Wealth Management & Financial Planning

Wealth Management & Financial Planning

Can Your Financial Plan Survive an Unexpected Storm?

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Great financial planning requires two opposing skill sets: First, investors must be very focused on their end objective, whether that objective is a comfortable retirement or amassing a certain net worth. Investors must also be very flexible as there will inevitably be bumps in the road.

As we observe Palm Sunday, we remember 50 years ago when Indiana experienced the deadly Palm Sunday tornadoes of 1965.  Six Midwestern states were devastated by 47 tornadoes, taking 271 lives and injuring more than 1,500 people, including 137 lost lives and 1,200 injured in the Hoosier state.  

While professionals can measure the cost of putting structures back together and insurance companies can talk about claims paid, it’s much harder to measure the ongoing financial impact inflicted on survivors.  There are both emotional and economic displacement costs to consider.

Some survivors are impacted by a loss of work; others incur unexpected costs stemming from injuries. Sadly, some survivors must pay to bury a loved one. And any sudden change can disrupt carefully constructed financial plans.

This Palm Sunday, we pray for victims’ families and we pray that none of us will endure such an event. Yet unforeseen disruptions occur.  Just this week, 150 souls were lost on a German airplane. Life’s path is rarely flat for long.

There are five areas of financial planning that overlap with one another. Focusing on a single element often comes at the expense of another. Without a flexible plan that allows for bumps in the road, a single shock can undermine everything an investor has attempted to achieve with his or her financial plan.

As an example, let’s begin with an investor’s end objective — generating retirement income. The majority of options allowed by the Internal Revenue Service and Department of Labor for building a future income stream may be sufficient for producing retirement income (that's another discussion). However, these options are clearly not the most flexible plans in times of distress.

Fortunately, the government has recently allowed for exceptions in events of mass destruction such as Hurricane Katrina that struck New Orleans in 2005. In such events, victims could use retirement assets for certain unexpected needs.

However, the challenge becomes two-fold in a different, more personal scenario. An investor could experience an unexpected extreme financial requirement limited to the investor personally, or a very small community. The government typically makes no special allowances in such instances. Secondly, while accessing retirement plan dollars may help deal with the immediate emergency, it doesn't address the long-term challenge of generating a revenue stream to fund retirement.

While we cannot prevent another Palm Sunday tragedy, we can most certainly create some flexibility in our focused financial planning that will help our retirement plans survive life’s unexpected storms. Using a Roth IRA as a contribution source for instance, allows you to grow retirement income tax-free and yet still access the contribution amounts without tax or penalty in case of an emergency.

 Have a blessed Holy Week.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.

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