Originally published in the News Star on Sunday, May 15, 2016.
Question: We’re looking at retirement within a year or two. I’ve been fortunate enough to work for a company that provides me with a pension. Between the pension and our Social Security, we’re actually going to get a raise in retirement. We’ll have more than enough to live on. Plus we have a lot of money put back in our 401K plans. A lot. I now realize we may never touch that money. What should we do with it now?
Answer: First of all, congratulations. It sounds like you’ve done a great job of preparing for your retirement.
Many soon-to-be retirees head for the last day of work like a marathoner sprinting those last few yards of a 26.2 mile race. Just remember that retirement is not the finish line. It is simply a transition point in the race. To switch athletic metaphors on you, it is not the end of the game, just half-time. So…
Be certain. You’ve never been retired before. You’ve been spending most of your time and energy on work. I believe you when you say you’ve got enough money to live on. But that’s to live the lifestyle you had when you were working.
But what about when you retire? With all that extra time and flexibility on your hands, will you want to travel more? Go see the grandkids? Develop a new hobby?
Before you make any other decisions about what to do with your “extra” money, be certain you won’t want to spend some of it on new found interests once you retire.
Be careful. You didn’t get to this place of financial security on the eve of your retirement by being financially sloppy. Obviously you have saved, watched expenses, lived within your means and worked hard to get here.
There’s no need to be paranoid, but don’t drop your guard either. If you were sued, do you have enough liability insurance coverage? If you got sick, what about the things Medicare won’t pay for? If you need long-term care, will the cost drain your accounts? If you died before your spouse, would she be protected from those looking to prey on her grief?
Make sure your wealth is protected against life’s calamities by reviewing and updating all your legal, financial and insurance plans with appropriate experts.
Be caring. Assuming you don’t spend all of your money and you’ve protected your assets from outside eroding factors, you now get to ask yourself a fun question. “Who or what do I care about? And in what proportions?”
If you have children, most likely they are the answer to that question. Unless, of course, you have GRAND children – the only perfect human beings ever to be born!
But that doesn’t describe everyone. What if you have no children or other family to whom you are close? If that’s the case, ask yourself what causes or charities you care deeply about and would want to make an impact on.
Be creative. Here’s where planning comes in. Be on the lookout for creative ways to accomplish the above mentioned purposes with greater simplicity, security or efficiency.
Here’s just one simple example: you mentioned a retirement plan with a large balance you may never spend. Even if that’s the case, I know two things: when you turn 701/2, the IRS requires you to take very specific distributions from the plan or you’ll begin paying taxes on the balance. And second, after you and your spouse are gone, your heirs are going to have to pay taxes on whatever is left over (not necessarily all at once, but eventually those taxes are due).
If you aren’t going to spend the money now in your retirement plan and you want to eventually leave it to the kids, why not take those distributions the government makes you take and buy enough life insurance to pay the taxes that will be due when you’re gone? That way the kids inherit all the money, not just the after tax portion.
This isn’t something everyone, or even most people, should do. I mention it as an example of creative, out-of-the-box thinking. The idea is to take the specific facts of your situation and see what’s possible. The creative possibilities are endless.
So enjoy your retirement to the full. And make it even more enjoyable with the knowledge that whatever you leave behind goes to whom you wish when you wish.
And nowhere else.
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Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Email him at firstname.lastname@example.org. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc. No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.