Estate Planning in Retirement: The Basics

07/01/20 • 54 min

One important aspect of retirement that not everyone is prepared for is estate planning. People avoid estate planning for various reasons, but a properly done estate plan is more than just documents. An estate plan is a way of continuing relationships and loving those people you leave behind in ways that you may not even imagine. Today we are kicking off our monthlong series on estate planning and we are starting with the basics. Listen in to hear what kind of documents you should have in place but also why they are important. What is estate planning?

Everyone knows they should have an estate plan, but very few have or understand what estate planning really is. Estate planning is the process of anticipating and arranging the management and disposal of your financial and legal life. The good news is that if you don’t have an estate plan the government has one for you. The bad news is that it probably won’t reflect your wishes. Done correctly, estate planning can be an important gift that you leave to those you care about. Why have an estate plan?

Some people may be fine without a plan and having the state doling out their worldly possessions. The purpose of an estate plan is to close out your financial life. When you pass away you probably don’t want to leave your loved ones with a financial and legal mess. Planning your estate in advance is one way to give a gift of elegant simplicity to your family. What does an estate plan involve?

Probate - When you pass away the process by which the state goes through closing out your legal and financial life is called probate.
A will - A last will and testament is a document that designates where your assets will go, but there is quite a bit of paperwork involved so an executor is named to manage the paperwork and distribute the assets based on your wishes.
Beneficiary driven accounts - These accounts have beneficiaries chosen when you set up the account. Beneficiary driven accounts include 401K’s, 403B’s, IRA’s, etc. The benefit of having a beneficiary listed on these accounts is that they get out of probate quickly and transfer quickly and directly.
Power of attorney - Another important document to have in place is a durable power of attorney. This gives a specified person the power to make decisions for someone who is incapacitated.
Healthcare power of attorney - This document allows you to appoint someone to make healthcare decisions for you should you not be able to. If you don’t have one in place it could delay treatment. You can also specify specific situations in which you may not want life-saving actions.

How often do you review your estate plan?
There is more to estate planning than just having these things in place. I am not a professional estate planner. Think about talking to an estate planner to help you plan your estate. And remember that it is important to periodically review your will and beneficiary driven accounts. Do you have an estate plan in place? When was the last time you reviewed it?
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT DOES THAT MEAN?

[3:06] What is estate planning?

PRACTICAL PLANNING SEGMENT

[4:34] An example of why estate planning is important
[9:14] What are the basics of estate planning?

Q&A WITH TANYA NICHOLS

[21:58] Should a woman seek to work with a female financial planner?
[26:49] Should you plan leveled withdrawals in retirement?
[35:09] How to factor secure income
[45:41] Why do we use average rather than the median in market assumptions?

TODAY’S SMART SPRINT SEGMENT

[51:02] Review your estate planning documents

Resources Mentioned In This Episode
Align Financial
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

Probate - When you pass away the process by which the state goes through closing out your legal and financial life is called probate.
A will - A last will and testament is a document that designates where your assets will go, but there is quite a bit of paperwork involved so an executor is named to manage the paperwork and distribute the assets based on your wishes.
Beneficiary driven accounts - These accounts have beneficiaries chosen when you set up the account. Beneficiary driven accounts include 401K’s, 403B’s, IRA’s, etc. The benefit of having a beneficiary listed on these accounts is that they get out of probate quickly and transfer quickly and directly.
Power of attorney - Another important document to have in place is a durable power of attorney. This gives a specified person the power to make decisions for someone who is incapacitated.
Healthcare power of attorney - This document allows you to appoint someone to make healthcare decisions for you should you not be able to. If you don’t have one in place it could delay treatment. You can also specify specific situations in which you may not want life-saving actions.

[3:06] What is estate planning?

PRACTICAL PLANNING SEGMENT

[4:34] An example of why estate planning is important
[9:14] What are the basics of estate planning?

Q&A WITH TANYA NICHOLS

[21:58] Should a woman seek to work with a female financial planner?
[26:49] Should you plan leveled withdrawals in retirement?
[35:09] How to factor secure income
[45:41] Why do we use average rather than the median in market assumptions?

TODAY’S SMART SPRINT SEGMENT

[51:02] Review your estate planning documents

Previous Episode

Oh, Behave! Behavioral Finance and Retirement: Investment Management

Do you think your own behavior affects your retirement investment management? If you said no, you may want to think again. The most significant risk to your finances is not market volatility or inflation, it’s your own behavior. Over the past several episodes we have explored how our own cognitive biases affect our financial choices and this episode continues that journey. On this episode, you will learn what you can do to make better decisions to ultimately protect your money from its own worst enemy: yourself. What is heuristic?

