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Differences to Consider Between Retirement and Estate Planning


While retirement can feel like crossing the finish line financially, it opens up a new realm of responsibilities and concerns. Hard work can help you save for your golden years. However, accounting for twists and turns from healthcare and inflation to unintended tax consequences, requires thorough planning. Similarly, passing on wealth the specific way you wish isn’t automatic. For these reasons, a detailed retirement plan and estate plan are necessary. It’s best to create both together when possible so that they can complement each other. Here’s what you need to know.

A financial advisor can help you create and sync up financial and estate plans for your specific needs.

What Is Retirement Planning?

Retirement planning is about setting financial goals and creating a comfortable and secure retirement strategy. It involves thinking ahead about your wants and needs during your golden years and how you’ll afford your preferred lifestyle when you’re done working. In addition, it means anticipating multiple scenarios for the later stages of life, such as entering a retirement home or paying for long-term medical treatments.

Components of a Retirement Plan

Here are nine common components of a retirement plan.

  • Set goals. Determine your retirement goals, such as the age at which you want to retire, the lifestyle you envision, and any specific activities or travel plans you have in mind.
  • Estimate expenses. Calculate your expected living expenses during retirement. For instance, your basic living costs, healthcare expenses, travel and housing are all crucial considerations during your retirement years. In addition, it’s best to account for inflation in your projections. This can vary, but generally increases your expenses by 2-3% each year on average.
  • Minimize taxes. Another aspect of an affordable retirement is reducing how much you owe Uncle Sam each year. For example, distributions from a Roth IRA aren’t taxable because you pay income taxes while you’re working. However, suppose that your income makes you ineligible for a Roth account or you’ve already been contributing to a traditional IRA for years. In either of these cases, you can convert to a Roth before retiring to gain this tax advantage.
  • Identify income sources. Retirement income sources can include pensions, Social Security benefits, IRAs, 401(k)s and any personal savings or investments. Understanding these income streams helps assess how well they align with your projected expenses.
  • Create a withdrawal strategy. How you receive income and which sources of income you prioritize matters for taxes and financial longevity. For example, required minimum distribution (RMD) regulations obligate you to start withdrawing money from a traditional 401(k) at age 73. Living off your Social Security benefits until that age gives your account the maximum time to grow, increasing the chances that you have enough to live on for the remainder of your retirement.
  • Plan Social Security. Your choice of when to start receiving Social Security from the federal government influences the size of your check. For example, taking it at 62 (the earliest allowed age) means introducing a stable income stream earlier in retirement. However, waiting until full retirement age (age 67 for those born in 1960 or later) increases your benefit by about 30%. Waiting until age 70 increases it by an additional 24%.
  • Plan healthcare. Plan for healthcare costs during retirement. Remember, turning 65 allows you to access Medicare, reducing health insurance expenses in most cases. However, you might also purchase additional health insurance coverage if you anticipate specific medical needs that Medicare doesn’t cover.
  • Manage debt. Evaluate and manage any outstanding debts before retirement. Reducing or eliminating high-interest debts can free up more funds for retirement savings and also reduce monthly costs during retirement. For example, paying off your mortgage while you’re working means freeing up a large portion of your budget while retired.
  • Make continuous adjustments. Regularly review and adjust your retirement plan as circumstances change. Factors such as changes in income, family situation, or market conditions may necessitate modifications to your plan.

What Is Estate Planning?

A senior couple reviews their estate plan.

Estate planning is the process of arranging for the management and distribution of a person’s assets after death. The primary goals of estate planning are to ensure that your wishes are carried out, minimize potential taxes and fees, and provide for the well-being of loved ones.

