What happens when retirement ends?

August 17, 2023 | David Edmisten, CFP®

What happens when retirement ends?

Although most people do not like to think or talk about death, one unavoidable truth is that one's retirement will end someday. And while a bulk of retirement planning is dedicated to spending, protecting and growing one's nest egg, sufficient attention also needs to be given to what happens to that nest egg when one dies. 

Estate planning is the process of developing a plan to efficiently distribute one's assets after death, to meet the intentions of the deceased for their remaining estate.

Careful consideration should be given in an estate plan to designate the transition of assets to one's desired recipients. Ensuring assets are passed to provide for the needs of a surviving spouse, children, grandchildren, caregivers, guardians and charitable legacies are of utmost importance. Equally important is ensuring that those assets pass in the most efficient manner and with as little tax impact as possible. 

Without proper estate planning, a retiree could see anywhere from 50-70% of their estate lost to taxes and administrative expenses. Depending on the nature of the asset and the type of account, there can be additional taxes that burden the inheritor as well. 

For example, if a non-spouse inherits a Traditional IRA, the full balance of the account must be withdrawn (as fully taxable income) within a 10-year period. The probate process and other inefficient asset transfer processes can introduce additional delays, expenses, public exposure of an estate and potentially leave assets open to creditor's claims.

The last thing most individuals want to create at their death is a time consuming, costly and complicated process for their heirs. However, with proper estate planning, a retiree can create a wealth transfer plan that is simple, clear, timely and helps to avoid unnecessary taxes and fees so that their heirs may be taken care of practically and peacefully.

The 7 key questions to answer before you retire are critical to successfully retiring early. It is prudent for anyone considering retiring early to give each of these questions time and consideration.

Early retirees should ensure they have a thoughtful strategy for confirming they have saved enough to retire; created a perpetual retirement paycheck; have a plan for healthcare; developed ways to save on taxes every year in retirement; an investment plan that allows them to thrive in retirement without worrying about the stock market; have a risk management plan to address the unexpected; and have a proper estate plan to make sure their next egg will provide for their survivors in tax efficient way. 

While some people may have the expertise to craft a plan to address all these areas on their own, most people considering early retirement will want to engage a CERTIFIED FINANCIAL PLANNER™ with expertise in planning for all areas of early retirement to help them build a customized plan for the retirement of their dreams.

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About the Author:

David Edmisten, CFP®, is the Founder of Next Phase Financial Planning, LLC, a financial advisor in Prescott, AZ. Next Phase Financial Planning provides retirement, investment and tax planning that helps corporate employees retire with both financial and lifestyle security.