Broker Check

Accumulation – Working and Saving

The “Accumulation” stage is where we all start. It can begin with a first job, maybe a part-time job, and it can occur before, during or after a time of formal education. There will be many new situations for people going through this stage, and it is a stage in life that our educational systems have not traditionally helped their students prepare for. Fortunately, the rise in computing power and the internet, along with search engines such as Google and artificial intelligence, promise access to the “answers” to many of the questions younger people will have as they encounter these new situations, and the myriad choices they will need to make along the road to adult maturation. We believe that professional advice can ensure that clients in this stage are able to take maximum advantage of their greatest asset during this life stage – time. Client’s time is also consumed with other responsibilities, including education, work, family, and recreational activities along with innumerable distractions that can easily chew up their precious time. Often, important tasks are repeatedly “not gotten to”. This is why we believe that a high priority for clients in this life stage is to establish “systems” for saving, investing, and monitoring spending, and to automate these systems as much as possible.

We guide “accumulating” clients through this foundational stage in the following manner:

  • We will perform the initial/upfront work to construct an initial plan
    • We have conversations around values (especially as related to money, spending, etc.), leading to the development of a clients’ Statement of Financial Purpose
    • We obtain documents from clients required to build an initial household balance sheet
      • This includes documents related to the following accounts/sources:
        • Bank accounts (checking, savings, etc.)
        • Investment accounts, including individual retirement accounts (IRAs, etc.)
        • Retirement accounts (controlled by employers or “held away”)
        • Other investments (including physical real estate, 529 plans, and others)
        • Residences (primary, secondary, etc.), including acquisition information (date, purchase price, etc.), ongoing property tax and HOA/community obligations, any current mortgage or related indebtedness, etc.
        • Information on any/all debt currently held, including student debt, consumer debt, and any mortgages
          • Should include institution, current balance, interest rate, original amount (if applicable), any other important terms and conditions
        • Recent (last 2 years) federal and state income tax returns
        • Recent (last 2 years) business tax returns, if business owner
        • Recent paycheck “stubs” (at least 2 pay periods, if currently working)
        • Any public- or private-sector pension accounts and related information
        • Other documents, as needed, and as relevant to specific client situation
    • We obtain additional documents required to build a financial retirement plan, and conduct reviews of other documents to identify strengths, weaknesses, risks and opportunities. 
      • This will include documents related to the following accounts/sources:
        • Current employment benefits information, including health benefits and retirement-plan related documents
        • Any information related to employer stock-based compensation (options, grants, RSUs, ESPP, etc.)
        • Health Savings Accounts, if applicable
        • All insurance policies, including any health, disability, long-term care, life, auto, home, umbrella (comprehensive liability), etc.
        • Copy of any estate planning documents currently held and/or in-place
        • Other documents, as needed, and as relevant to specific client situation
    • We review and analyze the documents we’ve received, sometimes using software to extrapolate key information, and streamline the identification of existing and outstanding risks
    • Based on client specifics, we will build the initial household balance sheet – “where you are”
      • This will include all assets and liabilities, along with an estimate of human capital
      • After the household balance sheet is constructed, we will review it with clients, discuss the significant components, and get clients consent to move forward in the planning process.
    • Using the initial household balance sheet, we will develop a strategy for building wealth in the context of the clients’ values, goals, objectives, and available and future resources
    • Then, we will develop “systems” to move the clients toward their desired outcomes
      • We will automate these savings, investing and monitoring systems as appropriate
    • All of these steps are as interactive and iterative as required
    • We will update and maintain the household balance sheet to provide updates to clients about “how far they have come” in the direction of their objectives; 
      • To assist us with the updates and maintenance, we use specialized financial planning software tools (e.g. eMoney, Libretto, Elements, etc.)
    • For current and future financial investments, we develop a plan for the investment portfolio that is designed to achieve the clients’ goals and objectives. This includes:
      • A target asset allocation, to achieve target risk levels and future cash-flow needs
      • Account-level “tax location” optimization, to minimize income taxes paid throughout clients’ lifetimes, and maximize after-tax wealth creation
      • Achieving investment portfolio “best practices” – widely diversified investment vehicles, highly liquid, low explicit and implicit costs, optimized for expected investment time horizon, and an ongoing schedule for portfolio rebalancing
    • We will document, implement, and begin managing and monitoring the investment portfolio and any related investment products, as described above
  • We meet regularly with clients (2-4 times per year) to receive updates on clients’ situational details and to discuss observations from our ongoing evaluation and analysis. This might also include:
    • Estate planning and insurance review meetings – these are optional and can be asynchronous. They would be warranted primarily on “new developments”, either material changes in the clients’ situation or changes to the rules and regulations that govern income taxes, estate tax and planning activities, etc.
    • Updates to clients’ goals, and the planning/saving/investing necessary to achieve those goals and objectives
    • Discussion around clients’ Statement of Financial Purpose, and whether modifications are needed
    • At least annually, we will provide clients updates to their one-page financial plans and their statements of financial position (household balance sheet)
    • During these meetings, we also seek feedback from the clients’ perspective on any changes that we’ve requested or are warranted by circumstances
    • We will respond to any questions from clients in these meetings, as well as throughout the year. Phone calls, emails, and impromptu meetings are encouraged and welcomed.
    • If any aspect of your ongoing plan requires or warrants adjustment, in our estimation, we will reach out to clients and present our recommendations through email or in-person meetings, as appropriate.
  • Any additional meetings and recommendations as circumstances warrant, such as a windfall inheritance, a dramatic change in the clients’ health situation or living circumstances, or upon the pending or sudden death of one or both clients
    • Throughout these times, we will walk alongside clients, and their families, to provide our professional guidance and assistance in these challenging and difficult circumstances
  • Finally, any time clients wish to engage with us as their financial advisors, to discuss, debate or “brainstorm” regarding financial questions, opportunities, etc., we will be available.