Components of Estate Planning

Estate planning involves a variety of legal and financial tools. Here’s a breakdown of six common elements:

  • Will. This is a legal document specifying how to distribute your assets after you pass away and the executor to direct your estate. Wills can also appoint a guardian for minor children, a unique function that trusts don’t fulfill.
  • Trusts. These allow you to maintain control of assets while you’re alive and transfer them to beneficiaries when you pass away without the intrusion of a probate court. After you pass away, the trustee you appoint takes over your estate on your behalf. Trusts are a helpful estate planning tool for avoiding probate, financially providing for minor children, and managing assets for individuals who cannot do so themselves.
  • Power of attorney. This is a legal document granting someone the authority to make financial or healthcare decisions if you become incapacitated:
  • Advance directives. These outline your preferences for medical treatment and appoint someone to make healthcare decisions if you’re unable to do so. For instance, you can use one to state your wishes for organ donations and whether you want to be resuscitated in specific situations.
  • Beneficiary designations. Ensure that beneficiary designations on assets like life insurance policies, retirement accounts, and bank accounts align with your wishes. These designations are independent of your will, meaning they’re essential to manually set according to your intentions.
  • Ongoing adjustments. You can update wills and living revocable trusts as life changes. Circumstances such as a divorce or the birth of a grandchild can change how you want to allocate your assets, and you can do so whenever you wish. 

Differences to Consider Between Retirement and Estate Planning

Retirement planning and estate planning are distinct financial strategies designed to address different aspects of your financial wellness. Specifically, retirement planning is the process of setting financial goals and creating a strategy to ensure a comfortable and secure retirement. It focuses on accumulating and managing financial resources during an individual’s working years to provide income and support during retirement.

A solid retirement plan will give you a roadmap for saving during your career and protect you from running out of money after you finish working. Understanding your resources, including a 401(k), IRA, and Social Security, can help you accurately project what you can afford after you retire. As a result, knowing you have a well-thought-out plan for financial stability can provide peace of mind.

On the other hand, estate planning is about dictating how your assets will be distributed after your death. It involves multiple legal and financial strategies to create a holistic plan. For example, a will and trust can work together to ensure your beneficiaries receive your wealth and your minor children have guardianship from the individuals you prefer if you pass away.

Because estate planning usually involves a trust, doing so lets your estate avoid probate court. Probate can take months to complete and inflict additional legal costs, eroding the wealth going to your beneficiaries. In addition, your estate plan can lay out who makes decisions on your behalf if you become incapacitated, leaving crucial decisions in the hands of those you trust most.

How Retirement Planning and Estate Planning Work Together

Retirement planning and estate planning are intertwined components of a comprehensive financial strategy, collectively working to secure an individual’s financial well-being throughout their lifetime and beyond.

The two strategies complement each other because retirement planning uses tax-advantaged accounts and beneficiary designations, aligning with estate planning goals to ensure tax efficiency and seamless asset transfer. Health considerations are integrated into both, with retirement planning addressing healthcare costs during one’s retirement years, while estate planning includes directives and powers of attorney for potential incapacity.

Likewise, the continual review and adjustment inherent in both planning processes allow individuals to adapt their strategies to evolving financial circumstances and goals. By integrating these two planning approaches, individuals can create a unified, holistic plan that secures a comfortable retirement, ensures the orderly transfer of assets, minimizes taxes and provides for the well-being of heirs and beneficiaries. Professional guidance is recommended to tailor these plans to individual needs and navigate complex legal and financial considerations.

Bottom Line

A senior makes adjustments to her retirement and estate plans.

The integration of retirement planning and estate planning forms a robust financial strategy addressing your financial concerns during your lifetime and the legacy for your heirs. By aligning the goals of securing a comfortable retirement with the preservation and distribution of assets, you can navigate financial challenges, minimize taxes and provide for your loved ones after you’re gone. The symbiotic relationship between these planning components ensures a seamless transition from wealth accumulation to asset transfer, offering financial security during retirement and a well-executed plan for the future.

Tips for Retirement and Estate Planning

  • Retirement and estate planning are the cornerstones ensuring your financial wellbeing throughout your golden years. Together, they help your financial accounts last beyond your lifetime and create a legacy for your loved ones. A financial advisor can help ensure these outcomes while providing for a comfortable retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you’re lost on where to start for estate planning, here’s a handy checklist providing a structure to get going.

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