A New Hope … For Time to Create a Better Death Binder

Young kids fractionalize your free time as a parent, making long-term projects difficult. That may sound ironic coming from an early retiree and pensioner like me, but it’s nonetheless true, especially during the summer holidays. As I pen this post, it’s February, and we’re nearing the end of summer in New Zealand (NZ). The kids recently started their new school year, which is great because my family and I were busy with all the fun things that typify the NZ summer lifestyle for the six preceding weeks. This includes going to the beach, road-tripping, camping, hiking, kayaking, bike riding, summer football (i.e., soccer), and rock jumping into emerald pools of cold mountain river water! Needless to say, all that fun didn’t leave much time for the long-overdue transformation of my original death binder into a pensioner’s death binder.

“What’s a death binder?” you ask? Well, as I pointed out in my original article on the topic, it’s the financial information needed in case of someone’s untimely demise. A death binder contains things like a list of bank accounts and their account numbers, which a spouse, partner, or the trustee of an estate will need to wind down the deceased’s financial affairs. While not a replacement for a will or a trust, it works parallel to them. It provides a one-stop-shop of practical financial information that the survivors will need in the near-to-mid-term to do things like claim life insurance benefits or change ownership of a bank account.

What a Drag!

As far as a topic goes, the death binder is a bit grim and tedious but also necessary. It’s also why I still playfully throw my best heavy metal devil horns up in the air and shout “DEATH BINDERRRRR!” regularly. I welcome anything that creates levity while working on this drag of a project.

And, what a drag it was! The project stretched through January into early February as it consumed all the kidless fractionalized free time I mentioned above. However, the differences in content between a pensionable worker’s death binder and a pensioner’s death binder also played a role. As with many things in the personal finance space, the presence of a pension creates additional considerations for pensionable retirees compared to non-pensionable retirees. Thus, I spent a lot of time changing my old death binder’s content and format to make it a proper pensioner’s death binder. This article focuses on those content differences and changes.

Timing

Why pick the summer for this project? In reality, I didn’t. I chose the end of the calendar year, which in the southern hemisphere coincides with summer. It also coincides with the annual financial review I conduct for the family. During this year’s review, I realized that as expatriates (EXPATs), my family has more bank and investment accounts spread across more countries than ever before. So, the need to update the original death binder was evident as I completed the annual financial review. The consequence of choosing the summer meant the project dragged on and on because every time I sat down to work on it, there was another interruption.

Of course, the end of the year isn’t the only time when updating (or creating) your pensioner’s death binder might make sense. In the US, the February and March time frame also provides a natural point to create a death binder as you gather the documents needed for your tax return. Alternatively, after a significant life event like the birth of a child or grandchild, updating your death binder as you update your will would also make sense. Finally, it should go without saying in a post-Covid-19 world that a killer pandemic might also provide good cause for updating or creating a pensioner’s binder.

Motivation

That said, I was motivated to complete this project for several reasons. First, I (somewhat shamefully) hadn’t updated my death binder since retiring from the US military and moving to New Zealand. Needless to say, our financial situation changed substantially over that period. Thus, the original death binder I crafted two years before retirement was no longer fit for purpose.

What type of changes to our financial situation am I referring to above? For one, I now receive two monthly pension checks, which wasn’t the case four years ago. However, if I die, those payments will be reduced for my family. Thus, I want Mrs. Grumpus prepared with the information she needs to manage that change. My pensioner’s death binder now contains that information.

However, in addition to life-changing, I also have some medical procedures scheduled in the next few months. Several require anesthetization. While the odds are extremely low that I might die, I now feel a lot better knowing that my financial affairs are in order.

Beneficiaries: A Lesson in Tedium and Frustration

That isn’t to say that I found this project easy. As I wrote in my book, I’m not the kind of guy who gives a person a shit sandwich and tells them it’s the best peanut butter and jelly in the world. Nor am I a certified financial expert, so remember to fact-check everything I discuss below before you take action. Yet, with that as context, I found one aspect of creating my pensioner’s death binder extremely tedious, time-consuming, and frustrating. That task was updating all the beneficiary forms for our US savings, checking, and investment accounts.

