Avoiding the Bag-Lady Syndrome; Living on the Street, Old, Female and Broke; Put Your Protections in Place

Bag Lady Syndrome. A woman can be independently wealthy and suffer from the "bag lady syndrome". This is the fear that they will lose all of their money and have to live on the streets, with bags full of old ratty clothes as their only possessions. According the Olivia Mellan, author of the Advisor's Guide to Money Psychology and a Washington DC therapist, the bag lady syndrome can plague and sometimes paralyze women who want to better plan their finances, as reported in MSN Money. We find that women doing estate and financial planning often fear that they will be penniless, homeless and abandoned on the streets. In our experience, the bag lady syndrome is based upon some real life defects in the plans of many people.

What Will She Live On? In planning for married couples, we often ask: If John your husband dies, what will Mary (his wife) live on? We find that usually the couple does not have a good answer to this question. This is something that each married couple should plan for with a financial planner. It may mean insurance, savings and a retirement account. Often when the husband dies, his income stops or the retirement pay from the husband is cut in half. This means that there needs to be concrete dollars in place for the surviving spouse, whether the surviving spouse is the husband or the wife. The same is true for couples who live together but who are not married, a growing segment of the population.

Are Diamonds A Girl's Best Friend? In the past, women were financially dependent on men; this is still true in many countries even today. With the entry of women into the workforce, the professions, corporate leadership and with women forming most new small businesses, this is no longer true for many modern women. With a fifty percent or higher divorce rate, women need to make sure they have their money set aside in their own retirement accounts or other means of financial security. A woman's best friend is her own bank account, investment and retirement funds.

Do You Have Your Trusted Ones Ready and Able? The primary legal planning issue for a single male or female is not estate taxes, but who will have the legal power to take care of them when they become disabled. We meet with widows, widowers, singles and divorced people frequently, who if they become disabled, have no legal papers in place that will allow their trusted loved ones to take care of them. With the increasing level of rules and regulations regarding bank accounts and finances, the sister or brother can not walk into the bank of their disabled sister and start writing checks to pay the disabled sister's bills. It is common for financial institutions not to honor powers of attorney for a variety of reasons - its not their form, they don't know the person presenting the power of attorney, federal know your customer regulations, or the power of attorney is too old. For the person who needs to immediately pay some bills, it doesn't matter that the reasons may be bogus. The net effect is that they can not take care of their sister, mother, or best friend. The most effective solution is the setting up of a living trust with a Disability Panel and the transfer of all of the non retirement assets of the single person to their living trust. We have never had a call that the trustee of a single person's trust was not able to use the funds in the trust to take care of the person who set up the trust. From the thousands of attorneys in our national association, our anecdotal evidence is that throughout the US living trust planning puts in place the legal powers and the people to take care of disabled single persons.

Are You Comfortable with Gifts? If you have the bag lady syndrome, you will be too afriad to make gifts that will help the next generations, your favorite charity and greatly reduce your estate taxe. There are time tested formulas to determine how much is safe to give away even if the economy is depressed. Such financial calculating tools are availbale to most sophisticated financial planners.

Stay off the Street. Make sure you know waht money you will have if your spouse dies, have your own nest egg and have your living trust in place to take care of you, and you will not be a bag lady. Call our planning team to implement these protections for you.

Raise Taxes

Tax Increases. The big debate in Washington is now over whether to let the Bush era tax cuts expire at the end of this December for some or all taxpayers. If these tax cuts expire, then the income tax rates and capital gain rates will increase, maximum dividend rates will go from 15% to the highest individual rate of 39.6%, the estate tax exemption goes to $1,000,000 with a 55% rate, the child tax credit reduces from $1,000 to $500 and there will be limits on the tuition and earned income tax credits. The Obama Administration has proposed retaining the Bush tax cuts for income earners below $250,000 married and $200,000 single. Tax cut proponents want to extend all of the Bush tax cuts and government proponents want all of them to expire. This is like a debate about how to arrange the deck chairs on the Titanic as it sinks.

You Can’t Handle the Truth. Politicians in both parties believe you can’t handle the truth. The truth is that the growing budget deficit largely comes from the rapid growth in Social Security, Medicare and Medicaid costs and interest expenses. The Obama administration estimated in January that the expiration of the Bush tax cuts for the poor, middle class and wealthy would bring in an additional $5 trillion over ten years. But, the estimates are that the deficit will be $8 to $10 trillion or even $15 trillion in the next 10 years. US public debt is expected to reach 62% of the economy in 2010 according to a recent Congressional Budget Office (CBO) estimate, nearly double the historic average. By 2030, CBO estimates that debt will be 146% of the Gross National Product. Unfunded age-related spending for pension and health care obligations are the fundamental drivers for this and the US will have the second highest increase in age related expenditures of the twenty largest world economies. Congress fails to report the unfunded obligations for entitlements in its annual budgets. These entitlement obligations are on autopilot and have first call on federal dollars.

What this Means for You. Our goal is to help you plan for your future and not get bogged down in political disputes. What does this mean for you:
*Your Income and Capital Gain Taxes Are Going up. Taxes are going up on everyone, regardless of your income bracket.
*You are much more likely to pay estate taxes.
*Your government benefits will be cut.
*The cuts in governmental benefits will get even bigger in the next two decades.
*The government is likely to print money to pay its bills.
*The US government will face a debt crisis similar to those of many countries.

What to Do:
*Take advantage of the lower income and capital gain rates this year.
* Make non taxable gifts this year to reduce your future estate taxes.
*Protect your assets from people who want to take them away from you now and in the future. Expert Rob Slee is projecting that 25% of Americans will be making money and will have to carry the load for the 75% who will have a hard time earning a living wage in this world economy. Through lawsuits, crime and taxes, the 75% will take money from the 25%.
*Decide on your approach to investments. We are not qualified to advise you on how to invest your funds. The only thing we seem to know for sure is that we are in a period of rapid change in technology, the world economy and lifestyles. This leads me to believe that you need to be covered for anything that can happen-deflation, inflation, drop in the dollar, rise in the dollar, recession or a new boom in the world economy. You need not just diversify your investment portfolio, but also diversify among the philosophies of your financial advisors.

Take Action Now. There are less than 150 days left of the lowest tax rates you will experience for a decade. Call us now to take advantage of this disappearing opportunity.