While we don’t have to retire, many of us look forward to it, and all of us are eventually going to die. I recommend planning for these known events with as much or more time and money as you invest in prepping for natural disasters or man-made TEOTWAWKI events.
I managed my father’s retirement savings and worked with his financial advisor for 12 years before he passed. As his Executor and Trustee, I also worked with his estate-planning attorney both before and after his death. This gave me some insights I applied to my retirement and estate planning. In this post, I will relay a few of the lessons I learned in the hope that they may one day help you retire comfortably or die without creating a family fight over your worldly goods.
Just keep in mind that I am not a professional financial advisor, retirement planner, tax attorney or accountant and you may need one or more of them to implement these suggestions. This post is simply what I learned and have done to prepare for retirement.
Automate Your Savings
Enroll in any workplace program that automatically puts money aside for your eventual retirement. I’m talking 401k, 403b, pension, employee savings plans, employee stock purchases, and anything else where they take money out of your paycheck and stash it in some kind of investment account without the need to do anything other than sign up.
If you do not have an employer plan or are self-employed, start a retirement plan of your own, such as a Solo K or a SEP IRA, and make regular contributions. (This may require some professional assistance.)
How much should you put in? As much as possible. At the very least, put in enough to get the maximum employer match.
This suggestion may seem obvious, but I have seen too many people who refuse to put money in their 401k because they need it to pay their bills. Is 3 percent of your salary going to make much difference today? Probably not, but it will in 40 years.
I’m listing this first because it is the most important thing to do. Whether you live carefree or are pinching pennies in your seventies will be largely determined by how much money you put into your retirement accounts.
Don’t Borrow Against your Accounts
I am generally opposed to debt of all kinds, a lesson I learned by being in debt until I was about 40. If you have to borrow, get an unsecured consumer loan or credit card. Why? Because they can’t confiscate your stuff if you don’t pay. Plus, if you take the dire step of declaring bankruptcy, you can wipe that kind of debt away more easily than secured debt.
The reasons to avoid borrowing against your retirement accounts are:
- It can be too easy not to pay it back
- In which case, you will pay taxes and penalties
- You also lose interest and capital appreciation while those funds are not in your account
I would borrow from a 401k or other account to avoid becoming homeless or to save the life of my child or spouse, but that’s about it.
Diversify
Don’t put all your eggs in one basket. In fact, don’t rely only on eggs.
Many employer plans offer you a selection of mutual funds, so don’t plop all your money in one. Invest in large cap, medium cap and some small cap funds, some growth, others income (depending on your age and risk tolerance). Put a lessor amount in international funds. Consider commodities. When you are young, invest more in equities than in bonds. As you get closer to retirement, consider adjusting the ratio.
This is where a financial advisor can help. Many employer plans with companies such as Fidelity, Vanguard, or TIAA can provide you with a free financial advisor who will give you advice and send you reports on different investments. Don’t be afraid to make use of these resources. Don’t feel required to do everything they tell you, but listen, learn, and understand why they are making specific recommendations.
Diversification can also take place outside your retirement accounts. Real estate, including the family home, is an obvious one, but so is a retreat, a second home, or property you can rent out to generate income. Precious metals are perhaps a less obvious choice.
Ideally, some of these will be hedges, so if the stock market has a bad year, bonds may have held their own or precious metals will have gone up in value. The idea behind diversification is that no one can predict what will go up or down in any given year, so by spreading your money around, your retirement account should not drop as much as the stock market.
Consolidate
Let’s say you have worked five or six jobs and have money in five or six different 401k plans. Bad idea.
A better idea is to consolidate all those funds into an IRA. Why an IRA instead of a 401k? Because you will have more investment options and will not be limited by the rules of your current employer’s plan.
This may be the time when you need the services of a certified financial planner or CFP. They can help you consolidate these funds into one account without making a mistake that results in being taxed or penalized for moving those funds. (Never have the old 401k company send you a check. To avoid potential tax liability, you want the funds to go from your 401k directly into an IRA.)
Consider Life Insurance
If you have children or a spouse, consider life insurance. Even a non-working spouse should have it coverage if the surviving spouse would struggle to pay to replace their labor. For example, if your stay-at-home spouse is caring for kids, they need enough life insurance to cover what it would cost you to pay a professional to care for your kids, drive them around, make meals, etc.
The kind of life insurance offered to many employees through their company is better than nothing, but it usually isn’t portable. If you quit or are laid off, your life insurance coverage is likely gone, too. If you get $100,000 “free” coverage and pay for another $500,000, you should shop around. You might find a $500,000 term policy for far less, especially if you are under age 50.
You can invest in life insurance that builds cash value over time. Policies like Universal Life can be useful, but only if you can afford to put far more than the basic premium into them. If you can afford to put $1,000 or more a month into your life insurance program, it can become a kind of super-flexible retirement savings account.
