Don’t let death of a spouse derail retirement

Don’t let death of a spouse derail retirement

The odds are extremely good that my wife will outlive me.  Whatever the reason—genetics, a healthier diet, the fact that she uses our treadmill as something other than a clothes rack—there will likely come a day when she bids me adieu.

Most people know that women have a longer life expectancy than men, living about 81 years compared to 76 for the average male.  But what they may not have considered is what this statistic means in reality: namely that the overwhelming majority of people in retirement are women.

In the U.S., women make up nearly 60 percent of the population over age 65 and nearly 70 percent of the population of those over age 85*.   How should that reality affect the retirement planning of the fairer sex?

Investments

At a minimum, a longer retirement means the need for more income.  All else being equal, funding a 20-year retirement will be more expensive than funding a 10-year retirement.  That means more money will need to be set aside leading up to retirement and withdrawal rates will need to be sustainable (around 4 percent) during retirement in order to keep from running out of money.

Also, asset allocation will be more important than ever.  The portfolio will need to be invested aggressively enough to overcome the ravaging effects of inflation that are sure to happen over a longer period, but not so aggressively that investment losses wipe out principal.  Maintaining the proper balance is a key ingredient to making the money last.

Pension plans

A pension plan for a married couple can be an important source of retirement income, but what happens to that income when one of the spouses dies?  If the husband dies and it was his pension, does that income go away?  It depends.  If the pension benefit was based on his life only, then payments will likely end when he dies.  To avoid the negative financial impact that this would likely cause, couples should arrange with the pension provider to base the benefits on both of their lives.  “Joint Life” benefits will likely be smaller than those based on a single life, but they will also minimize the financial impact on the surviving spouse.

Social Security

Women are more likely than men to leave the workforce at some point in their careers in order to raise children or care for aging parents.  Some choose not to work outside the home at all.  This, along with the fact that women still tend to earn less than their male counterparts, can impact their eligibility for Social Security benefits.  Because of that, the Social Security Administration has special rules that apply to people who are widowed, divorced or still married, but with little in the way of earned benefits.

For starters, spousal benefits entitle everyone to either their own benefit or half of their spouse’s benefit, whichever is greater.  In addition, those widowed or divorced are able to collect benefits on their former spouse’s Social Security record if:

  • The former spouse is collecting benefits or is deceased
  • You were married for at least 10 years
  • You are 62 or older (60 or older if your spouse is deceased)

Getting remarried could affect your eligibility for benefits under certain conditions, so be sure to check with the Social Security Administration before heading back to the altar.  For more information visit www.ssa.gov and download the brochure “What Every Woman Should Know.”

Life Insurance

The primary purpose of life insurance is to replace a person’s income in the event of his or her death (Note: It can also be an effective estate planning tool, but that is a discussion for another article).  Because of that, many people keep adequate insurance coverage during their working years to protect their spouse and children, but then get rid of it when they retire.  This could be a big mistake if a significant portion of a couple’s retirement income is attributable to just one of the spouses, say in the form of pension or Social Security benefits.

How do you know if you need life insurance during retirement?  Ask yourself this question: “Would my death create a significant financial hardship for my spouse?”  If not, then you probably don’t need life insurance.  However, if the death of either you or your spouse would result in significant loss of income for the other, then life insurance can be a good way to protect against that loss.

Long-term care insurance

Long-term care insurance can help cover a variety of costs including home health care, respite care, adult day care, care in an assisted living facility, or nursing home care.  This type of insurance can make sense for women for a variety of reasons, but two stand out.  First, if a woman is predeceased by her husband, there is a good chance that there will be some large medical bills related to his final illness and care.  These bills can take a big chunk out a couple’s nest egg and impair its ability to provide income to the surviving spouse.  Long-term care insurance can help preserve those assets by covering expenses not usually covered by health insurance, Medicare or Medicaid.

Second, if a woman lives 5, 10 or even 20 years longer than her husband, there is a good chance that she will need some type of long-term care services during her life as well.  And because her husband died first, she will have fewer options if she becomes sick or disabled and needs someone to help.  A long-term care policy can provide peace of mind, minimize burden on friends or family, and help her get into her choice of facilities or be cared for at home as long as possible.

