JACKIE POST: Hello and welcome to How to Retire. I’m Jackie Post here in the Fuchs Financial studio in Middletown, Connecticut. Today I’m joined by Gina Mazzadra, a financial advisor here at Fuchs Financial. Gina, thanks so much for being here. It’s great seeing you again. GINA MAZZADRA: Hi, Jackie. Thank you for having me. JACKIE: Are you having a good summer? GINA: Yeah, we’re having a great summer. We’ve been super busy with cookouts, parties, and all the normal summer stuff. The kids are living the dream. JACKIE: There’s a lot of grandma and grandpa time for them. GINA: Yes, exactly. JACKIE: Same with mine! So, this is kind of a juicy topic, but let’s start with a question I think a lot of families avoid: Should you tell your kids how much money you have? GINA: It depends. It depends on the age of your kids and the relationship you have with them. If you have a solid relationship, you trust them, and you feel they’re responsible enough to understand what it means, then at a certain point it can make sense to share that information. Eventually, they may be inheriting your assets or helping you if you need long-term care or reach a point where you can’t manage everything yourself. It’s important that they’re aware and involved. Something we do here is encourage our clients to bring their kids with them. We hold different client events where clients can bring their children, friends, or whoever they’re close with. That way, their family knows who we are and can put a face to the name if something happens and they need someone to contact. JACKIE: That’s awesome. When should you start these conversations with your kids, and how much should they actually know? I saw an interesting interview with a billionaire who said he had been extremely open with his entire family about how much money they have, who is getting what, and they’ve made it an educational experience for the family. Obviously, not everyone is the same, but what do you think? GINA: Every family dynamic is different. Again, it comes back to trust and the type of relationship you have with your kids or even your grandkids. I think the more transparent you are, the better. They may eventually be the ones handling the estate or inheriting assets. The more they know and the more involved they are, the better prepared they’ll be if you eventually need someone to help manage your finances. It doesn’t necessarily need to be discussed when they’re very young. At that point, you should still make sure your spouse is involved. If something happens to one spouse, the surviving spouse needs to understand the financial situation. JACKIE: Absolutely. Let’s shift gears a little. Parents obviously want to help their kids with things like buying a home, paying student loans, or covering everyday expenses. When does helping your adult children become a financial mistake? GINA: I have a client who took out more than $100,000 in student loans for their kids, and it really took a toll on their retirement planning. If helping your children is hurting your own retirement plan, it may not make sense. If you can’t take care of yourself later in life, you may end up relying on your children to take care of you anyway. Education was a priority for this particular family, which is great. But looking back, there may have been other options, such as having the kids take out the loans themselves or choosing a school that didn’t create as much debt. We can’t go back and change those decisions, but for clients who haven’t put themselves in that position yet, it’s worth evaluating. Whether it’s paying for college, a wedding, or something else, if it’s going to significantly hurt your financial future, you need to think carefully about it. JACKIE: In a lot of households, one spouse handles most of the finances. What happens when that spouse passes away and the other spouse isn’t aware of everything? GINA: This is something people have been talking about a lot lately—the “widow’s penalty.” When a spouse passes away, the surviving spouse may inherit the assets but now file taxes as a single individual instead of married filing jointly. That means narrower tax brackets. The surviving spouse may also inherit significant pre-tax assets, and required minimum distributions may stay similar or increase. Now you potentially have the same or more income with narrower tax brackets. That’s where planning strategies such as Roth conversions and other tax-planning opportunities can become part of the conversation. Another issue is when one spouse hasn’t been very involved in the finances. We strongly encourage both spouses to attend meetings together. Even if one person handles everything and the other doesn’t want to be heavily involved, I still want both people to hear what we’re discussing and understand why things are structured the way they are. If the spouse who handles the finances is no longer there, the surviving spouse should already have some familiarity with the plan and with us. You don’t need to understand every detail, but it’s important to be present and have some awareness of what’s happening. JACKIE: How can couples make sure both spouses are financially prepared? How do you make sure both