How To Build a Financial Plan (By Age)

Introduction: What Does a Financial Plan Actually Look Like? (0:00)

Brian: 78% of people believe that having a financial plan will ease their stress. But what does that plan actually look like?

Bo: And Brian, I am so excited about this because as financial advisors, our job is to help people craft financial plans that are customized to their situation and we help them live the life that they want. So, we want to share some of that knowledge that we have with everyone out there.

Brian: So, here’s what we’re going to do. We’re going to distill that knowledge down into a basic financial plan for each decade and walk you through the challenges, the goals, and the most important things you need to focus on at each stage in your financial journey. After all, having a plan is great, but having the right plan for you is the key to true wealth building. So, let’s jump right in.

Your 20s: The Foundation Years (0:45)

Bo: And Brian, what better place to start than right at the beginning with folks in their 20s?

Brian: So, let’s start with the hard stuff first. Challenges for a 20-year-old.

Bo: Yeah. So, in the 20s, you’re at the very beginning of your financial journey. You’re just starting out. You have your whole life ahead of you. But that doesn’t necessarily mean that it’s easy because a lot of 20-year-olds when they’re just starting out, the reality in this world today is there’s a really good chance that you have a bunch of student loan debt or at least a bunch of debt on your balance sheet. So debt’s an issue, but also, let’s face it, when you’re in your 20s, you’re not like in peak earning years. So you also have limited cash flow meaning you have to make the little coming in go a long ways and here we are trying to also tell you to invest. How do you make all that happen? And then remember, you have been in your parents’ household. You’ve been in college. You likely now have your very first big person job. And so there is this temptation that, hey, I’m on my own. I want to go out and buy those fancy cars and take those fancy trips and have those nice clothes when you haven’t yet put in the work to build up a safety net to allow you to make those sorts of decisions. So you’re already naturally further out on the risk spectrum.

Goals for Your 20s (2:01)

Brian: So those are the challenges. Now let’s talk about the goals. How do these things all intersect with each other? How do you get your feet under you? How do you actually start getting traction with your financial life?

Bo: Yeah, you have to know where you are. You have to know where your money is going. And you need to have some sort of plan. Even if it’s simple, it does not have to be complex. It does not have to be complicated. But if you can at least have a plan in place, it will automatically put you far out ahead of your peers.

Brian: The next thing, look, make the most of your time. You are a billionaire of time. Let’s actually turn that into something.

Your Financial Plan in Your 20s (2:32)

Bo: Okay. So, what should your financial plan look like in your 20s when you’re thinking about how to craft this simple not overly complex plan? What should it look like? Well, there are two areas we think you ought to focus on. The first is your cash flow and your spending. And the second is what you do with your savings and your investments. Let’s talk Brian about the cash flow first.

Brian: Yeah. This is what’s the first ingredient to wealth building. It’s discipline. So you have to first conquer can you live on less than you make.

Bo: Then as you’re doing that the way the tool the mechanism that’s going to allow you to do that is actually making a budget and a lot of people unfortunately when you come out of primary school or maybe when you come even out of college no one’s taught you how to do this how do I line up all of the expenses I’m going to have in a month and figure out okay where should my dollars go and how can I make sure there’s some left over there’s some at the very beginning that goes for my future self not just my today self. That process right there is what is budgeting.

Brian: The other one is of course eliminating consumer debt. Bo, you alluded to this earlier. When you come out of school, you have all this temptation that the bridge to cover your lack of income is usually debt because it seems like the perfect solution, but it actually that consumer debt is a trap. So once you can figure these things out, once you get out of the debt, once you live on less than you make, once you have that budget, you’re going to have some margin. And then the question becomes, okay, well, what do I do with that margin? We want you to get that money working for you. Get whatever dollars you can get working for you. Even if it’s only $20 a month, $30 a month, a little bit can go a long way, especially early on in your financial journey.

The Wealth Multiplier (4:14)

Brian: Here’s something to help get you motivated. The wealth multiplier. If you go to our website, moneyguy.com/resources, you can download and actually see what your actual wealth multiplier is. But here’s the cold hard facts that you need to understand. For a 20-year-old, every dollar has the potential to become $88. But this is the cruel part of it. Remember, this is why I say when you’re a billionaire of time, make something happen. For a 30 year old, that same dollar now is $23 or 23 times by retirement. But you see that’s a four-fold reduction from where it was at 20. For a 40-year-old, it’s only seven times multiplier. It means it is 10 times harder for a person who starts at 40 versus the person who starts at 20. Guys, get motivated and understand the power of your time with the wealth multiplier.

