A financial plan should be just that: a step-by-step guide to what you need to do to reach your goals with your money.
The irony is that financial plans go stale almost immediately. Goals shift. Assumptions change. Life is constantly moving. Two years ago, I would have told you my family of four was complete. Today, we are a family of five.
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But there are certain transitions and situations that should cause you to stop, seek a second opinion and start over.
To save Millennials and Gen Zers some time, my firm focuses on people who are already taking money out of their portfolios, typically in retirement, so this column focuses on folks in those situations.
Situation No. 1: You’ve been through a major life event
Certain events in life mean you are a different person today, financially, than you were yesterday. Early in my career, for example, I started working with a couple who were a month from retirement.
Six months later, the husband died of brain cancer. That led to a complete overhaul of his widow’s financial plan. Values and priorities shifted. Income changed. Expenses changed. Lifestyle changed.
To ascertain whether you need to get a second opinion on your financial plan and whether it needs a complete overhaul, ask yourself these questions:
- Have my values and priorities shifted?
- Have my income and expenses dramatically changed?
- Do I spend my days doing much different things than I did previously?
- Does my adviser focus on serving who I am today or who I was yesterday?
If you’re downsizing, for example, you probably don’t need to start over with your financial plan. Most planning software will have a primary home relocation that will adjust expenses based on the new place. You can access a free version of what we use online.
However, if you’ve sold a business, gotten divorced or if your partner has passed away, you are now a different person financially. This likely requires an overhaul and a new strategy.
Situation No. 2: Your adviser talks only about investments
When I first started in the profession, quarterly investment meetings were the norm. Financial planning was in the process of taking center stage, but most financial advisers still believed their value was mostly based on the investments they put their clients in.
You’d therefore meet quarterly and discuss any changes to the portfolio. The conversations about life and how to align your money with what’s truly important? Those stayed at home.
If these sound like the meetings you are still having with your adviser, surprise: You don’t actually have a financial plan. Now is a good time to get started.
Situation No. 3: Your adviser never talks about taxes
If your adviser isn’t talking about taxes, this could be for myriad reasons, and from a compliance perspective, some of them may be legitimate.
However, when you are pulling money from your nest egg to cover your expenses, every move you make shows up on your tax return and has an impact on the bill you pay.
An adviser who looks only at investments may be eking out a point or two in excess returns without realizing that even more of that is being eaten up in taxes by holding a tax-inefficient vehicle in a taxable account.
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For example, you would typically be better off holding a growth stock in a taxable account than a REIT, because the income from the REIT is taxable as income. The REIT is better placed in a retirement account.
Tax planning is part of financial planning. It is an entire course in the CFP curriculum. Even if your adviser isn’t preparing your return, they should be helping you mitigate your lifetime tax bill. This is especially important for those in the income stage of life.
Situation No. 4: You still can’t answer the big questions
Can I retire? Do I have enough? Will it last? Can I afford to help my adult children?
Most prospective clients we see have an adviser. You’d be shocked at how few can answer these questions. And to be fair, the software we all use does not give yes-or-no answers.
However, that is one value of a human adviser. They should be able to look at the numbers, interpret the output and give you permission (or not) to turn in those keys, to help with that down payment, to help you sleep at night.
