Planning for your Financial “Leftovers”
People of a certain age may recall that before the common use of boring plastic takeout containers for leftover restaurant meals, many restaurants used to wrap up a customer’s leftovers in foil, and some in fact went a step further and crafted the leftover foil wrap into a swan sculpture. I have not seen that in many years, but I know I didn’t imagine it because the internet tells me so!
I like the concept of the leftover foil swan as a metaphor for the amount of a client’s net worth that will remain after their death (or at the death of the surviving spouse for a couple). Of course, that is not a simple calculation for any client, if for no other reason than we don’t have a ready to use “expiration date,” but we can get an idea of an approximate value using financial planning tools and making projections on spending patterns, inflation, rates of return, etc.
A question I like to discuss with clients is along the lines of “how big a foil swan do you want to leave behind?” Or, in other words, what are your legacy goals, if any, and what are the things you envision your money will be doing for you in your retirement years? And then we look at how much their “leftovers” could be, and in many cases that is an eye-opening experience for clients. Even those with family or charitable legacy goals are often surprised about the possible “size of their swan.”
There is a lot that goes into this analysis and client discussion, so I will leave you with a few ideas if you want to take a look at this yourself. I do strongly recommend you work with a financial professional on this sort of project, however, since the tools generally available to the public may not truly factor in a number of key planning issues and might very well lead you to an incomplete or erroneous result. That can be worse than not looking at it at all in my experience.
But a starting point for me is the idea that cash flow is the critical element for retirement income and asset planning. As I wrote about in another article, even if you have a “gazillion” dollars that may not be enough to sustain you through your retirement years. [https://www.capegazette.com/affiliate-post/retiree-%E2%80%9Ci-have-gazillion-dollars-my-retirement-savings-enough%E2%80%9D/297995] It is that amount, factoring in your guaranteed income sources such as pensions or Social Security benefits, compared to your spending needs and wants over your life. I have a free cash flow information paper on the Safe Harbor website that you can review for a better understanding of this concept. [https://rb.gy/c3f4cq]
Identifying your spending needs over time, and factoring in large future expenses, known or anticipated, and comparing that to anticipated income typically leaves you with an amount that I refer to as the income/expense gap. It is this gap that needs to be filled in with your savings from all sources, bank accounts, taxable brokerage accounts, retirement accounts, etc. As I discussed in another article, these are the “different flavors” of retirement money and have differing tax consequences for you as well. [https://www.capegazette.com/affiliate-post/different-%E2%80%9Cflavors%E2%80%9D-retirement-money%E2%80%93and-cost-choosing-wrong-flavor/298150]
The final piece of this analysis is determining if the amount of money you need from your savings will be enough over time to cover your projected expenses during your remaining lifetime. If it is, you will have leftovers. If not, you will need to take a hard look at some planning options and make some decisions.
If it looks like you will have leftovers, then the questions are about how much and what do I/we want to do with them? And if it looks like it will be a large amount, then you also have the question of what else do I/we want to do with our money while we can enjoy it that we have not factored into our planning. And that is a great position to be in!
So, the bottom line is to look at your life, your plans, your finances, and your legacy goals and determine the size of your own foil swan. If it’s the size of an ostrich maybe that’s too much to leave behind?
To address your own concerns on these issues, you might benefit from some professional assistance, someone like me, for instance, a specialized retirement-focused, fiduciary, fee-only financial advisor. You can learn more about what I can do for you by visiting our website at www.SafeHarbor.financial where you will find information about our cash flow approach to retirement planning, the value of using a Retirement Success Advocate, and a list of our standard projects and fees. Or you can call Safe Harbor at 302-313-6644 or email us at info@safeharborfinancialadvisors.com for an initial no-cost, no-obligation assessment meeting.
