What Is a Financial Plan?

What Is a Financial Plan?

A financial plan is the cornerstone of a successful retirement.  Its job is to guide you to and through retirement in the most optimal way…by keeping you on track and providing you with value-added recommendations to further enhance your situation.

A financial plan is the cornerstone of a successful retirement.  Its job is guide you to and through retirement in the most optimal way…by keeping you on track and providing you with value-added recommendations to further enhance your situation.

What do financial plans do?

The first thing they do is tell you your number.  How much do you need to retire?  When can you retire?  How much can you spend in retirement?  A financial plan can help with all of these things.

Financial plans can help to provide you with tax recommendations.  There may be some opportunities to reduce your tax bill that you’re not taking advantage of…and a comprehensive financial plan can identify those.

Financial plans can help you to optimize your retirement distributions.  If you need $50k from your accounts in retirement, which accounts should you take it from…and how?  There is an optimal way that can be determined on a cash-flow based financial plan.

In my opinion, a one-time financial plan isn’t enough.  I believe that planning is a process – not an event.  Because of that, you should have your plan updated every single year to make sure you stay on track.

One of the most important parts of the financial plan is the Monte Carlo simulation.  In that simulation, all of your returns get randomized.  You’ll have some good years and some bad years.  Why?  Because that’s how real life works.

The so-called financial experts tell us that a score of 70% or better is a “good plan”.  That means that in 70% of the thousands of trials that were run, you had at least $1 left at last life expectancy.  30% of the time, you ran out of money…which isn’t good!

So, if you start off with a score of 77 and when your plan is updated the following year, you’re down to 67, that can be fixed.  We can work with you to reroute and recalibrate to get you back on track.

However, if you don’t update your plan every year…and you wait 5 years…and now your score is down to 47…that’s an irreversible financial mistake.  There’s no coming back from that one.

So, do your financial plan as soon as possible….and keep updating it every year.  Don’t wait until the year before retirement to put this stuff together.  If you did that, imagine all the opportunities you may have missed.

Do it now…and again every year.