In this episode, Steven Boorstein, PharmD, CFP® discusses how to create a comprehensive financial plan/retirement plan in your 60s. He covers five critical areas of a solid financial/retirement plan: values and goals, tax strategy, estate planning, investment management, and risk management.
Steven emphasizes the importance of aligning these areas with your overarching financial plan and seeking professional advice when necessary.
Takeaways
+A solid financial plan in your 60s should include consideration of your values and goals.
+Develop a tax strategy to minimize taxes both now and in the future.
+Estate planning is crucial, including wills, powers of attorney, and potentially trusts.
+Investment management should align with your overall financial plan and goals.
+Implement strategies to reduce risk, such as evaluating the need to have specific insurance coverages or having funds set aside to cover certain risks
See if we can help: https://mailchi.mp/rockcrestfinancial.com/prospective-client-inquiry
Chapters
00:00 Introduction
01:05 Chapter 1: Values and Goals
06:41 Chapter 2: Tax Strategy
08:30 Chapter 3: Estate Planning
12:05 Chapter 4: Investment Management
13:36 Chapter 5: Risk Management
20:20 Conclusion
The information presented in this podcast is intended for informational purposes only and does not purport to be investment advice or an offer of investment advice, an offer to buy or sell any security or a recommendation of any investment strategy or course of action.
Interested in exploring how Steve and his team can be YOUR Personal Financial CEO? https://mailchi.mp/rockcrestfinancial.com/prospective-client-inquiry
TRANSCRIPT (edited for clarity):
Intro
In this episode, we’re going to answer the question, “How to create a solid financial plan in your 60s.” Welcome, my name is Steven Boorstein. I’m a financial planner and founder of Rockcrest Financial, which is a comprehensive financial planning firm in Somers Point, New Jersey. One of the questions that I get pretty frequently throughout the year is, how do I create a solid financial plan and most often this question is asked by a couple that are either in their late 50s or somewhere in their 60s. So, that’s the question that we’re going to answer, today. Two quick disclaimers. First, this is not personal financial planning advice. This is educational information because I don’t know your particular situation. Second, throughtout this episode at times, I will be noting things that your advisor should be responsible for… so if you don’t have an advisor, then realize YOU are your advisor.
Chapter 1: Values and Goals
I believe that there are five critical areas covered in every solid financial plan, especially in your 60s. The first critical area of every financial plan should be your values and your goals. These are different things but closely related. and should be identified in the first part of the plan.
Your values are really the “why” behind “WHY money is important to you?” And at a base level for many people, that may be that they “just want to make sure they don’t run out of money, so they can afford the basic necessities in life.” But in that example, as you ask the next “why” question, “So, WHY is it important that you have your basic necessities taken care of?”… people have different answers. So your answer may be that you grew up and you didn’t have a lot of money and your family wasn’t wealthy and you want to make sure that never happens again throughout the rest of your lifetime, or that it never happens to your kids. It could be some other reason. And as we go up the “why” ladder asking “Why is that important to you?” It may be that you have worked hard your whole life and you want to enjoy your retirement… or that you want to provide for your grandkids… or it could be that you feel that the money that you have accumulated is a blessing and you have altruistic intentions.
So, the goal of going up the hierarchy of the “why” behind why money is important to you, is to get to the deeper and deeper values that motivate you.
Once we’ve identified your values, the next thing to look at is your goals. And this is where I think a lot of advisors and do-it-yourselfers that do their own plans get it kind of, well, not exactly right. Your goal should be very specific. So how about, “I want to be safe in retirement?” Yes, that kind of a goal, but it’s not a very specific goal. So, I would say you need something much more specific.
All goals should have three components: a name, a date, and an amount. Because in a financial plan, every goal should have a timeline. Every goal should take money and planning… otherwise it’s not really a goal that should be included in the plan itself.
So for example, rather than say, “I want to reach retirement safely.” A better goal would be, “I want to reach my goal of FINANCIAL INDEPENDENCE on AUGUST 6, 2030 and have $120,000 per year in spendable income (or an asset amount like $3 million in assets.) That would be a very specific, measurable goal.
Another specific goal would be, “I’d like to have a second home in retirement and in today’s dollars, that’s $600,000 and I want to have that by, you know December 31, 2035.
So, goals are very specific and are something that require both planning and money. Again, when you create your financial plan, that first critical area should include your values and goals. After you’ve defined your values, then each of your goals should have a name, date and dollar amount. If you don’t know the exact dollar amount that’s okay. It can be changed later, but shooting for a specific target is better than not even knowing which direction to shoot.
What are some other examples of goals besides things like retirement income and second home? It could be travel goals, like a number of small trips throughout the year each year, or it could be one large, expensive trip that you take annually or every several years. It could also be a major purchase, like a boat, or car periodically throughout retirement. Could be college for yourself, for your children or for your grandchildren.
