Do You Have a Plan for Your Financial Future… Or Just a Portfolio?

Couple with horses with a big beautiful sky

When we first spoke, Betty and Jim told me they already had a written financial plan and were just looking for a second opinion regarding if they were on track to reach their retirement goals. Then they walked into my office and handed me a printout of their portfolio. This was their “plan.” They were shocked when I explained that they didn’t have a plan at all. They simply had a list of everything in their financial portfolio. A portfolio is not a plan!

What is a financial plan?

A financial plan is a written document that addresses all aspects of your current and financial life, providing a clear roadmap and strategy for how your assets will be used to support your desired lifestyle and goals.

To be complete, your written financial plan must contain at least five or six components:

1. Income Plan – Looking at retirement, for example, where will the income come from to enable you to live your desired lifestyle? How much income will your portfolio generate? How much will you receive from Social Security and/or pensions? How much of this income is guaranteed, and how much depends on the whims of the market?

2. Investment Plan – How will you invest your assets in order to support your income plan?

3. Tax Plan – What are the tax ramifications of accessing funds from one type of investment or investment account versus another?

4. Healthcare Plan – Many people think that once you reach Medicare age, all your medical bills are fully paid by the government. This is not the case! How will pay for your out-of-pocket healthcare expenses?

5. Legacy Plan – Have you made your final wishes known, including for end-of-life care and for after your death? Is your estate properly set up so that your assets are managed and/or distributed as per your wishes?

6. Business Succession Plan – If you own a business, this needs to be part of your written financial plan as well.

What should your financial plan accomplish?

As a financial advisor I always ensure that every financial plan I create does the following, especially as it relates to retirement planning:

1. Address hopes and dreams. The starting point of a financial plan should be your or you and your partner’s values, goals, hopes, dreams and needs. What is important to you? What is your desired lifestyle? How do these things mesh with your partner’s vision?

2. Optimize your Social Security income. A full Social Security analysis looks at the options from various angles and considers many factors.

3. Plan for both people’s needs. When planning for two, it is especially important that both of their needs and desired are discussed and addressed – including what the financial picture will be for whoever dies last. Statistically speaking, this is likely to be the woman. Is there a pension that will end? If both partners had been receiving Social Security, the surviving spouse would now only receive one check. How will that work out? And so forth.

4. Plan for the good times and the bad. The good times are fun to plan for. The not-so-good times are the “what ifs” that most people don’t want to think about. What if the stock market plummets 60%? What if you need long-term care? What if you die too soon or live too long? What if your business partner becomes incapacitated?

One of the important things about having a written financial plan is that you know the possibilities. You can feel confident with the knowledge that you’re going to be okay. You know exactly where the money is going to come from and how it will cover your needs.

If you need help getting a proper financial plan in place, let’s talk! As a financial advisor with extensive education in the area of retirement planning, I’m here for you.

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