Created: December 18, 2022
Modified: December 13, 2022

Yearly Retirement Review

When you do your retirement planning, when you do your investment planning, when you’re working with an advisor, you need to have an annual review. Maybe even more often than annual, but you need to have some kind of a checkup, or review, where you can revisit the assumptions, revisit the plan, and make sure that you don’t have to make any adjustments.

If it is revealed that you have to make some adjustments, then review and make those adjustments. It’s really important. Picture a car going down the road; it just doesn’t don’t set the steering wheel and go straight down the road. You have to adjust it slightly. Sometimes they’re just little adjustments. Sometimes a deer might run out in the road, and you’ve got to hit the brakes or swerve, and that’s unlikely if you have a good financial plan that you have to make drastic changes, but you want to catch things early. So those changes are just slight little changes.

Meet With the Advisor

So, let’s talk about the things that you need to look at and that your financial advisor needs to look at when you do this annual review. First of all, meet with the advisor. This is not a set-it and forget-it situation. You need to meet with your advisor now. It doesn’t have to be in person. Although I tend to prefer in person with clients. It could be over zoom, but I think it should be something where you’re seeing each other face to face, where you can make that connection. Make that emotional connection with your advisor, and they can make that emotional connection with you. During that meeting, you need to make sure that it’s a two-way meeting. It shouldn’t just be the advisor talking and it shouldn’t just be talking. But what tends to happen from time to time in a financial advisor-client relationship is the advisor is just doing all the talking. In fact, I think that’s a little bit of a red flag if the advisor is doing all the talking. They should be asking you a lot of questions to make sure that plan can be adjusted. So, you’re going to meet with an advisor. It’s going to be a live meeting, right? Preferably face to face, but maybe it’s over Zoom. But hopefully more than just a phone call. You want to rerun those projections.

Make It a Habit to Re-Run Projections and Check in on Your Plan

So, I have a number of clients that I work with, and we do these retirement income projections where it shows that, let’s say for instance, you’ve got five years to go before retirement. It’s going to show the projection of how much your assets are building while you’re saving for retirement. And then when you get to retire and you trigger income, are we triggering income from those assets? And if so, are they performing the way we want them to perform? Why do we do these projections, even if you’re not retired? Because if the markets do really well, it might be a situation where you have more than you expected or you need to de-risk that portfolio. If the markets don’t do well, if you take a hit, then maybe we need to come up with a plan to get you back on track.

What Has Changed in Your Life?

It’s really important that any projections that we’re running are rerun each time you do a review. So, we run the projections. What has changed? And this probably should be number one, because when an advisor visits with you, that should be the first question they ask is, “Hey, what’s changed since the last time we met?” Sometimes when we’re bringing on a new client, something can change between the first meeting where we just visit them for the first time and the second meeting where we’re going to make our recommendations. A lot of times, something has changed. Maybe a loved one has gotten sick, maybe a job has been lost. We’ve had that happen. Maybe a new job has been taken. Maybe something has really changed as far as they’re going to sell a home or they’re going to move to another state. So, it’s really important that you cover what has changed during that review.

Also cover what’s happening with your insurance, taxes, and your debts. You know, if I was to draw a pyramid for you and we talked about the pyramid of financial stability. On the bottom of that pyramid should be risk reduction. And how do we reduce risks? Well, we make sure that we’ve got the proper insurances in place, whether it’s disability insurance, long-term care, life insurance; review all those things and make sure that your insurances are up to date. You know, if we think of a pyramid and the risk protection is down at the bottom, if that’s not covered and something goes wrong, anything above that’s not going to matter; how much Social Security you’re getting, how much you have saved for retirement, and so on. If you have a risk that’s not covered in that event happens, you could go totally backwards as far as your retirement planning.

So again, let’s cover these things and I’m going to jump over to the investment planning. So, you want to meet with an advisor, you want that to be a live meeting, you want to rerun those projections, any kind of projections that were done based on future rate of return, based on future income and so on. You want to rerun those projections. You want to talk about what has changed. Almost always, something has changed over the course of the past year. When I look back over the course of the past year, Wendy and I have had some different changes. About a year and a half ago, we bought a second home on the water. We had a grandchild. So, things have changed. We have a son that’s about to graduate from college. There are always changes that should be revisited, even if you don’t think they have to do with your finances. So, you want to make sure that you talk about what’s changed. And then let’s talk about insurance. Make sure you’re covered and let’s talk about taxes and debt.

