Retirement planning: 3 ways to leave a well-managed estate

As part of their retirement planning, investors (including members of our Inner Circle service) sometimes ask us about ways to set up their finances so they can be easily managed after their death.

When you’re doing this kind of retirement planning, it’s always good to have clear arrangements in place and keep them up to date as your circumstances inevitably change. Here are three tips you can use to avoid placing undue stress on your loved ones and maximize the investments you leave to your heirs:

1. Have a financial contingency plan: This will allow someone you trust to take charge of your finances and investments if you can’t handle them yourself. However, it’s best to focus on finding someone you trust thoroughly, and giving that person as much latitude as possible.

The alternative — leaving fixed instructions — introduces a random element that can only hurt you. After all, fixed instructions (such as “If I get sick, convert all my holdings into T-bills”) won’t add to your wealth. But they may turn out to be wholly inappropriate, and whoever you put in charge won’t be able to do anything different.

2. Invest based on your heirs’ timelines: If you have substantially more money than you’ll need for the rest of your life, and you plan to leave the excess to your heirs as part of your retirement planning, it makes sense to invest at least part of your legacy on their behalf. That is, invest based on their time horizon, not yours.

For instance, if your heirs are in their 40s, your retirement planning should involve holding at least part of your portfolio in a selection of investments that would suit investors in their 40s. Of course, you’d still want to invest conservatively. But you’d want to take advantage of the many years that 40-somethings have till they reach retirement age.

For a limited time only, sign up to get Pat McKeough's specific answers to your personal investment questions. Pat's proven expertise is available to guide the investment decisions of only a few new Inner Circle members. Click here to learn more about how you can benefit from membership in Pat McKeough's Inner Circle.

If your retirement planning involves holding your money in T-bills for the last few years of your life, it will generate a minimal return after taxes — you may actually lose money after accounting for taxes and inflation.

After your death, it may take months or longer to settle your estate. After that, your 40-something heirs may need time to put your legacy to work, especially if they are inexperienced as investors. They may have passed 50 by the time they get around to investing in an age-appropriate fashion. Missing out on, say, three years of even moderate returns can take a big bite out of the funds they’ll have a few decades later, in retirement.

3. Keep a close eye on your life-insurance forms: As part of your retirement planning, you should periodically check the form that names or changes the beneficiaries of your life-insurance policies. Often, you’ll name a primary beneficiary (generally your spouse), and a secondary beneficiary (often your children) if the primary is incapacitated or dies at the same time as you.

We once came across a case where the insurance agent mixed up the primary and secondary beneficiaries. As a result, instead of going to the bereaved spouse, the form said the eldest child was to receive the proceeds of the policy.

Happily, the eldest child recognized the mistake and immediately agreed to sign the cheque over to the surviving parent, for whom it was obviously intended. But if the child had refused to sign the cheque over, the surviving parent would have had no recourse. The insurance company would have had to follow the instructions on the form.

Of course, most children will do the right thing in a case like that. But you have nothing to gain by putting them to the test. Many families have been torn apart irrevocably for smaller amounts than the payout on the average Canadian life-insurance policy. That’s why you’ll always want to take a moment and be sure the form is correctly filled out before you sign.

If you have investment-related questions, or if you’d like to ask us about stocks or other types of investments you’re considering buying (or selling), you should join our Inner Circle service. Click here to learn more.