Goal Setting

We at Paragon Financial Advisors don’t believe that “any direction” is acceptable. The financial well-being of you and your loved ones is too important to be left to chance. That’s why we encourage our clients to develop their personal financial goals.

Goals are basically a result or achievement toward which you are willing to expend time and effort. Goals vary with the individual’s wishes; hence, you set your own. Defining effective goals requires developing characteristics for those goals. For example, “I want to retire comfortably” is not a well-defined goal. Additional information is required.

Goal Characteristics

A well-defined goal requires the following characteristics:

1. Specific- An effective goal is specific in nature. It clearly defines the desired result or achievement in an unambiguous manner.
2. Measurable- Goals must be measurable, i.e. you must have a way to determine the attainment of the goal and monitor the process toward goal attainment. Financial goals would be measured in dollars.
3. Achievable- Effective goals must be achievable. For example, a goal of playing quarterback for an NFL football team would not be achievable for me given my size and athletic ability. Achievable does not necessarily mean easy. “Stretch” goals requiring significant effort are permissible if it is possible to achieve the final goal.
4. Relevant- Goals must be relevant; a relevant goal provides incentive for expending the effort required for goal attainment.
5. Priority- Most individuals will have multiple goals as they go through the goal setting process. Some goals will be more important to the individual than others. Therefore, goals should be ranked by priority. Which goals are most important and which goals have lesser importance? Identify and rank according to priority.
6. Time frames- An effective goal has associated time frames for completion and “mile posts” to monitor progress toward goal achievement.
7. Action Items- Action items outline the actions necessary to attain the goal. What needs to be done to successfully reach the goal?

Let’s restate our retirement goal according to these parameters.

“My first priority is to retire in 30 years at an income level equal to 85% of my current income adjusted for inflation at 3% per year. To accomplish this goal, I need to save X dollars per year and my investment portfolio needs to grow at Y % per year.”

This restatement clearly provides better definition with the characteristics discussed above.

• Specific/Measurable- “…retire… at an income level equal to 85% of my current income adjusted for inflation at 3% per year.”
• Achievable- certainly.
• Relevant/Priority- “…first…”
• Time frame- “… in 30 years…” with measurable mile posts—the value of the portfolio each year based on an assumed savings rate and portfolio appreciation rate can be identified and monitored.
• Action Items- “… save X dollars per year.” 

         Please contact us at Paragon Financial Advisors. We’ll assist you in developing your personal financial goals. Paragon Financial Advisors is a fee only registered investment advisory company located in College Station, TX.  We offer financial planning and investment management services to our clients

Goals Set-Goals Met!

The base of your financial planning should be your goals and objectives. Goals are basically a result or achievement toward which you are willing to expend time and effort. Goals vary with the individual’s wishes; hence, you set your own. Defining effective goals requires developing some particular characteristics for those goals. For example, “I want to retire comfortably” is not a well-defined goal. Additional information is required.

Goal Characteristics

A well-defined goal requires the following characteristics:

1. Specific- An effective goal is specific in nature. It clearly defines the desired result or achievement in an unambiguous manner.
2. Measurable- Goals must be measurable, i.e. you must have a way to determine the attainment of the goal and monitor the process toward goal attainment. Financial goals would be measured in dollars.
3. Achievable- Effective goals must be achievable. For example, a goal of playing quarterback for an NFL football team would not be achievable for me given my age, size, and athletic ability. Achievable does not necessarily mean easy. “Stretch” goals requiring significant effort are permissible as long as it is possible to achieve the final goal.
4. Relevant- Goals must be relevant; a relevant goal provides incentive for expending the effort required for goal attainment.
5. Priority- Most individuals will have multiple goals as they go through the goal setting process. Some goals will be more important to the individual than others. Therefore, goals should be ranked by priority. Which goals are most important and which goals have lesser importance? Identify and rank according to priority.
6. Time frames- An effective goal has associated time frames for completion and “mile posts” to monitor progress toward goal achievement.
7. Action Items- Action items outline the actions necessary to attain the goal. What needs to be done in order to successfully reach the goal?

Goal Definition

Let’s restate our retirement goal according to these parameters.

“My first priority is to retire in 30 years at an income level equal to 85% of my current income adjusted for inflation at 3% per year. In order to accomplish this goal, I need to save X dollars per year and my investment portfolio needs to grow at Y % per year.”

