Ep # 99: Why It's Important To Audit Your Financial Plan

Benjamin Haas |

Life is constantly changing and it's important to review your financial plan and make any necessary adjustments so your finances are aligned with your goals and wishes.  It's also important to fill in any gaps before they become bigger items that are harder to address down the road.  A few things to review include:

  • Cash reserve
  • Estate documents
  • Beneficiary designations
  • Investment allocation

Tune in to hear why it’s important to audit your financial plan.  

  • Risk management and beneficiary designations (5:51)
  • Cash reserve (9:00)
  • Reviewing investments (14:10)
  • Rebalancing (17:30)
  • The importance of being forward looking (22:53)




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Full Transcript:

Benjamin Haas  00:02 

Hi everyone and welcome to A/B conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of certified financial planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts now. 


Adam Werner  00:26 

Hello, you there. 


Benjamin Haas  00:29 

Weren't expecting me.  


Adam Werner  00:31 

How are you today?  


Benjamin Haas  00:35 

Fantastic! It is one of my favorite days of the year actually. 


Adam Werner  00:46 



Benjamin Haas  00:47 

You ask why? Yeah, it's awards night at the high school. So being a part of the Education Foundation, the Optimist Club, it's kind of neat to recognize these students and put them off into the world and I'm going to connect the dots. Like to know last week, I was able to be up at the university and seeing some of the personal financial planning students do case studies and there's just something very invigorating about students doing well. You know, we want to champion that next generation behind us. So ,here's how I'll connect the dots. 


Adam Werner  01:24 

Yeah, how does that tie into our topic today? 


Benjamin Haas  01:27 

Today we're going to talk about like checklists and as we think about what the students up at the university were learning about financial planning, it's neat to see them put that kind of stuff into action, but recognize that even with all that learning, things still get missed. So, what I'd like to talk about today with you are just the common planning things that we see kind of wrong, overlooked, outdated, you know, people come to us with, here's what I want you to work on for me or here's my fire to put out and we certainly want to respect that. But then there's typically this list that we have that's like, here's the stuff you need to address and sometimes that stuff just needs to be cleaned up. There is action that's required on very fundamental things. So, let's talk about that. 


Adam Werner  02:17 

Yeah, we often say that planning doesn't happen in a vacuum in that any one area of your financial life often has the domino effect to the rest of your financial life. I think it's very natural to just kind of focus in on one thing, you check that box on that one thing and you go, great, I'm in good shape and not necessarily realizing the domino effect. The other things that are now affected by that and are those other items still appropriate? I like to say and we've said it before too, small holes can sink big ships. So, this is that area where coming up with a checklist or doing some sort of audit on those things you may have already done in the past, but just to come back to make sure it still fits. If there are adjustments or little holes that need to be filled in or sealed, better to do that now then find out you didn't do it and now that little hole may have become a little bit bigger and much harder to patch. 


Benjamin Haas  03:27 

Bingo. Said differently, these audits may suck and it may not be the fun stuff, but you coming to us and going, can I retire, that's wonderful. Spoiler alert, maybe even we'll start wherever you want to start but look, if the beneficiaries are wrong on your accounts like that has huge impact, we need to fix that so let's do it. Maybe if you're comfortable, we can certainly share some scenarios or some historical things that we've been a part of or we've seen, we'll pick on other advisors if we have to, you know, just maybe give the listeners what we see as common things that really need to be addressed. And more frequently than we care to admit, as we just see, it's wrong. You know, this is now an action item so where do you want to start? 


Adam Werner  04:13 

With you throwing it out there the beneficiary review and I'll kind of lump that together with just estate documents in general. I feel like we've probably touched on this in some capacity and like a dozen other podcasts but that's okay. Number one, making sure you have estate documents but I think that's the perfect example where we talk to clients and, you know, do you have these documents? And if the answer is yes, great, but then the follow up is when were they last done? When have you last reviewed them? Do they still fit, are the people that you listed in there still appropriate based on kind of where things go. We've seen life takes this path and sometimes it can meander a little bit off course and then when you go back and look at what you had set years in the past, it may not actually apply or there may just be updates that need to be made. So, wills, Power of Attorney, health care directives, obviously have them but then review them from time to time. 


Benjamin Haas  05:21 

Yeah, I think of the unintended like drift of life. I think it's easy to kind of pinpoint, well, look, you listed somebody based on a relationship that's either no longer part of your life, maybe there was a relationship change, maybe there's divorce? Have we seen exes listed as beneficiaries? Sure, you could take that one step further and just go, okay, I've listed my child and I did that at a time in my life where maybe I was accumulating assets, but now you've got maybe a lot of money in your name. If something happens to you tomorrow, do you do trust them to be able to handle that at 18 years old, the legal age that they could inherit some of this money and control it. So, there's sometimes just these unintended consequences of life's evolution that mean, gosh, you have it listed this way and if something happens, is this really the way you want it to be? All the way down to, is my brother in a place in his life? Specifically, if you know, my brother, my sister, are they in a spot in their life where they could care for my kids or they would be the executor of my estate? Right, those common things happen. 


