Here's Why You Should Always List a Beneficiary for Your Retirement Funds

Retirement funds are a crucial component of most Americans' financial plans. They are accumulated over decades of hard work and diligent planning, and serve as a lifeline for many during their golden years. However, one key aspect that is often overlooked while planning for retirement is the issue of beneficiaries. According to financial guru Suze Orman, you always want to add a beneficiary to your retirement accounts. Here's why.

What is a beneficiary?

Listing a beneficiary is an essential part of any financial planning strategy. Essentially, it means assigning someone to receive benefits or assets from a financial account, insurance policy, or estate after the account holder or policyholder passes away. This could be a family member, friend, trust, or charity of the account holder's choosing.

By listing a beneficiary, you ensure that your assets are distributed according to your wishes, rather than leaving your loved ones to sort things out in the uncertain and stressful time after your death. It is an act of kindness and a way to care for those you leave behind, making sure they are taken care of and that your legacy lives on.

Benefits of listing a beneficiary

Listing a beneficiary ensures that your retirement funds are distributed according to your wishes. By clearly stating who gets what, you can prevent any confusion or disagreements among your heirs.

Listing a beneficiary can also help you avoid family disputes. Without a beneficiary, your retirement funds can be distributed in a way that some of your heirs may not agree with. This can cause family disputes and can even lead to legal battles.

Plus, a beneficiary designation can often override a will. Many assume that a will is the ultimate solution for distributing assets to loved ones after death. Naming a beneficiary trumps a will in most cases. This is because a beneficiary designation is a legal contract that takes precedence over any conflicting provisions in a will. So, if you have a beneficiary listed on a retirement account or life insurance policy, that beneficiary will receive the proceeds of the account or policy regardless of what your will says.

What happens if you don't add a beneficiary?

According to Orman, if you don't name a beneficiary, those investments will have to go through probate. She states that you never want to go through probate. Without a beneficiary, your retirement funds may have to go through probate court, where a judge will decide who receives what based on state law.

Probate is often a long and expensive process, and can delay the distribution of your funds for months, or even years. Moreover, the funds may be distributed in a different manner than what you would have wanted or expected. Often, the courts will appoint an executor to manage the affairs of the estate, and this person may not be someone the deceased would have chosen themselves.

Additionally, probate can be expensive, with court fees, legal fees, and other expenses eating away at the estate's value. Overall, going through probate is a situation that can be avoided by adding a beneficiary, ensuring that your loved ones are not burdened with additional stress and expenses during an already difficult time.

Listing a beneficiary for your retirement funds is an essential aspect of financial planning. Not only does it ensure that your funds will be distributed according to your wishes, but it helps you prevent family disputes and, most importantly, avoid probate. It's a simple step that can save your heirs a lot of time, money, and stress in the long run.