One thing I’ve learned in my 15 years in the investment industry is worth its weight in gold: transitions are critical to the success of any well-thought-out financial plan. If timing and execution don’t work out, even the best of plans (on paper!) could be critically altered, and you may need to re-evaluate your plan or re-evaluate your goals.
In my years of onboarding new clients, I’ve regularly heard questions like “Do I have enough?” and “Will I be okay once I stop working?” These fears should be easily allayed if you have a long-term plan that is regularly recalibrated based on where you are financially.
Traditional measures use age to tell you where you are on your retirement journey, but by viewing your life in “financial phases,” you can more clearly define and achieve your life goals. Once you understand which financial phase you are in, you can work to ensure a smooth transition between them. As you transition between each phase, here are four key questions to ask yourself:
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1. What is my current financial picture like?
When considering making any transition, it is imperative to know where you are coming from. A review of your finances, including your current spending patterns and financial commitments, is required. Importantly, you need to be clear about the priorities that can typically and most significantly affect your financial life in the phase you want to transition to.
Portfolios have had a rollercoaster year, so if you’re working with an advisor, it’s important to get in touch if you haven’t already to make sure you know if the markets have had any impact on your financial expectations. Or if it’s been a while since you’ve reviewed your spending habits, you can use budgeting apps like Mint (opens in a new tab) to help you accurately reconnect with your spending over the past year or two.
The important thing is that you know exactly where you are financially today, not where you were the last time you reviewed your financial situation.
2. Do I still have the same goals?
Now is a good time to really evaluate the goals you originally set out to accomplish when you first created your plan. Many times, life passes and things that seemed essential are no longer necessary, or simply not a priority for you. Perhaps he thought he would have to pay for a wedding in the future, but now he knows that his son is not getting married or is financially stable enough to pay for his own wedding. Or maybe he thought that when he retired he would stay in his house, but he realized that the maintenance of the house is too much and he doesn’t want to carry that burden.
It’s okay. Life goals are supposed to change, so now is a good time to reassess and determine what your outlook looks like in the near future (and this may change again in the future – it’s your life!).
As you reevaluate your goals, don’t be afraid to have a fearless conversation with yourself about what’s really important to you, and journaling regularly can help you find clarity. Of course, include your spouse or partner in these conversations as well, and be sure to share any changes in your mindset with your children as well. Even with different perspectives, getting your loved ones on the same page is a crucial part of a smooth transition.
3. How much risk should I take?
Most of the time when you hear the word risk, you’re thinking about investments and asset allocation, but the risk goes beyond your investments. Of course, it’s important to make sure you’re not taking any unnecessary risks to reach the goals you want to achieve (or not taking enough when your time horizon is long).
Some other things to think about include insurance coverage: Is it time to increase or decrease life, general, or health insurance coverage? Starting a family is often when people first look for life insurance, and for good reason. Also, with the increase in natural disasters, should you adjust your homeowners or renters insurance policy?
Life is inherently risky, and there is no magic answer to how much risk you should take, as it is personal. What matters is that as you face the next chapter of your life, you reevaluate the kinds of risks you want to take. And maybe that involves skydiving, that’s up to you!
4. Has anything changed that will affect my planning for the future?
Many times people go through a life transition (getting married, buying their first home, becoming parents) and make “plans.” Then the unexpected happens, and they forget to consider what is no longer working in light of the changes taking place in their lives. Hopefully, those people who were important to you many years ago are still important to you now, but we get it: relationships evolve.
Here’s an example: The person you appoint to run your estate or take care of your children or make medical decisions can change. It is critical to review these decisions frequently, but safely as you transition between financial phases. Another key consideration to keep in mind during any transition: When planning for retirement, you may have previously determined a specific age or number of assets as your ultimate goal. Once again, this may change. Your goals should be reviewed before each transition so you can adjust your planning as needed.
Another aspect that no one without a crystal ball can predict is your health. Surprising medical diagnoses can be an unfortunate part of our lives, so in addition to regular medical check-ups, pay attention to your own changing physical needs and keep this in mind as you look toward your ideal future.
Transitions can be challenging for many reasons, many of which are emotional. But if you’re pragmatic about anticipating and meeting these challenges head-on, you can ensure that the next chapter of your life is a welcome change.
If you’re approaching a great life and financial transition, whether it’s retiring, starting a family, receiving an inheritance, or overcoming a tragic circumstance, by thoroughly answering the questions above, you can ensure a successful transition to the next phase. . .
Talking to a counselor or other professional with specialized expertise is a great first step if you’re trying to figure out how to achieve the goals you’ve set for yourself as you move through the different phases of life.
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC Registered Investment Advisor located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees and services, can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities trading or to provide personalized investment advice. The information provided does not constitute any kind of legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.
This article was written by and presents the views of our contributing advisor, not the Kiplinger editorial team. You can check adviser registrations with the SEC (opens in a new tab) or with FINRA (opens in a new tab).