Financial Planning

Every Dollar Has a Purpose and Timeline

For centuries, lighthouses were used as navigational beacons. Ancient mariners were guided by fires built on hill tops. These primitive visual guides eventually became elevated on platforms for better visibility at sea. Eventually the modern lighthouse as we know it today was developed by placing the light source high in a tower to increase the distance at which it could be seen.

Lighthouses served two main purposes:

  1. Serve as a navigational guide for passing ships.
  2. Warn of dangerous coastlines hiding devastating hazards like shallow reefs, shoals and rocks that could penetrate a hull and sink the vessel.

Eventually, the need for lighthouses was replaced as technology became more advanced. GPS, for example, is used today to map underwater hazards, and guide ships into and out of harbors safely. However, without a guide or beacon to orient oneself, it would be much easier to get lost at sea, or end up wrecked on the rocks.

Our Guiding Beacon: TWFG Purpose and Timeline Philosophy

At TWFG our guiding beacon is our Purpose and Timeline philosophy (P&T for short). It’s our lighthouse. P&T orients us when then storm rages, and the dark of night settles in. Anytime the world begins to seem fuzzy or out of control we look to this viewpoint for guidance and clarity. When we focus on the P&T things seem to become clear, and action may be taken with great confidence even when the rest of the world seems to be in panic mode.

P&T is applied during our PT5 Step Retirement Planning process. This is the initial process where we draft written plans designed to guide folks to and though retirement. The plans are structured in such a way so that folks can maintain their desired lifestyle while adjusting the rising cost of goods and services as well as the corrosive impact of taxes.

P&T also keeps us on track throughout each year. Anytime a potential adjustment to a plan needs to be made, P&T is guiding our decision-making process. It gives us a center point to focus on during the maintenance and review step of our PT5 Step planning process. Before annual review visits with folks we refer to the P&T philosophy before recommending any changes be made.

Our P&T method also guides our asset allocation decisions. It helps us to determine where assets should be allocated based on the intended purpose of the dollar, and the timeline for which it is intended to be used.

So, what is P&T?

We believe every dollar has a future purpose and every dollar has a timeline in which it will be called upon to serve its purpose. In our opinion, determining the purpose and the timeline of each dollar is the first step that should be taken before making any asset allocation decisions. Once we have a clear understand of what a dollar will be used for, and how soon it will be needed, that’s when we can tell it where to go to work.

Determining the Purpose and Timeline


Folks have specific “NEEDS” to cover in order to live throughout their retirement. Their NEEDS include basic living expense like clothing, shelter, food, water, energy, transportation, communication technology, healthcare, and other necessities for minimum modern standard of life in America.

We consider these expenses to be the basic needs for someone planning for their post working years, and while everyone’s circumstances are different these basic necessities seem to be universal across demographics. NEEDS don’t necessarily make life exciting or fulfilling, but they are requirements to maintain a minimum standard of an American way of life.


In addition to NEEDS, most folks have a list of “WANTS.” Wants are things they find enjoyable. Stuff they want to do, and experiences they want to have. Wants may add excitement or fulfillment to life. However, if economic or market conditions eroded their investment portfolio they could be forgone in the short term in order to ensure that necessary resources to cover basic living expenditures will be there. WANTS are not required to exist, but without them retired life may not be nearly as fun!

Non-Negotiable WANTS (NNWs):

Some wants on the other hand are non-negotiable. “Non-negotiable WANTS” (NNWs) are things that we want to be able to do no matter what, and you’d be very disappointed in your lifestyle if it did not include the non-negotiable wants. They transcend WANTS to a status of NEED beyond basic living expenses.

Non-negotiable wants are different for everyone. For example, for me, an NNW would be skiing. If you told me I couldn’t ski because of a market downturn and I’d have to wait until the market recovers, I’d be pretty upset. Therefore, in our P&T Philosophy those non-negotiable wants must be treated as a NEEDS at all costs.

For some folks it might be travel to see grandkids in another state, or a golf course or club membership. If the market had a downturn, and their investments lost value and we told them they couldn’t do these things or they’ll run out of money, they wouldn’t be happy. So, we have to treat any non-negotiable wants like a need.


Lastly, we may have leftover money that could be left as a legacy, providing for future of the family descendants, or for charitable giving. There’s no immediate or long-term purpose for these dollars. They are designated as leave behind resources, and everyone’s situation looks very different. For some folks there’s a strong desire to leave a legacy, but for others not so much. Either way, market or economic conditions that may affect these dollars have little to no impact on the owner’s ability to maintain a desired lifestyle throughout retirement.   

Asset Allocation Based on the TWFG P&T Philosophy   

We start by identifying retirement income sources available like — pensions, if lucky enough to have one, or Social Security, which is often staggered for a couple since they will likely claim benefits at different times. Retirement income sources may also could also include rental property income, revenue from business interests, or part time work. It’s basically any reoccurring revenue coming into the household on an ongoing basis, which creates the foundation of income that we can work off of.

