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Financial Blueprint

Fiscal House Construction: Start with a Strategy

To build a home, you start with a full set of construction drawings. This is the blueprint that details not only what your house will look like, but all of the individual components that will integrate to create the home. Obviously, you don’t just start with one room and then add on later. You design the whole house at one time. To do so, you must first consider all of your objectives for the house, including the specific components and features that you want in the house - and those you don’t. With these objectives in mind, you and a professional designer would work together to draw a plan that includes every room and every detail of each room until you have a full set of construction plans, plus a list of materials and resources needed to build the house.

Likewise, a financial portfolio comprises a foundation,walls, roof and even fencing. When constructing your fiscal house, you must begin with the foundation, because without a strong foundation, the house may crumble.

Just as you wouldn't give a builder carte blanche to build your home whenever he gets around to it, it's important to consider your timeline in order to select appropriate financial vehicles. 

Timeline

When building your fiscal house, prepare a time frame in which you want to meet certain objectives. Just as you wouldn't give a builder carte blanche to build your home whenever he gets around to it, it's important to consider your timeline in order to select appropriate financial vehicles. For example, stocks offer the opportunity for higher returns but are best deployed over a longer time frame to offset short term risk of loss. When establishing your retirement timeline, take into consideration your current age, the age at which you would like to retire and the amount of income you'll need at that time to meet your lifestyle goals.

Risk Management

Risk management in a fiscal house is like installing insulation to protect your walls, floors and ceilings from the elements such as market losses or inflation. Risk management strategies and insurance products that can play a role in those strategies may include:

  • Diversification
  • Growth components to help keep pace with inflation
  • Liquidity for access to your money if necessary
  • Cash flow

Remodeling

In the same way you take on home remodeling projects to keep your home updated and working for you, your fiscal house strategies should be reviewed at minimum on an annual basis to help ensure your portfolio stays on track to meet your needs. You wouldn't take on a remodeling project without considering what goals you want to achieve - such as updating, a more convenient layout, cost efficiency and market value - so be sure you know what your goals are as you make changes to your asset allocations. And while doing it yourself is all the rage in home remodeling, it may not be your best call when it comes to your fiscal house. An experienced advisor can help you determine what changes make sense based on the objectives you hope to achieve. 

Sustainability

How long do you need to maintain your fiscal house? In other words, how long do you expect to live and need your portfolio to provide retirement income? Your fiscal strategy should include elements of sustainability to help ensure that you do not spend down your retirement assets too soon. The following are a few sustainability strategies to consider:

  • Coordinating your distribution plan with your Social Security benefits

  • Repositioning wealth with an IRA rollover

  • Whether to draw income from taxable or tax-deferred accounts first

  • The decision to take a lump sum in lieu of pension benefits

  • Tax implications related to job income, required minimum distributions and Roth IRA conversions

  • Utilizing products that provide a steady and reliable stream of income.

  • The sustainability of lifetime income for the surviving spouse

  • Leaving a legacy to loved ones or charitable organizations

Remember, these strategies can impact more than your retirement income. They can have tax and legal consequences as well, which is why it is important to consult with a team of professionals, including a financial advisor, insurance processional, tax professional and attorney.

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