101 Financial Plans

Bill Parrott |

101 Dalmatians™ was a favorite movie for my daughter, and we often watched it together as the dogs battled their Villain – Cruella de Vil. If you owned 101 dalmatians, I would think you'd learn a thing or two about raising dogs.

Since I started my financial planning and investment management firm five years ago, we have completed more than one hundred financial plans. The numbers do not include stand-alone modules we offer like Social Security optimization, estate planning, education planning, budgeting, investment reviews, or student loan repayment strategies. Money Guide Pro, our planning software, recently added an analytics feature, and the data is noteworthy.

Financial planning is the cornerstone of what we do at our firm, and we offer it to all clients. During the pandemic crash in March, we were able to evaluate all our plans in real-time. The correction did not hurt our client's goals, and, as a result, we remained fully invested through the decline, giving us a chance to make money as stocks recovered. Our goal is to have 90% of our clients complete a detailed financial plan. We're currently at 79%. Why not 100%? Some clients have more money than they can ever spend, so we focus on other programs like asset protection or estate planning.

The Data

Here are some statistics from our financial plans.

Total completed financial plans = 106

Average client age = 56

The cohort with the most financial plans = Ages 51 to 64

The group with the most assets = Age 65+

Average plan assets for clients with incomes greater than $100,000 = $1.9 Million

Goal, Expectations, and Concerns

The top five retirement goals: travel, purchase a new car, home improvement, buy a new home, and celebration (wedding, anniversaries, etc.).

The number one concern for individuals who want to retire before age 65 is paying for healthcare. If you're going to retire early, affordable healthcare should be a priority. It's common for healthcare premiums to cost $1000 to $2,000 per month, so do your homework!

The number one concern for couples with young children is paying for college. The sooner you start saving, the better. The annual cost of college is rising by about 6% to 7% per year or twice the rate of inflation. According to Money Guide Pro, the current tuition for a public, in-state college is about $26,000 per year.

The most common expectations for retirees are pursuing an active lifestyle, spending time with friends and family, and living with less stress. A word of warning: do not wait until retirement to enjoy your life.

The two most common retirement concerns are running out of money and suffering investment losses. Running out of money in retirement is not good. One of our firm goals is to make sure clients can retire on their terms, and more importantly, stay retired. Running out of money and suffering investment losses are competing concerns, and you must choose between risk today or risk tomorrow. If your investments are too conservative early in your career, you may run the risk of running out of money. If your assets are too aggressive later in life, suffering a significant investment loss can have dire consequences. A financial plan will assist you in selecting the proper balance between risk and reward.

Assets and Income

The most significant asset for individuals is their home, 401(k) plan, or business. Lately, there's a lot of discussion about renting or buying a home. My recommendation is to be a buyer, not a renter. Your home will provide shelter and memories, and it should appreciate over time – typically at the rate of inflation.

A company retirement plan offers a systematic way to create wealth. A constant contribution to your retirement account, compounded over decades, will yield substantial results. The people with the most significant retirement balances are typically teachers and individuals who work for their employers for many years. The maximum contribution to a 401(k) or 403(b) plan is $19,500. If you're fifty or older, you can add $6,500.

If you're a business owner, monetizing your company can be a significant portion of your retirement assets. I recommend getting a business valuation every few years. The assessment can help you plan for retirement, along with your estate and insurance needs.

However, your best asset is you and your ability to generate revenue. You may work for forty-five years or more. If your average annual salary is $100,000, you will make $4.5 million in income. Let's assume you save 10% of your salary per year, or $10,000. At a conservative growth rate of 5%, your account balance would be worth about $1.6 million when you retire.

What's Missing?

What is missing from the financial plans? Insurance. Life insurance, long-term care, and disability insurance are understated investment tools. Most people have life insurance through work, but the non-working spouse usually does not own any policies, a huge mistake. The primary breadwinner assumes they'll be able to support the family financially. On the surface, this may be true, but how do you replace all the services a non-working spouse provides? And, if you're the breadwinner, you may not have any desire to return to work after losing your spouse.

An assisted living facility, or nursing home, can wipe out a generation of savings if you don't have the proper coverage. A long-term care insurance policy will provide you care when needed and preserve your assets for your children or grandchildren.

You can only die once, but you can be disabled multiple times. If you are your most valuable assets, shouldn't you insure yourself against a loss of income? A disability policy will provide income to you if you can't work, allowing you to pay your expenses and let your investment assets grow.

What's Next?

A financial plan can bring you peace of mind. Will it be perfect? Hardly. But, a well-constructed plan can quantify your hopes and dreams. If you're waiting for perfection, you will never act. Your plan will direct your retirement expectations, determine income streams, and establish your investment allocation. It can also address other issues, like insurance, real estate, and liabilities.

If you don't know where to start, give us a call. We are here to help.

"You think dogs will not be in heaven? I tell you, they will be there long before any of us." ~ Robert Louis Stevenson

August 6, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor.