The Ultimate Retirement Planning Checklist

The first part of a new year is often the best time to assess progress towards client’s investment and retirement planning goals. Discussing what worked and what didn’t, as well as making any adjustments for the rest of the year is often easier during the first quarter of a new year. Things that were successful in the past aren’t necessarily what are best for today, tomorrow or down the road, especially since it’s apparent that the Federal Reserve plans to increase interest rates to a more historically in-line level than they have been for the last eight years.
2016 is shaping up to be a year of change with periods of volatility, making the initial push in client retirement planning a crucial one. These plans must be set to sail smoothly through some possibly choppy waters ahead. Putting the energy towards aspects that can be controlled through careful retirement planning and not focusing on possible market volatility are key to saving the mental space for what matters: focusing on investment return and giving the necessary attention to details that seem small early in the retirement planning process. Ignoring these two tenements is a way to capsize even the best formulated retirement plans.
Below is a checklist to help keep your retirement planning clients’ wealth and risk tolerance from becoming water-logged, no matter what storms 2016 brings:
Take a Long-Term Approach
It’s important to look at the whole picture and it is not necessary to make major changes all at once. 2016 is predicted to be a year of uncertainty and volatility, so a prudent methodology is to use strategies and practices that clients are already accustomed to while making needed adjustments gradually.
Avoid Mistakes on Policy and Account Designations
The early part of a new year is the perfect time to go over beneficiary designations and make sure that information is complete and up to date, as well as making any other needed changes. However, there are some mistakes, common among retirement planning clients, that advisors should watch out for:
• They’ve named their estate as the beneficiary of their life insurance policy. Standard practice is to name an individual as a beneficiary for personally owned policies, but clients may name a trust if it’s a trust-owned policy. Failing to follow this rule-of-thumb subjects the proceeds to probate or even interstate administration which can severely delay access to funds by heirs and family members. Those proceeds can then also be subject to estate taxation, no matter how the policy ownership has been structured.
• They’ve failed to name a secondary beneficiary. Any purchased financial product will most likely provide a designation for a primary and secondary beneficiary, including life insurance policies, annuities, and any investment accounts. Making certain that clients designate a backup reduces complications down the road and ensure that asset distribution goes to the intended heir, even if the designated primary beneficiary dies unexpectedly or prematurely.
• They’ve named minors as beneficiaries on insurance policies. This is a potentially big issue since the majority of insurance carriers will not pay out any benefits to under-aged individuals. This can lead to costly and time-consuming court proceedings to designate a custodian, conservator, or trustee to manage any benefits paid out to minors. If the client intentionally listed a minor as a beneficiary, steps to create a trust or even a Uniform Transfers to Minors Act Account should be named as a beneficiary instead.
• They haven’t removed a former spouse as a beneficiary. Divorce agreements don’t automatically remove ex-spouses as beneficiaries. The type of product is also important, as qualified retirement plans are especially vulnerable to this oversight.
Create an Emergency Liquid Reserve of Cash
We are facing some possibly turbulent times in the investment markets over the next 12 months. In order to ensure that clients aren’t locking themselves into losses, particularly when drawing down from retirement accounts, for assets locked up in the markets or for funds that are not performing well, it’s important to make sure that losses can be minimized if purchased investments take a dip. One of the best ways to accomplish this is by having a secondary income stream to weather tough times in the investment markets.
To fund that additional income stream, have clients set aside 6-12 months of living expenses. One method is to cash out an asset that is strong now and keeping it liquid after the sale. This will alleviate some of the dependence on assets that may not have positive returns in the coming months while also allowing them time to recover.
Manage Risk Tolerance
It’s entirely too common for investors to sit on one side or the other when it comes to how they handle risk with their retirement planning portfolios. Either they are oblivious to risk and are reckless with buy/sell decisions, or they are too gun-shy and risk-averse, losing out on decent returns in the process. Many investors can also make the mistake of thinking that risk tolerance comes from only allocation and diversification, which is not always the case. Data shows that to build tolerance and reduce risk overall; investors need to incorporate more non-correlation and asset class exposure into portfolios to be effectively minimize risk.
Retirement creates its own risks as clients move away from the workforce and into their golden years. Prudent long-term retirement planning is key to make the sailing smooth going forward. Managing risk, creating a strong secondary income stream, avoiding common mistakes in estate planning, and viewing all variables with a long-term scope are among the most beneficial ways to navigate tumultuous waters in later life.