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Posted on NOV 28, 2017

Build a Financial Plan – Steps to Help You Get Started

According to a study by the CFP Board Many Americans don't have a financial plan.[1] While many recognize they can do better, the study found that 43 percent of respondents have not discussed financial planning with anyone. Seeking advice and creating a comprehensive financial plan can help. Here are steps to creating a plan that prepares you for retirement.

Steps to Building a Successful Financial Plan

  1. Define your values, objectives and goals for retirement.
  2. Understand your company's benefits: post‐retirement healthcare and pension options.
  3. Account for all your sources of retirement income: company plans, IRAs, military, etc.
  4. Determine when to take Social Security to maximize your benefit.
  5. Organize your money: how much to save, when and how to pay down debt, investment choices, risk tolerance, etc.
  6. Know your estate planning options: beneficiaries, wills, trusts, estate taxes, etc.
  7. Create a saving and spending plan that reflects all of the key information gathered in steps one through six.

Step 1

The first step is the most important. Your values, objectives and goals are the backbone of an effective plan. By setting goals and objectives you can build a financial plan that fits your lifestyle.

Defining Your Dreams

The best part about Step 1 is that it's about your dreams. You get to play “what if” scenarios, and there are no right or wrong answers. While exciting, it can be difficult to define dreams. Thinking about your personal values may help your dreams take form. Do you want to spend time with family? Do you want to have fun and have the best toys? Do you want a vacation home? Do you want all three? If so, which do you value the most? Define your dreams, and have a plan in place to achieve them.

Making Your Dreams a Statistical Reality

Make your retirement date part of your plan. Once you define your dreams and lifestyle and take advantage of planning tools, use technology that can project your optimal retirement date. You don't want to be afraid you'll run out of money in retirement, but you also don't want to die with a stuffed mattress and unchecked items on your bucket list.

Stress Testing Dreams

Once you define your values and goals, you should plan for different scenarios. Running different scenarios will help you evaluate what is and isn't really important to you. Our ClearWealth® Financial Planning process runs different scenarios to determine the likelihood your dreams will be achieved in different market conditions. This helps you understand the impact of spending and investment decisions. For example, how will a million dollar retirement home versus a $500,000 one impact your retirement income stream? How are your other goals impacted by this decision? Seeing how scenarios will play, can help you control what you spend and save, while considering and measuring market uncertainty. You see the likelihood of success of your decisions. If you don't like the outcome, you can make different decisions such as working longer, saving more or making different life style choices and see the likelihood of each scenario.

The ultimate goal of your financial plan is to design the best retirement you can have, without taking unnecessary market risk or sacrificing lifestyle.

Steps 2‐6

Steps two through six are about learning about your options, making decisions and taking advantage of your choices and flexibility. Look at different scenarios and try to maximize your decisions based on your lifestyle desires and personal situation. Try to answer:

  • How much should I withdraw from my 401(k) each year? If I have a pension, which distribution option is best for me?
  • When should I take Social Security to maximize my benefit?
  • How should I handle post‐retirement healthcare?
  • When and how should I pay down debt?

Step 7

The final step is putting the first six steps to practice.

Avoid Unnecessary Risk

If you're an excellent saver, you may have 90% of your portfolio in stocks. You make a financial plan, perform stress testing, and learn that in order to achieve your goals, you need only 40% of your assets in stocks. Why take on additional market risk if you don't need to? If you are meeting your goals, you may not need to take on additional risk as you near retirement. A financial plan can tell you when it's best to avoid unnecessary investment risk.

Ongoing Monitoring

The last step of financial planning is to consistently recalibrate, monitor and adapt. Review your plan at least once a year. If there is a large shift in the likelihood you'll achieve your goal, you can catch it and immediately adapt. Your financial plan helps identify problems (and opportunities) early and in advance, so you can be proactive and take action if needed.


Bottom‐line: a solid financial plan will give you comfort and confidence. It can show you the likelihood of achieving your goals and objectives, so you'll have comfort in knowing you can achieve them. It will help you make trade‐off decisions. A comprehensive, scenario‐tested financial plan provides balance between comfort and confidence, which usually results in peace of mind and the retirement of your dreams.

[1] http://www.cfp.net/docs/public-policy/2013-fin-planning-profiles-of-amer-households.pdf?sfvrsn=2


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