The Lange Money Hour: Where Smart Money Talks
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Your Parents' Safe Retirement with Guest, Jack Tatar, MBA
James Lange, CPA/Attorney
Guest: Jack Tatar, MBA
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- Introduction of Guest – Jack Tatar, MBA
- Discuss Plans Early
- Plan Early for Retirement
- Work With A Fiduciary Advisor
- The Four Keys To A Safe Retirement
- Every Situation Is Different
- How To Initiate The Talk
- Increasing Cost Of Long Term Care
- Legal Documents For Peace Of Mind
- Retirees Need A Strong Social Structure
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Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.
David Bear: Hello, and welcome to this edition of The Lange Money Hour, Where Smart Money Talks. I’m David Bear, here in the KQV studio with James Lange, CPA/Attorney and author of two best-selling books, “Retire Secure!” and “The Roth Revolution: Pay Taxes Once and Never Again.” Have you had the talk yet? No, we’re not talking about the birds and the bees with your teenagers, but about having a discussion with your parents about their estate and retirement planning. Having a dialogue about their financial and physical health can help them maintain happy, healthy lives and prepare you to be their voice when they can no longer advocate for themselves. We’re pleased to have Jack Tatar to this edition of the show. Jack, who recently published “Having the Talk: The Four Keys to Your Parents’ Safe Retirement”, takes the point of view that happiness in retirement is as much mental as it is financial, and that keeping a positive perspective is most important. So, stay tuned for an interesting and informative hour, and with that, I’ll say hello, Jim and welcome, Jack.
Jim Lange: Welcome Jack.
Jack Tatar: Welcome, Jim. Thanks for having me. I really appreciate it.
Jim: Well, thank you. You fill a gap that I have had in my practice, which is how to advise clients, let’s say anywhere from their, maybe, forties or even up to their sixties or even a little bit beyond, how they should help their aging parents, and I’ve never really had the right words or was not able to really give people good advice, and then I found your book and I thought, “Wow, this is great information.” I think that you can really help our audience, both the local audience listening here in Pittsburgh as well as the national audience that is listening by streaming or, perhaps later on, when they click on a podcast. So, I was just delighted to have you on and reading your book, and the book, by the way, for our listeners, is called “Having the Talk: The Four Keys to Your Parents’ Safe Retirement” by Jack Tatar. Jack, by the way, if somebody is interested, would they be better off going to Amazon or your website to get that book?
Jack: No, they can get the book at Amazon, and it’s also available at your local Barnes & Noble as well.
Jim: Okay. So, anyway, you have the book broken down very systematically and I’ve dealt with this problem myself personally, but why don’t we start with the basic issues? Let’s assume for discussion’s sake that you’re in your sixties and your parents are maybe in their eighties or even beyond that, and presumably, they have their money, and let’s assume that you’re from one of those families that don’t talk about money a lot. You don’t know a whole lot about their finances and their wills and their affairs. Why have this talk at all? Isn’t it their business? Or why should you, as the child, have this talk and potentially open up a can of worms?
Jack: Well, I think more and more people are starting to see, because of the complexity of things that go on now with estates and whatnot, that if you don’t handle this issue early, it becomes a real cumbersome issue for your heirs to handle. And I think what we’ve seen is I’ve advocated just, kind of, telling stories about other people. You know, a man down the street, did you hear what happened to him and his children? It took him two years to get through his estate. More and more of those stories are out there and when you share those stories with people like, for yourself, if you share them with your clients and the people that you work with, they start to say, “You know what? I don’t want to put my kids through this. I don’t want to put my children through this. I’m going to make sure my wishes are met.” And because of that, we’re finding that more and more people are willing to say, “You know what? I need to sit down. I need to do this, and I need to do it early,” because invariably, most people have the talk, but they have it when it’s too late, typically when their parents are a bit incapacitated or they can’t do certain things to their estate. I advocate to do it early, but it needs to be done at any point in time.
Jim: All right. Well, that was actually the next question that I had, is when do you have the talks? Now, let’s say, for example, your parents are in their sixties, they’re working, they’re doing fine mentally. Do you have the talk at that point when they’re both in good shape or when they become a little bit frail? They’re still pretty with it and apparently you don’t like the idea of having the talk very late after it’s really too late to do a whole lot or at least not as much as you could have had you had the talk earlier.
