Look ahead, plan well and be less stressed

The Examiner

There is an African proverb that says, “tomorrow belongs to those who plan for it today.” If there is one topic I write about more than any other, it is planning. It is a passion of mine. However, I realized recently I have never written a formal article on the importance of obtaining a written, long-term financial plan. This is a failure on my part because it’s one of the most important things a person can do to ensure they have the quality of life they wish to have in their later years.

Luke Davis

What is a financial plan? It is a written document, usually created by an investment professional using advanced software to calculate a person’s likelihood of outliving their money. It calculates a multitude of factors, including market performance, life expectancy, annual spending, inflation and many more to produce a projection of how long a person’s money will last.

The value of having this information is twofold. First, it allows you to take control of your own destiny. By having a plan that shows you risk running out of money later in life, you can scale back spending, adjust your investment strategy or temper your future lifestyle expectations while you are still in a position to make impactful changes.

Second, having a formal financial plan provides a peace of mind that can be worth its weight in gold. A study released by the American Institute of CPAs showed that running out of money is the number one concern of most seniors. This fear can cause many to panic and make poor decisions that lead to the very result they dread. A financial plan can provide a logical counterbalance to the emotional rollercoaster that market volatility can produce by showing that despite temporary market changes the plan still works long term.

Unfortunately, the vast majority of Americans currently do not have a formal plan. A recent study by Fidelity that found three out of four baby boomers lack one, and that’s true for even a higher percentage of Gen X and millennials. Of the reasons listed for why, the top answers were “I’ve never thought of having to prepare a plan” followed by “I don’t know where to begin.”

I hope to remedy both of these issues. If you have made it this far in the article you now know why having a plan is important. The second rationale is a little more difficult to solve. While there are lots of great and inexpensive tools to budget and keep tabs on your personal finances, I have yet to find much out there for do-it-yourselfers seeking to create their own long-term financial plan.

If you work with a financial adviser, my suggestion is to talk about developing a plan for you. Many will do this for existing clients for free. If yours won’t, or you don’t have an adviser, I invite you to contact me at lkdavis@stewcap.com. After answering only a couple of simple questions I can produce for you a basic plan at no charge. It will show you your likelihood of having a successful retirement plan, and some possible changes you could make if the data predicts your scenario has a lower likelihood of success.

Depending on the number of responses I get, it may take me a little time to get you yours, but it is a labor of love and something I think could change the lives of many in this community and that is what the act of stewardship is all about.

(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)            

Luke Davis is the director of operations and compliance at Stewardship Capital in Independence.