According to recent data released by the Centers for Disease Control and Prevention (CDC), U.S. birthrates are declining as Americans are having fewer children and waiting until later in life to have them, indicating that having children is becoming less of a priority for some.
As the financial and retirement planning landscape becomes increasingly complex and there is a demand for more personalized advice, this raises a compelling argument for financial advisers to consult their childfree clients on the importance of having a strategic financial plan in place.
What does retirement look like for those that don’t have children? Here are several considerations when crafting a financial plan:
Create a strategic financial plan
All retirees should invest time and effort into building a financial plan, regardless of the size of their family. Without a plan, it is nearly impossible to project if a retiree’s resources will be sufficient to cover their anticipated costs in retirement. A robust plan should also be able to stress test how unexpected expenses and market volatility can impact the plan’s success.
Often, retirees are entirely unaware of how risky or volatile their investment accounts are, especially if they maintain the same asset allocation they had when working. A quality financial plan ensures that risk is mitigated when possible. In some families, adult children can provide financial support when their parents encounter financial headwinds. Retirees who do not have financially stable adult children may need to plan for reduced family support in the event of financial hardship.
Don’t leave beneficiaries or loved ones guessing
All retirees should understand that estate planning is a critical piece of the financial puzzle, especially when there are no children or lineal descendants. In cases where a decedent has no estate documents, the default rules of inheritance are based on the state’s intestacy statutes. In most states a surviving spouse and children are the initial default recipients, but after that the rules can vary quite a bit.
A thoughtful overall financial plan should include estate documents that stipulate exactly how property should pass and any desired parameters. Leaving an unexpected windfall to family or friends can be a detriment if the beneficiary is ill-equipped to manage those funds. Establishing a trust might be a better alternative than an outright inheritance, especially if the beneficiary has any type of disability or is too young or immature to manage property.
If you’re passionate about a cause, you can also consider leaving your estate to a charity or an organization. The most important decision is naming the individual who will be responsible for carrying out the estate plan as the fiduciary (the executor and/or the trustee). In instances where a family member is not able to serve it is often prudent to name a professional fiduciary such as an attorney or a bank with a trust department.
Openly communicate your plan for long-term care
In many cases, retirees assume that their adult children will be willing and able to serve as caretakers if the need arises. Unfortunately, this expectation does not always bear out and in many cases, there is no backup plan. Retirees without children are often more aware of the need to consider a care plan for later years with contingencies.
Part of the estate planning process involves creating power of attorney documents that appoint another individual to make financial and healthcare decisions in the event of incapacity. It is usually wise to name successor agents on these documents if the first choice is unable to serve. A revocable trust can also be set up with a successor trustee named if the need arises.
Again, in situations where there are no individuals available, a corporate fiduciary such as a bank or an attorney can be named to serve as successor trustee. Finally, advance directives can lay out preferences for end-of-life care and address items like artificial life support and organ donation. It is much better to stipulate these desires ahead of time instead of leaving that burden to loved ones.
Understand your investment strategy
Child free retirees may have a different investment outlook and risk appetite than retirees who are supporting children and grandchildren. This can pose a material impact on the investment strategy used to meet retirement and legacy goals. If an investor knows that they have enough to live comfortably during retirement, they may choose to segregate a portion of their assets in more conservative investments, while allocating the remainder to more risky investments that can create larger long term returns.
Conversely, a retiree with fewer resources and limited family support may need to focus on expense reduction and a mostly conservative portfolio to avoid excessive market volatility.
In the end, there are many rewarding opportunities that can become part of someone’s retirement as well as their legacy. The future retiree must keep an open mind as they explore the possibilities and the potential paths to make their long-term goals a reality.
Ashley Weeks is a wealth strategist with TD Wealth.
Disclosures: TD Wealth® is a business of TD Bank, N.A. (TD Bank), member FDIC. Banking, investment management and trust services are available through TD Bank. Securities and investment advisory services are available through TD Private Client Wealth LLC (TDPCW), a US Securities and Exchange Commission registered investment adviser and broker-dealer and member FINRA/SIPC. Epoch Investment Partners, Inc. (Epoch) is a U.S. Securities and Exchange Commission registered investment adviser that provides investment management services to TD Bank and TDPCW. TD Bank, TDPCW and Epoch are affiliates. TD Bank and its affiliates and employees do not provide tax, legal or estate planning advice.
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