Jack: I really believe that retirement poses the best opportunity to discuss this and I advocate that for those people who are just entering retirement or have just entered retirement, it’s often the best time to sit down and have these conversations or at least begin the conversation. Remember, this is perhaps not something you do in one sitting, but the reason for that is because at the time of retirement, it’s usually the biggest change in people’s lives and it’s the time when they become most introspective and they’ve got to take a look at their finances and know “Do I have enough money?” And then, in doing that and taking a look at a lot of their situation, what they’re going to do in retirement, how they’re going to take care of their health. These are all important matters that need to be discussed and I find that if you discuss it at the time of retirement, it’s the best time to do it. I just recently was involved with a webinar with a professor who actually found that as people age, from the age of sixty on, there’s a high potential for their financial literacy to decrease. The unfortunate part is that actually as their financial literacy decreases, their confidence rises. So, you get a gap that invariably causes opportunities for people to make poor investment decisions. So, that’s another reason to have this discussion earlier rather than later. But I find retirement is the best time because that’s when people are really thinking introspectively and are willing to document a lot of these things that need to be documented during the talk.
David: Who initiates that conversation, the parent or the children?
Jack: Well, it’s a good point, David, and I think that it can go either way. My book is written such that I give enough to the adult children to initiate the conversation, but the reality is it can begin either way. I can be the retiring parents who say, “You know what? I need to discuss this.” But I also think there’s going to be a need for the children to at least get together and at least broach the subject amongst themselves to say, “We need to discuss this. We need to all be involved.” But it can go either way. I’ve had stories where parents have gotten together for Thanksgiving, and in the middle of the meal, they’ve said, “You know what? I’m so glad we’re all together. We need to have this discussion.” And then I’ve also heard where children have gotten the whole family together and said, “Mom and Dad, we need to sit down and talk to you about this.” So, it can go either way.
Jim: Well, one of the things I’m wrestling with is the timing on it because basically you are saying right after somebody retires, let’s take away the parent situation. Let’s just say a client comes in to me and he’s not yet retired, and we go over their finances. I’m very interested in talking to that client before he retires because, typically, after retirement, it’s pretty rare for people to replace their income, and a lot of people, frankly, don’t really get how much money they’re going to need for the rest of their lives, so I’ve actually had somebody who said, “Jim, I’ve trusted you all my life, you know, or maybe not all my life, but let’s say for the last ten or fifteen years, you’ve given us great advice. I really appreciate it. Now that I’ve retired, I thought I would come and see and have you tell us how to handle our finances and what we should do from here.” When I looked at the details, I thought oh my goodness, I hope you can get your job back, and he couldn’t.
Jim: And he was forever compromised. So, is it possible…now, probably the generation that is retiring right now, usually those folks are pretty cautious and before they retire they often have more than enough. But is there an argument to have this before somebody retires just to make sure there is enough money? A lot of people underestimate health care costs. They underestimate the occasional costs like the occasional roof and the occasional furnace. And the big one and Jane Bryant Quinn keeps harping on this one, is they underestimate inflation. So, is it possible that it might be appropriate to have this talk before somebody unequivocally retires and puts themselves in a position they can no longer make what they used to make?
Jack: I think it’s a great point Jim and you see people every day who come in to you and you know that they need to be planning for retirement a lot sooner than the day that they decide to retire. But there are a number of aspects here that are involved in the talk. Certainly, the financial aspect and the financial preparedness and you bring up a lot of great points. People don’t understand the costs of healthcare that are going to be there. People don’t understand the impact of inflation. So, the reality is, retirement planning needs to take place many years before you retire. The point is also what is involved with the talk in my book is not just financial matters, but it’s about health, it’s about attitude, and it’s about staying involved. And a lot of those things, as much as possible, if you could discuss those early on, that’s great. But typically, when people become retired, then they really start to think about, “Okay. What am I going to do with my time now?” You know, we run, we run, we run so hard to retire, and all of a sudden, we’re at retirement and we say, “Well, what do we do now?” Well, the whole aspect of knowing what you’re doing for the rest of your life is a major part of the talk. Adult children need to talk to their parents and say, “Mom, Dad, what are you going to do with all your free time? How are you going to take care of your health?” All of these types of things. It’s great to have those discussions early on, and if you do have them, that’s great. But those other aspects of the talk, the health, the attitude and the staying involved, typically I find that those are things that, at the time of retirement, are probably best addressed because people are really starting to think about “Okay, I’m retired. Now, this is what I’m going to do.” Certainly, they should be doing it sooner and if everyone has the talk earlier it would be great. But certainly you need to have the financial talk much sooner because you’ve got to know whether or not you can retire, and that’s all based upon whether or not you have enough money.
