When people talk about planning for retirement, they think in terms of how much money they have saved and whether their investments are on track. You want to protect what you’ve earned. But for a lot of people, the big hurdles come from life events as much as they arise from market churn.
An incapacity, a death, a job loss, a divorce, even the transfer of wealth itself between generations, can all test whether your paperwork and your financial plan are up to the task.
A recent national survey from Trust & Will found that 56% of American adults have no estate planning documents at all. Among people who do have a will or trust, 14% have never updated it since the day it was signed, and another 13% review it once a decade or less. In practice, that often
looks like a 401(k) still listing a spouse from a first marriage as beneficiary, a trust built around a business that has since been sold, or a guardian named for children who have since moved away.
These gaps leave a lot of room for unwelcome surprises. You might discover, too late, that a beneficiary form overrides what a will says, or an account could be titled in a way that hamstrings the plan that you paid a lawyer to help you create.
We tell our clients to check their documents and plans at least once a year. Read the beneficiary designations on retirement accounts and life insurance policies rather than assuming they still say what they said when the account was opened. Most people who take this seriously find at least one thing that needs correcting.
Before a crisis hits, a family needs three answers: who acts if you cannot? What is your money meant to do in this scenario? And, who should you call first? Without those answers, a court often ends up deciding who has authority over medical care, who manages the money, and how assets get divided. That process can take months and tends to surface family disagreements at the worst possible time to be dealing with them.
We asked our own advisors what one thing they wish every client reviewed annually.
Retirement account contributions and beneficiary designations were at the top of the list, especially after a job change.Risk capacity, since it can shift with age, income or family circumstances even when risk tolerance feels the same.The past year's spending, so a client has a real number for what retirement will actually cost.
Education spending should be tracked, too. We find clients either allocate way over what they will actually need or way under, so it pays to check in.
Life insurance coverage, particularly for a primary breadwinner. Most families in that position carry far less coverage than they need.
FSA balances before year end. Unlike an HSA, you lose FSA funds if you don’t use them. We don’t want to see anyone forfeit money set aside for medical or childcare costs.
None of these require a financial degree to check. It just takes diligence. But we’re all human, and even with the best of intentions, important parts of our financial lives tend to slip through the cracks.
The good news is that each of these things are completely within your control to check and update. And over the long run, mastering the things you can control (or prepare for) is as much a part of your financial outcomes as anything that happens in the markets.
Drew O’Connor, CFA, CFP, CIPM, is the director of research at CapWealth. For more information, visit capwealthgroup.com.
This article originally appeared on Nashville Tennessean: The retirement planning mistakes many families don't discover until too late
