As Worker Shortage Increases, So Will Incentives to Keep Boomers on the Job

For several years now, various agencies and academics have predicted a systemic labor shortage that will create a labor shortage over the next 25-30 years as the gap between Baby Boomers and entrants of college-educated workers widens due to the Boomers’ mass retirements.

There are plenty of arguments over this theory, but employers are acting now to keep older workers in their jobs just a little longer. Some Boomers are finding out their bosses don’t want them to retire or are willing to make interesting compromises to give them an incentive to stay on full- or part-time. In a survey of older workers in the July 2008 EBRI Issue Brief, published by the nonpartisan Employee Benefit Research Institute (EBRI), 29 percent of workers said that feeling truly needed for an assignment was one of the top three most effective draws for staying on the job. Other incentives that ranked highly include:

• Receiving a full pension while working part time;
• A pay increase;
• Continuing company-subsidized health insurance at the same level as full-time workers, and
• Receiving a partial pension while working part time.
  

So what would convince you to stay on the job or un-retire if your employer comes calling again? It makes sense to talk over such issues with a tax professional and a financial planner. No matter what the incentives put in front of you, there are key issues to consider:

Make working retirement a variable in your planning: If you’re 5-10 years away from retirement and reviewing your retirement thinking so far, it makes sense to ask yourself under what conditions you’d return to the workplace. You obviously need to know based on current projections how much money you’re likely to gather from savings and other retirement resources. Then you need to consider how much money you’d be satisfied making in your post-retirement working life.

Consider how a return to the workplace will affect you personally and socially: If you’re 40, 50 or 60, working right now probably feels like breathing – when have you not worked? But it may not be the best option after a year or two out of the workplace.

How will it affect your taxes? Tax issues shouldn’t determine your ambitions and goals, but it’s important to consider the impact work-related income will have on your retirement. Many retirees find that it doesn’t take much post-retirement, work-related income to tip them into a higher bracket. Look for ways to control the taxes you’ll ultimately pay, including continued participation in qualified plans, IRAs, and other tax-favored accumulation vehicles and using annuity income to fill the gap between the beginning of the “post-retirement” period and the age when full Social Security benefits can be drawn without an offset for employment income.


Consider what earnings will do to all your retirement payments: If you are planning to work, consider not only the tax impact, but also how that might change the way you plan to draw on your retirement savings and investments as well as Social Security. If you are planning to work, it’s important you consider delaying receipt of those benefits for as long as you can.

Look at all the incentives: The top incentives luring experienced workers back to the workplace may be very attractive to you, or not attractive at all. Do some thinking about this. If you get the call, be prepared with a counterproposal of what would really convince you to come back.

Consider insurance issues: If a retiree returning to the workforce is already receiving Medicare or covered by a “Medigap” policy, they may be able to lower their costs or improve their coverage by accepting group coverage as primary underwriter of their medical expenses. Since people over age 55 are generally the greatest users of the healthcare system, coverage issues are particularly important to run by a financial expert.

Keep saving: If you return to the workplace, see what you can do to take advantage of your new employer’s 401(k) plan or any other tax-advantaged retirement savings benefit, particularly if an employer matches your contribution. Don’t miss a chance to enhance your retirement savings.

November 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

As Medical Expenses Rise, Don’t Miss Key Deductions

There are plenty of horror stories about uncovered medical expenses these days, and the truly horrifying part is that many of them belong to people who actually have health insurance. But anytime you or a family member is facing a health crisis or an unusual medical-related expense, it’s best to check to see if you might get a break from Uncle Sam.

A tax professional and a financial planner should be consulted to determine whether there are any tax issues or any ways to defer cost or save money at any part of the process. The Internal Revenue Service lets you deduct medical costs as long as they are more than 7.5 percent of your adjusted gross income (AGI). That means if your AGI is $50,000, you can deduct only those unreimbursed expenses that exceed $3,750.

Getting there requires some planning, which is why it’s so important to gather up every dime of unreimbursed medical, dental and vision care expenses and review it carefully.

Here are things people often miss:

Medically related travel: The IRS evaluates the standard cents-per-mile allowance each year for travel to and from medical treatments. Between Jan. 1-June 30, that rate was 19 cents a mile. Between July 1 and Dec. 31, the rate will rocket to 27 cents a mile.

Insurance payments from already taxed income: This includes the cost of long-term care insurance, up to certain limits based on your age.

