The Importance of Financial Planning

The Importance of Financial Planning

by Tyler Vernon, CEO

Everyone wants to know if they are on track for retirement, and if/when they can afford to retire. One of the largest concerns for retirees’ today is a longer life expectancy. Can one live and have enough financial resources to fund those years? Will you run out of money before you run out of time?

Over the years, in an effort to increase profits and decrease risks, companies have moved away from offering Pension plans in lieu of 401(k) plans. This put the responsibility of managing money and goal setting on the individual instead of the company. Social security is dramatically underfunded, especially for younger generations. Who knows if it will even be available to the younger generations when needed.

Determining the magic number to hit your retirement goals can be tricky and there are many, back of the napkin ways of thinking about it. One of the first things to do is: Decide what kind of retirement lifestyle you want to live. Most individuals assume they want to live the same lifestyle they did when they were working. Perhaps, they even want to spend a bit more in the earlier years, to take advantage of their good health and travel. Doing a complete cash flow analysis is very important as there are certain expenses that may go away, but other expenses that will not; some which may inflate, and others which will not. Think about your mortgage payment, for example. This, in most cases, is an expense which is fixed and that will go away, but property taxes, will most likely increase over time and never go away. Understanding the position of each one of your expenses and how your expenses fit into your long-term plan is vital to understanding the basis of your financial means to achieve these goals. The more complicated part of the planning is to determine the future spending power of your money and the escalating costs of health care.

There are very simple calculators on the internet which can help determine if you are on track. For a rough estimate, many of those may work. However, many individuals would opt for a true financial plan, which is always recommended. A full-fledged financial plan will look at things in detail, i.e. taxes, write-offs, expenses, social security, portfolio growth, as well as a litany of other factors that could affect your planning. Once the current plan is in place, you will have the ability to change some of the factors to help make constructive decisions. Perhaps it’s recognizing the ramifications of purchasing that larger house, or the upsides of moving to another state to gain a lower income tax rate. Financial planning is the basis of any retirement plan or asset management strategy. At Biltmore, we always encourage clients and their loved ones to engage in the planning process to ensure they are on track to reach their goals. If you, or someone close to you are uncertain about your future, it may be well worth your time to consult with an expert.

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