by Doug Kartsen, CFA
Should you be considering a financial plan? As people live longer and have more lengthy and active retirements, and as the certainties of pensions, Social Security and Medicare become more questionable, a well-constructed plan only increases in importance. It’s early in the year. Get energized. Get organized. Make a plan.
I don’t believe it’s ever too early to make a plan. I drew up a financial plan for myself in my mid-twenties, half my life-time ago. That plan has been revised and improved twice since, but the original still serves as a benchmark. Of course, plans can take on greater relevance and accuracy as we age. Accuracy increases as we solidify our career, build a family and develop our savings and portfolios to more meaningful levels.
At 40, many people are hitting their stride with their career and the trajectories are clearer. Surprisingly, individuals in their 40’s are often in a better financial position at that point than when they are closing in on retirement. They may be contributing regularly to their company retirement plan and be established in their first or second home. Perhaps they have a growing family, but are not dealing with the cost of a teenager or of college yet. With two decades or more before retirement, this is a great time to establish goals for retirement and potentially funding a child’s car, bar mitzvah, college or wedding.
As a warning to those without a plan, in 2013, the U.S. Dept. of Agriculture reported that the cost for a middle-income couple to raise a child to age 18 was $241,080. Going only to age 18, that leaves college and wedding as additional costs. I’d surmise that a bar mitzvah is outside the estimate too. All this is funded from money NOT going towards retirement.
There are other important questions to be answered too. What benefits are available from the employer and are these being maximized? Are savings sufficient and investments properly allocated? Are those incentive stock options from your employer being harvested tax efficiently? Is debt manageable and cost effective? Are expenses reasonable or do they conflict with future financial goals? Are loved ones adequately protected in the event of your death or disability?
In your 50’s and 60’s you are approaching retirement. It’s time to get serious. There is still time to make adjustments or get assurance you’re on the right path. The possibility for job advancement may have diminished or maybe there is a desire for a career change, so it’s good to look at plan alternatives. Perhaps there have been marital changes or career gaps. College tuition or loans remain to be paid, and there may be pending financial concerns about children, grandchildren or parents. The value of your investments may be substantial and you want to protect and preserve it. Questions about early retirement, pension options, social security strategies and how you’ll take income from your retirement accounts have taken on greater importance. You’re even wondering about long-term care. There’s a lot riding on your choices, since retirement could be for 30 years and more! A plan can answer these questions.
Post-retirement, the importance of prudent investment selection and portfolio allocation is just as great, but the solutions have changed. Perhaps you have multiple residences in different states or countries. You still have income needs, but taxes, gifting and legacy planning are front of mind. A discussion with your children regarding your finances may be important now. A financial plan can offer solutions and clarity for you and your family.
At DAK Financial Services, we believe in a comprehensive planning process. Our professionally built plans entail a great deal more than the mechanized process of entering numbers into a computer program, without much thought of the input, analysis or output, a process referred by some as “plug and chug”. A good plan results from a process of interviews, numbers testing, document reviews and analytics. Often it includes coordination with other professionals, such as accountants and estate attorneys. A well-drafted plan can be of enormous benefit, but we’re quick to point out that a professionally built financial plan is not necessary or appropriate for everyone. For some, a simple analysis is suitable to help clarify financial goals, determine their reasonableness and create a roadmap. That could be enough. Professionally done, though, the potential to identify errors, gaps, opportunities and improvements is much greater.
There are things we can control and things we can’t. Often we focus on the wrong things, leaving the things we can control to fate. It’s early in the year. Let’s focus on the right things and help ourselves. It just takes some energy.