“You’re making me nervous!”
Worse things have definitely been said in our office, but would it surprise you to know this is exactly the response we’re looking for when meeting with a prospective client?
Financial planning is an extremely emotional process. Aligning your resources to achieve a desired outcome requires you to identify your wants, hopes and dreams. But emotions are difficult to manage, so most financial service providers prefer to bypass them by focusing on the money instead.
They’ll talk about diversification. They’ll ask you about your risk tolerance or if you’re happy with your portfolio’s performance. They’ll recommend that you periodically rebalance or purchase some exotic product to lower your tax burdens. What’s missing here? How about an honest discussion about what this money means to you? What kind of lifestyle will you be able to enjoy when you retire? Are you on track? Are you happy with the projected results?
The quote above came from a divorced woman who recently dropped by the office. She thought she had a good financial plan but wanted a second opinion. We ignored the pile of statements she brought with her, as we always do, and focused on her. Do you like your job? Do you like where you live? What do you want to change about your life? What do you never want to change or lose? Can you tell us about your family? What’s important to you?
It was the first real goal-oriented conversation she had in years. She got nervous, then excited and then inspired to take control of her financial destiny! She realized she didn’t really have a financial plan, just a bunch of mutual funds. What comes next is easy. We create a real retirement plan: a path toward building and protecting a fulfilling lifestyle. A great plan will always include the following:
- Clearly Defined Goals
Do you really want to stop working or instead transition into something less strenuous, part time or hobby oriented? When do you want to get there? Where do you want to live when you retire? What hobbies or passions do you want to pursue? Are you willing to put in the work, effort and sacrifice to make these changes a reality?
Goals provide clarity and a sense of purpose. Countless studies show that people with clearly defined goals are more successful and fulfilled than their objectiveless counterparts. So outline your goals and commit them to writing!
- A Plan for Lifetime Income
When the paychecks stop, your nest egg must be capable of replacing that income for the rest of your life. Pensions are all but extinct, and Social Security will inevitably go through radical changes as the program seeks solvency. But the greatest challenge in our time is longevity. Baby Boomers will live longer than any other generation in all of human history!
As a result, the demands on your nest egg are bigger and more challenging than ever. The good news is that there are strategies available to replicate a pension and create lifetime income. Make sure you explore whether your plan needs one.
- Risk Management
Once you have a plan for creating retirement income, the next step is to protect it from risk. There are three major risks that require your attention; we call it the HIT – Healthcare, Inflation and Taxes.
Living longer is a tremendous blessing, but it also means that you’ll inevitably require more healthcare along the way. Medicare only goes so far so if you have money expect to be separated from it if you don’t put a healthcare protection plan in place.
Inflation is sneaky: As time goes by, your standing of living can slowly erode as the cost of goods and services grow higher. Ideally your income strategy will allow for modest increases every year so it can combat inflation and preserve your lifestyle.
The pain of taxation requires no introduction. Unfortunately, most sources of retirement income are taxed as ordinary income: Social Security, pensions, annuities, 401(k), IRAs, etc. A well-structured plan will attempt to suppress and diversify your tax burdens.
- An Estate Plan
Wills guarantee probate, a lengthy and costly process that subjects your estate to public scrutiny and perhaps even family squabbling. Trusts offer better protection, control and supersede probate altogether. Some trusts even offer tax advantages to keep more of your hard-earned savings in the family- where they belong. There are many kinds of trusts so determining which, if any, might be right for you is a great start.
That said, it’s equally important to provide living protections. If you’re in an accident or incapacitated, who has authority over your money or the direction of your healthcare? A proper estate plan should protect you and your family along the entire length of your retirement journey.
- A Plan for Action
This part is always unique, not cookie-cutter. Based largely on your goals and income needs, each plan will require different products, strategies and solutions. The best of plans clearly outlines the overarching strategy, how it can be executed, who will be responsible for managing its individual parts and include a schedule for review and service.
The big takeaway: do you have a plan or a portfolio? Now you know the difference. It’s taken a lifetime to get to where you are today. Transform all that hard work and sacrifice into a plan that delivers every inch of what you want to enjoy for the rest of your life. Don’t settle for anything less.
Information provided should not be considered as tax advice from Arcadia Financial Group, LLC or its representatives. Please consult with your tax professional.