Q: I have a solid financial plan in place. How do I make sure I stay on track?
A: While creating a financial plan is a good first step, maintaining the plan is just as crucial to achieving a successful retirement.
You might think of it like servicing a vehicle. We all know that regularly maintained vehicles are more reliable, durable, and valuable when it comes to resale. Much like caring for a vehicle, financial planning is an ongoing process—not a once-and-done event.
A good financial plan is based around an individual or couple’s goals for the future. When we work with clients to create comprehensive financial plans, we evaluate current income, bank accounts, investment and retirement accounts, real estate, business assets, insurance, debts, and estate planning documents. Then we create a realistic roadmap for saving, spending, and investing to help them reach their goals.
Once a solid plan is in place, follow-through is everything. But without purposeful habits, managing the details quickly gets overwhelming. To help, we’ve outlined some regular maintenance intervals to serve as guidelines:
- Review your initial planning assumptions and make any necessary adjustments.
- Evaluate your income tax bracket to determine:
- If you will be subject to capital gains, or if it’s appropriate to take losses (called “harvesting”).
- If you should consider Roth IRA conversions.
- If you have withheld enough tax, or if any estimated payments are necessary.
- Review your tax return to look for ways to minimize taxes for the following year.
- Review your tax return to look for any errors. (Yes, there can be mistakes!)
- Review any financial decisions you might need to make.
- Evaluate your current income to determine if any increase or decrease might require you to change your tax withholding or quarterly estimated payments.
- Evaluate your investments to determine if they’re performing in line with expectations and appropriate benchmarks.
- Replace any poorly performing investments with investments that have been screened for management objectives, consistency, fees, turnover, etc. (for example, we use a 25-point screening process).
- Monitor prices, ratings, and current events for any individual bond holdings in your portfolio.
- Evaluate your overall allocation between growth and fixed investments to determine if you need to do any rebalancing to maintain your target percentages.
- Review account balances and transaction history to ensure proper execution of trades and any money movement between accounts.
As needed or when changes occur
- Consolidate your accounts to simplify the management of your finances.
- Track your spending habits to determine if you are living within your means and not negatively impacting your financial plan.
- Evaluate your potential sources of retirement income.
- Determine an optimal tax-efficient withdrawal strategy for big expenses or everyday living needs.
- Make sure your insurance and estate documents reflect any changes in family dynamics and new or updated assets.
- Review your income tax deductions to maximize potential tax savings.
- Maximize retirement account contributions where possible to reduce income taxes.
- Consider funding Roth IRAs to allow assets to receive tax-free growth and possible tax-free withdrawals.
- Consider Roth IRA conversions before drawing Social Security to maximize the lower income tax brackets.
- Consider distributing charitable gifts from your retirement accounts (once you are age 70 ½) or from appreciated investments.
- Obtain quotes for long-term care insurance coverage to determine the potential cost and value of policy benefits.
- Review your liability coverage and upgrade to an umbrella policy if warranted.
- Consider opening Roth IRA accounts, 529 plans, or custodial accounts for your children or grandchildren.
- Evaluate the best methods to save for college expenses for your children or grandchildren.
- Coordinate your financial plan with all members of your professional team—including accountants, lawyers, and insurance providers.
- Communicate your plans to family members or others who may be involved at some point to ensure your intentions are known.
This is not a comprehensive list that fits every need, and your personal situation deserves specific planning and evaluation. But as you can see, there’s a lot to evaluate on a regular basis to keep up with your financial plan.
So ask yourself: are you keeping up with your financial plan’s maintenance schedule? Developing the right habits can go a long way in avoiding costly mistakes and missed opportunities down the road.