Things to Consider When Reviewing Your Retirement Plan’s Stability

 

Thinking about your retirement goals might involve dreams of traveling, spending quality time with loved ones or indulging in hobbies that bring you joy – guest post by Michael Landsberg

 
To make these dreams a reality, having a thought out retirement plan is essential. Regularly revisiting and updating your plan helps ensure it stays on track with your aspirations and adjusts to any shifts in your life or finances. 

While this task may seem overwhelming, focusing on aspects can simplify the process. Give you confidence in securing your financial future. In this discussion we’ll highlight considerations when evaluating your retirement strategy.

It’s advisable to collaborate with a trusted advisor or wealth management company when reviewing your plan. Their knowledge can address any queries you have and offer insights.
 

How Often Should You Review Your Retirement Plan?

 

 

It’s ideal to review your retirement plan. This yearly check up helps ensure that your retirement strategy still fits your goals and the current financial environment. According to the most recent survey, 53% of Americans feel they are behind on retirement planning and savings. 

Regular reviews allow you to make changes based on market conditions, personal circumstances or economic shifts. This way you can stay on track with your retirement savings.

Significant life events, like changing jobs, getting married, going through a divorce, or having a child can affect how much you need to save for retirement and when you plan to retire.

During your yearly review, consider several key factors:
 

• Changes in Income: See if there have been any significant changes in your income. This could be salary raises, bonuses or a decrease in earnings. Adjusting how much you save based on these changes can help keep your retirement plan in line.

• Investment Performance: Review how well your investments did over the year. Check assets and your overall portfolio. This can help spot any investments that didn’t perform well and might need adjusting.

• Life Expectancy and Health: Your health and life expectancy may change as you get older. Factors, like conditions and market trends, tax laws and personal retirement goals can impact how long your retirement savings will last.

• Economic and Market Conditions: It’s important to stay updated on factors such as inflation rates and interest rates as they can affect your investment returns and purchasing power

• Tax Laws and Regulations: Changes in tax laws and retirement regulations should also be considered, as they can influence strategies like contribution limits and required minimum distributions.

• Retirement Goals: Reflecting on any shifts in your retirement goals is crucial. Whether you’re thinking of retiring or have aspirations for your golden years, adjusting your plan accordingly is key to staying on track.

 
The list above is just the tip of the iceberg. We will dig deep later on the more important things.

It’s an idea to go beyond your yearly evaluation and think about doing a deeper review every three to five years. This gives you the chance to take another look at your retirement plan as a whole diving into specifics like your expected expenses, during retirement and where your income will come from.

By sticking to a routine of checking in on your retirement strategy you can be proactive. Make smart choices that help secure your financial future.
 

Things You Should Look at When Reviewing Your Retirement Plan’s Stability

 
When reviewing the stability of your retirement plan it’s crucial to take factors into account. These elements play a role in ensuring that your plan can support your desired lifestyle throughout your retirement years.

Let’s discuss some key areas to focus on:
 
Growth Potential

When evaluating your retirement plan an essential initial step is to assess your asset allocation. This entails examining the blend of stocks, bonds and other investments in your portfolio. The right asset allocation can facilitate growth that surpasses inflation and helps grow your retirement funds over time.

Stocks: Typically known for their growth potential compared to bonds and cash stocks also come with increased volatility. It’s important to review whether your current stock allocation aligns with both your risk tolerance and long term growth objectives.

Bonds: Bonds are generally less volatile. Offer consistent returns. While they may not provide the level of growth as stocks they play a role in diversifying your portfolio and generating income.

Alternative Investments: Including alternative investments like real estate, commodities or private equity in your portfolio can present additional avenues for growth and enhance diversification.

Considering Increasing Growth-Oriented Investments If Nearing Retirement (Gradually)

Considering the idea of increasing investments geared towards growth as retirement approaches may seem unconventional. However given the lifespan of individuals it’s essential to help ensure that your savings can support you for 20 to 30 years or even longer. Gradually incorporating growth oriented investments into your portfolio can help maintain the growth of your savings, throughout retirement.

