Annual Financial Checkup For Retirees – Must Read

You’re probably like most people and started 2021 with lofty resolutions and New Year’s resolutions. These resolutions have since been abandoned. Don’t despair. It’s a once-a year commitment that makes it easy to stick to a resolution.

An annual financial review is similar to an annual physical. It can help you keep your finances in good shape. According to Daniel Hill, a certified financial advisor and president of Hill Wealth Strategies, Richmond, Va., an annual wealth review can help you keep your finances in good shape. Financial planners recommend that you examine your finances after major life events and whenever your goals require adjustment. The best part is that you can forget about this job for the next 12 month.

A financial checkup every year is a good thing. But, “the more volatility in the world, you want to double-check,” Adam Goetz, a partner in Burstin and Goetz, a financial planning firm in Pittsburgh and the national president for the MassMutual Advisors Association, says that an annual financial checkup should be a regular habit.

A financial review might be in order because 2020 was such an unusual year. There were no minimum distributions, very little chance to travel and spend, and a presidential election that overthrew the Washington political party. Your finances may not look the same as last year as vaccinations increase and life returns to some degree of normalcy.

Revision your Monthly Budget

Your budget is the most likely thing to change. Hill said that Hill asked a friend who is a dry cleaner about his finances and that he was feeling “stupid”. “People aren’t spending as much as they used to.”

You may be spending less on gasoline, auto repairs, travel, and yes, dry cleaning. You may also be spending more money on home improvements, groceries, online shopping, and health care. Your savings may have received a welcome boost thanks to stimulus money.

Start by looking at your bank and credit card statements monthly. Next, organize your spending into categories such as housing, groceries and travel. To see how your spending compares to previous years, you can then look at the actual spending. Hill suggests that you base your budget on the average spending of the last three to five years in order to balance out any unexpected swings.

Also, make sure you are able to save enough cash for 2021. Hill says, “I suggest people divide their savings into buckets.” Hill suggests that people have three accounts: one for emergency funds, one for vacation and one for daily expenses. Each bucket should be sufficient to cover the expected spending. You can always top up if they are not.

No matter if you are retired, your emergency funds should be sufficient to cover at most three to six months of living expenses. You don’t want to be forced to withdraw large amounts from your taxable retirement plan, which could lead you into a higher tax bracket.

It’s a great time to review your credit reports, credit scores from the rating agencies (Experian Equifax, TransUnion) and fix any mistakes. Hill recommends that you use the extra cash from last year to pay off your credit card debt, and improve your credit score. He says that this is a great time to have strong credit, with interest rates at such a low level. You could save literally thousands of dollars by refinancing a mortgage at a lower interest rate because you have a better credit score.

Evaluate Your Investment Portfolio

It was a market crash that followed by a sharp market rise. These G-forces can completely turn around a portfolio’s asset allocations.

Let’s take, for example, a 50/50 portfolio with stocks and bonds. However, after 2020’s strong returns your portfolio now has 65% stocks and a correspondingly greater risk. You must rebalance by selling stocks and buying bond until you reach your 50/50 goal. Hill recommends that you rebalance at least once a year, but Hill advises clients to do it every quarter.

Goetz states that rebalancing in volatile markets is particularly important. We all hear it. But, often, people don’t do it. People nearing retirement or who require income from investments are at risk.

He says to clients, “Remember how March 2020 felt like.” Your asset allocation should be designed to preserve your portfolio and provide long-term income options. It is not about generating immediate gains.

Your withdrawal rate, expected returns, and tax bracket will all impact how long your savings can last. Goetz says that you can’t just withdraw 4% or 5% of your portfolio every year blindly and hope it works out. This is especially true given the low interest rates and unimaginable long lives expectancies. Goetz points out that 2020 may have disrupted some income plans. “I know of clients who took out all their cash in March, and they were reluctant to withdraw again. What will this mean for their safe withdrawal limit?

To determine if your portfolio is able to generate the income you require, a financial advisor can run simulations. A free calculator could be used to run the numbers.

Plan ahead

Double-check the primary and contingent beneficiaries on your life and retirement insurance policies. It happens all the time. Hill says that a client may think they have their beneficiary in order on their 401k, but it turns out they don’t. It is easy to name someone in these accounts. Beneficiaries can bypass probate to receive the funds immediately after the death of the policyholder or account owner.

Goetz recommends that you act quickly if you are considering life Insurance. Goetz says that protection planning is more important in a pandemic. Pricing is also more favorable now than it might be in the future. He expects higher premiums in 2022 as insurance companies adjust to the ultra-low interest rates and potential higher death rates.

The tax laws, and regulations, are constantly changing with a new administration. To discuss any changes in your financial plan and to anticipate the effects, you may need to meet with an advisor or accountant. A seminar or class through an educational institution, nonprofit organization, or financial company may be more appropriate if you are a DIYer. Hill advises that it is important to find an instructor whose primary goal is to educate, not sell products.

Retirees will not be eligible for another free pass to minimum distributions. This is a significant change. Goetz states that while the government did not waive RMDs for 2020, all indications suggest it will not be for this year. You will need to take RMDs again in 2021 if you turn 70 1/2 years old before the end 2019. RMDs for everyone else are not required until 72.

To make matters worse, 2021’s minimum distributions may be higher. Investment portfolios have grown in size after last year’s market gains, and no forced withdrawals. To reach the same percentages, retirees might need to take out more money.

Goetz recommends using your review as a way to prepare for potential RMDs. You can get help from your broker, accountant, or advisor to determine how much you should withdraw by 2021. You can either use the RMD calculator online or ask your financial institution.