We hear more today in the financial services world that financial advisors should be thinking about their clients’ holistic needs. But, what does that really mean?
At its core, holistic financial planning requires us to stretch our view and think beyond the concept of simply accumulating wealth. It also demands that we look at investment tactics that can help us plan, invest and protect our assets to and through retirement.
[See: 10 Long-Term Investment Strategies That Work.]
To get started, here are a few strategies to help minimize any holes in your plan.
Create a retirement income strategy. Determining how you’ll fund your future retirement should be top of mind when it comes to creating a plan. You’ll need to know how to leverage your current paycheck into an income once you retire. Though you may choose to supplement your income with a part-time job, most of it will come from what you’ve saved and planned for along the way.
To get started, you’ll want to determine the amount of money you’ll need each month when you stop working. By creating a monthly retirement budget, you’ll be able to tailor your savings strategy now in order to better suit your future needs.
Start with the basics like food, housing and transportation and remember to factor in your goals, including the activities and things you’ll want to do once in retirement. To help you figure out your personal expected monthly income based on your savings path, there are a number of financial resources available today, like Voya’s myOrangeMoney retirement calculator.
You’ll also need to factor your various retirement income sources into your plan. This includes anything from your workplace retirement plan, and traditional IRA or Roth plans, to real estate and other significant sources of wealth. You’ll want to know how these assets can turn into a stream of income in retirement and their potential tax implications. For example, withdrawals from 401ks or traditional IRAs are fully taxable, while qualified withdrawals from Roth plans are paid out to you generally free of federal income tax.
To help maximize your income stream over the length of your retirement, think about adjusting some of your savings strategies today.
Prepare for the unexpected. Beyond your retirement income needs, another important part of your holistic planning approach should include planning for the unexpected. According to LIMRA’s 2016 Insurance Barometer Study, most consumers don’t purchase life insurance because they believe it’s too expensive. The reality is though, that many people tend to overestimate the price.
If you’re relatively young and have loved ones who are dependent on your income — there are certain policies, such as a term policy, that provide basic protection for an affordable price.
[See: 11 Tips for Investors in Their 30s and 40s.]
On the other hand, if your budget allows, a cash value policy can offer you even more benefits. With this type of policy, a portion of your premium can grow income tax-free inside your policy. While the policy’s death benefit protects your retirement savings, the cash value you’ve accumulated can eventually be used to:
— Cushion your monthly income to help with daily living expenses.
— Pay medical bills.
— Pay off debts such as a home mortgage, credit cards and student loans.
— Pay college tuition (life insurance benefits are not counted on the Free Application for Student Aid or FAFSA).
— Alleviate tax exposure.
— Fund travel or other leisure activities without dipping into your retirement savings.
Whether you plan to purchase term or cash value insurance, it is better to purchase a policy when you are young and healthy. If you wait until you’re older to purchase a policy, your premiums will probably be higher. Factoring in an insurance plan early on in your planning process can provide you with the right amount of insurance and protection needs for the future.
Research annuities. As you build out your holistic plan, another potential insurance product to consider for your portfolio is annuities. While they’re often overlooked, these solutions can be an effective component of a holistic retirement strategy, helping to supplement your retirement income stream.
Annuities are essentially contracts between you and an insurance company, where the insurer agrees to make periodic payments to you, immediately or at a future date. You defer paying taxes on your contract’s interest until you receive your payments, allowing you to potentially grow your savings over time.
No one likes to have any gaps in a well thought out plan, which is why seeking out good advice is also an effective strategy. Now that you’re armed with a little knowledge, talk to a financial advisor to help you create a sound investment strategy that will best fit your financial goals and needs.
[See: 20 Questions to Ask Before Hiring a Financial Advisor.]
Securities and Investment advisory services offered through Voya Financial Advisors, member SIPC. Neither Voya Financial Advisors nor its representatives offer tax advice.
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