Is Your Financial Plan Flexible Enough?

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One of my clients, a corporate executive for many years, recently made a major career decision: She decided to leave the corporate world and join a nonprofit organization that aligns with her values to help others. As a result, she will earn approximately $100,000 less annually than she did in her corporate job.

After giving me the news, she surprised me somewhat by saying: “I’m so sorry if this messes up my whole financial plan!”

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After congratulating her on the career move, I let her know I understood and applauded her decision. Our lives often take sharp turns in new directions, from starting a family to dealing with a long-term illness. A financial plan’s purpose is to achieve a long-term goal, such as financial independence in retirement. As life changes, so should your plan.

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Many of us are tempted to think of financial planning like early GPS devices from the late ’90s: Input where you want to go, and the plan spits out your route – in this case, how much money you need to save every year. Instead, financial planning should be much more like today’s intelligent navigation apps: always seeking new data, adjusting and suggesting alternate routes.

So, if financial planning is an ever-changing process, how can you plan for the uncertain future? Let’s look at three major elements of this approach.

Write Down Your Retirement Goals

I always encourage my clients to write down their financial goals. Not surprisingly, most people have not done this before, so this exercise begins to bring clarity to their goals. I ask them to start with a general goal and add details over time.

For example, a general goal may be to retire at the earliest age possible. Then, we look at that goal and consider the impact it will have on other possible retirement goals. By retiring at the earliest age possible, purchasing a second home or traveling overseas twice per year will likely take a back seat. Writing down your goal helps a financial plan come into focus and leads to other, more specific decisions.

Next, instead of planning a specific date for retirement and exactly how much spending power you want to have in retirement, identify the general direction you want to move.

I work with several corporate executives who want to get off the corporate treadmill as soon as possible for their physical health, mental health and family relationships. So, we build a strategy with a general goal in mind. For example, if they are 45 years old now, we may build a financial plan that meets their goals by age 55. As they save and invest more, and their expenses in retirement become clear, we gain perspective on how close they are to reaching financial independence.

Save Money for Unexpected Setbacks

Some of life’s curveballs can derail the best laid plans. Job layoffs, failed business ventures and family illnesses are all tragic in their own right. There is no time a plan needs to be more flexible than when disaster strikes.

One of my clients recently disclosed that her spouse has a terminal illness. The couple, in their late 50s, planned to work several more years before celebrating their dream retirement.

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Almost immediately, the urgent question was, “Can we afford to retire now and enjoy whatever time we have left together?” Fortunately, due to their disciplined savings and reasonable level of expenses the answer was yes. None of us can guarantee we can avoid these moments in life. But we can be prepared with financial options if and when they do appear.

Review your financial plan and determine if it should be adjusted to take advantage of a new opportunity or deal with an unexpected obstacle. Maybe there is an opportunity right in front of you: finally opening that yoga studio or traveling overseas to explore your family history. Review your goals and give yourself permission to change them as life unfolds.

Consider Opening a Brokerage Account

Saving money in a 401(k) retirement plan, Individual Retirement Account and 529 college savings plan are wise choices. However, all those accounts have restrictions on withdrawing funds too early and without penalties.

It is critical to save money that can be used at any time and for any reason. Starting and saving in a taxable brokerage account can be one of the best decisions you make financially because it provides those options. You can start small with a few thousand dollars and build it over several years.

Need to take an extended time off between jobs? A taxable investment account can help bridge that gap. And what if, one day, you can stop working at age 55 due to the success of your startup company or stock options? Your taxable account can provide liquidity until you reach 59½ years old or older and can access your retirement accounts without penalties.

Remember that life is uncertain and good planning should account for that. Know what direction you want to head in, save money and give yourself the benefit of having options when there is a fork in the road.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Josh Monroe is a CERTIFIED FINANCIAL PLANNER™ practitioner and a Chartered Financial Consultant designee who listens actively and plans thoughtfully to help clients achieve their goals. He joined the CI Brightworth team in 2019 as a Financial Planner. Before CI Brightworth, Josh spent eight years at a leading insurance and investment firm in a variety of roles, including compliance and supervision. Josh is passionate about financial planning and making complex concepts easy to understand.