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By Somnath Basu PhD MBA
President – AgeBander
Thousand Oaks, CA
A Pew Research Center study[1] on the effects of financial stress on health finds 42.4% of respondents in a survey on the subject indicated that their health had been affect by financial problems. The study also found that 1 in 8 baby boomers were raising children, planning for retirement and at the same time caring for their elderly parents. This is the unfortunate reality for many baby boomers who face the implications of being a sandwich generation.
The Boomer Spectrum
For boomers across the spectrum of age (1945-64) financial stress has also contributed significantly to relational strife and has exacerbated many medical conditions. It has been linked to depression and sleep disorders and has been known to negatively affect the autoimmune and digestive system. For retirees who find themselves on a limited income with few options for augmenting that income the additional stress of financial problems has certainly been detrimental to their mental, emotional and physical well being. For such retirees who had an improper perception of their retirement needs the realization of the truth is definitely overwhelming. For others, who had thought they had planned ahead and were diligent, are now wrestling with guilt and remorse over their failure to provide for their retirement years. These individuals too are likely also facing fairly severe mental health conditions related to retirement security. Additionally these retirees will likely look back on the sacrifices they did make and feel these were in vain further exacerbating the state of their mental health. This in turn leads them also to resist reasonable advice because their fears make them more suspecting of any advice including the reasonable ones.
The Emotional Culprits
Two of the chief culprits have been the tendency of boomers (as a solace, all other generations suffer from these same problems though boomers have been most affected) to overestimate and have overconfidence about their financial knowledge and understanding of key financial concepts. Their lack of knowledge about overestimating themselves and being overconfident about their understanding of key financial concepts has proved to be detrimental to many a boomer’s health and well being in retirement. This is mainly due to these weaknesses leading them to not having enough funds for their retirement expense needs. A national collaborative strategy initiative on this problem has identified five action areas needed to help alleviate this problem – the need to educate consumers on the areas of financial policy, education, practice, research, and coordination. The reality is that when retirees are affected mentally, physically and emotionally (leading to overconfidence and over optimism), their financial decisions become faulty due to acting on their perceptions of retirement risk. This makes them tend to drastically under-estimate their retirement expenses. In such cases they experience or will experience significant reductions in their quality of retirement life. To ensure that expectations of retired life are realistic and risk perceptions are aligned to realistic and achievable goals are the first steps for boomers to ascend in order to improve the quality of their overall mental and physical health in retirement.
Objective Retirement Planning
An objective of planning for retirement thus becomes the need to find some kinds of lifelong guaranteed pensions since it is well known and understood that retirees who have such luxuries are many times more satisfied in retirement than their peers. The more satisfied in retirement the better mental and financial well-being one has. The main thrust in achieving such a mental state is to understand the importance of a secure and assured income that arrives in the bank consistently every period (such as monthly or bi-weekly).
Perception too plays a big role in mental health as does the security of regular income. However, those receiving Social Security as their regular income are known to be less satisfied than others. Studies show that Social Security benefits carry a “hand-out stigma” for those who rely on them for their well being. From the boomers perspective, living a simpler life but funding retirement from a disciplined pension fund approach (using 401(k) funds, IRAs, personal financial portfolios, etc.) ensures the chances that their mental and physical well-being in retirement will not be reduced in any way by their financial well-being. Now is the time for boomers to exact such a lifestyle and bring in a certain semblance of stability in the vision for the rest of their lives.
Conclusion
And so, your thoughts and comments on this ME-P are appreciated. What are your retirement plans and how does this essay impact on them; if at all? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Notes: [1] http://personalfinancefoundation.org/research/efd/Negative-Health-Effects-of-Financial-Stress.pdf
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Filed under: Experts Invited, Retirement and Benefits | Tagged: retirement planning, Somnath Basu, www.certifiedmedicalplanner.com |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
2011 Inflation-Adjusted Pension Limits
Dr. Basu, in IR-2010-108 (27 Oct 2010), the IRS announced cost-of-living adjustments for various pension related amounts. Because there has been minimal inflation during the past year, most of the amounts remain the same as the 2010 limits.
1. 401(k), 403(b) or 457(b) Contributions – $16,500.
2. Catch-Up for Age 55+ – $5,500.
3. Deferred Contribution Plan Limit – $49,000.
4. Annual Compensation Limits – $245,000.
5. Key Employee Top-Heavy Plan – $160,000.
6. Phase Out Limits for a Regular IRA – For a single person, $56,000 to $66,000; for a married couple, $90,000 to $110,000; for the spouse of a person in an active plan, $169,000 to $179,000.
7. Phase-Out Limits for Roth IRAs – Single person $107,000-$122,000; married couple filing jointly, $169,000-$179,000.
Source: Children’s Home Society of Florida Foundation
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KEEP THE RETIREMENT PLAN GOING WELL AFTER DEATH
Excellent post Dr. Basu. Now, please allow me to extend it just a bit; post-mortem.
For example, distributions from retirement plans can be subject to income, estate, excise, and penalty taxes, which together could take more than 80% of the value of the account, leaving children or heirs with only a minor portion of the balance that remains at death.
Fortunately, the minimum wage bill signed on Aug. 20th 1996, liberalized some of these penalties. And, a properly structured IRA could allow the beneficiaries to extend the tax deferral and avoid several penalties by having a designated non-spousal beneficiary or beneficiaries inherit the decedent’s IRA. A non-spouse beneficiary must continue to maintain the IRA in the name of the decedent and receive minimum distributions during his or her life expectancy.
Generally speaking, if the account owner dies before the IRA goes into a pay status, the beneficiary can elect distributions either over five years or over his or her life expectancy. If the IRA was in pay status at the owner’s death, minimum distributions are calculated under an alternative method, depending upon whether the IRA owner elected recalculation of distributions. Another approach is to name an irrevocable trust as beneficiary.
Heirs inheriting the IRA can avoid the premature withdrawal penalty, the estate excise tax, and the excise payment tax (these are charged to the IRA owner or his or her estate), but are subject to the required minimum distribution rules and the related penalty, if applicable.
Please be advised that rules on inherited IRAs are probably the most complex that physicians and any taxpayers will ever encounter. IRS Publication 590 provides many of the answers. An inherited IRA can provide taxpayers with substantial tax deferral and ensure financial security for future generations. It is well worth knowing and looking into those rules.
Thanks again for your continuing expert contributions to the ME-P.
Dr. David Edward Marcinko MBA CMP™
http://www.CertifiedMedicalPlanner.com
[Publisher-in-Chief]
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UPDATE
Many physicians don’t realize that their retirement plan beneficiary designation overrides a will. In fact, estate attorneys often suggest that the plan documents “control” the outcome of disposition.
And so, be certain that your retirement document beneficiary designation is always in order.
Dr. David Edward Marcinko MBA CMP™
[Publisher-in-Chief]
http://www.CertifiedMedicalPlanner.com
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