How Many Years Should a Financial Planner Plan?
How many years should a financial planner plan ahead? The short answer is: A financial planner should make a plan that starts today, brings you through the growth of your net worth, optimizes you through your golden years, and ends after your estate is settled.
This comprehensive plan is going to depend on the skills of your planner, the area you want to focus on, your life stages that need the most attention, and how much you are willing to spend on this plan... let's dive in it!
Financial Planning Stages
Below is a breakdown of each crucial financial stage, from building your wealth to managing your legacy.
1. Building Wealth (20-50 years)
In the early stages, the focus is on growth. This period spans from young adulthood into middle age and includes establishing savings, accumulating assets, and leveraging tax-efficient investment vehicles. Here are the main elements to consider:
- Emergency Fund: A vital safety net for unexpected expenses. Aim to save 3-6 months of expenses to avoid debt during life’s unexpected events.
- Home Ownership: Building equity through real estate is often a priority. Many start planning for a first home in their late 20s to early 30s.
- Registered Savings Accounts: Contribute to retirement accounts such as 401(k)s, IRAs, RRSPs, or pensions to maximize tax benefits and employer matching.
- Tax-Free Savings: Tax-free accounts, like Roth IRAs or TFSAs, offer growth potential with tax advantages upon withdrawal.
- Investments & Rental Properties: Diversifying with stocks, bonds, or rental properties can enhance income streams and bolster net worth.
Starting these strategies early is key. Studies show that individuals who start saving by age 25 may have double the retirement savings compared to those who start at 35.
Estimated Total Cost: For a full wealth-building plan, expect an initial fee of $2,000–$5,000, with ongoing costs for periodic updates or portfolio management, typically 1% of assets under management.
Looking for an estimate of your retirement goals? Use the Retirementize calculator to explore your future income options.
2. Retirement Living (50-80+ years)
Once you’ve accumulated wealth, your focus shifts to preserving it while enjoying your retirement. This stage breaks down further into three phases, often known as “go-go,” “slow-go,” and “no-go” years:
Go-Go Years (50-70 years)
The early retirement years are active, with retirees often traveling, pursuing hobbies, or relocating. Financial priorities include budgeting for higher spending, managing withdrawals, and planning for tax efficiency.
Key Considerations: Review retirement accounts for optimized withdrawals, invest in long-term care insurance, and manage taxes on Social Security or pension income.
Slow-Go Years (70-80 years)
By your 70s, retirement spending may begin to decrease. Health care expenses may rise, while discretionary spending might slow. Adjusting your investment strategy to more conservative assets may be wise.
Key Considerations: Evaluate healthcare options like Medicare, manage asset allocation, and prepare for potential medical expenses.
No-Go Years (80+ years)
During the later years, the focus shifts towards maintaining health and simplifying finances. Many retirees at this stage concentrate on preserving their estate for their heirs.
Key Considerations: Review beneficiary designations, simplify finances, and consider creating a trust to manage the transfer of assets.
Estimated Total Cost: For a comprehensive retirement income plan that covers all phases, expect to pay $3,000–$7,000. Additional fees may apply for ongoing management or specialized healthcare planning. Use online retirement income calculators to get an estimate of what you can expect.
3. Estate Planning – Managing Your Legacy
The final phase of planning ensures your wealth is passed on according to your wishes. Estate planning is essential to preserving your legacy and easing the burden on your loved ones. Key components include:
- Will & Trust Creation: Essential documents for outlining how your assets will be distributed.
- Power of Attorney: Designating someone to manage your finances if you’re incapacitated ensures smooth handling of your assets.
- Beneficiary Designations: Keep beneficiaries on accounts, such as retirement plans and insurance policies, up to date to prevent disputes.
- Tax Planning: Work with a financial planner to minimize taxes on your estate and maximize inheritances for your heirs.
Estimated Total Cost: For a complete estate plan, expect to pay between $2,000–$8,000. This investment ensures that your legacy aligns with your wishes, minimizing taxes and simplifying asset transfers for your heirs.
Key Factors to Consider Throughout Your Planning Journey
- Life Changes: Marriage, children, job changes, and inheritance can shift your financial timeline. Reassess every 5-10 years.
- Investment Style: Adjust your risk tolerance as you progress through life stages to balance growth and protection.
- Life Expectancy: With people living longer, planning for a retirement that could span 30 years or more is increasingly essential.
Tools for a Successful Financial Plan
Consider using a retirement planning tool, such as Retirementize, to stay on track with your goals and adapt to life changes as they happen. A solid financial plan is flexible, evolving with you to help achieve your dreams.
Fun Facts
- Only 33% of Americans have a written financial plan. (Source: Schwab Modern Wealth Survey)
- Planning for early retirement requires a 20-30% higher savings rate than traditional retirement plans.
- People often underestimate healthcare costs by 20% or more in retirement.
Conclusion
Successful financial planning spans multiple life stages, each requiring a unique approach. From building wealth to managing retirement spending and preserving a legacy, each stage benefits from specific strategies. Ready to plan for each stage of life? Visit Retirementize for personalized insights on your retirement income and planning horizon.