Start with a Roth IRA (5:05)

Bo: And so a lot of 20-year-olds, okay guys, I get it. I want to invest. I want to do this, but where? I just need to know the next first step I should take. If you’re at this decade, if you’re at this stage, consider just doing something as simple as opening up a Roth IRA. Roth IRAs are great savings vehicles because it allows you, you don’t get any tax benefit today for putting money into it, but if you put money in, it will grow and when you go to pull it out in retirement, it will be completely tax-free. So, if all you can do is open up a Roth IRA and start putting in $20 a month, $50 a month, $100 a month, you will be amazed at how quickly those dollars can build up. But you have to do something. The absolute best time to start saving was yesterday. So, that means the second best time would be today. And we love Roth because they’re tax-free. If you want to stick it to the man legally, Roth is the account structure that’s going to allow that to happen.

Your 30s: The Messy Middle (6:04)

Bo: All right, Brian. Now, let’s talk about folks in their 30s. We call this affectionately the messy middle. This is a stage where that is the challenge that you are facing. You feel like you’re being pulled in a thousand different directions by a thousand different things and you just can’t seem to keep it all together.

Brian: Well, yeah. Think about it. Your expenses are growing yet your time is shrinking because of all the commitments. This is a period of time where good discipline, good financial management might just go out the window because you’re like, man, all this life stuff is happening. I can get distracted very easily.

Goals for Your 30s (6:35)

Bo: So, in your 30s, what should your goals be? What should the things that you’re focusing your attention on? This one may seem silly, but keeping it simple. We think about a lot of times in our 20s, we want to be more complicated. We want to be more complex. We want all of these things to enter into our life. And yet when we get in our 30s we recognize, man, life has a way of getting complicated naturally. Again, we’re being pulled in a thousand different directions. Our dollars are supposed to pay for a thousand different things. If you can consolidate and you can keep it simple and keep your main focus on the main thing, there’s a really good chance that you’re going to set yourself up for success relative to your peers.

Brian: Well, I also think part of simple is build a firm foundation. If you can make things automatic, meaning your savings habits, you know, these things will set you up for your future. If you can just make it simple, but also make it automatic, so you don’t even have to waste any more mental calories on this exercise whatsoever.

Bo: And for most people in their 20s, they’re only focused on taking care of themselves. By the time you get to the 30s, there are probably other people that are now depending on you. It may be a significant other. It may be children. So, you want to make sure that not only are you protecting yourself and your well-being, but you’re also making sure you have appropriate protection for your loved ones in place.

Your Financial Plan in Your 30s: Risk Management (7:55)

Bo: So, as you think about your financial plan and what it should look like in your 30s, there really are two areas we think that you should focus on. The first being risk management and then the second being again how you’re saving and how you’re investing your dollars.

Brian: Well, risk management. Look, this is the unsexy part of financial planning, but it’s so important because messy middles, you do have people counting on you. This is where you think about, you know, do you have life insurance? Do you have disability? Because in your 20s, it’s so easy. You just have do you have a renter’s policy? But now that we’re in our 30s, let’s make sure we’re not leaving behind people who are counting on our income and counting on us to provide for them. Risk management is a bigger deal.

Bo: And Brian, I think about, you know, we have here at Abound Wealth, we have a couple different health insurance options that we offer. One of them is just sort of like catastrophic coverage. Hey, I want to make sure that I have coverage in place that if like the worst of the worst thing happens, I’m protected. And that catastrophic coverage comes at the lowest cost. Well, it’s not uncommon for someone in their 20s just starting out to say, “Hey, you know what? It’s just me. I just have to worry about myself. I’m gonna focus on that catastrophic plan because I want the premium to be as cheap as possible.” Well, when you get to your 30s, that strategy that you had, that lowest cost, biggest risk exposure might not make sense anymore. So, you want to even re-evaluate decisions that you’ve made in the past. Oh, I used to have the catastrophic health insurance. Man, maybe now I need the better plan. Or I used to only have collision insurance on my car, but maybe now I want to have comprehensive. You want to make sure you’re thinking through these again just so you can make sure that you’re not only protecting yourself and your loved ones, but also all the hard work you’ve done up to this point.

