Rethink These 3 Financial Strategies Every Decade (or sooner!)

I recently met with a new client in her late 50s who is thinking about retiring soon. She was so excited that her youngest daughter would be graduating college next year and then would be “off the payroll,” which would certainly free up her cash flow to boost her last-minute retirement savings. This sounded great, but as we dove deeper into her financial data, we uncovered three major changes she should be more focused on right now.

These three issues are common with many people who have not thoroughly reviewed their financial plan in the last decade, like this new client.

1. Rethink Your Insurance Plan.

When I asked this new client, “Why do you have these two life insurance policies, which are costing you $1,000 a month?” her answer was, “Well, when I got them 10 years ago, my kids were younger, we had a mortgage, not enough college savings and we needed my paycheck to support the family should something happen to me.”

By asking this question I knew I was probing her to think about whether having several million dollars of life insurance still made sense, at this time in her life. The answer is that it did not. Her children did not need her financial support going forward, the mortgage was paid off and her retirement nest egg was nearly full. But what she did not have was long-term care insurance, and I explained that this was the type of insurance that could make more sense given her stage in life.

By restructuring her insurance strategy, she got more appropriate coverage in place, and it saved her several hundreds of dollars a month that she can sock that away for retirement expenses. And important for her, the burden of thinking her children may one day need to take care of her is a non-issue now. Her goals and needs over the last decade had changed, and her insurance plan needed to be refreshed. What about yours?

2. Consider Why You are Still Holding that Stock.

Holding what financial advisers often call “legacy positions” is a common area I often need to address with new clients. I want to understand why they own the stocks that they do, especially if the shares were purchased more than 10 years ago. These companies may have been great performers when they were originally purchased, but is the company’s current outlook just as positive? While my firm did not invest in this, the best-performing stock in 2006 was Allegheny Technologies (Ticker: ATI), with a return of 153% that year. Over the next 10 years this stock produced a negative average return of -14.25% per year. So, what may have been a winner a decade ago may not be the winner over the next 10 years, as this stock proves.

Understanding that many legacy positions often have a capital gain cost to sell them, we carefully evaluate the cost/benefit equation and if selling the stock makes sense, we look to manage that over a few tax years or use the stock for the client’s charitable giving goals. If you are holding legacy positions, ask yourself:

• Do I know why I still own it?
• Does it still have a favorable outlook?
• If I just had cash to invest today, would I buy this stock, or as much of this stock?
• What is the tax cost to reduce or eliminate this stock position?
• Should I still own, overall, as much stock now as I did 10 years ago?
• Am I sentimentally attached to this stock? Was it an inheritance I received from Grandma and I just can’t bring myself to part with it?

After this evaluation process, it certainly may make sense to keep holding the stock, but keeping it in your portfolio due to inertia or lack of research may eat into the past gains you’ve earned, if the future is not as bright. Or if it’s Grandma’s stock, as long as you are not heavily concentrated in it where continuing to do so would jeopardize your financial future, it’s probably fine to keep it awhile longer. But emotions should be separated by the investment merits of any stock you own. And if more than 10% to 15% of your total portfolio is in one stock, consider diversifying.

3. Look at Who is Named in Your Will.

While I generally recommend people review their will every five years, or whenever there is a major life change, I know in reality many people have a pile of dust on their will, or it’s buried in some filing cabinet at home. A decade easily goes by before the will gets looked at again, even with prompting from me.

The common issues I see when someone has not looked at their will in 10 years are not so much the structure of the will or tax law changes, it’s the people they have named as their executor, trustee and guardian. Also, the people named as their agent(s) in their financial and health care powers of attorney documents are no longer who they might want. What has changed?

Over a decade people realize their relationships have changed, perhaps their best friend from 10 years ago moved away and would not want to be the guardian of the client’s children; or parents have been named as trustee or executor and they’ve since passed away or are physically or mentally incapacitated now.

Perhaps siblings or friends who were named to serve as executor trustees have divorced but both ex-spouses are still in your will to make joint decisions over your affairs. Yikes! So think through the people who are responsible for settling or managing your estate or health care affairs if you are not able to, and even ask those serving whether they are still up for the responsibility! Perhaps they have changed their mind about serving on your behalf.

Life moves fast and before you know it, another 10 years will go by. Be cognizant of your will, your insurance and your investments that are more than 10 years old, as it’s likely changes should be made to better match your financial situation today.