Stress-Test Your Retirement
By Allen Neuenschwander, CPA, CFP® and Michael Neuenschwander, CPA, CFP®
In the good ole days, when your car was on the fritz, your mechanic needed trained eyes and ears to figure out the problem. Today, with engines and systems that are much more complex, mechanics rely on computers and advanced software to properly diagnose hidden issues and remedy them.
Your money is no different. Life has changed drastically over the decades, often becoming increasingly complicated with more nuanced issues. “Stress-testing” your finances tests your wealth engine to determine how efficiently it’s running, exposes hidden dangers, and helps you avoid losing the money you’ve worked hard for.
DON’T BE TRICKED OUT OF MONEY
We’ve already used a car analogy, so let’s switch gears to a medical example. When you go in for your annual physical, your doctor may conduct a stress test, hooking you up to machines to test how well your heart works while you are active. If the test shows an irregularity, your doctor will develop a treatment plan consisting of medications, surgeries, exercise, diet, and additional testing. Doctors don’t leave anything to chance, but all too often we don’t cover our bases financially, which puts us at risk to lose more money than necessary.
We use the acronym T.R.I.C.K. to show clients how this happens:
- Taxes: Mitigating and minimizing taxes can make or break your retirement.
- Risk: Determining how much is too much or too little
- Investment mix: Allocation according to your risk tolerance and time horizon is crucial.
- Cost: Hidden, missing or difficult to access information on the fees associated with your investments can cost many investors hundreds, if not thousands, of dollars each year.
- Knowledge gaps: It’s difficult to make the right decisions without the right information.
The following case study provides insight into our process and the types of analysis we provide at Outlook Wealth Advisors.
STRESS TESTING IN THE REAL WORLD
Bob and Amy chose to have a stress test done on their money and financial plan and were shocked by the results of their stress test. They were unaware that their required minimum distributions (RMDs) were being taxed at the highest income tax rate. They found out they would lose $2 million to taxes on their IRA when Bob died, even though their previous advisors told them that “death taxes” were gone. Additionally, Amy, as Bob’s second wife, would only receive half of the assets while the remainder went to the kids in a way that put them in a battle with Amy.
Needless to say, these results were not what they were expecting. Once Bob and Amy were clear about what they wanted to see happen with their money and the biggest challenges in their way, it was easier to design a truly customized lifestyle and legacy plan. The result? Their lifestyle was protected, Amy was taken care of, and they were able to pass on a significant legacy to their children.
Stress testing is essential to a solid financial plan because you can’t create a solution until you know ALL the problems. Imagine going to a doctor who wrote you a prescription without taking any tests. It happens all the time with money. Advisors recommend “solutions” without comprehensively testing your money. And many of those solutions are cookie-cutter strategies, and the old days of achieving steady returns through one-size-fits-all approaches are over.
You’ve put a lot of effort and time into saving and investing your money so you can have a secure retirement. We don’t want to see you lose that money because of overlooked or often-ignored threats to your plan. At Outlook Wealth Advisors, we’d love to hook up your wealth engine to our stress-testing process to see where you may be at risk of losing money…and then get your engine running properly for the long term. Email us at [email protected] or call 281-872-1515 to get started.