By Jeff A. Manzella, CFP®, AIF & Jeff W. Mashini, EA
You board the plane, the pilot says over the speaker, “ladies and gentlemen our instruments are down, I know you want to get to San Diego in 3 hours, we will just have to hope for the best.” Most passengers will not want to stay on the plane after that announcement, and most pilots won’t fly the plane without a plan. You expect the pilot to have a flight plan and to follow it. The same goes for your retirement. You need to have a written plan to make sure you will get where you want to be.
A financial plan shows you where you are today and where you will be in 5, 10, 20 and 30 years. Questions to ask yourself: (1) How much money do I need the day before I retire? (2) What tax bracket will I be in retirement? (3) What type of accounts should I be funding? (4) What are my expenses every month?
Not knowing these answers can mean the loss of potentially hundreds of thousands of dollars, and loss of your precious time. Just like the pilot that would not fly the plane without a flight plan, you should not be without your financial “flight” plan on your way to retirement.
Your financial "flight" plan and its 5 benefits:
A financial plan will bring order to your financial life. You may have a variety of investments with a variety of different companies. All your investments should be working together to meet a common goal. Your plan will create your own personal balance sheet which will allow you to see all your accounts on one page.
A financial plan will give you a current snapshot of your financial health. NUMBERS DON’T LIE. It will highlight the good points as well as areas needing improvement. It will give an unbiased perspective that leads to suitable and rational money decisions.
Major life circumstances sometimes may happen without notice. However, a financial plan will anticipate them and prepare you financially. Many of us make decisions based on emotions especially during a financial downturn. Having a long-term plan will help keep you on track because you planned before the crisis.
Why do people get personal trainers? People know exercise is good and pizza is bad. The trainer is for accountability. So, the same goes with a financial plan, it will help you be accountable with fulfilling steps needed to meet your goals. This may be in the form of a budget, a spending account, or an envelope system. Each subsequent year you need to update your plan and check off the goals you accomplished.
Whether it is deciding to start a new job, buying a house, health changes, inheritances, retirement and death, a financial plan will help you make the right financial decisions throughout these life stages.
The financial plan does not happen overnight, it needs to be a 6-step process. It begins with identifying the financial goals you want to prioritize. Then gathering facts and figures based on your current situation. All this data is inputted into a very sophisticated financial planning software which runs calculations and various scenarios. Then looking at financial solutions designed to satisfy your goals. After choosing the solution, then you work with your advisor to implement the plan. Be sure to review regularly with your advisor to measure success and make necessary adjustments.
If you need an advisor, we are currently accepting new clients. To set up a complimentary initial consultation, please contact our office at 586-698-5228.
Securities and investment advisory services offered through Royal Alliance Associates, Inc. member FINRA/SIPC. Royal Alliance Associates, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Royal Alliance Associates, Inc. 38600 Van Dyke Ave., Ste. 260, Sterling Heights, MI 48312. (586) 939-6926. 21396266-20200814