What are the keys to successful retirement planning? Many factors matter, of course, and a lot of them can feel frustratingly out of your control. However, there’s one factor that is well within your control and it has proven to be especially effective at helping people transition into retirement with on solid financial footing. It’s putting a plan in writing.
Two recent studies found that people who have a written financial plan are far more likely to save diligently for their retirement and to move toward retirement with confidence.
The first study, which was conducted by Schwab among 1,000 adults between the ages of 21 and 75, found that people with a written financial plan are much more likely than those without a plan to have a monthly savings goal, max out their contributions to their workplace retirement plan, and have investments outside their 401(k) plan.
The second study, which was conducted by Wells Fargo among 1,000 investors (adults with at least $10,000 in savings or investments), found that those with a written financial plan are much more likely to have confidence that they will be able to maintain their current lifestyle in retirement.
And yet, very few people have a written financial plan. Schwab’s survey found that just 24% of its respondents have one. Wells Fargo’s study found that 37% of investors who are still in the workforce, and 40% of retired investors, have a written financial plan.
So, what are the elements of a good written financial plan? As we described in a previous article on the topic, How to Write An Investment Plan, some of the key elements include:
- Your investment objectives
- Your accounts and portfolios
- Your investment strategy or strategies
- Your optimal asset allocation
- How much you are contributing
- Your approach to rebalancing
- How you will respond to significant market events
That last one is especially important. Deciding ahead of time how you will respond to a bear market—and committing that decision to paper—can go a long way toward helping you navigate those rough waters with sanity.
If you’re a Premium Member of SMI and haven’t done so already, signing up for an account with the MoneyGuidePro® financial planning software would be a very helpful step in crafting a comprehensive plan. (Read An Exciting New Opportunity for SMI Members: Personal Financial Planning via MoneyGuidePro®.)
You can’t control world events, the economy, or the stock market. But creating a financial plan for your household, and committing it to paper, is something that is well within your control. Doing so will be one of the most helpful steps you can take for managing money well over the course of your life.
Do you have a written financial plan? If so, how have you found it helpful? If not, what’s been holding you back?