Within any clients’ lifespan, the following areas of financial planning will have greater or lesser importance at any given time:

  • Can include debt management issues, cash flow and spending management needs, creating systems for systematics savings and investing, etc.

  • Might include various forms of insurance, such as health, disability, life, property and casualty (home, auto, liability/umbrella), etc. Could also include setting up and maintain an Emergency Spending fund to provide “time” to adjust to unforeseen circumstances.

  • Usually includes at least a will for each client, an advanced directive for health matters, possibly includes powers of attorney (POAs). Depending on other circumstances, this might also include the use of revocable and irrevocable trusts, guardianship agreements (for young children), etc.

  • This is relevant for all individuals and couples, and takes on additional importance with increased wealth, savings and investments; for business owners and self-employed individuals, this becomes more complex due to the interactions between taxation of income at the business entity level versus the individual taxpayer level, and the amount of control available to shift income legally to its more advantageous “tax filing” location. In a similar vein, wise tax planning will also include understanding and optimizing the “tax location” of the components within an investment portfolio, as well as “time shifting” income to “lower tax” years during the clients’ lifetime, especially in retirement.

  • key concepts in selecting individual investments and building investment portfolios include risk and expected returns, diversification, fees (explicitly stated and implicit costs, usually related to turnover), the process of rebalancing to manage risk levels, “markets efficiency” and recognizing the inherent limits of “market timing, forecasts, and stock picking”, understanding “tax location” and the impact of managing investment selection aware of an account’s tax status, etc. Depending on a client’s occupation and situation, there might be significant portions of employer stock-based compensation (grants, options, RSUs, etc) that should be planned and optimized for, including the regular and alternative minimum tax systems.

  • Standard components might include understanding Social Security and optimal claiming strategies; understanding Medicare rules, requirements and choices, along with the timelines for choosing and making changes. Other components can include understanding public- and private-sector pensions and other sources of retirement income. Depending on the life stage, clients might need help making decisions about saving and investment retirement in 401(k) plans, 403(b) plans, 457 and other deferred-compensation plans, etc. Also, there are many non-financial aspects of retirement planning that should be considered and addressed prior to beginning retirement such as: Where will you live? What will you with your “extra time” each day? Are there new pursuits that interest you – educational, skills-based and hobbies, paid or volunteer work, travel, etc.? Finally, the term “retirement” itself is also undergoing a rethinking of sorts – will it be a “linear” process (e.g. work, then retire, then …), or will there be “cycles” of mini-retirements going forward (e.g. education/learning, work/vocation, retire/rest/break, followed by more or new learning, a new vocation, another rest/break, etc.)?

  • This can include understanding the above-average costs of higher education and planning for paying for that education; it can include understanding what financial aid is and isn’t in the current era; it might include how much parental vs. student (vs. grandparent?) contribution will be expected; it might include how to save and pay for education in the future, in the most efficient manner possible, whether for grandparents, parents, or parents-to-be.

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