Six Steps to Financial Peace-of-MindSubmitted by Concierge Financial Planning, LLC on March 3rd, 2018
“What about rising interest rates and the growing deficit?” asked Sue, a retiree, in a panicked tone of voice at a recent investment club meeting. “Isn’t anybody worried about these things? I am!” The other members of the club listened but were nonplussed.
Except for me, of course. “No,” I practically shouted, “trust your plan—you should have an appropriate asset allocation and spending plan for your stage in life and retirement. You should focus on the things you can control.”
The truth is, since I did not do Sue’s plan, I am not entirely certain that she has an appropriate asset allocation or spending plan. She’s a bright woman who got professional advice and so I imagine that she does, but if you’re like Sue and find the news and market volatility overwhelming, you can easily make changes that will enable you to sleep at night and enjoy your retirement. It’s a simple six-step process:
Step 1 is always the most painful—determine what you spend. Dig into your bank and credit card statements and come up with your average monthly spending in all categories. Don’t forget to account for everything including home maintenance.
Step 2 is fun. Make a list of your financial goals, which should include your annual living expenses, healthcare expenses, automobile purchases, vacations, and gifts, amongst other things.
For Step 3 you’ll need to employ a good asset projection/financial planning software. Most banks and financial institutions make these available to their customers, but you can also purchase them. Aside from professional tools, I really like the consumer tools offered by Fidelity. Once you’ve got the software, link your accounts, enter your data, and push the calculate button.
Most software results will give your plan some sort of probability of success or funded ratio. You should know quickly whether your plans are in line with your assets and income. Your portfolio asset allocation can make a big difference here as can your choice of when to start Social Security. A good software should allow you to make changes and run scenarios.
Step 4 is to determine your proper asset allocation. Most financial institutions provide risk tolerance questionnaires to help you with this task. They should consider your age, time until retirement, attitudes about risk, and your risk capacity. Whatever you do please don’t rely on the old rules-of-thumb to determine how much to have in stocks or bonds.
Step 5 is act! Implement your plan. Reallocate your assets to the target asset allocation. Try to use low-cost mutual funds and ETFs. Make any necessary changes to your spending plan. Downsize if necessary and/or take that awesome family vacation if your plan shows you can.
Step 6—monitor your plan. Rebalance at least annually and make any spending changes needed to stay on track. Expect to take a flexible approach to your annual withdrawals—adjustments may need to be made if the markets do not perform as expected.
If this all sounds too difficult or too time consuming, consider hiring a financial planner to help. The money you spend will be well worth your peace of mind. (Lest you think this is a shameless plug, I am not currently taking new clients!)
A few days ago, I met with Eliza to update her plan. She has been a client of mine for many years. I asked her if she was concerned about the recent market volatility. “No. I don’t think about it and I never even look at my investments. I have confidence in my plan.” I had tears in my eyes! This is the whole point of financial planning—to give people the peace of mind to live their lives fearlessly.