Many Americans find the concept of a financial plan hard to define—and even harder to create. However, not having a written plan that includes saving for retirement can you leave with little money in your later years. In fact, a recent AARP survey found that one in five Americans aged 50 and older have no retirement savings at all.
“Saving for retirement is a vital part of an overall financial plan, providing long-term security and financial independence,” said Brandy Marion, institutional wealth education manager at BOK Financial®. “It helps diversify investments, offers tax benefits and can include employer contributions, which significantly boost savings. Investing in retirement accounts also protects against inflation, ensuring your money retains its purchasing power.”
Additionally, a robust retirement plan can ease financial stress in your later years and play a role in estate planning, she added.
However, even the term “financial plan” can be unclear, especially for people who are not working with a financial professional on their money goals.
“There is not a universal definition of a financial plan, which creates a lot of confusion and some misunderstandings of what we are referring to when we use the term,” said Kimberly Bridges, director of financial planning at BOK Financial.
Sometimes people refer to it as a noun—a tangible, static document drafted by a professional financial planner at a point in time. Other times people use it more like a verb—the continuous process of creating and revising an intentional plan for achieving your goals.
However, it’s really a bit of both, experts agree. Furthermore, no matter where you are in your financial awareness journey, it’s a good time to create or revisit your financial plan, including how you plan to save for retirement.
“A financial plan provides a holistic view of your current financial situation, defines your financial goals, and outlines the best path for accomplishing your goals. It’s about taking a good look at where you are now, where you want to be and how you can get there while managing risk.”- Kimberly Bridges, director of financial planning at BOK Financial
When mapping out retirement saving as part of your overall financial plan, you should set clear goals, start early, make regular contributions and review your plan periodically to adjust for life changes, Marion said.
What should be in your financial plan?
A financial plan builds on some basic financial literacy skills such as creating a budget, building an emergency fund, paying off debt and saving for retirement. Additionally, a financial plan should address the following, according to Bridges:
- Your comfort level with risk.
- The best types of accounts to use for saving and investing.
- Potential outcomes of multiple courses of actions (like home buying, selling a business or charitable contributions).
- Details on how to best allocate resources.
Who needs a financial plan?
Everyone, regardless of age and wealth, needs a financial plan that includes saving for retirement, experts agreed.
“If you have never gone through the financial planning process, doing so will help you prioritize your goals and make sure you’re on track to achieve them,” Bridges said. “It’s never too early—or too late—to make a plan for your future. Of course, the earlier you start, the more flexibility you will have with your plan. I think sometimes people put if off because they are afraid that they will be told they need to spend less and save more, and they don’t want to face that reality.”
Moreover, financial planning is especially important for anyone going through, or heading into, a life transition, she said. “This could include preparing for retirement or the sale of a business or putting your life back together after a divorce or the loss of a loved one.”
The earlier you explore your options for improving your plan outcomes, the better, experts noted.
“Planning for retirement early and thoroughly can increase your financial security, increasing your independence and improving your quality of life.”- Brandy Marion, institutional wealth education manager at BOK Financial
Alternatively, if you inadequately prepare for retirement, you may miss out on tax benefits, employer contributions and investment growth, as well as face difficulties in estate planning, potentially leaving you unable to provide for loved ones or cover end-of-life expenses, she continued.
Getting started
Creating a financial plan means being prepared to answer tough questions like: When do you hope to retire? What does your ideal retirement look like? What are your financial goals and how much of a priority are they? What people or charities do you want to benefit from your wealth?
Determining the costs to fund your lifestyle is the next step. “Many people have a hard time with this and think they have to build their budget line-by-line from the bottom up in order to create a financial plan,” said Bridges. “I actually prefer a top-down approach. Figure out your total annual income, and then subtract the amount you pay in taxes and the amount that goes to long-term savings and investments. What’s left is a rough estimate of your annual spending.”
Taking it a step further, Bridges suggests mapping out other expenses like travel, education, healthcare, and infrequent expenses like a wedding, home remodel or car replacement.
Getting started on the financial planning process will go smoother if you gather some documents ahead of time:
- Tax returns
- Pay stubs
- Social Security statements
- Pension statements
- Annuity statements
- Investment/bank account statements
- Will and trust documents
“From there, you’re ready to work with a professional financial planner who will help create a plan that works for you, your lifestyle and your goals,” she said.
. © 2024 BOKF, NA.