Financial Planning by Life Stage

Financial planning is the process in which one creates and executes a plan towards achieving financial goals. There are many aspects to financial planning that may be as basic as goal setting or more complex such as estate planning and wealth transfer. As one progresses through various life stages, there are financial planning issues that are commonly addressed. While everyone’s personal goals and situations are fact dependent, following are key financial planning issues that might be considered at various life stages.

•Childhood: Beginning at a young age, parents should teach a child to fish. Develop basic financial habits and recognize the value of money, understanding that at its core, money can be spent, saved, or given away. Learn about the long-term implications in dealing with money and recognize that in these formative years, decisions will be made that will influence long-term financial solvency and success. Lifestyle choices, career paths, and friends chosen in these formative years will have an impact on long-term financial solvency and success.

•Early Adulthood: Start formulating goals and the financial implication of those goals. For example, if owning a home is a priority, now is a great time to start planning for this goal. This is also a good time to start saving for long-term goals such as retirement. An adequately funded emergency fund should be established. The standard for personal finance is to have three to six months of living expenses saved specifically to be used only for emergencies. Insure against those risk of losses you cannot personally afford to absorb. Pursue basic estate planning documents such as power of attorney and living will. Follow a written budget recognizing that budgets are dynamic and will evolve as your needs, expenses, income and priories change. Create a personal net worth statement as a “report card” of financial health and make sure to update this regularly.

•Working years: Careers gain momentum and often children are part of the picture. This brings additional financial planning issues to pursue. Review and update estate planning documents as family dynamics and situations change. Work with a qualified tax planner or CPA in being proactive about making wise tax planning decisions. If you have a mortgage, monitor interest rates and be opportunistic in refinancing a lower rate. Prioritize additional financial goals that may arise such as saving for a child’s education costs. Make sure adequate life insurance is in place for those situations which may financially devastate a family.

•Late Working years: Often, earnings accelerate as one’s career path advances. Plan for how those increases in income will be met. Take advantage of “Catch-Up” contribution allowances in retirement saving plans that allow those age 50 or better to save an additional amount for retirement. Re-assess your personal risk assessment levels and make sure investment portfolios are in-line with your risk profile and time horizon. Develop retirement income strategy that may need to last many decades in retirement. A 55 year old female’s life expectancy is 85.5 and a 55 year old male’s life expectancy is 82.2 years1. Review and plan for those losses that you may have a heightened degree of financial loss moving forward, which often includes long-term care related costs.

•Retirement years: Develop a Social Security claiming strategy which should factor in spousal and survivor benefits in the case of those that are married. In most cases, social security income may commence at age 62 at a reduced rate or delayed up to age 70, thereby maximizing monthly social security benefits. For many, Medicare will commence at age 65. Plan for additional health care costs beyond what Medicare covers such as co-pays, deductibles, supplemental insurance premiums, and drug costs. Qualified Charitable Distributions (QCDs) from retirement accounts can begin at age 70 ½. Required Minimum Distributions (RMDs), or mandatory yearly distributions from most retirement plans, must begin at age 72. If a priority, plan for wealth distribution which may include inter vivos gifting (gifting while alive). The estate plan should be reviewed and updated as necessary.

Financial planning is not an event but rather a process that will evolve as personal situations, goals, and objectives change. By highlighting some of the common financial planning issues by life-stage, you may recognize and have a fuller awareness of one’s current financial situation and responsibilities and identify the appropriate resources needed to work towards achieving those goals.

Adam Smit is CERTIFIED FINANCIAL PLANNER™ with Adam Smit Investment Management LLC and a registered principal of LPL Financial. This article is for general information only and not intended to provide specific advice or recommendations for any individual. Adam Smit Investment management LLC and LPL Financial do not provide tax or legal advice. Securities offered through LPL Financial. Member FINRA/SIPC.

1 – Social Security Retirement & Survivor Benefits: Life Expectancy Calculator. www.ssa.gov/cgi-bin/longevity.cgi