What Should go into a Financial Plan?

Over the years, I’ve had the opportunity to debate discuss with various clients and other advisors regarding the proper contents of a “comprehensive financial plan.” The responses run the gamut, even more than you might think.  For some, it’s a plan that addresses various types of insurable risks and an investment plan for retirement.  Others argue that it couldn’t be comprehensive without education and tax planning, too.  Still others tout their fully-comprehensive 10-point financial planning process.

I’ve come to the conclusion that it’s probably impossible to pin down exactly what a “comprehensive financial plan” includes, because it’s going to be different for each and every client. However, as amorphous as the concept of what a comprehensive plan is may be, I have a crystal-clear vision of what it is not.  A financial plan cannot be considered truly comprehensive if it focuses solely on the “math and money” topics listed above, regardless of how many of those it may address. Financial planning is life planning, and you cannot separate the two. So to ignore the aspects of a client’s life that can’t be easily quantified is to do them the ultimate disservice.  Further, a financial plan that addresses math-and-money issues before life issues can only be correct through luck, but a plan that creates math-and-money solutions through the lens of life issues will be right every time.

I’ve included some examples of both “Life Topics” and “Math & Money Topics” below. Your comprehensive financial plan should address all of the math-and-money topics that pertain to your situation (including the ones that I failed to list), and should be grounded in what you discovered about yourself and your goals through your investigation of the life topics.

Life Topics

  • Money History
  • Financial Organization & Control
  • Aspirations
  • Concerns
  • Appetite for Risk
  • Ideal Life vs. Current Life
  • Family Goals
  • Spirit/Value Goals
  • Creativity Goals
  • Community Goals
  • Environment/Place Goals
  • Health Goals
  • Prioritization of Desires

Math & Money Topics

  • Investments
    • Asset Allocation and Portfolio Design
    • Asset Management Programs
    • Diversification Strategies
    • Alternative Investments
    • Non-Traditional Investment Strategies
    • Investor Behavior Analysis
  • Insurance
    • Life Insurance Analysis and Design
    • Long-Term Care Analysis and Design
    • Disability Protection
    • Property and Casualty Insurance Analysis
    • Health Insurance Analysis
  • Financial Independence Planning
    • Traditional vs. Non-Traditional Retirement Planning
    • IRA Rollover and Distribution Planning
    • Income Projection and Analysis
    • Fixed Income Strategies
    • Qualified Plan Design and Analysis
  • Debt Management
    • Creditor Protection
    • Efficient Credit Management
  • Estate
    • Wealth Transfer Analysis and Tax Reduction Strategies
    • Charitable Giving
    • Trust Analysis
  • Education
    • Primary, Secondary and Higher Education Planning
    • Savings Vehicle Analysis and Strategy
    • Cost Projections
  • Income Protection
    • Income Replacement
    • Diversification of Income
  • Asset Protection
    • Point-by-Point Risk Analysis and Reduction Strategy
  • Tax
    • Income Tax Planning (State and Federal)
    • Tax-Advantaged Investing (Asset Location)
  • Business
    • Business Succession
    • Buy-Sell Arrangements
    • Non-Qualified Retirement Plans
    • Key Employee Retention
    • Business Risk Analysis and Reduction Strategy
    • Business Income to Personal Wealth Strategy
    • Benefit Plan Design
  • “Special Situations”
    • Divorce Planning
    • Mental or Physical Incapacity
  • Real Estate
    • Buy vs. Rent Analysis
    • Mortgage/Equity Planning
    • Multiple-Property Strategy
  • Cash Flow Planning
    • Spending Plan
    • Trade-Off Analysis
    • Large Purchase Impact
    • Optimal Credit Deployment
    • Additional Income Opportunity Analysis

What Should go into a Financial Plan?

True Life Investment Planning

The following story is fiction.  Any resemblance to actual persons or events is strictly coincidental.  That being said, this has probably happened to you.

A guy walks into a financial advisor’s office (stop me if you’ve heard this one) and sits down to meet for the first time.

Financial Advisor (FA):  So, what brings you in today?

Client:  Well, I’m not happy with the investment performance I’m getting with my old financial advisor.  He asked me a few questions about risk and how long until I plan to retire, then he invested me in these…  (Hands over his latest investment statement.)

FA:  Well, these are mutual funds…

Client: Yeah, he said that…  What are those?

FA: A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.1

Client:  Am I invested in the best ones?

FA: That depends.  Can I ask you some questions?

At this point the advisor, being very proficient at his job proceeds to ask the client a litany of very good questions.  They determine the client’s appetite for risk, his goals and his timeline for achieving them.

FA:  Well, based on what you’ve shared with me, I don’t think that these mutual funds are the right fit for you at all.  What you need are ETFs!

Client: What’s that?