Adam Werner  06:27 

Yeah, so just on that note, I think, you know, I'm looking through the lens of, and I think a lot of people, what has changed in my life, but when it comes to these documents are just the beneficiary designations, what has changed in their lives, everyone around me that I care about. So sometimes when it comes to beneficiary designations, something as simple as just updating the last name of a daughter, for example, that gets married at some point, it doesn't necessarily stop the settlement process if you don't update that, but it makes it so much easier. When that is accurate in real time, that God forbid anything happens, it's better for it to be accurate than have to take additional steps to prove and document and all that fun stuff that happens on the back end. 


Benjamin Haas  07:16 

So, let me stay there and kind of like the whole, morbid, what if something happens to me? I feel like we find often the risk management or life insurance conversation is something that we kind of have to circle back around to with people and not only are we talking similarly on beneficiary designations with life insurance, but just is this still serving this purpose? What if it's a permanent policy, where like premiums may get far more expensive as you get to 50, 60, 70? And a recent case, 80 years old? What purpose is this still serving? Because at some point, the benefit to the cost cannot be there for you anymore. 


Adam Werner  08:02 

Yeah, and I know we've talked about in the past, too, that there's this insurance curve of life, you know, the younger you are, you have a family, you have a mortgage, probably makes sense to have more coverage. Then as you get to retirement, there's hopefully less debt or no debt than theoretically, you could have less insurance. We've also said on other podcasts, I don't remember exactly which one it was. But I'm thinking back, you know, 20 plus years ago, the way the financial industry was kind of built was more, not necessarily door to door, but there was a lot of sales, especially when it came to insurance people. We see people that have insurance because someone told them they should buy it, it wasn't necessarily something they sought out. I'll use the term “health,” the health of a life insurance policy can vary widely based on how it was initially set up. The recent example you gave, right, we're thinking about someone who's in their 80’s has paid into a policy for a really long time. But that cash value has dwindled and essentially been used to help cover the cost of insurance and the premiums to where now there's no leverage inside the policy where it probably doesn't make sense to continue throwing good money after bad to continue this policy. That's where just reviewing that on a more regular basis, maybe we could have changed or steered the direction. So, it kind of puts us in a little bit of an uncomfortable situation where what's done is maybe done, but staying on top of those things just to monitor the health of a permanent policy in that case because maybe that's not a worst-case scenario, but it's not a good scenario where you've paid money into this policy and now here you are having to really commit to continue to pay large sums of premiums or you just eat the cost that you've already put out. Now just redirect towards something else that may be more fitting. 


Benjamin Haas  10:09 

Yeah and again, recognize while we're saying this is a good thing to audit because the fair response that she could have been given 10 years ago would have been pay. Well, do you have insurance? And she would go, yeah, I took care of that a while ago. All right. Now moving on. As you dive deeper into thinking, okay, purpose allocation of dollars, it doesn't fit and it hasn't fit and now, like you said, it's between a rock and a hard place. So, yeah, Insurance is typically on that audit list for us for that case, whether you have it or not. Constant review is a really important thing.  


Adam Werner  10:50 

I'll switch gears a little bit and I'd say this is becoming more of a hot topic here within the last few months. Cash Reserve. Right, we as go through planning, I think the general rule of thumb that a lot of people know, anywhere from three months to a year's worth of your expenses, depending where you're at and phase of life. Is your cash reserve below an appropriate level? And if so, then maybe we need to take some steps to shore that up or for a lot of the people that we work with, retirees that have been saving up until this point, sometimes there may be more cash than is needed kind of in that cash reserve. Then the discussion is, well, what should I do with it? Because up until recently, I haven't been earning anything on it. I guess I should say, number one, review where your cash reserve level is that is that appropriate for your situation. But then depending on that outcome, maybe you have, I'll say, use air quotes, too much cash, as if that's a bad thing. But with CD rates where they are right now, our conservative savers are finally getting paid a little bit just to move things around within the bank, which again, up until very recently, that had not been the case for at least the last decade. So even just something as simple as how much cash do I have? What's an appropriate level? And is there something I could be doing differently that just earn a little bit more on my idle cash? 


