Effective retirement planning reaches beyond investments and the numbers related to various accounts a person owns. First, it’s about understanding the scope of one’s future financial needs and goals. And from that framework, it’s about putting all areas of the plan together so that they complement one another and function as an integrated whole.
Sometimes the financial world can seem segmented to clients, with professionals designated as experts in just one area of the plan — investments, insurance, taxes, estate planning, etc. But holistic financial planning includes and ties together every aspect pertinent to the retirement strategy. It analyzes and seeks to optimize each part of a person’s plan by making those pieces work together congruently.
One way to think about holistic planning is that most people have several pieces that comprise their retirement puzzle, and they all need to fit together to form a complete picture. But I find when talking about holistic planning in seminars, it’s eye-opening for people because they really haven’t thought about it in that context. Here are the fundamental elements in most people’s retirement situations:
- Social Security
- Tax planning
- Investments (401(k) plans, Roth IRAs, nonqualified accounts, etc.)
- Income plan (mapping out a strategy for how to use your money)
- Estate plan
All those pieces need to function together. You can’t maximize your situation if you’re looking at each of those aspects in a vacuum.
Putting the pieces together: Starting with Social Security
You have to view Social Security in the context of three of the bullet points mentioned above: investments, income plan and tax planning. You also have to figure out how much longer you’re going to work and your spouse’s needs — especially if one spouse might have a shorter life expectancy. Then the question is how your Social Security is going to be taxed. Most people have no idea what determines whether your Social Security will be taxed or not.
Sometimes people think they need Social Security for income, but perhaps they take it too soon and get hit with extra taxes as one result. When you look at Social Security in relation to a person’s investment accounts, that helps determine their strategy of when to turn the Social Security faucet on.
Let’s take a hypothetical example. A couple thinks they’re going to start taking Social Security right when they retire, but once a holistic planner does an overview with them and considers all the other pieces of their retirement plan, it makes more sense for one spouse to delay Social Security payments until …….