Retirement Planning

Financial Planning Should Cover the Unexpected

King Solomon, known for being the wisest man who ever lived, once said, “Plans fail for lack of counsel; those with valued advisors will succeed.”

Many people make plans based on achieving and maintaining ideal circumstances. However, without trusted and valued advisors, when faced with adversity their financial plan – or the intent to follow that plan – may fall by the wayside.

This often happens when clients and their advisors develop financial and retirement plans. People expect the markets to continue growing, and their investments to grow as well. However, they don’t consider the possibility that markets decline and investments don’t meet expectations. They also fail to consider how their lives could change, such as losing a job, becoming ill or facing the loss of a loved one. Any negative occurrence in an individual’s life can throw their financial plan into disarray.

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James B. Underhill, CFP®, MBA, founder of Underhill Financial Advisors LLC, understands how life-altering events and the lack of planning can affect one’s financial future. In fact, he experienced this firsthand. Underhill’s grandfather became wealthy managing the family’s furniture manufacturing business. Unfortunately, estate taxes forced liquidations that reduced the value over 50 percent. Underhill’s father ran a successful small business for years, but a major recession seriously impacted his livelihood, forcing him to retire.

“These are just two examples of intelligent, hard-working individuals whose families were negatively impacted by economic events and the lack of planning,” said Underhill. “It also illustrates the importance of having a well-thought-out financial plan in place and seeking the advice of trusted legal, tax, and financial advisors. Hope is not a plan, and simply thinking you’re prepared is unlikely to ensure your financial success.”

These situations formed the catalyst for Underhill to get into financial planning and wealth management following a successful career in engineering and plant management. After mentoring with an experienced financial advisor, he founded Tucson, Arizona-based Underhill Financial Advisors, LLC, a boutique wealth management firm providing comprehensive financial planning services.

The firm creates personalized financial plans for clients that help them to achieve their financial goals while navigating transitions in their lives.

Many people do not understand how investing, retirement planning or the stock market in general work. Even the most successful business owners are not well-versed in key financial issues, such as proper asset titling, estate planning, and trusts. This lack of understanding is often compounded by the fact that some financial advisors sell services to clients rather than trying to service their clients’ needs.

Underhill believes that advisors must offer clients choices before they present solutions. Financial advisors should develop options and tailor a strategy that best fits the clients’ interests. They should also create financial plans to illustrate what the clients hope to accomplish and track their ongoing progress towards achieving their goals.

underhillquote350x250“Every financial plan is personalized to fit the client’s individual goals, needs, wants, wishes, lifestyle and risk preferences,” said Underhill. “We customize and build plans using different investment strategies rather than a fixed model. Our internal portfolio design combines individual stocks, bonds, and ETFs using proprietary research to make allocation adjustments based on changing market conditions. In addition, we have the capability to add boutique money managers to support clients’ specific tax and income needs.”

Over the course of a person’s life, many things can change. And with people living much longer than in the past, change is certain. Longevity means that people will have to deal with varying health issues and long-term care. They also have to address the possibility of caring for both parents and children, which can seriously strain any retirement plan.

One strategy for dealing with these issues is to follow the “buckets of money” theory. Using a financial plan as the foundation, you would direct funds to different “buckets” that would have specific purposes. One would focus on safety and provide funds for up to three years. The second bucket would focus on providing stable income during retirement such as Social Security, a pension or an annuity. The third bucket would include investment accounts designed for withdrawals over a three to ten year time horizon, while the final bucket would be investments allowed to grow more than ten years.

“We find our clients don’t fit the traditional theory that they can live on 70 percent of their working income in retirement,” said Jordan Underhill, Financial Advisor. “Many of our clients spend the same or more in retirement. Using these four buckets, we help them create a savings reserve, build monthly retirement income from multiple sources, and provide opportunities for growth."

Every financial plan must consider both the best-case and worst-case scenarios to ensure that clients are covered under as many different situations as possible. While everyone wants to live as long as possible, longevity brings with it certain challenges. It is possible to outlive one’s funds and run out of money later in life, which is too common an occurrence to ignore. A good rule of thumb for any financial plan is to ensure up to 50 percent of an individual’s retirement funds should be guaranteed or provide a steady stream of income that they cannot outlive. Pensions and annuities can help with achieving this goal.

Jim Underhill and his team will typically run Monte Carlo simulations when creating financial plans for clients. They factor in life expectancies based on clients living longer than 80 percent of the general population. In addition, they input specific goals and sequence of distributions to ensure those goals and needs can be met. They also calculate an “investment loss threshold” for each plan.

“Recessions and other financial challenges can create havoc for financial plans,” said Underhill. “We ensure that every client knows how much their portfolio can lose before their plan’s probability of success falls below an acceptable level. We set stop loss measures to protect investment values from reaching the loss threshold. A properly designed and managed financial plan provides the roadmap to success throughout our client’s lives and helps them navigate all of the market’s ups and downs.”

For more information on Underhill Financial Advisors, visit: underhillfinancial.com

Investment Advisor Representative and Registered Representative of, and Securities and Investment Advisory Services offered through Voya Financial Advisors, INC. Member SIPC. Underhill Financial Advisors, LLC is not a subsidiary nor controlled by Voya Financial Advisors, INC.
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