Jim Lorenzen, CFP®, AIF®
The key to pursuing longer-term financial goals, such as retirement and education funding, is to have a well-thought-out plan that assigns actual dollar amounts to each goal — and a timetable for getting there.
Financial resolutions are only as good as your follow-through. Here are some planning considerations for the three key stages of your financial life — accumulation, preservation, and transfer.
Rethinking your financial priorities? Here’s some food for thought for all of your goals:
Financial resolutions are only as good as your follow-through. Here are some planning considerations for the three key stages of your financial life — accumulation, preservation, and transfer.
These same resolutions often fall prey to the same procrastination that hinders personal aspirations. Yet current volatility in the financial markets along with other unsettling factors such as the impending presidential election and widespread geopolitical unrest may have led investors to pause, rethink their financial situations, and set new expectations for the future.
Resolutions typically fall into one of three financial “life stages” — accumulation, preservation, or transfer of wealth. In order to establish action plans for these phases, you need to examine opportunities, identify challenges, and add a dose of reality to your planning efforts.
Accumulating Assets
The key to pursuing longer-term financial goals, such as retirement and education funding, is to have a well-thought-out plan that assigns actual dollar amounts to each goal — and a timetable for getting there. On this score, many investors are falling well short of the mark.
For instance, research compiled by the Employee Benefit Research Institute (EBRI) indicates that a sizeable percentage of workers say they have virtually no money in savings and investments.* Specifically, among workers who provided this type of information, 57% reported that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. This includes 28% who say they have less than $1,000 in savings.*
If you find yourself behind in your accumulation efforts for major life expenses, such as retirement, don’t despair. There are many opportunities to jump-start your savings campaign.
- Make the most of employer-sponsored plans. For participants in 401(k)s, 403(b)s, and 457 plans, the contribution limit stands at $18,000 for 2016 with an additional $6,000 in catch-up contributions allowed for those who are 50 or older.
- Maximize IRA contributions. In 2016, you can contribute up to $5,500 to a traditional or Roth IRA (or split that amount between the two types of accounts). Add another $1,000 to that total if you are making catch-up contributions.
Preserving Assets
Holding on to your assets requires a disciplined, long-term view. Most people plan for a retirement to span 25-plus years, but evaluate their portfolios’ performance over the last quarter. Particularly in volatile market environments, investors tend to move in and out of positions too quickly, potentially causing them to sell low, buy high, and abandon asset allocation fundamentals.
Short-term declines are inevitable and may tempt the most grounded investor to make impulsive investment choices. That is why maintaining an investment policy statement that reflects your long-term horizon is essential. Such a statement should reflect your current investment expectations as well as address the tax consequences of your portfolio.
For instance, many investors tend to hold on to a stock because of a low basis without evaluating what it may be costing them in missed opportunities (i.e., building a more diversified portfolio). Alternatively, investors need to be mindful of the tax cost associated with buying and selling securities. Tax efficiency is important in asset preservation, so speak to your tax advisor now about your 2016 strategy, particularly if you plan to rebalance your portfolio.
Transferring Assets
To leave the legacy that you envision requires significant advance planning. Questions regarding how much you want to leave to loved ones, how long your bequest will last, and how much will be eroded by taxes are difficult to address. But planning converts uncertainty into real opportunities to make a difference.
When crafting your estate plan, be sure that documents are written to be flexible and easily adapted to changing circumstances. For instance, if balances on investment accounts decline, you may need to rethink — and restate — your intentions, perhaps even change beneficiary designations to reflect changing market dynamics.
IFG Notes:
Not everyone agrees with conventional wisdom regarding the 401(k). There might be other options, particularly for those who are concerned about future tax hikes and still have more than ten years before they begin drawing retirement income.
Don’t let procrastination get the better of your best-laid plans. Make 2016 the year you get serious about saving. Are you on track?
You can find some tools on the IFG Resources website, which is different from The IFG main site, which you can find here. You might check-out the Home Page, too, for even more resources.
Let me know if I can be of help!
Jim
*Employee Benefit Research Institute, 2015 Retirement Confidence Survey, April 2015.2Asset allocation does not assure a profit or protect against a loss.
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