As part of our financial planning process in the early 2010s, we would slide a bulleted to-do list across the table to our new clients with 15 to 30 action items. Can you imagine anyone giving you a list that long and being excited about it, much less, being willing to tackle it?
Fortunately, a fellow planner with a bit more common sense introduced me to the idea of quarterly sprints: Take two or three of the most impactful and timely things and tackle them in the first 90 days. Do the same thing the next quarter. And so on. Essentially, eating the elephant one bit at a time.
Here’s my list of three very impactful, low-resistance exercises for retirees.
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1. Consolidate your accounts
Joining banks for promotional deposits and spreading out your investment eggs into several different custodial baskets is now a thing of the past for you. Imagine walking across the street and getting hit by an ice cream truck (better than the bus alternative). Having your accounts scattered is like having a pocket full of change. Your kids will be on their hands and knees trying to make sure they find all of the money. They may not. You want a checkbook to fly out of your pocket instead.
At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.
Every bank account tells a story. This credit union received my direct deposit when I was at that agency. I picked this bank so we could transfer money to our kids while they were in college. Most of those stories are over. Consolidating bank accounts can be a pain, and I hesitate to call it “low resistance.” However, either you do it while you’re alive, or your kids/beneficiaries do it after you’re dead. It’s much easier while you’re alive.
Like bank accounts, there’s typically a story behind each one of those retirement accounts. I get it. I have an old one hanging out there that has been on my to-do list for quite a while. But the justification of keeping several accounts as a risk management tool no longer resonates.In fact, the more accounts you have, the more risk you have. Responsibly managing accounts across several platforms is about as easy as it was to get my daughter’s soccer team to stay in their positions in their first year of rec soccer.
The good news is that many custodial platforms are open-architecture, meaning you can hold pretty much everything that is publicly traded on them. You don’t need to hold XYZ mutual fund on their custodial platform.
2. Review beneficiaries
I have seen the worst-case scenario play out here, where an ex-spouse received, and did not return, life insurance proceeds. In most cases, I just find inconsistency between accounts and a lack of alignment with the estate planning documents. Once again, this is understandable, as you establish beneficiaries when accounts are established and there are no forcing mechanisms, outside of a terrible situation, to update them. We do this once a year with our clients.
Updating beneficiaries is not a replacement for updating your estate planning documents. Rather, it is a Band-Aid to make sure the right people get the money, not necessarily get the money the right way. Think of this in the ice cream truck example as writing names on each of the coins in your pocket. At the very least, your kids will know which coins to pick up.
As you update your beneficiaries, you should also be considering the ownership structure of each account. But for the purpose of this article, those are bonus points.
3. Rebalance your accounts
We have been in a secular bull market since 2009. We’ve seen pauses and even a few bears, but stocks are up a lot. If you started with a 60% stock portfolio at any time in the last 15 years, you no longer have it. Your stocks have moved up faster than your bonds and you now have more exposure to market swings. I have seen people wiped out who thought they had hit their “number.” Remember, concentration may build wealth but diversification is more likely to preserve it.
It can be difficult to see exactly what your exposure is if you have several accounts. Most financial planning programs can show you your aggregate asset allocation if you enter it at the account level. You can use a free version of our software.
We handle most broad-based rebalances at the beginning of the new year to avoid tax surprises in the current one.
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