It’s been said that the only certainties in life are death and taxes. When it comes to investing, and possibly life in general, a third certainty exists: uncertainty. Spending too much of your life trying to control things that cannot be controlled or worrying about things that are unchangeable and uncertain will lead to unhappiness.
Uncertainties in the world of financial planning
- How long will you live? Will you outlive your money? What can you do about it?
- When will you die? Slight nuance from question one: What if you die prematurely? Who will be impacted?
- What calamity awaits you tomorrow? After all, hindsight is 20/20.
- What windfall awaits you tomorrow? If you knew a lottery win was just around the corner, how would you behave today?
- When can you retire? Not when do you want to retire, but when can you retire?
Things you can control
Aside from influencing when you can retire, you have little to no say in the items listed here and their impact on your life. There are, however, ways to take the unknowns and apply some degree of predictability. Put another way, apply some knowns to your unknown future.
Savings rate: Your future self will likely never say, “Damn. I wish I had not saved all that extra money.” Do your future self a favor and increase your savings rate. Don’t worry too much about rate of return. Just save more money.
Proactive tax planning: Most tax returns are prepared as a historical accounting of the previous year. By turning the process to proactive, you can impact your future taxes. There are so many ways to do this that the topic needs another article.
Legal documents/estate planning: Once you die, especially if it’s an unexpected death, you can’t influence much of anything, except if you leave a legacy of good direction through your legal documents and procedures for your loved ones to follow.
Life insurance: Yes, you do need it, and no, you probably do not have enough. I’ve never had a surviving spouse look me in the eye and say, “I wish you didn’t have this money for me” when I hand over a beneficiary check.
Disability insurance: You can’t predict if you’ll become disabled or not, but you can put a good disability income insurance policy in place to keep your paycheck rolling. Also consider “business overhead disability” insurance that would keep the business end of things running in your practice.
Long-term care insurance: There’s a reason long-term care insurance has become so much more expensive: people are using it! The statistics are grim, but one way to relieve the expense is by using hybrid life insurance.
Asset allocation/derisking: Don’t play roulette with your retirement savings. Remember that “pigs get fat and hogs get slaughtered.” Keep in touch with your retirement/investment accounts and work with a trusted advisor to take opportunity, capture gains, and at times, derisk your portfolio.
Will Parrish is a founding partner of Slate, Disharoon, Parrish, & Associates LLC, located in Knoxville, Tennessee. Contact him with questions at [email protected] or (865) 357-7373. Visit the website, sdp-planning.com, or connect with Parrish on LinkedIn.