Life Insurance and Emergency Reserves (9:40)

Brian: And then I mentioned earlier life insurance. I think a lot of people run away from life insurance because they’re worried it’s complicated. It’s super expensive. We like term life insurance. I mean, where you basically choose how long you want to protect and I would encourage you like if you’re thinking of how long it’s going to take you to build up the assets to replace what you’re counting on from your current income, that might be 20 years in the future. It might be 30 years in the future, but use that as the guidance. Or how long are your loved ones going to need this? There’s nothing wrong with term insurance. Typically, it’s pennies on the dollar compared to permanent insurance and other things. And that might be all you need at this stage. And then don’t skip out on Bo, emergency reserves. A lot of people don’t realize just from a risk-management standpoint, emergency reserves are going to keep you from making those desperate decisions when life just happens.

Bo: Yeah. I think we get so excited early on in our career. We see how powerful our dollars can be. And we feel like if we have money sitting in a savings account, sitting on the sidelines, we’re wasting opportunity. We know that the wealth multiplier, $1 turning into $88 or $1 turning into $23 is so exciting. So why on earth would I leave money sitting in cash? Well, the reason you do it is you don’t know what unknown unknown is going to come your way. And so making sure that you have that fully formed, fully funded, and fully built out is going to protect you from those life circumstances that you might not know are coming.

Savings and Investing in Your 30s (11:09)

Bo: So that’s how you protect your risks in your 30s. But now there’s also another risk that you have in your 30s and that comes to what you’re doing with your dollars. We want to make sure that in your 20s we give you this goal of saving 25%. That’s what we want you to aspire to in your 20s. But in your 30s it becomes much less of an aspirational goal and now becomes sort of a necessity. We want you to make sure that you are saving appropriately so that your future self can actually live the life that you want to live.

Brian: Yeah. A lot of people I think you know and I love that you highlighted the fact it’s aspirational for the 20-somethings. We know that your time and your resources are limited. So if you can just do a little bit it goes a long way. But I really encourage you if you’re in your 30s and you just now have discovered our content don’t sleep on the 25%. There’s a reason when if you go to moneyguy.com/resources, we have all kind of content or resources that will show you the intersection point of the date you start saving and investing and the percentages and how it will go. And you will quickly see you’ve got to be doing the 25% so that you don’t get behind. And I’m just happy for you because between the age of 30 to 40 years of age, the wealth multiplier at 30 is 23 times. For a 40-year-old, it’s seven. So, there’s still lots of opportunity for growth. Just don’t sleep on that savings rate.

Keep It Simple: Target Retirement Index Funds (12:30)

Bo: Now, the next part of your plan, a lot of people are thinking, “Okay, guys, I get it. I get it. I’m going to save 25%. But what do I invest in? What should I go buy?” We would argue that even at this stage, don’t make it more complicated than it has to be. Because most people in your 30s, your savings rate is still going to be way more important than your rate of return. So don’t go try to figure out, okay, what stock should I buy or what strategy should I employ? There are fantastic resources out there like target retirement index funds where all you have to do is answer two things. How much can I save and when do I think I need these dollars? And if you can answer those two questions, you can set it and forget it and be on your wealth building journey. So don’t major in the minors. Focus on the things that actually have a big impact at this time.

Brian: And for all the trolls out there, we’re talking about index target retirement funds. If you’re talking about internal expenses, you’re not talking about the index version. Go look at what Vanguard, Schwab, Fidelity, all these guys offer index versions of these funds, and they’re dirt cheap. So, don’t sleep on that opportunity.

Aim for $100,000 (13:35)

Brian: And then here’s the next thing that I worry about for my 30-somethings. I want you to aim to hit that $100,000 and other markers because here’s the other markers of success is because here’s the risk. When you start saving and investing, more than likely in the first decade that you save and invest, you’re going to hit your first bear market. You’re going to hit volatility and you’re going to see potentially that the amount of money you put in, the market value might temporarily go below even what you put in. And you’re like, “Oh my god, this is for the birds. I’m not doing this anymore.” And there’s a lot of people that will quit in that first decade. Don’t let that volatility rob you of the long-term compounding growth opportunity that there is. That’s why we have so many resources on the money milestones for your 30s, but consistency is a big part of your success.

Bo: Yeah, you may be asking, okay, what are those milestones? What are the things I need to make sure that I do in my 30s? We actually have an entire highlight, an entire episode that you can go out that says, “Hey, before you hit 40, make sure you are doing these things.” If you want to know what those milestones are, if you want to know what those mile markers are, go check out that episode.