A heuristic is a psychological term for a mental shortcut that allows an individual to make a decision, pass judgment, or solve a problem quickly with minimal mental effort. Our brain constantly uses so much energy that it always looks for shortcuts. Renowned behavioral finance expert, Dr. Dan Crosby, calls this bumper sticker thinking. The 4% rule is a good example of a heuristic used in retirement planning. We need to learn to work around our mental shortcuts and truly think things through. Behavioral risk is the most significant risk to your finances

In finance, there are many kinds of risks. We often worry about volatile markets or inflation. We use diversification to help us lessen the market risk but we often ignore the greatest risk to our finances. The biggest risk to your financial security in retirement is your own behavior. If you can’t control your investment behavior especially during challenging times then your retirement portfolio will suffer. Listen in to learn how to manage your cognitive biases and set yourself up for financial success in retirement. Tips for managing investment behavior

Investing is a crapshoot. That’s why we diversify, in essence, diversification is an act of humility. When you diversify you are admitting that you don’t know what will happen.
Put a premium on optionality. As life unfolds you need to have the ability to make changes to your plans.
Don’t white-knuckle it. If you can’t sleep during volatile times then you are taking too much risk.
Listen to differing points of view. Cultivate a knowledge base with diverse opinions.
Redirect your energy. Once you identify your cognitive biases, set up systems to redirect your natural tendencies.
Consistently receive feedback from others with different points of view. Be careful to cultivate diverse opinions.
Force yourself to consider the opposite case of any decision you make. Learn to see an issue more fully from both sides.
Use personal benchmarking to compare your finances to a set standard. This will allow you to look inward at what matters to you personally

How I manage behavioral risk with clients
When I work with my clients I have to help them manage their own behavioral risks. I do this by considering process, strategy, and tactics. Consider what you want your life to look like. What is important to you?
Before making any decision, slow down and ask yourself some questions. If you slow down and center yourself you can think through any decision. Think about the decision from all sides. What does success look like? What does failure look like? What are some alternatives that you can consider? Listen to this episode of Retirement Answer Man to hear how you can manage your own behavioral risks.
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT DOES THAT MEAN?

[1:20] What is heuristic?

PRACTICAL PLANNING SEGMENT

[3:45] Managing behavior is the most significant risk you have to your finances
[7:04] Be nimble as life unfolds
[12:36] Create personal benchmarks
[14:23] How I manage behavioral risk with clients as well as with myself

COACH’S CORNER WITH B.W.

[21:41] What is the Rock Retirement Club?
[22:35] Do we make rational decisions?

TODAY’S SMART SPRINT SEGMENT

[34:02] Practice your decision-making framework

Resources Mentioned In This Episode
My article on Kitces.com
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

Next Episode

Estate Planning in Retirement: Giving to Family

Retirement is often the time when people begin to think more about estate planning. On this episode in the Estate Planning series, we’ll talk about giving. You want to be able to give to your loved ones but you also don’t want to rob them of their problems. That’s why we’ll discuss how you can give without enabling and you’ll discover how to optimize the impact of your gift. You’ll also learn how to decide whether you have enough to give. When you begin to think intentionally you’ll see that there are so many ways to give. Do you have enough to give?

It would be amazing to be able to give to your loved ones before you pass, but how will you know whether you have enough? The first hurdle in giving is being comfortable giving away your assets. What if you need that money later on? Actually that’s not so hard to figure out. Often times you’ll see that deciding how to give is less a money question than a mindest question. To be comfortable giving away assets you need to understand your level of fundedness. Are you underfunded, constrained, or overfunded? Once you understand this then you can begin to put a plan in place for giving. How can we give intentionally?

We give for many reasons. A gift is an item that you give someone without an expectation of payment in return. Giving is a way to express feelings and emotions and share those feelings with the receiver. You may not want your gift to your heirs to come in the form of a check from an attorney several months after your death. There are more intentional ways that you can give so that your family can feel the love behind that gift. Enhance don’t enable

As parents, we would love to solve all of our children’s problems for them, but then we would be robbing them of that learning opportunity. One of the best gifts we can give our kids is not robbing them of their problems. We need to find ways to help them but also allow them to figure things out for themselves. There are ways that we can give to them that enhance their lives rather than enabling them. There are many ways to give before you pass

Create memories - I think this is a fantastic way to give and to be able to enjoy that gift as a family. You could rent a house at the beach and help subsidize the family trip. Spend money to bring the family together.

Annual gifting - You can give anyone $15,000 per year without reporting it. You could help fund their Roth IRA or help buy them a house. You might be surprised when you find out how much the lifetime gift exemption is.

The gift of education - There are many ways to give for education. You can pay for college tuition directly. You could fund the grandkids 529 plan and allow the money to grow tax-free. You can also use up to $10,000 per year to fund a pre-college education if your grandkids are in private school. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT DOES THAT MEAN?