“What’s a beneficiary?” you ask? It’s a person or entity that receives your money when you die. You designate beneficiaries in writing, and in the US, you can do so account by account, if desired. Yes, beneficiaries can also be addressed through a will or a trust. However, in the US (and this varies state-by-state), a signed beneficiary designation form for an individual account will most often trump the wishes laid out in a will. I emphasize ‘in the US’ because, in this case, I discovered there is no equivalent process for beneficiary designations on individual accounts in the UK or New Zealand. All of that is handled through a will. I found it surprising since there are a lot of advantages to naming beneficiaries for each account.

Advantages of the US System

One advantage of using beneficiary designations for each account is that it (often) allows the executor of your estate to skip the probate process for disbursing the assets in the account. This saves time and money for your loved ones. Again, in the US, this varies from state to state. You should check the laws in your state of residence and the state in which the account is held. Another advantage of the account beneficiary designation process is its flexibility. Beneficiary designation forms allow you to designate primary and secondary beneficiaries. Secondary (or contingent) beneficiaries are the people or entities who get the money if the primary beneficiary pre-deceases or accompanies the original account holder in death.

For example, suppose Mrs. G and I died in a fiery car crash, coming back from one of our far too infrequent lunch dates. In that case, the money from each of our US accounts will skip the primary beneficiary (Mrs. G, since she’s now dead too) and transfer to our family trust. As designed, my younger brother will step in as trustee and administer the money for our children, which he and his wife will have inherited guardianship for anyway. Thus, he’ll manage and dispense the money to our children as they age per the rules of our trust. I guess that makes this a great place to plug the idea of establishing a living trust for those of you pensioners or soon-to-be pensioners who have young children in their life! You’ll need a good estate and tax lawyer for that one.

Beneficiary Designation Downsides

The main downside of submitting beneficiary forms was that each one was different. Not only that, each institution wanted different information, and they all had separate submission and approval processes. Some, like Ally bank, made it as easy as filling out information electronically on their web page and submitting it. Many more were complicated and required multiple printing, signing, scanning, and submission attempts. I even faxed the information to one institution because my document scans were either too big for electronic submission or so compressed that the site’s AI couldn’t read them. I’m not sure how a fax alleviated that problem since they are barely legible on the receiving end, but there you go!

In the end, I counted 13 financial accounts spread across 5 institutions in the name of my wife, my kids, and/or myself that required beneficiary updates. That doesn’t even include the three life insurance policies whose beneficiary designations I also updated. Or the fact that I (finally!) created a savings account for our family trust. It’s now ready to receive all the payouts, should Mrs. G and I both go down together. Unsurprisingly, the beneficiary update process got so complicated I created a spreadsheet just to track the status of each account. If you have a lot of accounts, I recommend you do the same.

“Why the kids’ accounts?” you ask? Well, while every parent’s fear is one of their kids pre-deceases them, the truth is that they also have financial affairs to wind up. Plus, some accounts, like 529s, require an adult “owner” at all times. Therefore, since I was updating everything else, it also seemed prudent to update their 529s.

Beneficiary Tips

As tedious and time-consuming as updating beneficiaries sounds, it’s essential to stick with it. This is especially true if you have a financially complicated life like us! Usually, I’d recommend sipping a beer while enduring such tedium, but in this case, that’s terrible advice. If intoxicated, you’d be more likely to screw something up and have to re-submit later. So, alternatively, I recommend consuming large amounts of caffeinated products!

Nonetheless, time spent on this project will save your loved ones much heartache and headache in the future. And, don’t just stop with beneficiary forms either. Make sure your will and trust (if you have one) are also fit for purpose.

Audience

As you’re constructing your pensioner’s death binder, make sure you keep in mind your audience. By that, I mean the person handling your affairs when you’re gone. For me, that was primarily my wife, since statistically, she’s more likely to outlive me than the inverse. However, as I just mentioned, my brother would step in as the administrator for the family trust if Mrs. G and I died simultaneously. This means I also wrote the binder for him.