Put Your Oxygen Mask On First (14:45)

Bo: And then the last thing, and I think this is so hard because it’s so contrary to what we think as parents, but when you think about your financial plan in your 30s, you have to make sure that you put your oxygen mask on before you try to help someone else. So often we’ll see someone who maybe has credit card debt or maybe they’re not saving 25% or maybe they don’t even have a fully funded emergency fund, but man, they started that 529. They’re putting money in that custodial Roth. They’re putting money in the kids’ savings accounts. It does not benefit your kids for you to start building wealth for them before you have even established your own financial foundation. So, make sure you’re taking care of yourself first before you try to start helping your young children take care of their financial future.

Brian: Yeah, that’s a big one and I hope people don’t sleep on that.

Your 40s: The Fork in the Road (15:37)

Brian: Bo, this is probably a good time to transition to our 40-somethings. This is one where there are definitely challenges, but I consider it a fork in the road moment and that you need to make sure you work through. If you started early, you probably get to celebrate a little bit. If you’re a little behind, this is when you probably need to lean in on that discipline and make more happen. But Bo, what are the challenges for a 40-something?

Bo: Well, I think the first one is complexity continues to find you. You wake up one day and say, “Holy cow, how did I get to 40? How did I have all these people depending on me? How did my tax return get so complicated? How did I have all these different things?” And you just recognize that a lot of life is coming at you very, very quickly. Well, you mentally might still feel like that 20-year-old. And you might still be thinking, “Oh, I’m not old yet. I haven’t reached that spot.” There’s a really good chance that there are complexities in your life that were not there 10 years ago that you need to be thinking about.

Brian: Well, this is the one probably where, as I told you, it was a fork in the road. I think a lot of people will realize retirement is right around the corner now. Yes, it’s over a decade away, but it’s still something now that you just can’t sleep on or think about, I don’t have to worry about that. I’m young and invincible. You’re going to quickly start realizing, hey, I need to actually take action to make this happen so it just doesn’t clobber me over the head when I reach, you know, 50s, 60s or beyond. This is the time to take action.

Bo: And then the other challenge is there’s a really good chance that in your 40s, you’re starting to hit some of your peak earning years. Maybe you’ve been saving and so you have assets built up, but you recognize, man, I had very little time in the messy middle. And even though now I’m in the 40s and it’s not quite as messy, I still have less time. I’ve got to go from this thing to that thing to this thing to that thing. And I wake up and I go to bed and man, it just seems like that valuable resource that I had tons of in my 20s, I just don’t have that much anymore. How do I maximize this? What should my goals be?

Goals for Your 40s (17:26)

Brian: And that’s a great segue into the goals is that I want to encourage you make the most of those high earning years. We’ve statistically shown that it is people in their 40s that are popping off on that earning potential. You want to make sure that it’s actually working for you. Use some discipline to actually put the money into your army of dollar bills.

Bo: And then in your 40s, another thing that you can do is you can begin to hone in your plan for efficiency. When you were in your 20s, if you just did something, if you just started saving 20 bucks a month in any type of account, there was a good chance it was going to work out really, really well for you. But now that you get into your 40s, small tweaks and efficiencies around the way you look at managing your finances can have a significant impact into what your retired life looks like. So, make sure you’re recognizing where those opportunities are.

Brian: Well, and I love that we’ve set this up because we’re about to go over what you should be doing from a financial planning perspective in your 40s. But the big thing is you’re setting yourself up for that smooth transition from your working years to where now instead of saving all those resources, how do we actually spend those resources? How are they available when I need them the most? That’s a great segue right into how do you do a financial plan as a 40-something?

Your Financial Plan in Your 40s: Tax Planning (18:37)

Bo: Yeah. So, when you’re in your 40s and you’re thinking about your financial plan, there’s a really good chance that the two areas that are going to take the greatest focus are tax planning. And you might be thinking, “Oh, well guys, I do my tax planning on April 14th of every year. That’s when I do that.” That’s not what we mean. We mean total lifetime tax planning. What are the things that you should be thinking of and what are the things you should be focusing on? And then again, in your 40s, how am I investing my dollars and what am I doing with my army of dollar bills that I’ve built up?

