Retirement Answer Man

Many people choose to give to charity as a way to give back to their community. If you are overfunded you may decide to give to charity while you are still alive as well as part of your estate after you pass. On this episode of Retirement Answer Man, we’ll continue the estate planning series to discuss different ways that you can give charitably now and as part of your estate. Stick around to hear the Q&A session with my esteemed guest Peter Lazaroff.

U.S. citizens are known for being extremely charitable people. Although many people help others as individuals, a charity is an organization that uses money and human capital to make a greater impact in the world. Different charities have different motivations and missions. When choosing a charity to give to it is important to look at its mission but also to make sure that the organization is a good steward of the money it receives.

Each of us has a different motivation to give to charity. Maybe your reasons are personal, or perhaps your life was affected by a certain event. Some people practice charitable giving as a way to model good citizenship to their family. Others are overfunded and use charitable donations to help ease their tax burden. For whatever reason you choose to give to charity it is important to make sure to find organizations that match your values. Why do you choose to give to charity?

There are several ways to give to charity now while you are still alive.

If you are over 72 you may find that your RMD is more than you need. You can solve this problem and reduce your tax burden by making a qualified charitable distribution. You can give to one organization or spread out your contribution among several charities.

You can donate appreciated assets and avoid capital gains. If you donate all or a portion of appreciated assets directly to a qualified charity you can avoid capital gains. This could help you rebalance your portfolio or reposition your assets.

Use a donor-advised fund (DAF) like your own charity. With a DAF you can donate cash or assets. It’s like a simple version of a private foundation. You can choose one or many different charities to give to. Listen in to hear how you can involve the family in your charitable giving.

Use a trust in tandem with your charitable giving. Charitable remainder trusts or charitable lead trusts are a bit more complicated and require the help of an attorney.

There are basically 2 ways that you can give to charity in your estate once you pass. You can either make a bequest in your will or name the charity as a beneficiary of an asset. The most simple and direct way is by making a bequest in your will. If you chose to name a charity as a beneficiary in an IRA asset then the charity would pay no income tax on that asset. How would you prefer to give to charity?

• [3:08] What is charity?

• [7:04] What motivates you to give to charity?
• [9:30] How to give to charity while you are still alive
• [22:44] How you can give your estate

• [26:44] Peter describes when decided to create his own estate documents
• [30:38] Will a Roth conversion send your assets over the income limit?
• [33:33] How to become a financial planner later in life
• [44:30] How to navigate stock risk with your company

• [52:52] Examine your charitable giving to look for planning opportunities

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Retirement is often the time when people begin to think more about estate planning. On this episode in the Estate Planning series, we’ll talk about giving. You want to be able to give to your loved ones but you also don’t want to rob them of their problems. That’s why we’ll discuss how you can give without enabling and you’ll discover how to optimize the impact of your gift. You’ll also learn how to decide whether you have enough to give. When you begin to think intentionally you’ll see that there are so many ways to give.

It would be amazing to be able to give to your loved ones before you pass, but how will you know whether you have enough? The first hurdle in giving is being comfortable giving away your assets. What if you need that money later on? Actually that’s not so hard to figure out. Often times you’ll see that deciding how to give is less a money question than a mindest question. To be comfortable giving away assets you need to understand your level of fundedness. Are you underfunded, constrained, or overfunded? Once you understand this then you can begin to put a plan in place for giving.

We give for many reasons. A gift is an item that you give someone without an expectation of payment in return. Giving is a way to express feelings and emotions and share those feelings with the receiver. You may not want your gift to your heirs to come in the form of a check from an attorney several months after your death. There are more intentional ways that you can give so that your family can feel the love behind that gift.

As parents, we would love to solve all of our children’s problems for them, but then we would be robbing them of that learning opportunity. One of the best gifts we can give our kids is not robbing them of their problems. We need to find ways to help them but also allow them to figure things out for themselves. There are ways that we can give to them that enhance their lives rather than enabling them.

Create memories - I think this is a fantastic way to give and to be able to enjoy that gift as a family. You could rent a house at the beach and help subsidize the family trip. Spend money to bring the family together.