Jim: In your book you have a section called ‘Working with a Professional,’ and I want to give people a warning because unfortunately, a lot of financial professionals have a conflict of interest when advising somebody to talk. So, let’s say, for discussion’s sake, now I happen to see myself as a very ethical fiduciary advisor that gives advice on what I believe is in the best interests of the client, but most financial advisors, insurance agents, brokers, people who sell annuities, etc., are not necessarily fiduciary advisors, and they don’t have a legal or moral obligation…I think they all have a moral obligation, but they don’t necessarily have a legal obligation to best represent the good of their client. So for discussion’s sake, somebody is still working and they have maybe three quarters of a million or a million dollars in a 401(k) plan or for that matter, even a half a million dollars, and they are considering retiring, and if they retire, then that money that is in their 401(k) plan will then be, let’s say, investible for a financial advisor. So, if the financial advisor is selling a financial product, or even assets under management, then that client becomes a potentially very good prospect and client for them because they will be able to say, “Okay, we’re going to roll the money into an IRA. I’ll manage it or I’ll sell you this annuity, etc.” On the other hand, if the client doesn’t retire and the money remains in the 401(k), then the financial advisor can’t make money. So, the financial advisor actually has a financial interest in having the client retire early and saying, “Oh, if you retire early, you ought to be able to make it, blah, blah, blah,” but I think that sometimes it’s really important to know what the interest of the advisor is, and the ethical advisor, and if you are a fiduciary advisor, which we are, we’ll say, “Hey, gee, even though we might be able to make money on you now, the ethical thing for us to do is to realize hey, you really need to work two or three more years, whatever it might be, in order to have sufficient funds to be able to cover these things like healthcare, inflation, etc.” So, I don’t know if you have any reaction to that, but I’ll just say that you have to be really careful, and then you talk a little bit about being in a position of trying to assess the competence of the financial advisors that your parents might have chosen.
Jack: Right, right, right, right. Well, Jim, it’s a great point and I think the reality is as we’ve seen with anybody who’s a professional, and certainly when it comes to your money, there’s a lot of varying degrees of people who do this type of business. I think the reality is, and you mentioned fiduciary and you mentioned an advisor, the key is to find a professional, and whether or not it’s the person that worked with your Mom, or it may not be, but one of the things that I find can be a real deciding factor is if that advisor, or that fiduciary advisor, is discussing items and issues such as I talk about, the health and well-being of the client, how are you going to stay involved, how are you going to keep your attitude, care giving types of things, these are all things that are very, very important to the client. They may not be things that, as you mentioned before, will cause a transaction for that advisor and make them any money. So, the advisors who are transaction oriented, they are disinclined to talk about these issues. But a fiduciary advisor, and someone who is really taking a look realistically at the relationship and doing what’s right for the client, they’re willing to step up and talk to the client about their health and their wellness and their attitude and their involvement. So, a lot of the aspects…I talk about having an advisor because I think there’s a real value in having that. But if your advisor is not willing to discuss all of these items that are in the book, they may be more of a transaction oriented advisor and more focused on just the finances and not the well-being of the client. So I echo your point, Jim, and I think it’s something that needs to be considered.
Jim: Yeah, and by the way, I’ll just mention something that I do personally. One of the things that I can imagine, and frankly, I work with people who are probably the parent’s age also, people in their seventies and eighties and sometimes beyond, and if I was the children and I heard, “Oh, you know, my parents just went to a new financial guy. They went to a new estate planner,” I might have some concerns. “Well, gee, did they go to the right place?” What I like to do is, I actually like to mail my book to the children of that generation, and then when the children see the book and they see the testimonials and they read into it and they get a little bit more about what I’m about and the things that I do, then they feel a little bit reassured. But I don’t know if there’s any way that the child can get reassurance other than maybe doing the best they can in terms of checking out which advisor they have had. And I always try to tell…I like to actually meet with the children at some point, preferably a longer meeting with all the cards on the table, which is what I prefer, but some clients, frankly, are not open to that idea of sharing all that information with their children.
