More Than Just Investments: 5 Financial Planning Decisions
When most people think about financial planning, they think about investing. Questions like, “What should I invest in?” or “Is this a good stock?” are some of the most common ones we hear.
Investments are certainly important, but they’re only one piece of the puzzle. In fact, some of the biggest financial wins don’t come from earning a higher return. They come from making smart decisions in other areas of your financial life.
The truth is, choosing when to take Social Security, planning for taxes, protecting your income, and keeping your estate plan up to date can often have a greater impact on your long-term financial success than picking the perfect investment.
Financial Planning Iceberg
Here are five financial decisions that deserve just as much attention as your portfolio.
1. Deciding When to Claim Social Security
One of the biggest retirement decisions you’ll make is when to begin collecting Social Security.
Some people automatically plan to claim at age 62, while others are convinced they should wait until age 70. Neither approach is right for everyone.
The best decision depends on your health, income needs, marital status, and the rest of your retirement plan. Waiting can result in a much larger monthly benefit, but if you need the income earlier or have health concerns, claiming sooner may make more sense.
Rather than asking, “How can I get the biggest monthly check?” it’s better to ask, “What’s the best decision for my overall retirement plan?”
2. Knowing When a Roth Conversion Makes Sense
Many people think tax planning ends once they retire. In reality, retirement is often when it becomes even more important.
A Roth conversion allows you to move money from a Traditional IRA into a Roth IRA. You’ll pay taxes on the amount you convert today, but future qualified withdrawals can be tax-free.
That might not sound very appealing at first. Why would anyone choose to pay taxes now?
The answer is that sometimes paying taxes at a lower rate today can save you much more later. For example, someone who retires before collecting Social Security may have several years of lower taxable income. Those years can create a great opportunity to convert part of an IRA while staying in a lower tax bracket.
A Roth conversion isn’t right for everyone, but in the right situation it can reduce future taxes and give you more flexibility throughout retirement.
3. Protecting Your Biggest Asset
When people think about insurance, they usually think about their home or their car. But for most working adults, their biggest financial asset is actually their ability to earn an income.
If an illness or injury keeps you from working for an extended period of time, the financial impact can be much greater than a market downturn. That’s why disability insurance can be so valuable.
Life insurance is another area that’s easy to overlook. For young families especially, a reasonably priced term policy can help replace lost income, pay off debt, and provide financial security if the unexpected happens.
The best time to put insurance in place is before you need it.
4. Paying Less in Taxes
Everyone likes seeing their investments grow, but what really matters is how much you get to keep.
Good tax planning isn’t about finding loopholes. It’s about making smart decisions throughout the year. That could include placing investments in the right type of accounts, harvesting investment losses when appropriate, or being intentional about where retirement income comes from.
Imagine two people who earn the exact same investment return over 20 years. If one consistently pays less in taxes because of thoughtful planning, there’s a good chance they’ll end up with more money, even though their investments performed exactly the same.
5. Keeping Your Estate Plan Current
Estate planning is one of those things that’s easy to put off. After all, it’s not something most people enjoy thinking about.
But we’ve seen firsthand what can happen when beneficiary designations haven’t been updated in years, wills no longer reflect a family’s wishes, or no one has been named to make financial or healthcare decisions if something unexpected happens.
Those situations can create unnecessary stress and expense for the people you care about most.
Taking a little time every few years to review your beneficiaries, will, powers of attorney, and other estate documents can go a long way toward making sure everything still reflects your wishes.
Bringing It All Together
It’s easy to focus on investments because they’re the most visible part of a financial plan. But many of the decisions that have the greatest impact happen behind the scenes.
Smart choices regarding Social Security, taxes, insurance, and estate planning can make a meaningful difference over time. That’s why financial planning is about more than just managing investments. It’s about making informed decisions across every area of your financial life, allowing all the pieces to work together to help you reach your goals.
Although we didn’t make it to the summit of Mount Rainier like my daughter was expecting, we did work together and accomplished our goal of exploring all three of Washington’s incredible national parks this month!
