At Waterstone Financial, we are more than just advisors; we are educators, empowering our clients to comprehend the intricacies of their financial plans- we are dream facilitators. In a world saturated with pitches to get into the stock market, to buy annuities and to invest blindly, we embark on a different path. We coach you through the labyrinth of financial decisions, ensuring you not only have a plan but understand it intimately. There is no better way to learn and demystify the complexities of the financial world, then by telling a story. 

Join us on this 6-part series that will introduce you to the story of Alex, our underdog protagonist, who is on a journey of financial discovery. In the next couple of months, you’ll discover our 4 pillars of financial philosophies and Alex is going to guide the way. It will be about understanding the intricacies of life, anticipating the unexpected, and navigating planning factors that often get overlooked. 

Lifestyle Planning: The Foundation

Meet Alex, a vibrant individual that felt like he did everything right in his late 50’s: he had simple investments, paid his taxes on time, lived comfortably and traveled often with his wife and two children. One day, he sold his company for a healthy $2 million, and decided that retirement was just around the corner for him. Alex decided to approach a financial planner for advice. The advisor began the conversation by stating, "before we decide what to do with this money, we need to understand your lifestyle, goals, and objectives. We need to have an investment plan where the money has purpose."

He explained that the core of financial planning lies in defining your lifestyle—how much income you need, what goals you have, and the impact on taxes. It's about striking a balance between saving and spending. “How much money do you think you need in retirement?” The planner asks. Alex answered the question, but he forgot about the new car in 3 years, the 30th anniversary trip to Europe, and helping his future grandchildren with college. The difference between what Alex answered and what he really needed, is what we call, “Lifestyle Income”. 

Alex was hoping to retire within the next 2 years, but crunching the numbers, even with his windfall, he was about to be facing 30 projected years of “unemployment” aka “retirement” and his current lifestyle would never support that. Projections weren’t healthy; he could run out of money and have nothing for his children to inherit.

Tax Planning: Navigating the Tax Landscape

As money flows in the financial world, taxes will always come into play. Alex learns this the hard way when a lack of proper planning results in a massive tax burden. The lesson here is clear—taxes are not inconsequential; they can significantly impact your financial well-being. Planning for taxes is a vital element in securing a robust financial future. Not only did that $2 million get presented to Alex before he paid his taxes on it, he was unprepared for the check that he had to send to the IRS based on the sale of his business. 

While working on funding their lifestyle income, the advisor also discovered another big tax issue. The tax consequences that his large 401k account would cause him made the future incomes a lot less than he had anticipated. He was unaware of the techniques to reduce and optimize these taxes.

Estate Planning: Beyond Tomorrow

Alex's journey delves even further into the future, raising questions about where all the money goes. What if something unexpected happens? Estate planning becomes crucial—ensuring that loved ones are taken care of, even if his journey takes an unexpected turn. Hypothetical questions that the advisor began to ask him, made him think deeper about the long term plan. 

“What if there is a death in the family, a financial emergency, or long term care is needed? Are you aware of the estate and gifting tax laws?”

It’s a tough conversation, but unfortunately when planning ahead, it is an essential one. It's about protecting against the "what if's" and creating a solid foundation for all aspects of financial planning.

Investment Planning: A Balancing Act

Creating a plan for money that is both conservative and growth-oriented is a challenge. As Alex faces the prospect of retirement, the importance of wisely investing becomes apparent. It's not just about the middle ground; it's about purposeful investment buckets tailored to specific goals. Retirement planning involves anticipating the unexpected, whether it's the big trip to Europe, a new car, or unforeseen healthcare expenses. The advisor began exploring buckets of possibilities: short-term versus long term investments, college funds for his grandkids; a future vacation home, and discretionary emergency funds. These buckets, tailored to each of the advisor's clients, were things Alex had never thought about nor budgeted for. Once he retired, his savings were going to have to work for him. 

During this meeting, Alex picked up a newspaper on the advisors desk about the newest market reports. “We live in an ever changing world,” they both agreed. Planning for the inevitable market volatility was Alex’s biggest concern.

Continuous Planning: Stressing and Testing

Alex had made a plan… 8 years ago. He set it up and forgot about it- until now. His projected savings would plummet if he retired now, and that feeling of being trapped financially terrified him. Financial planning is not a one-and-done affair; it's a continuous process. The initial plan may evolve as circumstances change. Alex's experiences highlight the need for continuous adaptation, especially in the face of life's uncertainties and market shifts.

Stressing and testing scenarios is crucial. Alex's journey includes "What If's" like survivorship planning, unexpected expenses, and the ever-present challenge of inflation. In the end, financial planning is about giving shape to dreams and preparing for the unexpected. Join us on this journey as we dive deeper into each planning philosophy, helping you design, build, and test your financial future.
 

Stay Tuned for the Next Article: Lifestyle Planning: Building the Foundation.