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A Retirement Plan For Estate Planners

Image: Florida State Library and Archives

T&E Community – in the midst of all the estate planning you do for your clients, do you ever pause for a moment to wonder whether your own retirement planning is in order? At the Notre Dame Estate Planning Institute last October, in between opportunities to catch up with Kentucky T&E attorneys Jesse Mountjoy of Owensboro and Beth McKinney of Bowling Green, I listened to Natalie Choate speak on lifetime distribution strategies for retirement benefits. As a supplement to her outline, Natalie briefly discussed a “Grand Plan” for retirement to which she is “secretly drawn”. That’s correct: the retirement plan that “Ms. Qualified Plan” herself prefers. Interested? I was, and am happy to post an excerpt from Natalie’s outline describing the plan, which is summarized below.

1. Income: Arrange for an annuity or a collection of annuities (with cost of living adjustments) sufficient to cover your “basic living expenses”. Natalie envisions a combination of Social Security, plus your company pension, plus annuities sufficient to meet monthly bills, regardless of stock market performance. Expenses include insurance premiums for elements 2 and 3, below. The annuities reduce or eliminate longevity risk, freeing capital for other uses.

2. Medical Care. Natalie says “Get the best health insurance you can afford, plus an HSA, plus Medicare, plus long term care insurance.” Eating healthily, not smoking, and regular exercise are also recommended. (Quare: is healthy eating, not smoking, and exercising by annuity owners a moral hazard?)

3. Estate Plan. Establish an ILIT to hold life insurance in the amount of wealth you wish to pass to your heirs over the estate tax exemption amount.

4. Emergency Fund/Inflation Backstop/Estate Plan Core. This is a residence and investment assets equal to the estate tax exemption amount. The assets provide a reserve for inflation and/or inheritance for heirs, or can be drawn on if income is insufficient. Natalie says the “money is available for fun” but only if “it gets to be worth more than the estate tax exemption.”

She concedes that the plan doesn’t remove all risk (specifically citing the failure of AIG), but notes that counterparty risk for the annuities can be reduced by purchasing multiple smaller contracts.

Natalie’s plan sounds like a relatively simple template for a successful and relatively worry-free retirement. Its biggest drawback appears to be the $6 million (in round numbers) required for full funding.  Further, its reliance on company pensions (Remember those?  Maybe you don’t if you’re not over age 60….) and Social Security may be misplaced. Nonetheless, now that you’re thinking about retirement, time for another KYEstate$ poll:

[polldaddy poll=2717590]

The excerpt from Ms. Choate’s seminar outline linked to in this post is © 2009 by Natalie B. Choate, and is reproduced with the author’s kind permission.

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