Say you were going on vacation a year from now, what would your first action be? Ask for the time off? Make a hotel reservation? Research the destination? Basically start planning the trip.
Yet, when it comes to one of the biggest decisions in life, when to retire, people look to an age or a number to define the destination rather than planning for the outcome they want in retirement. An age based goal is one way to plan for retirement, but with the help of a financial plan you can set goals for the type of lifestyle you want to lead when you’re no longer working and figure out how best to achieve that with the resources available.
By defining and prioritizing your lifestyle goals, a financial plan can help you map out the path that will get you to that destination and make adjustments for the forks in the road that you encounter along the way.
A comprehensive financial plan looks at where you are now in terms of human capital (your earning capacity), the amount of volatility you can experience in investing to meet those goals, what sources of income you have available to replace your earnings, and how long you expect to live. The big question we’re trying to answer when creating a financial plan is how long will my money last and will I be able to do the things I want to do?
A comprehensive financial plan is not only built around your goals, but also around your core values. What matters most to you in life? How does your money relate to that? What should your money help you accomplish? What could it accomplish for others?
Once you’ve worked on the outcomes you want, a financial plan organizes and integrates saving, investing, tax planning, estate planning and insuring your assets and life. Systematically tracking your plan through time to allow you to check-in on progress and make tweaks in the plan as resources and circumstances change, not just changes in markets, but changes in life.
By working with a financial planner you can build a strategy that will allow you to reach your goals without taking undue risks and changing the dependence from investment returns to things that are within your control. Markets are always changing, and without a map to refer to in times of stress, we can veer off course with detrimental results. Build in contingencies to the plans and plan conservatively.
As Anoine de Saint-Exupery author of The Little Prince said, “A goal without a plan is just a wish.”