Tiered system of finances keep you on track

By Jean Murphy
Daily Herald Correspondent
Posted11/24/2013 12:30 AM
  • Certified financial planners can help seniors see how their financial goals and their reality line up and monitor their progress.

    Certified financial planners can help seniors see how their financial goals and their reality line up and monitor their progress.

When looking at your finances, it is important to consult a Certified Financial Planner professional who can help you strip out the emotions and make good decisions about your future.

"We work to make sure that our clients do not make poorly-timed, irrational, emotional decisions," said Thomas Manzardo, a CFP at Manzardo & Associates in Schaumburg. "Those can be very difficult conversations and we often shed a tear together, but you don't want to leave things for the next generation to deal with."

"It is wise to work with a nonfamily member who can look at your situation from 3,000 feet. Pay a small fee to get the expertise of someone who can help you get where you want to go in life financially," he said.

Manzardo recommends that you start planning for retirement early, but emphasizes that it is never too late to start that plan. He has a tiered system that he uses when helping people devise a financial plan.

First, cover the essentials like food, clothing and housing, Manzardo advises. Second, ensure your lifestyle -- plan for the fun things that make life worth living. Third, prepare for the unexpected. Don't cut things so close that an unexpected situation can knock your plan off track.

Finally, leave a legacy for those who follow you and make sure the money goes where you intend.

One of the biggest mistakes Manzardo sees people making is remaining "house heavy." They don't want to leave the home they've lived in for years, so they come to him asking about reverse mortgages and other techniques to keep their home at all costs.

"There may be some unique situations where reverse mortgages are a good idea, but I have never recommended one in 22 years of financial planning," he said. "The fees are costly and the mortgages themselves are restrictive. Interest continues to accrue and you can never get as much money out of the house as you think you should.

"Besides, from a tax standpoint, if you are that strapped for cash, you probably are no longer itemizing, so there may be no tax benefits to owning a house and, in many cases, they are now worrying about stairs and other concerns in the house. I tell them that, depending on their situation, they should just sell the house and rent somewhere where they won't have to do outside maintenance or really any maintenance except housecleaning. Once they get over the emotional ties to the house, most of my financially strapped clients agree that selling the house was the right decision," Manzardo said.

Others have heard about the sale-leaseback option in which a parent sells the home to one of their children for a set amount. The child makes a down-payment and then gets a bank loan to pay for the rest of the sale amount, just like any other mortgage. The parent may get the sale amount tax-free to supplement their income and they get to stay in the house by paying rent to the child. The child collects monthly rent and is also eligible for rental property owner tax breaks.

"This can be a great option if you have a family member or investor who is in a position to buy the home and wants to do it, especially if both parents are still alive and living in the house," he said. "But it should really only be done if there is a special reason for keeping the house in the family, and mom and dad in the house. Unless there is a special reason, selling the home and renting or getting a smaller home that is structurally better for them is a better option.

"I advise my clients to take the money from selling their house and live a better life while they still have their health. Or if it works for them, they can take advantage of today's low interest rates and refinance, take out of their home some of the equity they may have built up and possibly deduct the mortgage interest on their income taxes," Manzardo said.

"Why pay off your mortgage? That only helps your beneficiaries. Go have fun while you can. If you are worried about your health, buy a good long-term care policy that will take care of those concerns. If you want to leave money for your children, buy a life insurance policy and make them the beneficiaries. The premiums you pay may not really affect your lifestyle," he said.

Beyond that, Manzardo recommends that seniors work with their financial planner or even their children to consolidate their assets. Take all of your different stock certificates and deposit them into a brokerage account so that when something happens to you, and your children have to pay your bills or deal with your estate, they aren't struggling to locate your resources and going to numerous companies to corral your funds.

"This generation tends to struggle with technology and they also still have the mindset that they need to diversify where their holdings are in case a firm goes under. That is no longer the case. If you had your stocks held by Lehman Brothers, for instance, you still owned your individual stocks and they didn't disappear when Lehman Brothers went into bankruptcy. In that case you would only lose an asset if you owned Lehman Brothers stock," Manzardo said.

You can also put a "transfer on death" designation on the brokerage account so that the account is automatically transferred to whomever you want upon your death.

"All of this just makes the lives of your children easier. They are all raising their own families and dealing with their own issues, so you don't want to make their lives more difficult unnecessarily," he said.

Certified financial planners can also help seniors see how their goals and their reality line up and monitor their progress. If the CFP determines that someone's goals and reality don't line up, then they help them decide whether they are going to cut back on their current lifestyle in order to save more money or whether they are going to trim back their goals for retirement.

They also check to make sure that assets are positioned correctly for maximum tax benefit. There are techniques to be used when drawing down an annuity, for instance.

"You want to choose a certified financial planner who specializes in working with retirees and is a retirement income specialist because those approaching retirement don't want to jeopardize their wealth through high risk investments. Instead, they are now looking for consistent returns so they can sleep at night. So, you want a CFP who understands that," Manzardo said.

"My best clients are those who are retiring to something, not from something. They keep themselves physically and mentally in shape by staying active and healthy, getting a part-time job or volunteering," he said.

"And I harass them about their health," Manzardo added. "I tell them that if you are not taking care of yourselves, all of our financial planning was for naught. If you don't have the body or the mind to enjoy the money, why did you save it?"

Manzardo & Associates is located at 111 E. Schaumburg Road, Schaumburg. Call (847) 584-0111 or visit www.thomasmanzardo.com.

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