FA: An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund.1 


This is one of the fundamental problems that I see with the current state of financial advice.  The questions that clients are asked regarding investments are focused solely around making a decision about which “asset allocation” should be applied to the client’s investment portfolio.  The advisor then selects from a subset of the investment universe a mixture of stocks, bonds and (maybe) alternative investments that (at best) are in line with the client’s goals and risk tolerance or (likely) at least match up to the five-question risk tolerance questionnaire that the advisor went over with the client to satisfy his compliance officer.

Before I dig into this any further, I need to make one comment.  Mutual funds and publicly-traded securities probably have a place in almost everyone’s overall portfolio.  Many investors should never own anything other than cash and mutual funds or ETFs.  But not everyone, and how does your advisor know if you’re one of the few if they never ask?

I propose a change to the way we discuss investments; a step before we automatically launch into traditional asset allocation.  Let’s add to the conversation some “disqualifiers” to make sure that the mutual funds are the right way to go for you.

Q. What do you want your investments to accomplish for you?

Do you want to work until you’re 65 (give or take a few years), then never work another day in your life, living off of the dividends and compounded principal that you’ve managed to set aside over a 40 year career?  Handled responsibly, this is a “good” approach, and it’s the one that the vast majority of Americans (those who are preparing for retirement, anyway) take.  In this case, mutual funds become a useful tool.  Historically, it’s been their nature to (over a long enough time-frame) have a positive return.  If you put money into mutual funds 40 years ago, and a little bit more each month since then, you very probably have more money than you would if you had stuck that money under the mattress.  If the market was good to you, you may have even been able to retire a few years early.

What if that’s not what you want?  What if you want to be “rich?”  Whoa!  Pause. Disclaimer time.  Today’s zealously-litigious society requires that I point something out.  I am not promising that anything I mention herein is going to make you “rich.”  I am simply pointing out that by using the investment tools of the masses, you’re going to end up with the investment returns of the masses.  I’m not going to hit you with statistics, but I will share an observation.  In my years as an advisor, I have only run across one multi-millionaire client under 50 who got there owning only mutual funds and ETFs.  I’m willing to bet that her responsible attitude toward saving and her mid-six-figure salary had a helluva lot more to do with her success than her mutual funds did.

The vast majority of the wealthiest clients that I’ve worked with over the years have been business owners.  Instead of investing their money into someone else’s company, they invested it in their own, often with a healthy dose of their time and their effort.  That doesn’t mean that they started out intending to create a full-time job for themselves.  Many clients have started their businesses as a small side-hobby around something they enjoyed, or as a creative, part-time response to a problem that they saw.  Over time, they realized that they could make more money by focusing on their “side-hustle” than they were at their “real job.”  It doesn’t happen every time, but it doesn’t happen at all unless you try.

What if you want to have that “passive income” lifestyle now, instead of when you’re 65? It’s doable, but mutual funds may not be the most efficient vehicle at providing it. Perhaps you’re better suited to invest some of your money into income-producing real estate.  This decision comes with a whole slew of new questions, but they deserve to be explored!

Q.  Is it important to you to be able to influence your investments?

If I own shares of  Apple, Inc., there’s not really a whole lot that I can do to impact my investment experience.  I could persuasively convince each of my friends and family members to buy the new iPhone, and it still probably wouldn’t create a radar blip for the company.  In fact, if I delve very far into trying to improve the value of my stake, I’m liable to wind up on the wrong side of legal action for manipulating the price of a publicly-traded company.

What if you instead owned a stake in a smaller, local business.  You might be able to leverage your skills and/or contacts to generate a better return on your investment, without fear.  For some people, that small business may even be their own hobby-turned-profitable.  For others, it may make sense to invest more passively in others’ businesses.

Q.  How important is it that you take pride in the investments you own?

Many people invest their money without thought to where it might end up, but not everyone.  For some, the thought of supporting a particular company may make them shudder, but they might not even know that they own a part of it in a mutual fund.

These questions are just a few of many that I ask clients before we look at how their money, time and effort should be invested.  For the majority, large baskets of publicly-traded company still make the most sense for the bulk, if not all, of their investment portfolio.  Doesn’t it make sense to ask, though?


Live your True Life.



1 Thanks for the handy definitions, investopedia.com.
2 Another shout out to Joshua Sheats of Radical Personal Finance, especially for Episode 281, which inspired a new way to look at investing, and in turn, this post.
True Life Investment Planning

Year-Beginning Planning

If you’ve ever doubted that we’re a nation of procrastinators, try taking a look at the number of articles that come up under “year-end financial planning.”  You’ll find a whole plethora of ways to cram things in at the last minute.  In fact, if you search the internet for “beginning of year financial planning,” most search engines suggest that what you really meant by ‘beginning’ was ‘end’ and they then provide you the same list of articles.  Really!  Try it.

Most of you know that I’m not a fan of the beaten path, and in that spirit, here are some ideas for things you can do at the beginning of the year to help pave the path to success.

