What Can Florence Teach Us?
One of the largest blessings in life, but also the largest curse, is that life is full of uncertainty. This uncertainty gives us happy surprises and keeps us looking forward to tomorrow, or it leaves us dumbfounded, unable to believe “that” really happened. It also makes retirement planning very, very interesting, and usually a little daunting. So how do we plan when we know so little about the future? It’s very simple: we plan for everything. In this blog we will take you through the process of setting up a retirement plan and give you some pointers on how to protect yourself and your future when life throws a wrench in the works.
To start planning for everything, we first have to think of where we are right now. Take a mental picture of your life. Do you have kids? Do you have a spouse? Think about what makes you comfortable, and most of all, what makes you happy. These are the elements that we want to amplify in the coming years. Later we will delve into income and savings, but for now, focus on the pieces of your life that have brought you the most joy. The goal of a retirement plan is not just to save money, the goal is to maximize the joy in every remaining year.
Now that we know where we are, we can decide where we would like to go. What goals do you have for your retirement? Your retirement is yours to design, and it will be different from everyone else’s. Build an image of your dream retirement in your mind, and ask these five questions:
- When do you want to stop working?
- How much do you want to travel?
- Who will you share your retirement with?
- Where do you want to live?
- How much income do you want to have?
These questions are the building-block goals of your financial plan, because it will dictate how much you save and your asset allocation.
Executing the Plan
Now the most important question: how are we going to get from where we are to where we want to go?
This process starts with saving money. Whether it is for travel, housing, or income, you will need a certain amount of money every month. How much you save will depend on your personal needs, but the rule of thumb is SAVE EVERYTHING YOU CAN. You can save $18,500 in a 401k or $24,500 if you are over 50 years. Depending on your income, you may be able to contribute $5,500 in a Roth IRA as well. It is always recommended to max out your retirement contributions because you will be protecting that cash from taxes and allowing it to grow in a tax-free environment. If your employer matches retirement contributions, make sure to get the most they are willing to contribute. No need to leave free money on the table!
The most important part in executing any plan is discipline. Saving the same percentage of your income every year will keep you on the path to success. Because life can be stressful, we tend to talk ourselves out of saving money. Often, we need to save our money from ourselves! The easiest way to do this, funny enough, is to not think about it. The way we do this is through automation. Thanks to direct deposit and auto-withdrawals, you can put your money in your retirement accounts before you even see your paycheck. You can do all of this through your employer or bank. You won’t need any fancy apps or extra paperwork.
Once your savings plan is up and running, you can begin to decide where that money will go. If you are getting close to retiring, you can even start buying plane tickets! If you are planning on buying a new house, it may be best to buy early. It is easier to fund a mortgage while you are still working, and you can use the house as a vacation home until you are ready to retire. You can also offset the cost of the mortgage by renting out the home when you aren’t there. To learn more about buying your dream retirement home, read our blog post here. As with any large purchase, you should discuss it with your financial advisor first.
Planning for the Unexpected
Like it or not, life happens. Sometimes events take place that rock your entire world. You could lose your home, your spouse, or a source of income. As we are seeing with Hurricane Florence right now, we simply can’t predict everything. Here are some tools to reduce the impact of these events to protect your plans for the future.
Insurance can be pricy, but the protection it provides is almost always worth it. Of course, you shouldn’t get conned into buying volcano insurance, but your home, income, spouse, and valuable belongings should be covered. How you insure your home will change based on where you live, because different places have different risks (tornados in the Midwest, water damage in the south, or earthquakes on the west coast). If you rent your home, renter’s insurance will also be very important.
Income insurance can take several forms, but usually investing in standard disability insurance is the way to go. This way, if you are forced to stop working due to an injury or illness, you won’t be sacrificing your income. The maintained income can also help you pay any medical expenses related to your condition.
Life insurance can protect your financial security if you lose a spouse. We often rely on our spouse’s income as much as our own and losing that income can damage any future plans. Losing a loved one is incredibly hard, and the last thing you want to be worrying about is paying bills. Life insurance will give you financial leeway to properly grieve.
Writing a Will
Even for younger couples, maintaining a written will is incredibly important. If a spouse passes away, the other may not be able to access their assets for several months without written confirmation in a will. A will can also be amended, so don’t worry about “locking yourself in” by writing your will. To see how this mistake has affected people in the past, read this article by CNBC about a mother of three who was widowed during 9/11.
Consult a Financial Advisor
When planning for the worst (and the best), get advice! Even if you just ask a professional for their opinion, that extra knowledge can enormously benefit the way you make savings decisions. You can utilize an advisor as much or as little as you like, whether it’s taking their advice or allowing them to manage your investments. When you hire a Certified Financial Planner™, it is their legal duty to act in your best interest, and you may learn something that will change the way you prepare for the future.
There is no reason to stress yourself out about the future. Make goals, implement your process, and then don’t worry about it. Your savings won’t grow faster if you watch them. Let automation and compounding work their magic and go enjoy the life you have right now.
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