Do I Need a Financial Plan?

Deciding if or when you need a financial plan can be a challenging question. Financial planning provides many benefits across various aspects of life, from managing investments to retirement and estate planning. By examining different financial situations, you can identify the benefits of financial planning and decide if it’s the right time to start.

Current financial position

Financial planning prepares you for life events, making it easier to handle them financially. It helps develop strategies to navigate events such as marriage, divorce, the passing of a family member, illness or the birth of a child.

For example, getting married or divorced can significantly affect your finances. A financial plan helps you understand these impacts and develop a strategy to help manage them effectively.

The passing of a family member or a serious illness can also have profound financial implications. A financial plan can help you prepare for these events, helping ensure that you have the resources to handle them without jeopardizing your financial stability.

Paying off debt is another critical aspect of managing your current financial position. High levels of debt can strain your finances and limit your ability to achieve your financial goals. A financial plan provides a roadmap for tackling debt efficiently and reducing financial strain to help improve your overall financial health.

Managing finances in a blended marriage or significant other relationship can be complex. Different spending habits, financial goals and existing obligations can create challenges. A financial plan helps you navigate these complexities and create a cohesive financial strategy designed for both partners.

Investments

A primary reason to consider a financial plan is to develop a strategy for managing your assets based on your goals and risk tolerance. Financial planning helps create strategies to diversify and streamline your investments, allowing for adjustments as your needs change.

For example, managing assets for significant expenses such as buying a second home, funding college tuition or buying a vehicle requires careful allocation of funds. A financial plan helps ensure that you are on track towards meeting these goals without jeopardizing your financial stability.

If you receive assets through inheritance, the sudden influx of wealth can be overwhelming. A financial plan helps integrate these assets into your overall strategy, ensuring that they are invested and aligned with your long-term goals.

Additionally, if your investments are concentrated in a single stock or sector, this can pose a significant risk to your portfolio. Financial planning can guide you in diversifying your holdings, helping reduce the risk of substantial losses if that single investment underperforms. Need help getting started? Check out our beginner’s guide to start investing.

Managing stock options or deferred compensation is another complex area where financial planning can provide benefits. These forms of compensation can be valuable but require careful planning to help maximize their benefits and minimize tax implications.

Tax planning strategies

Understanding and optimizing your tax situation is a critical part of financial planning. Developing a tax strategy can help minimize your tax burden and allow you to take advantage of potential short- and long-term opportunities.

One of the key areas where financial planning can help with is contributions to employer-sponsored plans like 401(k)s. Maximizing these contributions can affect your tax situation by helping reduce your taxable income while building your retirement savings.

Individual Retirement Accounts (IRAs) also offer opportunities for tax-advantaged savings. Depending on your compensation, you may be eligible to contribute to traditional or Roth IRAs. A financial plan helps ensure you are making the most of these opportunities and taking full advantage of the tax benefits they offer.

Another important consideration is understanding the tax implications of different types of investment assets. Some assets are taxable, while others are tax deferred. Allocating your investments in a tax-efficient manner can help minimize your overall tax burden.

If you are subject to the Alternative Minimum Tax (AMT), financial planning becomes even more critical. The AMT can significantly affect your tax liability, and a financial plan can help you navigate this complex area, ensuring you are taking steps to minimize its impact on your finances.

Retirement planning

Achieving your retirement goals is more feasible with a comprehensive financial plan. It provides a strategy to help maximize your retirement savings and helps prepare you for life after work.

A financial plan helps you evaluate all potential sources of income for retirement, including pensions, 401(k)s, other retirement accounts and Social Security. By looking at these sources collectively, you can develop a strategy that helps plan your income stream in retirement.

Designating specific savings accounts for retirement assets is another critical aspect of retirement planning. Keeping these assets separate from your other savings helps you stay focused on your long-term goals, so you have sufficient funds for retirement.

Once you reach retirement, a financial plan guides your withdrawal strategy. This involves deciding the timing and amounts of withdrawals and the order in which accounts should be used. A well-thought-out withdrawal strategy can help ensure that your retirement savings last as long as possible while minimizing taxes. If you’ve been thinking about whether you’re ready to retire, read this blog about the four steps to prepare for retirement.

Protection planning

Managing risk is another essential aspect of financial planning. By taking stock of your insurance coverage, you can find ways to help protect your financial goals.

Reviewing your life insurance coverage ensures sufficient income replacement for your loved ones in case of your premature death. This is particularly important if you have dependents who rely on your income for their financial well-being. Learn more about life insurance offerings from Ameritas.

Depending on your occupation, you may face specific liabilities. For example, professionals in certain fields, such as medicine or law, may be at higher risk for lawsuits. A financial plan can help you address these risks by ensuring you have adequate liability insurance.

Planning for potential long-term care expenses is another critical aspect of protection planning. The cost of long-term care can be substantial, and without proper planning, it can deplete your savings, especially in retirement. A financial plan helps you prepare for these expenses to help protect your assets. Read this blog about how life insurance or annuities can help pay for a serious illness in retirement.

If you have multiple life insurance policies, consolidating them can reduce costs and simplify management. A financial plan can help you evaluate your existing policies and decide the best course of action to ensure you have the right coverage at the right cost.

Estate planning

Leaving a legacy for your loved ones, minimizing estate taxes and fulfilling your charitable wishes are critical aspects of financial planning. A financial plan can help ensure your estate is distributed according to your wishes and address tax strategies, such as deciding whether to pay taxes now or defer them until after your death.

Proper estate planning involves more than just writing a will. It includes understanding how your assets will be distributed, ensuring that your beneficiaries are chosen correctly, and planning for potential estate taxes. A financial plan helps you navigate these complex areas, ensuring that your estate plan aligns with your overall financial goals.

If you have large, illiquid assets such as real estate or business interests, estate planning becomes even more critical. These assets can be challenging to manage and distribute without careful planning. A financial plan helps you address these challenges, ensuring that your wishes are fulfilled, and your beneficiaries are taken care of.

You decide

A financial plan can help organize your financial life and provide the benefit of putting all the pieces of your financial journey in one place, working together. By understanding the various components of financial planning and how they apply to your unique situation, you can make an informed decision about whether it’s the right time to start. Talk to your financial professional to find out if a financial plan is right for you and take the first step toward securing your financial future.

Investment advisory and financial planning services are offered through affiliate Ameritas Advisory Services, LLC (AAS).

Representatives of AAS do not provide tax or legal advice. Please consult your attorney or other tax professional for more information.