Make your 4th quarter estimated tax payment

For small business owners, freelancers and the self-employed whose fiscal year starts on January 1, the estimated tax payment for last year is due on January 15 of this year.  If you file your 1040 for 2015 before February 1, 2016, you don’t have to make a January payment1, but who’s ready before February 1?  Refer to the earlier comment regarding procrastination.

This is also a great time to set up calendar reminders to make the estimated payments for this year.  Repeat after me: “Siri, on April 8th, remind me that my quarterly estimated tax payment is due next week.”  Now do the same thing for the payments on the 15th of June, September and next January.

Double-check your retirement account contributions

Probably the most ubiquitous of year-end advice is to max out your Individual Retirement Account (IRA) or your 401(k) Retirement Savings Plan.  What’s always bothered me about that advice is that readers are being asked to set aside money for retirement at what is probably their highest spending portion of the year.  Holiday travel, events and gifts in the immediate future are going to carry a disproportionate weight in the decision about how much we can afford to put away for a retirement that may be decades away.

This year, try a different approach.  Now that you have all of that holiday hullabaloo behind you, think about what you can put away and adjust your 401(k) contribution or IRA direct deposit so that you end up putting away that extra couple of thousand dollars a chunk at a time, instead of all at once.  If you got a raise last year, consider bumping up the percentage of your pay that’s saved.  While leaving the percentage the same will result in saving more than you did last year, increasing the percentage can leverage that raise and still leave you with extra non-qualified spending money.

Financial Spring Cleaning

Starting the year off with a new level of organization can provide clarity around your finances and the ability to see opportunities you may have missed.  There are small accomplishments that can be made in almost every area of your financial life:

  • Banks – Consolidate some of those old accounts!  I’m willing to bet that for every one of you that intentionally has multiple accounts (each earmarked for a specific goal of course), there are two of us who are just too lazy to go through closing a bank account when we move or combine finances with a partner.  Keeping your money spread out across multiple institutions makes it harder to keep an eye on fees and understand your complete financial picture.
  • Credit – Time to take a look at your annual credit report.  Swing on over to AnnualCreditReport.com and check your report from the three major credit bureaus for free.  This is also a great time to see what else is out there when it comes to cards.  That travel card you got years ago was great when you were globetrotting, but now that things have slowed down a bit, it may make sense to earn cash back or some other perk.  Your mileage may vary.  Check out this post at MagnifyMoney.com by Nick Clements to get yourself started.
  • Estate Planning – If you don’t have a will and ancillary documents1, time to get one. Clients and friends who haven’t worked with attorneys on other matters often ask me if they can’t just do it themselves online.  In my opinion, it’s the same as financial planning: while there are numerous resources available on the internet that would allow a well-read individual to do it themselves, it’s been my experience that money paid to the right professional tends to return dividends.  If you do have a will, but you haven’t looked at it in three to five years, it’s time for a review.
  • Insurance – Shop your rates.  One of the reasons that insurance companies adjust rates is to balance the types of risk on their books.  For example, one car insurance company may find that it has an inordinate number of teenage drivers in Massachusetts on its books.  You can bet that the rates for older drivers in other states will become more competitive to attract a different risk pool.  That’s a simple example, but the point is that what may have been the most affordable for you when you bought it is no longer.  Work with an insurance agent to shop different companies, but be sure to look at more than just the premium.  Not all policies are created equally, so compare apples to apples.

I wish I had _________ last year.

Take a minute to look back on last year.  What do you wish you had done, been or had? Now is the time for action if you want to make it happen this year.  An ounce of intentionality can go a long way.  New year’s resolutions catch a lot of flak, and for good reason.  Most of us drop the ball before the end of January.  Once you’ve figured out what you want this year, write it down and then share it with someone.  Which brings me to…

Find an advisor, or at least a mentor.

One of the reasons most of those bygone resolutions are lying by the proverbial roadside is because you probably tried to do it all yourself.  There is no reason that this year can’t be financially better than last year.  Consider looking for a professional to help you make that happen.  If you’re still not ready for that, then at least look around you for someone who has what you’re after. Share your goal for the year with them, and ask them if they’d be willing to mentor you on achieving it.


1Ancillary documents generally refers to durable power of attorney, medical power of attorney with HIPAA language, directive to physicians (living will) and guardianship instructions for minors.  I don’t give legal advice, so check with your favorite attorney or ask me to point you to one for questions.
Year-Beginning Planning

Mail Bag: What to Do With Intermediate-Term Savings

We have our first mailbag question, and it’s a great one!  I’ve removed the name, but here’s the email I received.  Remember, if you have a planning question that you’d like to see answered here, email me!

Dear Tony,

We are about to have a large transition in our life involving a relocation.  We will have a substantial chunk of money from the sale of our house, and possibly more from the sale of our business.  We haven’t decided what our living situation will look like at first.  I don’t want to park that money somewhere where we’ll get dinged for trying to use it later, but I don’t want it sitting in a bank account earning nothing.  Where is a good place to park some of that money for a 3-5 year window?

