A goal is a dream with a plan and a deadline, as the saying goes. So what does your dream of retirement life look like, and I mean really look like?
Making a commitment to your retirement goals requires getting your financial life in order today. That means writing down a financial plan, and I do mean writing! Putting pen to paper is the magic that makes a vague commitment concrete and leads to decisions and action.
How do you get started? Broken down, the six steps of creating your financial plan look like this:
Step 1: Consider a planner. A financial plan is a road map for your financial future. Along with a planner, there are sophisticated tools that allow for experimentation with different assumptions and “what if” situations.
Even if you have a good idea where you’re going financially, you may not be ready for the potholes along the way, such as inflation, death of a spouse, disability, long-term care needs, college education costs, and more.
A planner-coach who knows how best to use complex software can provide insight into how these potholes could affect your road map and, ultimately, your long-term financial success.
Step 2: Gather your data. So where are you now on your money goals? Do you have a budget process that works consistently? Have you opened retirement accounts and created estate planning documents (will, trust, health care directives, powers of attorney, etc.)?
Putting all of your assets (stuff you own, like investments and property) and liabilities (debts such as a mortgage or credit card balance) onto paper is the first big step of any solid financial plan.
Step 3: Analyze the data. All financial plans work on a series of assumptions about the growth of investments, the impact of inflation, and assessing how to transfer financial risk away through investment practices and insurance.
Your tolerance for the ups and downs of the stock market is an important part of this analysis, as well as your plans and timing to pay for future expenses, such as weddings, college, vacation travel and retirement.
Step 4: Develop your plan. Once the data is in one place and properly analyzed, a financial planner can help you write a fully thought-out document that spells out your goals and the steps you need to take to achieve them.
This work is done in concert with you, the plan’s owner, to make sure it’s realistic and achievable.
Step 5: Implement the plan. Once a plan is written these next steps give that plan life. This can include such action items as deciding to put money periodically into tax-deferred retirement savings accounts, purchasing insurance, naming beneficiaries, and perhaps finding other professionals to bring to your team.
If your assets warrant it, that might include hiring a lawyer to draw up estate planning documents and engaging with a CPA, if your plan demands higher-level tax advice.
Step 6: Monitor the plan. Things change. Your idea of acceptable risk could be tested by a stock market decline. Your personal life could go on a different trajectory from what you expect.
Jobs, health and relationships change. Laws that affect retirement investing and taxes change, too. The plan might need only small tweaks from time to time, but a fundamental update might be warranted on occasion.
If you choose to hire a planner, the best route by far is to hire a fiduciary, someone who is required by law to act in your interests ahead of their own. Consider hiring a Certified Financial Planner™.
All CFP® professionals are required by their designation to adhere to a strict fiduciary standard. They must meet rigorous education, training and ethical standards and must remain committed to serving their clients’ interests first.
You can get by without a financial plan, but your money life will be far less stressful by having one. Achieving your personal goals in life — education, marriage, raising a family and building a retirement — implies major financial choices.
Creating a written financial plan is the key. A plan helps you build on your success to achieve the life you really want.