A note from Chris Cassidy, CEO

WHEN I STARTED WORKING twenty years ago, one of my goals was to make smart financial choices. Consequently, I began funding a 401(k) account and a Roth IRA in hopes of being able to retire in comfort some forty-five or fifty years down the road. I wanted my 65- or 70-year-old self to be happy with the decisions I was making.

One of the documents I filled out as part of setting up these retirement accounts was a beneficiary designation form, whereby I could name individuals who would inherit the assets were I to get hit by the proverbial bus. Twenty years ago, I was unmarried with no children, and didn’t think much about the beneficiary designation. I simply selected a few family members and forgot about it for many years.

In some instances, doing something and forgetting about it can work out. When Warren Buffett took control of Berkshire Hathaway in 1965, the shares were valued at about $19 per share. At the time of this writing, Berkshire Hathaway Class A shares trade for around $608,130 per share, which represents a return of 3,200,684%. That means $100 invested in 1965 would now be worth roughly $3.2 million. Investing $100 and forgetting about it for 60 years would have paid off handsomely.

In fact, DALBAR produces an annual QAIB (Quantitative Analysis of Investor Behavior) Report that measures retail investors and how their buy and sell decisions impact their investment performance. The report finds that, by buying high and selling low, on average, these investors cost themselves between one-sixth and one-fifth the return they would have earned if they adopted a buy-and-hold approach. Sometimes inactivity works.

In contrast, with beneficiary designation forms, it is best to review them frequently. When I got married in 2019, I neglected to do this. Thankfully, in 2020, our internal 401(k) administrator brought to my attention that my beneficiary designation form hadn’t been updated in more than a decade. This prompted me to review my Roth IRA beneficiary designation, which was also not updated. I quickly did new forms naming my spouse as my primary beneficiary, and then forgot about it again for a few more years.

Thankfully, internal conversations about this topic prompted me to review my beneficiary designations this spring. Upon doing this, I realized that I had neglected to name a contingent beneficiary for any of my retirement accounts. A contingent beneficiary inherits the funds if the primary beneficiary predeceases the retirement account owner. I am now in the process of updating my designations again to include my daughter.

I am a walking example of why beneficiary designation forms need to be considered and reviewed frequently. Jeanne and Kasey have written an article this month that explores all the intricacies of beneficiary designations and why they are such an important part of an estate plan. If anyone has questions about beneficiary designation forms, Trust Company of Vermont has a knowledgeable staff of Trust Administrators, IRA professionals and in-house attorneys to help answer any questions.