In today’s busy world, people often are reacting to things that are urgent but not necessarily vital. One of those vital areas is retirement planning. We meet people every day that are within 5 years of retirement and still putting off planning. I believe they do this because they think there is very little to be gained by committing time and energy to this process now. Nothing could be further from the truth.
There are many areas of your financial life that should be addressed years before retirement. Here are a few of the most common:
Know how to maximize your company benefits. Many people work for companies with numerous benefits, so we look to see if our clients are maximizing them. In other words, are they getting a good value when buying term insurance through their company or paying too much? Should they look into permanent insurance that offers both a death benefit and also acts as a tax-free savings plan? Does disability insurance make sense or should they be looking at long-term care insurance now, while they are younger and healthier? If they are fortunate enough to have a pension, what is the best option to maximize the value of that asset? In some cases, it could mean an additional $1,000,000 to your family if structured properly.
Have a holistic plan. Many do not have an overall game plan to allocate their assets. That is, one that is consistent with how much risk they are able to endure balanced with how much they need to earn on their assets to reach their retirement goals. A good financial planner can help put this together and help them choose and evaluate their investment options within their 401(k) and other retirement plans. Your retirement plans should be coordinated with your other assets and be consistent with your overall goal.
Know how to protect your assets. Basic estate planning should be done early, as soon as you have someone to protect besides yourself. Many people do not have basic documents in place that says who will raise their children if they die, or who can make medical and financial decisions if they become incapacitated. We often see that although close to retirement, people do not have basic estate plans to protect their assets from unnecessary income and estate taxes. A properly drafted trust agreement can not only protect your assets from divorce or lawsuits, but also reduce income taxes for your surviving spouse. Our firm helps customize the trust given your situation. We have relationships with attorneys that will discount the fee charged given our involvement in the process. This can save our clients up to $1,000.
Know how to minimize taxes. We find that many people are in the dark when it comes to how to minimize taxes over their lifetime. One question we ask is: Does it make sense to contribute to a retirement account on a pre-tax or after-tax basis? The typical retirement plan just delays taxes, it does not eliminate them. If your assets grow and tax rates increase, this strategy can be a very costly. A good holistic financial planner will look at what vehicles and strategies can be employed to truly shelter income from taxes both today and in the future.
Know when you can retire. Lastly, everyone should know when they can retire given their wishes and their resources. This is not a simple question and one needs to consider factors such as retirement saving, mortgages, debts, family obligations and more. For example, issues we look at are how we can maximize a client’s Social Security benefit to meet his or her retirement goals. This can be an additional $250,000-$500,000 in income over a married couple’s lifetime.
One study by Deloitte found that only 28% of those without an advisor have a financial plan, and even less stick to their plan if they have one. Many of my clients, who waited to hire a planner, tell me they put it off because they felt that they could do it for less or that they simply did not need professional advice. If planning is done right, it should pay for itself many times over. With the right planner, it should also give you access to products and pricing you couldn’t get on your own. Financial planning should be a tool that puts you in the driver’s seat, enabling and empowering you to meet your goals. One of the more unexpected benefits that I hear most from my clients is: peace of mind. You can gain peace of mind from a candid review of your finances, education that promotes better understanding, objective and unbiased advice, and personalized recommendations. Peace of mind comes when you KNOW you are on track to reach your financial goals.
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