plan to save as much money as possible to leave to their descendants. This doesn't mean that they're unconcerned with younger generations, though--just that they're more inclined to give money in the form of a "living inheritance." 43 percent of U.S. retirees actually continue to provide regular financial support to at least one other person, with 10 percent of those dependents being adult children. 

One commentator has pointed out that retirees aren't planning to spend the money on themselves. Instead, they want to "live and experience the results of their legacy planning, be it with their children, grandchildren, or others." They are also concerned with losing money to estate taxes. 

Individuals seem to be unaware of this trend, though, with 29 percent of those surveyed expecting their inheritance to fully or partially fund their retirement. Additionally, 59 percent of working-age Americans plan to leave a legacy for their children, but less than a third actually report receiving one. 

The takeaway from the survey is that individuals should not rely on an inheritance when financially planning for their own retirement.

New Legislation Allows Disabled Individuals to Save Money in Tax-Free Accounts

In December of 2014, Congress passed and President Obama signed a law called the Achieving a Better Life Act (ABLE), which went into effect in 2015. This piece of legislation allows individuals with disabilities to set aside money in a tax-free account to be used towards their long-term disability expenses. The account's benefit is that it allows for tax-free growth for savings and tax-free distributions when funds are used towards disability expenses. 

So long as the money in this account does not exceed $100,000, it does not jeopardize Medicaid or other federal benefits, like SSDI payments. 

In order to qualify to set up an account, one must be entitled to benefits based on blindness or disability under one of two titles of the Social Security Act and the blindness or disability must have occurred before the age of twenty-six. Alternatively, an individual can apply for a "disability certification" verifying that he or she has a "medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months" or is blind and that the blindness or disability occurred before the age of twenty-six. 

An ABLE account can only be used for qualified disability expenses. These include but are not limited to: education, housing, transportation, health, and prevention and wellness. 

There are some limitations to ABLE that are worth mentioning. For example, earnings from the account that are not used on disability expenses are treated as income, in addition to a ten percent tax penalty. Nonetheless, this legislation is still considered a big step forward for disability advocates. 

House Votes to Repeal Estate Tax

Last week, the House voted to repeal the federal tax levied on estates worth more than $5.43 million for an individual or $10.86 million for a couple. Estates valued at levels higher than these are taxed at rates of up to forty percent. The vote came out to 240 to 179; as expected, it was divided largely on party lines. In reality, though, this tax will almost definitely remain on the books. Even if the Senate voted in its favor--which is extremely unlikely--the President would certainly veto it.

Republican opponents of what they refer to as "the death tax" argued that farmers and small-business owners were unfairly burdened. John A. Boehner, the House Speaker, argued that it deprived them of the opportunity to pass something on to their children and grandchildren. Proponents of the estate tax, however, argued that repealing it would cost the Treasury $14.6 billion in the year 2016 alone, and $269 billion over 10 years.

At the end of the day, though, the tax's repeal would offer little for the majority of Americans. It only accounts for 0.2 percent of deaths anticipated in the United States.

Regulations Proposed to Protect Retirement Accounts

Federal regulators have proposed rules intended to protect investors' retirement savings accounts from investment planners who do not always act with their customers' best interests in mind. Drawing on academic research, the White House has found that lack of investor protection has cost investors $17 billion annually. Proposed rules would close some of the loopholes which allow brokers to avoid taking on fiduciary responsibilities when giving advice on retirement accounts.

These rules would would update the Employee Retirement Income Security Act, which was enacted in 1974, when many retirees could still rely on pensions. Today, retirees are increasingly dependent on a 401(k). They become especially vulnerable when they turn a 401(k) account, previously managed by their employer, into an individual retirement account. Brokers who advise them on that transaction do not necessarily have to act with their customers' best interests in mind; this can lead to the loss of thousands of dollars for retirees who may end up paying higher commissions as a result. Erisa, as it is currently written, does require that brokers act according to a fiduciary duty when dispensing advice, but "advice" is narrowly defined. The proposed rules would broaden the meaning of advice to include any professional receiving compensation for providing individualized advice.

Federal Government to Change Nursing Home Rating Determinations

The federal government recently announced that it will soon become more difficult for nursing homes to earn coveted four- and five-star ratings. Currently, homes are rated on a scale from one to five; their scores are made available to the public on this website. The rating system has been criticized in the past, with its detractorts claiming it relies too heavily on unverified data provided by the nursing homes themselves and not audited by the government.

Nursing homes in response have expressed concern that the new rating system will send the wrong message to customers, with one representative stating that if scores plummet suddenly under the new standards, patients and their families will think that quality has declined, even if the homes have actually improved.

Moments of Lucidity and Legal Capacity

One particularly tricky patch of terrain that attorneys who deal with older clients must navigate is determining when "moments of lucidity"can support a finding of "legal capacity." One law professor exhorts attorneys to exercise caution, noting that they "may spend too much time being impressed by a client's ability to remember who is the president or the names of their children, and too little time asking more probing questions."

Assessing in these situations can be difficult, especially when clients still in the early phases of dementia can suffer from impairments that are not easily recognizable. Fortunately, there are handbooks available put together through a joint effort of the American Psychological Association and the American Bar Association for determining a client's legal capacity, one dedicated to attorneys, one to psychologists, and another to judges.