It could even be saving for expensive goals like weddings or starting up a business in retirement. For an increasing number of people the initial stage of retirement isn’t really about retiring. For many, it’s just a new chapter in their life and the things that they want to do.
Goals could also be things like legacy planning. You might say, no matter how much I spend throughout my retirement, I want to make sure that my children have “X” amount of money after my will matures.
So it could be any or all of those goals or other ones. But remember, each of those goals has a specific name, a specific date, and a specific amount (of income or assets).
Chapter 2: Tax Strategy
The second critical area of a solid retirement plan for someone in their 60s, is their tax strategy. That strategy should be both short-term tax strategy to pay less taxes now, as well as a long-term tax strategy to pay less taxes later in retirement, or for your legacy.
One reason this is important is because for many retirees, a majority of their assets are often in retirement plans. So whether it’s in their 401k, their 403b, or an IRA, at some point in time, the required minimum distributions that they’re going to have to take in their 70s and later may exceed the amount they actually need in order to live. And that means they’re going to be paying taxes on distributions that they’re not actually using. Proper planning in your 60s can often help reduce those taxes during that period of time.
I often suggest, especially for clients who are higher net worth, to make sure that they work with an accountant. If you have an advisor, your advisor should be working very closely with your accountant. The role of your advisor is critical here because they should be helping to make sure that the tax strategy
fits in with the overall financial plan. Often your accountant may know the tax portion, but may not know the whole game plan of the comprehensive financial plan. Your advisor should be your Personal Financial CEO, coordinating between all the other financial professionals that you use. You advisor should be the one making sure they are all working in harmony as a team with the goal of creating the best overarching financial plan for your life.
Chapter 3: Estate Planning & Legal Strategy
The next critical area that needs to be covered in every financial plan for someone in their sixties and beyond is estate planning. And this could be things as simple as making sure that the beneficiaries on every account that you have are named, whenever possible, to avoid probate. Estate planning should include at least a basic will and your powers of attorney, namely your medical power of attorney and your durable or financial power of attorney.
There’s many services online that can help you create these documents. However, my strong suggestion is that you work with an estate planner and your advisor work with that estate planner along with you. Advice of an attorney in this area is extremely important, especially the complicated your situation. It can help avoid battles between family members. It helps avoid situations where what you’ve actually done wasn’t the intended consequence of what you initially set up in the documents.
So, estate planning is very important. Beyond creating the wills and powers of attorney, in some cases, clients may need trusts. My personal feeling is you don’t want to take a thumbtack and hit it with a sledgehammer. So you don’t want to make your estate plan more complex than it needs to be. But depending on the state that you live in, or depending on how your assets are titled or the types of assets that you have or your situation with regard to minors or children with permanent disabilities, trusts may play an important part in your overall estate plan. I can’t overemphasize enough, it’s important to get it done right.
I also want to mention that doing your estate plan doesn’t necessarily mean that you may not need to change it later. My feeling is that your estate plan needs to be as complex as your situation is both currently and for the anticipated future. And then if your situation changes in the future, you may need an update to your estate plan. It’s important to make sure that you review it periodically and that it meets what your current, as well as, your future needs are. And when those future needs change, you modify it.
The other area under this critical area would be legal protection. For example, make sure you have the right legal protection if you decide to start a business, or if you continue to run a business in retirement. Just because you’ve retired and maybe decided to collect your Social Security retirement benefit doesn’t mean that you may not have a business or work somehow to a high level in retirement.
Make sure you have protection so that if you’re ever sued in retirement, or ever are subject to some type of legal situation, you don’t lose your hard earned assets. This is important, especially throughout retirement, because your ability to recoup those assets are going to be very limited at that point in time.
And again, the role of your advisor in here is to coordinate your estate planner, your estate planning attorney, along with your accountant. Taxe strategy and estate planning are very closely linked, and making sure that both of those work together and fit into the overarching retirement plan are… well, critical.
Chapter 4: Investment Management
Critical area four is investment management. Whether you do-it-yourself or hire an investment manager or an investment advisor who manages your assets for you… a combination of you managing some of your assets and your advisor managing some of your assets, investment management is a critical strategy in your overall retirement plan.
Investment management should encompass not only your values and your goals, but your tax strategy and estate planning strategy. It should also some of critical area number five which we’re going to talk about next… your risk management strategy. Your investment strategy should embody all of these aspects together and make sure it’s providing the level of income you need, the ability to reach all your goals in the most tax-efficient manner, while fulfilling your estate planning goals and reducing risk to the level that you’re comfortable with in reaching your overarching financial plan.
