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Blog: How To Balance Your Estate And Retirement Planning

Retiring can be fun, but it can be even more fun if you have a good process that ensures you have enough money to stay retired.

That’s why we have our Five-Step Retirement Revelation process. This process helps clients figure out:

  1. How much will you need to spend in retirement? 

  2. How much will you make in retirement? 

  3. How much do you need to set aside in short-term money

  4. How much do you want to have set aside for your long-term growth money?

  5. What are you going to leave behind?

The final step of this process focuses on what you’re going to leave behind. I like to say that you're either going to leave behind some money or some bills. What we want to do is to make sure you have more money than bills once the time comes. To do this, we need to plan for what will happen when you leave money behind, and what will happen if you leave bills behind. 


Estate vs. Will

The older you get, the more likely you are to start thinking about what you’re going to leave behind. And the big word for that is “estate.” When you leave behind money, property, or anything else, that's your estate. 

But how does an estate differ from a will? 

A will is a tool for the estate plan. A lot of times, people think estate planning only has to do with making a will. But in reality, estate planning is more about what happens to you and your money both before and after you die. It's about making sure that if you can't make decisions, or if you're no longer around, that your family has a clear understanding of how to proceed with your money..

A common misconception is that estate planning is only for the wealthy, or for people who have children, or for people who are older. But in reality, estate planning is also for the young or for anyone who happens to have money or anyone they care about — and I'm hoping that's everybody. If you're 18 and not married, who's going to be there to help with your estate if something were to happen to you? If you're 17, perhaps the government will look to your parents to help make some decisions, but once you hit that adult age, you either have to go through the long, expensive government process or you need to have estate planning documents in place. 


What is a POA?

Part of the estate planning process includes having a POA: a power of attorney. A power of attorney is someone who acts as a trusted party to make decisions on your behalf when you can’t make them yourself.

A common misconception about POAs is that they will help your family with your estate after you pass away. However, the POA ends at death. When you have a POA, you’re simply saying, “I can't make this decision right now, but I've empowered you to do it.” Once you die, the POA is not valid anymore. At this point, your will or trust takes over and the person in that document called your trustee or executor would have the responsibility of  making decisions for your estate.


Other Estate Planning Myths

People often have ideas of how estate planning works that just don’t quite line up with reality. For example, we’ve heard many clients say something like, “I'm leaving everything to my son. He'll split it up.”

It’s important to realize that if you leave your money to someone to split up, they’re not legally bound to do it. And even if they do split it up, they might run into other issues with the money, like limitations around the gifting laws or even taxes. We frequently see people who have savings bonds, and if they just leave that all to one person, that person has to cash it out, that interest shows up on their tax return, leaving them to figure out how they account for the taxes. So leaving money to your POA or to your oldest child to divvy up might seem simple, but you have to put some more thought into it.

Another thing a lot of people say is, “It's in the will. We have it all written out in the will.” But the will doesn't matter too much if the money doesn't get there. Lots of people have brokerage accounts, IRAs, 401(k)s, and life insurances, which all have beneficiaries. And if the money from these places gets split up by the beneficiaries, that has nothing to do with the will. The will is kind of like your leftovers; it’s whatever didn't get sent out by those other methods first. That’s why having help from a professional with knowledge of how estate planning works can help you build a plan that will get your estate to where you want it to go.


Estate and Inheritance Taxes

Another thing many people worry about is leaving money to their kids or to other parties, because of estate taxes. Many don’t realize that the gifting laws actually changed in 2017. Now you don't pay estate taxes until your estate is over $11.5 million. I think the government made this rule on purpose so that most people won’t have to worry about paying these taxes when planning their estates.

Or if you are inheriting money people are worried about paying an inheritance tax. In fact, here in Wisconsin, the inheritance tax hasn't been around since 1992! (Source: https://www.wisbar.org/NewsPublications/WisconsinLawyer/Pages/Article.aspx?Volume=80&Issue=12&ArticleID=1396)

Many people also believe that annual gifting is limited to $10,000 per person. This is an old rule. Now the limit is up to $15,000. In fact, this isn’t even a true limit! The real rule is that once you hit $15,000, if you go over by a dollar, all you have to do is fill out a tax form. The whole point of the tax form is that the government is checking to see if you gave away more than that $11.5 million, because if you did, they’ll start taxing you. 

But the $15,000 gifting amount isn't a limit. You’re not going to jail all you’ll have to do is fill out the form. Now feel free to let your kids still believe the limit is $10k! :-)



Leaving Behind Bills

What happens when you leave behind some bills?

When we use the word “bills,” we're not really talking about getting a credit card bill the month after you die. What we’re talking about is planning for the responsibilities that come with either living too long or dying too soon. 

What happens if you die too soon? Well, in retirement, even if the kids aren't at home, you still have a responsibility to your spouse. And just because your money is coming from your social security and pension, instead of your salary doesn’t mean the financial loss hurts any less. 

If you die too soon, there are parts of your money that you'll be making that will change when the first person dies. We call that the survivor gap. There will almost definitely be less money coming in from other sources when there's one person compared to two.

For example, if both of you are on Social Security, it doesn't matter who dies first — the lower payment goes away. And even if you’re the person with the lower amount and you think losing it won’t be so bad because you’ll get brought up to your spouse’s higher amount, keep in mind that you’re still losing the lower amount. 

A lot of times the default pension has a 50% survivorship. So if you don't sign up for a different situation beforehand, the amount you’re receiving can drop in half when one spouse passes away — which can be a lot of income to lose.

Hopefully, during your retirement planning, you would evaluate your  different survivorship options  and make some choices beforehand to get that survivor gap as small as possible. That’s why, when planning, we figure out what that survivor gap is and what that surviving spouse is going to be missing. Then, we make sure there's a plan — because you are still responsible for helping out your spouse even if you're not around. 

Another big risk comes with living too long.

The longer you live, the more the stock market, inflation, and interest rates will affect you. Plus, a lot of the time, the longer you live, the worse your health gets. And the worse your health gets, the higher healthcare costs are going to be — and those are costs often aren't covered by your regular health insurance or Medicare. 

That’s why you need a plan. We would work with you to figure out what living too long might look like in terms of costs and in terms of who might be caring for you. And we're not saying that a plan is to buy insurance from both of those areas, but it could be part of it. Maybe the plan is that you've set aside extra money for these risks. But figure out what is at stake and create a plan to help mitigate those risks and to be prepared for those situations.


Planning for what you leave behind, whether it’s money or bills, can be a challenging and emotional process for the whole family. That’s why this time is a great one to bring a professional on board who is not emotionally tied to the situation, but is someone you trust and who has a deep knowledge of these areas and can help you make the best choices for you and your family.

Learn more about Keil Financial Partner’s planning process over on our 5-Step Retirement Revelation page, and if you have any questions, please don’t hesitate to reach out to us. We’d love to help!


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