Estate Planning

Married couples typically create their estate plan (e.g. wills, powers of attorney, etc.) together, but it is the wife who tends to see that plan in action.  Because women live longer, it is the wife who will likely be the one to use the powers of attorney for finance and health care if her husband becomes disabled or incapacitated due to illness.  She will also need to handle his estate when he dies.  When that occurs she will need to update her own planning and make sure that it passes her property to the correct people and names the people she wants to handle her affairs in the event that she is no longer able.  Because of that, women should pay particular attention to their family’s estate planning and make sure that it is up to date and accurately reflects their wishes.

Living a long, healthy life definitely has its benefits.  It means more time with friends and family.  More time doing the things you love.  More time enjoying life and experiencing all that it has to offer.  Unfortunately, it can also mean outliving those you love.  By planning ahead, you can create security and peace of mind for yourself and your family and keep your retirement on track.

 

* Federal Interagency Forum on Aging-Related Statistics: http://www.agingstats.gov/Main_Site/Data/2008_Documents/Population.aspx
 Photo by Mark Brooks.  Used under Creative Commons License.  I originally published this article at www.fpanet.org.

 

10 essential documents for retirement

10 essential documents for retirement

Quick Summary:  Key documents everyone needs to successfully navigate retirement.

When planning for retirement, most people focus on saving, and rightly so.  Having enough money to fund your retirement dreams is a key element to any plan.  Often overlooked, however, is the importance of obtaining and organizing important documents.  Here are ten essential documents you will need to successfully navigate retirement.

Pension paperwork

Defined benefit pensions have become less common over the years, but there are still many people covered by them.  If you have a pension at work, the details of the plan will be spelled out in the plan’s Summary Plan Description.  In addition, you should receive an Individual Benefit Statement that details the specific benefits that you have earned and are eligible for.  Make sure to review those documents as you approach retirement so that both you and your spouse have a good understanding of how much income you can expect from the plan and what will happen to that income if the primary pension holder dies.  Make sure to contact your employee benefit’s department with questions or concerns.  Also, the Department of Health and Human Services offers help and advice to pension holders through its Pension Counseling and Information Program.  Visit www.aoa.gov for more information.

Beneficiary designation forms

Many accounts, such as Individual Retirement Accounts (IRAs), 401(k)s, annuities, and insurance policies allow you to name a beneficiary who will receive those assets when you die.  Many people don’t realize that those designations take precedence over their will, even if the will is more accurate and up to date.  Because of this, it is important to review the beneficiary designations on all your accounts (as well as those of your aging parents if you are helping them with their finances) prior to retiring to make sure that they accurately reflect your wishes.  Meet with your financial adviser and estate planning attorney to ensure that your designations not only pass property to the correct people, but also minimize expense and taxes.

Documents needed when applying for Social Security

The Social Security Administration will need you to provide certain documents when filing for retirement or survivor benefits.  Documents they may request include your Social Security card, a certified copy of your birth certificate, proof of citizenship if you were not born in the U.S., military discharge papers, a copy of your marriage license or divorce papers, and a copy of your W-2 form (or self-employment tax return) for last year.  Having these documents readily available will help speed the process along.

Investment paperwork

Most people’s assets are divided into many different types of accounts.  Some may be tax-deferred, others may not.  Some might have restrictions or requirements on withdrawals.  Some, like annuities, might give you different options for turning the account into a guaranteed income stream.  When transitioning into retirement, it is important to have current copies of your account statements as well as options or restrictions associated with each account so you can craft a distribution strategy that meets your needs while minimizing expense, hassle and taxes.

Health care paperwork

Your health benefits during retirement will likely come from multiple sources.  Those could include a former employer, Medicare, Medicaid, a Medicare supplement policy, or a long-term care policy.  Be sure to retain benefit summaries, contact information, and policies associated with each.  If you have not filed for Social Security benefits by age 65, you will need to apply for Medicare.  You can do this up to three months prior to your 65th birthday.  When applying, you will likely need to provide them with the same documents mentioned earlier for Social Security applicants.

