By Christian Hudspeth, CFP(R)
You know the biggest misconception I run into among people who have never worked with a financial advisor before is?
It’s that a financial advisor is going to tell you to save every penny and that you can never spend money on anything fun.
This is a myth. A good advisor with a team that actually does financial planning (not just investment trades and rebalancing) will look at your financial situation, goals, and market simulations. From there they recommend only the necessary and most realistic savings amount that you need to retire at the age you want – no more, and no less.
After you know how much to save to reach your future goals, you will know exactly how much of your take-home pay is left to spend freely and without guilt or worry.
A strong financial plan should give you a high degree of certainty that your future retirement is being taken care of while you live your best life now. Good planning should be liberating! Not stifling.
The Super Savers’ Folly
I see many working people have the saving habit down well. But believe it or not, sometimes people save far too well.
Yes, I believe it is possible to over save for retirement. And given that only 36% of Americans have a written financial plan, most people don’t realize this could be happening as they’re busy shoveling money into retirement accounts.
I remember first meeting with a married couple in their late working years that had skipped several once-in-a-lifetime vacation opportunities for fear of spending too much and never being able to retire.
They spent years diligently contributing the maximum to their retirement accounts and socked away thousands of dollars more into their brokerage accounts. But the truth is, they had no idea how close or far they were from being able to retire because they had never worked with an advisor or had a financial plan.
After decades of being super savers, they hired our team to build their first financial plan at age 50.
You could see the surprise in their faces when we told them they could retire in three years.
But you could also sense some regret, especially since they were in no hurry to leave their jobs and would have rather indulged in some life-changing vacations during their younger years when they could have more fully enjoyed traveling with their children.
This couple’s regrets aren’t uncommon. A recent peer-reviewed study found spending declines consistently after age 65 across all wealth groups, with researchers deducing that “worsening health associated with aging reduces the need or desire for some types of spending such as trips and vacations.”
Translation: There’s a good chance you will enjoy taking trips and vacations more today than you will later in your life, no matter how good or bad your income looks.
Finding the Balance Between Now Versus the Future
Financial planning is about finding balance between your lifestyle today versus your lifestyle years or decades into the future. When we begin building a plan for a client, we want to find the answers to two major questions:
- What age do you want to retire?
- What amount do you need each month or year to keep your lifestyle like it is?
After we know the answers to these questions, we can look at your savings, future income, inflation, and the markets to figure out how much you need to start saving today (if any) so that you can keep the same lifestyle at retirement. Or, if you don’t like the idea of “retirement,” we help you find the age that you can quit your job and follow another passion of your choice because you’re beholden to no one.
What’s the alternative? Without a financial plan, you’ll never know if you’re over-sacrificing now at the risk of one day being 80 years old with a pile of money you’ll never be able to (or want to) spend. And there are regrets that come along with that.
What if instead of regret, you dreamed…
- What if I gifted my loved ones more while I am healthy and able to enjoy experiences with them?
- What if I could have the courage to take a risk starting a new business because I know I’ve saved enough already to coast to retirement?
- What if I knew I had enough assets or insurance coverage to take care of my spouse if something were to happen to me?
- What if I could give more to charitable causes while I am still alive to see the impact I’m making on issues near and dear to my heart?
- What if I had traveled the world without guilt and even shared new memories with my loved ones?
Now we all know dreams don’t come true 100% of the time. But what if you could at least know which of these could be done?
That’s the security and liberation a solid financial plan can give you. Don’t just take it from me: A recent survey found 65% of people with a financial plan say they feel financially stable, while only 40% of those without a financial plan feel the same.
Simply put, the sooner you start planning, the more time you have to reach your dreams now and in the future.
And even if your financial plan shows you need to catch up on your savings, at least you’ll know what you need to do now to retire comfortably when you want.
Either way, when the planning work is done, it never gets old to hear a client say with relief, “thank you for bringing me this peace of mind.” Keep dreaming friends!
More from FMP Wealth Advisers:
- Selling Your Home? How to Minimize Capital Gains Taxes
- When to Keep Your life Insurance Policy (And When to Drop it)
- Pensions: Get Income for Life or Take the Lump Sum?
*The information presented here is not specific to any individual’s personal circumstances. FMP Wealth Advisers is not providing investment, tax, legal, or retirement advice or recommendations in this article.
**To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
***These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
