One thing I’ve learned in my 15 years in the investment industry that’s worth its weight in gold: Transitions are critical to the success of any well-thought-out financial plan. If the timing and execution don’t work, then even the best of plans (on paper!) could be critically altered — and you may be left reassessing your plan or reevaluating your goals.
In my years of onboarding new clients, I regularly heard questions like “Do I have enough?” and “Will I be OK once I stop working?” These fears should be easily quelled if you have a long-term plan in place that is regularly recalibrated based on the financial phase you’re in.
Traditional measurements use age to tell you where you are on your journey to retirement, but by seeing 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 work through transitioning between each phase, here are four key questions to ask yourself:
1. What does my current financial picture look like?
As you consider making any transition, it’s imperative to know where you’re coming from. A review of your finances, including your current spending patterns and financial commitments, is in order. Importantly, you should be clear about the priorities that typically, and most meaningfully, can impact your financial life in the phase that you’re looking to transition to.
Portfolios have had a roller coaster year, so if you work with an adviser, it’s important to touch base if you haven’t already to ensure 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 new tab) to help you accurately reconnect with your spending in the last year or two.
What’s important is that you accurately know where you financially stand today and not where you stood the last time you reviewed your financial picture.
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. A lot of times, life happens, and things that seemed essential are no longer needed, or just aren’t a priority for you. Maybe you thought you would need to pay for a wedding in the future, but now you know your child is not getting married or is financially stable enough to pay for their own wedding. Or maybe you thought when you’d retire that you would stay in your home, but have realized that the maintenance on the home is too much, and you don’t want to carry that burden.
It’s OK. Life goals are supposed to shift, so now’s a good time to reassess and determine what your outlook looks like in the near future (and this can shift again down the road — it’s your life!).
When reassessing your goals, don’t be shy about having a fearless conversation with yourself about what’s really important to you, and regular journaling can help you find clarity. Of course, include your spouse or partner in these conversations as well and make sure you share any changes in your mindset with your children as well. Even with differing perspectives, having your loved ones on the same page is a crucial part of a smooth transition.
3. How much risk should I be taking?
Most of the time when you hear the word risk, you are thinking of investments and asset allocation, but risk goes beyond just your investments. Of course, ensuring that you are not taking any unnecessary risk for the goals you want to achieve (or not taking enough when your time horizon is long) is salient.
Some other things to think about include insurance coverage: Is it time to increase or decrease coverage on life, umbrella or medical insurance? Starting a family is often when people first look into life insurance, for good reason. Also, with increasing 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 on, as that is personal. What matters is that as you face the next chapter in your life, you reevaluate the types of risks you want to take. And maybe that involves skydiving — that’s up to you!
4. Has anything changed that will impact my planning for the future?
A lot of times people go through a life transition — getting married, buying their first home, becoming parents — and they make “plans.” Then the unanticipated happens, and they neglect to consider what no longer works in light of the changes taking place in their lives. Hopefully, those people important to you many years ago are still important to you now, but we get it: Relationships evolve.
Here’s one example: Who you appointed to execute your estate or care for your children or make medical decisions may change. It’s critical to review these decisions frequently, but for sure as you transition between the financial phases. Another key consideration to take up during any transition: In planning for retirement, you may have previously determined a specific age or asset amount as your end goal. Again, this may change. Your goals should be reviewed before every 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 health checkups, pay attention to your own changing physical needs and keep that in mind as you look into your ideal future.
Transitions can be challenging for many reasons, many of which are emotional. But being pragmatic by anticipating and meeting these challenges head-on, you can ensure the next chapter of your life is a welcome change.
If you are approaching a big life and financial transition, whether that be retiring, building a family, receiving an inheritance or working through a tragic circumstance, by thoroughly answering the above questions, you can ensure the transition to your next phase is a successful one.
Talking to an adviser or other professional with specialized experience is a great first step if you are trying to figure out how to accomplish 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 adviser 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 transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.
Kelli Kiemle is the Managing Director of Growth and Client Experience at Halbert Hargrove (opens in new tab) and has been with the firm since 2007. Kelli earned her Bachelor of Science degree in Business Administration-Business Communication/Marketing from the Marshall School of Business at the University of Southern California in 2006.
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