Keeping your retirement on autopilot may be easy, but it’s not going to maximize your wealth. If your goal for retirement is preserving your current lifestyle, a poorly optimized plan may push back your retirement date by years.
The fluid nature of regulations, financial markets, and your own lifestyle means your retirement plan needs to be adaptable. An optimized retirement plan is not something set in stone, but rather a strategy that changes to account for things that can affect your financial future. These can include a cash inflow from selling your business, paying off a mortgage, or even a large unexpected medical expense.
Retirement Planning is a Continuous Process
Building an adaptable retirement plan is a holistic, multi-stage process at True North. It starts with a series of fact-finding meetings called the 3Sixty Process, where the goal is to get a comprehensive picture of a client – their needs, desires, preferences, biases, and more. Knowledge earned during this process has a very real impact on the wealth plan that True North creates.
An important step to maintaining a lifestyle is finding how much it costs to maintain. This number sets a baseline for retirement spending, which can change if a mortgage is paid off or new real estate is bought. Based on the client’s current assets, earnings, and retirement savings, we help clients identify when they can realistically retire. Oftentimes, clients need help getting to the retirement finish line a bit earlier or exiting their career with more financial security.
True North takes a multi-pronged approach when it comes to optimizing a retirement plan. Some of the most common ways to enhance net income is through minimizing taxes, maximizing charitable contributions, and improving the client’s portfolio allocations. Each of these steps, especially portfolio allocations, requires regular maintenance.
True North also advises clients on steps they can take to help push towards a successful retirement, such as decreasing spending and maximizing 401k contributions. Additionally, True North helps in less obvious ways, like auditing insurance policies, creating strategic education plans, and exploring estate planning for opportunities to protect the client’s interests.
Insurance policies provide families with a financial safety net, so it’s important that coverage is adequate and appropriate for the client’s needs. In the past, it was common to purchase a life insurance policy, put it in a file, and think about it only when annual premiums were due.
Times have changed. Today, insurance policies are far more sophisticated financial tools that need to be monitored and updated periodically. Reviewing insurance policies is often a missed step in retirement planning, which is why True North helps clients avoid common mistakes, such as coverage gaps or excess insurance - which can be costly. Oftentimes, clients outgrow old insurance policies and need new coverage. While True North does not sell insurance, or financially benefit in any way when a client secures a new policy, we routinely make coverage recommendations as part of retirement planning.
Insurance is not the only thing that has changed; the cost of education is currently the highest in history, and it continues to grow. With rising costs in mind, it’s important to plan for college and/or private school expenses for your child. This is commonly done through a 529 savings account. True North’s wealth managers help create education plans by running projections based on anticipated cost, current education savings, the child’s age, the market’s expected rate of return, and the typical inflation rate of tuition.
With these metrics, True North can suggest an appropriate amount to contribute to an education fund over time to ensure that money is available when your child is ready to attend college. Payments from an education account for expenses can be made as a one-time lump sum or via regular withdrawals.
Finally, estate tax exemption limits continue to be updated each year for inflation and other economic factors. It’s essential to review wills and trusts periodically to help ensure that the maximum amount of wealth is kept within your family. Other aspects of the estate need to be updated too, such as gift or donation limits -- which can change based on current asset levels -- as well as, planning for incapacity and guardianship of minor children.
Shifts in taxes and regulations can have a significant impact on estate planning and need to be taken into account. For example, the estate tax exemption increased from $5.49 million in 2017 to $11.4 million in 2019, meaning more than double your net worth can be passed on to your family, tax-free. However, this opportunity is lost if your estate plan is not structured to take advantage of this new regulation.
Maintaining an Optimized Retirement Plan
At the end of the day, True North’s wealth managers don’t just create a retirement plan and leave it on auto-pilot. We maintain your optimized plan by updating it to adapt with changing regulations and your evolving personal goals, so your retirement strategy can perform at its highest possible level. Let us help you create the best retirement plan so you can live a more fulfilled life, now and later.