Then there are retirement assets like IRAs, 401Ks and other IOUs to the IRS. We might also have after tax accounts like a brokerage account holding marketable securities, or bank and credit union savings or money market accounts. We have to decide how to allocate these assets among various savings and investment opportunities, but how do we decide? 

In our philosophy, where every dollar has a purpose and a timeline, we’re looking at what the dollar is covering — is it a need, non-negotiable want, or a legacy? And then, what’s the timeline for when it needs to be available? Do we need it right now, in the near future, much later, or never? Once we have determined the dollars intended purpose, and the dollars intended timeline, we can confidently allocate it to the appropriate place for folks we serve.

Need It Now: 1-2 Year Timeline

If the dollars purpose is to cover an immediate need, meaning the money will be consumed right away to cover basic living expenses, or it could be consumed as a result of potential spending shock (for example an emergency occurs), we’ll need access to it and it can’t be subject to loss. Therefore, we wouldn’t feel comfortable investing it that in the market because although it might be liquid it could lose value in a hurry. We wouldn’t put in a place that may be illiquid, but consider a safe like a Certificate of Deposit or an insurance product like Fixed Rate or Index Linked Annuity, because we need access to it the immediate future.

Typically, money earmarked to cover specific and immediate needs would be sheltered in a bank account or online money market account. Because the main purpose is access and preservation we may understandably earn little interest on it, but that it OK because it is designated to be consumed for a specific purpose soon.

Need It in The Near Future: 3-10 Year Timeline

Then we have this timeline between 3-10 years. We don’t need the dollar tomorrow, but we do need it in the next decade. It’s foreseeable that we could experience a market downturn potentially lasting between 4 to 8 years between a market high, down to a market low, before recovering back to breakeven or higher.

Although no one knows exactly when it might happen or for how long, during an event like this we don’t want the folks we serve to be forced to sell investments during a market downturn. So, we need to set aside money that can be tapped even if their market based investable assets have declined in value. Doing so may prevent folks from being in a position where they are forced to make a choice:

  1. Sell at a loss in order to free up cash to maintain their lifestyle and potentially deplete their retirement assets more rapidly, or
  2. Reduce their lifestyle, forgoing experiences they’d rather not, while they wait for their investments to recover.

In order to make sure retirement assets are available to cover NEEDs and NNWs during this period of time we often enlist tactics that we refer to as loss avoidance strategies. The primary role of a loss avoidance strategy is to avoid market losses. Secondarily, we strive to provide some interest credit or investment return potential during a positive market, albeit limited in nature.

We take an agnostic approach to selecting financial strategies or companies that fit this objective. Meaning we don’t care which we choose so long as we strive to optimize the benefits for the folks we’re serving.

Financial products and strategies employed to in our Loss Avoidance strategy will often provide limited liquidity. Meaning we won’t have total access to all the money immediately which is often OK since we don’t need these resources for 3 to 10 years. However, they may have limited access to a percentage of the account balances which may help supplement NEEDS, as well as NNWs, during a market downturn.

Need It Much Later: 10-15 Year Timeline

Finally, there are dollars not needed for 10 to 15 years or more. These dollars may be designated to cover basic living NEEDS and non-negotiable wants at least a decade into the future. They might also include dollars designated to cover ongoing WANTS, as they could be forgone during a down market.  Resources intended to leave a legacy would also fall into this timeline as a market downturn would have little to no impact on the owner’s ability to maintain a desired lifestyle.

With these longer-term resources, we could take an acceptable amount of risk in marketable securities in the attempt to secure a greater rate of return. Hedging against inflation is a good reason to take a moderate amount of risk, as would be striving for long-term growth of portfolio assets not necessary to maintain a desired lifestyle in the next decade. Since we don’t need it right away, if we experience a market downturn, we could ride it out. Folks we serve could avoid selling in a down market, and wait for the value to come back and grow beyond that.

Purchasing Additional Lifetime Income

It’s unlikely that the income sources folks have in retirement, like pension or Social Security, will keep up with the rising costs of goods and services (inflation). The average Social Security cost of living adjustment (COLA) over the past decade has been about 1.6%, and many pensions have no cost of living adjustment at all. Therefore, it is likely that folks might benefit from adding additional lifetime income to their plan in the future.

For example, it might make good sense to buy an additional lifetime income from a deferred income annuity or Fixed Indexed Annuity with income benefit rider to provide a supplemental income stream to compliment Social Security starting in 7 to 10 years. Doing so could help cover inflation adjusted needs and non-negotiable wants and prevent the erosion of purchasing power of your income.

P&T Allows for Customization

Each person’s situation is unique to their vision of a successful retirement lifestyle. Applying our Purpose and Timeline philosophy allows for customization depending on their available resources, and vision.

Following a consistent process like our the PT5 Step Retirement Planning Process, and applying a guiding philosophy like the TWFG Purpose and Timeline philosophy guides our planning recommendations, and asset allocation decisions.

When market downturns are likely to occur multiple times throughout a client’s retirement years. By following our P&T process our clients can feel confident that they have resources available to maintain their lifestyle, and will not be forced into a position to decide whether to sell marketable securities at a loss during a market downturn, or reduce their lifestyle until the market recovers.

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