A recent survey from Voya Financial Advisors found that nearly 75 percent of the firm’s financial advisors have at least some clients with a written financial plan.
If the majority of individuals receiving professional financial advice see the value in a written plan, it stands to reason that it can be a valuable tool. But, it also begs the question of what the modern-day financial plan actually looks like?
As the concept of financial and investment planning has evolved immensely over the years, it’s important to understand the key components of a formal, written financial plan, and how it may benefit you in the long run. To help you get started, here are a few things to keep in mind.
A true holistic approach. In the past, the basis for a financial plan was formed around the age-old question: “Will I have enough money to retire?” Today, the approach is more holistic, asking the broader question: “What will my retirement look like?” This includes timing for when you would, ideally, like to retire and, once you have retired, the type of lifestyle you’d like to enjoy.
[See: 7 Things That Can Derail Your Retirement Investing.]
Today, even the definition of retirement is evolving. For some, it could mean working part-time during the transition to retirement, taking on an encore career or starting a small business. For others, additional goals may take priority, including financial support for children or grandchildren, caring for aging parents, creating a legacy, minimizing one’s tax exposure or paying off debt. Today’s financial plan should address the shift from accumulating retirement income to achieving financial independence and maintaining the lifestyle you want — without having to worry about your finances.
While retirement is unique to each individual, understanding how to leverage your resources to get you there is an important step. Working with a financial advisor who can likely connect you with a support network, such as accountants or lawyers, can also help lay out the right strategies to inform a comprehensive plan, including things like taxes, wills or trusts.
Advancing technology. As the planning industry matures to address the holistic needs of its clients, so does the technology it relies upon. Gone are the days of your plan being outlined in a spiral-bound notebook — with little ability to adjust in real-time based on life events or economic conditions.
Financial planning is no longer a one-and-done activity. It’s become much more interactive, dynamic, accessible and conversational — and technology has helped to get it there. Planning tools have moved far beyond paper statements and stagnant budgets to digital, living, breathing plans that can be updated, adjusted or completely re-vamped if needed. This makes it easier for you to stay organized and make more-informed decisions and also creates a more collaborative relationship with your advisor. Many of today’s planning tools also allow you to test multiple scenarios and evaluate the trade-offs — providing an informed outlook on what’s feasible for the future.
Once you establish what’s possible based on your financial circumstances, attainable goals can be set and the right plan can be implemented.
Remember, a financial plan is a work in progress and may be impacted by any number of things: significant life events, changes in the economy, health issues or even a sudden shift in your priorities (your spouse is laid off, a parent becomes ill, etc.). Even with the support of technology, regular reviews with your financial advisor are necessary to ensure your plan is still relevant.
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Personalization is key. In recent years, personalization has not only helped shape the world of financial planning, but a number of other industries as well. Think about the last time you shopped online. Chances are you were provided with some sort of recommendation for a product that might be of interest to you based on your order history and needs. So why wouldn’t the concept of personalization apply to your financial plan?
For years, the classic plan was created based on a common set of financial priorities and objectives that could apply to most individuals and families. This might have included establishing an emergency fund equal to at least three to six months of living expenses, making sure you had health and life insurance and, of course, ensuring you were saving for retirement, ideally in an employer-sponsored retirement plan or individual retirement account. While these are all still relevant, today’s financial plans are shaped more broadly around one’s household structure and unique family’s needs. In other words, there is no one-size-fits-all approach.
Over the past few decades, the definition of the American family has expanded to include blended families, single-parent-households, multigenerational households and so on. With this evolving economy and culture, today’s plan calls for new strategies and customized solutions.
For example, the survey also found that nearly half of our advisors (48 percent) serve clients with a connection to the special-needs community. One in five Americans — an estimated 56.7 million people will be affected by a special need or disability in their lifetime, and this group faces many unique considerations when it comes to financial security. Even with significant advances in education and early intervention, if you have a child with special needs or a disability, you’ll need to account for some level of support when creating a long-term plan — such as caregiving services, housing or transportation.
A comprehensive, holistic financial plan, tailored to your own needs, can provide the essential blueprint for your financial future. But remember, growing and retaining your plan takes discipline and a commitment to evaluation and adjustment over the long term. The modern financial plan grows and adjusts with you throughout your life.
[See: 7 Dividend Stock Alternatives to Fuel Retirement Income.]
Disclosures: Investment advisor representative and registered representative of, and securities and investment advisory services offered through, Voya Financial Advisors, Inc. (member SIPC). These materials are not intended to be used to avoid tax penalties, and are provided by Voya for your education only. The taxpayer should seek advice from an independent tax advisor. Neither Voya nor its affiliated companies or representatives provide tax or legal advice. Please consult a tax advisor or attorney before making a tax-related investment/insurance decision.
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How Financial Planning Has Evolved originally appeared on usnews.com
