Developing a Financial Plan to Reach Your Most Important Goals

The problem with financial advice given in the marketplace of ideas is often that the advice given is general in nature and not tailored to real individuals with real problems, hopes and dreams which are specific to them.

For example, growing up in the financial planning business, we were told to tell clients they should expect to spend 80% of their working year’s budget in retirement.  Generally, that is, in fact, true.  However, when one digs even a little bit into this platidudinal approach, one finds that most people spend more than their working year’s budgets for a period of time.  This is true because now the retiree has the time to invest in travel, previously neglected hobbies and the like.  Later in life, though, as health issues arise and bucket lists get filled, the retiree spends significantly less on average then they did in their working years.  So yes, the 80% average cliché is generally correct, but the path to get there can make all the difference in the world in terms of how to plan for it.

When trying to plan for your personally defined retirement cash flow needs, one has to take into account many unique factors: Your health, your tolerance for market volatility, the needs of those who depend on you financially, to name a few.

Then, there are the myriad of things which you can’t control:  market prices, interest rates, or surprise health related costs can quickly and radically change one’s course in retirement.  Therefore, when looking far off to the horizon of retirement, the planner and client both need to review and assess a number of items in an honest and realistic light.  I would categorize those as such:

  • The “Need Tos”
  • The “Want Tos”
  • The “Would Like Tos”

The “Need Tos”

This is the area where we need to address the obligations and responsibilities in our lives.  This is where we attempt to balance the necessary care for ailing parents and getting children off the ground financially while taking care of our own need to reduce debt, build up adequate cash reserves, and make sure our insurance coverages our adequate and up to date.

The “Want Tos”

Assuming we have meandered our way through the maze of our obligations and responsibilities, we are now free to look at some of the things we want to do if or when we will have more free time.  Commonly, this is where the travelling and previously neglected hobbies come into play.

This is much more fun to think about it and I would encourage you to milk it for all it can be.  Take or create slower moments where you can really let you mind and heart go with this one.  If you like to travel, where would like to go?  Prioritize those locations.  When are the best times of year to go there?  What are the things you would most like to do while inn those locations?  You get the picture.

It could also be a hobby you have always wanted to dig more into.  Get the golf handicap down.  Get the Harley and go across the country.  Maybe Rving is your thing.  Really think through it.

The “Would Like Tos”

If we have been able to take care of our personal financial responsibilities and have likewise had the blessing to enjoy many of our hopes and other retirement goals, the next level, so to speak, is what I call the “Would Like Tos.”  This is where we start thinking about what we can leave behind.  For example, this is where we seriously contemplate and strategize if or how we can leave funds to charities which are important to us.  Whether faith based, community based, issue focused, or any other type or cause, it can be deeply satisfying to proactively develop a plan to give to others.

This also commonly includes family and close personal friends in terms of not only how much we might be able to leave behind, but how to leave it and for what purpose.  Tying these gifts to something meaningful to you is important.  Giving you grandson a certain amount of money is great.  Tying those funds to him being able to go to college, start a business, or purchase a home connects those funds to values which are important to you – and hopefully to the recipients.

I don’t know what you would like to do with the blessings you have (or will have), but take some serious, intentional time to think through how you can leave this world better than how you found it.

Paying For It

Now that we have categorized and organized what could be many different personal aspects of our retirement financing needs, we can begin to hone in on just what items are of most importance to us.  Whatever those might be, we take them individually, one by one, and put a pencil to it, so to speak.

  • If I need to cover medical insurance costs of $1,200 per month, I naturally put that in my regular base budget.
  • Beyond the basics, if I want to take a trip twice per year at an average cost of $5,000 per year, add that to the list.
  • If I want to make sure I leave behind a certain percentage of my estate or a certain amount of money to my alma mater, I construct a way to do so through savings, insurance plans, or other means.
  • I have the categories.  I have the individual items.  Each item and category is properly prioritized.  All of the above have attached to them a reasonable amount of money as expressed in my budget, estate documents, insurance policies, and other financial tools.   Now, I can run an analysis of how to get all of this accomplished.
  • How much at a reasonable rate of return relative to my tolerance for volatility do I need to have socked away to accomplish these things?

That answer will, of course, vary form individual to individual and from time to time.  One might say they have a very high tolerance for risk, but find in the next downturn they can’t stomach it at all.  One may assume a rather rosy rate of return and find that they are not accomplishing that return on a consistent basis.  New responsibilities or interest come up between now and retirement and change the landscape of your priorities and goals.

Flexibility and discipline, therefore, are of paramount importance as you progress.  Even more so, having the right attitude as you approach your planning and investing matters as well.  Being patient in a challenging market and being humble to admit your limitations go a long way in helping you be prudent in these endeavors.  I have written other pieces on those exact subjects, which can be linked to here:  (Link)

However, dividing your needs and goals into the “Need Tos”, “Want Tos”, and the “Would Like Tos” and then constructing the costs for each of the items therein will give you the framework from which an adequately funded retirement and financial plan can be successfully built.

About Michael McGrath: Michael McGrath, MS, CFP®, CLU® is a vice-president with EP Wealth Advisors. Mr. McGrath graduated from Pepperdine University in 1994 and received his Masters of Science in Finance with an emphasis in Financial Planning from The College for Financial Planning. Active in his home community of Santa Clarita, California, McGrath was elected to the Newhall School District Board of Trustees and has served as an adjunct faculty member at The Master’s College in Newhall, Calif.  Michael and his wife, Shelley, have been married since 1992 and have five children, Garrett, Brody, Alleah, Collette, and Griffin.

About EP Wealth Advisors: EP Wealth Advisors is a fee-only registered investment advisory and financial planning firm headquartered in Torrance, California. EP Wealth Advisors manages more than $2.9 billion for clients as of June 30, 2016. With additional offices in the San Francisco Bay area, West Los Angeles, Irvine, California and Denver, Colorado, the firm provides client-centric financial planning, wealth management and investment management services to individuals and businesses. EP Wealth was listed among the Top RIA Firms in 2015 by Financial Advisor magazine and in 2016 by Financial Planning magazine (This ranking is based on a firm’s assets under management as reported on Form ADV. Firms eligible for this ranking must be independent registered investment advisors providing services to individual clients with at least 50 million in assets under management as of December 31, 2015. Our presence in these rankings should not be construed as an endorsement of the advisor by any client nor is it representative of any one client’s evaluation or opinion of the advisor. Third-party rankings are no guarantee of future investment success. Working with a ranked adviser does not ensure that you will experience a higher level of performance or results.). For more information, visit: www.epwealth.com.


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