Long-Term Retirement Planning
Once retired, you may have questions about the future—particularly about how your spouse and family will cope financially if you become disabled or die and what will happen to the assets in your estate after your death. These valid concerns underscore the importance of sound long-term retirement planning.
Choosing Pension and Insurance Beneficiaries
If you haven't already done so, by the time you start withdrawing retirement income, you should name beneficiaries. Your beneficiaries are the people or institutions who will receive the assets in your employer-sponsored retirement plans, IRAs and various insurance company products when you die. These assets, unlike your personal and real property or your taxable investment accounts, aren't transferred by will or trust.
In many cases, your employer-sponsored plan will require that you name your spouse, if you have one, as beneficiary at the time you begin to participate. The only way to name someone else is if your spouse signs a waiver giving up his or her rights to those assets. But otherwise, there are usually no rules about who your beneficiaries may be. You can name family members, friends or an organization or institution. In fact, you can name more than one beneficiary for a single plan, a different beneficiary for each plan or the same beneficiary for several plans.
You also want to consider the possibility that the beneficiaries you name may no longer be alive when you die. To avoid this problem, you can name contingent beneficiaries in case your first choice dies before you do, can't be found or doesn't want your money. And you should check your documents from time to time to be sure that the beneficiary choices you made in the past still reflect your intentions. Unlike a will, which may become invalid if you marry or divorce, a person named as beneficiary continues to have a right to your assets if you don't change the designation.
Smart Tip: Do You Still Need Life Insurance?
When thinking about retirement, take the time to evaluate whether you still need life insurance, what coverage may be appropriate for your family needs and how much you can afford. The National Association of Insurance Commissioners has some questions to help you decide.
Choosing IRA Beneficiaries
Another Beneficiary Consideration
If your spouse is more than 10 years younger than you,
you may want to name him or her as your IRA beneficiary
before you begin required withdrawals. This will reduce
your required minimum distribution, or RMD, and thus
the income tax that's due.
Anyone you choose—including your spouse, if you have one—can be the beneficiary of your traditional or Roth IRA. But if you roll over assets in your employer-sponsored plan to an IRA, the requirement for naming your spouse as beneficiary may persist unless he or she signs a waiver allowing you to name someone else.
The beneficiary of your traditional IRA will owe income tax on the withdrawals he or she will be required to make from your account, but in most cases the withdrawal period can be extended to cover the beneficiary’s own lifetime. When your beneficiary is much younger than you are, the result can be a lengthy withdrawal period. In contrast, the beneficiary of a Roth IRA is not required to take withdrawals and no income tax is due on any withdrawals he or she does take—though like a traditional IRA, a Roth IRA is part of your estate and is included when the estate is valued.
Power of Attorney
As you look forward into your later retirement, you should probably think about how your personal affairs will be managed if you’re not able to exercise control for one reason or another. One solution is to grant, or give, power of attorney to your spouse, sibling, adult child or close friend—someone you trust to act wisely and in your best interest. This attorney-in-fact, or agent, has the legal right to make the decisions you would make if you were able.
A lawyer can draw up the power of attorney for you, specifying the authority you are granting, and excluding anything you still want to control. An ordinary, or nondurable, power of attorney is revoked if you become physically or mentally disabled, so you may prefer to grant your agent durable power of attorney, which stays in effect even if you become incompetent. Not all states allow durable powers of attorney, so you should check with your legal adviser if you are planning this approach. An alternative may be to establish a springing power of attorney, which takes effect only at the point at which you're unable to act for yourself.
With either type, you have the right to revoke the authorization to act on your behalf at any time. You also have the right to choose a different agent if you wish.
Your plans for the future shouldn't just be about what happens to your property or financial affairs. You may wish to consider the medical decisions you want made if you're ill.
Just telling people what you would want in these cases usually isn't enough. Many state laws require written proof of your wishes. You can write a living will to make your wishes known. This is a document that describes the kind of medical treatment you want—or don't want—if you're terminally ill or in a permanent vegetative state, which means you're unconscious, unable to communicate and unlikely to recover.
The laws of each state are a little different, so you want to be sure that your living will is drafted to meet the requirements in your state. If you sign a living will, you should also be sure your family and your doctor know where they can find a copy. You can get further information from the National Hospice and Palliative Care Organization at (800) 658-8898.