According to the most recent (2012) Household Financial Planning Survey conducted by the Certified Financial Planner Board of Standards, only 31% of financial decision makers have a comprehensive financial plan. If the survey had asked respondents to define comprehensive financial plan, few probably could have; most people define financial plan synonymously with retirement plan. In reality, a retirement plan is just one component of a comprehensive financial plan, which also covers savings, investments, insurance, education planning, emergencies, major purchases, and other financial goals.
What is a financial plan? If you imagine your life like a road trip, your financial plan is the map that guides you from point A to point Z, making all the stops you had envisioned along the way (those are your goals) without ever running out of gas. Your financial plan hinges on the goals you set ─ living within your means today, as well as saving for near-term goals like a family vacation or new car, for medium-term goals like children’s college educations, and for long-term goals like retirement.
What is a retirement plan? A retirement plan is one component of a complete financial plan; if your financial plan is your master road map, your retirement plan is like a map inset, providing the details to get you form where you are now to your retirement and to live the kind of lifestyle you want once you’re retired. Your retirement plan takes into account your age, your current financial situation, and your goals for retirement. It includes, most basically, how much you need to set aside in what kind of investments (as well as the help you’ll get from pension plan, Social Security benefits, and health care benefits).
While financial planning and retirement planning are not the same, you cannot have an effective retirement plan without a comprehensive financial plan. Why? Because if you don’t have a financial plan in place to meet unexpected, short-term, and medium-term goals, your chances of achieving your long-term goals (retirement) are slim. At the same time, unless you truly plan to work until the day you die, a retirement plan is an essential component of a comprehensive financial plan.
It is important that you keep both your financial plan and your retirement plan up-to-date. Both plans are based on assumptions about your current situation, including income, expenses, goals, investment returns, and tax rates. When those factors change, your plans need to change as well. Please call if you’d like to discuss this in more detail.
Copyright © Integrated Concepts 2012. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.