Jack: Yes and I think it’s a great point that you push to sit down with the children because I think the reality is you’ll get the child as a client. If they see that you’re doing the right thing for their parents, if they feel that you had the parent’s well being paramount to the relationship and wasn’t just about making money off the transaction. So, that’s the best way to get the children as a client. If the children are smart enough to know, “Look, you’re only concerned about mom or dad’s finances,” but involving them in discussions, and I’ve had a lot of advisors who’ve had success with getting the children involved and saying, “Let me at least nudge everyone to have the talk, and you have the talk. Let me give you a framework for having it.” And out of that comes peace of mind for the children and their parents, and they say, “You know, the typical advisor would not have done that, but because Jim did that, I’m glad he works with you and I’m glad he’s going to be handling my money going forward.”
David: Well, you know, this might be a good place for us to take the first of our breaks today.
David: And welcome back to The Lange Money Hour.
Jim: We are back with Jack Tatar, the author of “Having the Talk: The Four Keys to Your Parents’ Safe Retirement.” And Jack, where we had left off, we had talked a little bit about why having the talk and when you have the talk, but could you tell us what is covered in the talk?
Jack: What I cover in the talk goes back to these four points or what I call the four keys to retirement and basically this grew out of some research and personal experiences that happened to me. I wrote this in my first book called “Safe 4 Retirement: The 4 Keys to a Safe Retirement.” But I feel that there are four aspects to living safely and securely as you mention in retirement and later life, and it’s around financial preparedness. It’s around health and wellness, mental attitude and staying involved. When you discuss and have the talk between adult children and their parents, it’s around those four aspects. Obviously, when you talk about the financial pieces of it, you talk about where is perhaps the wills going to go, estate planning, maybe you get some discussions about asset allocations and all of those types of things, very, very, very important things, and understanding where the investments are right now and all of that type of thing. What we’re finding is that because of the health concerns and you mentioned it earlier about the size of funds that people need in retirement for healthcare, because of that, there’s a natural tendency to now have the discussion about health, and the discussion about health is about how you’re going to maintain your health. Perhaps what’s your current health situation? One of the things that I really advise people to do between children and parents is to get a list of all of the doctor’s information and the medications between parents and children. It’s something that’s often overlooked, but it becomes very, very important so that that’s done. And then you also talk about nursing home discussions and things of that nature. You then also discuss mental attitude, which is really about what you plan to do and what your goals for retirement are. You get into some of these discussions about staying positive, because the reality about retirement is that things are going to happen. You’re going to lose friends and family and you’ve got to make sure that people in retirement can handle this and the adult children can play a real role in helping them get through it. There are also caregiving considerations. And the last one, which is very important, I feel, is you need to stay involved. You can’t be sitting on the couch. You can’t be sitting at home. A retiree has to be out there building a social structure, a social network. Research points that besides health and exercise, the next most important thing to extending life is to have a strong social structure. So, one of the points that needs to be discussed in the talk is what are people going to do in their retirement? How are they going to interact with others? It could be volunteering, it could be working, it could be a number of things. But those are the four aspects that I feel are important to cover in the talk.
David: You know, as someone who’s approaching that age of mid-sixties myself, all this sounds very good, but I almost have a hard time. My children are in their mid-thirties at this point and their lives are filled with raising children and doing all of that and in a way I would almost find it surprising if they were to initiate the talk with me. It’s just not something that you tend to talk about until you actually have the reason.
Jack: Well, David, I think that’s a good point, and in your situation, you may be the person who really has to bring it up.
Jack: It may fall to you that you need to bring it up. I think the reality is because your children are a little younger, they’re dealing with some things that probably is important for you to bring it up and it may just be a situation to say, “Look, guys, I’m going to lay this out for you. I’m going to tell you what we’re thinking, what types of situations we have, where I’m thinking this should go, what I’m thinking of doing in retirement.” But the important thing is to document this, also.
Jack: As I advise people to review their financial plans each year, I say you should review these plans each year, not just your financial plan, and spend one day a year where you come back, you take a look at your financial plan, maybe you do it with an advisor, but also take a look at how good is my health? How am I staying involved? Are there any changes, any things I want to do? And when you do those types of things, then you could bring it back to your children and say, “Look, I know we talked about this. I’m going to make a little bit of a change here and I just want to make you guys aware of it.” So, updating it and keeping people informed, all about communication.
