What is the goal of climbing Mt. Everest? Most people think it’s to get to the top, but the primary goal is to get back down! Just like investing, we want to reach retirement, but we need to have a plan to make it all the way through retirement. Sherpa’s help climbers conserve energy and safely get down the mountain. I’ve been called a lot of names. I’m adding Sherpa to the list.
Chess pieces each have distinct moves. But it’s getting good at combining-sequencing-timing that ultimately captures the Queen and wins games. We’ve practiced our share of strategic moves to become proficient at recognizing the best moves when needed. We continue to learn and gain proficiency, mastery.
“Skate where the puck is going to be.” The Great One, Wayne Gretzky, famously attributes his success to his ability to anticipate where the puck would be. Most families do not do any planning, and even when they do, their focus is not proactive, where the “action” is heading.
Financial planning, done right, is a transition from today’s snapshot and projections, ultimately, to a road map of where you want to go and how to get there. But the Big questions, those defining your value need to be:
Why do you even want to go there? Why are you doing these things?
What are the next 2-3 steps you can take to close in on your destination?
Then, exactly how much is enough?
Few people stop and consider or anticipate their #1 financial risk over their approximate 30 years of retirement? Many fear running out of money, which is just one issue in a subset to the actual #1 risk families will face when their paychecks stop and every day becomes Saturday, a day when most of us spend rather than earn!
So, what is this number 1 risk? Longevity! Just imagine, the longer you live the more issues you will face that could jeopardize your lifestyle and other goals that you might want to accomplish. These include:
Inflation. It’s low now, but even assuming a 3% inflation rate would mean your lifestyle (living expenses) will be increasing each year, doubling in 24 years. Does your investment portfolio allow for this growth?
Taxes. There will be seven potential administration changes during these 30 years. Do you think it’s possible that tax rates will go up? What have you done to reduce your taxes now and more permanently? See more below. Does your advisory team provide proactive tax planning?
Sequence of return. Suppose the year you retire that the stock market repeats history from 2000-2002 and declines 35%, or we see another 2008 or even a black swan event. What have you done to eliminate this potential disaster? Do you have guaranteed income? What about guaranteed tax-free income? Or are all your eggs in one basket?
Healthcare. As a couple, statistically, at least one of you will live into your 90s. Do you think that healthcare costs will continue to rise? And what are the chances that in-home, or nursing home care will be needed? Have you transferred this risk to an insurance company? It’s pennies on the dollar versus self-insuring!
Finally, do you know what your single largest expense is?
Hint: It’s Taxes… What have you done to reduce these taxes by 50%, say? What have you done to create tax-free income for retirement? How much of your retirement accounts are yours? Hint: Your partner is the IRS!
Do you know that capital gains tax is voluntary? Did you know that you could insure your IRA/Profit sharing plan against market volatility? Did you know that the IRS will give you a tax deduction today for a Charitable Gift that you do not make until after you and your spouse pass away? Did you know there are vehicles available that will pay you tax-free income if you live too long, die too soon, or need long term-care?
Did you know that with proper sequencing and timing you could do Roth conversions tax free? Contact me today for this tip.
Do you know what your marginal tax bracket is versus your effective tax bracket? If you could reduce your tax rate to 18% or lower before retiring, how much income would you pile into this rate?
Is there one area in your financial life that you would want to improve upon? Call or email me!