Step-by-Step Adjustment: Instead of making sudden changes, it’s advisable to take a gradual approach. Shift a portion of your investment portfolio towards growth focused options over a period of years. This strategy aids in managing risk while positioning your portfolio for long term growth.

Review Timeline: Establishing a timeline for these adjustments based on when you plan to retire and how long you expect to live is essential. Regularly. Modify this timeline as necessary to remain in line with your objectives and the prevailing market conditions.
 

Exploring Options for Generating Income While Allowing Your Principal to Grow

 
When it comes to generating income without depleting your amount it’s crucial for sustaining your retirement funds. Here are some strategies worth exploring;
 

• Dividend-Paying Stocks: These stocks offer income through dividends while also holding the potential for capital appreciation. Seek out companies, with a track record of dividend payouts and financial strength to sustain them.
• Real Estate Investment Trusts (REITs): Real Estate Investment Trusts (REITs) are investments in estate that generate income and distribute a portion of their profits as dividends. They offer a source of income and the opportunity for increasing property values over time.
• Bond Ladders: Bond Ladders involve buying bonds with varying maturity dates to receive interest payments and manage interest rate risks effectively.
• Annuities: When considering annuities opt for those that provide income assurances even though they might come with fees. They can serve as an income stream, alongside retirement funding sources.
• Systematic Withdrawals: Establishing a withdrawal plan from your retirement accounts is crucial. Determine a withdrawal rate around 4% to balance your income needs while safeguarding your initial investment.

 
By assessing your asset allocation gradually transitioning towards growth oriented investments and exploring income generating avenues you can enhance the stability and growth potential of your retirement portfolio. These steps are essential to help ensure that your retirement savings support your desired lifestyle throughout your years.
 

Investment Performance

 
Checking the progress of your investments is crucial to help ensure that your retirement savings are on the path. It’s not about analyzing your profits; it also involves understanding how fees impact your returns and the importance of adjusting your investment mix.

Tracking Your Returns

Regularly keeping an eye on how your investments perform helps you determine if they are meeting your growth expectations. Here’s a simple way to go about it:
 

• Set Benchmarks: Compare how your investments are doing relative to benchmarks. For instance if you have a portfolio you can check its performance against a combination of stock and bond indices. This comparison helps you see if your investments are keeping pace with market trends.
• Performance Reports: Take advantage of performance summaries provided by your investment accounts. Many financial institutions offer breakdowns of asset returns and overall portfolio performance. Review these summaries every quarter to stay updated on the status of your investments.
• Annual Review: Conduct an assessment of how well your investments have done. Look at the returns, from the year compare them with benchmarks and identify any assets that may not be performing as expected. This evaluation enables you to make choices on whether to retain, sell or adjust investments.
• Risk-Adjusted Returns: Don’t just focus on returns; take into account risk adjusted returns well. Analyzing the level of risk undertaken to attain those profits is crucial. Metrics such as the Sharpe ratio can provide insights into the returns you receive relative to the risks involved.

 

Fees and Expenses

 
The fees and expenses associated with your investments can have an impact on the returns you earn in the long run. It’s important to understand these costs and take measures to minimize them:

Expense Ratios: Mutual funds and ETFs come with expense ratios, which indicate the fees as a percentage of the funds assets. Lower expense ratios can result in net returns. Compare your funds expense ratios to industry averages. Consider switching to lower cost options if possible.
 

• Management Fees: If you have an advisor it’s essential to know the fees they charge. These fees may be a rate, a percentage of assets managed or based on commissions. Make sure that you are receiving value for the fees you pay.
• Transaction Fees: Stay informed about transaction fees related to buying and selling investments. Some brokers provide commission trading for specific assets, which can help reduce expenses.
• Hidden Fees: Watch out for any hidden fees like account maintenance charges, inactivity fees or fund loads (sales charges on funds). Reducing or eliminating these fees can enhance your returns.
• Fee Impact Analysis: Utilize tools to assess how fees affect your investment returns, over time. Numerous banks and financial companies offer tools that illustrate how fees can diminish the growth of your investments aiding you in making informed choices regarding your financial portfolio.