Thanks for the help!

This is a question that comes up far more often today than it did in the pre-2008 interest rate environment.  It’s not hard to imagine why.  A quick search revealed this article from consumerismcommentary.com detailing a day in 2007 when ING Direct (an online bank that has since become CapitalOne360) dropped their savings account rate from 4.5% to 4.3%.  The author even makes mention of his other savings accounts earning 5%.  Today, those same types of accounts are earning around 1.0%.1

Before we dig into the options, I want to make a quick point.  Like most financial planning questions, even this relatively simple question has several possible answers.  Most people (many advisors included) will jump straight to the “mathematically correct” answer.  Statistically, the ‘<such and such>’ will perform ‘<thus>,’ while the ‘<other thing>’ has never had a down period of more than ‘<time frame>’ in ‘<longer time frame>’.  It’s dizzying, really. It’s important to assess all of the pros and cons of your options, and I’ll try to lay out the situational concepts right alongside the technical.

So, let’s look at some of the options this saver has, in what I would imagine most people believe to the order of their “riskiness”:

  1. At Home/In the Safe/Under the Mattress
  2. Bank Savings Account
  3. Bank Certificate of Deposit (CD)
  4. Bond Mutual Fund
  5. Stock Mutual Fund

If you’re already familiar with these options, you may want to jump down to the bottom of the post where I bring it all back together.

At Home
Some people think of this as the safest place they can keep their money.  In some sense, that may be true, but there are risks here to be considered, as well.  Currency at home is exposed to risk of theft or fire.  It’s (arguably2) easier to spend, and so at risk of not being there when you need it.  Over any long-ish period of time, the real risk is that the money at home doesn’t grow at all.  Meanwhile, the price for whatever you might buy with it is almost constantly increasing (inflation).  If I bury $1,000 behind the woodshed so I can buy a <whatever>, but I don’t go get it for 3 years and the price has climbed from $1,000 to $1,100, then I hurt myself.

I typically advocate clients having some “cash-on-hand” at home, but it’s more about empowering them to exploit opportunities than a safe savings vehicle.  The amount is different for everyone, and depends on what an “opportunity” might look like for them.  I have one client who rebuilds custom cars.  He’s saved thousands of dollars on buying because he keeps enough cash at home to make quick offers.

Bank Savings Account
The old standby.  You bring your money to an institution, they pay you some interest rate.  There are mechanics behind how that works, but this post is already going to be wordy enough. 🙂  Remember, interest/investment returns are compensation for the risk you are taking when you give the money to the institution.  There’s not a lot of risk in letting a bank hold your money for you, so you get… not a lot of interest.

There are various flavors of this to look into; some old, some new.  You’ll often get a slightly higher rate at a local credit union than you would at one of the mega- or super-regional banks.  You can also find a higher rate at online banks that don’t have the overhead of their brick-and-mortar cousins, which means they can cover more competitive rates.

Regardless of your choice of bank, with a savings account there’s no real limit to accessing your money, you shouldn’t be charged any fees, and the money is typically insured against loss due to institutional failure.

Banks subsidize the interest rates they pay in your savings account by loaning out a portion of the money they hold.  (I know, I promised I wouldn’t go into it…) When a bank has a good idea of how long they’re going to hold your money, they can better plan around it.3  Enter the certificate of deposit.  You promise to leave your money with the bank for a set period of time, typically a choice of 3 or 6 months,1 year, 3 years, 5 years or 10.  In exchange for that certainty, the bank pays you a higher interest rate.  The caveat is that, should you break your contract early, you lose some or all of the interest income as a penalty.

For clients who don’t know exactly when they may need some or all of the money, it may be advantageous to “ladder” CDs.  This approach purchases CDs of different terms, and then as each comes due, rolls the funds into a new CD with the longest acceptable term.  This results in always having some liquidity coming due at various points, but also being able to benefit from the higher interest rates tied to the longer-term CDs.

Bond Mutual Funds
A bond is nothing more than a loan to an institution.  A bond mutual fund is a large basket of bonds which investors can buy a piece of in the form of shares.  The upside of this is that you get to spread your risk across lots of companies.  The downside is that mutual fund shares are bought and sold, which affects their price.  As I write this in the 4th quarter of 2015, we find ourselves in one of the lowest interest rate environments in history.  At some point, interest rates will begin to rise again, and when interest rates rise, bond prices fall.  Since the bond mutual fund share price is also a function of the price of the underlying bonds, their share price will be negatively impacted as well.

I know the above paragraph sounds negative, and those are risks.  Remember, though, return is compensation for risk.  The bond fund can be an incremental step up in each.

Stock Mutual Funds
Most of the time, stocks are “out of bounds” for conversations about short- and intermediate-term savings.  Stocks, and therefore stock  mutual funds, are unpredictable.  Unpredictability is often the last thing a client wants when they have a specific approaching goal. That being said, the potential gain of a small stock allocation may outweigh the potential for loss, especially if you have any flexibility around when you need the funds.