Benjamin Haas  12:20 

As you're saying that I'm thinking, again, going back to the theme of this drift of life, where you might have set a target and maybe you're comfortable with a certain target but job and income changed. We've had another child, we've moved, we now know that in the next 12-18 months, we have to outlay money for these projects, are these other intermediate goals. These are all incredibly common things that might shift the advice on well, how much cash should you have all in an effort to not be in that spot that we don't want to be in where somebody needs to get to money and all of a sudden, it's not a great market condition for liquidation. We're forcing taxation on somebody that doesn't want to be taxed that way, right. We can pull these levers but that audit process, just make sure that we're trying to be efficient and be forward looking and put people in a good spot. 


Adam Werner  13:15 

Yeah, I think the general theme of today is just being proactive provides you so much more potential flexibility than being reactive. 


Benjamin Haas  13:25 

I would say on that one, we could go not just to cash, but you could also go into where people are savings and I realized there's some nuances here. But in that theme of you know, you want to audit because what you set and forget, good job, you did it, you put that in place, but life may change. I think where people are saving based on their goals, what their intermediate goals are, what the retirement timeframe is, what their match from their company provider might be, right? These are things that we would typically see as sometimes needing immediate action based on what their plan should say. 


Adam Werner  14:10 

Yeah, and I know I feel like we've thrown this one out there before but something as simple as in a client situation, if they're hoping to retire before I'll say age 62, being the earliest for Social Security, or even if it's before age 59 and a half where they get access to retirement accounts. It's very easy at an early age, if that's the potential goal to just say, I'm going to load up my retirement accounts because I'm thinking retirement and saving for retirement, I'm doing the right thing. But if there's any chance that you may need or want access to retirement money before it's accessible without a penalty, 59 and a half, that may require adjusting where you're saving just in the vein of flexibility in the future, to not paint yourself into a corner where now you've removed some of your options. Just something as simple as the type of account you're saving and can have a huge impact in flexibility in the future. 


Benjamin Haas  15:06 

Yeah, I'm thinking of other just little nuanced stuff that maybe this is just nerdy talk between you and I now but love it, we've had situations where if there wasn't really a forward-looking review, let's again create the scenario where somebody they did financial planning five years ago, good for them for like trying to be really efficient with this. But now they're in their prime earning years, we've had a couple of our own clients like, save into a Roth IRA and then not qualify for it and rip that money back out. There are adjustments, the tax returns, and these forms and it's, again, that proactive nature, if you're going through an audit every year of where am I saving and why? You can probably get ahead of that curve. 


Adam Werner  15:48 

Ready for the next one? I have one more on my list. Well, okay, one and then some sub bullets but I think for a lot of people reviewing your investments is an important one. But I say that not necessarily through the vein of just reviewing for performance because I think that's what a lot of people immediately think of, you know, this fund or this area has not been doing well. I'm going to take it out of this, I'm going to put it somewhere else in the hopes of either more potential gain or just more stable on the downside, just reviewing your overall allocation, right? How are you invested just from a risk perspective; we've seen that over time and I'm thinking to somebody we met with earlier. I don't say it's easy but it's not necessarily hard but when you're younger and accumulating and saving, you have time on your side, it's very easy, set it and forget it. Just risk on, I'm going to put money here and the market is going to do the heavy lifting over a long time. But as you get closer to retirement that I think most people know you may want to start to scale something back, some of that risk. And it's all individual situations. It's all relative but just reviewing your over allocation, is it too much risk? Is it not enough risk? How does it actually fit for their situation? And by the way, coming all the way back to, when would they like to retire? What do they actually need from their savings to live on once they get to that point? All factors into the risk level of an account and how that can change just as the market grows and shrinks over time, too. 


Benjamin Haas  17:30 

Yeah, so I'm going back to my theme today, this like natural drift of life, maybe somebody started putting money into their 401k. Right, their first dollars 5-10 years ago and who knows what the heck they picked. But it's booming, it's doing well, I'm imagining their 100, let's just say 100% in small cap, and they maybe didn't even know that small caps are incredibly volatile. But you don't recognize that until you go through a really tough environment like last year. So again, the question is your saving into your 401k? Is it all in stock? But do we understand? Are we really being forward looking on how this one investment might become a completely outweighed part of your portfolio that you didn't really intend for that to be the case? That's kind of common. So yeah, you need to kind of have it on your list your checklist. I have to audit this thing every once in a while, or you know, theme of today to put it on us to audit that for you. But the important thing is to not just let it hang out there. 


