28 Steps to Financial BalanceMaintaining financial balance can be a daunting challenge.  Balance is crucial since this provides stability and steadiness. Ultimately, financial balance protects you from falling or even failing financially. These 28 steps will help you achieve a balanced financial life.

1. Set/Plan for a specific retirement year. Even if the date is far off, a specific date provides something that is concrete. Sure, the date very likely will be moved a few times but a certain year allows for actual planning instead of just dreaming. The retirement model today is typically more of a transition into part-time work or even a different type of work before fully retiring. About five years in front of full retirement you need to review to how close (or far away) you are from your retirement goals both in terms of time and financial capital.

2. Be real about your actual spending. As you approach the run-up phase in advance of retirement, you need to form a realistic understanding of your spending. Depending upon health issues, retirement spending may not decline significantly until you are in your 80s. That’s our experience. Assume at least 80% of pre-retirement expenses as a start.

3. Take a household view of investments. Think of your various retirement and brokerage accounts as a whole. Some accounts have different purposes than others, but you should view them holistically at the household level. This will help you focus on your overall goals and not be distracted about one account performing differently than another.

4. Filter out the unimportant. We live in a world of information overload. 99% of what comes across our screens each day has zero relevance to our circumstances and our lives. Some researchers estimate that our brains are overloaded with the equivalent of 34 Gigabytes of information every day. That’s about 105,000 words! The sheer breadth of data hampers our ability to think, reflect, and make decisions.

5. Simplify. SimplifyIt’s important to consolidate and simplify your accounts so that they are easier to track and manage. Particularly when you are in the Required Minimum Distribution (RMD) stage, tracking this from a single account instead of multiple accounts will help you avoid costly errors.

6. Consider known likelihoods. Perhaps it’s likely that you or your spouse will receive an inheritance at some point in the future. Don’t count it until you have it, but have a background understanding of the possible impact on your retirement.

7. Get Clear about Social Security. As your retirement comes into focus, you need to review your Social Security statement (socialsecurity.gov) to make sure that there are no errors in your earnings history. With few exceptions, Social Security benefits should not be claimed before your full retirement date and ideally deferred until age 70.

8. Think about account beneficiaries. This may well be the most overlooked item in retirement planning. Beneficiaries for 401(k)s, IRAs, and other retirement type accounts supersede estate planning documents. Generally, these account beneficiaries should be natural people (instead of trusts) and contain both primary and contingent beneficiaries. These beneficiary designations should be reviewed every few years.

9. Consider longevity plus some. Planning for a retirement where you sustain your lifestyle including living expenses is challenging because it’s impossible to know how long you need the money to last. Instead of planning for life expectancy, plan on that plus some more. Having to change your lifestyle or run out of money late in life is the least desirable outcome.

Money is Money10. Money is money. Often the most vexing question investors face as they approach retirement relates to the precise mechanics of withdrawing money from various accounts for living expenses. Dividends, interest, and capital gains all contribute to a common pool of money that can be used for expenses. The most reliable source of income for retirement expenses is growth in the portfolio. By focusing on growth, you can remain indifferent between money from capital gains or from interest/dividends.

11. Re-consider the need for life insurance. By the time you have retirement in your sights, you likely don’t need life insurance. After all, the purpose of life insurance is to provide liquidity (because of dependency) at a stage in life where that otherwise may not exist. If you have reasonable liquidity to provide for a surviving spouse or others, you don’t need life insurance coverage.

12. Just say no to annuities. Annuities aren’t bought, they are sold. Just Say NoThey are sold because of exorbitant sales commissions. They are sold as the best of all worlds, but come with significant penalties for early withdrawal, tax issues, high ongoing costs and significant complexity.

13. Don’t be surprised by healthcare costs. Many individuals assume their healthcare expenses will magically disappear after they enroll in Medicare at age 65. Not so fast. There are still deductibles, premiums, prescription costs, and uncovered expenses. Assuming that you are reading this while sitting down, several different research studies estimate that the average 65 year-old couple will spend about $250,000 on healthcare expenses beyond what is covered by Medicare during retirement.

14. Asset protection. We live in a time where everyone is suing everyone for everything. Umbrella liability insurance is usually very inexpensive and helps cover potential liability beyond the limits of your auto or homeowners insurance. Don’t let a liability lawsuit unravel your retirement. Look into umbrella liability insurance limits that roughly mirror your net worth up to $5 million and 25 cents on the dollar above that amount.

