After 60 million pre-election day votes, and a combined $1 billion spent on advertising by both campaigns, we can finally put the election behind us. As of now, we still do not know who will win, but to some degree it doesn’t matter. Having a sound financial plan does not take into account who the president of the United States is or will be. Instead, I want to discuss what does matter when building a financial plan.
The first component to determine is your income needs; I call this creating the B word. The B word, of course, is budget. We need to determine how much you’re going to need each month. We need to evaluate what bills and expenses are going to continue in retirement and what will not. We also need to factor in what I call the “go-go years” — these are the years after you retire and have your newfound freedom.
My parents, now retired, are your stereotypical middle-class Americans who spent their entire working lives accumulating money and employer plans and saving as much as they could. Don’t get me wrong, growing up, I remember many family vacations we went on and enjoyed, but by no means were we extravagant; so when they finally retired, what was the first thing you think my parents did? They went to Europe and did the 35 countries in eight days tour! They saw everything! After that, they went on an Alaskan cruise and then bought a second home in Tucson, Arizona. You many have different plans in mind, however, like my parents, we can factor in these costs when determining your income. In fact, we need to because you will not want to spend like that forever.
Life will come to a point where it will slow down, and we need to budget your spending in those early years. Once we build your budget, we evaluate your income sources, which includes determining your social security benefits and any pensions you might have. The most important action here is calculating your net income as much as possible. When doing so, understanding the impact of taxes and Medicare premiums can result in a more accurate calculation of net income.
Once we have determined your income needs, we can then factor in your asset allocation. We decide how to divide your investments over various asset classes to reduce risk and guard against changes in the market.
Establishing the proper asset allocation requires understanding your risk tolerance. Spending the appropriate amount of time on this is especially important; we do not just set it and forget it either. When things like the presidential election and other important events arise, we can adjust as necessary. It is important to note, however, that managing emotion is critical. Having your assets properly balanced prepares you for the ups and downs that naturally occur in the market, regardless of the events or circumstances creating the volatility.
The final component of your financial plan is estate planning. Estate planning a is broad term that encompasses several elements. The most basic estate planning tool is a last will and testament. Having a will ensures that your wishes are implemented at the time of your death. Many lawyers may talk about the benefits of having a trust, and trusts are certainly important, but they are not necessary for everyone. A will accomplishes what most of us need. Certainly trusts have a place and I will always recommend consulting with an attorney on what’s appropriate for you, but making sure you have a last will and testament, health care directives, and other basic estate planning documents will ensure that your last wishes are achieved.
As you watch election events unfold and wonder what impact this will have on your future, ask yourself, “Do I have the proper financial plan in place?” Being able to answer “yes” to this question, in my opinion, is the most important point surrounding this election season. It is also one of the elements within your control. The winner of the election and the actions he puts in place, to a large extent, are out of our control. Building a plan that can withstand either outcome is something we all can do for ourselves.
Jason LaBarge, Financial Advisor and Managing Partner at Premier Planning Group
115 West Street, Suite 400 Annapolis, MD 21401 443-837-2531 www.jasonlabarge.com
Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory services offered through Summit Financial Group Inc., a registered investment adviser. Summit and Cetera are affiliated and under separate ownership from any other named entity.
Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss.
The views depicted in this material are for information purposes only and are not necessarily those of Cetera Advisor Networks LLC. They should not be considered specific advice or recommendations for any individual.