How to Keep Your Retirement Plan Simple and Manageable

Retirement planning can seem like one of the most complicated processes in life, but the truth is that you can and likely should simplify it. Of course, the calculations involved can be complex, but you should not leave any retirement planning meeting confused. If this is the case, you will likely struggle to implement the plans once it’s time to retire. In the end, you probably just want to know if you will have enough money to survive once you retire. Financial plans often encompass more than a hundred pages, which can leave you feeling helpless and overwhelmed.

Why Consolidation May Be a Good Idea

If this is your experience, you can be proactive in reducing the financial complexity of your plan. One of the most straightforward steps you can take is to consolidate your assets. Retirement strategies often involve setting up a number of different accounts. Diversifying your assets has some advantages and you will likely benefit from having more than one, such as having at least one traditional and one Roth account. Beyond this, consolidation can be very helpful. Having multiple accounts comes with its own drawbacks and understanding this fact can help you decide whether to work with your financial planner to consolidate into something that feels more manageable and minimizes some of the drawbacks that you may face.

For example, having multiple accounts makes risk analysis quite difficult to the point that you expose yourself to unknown issues. You should be able to understand the risks that you face rather than relying on someone else to analyze them and report back. If you understand the risks, you will ultimately feel more empowered when it comes to making decisions. The other issue with multiple accounts is that you may struggle to track the fees that you are paying. If you pay a lot of fees, this can quickly cut into the money that you earn through these accounts. Be sure you know the fees you pay and why. You should minimize those fees as much as possible to maximize the returns you earn on your money. Also, having many accounts can cause an overlap in investments to occur without detection. This means that your portfolio is not balanced like it should be and you are exposed to more volatility.

You may have many accounts simply because you changed jobs often. This means you could be getting statements from a number of different accounts, which makes it very difficult to track everything. Staying organized is key to managing your money effectively. The new SECURE Act 2.0 actually addresses this problem by creating a national database of retirement plans so that you can easily locate all of your accounts. A better strategy is consolidating those accounts as you move between jobs. If you have not done that, this database may help you in the future. Consolidation means you have a more accurate view of your money and can account for what funds will be available once you retire.

Finally, it is important to be aware of the fact that different types of retirement accounts have different rules and requirements when it comes to “Required Minimum Distributions” upon reaching age 72. If you have several IRAs or older 401ks, etc. you need to know which accounts you MUST take distributions from every year, or face a stiff 50% penalty! This quirky aspect relating to having different or multiple retirement accounts alone makes the case for consolidation more strong!

The Importance of Understanding the Products You Own

The other important thing you can do to simplify your retirement is to have a full understanding of the products that you own. Products like long-term care insurance, managed money accounts, annuities, and even life insurance can be complicated. Ask questions until you truly understand what you are purchasing. That way, you understand the resources that are available to you when a problem arises. Before making any purchase, be sure to understand the investment vehicle, or financial product, even if that means doing some research on your own. Of course, doing research on your own is not equivalent to, or a substitute for, the knowledge and experience of a professional retirement planner. The same holds true when it comes to closing or consolidating accounts. Make sure you understand what the account is all about to ensure you no longer need it. If you take action hastily, you could regret it.

Along these lines, it is important for you to be honest about what you do and do not understand. Admitting that you do not understand can be difficult, but you should not feel embarrassed, and no advisor will hesitate to explain further. If you think you understand everything but do not, that is a significant problem. Even if you have had a lot of luck in the past with the market, that does not mean you understand retirement products or how to build a strong portfolio. Hoping the markets treat you well in your retirement, is NOT A STRATEGY! Whenever a point comes up about a financial product or concept, try to test yourself and explain it as if you were telling a friend or loved one about it. If you cannot explain it in simple terms, you may not understand as well as you think. Even more importantly, you will likely have to figure out the questions you need to ask to get a complete grasp on the concept. It is best to retain, or at least consult with, a qualified retirement planner to determine where you stand in terms of addressing these major retirement components and risks:

  • Addressing the longevity issue-the risk of running out of money.
  • Addressing the prospect of facing higher taxes in the future.
  • Addressing the need to protect (from market declines, crashes, or prolonged periods of underperformance) that portion of your accumulated retirement assets that you will need for income and future spending purposes.
  • Addressing the risks and expenses relating to a potential chronic illness.
  • Addressing the effects of inflation over time-loss of purchasing power.
  • Addressing estate and legacy planning needs and desires.

Originally published at https://robertryerson.me on October 21, 2021.

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Robert Ryerson authored the 2016 book What’s the Deal With Identity Theft?: A Plain English Look at Our Fastest Growing Crime.

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Robert Ryerson

Robert Ryerson

Robert Ryerson authored the 2016 book What’s the Deal With Identity Theft?: A Plain English Look at Our Fastest Growing Crime.

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