Jim: And the other thing that…it’s not really discussed in your book, but this discussion point is germane to it, is let’s say that you are in your sixties or seventies and you have whatever estate you have, to me, one of the really perplexing issues is what do you tell your children about your estate? And here’s what I would see is the conflicting forces: one force is, “Well, if I tell them, particularly if I have a substantial estate, if I tell them, then they realize, mom and dad aren’t great spenders. It’s likely that I’ll inherit a lot of money a little later in life and maybe I could take it a little bit easy. Maybe I don’t have to save as much for myself,” and it might potentially reduce their motivation. On the other hand, it is good for children to know what’s going on with their parents, what their plans are and it might be very helpful for a child to know, “Okay, now that I know that mom and dad have a million dollars or two million dollars or whatever it is, I’m not so worried that I have to take care of them because maybe they have enough money to take care of themselves.” Do you have any rules of thumb for parents to have the talk with their kids in terms of how much is there or the other thing is, and this sounds…and I always try to avoid ethnic distinctions, but I think different ethnic groups have different opinions on this, and I don’t want to name different groups with different opinions, but I have found ethnic differences in what they tell their kids about their own finances.
Jack: Yeah, Jim, once again, I mean, this is a situation where there’s no blueprint that’s going to work for every single person, and I think the reality is you have to take a look at your own situation. Just as you have clients who come in and they say, “Look, I want to open up a UGMA account for my child,” and you tell them, “Well, this money is going to be theirs when they’re eighteen,” and they cringe, and they say, “I-I can’t have my kid take this money when they’re eighteen. They’re not going to be responsible enough.” You know, everyone’s situation is different. The advisor can play a good role here. The advisor can play the role where to help the client to understand that it’s important to let the children know this, but to what extent should they know this? It becomes something that the advisor can help them to understand. Should we just let them know what percentage they’re getting of it, or should we let them know the amount? Maybe for this child we don’t do this or do we just draw this up in a trust and we say, “We have it handled. Let’s talk about some of the other issues, about health and attitude and all of that.” There are some situations where parents will say, “I’ve taken care of all the financial things. It’s all been documented. That’s all well and good and maybe there’s one executor, and that one executor will handle it, but we’ve documented it.” But it’s important to bring up the other items. But the thing that I will also point out, I run a research business and I’ve been researching people for over a decade now. Ten years ago, if you had talked to people about discussing their finances with their children, they would have said, “Absolutely no way. I don’t need to discuss that with my children.” What I’m finding now is that there’s more of a tendency for people to say, “I need to discuss this with my children, and I need to be very clear on what my wishes are,” because there’re so many complexities, there’re so many issues that come into play, that I’m finding more and more people in the last five years are saying, “I need to let my kids know the money that I have.” Now, everyone’s situation is different, but you probably, Jim, if you think about the clients you had ten or fifteen years ago, probably most of them would have said, “My kid doesn’t need to know how much money I have.” I think we’re seeing that a bit different now because they’re seeing a lot of these issues that have come into play: long-time care issues, care giving issues, and all of these things, and they say, “I don’t want my child to suffer through this.”
Jim: Well, Jack let me ask another question, and by the way, I will remind our listeners who might just be turning in, we’re talking about having the talk, and that is the talk with your aging parents, but the book is “Having the Talk: The Four Keys to Your Parents’ Safe Retirement” by Jack Tatar, and Jack’s giving us some great information. But Jack, let me ask you another question. You do cover this in your book quite well, I think. It’s a kind of an awkward thing and particularly for some families, a very awkward thing to bring this up. So, we talked a little bit about when. We talked a little bit about why and what’s covered in the talk. Can you give our listeners some guidance on how they bring the topic up? How do they initiate this conversation? What words are used? Because this is a tough one for a lot of our listeners.
David: And it’s sometimes hard to get your children’s attention for any reason!
Jack: Right, right, right, right. Well, I will tell you examples that I have heard and examples that I’ve seen and some best practices that I think work. One of the things I mentioned earlier, which I think is a great way of handling this, is just sharing stories. Just about everyone has encountered some story about the need to have the talk or some parent who…they wished they had done something sooner. You can use those talks and whether it’s the parent who brings it up or it’s the child who brings it up, it’s okay to bring those things up, to say, “Did you hear about Mrs. So-and-So who lived down the street? This happened to them and now they’re struggling over there. Their estate and the children are fighting and no one wants to do anything, and it really would’ve been better if they had handled it sooner.” Those kinds of stories can create an opening to go and have that. Now, I’ve also seen situations where adult children have brought the subject up by saying to their parents, “You know what? I’m starting to look at my own will.” Maybe younger children or the adult children are saying, “I’m looking at my own will. I’m doing some planning here.” Talking about their own situation and kind of encouraging the parents to talk about their situation, as well. I’ve seen that work. I’ve also seen funny examples where I had a friend one time who went on a business trip where her parents lived, and she decided to stop in and see her parents, and she got to her parent’s house, and her parents were happy to see her, and she said, “Oh yeah, I just stopped in just to check on my share of the will,” kind of jokingly. And they said, “You know what? I’m so glad you’re here. We need to talk to you about this type of thing.” So, it could as easily be a joke or it could be a structured discussion. It can be done a number of different ways. Quite often, it’s never going to be a Hallmark moment. It’s never going to be, “We’re going to sit down and have this family meeting.” A lot of times, it’s planting the seed and just going slowly, piece by piece and not having it all done at one point, but planting those seeds to allow either the adult children or the parent to open up.
