Christie Whitney, CFP®, explains how a personalized financial plan can help investors align their money with their goals, from building savings and preparing for retirement to managing taxes, insurance, and estate planning.
Transcript
Christie Whitney: How exactly do we put this baseline financial plan into place? I will go through the steps here. We have a little flow chart.
Initially, you are going to meet with your Advisor and Planner, and then talk about what you want to accomplish through the process. At Rebalance, we do this stage with the data gathering at the same time. We are going to be asking our clients for all of this data and these numbers, but also, what do you envision in your retirement years in regard to travel? Is there gifting you want to do? All of those sorts of things.
Gathering the data, and then it is my job to analyze that data. We use an incredibly sophisticated software tool, and that, coupled with experience and education, allows us to put together and present this baseline starting financial plan to our clients.
Then we are in the stage of implementing the plan. Now, that looks different for different people. For some people, it is just, “Keep going with what you are doing. Pat on the back. You are on the right track. Things look bright.”
For others, it is a whole to-do list that is given: tackling debt, increasing savings, and thinking about this and that. So, that is implementation.
Then the last phase is updating and fine-tuning the plan as needed throughout time. Again, I like to say it kind of lives and breathes with us and in our financial relationships, and can be a great tool to inform future decisions.
Here is just a fun little slide about you have your money and you have your life, and the intersection of the two is where we really feel real financial planning comes into place.
I want to stress that it is very individualized. There are tools online, calculators, and things that get you only part of the way there. It is really laying out all of these different items and goals, and looking at how that affects you and your household’s financials.
In a financial plan, you are going to address areas like savings and investments. Obviously, how that interplays with retirement planning, and under that umbrella, thinking about Social Security and Medicare supplement costs and that sort of thing. Then looking at how taxes will play out over the years, examining insurance needs, and also touching on estate planning.
As a CERTIFIED FINANCIAL PLANNER™, it is kind of like we are issue spotters, educated in all of these areas. But when it gets down to the nitty-gritty of, for example, “If I convert $60,000 of my IRA to a Roth, what will my tax obligation be exactly?” Well, that is for your CPA to calculate for you.
But mapping things out, having these discussions, and giving you things to bring up to your estate attorney, for example, is part of the financial planning process.
Certainly. This slide, Lauren, you can go ahead and build it all out here. Thank you.
We are talking about some different ideas here with strategic financial buckets. I will say if you are in your working years and not super close to retirement, this can be simplified into the idea that you want to be saving into an emergency fund and then into retirement accounts. It can be that simple when you are working.
And sort of the common recommendation is if just one member of the household is earning money, you want six months set aside in liquid, risk-free assets. If it is two of you that are working, three months of mandatory expenses should suffice.
Now, when we get into retirement in the years leading up to it, and potentially folks have multiple baskets of money, we are looking at in the short term what is called the consumption bucket.
What do you need to make ends meet? I recommend about a year’s worth here, at least for a client in retirement. That depends on comfort levels for folks, but we are in a new world as of 16 to 18 months ago. We are actually earning some on our cash now, right?
It is nice to be able to have some liquid money. Again, you are going to earn lower rates of return long term in this first bucket, but that is secure and at the ready.
And what we have really found is when folks have the emergency funds or consumption bucket set up properly, they are more prepared to ride the waves of volatility that the Stock Market can throw our way.
In the middle there, we have a contingency bucket, and this is a mix. It can be investment accounts that are non-retirement or retirement accounts, but we are looking at a window of three to 10 years.
This money may be tapped into for projects potentially, or that home emergency we talked about. This money is going to have more of a mixture of stocks and bonds than your long-term money. It is going to have probably a higher concentration of bond funds in that bucket.
Then, lastly, is the goals-related bucket, but really, what we are looking at for retirement and often in the more distant future.
Now, something that I come across a lot is the inclination to go more conservative as you retire. Well, fair enough to a degree, but we know that over the long haul, stocks and equity funds give the highest rates of return over the long haul.
And being that retirement, again, is a long period of time, we do not want to shy away from that exposure. Going too conservative can lead folks to a place where they end up with not enough because the growth simply is not there to the same degree.
With that goals bucket, we are looking at higher equity concentration in the 10 years and beyond.
