Financial Planning, Retirement

The Financial Planning Advantage

10/10/18 8:00 AM

iStock-626627280.jpgSaving for retirement is one of the most important factors behind ensuring a comfortable lifestyle in old age, and encouragingly many working Americans have access to and regularly contribute to an employer-sponsored 401(k) plan. Simply setting aside money, though, is not enough to guarantee a financially secure retirement because detailed projections of potential outlays are needed as well. Indeed, this helps people determine early on how much money they will likely have to save in order to achieve their desired standard of living in retirement.

Such plans should undergo regular checkups to see if savings goals remain on track and whether initial spending estimates need to be revised higher due to unforeseen life changes. It is also important to note that financial plans appear to work best when they are written down. For example, 43 percent of investors surveyed by Wells Fargo and Gallup who said that they have a written plan for retirement reported being “highly confident” that they will have enough money to maintain their desired lifestyle in old age, compared to just 23 percent for investors without a written plan. Even when adjusted for income and asset levels, retirement confidence was still markedly higher for investors with a written plan.

A newer study by Charles Schwab similarly found that people with a written financial plan were roughly twice as likely as “non-planners” to establish an emergency fund, have a life insurance policy, carry no credit card debt, and pay bills on time. Individuals with a written plan were also a lot less likely than non-planners (38 percent vs. 68 percent) to say that they are currently living paycheck to paycheck. Further, smart investing behavior appears to be correlated with having a written financial plan, because planners had a much higher likelihood than non-planners of considering risk tolerance when investing, having a diversified portfolio, regularly rebalancing their portfolio, and being aware of fees and other investment costs.

Moreover, a general sense of financial security was found to be more common among planners than non-planners, as was a high degree of confidence in the ability to achieve one’s retirement goals. Sadly, only one in four surveyed Americans said that they currently have a written financial plan, and just 37 percent of investors in the Wells Fargo and Gallup poll reported the same. Among those without a written plan, 45 percent of respondents in the Charles Schwab survey said that it is because they do not believe they have enough money to merit a formal plan. One in five non-planners simply said that creating a financial plan never occurred to them, and another 20 percent reported that they are not sure how to go about setting up a plan.

Joe Vietri, senior vice president and head of Charles Schwab’s retail branch network, added that “The idea that financial planning and wealth management are just for millionaires is one of the biggest misconceptions among Americans, and one of the most damaging. Whether people think they don’t have enough money, believe it would be too expensive, or just find the whole concept too complicated, the longer they wait the harder it is to achieve long-term success.”



Sources: Wells Fargo, Gallup, Charles Schwab

Post author: Charles Couch