Focusing on Your Long-Term Personal Financial Goals

As a business owner, it’s often difficult to separate nights from days, weekdays from weekends and personal from professional.  You have to be 100 percent invested in your company in order for it to succeed.  You’re in the weeds and you hardly have time to think about your long-term personal financial objectives beyond knowing your picture of success may be a desire to live comfortably, own a home, be able to afford to send your children to college and, perhaps, even drive a favorite kind of car.

In order to achieve those goals, however, you need to be deliberate in your planning and use the same kind of strategies in your personal life as you would utilize for your business.  Achieving financial success is dependent upon writing a road map to your end goal, identifying your milestones and attaching hard costs to your stepping stones to happiness.  Whether it’s travel, financial stability, long-term care planning or purchasing material goods, you need to determine the cost of attaining particular lifestyle objectives and transforming those dreams into real, hard numbers.

While your golden years may seem far off in the distance, starting with a picture of what your successful retirement looks like is a good place to begin charting your personal financial planning road map.

Use your current income as a starting point

It’s common to plan your desired annual retirement income as a percentage of your current income. Depending on who you’re talking to, that percentage could be anywhere from 60 to 90 percent, or even more. The appeal of this approach lies in its simplicity, and the fact that there’s a fairly common-sense analysis underlying it: Your current income sustains your present lifestyle, so taking that income and reducing it by a specific percentage to reflect the fact that there will be certain expenses you’ll no longer be liable for (e.g., payroll taxes) will, theoretically, allow you to sustain your current lifestyle.

The problem with this approach is that it doesn’t account for your future situation. If you intend to travel extensively in retirement, for example, you might easily need 100 percent (or more) of your current income to get by.  A percentage of your current income may be a good benchmark, but it’s worth going through all of your current expenses in detail, and really thinking about how those expenses will change over time as you transition into retirement.

Project your retirement expenses

Your annual income during retirement should be enough (or more than enough) to meet your retirement expenses.  That’s why estimating those expenses is a big piece of the retirement planning puzzle.  You may have a hard time identifying all of your expenses and projecting how much you’ll be spending in each area, especially if retirement is still far off. To help you get started, here are some common expenses:

• Food and clothing

• Housing: Rent or mortgage payments, property taxes, homeowners insurance, property upkeep and repairs

• Utilities: Gas, electric, water, phone, cable TV, Internet

• Transportation: Car payments, auto insurance, gas, maintenance and repairs, public transportation

• Insurance: Medical, dental, life, disability, long-term care

• Healthcare costs not covered by insurance: Deductibles, co-payments, prescription drugs

• Taxes: Federal and state income tax, capital gains tax

• Debts: Personal loans, business loans, credit card payments

• Education: Children’s or grandchildren’s college expenses

• Gifts: Charitable and personal

• Savings and investments: Contributions to IRAs, annuities, and other investment accounts

• Recreation: Travel, dining out, hobbies, leisure activities

• Care for yourself, your parents, or others; costs for a nursing home, home health aide, or other type of assisted living

• Miscellaneous: Personal grooming, pets, club memberships

Don’t forget that the cost of living will go up over time. The average annual rate of inflation over the past 20 years has been approximately 2.6 percent. (Source: Consumer Price Index data published annually by the U.S. Department of Labor, 2011.) And keep in mind that your retirement expenses may change from year to year. For example, you may pay off your home mortgage or your children’s education early in retirement. Other expenses, such as health care and insurance, may increase as you age. To protect against these variables, build a comfortable cushion into your estimates (it’s always best to be conservative).

Decide when you’ll retire

To determine your total retirement needs, you can’t just estimate how much annual income you need. You also have to estimate how long you’ll be retired. Why? The longer your retirement, the more years of income you’ll need to fund it. The length of your retirement will depend partly on when you plan to retire. This important decision typically revolves around your personal goals and financial situation. For example, you may see yourself retiring at 50 to get the most out of your retirement. Maybe a booming stock market will make that possible. Although it’s great to have the flexibility to choose when you’ll retire, it’s important to remember that retiring at 50 will end up costing you a lot more than retiring at 65.

Identify your sources of retirement income

Once you have an idea of your retirement income needs, your next step is to assess how prepared you are to meet those needs. In other words, what sources of retirement income will be available to you?  This may include a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide a portion of your retirement income. To get an estimate of your Social Security benefits, visit the Social Security Administration website and order a copy of your statement. Additional sources of retirement income may include a 401(k) or other retirement plan, IRAs, annuities, and other investments. The amount of income you receive from those sources will depend on the amount you invest, the rate of investment return, and other factors. Finally, if you plan to work during retirement, your business earnings will be another source of income.

The advisors at Corner Office Financial, LLC are ready to help guide you in deciding the various options to fund your version of a wise retirement, based on your situation and individual circumstances.  We get to know you, your dreams, how you’re working to achieve those goals and how much risk you’re willing to take along the way to obtain them.  You DO have time to plan for your future.  Don’t leave your retirement years to chance.  Be as deliberate in life as you are in business.  If the golden years appear to be a long way away, plan now and use the time wisely to ensure a relaxing, enjoyable transition into retired life.


Michael Raspallo, CLU, ChFC, AIF

President, Corner Office Financial, LLC


This material was prepared for Michael Raspallo’s use.

 Securities offered through LPL Financial.  Member FINRA/SIPC

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