Home inventory

Many house fires or burglaries occur when the homeowner is away.  When you retire, you will likely spend more time traveling or at a second home than you did during your working years.  Because of that, it is important to inventory the contents of your home (either make a list or do a quick video walk through) so that you can more easily make insurance claims and rebuild your life if the unexpected happens.

Insurance policies

Many retirees have life insurance policies in order to replace income in the event of a death, as a vehicle to build cash value, or for estate planning purposes.  Make sure to have current copies of your policies as well as contact information for the insurance company so you can easily access cash value during life or so that your heirs can easily claim benefits if something happens to you.

Will/Trust

Most people need a will, regardless of the size of their estate, to control the passing of property at death.  Another tool to accomplish this while at the same time avoiding probate is a Revocable Living Trust.  As you enter retirement, you should meet with your attorney to put a plan in place that passes your property to the correct people, designates the correct people to take charge, and minimizes expense, hassle and taxes.

Durable power of attorney for finance and health care

A durable power of attorney for finance is a simple and inexpensive legal document that authorizes a person you have chosen to step in and manage your day-to-day financial decisions if you become incapacitated.  Everyone needs this document to provide for the ongoing management of their financial affairs if they cannot make decisions for themselves.

Similar to the power of attorney for finance, the health care power of attorney is a legal document that authorizes a person you have chosen to step in and make health care decisions for you if you become incapacitated and can no longer speak for yourself.  You can also include a health care directive which provides written instructions to your agent that communicate your wishes regarding the withholding or withdrawal of certain life support equipment or medical procedures.

If you plan on moving to a different state when you retire, meet with your attorney to make sure that your will, trust, and powers of attorney will be valid in your new state of residence and make any necessary revisions.

Tax returns

In many ways life becomes easier after you retire.  Unfortunately, this is not the case with your taxes.  In fact, because your employer is no longer automatically withholding from your paycheck, tracking and paying your taxes may become more complicated.  To make matters worse, different states tax income and spending differently.  Will you owe tax on Social Security?  How about pension and annuity income?  How much should you withhold from IRA distributions?  The short answer is “It depends.”

Because of this you should work closely with a trusted tax adviser and then maintain your tax returns and supporting documents for seven years.  The IRS can look back three years for basic errors and six if you underestimated income by more than 25 percent.

As you can see, obtaining, understanding, and organizing your key documents will not only help you to make informed decisions, but will also facilitate a smooth transition into a rewarding and meaningful retirement.

As always, thanks for reading!  Can you do me a quick favor?  Help me spread the ideas at Intentional Retirement by forwarding this email to a friend or family member who you think would benefit from it.  

Joe

Essential financial tips for empty nesters

Essential financial tips for empty nesters

If your kids are grown and moving on to the next stage of their lives, it’s time for you to begin thinking about the next stage of yours.  For many, the empty nest years fall in that decade or so just before retirement.  Because of that, it’s an ideal time to make adjustments to your finances and make sure you’re on track to meet your retirement goals.  If your kids have flown the coop, here are seven key financial moves you should consider making.

Adjust your insurance coverage

With your kids out on their own, it’s time to review your insurance coverage.  If they’re no longer driving your cars, ask your insurance agent about removing them from your policy or getting a distant-student credit.  Similarly, if they have health coverage provided by their school or a new employer, removing them from your policy will likely reduce your premiums.  And don’t forget about life insurance.  If your kids are through school and the house is paid for, you probably don’t need as much life insurance, but you may want to consider adding long-term care insurance.  Meet with a trusted adviser to evaluate your circumstances and craft a plan that is appropriate for your current stage in life.

Re-focus your finances

Several studies have shown that the cost of raising a child from birth to age eighteen can run anywhere from $250,000 to $500,000.  That’s a big chunk of change and causes many people to neglect their planning for things like retirement.  With fewer mouths to feed and big expenses like college and braces out of the way, it’s time to re-focus your finances on you.