Here’s what I mean by I “wrote” the death binder. At the beginning of the physical binder, I placed the printout of a word document I crafted that essentially synopsizes everything contained in the binder. Among other things, this word doc includes a list of our accounts with their numbers and beneficiary status (but no passwords); full-length internet links to websites where benefits can be initiated; and a chart displaying how the various streams of fixed income will change over time for my wife and/or kids.

Death Binder Location

Upon completion, I sent my wife and brother a link with the location of that document on my cloud drive. I also told them to safely file the link for when the worst happens. While that document isn’t as extensive as the information in my physical binder, it at least provides them the bare bones they’d need in the early days after my death. In my eyes, this is a living document, one which I will update as new information comes in and life changes. Thus, providing them the link to that doc means they’ll always have access to the most up-to-date information in my pensioner’s death binder.

It’s also worth noting, for my brother, that this word doc might provide the only means by which to wind down our financial affairs, assuming Mrs. G and I die simultaneously. I say that because he won’t have access to the firebox in our NZ house where the physical binder resides. Or, at least not initially because he lives in a different country! That’s something else EXPAT pensioners, such as myself, need to keep in mind.

Pensioner Death Binder Contents: Survivorship

Let’s talk about specific subjects and how they differ between a pensioner’s death binder and a pensionable worker’s death binder. The most obvious difference is that a pensioner’s death binder should contain information on how to activate the survivorship features connected to your pension. Of course, that assumes that you elected the survivorship option for your pension when you retired!

Don’t worry! If you’re sitting there wondering, “what’s survivorship?” then you should note that I wrote an article about it. You can find it here.

However, for the TLDR crowd, survivorship (in the US) is a government-mandated insurance option that all pension plans must offer to retirees. It allows the retiree to pass along all or part of the pension to their spouse after they die. Much like life insurance, there is a fee for this option. In many pension plans, this coverage is also scalable — meaning a pensioner can elect full or partial coverage for the pension. As a result, that monthly fee varies based on the coverage selected.

Don’t Mess This Up

While offering a survivorship option is mandatory, accepting it is not. In the US, it’s up to the soon-to-be pensioner, and if married, also the spouse, as to whether or not they will accept it. Even though I’ve written about this before, it’s essential to understand that the survivorship decision you make as you retire is PERMANENT! In other words, it’s a one-time decision. No do-overs!

Thus, both parties must waive the election if they don’t want survivorship. Of course, waiving that option means the pension won’t be passed on to a pensioner’s survivors, which is no big deal if a pensioner doesn’t have potential survivors. Alternate arrangements should be made, like taking out a life insurance policy, if they do.

Survivorship Tips

My original survivorship article shows you how to decide which option (i.e., pension survivorship or life insurance) is suitable for you. Needless to say, if you elect survivorship, then your pensioner’s death binder should include all the necessary information needed for your survivors to activate this benefit. This includes points of contact and a list of required documents.

Just for the record, I opted for survivorship through the US military’s Survivor’s Benefit Plan (SBP). Therefore, my pensioner death binder includes the instructions needed to activate SBP for my wife. However, since the largest coverage SBP allows is only 55% of my pension, I determined that I still needed supplemental life insurance. Conveniently, that’s the next section of my pensioner’s death binder.

Pensioner Death Binder Contents: Life Insurance

Technically, life insurance content isn’t exclusive to a pensioner’s death binder. EVERY death binder should include life insurance details, assuming the deceased has coverage. Specifically, the binder should include the information required to initiate life insurance benefits when a pensioner dies. Once again, this includes policy numbers and benefit submission forms.

That said, pensioners often have a different relationship with life insurance than non-pensionable retirees. Your death binder’s contents may need to reflect this difference. In my case, like many pensionable workers, I had a generous amount of employer-subsidized life insurance that ended once I retired. Furthermore, I determined the 55% of my pension that SBP covered wouldn’t be enough for my family if I died. Neither would all of our investments. Thus, I decided to spend a lot of time from OCT-DEC 2021 updating my life insurance coverage.