The Three Bucket Strategy (19:08)

Brian: Well, let’s jump right into the tax planning because we were just talking about I think so much in your 20s and 30s you’re trying to maximize all the tax favored investing where you’re doing the Roth IRAs and you’re loading up your employer plan. I think in the 40s is probably that point where you’re finally taking account the three bucket strategy. You’re in step seven of the Financial Order of Operations. I’ll hold it up for you. If you don’t, go to moneyguy.com/resources. You can download your own free copy. But seven is where you actually start thinking in step seven, how will I use these resources in retirement? And that’s where the three bucket strategy is going to be your friend. This is where you actually take into account how much of my money is in those pre-tax. This is where all my employer contributions and so forth, traditional IRAs, how much of that money is in complete tax-free where I’m sticking it to the man legally in those Roth accounts. This is the health savings accounts, the Roth 401(k)s, and then of course the after-tax brokerage accounts. This is your if you’re trying to think about you’re part of the FIRE movement or FINE movement where you’re moving on to the next endeavor, but you’ll need access to cash because maybe you’re not earning as much in this new place that you’re going to. That after-tax brokerage account is going to be the bridge because you’re just too young to get access to the traditional IRA or even the 401(k). This is going to be your account. So, think about how you’re going to use these resources, not just saving in the most tax favored way possible, and probably in your 40s is when that’s going to start settling in.

Roth Conversion Planning (20:37)

Bo: And if you’re doing this well, what you may recognize is, man, I’ve got my buckets a little bit out of whack. I didn’t pay a ton of attention to it in my 20s and 30s. How do I consider righting that? How do I consider levelizing that? So, one of the things you may begin thinking about in your 40s is Roth conversion planning. Is there a way that maybe I could structure my assets? Maybe I can move some assets around to open up opportunities like backdoor Roth IRA contributions or through my employer sponsored plan, might I be able to do mega backdoor or am I in a tax situation where even now or maybe at some point in the future I could begin converting some of those pre-tax dollars to Roth? If you don’t think it has a significant impact, I would encourage you go check out our Making a Millionaire episode that was titled “Vanlife Millionaires Are Leaving Millions on the Table” because we actually walk through a Roth conversion analysis showing that if you can begin to convert pre-tax assets to Roth and you can do that over a certain amount of time, it can literally lead to millions of more dollars in retirement if you understand what you’re doing and you do it in an efficient manner.

Investing in Your 40s (21:42)

Brian: So that’s tax planning. When we move on to investing, I want to remind everybody, we’re talking about 40-somethings. When you enter your 40s, every dollar has the potential to become seven times over. When you’re 50, it’s three times. Do you see how that drop off is still significant? Guys, if you don’t know your numbers so you can figure out, are you ahead of the curve, behind the curve, or right where you’re supposed to be? Because this is probably the decade where we’re going to say, man, if you’re behind, you need to save even more than that 25% that we all so often talk about. But if you don’t know where you are, you won’t even be able to make that decision with your army of dollars to know what the best course of action is.

Alternative Investments (22:20)

Bo: And then the other thing you can think about is in your 40s, you’ve likely gotten a solid financial foundation under you. You’re not at financial independence yet, but you have that foundation in place. So, this may be the time that you want to begin thinking about alternative investments. Maybe this is the decade when I want to go look at doing a rental property or I want to figure out some way to diversify my portfolio. Not change my strategy, not alter what I have been doing, but add on to and bolster it at this season now that I have a financial foundation in place. By the way, that’s only after you build your financial foundation of the first seven steps of the Financial Order of Operations. I don’t want you just because you’re behind in your 40s and you say, “Man, I never did an index fund. I never funded a Roth IRA, but I just heard the guy say I can consider alternative investments.” No, this is only after you’ve done the first seven steps of the Financial Order of Operations. This is a step eight where you’re hopefully now getting to do some of those alternative investments like real estate because you’re rewarded by having a financial foundation.

Your 50s and Beyond: The Transition Years (23:23)

Bo: All right, Brian. Now, let’s talk about okay, once you get past this decade, then you get into your 50s and beyond. And for some people, this may be retirement. For some people, this may be putting down the landing gear heading towards retirement. But there are still challenges that you face. And one of the most common challenges that we see amongst the clients that we work with at Abound Wealth is there is some difficulty in wrapping your head around this idea of man I’ve been a saver for my entire life. I’ve been taught to accumulate, accumulate, accumulate, accumulate, accumulate. And now all of a sudden, magically I’m supposed to hit financial independence. I put in my two weeks notice and then I flip the switch and I turn into a spender. It’s a difficult and unique and hard transition to make. So the earlier you can start thinking about and preparing for it, the more likely you’re going to set yourself up for success.

