If you are like most Americans, you don’t have a great handle on your progress toward financial goals. One of the reasons may be that most folks DO NOT use outside help to create a financial plan or to manage their investments. According to a recent survey, 75 percent of Americans get NO professional help with their finances.
As a fiduciary financial planner, I’m committed to helping families get to their financial goals safely. I’m a HUGE believer in the benefit of the financial planning process. As Ben Franklin said, “If you fail to plan, you are planning to fail!”
As summer begins to wind down, you may want to reflect on your financial priorities and consider these five ideas to help keep you on track.
1. Set goals
Too many people simply guess what they will need in retirement. First, most people drastically underestimate how much money they will need to live in retirement. Second, most people drastically underestimate how long they will live in retirement. The average 60-year-old American can expect to live 23.59 years. And third, humans ALWAYS do better when they write down their goals and share them with others.
2. A holistic financial plan is a must
My clients all find that as they begin to write down financial goals, they realize that a range of factors need to combine to bring success. That’s why every financial plan I do includes Six Key Areas of Financial Life
- Cash flow and net worth. You need to know what you have and where it’s going.
- Risk protection strategies. You need to manage risks that could derail your dreams.
- Property casualty.
- Life insurance.
- Health insurance.
- Long-term care insurance.
- Wealth accumulation strategies. You need to systematically set aside money and help it grow faster than inflation.
- Tax-smart investing strategies. You need to minimize the impact of income taxes on your investments.
- Retirement income planning. You need to carefully select your income sources in retirement. This will reduce your tax bill, increase the stability of your income and help provide for increasing spending needs as you age.
- Estate planning strategies. Everybody needs four basic documents in place and some families need more. The families who need more complex plans might want to provide for minor children, provide for children with special needs, or support an important cause after they are gone. It pays to consult with an estate planning expert to understand your specific situation.
3. Retirement savings is a priority
If you want to stop working for money one day. You need to be dedicated to saving now. Company retirement plans are a great tool.
- Be sure you know if your company has a retirement plan. If they don’t ask your boss why.
- Be sure you know what free money the company is offering. Typically, retirement plans offer free money as a match for retirement savings that an employee contributes. Many times, you can get four percent of your salary, sometimes more, for free. Just by saving. DO NOT leave free money on the table by failing to save to the retirement plan.
- Work hard to max out your retirement contributions. Experts suggest that 15 percent of your gross pay is a prudent target to keep you on track for a comfortable retirement. You may not be able to start there, but save what you can now and bump up your savings rate every time you get a raise until you hit the maximum contribution limit. In 2021, you can save up to $19,500 of your earnings into a 401(k) plan. If you are better than 50 years old, you get to save an additional $6,500. That’s BEFORE the company match.
And you can often add money to an Individual Retirement Account on top of your company retirement plan. That gives each person a chance to save another $6,000 each year – or $7,000 if you are better than 50. - Consider the Roth option. In 401(k)s and IRAs you get a choice to save your money one of two ways.
- Get a tax savings today with at TRADITIONAL pre-tax contribution. This means your tax bill goes down now, but when you spend the money you pay income tax on every dollar you spend.
- Pay the tax now with a ROTH after-tax contribution. This means you pay the tax now as part of your savings plan then, in retirement, all the money – including the growth – is yours to spend free of tax.
- Consult your financial advisor or tax professional to see which track serves your goals best. HINT – I STRONGLY recommend Roth contributions whenever possible.
4. Get out of debt today
One key to a successful retirement is low overhead. One great way to lower your monthly spending is to eliminate all debt. If you have debts in multiple places, a great tool to strategically eliminate all your debts is the Debt Snowball System. This approach helps you target each debt in a strategic manner and get debt-free faster.
5. Check in with Social Security
Many people are doubtful about the future of Social Security, but don’t worry. Americans love this benefit. It’s EXTREMELY unlikely that the government will significantly reduce this benefit in your lifetime. I routinely run detailed projections for clients and would be happy to walk you through your options to maximize the program for your family. I suggest everybody go to ssa.gov to set up your own account and review your earnings history and see projections of your benefit.
For most families the smart choice is to take the MAXIMUM Social Security Income benefit, which begins on your 70th birthday. Part of your financial plan should include a strategy to provide income – either from full- or part-time work, or from retirement savings – to get you to age 70.
As you reflect on your financial goals, you will have plenty to think about.
- What goals are most important and how much time do you have to reach them?
- What’s the impact of inflation on my plans?
- What’s next for stocks now that the markets are at record highs?
- When will interest rates rise enough to help my retirement savings?
You may find that you would like to talk with someone who is your advocate for financial success, and an expert with training and experience. A great place to start looking for that person is to talk with a couple CERTIFIED FINANCIAL PLANNER™ professionals.
To find a CFP® professional near you, start your search here.
As you visit with financial planners, I suggest a couple things to check:
- Is the advisor always the client’s advocate – a fiduciary advisor?
- Is the advisor paid by clients, not a financial product manufacturer or distribution network?
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
A fiduciary, fee-first, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
Follow this LINK to set a time for us to talk. The first hour is ALWAYS free and I would love to get to know you.
If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.