people know where the accounts are and understand the plan? GINA: Knowing where the accounts are is also one reason we want to involve the kids. They may eventually be the ones informing us if a parent passes away. We also have different tools in our office. One allows our advisors to list the different accounts, what’s in those accounts, and generally how everything is allocated. We also have the Fuchs Financial app, which our marketing team helped create. You can link accounts from different platforms so you can log in and see everything together in one place. JACKIE: I love that. We have lots more to come. When we come back: What should you do when money shows up unexpectedly? This is How to Retire from Fuchs Financial. We’ll be right back. INHERITANCE & GIFTING JACKIE: Welcome back to How to Retire. Gina Mazzadra is here with us, and we’re talking about inheritance. What should people do with an unexpected inheritance? GINA: The first thing is not to make a quick decision. Take your time. You can interview different companies and advisors to see who might be a good fit to help you make decisions about the money. Before making decisions, ask yourself: What is my goal with this money? What are my concerns? Am I thinking short-term, long-term, or somewhere in between? Do I have an immediate need for cash, or am I focused more on retirement planning? Figure out what you’re actually trying to accomplish first. Then, when you speak with advisors, determine whether they understand what you’re looking for and whether what they offer aligns with your needs. JACKIE: What types of decisions should you avoid making right away? GINA: You don’t want to take all that money and immediately invest it in one stock or make another quick decision without understanding the consequences. You also need to be aware of potential tax implications. If you invest everything and later decide you need to make changes, selling those investments could create tax consequences. Before doing anything, take your time and figure out the goal. JACKIE: A lot of parents would rather help their children while they’re still alive—maybe help them buy a home, start a business, or build their future. Should parents give their kids their inheritance while they’re still alive? GINA: It depends. We have clients who want to do that. For example, I have clients who are concerned about potentially needing nursing-home care later in life because dementia runs in their family. They’re in their mid-60s, have more than enough for their own needs, have strong income, Social Security, and a pension. They have excess assets, so they’ve started gifting money to their children and grandchildren. In situations like that, gifting can make sense. More people are saying, “I don’t want my kids to have to wait until I die to enjoy the money I worked for. I want to give it to them now while I can see them enjoy it.” JACKIE: When does giving money during your lifetime make sense, and what should you consider beforehand? GINA: One thing people may overlook is charitable giving. If you’re eligible, you may be able to send money directly from an IRA to a qualified charity through a qualified charitable distribution. For people who are also subject to required minimum distributions, that distribution may count toward the RMD. If you’re charitably inclined, it’s something worth discussing as part of your overall plan. INHERITING PROPERTY JACKIE: A lot of families have a lake house, beach house, or another family property with sentimental value. When children inherit it, how can taxes, expenses, and disagreements turn it into more of a headache than an enjoyment? GINA: When someone inherits certain non-retirement assets, such as a house, there may be a step-up in cost basis. For example, if your parents bought a house for $50,000 and it’s worth $600,000 when they pass away, the cost basis may be adjusted based on the value at the date of death. That can affect the taxes owed if the property is later sold. There can be benefits to inheriting certain non-retirement assets. JACKIE: What should families do to make sure everything is in order, especially if multiple siblings will inherit the property? GINA: You want to make sure you have your estate documents in place and understand how the property is titled and whether a trust is involved. Those are conversations to have with the appropriate legal and financial professionals. SUPPORTING ADULT CHILDREN IN RETIREMENT JACKIE: Some parents reach retirement while they’re still financially supporting their children. How should that factor into their retirement decision? GINA: One of the first questions we ask is whether their children are financially independent. If they aren’t, we look at the household expenses and determine how much is going toward supporting adult children. Then we can see whether that support is putting the parents at a financial disadvantage. If expenses need to come down for the retirement income plan to work, that can lead to a conversation about whether adult children need to start supporting themselves. It’s not my decision to make for the client. But we can look at it from a cash-flow perspective, show them the numbers, and