When it comes to your retirement, cash flow planning is often at least as important as the returns you receive on your investments.
Well, think about how your financial affairs can be categorized into three types of money.
Transferred dollars aren't the only cost though, because there is also an opportunity cost on those lost dollars. And remember, opportunity cost is simply a fancy way of saying that when you lose a dollar, you didn't lose just the dollar. You also lost the interest that dollar could have earned for you.
could earn 7% on his/her money, the opportunity cost was actually $77,891!
Importance of Capital
When it comes to your retirement, capital is incredibly important.
Your ability to build capital is derived, in large part, from your cash flow. Most people are reluctant to engage in the financial planning process because they think they are going to have to reduce their lifestyle money in order to increase their accumulated money.
We can often find savings as a result of our focus on reducing unnecessary wealth transfers. This results in an increase in your cash flow during your working years, and that increased cash flow can be redirected to your accumulated money.... without decreasing your current lifestyle.
We use a similar approach for those approaching retirement and those already in retirement.
Whether we are reducing your insurance cost, maximizing Social Security; reducing taxes on investments through portfolio design, product choice, or through the timing of distributions from retirement plans; or decreasing the unrecognized expenses on your investments; the goal is to increase your capital!
Imagine that we could send you to play golf at Augusta National, arguably the game's most beautiful course. In going, we have two things to offer, but you can choose only one. You can have the clubs of any of the finest players to have ever played the game. Or you can have their swing.
What do you choose?
Of course, you choose the swing!
We are the pro in this golf analogy. We are going to take you to the practice tee and watch how you swing. In the process, we are going to help you with your mechanics. Then, we are going to talk about course management. In the game of golf, just like in retirement, you have many club options in your bag. Sometimes, it makes sense to pull the driver out of the bag and try to kill the ball. If your successful, great!
If you shank it, that is ok, because you've looked at the fairway and know it's wide enough to avoid serious errors.
In other situations though, the fairways are narrow and have sand traps everywhere. Furthermore, the green is on an island and it's a windy day. In that situation, it may be smart to keep the driver in the bag and use a different club. You may not hit it as far, but you have a lot more control over where it goes.
Do you see the analogy to your investments?
When it is time to go buy clubs, we aren't going to take you to Sam's club. Instead, we are going to the pro shop and fill your bag with clubs designed for your swing.