A Financial Planner’s Financial Plan

As an LPL financial planner, I give advice. It’s what I do. It may not be interesting enough to be turned into a GEICO commercial, but it may make a difference for anyone who is planning to retire at some point. What I rarely talk to clients about, though, is my own financial plan. This is not unusual, but there is a degree of accountability that comes with advising people that is often ignored. Plenty of doctors smoke, and even more personal trainers eat fast food. No one is perfect, of course, but by being candid about my personal financial plan and the steps I’m taking to work toward my financial goals, I hope to offer an open perspective on how someone who advises others’ financial decisions handles his own.

I am a 28-year-old male, and I do not have a spouse or a family of my own. That is a hope I have for the future, so my financial plan will change dramatically when that day comes. (*Note: A financial plan should always be reevaluated whenever there is a major life event.) I am gainfully employed with an employer-matching 401k and a separate retirement plan at work. I also have a Roth IRA that I have rolled over from a previous employer.

I live a very frugal lifestyle. My monthly housing expenses, including tax and insurance, are less than 10% of my gross income, half of the recommended 20% limit. The last vehicle that I bought was a base model truck with no frills or upgrades, and I buy a new vehicle about every 150,000 miles. On the other hand, I am aware that I have expensive hobbies. I enjoy traveling, eating out, sporting events, golf, and hunting and fishing trips. I have found that after retirement, most people occupy the time they had previously spent at their jobs by enjoying their various hobbies. In other words, they spend money during the time they had previously been earning money. Because of this, I regularly see people underestimate how much income they will likely need after their retirement date. So when I take this into account for myself, I estimate that in retirement I will need $120,000 each year. Assuming the program doesn’t change, $33,000 would come from my estimated eligible Social Security (more about this later), and I would need to fund the remaining $87,000 out of pocket.

Reasonable? Sure. The catch is that I still have 40 years until I plan to retire, and I have to figure in inflation of 3% per year. So I need to plan for that $120,000 to be the equivalent of $390,000 in my first year of retirement in 2056, and $750,000 in 2077, the year of my projected death at age 90. In total, I will need approximately $10 million at my retirement in 2056.

Is it still feasible? Yes it is; however, I need to invest wisely and save heavily. It’s not hard to find companies that have a history of increasing their dividend payments each year, and of all of the retirement income strategies available, I will plan on buying the dividend-paying stocks of large, financially-stable companies to create a retirement income plan designed with the goal of hedging against the impact of inflation. By buying those companies that historically have not cut their dividends, I can create a portfolio that strives to provide me with a lifetime of rising income and provide the potential to leave the principal—which I know will fluctuate—to my heirs.

To work towards the potential to accumulate the $10 million over a 40-year time frame, I can save $23,000 per year, increase my savings every year by 3%, and aim to earn an average of 8% on my investments. I will work towards this goal by receiving my match and diversified investments in my Roth 401k. Additionally, I will buy individual stocks for higher earning potential in my Roth IRA. Then, each year, I will reevaluate my plan and make adjustments—like increased savings—as needed.

Savings goals of this nature should be an absolute priority, and life decisions should build upon these numbers. For example, affordable monthly mortgages should only be determined after figuring out how much income is left after retirement savings are met. Too many times, people will throw their retirement plan together only a few years before they hit their last workday, only to find that they have not been saving enough. Don’t make this mistake.

Now, I mentioned Social Security earlier. Many will roll their eyes and argue that it is destined to fail. To the naysayers, I would say that Social Security is not nearly as difficult of a fix as some would like for us to believe, and as a retirement planning specialist, I am not worried about the long-term likelihood of receiving Social Security benefits.

Others might argue that my hopeful 8% annual return isn’t a reasonable rate of return. To those, I would counter that the S&P 500 has marked an average annual return of 11% over the last 30 years, and nearly 11.25% dating back to its formation in 1957. In theory, I could earn my 8% by being more conservative than the overall stock market if history repeats itself, or even lags slightly. Assuming my expected scenario manifests, I can reach my $10 million goal and create my first year’s desired income of $390,000 from Social Security and conservative dividend income.

Remember: This is my financial plan. Yours will be considerably different when you take into account your goals, risk tolerance, investment preferences, income, savings, etc. A well-crafted retirement plan is malleable. It will undoubtedly change over a 40-year time period, but the time to get started is now.




The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Your results will vary from the illustration presented. The rate of return used in the illustration is hypothetical and does not reflect the deduction of fees and charges inherent to investing. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Investing involves risk including loss of principal. No strategy assures success or protects against loss.