5 Big Questions
When it comes to planning your life and retirement it is a true balancing act. I often get asked by clients and prospects how and what steps they should take to better improve their current and future situation, I always start with and refer to often the 5 Big Questions. This is usually our guide to help them visualize what “retirement” means to them but also what type of life and legacy they want to live and leave behind.
I always reiterate not to become too overwhelmed with any one of the questions and to start where you are as no decision is a decision, although not a very good one. Let’s take a closer look at the questions and breakdown how we help our clients through the process.
1. How much can YOU save?
When this question asked, a lot of the responses I get are wishful thinking, as in “If I was able to pay off some debt I could save more,” or “When the kids are out of the house and things slow down then we’ll be able to put some money away.” What I am quick to remind them is not having a systemic saving plan in place right now ensures that when (not if) an emergency arises they can be assured that it will put a bigger strain on their finances then putting away a small percent of the income ever did. I also ask them what percentage of their income could they comfortably save without it being an issue — 3%? 5%? (I find this easier to discuss instead of dollar amount) Once they agree on a percentage, I have them set an auto draft into a saving account that isn’t attached to a debit card as this makes it less likely to miss a payment or spend what you have saved.
2. How much Risk can you take?
It is important to know and fully understand what your risk tolerance is and how it relates to your ability to invest. Risk tolerance refers to the amount of loss an investor is prepared to handle while making an investment decision. We also discuss an investor’s ability to psychologically endure the potential of losing money investing. It’s every easy to imagine how you feel is there is an upswing in the market and your portfolio grows but how would you feel if say an unexpected pandemic happens? Bottom line: We do not gamble what you can’t afford to lose.
3. How much will you need?
This question allows us to put a spotlight on current spending habits and expenses, and what that look like as we play their life forward. Once we get a good understanding on how much your spending and is it actually a “necessity” or a “want” we are able to come up with a pretty good assessment of how much is needed to fund your current lifestyle and future retirement needs. This is probably the most difficult question to answer but is most needed to accomplish a true life and retirement financial plan.
4. When will you need it?
If the last question is the most difficult to answer then this one is a close second. This question allows us to address the old adage question, what does retirement look like for me?” With people working and living longer the old retirement mindset just doesn’t work. Throw in Social Security planning and RMD’s and, if not careful, you can create a true tax bomb that can wreak havoc on your savings, retirement income, and legacy. We address this issue by getting our clients to understand “The New Retirementality.”
5. How much do you want to Leave?
This is the question I love the most because it is a constant reminder that we are not here just for ourselves. It also allows me to talk about who you want to leave your money to, F.C.G. (Family, Charity, Government?) We also discuss the importance of proper estate planning (everyone needs at least a will, no matter how much money you have) but also ways to avoid estate taxes using life insurance as a part of your overall estate plan.
Everyone is unique and different so your responses to these questions will be as well. If you need help sifting through these questions or just want another opinion on your answers, set up a time for us to chat and see if we’re a fit.
Always,
Danny