The Key to Financial Success? Planning Not to Fail

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Saving Money

If you don’t know where you are going,

You’ll end up someplace else.

-- Yogi Berra

Look around. You’ve settled down, possibly you’re married, and probably you’ve found yourself a job that both suits who you are and supplies the income you need to live the life you think you want. You’re all set, right?

Wrong. You’ve only just begun, and today’s reality likely won’t be applicable tomorrow, much less years down the road. We know the only constant is change, and if you don’t plan for the future, you could wind up considerably less successful than you’d like, the “someplace else” of which Yogi Berra speaks.

Here are some critical financial areas to consider as you plan not to fail.

College is an Expensive Reality

There are job situations in which an advanced degree is unimportant, but that’s not true for many of us. Personal income increases based on your previous experience, but also—in many lines of work—with each educational ladder rung you’ve climbed. When your kids are ready for college, that advantage might be even more critical. There are scholarships, sure, but probably not for most of us.

No matter where you are in the family lifecycle, start devoting at least part of your overall savings and investment efforts to your kid’s college costs. In 2020, The College Board estimated that the price of higher education will increase at a rate of 5 to 8 percent per year, meaning that after housing, a college education will become most people’s largest investment.

According to U.S. News & World Report, the average college tuition for the 2019-2020 school year ran from $11,260 for state schools to $41,426 for private institutions. Add housing and living expenses and you will significantly increase the amount.

There’s a wide array of savings and investment options to choose from, but look for tax-friendly savings plans, like the state-sponsored 529 plans. These plans allow you to deduct contributions from your state income tax, and when it’s time to withdraw the money, the funds won’t be taxed.

Wisconsin’s 529 plan is called Edvest, but you don’t have to be a state resident if you like, say, Minnesota’s plan better. But check out your options at www.edvest.com first before making any decisions.

Retire in Style, or Not At All

After questioning the meaning of life, the most pressing concern for many is “How much do I need to retire?” In both cases, it seems, there are no easy answers.

Most people assume that increasing professional success automatically includes a growth in savings. If your employer has a good retirement plan that strategy, coupled with Social Security benefits, might be enough. But life’s volatility moves us in many directions, meaning we need other concerted savings efforts, too, to maintain our lifestyle into retirement.

So how much is enough? That depends on who you are and how you live. Financial advisors once relied on the 4 Percent Rule: Can you live on annual withdrawals of 4 percent from your savings to pay for a year’s worth of living expenses? Given that half of Americans admit they lack good savings practices and a quarter have saved nothing at all, the answer is probably no.

Other advisors take a definitive monetary approach based on age. By age 30, they say, you should have the equivalent of one year’s annual salary in savings. By 40, the amount should be three time your salary, by 50 six times your salary, by 60, eight times your salary, and by 67 the amount should be 10 or even 12 times your salary. Now look at your bank account and do the math. You’re not quite there yet, or maybe not even close, right?

At the end of the day most of us need help. Multiple investment tools, including IRAs, 401ks and other accounts are designed to help your savings grow, but it helps to have a financial professional managing your investments. They know at what age you can take higher investment risk in hopes of gaining greater rewards, and when those risks should be minimized and liquidity of funds maximized. There are many excellent money managers, but choose one that is a fiduciary, which means that your welfare comes first. Yes, it seems like that should always be the case—it’s your money—but often it isn’t.

The High Cost of Living … and Dying

Anyone who’s buried an aging relative or friend knows that America is an expensive place to die. In fact, perhaps the only thing more expensive than dying is the cost of health care required at end of life before the first shovelfuls of earth hit the casket. According to the National Funeral Directors Association, headquartered in Brookfield, the average cost of dying in the U.S. is $19,566. It’s cheaper in a state like Mississippi ($15,516) but much more expensive in Hawaii ($36,124). Apparently, it costs extra to die with the sound of the surf breaking in your ears.

But the last days on Earth can be even more expensive. Currently, 10 percent of all U.S. health care expenditures are dedicated to end-of-life care. In 2018, total expenditures were $3.65 trillion, meaning $365 billion went for those last days. According to Arcadia Healthcare Solutions, a health management technology company, costs during the last month of life can total up to $32,379 for hospital care and $17,845 for hospice care. Medicare covers many of those costs, but not all. Private insurance, including life and health insurance, plays a big role in picking up the balance.

Life is a costly business, and death doesn’t come cheaply either. If you’ve planned ahead and become a disciplined financial steward, your money may make it to the end.  The average burial plot in Wisconsin costs $2,568, which is 28 percent more affordable than the rest of the country. Add to that an average $15,000 cost of a funeral with all the trimmings, and in most cases you can still get by for under $20,000.

If that is still too much, cremation costs in the state average $1,045. My wife and I have instructed our kids to have us cremated and then sprinkled around the Hawaiian island of Maui. True, we won’t hear the surf, but they at least will have a nice vacation.