Why is a comprehensive financial plan important?
For most Americans, a common financial goal is retirement. It requires saving and planning over time. It’s a journey, not unlike climbing a mountain such as Mt. Everest.
No one decides one day to climb the mountain and jets off immediately to blindly hike up the face. Climbers spend plenty of time in preparation, mapping out the routes, hiring a guide (Sherpa), collecting supplies, etc. Not spending enough time preparing could easily mean death.
Not preparing for retirement probably won’t lead to immediate death! But goals and bucket lists are more likely to be left unfulfilled.
Do you consider yourself reasonably successful in business, as many of our clients do? Well, did you achieve your success by throwing everything and anything at the wall to see what stuck? Did you start off doing whatever you felt like, without doing any research, guessing at what was going to happen? Randomly deciding one day what you were going to do, and then going out that very day and picking a task that seemed like a good one to start?
Of course not. You researched, you planned. You created Plan B in case Plan A didn’t go quite as … well … planned.
Probably you have a calendar or other type of organizer with your tasks created and deadlines set.
Same with your finances. Saving money, as most of you are already doing, is a great step. But it’s only a first step. In order to invest it properly, you need to know the timeline for when you’ll likely need the money. Retirement is a long-term goal. Even after you’ve retired, you might live a long time.
A financial plan considers your whole financial life. What are your other goals?
Will you be caring for a loved one: parent, child, spouse, in later life?
Are you thinking about how you’re going to pay for college for your kids?
What about travel?
Launching your own business, building a house by the lake?
Quitting your current job to spend more time with loved ones or on hobbies?
What will you do when sell your business?
Achieving goals isn’t just a matter of cost, or foregone income (depending on the goal.) It’s also about the timeframe available. Saving early and often provides a great deal of flexibility in later life, but the goals might still require some adjustments.
The comprehensive financial plan helps investors to prioritize their goals as well. Time on this planet and money available are both finite for most people. Tradeoffs are required. A good plan can show the costs of one choice over another. At the end, of course, it’s the investor’s decision as to what they prefer to focus on.
What is a comprehensive financial plan?
It’s a road map for the rest of your financial life, in which investments play an important, but not the only, part. A financial planner will help you identify and prioritize financial goals, and then help map out the steps to get to those goals. The plan will show whether the investor is on track to achieve their goals with current habits. It’ll help the advisor spot issues that need to be addressed.
No financial plan is guaranteed. As you know, investments aren’t guaranteed either. Over the long term, equities return 6-8% over inflation. That doesn’t mean a portfolio will grow 6-8% over inflation every year. Especially if it contains bonds and cash to diversify equity investments. They also lower the investment return. No risk, no reward.
But even an all-stock portfolio doesn’t perform steadily. Some years the return is higher, potentially much higher. In 2013 large company stocks grew 32% and smaller companies reached even higher than that. Obviously the converse is also true. Some years will be lower – significantly lower, even negative, as shown during the Great Recession.
Similarly, the financial plan will not exactly fit to what happens in life. Which tends to throw in detours along the way! When big detours happen, the plan should be reviewed to see if there are any changes that should be made.
Are you on track for retirement?
Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>
Benefits of a financial plan.
During the process of developing the plan for a client, planners often come across needs that wouldn’t be found any other way. There are a number of different issues that can eat away at wealth, before the investor even has a chance to use or enjoy it.
Your Financial Plan Will Show How to Protect Your Assets
Sometimes there’s a need, even if temporary, for life insurance, for example. This is common among two-income families with young children. Should one parent experience an untimely death, the other will still be able to pay the mortgage and other expenses from the policy proceeds.
An umbrella property and casualty policy safeguards an investor’s assets in the event someone is injured on their property and sues. It could be a repair person who falls on the concrete walk, or someone who trips and falls at a party. The costs of an umbrella policy are relatively low compared to potential loss from a lawsuit.
Your Financial Plan Will Include Possible Medical Costs
Long-term care is an issue for many elderly Americans. Slightly over half the 65+ population will need it at some time during later life. This type of care is triggered when, even if just for a short period of time, the senior is unable to perform some of the Activities of Daily Living (ADLs).
These include dressing and feeding oneself, going to the bathroom, transferring (between seated to standing, for example), etc. The cost of hiring someone to perform this care isn’t covered by Medicare. In 2015 Americans spent $225 billion on long-term care. Fortunately, in addition to self-insuring, there are some ways to provide for it.
The number one concern for retirement planning is the cost of health care and unexpected medical expenses.
Your Financial Plan Will Show How Much You Need for Retirement
Social Security is an important component of retirement for many Americans, even when it’s not the major source of funds. Most people will claim more money over time by delaying collection until age 70 to obtain the highest benefit. What if you retire before then, or have a reduced income before you claim? How do you bridge that gap? The financial plan will help you figure it out.
Understanding your full picture: goals, values, personal dreams, and ambitions all fit into your financial plan and can help us give you advice to best suit the life you want to live.
We want to empower you to make the best financial decisions. Knowing that your advice is coming from a financial advisor who has your back and is looking out for you will help you be more confident.
How Platt Wealth Management prepares your financial plan.
Our CFP® professionals will need you to do some homework first! We need the household’s Social Security information, tax returns, spending and income information, along with some other info depending on your situation.
Because every client’s situation is different, our plans are customized for each household.
We’ll ask about your goals and dreams so the plan accounts for them. We consider the timeframes around these goals, as well as the costs. Our financial planner projects probabilities as to whether you’ll be able to attain these goals on your current trajectory.
It may be the case that not all your goals are achievable, at least with your current plan of saving and investing. We’ll show you what you would need to do to achieve the goals, and help you prioritize them where necessary.
Your financial plan action items for the new year.
Once we’ve run the initial plan, we’ll schedule a meeting go over it with you. And your spouse (if applicable), even if they don’t normally participate in the investment activities.
We provide a way to think through any issues that may have been spotted during the process.
At Platt Wealth Management we don’t sell any commissionable products such as life or long-term care insurance or annuities. We are a fee-only fiduciary. However, we team with other trusted professionals who can provide them to you if we uncover a need. We don’t recommend anyone who doesn’t put our clients first!
Once the financial plan is complete, we want to review every few years to make sure we’re still on track. If anything significant changes, we need to rerun the plan. Job loss, divorce, inheritance from a parent – all of these are important changes that may mean a change in plan.
A financial plan is an extremely valuable tool for you, and we want to make sure that you have one. Send us an email or call us at 619.255.9554 to get started on your financial plan today.
Dream. Plan. Do.
Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.