help them come to their own conclusion. JACKIE: Up next: What does it really take to plan for a longer retirement? We’ll be right back. PLANNING FOR A LONGER RETIREMENT JACKIE: Welcome back to How to Retire. People are living longer these days. Are you financially prepared to live to 100? Gina is here with us to talk more about it. Should someone plan differently if retirement could last 30 or even 40 years? GINA: One thing we talk about a lot is allocating funds into three different buckets: safety, income, and growth. A lot of the focus is on income and safety because we need income to replace paychecks, and we need a safety net for periods when the market declines. But if someone could spend 30 or 40 years in retirement, we also need a growth component. That’s the portion designed to help outpace inflation over the long term. Even though the initial focus may be on where your retirement paycheck is coming from, you also need assets positioned for the longer term. JACKIE: A retirement plan can look strong until there’s a major health event. What do people need to know about long-term care? GINA: Long-term care can be very expensive, and coverage may not pay for everything. You need to understand what a policy covers and compare different options before making a decision. We also want to know who the trusted contacts are on our clients’ accounts. If something happens and a client can no longer make sound financial decisions, having someone we can contact to check in can be very important. JACKIE: Adult children are becoming more involved in their parents’ finances. What should families discuss now while their parents are still able to make those decisions? GINA: They should understand what their parents have saved, where the assets are held, and who the beneficiaries are. Beneficiaries are especially important. Different rules can apply depending on who inherits a retirement account and how the beneficiary designation is structured. If you have a trust listed as a beneficiary, you should understand why it’s there and how that trust works. If you aren’t sure, speak with your attorney and financial advisor to make sure the setup still accomplishes what you want. JACKIE: What happens if an emergency or unexpected event leaves a parent without enough money to get by? GINA: Every situation is different. We recently had someone come in who we were concerned could eventually run out of money. She owns her home outright, so we started looking at different parts of her financial picture. One issue was that she was overwithholding taxes. She liked receiving a large refund, but that meant she was pulling more money from her IRA and withholding more than necessary. We looked at ways to potentially reduce those withdrawals and improve her cash flow. If she eventually runs out of assets, there may be other options to explore, such as discussing a reverse mortgage with a mortgage professional. But every situation is different because not everyone owns their home outright or has the same resources available. JACKIE: On the flip side, some retirees become so focused on saving that they don’t want to spend anything. How do you know when you can comfortably spend more without putting your future at risk? GINA: It comes down to cash flow—what’s coming in versus what’s going out. I have clients with strong Social Security benefits, a good pension, relatively low expenses, and more than $1 million saved. They take their RMDs each year, but that’s about all they need. When they want to do projects around their house, they’ll call and ask if it’s okay to spend the money. Most of the time, for them, the answer has been yes. We look at what they have coming in, what’s going out, and what happens to the plan if they withdraw additional money. They also want to leave money to their children, so I can show them the numbers: If you take out X, you’re left with Y. That can give them the confidence to know when it’s okay to spend some of the money they’ve worked hard to save. BUILDING THE RETIREMENT YOU WANT JACKIE: Finally, retirement planning focuses heavily on whether someone has enough money to stop working. Should your financial plan also consider what you actually want your life to look like once every day becomes a Saturday? GINA: Absolutely. People work really hard to get where they are. One of the first things we ask when someone comes in is: What do you want retirement to look like? Do you have hobbies? Goals? Bucket-list items? What do you see yourself doing once you’re no longer going to work every day? Maybe you want $10,000 a year allocated toward vacations. We can build that into the plan and show you what it could look like. Whether every goal is feasible will depend on your situation, but we can incorporate those goals and help you understand the numbers. JACKIE: That’s it for this episode of How to Retire. If any of today’s questions hit close to home—whether it’s talking to your kids about money, handling an inheritance, or preparing for what life might throw your way—reach out to Fuchs Financial. No pressure, just good information and people who genuinely care. I’m Jackie Post. Plan smart, retire happy. We’ll see you next time.