The good news is that you’re likely in your peak earnings years and retirement plan contribution limits are higher for people over age fifty.  Take advantage of those higher limits by putting away as much as possible. The maximum 401(k) contribution for 2011 is $16,500 plus an additional $5,500 if you’re over 50. IRA contribution limits are $5,000 plus an additional $1,000 if you’re over 50.  That means that a working, married couple could sock away an additional $280,000 in just five years simply by maximizing their 401(k) and IRA contributions.

Re-do your budget

A budget for a family of five looks drastically different than a budget for two.  Take a hard look at your expenses and re-design your budget with your new circumstances in mind.  I’ve already talked about insurance and savings, but don’t forget to consider things like cell phone plans, cable tv channels that only junior watched, the grocery bill, and memberships or subscriptions that you were covering for the kids.  Once you’ve freed up some extra money each month, see point two.

Go back to work

If you stayed home to raise your kids, consider going back to work at something you really enjoy.  Not only can a job replace some of the purpose you derived from raising the kids, but it can also increase the Social Security benefits you’ll be eligible for and provide extra money for savings or meaningful pursuits.

Consider downsizing

Selling the home you raised your family in can be difficult, but it might make sense if you don’t need the space or if you plan on moving when you retire.  Even if you don’t initially downsize your house, work at downsizing your stuff, especially those things that you no longer need now that the kids are gone.  Here’s a great article by Leo Babauta on how to de-clutter a room.  Paring down your stuff will make the transition easier if you eventually decide to move to a smaller place or retire in a different state.

Downsizing can also help you unlock the value in your home.  For many, their home is their biggest asset.  If your house made sense for a growing family, but is overkill now that the kids are gone, moving to a smaller place could free up tens or hundreds of thousands of dollars for retirement.

Get out of debt

The typical empty-nester has about ten or fifteen years to go until retirement.  That’s plenty of time to make sure your debt retires when you do.  Retiring debt free can slash 20-40 percent off the amount you need to save for retirement.  For more information, read my earlier post on how (and why) to retire debt free.

Review your asset allocation and retirement plans

As you get closer to retirement, you will likely want to adjust your investments to make your portfolio more conservative.  Meet with a trusted financial adviser to make sure your asset allocation is appropriate and to track your progress towards retirement goals.  If married, it’s also a good idea to talk with your spouse about your retirement plans and dreams to make sure you’re both on the same page.

As you can see, sending the kids out on their own can be a major transition, both emotionally and financially.  By taking a few simple steps and being intentional with your planning, you can enter the next stage of life with confidence and purpose.

Designing a retro retirement

Designing a retro retirement

It seems like everything old is new again.  Starting with the redesigned Volkswagen Beetle in 1998, there has been a flood of retro styled products that are aimed at helping the baby-boomer generation recapture a piece of their youth.  To wit, The Rolling Stones 2005 concert tour was the highest-grossing tour of all time, retro muscle cars are a huge hit, and entire neighborhoods are being designed from the ground up to give them a more “1950’s” feel.

Retro products seem to have one thing in common.  While the look harkens back to the “good old days,” the design and features offer decidedly modern elements that appeal to the world we live in today.

With 70 million people hurtling toward retirement, I began to wonder what a “retro” retirement would like.  Just like retirees of yesteryear, we all want to be happy, healthy and secure during retirement, but our modern world offers challenges and opportunities that didn’t exist a generation ago.  Below are five modern updates to the classic retirement.

Personal savings is the new pension.  My grandfather hasn’t punched a time clock in over twenty years and yet, like clockwork, his former employer sends him a pension check every month.  The lifetime pension has become the exception rather than the rule.  A generation ago, most workers were covered by a pension.  Today that number has dwindled to less than a third.  Retirement hasn’t gotten any cheaper, so you will still need to get that check every month.  If it doesn’t come from your employer, it will need to come from you.  As you approach retirement, you are likely in your peak earning years.  Make sure to save as much as you can, especially in tax advantaged accounts like your 401(k) or IRA.

College is the new golf.  We have always known the benefits of staying physically active.  New research is beginning to show the benefits of staying mentally active as well.  Because of this, more and more retirees are opting for a book bag over a golf bag.

