Today, I’m thrilled to introduce a guest post from Bill Hines, a long-time reader of this blog. Over time, Bill and I have developed a rapport through engaging discussions in the comments and many insightful email exchanges.
Bill, much like myself, is a financial planner who offers advice without any hidden agendas. Today, he’s here to share some invaluable lessons that he has picked up while assisting clients with their financial plans.
For those interested in knowing more about Bill, you can visit his firm’s website, Emanicpare. He’s also the author of several books, including his latest, "Plan Your Money Path," which guides DIY planners on using Pralana’s retirement calculator for creating a personalized financial plan. (Just a note: Pralana is an affiliate of this blog, but there’s no financial tie with Bill or his firm.)
Let’s dive into Bill’s insights…
What Are You Optimizing For?
Chris and I both work as financial planners, utilizing various tools on behalf of our clients, such as:
- Social Security optimizers
- Roth conversion optimizers
- Tax optimizers
- Retirement calculators, using both Historical and Monte Carlo methods
However, while numbers and calculations are critical, life isn’t just about maximizing wealth. Retirement is a life chapter that should focus on happiness after years of work and family life.
Even though I’m a big fan of math, I always remind my clients that the important choices we make together should prioritize their happiness. “This option might make the most financial sense, but which one makes you happy and worry-free?”
Planning for Couples
It’s quite common for me to see couples where one partner is the financial powerhouse while the other stays more in the background. The financially proactive partner often takes risks, being more aggressive with their investments, while their partner might not share the same comfort with risk.
When the stock market takes a dip, the less financially engaged partner might feel like they’re enduring a roller-coaster ride, growing anxious due to lower risk tolerance and lack of confidence in financial matters.
Meanwhile, the financial enthusiast is often unaware of this stress or might try to reassure their partner with simple affirmations like, “It’s all under control, don’t worry.”
This dynamic doesn’t lead to a stress-free or happy relationship, which is why assessing risk tolerance is one of the initial steps I undertake with new couples. It is crucial for both individuals to understand their own risk levels and those of their partners.
Usually, the outcomes of these assessments hold surprises on both sides! Understanding these aspects can improve mutual consideration and reduce stress.
Here’s a free link to a risk tolerance test. I recommend taking it separately and without any discussion beforehand!
You’re an Individual, Not a Rule of Thumb
Take Social Security, for instance. So many articles tell us to delay claiming benefits as long as possible, hinting at government preferences.
While the optimal strategy may suggest waiting until age 70 for the higher earner while the lower earner claims early, what if health concerns limit future longevity? In such circumstances, the priority shifts from mathematical optimization to enjoying the present.
In simulations for early versus late Social Security claims, I often find that the timing doesn’t significantly impact a client’s overall financial health. Clients frequently remark, “What could I do with more money in my 80s? Spending it now sounds more enjoyable!”
Differences in these scenarios are often trivial. But if your savings are minimal, and reliance on these benefits is heavy, the situation changes.
Let’s remember that the Social Security Administration has done extensive work to ensure that, on average, the payout remains consistent regardless of when you start claiming.
Roth Conversions: What is the Goal?
Emotions often play a significant role when considering Roth conversions—a topic frequently discussed in financial circles. While these conversions can be beneficial, sometimes optimization tools advise against aggressive approaches.
For example, if someone doesn’t intend to deplete their funds, a tool might suggest avoiding unnecessary taxes through conversions, intuiting that taxation becomes “someone else’s worry” upon inheritance.
Money Likely Going to Children?
Yet, as a thoughtful planner, you might prefer Roth conversions to allow tax-free growth, leaving a significant tax-free legacy for your heirs.
Who knows, by the time these inheritances are accessed, your children could be at their career peaks, and these inherited distributions might push them into higher tax brackets if left in tax-deferred accounts.
Are You Charitably Inclined?
Don’t convert money designated for charitable giving since those entities are exempt from paying taxes on such donations.
Do You Have Long-Term Care Insurance?
Avoid converting funds intended for long-term care; potential tax deductions from itemized care expenses might be more beneficial.
What If One Partner Dies Young?
Even with a well-structured plan assuming longevity, contemplating the unfortunate scenario of a partner passing sooner should encourage couples to consider Roth conversions, building tax-free reserves even if mathematically less optimal.
What Lets You Sleep Better?
Concerns about future tax increases can prompt more aggressive present-day Roth conversions. After all, retirement should be a time for joy, not anxiety.
The Hidden Cost and Risk of Complexity
I often meet individuals eager to implement the newest, most intricate strategies found on blogs or social media.
From bond ladders to strategic asset distributions across accounts, these complex maneuvers, while tax-efficient, aren’t always practically beneficial compared to simpler strategies like maintaining consistent asset allocation.
Complex strategies often bring downsides: as we age, we might lose our sharpness, and mistakes can become costly. Furthermore, a partner who doesn’t understand the complex strategy may face challenges if they find themselves having to manage things alone, especially under duress.
Couples with the happiest retirements embrace simplicity. Periodic reviews and joint decision-making foster a stress-free financial environment.
In conclusion, always consider the emotional dimensions alongside technical financial planning. A high-definition financial plan goes beyond numbers—it prioritizes happiness.
Should You DIY Retirement Planning?
Whether you choose professional guidance or high-quality DIY tools, tread carefully when crafting your financial future. If you’re managing it on your own, having a fee-only advisor review your plan can add an extra layer of security. Don’t skimp on this—it could save costly errors!
Chris’ Two Cents
As the year draws to a close and a new one begins, many find themselves evaluating their financial plans. Bill’s insights provide a timely reminder.
Keeping things straightforward is often underrated but essential. It’s a principle that Darrow has emphasized on this blog for years.
I’ve had moments where I deviated from simplicity, and Bill has always been there to pull me back. His feedback has been invaluable, and I hope you’re able to find inspiration here as you refine your financial strategies.
For further musings on financial simplicity, remember that your time is valuable.
Valuable Resources
We’ve partnered with some of the best retirement calculators to help you simulate various scenarios, including taxes and healthcare expenses. If you want a comprehensive view of your investments, Empower offers a free tool to track your finances efficiently.
Chris Mamula leveraged traditional financial planning with innovative lifestyle design to retire at 41 from his career as a physical therapist. After less-than-ideal experiences with the financial world early in his career, Chris opted for self-education in investment and tax intricacies.
Following his journey to financial independence, Chris began sharing his expertise on wealth-building, DIY investing, and early retirement at Can I Retire Yet?. He co-authored Choose FI: Your Blueprint to Financial Independence and works with couples on financial planning at Abundo Wealth, seeking to make quality advice accessible.
Chris’ insights have been featured by outlets like MarketWatch and Business Insider, and he has presented at prestigious events, including Bogleheads and the AICPA conferences. Reach out with blog queries via email at [email protected] and for financial planning, contact [email protected].
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