Insurance, Taxes, & Debts

You know, during a financial review, you want to revisit the taxes, revisit the debts. One of the things where we see people leave money on the table all the time is they pay more than they have to in taxes. Once you pay that tax, that money never comes back to you. Ever, ever. There’s no rate of return on that money. That money is just gone, poof. And so, you want to make sure that you’re paying as little taxes as possible. Once that’s all done, then you should be covering the investments. You should be spending some time on the investments. But remember what the investments are. The investments are just a tool. If I’m going to build a house, I don’t go to the builder and discuss the type of hammer that he’s going to use or where he’s going to buy the lumber and so on. Those are the tools to build the house. The first thing I do is I talk about the house, what we want it to look like, projections. I want to make sure I’m comfortable with the builder. You know what’s changed as far as the plans of the house go. Then the tools come next. But the tools and retirement planning are very important because they tend to have to do with investments and pensions and so on. You want to update that investment plan. You want to review that investment plan.

Your Investment Plan

Now, your investment plan should not be changing drastically every time you meet with your advisor. That’s a misperception that a lot of people have, they think should always be these changes. You know, the markets change. We’ve got to change the investment plan. The market’s going down. We should change it. The market’s going up. We should change it. Inflation is kicking in. We should change it. A good investment plan should not be dependent on outside circumstances like the stock market or the economy or the presidential election or whatever it might be. Yes, maybe it should be adjusted a little bit. But think of it as gentle waves on the sea where there’s this slight change, right, but it’s not drastic. If you’re making drastic changes, if your advisor is trying to trade in and out of the market based on some outside circumstance, I would suggest to you that you don’t have the best investment plan. The best investment plan, along with the best financial plan, should work regardless of short-term circumstances.

Don’t React to Short-Term Circumstances

Now, with that said, we’re talking about, again, your retirement review, updating the investment plan. Let me just talk a little bit about the political world that we have these days, because a lot of people are tempted to react when it comes to their retirement plan, to outside, short term things that are happening. And many times, your advisor won’t want you to react. And yet you think, “Well, they’re not doing their job, they’re not reacting.” So, there’s a couple of things happening. Number one, I firmly believe that, again, a good financial and good investment plan should work regardless of short-term circumstances. Also, the news media today is a problem. It’s a huge problem. These phones we have are a problem because they get us thinking so short term, the temptation is to react. I mean, we react emotionally.

If I read the news too early in the morning, I either get irritated or happy way earlier than I should. I should start my day with some kind of a peaceful, in my opinion, contemplation of the day with some gratitude, and so on. And that doesn’t happen if immediately I’m reading the newspaper. Also, TV news: I mean, the idea is there’s a saying, “If it bleeds, it leads.” What does that mean? That means they will lead the TV news with the worst scenario that happens. And so, all of this programs us to want to change things way too quickly. Now, yes, we need to be aware of tax changes. That’s probably the biggest thing we need to be aware of. We need to be aware of short-term fluctuations in the economy like when COVID hit.

We need to be aware that the pandemic will affect our finances. But again, it’s in a short-term way. When we look out 10 or 20 years, or let’s just pretend we’re sitting here 10 or 20 years from now and looking back. Things get put in wonderful perspective when they get far, far away. We have been in situations like this in our country before. There was a massive stock market crash in the early 1900s, I think it was 1907-1908 when banks were going out of business and trust companies were failing. People thought the world was going to end financially. You know what? It didn’t. And every time that kind of thing happens again, it feels like this is the first time it’s ever happening.

Why am I talking about all this? I’m talking about all this because, again, you need to have a retirement plan, but you also need to have a review. And many times, your instinct as a client of a financial advisor is going to be, “Why aren’t they changing stuff? Why aren’t they reacting? There’s a new president in office. Congress has flipped. You know what’s going on? The new regulations are in place. Corporations are in trouble. I got an early layoff. Why aren’t they reacting?” If your financial advisor has put together a good plan, they’re not setting it and forgetting it. Don’t misunderstand what I’m saying, but it should be good enough where you don’t have to react all the time.

What To Expect During Your Yearly Retirement Review

So, just to review, your annual review – or maybe it’s more than annual with a financial advisor – we want it to be live, not necessarily in person. I like in person, but it should be live. You want to rerun any kind of projections that were done, whether you’re already retired or whether you’re getting close to retirement. You want to rerun those projections. You want to talk about what has changed. Things have always changed. Maybe you want to prepare for the meeting with your advisor to make sure that you have a good list so you don’t forget everything so the advisor can do their job.

And again, let’s talk about those risks. Let’s make sure you have the right insurance in place. Let’s make sure you’re not paying more than you should be in taxes. And let’s make sure that you get control of your debt. Especially if you’re in your 40s and 50s, you want to get control of that debt. So many people try to get a 1% or 2% additional rate of return annually on their portfolio of investments, and they miss the whole point that they’re paying all kinds of interest and they’re just slaves to the debt that they have. So, these are the things you want to do. Obviously, with all those things done. We want to make sure that we update that investment plan. But that doesn’t mean it should change. It doesn’t mean you should react. So again, these are the things you should cover in that yearly retirement review. Make sure you’re doing a yearly retirement review.

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