We’re in a day and age where long-term financial planning is more important than ever in order to achieve your financial goals. My experience tells me that financial independence is rarely just a matter of luck.
I’ve observed that, in most instances, it’s a result of a lifetime of
disciplined investing and simply living within your means. Among the
major hurdles that make long-term planning so difficult are the
circumstances over which we have no control. We can only react to them.
A few years ago, I had a retired client who decided to re-enter the
workforce. He wanted to discuss all of his new retirement plan options
and how they could fit into his existing investments.
He mentioned that he wouldn’t be eligible for any of his new
company’s benefits until he was employed for six months. Rather than
discussing his options immediately, I suggested we wait until it was
closer to his six-month anniversary.
When we ultimately sat down, the entire investment platform offered
by his new employer had changed completely from when he was hired six
months prior. This is not an uncommon occurrence.
It’s also quite difficult to make long-term plans regarding income
taxes. Last year was a good example. There was a new income tax rate for
higher wage earners and numerous new taxes instituted in order to help
fund the Affordable Care Act.
Another hot topic for many of my clients is Social Security planning.
It seems to me that I get a solicitation in the mail almost weekly to
attend a lunch or dinner seminar that explains the various strategies
available for collecting benefits.
More than likely, such seminars are educational and informative, but
as is so often the case in our nation, Uncle Sam just changed the rules.
In the recent budget agreement, it was decided that the very popular
Social Security strategy of file and suspend would soon be eliminated.
So if you were a few years away from retirement, you’d be wasting time
to learn about something that’s not going to be available.
You also have no control over the benefit package your employer
provides. Other than by voting, you can’t control the tax codes and we
certainly have no control or input over government-sponsored programs
such as Social Security.
The point is that the items over which you have no input or control
make long-term financial planning very difficult. During the planning
process, I generally like to look deep into the future with a very
cautious and conservative eye. Using Social Security as an example, I
never like to project the maximum income a couple might possibly
receive. I think it’s far more prudent to project less than anticipated,
especially since the new Social Security statements say that Congress
can make changes at any time and that there will eventually only be
enough to pay 77 percent of projected benefits.
You can only control so much in life. I applaud those that take the
time to learn in detail what they should do in the future.
Unfortunately, the details that you can’t control keep changing.
That’s why long-term planning in today’s world requires frequent
review. As you plan for the long term, make sure you keep an eye out for
short-term glitches along the way.