Dr. James R. Pitts

At the beginning of a new year, people tend to reflect on the past year and plan some for the future. New Year’s resolutions are broken by February. However, well thought out goals and plans can succeed.

Abraham Lincoln said, “If I had two hours to chop down a tree, I’d spend the first hour sharpening the axe.”

Any good financial plan starts with organization. Most of us have our financial documents and accounts spread all over the place; a few different mutual funds here, an old retirement plan with a former employer there, an IRA somewhere, our wills or life insurance policies lost in a file cabinet.

If something ever happened to us, heaven help the person who has to figure it all out! There is a better way to organize your financial life. It is a tool called a Record Locator. This 2 page document lists all your pertinent financial accounts, documents and policies. It contains not only the account numbers but where the documents are kept and the important contact information. A copy of the Record Locator should always be kept in your safe deposit box at the bank. You may also wish to keep another copy at a secure location either at home or work.

Not only will you now be organized, but you can better understand exactly what you have. Financial planning begins with assessing your current situation. Where are you now financially? During this discovery process, whether you do it by yourself or with a professional, you may find many interesting things. How much do you have saved for retirement and where and how are the assets invested? What is the current asset allocation model? If you have children, what is the plan for funding their education? Do you have a current will or trust and have you thought about estate planning? Do you have protection for your family and assets in case of a disaster or death? If you own a business, what is the plan for transition or sale of the business? All of these questions can be daunting and difficult. But they are extremely important and necessary for proper financial planning.

Now that you are organized and know where you stand financially, you can then begin to make a plan for retirement. Most people if asked how much they’ll need at retirement don’t have a clue. It is tough to know how much is enough. In order to answer this most complicated question, you have to consider several other issues. First, what age do you want to retire? Next, what type of lifestyle do you lead now and will this change at retirement? Third, will you still have any debt when you retire? Fourth, do you have a plan for health care insurance, long term care, or how will Medicare and supplements fit into your budget? Next, have you factored into your nest egg number the effect of inflation? Last and maybe the most important, have you thought about how you will turn the big pile of money that you have accumulated into a lifetime stream of income once you don’t receive a paycheck?

Let’s look at a couple of examples. In the 1st example, you are a 65 year old person who is retiring debt free and lives a modest lifestyle. You currently are eligible for Medicare and have a Medigap policy to help cover other expenses. You were a planner and saver, so you have investments in place that pay a steady lifetime stream of income which covers most of your bills. In this case, you don’t require a huge nest egg and can be comfortable with a modest sum.

The other example is a person who retires early at 55. They live a bigger lifestyle and spend cash like sailors on a weekend pass. They have not paid off all their debt yet due to early retirement. Unfortunately they aren’t eligible for Medicare yet so they have an expensive health insurance policy. Although they make a good salary there has not been much saved. Planning always seemed like something to do tomorrow so there are not many things in place to produce income. This person requires a huge nest egg just to keep up there lifestyle.

Where do you want to be? Once we know what your number is, then we can work backward to figure how to get there. As the old saying goes, most people don’t plan to fail-they just fail to plan. In the next issue we will discuss strategies to help you reach “your number”. Happy New Year and Happy Investing!

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”
Ayn Rand

To receive a free copy of a record locator document, please use the contact information listed below.

Dr. James R. Pitts
727-686-4068
james.pitts@jwcemail.com

The examples that are provided are for illustrative purposes and are not actually representative of investment results. Investing involves risk of loss of principal; therefore it is important to consider your own individual risk tolerance prior to investing.

Dr. James Pitts is a Registered Investment Advisor Representative and Financial Planner. He ran a successful dental practice for 25 years and by using financial planning techniques and investing wisely, he was able to retire at 51 financially independent and debt free. His passion is to help other people reach their financial goals and live the best life.

Call to schedule a free, no obligation consult or 2nd opinion.
Dr. James R. Pitts
727-686-4068
james.pitts@jwcemail.com