Annual gifting - You can give anyone $15,000 per year without reporting it. You could help fund their Roth IRA or help buy them a house. You might be surprised when you find out how much the lifetime gift exemption is.

The gift of education - There are many ways to give for education. You can pay for college tuition directly. You could fund the grandkids 529 plan and allow the money to grow tax-free. You can also use up to $10,000 per year to fund a pre-college education if your grandkids are in private school.

• [2:20] What is a gift?

• [6:50] How do you give more intentionally?
• [10:45] We don’t want to enable we want to enhance
• [14:55] Retain optionality
• [16:12] Ways to give
• [27:43] What is a trust?

• [36:59] Should we be investing in ESG funds in the “new normal”?
• [44:08] A rainy day fund question
• [52:18] A tax bracket question

• [60:06] How do you want your assets to be distributed?

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One important aspect of retirement that not everyone is prepared for is estate planning. People avoid estate planning for various reasons, but a properly done estate plan is more than just documents. An estate plan is a way of continuing relationships and loving those people you leave behind in ways that you may not even imagine. Today we are kicking off our monthlong series on estate planning and we are starting with the basics. Listen in to hear what kind of documents you should have in place but also why they are important.

Everyone knows they should have an estate plan, but very few have or understand what estate planning really is. Estate planning is the process of anticipating and arranging the management and disposal of your financial and legal life. The good news is that if you don’t have an estate plan the government has one for you. The bad news is that it probably won’t reflect your wishes. Done correctly, estate planning can be an important gift that you leave to those you care about.

Some people may be fine without a plan and having the state doling out their worldly possessions. The purpose of an estate plan is to close out your financial life. When you pass away you probably don’t want to leave your loved ones with a financial and legal mess. Planning your estate in advance is one way to give a gift of elegant simplicity to your family.

• Probate - When you pass away the process by which the state goes through closing out your legal and financial life is called probate.
• A will - A last will and testament is a document that designates where your assets will go, but there is quite a bit of paperwork involved so an executor is named to manage the paperwork and distribute the assets based on your wishes.
• Beneficiary driven accounts - These accounts have beneficiaries chosen when you set up the account. Beneficiary driven accounts include 401K’s, 403B’s, IRA’s, etc. The benefit of having a beneficiary listed on these accounts is that they get out of probate quickly and transfer quickly and directly.
• Power of attorney - Another important document to have in place is a durable power of attorney. This gives a specified person the power to make decisions for someone who is incapacitated.
• Healthcare power of attorney - This document allows you to appoint someone to make healthcare decisions for you should you not be able to. If you don’t have one in place it could delay treatment. You can also specify specific situations in which you may not want life-saving actions.

There is more to estate planning than just having these things in place. I am not a professional estate planner. Think about talking to an estate planner to help you plan your estate. And remember that it is important to periodically review your will and beneficiary driven accounts. Do you have an estate plan in place? When was the last time you reviewed it?

• [3:06] What is estate planning?

• [4:34] An example of why estate planning is important
• [9:14] What are the basics of estate planning?

• [21:58] Should a woman seek to work with a female financial planner?
• [26:49] Should you plan leveled withdrawals in retirement?
• [35:09] How to factor secure income
• [45:41] Why do we use average rather than the median in market assumptions?

• [51:02] Review your estate planning documents

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Do you think your own behavior affects your retirement investment management? If you said no, you may want to think again. The most significant risk to your finances is not market volatility or inflation, it’s your own behavior. Over the past several episodes we have explored how our own cognitive biases affect our financial choices and this episode continues that journey. On this episode, you will learn what you can do to make better decisions to ultimately protect your money from its own worst enemy: yourself.

A heuristic is a psychological term for a mental shortcut that allows an individual to make a decision, pass judgment, or solve a problem quickly with minimal mental effort. Our brain constantly uses so much energy that it always looks for shortcuts. Renowned behavioral finance expert, Dr. Dan Crosby, calls this bumper sticker thinking. The 4% rule is a good example of a heuristic used in retirement planning. We need to learn to work around our mental shortcuts and truly think things through.