Uninsured medical treatments: This includes what you spend for an extra pair of eyeglasses or set of contact lenses, false teeth, hearing aids or artificial limbs.

Rehab treatment: What you pay for alcohol or drug-abuse treatments can be noted on Schedule A.

Weight-loss to smoking cessation: If a doctor prescribes it, you’ll be able to deduct it.

Laser vision correction surgery: May be an allowable expense to deduct on your current taxes.

Doctor-recommended equipment and related expenses: If your doctor tells you that you need a humidifier installed on your heating and air conditioning system to help your breathing problems, you might be able to deduct all or part of the cost for the device as well as the additional energy costs to run it.

Some medical education costs: If you, your spouse or child have a chronic medical condition and you attend a conference to learn more about it, you can count admission and transportation expenses as a deduction, but not meals and lodging.

If you’re self-employed: You may deduct, as an adjustment to gross income, the full cost paid for medical insurance for you, your spouse and your dependents.

Lodging for out-of-town treatment: When accompanying a minor dependent to out-of-town medical treatment, hotel bills may be partially deductible.
Here are some less common expenses to watch:

Medically necessary home improvements or equipment: If you do a home improvement or bring in special equipment that’s considered medically necessary for you, your spouse or your dependents, you’ll be able to deduct the cost. These may include special entrance/exit ramps to your house, widening doorways, modifying kitchens or bathrooms, or adding a chairlift for the physically disabled. Because these improvements are not expected to add to the market value of the home, they are considered fully deductible. If the improvement increases the value of your home, only the amount of the expense that exceeds the increase in the property value of your home is deductible.

Nursing services: If you are paying out-of-pocket for a home-based nurse, these expenses may be deductible.

Lead paint removal: Lead paint is dangerous, and the money needed to remove the paint from a home is deductible.


November 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Before the Holidays, Get Those Charitable Donations Lined Up

There’s a special sinking feeling as you approach Dec. 31 and realize you’ve done no tax planning whatsoever. That includes big issues like end-of-the-year investment decisions, and the smaller ones – like that stuff you no longer use piling up in the basement.

Charitable giving is an important part of tax planning at year end, so let’s look at the cash and noncash aspects of giving. It makes sense to contact a tax expert or financial planner to talk about what giving makes sense for you:

You have to itemize: Only individual taxpayers who itemize their deductions on Schedule A can claim a deduction for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (1040A or 1040EZ).

Get out the checkbook: Uncle Sam likes a record. To deduct any charitable donation of money, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution – and it definitely helps to have both. Bank records mean canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date. For payroll deductions, the taxpayer should retain a pay stub, Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity. If you remember the IRS being satisfied with personal bank registers or scribbled notes to document the donation, they’re not anymore.

There are charities, and then there are charities: You need to make sure that organizations are qualified to make tax-deductible contributions to. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions, but there’s an online version too. Just go to IRS.gov and type in “Search for Charities.” One key exception -- it’s important to note that churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.

Giving away property: If you give away property, including clothing and household items, get a receipt that includes a description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes a description of the property and its condition. For any kind of vehicle, boat or airplane, the deduction is now limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

You can’t deduct junk: Under a provision of the 2006 Pension Protection Act, contributions of physical items must be in 
good used condition or better to qualify for a deduction. That means that you can’t deduct ripped or discolored clothing or appliances that don’t work. If you donate noncash property that is valued at more than $500, you need to report to the IRS how and when you acquired the property and your cost basis. You must file Form 8283, Noncash Charitable Contributions, for all donations of property valued at more than $500.

Use that digital camera: If you’re ever audited, it helps to have photographs or video of these items, and obviously, demand a detailed receipt.

Learn rules about giving away appreciated securities: This is where a financial planner or tax expert would come in handy. When you donate stocks or mutual fund shares you have held for more than one year, generally you may deduct the stocks’ current fair market value. Additionally, you avoid paying capital gains taxes on the appreciated value.

November 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Veterans Set For a Big Benefits Upgrade in 2009

The Post- 9/11 Veterans Educational Assistance Act, which will become effective in August 2008, will position returning U.S. veterans for one of the biggest upgrades in post-military education benefits since the G.I. Bill was signed in 1944.

