Reasonable Strategies

Anything involving a plan has steps to take for the plan to take action. A vacation, wedding, a weekend dinner, it does not matter what is planned, the steps are the element of how it comes together. These steps are also in financial planning, but we refer to them as strategies. There can be some interesting interpretations as to what is considered reasonable and prudent when it comes to strategies. Here are some strategies we have heard about over the years we would consider as “not so reasonable”.

If you have only saved half of what you should have, doubling your expected rate of return will fix it.

The earn more or save more debate is normal when we have a potential shortfall in your retirement planning. However, increasing your projected rate of return to cover it will involve taking on more risk to your overall investment strategy. If you want to explore what it will take in years to double your money, take the annual interest rate you are targeting and divide by 72. This gives you the number of years it would take at that interest rate to double your money. Often after doing this exercise, you discover hitting your goals may not involve buying all speculative stocks after all.

Interest rates were double digit and the economy was roaring along, they should go up like that again.

Just as we improve the quality of our lives through innovations and learning (sometimes the hard way), the economy tends to follow the same pattern. Sure, interest rates on a savings account may have once been 15%. There was a counter effect to this that most financial institutions do not want to experience again. It is fundamentally important to look at how you can grow your money to adjust for inflation and your buying power over time, not just how much the rate of return is. The economy adjusts and changes interest rates to increase or slow down the economy, it is never just a set amount for decades at a time. Often, a savings or CD rate will never quite be at the current rates of inflation so you just lose buying power slowly.

The State can pay for your Long-Term care if you spend down everything by gifting it.

There is a thought process that you do not really need long-term care insurance because you can “Creatively” spend down your estate and then qualify for state care. Yes, there are some options when it comes to gifting your estate down and we are not denying it is possible to do in a legal sense. However, many States have gotten smart to this and now once you have run up the State tab for your care, they often will go in and look for any remaining assets to collect from. This can or may include a look back period of up to five years. Best advice is to evaluate how to insure against this expense or to have a spend down strategy that will cover the care and not run up a possible collectible debt.