Look All Ways
Howard Rohleder | Nov 20, 2023
WHAT HAPPENS WHEN you’re hit by the proverbial beer truck? Will it be easy for others to pick up the pieces—the pieces of your financial life, that is?
To my knowledge, my wife isn’t checking the delivery schedule for the Anheuser-Busch brewery here in Columbus, Ohio. Still, she’s worried about the complexities of our finances. I’ve made a concerted effort since I retired to consolidate and close financial accounts, reduce our investments holdings, and streamline where it makes sense. Here are nine steps I’ve taken:
- I had two 403(b) accounts that I rolled into a single rollover IRA at Fidelity Investments.
- I combined two Roth IRAs into one.
- I had three regular, taxable investment accounts that I’ve consolidated into one.
- I’ve closed credit and charge card accounts that didn’t offer any notable advantages.
- I drew up a letter of last instruction, including a checklist with key contacts.
- Since I no longer have a paycheck to protect, I’ve allowed my disability and term life insurance to lapse.
- I drained a small 457 deferred compensation account, realizing the taxable income prior to starting Social Security benefits. Social Security will boost my taxable income, and that meant my 457 would have been taxed at a steep rate if I’d waited to empty the account.
- After I retired, I inherited a tax-deferred annuity. As with my 457 account, I opted to have the full balance paid out prior to starting Social Security.
- I evaluated our mutual fund holdings to identify funds with overlapping objectives, and then consolidated money into the more promising fund. As part of this process, I reallocated significant sums from actively managed funds to broad market index funds.
Despite my focus on consolidation, I’ve allowed some new accounts to creep in:
- My former employer offered to buy out my defined benefit pension. I agreed, and had the resulting lump sum rolled over into an IRA at Vanguard Group.
- After I retired but before we became eligible for Medicare, I bought high-deductible health insurance plans for my wife and me. That allowed us to fund a health savings account.
- To boost our interest earnings, I opened a high-yield online savings account, which is linked to our checking account at a local bank.
- To give us another safe way to earn interest, I opened a TreasuryDirect account, which is linked to our online savings account.
- I inherited a Roth IRA. If that occurred today, I’d have to withdraw the money within 10 years. But since it happened prior to the change in the tax law, I can stretch out the withdrawals over my life expectancy, which currently exceeds 20 years.
If I was focused solely on simplicity and consolidation, I wouldn’t have opened all these accounts. For now, I’m willing to manage them. But as I age, I envision taking further steps toward simplification:
- Spend down and close the health savings account.
- Consolidate my Vanguard rollover IRA with my rollover IRA at Fidelity, which is where our other investment accounts also reside.
- Accelerate the draw down of the inherited Roth IRA by taking more than the annual required minimum distribution.
- Further reduce our number of credit cards.
- I’ve always done my own taxes. But I can see hiring an accountant and, in the process, allow the accountant to become familiar with us and our finances.
- Similar to hiring an accountant, I can see hiring an investment manager to oversee our portfolio.
- Move to a continuing care retirement community (CCRC). This will greatly reduce monthly bill paying. Most of the bills that come with homeownership are rolled into the CCRC monthly fee.
I find the beer truck scenario useful. It forces us to focus on how our life can end in an instant and what the financial fallout would be. Still, for most of us, the reality will be a slow decline. To counterbalance this decline in our interest and ability to manage our finances, we should strive for a commensurate simplification and consolidation of our financial accounts, while hopefully recognizing the wisdom of bringing in outside help, in the guise of an accountant and investment manager, at the right time.
But will we be able to identify that our cognitive function has declined to the point where we should back away? Rather than waiting until then, we might surrender control as our interest wanes. If tracking our investments and living expenses becomes a chore, maybe it’s time to get some help.
Not long ago, I mentioned the beer truck example to a group I was talking to. A woman asked, “Can’t it be a wine truck? I don’t like beer.” Yes, it can be a wine truck, or any other truck of sufficient size to do the job. Just be sure to look both ways when you cross the street—while also peering into the future.
Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.” Check out his previous articles.
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I agree completely with simplifying things when you still have the capacity to do it. I also have an Inherited IRA and made the decision to liquidate it. Once I die my wife would have to continue the RMD’s on it each year and also liquidate it within 10 years. Too onerous and complicated to leave that “gift” behind. I’m distributing it out over two years to manage the tax impact, and I will be glad when it’s gone.
