April 30, 2020
Financial planning is a living, breathing entity and as we go around the sun, things are constantly changing.
Today, as I write this, is my birthday. It might not be by the time you are reading this. Or perhaps it’s your birthday. Regardless, it is another turn around the sun. Another year of getting older, and hopefully wealthier and wiser.
Birthdays are a time for rituals and reflections. Cake, candles, singing, jokes about getting older and the reflection on aging – it is a celebration of oneself.
A birthday ritual can also be a valuable financial planning tool. Too often in our personal finances, decisions are made and then never considered again. But financial planning is a living, breathing entity and as we go around the sun, things are constantly changing.
Birthdays are a great time to address financial well-being. You can create a birthday financial planning ritual that will help move you forward in the upcoming year. This ritual should be a mix of what has happened over the past year, where you currently stand, and where you are going.
Birthday Reflection #1: Reviewing Life Events
Like birthday reflections on aging, one of the oddest facets of financial planning is the emphasis on death, which hovers over many planning discussions. But as The Book of Common Prayer states, “in the midst of life, we are in death.” Hence the drive to seek the appropriate legal documents to manage our affairs.
While simply having estate documents is a good start, there is also the issue of when to update them. Estate planning documents are typically drafted with the expectation that they will last a lifetime, but hopefully they will be reviewed periodically. The language used in them has an elasticity to cover a variety of situations.
How does your birthday play into this? The best estate updates occur when there has been a life event – a birth, a marriage, or even a substantial change in assets. Your birthday is an opportunity to look back and reflect on whether your life materially changed over the past year such that you need to update your estate plan. For most individuals, that typically occurs every 5-7 years. When these life events arise, updating your estate plan might be a good birthday gift to give yourself.
Birthday Reflection #2: Review Future Income Streams
Birthdays are a celebration and The Social Security Administration (SSA) used to send us birthday cards every year. About a month before your birthday, your annual statement would arrive, listing your reported earnings, your projected Social Security Benefits depending on the age you file, and even the assumptions SSA used in calculating these benefits
Unfortunately, in the cost assessment after the 2008 financial crisis, SSA ceased sending us these paper birthday cards. But the good news is this information is available online and your birthday is a great time to log on and review your account, ensure that the information is accurate and up to date, and see if your projected benefits have risen versus the prior year.
You can conduct a similar review for all financial accounts from which you plan to draw an income stream in retirement. Many employer 401k plans have great, user-friendly calculators on their site to let you know what they project your monthly benefit amount to be in retirement. Typically, the icon used is a traffic light. You should be checking that traffic light on your birthday to see if your current savings and investment return rate is moving from red to green.
Checking these numbers annually on your birthday can either confirm that you are on track or help you determine what steps you can take in the coming year to improve your situation. Unlike age, the bigger the retirement savings number, the better!
Birthday Reflection #3: Goal Setting
Birthdays are also an opportunity to take stock of where we are headed. Time changes as we age and the years between birthdays seem shorter and shorter. It’s like the longer a record plays, the shorter the distance around. (I’m even aging myself there in referencing a record player!)
Financial goal setting ties in perfectly with your birthday. Most financial goals should be considered in terms of timing. You should have one short-term financial goal that you set before your next birthday, one for a mid-decade birthday, and one long term birthday goals.
Further, since you have a specific date you are working towards, the goal should be as specific as possible. Perhaps you want to have $1 million dollars saved by the time you are 50 years old or you want to be able to retire by 60. Birthdays tie in well with this type of goal setting as you can benchmark on the same day each year.
A Very Financially Happy Birthday to You
Birthdays can be a very useful reminder that as we age, we want to make sure our planning reflects who we are. Like a snake shedding its skin, we will have many “lives” over the course of our lifetime. We want to make sure that despite change and growth, we stay on track so that our birthdays continue to be comfortable and fun. I hope you have a very Happy Birthday!