One of the questions we often get from clients of Successful Investor Wealth Management involves financial contingency planning. That is, how do you set up your finances and investments so that someone else can handle them if you can’t?

When you’re doing this kind of retirement planning, we think it’s always a good idea to have such an arrangement in place. The first step is to find someone you thoroughly trust to step in on your behalf. You should also resist the urge to leave fixed instructions. Instead, give that person as much latitude as possible. This goes against the first instinct of many investors. But there is good reason to take a more hands-off approach.

Flexibility is a plus

Leaving fixed instructions (such as “If I get sick, put all my money in T-bills”) — hurts your retirement planning by introducing a random element that can cost you money. It can also have adverse tax consequences. Worse, it ignores the fact that when you reach a certain stage in life, you are mainly investing on your heirs’ behalf. In other words, you are investing based on their objectives and time horizons, not yours. So selling, or moving into fixed-income investments like T-bills because you can no longer make decisions, may deprive your heirs of years of growth.

Invest in your Financial Future for FREE Learn everything you need to know in '9 Secrets of Successful Wealth Management' for FREE from The Successful Investor. Secrets of Successful Wealth Management: 9 steps to the life you've always wanted, before and after retirement.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Rather than leaving fixed instructions, you’re better off giving medical power of attorney to a trusted friend or family member. This power of attorney can only be exercised if your doctor agrees you are no longer competent. In addition to investment and financial decisions, this power of attorney also covers medical decisions, such as choice of treatment — or when to discontinue treatment. You should discuss the details with your lawyer as part of your retirement planning.

If you don’t want to burden a single family member with this responsibility, you can empower a group of, say, three people to act for you on a majority vote. You could choose from among family members and long-time friends, or professionals you’ve dealt with and trusted for some time — doctors, lawyers, dentists, accountants or clergy, for example.

No neat formula works for everybody’s retirement planning. But any reasonable arrangement involving family and trusted professionals is unlikely to go too far wrong. On the other hand, preordained decisions may take effect just when they can do maximum harm to your finances. But making no preparations is the worst choice of all.