You inspire me to do something sooner–write recommendations for how my wife can simplify finances if I’m gone or no longer capable. Even if I’m hit by a thousand wasps instead of a beer truck, now is probably a better time than later to do that.
Once I’ve done that, if I’m ready to take the next step, I can start implementing some of my own recommendations, as you have. Thanks for the article. It’s a real challenge although a “first world” problem.
YES, A CCRC is a gift to your children. Both my parents went into separate ones (divorced late in life), and yes it wiped out any inheritance for me and my siblings and we couldn’t be more grateful. They both had what they needed to live out their days in safety and independent living until the end. All I had to do as I was raising my family and struggling career was to go visit. My wife’s parents on the other hand were determined to live out their days in their home until they were both unable to care for themselves and had to be put in a place they didn’t choose and their house had to be sold and emptied by their children in a short time that was a nightmare for them all.
Just wanted to add a thought regarding the title. I get the point about look both ways before crossing the street (ie: take care of things today) and look ahead (ie: simplify for tomorrow) but I think it is fun and helpful to look back also. Reflecting on how far we have come, what worked well and what didn’t.. it makes me proud of the very young version of my husband and I that made good decisions and sacrificed lifestyle to set up for where we are now!
To quote Jelly Roll’s recent Grammy acceptance speech (bet HD readers never expected to read that line, if you even know who he is),” the windshield is bigger than the rear view mirror for a reason, because what’s if front of you is so much more important than what’s behind you”.”Watch it if you get a chance!
CMA award
Certainly true. Looking back will also point out the importance of protecting what you’ve built and managing it going forward.
So now going to a CCRC is a gift to children?? Sounds like smart marketing to me. I’m with Richard Quinn on this one—and not just about the money.
Nothing to do with marketing – the wait list at mine is so long (800+) it has no need for marketing. The gift is that by moving to a CCRC you relieve your kids of the responsibility and potential expense of looking after you when you can no longer do it yourself.
It’s also a gift to yourself for those of us who have no kids to look after us.
You have a good list and having a plan for additional items needed is important. I would hope a will, POA and health directives are also completed or coming soon. Getting your investment beneficiaries aligned with your will is also part of the process. I think having a tax and investment professional on your team is great security for you and your wife.
Yes, all that you mentioned plus trust documents are in place.
Thanks for the blog. I can’t help laugh thinking of how complicated our tax codes make simplifying our lives. One question: The HSA, my thought has been to leave that for my heirs since it grows tax free, thoughts?
I’m not a tax expert but you need to investigate what happens when a non-spouse inherits an HSA. Here is a quick take on it: What Happens to the Funds in an HSA After the Account Holder Dies? (thomsonreuters.com)
My understanding is that, if you can afford it, you should defer taking the money out as long as you can to maximize the benefit of the tax deferral, but you should spend it all before you and your spouse die. If we knew when we were going to die, financial planning would be easy.
I’ve taken the approach that an HSA is best used as soon as possible. Why?
1) Three years later my deductible expenses can no longer be audited, except for fraud. Spreading them out and taking them sooner lowers risk.
2) The main benefit is not being taxed on medical expenses. Deferring tax by waiting to deduct expenses is a much smaller benefit. In addition, rules can be changed. Taking the benefit now makes sense to me. The expenses are fresher and the documentation easier. Forgetfulness and or inattention are also a risk.
[I record expenses, file documentation, and take a reimbursement every six months or so, but at least every year.]
Interesting observations, though amusingly financial consolidation seems to create new stuff to deal with. The details to handle don’t stop, they are just different and consolidation does help to stay organized but does not end paperwork confusion.
What Doug did for me, and it was incredibly helpful, was print out a three-page, double-spaced “cheat sheet” summarizing all our accounts (he was very succinct)and how he intended they be used, similar to your letter of instruction. Separately, he printed out the passwords for all accounts. Having them on paper meant I could access everything quickly, verify where I stood, how much cash was immediately available and, after the initial shock of his loss, continue the process of consolidating accounts. This exercise distracted me for a while, with the added benefit of helping me become more familiar with his careful plans. I never needed the spreadsheets he spent time on daily and have come to understand they were likely a pastime and a reassurance to him that we were on track. He was always a numbers guy.