In finance, there are many kinds of risks. We often worry about volatile markets or inflation. We use diversification to help us lessen the market risk but we often ignore the greatest risk to our finances. The biggest risk to your financial security in retirement is your own behavior. If you can’t control your investment behavior especially during challenging times then your retirement portfolio will suffer. Listen in to learn how to manage your cognitive biases and set yourself up for financial success in retirement.

• Investing is a crapshoot. That’s why we diversify, in essence, diversification is an act of humility. When you diversify you are admitting that you don’t know what will happen.
• Put a premium on optionality. As life unfolds you need to have the ability to make changes to your plans.
• Don’t white-knuckle it. If you can’t sleep during volatile times then you are taking too much risk.
• Listen to differing points of view. Cultivate a knowledge base with diverse opinions.
• Redirect your energy. Once you identify your cognitive biases, set up systems to redirect your natural tendencies.
• Consistently receive feedback from others with different points of view. Be careful to cultivate diverse opinions.
• Force yourself to consider the opposite case of any decision you make. Learn to see an issue more fully from both sides.
• Use personal benchmarking to compare your finances to a set standard. This will allow you to look inward at what matters to you personally

When I work with my clients I have to help them manage their own behavioral risks. I do this by considering process, strategy, and tactics. Consider what you want your life to look like. What is important to you?

Before making any decision, slow down and ask yourself some questions. If you slow down and center yourself you can think through any decision. Think about the decision from all sides. What does success look like? What does failure look like? What are some alternatives that you can consider? Listen to this episode of Retirement Answer Man to hear how you can manage your own behavioral risks.

• [1:20] What is heuristic?

• [3:45] Managing behavior is the most significant risk you have to your finances
• [7:04] Be nimble as life unfolds
• [12:36] Create personal benchmarks
• [14:23] How I manage behavioral risk with clients as well as with myself

• [21:41] What is the Rock Retirement Club?
• [22:35] Do we make rational decisions?

• [34:02] Practice your decision-making framework

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This whole month of August we have talked about improving decision making. Retirement brings about hundreds of choices. If you aren’t well-prepared to make those decisions you might simply revert to the default choice. Do you really want your retirement to be set to default? In this episode, you’ll learn how to create a framework to make tactical decisions. If you’re ready to learn how to make decisions that will help you rock retirement then press play now.

A strategy is an overarching plan to help you achieve the kind of life you envision for yourself. Strategies don’t change very often. Tactics are the specific actions or steps you take to accomplish the strategy create an amazing life. This sequence can be hard to achieve because we often jump straight to the tactical decisions without thinking about the strategy first. It’s important to keep in mind your strategy first. Have you thought about the strategy that you want to use to create the retirement of your dreams?

The trajectory of your life is changing in retirement. Your life is coming off autopilot and so that leads to hundreds of small decisions. It can be hard to adjust to making all these new decisions, we often just resort to the default choice. But if you can change the way you make decisions it can have a huge impact on your life. Think about the butterfly effect that has led to the life you live right now. One tiny change in the state of your life can really make an impact in the long term. If you are wondering how you can improve your decision-making press play to hear how.

Before learning to make tactical decisions it is important to have some other things in place before jumping into making decisions. It is important to start with your values. Once you have a clear vision of your values then you can set goals that align with those values. After you have clear goals in place then you can develop a strategy to achieve your goals. Finally, within that strategy come the tactics. You’ll use these tactics to execute the strategy to achieve your goals that are in line with your values.

Once you have your goals and strategy in place you can make the most of your decisions by using this decision-making framework. Ask yourself these questions before making any decisions. Try it out on small decisions first before jumping into the bigger ones.

• What is your objective?
• What does success look like after you make the decision?
• What is the ideal outcome if you make this decision?
• What is the worst-case scenario?
• What are the consequences of the decision?
• What are the effects of this decision? Test it out. Use first-order and second-order thinking tease out what those effects might be.

Listen in to hear how some real-life retirement decisions could play out using this framework.

• [1:20] What is the difference between strategy and tactics?

• [5:50] If you can get just a little better at making tactical decisions it can have a huge impact on your life
• [9:52] How do you make tactical decisions?
• [16:45] A framework for tactical decision making

• [24:44] Choosing leisure activities to add spice to your retirement

• [35:31] Test out this decision-making framework

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