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The Surefire Way to Ruin Your Retirement

You can spend so much time and effort planning your retirement. But all it takes is one oversight to undo all that work.

After you put together a plan for your retirement that will work for you and your family, it's critical that you go one step further:

Be sure someone else can follow that plan.

In the event of a health crisis or other severe event, keeping your knowledge to yourself could mean that all your work would get undone quickly, potentially putting your family into the financial uncertainty you've been working to avoid.

It's all on your shoulders
Successful retirement planning requires a lot of hard work, from exploring your goals to finding good investments that can help you achieve those goals. Even after you have a plan in place, you still have to work hard to maintain it.

Unfortunately, if you've done all the work, you may well be the only one who knows how to keep your family's finances on target. That becomes a problem if you face an unexpected illness or injury that incapacitates you.

Letting good investments go bad
If you're incapacitated, the investments you've carefully put together can end up at risk. How much risk depends on how aggressive you've been in investing -- and what your family does without you.

Most families in this situation do one of two things. Some leave everything exactly as it is, holding onto particular stocks for months, even years, without making any changes. Others, however, seek assistance from financial professionals, who may have much different opinions about risk and investing than you.

Neither one of those options is attractive. Investments need regular attention.

Here's a simple example. Early in 2007, banks such as E*Trade Financial (Nasdaq: ETFC  ) offered more than 5% on CDs. If you had bought a one-year CD back then, it would be coming due right around now. Doing nothing would mean that CD would automatically renew at a much lower rate -- currently 2.85%. But you could get higher rates elsewhere -- Countrywide Financial (NYSE: CFC  ) , for instance, is paying a 4.45% promotional rate on six-month CDs.

Outsiders stepping in
On the other hand, going to a professional can be even worse. Say, for instance, you deliberately concentrate your portfolio in energy stocks such as BP (NYSE: BP  ) and Schlumberger (NYSE: SLB  ) . You have a heavy concentration in those shares, and you believe they still represent a good investment, so you hang on to them.

Typically, financial planners are leery of a concentrated portfolio; one might prefer to sell off your winners to create a more diversified portfolio. Additionally, that selling creates an opportunity for a planner to earn commissions.

Avoid a bad situation
Fortunately, you can solve the problem before it arises. All it takes is simple planning in a document called a durable power of attorney (DPOA).

The durable power of attorney lets you name whomever you choose to manage your finances if you can't. By choosing a DPOA who understands your financial plan and will follow your instructions, you can ensure that your family won't face any nasty surprises if something unexpected happens to you.

Of course, no one wants to think that anything dire will happen to them, or that they might not be able to care for their family. But if it does, make sure someone is prepared to step into your shoes -- and has the legal authority to do so.

Learn more here:


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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