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Top 5 Most Overlooked Financial Planning Topics

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Top 5 Most Overlooked Financial Planning Topics

Financial planning is a journey, not a destination. There are a lot of ways you can engage in financial planning and there are several types of firms that focus on specific topics. For example, many investment management firms may focus on asset management and retirement income planning, while insurance agencies may focus on insurance gap planning. Because of how many topics there are in the financial planning world, there are some areas that are commonly missed. Here are the top five planning areas we at My Financial Coach find are often overlooked:

  • Cash Flow
    1. Income/ Expenses: It does not matter how many assets or how much income someone has if they spend more than that over their lifetime. There are the day to day, month to month, and year to year expenses such as mortgages, car payments, dining out,etc that are often covered by income, but could potentially require some savings. Additionally, income or assets are needed when it comes to paying for future expenses such as down payments on homes, sending children to college, or any other personal goals. Having a good understanding of income and expenses and earmarking income or assets to those items are a vital part of the planning process.
    2. Liabilities: People use the power of leverage to build out their net worth and property for things such as real estate, businesses, and other personal items. Each of these items have different tax benefits, interest rates, and strains on cash flow. Often, as people pay down liabilities, they are able to free up cash flow for additional savings or spending. 
  • Estate Planning
    1. Beneficiary designations: Reviewing your beneficiaries annually is low hanging fruit for every one interested in keeping their estate in order should the unthinkable happen. Beneficiary designation form changes are a no cost item that can be reviewed by yourself or with a financial planner. That way, you can see if you need to make changes in who gets what without the additional hassle of going through additional estate planning paperwork.
    2. Wills/ Trusts/ Probate: Not everything has a beneficiary transfer form. For those things that do not, it is often important to put together legal documents in order to avoid probate. Probate is a court guided and public procedure where your assets that are not automatically transferred go through the legal process of transferring to beneficiaries. This legally guided procedure can be costly and time consuming for those you care about most. You should regularly make sure that your estate documents are properly reviewed and still based on your wishes, especially if you know that there are items that are not properly titled or listed.
  • Inclusion of Real Assets
    1. Real Estate: In addition to traditional retirement assets such as an IRA or 401(k), many retirement plans include rental properties and downsizing into a more manageable home at retirement. This could create additional income or a liquid investable asset at retirement.
    2. Businesses: Successful entrepreneurs or private equity investors can often rely on a stream of income from a business or the sale of a business throughout their lifetimes. This is a great asset if planning has been done to calculate out income or exit strategies in the context of a financial plan. Ultimately, this area may not pertain to every individual, but will make up a significant and meaningful part for those individuals who own  businesses.
  • After Retirement Expenses
    1. Medical Care Expenses (LTC)/ Medicare/ HSA: One of the most complex areas during retirement is paying for medical care as one ages and loses their employer sponsored health insurance coverage. Often, Medicare does not cover all expenses and additional supplemental insurance plans need to be considered. Additionally, some costs that are never fully covered by Medicare (such as long term care needs) require a massive draw down of assets or an offsetting insurance policy. Some additional resources that may be available come from HSAs that may have accumulated value throughout the pre retirement years. Proper review and modeling is required to see what is the best way to pay for medical scenarios that may occur at retirement.
    2. Decreased living expenses from liability pay offs/Goals paid off: How much money do you actually need at retirement? Oftentimes, vacation homes have been purchased, children have been sent to college, mortgages have been paid down… etc. How much do you actually need and why do you need it? Do you plan to move to a lower cost area, what does retirement look like for you? Do you need more or less than your pre-retirement years?
  • Charitable/ Legacy Planning
    1. Leaving a Legacy: Is there a cause or an organization that you believe in that does good work in the world that you could contribute to in the future as long as your needs are met? These questions and more are often overlooked for individuals who are sufficiently well off and could bring great joy and give meaning to your life beyond the accumulation of assets (and its eventual draw down). This sort of planning can have more meaning than just the tax advantages and the sophisticated tools available to individuals.

Best,

Enpo Tu

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