Decision Age Points and Personal Finance

The major events in the lives of persons now age 50-70 were the tumultuous 60′s and oil shocks of the 70′s. Baby Boomers grew up in the midst of all of the turmoil of the 60′s and then began their working careers during the ups and downs of the 70′s.

Just over a quarter of the total U.S. population are “Baby Boomers,” which refers to the dramatic post–World War II baby boom from 1946 to 1964.  What are Boomers’ financial concerns as they move into geriatric territory and, for those who are charitably-minded, are they giving vehicles that work better for them than for others? Finally, are there differences between their giving vehicles of choice and the ones used by their kids and parents?

Retirement and health are the major concern to Baby Boomers, an estimated 100,000 of whom are turning 65 years-old daily.

Sixty percent of Boomers express being concerned about their own health compared with 47 percent of Gen Xers, while nearly two-thirds (64 percent) of the former are concerned about the health of their spouse vs. 50 percent of the latter.  Half of all Baby Boomers say they are concerned about having someone to care for them in their old age, while 52 percent of Gen Xers say that they are concerned about being responsible for their aging parents.

According to Donald Liebenson, who writes news and features for Millionaire Corner, Gen Xers are more likely than Baby Boomers to identify themselves as self-directed investors (43 percent vs. 29 percent), meaning they make all of their own investment decisions by themselves.  But that doesn’t mean they are not open to professional advice. Nearly four-in-ten (37 percent) surveyed by Spectrem’s Millionaire Corner said they will use an advisor for specific needs such as retirement planning or asset allocation advice, compared with 33 percent of Baby Boomers. An equal percentage say that getting adequate help and advice to help them achieve their financial goals is a personal concern, compared with 29 percent of Baby Boomers.

Many Boomers still are building and accumulating assets and accumulate resources for their retirement years. Now that the Great Recession is over, a good number are again becoming more aggressive in investments and have moved heavily into the stock markets and real estate during the past few years.

A philanthropic concept that some consider is called a retirement unitrust, which once again is coming back into vogue. If it is a good time to sell stock or land, then a person age 50 to 70 years old might use this trust to sell tax-free. The attractiveness of the plan is that one can sell appreciated property tax-free, allowing the trust to invest in diversified growth portfolio until retirement and then change to an income-payout plan. After retirement, when peak earning years are completed and tax rates are lower, the trust can invest for maximum earnings and provide a comfortable income supplement for other retirement plans.

Boomers’ parents, those born between 1925 and 1945, are actually a smaller generation in numbers because the birth rate declined during the Great Depression. During the early years of this generation, they were dramatically affected by World War II. This group did have the fortunate experience of moving into the work force during the 1950′s. As they started careers and businesses, they benefited from the rapid growth of the American economy during the 1950′s and 1960′s.

Between age 60 and 75, there is a natural transition. Individuals move from their prime working and earning years into retirement. During this time, there often are growth assets that are converted to income production.

For example, a person may have an investment in stock or land or a business. Through careful preservation of the assets, the person has built up the total value. However, these properties are often producing fairly low income.

An excellent option for this time of life is to diversify through a sale and unitrust plan. Part of the asset is sold and there is capital gains tax payable on that portion. Another portion of the stock, land or business is transferred to a charitable unitrust. This trust has three special benefits.

The benefits follow the letters BIC. The B is for bypass gain, the I is for increased income and the is for charitable deduction. The part of the land, stock or business transferred to the charitable trust may be sold tax-free. In addition, there is a partial income tax deduction that may offset the tax on the property that was sold for cash. Finally, the trust may be invested and will produce a good retirement income.

This sale and unitrust method is an excellent means for conserving the estate. In most cases, the person who is retiring is able to increase income and to retain nearly all or sometimes the entire asset for securing an excellent retirement. The combination of tax-free sale, charitable tax savings and liquidity from the cash portion are an excellent solution that fits the goals of many persons in this age group.

And then there is the Greatest Generation—those written about by Tom Brokow who were born prior to 1928.  It was a large demographic group, although many are no longer with us.  They were greatly tested during the Depression. Yet as a group they were both optimistic and civic minded. Their optimism was born of the mindset that if they could survive the Great Depression, they could endure almost. As a group, they remain fondly known as highly civic minded because their passage through the Great Depression was possible in many cases by helping others.

Senior persons generally are more interested in the security of income, as opposed to inflation protection. Thus, agreements such as gift annuities are very attractive.

A gift annuity is a contract between a person and a charity. It pays a fixed return. There are two major tax benefits with a gift annuity. When the annuity is created, there is an income tax deduction for the gift value. This is part of the total value transferred.

The balance of the value is the annuity contract value. Based on your age, the charity promises to pay a fixed amount, usually quarterly or semiannually, for one or two lives. The second tax benefit is that a part of the payment is tax-free.

Gift annuities may pay as much as 9% per year, depending on the age of the annuitant. When the income tax saving and the tax-free portion of an annuity are considered, the gift annuity is a wonderful agreement. Thousands of seniors are very pleased with the secure payments and tax benefits of a gift annuity.

Article appears as originally published in the Ohio Jewish Chronicle, August 20, 2015.

Jackie Jacobs is the Chief Executive Officer of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters.

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