Even when you were younger, you wouldn’t think of scaling Half Dome without exhaustively planning every detail and contingency for your ascent. Well, the importance of financial planning for your retirement should take on a similar approach.
Here are five reasons financial planning is so essential for your retirement:
Planning implies active intent, interest, and involvement. It puts you on a path forward. It forces you to make an assessment of where you are now and where you need to go, coupled with how much time it will take to get there.
With the right financial planning, questions that may have been fuzzy figments in the back of your head leap into focus: “How much money will I need for my retirement?” “When should I take Social Security?” “Should I invest in a long-term care policy?” “Should I try to reach my savings goal myself or should I seek help?”
The fact you’re starting to ask questions about your retirement propels you toward achieving your retirement goal.
No mountain climber would think of launching an assault on Mount Everest without a Sherpa by his side, knowledgeable about avalanches, shifting glaciers, and physiological concerns like hypothermia, frostbite, and oxygen deprivation.
Regarding your retirement, you can do some of the prep yourself, reading retirement planning books, visiting retirement websites, and attending seminars, but at some point, you may want to bounce some of your ideas and concerns off of a financial professional who can advise you about approaches you can take to achieve your retirement goals. Their experience may also help you avoid some of the more perilous parts of the journey, such as wanting to sell impulsively during the first sign of a market correction.
Financial planning is important because it can further clarify your retirement mission. It can confirm why you are making sacrifices like tucking money away in a money market account instead of spending it on a fishing trip to the Florida Keys.
Like a lot of proud older Americans, you may not want to be dependent on others, even if those “others” are your children asking you to live with them. You want to be independent, so you can come and go as you please — the way you always have.
There’s an old stock market adage that says time in the market is more important than timing the market. Putting your money into some kind of growth vehicle as soon as you can, even if it’s just a nterest-bearing savings account, can help you reap the benefits of compounding interest, a principle that Einstein called the eighth wonder of the world.
Interestingly, a reverse mortgage line of credit, which allows homeowners 62 and older to convert some of their home equity into tax-free cash, leverages this time principle. Whatever portion of your line you don’t use automatically grows each month at a rate equal to the sum of the interest rate, plus the annual mortgage insurance premium being charged on your loan. Over time, this will allow you to build a small war chest to help face future financial emergencies.
Even the best plans can go astray. Sickness, death, depressions, recessions, epidemics, pandemics, and once-in-a-century storms have a nasty way of knocking the best financial plans off track.
That’s why a plan, as important as the one you have constructed for your retirement, needs a plan B and probably a Plan C. Even if you have to modify your original plan or ditch it altogether, having a backup plan will allow you to react to changing events more quickly and limit financial damage.
Retirement doesn’t just happen. It has to be planned. There’s no time like the present to start preparing, building, and rechecking your plan so you can reach the retirement summit you have always envisioned.
We hope this article has given you some help with things to think about. Of course, every situation is different. This information is intended to be general and educational in nature, not to construe as financial advice.
What is Financial Planning?
Financial planning is the task of determining how an individual will achieve their strategic goals and objectives.
What are the types of financial planning?
There are three main types of financial planning: short-term financial planning, medium-term financial planning, and long-term financial planning to prepare for a period of more than five years.