I have a secret for you. I don’t blog. I was asked if I’d
write one on the stages of financial planning, and given the constant nagging
from my marketing director to start blogging, I agreed. In this blog we’ll cover those stages and
hopefully a few insights along the way.
Obviously there’s a 30,000 foot view stretching from
adolescence to death, but I felt that folks reading this wouldn’t be too
concerned with the youth of today, or paragraphs talking about the compounding
effect for 20 year olds vs 30 year olds.
After all, most folks reading this were probably the youth of yesterday
and you’re just now getting around to reading about this stuff yourselves. So I thought I’d do a slightly more micro
approach on the later stages. I’ll
try to offer some ideas that I’ve come across in the 10 plus years I’ve helped
clients navigate through their later years, in the hopes that you find some
things useful or applicable to your own situations. I’ll call these stages The Planning Time,
Honeymoon Phase, Disenchantment, Reorientation, and Legacy.
Planning:
Our first stage ‘The Planning Time’ usually takes place
somewhere around age 50. It’s when folks start looking at the balances of their
401K’s and begin wondering “Hmm, is that going to do it?” People fortunate enough to have pensions
start adding up their expenses and doing to math. I cannot express how important these years
are for your future. The decisions
you’ll make set the foundation for the rest of your life. I tell my teenagers
that exact same line, but something tells me that you may be more receptive.
The general school of thought for retirement has been that
you can safely pull 4% from your moderately invested savings with only a slight
risk of your account hitting zero before your blood pressure does. (However,
this has been under some scrutiny in the last 4-5 years due to volatile markets
and low interest rate environment). So
keep in mind that it anything but a ‘rule’ when planning. A few pointers for planning would be to
ensure that your allocations haven’t gotten out of whack over the years of
raising kids and not monitoring accounts.
Going over a detailed budget is going to be vital for you. Notice I didn’t say create a budget, or to
budget yourself. I’ll leave telling you
not to have a cup of coffee every day to the Suzie Orman’s of the world. Simply
put, you need to know what your expenses will be once you retire to effectively
plan for it. Common sense right? You’d be surprised at the amount of people
that thought they just won’t spend as much during retirement. When in fact I’ve
found that people often spend more than they did the years they were working
(more on that later). You also want to
understand that diversification is more than just a healthy mix of stocks and
bonds, it’s also understanding how having tax diversity can impact you. The decision to invest money into tax free
accounts or looking into Roth conversion strategies should involve more than,
“Should I pay taxes now or later?” One important factor most everyone overlooks
is the effect this has on their social security income. The difference between
taking money from a taxable vs tax free account could mean paying tax on up to
85% of SSI. The bottom line for this stage, there are a lot of variables and
you have to be diligent. Do your homework and lots of it.
Honeymoon:
The Honeymoon phase is where you allow 30+ years of stress
to proverbially roll off your back. You did it! You’re the boss now, your time
is yours again. Everything’s new, fresh, and exciting. Your dreams become
possibilities and hobbies. You’re also the healthiest you’ll be throughout your
retirement (assuming one of your hobbies isn’t a health make over). I encourage
folks to plan for an increased budget during this initial phase because
hopefully you’ll take advantage of it. Travel, start a new hobby or business,
finish your bucket list because unfortunately there’s no telling just how long
we have left.
For those that retire prior to social security or pension
benefits, this can be a time when you pull significant amounts from your
savings. I suggest allocating your accounts into 3 separate buckets
(figuratively or literally depending). Funds you’ll use the first 1-6 years in
retirement. Funds from 7-15, and money you’ll need 15 years and beyond. The reason is of course you would invest
these accounts in a very different manner.
If you have 15 or 20 years until you need to use a certain account, you
may be able to tolerate a few more fluctuations with the goal of receiving
higher average returns along the way.
Disenchantment:
I hope this phase doesn’t happen for you or at the very
least that being aware of it will help to shorten its stay. Disenchantment comes when we become
stagnant. Feelings of let down or
uselessness can creep in. For some, and I’ve
seen it happen to my very own clients, unhealthy spending can occur here. We may tend to impulse buy or depression shop
to find our self-worth or to just flat out make us feel better. It is vital to recognize this and stick to
your plan…you know that one you created in the planning stage!
Reorientation:
Thankfully the letdown phase doesn’t last forever, at least
not for you right?! You’re resilient, you’re a boomer for Pete’s sake! With the
help of time, friends, family, or a combination thereof we ultimately discover
our purpose of who we are now that we’re not working. We find and settle into
routines. This may also be when we downsize our home if necessary, or simply
start accepting a different outlook. This
is probably the truest test of our plan thus far and the best time to revisit
its vitals and make sure it’s still healthy and preforming in a way that will
support you.
Legacy:
This is something that comes naturally to some. “How do you
want to be remembered?” Let that sit for a moment. If we’ve done a good job
with other phases, chances are you have some tough decisions to make. How will
you leave what you have in the simplest, most tax efficient way that will
preserve your legacy? There are so many
ways to accomplish this that I could write posts for 6 weeks and still not
cover them all. Just know that you want
your financial planner to have a good working relationship with an estate
planning attorney so they can collaborate to identify all possible avenues for
you to accomplish this. Whether it is charitable interests, passing wealth to
your grandchildren, or meeting the maker with your last nickel, chances are the
US government wouldn’t be a choice.
_____________________________________________
The Area Agency on Aging would like to thank Jason Stroede ,
President of Clarus Wealth Management for this week’s blog. Jason and his team specialize in retirement planning
strategies in the St. Louis Metro East Region.
To contact Jason or one of his team you can call 618-398-6861 or
800-257-5046 or check out their website at www.claruswealthmanagement.com.
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