Boo interes st the t bank d on your ep See pa osits g

e 11

OCTOBER 2012 $5

vol. 9, issue 10

in this issue
education
Money Lab: Best 529 plans for college savings . . . . . . . . . . . . . 8

7 rules to retire by
Following these broad guidelines will help you get there.

faMiLy Money
feature Report: How to keep the peace when ailing parents need care . . . . . . . . . . . . . 6

fRaud
feature Report: Dont fall for duct-cleaning scams . . . . . . . 3

heaLth caRe
feature Report: Know your 2013 health-plan options . . . . 12

RetiReMent
cover Story: Follow these rules for a successful retirement . . . . . . . . . . . . . . . . . . . . . 1 Retirement Guy: 5 ways to get better organized . . . . . . . . . 15

o you know how much you need to save to ensure that you wont run out of money during your lifetime? Financial companies TV ads often tout your numberthe amount youll need for retirement, which is generally a seven-digit sum. Others use different but equally daunting benchmarks: a yearly income-replacement rate of 70 to 85 percent of your last working years salary; 11 times your last years salary in a lump sum; or a portfolio that will fund your living expenses on a maximum annual withdrawal rate of 4 percent. For many people, of course, those goals are unachievable. A 2012 survey by the nonprofit Employee Benefit Research Institute found that 64 percent of retirees and 70 percent of workers had less than $50,000 in savings or investments for retirement, excluding housing values and pensions. And a frightening

28 percent of retirees and 30 percent of current workers said they had less than $1,000 saved. A nest egg that falls somewhere in between those two extremes will probably work for most people. Your actual needs will depend on an array of variables, some of which you might be able to controlsuch as your lifestyle, how much debt you carry, and your retirement ageand some that you cant, like your health, your investment returns, and your life span. You can boost your odds of a successful retirement by following these basic guidelines. In our 2011 retirement survey, 36 percent of retired subscribers to ConsumerReports. org said that not spending beyond their means was one of the best steps they had taken to prepare for retirement. Keeping your expenses (Continued on page 4)

Save more and spend less.

SpendinG
Money Savers: Dollar stores are worth a second look . . . . 13

happy retirees have friends and hobbies

Money helps, but retirees who have enduring interests and relationships are more likely to be satisfied than those who dont, across the financial spectrum. Lacks friends, bored Savings at time of retirement Less than $150,000 $150,000 to $349,999 $350,000 to $499,999 $500,000 to $749,999 $750,000 -plus Has friends, interests % highly satisfied with retirement 24 38 42 47 56 62 70 75 80 85

taXeS
tax Savers: Giving gifts without IRS punishment . . . . . 14

in eveRy iSSue
from the editor . . . . . . . . . . . . . 2 this Months Money tips . . 2 Reader Quick poll Savings and Loans ask the adviser
..........3

this Just in . . . . . . . . . . . . . . . . . 10
........

10 16

...........

Source: Consumer Reports National Research Center, October 2011. Findings from a model that adjusts for numerous variables not listed.

1,4-5 CRMA Feat1-Retirement 10-12.indd 1

8/16/12 4:26:11 PM

family money

How to prevent family feuds over an ailing parents care

Communication is key to resolving and avoiding disputes.

ary Freeman, an elderly

widow who had a stroke, lived in her New Jersey home with one of her six adult children, Thomas. Another son, James, who was her court-appointed guardian, hired home health aides to help care for her. The trouble was, all 25 aides hired during a 10-month period quit, complaining that Thomas insulted and criticized them. The brothers fought in court, and a judge banned Thomas from the house while aides were there. Freeman died five months later. Most families who care for an elderly parent dont end up in court, but sporadic spats and long-lasting feuds are unfortunately common. When you add money and caregiving together, you can really stir up some ugly feelings, says Denise Brown, founder of Caregiving.com, an online community for family caregivers. In an ideal situation, Mom and Dad would carefully craft an estate plan, tell their children what type of care they want, and have enough money to pay for it. Adult children would set aside old rivalries and communicate with each other so civilly that Emily Post would be proud. If that doesnt describe your family, read on for advice about how to make a difficult situation more bearable.

