You’ve met with your financial advisor, and she said you are doing well so far, having accumulated $400,000 in your retirement account. She then tells you that if you can increase that nest egg to $1,000,000 by the time you are 65, then you can comfortably live the retirement lifestyle you envision. What is your financial plan to accumulate the remaining 60% that goal?
I was watching my favorite football team on TV the other day, the Seattle Seahawks. They had the ball on their own 40-yard line, with 60 more yards to gain to score a touchdown. Their coach, Pete Carroll, was conferring with the quarterback Russell Wilson on the sidelines. It struck me that their game plan has similarities to your financial plan. You’ve accomplished 40% of your goal with 60% remaining. Much of terminology in football is even the same as in financial planning: goals, gains, losses, protection, etc.
Your financial advisor can be the coach, advising what plays to run, but you are the quarterback, responsible for executing those plays on the field. The football represents your money. It even looks like a nest egg. Your Center could be your employer, hiking the football to you. If you elect to hold the football yourself and try to run with it, your gains will likely be meager, and you may never reach the goal line. Fortunately, you have a team to help you make gains down the field:
Wide Receiver (left) = IRA Wide Receiver (right) = 401(k) Tight End = Taxable Brokerage Running Back = Alternative Investments (e.g., real estate) Kicker = Goal Adjustment (i.e., if you can’t reach the goal line, you can settle for something less -- 3-point field goal vs. 6-point touchdown) Linemen = Insurance Policies, CPA's, and Estate Attorneys. These players are your protection. They prevent the opposing team from tackling you for negative yardage.
Your Wide Receivers have the potential for the biggest gains since IRAs and 401(k)s grow tax-deferred. Your tight end holds the taxable brokerage account, but with smart tax strategies, you can make consistent gains down the field. Your running back gives you diversification, so that when your receivers are not producing with stocks and bonds, your running back can produce gains with alternative investments.
The opposing team has a Defense that is trying to prevent your gains, or even create losses. The Defense focused on stopping your Receivers and Running Back include “Risky Investments,” “Inflation,” and “Discretionary Spending.” The Defense that is trying to get past your Linemen and tackle you are “Illnesses,” “Taxes,” and “Lawsuits.”
The main point here is that an effective financial plan involves a whole team of players that you can lean on to create and execute a sound financial plan and score that touchdown. GAME ON!