Giving Your Plan Regular Tune-Ups

Ellen Hoffman

Even the most thorough retirement plans need to be checked periodically and brought up to date. Here's what it involves

About 10 years ago, Robert and Carla Teitt, now ages 60 and 54, of Salt Lake City, made a retirement plan. He, a projects manager at Northrup Grumman, and she, an occupational therapist, would retire at the same time, when he was 62 or 63, after their children completed Master's degrees in their chosen fields.

The Teitts calculated that with the children's schooling and their own work-related expenses out of the way, about 50% of their pre-retirement income would pay their basic expenses. But they set a financial goal that would enable them to spend up to 65%, so they could travel, do volunteer work, and afford some extras.

Twice a year, the Teitts meet with their financial planner, Ray Le Vitre of Salt Lake City, to review their investments and see if they're achieving the return needed to meet their goals. Changes they have made along the way include reducing the assumption of an 8% annual return on their investments to 7%, and adjusting their portfolio from 80% stocks and 20% bonds to 60% stocks and 40% bonds.

THE TOUGHEST STEP. The Teitts are an example of people who have taken all three phases of retirement planning seriously. They've completed the first two -- estimating their retirement budget and creating a financial plan -- and are now in the third, crucial phase: Implementing and monitoring their plan. (For my two most recent columns, on estimating budgets and creating a plan, see BW Online, 3/11/05, " Time to abandon the 70% Solution", and 4/8/05, "So What's the Plan.)

The third step is in some ways the most difficult because ideally, you'll work on it the rest of your life. "Most people we meet think that the implementation is all about the [financial] product selection. This is only partially true," says Tom Orecchio, a financial planner in Old Tappan, N.J. "It's more important to make sure that you have a sound process, that you have a plan in place to follow, and something against which to measure your progress."

Le Vitre gives his clients a checklist of action steps that can take up to three months to complete. Some tasks may relate to getting your retirement and other savings accounts in order. If you left a 401(k) with a previous employer, you may want to roll it over into an IRA; you may need to increase contributions to your 401(k), or you may need to rebalance the investments in all of your accounts to minimize risk.

VULNERABLE AGE. Other items that might appear on such a list: Updating insurance coverage, speeding up payments on your mortgage, and figuring out the tax implications of retiring at different ages.

But the paperwork is only part of what you need to do. Orecchio points out that because baby boomers are likely to be retired for 30 years or longer, they're more vulnerable than previous generations to unexpected changes, whether in their professional or personal life or to the tax code or economic conditions.

A case in point is a client of Orecchio's, a high-level financial-services executive, about 50, who was on track to retire very comfortably at age 60 until he realized that his job was hurting his family life. He traded his stressful New York job for a more family-friendly, lower-salaried position in Georgia.

After analyzing the impact on the client's plan, Orecchio cautioned him that because he gave up some retirement benefits -- including unvested stock options -- he may need to postpone his retirement from age 60 to 62. His client thinks that the trade-off is worth it.

CHECK YOURSELF. Once you've completed the check list, the next stage of implementation is periodic reviews and adjustments to your plan. "Someone can have a great plan drawn up and initially implemented, but it won't be effective unless it's reviewed regularly," says Le Vitre, who meets with clients every six months. "There's always tweaking to be done, and these meetings also keep clients focused on their strategies and keep them from wanting to chase every hot investment idea they run across."

Financial advisers can provide you with a variety of charts, graphs, and calculations, such as risk analysis of your portfolio or of changes in taxes or inflation, as well as Monte Carlo simulations -- estimates of the likelihood that you'll meet your financial goals under various assumptions.

If you're a do-it-yourselfer, you can set up your own monitoring system. To succeed, you'll need an approach that makes sense for you personally -- and the discipline to stick to it. Here are some tips for starting:

  • Keep track of the statements from your retirement and other investment accounts, bank records, and other financial data you receive on a regular basis. Keep them as long as necessary for tax purposes. The general rule is to keep them three years, but if you own your home, you need to keep all of those records until after you've sold it and reported the sale to the IRS. If you have electronic records, it can be easier to keep them "forever."
  • Pay attention to financial news, so that you consider how changes in inflation or tax law -- for example, in the dividends or capital-gains rate -- might affect your long-range plans.
  • Commit to reading and analyzing this information at least twice a year to see if your plan is holding up. One time might be around tax time, when you have to organize it anyhow.
  • When you're faced with lifestyle or financial decisions, analyze how they would affect your retirement plan. For help with calculations, you can use and revisit online tools such as this 401(k) calculator, which can help you adjust your contributions according to progress toward your goals.
  • Consider investing in retirement-planning software for more comprehensive number crunching. To see what works for you, simply search "retirement planning software" on the Net and experiment with the online demos before choosing a system you like.
Is all the time and trouble worth it? Le Vitre answers with a resounding yes. "Peace of mind is important because people make bad decisions with their money when they're stressed or unsure where they stand in relation to their goals." And after all, what's at stake should be pretty important to you: The potential quality of the rest of your life.

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