What’s typical • Assets to provide income • Consuming and payout
As we near our late-career years, the focus of financial planning should be preparing for retirement and asset protection. Asset protection becomes more of a focus than growth as we cannot afford to take the same risks as we may have earlier. Investment loss can be deeply impactful. For example, starting with $1M in investable assets: A year one increase of 50%, a year two decrease of 50%, and a year three increase (again) of 50%, and another decrease of 50% in year four leaves you with $562K, a 44% decrease on what seems to be a 0% investment growth.
Now let's assume you start with the same $1M, a year one increase of 10%, a year two, decreases of 10%, a year three increase of increases of 10%, and finally, another 10% decrease in year four. Again, while it seems that after four years, you have 0% investment growth (on average), in reality, you will have only $980,100 left, an almost 2% decrease. Risk levels and market fluctuations can have a profound impact and must be monitored.
Asset protection is two-fold: Legal protection, ensuring your trust and will document meet your long-term legacy goals, and investment protection. The later stages of the financial journey are less about growth and more about protection. Therefore the nature of investments at this stage should move in the direction of less risk.
Risk Management: An annual meeting with a financial professional will serve to evaluate needs for personal insurance. As a reminder the list of insurance that can reduce your life financial risks:
- Life Insurance
- Health Insurance
- Disability Insurance
- Long-Term Care
- Homeowners Insurance
- Auto Insurance
- Liability Insurance
Short Term Savings, Investment Goals, & Debt Management: An annual review with a qualified financial professional can help ensure the adequacy of current savings levels to lower overall risk. It’s important to discuss the trade-offs between paying down debt and adding to savings and/or investment accounts.
Long Term Savings and Investment: An annual review with a qualified financial professional will help evaluate retirement goals and the likelihood of achieving them. Review progress toward education funding goals and significant purchase goals. Additionally, this is the time to discuss legacy goals, and this should include financial contributions and documentation (wills, trusts, etc.).