5 Ways to Sync Your Financial Plan with Your Family’s Financial Needs

plan

During the pandemic, we’ve talked quite a bit about potential positive outcomes of this unprecedented experience. One plus that I’ve noticed recently is that more people do seem to recognize the importance of having a financial plan, whether they’re just starting the process or refining some details with their fiduciary advisor in light of all that’s happened this year.

On today’s episode, we discuss 5 important areas where a financial plan can help keep your money in sync with your family’s needs, even when the unexpected happens.

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1. Replacing lost income.

Despite the unemployment rate finally falling below double digits in August, most economists believe we’re still dealing with a major jobs crisis in the U.S. As companies restructure during the pandemic, millions of workers are facing displacement, furloughs, downsizing, and forced early retirement. The long-term employment picture for hard-hit industries, such as hospitality and entertainment, is still very uncertain right now.

We encourage all of our clients to save enough cash to cover six months of their living expenses. This emergency reserve can help cushion the blow from an unexpected job loss. It can also be helpful if your home needs an unexpected repair, or in the event of a sudden medical emergency.

Some folks get antsy watching that six-month reserve just sit in a savings account, especially when interest rates are so low. But the purpose of this account is not to help you grow your wealth. It’s designed to be a risk-free reserve that’s there to provide some peace of mind when you need it the most.

2. Adjusting to rule changes.

At the beginning of 2020, one of our big focuses was helping clients plan around the SECURE Act, which was designed to give seniors a little more flexibility when it comes to working longer and saving more for retirement.

But once Covid-19 broke out, Congress passed the CARES Act, which adjusted some of the SECURE Act’s provisions. Suddenly, seniors had important new options on the table. For some of our clients, the best course was to return or not take required minimum distributions for 2020 and let that money grow, untaxed, for another year in investment accounts. For others, new coronavirus-related distributions helped solve cash flow problems.

Combining these options with stimulus checks helped stabilize the economy and make Covid-19 a little less of a shock for some folks. But just knowing you have options isn’t enough. You need to consider how those choices will affect things like your annual withdrawal rate, your taxes, and your ultimate retirement goals. That kind of long-term perspective is only possible if you have a comprehensive financial plan in place.

3. Estate planning.

Some of the toughest conversations I’ve ever had occurred this spring when older clients called up and said, “Bill, my wife and I are afraid. We don’t know what’s going to happen, we don’t know what our risk level is for this virus, and we’re not sure if our estate plan is current.”

Although my team went above and beyond to help clients settle important details, we had to navigate so many potential pitfalls: getting documents signed while social distancing; connecting with tax and legal professionals who weren’t in their offices; finding notaries; coordinating conference calls with potential beneficiaries and executors.

I know that estate planning can lead to some unpleasant and uncomfortable conversations. But please, don’t wait until the last second to get your affairs in order. A solid estate plan has many moving parts. You don’t want to be making such important decisions under negative circumstances.

4. Reducing retirement expenses.

As our clients prepare for retirement, we talk a lot about controlling expenses and sticking to a spending plan. Cutting out extra vehicle payments, subscriptions and memberships, and excess support to adult children can make it easier to cover larger essentials like health care and housing.

One common way to keep your retirement expenses stable is to explore mortgage refinancing, especially if you can convert an adjustable-rate mortgage into a fixed mortgage. Current rates are around half of what they were even two years ago, and strong demand in the housing market along with Federal Reserve policy could keep rates low for the foreseeable future. If you think refinancing could help your retirement budget, we can help you shop around for rates and calculate how a lower, fixed mortgage payment could affect the rest of your planning. But be aware that the bankers and real estate agents we keep in touch with tell us that refinancing can take up to 60 days right now.

5. Adjusting your portfolio.

In January and February of 2020 the equity markets were performing very well. Once lockdowns and economic shutdowns took hold, equities briefly dropped around 40% from their all-time highs.

Folks who let cable news and social media headlines cloud their judgment might have thought they needed to get their money out of the markets before those numbers sank any lower. And to be fair, there may have been some situations where shifting assets away from the markets and towards cash and bonds made sense, particularly for soon-to-be retirees who needed a bit more stability and a bit less risk. Although for properly allocated portfolios, those changes would have been made well before any market volatility occurred to avoid being forced to sell securities at an inopportune time.

But there were also opportunities for investors to harvest their losses and reinvest in other equities or vehicles like a Roth IRA. Carrying that tax loss forward can also create beneficial tax scenarios. Other folks might have benefited from “staying the course,” continuing with their planned investment contributions, and buying low while the market was still recovering.

When you have a financial plan, you have long-term financial objectives as well.  Without that plan, and without those objectives, there’s a high probability that short-term fear and uncertainty are going to play an outsized role in your decision-making. And when that happens, you risk much more than just missing out on a chance to improve your portfolio. You’re risking your entire financial future.

There’s still so much we don’t know about the months ahead. Maybe science will deliver a vaccine before the end of the year, maybe not. Maybe the presidential election will unsettle the markets, maybe the election will encourage them.

What we do know is that you’re going to need your assets to keep you and your family secure during whatever comes next and through a long and fulfilling retirement. Don’t let the things you can’t predict keep you from planning right now for everything you can anticipate and control.

Bill Keen: When you have a financial plan, you have long-term financial objectives as well.

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About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

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