Money Marathon Risk #1: Your Plan Could Crash

Welcome back to our Money Marathon series, where we’re having some fun using running analogies and stories to explore how you could potentially get more mileage out of your hard-earned money. Today, I’m sharing the first of seven risks of running your wealth marathon alone without any support.

Each video will walk you through one risk that both marathon runners and investors can face. Then, you’ll learn about some strategies and tactics that could help you extinguish those risks. My hope is you’ll uncover at least one meaningful opportunity each week that could help you secure your future, minimize your tax bill, and maximize your wealth so that you can run your best money marathon and live your best life. So, let’s jump in.

Risk #1: Your plan could crash

Let’s talk about runners who face the same risk, and then we’ll talk about Investors who face that same risk in their money marathon. With marathons, have you ever wondered why so many marathon runners are vomiting between miles 22 and 25 of a 26.2-mile race? You might be thinking, well, it’s just a long way to run, and I agree! However, many of the runners didn’t have the support of a coach who helped them calculate what pace they could sustain for those 26.2 miles.

So, basically, these runners go out at a pace that’s just not sustainable. They burn through all of their precious glycogen stores, a fuel source that their bodies would ideally use to run fast for the duration of the entire marathon. And once they run out, they essentially hit the wall or crash.

Ideally, every runner would know what pace they can sustain and would have the support of a coach who could help them calculate their marathon paces for various conditions. For example, hot weather, cold weather, whether they’re feeling healthy or a little bit injured, the course difficulty, how hilly it is, the wind, and that way, they just kind of know what range of paces should be sustainable based on their situation.

Coaches often put runners through a lactate threshold test. You can actually see a picture of me below with a mask on, getting my blood drawn every few minutes to figure out what pace I could sustain.

Other tests runners do would be to complete a fast-finish long run or a half-marathon race and then use those results as a baseline to figure out a marathon pace.

Investors should know their spending threshold pace

What does this have to do with your money or trying to secure your future and run your best money marathon? Ideally, you cross the finish line at the end of your life, and you’re not broke. You’ve lived a great life along the way. You’ve crossed all the checkpoints that you want to cross with your financial life goals.

Just like marathon runners, I have not met one investor who wants to run out of money or financial fuel and crash. Like marathon runners, investors should know their spending threshold paces. And that’s just how much money they can spend in any given year while maintaining a strong probability of success.

Ideally, your financial plan should have at least an 80% probability of success

My personal preference, or where I feel good, is if clients have a financial plan with at least a 75% probability of success. Ideally, it’s 80% or more, using historical back testing when we stress test their plan. And we want to stress test their financial plan for different situations. Good markets, bad markets, lower social security benefits paid out, higher taxes, and higher inflation (that’s not an exhaustive list). That way, their eyes are wide open moving forward.

Suppose I had a client whose desired spending pace resulted in a 50% probability of success. In that case, that doesn’t mean their plan will fail, but it suggests that their plan could be at risk of crashing if they don’t receive some favorable financial returns in the market with their investment strategy.

But I think it’s better to see a lower score or a lower probability of success and then be able to adjust the spending pace,  just like runners can do after they receive their stress test. So, there could be this ideal goal. Then, you do a stress test and find out that that pace might not be sustainable. But I believe it’s much better to know that ahead of time so you can adjust pace and potentially prevent hitting that wall and crashing.

In summary, if runners and investors don’t have the support of a coach, or if they don’t do stress tests and know how to interpret those results, could be at risk of crashing or just worrying about their money or worrying about what pace they can sustain, whether it’s running a physical marathon or a money marathon. And they might worry about how much they can actually spend without running out of money.

So, how do we extinguish or mitigate this risk when running a money marathon? Develop a financial plan. Stress test that plan for different conditions, like bad markets, good markets, different tax rates, etc. like I discussed previously.

If your probability of success is less than you’d like it to be, it’s time to roll up your sleeves, get to work, and figure out how you can increase your odds of success. If you don’t have the tools to customize a financial plan or stress test your plan, please feel free to contact us and request a complimentary consultation. We’d be happy to help you.

Okay, we got the tough one out of the way. Next week, it’s time to have some fun when we talk about another risk I hope you’re facing. Here’s a sneak peek.

Way too many investors I meet have plenty of resources. They worked hard for their wealth, and worry is just holding them back from actually enjoying the wealth they’ve created.

If you or someone you care about has accumulated a meaningful amount of wealth but worry is holding you or holding them back from enjoying it, stay tuned for next week’s post.

At One Life Financial Group, we provide customized planning, a way to track your progress and ongoing guidance. If you’re interested in learning more about how we can work together to develop a plan to help you maximize your wealth, minimize your lifetime tax bill, and protect your time and money so that you have more for what matters to you, schedule a no-cost, 90-minute consultation.