When Should You Review Your Beneficiary Designations?

 In Retirement Plans


When you get a job with benefits, you may well be offered a 401(k) plan and/or life insurance. Even if you’re just getting started in your career, name beneficiaries who would receive these benefits upon your death. Then review and update them if you get married or have any other significant changes in your life and personal commitments. Otherwise, in the unlikely event of your death, these benefits may not go to the person you would choose. Here are some of the life events that could trigger a change in beneficiaries:

  • Marriage
  • Divorce
  • Entering or leaving a committed relationship
  • Birth of a child
  • Death of a beneficiary
  • Birth of a niece or nephew (or child of a close friend)
  • Incapacity of a beneficiary
  • Change of jobs (make sure to review all your old plans)
  • Retirement

Also, a Word on Financial Planning

On a related note, with respect to financial as opposed to estate planning, if your employer does offer a 401(k) plan (or a 403(b) plan if you work for a non-profit), take full advantage of it. First and foremost, take the entire match offered by your employer. For instance, our firm offers to fully match what our employees contribute up to 3% of their salaries and to contribute another 50 cents for every dollar they contribute, up to 5% of their salaries. This means that any employee who sets aside 5% of her income into her 401(k) account will, in effect, get a 4% raise and put aside 9% of her income towards retirement each year. And all of this is before taxes and FICA contributions, so the after-tax effect on take-home income is less than the 5% set aside.

Some real numbers should demonstrate how beneficial this can be. Let’s assume that our employee receives a salary of $70,000 a year and pays 25% in all her combined taxes—state and federal income and her FICA contribution—so she takes home $52,500. If she contributes 5% to her 401(k) account and the firm adds another 4%, her annual deposit will be $6,300. But her take-home pay will only be reduced by $2,625 after taxes. Starting with $6,300 on a $2,625 investment is already an excellent return.

You can set aside even more for retirement with little pain by following this incremental approach. Whenever you receive a raise (which I hope will happen annually) add 1% to your 401(k) deferral. Going back to our example employee, who has a $70,000 salary and takes home $49,875 after taxes and her 401(k) contribution, let’s assume she receives an almost 3% raise, to $72,000. If she leaves her deferral at 5%, her take home will increase to $50,400 and her 401(k) contribution including the firm’s match will increase to $6,480. But what if she increased her deferral to 6%? Then her take home would be $49,680 and her combined 401(k) contribution, $7,200. The result is a very small decrease in her take home and a 14% annual increase in her 401(k) investment. (In future years, she won’t suffer any loss in her take-home pay. It occurs in this case since going from 5% to 6% is a 20% increase in the deferral. Going from 10% to 11%, for example, is only a 10% increase in the deferral.)


Related Articles:

Which Governs, the Will or the TOD Beneficiary Designations?

Should I List Accounts with Beneficiary Designations in My Will?

Life (and Planning) Can Get Complicated

A Life Insurance Primer

When You May Want Retirement Plans to be Payable to Trusts

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