Equifax

Finance Blog

Five Questions to Ask about Your Retirement Plan

Written by Teri Cettina on January 28, 2013 in Retirement  |   No comments

January is a good time to make an appointment with your financial planner—or find one if you don’t already have one—to make sure your retirement plan is growing in the right direction. Fee-only financial planner Brent Perry, CFP®, of Piedmont Financial Advisors, LLC, in Indianapolis,…

January is a good time to make an appointment with your financial planner—or find one if you don’t already have one—to make sure your retirement plan is growing in the right direction.

retirement-investment-portfolioFee-only financial planner Brent Perry, CFP®, of Piedmont Financial Advisors, LLC, in Indianapolis, Ind., suggests asking your advisor these five retirement questions during your annual meeting:

1. What’s the current value of my retirement investment portfolio?
“People often have little idea of how much their retirement portfolio is worth,” says Perry. Ideally, you should look at your overall balance once a year and compare it to previous years. You may be reviewing more than just your work 401(k) plan; if you have personal investments or savings you’ve earmarked for retirement, your planner will tally these up with you as well.

Once a year is usually often enough to review your portfolio, says Perry. This helps you maintain a long-term view of how your investments are doing. It can also reduce your financial anxiety. “Annual reviews help mute the short-term market noise that you can get from the 24-7 financial and political media,” he says.

2. How much annual income will I need in retirement to cover my expected living expenses?
Your advisor can help you make an educated guess about how much you’ll spend in retirement. Then—particularly if you’re within 15 years of retirement—your advisor will likely take your retirement portfolio balance and multiply it by 5 percent (4 percent if you want to be conservative). The result will be how much you can withdraw from your retirement portfolio per year with a high likelihood of it lasting 30 years. For example: a $300,000 portfolio x 5 percent = $15,000/year of spendable money. According to Perry, this concrete information tells you whether you’re way ahead of the game (“That amount of income is great for me! I don’t need to save another dime!”); on track (“If I maintain my savings rate and get a reasonable return, I’ll be within the ballpark”); or whether you need to take action and save more.

3. Is my retirement portfolio properly diversified among stocks, bonds, cash, and so on? And is my money invested appropriately (not too conservatively or aggressively) for my life situation?
A good planner will help you determine the mix of investments that will allow you to reach your retirement goals with the least amount of risk, says Perry. Diversification is a big part of that. A diverse portfolio helps provide exposure to stocks so your investments at least keep pace with inflation—and possibly grow. Investing in less-volatile bonds and cash helps preserve your capital and protects your portfolio from wild swings in value.

Once your portfolio diversification is set, it generally shouldn’t change based on external factors (such as financial market returns or geopolitical risks). However, it can and should change based on personal factors. This is why it’s smart to visit your financial planner every year. For instance, did you or your spouse lose a job or experience a change in salary? Did you come into an inheritance? Have you gone through a divorce? Any of these things can change how much risk and return you seek with your retirement portfolio. Your planner can help you make adjustments.

4. How much am I paying for my investments? Are the costs reasonable?
Over long periods of time, investment fees can make a significant difference in your portfolio’s value. Perry says one major way to reduce fees is to favor index funds over actively managed funds. Your advisor should review your ongoing investment costs. You also face transaction fees for buying and selling investments. Your advisor can help you look for ways to avoid or reduce these costs.

5. Should I consider doing a Roth IRA conversion?
This entails converting all or part of a traditional IRA to a Roth IRA. With a conversion, you pay income taxes today on the converted amount. The money grows tax-free in the Roth IRA and can be withdrawn tax-free in the future. Perry says a key criterion (though not the only one) for determining if a Roth IRA conversion makes sense is if you expect your income tax rates to be higher in future years compared to the current year. This is a complex issue that you should discuss carefully with your planner.

Investing a portion of your money in a Roth IRA is also a way to make sure your retirement portfolio is tax efficient, meaning that you are keeping an eye on how much your investments will cost you in taxes, both now and in the future.

Teri Cettina is a mom of two daughters and freelance writer who specializes in personal finance and parenting topics. She blogs at Your Family Money. Follow her on Twitter: @TeriCettina.

No comments yet


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Retirement Archive

Stay Informed Sign up for our FREE Equifax email Newsletter