It’s time to get your retirement finances in order but you don’t know where to start. Your biggest asset is your 401k so do you start with retirement planning? But then you think about the other money you have in real estate, a college savings account and at the bank. You begin to wonder if you need a financial plan instead? Then you start to think about what you want to do in retirement. Do you want to travel, have a mobile lifestyle or simply sit back at home and perfect your hobbies? Which plan does that fit into?
I’m here to make some sense of it all.
Let’s start with what a Financial Plan is designed to do.
First of all, a Financial Plan incorporates all of your Debt, Income and Assets. Think of a financial plan as looking over your entire financial picture at a 10,000-foot view. All of your income, debt, expenses and assets make up your financial picture. To create a financial plan, you have to know where you are currently with your finances (Know Your Numbers.) Then you must plot out what are you trying to achieve with your money? Are you trying to retire early? Buy a second home? Put your kids through college? Ensure you have enough money in retirement? This is the goal setting stage.
The goal with a financial plan is to look at where you are today, where you want to be, and determine whether your finances will allow you to achieve that. A solid financial plan will point out potential roadblocks, such as you might need to work a few more years, to achieve your goals. On the flip side, it might get you the confirmation that you can go ahead and retire or buy the second home.
Do you have to hire a financial advisor in order to get a financial plan?
Not everyone will need to do so but most will. Over my 27-year financial advising career, I’ve seen clients come in with some of the most advanced spreadsheets that incorporated every single detail of their finances, but it’s not that common. Most people do not have the time or energy to design their own financial plan. A good financial advisor will be able to cut right to the chase and save you a lot of time and heartache. Now do you need to spend $2500-$3500 on a financial plan like some advisors try to charge? Nope and I’d stay away from that. All they are doing is plugging in your numbers into a program and printing off a 120-page financial plan. Now it will look impressive, but I can assure you that 100+ pages are just fluff that everyone gets. Your detailed information will be 20 pages or less. A solid financial plan can be done for less than $1000 and if you don’t have as many moving parts to your finances, then $500 might even be reasonable.
How about Retirement Planning?
Retirement Planning is an extension of your overall financial plan. As I mentioned, your financial plan incorporates every aspect of your finances and as you drill down, you’ll find certain areas that need to be addressed in their own subset of planning such as college planning, long-term care planning, life insurance planning and retirement planning, for example. The primary function of retirement planning is to make sure you do not outlive your money. It takes into consideration your whole financial picture and puts the laser focus on your financial life up to and beyond your retirement. A solid retirement plan will allow you to retire with confidence because like I have always say “Nobody wants to worry about their money when they retire.”
A retirement plan is designed to eliminate as many obstacles as possible that you might have when you walk away from your career. Will you have enough income? Do you need to adjust your investments when you get to retirement? Do you need long-term care insurance? Are your Estate Planning documents in order? When is the best time to turn on Social Security? All of these questions and many more play into a great retirement plan.
What is a Lifestyle Plan?
Lifestyle Planning goes hand and hand with your retirement plan. It’s designed to look at your planned lifestyle in retirement to see if there are dramatic adjustments that need to be made prior to you exiting your career. A Lifestyle Plan might not be needed as much if you retire to your home and do not plan to travel or change much of your day-to-day life. However, if you plan on making a big change such as relocating, traveling often or jumping into a mobile lifestyle then you will want to plan for these significant changes prior to retiring. Your new lifestyle in retirement needs to be accounted for financially in your retirement plan or else you might run into trouble in the future if you miss the mark. Lifestyle planning incorporates what your budget will be and how to prepare for the changes. It also lays out what could go wrong, allowing you to be prepared and hopefully eliminate potential roadblocks.
Whether it is a financial plan, retirement plan or a lifestyle plan, these are all designed to highlight financial areas that you might still need to work on. Go into the next phase of your life with the confidence that you are achieving your goals and use these plans to help you eliminate any unforeseen financial problems.
If you need help with Financial Planning, Retirement Planning or Lifestyle Planning, contact me. In addition to coaching, I am taking on a limited number of clients in which I’ll manage your money and do all of the planning for you. (No extra fee. It’s incorporated into the percentage fee you pay.) I am only taking on 30 clients. Any more than that will start to encroach on my freedom and would diminish the customer service I provide. If you’d like to learn more you can contact me, call me at 828-712-9339.
About the author: Eric Gaddy is an advice-only ( fiduciary) financial advisor, with 26 years of experience. He is the author of Retire Early: What Are You Waiting For? and host of the Personal Finance Unfiltered podcast. Learn more or contact Eric at https://dialintoretirement.com/.
Note: this article originally appeared at Retirement Made Simple and is re-published with author’s permission.
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