The act, signed by President Bush in June, pays up to the full cost of tuition and fees at the most expensive public school in the state in which a veteran enrolls. Some can get a free education if they qualify for the full amount, and it not only extends to the main four branches of the military, but also activated members of the National Guard and the Reserves. Best of all, the new program will allow returning servicemen and women with qualifying service to transfer their benefits to spouses or children if they already have a degree.

The current G.I. Bill pays only 70 percent of the cost of a public education and almost a third of the cost of a private-school education, and it currently costs vets $1,200 to enroll in the program.

Returning veterans might consider this benefits upgrade as part of an overall look at their financial status. A financial planning professional with expertise in military benefits can be a good first stop to re-start civilian life.

To qualify for the new benefits, veterans need to have served at least three months of active duty since 9/11, after which benefits are pro-rated according to months served, up to 36. For veterans who have served at least three years of active duty, they’ll qualify for 36 months worth of in-state tuition and fees, or four academic years. For those who serve 24 months, they’ll qualify for 80 percent of in-state tuition, plus 80 percent of the costs of books and housing. For those who leave the military due to a service-related disability and served at least 30 days of continuous active duty qualify for the maximum benefit. The program will cover in-state tuition and fees and give veterans a housing stipend pegged to area housing prices. It will also pay $1,000 a year toward books and up to $1,200 toward tutoring expenses as long as it’s for an in-state school. Out-of-state students will need to make up the difference between in-state and out-of-state costs.

There’s also the Yellow Ribbon G.I. Education Enhancement Program, where the federal government matches institutional grants offered by participating schools to vets who qualify for the maximum benefit.

Other things returning vets should remember:

Getting back to retirement planning: Military service counts toward vesting for all civilian retirement plans. And thanks to the Heroes Earned Retirement Opportunities (HERO) Act enacted in 2006, military and their families can actually put more money into their traditional or Roth IRA accounts. The act allows tax-free combat pay to be considered as earned income for determining the contribution amount for traditional and Roth IRAs. Before, a military person who earned only combat pay wasn’t allowed to contribute to either form of IRA.

Plan proper use of accumulated pay: For returning military receiving accumulated military pay or compensation from civilian employment, it’s tempting to take the money and blow it. It makes sense to sit down with a financial and tax adviser before a dime gets spent.

Understand tax issues: Activated and deployed military personnel receive special tax breaks at the federal and sometimes state level. Military income earned by soldiers in combat zones is tax-free and they don’t have to file taxes until 180 days after their return. Activated military personnel also are entitled to an extension on the period of time allowed for a tax break on the profits from the sale of a home. They’re also entitled to tax breaks on childcare assistance and certain travel. Nontaxable combat pay can also be considered for the Earned Income Credit.

Know your rights if problems occur: The Servicemembers Civil Relief Act of 2003 provides a variety of financial protections for active duty personnel. The act provides stays on civil litigation including bankruptcy and divorce and prevents wage attachments while military personnel are away. Coverage requires active duty confirmation from a commanding officer but expires 90 days after that status has been terminated. The law also makes it tougher – but not impossible – for landlords to evict military families for nonpayment of rent.


October 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Short-term Long-term Care Insurance? Make Sure it’s a Good Idea for You

As the long-term care (LTC) insurance market has matured over the past 20 years, features have been added to the costly policies to make them more attractive. Even the IRS has even come on board, making a portion of the premiums tax-deductible. Yet with the tougher economy, insurers are looking for ways to get more consumers in the door – so they’re adjusting features to give people a break on cost.

Enter the “shorter-term” long-term care policy for individuals who are willing to play the odds. The main change in such policies is that they eliminate the “lifetime” feature in favor of a shorter time limit on benefits, usually between two and three years, currently the length of an average nursing home stay. These shorter-term plans can potentially cut the cost of average annual premiums in half, and if couples buy a combined policy, they potentially may cut the premium cost further.

The idea of lower-cost LTC insurance is certainly attractive, but it makes sense to get some advice and ask some very important questions before committing. A financial planning professional can help you assess how well prepared your finances are to sustain a serious long-term illness with a current national average of $70,000 in annual nursing home bills that would not otherwise be covered by insurance. In addition, ask:

What’s your health like? People in good health purchasing long-term care insurance in their 50s or younger usually get the most affordable deal in LTC insurance. But to some degree, your current health status is no guarantee that you’ll only be looking at 2-3 years of expenses in total. Keep in mind that 40 percent of long-term care is provided to individuals between the ages of 19 and 65, so the need for care can strike at any time and may do so more than once.

