Rekombinant

Employed, self-employed—it doesn’t matter. When it comes to money, time is probably the most important factor in the growth process. The more time you give to your money and the more time it has to grow are the two key ingredients to attracting and creating large sums. The amount you will have accumulated when retirement comes will determine what kind of lifestyle you will then be able to afford.
If you’re forty-five, and start putting $100 a month into an account that averages a 10 percent return, you’ll have $71,880 by age sixty-five.
I If you start ten years earlier, at thirty-five, your $100 a month will have grown to $206,440 by age sixty-five.
l If you can start saving $100 a month at age twenty-five, YOU will have $555,454 by age sixty-five.
Time accounts for the difference. For every year that you wait to take the step of establishing respect for your life, it costs OU about $25,000 a year of future growth. That is a lot of money. By waiting twenty years, from age twenty-five to age torty-five, to start saving just $100 a month, you pass up almost
$480,000.

Time plays an essential role in building your future wealth, not only because the longer you contribute, the more you’ll have, hut also because with time, the contributions you have already made will do more work for you. This second feature that makes time so powerful is called compounding.
When you leave your money invested over time, the amounts of money that your contributions are generating on their own are the worker bees of your money hive.
For instance, let’s say you are investing $6,000 a year, and that $6,000 is earning 8 percent. Let’s assume that your investment will be able to average that 8 percent over the next twenty years, and that you continue to add $6,000 at the beginning of every year as well. There will come a point in time when the earnings on your account will add up, by themselves, to more than the $6,000 you are putting in every year. This is when those worker bees really start to make that money honey.

There are two types of exemptions from federal estate tax. One is the unlimited marital deduction, and the other is each individual’s $600,000 credit shelter amount. Husbands and wives can leave an unlimited amount of wealth to each other without owing any estate tax whatsoever as long as the surviving spouse is a U.S. citizen. (If you’re married to a non—U.S. citizen, you need to consult an estate lawyer now! Page 109.) Each individual can also pass on $600,000 to his or her beneficiaries, free of estate tax. This is called your credit shelter amount. The portion of your estate beyond that $600,000 is subject to estate tax.
When Pop, Sherry’s father-in-law, dies, assuming he dies first, and all the assets are passed to Mom, she would owe nothing in estate taxes. She receives the million-dollar estate and owes nothing. But when Mom dies, she has the whole million dollars on her side of the balance sheet but can only leave $600,000 to her kids without them having to pay tax. No one ever got the benefit of Pop’s $600,000 credit shelter amount because he just passed everything to Mom.
So when Mom dies, the kids will have to pay estate taxes of
$150,000.
If, howevei before either Mom or Pop dies, $1 million is separated into two shares, each for $500,000, and Pop’s share is held in trust for the benefit of Mom when he dies, and the family follows certain rules, then the IRS will see the money as if it never left Pop’s side of the balance sheet. The $500,000 that’s Pop’s “half” can be passed down free and clear of taxes when Mom dies, because it’s less than $600,000. As for Mom, the $500,000 on her side of the balance sheet can be passed down in the same way when she dies. Remember, you each get this $600,000 credit shelter amount. But most of us who are married don’t take full advantage of it. We just simply leave everything to a spouse who was able to get everything anyway, so in effect the first spouse to die wastes that $600,000 exemption. To take full advantage of it, use a bypass trust. The deceased’s half of the money goes into the trust, preserving this exemption.

For one thing, “financially destitute” is a tricky concept. If you are reading this book, you’re reading it so that you won’t be financially destitute, and I’ll tell you what I tell my clients: If your plan is to divest yourself of your assets should a nursing home become inevitable, please turn to another financial adviser. Historically, many people have made themselves poor on paper to qualify for Medicaid by transferring assets and try-ing to make it look as if their money has disappeared. This is a demeaning process and can be devastating to the spouse, if there is one, who remains at home. The spouse who needs long- term care is then sent to a Medicaid-approved nursing home, which is not necessarily a place where you want to spend your last days. These are often overburdened facilities, and quite simply, our government can no longer afford to fund them.
The Medicaid system is changing fast, and a bill has already been passed that makes it a criminal—yes, criminal—offense to give away your assets and then try to qualify for Medicaid during the thirty-six-month look-back period. The government is also urging us all to consider LTC insurance—for peace of mind, to assure quality care, for the freedom to choose, and for asset protection.
And if the government is trying to get out of the long-term nursing home business right now, you can be sure they will be out of it entirely by the time the baby boomers reach nursing home age. The good news in all this is that the government is also making it cheaper and more advantageous for us all to sign up for the care we might one day need.
Anna and Art haven’t had to use their long-term-care insuraiice yet, but their story ended up more happily than most such stories. They at least are protected, if the day comes when they need protection.