As an example, imagine that you have $100,000 of your intermediate-term savings in cash earning 1%.  If you shifted 10,000 into a stock investment that return 10% over the next year (large cap stocks averaged 10.9% 1995-2014)4, you would almost double your expected return to 1.9%.  If those rates were static, at the end of 5 years, you’d end up with $5,600 more than you would have had in a cash-only position.

Let’s talk about the downside.  Assume the above, but you invested at the worst possible moment, and the stock portion of your savings proceeds to decline by 50% in rapid order.  If it happened “immediately,” you now have $95,000.  There are two planning questions to ask. First, can you buy what you originally needed for $95,000?  Second, can you postpone your purchase until market recovery?

Bringing It Together
The short answer to the mailbag question is probably some blend of the above choices.  The actual proportions of that blend are going to depend on how flexible the asker is in terms of timing, how concrete their savings goal is and their appetite for risk.  From the sound of the question, if you’re relocating but looking at a 3-5 year window for the savings from your home sale, it sounds like you have some flexibility and could be at the more aggressive end of this (some number of months’ emergency fund in cash/bank savings, and the larger chunk in a 10% stocks/90% bonds portfolio).  If things are good, you buy more or buy sooner.  If things are not as good, you buy less or postpone your purchase.

That’s a much different proposal from someone who is facing a college tuition bill in 3-5 years.  Known amount, known timeline.  That would be a situation that requires more certainty, and a more conservative portfolio.


1Source: MagnifyMoney.com

2There’s scientific evidence that physical cash is emotionally more difficult for us to spend than, say, the money we have in the bank and can be accessed via debit/credit card.  Check out the work of Elizabeth Dunn and Michael Norton.

3There are some huge oversimplifications in this article, so don’t nitpick. 🙂

4Source: Blackrock

Mail Bag: What to Do With Intermediate-Term Savings

Health Savings Accounts as Supplemental Retirement Vehicles

Stethoscope with Dollar SignI was recently quoted in an article aimed at helping Gen Xers gear up for retirement (see this post).  Some of you who read the article have asked for a bit more meat on my comments about using the Health Savings Account (HSA) as a supplemental retirement account.  Wish granted!

Let’s start with the most important word in the paragraph above: ‘supplemental.’  The HSA was not created as a retirement account, and so it’s not the most effective option in that space.  That being said, if you’re maxing out your 401(k) and Roth IRA options, some of the idiosyncrasies of the HSA can be pretty handy.

The HSA was designed as an account where participants in high deductible health plans (HDHP) could set aside money to offset medical costs as they arise.  As part of the incentive to do so, contributions to the HSA receive three types of preferential treatment:

  1. Contributions are tax deductible (they can lower your taxes for this year).
  2. Any money in the HSA grows tax-deferred.
  3. Withdrawals from the HSA to pay for qualified medical expenses are tax free.  Withdrawals for reasons other than qualified medical expenses result in a penalty of 20% of the withdrawal amount and taxes on the growth.

“But, Tony!” you say, “Why on Earth would I want to expose myself to a 20% tax penalty on my withdrawal and taxation?  That completely erodes the benefit of pre-tax contributions and tax-free growth, doesn’t it?”

Enter the final wrinkle: after the account holder reaches age 65, she is no longer subject to the 20% penalty.  So, let’s run this through our “best case/worst case scenario” test.*

Best case:

In the best case, you make contributions to your HSA and get a tax benefit this year.  You make it to retirement with an extra pot of tax-benefited money to go alongside your traditional IRA/401(k)/403(b) and your Roth holdings.  You have the option to use it for any medical expenses that come up, in which it’s tax-free income (like the Roth funds, but with the added benefit that you got a tax benefit when you put it in, too).  If you don’t have medical expenses, or you’ve exhausted other traditional IRA money, you can still tap the HSA funds.  Sure you’ll pay ordinary income taxes, but you would have paid that on IRA funds, anyway.  Flexibility is one of the most under-appreciated benefits of a solid financial plan.

Worst Case

You get the tax benefit of putting the money into the HSA, but then you run into hard times.  So hard, in fact, that you’ve exhausted your non-qualified savings, tapped your IRA funds, and now have to start spending your HSA money, too.  You’ll have to pay the income tax that you didn’t pay up front, as well as a 20% penalty on the withdrawals, assuming you have NO medical expenses to offset.

The worst case seems pretty grim, I’ll grant that, but let’s dissect it a bit.  First, did you notice the order in which you’d spend down the assets?  You’d have to spend everything you have in your non-qualified accounts, since it’s yours without any strings attached.  Then, if you couldn’t (or elected not to) take a 401(k) loan, you’d have to spend through all of your Roth IRA funds (10% penalty, but no taxes, because you paid them already), then your traditional 401(k)/IRA funds (10% penalty AND ordinary income taxes due).  Finally, you’d tap into your HSA.  I can really only think of one type of catastrophic event that would cause someone to unload all of their assets like this: unexpected health problems resulting in astronomical medical bills.  Can you see how unrealistic the worst case scenario really is?

