10 Reasons Everyone Needs a Power of Attorney in Retirement

Do you have a durable power of attorney? If not and you’ve done everything that you can to secure your retirement, it’s one of the steps that you must take. We’re firm believers that when you’re in the midst of your retirement planning, you also need to work on your estate plan.

And what’s arguably the most important document in an estate plan? The durable power of attorney.

No one wants to think about invoking a power of attorney in retirement, but there are times when you’ll need this document. For example, if you have an IRA, it cannot be held jointly. A durable power of attorney will allow a designated individual to access this money for you.

We’ll mention a few times when you may need this important document, along with 10 reasons for a power of attorney in retirement, in the following section.

10 Reasons to Have a Power of Attorney in Retirement

1. You Become Incapacitated or Disabled

We had a client who could not move or speak following a massive stroke. This individual is alive and has their mental capacity in place, but they could not:

  • Express themselves
  • Coordinate any muscle movement to show mental capacity

The majority of the person’s money was in a 401(k) and IRA. Unfortunately, the person’s spouse could not access any of the money their partner saved for retirement. Going through the process of getting this document after the stroke was a long and arduous one.

Eventually, the individual recovered enough to nod and approve the power of attorney document.

However, their spouse spent months in limbo without being able to withdraw money from accounts to pay bills. Due to the laws in place, we cannot even talk about a person’s IRA or 401(k) with anyone else unless they have a durable power of attorney in place.

2. Convenience While Traveling

If you’re in the middle of retirement and backpacking outside of the country, you may also want to have a durable power of attorney in place. During the pandemic, many people fell into this scenario where they couldn’t get back to the United States, and this led to financial difficulty.

Having a durable power of attorney in place allows someone else to:

  • Access your money to pay the bills
  • Access your money to send it to you while you are overseas

Many people have retirement plans to travel, and a lot can happen when you’re not home. The power of attorney document provides you with peace of mind that someone can act on your behalf in financial matters and also in business.

3. Health-related Issues

It’s important to note that there are two main types of power of attorney that you need to concern yourself with:

  1. Durable Power of Attorney
  2. Healthcare Power of Attorney

We’re not talking about the healthcare power of attorney today. Instead, we’re talking about someone like in our first point – an individual who is incapacitated and needs to go into a facility for rehab.

You may also need to bring the person home and hire people to care for them.

All of these decisions are financial decisions rather than medical ones. In these scenarios, the durable power of attorney will empower someone of your choosing to access the funds to hire caregivers or send you to rehab.

4. Have Someone to Manage Your Finances

While this point overlaps with most on this list, it’s worth mentioning because having the option of allowing someone to manage your finances is huge. Power of attorney allows someone to:

  • Setup income streams
  • Pay your bills
  • Pay for you to move from a home to a facility

When you have a durable power of attorney in place, it even allows the person to sign things on their partner’s behalf with us.

5. Real Estate Transactions

Imagine that you have any form of real estate: your primary home, rental home or even a second home. Included in your power of attorney document is granting someone the ability to manage your real estate on your behalf, such as:

  • Retitling the property
  • Selling the property

Many of our clients have a second home that they know they can sell if they need cash or their spouse needs the funds to go into a long-term care facility. In these cases, having a durable power of attorney will allow your spouse to sell the property, as you talked about prior, without needing your signature.

Imagine if you had a stroke and couldn’t sign off on the sale of the property with your spouse.

In this scenario, a single document would allow your spouse to act on your behalf, sell the property and use the funds to get you the care that you need.

6. Making Gifts

If you want to make gifts, such as paying for your grandkid’s college education, you might open a 529 plan. A person that is listed on a power of attorney can continue funding these accounts on your behalf.

What if you do not have a 529 plan and simply transfer money to the child’s school every semester to help them pay tuition?

In this case, the person that you list as your power of attorney can do this for you. Also, if you make charitable contributions, this can continue with your power of attorney. 

7. Dealing With Tax Matters

Even if you’re incapacitated, the government will still want you to file your taxes. When you have a durable power of attorney in place, the individual can:

  • Make decisions to save you money
  • File taxes on your behalf

You can include taxes in your power of attorney so that the individual can act on your behalf.

8. Protecting Your Privacy

Perhaps you’re someone who likes their privacy. You can have the durable power of attorney act on your behalf to protect your privacy. This individual can then access your accounts, make transactions and do anything you direct them to without mentioning your current situation.

9. Avoiding Guardianship Proceedings

Going back to our first example, the individual who had the stroke could not communicate for some number of months to get the durable power of attorney signed. We had discussions with lawyers to help their spouse gain guardianship over the person.

However, this is a very complex matter that can be exhausting and takes a lot of time and money.

If you have a durable power of attorney, you won’t need to go through this process. The heartache, stress and cost of having to gain guardianship are fully alleviated with a durable power of attorney in place.

10. It Provides Peace of Mind

Perhaps the most powerful reason to have a durable power of attorney is that a durable power of attorney provides peace of mind. You want to have these documents in place before you need them, so if anything does happen, you have already planned to allow someone that you name to handle your affairs.

Emergency situations can happen at any moment, or they may never happen.

However, having a durable power of attorney will allow you to have peace of mind that if something does happen, you have a backup plan in place.

The good news?

