Creating a comprehensive financial plan is not an easy task—if it was, everyone would have one. It’s about so much more than setting aside a portion of each paycheck for retirement. It’s about creating a plan for the life you’ll live after you stop working and covering all the bases so you can feel confident that you’re setting yourself up for success.
In order to create a rock solid financial plan, we recommend discussing the following topics with your financial advisor.
Retirement savings are stored in three different types of accounts: taxable, tax-deferred and tax-advantaged.
Taxable accounts are those in which earnings on these investments are fully taxable at year-end. These include all income-producing assets that are outside of tax-deferred and tax-advantaged accounts. Tax-deferred accounts are filled with contributions of pre-tax dollars. Taxes on these investments are deferred until the income is withdrawn and then is taxed at your ordinary income tax rate. Tax-advantaged accounts are made up of contributions using after-tax dollars, grow tax free and no taxes are due at withdrawal given conditions are met.
Most people have most of their savings in tax-deferred accounts, but that’s not always the smartest place for those dollars. Once you reach age 70.5, you’ll have to start taking Required Minimum Distributions (RMDs) from those accounts and that could mean withdrawing more income than you need to live off of, pushing you into a higher tax bracket. By discussing ways to move money out of your tax-deferred accounts when your income is low, like directly after retirement, you can avoid this reality and save money on taxes in the long run.
Long term care is something that all of us should consider as we prepare our financial plans. While you may think you can factor the costs of retirement care into your plan and leave it at that, the rate of inflation for health care seems to be constantly rising, with cost of hospital services alone increasing over 225% in the last 20 years. We highly recommend using an option such as long-term care insurance to help offset your costs so you aren’t left with an unpleasant surprise in your later years.
After all, according the U.S. Administration on Aging, the average woman will need 3.7 years of long-term care and the average man will need 2.2 years of long-term care. And according to Genworth Financial, long term care costs can be as high as $7,000-$8,000 per month, making it very expensive should you need extra help.
Scheduling Regular Plan Updates
One of the most important aspects of a solid financial plan is that it is continuously being updated. Your advisor should take the time to get to know you, learn about your family and your ambitions throughout life. You may not recognize the need for a small change but if you welcome a new grandchild into the family, become a board member for a foundation or start working part time on something you love, your advisor can help you take advantage of opportunities you may not know of and can help you protect yourself and your family along the way.
This article was originally published on Sept. 15, 2018 in the Brainerd Dispatch.
Series 7 & 63 Securities Registrations,1 Series 66 Advisory Registration, † Insurance License Bruce has been in the financial services industry since 1983 and is one of the founders of Wealth Enhancement Group. Since 1997, he has hosted the “Your Money” radio show, a weekly program that focuses on delivering financial advice in a straightforward, jargon-free manner. Bruce also hosts with the "Mid-Morning" crew on WCCO-TV each Tuesday morning to...Read More