Retirement plan reviews: when, how and why

Clients often labour under the misconception that once a financial plan is in place, it’s a permanent thing.  

Advisors know better, though, especially when it comes to planning for clients near or in retirement. A rise in the cost of living, market swings and changes in a client’s lifestyle or health status — any one of those things can trigger the need for a portfolio review. Set-it-and-forget-it retirement plans exist, but they probably shouldn’t. 

“I would go so far as to say that over a 30-year period, it would be rare for the best-laid plan to not go awry,” said John De Goey, a portfolio manager with Designed Wealth Management in Toronto.

Advisor.ca spoke to three advisors about how often they review retirement plans and what they analyze during such a review. Here’s what they had to say.  

Darren Coleman, senior portfolio manager with Portage Wealth of Raymond James Ltd. in Oakville, Ont. 

Coleman sees financial planning as a dynamic, ongoing process that “always needs to be adjusted.”  

“I think it’s important that people, on a regular basis, diarize a review … do my assumptions about where I was heading still make sense?” he said. 

Coleman reviews clients’ retirement plans on an annual basis, unless changes occur that warrant more frequent reviews. This could include changes in a client’s health status, marital status, lifestyle, family needs or risk tolerance. Advisors must also consider changes in tax rates, inflation and markets.  

At a plan review, Coleman asks his clients whether their assumptions have changed in terms of how they want to live, what it’s going to cost and how much risk they’re willing to take on. He also tells his clients to fill him in if changes occur before their next annual review. If they have, he will revise the plan accordingly. 

At the same time, he will adjust his working assumptions for what projected inflation rate makes sense, return expectations for different asset classes and retirement income withdrawal strategies, if he believes it’s necessary. Erring on the side of caution, he typically assumes a higher rate of inflation than his planning software suggests. 

“We’ve got to adjust to the climate that exists, and we’ve also got to adjust to what the client may or may not want to do” with their money in retirement, Coleman said.  

If the client’s portfolio is ahead of where it was expected to be by a certain date, Coleman asks several questions: Why are we ahead of where we thought? What do we do with this surplus?  

If the plan is behind a projection, some of the questions he asks are: Why are we behind? Was the market crummy? Did we have some expenses we didn’t expect to have? 

“Having that knowledge of where [you] ought to be at certain points allows you to have the right context to make decisions,” Coleman said. 

Shifts in policy that could affect clients’ plans, such as a higher capital gains inclusion rate, and major events, like the Covid-19 pandemic, could also trigger a review, he said. 

Coleman has spoken with clients regarding both scenarios, triaging based on those he thought would be impacted the most — clients with capital gains on assets exceeding $250,000 in a given year and clients who were most vulnerable during pandemic lockdowns. 

“If the advisor has a really good relationship with the client, they’ll generally know who needs the phone call first and who can maybe wait a few days,” he said.  

Jeet Dhillon, senior portfolio manager with TD Wealth in Toronto 

Dhillon revisits retirement plans with clients at least once every three years. 

Some of the questions Dhillon poses in these reviews include: Is the client’s net worth growing the way that we had anticipated? Are their lifestyle expenses in line with the assumptions we have used? Are their investments performing the way that we thought?   

“As life evolves, as events and things around us evolve, we need to always go back and see if the … base-case things that we used in terms of assumptions, are they actually unfolding the way that we thought they might?” she said.  

“And if they’re not, then that means that we need to update the plan.” 

Dhillon underscored the importance of being transparent with clients when things aren’t going according to plan — either from a portfolio performance perspective or from a client expenditure perspective — and a retirement plan needs to be revised.  

“Those discussions are coming from … a good place … the client’s best interest. And if I didn’t have those conversations, I wouldn’t be doing my job, because you don’t want to lead a client to feel that things are OK when they may not be OK,” she said. 

“And clients appreciate that, that we can be candid.” 

John De Goey, portfolio manager with Designed Wealth Management in Toronto 

De Goey said he generally revisits retirement portfolios every nine months or so to adjust for market fluctuations and/or changing goals and circumstances.  

If a client had a stroke and would like to retrofit their home to add a $30,000 stair lift for mobility aid, for example, then that $30,000 lump-sum payment needs to be removed from the pot of retirement income they had initially planned to draw from, he explained. 

And of course, portfolios need to be rebalanced regularly. 

For instance, in a period where the stock market is performing well and the bond market is more or less flat, if advisors are not paying attention, a 60/40 portfolio “could easily become a 70/30 portfolio and now your asset allocation is more aggressive than what you signed up for, just because you hadn’t reviewed it,” De Goey said.  

On the flip side of the coin, if a portfolio becomes too conservative, it could potentially reduce returns. 

By selling an asset class that is doing well high and using that profit to buy another asset class low, De Goey ensures a client’s portfolio is aligned with their risk tolerance and financial goals.  

However, “if everything is going up or if everything is going down, then the need to rebalance is modest, because everything is going up and down together,” he said. 

De Goey also stressed that advisors should avoid rebalancing too often, as it could result in trading charges and unwanted tax implications.  

“Whenever you rebalance with money in a non-registered account, you’re triggering tax consequences, you’re triggering either capital gains or capital losses. And if you can defer those tax consequences, all the better,” he said. 

De Goey said he decided to obtain the portfolio manager designation after the global financial crisis, because despite his best efforts to convince his clients to do so in 2009, most were not rebalancing as they had agreed to in their investment policy statements. Now, he’s able to rebalance his clients’ portfolios as he sees fit.  

“The best advice in the world is of no value if you can’t get people to take it,” he said.