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Wellness Blog

Financial Power of Attorney (And Other Documents You'll Need in Retirement)

working on documents for retirement

Do you have a financial power of attorney all set up for your retirement?

If you answered “no” to that question, here’s what a financial power of attorney is, why it’s important, and how to choose the best person for the job.

What Is a Financial Power of Attorney?

A financial power of attorney is a legal document that grants someone permission to manage your finances should it become necessary.

“It’s signed by a person when they are mentally able to make the decision to choose who they want to take care of their finances if that person should become incapacitated,” Jane Reitz, The Esquiline’s Vice President of Finance, explains. “That could be things like checking accounts, investments, the sale of property—a variety of financial tasks.”

You can grant a financial power of attorney agent as much or as little control as you wish, as long as it’s all outlined in the agreement. Here are some examples of what a financial power of attorney agent can do for you:

  • Pay common expenses and taxes
  • Handle banking transactions
  • Manage real estate
  • Collect Social Security or Medicare benefits
  • Manage your retirement accounts

Types of Financial POAs

There are different types of power of attorney arrangements and they’re based on when they begin and end. AARP lists these three common types of power of attorney agreements:

  • Conventional power of attorney. This begins when the principal (the person who is appointing a power of attorney or agent) signs the agreement and ends if the person becomes “mentally incapacitated.”
  • Springing power of attorney. This is the more flexible option of the three, as it begins only when the circumstances you outline in the document take place. For example, you could set it up in such a way that it “springs” into effect when you’re incapacitated. However, the drawback is that if you haven’t defined the circumstances clearly enough, it can be a long process in court to determine if a power of attorney can justifiably be put into effect.
  • Durable power of attorney. This type begins when the document is signed and lasts through the principal's lifetime. However, the principal has the option of canceling it. It remains in effect even if the principal becomes incapacitated.

It’s important to note that all of these types end when the principal passes away. At that time, the power of attorney doesn’t have to sort through your affairs. That task will fall to the executor of your will.

In other words, the financial power of attorney can make decisions on your behalf if need be while you are alive, while the executor handles things after you have passed away in keeping with your will.

One more thing to keep in mind—a power of attorney is different from a guardian or conservator. A power of attorney can be revoked by the principal. In contrast, a guardian or conservator is typically appointed by the court when a person is judged “incapacitated.”

How Is It Different from a Medical Power of Attorney?

A financial power of attorney agent manages your financial affairs. A medical power of attorney handles medical decisions if you are unable to yourself.

A medical power of attorney follows your treatment preferences as outlined in a health care directive, also called a living will.

A living will is another crucial document to prepare for your retirement. In it, you can outline your requests for the types of care you would like to receive in case you’re unable to speak for yourself.   

It’s a good idea to have your preferences spelled out so that your children or loved ones don’t have to decide for themselves. They want to do what’s best for you—let them know what that means so they have a clear direction.

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Related: Can I Afford a Continuing Care Retirement Community?

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Why Should I Have a Financial Power of Attorney?

You may be in good health now, but it never hurts to prepare for all scenarios.

“It’s a good idea to have a financial power of attorney in case something unexpected happens, so the person can have their bills paid, their finances taken care of,” Jane says.

The benefit of a financial power of attorney is that everything is spelled out, so your loved ones don’t have to figure it out amongst themselves. And, if you don’t have children, you can appoint a close, trusted friend to handle your finances.

As Jane explains, it’s a good idea to have both a medical and financial power of attorney.

“The medical is probably the most critical one because of the fact that if your wish is that you do not want to be resuscitated or your life extended if you become incapacitated, that person has to follow out your wishes. You want a person that you trust to be able to help make that decision,” she says. “But it’s a good idea to have both.”

How Do I Choose a Power of Attorney Agent?

Above all, choose someone you trust as they will be making important decisions on your behalf.

When it comes to choosing between children, Jane has a few recommendations.

“I would say someone who is closer in the area. And you might want the child with some financial or accounting background,” she says. “Also, you can designate two so if that if something happens to one child, the other can step in.”

Of course, if you don’t have someone close to you who comes from a financial background, that’s fine. It shouldn’t stop you from choosing someone who you want to be your financial agent.

“Your agent doesn't have to be a financial expert; just someone you trust completely who has a good dose of common sense. If necessary, your agent can hire professionals (paying them out of your assets) to help out.” lawyer Shae Irving says.

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Related: How to Have a Risk-Free Financial Future

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Other Important Documents You’ll Need in Retirement

In addition to living wills and medical and financial POAs, it’s also a good idea to start updating your will if you haven’t done so in the last few years. This is especially important if there have been life changes such as new family members or additional financial assets since the time the will was last updated.

Jane also recommends that you keep your tax documents on file.

“You always want to keep your tax returns, and I’d say at least 5-7 years because there might be something that’s needed in the future,” she says.

It’s imperative to keep detailed financial records for your family as you move into retirement, she adds.

“Keep good records. It’s so important if you’re ever needing to get them together for some reason,” she says. “Know where your investments are, where your checking accounts are, and so on. Make sure your spouse or relative knows where things are. Having everything together makes it easier for that power of attorney to understand and sort through.”

Next Steps: Your Retirement Living Plan

If you’re planning for the future, you’re probably also thinking about where you want to live. You can stay at home, move to a 55+ neighborhood, join a retirement community—the list goes on and on.

A Life Plan community, also known as a continuing care retirement community, is one option many older adults explore. These communities offer continuing levels of care, active lifestyles, and abundant services and amenities designed to enrich your retirement. Learn more about this community type by reading Secure Your Future in a Continuing Care Community.

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