Jim: You know, Jack, when I was reading your book and I knew that we were going to get away from some financial discussions, and even just right now, you know, what you were talking about is really not financial in nature. I thought, “Jeez, you know, are we overstepping our expertise?” So, I actually called Stefanie Small, who is a licensed clinical social worker with the Jewish Family & Children’s Services and she pretty much echoed what you’re saying, and I’m going to actually read a quote by Stefanie that she gave me and she says that “By using natural openings, such as a friend’s hospitalization or a cousin’s nursing home stay, adult children can get their parents to share important information. Most people will respond to the request to talk because they see it as it can easily be them in that position. As social workers, we try to emphasize that by speaking about their wishes now, and not waiting for a crisis, the older adults are speaking from a position of strength. They’re more likely to end up with the plans that they want rather than dealing from a crisis when their wishes are not the first ones listened to.” And frankly, that’s practically identical to what you have advocated, both on the show and in the book. And for our listeners…by the way, this is just a little resource, and I’m going to put in a little plug for Stefanie’s organization. Probably for children who are helping with their parents or even aging parents who need some help, there’s an organization in Pittsburgh called AgeWell, which is usually the first line of communication, and there’s actually a show that we have in the archives with Maxine Horn that talks about AgeWell, which is, let’s say, the first telephone call either if you are the aging parent yourself, or if you are a child trying to help set up services and resources for your parents, and I just wanted to give that number for our listeners. Again, the group is called AgeWell, and the telephone number is (412) 422-0400. There is a very knowledgeable social worker, her name is Maxine Horn, who will likely answer the phone, and she’s extremely knowledgeable. Okay. So, anyway, we’ve talked a little bit about how to have the talk? What are some of the things to say? And then, you actually have a whole section on financial preparedness, but there is a little bit of a, let’s say…usually, by the way, you and I are pretty much in sync on what we agree on, but I just wanted to bring up the issue of long-term care, which you advocate in the book. Is that right?
Jack: Yes, and obviously, it’s for, you know, everyone’s situation is different, but I do think it’s something that people should at least take a look at.
Jim: Right, and I’ll just mention (and it’s okay to have a friendly disagreement) that I personally, I’m a little bit hesitant with long-term care because the danger is that, or at least one possibility, is that you have an ever increasing cost because that’s just the nature of long-term care. There’s no guaranteed fixed premium. It continues to go up over time and what I have done for people who might be in a position to want to protect their nest egg and, perhaps even more importantly, protect the independent spouse. To me, what long-term care is often about is not necessarily preserving money for the children, but preserving money for the spouse because without it, you might have a substantial expensive illness, all the family resources go to pay for the illness, that person dies, and then you have the survivor who might be in their seventies and without a lot of resources. I sometimes use the combination long-term care and life insurance product on the theory that if the long-term care is not needed, then at least the life insurance will be there for the family. So, I’ll just mention that there’s a slight difference, and of course, different advisors do things differently.
Jack: I think that’s a nice approach, Jim. I mean, like I say, it’s different for everybody. I think the important thing that people take a look at is at least to consider this, because I’ve seen too many instances of this hitting people and they’re totally unprepared for it, and they wipe out the estate. So, I think you’re making a prudent decision there, and it’s a prudent option, and I wish it’s one I would have considered and included in the book.
Jim: Yeah. The other thing I’ll just mention, we actually have a whole radio show on the combination long-term care. Actually, it’s a life insurance product with a long-term care rider. That’s the way it mechanically works, but frankly, that’s to the client’s benefit because sometimes underwriting is a little bit easier and it’s a guaranteed premium. So, I’ll just mention that. And sometimes, and I certainly respect the field of elder law and don’t want to say anything bad because I think there’s some wonderful elder law attorneys in Pittsburgh, including Carol Sikov Gross, but sometimes, some of these needs can probably be…I kind of like to keep people independent, and rather than giving up money and setting up money in trusts that might be restricted, I actually like to potentially either self-insure or insure with this combination product.
