The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions

389 Pages·2014·2.5 MB·English

by  Carrie Schwab-Pomerantz

The information in this book is general in nature and not intended as specific, individualized tax, legal, or
investment planning advice. Where specific advice is necessary or appropriate, please consult with a qualified tax
advisor, CPA, financial planner, or investment manager.
The discussions of various investment types throughout the book are in no way intended as a solicitation of any
product or service offered through Charles Schwab & Co., Inc., its affiliates, or any other investment firm.
Investing involves risk, including possible loss of principal. Investment and insurance products are not deposits,
are not FDIC insured, are not insured by any federal government agency, are not guaranteed by a bank or any
affiliate of a bank, and may lose value.
Much of the information herein is based on tax year 2013. Please consider how potential changes to the tax code
in future years may affect your planning.
The Schwab Center for Financial Research (SCFR) is a division of Charles Schwab & Co., Inc.
Carrie Schwab-Pomerantz is president of the Schwab Foundation, senior vice president of Charles Schwab & Co.,
Inc., and chairman of the Board of Schwab Charitable. Charles Schwab & Co., Inc. (Member SIPC), is a registered
broker-dealer and wholly owned subsidiary of the Charles Schwab Corporation.
The Charles Schwab Foundation is a 501(c)(3) nonprofit, private foundation that is not part of Charles Schwab &
Co., Inc., or its parent company, The Charles Schwab Corporation.
Schwab Charitable is the name used for the combined programs and services of Schwab Charitable Fund, an
independent nonprofit organization. The Fund has entered into service agreements with certain affiliates of The
Charles Schwab Corporation.
Copyright © 2014 by The Charles Schwab Corporation
All rights reserved.
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Library of Congress Cataloging-in-Publication data is available upon request.
ISBN 978-0-8041-3736-2
Ebook ISBN 978-0-80413737-9
Jacket design by Madelene Lees
Jacket photography by Jack Huynh/Orange Photography
v3.1
v3.1
To Chuck,
who I am proud to call Dad.
Your passion and energy inspire me every day.
Contents
Cover
Title Page
Copyright
Dedication
FOREWORD BY CHARLES R. SCHWAB
INTRODUCTION
My Top Ten Recommendations for Every Age
PART I.
When Retirement Is at Least Ten Years Out
Q1. I’m saving for retirement—but how much is enough?
Q2. I’m 50 and haven’t started to save for retirement. What can I do?
Q3. How can I save for my kids’ college without derailing my retirement?
Q4. There are so many different types of retirement accounts. What do I really need?
Q5. The stock market has me spooked. How should I invest as I get closer to retirement?
Q6. I’m too busy to manage my money carefully. Are there any simple strategies for
someone like me?
Q7. Is long-term care insurance worth the cost?
Q8. Does it make sense to borrow from my 401(k) if I need cash?
Q9. My partner and I aren’t married. What do we need to know about managing our
finances as a team, especially when it comes to planning for retirement?
Q10. I want to contribute to a few charities. How can I make the most of what I have to
give?
Q11. I’m drowning in financial paperwork. How can I get organized?
PART II.
Getting Closer: Transitioning into Retirement
Q12. Can I keep contributing to my retirement accounts indefinitely?
Q13. Should I be debt-free before I retire?
Q14. What should I do with my 401(k) when I leave my job?
Q15. I’m thinking of leaving my nine-to-five job to become a consultant, working from
home. What’s the cost of being my own boss?
Q16. My kids are grown. Do I still need life insurance?
Q17. I’m fit as a fiddle. Do I really need disability insurance?
Q18. I’m thinking of downsizing once I retire. Will I get hit with a tax bill when I sell my
house?
Q19. Should I take my pension as a lump sum or monthly payments?
Q20. Should I buy an annuity?
Q21. I’m 60 and way behind in my savings. Will I ever be able to retire?
PART III.
Life in Retirement
Q22. Now that I’m retired, how should I manage my money to make it last?
Q23. I just retired. What’s the smartest way to draw income from my portfolio?
Q24. I was forced to retire early for health reasons. How can I make up for the unexpected
shortfall in savings?
Q25. Can I lower my income tax bill now that I’m retired?
Q26. Does a reverse mortgage make sense?
Q27. What insurance do I need at this point in my life?
Q28. If I go back to work (even part-time), what do I need to know? Can I still collect Social
Security? Contribute to my 401(k)?
Q29. I handle all of the family finances. How can I create a turnkey system for my spouse in
case something happens to me?