quarrels over caregiving

Relationships can become strained when siblings disagree about the type of care an ailing parent needs. Bette Scott, 50, says that her oldest brother advised her not to move their mother into her home after she had a stroke 10 years ago. Scott moved her mother in anyway, and says that neither of her two brothers were much help caring for her mother. Her relationship with her oldest brother grew especially tense. The resentment was almost unmanageable, she recalls. My blood pressure
6 [

probably went up every time he called my mother, who just loved her sons to pieces. Scott, whose mother recently died, says she found solace by commiserating with other caregivers online and by starting a support group in her town. She also hired home health aides to help alleviate the stress of round-the-clock care. Elder-care experts we consulted for this article say that siblings can often avoid simmering bitterness by talking with each other openly and frequently about Moms or Dads situation and needs. Families should schedule meetings to discuss medical diagnoses and care options, and to divvy up responsibilities. Those meetings often proceed more smoothly when a neutral party is present. For example, siblings might hire a geriatric-care managerusually a social worker, registered nurse, or other professionalto evaluate their parents needs, recommend specialists who can help, and monitor the quality of care on an ongoing basis. Geriatric-care managers are especially helpful when family members have differences of opinion, says Claudia Fine, an executive vice president at SeniorBridge, a national home-care company. To find one in your area, go to the website of the National Association of

Professional Geriatric Care Managers, at caremanager.org. If your parent is in a hospital, ask the discharge planner for referrals. Expect to pay $300 to $1,000 for an initial evaluation and $50 to $200 an hour for follow-up services, depending on your location. Medicare and Medicaid usually wont cover geriatric-care management, but some long-term-care insurance policies will pay a portion of the cost. In some especially touchy situations, the kids might agree that a parent needs help but Dad or Mom rebuffs them. The law presumes that an adult is legally competent and able to decide how and where he or she will live. If you think your parent is incompetent, you will have to find a physician who agrees and then ask the probate or family court to appoint a guardian. If relatives fight over who should serve as guardian, someone outside the family can be named. The guardian will have the power to pay your parents bills from his or her money and must submit an annual accounting to the court.
battles over bucks

Long-term elder care is expensive, and Medicare usually doesnt pay for it. One program that might help is the little-known Aid and Attendance benefit for wartime military veterans and their surviving spouses. For information, go to va.gov and search for aid and attendance. Although children arent legally responsible to pay for their parents care, many do, and some fight about who should kick in how much. Other families squabble when siblings suspect that the brother or sister who holds power of attorney is wasting or even stealing a parents money. Elder-care experts say that families can avoid many disputes if they share financial information. Jim Schuster, an elder-law attorney in Southfield, Mich., says he hates to hear a client say, My brother has power

Consumer reports Money adviser oCtoBer 2012

6,7 Feat 2-FamilyPeace 10-12.indd 6

8/16/12 12:04:16 PM

of attorney and just sold Dads house, and I dont know what he did with the money. If youre the financial proxy for your parent, dont commingle your money with his or her accounts. Make a list of your parents assets and liabilities, and share it with your siblings. You should provide at least an annual accounting to key family members, says Charles Sabatino, director of the American Bar Associations Commission on Law and Aging. If youre not in charge of your parents finances and have a gripe, ask the brother or sister who is for an accounting. If your sibling refuses, and you suspect financial mismanagement or exploitation, you might need to hire an elder-law attorney. (To find one in your area, go to the website of the National Academy of Elder Law Attorneys, at naela.org.) If your lawyer takes the fight to court, a judge might order your sibling to provide an accounting or refer both of you to a mediator. Alternatively, if you suspect wrongdoing, you can complain about your sibling to Adult Protective Services, local public agencies that investigate reported cases of elder abuse. If an agency finds a problem, it will take steps to protect your parent. APS keeps the identity of the person filing the report confidential.
clashes over medical care