Many colleges and universities allow people to audit classes—that is, paying a minimal fee to attend the class without receiving college credits.  Even better, many universities are now putting class lectures on iTunes for free.  Interested in art?  Just download Oxford’s drawing classes.  Want to study history? Columbia University has a free, twenty-five part lecture series on the history of the world.  You can also download classes from Harvard, Yale, UC Berkeley and a number of other great institutions on just about any topic you can think of.

Auditing classes or getting them online is an inexpensive way to learn more about a subject that has always interested you and comes with the added benefit of keeping your mind sharp.

Long-term care is the new Medicaid.  It is not unusual, as we age, to rely on others for care.  This care can be very expensive (A private room in a nursing home averages $78,000 per year) and more and more people are purchasing long-term care insurance to protect themselves.  While Medicaid will pay most nursing home costs, you need to qualify by being both sick and poor.  A quality long-term care policy will allow you to preserve your assets for heirs, have peace of mind and get into the facility of your choice.  To learn more about long-term care, read this article.

Sixty-five is the new fifty-five.  Back when Elvis was king, the average U.S. life expectancy was about sixty-eight years.  Today, the average life expectancy is about seventy-eight years.  Given that information, you would think that the average retirement age has risen.  It has actually declined by about four years to age sixty-two.

Earlier is not always better.  Retiring at sixty-two not only means a permanent reduction in your Social Security benefits, but it could mean that you will spend 20-30 percent of your life in retirement.  That takes a great deal of savings and planning.  If you’re in good health and expect to have a long life, you might want to work a few extra years to bolster your savings.  Doing so might actually lengthen your life.  A recent study showed that mortality rates were higher for employees that retired at age fifty-five than for those that waited to retire until they were sixty-five.

Prevention is the new cure.  Quality of life is just as important as quantity of life.  Modern medicine has shown us that eating right and exercising your mind and body can go a long way toward avoiding many of the diseases that are associated with aging.  Heart disease, diabetes, hypertension, and many forms of cancer can be directly linked to lifestyle choices.  The best way to avoid the negative effects of these diseases is to keep from getting them, rather than trying to treat them once you already have them.

So there are a few ideas on how to put a modern twist on the classic retirement.  Make a few updates and you’ll be ready to grab your bell bottoms, hop in your Beetle and head into a long, healthy, secure retirement.

Should you buy long-term care insurance?

Should you buy long-term care insurance?

For many people in retirement, their greatest fear is ending up in a nursing home.  Being able to live independently or, barring that, getting into a quality facility of his or her choice is an important end goal.  Unfortunately, this type of care does not come cheap.

According to the 2011 Genworth Cost of Care Survey, the median annual cost of a private room at an assisted living facility in the U.S. is $39,135.  That same private room at a nursing home averages almost $78,000 per year.  Because these costs are expected to continue rising in the years to come, it is important to have a plan to protect yourself against this potential shock to your retirement budget.

Covering the costs of long-term care

There are four primary ways to pay for long-term care: Medicare, Medicaid, paying the costs yourself, or purchasing a long-term care insurance policy.  Many people assume that Medicare is the answer, but it only covers long-term care expenses under very limited circumstances.  Medicaid will help pay, but it is a needs based program that essentially requires you to be both sick and poor in order to be eligible for assistance.  It is often a last resort for someone who needs care, but has exhausted his or her personal resources.

Because Medicare and Medicaid are not great options, it is important to have alternative plans to cover the costs.  Some may have the resources to self insure.  For others, it may make sense to purchase a long-term care insurance policy.

How does long-term care work?

In general, a long-term care policy pays a specific dollar amount for each day of care that is covered by the policy.  Covered services can include home health care, respite care, adult day care, care in an assisted living facility, or nursing home care.  The policy is usually triggered when you need help performing the normal activities of daily living, such as bathing, eating, or dressing.

