The Great Pyramid was constructed for a specific purpose, using precise engineering and attention to detail, and was designed to stand the test of time. No matter how volatile the environment or uncertain the conditions, this ancient creation has endured. The same should be done with your financial plan. As a retiree, you face a more complicated financial environment than any other generation before.
In the past, there was a reasonable trade-off between the ups and downs of the markets and the security and predictability of safer options. Today, it is more difficult to decide how much of your money should be in a volatile marketplace and how much should be locking in low fixed rates. There is greater risk and less clarity. In short, it seems easier to make a mistake – and you have less time to recover from a risky choice. The decisions you make now will impact your financial picture for years to come.
Organizing Your Financial Assets
Two types of money:
Green Money – “Know So” money represents your assets which have guaranteed values and/or guaranteed growth. Green Money forms the base of your financial pyramid and provides the stability every plan needs.
Red Money – “Hope So” money represents assets with uncertainty. Red Monday may be invested directly in stocks and bonds, or assets may be placed in other instruments that do not provide guarantees.
There is nothing inherently good or bad about either type, and both serve their own purpose. But it is vitally important to know how your assets are allocated between the two and to keep them in an appropriate balance. The rule of thumb known as the “Rule of 100” provides us with a starting point to help you decide what the appropriate blend is for you.
You will always have money coming in and money going out. Start by ensuring your income is adequate to maintain your standard of living – not just for today but with an eye toward the future and the unexpected. It isn't just the amount of income that is important, but how you manage the various sources of income. We can help you explore guaranteed income vehicles, assess the impact of investment income and avoid the common mistakes people make with their Social Security income. One outcome of our planning will be a full analysis of your options with Social Security and how it can integrate with the rest of your income plan.
Once your income plan is designed, your assets need to be aligned with your risk tolerance and growth expectations. You may receive options that allow you to trade-off some liquidity for additional growth or ones that allow you to take advantage of the latest managed money platforms. It may be appropriate to have some of your money in the market but significantly reduce volatility. For example, it might make sense to have some of your money be in “Green Money”, and to have the remainder in options that have fewer guarantees but more upside potential.
While it may be true that nothing in life is certain except death and taxes, there are a number of strategies which allow you to minimize the effect of taxes or avoid some taxes altogether. The first step will be to review your previous year's tax returns for missed deductions and then prepare for future tax saving opportunities. In 2010, the Internal Revenue Service tax code had grown to over 71,000 pages. Because we have the unique scenario of having both financial and tax professional experience, your ongoing financial plan will be an invaluable tool to ensure you don't pay any optional taxes or unduly expose yourself to future tax risk.
The planning process inevitably leads to thinking about the value of the plan for future generations. As we progress, we will lay the groundwork for turning your financial plan into a legacy for your children, your grandchildren or a charity for years to come. This legacy can extend beyond a simple financial bequest. If properly designed, it can be a part of a risk tapestry supporting the values you instilled in your family. The actions you take today for your financial plan will have an impact on the world after you are gone.
As a full-service financial services firm, we provide the necessary planning to help you build a financial structure to stand the test of time. Together, we will build your financial pyramid, evaluating four key areas: income planning, asset allocation, tax planning, and legacy planning. We view a financial plan as just a starting point – a beginning and not an end. The plan will be a tool we use to work towards your individual goals. It will be a living, breathing document that will adapt and change with your financial needs. Our team will be available to provide guidance and support every step of the way, as you build your financial pyramid – block by block.