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January 26, 2021


Have You Included Your Retirement Plan in Your Christmas Budget?

One of the most important rules of financial management is to pay yourself first. Likewise, while you are shopping for Christmas presents, you should buy a present for yourself first in the form of an investment in your retirement plan. With the old year coming to a close, the Christmas season is the perfect opportunity to start planning for next year and beyond.

Naturally, retirement planning and estate planning should be viewed as a continuum, with one leading to another as smoothly as possible. You need to consider how to maintain your current lifestyle once you retire, and you need to consider what you would like to pass on to your estate beneficiaries after you die.

Then there is always the “in-between” – your cost of living could increase dramatically during your last few years if you become ill or disabled and require long-term care in a nursing home. This risk needs to be taken into account as early as possible in your retirement planning.

Your “Retirement Present”: Retirement Planning by Age

The perfect “retirement present” that you should buy yourself depends a great deal on how old you are.

  • If you are between 18 and 25, it’s still not too early to begin thinking about retirement. The best gift you can give yourself is knowledge in the form of financial education with a special focus on retirement planning. Research retirement planning online and, to the extent that you are willing to spend money, buy books that will help you improve your overall financial literacy (with plenty of emphasis on retirement planning, of course).

If you are already out of school and working, contact your company’s HR department and become intimately familiar with its retirement plan. Since most people change jobs frequently before retirement, learn as much as you can about the portability of retirement benefits within your industry.

  • If you are between 25 and 55, you are right in the middle of your prime retirement saving years. Make sure you are participating in any employer-sponsored retirement plan and set up an IRA if you have not done so already.

Since December 31 is an important deadline for many retirement planning vehicles, be sure to make the optimal contribution to your retirement plan before the end of the year and dedicate a portion of any annual bonus you may receive to your retirement savings.

  • If you are over 55, you are approaching the end of the road for retirement savings. You still have time, but the clock is ticking. Now would be a good time to calculate how much income your current retirement plan will provide by your projected retirement date. If it won’t be enough, you might also speak with your employer about delaying your retirement to 70 or even beyond.

If you have been ignoring retirement planning, now might be the time to overhaul your plan and increase your payments. This might also be your last chance to purchase affordable long-term care insurance. Set yourself a December 31 deadline for action so that you don’t forget or procrastinate.

  • If you are already retired, resist the temptation to dip into your principal for Christmas shopping, because you will be killing the goose that lays the golden egg that way. Now might be a good time to review your estate plan – or to create one if you haven’t already.

Retirement Planning and Estate Planning: The Intersection

Retirement planning and estate planning are intimately related, and how you set up one tends to affect the health of the other one. The following is a brief discussion of some of the issues that inevitably arise.

  • Beneficiary designations: Life insurance, retirement plans, and pay-on-death accounts allow you to name your beneficiaries. You should review and update your beneficiary designations for all of these accounts on an annual basis. The last thing you or your beneficiaries need is unintended beneficiaries. What happens if your beneficiary predeceases you, for example?
  • Powers of Attorney: When you grant someone power of attorney, at least with respect to your financial affairs, you are granting them authority to manage your finances should you become mentally incompetent or unable to communicate your wishes. It is critically important to ensure that the people you empower to act on your behalf know you well and will honor your intentions and preferences.

It is best to treat your retirement plan and your estate plan as a single entity that addresses considerations that arise both before and after you die. Beware: Discrepancies and inconsistencies between your retirement plan and your estate plan might be buried beneath the surface in a way that is not very obvious. Miscalculating future events could also result in unintended consequences.

Imagine, for example, that you designate your grandchildren as beneficiaries on your retirement account, assuming that they would be adults by the time you died. If you die while they are still minors, they will have a problem because minors cannot serve as direct beneficiaries. Instead, a trustee will have to manage the funds until your grandchildren turn 18. You will have no say in the identity of the trustee if you didn’t name one before you passed away.

I Stand Ready to Help

A retirement plan is an essential part of a comprehensive estate plan, broadly conceived. If you find yourself mystified by all of the options available to you, I can help you devise both a retirement plan and an estate plan by taking advantage of the numerous legal loopholes that are present in these complex areas of law.

More than any other legal or financial planning device, your estate plan, and your retirement plan should be tailor-made to suit your individual needs, tastes, preferences, and priorities. Unless your assets are minimal, do not try to implement DIY, cookie-cutter estate and retirement plans. A haphazard approach to the critical issues that these two plans address is flirting with disaster – not only for you but your family after you are gone.

Contact a highly-skilled planning attorney at (516) 605-0625 or by filling out my online contact form. Once you contact Andrew M. Lamkin, P.C., we can schedule a consultation where I can take a look at your situation and answer any questions you might have. I can even meet you at your home if you prefer.