Roberta Hahn of Tigard, Oregon arranged for her mom Helen to get help when she began to struggle with these daily tasks.  “Mom lived independently as long as she could,” Hahn said.  “Physically she just got to the point where she couldn’t take care of herself anymore.  Because I work I wasn’t able to give her the kind of care she needed, so it was a relief when we were able to get her into a great facility not far from my home.  Thankfully, she has a long-term care policy that has helped to cover much of the cost.”

There are nearly 10 million Americans who, like Ms. Hahn, need help with these daily tasks.  As life expectancies rise, that number is expected to grow.  In fact, the President’s Council of Economic Advisors estimates that 70 percent of people who reach the age of 65 will need some form of long-term care before they die.

Is a policy right for you?

Policies like Ms. Hahn’s can be expensive and they’re not for everyone.  If you can’t afford the premiums, don’t have significant assets to protect, or have Social Security as your only source of income, you will probably want to think twice before purchasing long-term care insurance.  If, however, you want to preserve assets for heirs and can afford the premiums, a policy can be a wise investment.

Other common reasons people have for purchasing a policy are to have peace of mind, to avoid being a burden on friends or family, to be able to get into their choice of facilities and to be cared for at home as long as possible.

What to look for in a policy?

If you decide that long-term insurance might make sense for your situation, there are several things you will want to consider when purchasing a policy.  Does the policy you are considering exclude certain pre-existing conditions?  Is there an elimination period after you enter a facility before benefits will begin to be paid?  Do benefits cap out at a certain level?  Does the policy cover a broad spectrum of services from home care to assisted living and nursing home care?

Because medical costs are rising rapidly, it is also important to have a policy that offers inflation protection.  You may be able to purchase one day in a nursing home in your area now for about $200, but the same day might cost you $325 ten years from now.  To make sure you have adequate coverage, investigate the cost of care in your area.  Then look for a policy that will cover those costs and that will compound 5 percent annually to account for inflation.

To help compare policies you are considering, be sure to ask the company for their outline of coverage, which will highlight a policy’s features, provisions, and benefits.

Also be sure to investigate: Is the insurance company offering the policy reputable and financially strong?  All of the major insurers are rated by A.M. Best, Moody’s, and Standard & Poors.  Check those company’s websites for the most current ratings.

When and how to apply

Qualifying for long-term care insurance becomes more difficult as you age.  Because of that, the average purchase age is 57.  According to the American Association for Long-Term Care Insurance, about half of those waiting until age 70 will be declined due to health reasons.  A trusted insurance or investment adviser can help you evaluate your options and apply for a policy that is right for you.

Also, some employers have begun offering long-term care as part of their employee-benefits packages, so check with your human resources department to see what is available.  Premiums are typically lower in employer plans, but they usually offer fewer benefits as well.  Be sure to evaluate your options carefully.

As you can see, there are many different things to consider before purchasing long-term care insurance.  Deciding which option is best can be complicated, but having good information and wise council will usually help the proper solutions come into focus.

I originally published this article at www.fpanet.org.  It also appeared in the Omaha World Herald.

Annual retirement review checklist

Annual retirement review checklist

Retirement has a lot of moving parts and when you consider that it could last for thirty years or more, it should come as no surprise that it will have several distinct phases.  Sixty-five will look different from seventy-five, which will look different than eighty-five.  The world, your health, your finances, your responsibilities, and your priorities, will be dynamic and ever changing.  Because of that, it’s important to review your planning and circumstances each year and make whatever course corrections are necessary to keep you on track.  Below is a list of questions to ask yourself each year to help determine if any changes or adjustments are in order.

1)    Is my withdrawal rate sustainable? The answer to that question depends on many things, including investment performance, inflation, how long you live, and, not surprisingly, luck.  Running out of money is not a pleasant option, so you should periodically evaluate your distribution strategy to see if it is sustainable.  A good rule of thumb is to keep withdrawals at 4 percent or less of your overall portfolio.  Everyone’s circumstances are different, however, so meet with your adviser to make sure your income lasts.

