A Comprehensive plan, built around you

It’s your life. Shouldn’t your dreams, goals, and hopes for the future be at the center of your financial planning goals?

Today, most financial advisors agree that personal financial advice should be approached and understood in the context of the goals a client wishes to achieve— historically, what might be called a “goals-based” approach. This approach can be combined with the sophistication and much of the detail of a “cash flow-based” approach. We expect to see this historical differentiation between goals-based design and cash flow-based design merge into one design philosophy that is easy to use and understand but also comprehensive.

Incorporating a hybrid of goals-based and cash-flow planning helps families and individuals plan for their short- and long-term needs. This helps them make better decisions, focus on long-term success, and develop financial strategies.

A comprehensive plan will cover savings and investments, taxes, debt management, planning for retirement, insurance needs and estate planning while also taking into account your individual circumstances and interests. It’s important to prepare for life’s biggest expenses, like buying a new car or home, sending children to college, retiring, and passing along an estate.

While a comprehensive plan helps you allocate your resources among your competing goals in a manner that aligns with your values, a sound strategy will also include protection against the unexpected so that your hard work won’t be undone by something you failed to anticipate. This protection may include insurance solutions such as life, disability, long-term care, and property and casualty.

Finally, a comprehensive plan should include at least some basic estate planning so that you have procedures in place in case you become unable to manage your own affairs, ensuring that your legacy is carried out according to your wishes.

Financial management planning

A common misconception is that money management is only for families on tight budgets. But the truth is, a high income does not guarantee that you will retire at your current lifestyle. People seem to think that as long as their income is over the national average, and they make investments, that they’ll be okay in retirement. Unfortunately, that’s not always the case.

You might be surprised to learn that a high income might actually put you at a disadvantage when it comes to achieving a comfortable retirement. High income earners tend to live more lavish lifestyles than lower-income earners. Put simply, as their income grows, so does their standard of living.

If your lifestyle becomes more expensive and you become accustomed to it, you will need more money in retirement than people who live more frugally. This does not mean that you shouldn’t afford yourself some of the luxuries in life that you’ve earned, but you should be aware of how these luxuries may impact how well you retire.

It’s not how much you earn—it’s how much you keep that defines your retirement lifestyle. To help you preserve more of your hard-earned income, here are five key areas to consider:

• Save more than you think you need.
• Look carefully at family relationships (college savings and caring for parents).
• Ensure you protect your assets from unjust seizure with proper insurance.
• Take advantage of tax strategies.
• Invest wisely based on your unique retirement goals.

Make sure you have a solid plan to grow your wealth through an appropriate investment strategy. Your plan should be based on your horizon for return and risk, adjusted for your age. As it relates to retirement, make sure your return projections are based on realistic assumptions, not best-case scenarios.

Don’t assume that growth in wealth through asset appreciation can be the primary source of your retirement income. Savings are the key to having enough money to invest so it can grow over time. The more you save when you are young, the longer the timeframe you give that wealth to grow and mature. Time in market, not market timing, is key to realizing growth goals.

Planning for the cost of higher education

College education can be one of the most important investments you can make for the financial future of your children and grandchildren. However, college costs can be very high— and they’re continuing to rise. Thankfully, there are a number of ways to plan for higher educational costs.

What are the best savings options?

• 529 plans are state-sponsored plans that provide tax-free investment growth for post-secondary education.
• Uniform Gifts to Minors Act (UTMA) and Uniform Transfer to Minors Act (UGMA) accounts allow parents to place investments in an account under the child’s name.
• Traditional and Roth IRAs allow for penalty-free distributions to pay for educational expenses, but taxes may still apply.
• Coverdell IRAs are savings accounts that are set up to pay for qualifying education expenses of a designated beneficiary.

You can negotiate with some colleges.

Many people don’t realize that they can leverage favorable offers of financial aid and discounts they’ve received from some colleges and universities to win a better deal from others. Some schools will review your offers and either match or beat them. It’s a good idea to apply to multiple schools to increase bargaining power.