Doug understood how being organized was key to handing over the keys. However, as an ex-IT guy, I would caution you about printing passwords. If someone with malicious intent got hold of both your accounts and passwords pages, you would be toast. If you must, then possibly invest in a safe.
I hear you, Kurt. And I must say, Doug shared your concern. It was only at my insistence that he printed out the information. I’ve since changed all the financial accounts passwords and have only handwritten copies, secured in two places known only to me, plus a copy to each of two adult children. My roomie (teen grandson) doesn’t know where they are. Though I trust him, we know that family and friends can be the most likely to take advantage of us.🙁
Can you clarify, would you suggest these papers be updated and printed at a specific time interval.. since we never know when the “beer truck” incident could happen?
No more than once a year – most things don’t change much. As things change, I make notes in the margins and when it looks too crowded, I update and print. The important thing is to get it done in the first place. Good luck, Jamie. 🙂
I’m sorry for your loss but comforted that the preplanning Doug did paid off in helping you through the transition. It sounds as if he and I could have related if he found spreadsheets to be a pasttime!
I’m sure! A lasting gift was his subscription to HD – as I went through his emails before deleting his account, I decided to sign up myself.
The wine truck scenario makes me think of a line I highlighted last night in a book I’m reading, in which the lead character advises, “it’s all very well planning what you will do in six months, what you will do in a year, but it’s no good at all if you don’t have a plan for tomorrow.”
Just to be clear and as someone who drove a beer truck for A.B. in Ohio for 30 years….. I never even once ran anyone over. Later in life as a tax preparer I had clients with hellacious investments. The worst in my opinion were the ones with dozens of real estate investment trusts, which can be difficult to sell. It’s totally smart to simplify.
I am comforted to know your Ohio beer truck safety record! I have structured my portfolio such that any investment can be immediately liquidated if necessary. I agree that there is value in simplicity.
I understand it all and have done much the same thing, but why a plan to go into a CCRC? That seems a possible necessary option, but why planned?
In our area a decent CCRC would cost far more than our condo to maintain even including meals, utilities, etc.
If you want an eye-opener on what can happen if you don’t or can’t plan, you might want to read this piece in the NYT. Facing Financial Ruin as Costs Soar for Elder Care – The New York Times (nytimes.com). CCRCs are a form of insurance so simply comparing costs of living is not a fair comparison. My mother spent 11 years in a nursing home, my dad a year. They were financially ruined and my dad got stick trying to care for my mom. Their house deteriorated from neglect. My wife and I plan to get on several CCRC waiting lists to keep our options open. I feel like the old adage fail to plan, plan to fail is applicable.
We have actually been looking at CCRCs even though we may be 10 years away from needing one. The one close to our daughter that we like the most has a multi-year waiting list. CCRCs worked well for our parents. They made that choice as a gift to their children and we see it the same way. I certainly hope we will not have to use all levels of care…. especially memory care…. but we prefer to have made the selection and arrangements in advance, rather than leaving it to the children to have to search around on our behalf during a medical crisis. Secondly, as the article suggests, CCRCs simplify not only the household management chores but also the bill paying and coordination of services. No one knows what care they will need as they age… some people choose long term care insurance, some CCRCs, and some wing it… As we plan for advanced aging, we are not basing our choices on whether we might be able to do it cheaper living in a condo. Finally, I agree with all the comments made by mytimetotravel.
Agree with all your comments Howard, including your agreement with Kathy’s. We’re starting to think about CCRCs as well even though we hope we are far, far further than 10 years away from possibly moving into one.
An important point in my mind is that even if you don’t want to go to a CCRC, looking at some and even paying a nominal fee to be on a list is wise. A small price to avoid hustling to understand options and find a spot in a crisis.
You keep citing the cost of a CCRC “in your area”. I suspect the one you visited is on the high end, and costs in other parts of the country will be lower. You also have to consider the cost of funding in-home care and the stress and difficulty of finding and managing people to provide it.
If you don’t plan ahead for a CCRC you may be out of luck when you need one. Not only do you generally have to pass a physical and financial checkup, in my area the wait lists for a good place are long. Planning a decade out is not unreasonable.
Yes, the risks are real, but the data suggest a relatively low probability. Less than one percent of seniors are in nursing homes including 8% over age 85. Most LTC is provided in the home. The risk is higher for women, however with that being 70% of the total.
The CCRC is not just about care which I understand, but it’s also about a lifestyle which I do not find attractive.
