What's a Financial Plan, Anyway?

Eve Kaplan

One question people often ask me is “What is a financial plan?” Here’s a simple analogy to answer that question. Most of you would never contemplate starting a trip without a destination in mind. Typically you know your destination and you plan your route with care. There may be detours, but you stick to a general route to get to your destination. Yet the same care often isn't taken in  charting your financial course. If you don’t have a plan, you often have no idea what the future holds (where you're going). This uncertainty and lack of clarity can lead to worry, frustration and a failure to fulfill dreams. There is no worse sentiment  -  when it’s too late – than regret. I believe the future will arrive, whether you adequately prepare for it or not. The question is “What kind of future do you really want for yourself and the people in your life that are most important to you?”

A recent WSJ article (4/9/12) brings the issue of a plan (or not) front and center with its article “He Wants to Retire…but She Doesn’t.” According to the WSJ,  “62% of couples don’t agree on their expected retirement ages,”  “46% disagree on whether they will continue to work in retirement” and “33% don’t agree on lifestyle expectations.”  Retirement plans are the biggest single components of most financial plans; significant gaps between spouses on this issue underscore the need for a plan. Why? A financial plan CAN and DOES address retirement and other potentially contentious issues by enabling a couple to evaluate the costs of various wish lists and select strategies that satisfy both parties. There’s nothing like a good financial plan to clear the air because a neutral party (financial planner) can provide the forum for an open and non-judgmental discussion, then weigh in with numbers to aid couples and individuals making vital financial decisions. 

Writing and executing plan steps is completely different from engaging a broker to monitor (nd/or sell you investments) only. Let's use the metaphor of a car and trip again. Your car runs on fuel (your investments). A broker may monitor your gas usage and periodically change the composition of your fuel, but a comprehensive financial planner will investigate all aspects of your car to make sure it’s running smoothly. Have your brakes been checked recently? You shouldn’t ignore the yellow engine light, even if your fuel consumption is just fine., etc. Only looking at your investments in isolation (without a plan) may miss the bigger picture - namely "do you have enough gas to get to your destination" (are your investments designed to help you avoid outliving your assets?).

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Like a car trip,  your financial life is a journey that needs to be navigated carefully. After a financial planner checks your entire car (to make sure it will withstand the journey), the planner creates a GPS system for you to help you stay on track. If you’re married, a planner can help you align your financial goals so you’re pulling in the same direction and headed to the same destination.

Here’s a specific example (gleaned from hundreds of clients I’ve worked with): Judy and Bill are in their late 50s, have grown children and are looking to retire in the next 10 years. They’ve never worked with a financial planner before but a broker handles their investments.  Judy and Bill are vaguely aware they’re not on “the same page” in terms of retirement expectations. When they visit me,  we have an open discussion that gives them both time to talk separately (one spouse talks, one listens).. Judy and Bill both take turns telling me when they’d like to retire, how they want to live their retirement and tell me about their other goals. We then collaborate to build a financial road map in my office that articulates the various goals they have – even if some of them are not immediately compatible.

For example, Bill dislikes his job and wants to retire “yesterday.” He’s willing to work to age 63, but wants to winter in a warmer climate.  Judy, on the other hand, enjoys work and wants to continue her current job into her late 60s (pending health and employer willingness). After retirement, she may consider spending part of a year in a warmer climate if it makes financial sense. Judy and Bill agree on other goals – such as the amount of money they’d like to spend on their daughter’s wedding, their annual travel budget and the need to consider long-term care insurance.

When Judy and Bill engage me to write a plan, the “rubber hits the road” in terms of test-driving various scenarios to see if they can afford to allow Bill to retire at 63 (or earlier). Can they afford to purchase a place in a warm climate? Or does it make sense to rent? How do they negotiate (emotionally and financially) staying in NJ if Judy wants to retire after Bill? A good financial plan creates decision trees that show Judy and Bill that some preferences (e.g. buying a condo in a warm place now) probably isn’t financially prudent. Input from a planner also help Judy and Bill avoid costly decisions they may regret later. For example, how should  Bill structure his pension payout to make sure Judy receives something if he dies prematurely? Should they consider long-term care insurance? If so, what the best kind? What kind of estate planning should they consider?

A good financial plan will bend to Judy and Bill’s wishes, but guide them toward choices that have the best possible financial outcome. Their destination on their financial road map is “making it to the end, comfortably, with money to spare.” My role  - as financial planner – is to give them the best road trip instructions possible, consider the right fuel (restructure their investments), offer advice re: estate planning, minimize taxes and consider  insurance alternatives. I do this by consulting trusted professionals I work with (for example, an insurance agent.

In the end, it’s all about making sure you design a trip that makes sense – and gets you safely to your destination.




Eve Kaplan is a Fee-Only (no products sold) Certified Financial Planner® Practitioner with 30+ years of investment/planning experience. Kaplan Financial Advisors upholds the highest fiduciary standards in the planning industry.  Eve opened Kaplan Financial Advisors in 2004 to provide comprehensive financial planning and investment management services to single women and couples. Eve can be reached at 908-898-0549 or Eve@KaplanFinancialAdvisors.com.  Visit her website at  www.KaplanFinancialAdvisors.com


Copyright © 2011-2018 by Eve Kaplan

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

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