Financial Planning at Every Stage of Life

A Q&A with Abbey Rollins

Financial planning gives people the tools to make smart financial decisions about their lives, their money, and their legacies. Abbey Rollins helps individuals, families and business owners create plans based on their goals, their distinct life circumstances, and projections regarding their assets and income. In this interview, Abbey explains how she guides her clients as they develop their savings strategies, pursue debt reduction intelligently, maximize tax efficiency, protect their assets, and optimize their investment portfolios.

How does goal setting factor into financial planning?

You need to have a clear sense of the end game if you’re going to chart the course to get you there. That’s why it’s so important to create a vision for the future and identify the goals to be achieved along the way. If building a plan for a couple, both parties need to weigh in, even if one person plays the lead role in handling the finances. We need to make sure that everyone is on the same page and working toward the same objectives.

Let’s talk about the typical issues that arise at various stages of one’s life. What are the top concerns for young adults just starting their careers?

Recent college graduates tend to have student loans, car payments, and credit card debt. We’ll want to look at consolidating their debt at the lowest possible interest rates with payment schedules that they can afford. We’ll also talk about which debts to retire first when there’s room to make more than the minimum payment.

Debt reduction should be balanced against the need for savings. Compound interest on tax-deferred assets offers significant growth potential when started early in a career, especially when employers offer to match employee contributions to company-sponsored retirement plans. While recent grads may feel as though they can’t contribute much, even a small amount sets the stage for long-term gains and gets them in the habit of saving.

What changes when young professionals marry and start their families?

While the income side of the equation gets sweeter – especially with two wage earners – expenses tend to rise considerably. A home mortgage joins monthly payments on student loans, car loans, and/or credit cards. When children enter the picture, child care expenses (or the temporary loss of one salary) may enter into the equation. So a re-balance between spending and saving may occur.  At a minimum, it’s important to continue to take advantage of matching funds through an employer retirement plan. Fortunately, if people started saving early on, they’ll likely be able to reduce savings during this period, while still staying on track for retirement.

Couples tend to get serious about estate planning once they have children. They want to identify the person(s) who would care for their children should something happen to them. They also need to think about the financial resources to address their children’s care. We’ll have a conversation about life insurance and disability insurance to take care of the unpleasant “what ifs.”

While college may seem like a distant reality, the economics of higher education call for an early start to planning. An early reality check can illuminate the path (and the sacrifices) to reach an educational goal as well as open up a discussion of alternatives. Ideally, this exploration happens before the household gets stretched thin with other financial obligations.

Fast forward 15-20 years. How has the financial plan taken shape?

As the kids reach college age, the goal is that household savings have kept pace with the increase in cost for tuition, books, supplies, and living expenses. If an unfavorable gap exists, it may be time to reset expectations. Paying for college should not come at the expense of saving for retirement or taking an early withdrawal from existing retirement assets.

With higher income during these years, tax management becomes a priority as it’s likely that these individuals are settling into the highest tax bracket of their lifetime. Pre-tax contributions to retirement accounts (e.g. traditional IRA, 401K) make sense as a means of reducing the current tax liability. We also look for tax efficiencies when selecting which assets to place in taxable vs tax-deferred accounts.

At this stage, the financial plan looks ahead toward retirement and the resource requirements to meet future needs. It considers income streams from pensions or real estate, available investment assets and also identifies the preferred timing for collecting social security. As for investment strategy, we generally pursue a more conservative approach for assets that will support core expenditures than those earmarked for travel, vacation homes, or other elective expenses.

We make sure the right kinds and levels of insurance are in place to protect assets and sustain income should adverse conditions arise, such as litigation liability, disability, death and potential future long term care needs. And we recommend updating the overall estate plan to make sure that it reflects current circumstances.

How does financial planning benefit retirees?

For retirees, we take a close look at various “buckets” of spending – i.e. day-to-day expenses, one-time expenses (e.g. home repair/remodeling, automobile purchase, second), and discretionary travel and entertainment. We identify which income streams cover which expenses. As needed, we lay out the plan for tapping assets with an eye toward withdrawing funds in a tax-efficient manner.

We continue to monitor the investment portfolio to ensure that it’s appropriately balanced and generating a competitive rate of return. If market conditions have an adverse impact on valuation, we re-evaluate goals to see where and how planned expenditures might need to be adjusted. And, of course, we look to maintain the proper levels of insurance.

Estate plans come into focus at this stage of life, especially when retirement includes relocation to another state. All legal documents need to reflect the laws of the primary state of residence. The will and/or trust should be updated to include all of the appropriate beneficiary designations, including potential charitable bequests. If monies will be held in trust until children reach a designated age, then a suitable trustee must be named to assume a fiduciary responsibility.

How often should a financial plan be updated?

Ideally, we’d like to review each custom-designed plan every three years to account for material changes in the past year (e.g., personal, employment, financial markets, and tax law), adjustments in priorities or goals, and developments on the horizon. Major transitions may require some effort to re-orient the plan around emerging needs at this stage of life. Hopefully, it’s a welcome process that encourages the right kinds of conversations and leads to a lifestyle in which the only surprises are pleasant ones.

MEET ABBEY

As a Senior Wealth Manager and CERTIFIED FINANCIAL PLANNER™ practitioner, Abbey provides financial guidance to high net worth families, business owners and medical practitioners. She works with clients to help them identify and achieve their retirement, investment, insurance and estate goals.

Connect with Abbey here.