David: Well, at that point, let’s just take one quick, final break at this point.
David: And welcome back to The Lange Money Hour with Jack Tatar and Jim Lange.
Jim: And we are talking with Jack Tatar, who is the author of “Having the Talk: The Four Keys to Your Parents’ Safe Retirement,” and Jack is a big advocate of adult children talking to their aging parents about issues like finances and healthcare powers of attorney and living wills, which we have not discussed at all, and I think that that might be a good thing to discuss, Jack. Could we talk a little bit about some of the legal aspects of planning for, or helping our parents, deal with the appropriate documents that they should have as part of their estate plan and their estate plan portfolio?
Jack: Yes and these are certainly very important issues and when you mention to people about the talk, they typically mean, “Oh, it’s having all the documents in place and having all the documents in order.” And obviously, the discussion goes well beyond that. But you bring up a good point. It’s very important to have these items in place and I think it’s very interesting, Jim. I’m listening to you and I’m listening to how you run your practice, and I think the reality is here that no one person is a single resource, okay? There are places for an elder law attorney to step in. There are places for someone who is a specialist in perhaps legal matters around living wills. It doesn’t have to be your advisor, but the advisor can be the conduit to these people. But let’s just take a step back and take a look at the things that need to be in place. Obviously, you’ve got to have a will in place. A living will is something that is important to consider because, and I saw this with my own situation, you’re leaving a lot of decisions to the adult children to be made, and all your children want to do is do what they felt you would’ve wanted to have done to them. So, by doing a living will, if that’s what you consider, and putting that into place, you really are letting your child know, “This is what I want to do, and this is what I want to have in place.” So, that’s important to consider. And there’s a number of other documents, but let me just be very clear on I think what’s important here when you consider documents and legal types of paperwork that needs to go on. The important thing to come out of these discussions between the adult children and the parents is for peace of mind, and I think when you do these documents, doing these documents and your parents saying to you, “We’re going to do these legal documents,” it’s not about trust or anything else. It’s about peace of mind and ensuring that everyone comes out of this knowing what each person wants to do. So, it’s a very important thing. A lot of times when you bring up legal issues in a family, people get a little concerned about things. It has to really be all about communication and about creating peace of mind amongst the family.
Jim: All right, and I thought maybe that I, as an attorney, will fill in some of the gaps that I think that frankly should be part of everybody’s estate documents. One would be a will, and if people are married, obviously, a will for both husband and wife or if they’re partners, for both partners. If you want to avoid probate, which I think makes a lot of sense, then you also might want to have a revocable trust, and the purpose of a revocable trust, historically, has been to avoid probate, but there’s another benefit to having a revocable trust is that you can name successor trustees. So, let’s say, for example, your parents have two different sets of parents. One has a revocable trust and the other one just has a traditional will, and one or both parents develops Alzheimer’s or dementia. If the parent who develops Alzheimer’s or dementia has a revocable trust, there’s typically a provision that says, “In the event that I can no longer handle my affairs, then either my wife or my husband or maybe my child can take over as trustee,” and that is administratively much easier to do than with a power of attorney. Now, a financial power of attorney, sometimes it’s called a durable power of attorney, is also a very important document. That’s mainly for financial purposes. And then, the living will that you referred to, sometimes we call that a healthcare directive, and that’s a very important area. The one thing I will mention that people do not spend a lot of time on, because sometimes, we see these done, and the boxes aren’t even checked off. But the one that deserves special attention is food and hydration and I will just tell you that I dealt with this personally where my mom was really in a pretty bad state and she stopped eating, and the issue was, well, do we put in a feeding tube or not? And that was a trickier issue and there can even be disagreements in the family. So, I think having those issues thought out, having people make their wishes known, having them known in a legally enforceable document, knowing that the documents aren’t perfect. So, I just thought I would fill that in on the legal end, and then also, preferably, having…I mean, I like parents to tell their kids, if nothing else, where all these documents are, whether they’re at the law office or whether they’re in a safety deposit box either at the bank or at home or wherever they might be.
Jack: Yes, that’s a very important thing and in fact, it’s great that you can cover all that because of your legal status and you make some great points. And also, even just the basics of just having accounts in a joint tenant with right of survivorship is even just one of the easiest things to do, and it can help out a lot with any level of accounts, as well.
