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 from 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 plans, 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.
Reesa Manning is Vice President and Senior Financial Advisor at Integrated Wealth Management, specializing in retirement and income planning. For more information, call Reesa at (760) 834.7200, or [email protected].
The above is being provided for informational purposes only and should not be considered investment, tax or legal advice. The information is as of the date of this release, subject to change without notice and no reliance should be placed on such information when making any investment, tax or legal decisions. Integrated Wealth Management obtained the information provided herein from third party sources believed to be reliable, but it is not guaranteed. Form ADV contains important information about the advisory services, fees, business, and background and the experience of advisory personnel. This form is publicly available and may be viewed at http://www.adviserinfo.sec.gov
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