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Plan? What Plan?

Plan? What Plan?

| April 05, 2018
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Why Do I Need a Retirement Plan?

The reason for addressing this very common question is that it is at the very heart and soul of what we do at KLJA. First, let’s define what a Retirement Plan actually is. Many times, when we ask someone if they have a plan that they are working with for their retirement, we get a response along the lines of “Oh, yeah, the rep came to my office and showed me all the options, so I got everything set up.” It’s great that they have thought about their future and are investing – that’s a lot further than most people get. However, more often than not what they have is a retirement account or portfolio, not a retirement plan. When we use the term Retirement Plan, we mean a well thought-out, defined, written course of action that takes into account the plan owners’ retirement income and spending goals, objectives, risk tolerances, and investment strategies. A comprehensive plan will address a number of areas, including the management of their current assets, debt, and cash flow, insurance needs, educational needs, desires to leave a legacy, business financial needs, and any other special situations that will arise. It also has caveats for what to do when things go really well or really poorly in the market (both of which will almost certainly happen).

Now that we agree what a plan is, why do you need one? There are several reasons:

  • A plan will keep you from being your own worst enemy. Click here to read a more in-depth article on this, but the gist of it is that most people are susceptible to fear, greed, overconfidence, selective memory, and “predictive fallacy” when it comes to investing. Put another way, people tend to get emotional about their investments and often do the exact wrong thing at precisely the time they shouldn’t do it. A plan that you adhere to will help keep these natural tendencies in check.

  • A plan is the recipe for your desired outcome. When you are making a complex dish for dinner, there are a couple of different ways to shop for the ingredients. You can look at the recipe, make a list of the ingredients you need, and go to the store and buy them. Or, you can just “wing it”, go to the store, buy some stuff, and then try to make a dish out of the items purchased. If you are like most people, the first method gives you a much better chance of making the exact dish that you want. The second way usually ends up with you getting some things that you didn’t need and forgetting some things that would have been useful (or sometimes crucial) for your dish. A retirement plan does the same thing- it guides you in your investing so that you don’t buy things you don’t need or forget the things that you really should have.

  • A plan will keep you from getting sidetracked. Let’s face it, there are a lot of things in our life that compete for our attention. What we spend our money on is no different. You only have to pull up a social media site, turn on your television, or tune into a radio station for a few moments before a company with slick marketing and large advertising budgets will try to get your money from you in exchange for whatever they have to offer. Sometimes it is something that you need, but most of the time that’s not the case. A plan that takes into account your current budget and spending will help you from being tempted by that hot stock tip, boat, trip, or convertible that is tempting but isn’t in line with your future objectives.

  • A plan will make your goals more achievable. What’s the first thing that motivational gurus say to do when you come up with a goal in your life? Write it down! By having your financial and retirement goals and plan on pursuing them in a tangible, written form, you will be significantly more likely to achieve them.

Does the thought of putting together a plan overwhelm you or freak you out? Give our office a call, we’ll walk you through it in a way that makes sense and ensures that the plan is right for you.

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