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The Value of Double-Checking & Monitoring Your Retirement Strategy

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Motivational speaker Denis Waitley once remarked, “You must stick to your conviction, but be ready to abandon your assumptions.” That statement certainly applies to retirement planning. Your effort must not waver, yet you must also examine it from time to time.1  
 
Perhaps you may realize that you under-estimated your health insurance costs and will need more retirement income than previously assumed. Or perhaps, with today's low interest rates you are not getting the level of investment returns you counted on. With those factors and others in mind, here are some signs that you may need to double-check your retirement strategy.  
 
Your portfolio lacks significant diversification. Many baby boomers are approaching retirement with portfolios heavily weighted in U.S. equities. As many of them will have long retirements and a sustained need for growth investing, you could argue that this is entirely appropriate. Yet, U.S. equities by some measures may be over-valued by as much as 35%. If your retirement is near at hand, however, you might want to consider the length of this bull market and the possibility of irrational exuberance. 
 
The current bull has lasted about twice as long as the average one and brought appreciation in excess of 200%. It could rise higher: as InvesTech Research notes, two-thirds of the bull markets since 1955 have gained 20% or more in their final phase. Few analysts think a “megabear” will follow this historic rally, but even a typical bear market brings a reality check. The lesser bear markets since 1929 have brought an average 27.5% reversal for the S&P 500 and lasted an average of 12 months.2 
 
A poor quarter makes you anxious. You start watching the market like a hawk and check up on your investments more frequently than you did when working. This is a sign that you may be uncomfortable with the amount of risk in your portfolio or lack of clarity and confidence around your overall financial planning. A portfolio review with a financial professional could be in order. A semi-annual or annual review is reasonable. One bad quarter should not tempt you to abandon a strategy that has worked for years, only to examine it in the face of sudden headwinds. 
 
You find yourself listening to friends & pundits. Your tennis partner has an opinion about when you should claim Social Security. So does your dentist. So does a noted radio personality or columnist. Their viewpoints may be well-informed, but they are likely expressing what they would do as they share what they feel you should do. If you seem increasingly interested in the financial opinions of friends, acquaintances and even total strangers, or the latest “hot tip” on the market, this hints at anxiety or restlessness about your financial strategy. Perhaps it is warranted, perhaps not. It may be time to reexamine some assumptions.
 
You wonder about the demands your lifestyle may make on your finances. You want to travel, golf, and have fun when you retire, and those potential lifestyle expenses now seem larger than they once were. Here is another instance where you may want to double-check your retirement savings and income strategy.  
 
You see what were once “what-ifs” becoming probabilities. You sense that you or your spouse might face a serious health issue in the not-so-distant future. It looks as if you may end up raising one of your grandchildren. It seems likely that you will provide eldercare for a parent or for a sibling who may move in with you. These life events (and others) may prompt a new look at your financial assumptions.
 
You think you will retire to another state. Say you retire to Florida. There is no state income tax in Florida. So your retirement tax burden may decrease with such a move (though some states have higher property taxes to offset the lack of state taxes). To what degree will geographic considerations affect your retirement income, or need for income? Such geographic factors are worth considering.3 
 
You wonder how deeply inflation will impact your retirement income. A recent Morningstar analysis of retiree spending data compiled by the federal government noticed something interesting: for the typical retiree, spending declines in inflation-adjusted terms between age 65 and age 90. So the assumption that retirees increase household spending over time in light of inflation is flawed. Of course, inflation has been mild for the past several years. If inflation spikes, however, that assumption might prove wholly valid.3 
 
Looking at your retirement strategy anew has merit. As the years go by, priorities change and needs arise. New questions call for appraisals of old assumptions. Reviewing your approach to investing and saving at mid-life is only rational, for your retirement strategy must suit the objectives you now have before you rather than those you set in your past. It's much easier to make minor course adjustments rather than getting far off track and having to make a large and potentially undesirable lifestyle change.
 
 
Best Regards,
 
Kevin Kroskey, CFP, MBA

 
This article adapted by Kevin Kroskey with permission from MarketingLibrary.net, Inc.
 
Citations.
1 - quotes.lifehack.org/quote/denis-waitley/you-must-stick-to-your-conviction-but/ [4/16/15]
2 - fortune.com/2015/04/16/taming-the-bear-market/ [4/16/15]
3 - tinyurl.com/odyle9s [12/25/13]
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