If An Advisor Dies, Does the Plan Break?

I was teaching a Retirement Elevated class at BGSU the other night when I was asked a question about one of the retirement income planning strategies that we were discussing. Essentially, the question was about how to maintain a bond ladder within a flooring strategy. While I won’t go into the particulars at this time, the gist of the question was, “Do I need to continually reinvest the bonds as they mature, in order to keep this approach going?” The short answer was, “Yes” (although I’m not great at short answers, as he learned). The bigger idea struck me and I wanted to share it with you here.

I am continually reading of new financial strategies for this or for that, each author or researcher offering his or her cutting edge approach as compared to others. While this research is imperative and pays huge dividends to our field, we mustn’t forget the maintenance aspect of the choices we make. Especially for retirees; circumstances change, situations evolve, people age, people die – and that includes their advisors! If a really complex and sophisticated retirement strategy is utilized, we must keep in mind the effort required for its proper upkeep. Why? In many cases, these really slick strategies can fall apart when not paid attention to and adjusted continuously. The results may end up being less-than-fantastic, or worse, disastrous for the retiree.

Coincidentally, another example of this presented itself after the same class. After I shared how persistently low interest rates can cause certain kinds of older universal life insurance polices (that were intended to be permanent policies) quickly lose their cash value and fail, a couple stayed after class to tell me about the letter they just received from their insurance company indicating just this pending outcome. It turns out that a well-intentioned life insurance agent had shown them the virtues of such a ‘low cost’ policy many years ago, but did not perform any sort of review over the years to ensure the policy remained healthy. The result may be a lapsed policy, a big tax bill, and a failed plan.

So whether we’re discussing sophisticated life insurance strategies, sophisticated income strategies, or sophisticated real estate investments, there are times when too much sophistication can be just that – too much. If an investment or strategy might hold some promise for a slightly better outcome – if used absolutely correctly – but holds a risk of being neglected by the advisor, agent, or you, we need to be cautious. For if the advisor dies, and your accounts are neglected, will your plan begin to die as well? Let’s hope not.

Given this warning, what’s a retiree to do? First and foremost, demand a formal plan before investing. Before you adopt a strategy or deposit money into an investment, ensure that you have at least a basic understanding of how the strategy will work, long-term. Understand when each account is designed to be used, and for what purpose. Before putting money in, know how and when you’ll get money out. This is one reason we use the bucketing strategy for many of our clients’ plans. The timing of the buckets ensures that we all agree when you’ll begin drawing money from each account, and how long those accounts are designed to last. It’s a visual and mathematical framework for everyone to agree on. That way, if the advisor dies before you, your understanding of the plan doesn’t die as well.

Retirement planning encompasses so many different aspects, from investments to pensions, Social Security, Medicare, and on and on. Simply trusting and hoping that somebody else has you covered may be asking for trouble. Demand a plan and follow the plan. Know who is responsible for what and when and you’ll avoid possible heartache later.