You forget assisted living and memory care. If you want to stay in your apartment and ignore your neighbors I’m sure that’s a possibility. Also, source for your statistic?
Kathy, my wife and I have discussed CCRCs and I know you live in the Raleigh area. I’m curious as to the CCRC that you chose and why.
Thanks,
Ray
For how I chose, see: https://humbledollar.com/2023/02/continuing-care/
I am not comfortable posting the name online. If you post a comment on my blog – https://mytimetotravel.wordpress.com/ – it will not be published and I will contact you directly.
Inherited IRAs or Roth IRAs can be useful. I use mine to pay tax – Fidelity will allow you to withhold up to 99% for Federal and state taxes. I have to take slightly more than the RMD to cover what I owe, but I want to get these accounts down before I have to start taking giant RMDs from my personal IRA/401K. Then, it is as if all the rest of my income is tax-free.
One important point – with a pre-2020 inherited account, your life expectancy does not adjust as you get older. You take the life expectancy you had the year after you inherited the account and just subtract one year from it every subsequent year. With a personal IRA/401K, you can take the number for your current age from the table every year, but that’s not how inherited IRAs work.
I agree with your understanding regarding the current required distributions for a pre-2020 death when the inherited IRA was from someone other than your spouse. The pre-2020 beneficiary withdraw options and requirements were/are different for an IRA inherited from a spouse rather than a non-spouse.
For IRAs inherited for deaths after 2019 for spouses and for some other eligible designated beneficiaries the rules are very different from non-eligible beneficiaries. The post-2019 rules generally eliminated the ability to stretch inherited IRA distributions over a longer period of time for most non-spouses.
If you become the beneficiary of a IRA as the result of the death of the IRA owner I recommend as a starting point reading the current IRS Pub 590-B to review and understand your current options and requirements for distributions and RMDs for anyone who has inherited an IRA.
https://www.irs.gov/pub/irs-pdf/p590b.pdf is the most recent pub for tax year 2022. Reaching out to the IRA custodian to then confirm my understanding of the distribution rules would be my next step prior to taking distributions.
My guess is that congress will continue to change the rules regarding distributions from inherited IRAs and the IRS will be slow in writing the regulations which govern required IRA distributions. I would change my plans as necessary as the laws and rules change to assure I timely receive all RMDs. There are large tax penalties for failure to take a required RMD.
I think a critical first step as the owner of an IRA is to annually review my primary and contingent beneficiaries to assure the named beneficiaries are who I currently intend. As life changes my circumstances I need to act before a beer truck event results in a past IRA beneficiary designation, or lack thereof, causes distributions not in accordance with my current intent. I can not change my beneficiary designation after my death or I lose the legal capacity to change my beneficiary designations and my understanding is my final IRA beneficiary designations at the time of my death supersede any related provision in my will.
I would note that as a named primary beneficiary of a IRA it is possible for a primary beneficiary to, after death of the IRA owner, timely disclaim any benefit from an inherited IRA to allow the benefits to then pass to the contingent beneficiaries. Maybe it will make more financial sense at some future date upon my death for my current primary beneficiary, my spouse, to disclaim so that our children, my contingent IRA beneficiaries, are the financial beneficiaries of any remaining traditional IRA balance. I hope and plan that a meaningful balance will not exist in my traditional IRA at my death.
I sometimes read the Ask Harry blog as a first step when I have questions regarding estate planning matters to help me understand the complexities. He has a older but updated article regarding inherited IRAs that I found to be a thoughtful read.
https://askharry.info/treatment-of-inherited-iras/
YES! I have learned that the rules are different for inherited IRAs… but it is a good point to emphasize.
A few years ago, we consolidated our own accounts, because we were managing so many accounts of others. Sometimes, responsibility for keeping up with money can be shifted to another party even before a death occurs
We have also managed accounts for parents and part of our motivation in simplifying is that someone may need to do that for us.
Great article – many people don’t think about this part of the process as thoroughly as the other phases. We have moved all of our larger assets into trusts to avoid the hassle associated with the probate process and I have created an instruction binder with all the estate planning documents: trusts, wills, durable POA, Living Wills, Medical Powers, business , and life insurance certificates all located together. There’s also a detailed list of accounts, contact information and access information together in the binder. If I ever get hit by a bus a solid plan has been put in place! 🤪
Thanks. It sounds as if we are on the same page.