By Jeff Gilbert
With everything on your overflowing plate, organizing your finances probably keeps getting put on the back burner. We get it. Whether it be insurance planning, filing taxes, or putting together an estate plan, most people aren’t eager to put the nitty-gritty of financial planning at the top of their to-do list. You don’t need to enjoy it, but it still needs to be done.
Delaying completing these tasks can be costly—in time, energy, and money. If you’ve been putting off your financial plan, consider these 5 reasons why you shouldn’t.
1. You Might Not Be Saving As Much As You Should
The first reason you shouldn’t put off financial planning is that you might not be saving as much as you should. That’s not to say that the savings you do have shouldn’t be celebrated. But no matter the amount you have, you need to be sure it will be enough.
If you plan to retire in your mid-60s, your retirement savings may need to carry you through 30+ years. Not to mention rising inflation that will decrease the value of your savings over time and the additional expenses you will likely encounter along the way. A study by the Center for Retirement Research estimated that the medium retirement savings of Americans age 55-64 is $120,000,1 yet the average retirement cost is nearly $46,000 per year!2 At that rate, a savings of $120,000 will only last 3-4 years.
The best way to avoid running out of money in retirement is to work with a financial professional to understand what your savings can handle. Contrary to popular belief, you cannot use a multiple of your annual income to determine how much to save. This is why it’s so crucial to plan ahead. The sooner you understand your need, the more options you will have and the easier your goals will be to accomplish.
2. Healthcare Costs Are on the Rise
If you’ve ever held a hefty medical bill in your hand, you aren’t alone. Healthcare costs in America are among the highest in the world.3 And as you age, you will likely require more healthcare services. According to the Fidelity Retiree Health Care Cost Estimate, the average couple at age 65 will need about $300,000 saved to cover healthcare costs in retirement.4 Most people don’t even have that much in their retirement accounts to live on, let alone cover medical costs.
Given the events of the past two years, it’s more important than ever to start preparing for the ever-increasing cost of care. The longer you wait, the less options you’ll have. Working with an experienced professional can help you evaluate your options and build a long-term plan for healthcare.
3. Tax Strategies Take Multiple Years to Implement
Another reason not to put off financial planning is that if you don’t start early, you’ll miss out on several tax strategies that take years to implement, including:
Tax-Advantaged Retirement Savings
If you’re in a high tax bracket, being able to save for retirement with pre-tax dollars is a great advantage because pre-tax contributions reduce your taxable income and ultimately reduce the amount of taxes you owe. This strategy could save you thousands of dollars in taxes each year. The earlier you start, the more you’ll save over the course of your career.
Roth conversions help to increase your retirement savings and decrease your long-term tax liability by transferring funds from a pre-tax retirement vehicle (traditional IRA) to an after-tax account (Roth IRA). This allows your money to grow tax-free for as long as you’d like, and required minimum distributions (RMDs) are avoided as well.
When it comes to withdrawing from your retirement accounts, how you take your distributions can make all the difference. Each retirement asset (employer-sponsored accounts, Social Security, traditional IRAs, etc.) has different tax characteristics. Creating a withdrawal strategy can help lower your tax burden by structuring withdrawals from each income source in a tax-efficient way.
To properly implement these strategies and more, a long-term understanding of your full financial picture is required. Putting off financial planning can leave you stuck with a huge tax bill that could have been avoided.
4. Compound Interest Requires a Head Start
Just as saving early allows you to take advantage of massive tax savings over time, there is a compound effect that occurs with the money that is actually invested as well. The money contributed to your retirement account each year will grow exponentially over time, but the key part of that equation is time.
A single penny that doubles every day for a month may not seem like much on the surface, especially when compared to $1 million up front. But by the time the 30th day rolls around, you will have over $5 million in pennies. This same concept can be applied to your retirement account, but because retirement investments are at the mercy of the highs and lows of the stock market, it will take more than 30 days to see that kind of growth.
If you wait to invest, you are missing out on growth year after year, and the resulting loss of earnings can be substantial. Not to mention the potential for loss when you try to invest yourself without the proper advice and guidance of a professional. We’ve found that many clients are often invested too conservatively and miss out on the opportunity for significant growth in even just a slightly riskier portfolio.
5. Financial Planning Can Alleviate Stress
Do you feel 100% confident about the myriad of financial choices you make day in and day out? Have you encountered more complexity as your assets have grown? Partnering with a financial professional can help alleviate the stress and anxiety that comes from trying to figure out your finances.
Think about all the time you spend worrying over finances and whether you are saving enough money. Are those thoughts preventing you from making great memories and actually living your life? For many of our clients, the answer is yes. But it doesn’t have to be that way.
Financial planning can help alleviate the stress that comes from not knowing where you stand or how to achieve your goals. It can provide clarity by defining a path from point A to point B, and allowing you to get the most out of your life along the way.
Don’t Wait Any Longer!
It should now be apparent that there are many reasons to start the financial planning process sooner rather than later. If you have long-term financial goals, such as buying a house, planning a wedding, or saving for retirement, working with a professional is one of the best things you can do to set yourself up for success. Don’t leave your most important goals and priorities to chance. At Balboa Wealth Partners, we strive to be your guide to financial independence—your advocate to help achieve your financial goals by building a custom plan to put your money to work for you.
If you want to feel confident in your financial future, give me a call at 949-445-1465 or email me at [email protected] to set up a no-obligation consultation. And you can complete a complimentary risk assessment here. We look forward to hearing from you!
Jeff Gilbert is the founder and CEO of Balboa Wealth Partners, a holistic financial management firm dedicated to providing clients guidance today for tomorrow’s success. With over three decades of industry experience, he has worked as both an advisor and executive-level manager, partnering with and serving a diverse range of clients. Specializing in serving high- and ultra-high-net-worth families, Jeff aims to help clients achieve their short-term and long-term goals, worry less about their finances, and focus more on their life’s passions. Based in Orange County, Jeff works with clients throughout the entire country. To learn more, connect with Jeff on LinkedIn or email [email protected].
Advisory services provided by Balboa Wealth Partners, Inc., an Investment Advisor registered with the SEC. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners and its Investment Advisor Representatives are properly licensed or exempt from registration.
Securities offered through Kingswood Capital Partners, LLC, member FINRA, SIPC.
Balboa offers advisory services independent of Kingswood. Neither firm is affiliated.