• This restatement clearly provides better definition with the characteristics discussed above.
• Specific/Measurable- “…retire… at an income level equal to 85% of my current income adjusted for inflation at 3% per year.”
• Achievable- certainly.
• Relevant/Priority- “…first…”
• Time frame- “… in 30 years…” with measurable mile posts—the value of the portfolio each year based on an assumed savings rate and portfolio appreciation rate can be identified and monitored.
• Action Items- “… save X dollars per year.”

We at Paragon Financial Advisors help our clients appropriately define, and attain, their financial goals. Please give us a call and we’ll help you.  Paragon Financial Advisors is a fee only registered investment advisory company located in College Station, TX.  We offer financial planning and investment management services to our clients.

Are We There Yet?

It is no secret that returns in the capital markets (stocks and bonds) have been volatile (and below historical averages) for the past few years. Some market “experts” are predicting that those lower returns will be the “new normal” for some years to come. If that prediction is correct, individuals must save more to maintain their desired standard of living in retirement.

We are presenting below a “savings checkpoint” table for determining whether your current savings amount is “on schedule” to fund retirement at your current standard of living. The table is a function of current age and income level. This table is based on J.P. Morgan Asset Management’s proprietary model with their capital market assumptions and an 80% confidence level.¹  Several additional assumptions are involved:

• The assumed annual gross savings rate going forward is 10% (about twice the current US average savings rate).
• Pre-retirement investments earn 6.0% per year.
• Post-retirement investments earn 5.0% per year.
• Inflation is 2.25% per year.
• Retirement age is 65 for the primary wage earner; age 62 for the spouse.
• Retirement will last 30 years.

You can use the factors in the table below to determine if your accumulated savings is sufficient:

Age	$50,000	$75,000	$100,000	$150,000	$200,000	$250,000	$300,000
30	-	0.5	0.8	1.3	1.8	2.1	2.2
35	0.3	1.2	1.5	2.1	2.6	3.0	3.2
40	0.8	1.9	2.3	3.1	3.7	4.1	4.3
45	1.5	2.8	3.3	4.2	4.9	5.4	5.7
50	2.4	3.9	4.5	5.6	6.4	7.0	7.3
55	3.4	5.2	5.9	7.2	8.2	9.0	9.3
60	4.5	6.8	7.5	9.1	10.4	11.2	11.7

The income levels across the top are gross income (before taxes and savings). Go to the intersection of age and income level to determine the appropriate factor. For example, a 40 year old person earning $100,000 per year has a factor of 2.3. Multiply your current salary times that factor to determine the amount you should have saved today or $230,000 in this case (2.3 x $100,000). Savings are assumed to continue at 10% per year until retirement.

Are we there yet? Please visit us at Paragon Financial Advisors to determine whether your savings level is sufficient to provide the retirement lifestyle you desire. We can help you plan for your future financial goals. Paragon Financial Advisors is a fee only registered investment advisory company located in College Station, TX.  We offer financial planning and investment management services to our clients.

 

¹The J.P. Morgan model uses household income replacement rates from an inflation-adjusted analysis of Consumer Expenditure Survey (BLS) data (2011-2014). Social Security benefits are assumed using modified scaled earnings in 2017 for a single wage earner at age 65 and a spousal benefit at age 62 reduced by Medicare Part B premiums.

Road Map To Retirement

The 2016 elections have certainly brought about some changes in the political landscape. One thing hasn’t changed however—an ageing population that is moving toward retirement. Baby boomers began turning 65 in 2011 and their number is increasing by about 10,000 per day. In 2017, the leading edge of the boom will turn 70 (complete with required minimum distribution requirements from retirement accounts). Considering this trend, we are beginning a series of postings on navigating the road to (and through) retirement.

First, we’ll look at some of the possibilities facing individuals as they approach retirement. Will older Americans continue working? How long is “retirement”? What about Social Security? How should one plan for spending and inflation?

Then, we’ll look at some of the “pre-retirement” planning that should be done. How much should one save for retirement? Should it be done in company savings plans? IRAs (traditional or Roth)

Spending in retirement is a key factor. How much is “too much” for investment withdrawals? Tax management (for investment withdrawals, taxes paid (income-federal and state; and local (personal property, real property) are no minor consideration. Health care (and long term care) costs are also an item of uncertainty and concern.

Finally, how does one pay for retirement? The reduction in defined pension plans and replacement with 401k plans has put the investment risk on the retiree. Quality of retirement is, in large part, how successful one is in managing his/her financial resources. We will begin some discussions on these topics.

“Plan your work, then work your plan.” That is the basis of financial planning that we at Paragon Financial Advisors assist our clients in doing. Please call us to discuss your specific circumstances, and stand by for more discussions on navigating the retirement road. Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas.  We offer financial planning and investment management services to our clients. 

