According to a 2019 study by the Federal Reserve, nearly a quarter of all Americans have no retirement savings or pension. The report also states that more than half of adults over age 60 feel financially underprepared for retirement. 

Young Park, a Senior Relationship Manager with AAFMAA Wealth Management & Trust who specializes in risk management, has spent nearly two decades in the financial industry. He said that, like physical health, financial health depends on positive core behaviors to stay on track. 

Though individual circumstances are always unique, Park said four behaviors have proven to be essential when creating long-term success and financial freedom in retirement with his clients:

1. Pay Yourself First 

“The good news is that even though saving is often the biggest hurdle to financial health, it’s also the easiest to mitigate,” Park said. He recommends a simple, powerful strategy to his clients: Pay yourself first.

“Rather than paying bills first and saving what’s left, decide on a percentage of your paycheck you can afford, then automatically route that amount to a savings account --like a 401(k) or TSP-- before anything goes to your checking account” he said. “It’s not as tempting to spend what was never there to begin with, and you’ll be amazed at how quickly your money accumulates.” 

Park said Individual Retirement Accounts (IRAs) are also great savings vehicles that provide added tax benefits, but he recommends seeking the advice of a financial professional before investing. 

“A professional can help you determine the right amount and places to save your money so that you’re set up for long-term success,” he said.

2. Save and Invest With the “Big Picture” In Mind

“I’ve met with a lot of clients who had the discipline to save and invest, but failed to keep the ‘big picture’ in mind,” Park said. “They ended up with savings in the wrong types of accounts, investments that fell short of performance goals, and even missed opportunities altogether.” How does Park say you can ensure to keep the “big picture” in mind and avoid similar pitfalls? By using a comprehensive financial plan. 

A comprehensive financial plan provides both a snapshot of current family information such as employment, budget, and investments; a view of how various changes like major life events, and upcoming expenses might impact your future financial health; and a list of all short- and long-term goals.  

“Basically, it shows where you are and where you want to go, providing the ‘map’ of how to get there,” Park said. “By having specific targets in mind, every move you make is planned and purposeful, and it’s easier to stay on track with your financial health.”

Because a comprehensive financial plan is often complex and evolves with time and circumstances, Park recommends working with a CERTIFIED FINANCIAL PLANNER™ professional. 

“You definitely want to work with a qualified CFP®,” he said. “They’re specifically trained in developing strategies to help you achieve financial health. And as a fiduciary they’re required to put your interests above their own.” 

3. Plan for the Unexpected

You can’t always predict when a medical emergency, turn in the market, or death in the family might happen, but it’s often unexpected events like these that change lives the most. Park says that while maintaining an emergency fund is essential, truly planning for the unexpected requires more. 

“I recommend reviewing life insurance type and coverage policies, taking a look at your short- and long-term disability insurance, and your health history to anticipate when and what needs might be on the horizon,” Park said. 

He also works with his clients to establish a truly diversified portfolio -- the only real protection against major market fluctuation. “By properly realigning and continuing to rebalance your portfolio, you will be better positioned to weather unexpected financial storms.”

4. Work With the Right Financial Professional

Park said that the choice of financial professional can often be one of the biggest determining factors in long-term financial health.

  

“Because there’s no law that regulates who calls themselves a ‘financial advisor,’ you can’t guarantee that all of them are looking out for your best interests.”

Park recommends screening potential financial advisors carefully before choosing one to work with you. He says two key differences to look for when choosing a financial professional are whether the advisor operates under a fiduciary vs. a suitability standard, and how they’re compensated.

A financial advisor who operates under a fiduciary standard manages assets and always provides guidance in the best interest of their clients, rather than for their own profit, and can’t benefit personally from their management. They must:

• Justify that the products meet the best interests of the client.

• Consider all other options

• Ensure that the investment objectives meet the other needs of the client before they start the account.

In direct contrast, a financial advisor who works under a suitability standard only needs to make sure that you are able to purchase the product or service, not whether that particular service or product benefits your overall financial health. Park said this often results in clients and customers who purchase products and services that do not meet investment objectives, time horizons, and liquidity needs.

Park noted that it’s equally important to understand how your financial advisor is compensated. Though there are several methods, he said three are most common:

1. Fee-only: A flat percentage of the overall portfolio value. When the accounts are managed and handled well, the clients do well, and the financial advisor makes money. 

2. Commission-only: The advisor is compensated only upon sale or distribution of a product or service. This model is found most often in the suitability standard.

3. Combination of fee- and commission-based compensation (fee-based): Advisors may offer products where they assess a fee to an account value, but also recommend products and services for a commission payment for their revenue.

Park recommends the fiduciary standard and fee-only structure because this helps keep relationships with clients simple and straightforward. 

“I don’t have to worry about which products yield the highest commission. My sole focus is my clients’ long-term financial health.”

We’re Here to Help

Not sure which behaviors are impacting your financial health or how to develop a strategy to change them? At AWM&T, our priority is to ensure the financial security and independence of the American Armed Forces community. We help do this by providing investment management, financial planning, and trust services to military families. Call 1-910-390-1933 or click here to request a complimentary Investment Portfolio review. There’s no cost or obligation.