 

Rebalancing Your Portfolio

 
Keeping your investment portfolio in check involves making adjustments to uphold your preferred asset distribution. This strategy helps you control risks and help ensures that your investments align with your financial objectives:
 

• Periodic Rebalancing: Establish a routine plan for rebalancing, like annually or semi annually. This structured method enables you to systematically review and tweak your portfolio without hastily reacting to market changes.
• Threshold Rebalancing: Alternatively, consider rebalancing whenever your asset allocation strays from the target by a specific percentage (e.g., if the equity portion shifts 5% off the mark). This practice helps you keep on course even when faced with market fluctuations.
• Tax Considerations: Take into account the tax consequences of rebalancing, particularly in taxable accounts. Selling assets for rebalancing could lead to capital gains taxes. Utilizing tax advantaged accounts (such as IRAs or 401(k)s) for rebalancing can help lessen the tax impact.
• Automated Rebalancing: Some investment platforms provide automated rebalancing services. These resources can assist you in maintaining your desired allocation with minimal hassle, ensuring consistent management of your portfolio.
• Risk Management:Rebalancing also acts as a risk management tool. By selling high performing assets and acquiring underperforming ones, you essentially follow the principle of “buy low, sell high,” which can boost long term returns and decrease portfolio risks.

 
By carefully monitoring your investment returns, being mindful of and reducing fees, and routinely adjusting your portfolio, you can improve the reliability and results of your retirement strategy. These strategies play a key role in ensuring that your investments are actively contributing to your future retirement aspirations.
 

Diversification

 
Making sure a retirement plan involves diversifying your investments across various asset classes and within those classes to manage risk and potentially increase returns. By diversifying you can protect your portfolio from the negative impact of underperforming investments.
 

Asset Allocation

 
Asset distribution entails allocating your investment portfolio among asset categories like stocks, bonds and cash. The objective is to strike a balance between risk and reward based on your personal risk tolerance, financial objectives and investment horizon.
 

• Stocks: Equities typically offer growth potential but also carry greater volatility. They are suited for long term growth. Can help your investments outpace inflation. When investing in stocks it’s important to diversify across sectors (such as technology, healthcare, consumer goods) and regions (domestic international emerging markets) to minimize risk.
• Bonds: Bonds offer stability and income serving as an element in reducing overall portfolio volatility. To diversify bond holdings effectively consider including government bonds, corporate bonds and municipal bonds, with varying maturity dates to build a bond ladder.
• Cash and Cash Equivalents: This category includes money market funds and certificates of deposit (CDs) providing liquidity and safety despite offering returns compared to other assets. Utilize them for requirements and as a safeguard during market declines. Tangible assets such as estate, commodities and other physical holdings can be included to broaden your investment portfolio. 
• Real Assets:Real estate investment trusts (REITs) and commodities such as gold serve as protection against inflation. Offer different avenues for growth.

Adjusting Asset Allocation Over Time

As retirement nears and your risk appetite changes it’s important to adjust your investment mix. 

• Life Stage Considerations: Younger investors are generally more open to taking risks so having a higher proportion of stocks in your portfolio is often recommended. As you move closer to retirement age it’s wise to transition towards bonds and cash for capital preservation and income generation.
• Target-Date Funds: One option is to explore target date funds that automatically rebalance your investments as you approach your desired retirement date. These funds provide a hands off method for maintaining a blend of assets over time.
• Enhancing Diversification Within Asset Classes

 

Diversification Within Asset Classes

 
Diversifying within asset classes can help reduce risk by preventing overexposure to any investment or sector.
 

