To overcome risks, your financial planning needs to start early in life

If we knew when we were going to die, financial planning would be easy.

As it is, many variables and unknowns go into a financial plan. Financial planning is not a one-time exercise: You build the base plan and adjust as time and circumstances change. But it gives you a road map to start.

The ideal time to start a financial plan is in high school. What career you choose will have a big impact on how much you can afford to spend on your lifestyle. Once you are on your own, transportation, housing and education are often the biggest expenses. Your debt, fixed expenses and savings rates also set the stage for long-term success.

Humans have an evolutionary problem, in that we evolved to address immediate threats and discount the value of future rewards. We are also not good at understanding probabilities and risks. Consequently, most humans are not terribly good at long-term planning. So, financial planning for long-term goals like retirement just doesn’t make it to the top of the priority list. We have the capacity for long-term planning; it just isn’t something we do automatically.

Starting to accumulate assets for the future starts early, and this gives your savings time to grow and multiply. If you don’t start planning for retirement, you will likely run out of money in your later years.

There is always a trade-off between current and future lifestyles. Early in life, we accumulate assets so that when we are no longer able to work, we have nest eggs that can be withdrawn over the remainder of our lives. What was once a three-legged stool for retirement income—composed of pensions, Social Security and personal savings—has disappeared. Now, most Americans are responsible for two-thirds of their retirement income. Most Americans didn’t start saving early enough or didn’t save as much as they needed, so they are either experiencing a cut in lifestyle or will suffer a cut when they retire.

I always think that how we distribute our assets is more difficult than saving. Our worries change. Some of the risks that concern individuals on a fixed income are not necessarily the biggest risks that could derail a plan.

Many believe stock market declines, economic recessions and inflation are the biggest threats to financial security. However, health events and associated costs pose the biggest threat. A healthy 60-year-old woman can expect to live another 24 years—up to age 84—and a healthy 60-year-old man can expect to live another 20 years—up to age 80. Many of us know individuals who live into their 90s or 100s.

Here are some sobering statistics:

◗ 67% of all bankruptcies are caused by the inability to pay medical bills.

◗ Health care spending has increased six times faster than inflation since 1970.

◗ 69% of adults will need at least three years of long-term care.

◗ 78% of adults over 55 suffer from at least one chronic illness like diabetes or cancer.

◗ 25% of adults age 45 to 64 provide care for someone.

◗ 70% of caregivers provide direct financial support.

◗ 30% of adults in the United States over age 65 will suffer from either dementia or mild cognitive impairment.

◗ By the time a person is in their mid-80s, they have roughly a 50% chance of having some form of cognitive decline.

Starting early and accumulating as much as possible as soon as possible gives you more options in the future. Sometimes you just need to set aside time, which is our most precious commodity, and reflect on where you are and where you would like to be in 20, 30, 40 or 50 years. Spend some time educating yourself about what steps to take at what stage in life to meet all your lifelong needs.•

~Jalene