By Clifford York
There are some things in life you just can’t plan for: an unexpected illness, job loss, death of spouse, disability…While these major events can impact your life, having an effective game plan can help ensure that it doesn’t ruin your financial well-being.
Let’s say you choose to not have a financial plan. How does this decision impact the confidence you want/need for your future? There are four major pitfalls for those who lack a financial plan:
Many investors choose not to follow a plan (or deviate from their plan) simply because they fear the market and want to jump ship when there’s a downturn. An effective financial plan is designed to help you pursue your financial goals even through unstable market conditions. In fact, when you have a plan in place, you’re helping to protect your assets when markets go down while also affording yourself the opportunity to experience potential growth when markets go back up.
For those who fail to plan, regret tends to follow. A financial plan will help you save money so you can do the things you want to do in the future: buy a 2nd home, send your kids/grandkids to college, start a business, travel, etc. Even beyond your predefined financial priorities, an effective financial plan can help you pursue goals that you don’t even know exist but will arise in your future.
As retirement approaches, for those who have not implemented a financial plan, many find their retirement nest egg is insufficient and are forced to stay employed longer than they had hoped to. According to a US News & World Report study, the number of older Americans foregoing traditional retirement is on the rise, and the numbers will continue to go up.1 On the flipside, some retirees are forced out of work early. In a research study featured in USA Today, 60% of US workers retire sooner than they expected.2 In either scenario, having a plan in place can lessen the financial burden.
The No. 1 financial fear is realized: Running out of money during retirement
What do retired Americans fear the most, even more than death? Outliving their money. This also includes those who are considered high net worth. When you factor in longevity, inflation and rising healthcare costs, it’s a valid concern. In a recent report published by the Employee Benefit Research Institute (EBRI), this could be the reality for up to 83% of Baby Boomers.3 If you’re still reading this blog, you can probably guess what we recommend to offset your risk of running out of money during retirement and prepare for the rising costs of healthcare: follow your financial plan. Your financial plan should also include a spending strategy so you know how much money you can spend during each phase of retirement – that way you can enjoy your years in retirement.
None of us knows what the future holds. Don’t let the fear of the unknown be the driving factor in making life’s trade off decisions. Instead, gain the confidence financial planning provides in handling unexpected life events.