How to get started:

As with any large savings goal, it’s best to start investing early and often for college. First, set your goal: figure out how much you will need to save for each child based on his or her age. Then, develop an investment plan and stick with it, taking the guidelines below into consideration as you work with your financial advisor.

Investment planning

It’s important to develop a blueprint for your investment portfolio that takes into account your need for income, tax bracket, risk tolerance, investment return and planned withdrawals. The blueprint should also reflect your investment preferences and the choices available in your retirement plans. Ask the following questions as you work through the process:

• What steps should you take to achieve the appropriate asset allocation for your portfolio?
• What is an appropriate long-term asset allocation strategy to work toward?
• Is your current investment portfolio appropriate for you, given your risk tolerances and planned withdrawals?
• What types of investments are appropriate for your portfolio?
• What fund choices should you make in your retirement plans?
• How should you invest the proceeds of a stock option exercise?
• What techniques should you consider to reduce your risk from a heavy concentration in one stock position?
• What additional steps can be taken to achieve greater tax efficiencies with asset location?

Cash flow after retirement

After focusing on saving enough during your working years for a comfortable retirement, it can be difficult to switch gears when you finally arrive. But planning how to carefully crack your nest egg is every bit as important as growing it in the first place. Better medical care and healthier lifestyles have resulted in longer life expectancies than those of previous generations. Many people spend much longer in retirement, putting pressure on their savings. You’ll need to be sure your nest egg lasts as long as you do.

How fast should you draw down assets?

Choosing a withdrawal rate—the percentage of your portfolio to withdraw each year—is crucial to not outliving your assets. When you’re deciding on a drawdown rate for retirement savings, the first step is to put together the most accurate picture possible of your current financial situation. It’s important to examine all sources of retirement income and project retirement expenses to create an analysis of what your finances will look like.

Typically, most people can draw out 3% to 4% of their portfolio per year, but a withdrawal rate has to be custom-tailored to each individual. There’s a delicate balance—withdraw too much, and you may prematurely deplete your assets; withdraw too little, and you may be making unnecessary sacrifices or laying the groundwork for a future estate tax predicament, if your estate is large enough.

Factors to consider include your:

• Amount and type of assets
• Life expectancy
• Age at which you retire
• Risk-return preferences
• Expenses
• Tax situation
• Desires about transferring wealth to the next generation

If passing wealth to the next generation is a goal, it can influence your decision of which assets to tap and when. For example, distributions from inherited employer-sponsored retirement plan accounts are taxed at the recipient’s ordinary income tax rate, which can be as high as 35%. However, beneficiaries may be able to take money out of an inherited Roth IRA income tax-free. Money inherited from a taxable account benefits from a step-up in basis, which typically reduces the amount of capital gains taxes due upon the sale. It may make sense to draw down your employer-sponsored plan or traditional IRA first if your goal is to leave the maximum amount of money to your heirs.

Frequent reviews are key.

It’s critical to revisit your plan often—at least yearly—and whenever a major life event occurs. That might include marriage or remarriage, divorce, buying or selling a business or a home, or receiving a significant inheritance. An annual review allows you to make adjustments as needed based on economic conditions and changes in your personal situation. Sitting down with a financial consultant is a good starting point. He or she can bring in other specialists as needed to ensure your plan is a good fit for your situation.

What about digital wealth management platforms?

The financial technology (fintech) industry is one that is growing quickly, with an increasing number of companies offering an even greater number of online and mobile platforms. However, this should not replace human expertise and contact in your financial roadmap. Discount brokers, automatic financial planning and automatic investing might be appropriate for some people, but when there’s turmoil in the markets, as there always is, you will need a person to sit down with you to readjust and perhaps reevaluate your financial plan.

Bottom line

You don’t have to do it alone. Your busy schedule may prevent you from fully understanding today’s sophisticated financial products. Therefore, the experience and expertise of a financial professional may be just what you need to create the right plan. An Associated Bank financial advisor can help you get started.

You can meet with one of our financial advisors for a complimentary, no-obligation review. Call 800-595-7722 to schedule an appointment, or connect with an advisor.