A Time Magazine reporter recently contacted me to discuss a 2009 Sun Life Financial retirement survey. The survey indicated over two-thirds of American workers believe that they’ll have to defer retirement thanks to a terribly weak economy and a horrific stock market decline. Based on the writer’s follow up questions, I don’t think she was expecting the type of response she received from me.
I was not surprised with the survey results. After all, the survey had been conducted in the midst of a cataclysmic market decline that very few had ever experienced. However, by the time the survey was conducted, I’m sure the respondents had been emotionally beaten into submission and prematurely reached a conclusion that could likely be erroneous.
In short, I believe that the survey results largely reflect emotional responses rather than reality for these two reasons:
- Most American workers do not have a financial plan and therefore have no idea how to measure the impact of the weak economy and stock market on their retirement goals.
- Most American workers obtain their financial education from the mainstream media which, as financial writer Dan Wheeler of Dimensional Fund Advisors so eloquently stated, is “…designed to titillate and not educate.”
The purpose of this column is to reinforce the importance of having a financial plan which is at the heart of our wealth management services. Had the majority of the survey respondents already completed the financial planning process, the survey results may have looked dramatically different.
Seeing the Big Picture
Financial planning is a process that can help you reach your goals by evaluating your whole financial picture, then outlining strategies that are tailored to your individual needs and available resources. A comprehensive financial plan serves as a framework for organizing the pieces of your financial picture. With a financial plan in place, you’ll be better able to focus on your goals and understand what it will take to reach them. Additionally, a good financial plan should still provide peace of mind even during times of significant economic and stock market weakness.
One of the main benefits of having a financial plan is that it can help you balance competing financial priorities. A financial plan will clearly show you how your financial goals are related – for example, how saving for your children’s college education might impact your ability to save for retirement. Then you can use the information you’ve gleaned to decide how to prioritize your goals and implement specific strategies. Best of all, you’ll have the peace of mind that comes from knowing that your financial life is on track.
Creating and implementing a comprehensive financial plan generally involves:
- Developing a clear picture of your current financial situation by reviewing your income, assets, and liabilities, and evaluating your insurance coverage, your investment portfolio, your tax exposure and your estate plan
- Establishing and prioritizing financial goals and time frames for achieving these goals
- Implementing strategies that address your current financial weaknesses and build on your financial strengths
- Monitoring your plan, making adjustments as your goals, time frames, or circumstances change
The financial planning process doesn’t end once your initial plan has been created. Your plan should generally be reviewed at least once a year to make sure that it’s up-to-date and includes the then-current economic conditions. It’s also possible that you’ll need to modify your plan due to changes in your personal circumstances such as:
- Your goals or time horizons change
- You experience a life-changing event such as marriage, the birth of a child, health problems, or a job loss
- You have a specific or immediate financial planning need (e.g., drafting a will, managing a distribution from a retirement account, paying long-term care expenses)
- Your income or expenses substantially increase or decrease
- You’re affected by changes to the tax laws
Continue to keep your advisor updated on any changing circumstances that should be included in your financial plan. Also if you know of a friend or family member who has not yet initiated the financial planning process, please encourage them to begin. It is best not to wait until they are in the midst of a crisis before beginning the planning process. The sooner they start, the sooner they’ll achieve peace of mind allowing them to confidently continue pursuing their goals.
If you have any questions, please don’t hesitate to contact us. If you’re not currently a client, but would like to schedule an appointment, please contact Lisa Reynolds at (513) 792-6648 or firstname.lastname@example.org.