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  • 5-Minute Article
  • |
  • May 08, 2018

What to Do in Retirement: Revisit Your Financial Plan

How to monitor important financial and lifestyle changes that might affect retirement plans.

smiling retired woman in glasses featured in an article about revisiting your financial plan

Reaching retirement might seem like the end of retirement planning, but the market will continue to shift, and financial needs and goals may change after you’ve stopped working. In fact, 72% of retired Americans report experiencing at least one financial challenge in retirement.1 To keep up with changes, financial plans need to continue evolving. Regular evaluation — at least once per year — of important factors such as income and expenses, market performance, taxes, and family developments remains an essential part of financial planning after retirement.

Here is a list of five key lifestyle and financial considerations to review with a financial professional on an ongoing basis to help keep retirement plans on track:

Changes in Health Status

An unexpected medical condition may result in higher-than-anticipated medical bills. That’s why your retirement plans should include a safety net for medical expenses, typically made up of insurance and liquid savings.

Reviewing this medical safety net annually with a financial professional can identify potential adjustments or unmet needs, as well as help develop a strategy for paying for unexpected medical expenses. Financial professionals can help identify investments or other financial products that help cover medical expenses, such as long-term care riders on permanent life insurance. These riders offer an advance on a policy’s cash value or death benefit to pay expenses related to certain medical conditions.

Changes in Family Status

Retirement plans are often built around family needs. But the birth of a new grandchild, a change in marital status, a death, or other major family changes can affect these plans. For instance, a single retired person who gets married a few years into retirement would need income to cover two individuals, not just one — and would likely need to revisit estate planning

To stay on top of potential family changes, each year review important estate planning documents — including beneficiaries named on retirement accounts, the person named as a power of attorney, and who will direct the living will.

When a major change to the family structure happens, contact your financial professional shortly after the event to discuss potential adjustments to a financial plan. A new grandchild, for example, might inspire a grandparent to begin funding a 529 plan for future college costs — and at the same time help reduce that grandparent’s taxable estate.

Changes in Income and Expenses

Retirement spending may change for many reasons, planned or otherwise. You may seize a once-in-a-lifetime travel opportunity or face unexpected home expenses, such as a repairing a leaky roof.

Spending changes like these often require a re-allocation of retirement income. Consider these ways retirees and their financial professionals can review income and expenses to identify potential adjustments:

  • When preparing taxes each year, calculate the previous year’s expenses to see if they were higher or lower than expected. Consider how spending is likely to change over the coming year. A retirement income plan, for instance, might shift due to developments such as the need to start required minimum distributions — an amount the government requires IRA and 401(k) owners to withdraw annually after age 70½ based on their age and the value of their account.
  • If expenses appear likely to exceed planned income, consider ways to cut back on retirement costs. Look for non-essential costs that can be reduced in order to meet essential expenses.


Changes in the Markets

Even if you have a diversified portfolio to manage risk, gains or losses in the markets can have implications for retirement plans. Reviewing your portfolio at least annually, or even quarterly, in collaboration with a financial professional, can identify opportunities to adjust assets to keep your financial strategy on track

Consider how, as the market moves up or down, rebalancing is required to keep a portfolio’s mix of assets in line with target allocations. Say you wanted 30% of an IRA invested in stocks and 70% in bonds: After a strong year for the stock market, the value of those stock investments might have risen considerably, to the point that stock investments now represent 35% or 40% of the overall savings in the IRA. In that case, selling some stock investments and buying more bonds can bring the allocation back in line with its 30%/70% target.

In other cases, growth of some investments might provide opportunities to build a larger financial cushion by transferring gains to products that help protect a portion of a portfolio, such as annuities. An index-linked annuity , for example, provides the opportunity to participate in the market’s growth potential by tracking a stock market index. If the index performs well, the account earns interest up to a cap, or maximum, set by the insurance company. If the index performs poorly, the account value is protected from a portion of losses based on the level of protection the annuity owner selects

During downturns, investments owned outside of tax-deferred retirement accounts — such as stocks held in an online brokerage account — that have lost value can provide opportunities to reduce taxes. Selling investments that have lost value can generate what is known as a capital loss. These losses can be used to offset capital gains — and the associated capital gains tax — generated by the sale of appreciated stocks. However, significant downturns in the markets may call for adjustments to spending to preserve as many assets as possible until the markets recover.

Changes in Your Tax Status

Tax bills can fluctuate from year to year due to changes in tax law and shifts in total income. Taxes can also vary whenever you change your mix of income sources, such as shifting from withdrawals from taxable to nontaxable accounts. Monitoring these changes each year can uncover opportunities to save money. For example:

  • Planning which retirement accounts to withdraw from for larger expenses can help reduce taxes. For instance, a tax-free withdrawal from a Roth IRA can help fund a significant, one-time expense, without the extra income boosting the retiree into a higher tax bracket. A loan from the cash value of a permanent life insurance policy also can provide a tax-free source of funds, as long as the withdrawal does not exceed the premiums paid.
  • Years with lower-than-expected income taxes can provide opportunities to take advantage of strategies that trigger taxable events, such as converting a traditional 401(k) or IRA to a Roth — if it makes sense for a financial plan.

Because life continues to change after retirement, financial plans should continue to evolve, too. Getting into the habit of monitoring financial and lifestyle changes yearly, and reviewing the impact those changes might have on a retirement plan, can help maintain a desired retirement lifestyle.

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