Why Age Shouldn't Matter When it Comes to Financial Planning
We live in a time of great personal freedom when we have the opportunity to choose our own life goals and paths.
While it’s true that very few 26-year-olds are likely to be retiring, you might be that lucky one who just sold an app to Facebook and is considering philanthropy. While most people start families in their 20s or 30s, you might be that 40-year-old who’s just about to adopt a first child. And while most 60-year-olds have hopefully accumulated some retirement savings, you might be that entrepreneurial baby boomer who is moving to Detroit to launch a startup or open a coffee bar.
In spite of this brave, and exciting, new world of personal choices, what’s the first question a financial advisor or online financial site generally asks you? Chances are it’s your age. Then that answer determines the next question, and the next.
Too many financial planners and investment sites, unfortunately, use age to make assumptions that then dictate investment recommendations.
The internet, too, is filled with articles like “Financial Planning Tips Every 30-year-old should know” and “The best financial goals for every age.” There are books and studies that break your life down into age-based phases like “early career phase” and “peak accumulation phase” then make generalization based on those neat buckets.
What’s more important than age?
We’re all individuals, with different dreams, goals, and life situations and when it comes to financial planning, age is not as important as it used to be.
Your goals and your risk tolerance should be the factors to consider first in devising a personalized financial plan or investment plan that works for you.
Is your primary goal buying a house, is it wealth creation for early retirement, is it having income so you can bike around the world for a year? Those answers are more important than the fact that you are 32.
Does a volatile stock market make you anxious? Do you prefer slow and steady to winner takes all? While it’s generally assumed that young people can afford greater risk and volatility because they have time on their side, you may be that 24-year old that wants or needs to preserve savings first and foremost.
Goals differ and investment always involves a certain amount of risk. That’s why a fee-only fiduciary financial advisor works with each client individually to manage goals and risk in a way that works for them. It is vital for success to determine the level of risk each client can afford to take, how much risk is necessary to help them achieve their personal goals, and how much risk and volatility they can comfortably live with emotionally.
You Are Unique
Each of us is unique and that means that no two people will have the exact same goals + risk profile, in spite of being the same age. Yes, living off retirement savings is different than living off a first salary, but the amount may be the same. And paying off student loans is really not all that different from paying off a mortgage.
What’s important is that you find a good fee-only fiduciary financial advisor who looks beyond pre-programmed, one-size-fits all recommendations for 20-30 year-olds or 60+ year-olds and focuses to your goals, your risk preferences, and your uniqueness to create a personalized plan that works for you and evolves as you evolve, not one designed for an entire generation.
Retirement Planning Has Its Limits: How to Prepare
Retirement planning is one of the issues that commonly leads clients to consult financial advisers. One of its essential aspects is creating a plan to save and invest in order to provide a comfortable retirement income. Ideally, this starts many years ahead of retirement, even as early as your first paycheck.
As retirement comes closer, planning for it expands to take in a host of other considerations, such as deciding when to retire, where to live, and what kind of lifestyle you hope to have. When retirement becomes a reality, the focus shifts to carrying out the plan.
All of this planning is crucial. Yet, for both financial advisers and clients, it's good to keep in mind that planning has its limits. In the post-retirement years, it may be helpful to think in terms of preparing for old age rather than planning for it.
The older we get, the more important this distinction between planning and preparing becomes. Too many life-changing things can happen without regard to our best-laid plans. Often they occur unexpectedly, resulting in emergency situations where urgent decisions have to be made. A stroke or a fall, a diagnosis of terminal illness, a broken hip that leaves someone unable to go back to independent living—and suddenly, right now, the family needs to find an assisted living facility, arrange for live-in help, or sell a home.
What are some of the ways to prepare for these contingencies?
- Explore housing options well ahead of time. Find out what assisted living, home care, and nursing home services and facilities are available where you live and whether they have waiting lists. Have family conversations about possibilities like relocating or sharing households.
- Research the financial side of these options. Investigate the cost of hiring help at home, assisted living facilities, and nursing care centers. Find out what is and is not covered by Medicare and long-term care insurance. For example, people are sometimes surprised to learn that Medicare does not pay for nursing home care other than short-term medical stays.
- Designate someone to take over decision-making, and do the paperwork. Execute documents like a living will, medical power of attorney, and contingent power of attorney. Update them as necessary, and give copies to your doctors, your financial planner, and appropriate family members.
- Start relatively early to downsize. Well before you're ready to let go of possessions or move into smaller housing, start considering what to do with your "stuff." Focus on the decisions rather than the distribution. There's no need to get rid of possessions prematurely, but decide what you want to do with them—and put in writing. Do this while it's still your choice, rather than something your family members do while you're in the hospital or nursing home
- Do your best to practice flexibility and acceptance. No matter how strongly you want to live in your own home until the end of your life, for example, it may not be possible. The physical limitations of aging can limit our choices, and even the best options available may not be what we would like them to be. It is a profound gift to yourself and your family members to accept these realities with as much grace as you can muster.
Finally, please don't underestimate the importance of planning financially for retirement. Because the bottom line is that you can't plan for all the things that might happen as you age, but you can prepare to deal with them. One of the most useful tools to cope with those contingencies is having enough money.
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