I recommend getting some professional advice before you invest in a cash-balance insurance policy. Advice from the salesperson trying to convince you to buy it doesn’t count.
Have an Estate Plan
I think I created my first estate plan when I was 35. Counting back, I have updated it at least five times since then for things like marriages and divorces, changing the state in which I lived, and other life changes. Such a plan is even more critical if you have a blended family.
Both my wife and I are now in our family’s oldest surviving generation. That means we have seen our parents, aunts, uncles and other older relatives die. We’ve seen first-hand how having a clearly spelled out plan for what happens to your assets is not only a good idea but helps the survivors avoid family fights that can cause bitterness and anger that might last for years.
If you have anything important you want to give to an individual, give it to them before you die or add a codicil to your will.
Don’t feel you have to treat everyone the same. You may think it is “fair” to leave equal amounts of money to each child, but it’s up to you. Use whatever criteria you like. If one child is going to blow your hard-earned money like Hunter Biden, then don’t feel bad if you leave the bulk of your estate to a more responsible child, or to the child who needs it more. And while people often leave money to their kids, that’s not written in stone.
If you have an estate plan, when they are old enough and if they are responsible enough, tell your children who your attorney is and that he or she should be contacted upon your death. It also never hurts to give your kids a broad outline of your estate plan so no one is shocked or upset when the will is read.
Use Beneficiaries and TODs
To simplify matters when you die—and sooner or later we all will—all your retirement and other investment accounts should have beneficiaries so that money is not tied up in court by the probate process. Even if you are 22 and starting your first job, don’t leave those sections of the enrollment form blank. At a minimum, put a parent’s name in there.
Once you accumulate more than $10,000 in a bank account, you should set it up with a TOD, meaning transfer on death. That way, the account goes directly to the named individual when you give the bank the account holder’s death certificate.
Always have a secondary beneficiary, because what happens if your beneficiary predeceases you? If your primary beneficiary is your spouse, what happens if you are both killed by a drunk driver? Have a secondary beneficiary or beneficiaries, just in case.
When my father died, the money remaining in his IRAs transferred to his designated beneficiaries. No court was involved, and the financial advisor took care of everything. Easy peasy, just the way you want it to be.
If you have a safe deposit box, and I understand they are going out of style, it might be worth making it a joint box so the other person can access it once you pass. Just remember, anything in it will become theirs once you die. Another reason to pass along anything important to you or the recipient while you still can.
Every three to five years, review your documents. Do you need to update your TODs, beneficiaries and change your will? It pays to double-check.
Post Retirement
If you followed my first recommendation, you should have some retirement savings and not need to rely solely on Social Security.
If you diversified and have done well, you may reach retirement age with more money than you ever had while working. If you didn’t, you may need to eat your long-term survival food and sell your guns. (This is no joke; we know an elderly gentleman who occasionally sells a gun to raise some funds. At his age, it is unlikely he’s going to be climbing any tree stands, so I can’t blame him.)
When you retire, you may wonder if you have enough savings and income to last until you are 90 or 100. Your financial advisor can help you make projections. Five or ten years in, you will know for sure because your balance will either have gone up or down.
Here’s something they don’t tell you: The government doesn’t want you to die with a big retirement account. They have laws that force you to make required minimum distributions, or RMDs. The older you get, the more you have to withdraw. You may have to withdraw it, but you don’t have to spend it. Either way, you’ll pay taxes on it. It may not sound fair, but it isn’t unusual for people to pay more taxes at age 90 than then at 60.
If you feel pretty flush when you retire, I encourage you to do all those things you wanted to do, like travel. You are going to have more fun going to Europe, Asia, or taking that cruise when you are 67 or even 77 than when you are 87. Sadly, by the time you are 97, you may not want to go anywhere except into the other room.
Be Generous
If you are blessed to retire with more savings that you can ever spend, then be generous. Give money to family member who deserves it and to causes you believe in. The annual gift tax exclusion in 2025 is $19,000 for one person or $38,000 for a married couple. That means you can give a child or grandchild (or anyone else) $19,000 and neither of you will have to pay taxes or report the funds to the IRS.
Consult your tax advisor before you make any large charitable gifts. For example, we know someone who had to get a collection appraised before he donated it to a museum. Had he not gotten it appraised, he would not have been able to get a tax credit for the donation. This is another example of something better done while you are alive rather than left to your heirs, if only because you know the value of the collection and its details better than anyone else will.
The Future
The future is unknown. We may all die in a global nuclear war, or science may help us live until we are 120. We may find AI prolongs our lives and makes them better, or it becomes Skynet and tries to kill us all. No one knows, so it is best to be physically, mentally, and spiritually prepared for all eventualities.
More likely, we will continue to live our lives and enjoy life’s small pleasures while suffering occasional setbacks. Make the most of the former, get over the latter, and may you live long and prosper.