• Stock Diversification: Consider investing in a mix of cap mid cap and small cap stocks to seize growth opportunities across various company sizes. Additionally diversify across sectors to avoid reliance on any one industry. For instance, solely focusing on tech stocks include healthcare, financials and consumer goods, in your portfolio.
• Bond Diversification: Broaden your bond holdings by including government bonds, corporate bonds and municipal bonds to spread out risk effectively. Adjust the mix of credit ratings (like grade and high yield) and timeframes (like short, medium and long term) to handle both interest rate fluctuations and credit risks.
• Geographic Diversification: Look beyond markets for investments. Consider emerging market stocks and bonds for growth prospects and to reduce dependency on your country’s economic performance. You can access exposure through mutual funds, ETFs or direct investments in foreign markets.
• Investment Vehicles:Invest in individual stocks, bonds, mutual funds or exchange traded funds (ETFs). Mutual funds and ETFs offer diversification by pooling resources to invest in a range of securities.

 

Regular Review and Rebalancing

 

• Monitor Diversification: Regularly checking and adjusting your investment mix is important. It’s crucial to keep an eye on how diversified your portfolio’s to make sure you’re not heavily invested in one area. Changes in the market can shift the balance of your investments so it’s essential to rebalance when needed.
• Rebalancing Strategy: Having a strategy for rebalancing is key. This means readjusting your investments to match your desired mix. If certain assets are doing well you may need to sell some and buy others that are underperforming. Using tools that automatically rebalance can make this process easier and help you stay diversified without hassle.

 
By following a plan for allocating assets and spreading out your investments within categories you can manage risk better and set yourself up for long term growth and stability. These practices are vital for ensuring that your retirement savings can weather market ups and downs while supporting your objectives.
 

Sustainability of Your Withdrawal Strategy

 
Maintaining an approach to withdrawing funds is essential to make sure your retirement nest egg lasts for the duration of your retirement years. This involves monitoring how much you withdraw, understanding minimum distributions (RMDs) and factoring in the impact of inflation.
 

Withdrawal Rate

 
Your withdrawal rate is the percentage of your retirement savings that you take out each year to cover your living expenses. Establishing a safe withdrawal rate is vital to avoid depleting your savings prematurely.
 

• The 4% Rule: One cited rule is the 4% guideline, which recommends withdrawing 4% of your retirement portfolio in the year of retirement and adjusting this amount for inflation each year thereafter. While this rule serves as a baseline it’s important to customize it according to your circumstances and prevailing market conditions.
• Personalized Rate: Take into account factors like your life expectancy, retirement objectives and market dynamics when setting your withdrawal rate. For example if you expect to live on average or retire early you might need a cautious withdrawal strategy.
• Dynamic Withdrawals: Instead of sticking to a fixed percentage, consider adopting a flexible withdrawal approach that adapts based on how the market performs. For years, for your investments you may consider taking out a bit of money but, during challenging times its wise to cut back on withdrawals to safeguard your savings.

 

Required Minimum Distributions (RMDs)

 
Once you reach the age of 73 the IRS mandates that you start withdrawing required minimum distributions (RMDs) from retirement accounts, like IRAs and 401(k)s. Failing to do so can lead to penalties.
 

• Calculating RMDs: To calculate your RMDs you need to consider your account balance from the year and your life expectancy factor based on IRS tables. It’s crucial to withdraw the amount to avoid penalties.
• Strategic Timing: When planning your RMD withdrawals it’s wise to align them with your tax strategy. For example if you anticipate an increase in tax rates taking distributions earlier may be advantageous. Also spreading out your RMDs throughout the year can help in managing your tax liability 
• Qualified Charitable Distributions (QCDs): For those inclined towards giving exploring charitable distributions (QCDs) to meet RMD requirements can be beneficial. QCDs enable you to donate up to $100,000 from your IRA to a charity while excluding the donated amount, from taxable income.

 

Inflation

 
Considering inflation is vital as it gradually diminishes the purchasing power of your savings over time necessitating its incorporation into your withdrawal strategy.

