Many of us spend decades saving for the big day, whether its a big goal, or Financial Independence and/or Retirement. In a lot of ways, the act of saving is the easy part. There are many prerequisites we should consider and plan for:
- Have a Financial Plan for achieving your financial goals. Adjust as necessary along your journey.
- Determine your income sources, today’s and future, and income associated with each.
- Based on your income sources, determine the sequence for spending down your retirement funds to match your monthly expenses
- Estimate what you will spend on a monthly basis in retirement. Consider your current expenses and your planned activities and adjustments for retirement.
- Develop a detailed spending plan that determines what income you will draw on a monthly basis to cover your projected monthly expenses
We’ll cover the details for each of these five items in a future post. I don’t recommend tackling all this on your own.
We highly recommend working with a Certified Financial Planner (CFP) to develop a wholistic Financial Plan, something we did a couple years before we actually retired. Be mindful of the differences between a Investment Advisor and a Financial Planner. When we engaged a CFP, Mrs. Fired up and I were already Financially Independent. Depending on your situation you may find benefit from engaging a CFP earlier in your journey. A CFP takes a wholistic approach to your overall financial life. Use a fixed fee CFP and have a contract for what will be delivered. I recommend using a teacher/student approach, to learn what you need to, then doing periodic updates with your CFP, paying per session rather than a endless engagement where you are paying for things you can do yourself. Some CFP’s will propose a fixed monthly fee, on an ongoing “subscription” basis. Depending on your circumstances, you should structure the relationship to fit your needs. We found engaging a CFP to be the best money we ever spent. This is not an area to be “Penny Wise and Pound Foolish”. You’re likely planning finances for 30-50 years and, if successful, millions of dollars. The CFP will look at the following with you and help you make adjustments as necessary:
- Debt elimination plan – if applicable
- Retirement Goals- for both you and your spouse
- Long term care
- Umbrella and other liability protection
- Overall asset protection – preventive measures to insulate your assets from judgements
- Investment reviews for both retirement accounts and non-retirement accounts, as well as college savings. Organize your accounts and consolidate and simplify where necessary. We consolidated all accounts to Charles Schwab and it has proven to be critical to our successes.
- Tax planning:
- Current year as well as future tax planning. Our CFP is an Enrolled Agent for the IRS so I turned over our tax preparation to her for a couple years until I was comfortable to resume doing it myself. We use Turbo Tax when we do our own taxes.
- Traditional IRA to Roth conversion opportunities
- Impact of retirement accounts and other tax deferred strategies
- Tax loss harvesting
- Charitable Giving
- Estate planning, Wills/Trusts, Health directives, Durable Power of Attorney, Beneficiaries, and use of Lady Bird Deeds.
- Once you have the needs and plans for all these areas, then develop your overall Financial Plan.
Working through all these items can be significant work, and may take many months or years depending on your situation. Remember that this a journey and not a sprint. We feel the investment is well worth it.
You can find additional information at https://www.letsmakeaplan.org/ and https://www.cfp.net/docs/default-source/consumer-outreach/cfpboard_consumer_guide_to_financial_planning.pdf
Please share your experiences, feedback and advice.