Keep in mind I retired in late-2019, which meant I failed to replace my employer-subsidized life insurance coverage for my first two years as a pensioner. While I mostly blame our move to New Zealand for that delay, I also procrastinated. You, however, should not procrastinate if you are a soon-to-retire or a newly retired pensioner. Furthermore, don’t interpret this as some ‘do as I  say, and not as I do’ sort of advice. Procrastination, in this case, will literally cost you money because life insurance gets more expensive as you age!

Pension-Connected Life Insurance

Now, as a soon-to-be (or freshly minted pensioner), it’s worthwhile to note there may be some cool perks connected to life insurance through your pension. This may include access to pension subsidized or tax incentivized term or whole life insurance. That’s in addition to any survivorship options. However, those perks are anything but universal in US-defined benefit pension plans. Nor are they always in your financial best interests. So, if they interest you, please conduct thorough research before committing to one.

In the end, I determined that my family of three potential survivors didn’t need the complicated or more expensive life insurance options on offer from the US government or their various private sector partners. They simply needed an additional term life insurance policy to supplement the SBP if I died relatively young (i.e., late 40s or early 50s). I only determined this after I analyzed two years’ worth of my family’s retirement spending, though, and could reasonably forecast what their expenditures in the post-Grumpus era may look like.

I obtained quotes from both New Zealand and US-based companies following that determination. In the end, I opted for a US company that provided worldwide coverage (something EXPAT pensioners must consider). The company also has a long history of providing affordable insurance for veterans with high disability ratings (something veteran pensioners need to consider). Needless to say, I updated my beneficiaries for this policy as I built my pensioner’s death binder, which includes all the points of contact and benefit submission procedures for this company.

Pensioner Death Binder Contents: Disability

Some defined benefit pension plans provide disability benefits for workers who retire due to medical conditions caused by the job or with medical conditions caused by the job. This is another feature that’s far from universal in the US since disability is typically tied to Social Security. However, not all pensionable workers pay into Social Security. In fact, about 25% of US public workers at state and local levels do not contribute to Social Security. As a result, those pension plans are on the hook for disability. Thus, it’s hard to draw generalities other than to say that if you’re receiving some sort of disability benefits from your pension plan, in addition to what you receive as part of your regular pension, then you need to understand how those benefits change if you die.

In some cases, determining how those benefits change when you die is far from easy. Furthermore, explaining it to a loved one or executor of an estate through the death binder can be difficult. In my case, I receive disability payments from the US Department of Veterans Affairs (aka the VA) based on the number of medical issues I picked up while serving on active duty. While I’m rated 100% permanently disabled (meaning my disability determination will never change even if I fix some of my issues), I’m not designated as unemployable. That distinction may sound slight, but it also may prove crucial in determining if my family will receive a replacement for my disability payments, assuming I die from an issue that didn’t stem from my active-duty service time. I say that because the language on the VA’s website is confusing and contradictory.

Perfection: The Enemy of Good Enough

What’s a guy who’s trying to put together his pensioner’s death binder do? Well, for one, I submitted a written query through the VA’s web page. I could’ve called, but I want the VA’s response in writing. In the meantime, I didn’t want to wait months for the VA’s response. So, I placed this benefit’s application and some information about it in my binder. I then noted in that aforementioned word doc that my wife or brother may need to determine eligibility if I die before getting the question answered.

This compromise seemed appropriate, especially since I considered perfect the enemy of good enough when it came to completing my binder’s update. After all, I consider my death binder a living document to be updated as life changes occur. And ultimately, the binder cannot account for every potential situation after you die. Your survivors will have to do some work. In my less than humble opinion, your goal should be to minimize that work, not eliminate it.

Pensioner Death Binder Contents: Fixed-Income

I know I briefly mentioned creating a fixed-income chart for my survivors in the Audience section. Still, I wanted to expand on it here. I made a chart because my survivors may end up with three fixed-income streams between survivorship payments, Social Security, and the potential replacement for disability. However, some of those fixed-income streams aren’t permanent, which was a theme carried over from my original (pensionable worker’s) death binder as well.

