Retirement Planning: Why Naming Your Beneficiary Matters

You have worked hard to save for retirement. You have dreams, goals, and a wish list. What are your goals for retirement? Perhaps the vacation you’ve always dreamed of, financial security indefinitely, or even preparation for long-term medical expenses. But what if the unthinkable happens and there is money left over after you pass. You can’t take money with you to the grave. So what happens to it then?

Planning for the future is essential, and a vital aspect is planning out what will happen to your nest egg if you pass before depleting it. If the unexpected happens and there are still funds in your retirement account(s), you want to make sure that there is a way for your loved ones to access the money. The simplest way is to make sure that you have named a beneficiary on your accounts. Beneficiary: the person(s) you choose to receive your benefits after you die.¹

Upon your death, your retirement funds will automatically be transferred to your named beneficiary, unlike your estate.² A person’s estate can often be delayed for months (or even years!) by probate court. But if you’d like your retirement plan accounts to transfer to your heirs without much hassle, designating a beneficiary on your account is vital. To do this, you can speak to your company's plan administrator. And as retirement plans become more digitized, it may be as simple as checking your account online to make sure your beneficiary is named and current.

On that note, if you have had any major life events, such as marriage or divorce, you want to make sure that your designated beneficiaries are up to date. And when you name a beneficiary on your retirement account(s), that is who will receive the funds, even if you have a will naming someone different to inherit your accounts.

Most importantly, you want to leave clear instructions for your beneficiary. Have a list of your accounts, where they are located, and any additional pertinent information stored in a secure location. When it comes to accessing the funds, your beneficiary will still need to initiate the process to withdraw any leftover monies.

All in all, I wish you a prosperous and long-lived retirement! But if something should happen to you, having designated a beneficiary ensures your heirs will be spared undue stress. A little effort now could save a lot of unnecessary hassle for your inheritors.

¹https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
²https://www.investopedia.com/401-k-after-death-11879296