Brian: Well, talk about transitions. Also, I think so much you do in your 20s, 30s, and even 40s is back of the napkin math. You can do the 4% rule. You can do a savings rate of 25%. I think when you get in your 50s, you’re actually going to want to fine-tune this down to know exactly what your number is. You want to stress test because this is not one of those things where you’re just trying to get close like you’re playing horseshoes. You’ve actually you’re going to be living off these resources and when you put your notice in, you might not be able to make the same amount of money ever again. So, you better measure twice, cut once. So, you need to know exactly where your number is. And that’s why this is an important thing that you need to face as a challenge when you’re in your 50s.

Estate Planning Realities (24:53)

Bo: And then as you think through this, one of the realities is in this stage, you begin to recognize your mortality. You begin to recognize that man, there will be an end to this journey one day. And even though that is a reality and we all know that it’s true, 67% of folks over the age of 50 do not have a will in place. And 52% of folks in their 50s suggest that they have no idea where their parents keep their estate documents. So, if you’re not having these conversations both for yourself as well as the generation ahead of you, you’re not going to set yourself up for a smooth transition. And so you want to begin having even though they may be uncomfortable having those conversations now while everyone can have them in a very healthy manner.

Goals for Your 50s and Beyond (25:38)

Brian: Well, and that sets up the goals because if you do this right, it’s back to that statement is we want you to be able to focus your precious resource of time on what really matters to you. So security in your financial planning, having things where they’re just working for you is going to be so important as you get in your 50s and beyond.

Bo: And if you can put this plan in place, one of the things that’s going to allow you to do is have some comfort with what your plan is. Okay, I’ve had the hard conversations. We’ve done the difficult analysis. I now know that if something happens to me, if something happens to my spouse, I know what’s going to happen. My kids know what’s going to happen. The plan is in place. It’s not going to be a bunch of unknown. And when you can fill in those variables and have less unknown unknowns, it’s going to lead to a higher level of confidence going into this next stage.

Brian: And how about using money as a tool to build the legacy that you want? Look, and that’s not a legacy of that I’m just going to leave behind a gazillion dollars to my kids so that I can live like a tightwad my entire life and then they can live this big life. No, this means as money, what do I want it to do? What do I actually want to be represented for me while I’m in retirement, but also even beyond my retirement? Don’t sleep on that because I think so many financial mutants just build, build and don’t think about the legacy part of what their money why is so they can get that reflected in the plan.

Your Financial Plan in Your 50s: Risk Management and Estate Planning (26:58)

Bo: So if those are the challenges and goals, what areas of your financial plan should you focus on? How should you think about it? Well, in your 50s and from your 50s and beyond, it’s really a combination of both risk management. How do I protect all the things that I’ve done up to this stage? And then estate planning. What do I ultimately want to happen with the resources that I’ve built up?

Budget and Investment Planning (27:22)

Brian: Yeah, I think a lot of financial mutants will realize you’ll hit this stage in life where you realize you’re not leaving this planet with nothing. So, how do we make the most of this? And a lot of you are probably working off of the 4% withdrawal rule, as I’ve already talked about earlier, a lot of back of the napkin. Now it’s time to actually create a budget off of what your actual expenses are. Put it into an investment plan and actually stress test that. I mean, run it through Monte Carlo simulations and other things so you actually go into it with a real understanding of what you’re facing versus just what you’ve kind of spot checked over the years.

Portfolio Allocation (27:56)

Bo: Another thing that you need to be doing at this stage is making sure you understand your portfolio allocation. And you may be saying, “Oh, guys, guys, guys, guys, guys, that’s investing. You’re talking about risk management here.” But one of the biggest risks that we see with folks who get later on in their working life and early into retirement is they never actually adjust their glide path in their portfolio. They think the same portfolio that they had when they were 20, 30, or 40 years old should be the same portfolio they have when they’re 50, 60, 70. And that’s likely not the case. You want to make sure that the portfolio that you have right now reflects not only your risk tolerance. How much can you handle, but also your risk capacity. How much risk should you have in your portfolio? So, at this stage, part of your financial plan needs to be making sure you have an allocation that is appropriate for the stage of life that you’re in.

