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.


Seven ways to disaster-proof your life

Seven ways to disaster-proof your life

Have you ever wondered what you would do if you suddenly became the victim of a natural disaster, terrorist attack, fire or other unexpected event?  Would you know what to grab if you had only seconds to escape your house?  The plans you’ve made in advance and the items you decide to take will determine how quickly you are able to rebound from disaster.  Here are seven ways to prepare for the unexpected.

Prepare a Grab-and-Go Case.  Organize your important legal, financial and insurance paperwork into a file that you can snatch if you need to flee your house or your city.  Consider including birth certificates, estate planning documents, financial statements, insurance policies (homeowner’s, auto, life, health), Social Security cards, a list of your prescriptions, a copy of your driver’s license and some emergency cash.

Make a Contact List.  If a disaster occurs, you’ll want to contact friends or relatives to let them know you are safe or to ask for help.  List their names, addresses and phone numbers.  Include your trusted advisers, such as your physician, attorney, financial adviser, accountant, insurance agent and banker—they’re all trained to help you pick up the pieces of your life.

Prepare a Household Inventory.  After a major disaster, most homeowners are simply not able to remember all their belongings for an insurance claim.  A household inventory—a written list, photographs or a video walk-through of your home—will help avoid this problem.  Remember to store the inventory somewhere other than your home, with a copy in your grab-and-go case.

Meet With Your Advisers.  When you have six feet of water in your living room is not the time to discover you don’t have flood insurance.  The emergency room is not the place to learn you need a medical power of attorney.  Take the time to schedule meetings with each of your advisers and let them know you are trying to fill in the gaps and disaster-proof your affairs.

Update Your Plans.  Change is the one constant in life.  Make sure to review and update your affairs at least annually.  Some questions to ask include (1) Has your marital status changed?  (2) Has the value of your assets changed significantly?  (3) Have you altered your insurance policies?  (4) Have you changed jobs?  (5) Has your health recently changed?  If you answer yes to any of those questions, you need to update your plans.

Have a Backup.  Let’s face it.  You may not be able to escape with your important paperwork.  Many fires, for example, happen while the homeowners are away.  To protect yourself, store backup copies of important documents in a safe-deposit box or with a trusted friend, relative or adviser.  As a general rule, don’t keep anything in a safe-deposit box that may be needed in an emergency, such as powers of attorney—a safe-deposit box may not be accessible 24 hours a day and may be sealed temporarily after the box owner dies.

Evaluate Storage Solutions Carefully.  Your primary focus should be on keeping your information secure.  If your computer is your main storage vault, make sure it has up-to-date firewall and anti-virus protection.  Use of a reputable online storage service may be a good option for those comfortable with the technology.

Keep in mind that in an emergency, portability becomes an additional concern.  It would be difficult to grab your computer, with all it’s plugs and cables, and quickly escape your home.  Instead, if you want an electronic copy of your documents, consider scanning them and burning them to a CD or storing them on an external hard drive or USB flash drive, portable devices that hold a lot of data.  For photos, consider one of the many online storage sites.

Fireproof safes may provide added protection for documents.  However, you should know that many consumer safes are rated to withstand heat and flames for only about an hour.  After that, even if the safe is intact, the internal temperature could rise above 350 degrees and any paper inside would incinerate.  This is what happened to the safe-deposit boxes in the World Trade Center.  While some of the boxes survived, many of the contents did not.

None of us can prevent the unexpected, but putting your life back together again is much easier if you have all the pieces.

This article was originally published in the AARP Bulletin.