9 Essential Steps To Reviewing Your Retirement Plan

1. Review Spending Habits

It's easy to let spending get out of control. When you are working extra spending is often financed with the next bonus or raise. Once retired, if you finance excess spending by withdrawing too much from your accounts you risk running out of money too soon. This means you must make sure your retirement plan review involves keeping a close watch on your annual spenidng.

After two years of retirement, Bill and Sara sat down to review their finances. They realized they were spending $10,000 a year more than they had planned. They had to make some tough decisions; either go back to work to support a bigger lifestyle, or make some changes to their spending habits.

2. Update Your Income Timeline

If you have any sources of income that will end on a specific date, decide now how to plan for this. Here are a few examples:

• An annuity payout that lasts for a set number of years.
• Income from the sale an asset such as a business or piece of property.
• Income from a loan you made to someone, such as carrying a mortgage for them.

Real Life Story

Joe and Susan were lucky enough to win the lottery seventeen years ago. This $100,000 a year lottery income was going to end in three years. They had saved nothing over that time. Unfortunately they waited too long to start planning. They had no alternative but to go back to work when the lottery payment ended. If they had planned from day one, they would have been in great shape.

3. Review Your Insurance Coverage

It is important to know what your insurance will cover and what it will not. The best way to understand this is to review each insurance policy. You can create a one page policy summary for each policy, or review the policy summary that is usually located in the first few pages of your insurance contract.

When Gary and Sharon reviewed their old life insurance policies they realized they had more cash value in them than they had anticipated. They were able to use some of this cash for a remodeling project.

4. Monitor Your Investments

Monitoring investments means you review the expenses or investment fees you are paying as well as the allocation of your investments. You want to maintain a balanced portfolio that does not contain too much risk. In addition you need to make sure your withdrawal rate (the amount of your financial assets that you spend each year) is not too high.

When David and Lori did a thorough review of their investments they noticed that they were paying expenses of over 3% a year on many of their investment accounts. They were able to work with a fee-only financial advisor to reduce these expenses by over 1% a year, which adds up to big savings over the years.

5. Review Beneficiary Designations

If you designated beneficiaries on your IRA accounts or life insurance policies many years ago, you may not remember who you chose. Every few years review your beneficiary designations to make sure things will go to your intended recipients.

You may be surprised at what you find. When Jerry reviewed the beneficiaries named on his IRA account he realized he still had his ex-spouse listed. He immediatlely had it changed to name his children.

6. Review Titling Of Property And Accounts

Accounts and property can be titled in an individual's name, in joint tenancy, as community property, tenants in common, or in a trust. Frequently couples set up a trust, but then forget to title property in the name of the trust. If accounts are not titled properly this can cause problems for a surviving spouse or heirs. Check to see if your accounts and property are titled in a way that makes sense for you and your family.

Margaret had all her accounts titled in her name. She changed the title to a "transfer on death" designation so that those assets would pass directly to her named beneficiaries. In this way those assets did not have to go through a longer probate process.

7. Develop A Medical Emergency Plan

Make sure you have a health care power of attorney and living will. These documents will provide guidance to anyone who needs to make medical decisions on your behalf.

In addition, figure out who would pay bills, feed the pets, mow the lawn, etc. in the event of a medical emergency. You may want to provide written instructions, so someone could easily step in and manage your household.

Ellen had an automobile accident that resulted in a coma. The doctors said if she recovered she would not have normal brain functions. Ellen left no medical directives so her sister and brother argued for weeks trying to decide what to do.

8. Organize Important Documents

Organize your documents and important contacts. You can do this by creating a binder, or file folder, with clear labels and instructions. This folder should contain copies of relevant account statements, estate planning documents, and insurance policies, as well as contact names for your accountant, attorney, banker, financial advisor, insurance agent, doctors, and family members.

Kara's father passed away unexpectedly from a heart attack. In his home office, he kept a filing cabinet with clearly labeled folders for his account statements and important documents. As Kara was already distrught, this was a great help to her in finalizing his affairs.

9. Discuss Plans For A Surviving Spouse

It is most likely that upon the death of a spouse, your finanical situation will change. Make sure you and your spouse understand what sources of income might change. Then lay out a plan that the surviving spouse can follow.

This plan should include instructions on what to do with any life insurance proceeds. If plans have been discussed, this can have a signficant impact in helping a surviving spouse avoid costly financial mistakes.

Beverly's husband passed away and she received $250,000 of life insurance proceeds. Her agent immediately talked her into putting all this money into annuities. This was not the best course of action for her, but she did not know what else to do at the time.