So what’s the bottom line here; what can you take away?**

First, make the decision on the type of health plan you have.  If it’s an HDHP, then you’ll have the option to utilize the HSA.  Also determine the amount you should be setting aside into the HSA for its true purpose: offsetting medical expenses in your high deductible plan.  Then, do your research or work with your financial adviser to determine if you should be maxing out your retirement plans.  If you are making the maximum contributions to the plans available to you, put additional funds into the HSA.  Where it makes sense over the years, pay your medical expenses out of cash flow.  Many people who could pay their deductibles out-of-pocket pull money out of the HSA to offset those expenses before they realize that they’re “robbing Peter to pay Paul” by using dollars that could have benefited from continued preferential tax treatment, instead of the funds outside the HSA.

Finally, a note for those of you already in retirement who are trying to decide whether or not to use HSA funds.  You can get into some pretty complicated discussions about which account you should be drawing from in any given year.  There’s one answer from an estate planning perspective, and a whole slew of them from a tax planning perspective.  When you’re making a decision to use HSA funds or not, take the following into consideration:

  • Did you have medical bills that you can offset this year?  If so, the HSA withdrawal is tax-free to that extent, like your Roth funds.
  • Do you expect to have medical expenses in the coming years?  Knowing about a condition that will involve constant medical expenses can help you consider your HSA funds a a tax-free multi-year income stream.
  • Are you actively trying to push assets out of your estate, or create other benefits for your heirs?  The HSA stops being an HSA and the fair market value of the the account becomes taxable income to the beneficiary in the year you die.  Note the difference from other IRAs and non-qualified funds.

I hope you found this content useful, and if you have any questions, please feel free to ask via the comments section, or drop me an email!


IRS Publication 969 – For you gluttons for punishment, here’s the link to the IRS publication regarding “Health Savings Accounts and Other Tax-Favored Health Plans.”

HSA Bank – This is one option for opening an HSA.  It’s not an endorsement, just a place to get you started.

*Remember, the best case/worst case scenario always has today’s taxes and legislation in mind.  We can’t predict the future of the tax code or law, but we have to make educated assumptions starting somewhere.

**Everyone’s situation is different.  Your financial life may contain items that make this general recommendation unsuitable.  Before acting, do your research or consult with your financial adviser.  Seriously.

Health Savings Accounts as Supplemental Retirement Vehicles

TLFP in the Press: Retirement Planning Checklist – Generation X

I was quoted in an article for GoBankingRates.com this week.  The article is a great starting place for Gen Xers to begin think about retirement.  I’d love to hear your comments on the article, and if you have any questions, be sure to leave those in the comments section as well!

I’ve already been asked to publish a little more depth on the HSA for retirement concept, so look for that post in the next couple of days.

Picture of Gen X Couple

Move over flannel shirts, grunge music and reality that bites. Generation X, now ages 35 to 54, is growing up. Fully in the throes of middle age (don’t shoot the messenger — I’m one of you!), Generation X is marching toward retirement age, whether they’re financially prepared or not.

If you haven’t yet started — or you know you have some ramping up still to do — there is time left to start saving as much as possible before AARP comes knocking. Take this opportunity to review this eight-point checklist to either get started on your journey or to make sure you’re not missing out on any opportunities as you move forward with your retirement plan…

Source: Retirement Planning Checklist: Generation X at GoBankingRates.com

TLFP in the Press: Retirement Planning Checklist – Generation X

The Aladdin Approach: a New Look at an Old Road to Financial Freedom

I though this article was fitting, given that I’ll be attending a conference sponsored by the National Association of Personal Financial Advisors (NAPFA) later this month.  If any of you have questions about how this strategy may fit into your own financial plans, let me know.  🙂

Nation’s Financial Advisors Recommend Capturing Creature that Grants Wishes

CHICAGO—Calling it the most reliable strategy for ensuring financial stability in the current economy, a report released Thursday by the National Association of Personal Financial Advisors recommends that middle-class Americans capture a magical creature with the power to grant wishes.

“Taking into account the average American’s present level of savings as well as prevailing market conditions, there simply is no sounder choice individuals can make than venturing into a hidden glen or cavern, luring an enchanted creature from its dwelling, and then apprehending it and using its offered wishes to build a solid financial plan for the future,” said researcher Alison Knox, who explained that whether the wishes were acquired by sparing the life of a talking golden fish, rubbing an ancient Arabian lamp, or intoning the name of a woodland troll backwards to make him one’s captive, Americans would be wise to set aside one of their wishes for an ample 529 college savings plan for their children and use another wish on a well-funded retirement account.

