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Thinking Ahead

The Blog of Light Path Ahead

The key sequence of this MassMutual commercial:

Son: "I'm still working; he's retired."

Dad: "I hope he's saving."

Son: "I hope he's saved enough."

Both father and son are worried about each other's financial wellbeing. And the son could just as soon be asking, "Will I have to support my parents as they grow older?"

The tragedy of all this: they don't actually have the conversation!

This happens to many of us. The world is littered with conversations never had, and regrets because of it. My guess is that both father and son in this commercial would find out after just a few minutes of discussion that they were both on a good financial path. And the father might even impart some helpful advice to his son.

But without that conversation, they'll either have needless worry or have no ability to take action if something does need to be done. There's no time like today to start having these conversations. Whenever it's on your mind is the right time to bring it up and get it done.

I know time is limited in a 30 second commercial, but I just wish the good folks at MassMutual would have included this important part of the picture.

When my husband Eric died, the last thing I thought I would have to deal with was a ton of administrative and estate tasks. I thought we had done all of our “just in case” planning - a will, life insurance, and the difficult conversations about what kind of care we each would want. Despite this, I still ended up with a million headaches and hassles that we could have prevented.

Because of this, we wanted to list our top 5 pain points of dealing with the death of a loved one, and what you can do to avoid them.

Pain #1. Going through probate

The probate court process varies by state, but it is measured on a scale of annoying to infuriating. The process can last months or years, depending on how complex your estate is and whether anyone challenges your will. Trust us, after a loss, the stress and difficulty of dealing with the legal system is the last thing you want to do. You want to be with your family, not with your lawyers.

What you can do to avoid this:

  • Have a will. Unless you have written down your wishes, it is almost certain that your family will have to go through probate.
  • Make sure your will says the same thing as your spouse's when it comes to assets you jointly own and guardians for your kids. If there’s a conflict between your wills, it may require a legal ruling.
  • Make sure everyone understands your wishes. You can never 100% prevent challenges to your will, but communicating its contents to the relevant parties will reduce confusion later.
  • Designate (or check) beneficiaries on your life insurance and other accounts. And where appropriate, consider adding a joint owner (e.g., your spouse) on the accounts that you share. These steps can enable you to transfer assets quickly or automatically, which decreases the chance that probate will be necessary and/or reduces the amount of your assets that are subject to that process.

Pain #2: Dealing with the cable company

You already know how annoying it is to deal with your cable company (or electric, or phone company…) for yourself. You call, they put you on hold for 20 minutes, transfer you three times, and ask you barrage of personal questions. And then they only spend a minute and a half actually helping you.

Well this is 10 times harder when you’re dealing with someone else’s account.

This is especially true if you do not have access to the account number, passwords or special calls, or sometimes, even who the service provider is. What’s more, some companies do not have a clear process - that the customer service agents know - for dealing with an account holder who has passed away.

After the loss of her father, a good friend of ours tried to turn off his cell phone service. Unfortunately, she wasn’t aware of the make and model of his first car (the “password” that was attached to the account) and had to jump through a bunch of extra time-consuming hoops to get the service shut off.

What you can do to avoid this:

  • Complete a Map to My Life, which will help you record all of this information for your loved ones. It’ll save them countless hours of hassle.
  • Have 2 minutes now? Write a list of your service accounts and how to access them, and then store it in a safe place.

Pain #3. Finding all of your assets

Our co-founder, Charles, put this well:

“I haven’t tagged along with my dad to the bank since I was a kid. If you asked me where he banked 20 years ago, I could tell you the answer. Now? No clue. If something happened and I could not find his records, I’d be forced to call every branch in town, and I STILL wouldn’t be certain that I had found every account.”

Don’t do this to your family. It may be somewhat easier for your spouse to figure out your assets if you’ve discussed it or if they can find the account statements, but this can be painfully difficult for anyone else.

What you can do to avoid this:

  • Create a list of your accounts and make sure your spouse, kids, or whoever else would need it knows where to find that information. (Not to be a broken record, but the Map to My Life is designed to help you do so.)
  • Talk to your own parents and anyone whose estate you might be responsible for and ask them to do the same. You can also print out a Map to My Life and do it with them. It can take a lot of the emotion out of the process when you are just filling in blanks.

Pain #4. Figuring out which debts are real

When someone dies and you are the next-of-kin or executor, anybody to whom they might have owed money will call you. And some of them will be quite aggressive in their efforts to collect on the debt.

Here’s the thing: you don’t necessarily have to pay all the debts.

First, some debts are forgiven upon death. Federal student loans are one example.

Second, the estate is responsible for the debt, not you or any other beneficiary of the estate (unless you are the co-signer on the loan, in which case you are on the hook). Once the money is exhausted from the estate, that’s it. Most debt holders know this, but some of the unscrupulous ones will pressure you to pay the debt anyway or use collection services whose agents do not know or care about the distinction.

What you can do to avoid this:

  • When you write down the debts you have, be clear about the details — e.g., the amount, the terms, whether there was a co-signer - so that your family can make informed decisions about whether the estate must pay it.
  • When calculating your life insurance needs, consider including the debts that your estate would have to pay.
  • If facing a demand to pay a debt that you are not sure about, consult an estate attorney before paying it.

Pain #5. Retrieving anything that’s in your email

The good news: most email and social media platforms guard your privacy seriously. The bad news: they will continue guarding it, even if your loved ones need access to important information.

