Riley, Darby, & Wilson Private Wealth Management Group — Plan for Uncertainty
December 09, 2019
Investors often find themselves paralyzed by financial uncertainty. You can listen to the news commentators talk daily about the worries and concerns they have due to the current uncertainty in the economy. Remember this: there never has been and never will be “no uncertainty.” The future has always been uncertain and always will be due to humans’ inability to see into the future. So, disregard the worries and concerns you are warned against, and develop a plan for your financial future that includes contingencies for helping to deal with uncertainty. A good plan will include strategies that are designed to take advantage of opportunities yet to be seen and strategies to help deal with risks that are inherent in life.
The best plans are simple and easy to understand. Your plan should make sense to you and should be easy for you to implement. There are three basic planning goals that apply to everyone. Number one is the goal of accumulating a pool of money that will provide a secure retirement. Number two is accumulating a pool of money that can be used to generate income in addition to salary or business income. Number three is a goal for specific needs, i.e. kids’ education, second homes, special travel, etc.
One thing to understand as you work through your planning process is that changes in our economy happen slowly. That means that we typically don’t have to check things daily, and that we don’t need to attempt to predict the future. We simply have to understand where we are now, and then watch for long-term changes that we should adjust for. Once a good plan is in place, you can be in a better position to accumulate wealth, achieve your financial life goals, and do it with more confidence. A plan can help allow you to take advantage of change and profit from it.
Planning your retirement can be stressful — but it doesn’t have to be. True to form, Baby Boomers are redefining retirement too! The 76 million Americans born from 1946 to 1964 have driven major national trends in their lifetime and are living longer than any previous generation. Today, with the oldest of them having turned 60, some are already retired or have been forced to retire, and many more are thinking seriously about retirement.
If you are planning for retirement, there is a lot to think about for aging Baby Boomers:
- Do you want to retire outright and never work again? How many years do you need to keep working before you can realistically afford to do that?
- Do you have the opportunity or desire to “reinvent” yourself and start a new career — in other words, retire sooner from your present job and spend more years following a passion that can also provide at least a modest income?
- With large corporations continuing to downsize, your company may offer you a retirement package. If so, it makes a big difference how you choose to receive it. If handled well, how far can your package take you toward financial independence?
- If your corporation offers a traditional pension — perhaps in addition to a 401(k) plan — how much is your pension account worth? Have you been with the company long enough for those assets to be fully vested? Will the plan continue to be funded? Should you take your money as a lump sum? What about your beneficiaries?
- When it’s time to take your 401(k) assets, what are your options? What’s the best way to designate beneficiaries for your legacy?*
- If you’re fortunate enough to have stock options as part of your corporate compensation plan, how should they be factored into your retirement plan? Do you fully understand what you own?
- Once you’ve retired, how much can you take from your account each year and still be confident that you won’t outlive your money? What is the best way to structure your assets to benefit your heirs? What role should life insurance play in retirement and estate planning?
- Federal tax law is designed to reward investing for retirement, but it gives the full rewards only to those who know how to take advantage of the rules. The options are many, the rules are complicated, and tax laws change from year to year.
Ask your financial advisor, along with your tax and legal advisors, to help you address concerns connected with planning your retirement — everything from clarifying your dreams of financial independence to the psychology of spending and saving to developing an investment policy statement and planning your estate.
As you use the professionals to develop your plan, you will need to put your financial priorities into prospective.
Ask yourself the following three questions:
1. Have my priorities changed with my life?
Your investing strategy is built around long-term goals. Priorities can change with major life events, such as getting married, having a baby, getting a divorce, or taking a new job.
If you've experienced a major life change in the last year or so, consider its impact on your financial priorities. For example, if you welcomed a child or grandchild into your family this year, starting a college savings fund might be a significant new priority. Saving for that goal could mean compromising in other areas, such as retirement planning.
2. Am I still on the same page with my money goals?
Once you've reviewed your goals and priorities, examine whether your portfolio's returns are keeping you on track to meet them. Your financial advisor can help you develop a range of scenarios for your investments, from "ideal" (living life to the fullest) to "acceptable" (compromising on some goals so you can achieve your top priorities).
3. Does my plan need a new look, too?
Changes to your investing strategy will depend, in part, on the answers to the previous two questions. Even if your priorities haven't changed and you're making good progress toward your goals, it's still important to review your asset allocation and investment strategy.
For example, you're now one year closer to retirement. Depending on your age, it could be time to start adopting a more conservative allocation. Market gains and losses may have caused big swings in the value of your holdings, causing your portfolio to fall out of line with your recommended allocation. In this case, you may need to rebalance your portfolio to bring your stocks, bonds, and cash holdings back in line with their target allocations.
A regular review and rebalancing is important to help any portfolio stay on track. Even if you make only minor tweaks, you will avoid a common pitfall for many investors: never updating the plan they've created.
Riley, Darby, and Wilson is located in Hattiesburg, MS. They can be contacted at 601-909-2210.
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