Don’t suffer in silence on tax, financial-planning issues

For many people, summer means a slower pace and trips to the shore, the lake, or maybe even a “staycation.” Perhaps, those summer-trip plans should also include discussing income tax and financial planning. While this may sound a bit off beat, consider the following.

Many planning strategies take time to implement, and summer may present the perfect time to give serious consideration to a serious topic. The mere fact that a tax filing or calendar year-end is not facing us can generally provide for more lucid evaluation of the situation at hand. Couple this with the unique opportunity to actually see loved ones face-to-face (i.e., family trip), in a relaxed setting and finally, important conversations can be held.

Many baby boomers, believe it or not, have been secretly (or perhaps not so secretly) hoping for an inheritance from aging relatives to patch the gaps in their retirement planning. What used to be seen as a nice gift when Great Aunt Loretta passed on is fast becoming a component of retirement planning — and a risky one. Even those who stand to benefit from trusts that have been long established will be reminded that essentially everyone has suffered major investment losses in recent years — even those family trusts. 

A combination of longer life spans, market conditions, lower interest rates, and the rising costs for health and long-term care is proving a challenge to an alarming number of families. Those of us in the “middle” find that not only children and college are requiring more cash, but also aging parents. Parents? Yes, parents.

Medical statistics show us that a 65-year-old male has a 60 percent chance of living to age 80 and a 40 percent chance of living to age 85. Women have a slightly better set of odds. The result is that the 85 and older age bracket has become the fastest growing segment of the population. As this group continues to increase, more cash is spent, leaving less wealth for transfer to the next generation. 

Research conducted by Northwestern Mutual Life, Merrill Lynch, and the Center for the Study of Aging at Rand Corp. reflects concerns plaguing our aging population and their families. For individuals with “substantial wealth,” preserving inheritances is a top concern for 41 percent of the group, down from 54 percent just three years earlier. 

These same individuals expect to transfer nearly 20 percent less when benchmarked in 2008 and then 2009. Beyond the thought of leaving a financial legacy, our parents are concerned about the present. One in three surveyed adults over age 60 indicated they did not feel financially prepared to live to age 85.

Are families discussing these issues? For the most part, no. Many parents are uncomfortable in starting the dialogue about finances with children. Most children do not want to appear greedy and in turn also avoid the conversation. Parents don’t want to disappoint children or cause anxiety by discussing mortality. Children share many of the same feelings and often feel uncomfortable prioritizing their own situation when mom and dad may be facing significant care expenses.

While the topic may not be initially comfortable, the effort is certainly worthwhile. Discussions need not begin on a nitty-gritty level, but with the goal of establishing realistic expectations and perhaps an action plan. If you learn there are concerns or confusion, a bit of fact-finding is in order to get the ball rolling. While these conversations can feel odd, don’t be deterred. From firsthand experience, I can tell you that understanding your parents’ situation, plan, and wishes makes all the difference in the world. 

How do you get started? Gain an understanding of what resources are available and the costs of current living. Take a look at budgets and investments. Consider health-care needs and decide how the plan will be managed. Notice, I did not say “decide how to maintain inheritance.” Personally, I consider that to be secondary to the health and comfort of mom and dad.

I find a useful segue into the conversation is one that focuses on mom and dad. “I know many of my friends’ parents are struggling to make sense of the economy and retirement savings; how do you feel about it? Things have changed so much in the last few years that it may be a good idea to look at everything again.” Like so many things in life, getting started is the most difficult step but so worthwhile.

As an aside, it is always easier to encourage or outright ask someone to take on a task if you yourself have already done so. In term of steps you can take now, consider the following:

Review your portfolio for under-performing stocks and other investments. Sometimes adjusting your holdings makes sense and you can often deduct losses against gains. The rules continue to change, making conversation with your advisers imperative.

Retirement-plan contributions are usually only thought about when it is time to file a tax return. By taking a few minutes to assess your cash flow and savings habits you may find you can contribute, or increase your contributions now. This strategy will allow you to begin earning tax-deferred interest sooner with the added benefit of dollar-cost averaging when you utilize a monthly deposit approach. Obviously, you should always strive to maximize company 401(k) deferrals.

Review your budget (or set one up) and be sure to spend some time honestly considering need versus want. Living within your means now is a key step to working toward a stable future.

The best way to determine which of these strategies will work for you is by consulting your CPA or financial planner. He or she will be able to assess your current situation and guide you through the myriad rules, options, and limitations. Don’t suffer in silence as you worry about your personal financial situation, or that of your parents. Begin the conversation today. You will thank yourself tomorrow.                 

Gail Kinsella is a partner in the accounting firm of Testone, Marshall & Discenza, LLP, and serves as the president of the New York State Society of Certified Public Accountants. Contact Kinsella at gkinsella@tmdcpas.com