Brian: Well, and your older self will thank you because when you hit that when you leave the workforce and you actually hit that first downturn, Bo, tell me how many people we talk to who they think that they can handle the risk tolerance of anything until all of a sudden now they’re living off this money and then the market goes down 20%, 25% and they all of a sudden have that puckered up moment. You’re going to realize you want some of your money. It’s back to that risk capacity point for short-term, for mid-term, and even long-term, diversification will become your friend.

Bo: I think it’s Mike Tyson who says everyone’s got a plan until they get punched in the face. And that’s what a bear market does to retirees. It’s the first time you experience that.

Cash Reserves (29:25)

Bo: Well, one of the ways that you can even protect yourself in that in addition to the allocation is reviewing your cash reserves. Do I have an appropriate emergency reserve? Not necessarily just three months of living expenses or six months of living expenses, but do I have the 12 months, the 18 months so that no matter what happens in the market, no matter how wonky the economy gets, I know I have my living expenses covered and I give my portfolio time to recover. This is a conversation you need to be having and a thought that you need to be thinking through as you enter into this stage of life.

Estate Planning Documents (29:59)

Brian: So on the financial planning for 50s and beyond, we talked about estate planning, but I’ll be honest with you, we saw in a previous stat for the 40s, nobody does wills, nobody plans. It’s hard to do content on estate planning because you guys don’t want to show up to watch that either. And nobody really wants to cover and talk about estate planning, but that’s okay. We know that this is such a valuable need that we’ve done the hard work for you. We want to encourage you to go to moneyguy.com, go to our resources, and when you tab over it, you’ll see we have ultimate guides. And one of the first ultimate guides we have is the estate planning ultimate guide. Go through the difficult exercise because believe me guys, you have built something amazing. If you’re a financial mutant, you’ve built up these resources, don’t let just life happen. Take an active role in making sure you’re going through this exercise so it doesn’t just wake up and one day you have created a big mess not only for yourself but for your legacy and your loved ones.

Bo: So how do you do it? What are the things that you ought to be thinking about? Well, the very first one is do you actually have your documents in place? And remember, the will that you got in place when your first child was born might not be the same will that you need 30 years later when your financial situation is changed, when your family financial situation is changed. Make sure that you update these documents and you have them in place. You have the wills, you have the powers of attorney, you have the healthcare directives, and you have communicated to the people in those documents what their responsibilities are. Hey son, daughter, I want you to be my executor and this is the way our estate plan is going to work and this is what your part of that process is going to be. If you don’t want to have those conversations now, you need to recognize how difficult it’s going to be when you’re not actually here to speak for yourself.

Brian: Well, and I think a lot of people when they think of legacy, they think of the assets they’re going to leave behind to their loved ones. But I think it’s even bigger than that. What if you could actually start thinking about now and in the coming years of how much you even want to share while you’re still here to watch your children and your loved ones benefit from this? If it’s education goals, if it’s charitable goals, why not take that active role now versus just leaving behind a pot of money that will hopefully have all these positive things. I think if you take an active role and start the planning, you actually get to experience some of that goodness while you’re still here.

Closing: It Changes Over Time (32:21)

Bo: I think what you can see is that developing a financial plan is not incredibly difficult, but it can be complex. And one of the things that’s really interesting is that it changes over time. What you were doing early on in your career, what you were doing in your 20s may be different than what you ought to be doing in your 30s and what you should be doing in your 40s and 50s. If you’re not adjusting your plan, you’re not thinking about them in different segments and different parts and pieces, there’s a really good chance you’re not doing it the way that you ought to be doing it. So, make sure you are indeed reviewing your plan and adjusting it accordingly.

Brian: Well, look, I’ll take it a step further. I think a lot of you guys, the reason we can give you so much free advice is we know if you do this right, your simple life, as much as you design it to be as simple as streamlined as possible, will get complicated. It just naturally happens with success. And that’s what I’m going to encourage you to fulfill the abundance cycle. We’ll give you all the free advice in the world to create the best version of success for you. But when you reach that level of complication, you only have done this once. We’ve done this hundreds, thousands of times for different people. Let us be your tour guide, the person that can help you navigate this and live your best life. And also back to the value of time. How about focusing on what you want to focus on, but still know that your money is doing everything that you wanted. I would encourage you to go to moneyguy.com, look at the become a client section. Watch our video if you want to see me and Bo. We kind of talk you through what that experience looks like. We have some questions we’d ask. We’ll leave the porch light on for you and I want you to fulfill the abundance cycle. I’m your host Brian Preston, Mr. Bo Hansen, Money Guy team out.