Why Is Comprehensive Financial Planning So Important?
Russ Hodgson, CFP® and Joe Pond, CFP®
It’s never too early to start planning for your future. You might be thinking: Why should I plan my future now if I don’t know how things will work out? Since you can’t predict what life has in store, having a comprehensive financial plan in place can help make sure that your money works harder for you now to enjoy peace of mind later.
A comprehensive financial plan is incredibly useful because it:
- Helps you strategize and be prepared for any market condition, like inflation
- Helps set you and your family up for financial success
- Helps to know you have a solid plan in action to carry you into retirement
- Helps alleviate worry and stress
- Helps to have an ARS financial advisor in Bountiful, UT, on your side to provide wealth management solutions you would not act on alone
Chapter 1: What is Comprehensive Financial Planning?
Financial planning is a process that helps you manage your money. It includes everything from saving for retirement to saving for the kids’ braces or college funds. A thoughtful plan should address:
- Cash flow
- Savings
- Debt
- Investments
- Insurance
If you don’t have a mapped out method that positions your finances to support each financial goal, you require comprehensive financial planning. This involves looking at all aspects of your finances so that you are making informed choices about where money should go and how much risk should be taken on when investing in different areas.
What is the difference between financial planning and wealth management?
Wealth management is the process of helping you manage the nest egg you’ve worked so hard to build. Private wealth managers serve as financial professionals focusing on the needs of high-net-worth individuals (HNWI). Their services usually include a wider range of services than traditional financial planners offer, such as:
- Charitable giving
- Multigenerational estate planning
- Business succession
- Family governance
- Portfolio tax management
As you can see, the professional you choose to work with will be based on your financial needs and level of wealth.
At ARS, we look forward to exploring your unique set of goals and financial challenges. The complexity of situations varies among our clients, which is why we use the DREAM experience process to maximize a lifetime’s worth of hard work. Whatever your preferences, we are here to help you identify, articulate, and clarify your retirement dreams in order to craft a personalized plan to get you there.
Chapter 2: Do You Need a Financial Planner to Help You Retire?
Retirement income planning is something that many people struggle with. It’s hard to know where to start, what to do when, and even how to begin. If you want to make the right decisions for the future, it is essential to start comprehensive financial planning today.
The right financial planner can help you strategize for a full future, based on where, when, and how you want to spend your golden years. Sadly, many people do not realize that they need a financial planner until it is too late, and they are faced with significant problems that can lead to financial disasters. If you have been saving money for several years and have no idea where to invest or how much money should be invested in each account, getting asset and wealth management from a team of professionals is the ticket.
An ARS financial advisor in Bountiful, Utah, can help you create a retirement plan that works for you and your needs. They will also be able to help you with other aspects of your financial life, such as paying off student loans, debt, or making smart investments.
If you’re nearing retirement and have concerns about how you’ll make ends meet, an ARS financial advisor will want to assess your long term vs short term investments, risk tolerance, and time horizon. Your investment percentages may need to strategically shift to assure you are able to achieve your goals while preserving your hard earned savings. Request your free forensic portfolio analysis to identify areas you may be able to build a better portfolio for you unique situation.
Determining your goals/ spending needs in retirement
Once you know how much money you’ll need in retirement—or at least how much money would make things comfortable—you can start looking at different strategies for getting there. One strategy is the bucket income approach, which involves dividing your total retirement savings into three buckets: breaking your savings into short, mid, and long-term spending needs. With bucket income, spending down in one bucket can be replenished by a reallocation of funds from another bucket, ensuring you have enough income and take the right amount of risk for your goals.
Clients are often concerned about what will happen when they pass, or become unable to make decisions for themselves.
If you do not have a trust, the state will determine what happens to your assets; this can be very expensive due to probate costs. The only way to avoid probate is by drafting a comprehensive financial plan with a comprehensive estate plan, which includes trust work.
A comprehensive financial plan ensures that all of your assets are properly titled and protected. It also ensures that anything they leave behind for loved ones is distributed according to your wishes. A comprehensive financial plan should always cover estate planning (read chapter 6).
Chapter 3: 5 Risk Management Solutions You Need To Know About
The best way to manage risk is by educating yourself on the various types of risk that can affect you. Doing so can help you understand how to make better financial decisions and plan for your future.
Risk management solutions can be categorized into five broad categories:
– Avoidance: This is the most common form of risk management. It involves taking proactive measures to avoid the occurrence of a risk. For example, you may choose to avoid risks by using only ethical suppliers or by avoiding certain types of investments.
– Retention: This involves retaining the risk, but implementing measures that will reduce its impact. For example, an insurer might retain its exposure to a particular risk by limiting its coverage.
– Sharing: Sharing a risk involves spreading it out among multiple parties so that each party shares in the losses from an adverse event occurring. For example, a group of investors may purchase insurance policies on one another’s lives in order to share the cost of losing one person who dies prematurely.
– Transferring: Transferring a risk means shifting it from one party to another so that someone else bears the impact if something goes wrong. For example, an organization may choose to sell off assets that are likely to lose value over time so as not to be exposed if prices fall later down the road; this would allow them to transfer any potential losses onto someone else.
– Loss Prevention and Reduction (LP&R): Loss prevention and reduction risk management is the process of identifying, assessing, and prioritizing risks to minimize their impact. It also involves implementing plans to avoid or reduce those risks. The purpose of this process is to prevent losses that could result in financial loss, as well as mitigate losses that have already occurred.
Chapter 4: What Determines a Long-Term Investment?
