When we make financial decisions, we often don’t think about the long-term effects – good and bad – they will have on other people. Their impact can shape the lives of immediate family members as well as generations to come long after we’re gone.
You may be wondering, what does this have to do with retirement income planning? In my case, everything. When clients ask what motivated me to become a financial planner, I tell them that observing, and paying for, the consequences of my parents’ (may they rest in peace) lack of planning was the driving factor.
My dad, who served in World War II and had a college degree, initially struggled to support our family, which included two sisters and me in addition to my mom. Despite this rough start, we enjoyed a fairly comfortable middle class life. After moving from a small house when I was ten, we lived in a nice house in a typical middle class town. My sisters and I graduated from college, with one of my sisters completing her last two years at a private out-of-state university.
While my parents generally lived within their means, they didn’t do any retirement planning to speak of, formal or otherwise. A couple of years after my dad retired from his auto insurance and income tax preparation business in the Bronx, New York, my parents sold the family house they owned for 26 years in New Jersey and moved to Las Vegas in 1991.
My parents used the proceeds from the sale of their house to make a sizeable down payment on a condo, buy some new furniture, and deposit the balance, which wasn’t a huge sum, in a savings account. Although Las Vegas was a relatively inexpensive place for them to retire, my parents’ Social Security benefits and the earnings from their savings account only went so far.
When my dad died in early 2000 without any life insurance, my parents’ savings account had dwindled to several thousand dollars. To provide comfort and security for my mom, I paid for my dad’s funeral, and shortly thereafter sat down with my mom to put together a budget.
Not only was my dad’s monthly Social Security benefit which my mom inherited insufficient for supporting my parents, it fell short of enabling my mom to make mortgage payments and pay for basic living expenses, let alone those of a discretionary nature.
Knowing that my mom’s wishes were to remain in her condo, I put together a plan, in consultation with my sisters, for me to purchase my mom’s condo from her. Using a purchase price that was greater than the value of her condo at the time, I paid off her mortgage using proceeds from refinancing my wife and my house, and structured a ten-year note with my mom for the equity in her condo.
To make a long story short, my monthly mortgage payments to my mom enabled her to meet all of her financial obligations, including for an additional two years after the term of our mortgage ended. When she died in 2012, there were not only sufficient funds to pay for her funeral, my sisters split a small inheritance.
Although my parents never did any retirement planning together and unfortunately experienced the consequences of their lack of planning first-hand, I’m proud of the fact that I was able to assist my mom with her planning so that she could enjoy the final 12 years of her life without worrying about where, or how, she was going to live. Needless to say, my wife and my son will benefit from my experience, including my decision to specialize in retirement income planning.
Robert Klein, CPA, PFS, CFP®, RICP®, CLTC® is the founder and president of Retirement Income Center in Newport Beach, California. Bob is also the sole proprietor of Robert Klein, CPA. Bob applies his unique background, experience, expertise, and specialization in tax-sensitive retirement income planning strategies to optimize the longevity of his clients’ after-tax retirement income and assets. He does this as an independent financial advisor using customized holistic planning solutions based on each client’s needs and personality.