Are you female? Again, personal and family resources come into play here, but since women typically live longer than men – and they still earn less on average than men – women should take a heightened interest in providing for their long-term care safety net. Long-term care insurance might be a good solution given their other investments and their health history.

What types of services are covered? Over the course of time, LTC policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to be cared for in a familiar environment. However, it is important to review what all home-based as well as nursing home/assisted care center services may be covered. A basic LTC insurance policy pays for assistance with activities of daily living including eating, dressing, bathing, toileting, incontinence and transferring (bed to chair, etc.). Each policy lists the types of services that are covered under nursing home care and under home health care. Homemaker services may be covered. Also, if you are considering a policy with a fixed dollar benefit, compare all of these features with a lifetime policy.

What triggers coverage? Most LTC policies won’t go into effect until the covered individual can’t perform two tasks of daily living for a specific period of time or when that person needs substantial supervision related to cognitive impairment, such as Alzheimer’s disease.
What if I never want to go to a nursing home? The idea is to cover every eventuality. The best-designed LTC policies will pay the same amount of benefit whether care is received in a long-term care facility, an assisted living facility, an adult day care center or in the home. Some policies do offer reduced percentages for home health care versus nursing home care, but it’s a better idea to keep full percentages on home health care benefits since most people would rather stay in their homes. Discuss these options with a financial planner if you can, because the amount of your personal assets will be a factor here.

What’s the record of particular companies in this business? Over the past generation, more companies have gotten involved in the LTC insurance business, and it makes sense to see not only who the leaders are at the time you’re buying and what they’re offering, but how financially healthy these companies are and have been over the course of time. You’ve probably heard of insurance companies that have gone out of business and stranded customers. There’s no restriction on that happening with LTC providers, so check their ratings and financial history very carefully.


October 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Make Estate and Financial Planning a First Step After Divorce

After a marriage breaks up, about the last thing most people want to do is sit down with one more attorney. But no matter how old you are or whether you have kids, it’s important to consult both financial and legal experts to make sure you have an updated estate and financial plan for your new life once the divorce decree is final.

It’s also best to blend estate planning with financial planning post-divorce. If you weren’t working with a financial or estate planner during the divorce process, it’s time to do so now. The immediate months after a divorce can be disorienting – even if you don’t move, you are literally starting a new household that you will have to direct yourself, and that means new money issues to face.

This is why that the weeks immediately after a divorce are a good time to revisit short- and long-term spending and planning goals. Here’s a general road map to that process:

Start with a financial planner: Whether you plan to stay single, remarry or move in with a new partner, it’s good to get a baseline look at your finances as early as possible after the divorce is final. Expenses for the newly single can pile up quickly and unexpectedly, and a financial planning professional can help you review your new current spending and savings needs, compare strategies to achieve long-term goals like college and retirement and give you critical tools to protect your assets and loved ones if you die suddenly. Even if you have a good relationship with an ex-spouse and you addressed key issues for your children as part of the divorce proceedings, you need to revisit all these issues as a single individual before you move on to the next stage.

Talk with a trained estate planning attorney about wills and other critical documents: True, there are software programs and other kit solutions available to write basic wills, powers of attorney and certain simple trust agreements. But it makes sense to coordinate the activities of a financial planner with an estate planning attorney who can tailor an overall estate plan specific to your needs no matter how basic they might be right now. Even if you are very young with few assets, it makes sense to get some solid advice in this area so you’ll be able to manage such planning as you age and your finances get more complex. Particularly if you have kids, such planning is important if you plan to remarry and if you want to guarantee that specific assets are guaranteed for them when you die. In some cases where a spouse dies unmarried with minor children, an ex-spouse might automatically gain control of assets that were supposed to be earmarked for the kids. If you don’t want that to happen, you need to plan for that legally.

Make a guardianship game plan for your kids: It’s not enough to plan how money and assets will go to your children if you or your ex-spouse die suddenly or are incapacitated. If your children are minors, it’s particularly important to make sure you and your ex-spouse have a guardianship plan for their upbringing as well as any assets they may inherit. You might completely trust your ex-spouse’s new husband, wife or partner to raise your kids if your ex-spouse dies before you, but there may be others better-equipped to do so – spell that out now. Also, if there are any trust or wealth issues that will become effective for your children once they reach adulthood, it’s also important to establish an efficient legal structure for distributing those assets as well as appointing a trustee in a will to train and guide your kids through that financial transition.

