Financial Planning at Every Stage of Your Career

By:  Brian Kurrus, CFP®

Published:  February 2021

 

Whether you are just starting out or getting ready to retire, it’s never too early or late for financial planning. Many wish they started planning earlier and those that did sometime wish they had made better adjustments along the way.  Here are the most important steps at every career stage.

 

Early Career
1.      Build your emergency fund! We ideally want 6 months+ in conservative, liquid, non-retirement assets. We want to avoid taking on credit card debt and financial hardship withdrawals for unplanned expenses.
2.      Invest at least 5% into your TSP. When we invest at least 5% into our TSP each paycheck we maximize the matching contributions. Strive for this first and then increase contributions if your cash flow allows it. You may benefit from Roth contributions while your income and tax bracket are potentially lower than where they may be in the future.
3.      Review your investment allocation. Your time horizon and risk tolerance have a huge impact on what allocation you should use. The TSP Lifecycle funds are a good starting point, especially if you’re not yet familiar with the differences in the individual funds.
4.      Have a plan to pay off debt. Student loans, credit cards, car payments and the like have the potential to stick around for a long time. Every dollar going towards interest could be going into your TSP or other savings. Review rates and reduce or consolidate where possible to pay off liabilities as soon as possible.

 

Mid Career
1.      Consider home ownership if you haven’t already. You’ll need to save up a down payment ideally without tapping into your emergency fund. Owning instead of renting can help build wealth long-term but consider the cash flow differences, closing costs and repairs you may incur. Real estate values can fluctuate dramatically adding risk if you may need to sell in a few years.
2.      Get your estate planning in order. Review beneficiaries, establish a living will, power of attorney, healthcare documents and potentially consider a trust. This is not a to-do list item you want to risk not getting around to.
3.      Review life insurance needs. Consider life insurance to replace lost income, cover liabilities or some combination of both. Evaluate what you need today and how long you may need it for while evaluating what the coverage will cost you now and in the future.
4.      Begin running retirement projections. What might your TSP be worth when you retire? What do your initial FERS and Social Security projections look like? How well would your TSP hold up if you withdraw X amount per month in retirement? Increase TSP contributions if possible.

 

Late Career
1.      Evaluate your income sources. Will you take survivor benefit for your FERS annuity? When might you begin Social Security? Will you purchase a TSP annuity? Review your options and evaluate what your income sources look like. 
2.      Fine tune your projections. Project your month-to-month income needs in retirement and evaluate the gap between your income needs and sources. Review how much you may need to pull from your TSP and other assets and how well they will hold up at different rates of return.
3.      Consider Long-Term Care coverage. Self-insure or purchase coverage? LTC expenses can be one of the biggest retirement expenses we haven’t protected against. Consider coverage options and determine what’s right for you.
4.      Pay close attention to your investment allocation. The money you need to withdraw early in retirement might not have the chance to recover from a sudden market correction. Time horizon and risk tolerance are as important as ever. 

 

At Every Stage
1.      Evaluate your cash flow. What changes can you make to spend less and save more? Should you be putting extra funds towards your TSP, mortgage, other investments or debt? Continue to evaluate pros and cons and make changes along the way to maximize the return on your available cash.
2.      Rebalance your investments. If you’re selecting the allocation yourself this is especially important. Without rebalancing your allocation may be moving in the wrong direction. Lifecycle funds will rebalance for you but this won’t necessarily always be in line with your needs.
3.      Don’t stop planning at any stage and especially once you’ve retired. Even the best laid plans can go askew. Continue to evaluate cash flow, investment allocation and income needs while making changes along the way.
While we’ve identified important steps at every age, the most important step is starting your financial planning period. It is far too common to put planning on the back burner only to wish we started earlier once we get around to it. The time you put in now may save you years later, it’s worth the effort! 

 

Brian Kurrus is a Certified Financial Planner Professional® , and has FINRA Series 6, 7, 63, 65 Professional Licenses. He specializes in working with families and small business owners; his mission is to provide his clients with a diverse range of wealth management ideas and solutions.   His specific areas of focus are estate conservation, business succession strategies, retirement funding, long-term care issues, life insurance, and disability income insurance. He is an instructor for NITP, Inc.