“Far beyond budgeting or managing a portfolio of stocks and bonds, tricking one of these mystical beings into becoming one’s wish-granting servant is the most prudent, and frankly for most Americans, the most practical way of securing long-term solvency and a comfortable standard of living.” Knox noted that many magical creatures charge modest fees for their services, such as one’s firstborn child or a pledge of one’s eternal servitude in the afterlife, but emphasized that a stable financial future was well worth the cost.

That’s an article that appeared in The Onion on October, 8, 2015.  That’s right, folks!  It’s ok to have a sense of humor about this stuff! Hope you enjoyed it.

The Aladdin Approach: a New Look at an Old Road to Financial Freedom

Advisors Criticize Peer For Saying Millennials, Gen Xers Don’t Need Advisors

As many of you know, I’m a proud member of the XY Planning Network, a group of around 150 financial advisors who predominantly serve clients born after 1960 or so.  I want to share with you a short article written by the founders of the Network, Alan Moore and Michael Kitces.

This was written in response to another advisor’s article, in which she concluded that millennials and Gen Xers don’t really need financial advice.  The narrow-mindedness of this original article is exactly what True Life Financial Planning was founded to counteract.  An industry of aging advisors with aging clients has started to pigeon-hole the rest of us into “investment management” and “retirement planner” roles that are only a fraction of what a true financial planner provides to clients.

I welcome your comments, as well as any questions you may have about either article.  You’ll find the beginning of Alan and Michael’s article below, as well as a link to the full text over at Financial Advisor magazine.


A recent article published on Financial Advisor’s website concluded that millennials, as well as Gen Xers, simply don’t need an advisor because they aren’t going to get any value out of working with one.

Melody Juge, the self-acknowledged  baby-boomer-centric advisor interviewed for the article, Millennials, Advisors Don’t Need Each Other, Planner Says, says: “Why do you want to have a 20- or 30-something man or woman who is full of life, creativity and forward thinking be focused on the end of their life? In most cases, savings should just be automated and out of mind.”

Yet what this statement really illustrates is not how young clients don’t need financial planning, but instead how the very label “financial planning” is being distorted. It’s being turned into a euphemism for investment management and retirement planning by a retirement-centric industry, as though accumulating a giant portfolio for retirement is the only financial problem anyone in our country ever faces.

Source: Advisors Criticize Peer For Saying Millennials, Gen Xers Don’t Need Advisors

Advisors Criticize Peer For Saying Millennials, Gen Xers Don’t Need Advisors

The Tip of the Iceberg: Beginning to See what ‘Comprehensive’ should Really Mean

In September, I attended an amazing conference of financial planners and advisers from all over the U.S. who think just like we do about planning.  I took a lot of great lessons from that time, many of which I’ll be sharing with you over the coming weeks.  One conversation, however, was so impactful on me that I immediately came home and put together a quick video on the topic.

This “semi-short” (12 minutes) and “semi-technical” (graphs, but no deep calculations or theory) video is here to help you change how you think about your financial adviser.  As I’ve shared with many of you, one of the areas in which I’ve struggled with True Life Financial Planning (TLFP) is helping new clients understand exactly what it is that they’re getting in exchange for their monthly retainer.  I see this problem as having two parts.

  1. As I’ve stated elsewhere, we’ve been suckered into believing that conversations with our financial advisers are supposed to be about money.  Most of the new clients that I work with want to start by showing me an investment statement, insurance policy or the BBB* plan that someone put together for them years ago.  Financial planning is about life.  It’s about helping you achieve the life you’ve been called to life, your True Life.  Sure, we need to talk about money at some point in the process.  Money is the conduit by which our internal dreams and desires are manifested in the real world.  Doesn’t it make sense to sort out what those internal messages really are before we begin construction?
  2. Once we complete the initial life planning process, each client’s relationship with TLFP can take a different form.  For some clients I’m a sounding board and for new ideas about how to earn more income.  For others, I spend time researching the money aspects of their current “biggest financial decision ever.”  For many, I’m a coach or (shudder) accountability partner to help encourage them when the going gets tough.  I even spend time with clients’ other advisors (tax, legal, etc…) to work through how various aspects of their work fit into the overall plan.  Once can begin to see why it’s tough to give a short answer to the question of, “What do I get?”

The conversation in this video begins to address these two issues through a simple example.  An example client is presented who earns $40,000 per year, receives 3% raises annually, saves 5% of income, earns 8% on those savings and does all of this over a 40 year career.  The initial question I’d like to ask you is this:  “If this client walks into a typical financial adviser’s office for help with having a bit more in the retirement bucket at the end of 40 years, where will that adviser usually focus?”  I don’t know about you, but my experience has been that the adviser will start by attacking the 8% investment return.  If she doesn’t stop there, she may recommend that the client consider working a few more years.

