How Should You Plan Your Retirement Savings If You Don’t Intend To Leave an Inheritance?

Retirement planning at home.
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Despite what you might have heard about retirement planning, it’s not a one-size-fits-all process. Numerous factors can play a part in how you go about saving for retirement, and one of those is whether you plan to leave an inheritance. Most financial experts advise taking care of your own needs first before worrying about leaving an inheritance behind, but not everyone heeds that advice.

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Some retirees don’t have to spend much time thinking about it because they either don’t have heirs or don’t plan on leaving anything behind. If this is the case with you, then you should consider an immediate annuity.

As MarketWatch reported, an immediate annuity is an insurance contract that converts money into a pension, which will then guarantee an income stream for the rest of your life. This means you never have to worry about running out of money in retirement.

A blog on the Nationwide website described an immediate annuity as the “most basic type” of annuity. It essentially involves making a single lump-sum contribution that is converted into an income source for a lifetime, with withdrawals typically beginning within a year.

Some immediate annuity products might provide options for cost-of-living adjustments to protect against inflation, Nationwide noted. You might also find a liquidity feature that lets you make lump-sum withdrawals in the event of a financial emergency, though you might have to pay extra for this feature.

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Another bonus: If you fund your immediate annuity with money you’ve already paid taxes on, you’ll have a source of income that’s “partially tax free,” according to Nationwide.

This might be an especially good time to buy annuities because the annuity market is tied to the bond market — and bonds are a good deal now due to rising interest rates. MarketWatch ran some numbers and found that a 65-year-old retiree with $2 million in savings can buy a lifetime annuity right now that would pay $12,740 a month — and that’s before you include Social Security income.

Meanwhile, if you find that you can’t spend all the money you have in your lifetime and don’t have anyone to leave an inheritance to, you might consider leaving some to charity. Here are a few options, according to Charles Schwab:

  • Charitable remainder trusts: As the donor, you can receive an immediate charitable deduction based on the present value of the cash or other property that is transferred to this irrevocable trust. You also receive an income stream from the trust, while a designated charity receives the remaining assets upon your death.
  • Donor-advised funds: With this type of fund, the donor makes an irrevocable, tax-deductible contribution of cash, securities or appreciated noncash assets. You can invest the funds for future potential growth and recommend grants to qualified 501(c)(3) charities at any time.
  • Private foundations: These foundations are typically founded by a family or an individual with an initial tax-deductible gift and are managed by a board of directors or trustees.

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