Whatever one’s situation in life,
retirement is a universal goal we look forward to and perhaps dream
about. Unfortunately for most of us, planning for it is something we
don’t do well, if at all. If you feel a bit overwhelmed by the process,
you’re in good company.
If you subscribe to the common belief
that financial planning is a project you do once, and then forget about,
you may be pleasantly surprised to learn more about our approach.
Helping people who are concerned about planning for retirement properly
-- and not missing anything important is our specialty.
Cash Flow Planning
Cash flow planning is probably the most
overlooked and most unexciting part of financial planning. But it is the
absolutely most essential part of the retirement planning process, and
one of the few places where you have a great degree of control over what
happens!
If you don’t know how much it costs for you to live in retirement, it’s
pretty difficult to figure out when you can retire, and what kind of
lifestyle you will be able to lead.
Not only are we living longer, but we
must consider the state of our health as we age and the costs of home
care or assisted living facilities, rising Medicare Part B premiums, and
the cost of prescription drugs.
Cash flow planning is where a good
financial planner can help you feel more secure about meeting your
goals, no matter what age you are. Just as you would not embark on a
vacation without an itinerary, it’s hard to imagine thinking about
retiring without a life plan in place for how you plan to spend your
hard earned savings.
What else is involved in retirement
planning?
Asset Review
As you accumulate funds for retirement,
it’s important to figure out where your savings dollars should go: To an
emergency fund or paying off debt? To taxable or tax deferred accounts?
To a larger home or college for your kids? To vacations, an RV, a time
share, or a second home?
It’s important to distinguish between the
liquid funds “investing assets” you will require for retirement, and the
capital spending on such “use assets” as homes, automobiles.
After all, you have a limited amount of
funds that are earmarked for future needs, and it’s important to get the
biggest bang for your savings dollar as possible. So making good choices
about where to save is as important as what securities you have invested
in.
Once you reach retirement, it’s important
to figure out what sources of funds should be drawn down first, (such as
do I withdraw funds from my Traditional or my Roth IRA first?) and what
assets should be sold or bought (i.e. moving to a smaller home,
remodeling an existing home, purchasing a second home). Also it’s a good
time to look at your debt structure and determine if you should pay off
certain mortgages or home equity loans, or refinance.
Insurance Review
Having a safety net is fundamental to
good planning – so purchasing life and property/casualty insurance
to protect yourself, and your family, your home and possessions from an
untimely demise is a must. As you add children and possessions, often
your insurance coverage hasn’t kept up. It’s always a good idea to
review these needs periodically with a planner.
Health insurance,
especially with the introduction of Health Savings Accounts (HSA’s) has
made choosing a health insurance plan even more complex for the
self-employed and small business owner. Planning for rising costs of
health care during retirement is essential.
Long Term Disability ( LTD)
insurance makes sense for many professionals who have invested
heavily in their education and would be hard pressed to replace their
income stream if something would impact their ability to perform their
job. The choice of a good LTD insurance policy is especially a critical
one for young medical and dental professionals embarking on their career
after years of expensive education and training.
Long Term Care insurance is
a new product that enables you to maintain control over the care you
will receive in your later years, when you may require assistance at a
long term care facility or at home. It is something that anyone over the
age of 55 should consider, especially if you live alone. Because the
insurance companies’ claims experience with Long Term Care is relatively
recent, the features and pricing of policies have become quite complex.
It requires thorough analysis to determine if obtaining an LTC policy is
right for you.
*Lauren Sigman is a licensed Life and
Health Insurance agent not affiliated with a single insurance carrier.
She works with a variety of other INDEPENDENT insurance professionals on
a referral basis to make sure that clients receive the very best service
and policy features in the market.
Retirement Planning Projections
It goes without saying that at some
point, usually beginning in your 50’s, it’s a good idea to “run the
numbers” and see how your retirement savings goals are faring. Sigman
Financial Fitness® uses sophisticated planning software to model
a wide range of outcomes so you understand the tradeoffs, risks and
opportunities that impact your ability to enjoy a worry-free retirement.
For clients with substantial estates, it is critical to factor in estate
planning decisions to the projections, to make sure that the appropriate
assets are sheltered from tax liability.
Estate Planning - Not Just for the
Wealthy
Sigman Financial
Fitness® works with “counseling oriented” estate planning
attorneys offering extensive experience dealing with delicate family
issues regarding planning for children with substance abuse problems or
special needs; second (or third) marriages and step-children.
Even clients with less than the current
estate tax exclusion amount of $2MM need to have an estate plan, even if
it is as simple as setting up wills, living wills, durable medical
powers of attorney and making sure that the beneficiaries on your life
insurance, retirement plans, homes and other assets are titled properly.
To be effective, your estate plan needs
to be reviewed at least every other year, especially given the
uncertainty as to the future of the estate tax. Failure to prepare an
estate plan might find you making a donation to the U.S. Treasury
instead of your favorite people and charities upon your death!
Investments- A Risk-Managed
Approach
What kinds of investments are suitable
for you will depend on your individual circumstances such as age, the
value of your assets, your planned retirement date, expected savings
before retirement, the size and timing of withdrawals after retirement –
all tempered by your tolerance for risk.
Stay Cheap and Passive. Open an
investment account at a discount broker, where costs to trade are cheap.
Consistently invest monthly in a small variety of index funds that
provide exposure to domestic and foreign stocks and bonds, and
periodically rebalance their % allocations in your portfolio. By
consistently investing monthly, you dollar cost average your basis in
the funds, and by reallocating periodically say, 2-4 times year, you
trim off gains in one sector and reallocate to a sector that is not
performing as well.
You will have to be satisfied with
earning broad market returns, and will not “outperform” the market.
Studies consistently show that index funds outperform 75% of actively
managed mutual funds. So your index funds will be doing better than most
active mutual fund managers. Sigman Financial Fitness clients get
specific recommendations as to which indexes to consider.
Stay Active and Use a Thrifty Money
Manager. Keep transaction costs low by using a quantitative model,
and actively invest in sectors through the use of mutual funds and
Exchange Traded Funds (NOT individual stock picking) that have the
possibility of outperforming the market. Hedge your positions in case
the market moves against you.
• Drive with the brakes on. Think of this
style of investing as weaving through traffic at rush hour. Zoom through
the traffic lights when they are green, but apply caution (and your
brakes) when the light turns yellow.
• Banish volatility from your nest egg. You might under perform the
market slightly in “hot” years, but you won’t give anything back in the
down years.
Fee-only money management services are provided
by All
Season Financial Advisors, an independent third party
registered investment advisor headed up by strategist Samuel F. Jones.
Investment strategies are uniquely designed to manage market risk through
trading and hedging techniques making them especially suited for today's
volatile markets.
Lauren and
All
Season Financial Advisors are
independent, fee-only investment advisors and are not compensated by
commissions from any brokerage company. Because Lauren receives commissions
from mortgage lenders and insurance companies, she does not charge clients an
hourly fee for time spent obtaining these products.