PART IV.
Maximizing Social Security and Medicare
Q30. When should I file for Social Security benefits?
Q31. How much will I collect from Social Security?
Q32. I’m divorced. Am I entitled to a Social Security benefit from my ex?
Q33. What Social Security benefit can I expect if I become disabled?
Q34. How much will my spouse receive from Social Security if I die?
Q35. When and how do I apply for Medicare?
Q36. I’ve heard about insurance to supplement Medicare. What will I need, and how much
will it cost?
Q37. Once I’m on Medicare, will I have other out-of-pocket health-care costs? What can I
do now to lower my health-care expenses later?
PART V.
Estate Planning
Q38. I want to create an estate plan. What do I need?
Q39. When I take into account the value of my home and all my investments, my estate is
sizable. What do I need to know about estate taxes?
Q40. I’m confused about how to divide my estate between my children, who have different
needs and financial resources. Is it best to divide it into equal parts?
Q41. I’m thinking about giving my kids part of their inheritance now, as opposed to holding
on to everything until I die. What does this mean for estate and gift taxes?
Q42. My spouse and I have three children together, and I also have two children from a
previous marriage. How can we make sure that our estate plans treat everyone fairly?
Q43. I want to leave the bulk of my estate to my children, but also want to make
meaningful contributions to a few charities. How can I incorporate this into my estate
plan?
PART VI.
The People in My Life
Q44. My twenty-something child has decided that she wants to move back home. I like my
new empty-nest lifestyle, but I want to help her out. How can I balance these?
Q45. As a retiree, I don’t have a lot of extra money. I’ve always helped my children and
other extended family members—but now it’s tough. How do I sort this out?
Q46. My husband has no interest in our finances. How can I get him involved?
Q47. My husband of fifty years has just died. He always handled our finances, and I’m
feeling at sea. How can I manage?
Q48. I’m 50 and contemplating a divorce after 25 years of marriage. My husband has
always been the chief breadwinner and has been in control of our money. How can I
cope?
Q49. I’m a widow and about to remarry. What should I be thinking about from a financial
perspective?
Q50. I have a child with special needs. What can I do to make sure that she will always be
taken care of?
GLOSSARY OF FINANCIAL TERMS
SOURCE NOTES
ACKNOWLEDGMENTS
INDEX
Foreword by Charles R. Schwab
I
founded Schwab when I was in my late thirties. At that point in my life I was
ambitious, optimistic, and determined to make my mark on the business world. I
wasn’t thinking about leaving a legacy or even securing my future. But as a young
entrepreneur I did recognize a bad situation—and an opportunity to right a wrong.
That wrong was Wall Street. Before the Securities and Exchange Commission
deregulated commissions in 1975, a stock trade could cost hundreds or even
thousands of dollars. Brokers were simply salesmen; they could have been peddling
vacuum cleaners or aluminum siding. They just wanted to make their hefty
commissions. Individual investors didn’t stand a chance against the sales pitches,
fees, and conflicted advice.
Thankfully, the investing world has changed dramatically. A long series of
reforms and technological advances has helped give individual investors more
control. You can research investments from your home computer and buy and sell
stocks, bonds, and funds with the click of a mouse, paying few or no fees. You can
participate in the growth of the American economy along with the big guys.
But there’s a hitch. Along with this power has come responsibility—largely
mandated by government policy that has incentivized employers to move away from
fixed pensions and toward IRAs and 401(k)s. In addition, although I believe that
Social Security will be around for a very long time, it isn’t—and was never intended
to be—a ticket to a comfortable life. Plus, thanks to advances in medicine and more
knowledge about healthy lifestyles, we’re living decades longer than previous
generations. Taken together, this adds up to a sizable challenge for every adult. Put
bluntly, it means you need more money. We’re living in a world of taking care of
yourself.
Forty-plus years after founding Schwab, with the perspective that can only come
from decades of experience, I have a new wish: In the face of our new realities, I
would like every American to feel confident and knowledgeable as they take control
of their own financial future. I would like every adult to face this challenge head-on,
knowing that they will succeed.
I feel privileged to work on behalf of millions of Americans who are doing just