If you’re like us, you keep a lot stored in your email. For example, you might have bank statements or receipts you only receive electronically. Most of the people you know aren’t in your phone book, but stored in your Facebook and LinkedIn accounts. And you might have never printed the contractor's email that explains what needs to be fixed in your home's electrical system.

What you can do to avoid this:

  • Consider listing your email and social media account passwords in your Map to My Life (or in any other form) - and storing it in a very safe place - so that your family can access the information they need.
  • Consider creating a shared email account with your spouse (or other loved ones), and forward any relevant information from your personal email account to the shared one.
  • Go through your email account and print any important information for your paper files.

And of course, Pain #6: Grief

This is obviously the most important thing that your loved ones will face after you’re gone. The last thing you want them worrying about – and the last thing they will want to deal with - are these annoying and difficult administrative tasks. Take action today to prevent this!

Parents blog

The Washington Post ran an interesting story today describing how there will be fewer caregivers for baby boomers.

First, there are 42 million of us serving as a caregiver, and it’s basically a second job.

“Nearly two-thirds of those caregivers are women, and more than 80 percent of the people they care for are over 50, according to the report, which defined the “average” family caregiver as a 49-year-old woman who works outside the home and spends about 20 hours a week caring for her mother without pay.”

Second, there will be half as many potential caregivers in the coming years:

“The report, ‘The Aging of the Baby Boom and the Growing Care Gap,’ projects that by 2030 there will be only four potential caregivers available for each person 80 or older, down from a high of more than seven in 2010. By 2050, when boomers are between 86 and 104, the ratio will drop below 3 to 1.”

The teaser headline in the Post was “Baby boomers, lock down a caregiver now”. For us, this is a part of a wider set of of conversations we need to have with our families.

Many of us carry assumptions about how caregiving will work in our family. Heard or thought any of these?

  • "When I’m old, one of my kids will move here and take care of me."
  • "My brother still lives in our hometown; I’m sure he’ll step up and care for dad."
  • "When my mother gets too old to live by herself, she’ll just move in with our family."

The problem, however, is that many of these assumptions are unstated. And because they are unstated, they may be wrong!

Our kids may be about to move overseas for a job. Our brother might not have a spare room in his house to accommodate dad. Or his family might already be caring for his wife's parent.

The time to talk about this is right now. Here are some tips for having successful conversations:

  1. Include all stakeholders in your conversations, so that the whole family can get on the same page. This should include those who might deliver the care, pay for the care, or otherwise think they should have a say (you might as well include them now rather than deal with the exclusion later!). You might also include experts like your doctor who can help you understand your future needs.
  2. Focus on listening to everyone's concerns.
  3. Avoid limiting the conversation to "status quo" or "nursing home". There are plenty of options in between. For example, the Villages can serve people who want to remain in their home for longer. You can retro-fit a home to make it more livable. And there are communities that cater to the living and care needs of seniors.

And most importantly, have the conversation before it’s a pressing concern. You know, like today!

Finally, a financial point:

Most of us think about saving for retirement and sending kids to college, but very few of us plan for the expense of caring for our parents. Here's the tough part: these expenses most likely to hit exactly when our kids are in college. (If your kid is 20, your parents are probably in the 70s.) If you spend your late 40s and 50s on expenses for your kids and parents, you might be left behind the ball on your own retirement savings when you reach 60.

So start planning and having these conversations now!

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You may have heard that the city of Detroit declared bankruptcy last week. At first glance, this seems like a particularly severe case of local mismanagement in the face of a long-term economic decline. But If you or your parents rely on a pension or all or part of your retirement security, you should care about the Detroit story.

What happened in Detroit

The New York Times has a great story today titled Cries of Betrayal as Detroit Plans to Cut Retirees' Pensions”. Here's why it happened:

In good years, Detroit's pension funds had an informal policy of paying out an extra "13th check" to pensioners whenever the fund outperformed its benchmark for returns. Why not just save the money for bad years? Because, in bad years, the City was obligated to make up any shortfall.

It was a great set up: more money for current retirees, and risk-free gambling. What kind of bets would you take if you got the winnings immediately and someone else took care of your losses?

All that was fine as long as the city of Detroit was financially sound. Unfortunately, all the money that flowed to current retirees and years of risky bets have contributed to a severe underfunding of the pension obligations. And now that the city of Detroit cannot make up the shortfall, retirees and those near retirement are facing significant cuts to their benefits.

Many state and municipal pensions funds face the same issues as Detroit

Detroit is not an anomaly! The truth is that many states and cities have a similar relationship with their pension funds.

According to Wilshire Associates, 109 state pension plans are underfunded, adding up to a shortfall of $834 billion, and Morningstar reports that 40% of states are considered fiscally unsound. Unfortunately, when a state or municipality needs to cut costs in this year’s budget, some have resorted to complex accounting and forecasting to reduce the amount of support they give to the pension. These moves can mask just how underfunded the pension system is.

More importantly, pension benefits are no longer guaranteed once a city or state runs into trouble. After Prichard, Alabama, went bankrupt, it paid only 1/3rd of what it owed to its retirees. When Central Falls, R.I., declared bankruptcy in 2011, it negotiated a 55% cut to pension obligations for their 133 retirees. Even before cities and states reach bankruptcy, they can also chip away at promised health care and other benefits.

It's time to have a conversation!

If you or your parents are reliant on pensions for retirement security, you should get on top of this. Find out what condition your pension fund is in start here , and then adjust your financial plan accordingly. If there's a risk, knowing now can help you make small changes to prevent major issues down the road.

If you need help, learn how to have a discussion with your parents and spouse.

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