2)    Is my income still sufficient and keeping pace with inflation? Inflation is constantly eroding the purchasing power of your money.  That means you will likely need to pay yourself more and more with each passing year simply to buy the very same goods and services.  Consider a day in the hospital.  In 1980 it cost $340.  That same day in 2010 cost $5,310.  To offset the impacts of inflation, most people need to continue to grow their portfolio, even after retiring.  That means you can’t shun risk altogether.  You’ll likely need a well-diversified portfolio of stocks and bonds in order to keep pace.  That leads us to number three.

3)    Is my asset allocation appropriate? Simply put, asset allocation is the process of spreading your investments among stocks, bonds, cash, real estate, commodities, and foreign securities.  Research shows that asset allocation is extremely important.  Not only does it help to minimize risk, but studies show that it is responsible for nearly 90 percent of your overall return.  As markets fluctuate you will likely need to rebalance your portfolio to get your allocation back to your intended target.  In the same way, if your goals and objectives change, you should adjust your allocation to match.

4)    Is the amount of risk I’m taking still appropriate? Too often people discover their tolerance for risk only after they have exceeded it.  This can be a painful lesson any time, but it is devastating to someone in retirement.  This is easy to see when you consider the arithmetic of loss.  Any investment loss you experience requires a considerably larger gain just to get back to even.  For example, if your portfolio loses 50 percent, you would need a 100 percent return just to get back to where you started.  Most people in retirement don’t have the luxury of waiting around for 100 percent returns.  Better to avoid the loss in the first place.

5)    Has the value of my assets changed significantly? Once you retire, you need to turn your assets into an income stream.  The bigger the asset, the bigger the potential income stream.  Big swings in net worth, like a large inheritance or a significant market loss, affect the amount of income your portfolio can generate.  You don’t want to run out of money by taking too much or live miserly by taking too little.  Any time the value of your assets changes significantly, reevaluate your withdrawal rate and your asset allocation to make sure they are still appropriate.

6)    Are my beneficiary designations up to date? You might not realize that your beneficiary designations (like those on your IRA, 401(k), and life insurance policies) override your will.  If your will leaves your life insurance to your kids, but you never updated the beneficiary designation on the insurance policy after your divorce, your ex is getting the money.  As you can see, it’s important to periodically check your beneficiary designations to make sure that they reflect your current intentions.

7)    Have any of my sources of income been impacted? Personal savings is only one source of income during retirement.  You will likely also receive Social Security and possibly a pension.  If your spouse dies, that might cause the pension to go away or be reduced. Worse, if the company you worked for goes bankrupt, your pension might get taken over by the Pension Benefit Guarantee Corporation and be significantly reduced.  Social Security is on an unsustainable path and your benefits there might be altered as well.  Any changes to these other sources of income will put more of the burden on your personal savings, so monitor them closely.

8)    Has mine or my spouse’s health changed significantly? At some point, the desire to live close to the beach might give way to the desire to live close to a good medical facility.  As you age, investigate assisted living areas and medical facilities in your area.  You might eventually need to sell your home to move into a facility or even move to another state if you want to be closer to friends or family that will be involved in your care.  Do as much of this planning as possible while you are still healthy so you can easily transition into the next phase.

9)    Is my estate plan up to date? Your estate plan should not be a static document.  As your life changes, your planning must change with it.  Getting married or divorced would likely significantly change how you want to distribute your property.  Likewise if there is a death in the family.  Each year you should review your documents, including your will, trust, and powers of attorney to make sure that they still reflect your wishes and still have the correct people taking charge if you were to die or become incapacitated.  Also, if you move to another state when you retire, meet with your attorney to make sure that your documents will be valid in your new state of residence.  Make revisions as necessary.

10) Have my insurance needs changed? Not surprisingly, your insurance needs will change over time.  It’s a good idea to periodically review your policies and make changes as necessary.   Is Medicare adequate or do you need additional coverage to fill certain health care gaps?  Do you anticipate that you or your spouse will need assistance with basic daily activities?  If so, you might want to consider a long-term care policy.  Does your pension go away when you die?  Will your death burden your heirs with a large estate tax bill?  If so, changes to your life insurance may be in order.

For a handy PDF of this document, visit the Resources page.