No matter who walks into our office to build a financial plan, there will always be a set list of items that need to be addressed. But from there, the rest of the plan could account for any number of individual scenarios. Today we’ll look at a few of the unique situations that don’t come up for every plan and share our approach to working through them.
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What You’ll Learn:
Every financial plan that we build will have to address certain items like income, savings, investing, and so forth, but when we work with a client to create a unique plan that meets their needs, there could be any number of challenges that we’ll have to work through.
On this episode of Money Wisdom, we share a few of those planning scenarios and talk about our approach to each of them. Joel Johnson couldn’t make this episode but we’re excited to welcome our other partner onto the show today, Eric Hogarth, CFP®.
Keep in mind that the list of unique planning challenges is practically endless, but these are some of the ones that pop up more than others. First is the age gap. When one spouse is significantly older than the other, this creates this challenge known as the age gap. It isn’t straight-forward when you’re trying to account for two completely different age ranges in the same retirement and you have to answer a few key questions.
When do you draw Social Security? Do you do a Roth conversion? Will you retire at different times? With all of these, you have to determine where you’re going to draw money from and when you’re going to pull it out so that you can sustain it throughout.
The next challenge we see is helping someone retire early. Whether they’ve made this decision on their own or their employee has forced it upon them, retiring early is certainly achievable but requires you to have your ducks in a row. The place where people often fall short is not having enough money outside of their retirement accounts because that money can’t touched without penalty before a certain age.
So a lot of the money that people have saved is going to work best if you wait until 59.5 to retire. If your plans is to leave work before that or get forced to leave early, there’s another set of planning items you have to address. The most important thing is that you need to be saving additional money outside of these traditional retirement accounts, and that has another set of tax considerations that come with it.
The other milestone ages are 62 because that’s when you can start taking Social Security and 65 when Medicare kicks in. If you want to retire early, you have to be aware and plan for these things.
The next challenge on our list is a lack of liquidity. When we sit down with someone who is thinking about retirement, we ask them how much they have saved and how much are they going to need to live. As we are talking with them, we group things into three buckets of money. The first bucket is filled with the income coming in every month that pays for the cost of living. Bucket two covers extra expenses like vacations or a new car. And the third bucket is money that needs to be growing over time. Understanding what you have in each bucket and whether there’s a healthy balance is the first step to addressing liquidity needed for retirement.
The last planning scenario we discuss on the show is divorce. As we all know, this is a massive life change that someone wasn’t expecting to face. One of the first things we’ll tell people is don’t do anything immediately. Take a minute to let your emotions settle. Many mistakes are made when decisions are made reactively. What you’ll need to determine first is how much you’re going to need to live on each month. The next thing to do is identify what you need help with. And finally, what’s your plan moving forward?
Each of these things we can get into more detail on when we meet with clients but this is a good place to start if you’re facing any of these unique challenges. No matter what though, make sure you have a plan to deal with all of them so that you don’t have to worry in retirement.
[0:19] – Welcome Eric Hogarth, CFP®
[2:17] – The age gap
[4:27] – Early retirement
[7:19] – Lack of liquidity
[11:00] – Planning after divorce
[12:49] – How we can help
Thanks for listening to this episode. We’ll be back again next week for another show.
“The largest chunk of money the average American person/couple has is the plan at work.”– Joel Johnson
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