Harry & Sally's Estate Plan Essay

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Though this means a loss of $150,000 over the five years the Social Security benefits are not taken, this will be paid for in just twelve and a half years by the increased amount of the benefits (that is, it will take 12.5 years for the additional $12,000 per year to equal $150,000). In addition, there is a tax benefit in waiting to collect Social Security benefits until no additional income is coming in, and as Harry plans to continue working part-time for the foreseeable future and this could lead to taxation of the Social Security benefits. When Social Security benefits are the only source of income they are very rarely taxed, but even with the healthcare expenses Harry plans to commit his salary towards this income could lead to what essentially amounts to a tax penalty, pushing the combined total of his salary and the Social Security benefits into a taxable realm rather than leaving the couple likely without any income tax liability. There will still be capital gains taxes on anything the couple earns from their retail investment account and of course the taxes on the traditional IRA withdrawals as mentioned above, but income taxes -- which are likely to be highly variable -- can be avoided. Harry's SEP IRA can essentially be treated as another traditional IRA for all of the above recommendations regarding spending and taxation.

This touches on another issues that the couple does not seem to have faced: the reality that Harry will not be able to continue to work in perpetuity, and that healthcare costs for the couple will continue to rise even while the income that currently covers healthcare costs disappears. This decrease in income and increase in costs means that there will be a wider deficit in the couple's budget, which will place an increasing strain on the substantial but not inordinate amount of retirement savings they have amassed. If the coupe waits to collect Social Security until both are aged 70, the combined income from these benefits and the pension payments Harry receives will equal $74,000 -- $2,000 more than current annual expenses, but quite possibly less than expenses will be when healthcare costs are added to that side of the equation (insurance premiums alone could well be close to or even over $2,000 per month, let alone per year, and this is not accounted for in the $6,000 estimate provided by the couple). Extra funds will continue to be available form the Roth IRAs and from what will likely be a sizeable amount left in the traditional IRA, but a reduction in monthly expenses to increase the longevity of current funds might be recommended.

The above plan will all but certainly ensure that Harry and Sally are able to continue much in the same lifestyle for the rest of their lives, though some adjustments will be necessary and a regular review of the situation is recommended. The primary goal of this financial review having been met, it is also worthwhile to make certain recommendations as towards the planning of the estate. If care is taken to not draw down the retirement accounts' principle too steeply, there will likely be several tens of thousands if not a hundred thousand dollars left in the couple's estate after both have passed. How this is to be disbursed is of course a matter for personal discussion, yet the couple could consider taking out additional whole life policies at a certain point as long as they built cash value relatively quickly; life insurance benefits avoid many of the taxes associated with inheritance, and can be a useful vehicle for transferring wealth to loved ones. A trust for Chad's special needs child to ensure long-term care and funding is available should also be considered.


Harry and Sally are in a solid position, though it will take care and planning to ensure that they remain on sure footing into the future. Taking a conservative approach in regard to future taxation is wise, and taking tax hits now so as to avoid what will likely be higher taxes in the future is recommended. Postponing Social Security benefits and taking other steps to manage income…

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