Plan for special needs kids: If one of your children is disabled and is expected to need lifetime assistance of some type, then you should consult a qualified attorney to help you create a special needs trust. It will help protect your child from having to give up any public or social financial assistance as well as access to special doctors, medical help, special prescriptions or treatments that could be taken away if they were to personally inherit assets that would disqualify them for these programs. When such assets are held in trust, they are not counted as the child’s assets. The advantage is that those inherited assets may still be used to support their housing or other personal living needs.

Get solid protection in place: Most people focus on what may happen to their health insurance if they get divorced, but insurance issues like life, property/casualty and disability insurance are sometimes put on the back burner. If you’re newly single, you definitely need the best health coverage you can afford for yourself and your kids, but life, property, liability and disability insurance becomes doubly important, particularly if you failed to address those needs during the divorce. Even if your ex-spouse is cooperative with financial support, it’s wise to insure yourself as if they weren’t. A financial planner should be able to go through those options in detail.

Review all your investments for primary ownership and beneficiary information: Even if you were advised correctly to change the names on assets you and your spouse were dividing between yourselves, it still makes sense post-divorce to review that the names are indeed correct on those assets, and most important, to make sure all beneficiary information is correct.

October 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Giving the Gift of a Financial Planner

The holiday season should be about giving, but at the end of the season, most people can’t help but think it’s all about spending and money out the door. What would happen if you and other family members considered a different gift this holiday season – the chance to build your financial awareness with a trained expert?

Financial planning is an investment. It costs money. But its potential returns are manifold – a chance to get a handle on current problems with spending, debt and investing and a long-term opportunity to diffuse fear of financial issues by learning everything possible about them. It doesn’t matter if you are a single working individual or a family with kids still at home – the right financial planner can be a long-term partner in re-educating everyone in a household about money and the right ways to handle it.

For many people financial planning is a reaction to an emergency, such as a divorce, the death of a spouse or a sudden windfall. But in making the decision to do financial planning as an ongoing part of your life, you have the chance to fully review all your spending and investing decisions and maybe allow each of your family members to do individualized planning that will set them on a good course for life.

Here are some questions you should ask a prospective financial planner:

What training do you have? Find out how long the planner has been in practice and what kind of certifications they hold. A CERTIFIED FINANCIAL PLANNER™ professional is someone with a minimum of three years who has completed a comprehensive course of study at a college or university offering a financial planning curriculum approved by CFP Board. CFP® practitioners must pass a comprehensive two-day, 10-hour CFP® Certification Examination that tests their ability to apply financial planning knowledge in an integrated format. Based on regular research of what planners do, the exam covers the financial planning process, tax planning, employee benefits and retirement planning, estate planning, investment management and insurance.

What services do you offer? What a financial planner offers is based on credentials, licenses and areas of expertise. Generally, financial planners cannot sell insurance or securities products such as mutual funds or stocks without the proper licenses, or give investment advice unless registered with state or federal authorities. Some planners offer financial planning advice on a range of topics but do not sell financial products. Others may provide advice only in specific areas such as estate planning or on tax matters.


How do you charge for your services? Professional planners will provide you with a financial planning agreement that spells out the services they provide and how they’ll be compensated. Payment can happen in one of several ways:

• Salaried planners are actually employees of a firm, and you help pay their salaries through fees or commissions you agree to pay.
• Direct fees to the planner through an hourly rate, a flat rate, or on a percentage of your assets and/or income.
• Commissions paid by a third party from the products sold to you based on the planner’s recommendations. Commissions are typically a percentage of the amount you invest based on those recommendations.
• A hybrid of fees and commissions based on services. A planner may charge a fee for designing a comprehensive financial plan and occasional visits and calls to review it, while commissions might come from products they sell that you invest in. (Planners may offset some fees in exchange for commissions.)

Do you have any potential conflicts of interest? It may seem like a rude question, but the best planners expect this one and are prepared to make disclosure. Obviously, if a planner profits from the sale of investment products to you, she must spell that out.

How do you feel about teaching and training? One of the primary benefits of having a financial planner is education about the moves you are making or may potentially make. Don’t view a planning relationship as tossing someone your finances so you won’t have to deal with them anymore. As long as you’re paying for their services, make sure you get a long-term education out of it.


November 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.