Remember the days before GPS when we had to follow a road map? (They were free and you could pick them up in any gas station back then). So, what if you were following that map and the highway just ended in the last place you visited — with no signs to tell you how to get to the place you’re headed today.
That’s the best analogy I have for folks who actually had a retirement income strategy put into place with the help of a financial professional and never thought to get it updated after a significant change in their lives had occurred. You are following an old and outdated map to your retirement, and that could get you in trouble.
Jeff Imber, president of Imber Wealth Advisors in Ann Arbor, Mich. compares the concept to a pilot preparing a flight plan over the Pacific Ocean to Hawaii. Each new flight requires a new flight plan that must account for different variables, such as weather conditions and wind. An old flight plan could lead you into heavy turbulence, or worse, a hurricane.
“How can you get from here to Hawaii if you don’t have a flight plan?” he asks. “The important part about having a plan for retirement is simply, anything we want to do in life and be successful, we need a plan to succeed. We don’t plan to fail, we fail to plan.”
The first thing a financial professional recommends to their clients is to make sure they have a budget and a financial income strategy set in place for retirement. The fact is, many people may not realize the importance of having that plan to help guide them through retirement.
According to the Northwest Mutual Planning and Progress Study, which surveyed 5,000 U.S. adults aged 18 and over:
- Less than 40% of us had set goals for our financial future and only 20% have developed a written financial plan
- Among those with a financial plan, only 9% are extremely confident that the plan can withstand market cycles
- And, 30% of U.S. adults say they are “not at all financially prepared” to live to the relatively “young” age of 75. More than a third have no sense of how much income they may need in retirement
So, we all need a financial, or retirement strategy. But, for those who do have one, the biggest mistake they can make is to leave it on a shelf and never make adjustments to account for any changes that have happened along the way.
“For those who have (a financial strategy) to begin with, from time to time we want to review it,” says Imber. “New information comes into system. Inflation is on the rise. New information could be that the markets grew tremendously and now you need to reposition your money or that you were taking more risk that you thought. There could be medical expenses you didn’t anticipate. Maybe there is a change in the tax law.”
The Northwestern Planning and Progress Study 2016 found that financial anxiety runs especially high among singles. And much of that has to do with a lack of financial planning. “More than four in 10 single men and half of single women say they feel either a moderate or a lot of anxiety about their personal financial security – a substantially higher percentage than married individuals (35% married men and 41% married women),” according to the survey.
Northwestern says this low level of financial confidence may be a function of gaps in planning:
- Two in three singles are not confident that their financial plan can withstand market cycles
- Half of all singles have not spoken to anyone about retirement – double the percentage for married individuals (24%)
- Two thirds of singles do not have a financial professional
Reid Abedeen, managing partner at Safeguard Investment Advisory Group in Sacramento, Calif., says you need a retirement income strategy well before you plan to retire.
“That will give you a good idea of how much you need to save or a good idea having the flexibility of when you want to retire,” he says. “People who have done it will have the flexibility of when they want to retire and not being forced to retire.”
“If you don’t have one (a financial strategy), get on that task,” says Imber. “Be responsible. Own it. No one will do it for you. It’s up to you. The government will not bail you out. You will save for retirement or you’re probably not going to have much confidence in your retirement.
“Once that’s established, as we age and get older, we get new information and things happen to our bodies, money might be required for different purpose,” he says. “It’s important to review that plan just like it’s important to review your goals for the year.
“The plan is a blue print,” he says. “You need to adjust the plan to get it to line up and adjust to what’s happening. That’s the reason you don’t want to leave it on the shelf.
“Your chances of living the retirement that you’ve planned in your mind increases dramatically when you review your retirement income strategy,” he says. “We want to shift the odds in your favor. Your financial strategy is a culmination of your life goals and financial strategies can come together to allow us to live in harmony with what we want to be.
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