Financial Planning: A Roadmap to Your Goals
I spent most of my early career in strategy consulting for large corporations. If I would have told any of my clients that they shouldn’t bother with a strategy or business plan, they would have fired me instantly. Every business – whether big or small – thrives on a business plan and strategy that builds upon the vision of leadership and seeks to deliver their desired results.
Yet, when it comes to having a vision, strategy and plan for one’s personal financial affairs, studies show few people actually have a vision with a written set of goals and plan to get there. Why do we spend more energy and thought on a business plan when our own family’s financial plan is really more important?
A recent study of Americans by Schroder, a London-based investment manager, found that only 23% of Americans have a written retirement plan, 40% have done some planning and 37% have done no planning at all.
The same survey found that 54% of the respondents at or near retirement had less than $250,000 in savings, and 69% had less than $500,000. Sadly, only 22% thought they had enough for retirement (a decrease from 26% in 2021). This is either poor planning, no planning at all, poor execution, or a mixture of the three.
In any case, most people are ending up in a place they wish they hadn’t.
“If you don’t know where you are going, you will end up somewhere else.” - Yogi Berra
Is a Financial Plan Worth It?
For the small percentage of respondents that had a financial plan, 91% said it was useful to them. Only 9% disregarded the plan.
Without financial planning, future retirees are traveling without a guide and perhaps even a clear destination. Most people believe they need a certain number for retirement – this same Schroder survey says $1.1 million – but do they really know? Financial planning takes many factors into consideration to help clients determine if they have “enough.”
What will be their cost of living at retirement? What is their longevity risk?
Will they take vacations? What are their long-term or legacy goals?
What do they do if the market declines? Or if inflation erupts?
How will they pay for health care? What if they need long-term care?
How do they get the most out of Social Security? Their retirement plans?
How do they minimize taxes along the way to maximize their cash flow?
From our experience talking to prospective clients, quality and thorough financial planning is rare!
Why Do So Few Have a Financial Plan?
Here are the reasons provided by the respondents to the Schroder survey:
It’s hard.
76% felt overwhelmed by the thought of creating a plan. A good plan takes knowledge of taxes, cost of living forecasting, financial market forecasting, estate laws, insurance products, investment management, philanthropic techniques, retirement account strategies, Social Security/Medicare strategies, longevity risk assessment, etc. The list goes on. And, the respondents are right. Good financial planning is hard work.
It’s going to be wrong.
56% avoid a plan because “life is uncertain.” Financial planning does require making assumptions, forecasting needs and goals, and running simulations. And the fact of the matter is: most of your assumptions are going to be wrong. Do professional sports teams go into a game without a plan? Do companies avoid planning because they don’t know what next year will be like? Of course not! If you want to succeed, it starts with a plan even though you know your forecasts will be wrong! Uncertainty abounds, and that is precisely why a plan is needed!
Similarly, respondents to a Charles Schwab survey give these top 5 reasons for not having a financial plan:
I don’t have enough money.
It seems too complicated.
I don’t have the time to develop one.
Nothing is happening in my life to require one.
It’s too expensive to get help in creating one.
“By failing to prepare, you are preparing to fail” – Benjamin Franklin
A financial plan is not a “one and done” event. A good plan – just like the company’s or professional sports team’s plan – should be reviewed and updated regularly. It is a “road map” that guides you toward what might be an ever-changing destination as the landscape of life inevitably changes. A good plan will focus you on what you need to do today and helps you understand risks so you have a better chance of achieving your goals tomorrow.
How To Get Started Planning
Financial planning is complicated, and a professional planner can be helpful. Multiple studies show that people working with financial advisers have better overall economic results. Many of these studies come from biased resources, such as financial advisors themselves, but two good reports are linked below. I encourage you to read these. You should look at the cost of a financial plan as an investment with an expected return, and these studies certainly suggest it is a good investment.
If you want to have better clarity and confidence that your financial goals will be achieved, then a financial plan might be the answer. If you are looking for a good financial planner, we recommend you do the following:
Find someone who is independent and a fiduciary. Avoid working with someone who has incentives to sell you a solution or product such as insurance or a certain investment.
Look for someone with significant credentials and training such as CPA, CFA®, CFP®, or CPWA®. These are complex training programs that require intensive study and experience.
Find someone you like and trust as the planning conversations will be personal and sometimes hard. A good planner can broach sensitive topics with aplomb.
“A clear vision, backed by definite plans, gives you a tremendous feeling of confidence and personal power.” – Brian Tracy
At Kings Path, we are independent fiduciaries, meaning we put your goals and needs first. We are passionate about helping clients define and pursue their financial and estate goals. To learn more about financial planning, read our blog, “What is Financial Planning?”, learn more about our financial planning services, or contact us.
Survey Sources:
https://www.schroders.com/en/sysglobalassets/digital/us/us-dc/us-retirement-survey-2022_retirement_readiness.pdf (The Schroders 2022 U.S. Retirement survey was conducted by 8 Acre Perspective among 1,000 U.S. investors nationwide ages 45 –75 from February 17 – February 28, 2022.)
https://www.schwab.com/learn/story/you-dont-have-financial-plan-why-not
Studies on the Value of Financial Planning:
Putting a value on your value: Quantifying Advisor's Alpha
The Use and Value of Financial Advice for Retirement Planning
