- 4-Minute Article
- Oct 25, 2019
6 Ways to Futureproof Your Retirement Plans
What to do once a year to help keep your plans on track long term.
- What’s the purpose of an annual review with a financial advisor?
- What are key topics to cover?
- What strategies could help keep my plans intact long term?
Checking in on your retirement plans at least once a year provides an opportunity to confirm your priorities and measure progress you‘ve made toward your goals. Having an annual review with your financial advisor lets you discuss your portfolio and whether any adjustments are in order to better address evolving needs and new plans.
While you likely won’t have fundamental changes to your plans each year, an annual discussion allows for reviewing a range of topics to bring to light specific opportunities or areas of concern you want to address.
Here are six key topics to discuss during your annual checkup to keep your plans on track for the future:
Markets are cyclical, and the performance of different investments can vary from year to year. While these fluctuations likely won’t call for major changes to your portfolio, you might consider minor adjustments to better withstand changing conditions.
Ask your advisor about the market outlook and whether your portfolio is sufficiently diversified. Diversification is commonly achieved by creating a mix of assets with different risks, like bonds, domestic and international equities, and stocks from companies with different levels of capitalizations or “caps.”
Even with proper diversification, timing of a downturn can be key to a portfolio’s ability to generate the income you want during your whole retirement. One strategy to consider that can provide a measure of protection against this risk is purchasing a variable annuity that offers guaranteed lifetime income regardless of market conditions.
Additionally, you may want to discuss the impact of your discretionary spending. Discretionary spending consists of “nonessentials” such as vacations and dining out, and is one of the variables you can control regardless of market conditions. You and your advisor can determine whether spending is appropriate for your plans.
Tax considerations can change over the course of a year. A new job, salary change or even a specific birthday may impact things like your tax bracket or eligibility for certain tax breaks. Especially as you get closer to retirement, you may be interested in understanding the details on how to manage taxes on both your investments and future retirement income sources.
During an annual review, you and your advisor can look at the impact of taxes on withdrawals from taxable income sources (like 401(k)s and traditional IRAs) and generally tax-deferred sources (like an annuity).
With a retirement that can last 30 years or more, it’s important to think about the effect of inflation. Over time, inflation leads to higher prices for everything from a loaf of bread to a house. Ask your advisor about whether your plans are protected against inflation rates under a variety of projected inflation scenarios.
Increasing life expectancies make it especially important to protect your retirement against the risk of outliving savings. At the annual review, you can assess your sources of guaranteed income.
Start with Social Security. Estimate what you can expect to receive from Social Security using the Social Security Administration’s retirement benefits estimator. The age from 62-70 years old that you first claim benefits impacts the amount you’ll receive, so work with your advisor to understand the impact of those different timings.
Then, discuss any changes in access to pension income (if you have one). You can check to see if you might have a gap between essential expenses and income sources by using this calculator. If you have one, ask your advisor how adding an annuity that provides guaranteed income may help fill the gap and give you the income you need.
Has your health status changed at all in the past year? If so, you’ll want to understand whether you’re still financially prepared to cover health-related expenses in retirement. Even if you haven’t had any significant changes, medical expenses are an important topic to cover as it’s estimated that the average couple will need $285,000 in today’s dollars to cover them in retirement.1 Your advisor can help determine whether options for protecting against rising health costs, including products specifically geared for the substantial expenses associated with long-term care, are appropriate for you.
Are there new grandchildren in your life? Do you want to earmark assets for charity? How might retirement income strategies change if one spouse is no longer there? The annual review is a good time to discuss big questions like these that have the potential to impact your retirement finances.
The more your advisor understands about your current and future priorities, the better prepared they are to serve your needs with personalized strategies and appropriate tools. Take advantage of your annual review to get closer to the retirement you want to have.