Do We Need a Financial Plan?

Gerald D. FaheyApril 29, 2016

Financial Planning

Do any of these questions sound familiar to you?

  • Can we retire soon or how much longer do we have to work?
  • Should we collect Social Security at age 62 or wait until full retirement age (and what does that mean, anyway)?
  • We have pensions, Social Security benefits, bank accounts and retirement plans -but what is the best way to provide our retirement income?
  • Are we being too conservative or aggressive with our investments?
  • Should we pay off our mortgage so that we are debt free heading into retirement?
  • Why are we paying so much in taxes every year – is there anything we can do about it?
  • We have several life insurance policies – do we still need to have them or should we cash them in (or can we cash them in)?
  • What about Long Term Care insurance, do we really need that?
  • We want to take care of our children and grandchildren – is there a best strategy?

We acknowledge that some people are more comfortable with their own version of financial planning, whether through a true “do it yourself” mode or with a “Robo Advisor” type of experience.  Mathematical projections can be done fairly easily to account for the 25 or 30 years of living in retirement, projecting income and expenses compared to assets and liabilities for the entire period using assumed rates of return and estimated life expectancy.

But in evaluating future cash flows, let’s take Social Security for an example – when would it be best to begin your Social Security benefits?  According to Social Security, if you were born in 1944 or earlier, you already are eligible for your full Social Security benefit.  If you were born from 1943 to 1960, the age at which full retirement benefits are payable increases gradually to age 67.  The following chart lists the full retirement age by year of birth:

Year of Birth Full Retirement Age
1943-1954 66
1955 66 + 2 months
1956 66 + 4 months
1957 66 + 6 months
1958 66 + 8 months
1959 66 + 10 months
1960 and later 67

If one were to begin Social Security benefits at age 62, there would be a reduction in benefits of about 25% as compared to full retirement age.1 Given our current historically low interest rate environment coupled with health care expenses increasing at dramatically high rates, giving up a quarter of one’s lifetime income stream from Social Security could deal a serious blow to a couple’s long term financial strategy.

We recommend an analysis of many different scenarios to determine which strategy offers the greatest probability of success.  This is one of the key components of a comprehensive financial plan.

Without a financial plan, it is hard to provide meaningful answers to many of the above questions.  Even if it were possible to run all those projections for retirement cash flows, there are so many other factors to be considered in the overall picture of one’s financial situation including the timing of income and taxation of such income.

A financial plan can be used as an objective measure during turbulent market cycles, with a purpose to remind clients not to make emotional decisions.  Clients are reminded to “stay the course” with current investment allocations and continue down the financial path that we have helped create with you (can “Robo advisors” and “do it yourself” do that?)

There are more investment choices than ever for investors, which is both good news and bad news.  It is great to have so many choices but do you really want to spend a substantial amount of your time to do a thorough analysis of all the investment options available?   Even if you’ve made some excellent choices in your selection of investment options, at some point your tolerance for risk may decrease or your need for greater income may develop.  Do you want to be responsible for developing and implementing a tax-efficient strategy to exchange higher risk equity assets for lower risk fixed income assets, to generate additional income to meet your needs?

If you own several life insurance policies, maybe some are term and some are permanent types; which of these are still providing value in your overall strategy?  If you bought a 30 year term policy many years ago to protect against leaving your spouse with a big mortgage in the event of premature death and you’ve paid off the mortgage early, do you still need the policy?

In our financial planning, we provide an objective assessment of many different items:

  • Current and future cash flows
  • Pre- and post-retirement projections
  • College savings projections
  • Investment risk
  • Asset allocation and asset location analysis;
  • Investment recommendations for all assets (sometimes including assets we don’t directly manage)
  • Analysis of insurance protection including life, disability, long term care and homeowner’s property casualty and umbrella liability needs.

We also work with our client’s attorneys and accountants as needed, to ascertain that important items such as estate planning documents and beneficiary designations are current and that investments are as tax-efficient as possible.

As a financial planning firm, we are often asked the question “Do We Need A Financial Plan?”  Our response is a financial plan provides the proper client/advisor framework.  It creates a “game plan” that eliminates  some of the guesswork involved in managing short and long term objectives.2 The financial plan may be static in its creation with the purpose of effecting an objective evaluation of a client’s present-day situation.  Just as important, however, the financial plan is dynamic – able to adapt to sudden economic and other changes.  It provides meaningful solutions and strategic options to manage long-term issues as needed during a client’s lifetime and after it.


  1. Social Security Retirement Benefits
  2. Benefits of Financial Planning