Retirement and Estate Planning Considerations

Consider the following: Dad is 80 years old, had been retired for 15 years, and has a car collection as part of his estate. In his original estate plan, he bequeathed his ’63 Chevy Nova to his oldest son, Chad. Several years later, dad sold the car because he needed the cash after not adequately preparing for retirement, but did not update his estate plan. Shortly thereafter, dad dies. Because the car was sold, Chad feels entitled to a cash gift from the estate that is equivalent to the value of the car, which would invariably come out of his siblings’ shares. Dad’s estate plan does not enumerate the result, and now the siblings are fighting.

If elements of this hypothetical sound familiar, it could be because someone you know did not adequately prepare for their retirement distribution or estate planning phases of life. Many Americans work hard for most of their lives to one day retire and enjoy the fruits of their labor. On top of that, so many want to leave a personalized legacy to their family after they pass away. While these are both honorable ambitions, several considerations must be made in order to effectively execute their own unique goals.

Because of the various complications that come with retirement and estate planning, each individual and family requires their own unique framework and therefore, it is important to obtain tailored, professional guidance for optimal results.

Five Considerations

There are several important retirement and estate considerations. While not an exhaustive list, here are five such considerations to bear in mind.

1) Who, What, And When Is Most Important to Me?
I once had a client tell me with regard to his financial goals: “I can’t take my money with me. I want to leave it all to the kids and die broke.” Others want to fully reap the reward of their life of hard work via their retirement lifestyle, and have no desire or need to bequeath assets. Probably most people lie somewhere in the middle, and therefore require a blended approach that includes elements of both retirement and estate planning, reflective of the client’s values A good financial advisor can help position both existing assets and future savings in a way that best suits the goals of an individual, their family, and their beneficiaries.

2) What Is in My Estate?
A comfortable retirement tomorrow starts with careful planning today. But in the same way that directions on a map are useless without a starting point, it’s imperative to understand exactly what is in one’s estate. Assets, liabilities, income, expenses, investments, insurance, and more all factor into one’s financial position, one’s ability to live their desired lifestyle in retirement, and ultimately, one’s transferrable estate. Because of this, it is important to capture a current snapshot of one’s financial picture in order to adequately prepare for these important phases of life.

3) Do I Have Enough?
When a starting point on the proverbial map is established with a statement of financial position, quantifying one’s retirement lifestyle and ability to spend down assets is a crucial subsequent consideration. With questions of inflation, market fluctuation, liquidity, and longevity all looming throughout retirement, it is no wonder that the most common concern I hear from my new clients is simply “having enough.” Assessing factors such as a burn rate on an investment account, quantifying after-tax dividend yields, or even prioritizing different investment vehicles vis-à-vis their estate transfer consequences, can feel overwhelming to even an experienced investor. Having the confidence of a reliable source of retirement income is a tremendous weight off of a retiree’s shoulders, and it allows for the more relaxed lifestyle for which one has worked so hard.

4) What Are the Risks?
Between the rising cost of healthcare and a potential risk of massive long-term care expenses, there are legitimate concerns that many families desperately need to address, lest their retirement (and ultimately their estate) be eaten away by problems that could have been mitigated. Some risks may be insured; others may be absorbed or avoided entirely. When the risks are acknowledged and discussed with a qualified professional, a deliberate path forward may then be decided, and the ensuing peace of mind can be substantiated throughout retirement.

Additionally, investment risk tolerance necessarily evolves over time, and investments that may have been suitable leading up to retirement may not be appropriate during retirement. Identifying goals, spending capacities, and investments to match is vital. From assessing the macroeconomic conditions in today’s unique economy, to analyzing the minutia of specific funds and investments, a financial professional can provide the guidance necessary to construct a portfolio to help maximize one’s retirement lifestyle potential. Allowing oneself the advantage of having a portfolio professionally and unemotionally managed can eliminate the guesswork and uncertainty associated with personal investment management throughout retirement.

5) What About Uncle Sam?
There are multiple different ways that the IRS taxes investments. For retirement income planning, it is just as important to understand how these assets are taxed as it is to have them invested properly. Understanding the different IRS tax categorizations and optimizing retirement income tax treatment can make a substantial difference in one’s overall retirement lifestyle. If taxes rise, this could affect both the growth and distribution phases of one’s retirement planning. Taking control of one’s income taxes in retirement can help make the most of retirement assets, and ultimately provide a return on investment in addition to market gains.

In Conclusion

A statement a client of mine made early in our relationship epitomizes the requisite need for retirement planning: “Two things stress me out: my job, and when I don’t have my job.” While there are so many intelligent, sedulous people selflessly working to improve their and their family’s lives, financial planning is often either treated as an afterthought, or as some insurmountable hurdle that is most easily left ignored. This is a mistake.

With this in mind, consider updating retirement and estate plans as one would with smoke detectors. Small periodic tweaks are substantially preferable to massive overhauls every few years. And if you have not yet started mapping out your retirement plan, now may be the perfect time to do it. Contact a qualified advisor to discuss your retirement goals and a path forward toward achieving them.


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