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Why You Need to Know Your Legacy Plans Before you Retire

Mark Zaifman   |    Wed, Jan 31, 2018 @ 11:41 AM


The dictionary would define 'legacy' as:

a gift or a bequest that is handed down, endowed or conveyed from one person to another. It is something descendible one comes into possession of that is transmitted, inherited or received from a predecessor.

A financial planner would define legacy simply as:

"the amount of inheritance you plan to leave to your heirs and or charities/organizations upon your passing.

When developing a comprehensive retirement plan, this is one of the primary questions I must ask clients. Of course, if you’re like most people, thinking about your passing is already anxiety provoking enough. Having to imagine how much to leave at the end of your life, even more stressful.

The way to reduce if not eliminate the stress around this decision is to gather solid and objective information about your future net worth. And here’s how that works.

Most, if not all fee-only financial planners that develop comprehensive retirement plans for their clients, will have you fill out a fairly in-depth questionnaire. This is where you catalog and detail all your current income and expenses, assets and liabilities, your goals and dreams, and for the soon to be retired, your overall plans for the next, and many say, best phase of your life.

At our firm, your financial data is analyzed, checked for accuracy, and then transferred to industrial strength financial planning software. We happen to use Naviplan financial planning software, the gold standard in the financial planning industry. We chose this particular software for its powerful what-if scenario modeling.

And the ability to model different what-if  scenarios will be extremely beneficial when determining your legacy. Why is that? Click on this link and you’ll see a sample net worth outlook report.

This report illustrates a client’s net worth projection with these assumptions:

-moderate conservative allocation of 40% stock market and 60% bond market

-life expectancy of age 95 for both

-4.5% average annual investment return

-3% average annual appreciation of real estate and lifestyle assets

-annual fixed spending of $72,000 and annual discretionary spending of $32,000 increasing 3% annually for inflation

-annual medical and out of pocket expenses of $12,000 increasing 5% annually

-adventure/travel trips-$8,000 annually 2018-2027

-fun money/slush fund of $10,000 each annually 2018-2027

-annual discretionary spending is lowered by 50% in year 2039

The reason I share these assumptions are to highlight what happened recently with clients of mine.  This couple, knowing their son was going to be fine down the road financially, with or without receiving an inheritance, needed to know what their options looked like based on various spending models. In other words, how much would their son receive for an inheritance if they spend X, Y or Z per year? They also provided me a bottom-line number of the minimum they wanted to leave him - that number was $1 million in today’s dollars.

Now look again at the net worth outlook report and you’ll see in terminal year 2048, the projected value of their estate is a little over $1.5 million. Every year, as we monitor progress and compare actual numbers to projected numbers, we have the opportunity to change the plans assumptions and or course correct if needed.

Get Smart

Being strategic with your legacy plan creates peace of mind for you and your heirs. It also helps you plan your life. Instead of guessing or wondering what will be left for your heirs at the end of your life, you're bringing awareness, consciousness and intention to your estate plan.

Having your financial house in order is a key pillar to your financial security, especially when you retire. Planning your legacy with intention builds on that foundation and only makes it stronger.

Once this couple (and this is actually their report and the assumptions of their plan) determined the amount they wanted to leave their son upon passing, they felt liberated to imagine and dream about the life they could easily visualize.

And because travel is something this couple loves, we added, on top of their annual fixed and discretionary spending, an adventure/travel annual expense of $8k that ends in 2027. I reran the numbers, and we still had money to play with. So we added at first a $5k/each, fun money/slush fund annual expense that runs until 2027. Still, we had money to play with, so we raised the slush fund to $10k, and voila!

Although their legacy goal was $1 million, they’re happy with the final amount. And most importantly, they’re happy with the life plan we co-created together.