While we’ve touched on this topic before with some interesting reading, this is such an important thing to keep in mind when dealing with your self directed IRA.
Many seniors who have spent years carefully crafting an investment plan for their retirement make the mistake of thinking that just as they’ve stopped working, they can stop working on their plan – as though once in place, no changes or adjustments are required. Though it is certainly true that with a well-balanced portfolio, a more low-key lifestyle and employment income no longer coming in there are fewer fluctuations to worry about, market performance is still a key consideration; retirees that go into their retirement anticipating sticking to the tried and true “4 percent rule” may want to make adjustments for market downturns or upturns to make sure that they are neither underspending or overspending. Beyond that, it is also a good idea to do a once-a-year checkup to make sure that everything is going as anticipated. Here are a few of the items beyond market fluctuations that can change unexpectedly and that you need to pay careful attention to:
How Much are you Spending in your IRA?
When approaching retirement, many people assess their future spending based on what their expenses are just prior to retirement. Others take a bottom-up approach, in which they look at each individual expense and prepare an anticipated budget. Though the latter is often more accurate, unexpected expenses often arise, and mistakes can be made using both models. Comparing your actual expenses each year as compared to what you budgeted allows you to prevent shortfalls.
What Are Your IRA LLC’s Investments Costing You?
All too often, the expenses that you are paying on your investments don’t become apparent until you actually start to withdraw your money or you are no longer building your account. Check to see whether you are paying more than you think is appropriate – if so, you may want to switch to another brokerage or investment advisor who charges a lower or fee-only rate.
Review your Beneficiaries and Titling on Accounts and Properties.
All too often, life’s events demand our full attention and we forget about taking care of peripheral details such as who we’ve named as beneficiaries in the event of our death. Reminding yourself on an annual basis of which names are included on your insurance policies or accounts makes certain that your hard-earned investments will fall into the right hands in case of your death – and prevent them from falling into the wrong ones. Similarly, once a year it is a good idea to take a look at how different accounts and properties that you own are titled; what made sense at the time that an account was opened or property purchased may not any longer. Review to make certain that the way that things are established will not create a tax nightmare or other problems in the future.
Check on Your Insurance Policies
Life insurance policies with cash values are frequently forgotten, and can provide an unexpected infusion of tax-free cash if their basis value is higher than you realize. You can also make revisions to allow dividends to make your premium payments rather than continuing to pay cash out of pocket, or change a whole life policy over to a cash annuity. At the same time that you are checking on this, it is a good idea to review whether you still have need for any term policies you are holding, and ensure that coverage on other policies hasn’t changed because of your advancing age. It is also well-advised to make a list of the companies with whom you have life insurance policies and give it to one of your beneficiaries, along with an annually updated file containing all pertinent documents and statements that your survivors may need immediate access to.
Review any Planned Changes in Income
Many people build income ladders into their retirement investment plans. This is a wise strategy, but one that requires an annual review in order to remind yourself of when a ladder’s income is coming to an end and of the need to make adjustments in spending or initiating the next ladder. Whether your income stream is derived from a loan that is being repaid on a monthly basis or a bond ladder, a once-a-year review is advised.
Make Appropriate Adjustments for the Future Based on your Present Situation
Retirement planning often assumes a rosy and relaxed future, but sometimes life throws a curveball and adjustments may need to be made. Unexpected medical emergencies may arise or family members may need financial assistance. Making certain that you and your spouse have made arrangements for power of attorney, a living will, and even that appropriate precautions have been put into place regarding the upkeep of your house or the care of a pet in case of a medical emergency are all part of your retirement plan.
The annual check-up on your retirement strategy does more than allow you to fine-tune; it also eliminates the shock that many retirees encounter when fifteen years into their retirement they find that they are coming up short, either because they are now able to see themselves living longer than their plan originally called for, because their investments aren’t performing the way they anticipated, or because they are spending at a faster pace than they had thought they would. No need to obsess or check your portfolio performance every day, week or month – after all, retirement is when you should be able to relax – but make sure you take the time for an annual reality check.