• Inflation-Adjusted Withdrawals: Adjust your withdrawal amounts for inflation to maintain your standard of living. For instance if you start with a $40,000 withdrawal and inflation is, at 2% increase it to $40,800 the year.
• Investments That Hedge Against Inflation: Diversify your investment portfolio by including assets that can hedge against inflation. Consider investing in stocks of companies with pricing power or Treasury Inflation Protected Securities (TIPS) whose value adjusts with inflation.
• Expenses Management: Keep track of your expenses. Find ways to reduce costs without compromising your lifestyle. This proactive approach will help you manage your withdrawals effectively as prices rise.
• Review and Adjust: Regularly. Adjust your retirement plan and withdrawal strategy to align them with inflation trends. If inflation rates rise significantly consider adjusting your asset allocation to include inflation protected investments or cutting spending.

 
By managing your withdrawal rate adhering to Required Minimum Distributions (RMDs) and accounting for inflation you can develop a withdrawal strategy that helps ensure lasting financial support, throughout retirement.
 

Additional Considerations

 
When you’re going over your retirement plan it’s important to think about a few things that can really affect how stable your finances are. These factors include how risk you’re okay, the economic situation and how long you might live.
 

Risk Tolerance

 
How risk you’re willing to take in your investments is a deal when it comes to planning for retirement.
 

• Self-Assessment: It’s good to check in on how comfortable you are with taking risks, particularly as you get older or if your financial situation changes. You can use tools like risk tolerance quizzes. Talk to an advisor to figure out what level of investment risk feels right for you.
• Life Stage Considerations: Usually younger investors can handle risk because they have time before they retire and can weather market ups and downs. As retirement gets closer consider moving towards investments to protect your money and lessen the impact of market fluctuations.
• Risk Capacity vs. Risk Tolerance: It’s important to know the difference between how risk you can take (risk capacity) and how comfortable you are, with taking risks (risk tolerance). Make sure your investment plan matches both aspects so it fits well with your situation and personal comfort level.

 

Economic Conditions

 
Economic conditions can significantly influence your retirement plan, necessitating regular adjustments to stay on track.
 

• Market Trends: It’s important to keep an eye on market trends and economic indicators such as GDP growth, unemployment rates and interest rates. These factors can affect investment returns. Play a role in determining when you should make withdrawals during your retirement.
• Interest Rates: Keeping track of changes in interest rates is crucial as they can impact bond prices and yields mortgage rates and the cost of borrowing. For instance, increases in interest rates could lower bond prices. Boost income from bonds and fixed income securities.
• Inflation Rates: Inflation diminishes the purchasing power of money underscoring the importance of investing in assets that can outpace inflation. Stocks, real estate and inflation protected securities like TIPS can help shield your portfolio from the effects of inflation.
• Policy Changes: Staying informed about changes in monetary policies is essential since they can influence the economy as well as your investments. Changes in tax policies for example may impact retirement savings strategies and required distributions.

 

Life Expectancy

 
Planning for a life is essential to make sure your retirement savings can support you for the haul reducing the chances of running out of money in your later years.
 

• Estimate Life Expectancy: To estimate how long you might live, use tools, like life expectancy calculators that take into account factors like your health, lifestyle choices and family history. This information can guide you in determining the duration your retirement funds will need to cover.
• Longevity Risk: It’s important to be aware of the risk of outliving your savings, particularly if longevity runs in your family. Strategies such as investing in annuities that offer income can help mitigate this risk.
• Healthcare Costs: Additionally factor in healthcare expenses that tend to rise with age. Considering options like long term care insurance and health savings accounts can provide a safety net against costs as you grow older.
• Phased Retirement: If possible consider a phased approach to retirement where you gradually reduce working hours of stopping. This method can stretch out your savings. Make transitioning into retirement smoother.

 
By assessing your comfort level with risk, keeping an eye on trends, and planning for a longer lifespan you can fortify your retirement plan. These thoughtful considerations will help to ensure that your financial strategy remains resilient and adaptable to changing situations, offering you reassurance throughout your retirement journey.
 

Consider Working with a Fiduciary Wealth Management Advisor

 
When assessing the stability of your retirement plan you may discover that managing investment management intricacies, comprehending market trends, and planning for long-term goals can be daunting. In such situations, engaging with a wealth management consultant can prove to be extremely beneficial.
 