A durable power of attorney is not an expensive document. We can even provide you with the resources and direction to help you put your durable power of attorney in place. We’re not attorneys, so we cannot make this document for you, but it is something that we can help you secure through an attorney.

Click here to schedule a call with us for more information about getting a durable power of attorney.

2021 Tax Deductions and Tips

Tax professionals offer the best option for learning about 2021 tax updates. A good CPA can provide you with updates that can affect you when filing your taxes and can hopefully reduce the taxes you owe or increase the refund you’re owed.  Here are some suggestions from a CPA that we know and trust.

2021 Tax Updates You May Have Overlooked

Charitable Tax Deductions

Charity tax deductions are still available, allowing you to take advantage of giving away some of your money. One of the main differences this year is that you’ll need to itemize your charitable tax deduction, which is an unexpected change for a lot of people.

You can deduct at least $300 for an individual or $600 for a couple.

Itemizing your deductions only makes sense when you have more than the standard deduction of $12,500 or $25,000 for couples. For example, it makes more sense not to itemize your deductions when the itemized deduction comes out to less than the standard deduction.

Straight donations are mostly the same, so it’s important to get a receipt. You should be itemizing deductions to really leverage straight deductions which may include:

  • Cleaning out your attic
  • Donating items to Goodwill or another charity

When you’re donating to charity, you can donate up to 60% of your adjusted gross income for tax purposes. Most individuals will not hit this threshold because it’s high, but it is something high net worth individuals may want to think about.

Bonus: Qualified Charitable Distributions (QCDs) are for people older than 70.5, and it allows you to take money out of your IRA and donate directly to charity. This can be done on top of your standard deduction and must be made out directly to the charity. When you do this, you’re not taxed on the withdrawal and you can deduct the donation on your taxes to offer a double benefit to you.

Medical Deductions

When you’re older, closer to retirement or have had to pay for medical procedures in the past year, medical deductions are something that you should be considering. A lot of medical deductions can be made:

  • Insurance
  • Prescriptions
  • Direct doctor costs

If you have a major deduction, you may want to itemize to leverage these deductions. The $12,500 or $25,000 deduction will need to be considered because there’s really no reason to itemize if you’re not trying to deduct higher than this amount.

Reaching a high enough threshold to itemize your medical deductions is often only possible when you’ve had major medical procedures performed. A few of the procedures that may be included are:

  • Dental implants
  • Nursing care
  • Other major issues

Earned Income Tax Credit

The earned income tax credit is based on how much you earn and how many qualifying children that you have. You need to be between 25 and 65 years old and have qualified earned income. A person must earn $16,000 as a single person or $22,000 as a couple to maximize this credit.

When you hit $51,500 as a single person and $57,500 as a couple, this is when the earned income tax credit starts to really phase out for you.

If you have no children, you can expect up to $543, and with three children, $6,700.

Child Tax Credit

A $2,000 tax credit is given to a qualified child between the age of 0 and 16. Once they hit 17 and older, this credit drops to $500, which is quite a jump. The year that the child turns 17, the credit is lowered.

There is also an income threshold for this credit:

  • $200,000 for a single person
  • $400,000 for a couple

Home Office Deductions

A lot of people are working from home this year. COVID has changed a lot of people’s working situations, and there are a lot of questions surrounding home office deductions. Employees that receive a W2 are no longer able to deduct their home offices.

Business owners can write off their home office if it remains their primary place of business.

You can deduct $5 per square foot, or you can itemize your deductions. The itemization is only beneficial if you can deduct more than the square foot value of your office. Remember to keep receipts on all of your expenses from your home office to ensure that you can maximize your deductions and have proof of your expenditures.

If you only work from your home office once or twice a week, you won’t be able to claim this deduction because it’s not your principal place of business if you’re working more days per week outside of your home.

Unemployment Benefits and Your Taxes

All of your unemployment income is viewed as wages. The income is reported on a 1099G, which you will use to claim all of these benefits on your taxes.

Bonus: Stimulus Check and Claiming It as Income

You do not need to claim your stimulus check on your tax return.

Tips When Thinking About Your 2021 Taxes

A few of the tips that we want you to know about when thinking about your taxes in 2021 are:

  • Financial management to manage your portfolio can help you leverage capital gains rates at the current rate.
  • Employee benefits should be managed, such as HSA, 401(k) and other options. Maximize your 401(k) and consider an HSA to use for your health expenses. The HSA can be funded and grow, and by the age of 65, you can take out the money while enjoying tax benefits. Otherwise, the HSA withdrawals all need to be medical related.
  • Review federal withholdings early in the year to ensure that your withholdings are proper. Recent changes to the withholding rate have left many people paying more at the end of the year than they expected. Use the IRS.gov Tax Withholding Estimator to properly adjust your rates at the beginning of the year so that you have fewer surprises at tax season.
  • Try and donate $300 to $600 to a charity this year for additional savings.
  • If you’re going to itemize, consider giving more to charity if you can. Double up on donations to maximize your deductions.
  • Mortgage interest rates can also be deducted on the itemized deductions.

On a final note, be sure to be compliant and file your taxes on time or get an extension. Also, make all of your estimated payments and pay what you think you’ll owe on April 15 because you’ll be penalized otherwise even if filing an extension.

 If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

 In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.