Five Key Life Stages and How to Plan for Them

Influential author and business commentator Seth Godin once wrote "Change is not a threat, it's an opportunity."

Here are five key life stages where change can make a significant impact—and where sound financial planning can help.

A plan for every stage

Your personal financial plan needs to adapt to changes in each stage of life and handle them effectively. Review your goals and financial situation regularly. By taking informed and effective action, you can live the life you want instead of having life happen to you. Here are practical financial planning suggestions for all five key life stages.

1 Graduating from college

You've graduated from college, and you're about to start your career. As you enter the workforce, one of the most important preparations you can make is to equip yourself with a financial actions toolkit to support your short- and long-term financial goals.

• Create a budget. A realistic budget framework can help you manage debt, plan for big-ticket items and protect against excessive spending.
• Start an emergency fund. Have something to fall back on if the unexpected happens.
• Contribute to a 401(k) plan—or see if your employer gives you similar credit for paying student loans. When it comes to planning for retirement and paying off debt, there's no time like the present.
• Get a credit card, and start building good credit. Your credit report is a financial asset that will benefit you in the coming years.

2 Starting a family

You want to play a highly effective role in supporting and protecting your precious family. Planning your finances is one of the most powerful things you can do to ensure continuity in the face of the unexpected. Here's what you can do to prepare.

• Put adequate disability insurance in place. An adequate policy covers most but not all of your salary—around 80%. This is a sensible level because you're statistically more likely to be injured or have a health event than to die prematurely.
• Think about your will. Your good intentions should be formalized in order to be effective. You should execute your testamentary documents, including your will. This helps clarify your vital life decisions—such as choice of guardian for minors and trust vehicles for your assets—and ensures they're legally enforceable.
• Prepare protection documents. These documents include power of attorney, which allows a named agent to act on your behalf financially, and a healthcare advance directive, which informs your healthcare provider who has authority to make medical decisions if you can't speak for yourself.
• Purchase life insurance. If anything does happen to you, your estate can pay off your debts and your children's guardian will have the financial resources to help care for them.
• Start a 529 plan to fund college costs. It may seem far in the future, but the years from cradle to campus go very quickly—and college isn't getting any cheaper. A 529 plan is a tax-efficient way to save for this ballooning cost.

3 Getting married or cohabiting

Talking about financial matters openly will help you to plan realistically so you can focus on what really matters—your lives and your relationship. Here are important issues to put on your list for an early financial conversation.

• Have a thorough discussion. Disclose your assets fully, and understand key aspects of your partner's approach to money, including how they handle spending and borrowing, what kind of debt they have and their credit score.
• Decide how things will work between you financially. Will you pool your money or keep assets separate and have one marital account? Are there assets you don't plan to share?
• Discuss whether a prenuptial agreement or separate property trusts are necessary. Define up front where to set the boundaries around ownership of assets—especially if you're an entrepreneur with the prospect of significantly increasing future wealth. This can reduce the chances of future ambiguities and potential disputes in the event of the death of a spouse or a divorce.
• Consider possible future scenarios in your shared lives. Will one of you need to pause or even give up your career to raise children full-time or care for an elderly parent? What might be the financial consequences? Would a written agreement be helpful, covering expectations such as the caregiver receiving an allowance to compensate for their time?

4 Planning for retirement

Build a financial plan that lays the foundations for your richly deserved retirement years. Think about the style of life you want, your location and your care and support as you grow older. Also consider the point of retirement itself. How do you intend to enjoy your downtime? Build the following elements into your retirement thinking.

• Do the math. More than half of Americans worry they won't reach financial security in retirement. A robust plan should factor in essentials, including your likely monthly spending and health insurance premiums. Don't forget to stress test your plan to see if it can withstand a market downturn so you don't end up with a shortfall.
• Consider your retirement location. The state you reside in can financially impact your lifestyle. In addition to general cost-of-living differences, some states tax Social Security while others don't.
• Choose a long-term care policy. You may be able to self-finance, but coordination of your care can unintentionally create demands on your adult children at a time when they'll likely have busy careers. Many will have children of their own to look after. They may even be living far away, which can create logistical issues. A long-term care policy will alleviate the strain of organizing the elements of support you may need.
• Decide what you want to do with your free time. Identifying and following your interests and hobbies will help you stay busy, purposeful and fulfilled—and healthier for longer.

5 Processing divorce or the death of a spouse

Bereavement and divorce can change so many aspects of life—and gray divorces in particular can bring greater financial complexity. Divorces among those 50 and older are up from 8.7% in 1990 to 36% today.

Regardless of age, knowing your finances are in good order is a solid foundation for your next chapter in life. It can enable you to move on at your own pace and in your own way. Here are some proactive financial strategies following bereavement or divorce.

• Build a new financial plan. Inevitably, your circumstances will have changed. Make a plan that reflects your new reality.
• Identify new life goals. Think about where you'll live and how. Is sharing a home with friends in similar situations something to consider? Or could being closer to adult children be a better move?
• Review financial technicalities to reflect a major life change. Rewrite your estate plan. Choose new fiduciaries for your wills, trusts, powers of attorney and healthcare advance directive. And think about who will be taking care of you if you need assistance.
• Get long-term care insurance for peace of mind. If you're insured, review your policy and its provisions to make sure they'll be adequate for your needs.

The bottom line

The future isn't ours to see. But it's in our power to build an intelligent and effective financial plan that reflects the future we want for ourselves and our loved ones. Life will present you with several key events, so it's important to make your financial plan a living—and evolving—document. Don't lock it away in a drawer and forget about it.

You don't need to live to plan. But you do need to plan to live. At pivotal moments, reach out to a Wealth consultant to get an informed professional perspective.