 

The Student Debt "Bubble"?

About 25 years ago, federal government policies were implemented to encourage students to get a higher education—including borrowing the funds for that education if necessary. It was assumed that college graduates could afford the debt because they would be earning more from better paying jobs. However, the law of unintended consequences reared its ugly head. College expenses have been increasing much faster than the general rate of inflation. In addition, especially since the 2008 recession, jobs created have not been ones that paid exceptionally well.

 

An Associated Press article, written by Josh Boah in early October of 2015, gave some statistics about the student debt incurred for a higher education—and how it can have a multi-generational affect. Student debt in America now totals approximately $1.2 trillion. An Associated Press analysis of that data provided the following statistics:

1. Americans over age 40 account for approximately 35% of the education debt. Extended loan repayment schedules, mid-career changes, and signing for children’s educational borrowing have driven the increase from its 25% proportion in 2004.
2. Adults in the age 35-50 year old bracket owe about the same amount (an average of $20,000) as those students in the age 34 and younger bracket.
3. Parents who still have college debt and teenage children have more difficulties in providing education assistance for their children. Such parents have an average of $4,000 for children’s education savings vs. the $20,000 average for children whose parents have no student debt.
4. Student debt repayments are surpassing the cost of food for the average college educated head of household under age 40 (who has student debt outstanding)--$404 for debt repayment vs. what the family spends per month at the grocery store.

Student debt levels are causing potential problems in an already weak economy. Older graduates are delaying or foregoing some spending which would benefit the economy (such as housing and related purchases). Some graduates are accepting employment (usually at lower paying jobs) which would qualify them for student loan forgiveness.  Second generation student debtors will be looking at greater debt levels to continue their education.

There are some planning opportunities for pre-college students on how to handle the costs of continuing education. We, at Paragon Financial Advisors, can assist parents (and grandparents) in the best way to proceed on college funding. However, stay tuned—we haven’t heard the last of the student debt “bubble."  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

Back to the Basics: Dust off your Budget

I read a great article recently about the St. Louis Rams football team. Before they allow any of their new draft picks to sign contracts (many containing huge signing bonuses) they have to attend a mandatory “Financial Planning 101” class.  If the story is true, one of the coaches walked into the room with a briefcase and dumped out one million dollars in cash onto the table. Hopefully that got their attention [it would have gotten mine!]; because the next thing he did was physically remove a third of the pile…for taxes. He then took away several other stacks representing the player’s management fee and declared what was left was theirs to keep… BUT they had to make it last for the rest of the year.  

Not all of our employers are able to put our entire annual salary on the table in front of us in cash and challenge us to be good stewards of money, but what if they could? Would it change how you manage your money right now?

Our coach in this story is teaching his players a very valuable life skill and lesson on the importance of wisely controlling how you spend money. In the financial world we call this a “Spending Plan” or a “Budget”; a great tool that when used properly can help prevent you from overspending on your lifestyle and falling into debt. 

If you’re new to budgeting and making a spending plan, regardless of your age, don’t sweat it. No one gets their budget perfect the first, or even after several tries.  What is crucial during this timeframe is that you compare the projections you made to what you actually spent that month.

If you need a place to start or a format to follow; email us today at info@paragon-adv.com to request a free copy of our Household Budget Template.

The key to budgeting is to plan for your expenses ahead of time. By knowing your spending habits and accounting for your wants and needs it’s possible to take out the guesswork and quit wondering where all your money went.  If you’re married, being able to sit down and discuss your budget with your spouse will allow you to be on the same page and prevent future money disagreements; which can be a huge stress reliever. 

What if I have a surplus or a deficit?

If you find yourself having too much month left at the end of your money then it’s time to be honest with yourself. If you have a deficit by spending too much or your expenses are greater than your income, one of two things should happen 1) Decrease your Expenses and/or 2) Increase your Income. If you’ve dug yourself into a hole the best thing to do is stop digging! Put a plan in place to alter your habits so that destructive financial behavior will not create further problems.  In the words of Ben Franklin: “Beware of little expenses; a small leak will sink a great ship.”

What if you review your budget and make more money than your expenses? Congratulations, that is a great problem to have! When you reach the point where your expenses are under control is a perfect time to maximize your contributions to retirement accounts, children’s college funds, as well as save and invest for major purchases and financial goals.

We, at Paragon Financial Advisors, assist our clients in identifying their cash flow needs in order to maximize their savings and lifestyle. We offer Financial Planning and Investment Management. Paragon Financial Advisors is a fee-only registered investment advisor located in College Station, Texas.