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Differences Between a Retirement Plan and a Financial Plan

What is the difference between a retirement plan and a financial plan?

The terms financial plan and retirement plan are sometimes used interchangeably. They should not be.

A retirement plan is a plan designed to help you identify your expenses in retirement, your potential sources of income in retirement, the income tax you can expect to pay each year and the amount of personal savings you will need to fully fund your retirement.

It is not a straightforward calculation. The value of your current investments and the amount you are saving each year are just a start. Your annual living expenses, cost of living increases, your various sources of income, the taxes on those various sources of income, rate of return on investments, the volatility of those returns, your life expectancy and the age at which you hope to retire must all be considered.

With that information a good retirement planning program will create a report that will analyze your current situation, determine if you are on the path to success and provide you with some strategies to reach your goals if you are not currently on track.

A retirement plan can be created at any time and the younger the better. But those who are already retired should have a plan, too. They can analyze their current financial situation and set spending at levels that can help ensure they won’t outlive their money.

In other words, everyone should have a retirement plan.

A financial plan is a far more encompassing document. A retirement plan is simply a portion of a financial plan. Some of the additional areas of personal finance that are addressed in a financial plan include:

  • Pre-retirement income and expenses
  • Home buying decisions
  • Debt management
  • Investment management
  • Education funding
  • Insurance including disability, life, critical illness and long term care insurance
  • Tax planning
  • Retirement planning
  • Elder care and health planning
  • Estate planning including wills, power of attorney, health care directives and trusts

Business owners, whether they own a proprietorship or a private corporation will have additional factors to consider.

In an ideal world, everyone would have a comprehensive financial plan and they would follow it as closely as possible. But when theory meets reality it becomes unlikely that that admirable goal will ever be reached.

Preparing a financial plan can be time consuming, complex and expensive; it may be beyond the resources of many. Plans also need to be updated regularly to remain relevant and that can add to the expense.

Implementing a plan may prove as difficult as preparing it. Has anyone ever tried to stick to restrictive and complicated diet? It isn’t easy and sticking to a comprehensive financial plan may be just as difficult but for those who do, it can be rewarding.

If you already have a financial plan or are prepared to tackle that project, congratulations. You have made a good choice.

If you don’t have a written financial plan and are unsure of where to begin, start with a retirement plan. It can give you a foundation on which to build.

As you review your retirement plan and analyze your financial situation you may find it answers most of your questions or it may spur you on to the next step of preparing a financial plan. If you decide to prepare a retirement plan you have also made a good choice.

Whatever path you choose, it should involve some planning for the future. Knowledge allows you to develop strategies, take control of your personal finances and reduce the anxiety you may have about your financial future.


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