Frankly, it was tough determining how some of my family’s fixed income streams would turn on and off, or expand and reduce, over time after I died. I say that because in some cases, the kids age out of payments as they turn 18, or their early 20s if they go to university full-time. In other cases, my wife would lose the payments if she remarried before a certain age, but not if she remarried after. In the case of Social Security, the survivor’s benefits end for everyone when the kids turn into legal adults. But, regular Social Security returns for my wife in the form of my standard benefit, which she can start anywhere between ages 62 to 70.

Given all these variables, I simply found it easier to graphically depict how payments would start and stop at certain times than explaining them purely verbally. Of course, I had to create a scenario that relied on many assumptions (which I listed). However, when I eventually graphed the scenario, a dip in fixed income appeared clearly on the chart between my wife’s mid-50s and early-60s. As a result, it allowed me to advise her (in the word document) that this period was where she would most likely need to rely on our investments to help fund the annual budget. Furthermore, I could see that she would no longer need to rely heavily on investments after my regular Social Security payments started. I’ve placed a copy of my graph below.

Tracking Your Retirement Spending

Of course, I could only form my assessments after comparing those projected fixed income streams to my family’s projected post-Grumpus era budget. As mentioned earlier, I created that budget based on the past two years of my family’s early retirement spending. My wife and I tracked that spending via a combination of the Quicken and Mint software suites, and I analyzed those figures during my end-of-year annual family spending report. So, they were up-to-date and ready to be used when it came time to update the death binder.

This is yet another reason why tracking your money is a great thing. As I’ve written elsewhere on this blog, I consider it the crucial first step to charting your Financial Independence. Tracking your money unlocks many aspects of financial planning, including creating a post-death budget for your family. Without that information, you’re flying blind and potentially open to a myriad of personal financial shocks like not enough life insurance coverage. So, if you take anything away from this article (other than the fact that you need a death binder), let it be a determination to start tracking your money!

Pensioner Death Binder Contents: One-Time Death Payments

It’s also worth noting that my pensioner’s death binder included a spreadsheet with all the one-time payments my survivors would receive upon my death. The spreadsheet contains expected life insurance payments and any unique payments my survivors might receive based on my veteran and military retiree status. This is another area where pensioners may get perks that non-pensionable retirees don’t receive. In some cases, pension plans assist with burial and funeral costs. The contribution probably won’t be huge, but every little bit helps!

This Is (Almost) The End …

At 4000+ words, this post is long enough. However, my first death binder article proved so popular that it justifies the length of this post. That’s especially true since this article chronicles the differences between my original death binder (i.e., the pensionable worker’s edition) and my pensioner’s death binder (i.e., death binder 2.0). Some of those differences were obvious, like including the information needed to initiate survivorship benefits for your pension plan. Other differences were more minor, like reassessing your family’s life insurance needs now that you’re a pensioner. No matter what, make sure all that information makes it into your pensioner’s death binder.

Throughout this article, I also threw in tips for various subsets of pensioners, like EXPATs, veterans, and those on disability. For example, if you’re an EXPAT pensioner like me, you need a life insurance policy that covers you internationally. That may or may not be one of the features offered in your pension plan’s subsidized insurance policy, so adjust accordingly like I did. Finally, I threw in some tips for anyone, not just pensioners, building a death binder. That included the need to update wills and trusts as you update your beneficiaries for all your different accounts.

Death Pains

Is building a death binder, or even just updating one, a painful process? In truth, it can be. Part of that pain depends on the level of complication in your financial life. I fully admit not every family must consider accounts spread across three countries, like mine. That said, another part of the pain level is determined by how much work and heartache you want to save your survivors. If you don’t mind the idea of your loved ones researching how to file for life insurance benefits, then maybe you don’t need to print off and leave the forms in your death binder. A simple list of insurance policies, the names of the companies, and the policy numbers may do just fine.

As for me, my goal was to save Mrs. G (or my brother) as much pain as possible. However, I balanced that with the practicalities of working on this project for over a month during the summer. As a result, I reached a point of good enough and called it a day with a promise to update it annually. I recommend you do something similar if you find that the project feels never-ending. I say that because death comes for us all eventually, so it’s best to get on with living while we can. Good luck!