Why anyone who stops there should ever be allowed to describe herself as providing “comprehensive” financial planning is a mystery to me.  In the video, you’ll learn see just how impactful (or not) that possible increase in the investment return might be, as well as some other levers that can be pulled for the client’s benefit.  If you’re not working with an adviser who at least asks about these things, you might consider looking for one.  I suggest you start with the XY Planning Network directory.

Finally, I’d like to address something that I left out of this video.  I stopped short of delivering an important part of the message that was originally shared with me.  Why don’t most financial advisers talk about all of these things?  The line of thinking that was presented at the conference was that it comes from the very way my industry is constructed.  Most advisers don’t talk about helping clients increase their income or find work that they value so much they’d never dream of leaving it because there’s no product that can be sold in relation to that advice.  In fact, the only lever that you can pull in this example that’s tied to a product sale is the one that most advisers go after immediately: the investmet return.

I’m going to go one step further here and add my own opinion about why that approach is so popular.  American consumers have been so well marketed to for generations that we have come to believe a very simple misconception: Whatever problem I have, there’s something that I can buy to fix it.  It comes as no surprise then that something along the lines of, “Just buy THIS investment mix, and your problem will be solved,” is such an easy pill to swallow.  The other actions that you can take to enhance your life take work. 

Find the right financial adviser so you don’t have to face that work alone.

*BBB Plan: Big, Black Binder Plan.  Typically something that was prepared for a client a number of years ago, contains some form of “implementation checklist” that hasn’t been reviewed or acted upon since 6 months after it was prepared.

A very special thank you to Joshua Sheats of the Radical Personal Finance podcast.  Joshua shared this message with me and 150 of my closest friends at the 2015 XY Planning Network Conference in Charlotte.  If you haven’t already, get over to The Radical Personal Finance Homepage or find him on iTunes, Stitcher or your favorite podcast provider.  Joshua is working hard to help fix our industry, and I have no doubt you’ll benefit immensely from his knowledge.  I know I have.  Finally, if you DO value his work, I strongly urge you to support Joshua by contributing to his show.  You can do so in ANY monthly amount, and he deserves every penny.

The Tip of the Iceberg: Beginning to See what ‘Comprehensive’ should Really Mean

True Life Financial Planning as a Case Study

When I work with clients through TLFP, I walk them through a process known as “financial life planning.”  I’ll save the history lesson about the approach for another time, but it should suffice to point out that it’s an approach that is very much focused on helping clients discover what a meaningfully significant life would look like for them, then removing the obstacles that stand in the way.  TLFP is very much a product of my own financial life planning work, and I’d like to share with you how I arrived here, as a framework for helping you think about what your life plan might look like.

My work with clients starts with three deceptively simple questions, followed by exercises designed to hone in on what really drives them in life.  What’s been buried down in the core of their heart, constantly pulling at them (sometimes despite their best efforts to squelch it in favor of a life more “acceptable” or “normal”).  Going through these exercises myself galvanized a few things that I already knew about and uncovered a few I’d completely forgotten.

I’ve been called to be a financial planner for over 15 years.  It’s a call that I tried to ignore for the first 5 years of my career.  Spiritually, I have a need to feel that I am serving others in my work; that both my clients are not just better off because we met, but that they’ve received no less than the full benefit that I am empowered to bestow upon them.  I want to serve more than just a small subset of the fascinating people that I meet.  At the same time, I have a deep longing for the sea, and a strong desire to share that love with my children.  I love being their soccer coach, and one of the dads who can show up to help out at school.

As I was deciding the next chapter of my life, I intentionally built my practice around the life that I want to live, instead of the other way around.  TLFP is a virtual financial planning practice.  Not only can I serve clients all over the world, I can do so from wherever I have an internet connection.  In a more traditional setting, I’d realistically only be able to serve clients in Dallas.  I’d be tied to the brick-and-mortar office, both in the sense of geography and time.

I work with clients on a monthly retainer, instead of the traditional method of only focusing on a percentage of assets I’m managing.  Shifting that compensation paradigm has allowed me to work with clients that other advisors could never take on.  If your livelihood comes from a percentage of the assets you put into the stock market, how can you afford to help clients who invest their money into their own business or their real estate?  How can you afford to help younger clients who have excellent cash flow, but who haven’t had time to build a sizable nest egg?

Most importantly, how can I consider my work to be the best it could be if I’m only looking at the “math and money” portion of a client’s financial life.  Money exists to empower lifestyle.  The life HAS to come first.  Nowhere else have I found this to be more clearly expressed than in this excerpt from George Kinder’s Life Planning for You:

“We have been conditioned to think that a financial adviser’s office is all about money.  This is a tragic mistake.  Human lives are at stake… Financial planning is not about money.  The human life comes first. Let’s find out… what the life is that is meant to be lived.  Then, and only then, can we apply the financial architecture to make it happen.”

It’s entirely possible to live the life that you’re called to, and probably much sooner than you think.  I’m living proof.

True Life Financial Planning as a Case Study