Adam Werner  18:16 

Right, something so simple as rebalancing. Rebalancing back to whatever that target is that you started with, assuming that was an appropriate target to start with. That's all well and good but the timing of rebalance should matter theoretically. Some people like to just set it and forget it, right? Do it on a fixed interval, I'm not even to think about it, I'm just going to do it on these dates or you take more of the, I'll say, tactical approach that you let the market sometimes dictate when you want to rebalance. But again, just looking at risk overall, rebalancing your portfolio to make sure it's still appropriate is something that should be done on a fairly regular basis, just to make sure you're getting the investment experience that you expect at any point in time. 


Benjamin Haas  19:23 

Yeah, and I guess that's a fair one too, you know, it's very possible even for us, right, I can look in the mirror and say, we maybe have to be better at something. You open an account for somebody 10 years ago and how they felt about risk then, might be very different post pandemic closer to retirement. So even just to go through the analytics of, what is the risk and return profile? What can you stand to lose? What can you stomach? How have the events of the last 10 years shaped the way you think and feel about these things? Every couple of years, it's maybe not bad to do that. All right. So having that on the list, I would hope. It's not a thing where people are really disconnected from where they should be but there's only one way to find out, you check again. 


Adam Werner  20:15 

It's exactly right. I have one here on the list that I'd say it's potentially more minor. But it's more along the lines of like a mental accounting or a psychological switch to flip that can make recreating your paycheck and retirement a little bit easier. That's something as simple as just turning off dividend reinvestment on your investment accounts, on the accounts that maybe you're drawing income from and maybe there's a couple of different scenarios. But if you know that you haven't had an account, whether it's a retirement account or not, and you're going to live off of a portion of that money, it may make sense to not have it default, to just reinvest the dividends and interest that are kicking off from your investments, just have that pay to cash. All that, I shouldn't say all that does, but one of the things that does is it removes part of the decision-making process. At some point in the future, I don't have enough cash, I now need to sell something. Now you have to decide what you're going to sell, when you're going to sell it and hope that aligns with the market being in a spot where it's not putting you in a bad situation where you're selling something in a down market and where you may be able to give yourself some time for that to rebound. So financially, it may make sense to give yourself some flexibility there too. 


Benjamin Haas  21:37 

Yeah, that's good catch.  


Adam Werner  21:41 

And one more thought on that, is if you have something like that, that's in a non-retirement account and there are either capital gains distributions or the dividends are reinvesting in the non-retirement account, very different than a retirement account. Those dividends and capital gains distributions as they happen, you pay taxes as you go, right. So, if you're reinvesting those and you're paying taxes, you may just end up compounding some of that tax problem in the future. It's, we'll say it's one of those good problems to have because that means you're theoretically you have money, but by the way, your money is making money. But it can be one of those psychological things that it can quickly get out of control, where it's very difficult to then unwind in the future. Then the taxes will be whatever the taxes are and that can be an unpleasant or uncomfortable kind of situation to kind of sit in, where you lose some of that control over your taxable situation just by where you're invested, how you're invested, then the dividends and reinvestment of those dividends over time. 


Benjamin Haas  22:53 

Yeah, that's definitely a good one. I don't want to make this a 45-minute podcast. So maybe we can keep it there but I would then say, how do we help? Right? I think we would want to be clear at the end of this, whether you're working with us or you're considering working with the planner, this still is just all about process and accountability. I think everything we mentioned here today, among other things, they may not be the reasons you go to a financial planner but they are the conversations and the advice that should come out of that. Just because you did it a while ago, doesn't mean that drift of life hasn't occurred, so every now and then, do the audit. I know they're not fun. You think about that in accounting terms and it's like, painful experience. But what we mean is just let's make sure things aren't getting missed and even if they were addressed, let's make sure the intent and how things are positioned, whatever that is, it's still set. 


Adam Werner  23:54 

Yeah, best case scenario is you come up with this checklist. You review it and everything still applies. You check the box, you're now good for a little while again. You can hopefully rest easy knowing that you have all your ducks in a row, all your i's are dotted and all your T's are crossed. 


Benjamin Haas  24:12 

Yeah, go back to enjoying what we hope people enjoy, which is not you know, pouring over statements and the investment markets. Because if I can say one more thing that I think it's important to mention here, part of this is to make sure we're being forward looking because when we are able to look ahead, our options are wider than okay, now, here's the situation in front of me, you may not have the ability to make certain changes or there may be unintended consequences. Part of the audit is to be forward looking not just be backward looking. Excellent job today, I'm giving you five stars!  


Adam Werner  24:52 

Hey, appreciate that! Out of like 10?  


Benjamin Haas  24:55 

No, no, five out of five. 


Adam Werner  24:57 

 Whoo! Appreciate that. 


Benjamin Haas  25:00 

All right, with us next time number 100! Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only and are not intended to provide specific recommendations for any individual to determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening! 


Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. 


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