Remember being a kid and playing the Game of Life? With your friends and family, you’d spend a small part of the evening spinning the wheel and moving your small plastic automobile around along the track, going to college, getting married, having children and eventually — if you were lucky — making your way to Millionaire Acres at the end of the game. Whether you retired in riches or ended up bankrupt was largely dependent on chance, and unlike Monopoly, there were very few strategic decisions to be made when it came to handling your money.
And once you grew up, moved out and struck out on your own, you probably very quickly realized how inaccurate the Game of Life really is. Sure, we all have varying degrees of luck that work for or against us, but planning for the future — whether it be saving for our children’s college tuition or when and how we want to retire — is something largely in our control. It just requires the ability to play the long game, plan carefully, and set strategic goals along the way.
Every person has dreams of what their life might bring. And each and every one of us has different life goals and unique paths to get there. But how do you plan for goals that seem so far out of reach? And how can you effectively map out your finances for the future?
Planning for your major life goals
When it comes to personal finance, every person has their own unique situation and goals. Not everyone has the same expenses and income — as such, there’s no plug-and-play blueprint with which you can plan out your future. This is why so many individuals, couples, and families find themselves lost and unsure where to begin when preparing for the far away future. When preparation is done correctly, however, it can set you on the path to thriving, not “just surviving.”
First, what do we consider to be major financial and life milestones?
- Retirement (or the most expensive thing anyone will ever purchase in their lifetime)
- Purchase of properties and real estate
- Healthcare and/or long-term care expenses
- Children and grandchildren
- Other major financial purchases
Many of these long term financial life goals take years, if not decades, of proper planning. And planning ahead will only help to reduce stress and fear around money in the long-term — even if it seems daunting now.
So, how do you plan ahead?
- Invest accordingly: Investing is deeply personal, and should be tailored to your financial profile and your financial goals. One person’s portfolio will not look like another’s portfolio, and that’s normal! When planning out your investments, think about your personal preferences, the time frame at hand, and your personal risk tolerance. Putting a portfolio together on your own can be confusing and time consuming, so we highly recommend working with a trusted financial professional when it comes to investing.
- Plan for what could go wrong AND what will go right: It’s great to plan ahead for what will go right – but it’s even more important to plan ahead for what might go wrong. Make sure you have proper insurance plans in place (life insurance as well as disability insurance and other types of insurance) as well as an estate plan.
- Don’t forget about taxes: When people think about retirement, they often forget about taxes. Through the end of your life, you will still have to pay taxes. We highly recommend working with financial professionals who can help safeguard your future.
Understanding the biggest risks in retirement
A successful retirement plan can afford you freedom and financial independence later in your life. For many, though, retirement is far down the path. Whether it be five, fifteen or twenty-five years away (or even longer!), many of our clients find it tricky to strategize that far ahead. That’s why it is so important to understand the biggest risks with retirement:
- Longevity risk: A 65 year old couple has a 50% chance that at least 1 of the 2 will live to 93. That’s a 25 to 30 (or more!) year span to live in retirement (Source: Fidelity).
- Withdrawal risk: Withdrawing at too high of a rate may erode your wealth at an unrecoverable rate.
- Sequence of Returns Risk: Taking withdrawals when the market corrects in early retirement could have devastating consequences to retirement outcomes.
- Inflation: It’s inevitable that inflation will happen. Keep in mind that while you’re on a fixed income, the price of goods and services (like groceries, gas and landscaping) will likely increase.
- Healthcare: Couples over the age of 65 can expect to pay approximately $300,000 in healthcare expenses, not including long-term care, over the rest of their lifetime, according to the Fidelity Retiree Health Care Cost Estimate. That’s a lot of cash, and it’s crucial to plan ahead for those expenses.
Don’t just spin the wheel — plan ahead!
It can be difficult for many people to visualize their financial future and plan accordingly for their goals. Don’t leave your success or failure up to chance, rather, enlist the help of a financial professional — someone who has your back and best interests in mind!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including the possible loss or principal. No strategy assures success or protects against loss.