How concerned are you about the recent market activity? With a carefully crafted and well-executed financial plan, these events become a blip on the radar of the decades of enjoyment of a 100 Year Lifestyle.
So what is your definition of financial planning?
Ask any group of people this question and most likely each person will answer differently. The truth is, they may all be right because financial planning is very personal and also complex. No financial prescription fits all people, therefore definitions vary.
The secret to success in financial planning is determining what you want to achieve first and then figuring out what it’s going to take to achieve that. Create your personal definition. Before you do, buy, or plan anything, you should ask yourself why—and whether you are meeting the standards you have set for yourself and your family. Identify what your family’s dreams might be and start planning together to make them happen.
Once you outline your goals and identify your definition, you need to know how to get there. To get there successfully will most likely take the professional help of an expert team. To guide your team well, you should know some basics. Start by addressing The 6 Big Risks® that are a critical part of any comprehensive financial plan. Understanding these risks will help you plan ahead and plan for living your ideal life to age 100 and beyond.
Dying Too Soon
It can be devastating to lose the one with whom you were anticipating a long life together. We all know people who have suffered such a loss. The emotional impact can be far-reaching. The financial impacts can have significant consequences, as well. The good news is that it is quite simple to plan the financial aspects. Discuss your mutual values and goals and create a financial roadmap together. Grief must take its uncertain course, but in the meantime, one thing is for sure: A well-designed and executed survivor plan can bring a significant amount of comfort to the family.
Living Too Long
No one is really concerned about living too long, but a great many are concerned about outliving their money. As more and more people live longer, active, and healthy lives, they need to plan for decades of continuing consumption after concluding their working years. In addition, most people have a list of interesting and exciting things that they intend to accomplish once they have the time and the freedom to do so. The reality is that the first decade of retirement can be pretty expensive. No single idea or product will provide you the security of knowing you have enough money for the rest of your life. That’s why you need to be working with a professional who truly understands retirement income distribution, supports the concept of The 100 Year Lifestyle and can help you to maximize your results.
Becoming Sick or Injured
Statistically, you are more likely to face a disability during your working years than premature death. Unfortunately, planning for a disability event is at the bottom of the list of financial priorities for most people—if it is on that list at all. There are three significant issues to consider if you are disabled during your working years. These three issues are what I call the “Financial Triple Whammy!” First is the fact that you will not be bringing in your normal income, yet your living expenses are likely to continue at a rate that is close to normal or higher. Second, there is a real possibility that you may have to dip into savings or your long-term nest egg in order to meet month-to-month living expenses. This is a good reason to have a robust emergency savings plan. Third, without the ability to earn an income, your ability to participate in retirement savings or tax-qualified plans could be diminished or eliminated. Plan for this potential, even if it seems unlikely.
Everyone has a legal plan! Which plan do you have? Is yours the plan that you drafted and carefully considered? Or do you have the government’s plan? They have one for you…just in case you never got around to it. Don’t think legal planning is just for when you die. It’s also for when you are living. Review your foundational legal documents such as the Durable Power of Attorney and Living Will. Consider your other assets as well and be sure you have considered all the legal aspects for a bulletproof financial plan.
Improper Tax Planning
Improper tax planning is costly. Citizens must pay their legally required taxes, of course, but there is no need to send the government any more money than required. The IRS code is full of opportunities for those who are looking. When it comes to taxation, it is important not only to understand where you stand today but also what your situation will be in 3, 5, 10, and 20 years from now.
Having an Uncoordinated Financial Plan
This is the biggest risk of all. Effective financial planning requires coordination of various professionals so that each isn’t doing his or her work in a silo. Somebody has to be responsible for weaving the thread of continuity through all of the—management, wealth management, financial planning, tax planning, and legal planning. This will help ensure that your most important goals are in complete alignment with your most deeply held values. Make sure your team is working together for you.
Having a coordinated plan is like being the owner of a professional sports franchise. You hire a head coach to coordinate all of the specialty team coaches and players on the field. You simply tell them what it is that you want to achieve—a better record than last year, going to the divisional playoffs, or winning the big show. Their job is to worry about the day to day and make it happen!
Now you know the risks that could halt all of your future plans. And, you have identified your goals. Be sure your Advisor or Ensemble Team knows your definition and has the expertise and resources to be the Head Coach of your financial plan so that you can live the life of your dreams to age 100 and beyond!
I discuss these topics and more in my book, Stop Trying to Keep Up With The Joneses: They’re Broke Anyway.