A Financial Plan Won’t Work… Unless….

I recently found out that the wife of a family that I did a one-time financial plan for about eight years ago was diagnosed with early onset Alzheimer’s.  That was not part of their long-term plan!

Planning for retirement is just one of life’s many anticipated and significant milestones, one that involves careful thought, preparation, and often a well-crafted financial plan. However, despite all the effort, many pre-retirees find that their financial plans don’t quite work out as expected. Why does this happen? How can ongoing strategic financial advice make a difference?

A One-Time Financial Plan gets put on a shelf and forgotten.

Plans are typically designed to provide a roadmap to achieve specific financial goals, such as saving enough for retirement, buying a house, or funding education. While these plans can be very detailed and tailored to individual circumstances, several factors limit their effectiveness over the long term:

Life Happens  One of the main reasons a financial plan might fail is that it is often based on the assumption that life circumstances will remain relatively stable. Hah –  life is unpredictable and has unexpected twists and turns.  According to a study by Fidelity Investments, 60% of pre-retirees experience significant changes in their lives that impact their financial plans, such as changes in health, employment, or family dynamics. A static financial plan cannot account for the life transitions that aren’t on the “fun to plan for list”.

Market Volatility, Economy and Taxes  The financial markets are notoriously volatile, and economic conditions can shift unexpectedly. Research from the National Bureau of Economic Research (NBER) shows that market downturns can significantly impact retirement savings and income. A financial plan created during a bull market might assume higher rates of return that are unrealistic in a bear market, leading to shortfalls in retirement funds. Economic cycles impact your cash flow and tax laws set to sunset in 2025 may impact what you keep in your pocket. As you ebb into your distribution phase, an understanding of what cash flow you need, the assets and other resources you have, how they will be taxed, and how to optimize your

Inflation and cost of living  Inflation erodes the purchasing power of money over time, affecting the real value of savings and investments. A study by the Center for Retirement Research at Boston College found that inflation can have a dramatic impact on retirees’ standard of living, especially if it exceeds expected rates. Many static financial plans do not adequately account for fluctuations in inflation from year to year.  You may find a gap between projected and actual expenses if you don’t make adjustments from year to year.

Behavioral Biases and our Brains  Human behavior can also derail a financial plan. Research from the Journal of Financial Planning highlights that cognitive biases, such as overconfidence and herd behavior, often lead individuals to make suboptimal financial decisions. For example, during a market downturn, some might panic and sell investments at a loss, while others might delay rebalancing their portfolios due to inertia or fear.

The Needs and Benefits of Ongoing Strategic, Holistic Financial Advice

Given these challenges, a one-time financial plan is often insufficient. Instead, pre-retirees need ongoing strategic advice to navigate the complexities of their financial journey. Here’s why:

Adaptability and Flexibility  A key advantage of ongoing financial advice is that it allows for adaptability. Advisors and thinking partners can adjust plans in response to life changes, economic shifts, or market volatility. This dynamic approach helps ensure that financial goals remain achievable even when circumstances change.

Holistic Financial Life Management Financial planning is not just about investment management; it includes tax planning, Social Security analysis, retirement benefits, estate planning, insurance, and cash flow management. A comprehensive approach ensures that all aspects of your financial life are aligned with your long-term values and goals. Ongoing advice helps pre-retirees navigate these areas effectively, optimizing their financial health.

Behavioral Coaching  Financial advisors play a crucial role as thinking partners and behavioral coaches. According to Vanguard’s Advisor’s Alpha study, the value of behavioral coaching—helping clients avoid common investment mistakes—can add up to 1.5% in net returns. This guidance is particularly valuable during periods of market volatility or economic uncertainty when emotions can drive poor decision-making.

Maximizing Retirement Income Strategic financial advice helps optimize retirement income through methods such as tax-efficient withdrawal strategies, Social Security optimization, and managing healthcare costs. A study by Morningstar suggests that effective withdrawal strategies alone can increase retirement income by up to 4%. Without ongoing advice, pre-retirees may miss these opportunities to maximize their income and preserve their wealth.

Risk Management Ongoing advice is crucial for effective risk management. Financial advisors continuously assess and adjust portfolios to align with the client’s risk tolerance, risk capacity and market conditions. This proactive approach helps minimize risks and protect retirement savings from unforeseen events.

While a financial plan is a valuable starting point, it is not a static document that can stand the test of time without adjustments. Everyone faces numerous uncertainties and challenges that can impact their financial security. Research shows that ongoing strategic financial advice is essential for adapting to changes, managing risks, and making informed decisions.

By partnering with a trusted financial advisor who offers ongoing guidance, families can navigate the complexities of creating a healthy financial life as time rolls on.  A thinking partner when life happens to guide you, asking the right questions and discern options based on what you value and find important in life.  As you approach retirement, you can start with a plan, but don’t stop there.  Your future self will thank you.