Investing and Protecting your Assets

Our senior clients’ greatest concerns are that 1) they will run out of money during their retirement and 2) they are unprepared for a long term care crisis. Two things that most seniors should do to plan ahead are avoiding annuities and manage your qualified retirement accounts rather than just taking required distributions. At retirement, or during a long-term care crisis, you should take steps to structure distributions from your retirement account such that you will receive the most favorable tax treatment for an expected long term care need. These are general concerns and may not be appropriate for you. You should get particular advice concerning your individual situation from an elderlaw attorney and your financial advisor.

Seniors who are not rich and don’t have long term care insurance protection should not invest in annuities, as these types of investments limit liquidity, which is absolutely necessary in a long-term care crisis. Financial advisors and bankers most often attempt to sell annuities to seniors, as they hold the majority of the wealth in our country. However, our firm advises seniors against these types of investments, as they are typically risky for those over age 65. Once you place part of your nest egg into an annuity, the annuity company will have ultimate control over your investment and will trickle that money back to you over a period of years (depending on the terms of your annuity). If you need access to all of your investment at once, then you will face hefty penalties. This is problematic for many seniors, who are at a greater risk for long-term care crises. Without liquidity, many will be unable to pay $5,000-$7,000 a month in long-term care costs. For this reason, the senior community must be careful with how they invest in annuities. Those who have long term care insurance or who are very wealthy may be able to invest in annuities with little risk.

Everyone should invest in retirement accounts (by contributing to 401ks, 403bs, or IRAs) while working. With these “qualified” accounts, your investments are not taxed when contributed, and any income from your qualified accounts during your working years will be tax-deferred. When you retire, you will pay tax on the money that you withdraw from your retirement account. These qualified accounts work to your advantage, as you will invest income when your tax rate is much higher. Then, when you retire and withdraw from your account, your tax rate will be much lower. It is especially important to put away as much as possible into retirement accounts today, as longer life expectancies increase the chances of running out of money in retirement years. If your employer matches the amount that you contribute, you would be wise to contribute at least that amount, if not more. Additionally, it is important to monitor your account every quarter after you have chosen your investments. Failure to do so may result in your investments performing poorly.

If you have already retired, then you will be required to take a minimum distribution from your retirement account at age 70 ½. However, if this is all that you take from your account each year, then your account will continue to accumulate over time. Your retirement account is meant for your retirement and should be used as such. If you have any deductions on your income tax return (such as for long term care expenses), then you should structure your distributions from your retirement account accordingly to make full use of those deductions. It is far better to receive 100 cents on the dollar from your retirement account because of these deductions than leave it to your children, who will only receive 65 cents on the dollar after taxes. Additionally, take note of your tax rate and withdraw from your retirement account the maximum amount possible without creating any changes to your rate. Finally, you should consider using your retirement account to make direct charitable contributions, as the charity pays no tax, and you get more bang from your contribution that taking a distribution with a charitable deduction.

If you or your loved one needs assistance with your retirement, or if you have questions about government assistance programs such as Medicaid or Veteran’s Benefits, consider W.G. Alexander & Associates – we offer a unique blend of asset protection, Elder Law and estate planning. You can also attend our free seminars, learn more through our website at, or call us at (919) 256-7000.

Attorney Bill Alexander discusses these issues and more every Tuesday morning on W.G. Alexander & Associates’ radio program, “Asset Protection Today,” on TalkRadio 850 WPTK (AM). Be sure to listen tomorrow  from 9:00-10:00 AM.  To listen to last week’s show, please visit WPTF’s on demand show blog by clicking here.