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Plan For It; Don’t Plan On It


Ask a number of Americans of all ages how they are progressing toward financial independence, and most will admit that they believe themselves to be woefully behind. Others will likely be mistaken about their own progress. But the fun really begins when you ask unprepared people what their plan is to become financially independent.

Here are some of our favorite actual responses from our financial planning practice: 

  • I buy Lottery tickets every payday
  • I am planning to start saving soon
  • I am waiting for my inheritance

It probably goes without saying that we consider these “planning tools” insufficient. Perhaps the Lottery concept has the worst odds, and although the actual winners always have purchased a ticket, most Lottery ticket purchases make people poorer, rather than wealthier. The Lottery is aptly dubbed a “regressive tax.

The surest method of planning personal financial independence is to take responsibility for yourself through saving and investing. Tax laws favor retirement savers, and the financial markets have always rewarded long-term investors. Savers will also make a more positive impression on others who may name them as beneficiaries.

We refer to inheritance as the ultimate “bad news, good news” situation. When gaining an inheritance, the beneficiary has lost someone important, but has also gained ground financially. Because expected inheritance is so uncertain, it is not a suitable financial planning tool. In our day jobs, we use an expression that says, “Never plan on an inheritance (even if it is known to be happening), always plan for it.”

Waiting for an inheritance is dangerous at best, even if your extended family is reasonably well-off. In their later years of life, Americans tend to spend enormous sums of money on health care and maintenance. These expenses escalate after most people have stopped earning income, making asset draw-downs more significant.

Even relatives who retain significant wealth until end of life have the ability (and tendency) to become generous to charities and favorite causes. Their gifts may reduce the anticipated value of any estates that will be left to heirs.

There is no substitute for planning prior to receiving a windfall. Improper wealth planning (and especially no planning at all) may result in newly acquired assets being squandered. Financial independence (retirement) requires accumulation of wealth. Even a Lottery ticket of significant magnitude compels planning prior to collecting the cash. If you become one of the fortunate few to experience Sudden Wealth, either through inheritance or other windfall, we can help. For most people, orderly and well-planned saving is the most reliable method of wealth accumulation. Stay safe and smart -- avoid risky outcomes through planning.

Van Wie Financial is fee-only. For a reason.