Prepared for Your Dream Retirement?
Many successful people view retirement in the not-so-distant future and find that they are mentally prepared, but their financial situation may not be. And many others with twenty or so years to go have not even begun to actively prepare. In any case, too many people reach retirement day only to find that there is not enough money to live in the style they had hoped. They have either been too busy to properly plan or have procrastinated and chosen to spend rather than save and invest properly.
How many of your investments have come from tips from a commissioned broker or financial sales person? Was there any discussion about financial security, longevity, and sustainability before, during or after retirement? Probably not.
Individuals whose lives are fully absorbed by their careers, with a smattering of time left over for family, frequently pay only lip service to their financial situation. Many well-compensated individuals approach retirement without having set aside enough to enjoy a style comparable to their current situation.
There are 5 key elements to successful goal based financial planning…
1.) Holistic Financial Planning
Holistic retirement planning is a combination of advanced life planning and wealth preservation. Together with the help of a skilled professional financial planner who specializes in long-term financial management, the process should begin with identifying your hopes and dreams for retirement. Simply put, how would you want to spend the rest of your life? Considerable discussion and soul-searching will ascertain what would make you happiest and most fulfilled during the post-career period. And consideration needs to be given to what may happen after you are gone.
The second phase is to examine each aspect of your current financial situation. With this information, you and the planner can set goal-based strategies that will ensure your resources will be sufficient to carry through an extended retirement period in spite of the inevitable twists and turns of life and the financial markets. And it is critical that the plan and execution also provide for a spouse and other loved ones after you are gone.
Once the objectives are set, it is time to execute your objective-based plan with your professional financial manager.
2.) Fee-Only Personal Financial Manager
A well-considered financial life plan requires discussion, definition, execution and adaptation. You have a set of retirement objectives, but you are not certain how to ensure a successful result. Are you aware of all of your options? Whether you are five or twenty-five years from retirement and still earning, now is a good time to begin to pass responsibility to a trusted financial manager. But that individual probably should not be your commissioned stock broker who contacts you each month with the latest “hot tip”. Not sure who you are working with? Read more here.
Most financial brokers and many consultants earn their living through commissions. These professionals do provide valuable services, but their compensation is a direct result of the number of transactions performed. For long-term plan execution, this measurement is not in your best interest. A financial manager should be motivated only by keeping your financial momentum moving toward your long-term objectives.
An individual charged with managing your finances toward specific objectives should be compensated by a fixed-fee formula, one that pays for maintaining a steady course and not from excessive maneuvering.
3.) Fiduciary Responsibility
As you pursue your busy career, delegating responsibility for executing the goal-based roadmap is a necessity. A trusted and experienced manager will need to take the responsibility for managing all elements of your financial life and must be granted fiduciary responsibility for keeping everything on track, making adjustments, reducing expenses through closer scrutiny and providing regular updates of the progress of the plan’s execution.
Imparting fiduciary responsibility for your finances requires considerable trust. Certainly a candidate should come with documentable credentials and references. But to extend the comfort level in the relationship, the financial manager should provide a regular and highly transparent reporting system that will allow you to easily track developments.
4.) Managing the Long-term Financial Plan
There are literally hundreds of financial considerations to achieving financial security in retirement. But career-engulfed individuals usually do not have time nor the information to maximize all opportunities. Developing a well-rounded, nearly bullet-proof financial foundation requires considerable time, both in the creation and management of the portfolio. Warren Buffett’s well-known strategy of “buy-and-hold” has proven successful and is well documented. But even he and his staff of experts are continually making adjustments as they closely monitor the markets for opportunities and stay alert for developing problems.
Managing your goal-based financial situation requires maintaining a realistic budget and oversight. A financial manager or personal CFO can alert you when spending begins to deviate from the plan and will recommend solutions to protect against various contingencies. This may include shopping for life, medical and property insurance policies for lowest cost and arranging for refinancing, when prudent. Your personal manager will ensure that some of your income is directed toward maximizing deferred retirement investment plan contributions, including catch-up opportunities, in Traditional or Roth IRAs and 401Ks. The financial professional will set your portfolio of stocks, bonds and other instruments that implement an appropriate amount of return and risk for your age. And all investments will optimize tax liability as a conscious objective, both for before and during retirement.
5.) Peace of Mind
For earners who dream of a particular lifestyle but do not have the time to manage their finances toward that dream, an objective-oriented plan and a proven fee-based personal financial manager with fiduciary responsibility will provide clarity to your future and peace of mind to enjoy all of those activities that you anticipate.
You goals must have a deadline. Again, this means that you know when you can celebrate success. When you are working on a deadline, your sense of urgency increases and achievement will come that much quicker.
Include precise amounts, dates, and so on in your goals so you can measure your degree of success. If your goal is simply defined as “To reduce expenses” how will you know when you have been successful? In one month’s time if you have a 1 percent reduction or in two years’ time when you have a 10 percent reduction? Without a way to measure your success you miss out on the celebration that comes with knowing you have actually achieved something.