the National Hospice and Palliative Care Organizations website, at caringinfo.org. If you and your siblings spar over an ailing parents medical treatment, get help to resolve your disagreements. For example, you can ask for an ethics committee meeting at the hospital or nursing home where your mother or father is a patient. These committees deal with end-of-life decisions and related issues. They can help family members and medical personnel understand each others views and resolve disputes. You might also consult a clergy member. Remember that your parents religious beliefs trump your own when it comes to medical-care decisions.
brawls over possessions

Families dont always stop feuding after Mom or Dad dies. Sometimes siblings battle more fiercely over which personal belongings theyll inherit than they do over stocks and bonds. And they can be just as likely to fight over a 25-cent Christmas tree ornament as a $50,000 painting. Marlene Stum, a University of Minnesota professor, created Who Gets

Grandmas Yellow Pie Plate? seminars, a workbook, and a DVD to help families resolve problems. For online resources, go to yellowpieplate.umn.edu. She says unresolved conflicts between family members and issues of power and control are usually at the heart of arguments about family heirlooms and mundane household items. One man told Stum that his three older sisters divided their mothers household items and keepsakes among themselves after her death. They assumed that as a guy, I wouldnt want any of these things, he recalls. At the time, I didnt object. I was used to having them boss me around. Now I have two beautiful daughters who will never have a special remembrance from their grandmother. Once again, communication is the key to resolving such conflicts. Stum advises family members to devise a system for splitting up their parents personal items and to agree to deal with conflicts if they arise. If you do that, you might end up with the Christmas ornament instead of the pie plate, but youll preserve valued relationships with your siblings. $

Tax breaks for caregivers

You must meet two tough tests to claim a parent you care for as a dependent on your tax return. First, you must provide more than half of his or her total support. And second, your parents gross income must be less than $3,800 a year. What if you and one or more of your siblings together provide more than half of your parents support but no one person chips in more than half? Any one of you who provides more than 10 percent of your parents support may be able to claim the tax exemption. But each of the other siblings must sign a statement agreeing not to claim the parental support exemption for that year. The child who claims it must keep the siblings signed statements and attach a multiple support declaration to his or her tax return. If your parents income exceeds $3,800 but you meet the support test, you might be able to write off his or her medical expenses iftogether with your familys other out-of-pocket medical expensesthe total exceeds 7.5 percent of your adjusted gross income. You may also be able to claim a federal tax credit of as much as $1,050 to offset up to $3,000 of the cost of caring for a disabled parent who lives in your home at least six months while you and your spouse work or look for jobs. As your earnings rise, your credit shrinks.You dont have to claim your parent as a dependent to qualify. Before taking the credit, find out if your employer offers a dependent-care flexible-spending account. It lets you use pretax income to pay for as much as $5,000 of care a year. Unless youre in the 15 percent tax bracket, youre generally better off using an FSA instead of taking the tax credit.

About half of adults age 60 and older dont have a durable power of attorney for health-care decisions, according to an AARP survey. When parents fail to plan for a time when theyre too sick to make medical decisions for themselves, adult children might end up fighting about what Mom or Dad wants. Every parent should have a durable power of attorney for health care, says Martin M. Shenkman, an estateplanning attorney in Paramus, N.J. You owe it to your kids, he adds. Urge your parent to create an advance health-care directive if he or she is competent to sign legal documents. Laws vary by state, but an advance directive usually includes two documents: a living will, which lists medical procedures that you do or dont want doctors to perform on you, and a durable health-care power of attorney, in which you name a health-care proxy to help make sure your wishes are carried out. You can find information specific to your state and sample documents on

OCTOBERT 2012 money adviser COnSUmER REpORTS Z

6,7 Feat 2-FamilyPeace 10-12.indd 7

8/16/12 12:04:29 PM