Yes, You Really Do Need a Financial Plan

A recent report by HSBC revealed the following:

Americans with a financial plan have accumulated on average $127,000 in retirement savings vs. $56,000 for the average U.S. household. Non-planners have an average of around $23,000 saved.

Almost 44% of those without a plan associate retirement with financial hardship, while this number is only 19% for those with a plan.

As a planner since the mid 1990s I’ve seen both sides of these numbers.

I recently spoke with a woman who was referred to me about her situation. She and her husband have lived a comfortable lifestyle, but now in their 70s they find themselves in a position where they have exhausted their assets and where their monthly expenses exceed their only source of income, Social Security. Unfortunately there was not much that I could suggest to her. Frankly this conversation should have occurred some 20 years ago.

On the other hand a long-time client couple retired to a warmer local several years ago. I told them that their financial prospects in retirement were good, but certainly no “slam dunk.” Through their frugal lifestyle and attention to what they spend we have been able to go several more years than I originally anticipated without having to tap into their retirement accounts. The husband starts required IRA distributions in 2012. We speak often and they value my advice on financial decisions. A recent example of this was whether or not refinancing their already affordable mortgage made sense. We determined that what the banker had proposed was not a good deal for them.

In a recent meeting with another client couple I was able to show them that their goal of the husband retiring in the next couple of years was very realistic and doable. In fact I showed them that he could retire now if he so desired. Again this is a function of their good financial habits and the planning we have done over the years.

A financial plan is a valuable tool in areas such as:

• Formulating and quantifying financial goals.
• Establishing reasonable assumptions and expectations for goals such as retirement.
• Quantifying the amount you will need to save to achieve your goals.
• Setting benchmarks to determine if you are on track toward your goals.
• Illustrating the ramifications of various financial decisions such as spending versus saving, or making a major purchase now using credit vs. saving for that purchase and deferring it.

Whether you do this yourself or hire a professional to help, a financial plan is a key element in achieving your financial goals.

If I can help in any way please feel free to contact me.

For additional articles I’ve written on financial planning and related topics please check out my US News author page.