Personalized Guidance

 
A trustworthy consultant offers guidance customized to fit your financial circumstances and retirement aspirations. They take the time to grasp your goals, risk tolerance and financial situation in order to help ensure that their suggestions are specifically crafted to suit your requirements.
 

• Customized Investment Strategies: These advisors can assist you in developing a tailored investment approach that strikes a balance between growth opportunities and risk. Taking into consideration factors, like your age, income level and retirement timeline allows them to construct a portfolio that aligns with your objectives.
• Regular Reviews and Adjustments: A trustworthy advisor will routinely assess your retirement plan to help you stay aligned with your objectives. They are capable of modifying your asset allocation, realigning your portfolio and making any adjustments to adapt to changing market conditions and life circumstances.

 

Knowledge in Managing Economic Conditions

 
Understanding how economic shifts can affect your retirement savings and knowing how to respond can be tricky. Trusted advisors have the know-how to analyze market signals and economic patterns offering you informed approaches to safeguard and increase your retirement funds.
 

• Market Analysis: Advisors keep track of cues, market movements and policy shifts. They use this information to make tweaks to your retirement plan, reducing risks and seizing opportunities.
• Tax Efficiency: Tax laws and rules play a role in shaping your retirement nest egg. A trusted advisor can help you fine tune your investment plan, for tax efficiency ensuring you retain more of your earnings.

 

Long-Term Planning and Longevity Risk

 
Planning for a retirement that could last several decades requires careful consideration of various factors, including healthcare costs, inflation, and life expectancy. Fiduciary advisors assist in creating a comprehensive plan that addresses these long-term challenges.
 

• Longevity Planning: Advisors help you plan for a longer retirement by incorporating strategies such as annuities and other income-generating investments that provide financial security throughout your retirement years.
• Healthcare and Long-Term Care: They can also advise on options for managing healthcare costs, including long-term care insurance, health savings accounts (HSAs), and other strategies to help ensure you are financially prepared for medical expenses.

 

Trust and Confidence

 
Working with a fiduciary advisor can enhance your confidence, knowing that your retirement plan is being managed with your utmost interests in mind. Fiduciary advisors are legally and ethically obligated to prioritize your financial well-being, offering impartial advice and transparency in their recommendations.
 

• Trust and Accountability: Because fiduciary advisors are required to act in your utmost interest, you can trust that their guidance is focused on helping you achieve your retirement goals. This level of accountability can significantly enhance your confidence in your retirement plan.
• Continuous Support: Advisors offer ongoing support and monitoring, ensuring that your retirement strategy remains aligned with your goals. They provide a steady hand through market volatility and life changes, helping you stay focused on your long-term objectives.

 
Incorporating the knowledge of a fiduciary wealth management advisor into your retirement planning process can significantly enhance the stability and effectiveness of your plan. Their personalized guidance, market insight, and long-term planning capabilities help ensure that your retirement savings are well-managed and capable of supporting your desired lifestyle throughout your retirement years.
 
About the author
 
Michael Landsberg, CIMA®, CFP®, AIF®, serves as the Chief Investment Officer of Landsberg Bennett Private Wealth Management, a Florida-based private wealth management company. With a B.S. from Babson College and an M.B.A. from the University of Florida, he began his career at Morgan Stanley before managing investments in Florida. He believes in disciplined, rules-based investment strategies, and strives to provide personalized service to clients. 
 
Disclaimer:
 
Landsberg Bennett is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. Advisory services are offered through Hightower Advisors, LLC. All information referenced herein is from sources believed to be reliable. Landsberg Bennett and Hightower Advisors, LLC have not independently verified the accuracy or completeness of the information contained in this document. Landsberg Bennett and Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Landsberg Bennett and Hightower Advisors, LLC or any of its affiliates assume no liability for any action made or taken in reliance on or relating in any way to the information. This document and the materials contained herein were created for informational purposes only; the opinions expressed are solely those of the author(s), and do not represent those of Hightower Advisors, LLC or any of its affiliates. Landsberg Bennett and Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax or legal advice. Clients are urged to consult their tax and/or legal advisor for related questions.