A Written Financial Plan may help Reduce Fear of the Unknown


Chad Winn | Nov 6, 2015, 8:41 a.m.

According to a Bankrate.com Money Pulse Survey dated Feb. 18, running out of savings and the ability to pay for health care costs during retirement continue to be two of the top concerns of people over the age of 50. These concerns are not unfounded. Significant increases in life expectancy throughout the 20th and into the 21st centuries coupled with the continued rise in the cost of health care continues to put pressure on the cash flow and nest eggs of retirees.

Winston Churchill said, “He who fails to plan, plans to fail.” The unknown is always scary. One way to possibly reduce some common anxieties associated with retiring is to establish a written financial plan. While survey after survey indicates the fear of falling financially short in retirement is extremely widespread, many Americans continue to approach this phase of their life with no formal plan.

What is a financial plan? In a most basic sense, a financial plan is a formalized and usually written plan to help someone organize the strategies for pursuing their financial needs and goals. A financial plan can be established for any need by anyone of any age but is commonly used for planning retirement. A good financial plan should act like a compass or a map that can be referred to often to ensure a person is on track toward their goal and also may help indicate adjustments to strategy that may need to be done.

A financial plan should include a cash flow analysis. A cash flow worksheet can help a person determine how much they are spending and on what. It may also highlight all sources of income. Discussing a budget usually triggers the reflex response in my clients of eyes rolling into said client’s head and a huge sigh. I am quick to point out a budget is what and how to spend, it shouldn’t be considered a punishment but something that may be helpful. Just like a good diet is a way to establish a well-balanced meal plan that is healthy for you, a financial plan should be viewed in the same way.

One thing to pay close attention to if the budget is being established for a couple, is how the income may change if one person dies. As an example, be sure to know if a pension will continue to pay out the full amount, be reduced or even eliminated. Also, remember to account for the reduction in Social Security payments when someone passes away.

Another item that should be included in every financial plan is a net worth statement. Net worth is very simply determined by taking all assets owned by a household and subtracting all debt. Knowing the details of one’s net worth is important in helping to determine how long a nest egg will last. Don’t leave out the value of your residence and any mortgage balance. Sometimes the equity in your home can and may need to be used down the road to help fund retirement needs.

Financial plans often include items like an insurance analysis, savings rates, estate planning and tax analysis. A financial plan can range from very simple to quite complicated. But, a written plan can often work to combat fear and stress levels by making an unknown at least somewhat known.

Chad Winn is a chartered retirement planning counselor and financial adviser with Waddell and Reed Inc. If you would like more information or have questions, Winn can be contacted at 903-6807 or cwinn@wradvisors.com. This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. Waddell and Reed does not provide tax or legal advice. Investing involves risk and the potential to lose principal. Securities offered through Waddell and Reed Inc., Member SIPC.