Long-term investments are for making a commitment. It also means you shouldn’t plan to use this money right away, but that’s okay because this is about investing for your future and not always about getting an immediate return.
Long-term investments are commonly for retirement savings goals, college tuition, home renovations, buying a business, or even buying a new car – whatever it is you want to happen down the road. This is an excellent way to build wealth and financial security. It requires a certain level of risk tolerance and understanding of your time horizons, but it’s well worth the effort.
If you’re going to be investing for the long run, you need to understand what constitutes a “long term” investment. For most people, this means anything over a year. However, it’s important to keep in mind that there are no hard-and-fast rules here—if you’re willing and able to take on more risk in the short-term with the hope of greater rewards down the road, then you may be able to go for it.
Just make sure you really understand what you’re doing before diving into anything risky. Maintain your portfolio on a regular basis so that it remains aligned with your spending goals. Don’t let things get out of whack; check in with yourself regularly (or better yet, your financial advisor) and make sure everything is still in line with where you want it to be!
Chapter 5: What Are the Best Tax Strategies For Retirement?
Tax planning is a vital activity for anyone who pays taxes, and when broken down into lifecycle, there are four stages of tax planning that most people will face.
Some of the best tax reduction strategies for retirement include:
- Tax-deferred retirement plans: These plans let you save for your future without having to pay taxes on the money you invest until you withdraw it at retirement. Depending on the type of account, this could mean choosing a 401(k), 403(b), or traditional IRA. However, when selecting this type of plan it’s essential to consider your current tax bracket and how long you expect to keep your money invested. Oftentimes, moving money out before age 59½ may result in penalties and lost earnings.
- Tax-free retirement plans: This strategy allows savers access to tax-deferred investment growth and tax-free distributions when income is needed. Depending on income level and investment time horizon, a tax-free retirement plan may be a preferred place to save or a supplement to a maxed out tax-deferred plan. Common tax-free accounts include Roth IRA, Roth 401(k), permanent life insurance, and HSA.
- Tax-exempt bonds are issued by state and local governments as part of their general fund financing activities. These bonds are exempt from federal income tax and usually state income tax as well (though not always). There are no limits on how much you can invest in them.
Read: Don’t Overlook This Loophole When Tax Planning in Retirement
Chapter 6: Six Steps to Estate Planning
Estate planning is one of the most important things you can do for yourself and your loved ones.
It is a process to prepare for the future, so that your assets are distributed according to your wishes and needs, rather than in a way that may not be ideal for you or your family.
The following are six key points that you need to determine in crafting an estate plan:
- What you own/owe (record all of your financial accounts, including retirement accounts, along with debt obligations)
- Your wishes (what do you want for your estate?)
- Establish fiduciary(ies) (who will handle your affairs after death?)
- Contingency plan (what if something happens to the fiduciary(ies)? What happens if they become incapacitated?)
- Provide for children/dependents (who will care for them if both parents are deceased?)
- Protect assets from creditors and the IRS (what would happen if someone sues me after my death?) or (what taxes will my estate owe?)
There is so much to consider when making important decisions regarding estate planning, and it can be challenging to know where to start.
With so many factors involved in creating the life you want, and what to hand off, it can be overwhelming. But with the help of a financial advisor at ARS and the creation of your unique comprehensive financial plan, you can create the lifestyle you’ve always dreamed of and pass on what you wish, as you wish.
Chapter 7: What a Comprehensive Financial Plan Can Do For You
A sound financial plan can:
- Help ensure that you live comfortably throughout your life and remain financially independent at any stage in your life
- Enable enough money to cover all of your expenses, including housing, food and healthcare costs
- Allow you to save for emergencies such as unexpected medical bills or home repairs – no matter what happens in the future
- Help you retire on time with adequate income
- Help improve your credit score and enjoy tax benefits
- Help provide peace of mind while you are living well now
- Help you make the most of your wealth and achieve your goals, including saving for college, buying a home and reaching financial independence
- Help you take advantage of tax benefits like the 401(k) or Roth IRA, which offer tax-free growth on contributions over time
- Help you reduce risk by diversifying assets across different investment vehicles like stocks and bonds as well as industries so that they work together instead of against each other in bad times (like 2008)
- Increase income by helping you with complex topics like taxes or estate planning needs — bringing in more money upfront than you would have otherwise been able to get on your own
The list could go on and on. As part of the all encompassing wealth puzzle, if you do not have a sound retirement plan in place when you reach retirement age, then it is quite possible to run out of money – half of Americans number one fear!
Read: Why You Need a Fiduciary Financial Advisor to Manage Your Retirement
The final step is to connect with a financial professional to explore crafting a custom comprehensive financial plan based on your needs. We hope you see how important it is to have a sound financial plan in place. Give ARS a call to get financial planning worries off your chest, and reach out to a team who can lead the way to a secure financial future.
CERTIFIED FINANCIAL PLANNERS™ at Advanced Retirement Strategies
Working with a CERTIFIED FINANCIAL PLANNER™ is an excellent investment of your time and money. With the high standards for CFP® certification, you’ll know you’re getting the expertise and knowledge of a highly-trained and educated professional who will always act in your best interests and with the loftiest ethical standards.
Our team of retirement planners and investment advisors in Bountiful, Utah, specializes in helping diligent savers with $250,000 or more of investment and retirement assets (not counting your primary residence) prepare for and then transition into retirement.
If you’re looking for a CFP® to help you live the retirement you have dreamed of, contact us now.
Request your free portfolio analysis today.
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