And for everyone, this is going to be different, right? So, your investment management strategy is going to vary depending on your particular situation. And for some people, that means stocks, exchange traded funds, mutual funds, individual bonds, commodities, real estate type of investments, including individual real estate in some cases, alternative types of investments, and so on.
Whether you’re doing it yourself or you’ve hired an investment manager or advisor to help, it’s important to make sure that your investments fit into your overarching financial plan. They should match the tax strategy that you’ve created with your accountant, and the estate planning strategy you’ve created with your attorney. If you do have an advisor, they should be coordinating your investments to make sure they help fulfill all of theses other objectives.
Chapter 5: Risk Management
So that brings us to the critical area number five, which is “Strategies to Reduce Risk.” Now this is the area that involves potentially the most insurance, but not necessarily. Insurance shouldn’t be the goal, reducing risk should be the goal. If insurance is appropriate and better than other options for each area in which you are looking to reduce risk, then so be it, otherwise there may be a better solution.
And so I’ll give you a good example of that, which is long-term care. So for some people that may mean purchasing long-term care insurance, whether it’s a traditional long-term care policy or whether it’s an asset-based long-term care policy. Now that may mean long-term care insurance, or it may mean just setting aside or earmarking a certain amount of assets to take care of your long-term care needs in the future.
What I typically find is that for people who don’t have a lot of assets, long-term care planning isn’t as complicated and may or may not involve insurance. And, for people that have a lot of assets, they tend to self-insure, putting aside or “earmarking” enough assets within their plan to cover those potential future costs… which presents both some challenges and opportunities. For people in the middle of those extremes, long-term care insurance may make more sense, but again, not necessarily.
Another risk area that may need to be reviewed for some doing their plans in their late 50s or early 60s, looking at how they’re going to cover the potential of a disability prior to full retirement. Less important, I believe, in many cases than someone who’s in their 30s or 40s or early 50s. However, that may be an area in the plan that needs to be covered.
Property and casualty insurance should be something that’s reviewed annually. Take a look at your property and casualty insurance… your homeowner’s insurance, for example. Every year, you may notice that the binder that they give you is thicker and thicker. That’s not generally more benefits that you’re getting, but it’s more exclusions. They are taking things out of the way that you’re covered in the policy.
Having a competent advisor take a look at your property casualty and insurance and making sure that it still meets your needs and it still has the coverages that you expect it to cover is extremely valuable.
For example, damage due to mold and spores used to be covered to a greater extent in many policies. Today they either have limited coverage or no coverage. And a leak behind your wall that has now caused damage, but has been going on unbeknownst to you for months, may be excluded if the property and casualty insurer can show that it was a long-term issues.
Items like automobile/vehicle insurance, and boat insurance should also be reviewed annually and possibly re-quoted annually to make sure that you’re getting the most competitive rates. Here in New Jersey, rates tend to go up significantly every year and there’s a big difference between companies with regard to both coverages as well as premiums.
Another area that’s extremely important to think about is excess coverage. You can have an auto policy that may only cover $100,000 of liability, or a homeowners policy that may cover $50,000 or $100,000 of liability. But when someone trips on your sidewalk or gets into a fender bender with you and sues… what’s the magic number it seems everyone sues for… just $50,000… just $100,000? I think I’m not far off by saying everyone wants a $1,000,000 settlement!
These excess liability coverage policies are called umbrella policies. And they will cover you for $1,000,000, $2,000,000, $3,000,000 or more for often a few hundred to several hundred dollars a year in premiums. That’s something to talk to your financial planner about and make sure to see if it’s included in your overall risk plan.
Life insurance is another item that needs to be reviewed in your 60s. Whether you’ve had life insurance your entire life, or potentially need a new policy for estate planning purposes, or find that you no longer need it to reach your overarching goals… I’d suggest that you have a financial planner review it who doesn’t have an incentive to recommend it. So they, their firm or affiliates aren’t insurance licensed and they don’t receive any incentives from agents to recommend it.
Conclusion
So, who needs a comprehensive financial plan, covering their goals and values, tax strategy, estate planning strategy, investment management and strategies to reduce risk? In my opinion, almost everyone needs to think about these critical areas to some extent. Of course, the more income you have, the more assets that you have, and the more complex situations are in your life, the more you might want to consider utilizing a financial planner and the professional advice of a trusted advisor. But even if you don’t use one, I think it’s extremely important to at least take these five critical areas and start to review your situation to make sure that you have them all in order.
And if you do feel like you need some help and would like to discuss your personal financial situation with us, here is a link to our inquiry form:
We provide a “next level” service going beyond what most advisors and financial planners do and take on the responsibility of acting as your Personal Financial CEO – providing planning, coordination, simplification and accountability in helping create and execute your comprehensive financial plan.
I am Steven Boorstein and this is the Personal Financial CEO podcast. I hope that you reach in the best financial health of your life and stay that way forever.
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