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Seven Steps to a Successful Financial Plan

By Bob Warner, Executive Vice President and Managing Director of Cleary Gull, a Milwaukee-based investment banking, wealth management, and institutional advisory firm.


The landscape has changed since 2008, requiring a new and focused process for many professionals to meet their retirement planning goals. The individuals I work with realize that they need to take a more active role, but it requires time, knowledge, expertise and confidence. Many seek outside guidance to help them with the complexity.

Many individuals think they have a financial plan in place. In fact, when I meet with groups of pre-retirement investors I ask them if they have a financial plan. Many hands go in the air in response to the question, about 75%. Then I probe a little further as to the definition of a financial plan. For some, a financial plan is their 401k plan or how they are allocating those assets. For others it is their budget or auto bill payment process. What I notice is that there are many definitions of a financial plan.

Here is an approach to create a successful pre-retirement financial plan that I have implemented with the individuals I work with.

Seven Steps to a Successful Financial Plan

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

I often get asked, "When should I start my pre-retirement financial plan?" The simple answer is the sooner the better. I usually begin working with individuals in their late 40s and early 50s. They have focused on savings accumulation and now want to start preparing for their retirement at 65 or before.

Steps 2 - 5

Steps two through five require making decisions based on the choices offered and, where possible, taking advantage of the flexibility available. When I work with an individual making these decisions we take a look at all the scenarios and try to maximize their decisions based on their lifestyle desires and personal situation. We work together to answer:

  • If applicable, which pension 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?

We've seen a variety of scenarios working with professionals for more than 15 years which helps us guide our clients to at appropriate decisions for their given situation. Probably more challenging and important for most is Step 1.

Step 1

Of the six steps, number 1 is the most important. It is the blueprint. First and foremost I work with individuals to identify their values, objectives, goals and priorities. By setting goals and objectives we are able to build a financial plan and measure progress against the plan. But most of all, we work to understand each person's dreams.

Defining Your Dreams

The best part about Step 1 is that it's all about dreams. Here we get to play "what if" scenarios. There is no right or wrong. I find that by probing on personal values, the dreams take form. Do you want to spend time with family in retirement? Or is having all the best toys or a getaway place the priority? I work with pilots to define their dreams, and then we put a plan in place to achieve them.

Stress Testing Dreams

Once we define values and goals, we run a number of scenarios on proprietary software to stress test, or identify the likely success or failure of the various scenarios. Running the scenarios helps people evaluate what is really important to them. Stress testing helps us determine the likelihood their dreams can be achieved in various market conditions. It also helps them understand the impact of spending and investing decisions. For example how will a million dollar retirement home versus a $500,000 one impact my retirement income stream? How are my other goals impacted by this decision? The planning process helps individuals control what they spend and save while taking into account and measuring the uncertainty of the markets. The ultimate goal of the planning process is to design the one life you have to live in the best way you can, without taking unnecessary market risk or sacrificing lifestyle.

Making Your Dreams a Statistical Reality

Without a pre-retirement financial plan individuals don't know when they can retire. They may pick a retirement age based on what their parents did or based on Social Security or their mandatory retirement age. Professionals need to define their dreams, create the lifestyle they want and then take advantage of the tools and technology we offer to make those dreams a reality. It's a shame to be afraid you will run out of money in retirement. It is also a shame to die with a lot of cash without fulfilling your dreams. You don't want to look back and say, I wish we had taken that trip as a family or lived in the lake house we wanted.

The engine of our process is our proprietary software, which assigns a success probability to every plan. Individuals can enter all the decisions we arrived at and get clear answers regarding the plan's likely success. The program will give you a probability of success for each scenario. For example, the program may project you will have a 90% chance of achieving your goals and objectives. The process then allows you to move "levers," make different decisions and see what the probability you will attain those goals will be. Overall we want to make sure an individual's financial plans are in the 75% – 90% probability range. Less than 75% is too uncertain. You can achieve higher odds by working longer, saving more or making different life style choices.

Facts + Stats = Peace of Mind

Recently I had a conversation with a client. He was concerned because a condominium he bought lost value and the overall market was down. As a result, he thought he had to make some dramatic changes to his lifestyle and/or his portfolio. First, we took a look at his probability of achieving his goals and having adequate retirement income from our last portfolio update. At that time he had an 86% chance of success. We took a fresh look at his portfolio given the real estate loss and market dip. Even with the market drop and his condo devaluation, our program indicated he was at an 82% probability of success. This gave him great peace of mind. It also prevented him from taking any drastic actions in either his portfolio or lifestyle. He was comfortable at an 82% chance of success and did not feel the need to make any changes. Of course I will work with him to continue to monitor his goals.

The Goal: Achieving Comfort and Confidence

The bottom line is that a solid financial plan will give you comfort and confidence. It helps you gauge the likelihood of achieving your goals and objectives and delivers a good level of comfort. It guides you in making trade-off decisions. For example, while you might be more comfortable with a retirement income of $100,000, you may not be confident you can leave your desired legacy to your children. However, if you can still live comfortably on $75,000 a year, you could feel more confident in your ability to provide for your heirs.

Once I work with a client to identify life goals and objectives, we can prioritize them, create a plan and find an investment portfolio to best meet their needs. The investment decisions reflect their financial plan and are a means to meet their dreams.

A true financial plan will let you set life goals, then monitor and measure those goals. This type of financial plan will take on real meaning in your life.

Benefits of a Financial Plan

  1. Helps achieve goals otherwise ignored. You are planning on retiring at 65. If you could retire at 62, would you? I work with individuals to build a plan to see if this option is feasible
  2. Helps avoid unnecessary risk. Recently I worked with an investor who was a super saver and had 90% of his portfolio in stocks. When we ran his goals through our software it indicated that in order to achieve his goals he only had to have 40% of his assets in stocks. Why take on additional market risk if you don't need to. You are meeting your goals and don't need to take on this additional risk. A financial plan helps you avoid unnecessary investment risk.
  3. Ongoing monitoring. Our process recalibrates the plan every month which we monitor. Typically we review the plan with our clients annually. But if there is a large movement in probability, say 85% to 74%, we catch it and immediately discuss it. A financial plan helps identify problems (and opportunities) early and in advance so we can be proactive and take action if needed.
  4. Helps you develop confidence that your goals can be achieved. With a well-thought out, stress- tested, prioritized financial plan you can find the balance you need between comfort and confidence which usually results in peace of mind and the retirement of your dreams.

This is for educational purposes only. The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.


401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com.

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