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FINANCIAL PLANNING FOR MODERN LIFE’S DIFFERENT STAGES

| February 25, 2015
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FLEXIBILITY, RESOURCEFULNESS ARE CRUCIAL AS OLD RULES ARE UPENDED

The old paradigm that saw young people leave the nest, get some education, marry, raise a family, pursue a career and then retire – in roughly that order – has been tossed out the window. Today, college students start companies in their dorm rooms, late-life marriages bring two sets of kids together, and retirement may not be an option or even a desired goal for some folks.

It may be time to begin conceptualizing life – and the financial planning that should accompany it – in terms of stages, not ages. More than ever, we need to be flexible while making sure we have the resources to broaden our choices and enable us to respond to whatever life may bring. With that in mind, here are some snapshots of life stages and their accompanying financial considerations.


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GOING (OR GOING BACK) TO COLLEGE

Some families are using their homes and/or their investment portfolios as collateral to obtain loans to pay for tuition and other expenses, investigating 529 college savings plans,* as well as grants and scholarships.

SETTLING INTO FAMILY LIFE

Honest communication should involve everyone. Candidly discuss your financial history with your spouse and children, develop a household budget with clear responsibilities for expenses, prioritize realistic goals, create a well-thought-out will, and review health and life insurances every time your life changes through marriages, divorce, births or deaths.

MAKING THE MOST OF YOUR CAREER

Build your overall financial security during peak earning years, for most people this is between 35 and 55. Take advantage of any and all corporate benefits, from health insurance to maxing out employer matches to your 401(k) contribution. If you’re self-employed, investigate options such as a solo 401(k), SEP-IRA and similar vehicles. Look into Roth IRAs – they don’t offer up front tax deductions, but the assets can grow tax-free and there’s also no tax when you make withdrawals.**

SINGLE AGAIN?

Head off confusion that comes with loss, whether by death or divorce, by creating a master directory of financial assets – bank and brokerage accounts, pensions, retirement accounts, insurance policies, utilities, property, etc. Be sure to safely pass along the information to those who’ll need to access your financial information.

WHEN PARENTS NEED CARE

The time to start this conversation is before they need assistance, and any plan should be based on the needs and wishes of those who will be receiving the care. A trusted financial advisor can provide guidance on long-term care options, insurance, prudent spending and other considerations. He or she can also work closely with an attorney to help you draft a comprehensive (advance care) directive that includes a durable power of attorney, a healthcare proxy and a living will that outlines instructions for end-of-life care.

HOW ABOUT HAVING SOME FUN?

Life isn’t all business. Discuss what’s realistic with your advisor and family, then put a “fun” category in your monthly budget – that way you know what you can spend without feeling guilty or jeopardizing your goals. Don’t worry that enjoying yourself is depriving your heirs; if your loved ones really care about you, they’ll want you to do things you enjoy.

ESTATE AND LEGACY PLANNING

Participate in a collaborative effort involving your advisor, as well as tax and estate planning specialists, to ensure your assets are distributed to whom, where and how you wish. Not only can you use this time to save heirs significant money, but deepen relationships by creating a family history that gives your kids – and their kids – a sense of personal history by writing (or videotaping) a legacy letter thattells your loved ones how important they have been to you.

The common thread that runs through all these stages – and life itself – is that life isn’t always predictable; things generally turn out better if we’ve put some thought into them ahead of time. Perhaps the best way to deal with all this is not to get too locked into specific outcomes, to remain flexible in our thinking and our planning, and also to practice acceptance – life doesn’t always turn out the way we had anticipated, but it may just turn out better.

* Investors should consider before investing whether their home states offer state tax or other benefits only available for investments in their home state’s 529 plans. 529 plans offered outside their resident state may not provide the same tax benefits as those offered within their state.

** Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

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