Jim: Yeah, and you know, a lot of times, even just a couple years ago, a lot of times, advisors would discourage joint accounts because we were trying to keep estate taxes down, and we wanted to separate estates, and we had all types of trusts and all types of maneuvers to save estate taxes, but in the big picture, now that under the new law, that married couples can exempt $10.5 million from their estate for federal estate tax purposes, the game of estate planning is no…for most people. There are some people obviously that have more than $10.5 million, but for most people, is not saving estate taxes, but saving income taxes through the judicious use of IRA planning and Roth IRAs and dynasty trusts and Roth IRAs for children and grandchildren and beneficiary designations, etc. So, I think the game has changed a little bit from estate planning to avoid estate tax to estate planning to reduce income tax.
Jack: Great point, great point.
Jim: That’s just a little thing I thought I would bring up. But the other thing is, and I guess we only have a couple minutes remaining, is you have a whole host of items in the book that go well beyond finances and well beyond legal, and you talk about attitude and legacy and friendship and beliefs and the secret ingredient to longevity. Now, with this…let’s say, literally about two minutes, if you could maybe pick one of those and give us some final thoughts, and before you do, I will mention again, the book “Having the Talk: The Four Keys to Your Parents’ Safe Retirement” by Jack Tatar, which I think is a very good resource, particularly for adults who are interested in having discussions with their aging parents about finance and actually more than finance. So, is there one area or one last thought that you had that you wanted to leave our listeners?
Jack: Yeah and I appreciate it and I appreciate all the kind words, Jim. You know, you mentioned one thing, the secret ingredient to longevity, and it is something…there’s a lot I discuss beyond the realm of finances and really about lifestyle. But there’s one point that I do want to stress because I saw this with my own parents and I saw the impact it had on my own parents. One of the keys and one of the most important things that retirees can do in later life and children can play a major role in encouraging them, is to build and nurture and grow their social network and their social structure. I’ve seen too many situations where either the retired couple just sits around and doesn’t have friends and just watches TV or whatever. Invariably, they’re not going to live a long life and the chapter in the book that talks about this really shows that the research is out there that says you need to have that strong social structure. You need to nurture it and be able to have it always around you. So, I think it’s interesting because one of the things that I just encountered recently and I did an article on this recently, is we have a lot of well-meaning children who say, “Mom and dad, I’m going to have you move back closer to me,” or, “Mom, I’m going to have you move closer to me.” And invariably, they relocate the parents back to them, and what ends up happening is it’s not a good thing if they’re leaving their friends and their social structure behind. Even though they’re close to family, they can’t leave their social structure and their friends behind. So, you’ve got to understand that the social structure is so important to a retiree and so important to an older person in terms of letting them live longer and really thrive in retirement. So, it’s an important issue that I wanted to make sure was not missed.
Jim: Thanks so much, Jack.
David: Yeah, and if you want to reach Jack directly, you can check his website, www.safe4retirement.com. Thanks also to Dan Weinberg, our in-studio producer, and our program coordinator, Amanda Cassidy-Schweinsburg. As always, you can hear an encore broadcast of this show at 9:05 this Sunday morning here on KQV, and you can access the audio archive of past shows, including written transcripts, at the Lange Financial Group website, www.paytaxeslater.com, and while there, check out the latest video clip of Jim’s interview with John C. Bogle, founder of the Vanguard Group, who offers classic investment advice such as buy right and hold tight, the bagel and the doughnut, forget the needle, buy the haystack and minimize the croupier’s take, and finally, please join us on Wednesday, May 15th at 7:05 for a special edition of The Lange Money Hour as we celebrate our 100th show.END
James Lange, CPA
Jim is a nationally-recognized tax, retirement and estate planning CPA with a thriving registered investment advisory practice in Pittsburgh, Pennsylvania. He is the President and Founder of The Roth IRA Institute™ and the bestselling author of Retire Secure! Pay Taxes Later (first and second editions) and The Roth Revolution: Pay Taxes Once and Never Again. He offers well-researched, time-tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans. His plans include tax-savvy advice, and intricate beneficiary designations for IRAs and other retirement plans. Jim's advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendations frequently appear in The Wall Street Journal, and his articles have been published in Financial Planning, Kiplinger's Retirement Reports and The Tax Adviser (AICPA). Both of Jim’s books have been acclaimed by over 60 industry experts including Charles Schwab, Roger Ibbotson, Natalie Choate, Ed Slott, and Bob Keebler.
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