15. Plan for things to go ‘bump in the night.’ Many investors think retirement will unfold exactly as they have planned. Is that the way your pre-retirement life happened? Usually not. Both good and bad things happen sometimes at very inopportune times. Life isn’t (and never has been) linear. Expect this and don’t be surprised.

16. Debt isn’t your friend. Flexibility or the ability to adapt quickly to change is of utmost importance in retirement. Debt limits this flexibility. It’s not unreasonable to have a modest mortgage because of tax advantages, but large, material debt can be a problem. As you transition from the Run-Up to Wind-Up phases of life, start eliminating debt in all its forms. Your future self will thank you.

17. You’re an investor for life. Your goals and aspirations don’t end once you retire. The primary reason for saving and investing is to help sustain your lifestyle throughout your retired years. Your retirement might stretch to 25-30 years or longer and the impact of increasing living costs can ravage your lifestyle. Therefore, significant ongoing exposure to ‘risky assets’ like stocks is needed to offset these ever-increasing expenses.

18. Benchmarks don’t matter. If you’re accustomed to staring at the S&P 500 returns and comparing your personal portfolio, stop it. Your portfolio is (or should be) widely diversified across global stocks and bonds. The S&P 500 is 100% large U.S. stocks and likely doesn’t mirror your portfolio, nor should it.

Stay in Your Seat19. Stay in your seat. Staying with your long-term plan through both good and bad markets is crucial for sustaining your lifestyle in retirement. David Booth, Co-founder of Dimensional calls this “staying in your seat.” That’s a good description because nothing else really matters if you can’t adhere to your financial plan and stay on course during all types of market conditions.

20. Rebalance your investments. While there is no perfect investment allocation, you should have discrete target ranges for the split between stocks and bonds. Over time, performance of these portfolio components will be uneven, leading to a skewing of your portfolio allocations. Rebalancing once or twice per year helps keep the allocation from becoming out of balance. Rebalancing is a necessary discipline just like going to see the dentist for regular check-ups. Perhaps you don’t see the need when everything feels fine, but the discipline helps avoid more serious issues in the future.

21. Recognize the impact of emotions. Most decisions are made on an emotional basis, particularly in turbulent times. Emotions are part of our human make-up so we can’t totally eradicate them from our lives. We can, however, lessen their impact by always remembering our overriding purpose for investing.

22. Financial planning ’Particularly for investors with retirement on the horizon, it’s important to establish ‘guardrails’ for ongoing financial decisions. These ‘guardrails’ are an inevitable result of a goals-based, dynamic, financial planning process. They keep you pointed in the direction of your goals and protect you.

23. 75% and 54%. The entirety of investing on purpose depends upon being able to understand that the broad stock market is positive just 54% of the trading days. That’s right, the next time you hear the CNBC or Bloomberg commentators screaming about a negative market day, remember that there is nothing unusual about that. Indeed, the objective is to ignore the 54% in order to enjoy the 75% of the calendar years that are positive over the long term.

24. Full-time, not part-time. The dual threat of ever-increasing living costs and a life span that is unknown require that you invest in stocks at all times. The futile exercise of trying to get out of the market at the top and back in at the bottom is pointless. Instead, buy, rebalance, and never sell.

25. Don’t chase returns or yields. Particularly for retirees trying to Don't Chase Returns or Yieldsshore up income shortfalls, investing in higher-risk market segments might seem attractive. Usually this proves to be a poor bet. Stay diversified; stay liquid; stay in the investment mainstream.

26. Be patient. The first three to five years of retirement generally are a transition period. Every aspect of your life will be changing and this requires patience. Spending levels, social activities, and family relationships will reach an equilibrium but give this some time.

27. Consider place. Where you choose to live in retirement obviously impacts your financial needs. Some people downsize and stay in their current town while others move to another state to be closer to kids/grandkids. Look at the financial aspects in advance, not after you have already moved.

28. Organized not overwhelmed. Pare down your investments and other financial accounts so that these are easily managed. Then keep this information along with contact information for advisors along with your final wishes. Don’t become overwhelmed by the myriad of changes that retirement brings.

Achieving balance in your financial life positions you well for whatever comes your way in the future. The precise sequence of events in the future can’t be predicted, so the smart approach is to maintain an equilibrium that allows you to adjust when needed. Start there. Ready for a real conversation?

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