Guest Blog: Simple, Not Easy

It is my pleasure to welcome Nic Nielsen with Know My Plan as our second guest blog contributor. Nic has always been on the forefront of financial planning since I met him 15 years ago when he was the first in the territory to offer easy issue simplified underwriting. I appreciate his deep understanding of insurance as a financial tool.

Nic thrives on learning, understanding, and analyzing everything beforehand to affirm it is the right and best option. I admire his patience and ability to listen and relate to each client. In this blog, he focuses on the simple truth of financial and estate planning centered around 6 Big Questions. - Lori

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One of my biggest pet peeves about the financial planning industry is the desire to make the process sound complicated. It isn’t complicated. It comes down to six key life factors around how you should financially plan for your death, potential disability, retirement, children’s education, your care as you age, and transferring your wealth. Asking questions around these six key aspects should always be your financial plan’s starting point.

Often, the answers become siloed. The CPA, estate planner, investment manager, financial planner, and insurance advisor must all be on the same page for optimal results. Financial planning is often only as strong as its weakest link. A beautiful investment strategy can be derailed by not planning for long-term care. Carefully crafting Roth conversions to minimize taxes throughout your lifetime can be offset by a permanent disability.
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Not only is a financial planner's job to listen to your desires and succinctly answer the questions around these six key factors, but to make sure that all of these answers are coordinated for you with all within your advisory team. 

Taking Action Early

​A husband and wife had recently relocated to the Charlotte area with a child and a big lovable dog.  The husband, a 40-year-old executive at a large corporation, knew that they needed some guidance. Finding a guide became a high priority with a new job, scattered investment accounts, old retirement plans, and a lack of time. With their free time, they wanted to spend it as a family. Their dreams identified in our first meeting included living in the mountains, playing guitar, watching hockey, and eating good Thai food). 

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Together, we came up with a best-case guess of how much it would cost monthly to fund this life today. This is where I get to geek out on math and figure out how much this couple needs to fund their best life. We leverage getting the number through time value of money calculators and then adjust for inflation.

After diving into their financial situation, there were some gaps.
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The vast majority of financial planning comes down to answering 6 big questions. This is where we always start. Are there additional questions that come up during the planning process? Yes, but most of the time, they are derivatives of the Big 6. 

The Big  6 Questions You Should Ask

The Big 6 Questions below share how we approached working with this family, in their specific plan. These are questions you should consider for your own family’s approach to planning.

1. What happens if I die? [Action: Life insurance needs analysis] In the case of this couple, a life insurance needs analysis discovered that there was a gap between the coverage that he needed if he passed away today and what was provided at his job. The solution was a 20-year term life insurance policy.
2. What happens if I can't work? [Action: Disability insurance needs analysis] The family’s largest asset was his ability to earn an income.  His employer had a plan, but it was not portable, and he believed he would continue to change jobs for the rest of his working career. The solution was an individual disability income insurance policy.
3. How do we fund retirement? [Action: Retirement Income Plan] I define financial independence as the time when work becomes optional. Both spouses had old retirement plans scattered through various jobs over the past 20 years. The best solution was to consolidate into an IRA and a Roth IRA for each spouse. We now know how much we have in investments today and how much we need to become financially independent. This allows us to dial in a game plan for where we are going to invest. Luckily, his employer plan allows for after-tax contributions. WOW! This is an absolute game change for a younger executive wishing to retire early. The solution was based on the fact that the client is contributing $22,500 to his Roth 401k and then he is contributing another $20,000 to his After-Tax 401k.  We then are rolling over the After-Tax 401k to his Roth IRA annually.  This strategy is often referred to as the Mega Back-Door Roth or a Super Roth.  Please note this is not using cash value life insurance. At a conservative 6% return, this should fund their desired retirement income. Our goal is to keep this client in the zero percent tax bracket in retirement. We then coordinated the plan with a local CPA.  He signs off on the plan to minimize taxes over the life of the client and not just minimizing taxes in one year. 
4. How do we pay for our children's education? [Action: College Planning] We still must fund education, which was one of their top priorities for their children outside of their family unit living in the mountains. The solution was a 529 Plan. Through a quick Google search to find out the cost of education at Appalachian State, we are off and running on a time value of money calculation. We then established a monthly contribution to fund retirement.
5. What happens if we need care? [Action: Long-Term Care analysis] The elephant in the room, what happens if I need care? When you are younger it may seem so far in the future that it doesn’t appear important to focus on today, however, when you realize you need it is when it is too late. Our solution was a hybrid life insurance policy with a long-term care rider. The application is pending. Fingers crossed. 
6. How do we optimally leave a legacy? [Action: Estate Planning] Next, we make sure they have their important legal documents in order.  The family is comfortable working online and virtually. The solution we recommended for this family was to utilize Trust & Will to complete their documents.  They now have a will, medical directives, and durable power of attorneys in addition to bequeaths related to the transfer of their wealth and assets.
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We answer these questions in real-time with the families that we guide. 

When it comes to financial planning, it’s simple, but not easy.

For Your Future,

Nic

Nic Nielsen, CFP®

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BIO: Nicholas Nielsen, co-founder of Know My Plan, is a Certified Financial Planner who helps busy executives reduce financial stress and anxiety for themselves and their families with a one-page plan. Nic believes financial planning doesn't have to be overly complicated and you don't have to do it alone. He enjoys working with clients who want to build a financial plan together thru a deep understanding of their goals both while working, in retirement, and beyond. Inspired by his philosophy that many financial planning topics are better told with a picture, Nic is the author of Visual Finance, a book that contains 40 sketches by Nic along with 40 QR codes that link to short videos to illustrate real-life financial planning insights and applications. He earned his bachelor degree in Business Administration with the University of Saint Francis, where he played collegiate baseball.