5 Reasons You May Want to Tweak Your Financial Plan (and 3 to Completely Overhaul It)

Bridget Handke, CFP®, CAP®
Mar 9, 2021 9:35:32 AM

AdobeStock_339609354-1You’ve completed your financial plan and are basking in the pride that such an accomplishment grants – and you should! Creating a plan is the first (and arguably most critical) step on the journey toward securing the retirement you want.

Now you know how your goals interact with each other, when you can retire, and what your retirement lifestyle might be; you may even have a plan for retirement health insurance, saving for college, a vacation home, or other dreams. You have done a commendable job, and congratulations are certainly in order! But is this a “set it and forget it” scenario? No! Just as your life, priorities, and goals evolve, so should your financial plan.

As a financial advisor, we consider plans a living entity which should be revisited from time to time. Sometimes your plan may only need to be tweaked, and other times, it might need a major overhaul.

When You May Want to Tweak Your Financial Plan

When tax law changes

Whenever a significant tax law change occurs, you should reach out to your financial advisor to see if the change impacts or offers opportunities for your investments. Although tax laws rarely affect when you can retire, they may inform the best method in which you save for retirement.

For example, the Tax Cuts and Jobs Act of 2017 temporarily lowered tax brackets for many people starting in 2018. It also eliminated itemized deductions for a large portion of the population. For our clients, this presented several opportunities to enhance their financial plan.

Given these changes, we encouraged some clients to consolidate several years’ worth of charitable giving at the end of 2017. If they hadn’t, those deductions’ advantages would have been lost. For other people, switching from contributing to a traditional 401k to a Roth 401k made sense given the temporary drop in taxes within certain brackets.

When estate law changes

From time to time, Congress changes estate tax laws. At the time of this writing, an individual can leave an estate worth $11,700,000 without paying federal estate tax. (For a couple, this amount doubles.) However, this law will sunset at the end of 2025, and the federal estate exemption will revert to $5,600,000. If you have an estate above $5,600,000, you may want to revisit your financial and estate plans to cover any death date scenario. 

When the market changes

If you’ve been investing for a while, you know that historically the stock market has trended upward over time. Still, the market may plunge now and then. Whenever a big market drop occurs, people naturally may feel nervous about their timeline for retirement. Although these drops can feel worrisome, most financial planning software incorporates the ups and downs of the market when calculating the probability of success of your plan. 

The best course of action in these scenarios is to revisit your plan, which can give you peace of mind and empower you to take the next step. Your advisor might even suggest changes given market conditions and projections to keep your plan on track.

When your timeline changes (even slightly)

If you move your retirement date up from five years to three, that will likely require tweaking your plan. Shrinking your timeline might mean saving a bit more now or spending a bit less in retirement, but you may not need to do anything at all. Regardless, understanding how the timing decision will affect your cash flow is crucial in determining if your plan needs to be altered.

[Read more: 8 Tips For Holding Yourself Accountable to Your Long-Term Financial Plan]

When you add a goal

Whenever your goals change, your plan should be adjusted to support them. Many of our clients have reevaluated their priorities in light of the global pandemic. Have you added any new life goals or financial goals since early 2020?

Maybe you have decided that you want to add a goal of traveling to different countries each year after the pandemic is under control. Or maybe you would like to add a goal of gifting to a specific non-profit annually to make an impact in an area that matters to you. Whatever your new goal is, your plan can and should account for them as soon as possible.

When You May Want to Overhaul Your Financial Plan

Sometimes, life changes so drastically that you need to rethink your entire financial plan. The assumptions you used in your original plan may be irrelevant, or your goals may have evaporated and replaced by entirely new aspirations. Maybe your available resources are suddenly much higher or lower than you thought they would be when you created your plan.

The following scenarios indicate that your plan needs more than just a “tweak,” and that you need to go back to the drawing board:

When your marital status changes

Whether you have been recently widowed, divorced, or just got married, changing your marital status can have a huge impact on your long-term financial plan. Not only might your resources be different, but your goals have very likely changed. You will want to reflect on what your new goals might be, and then benchmark them with your advisor to see how you might make them achievable in your new scenario.

When your health status changes

Our futures are always uncertain, and occasionally, we help a client revamp a financial plan because they received bad news from their doctor that cast additional uncertainty into the equation. Updating your plan in this circumstance is vital because you will want to consider several “what if'' scenarios given your new health situation. Your advisor can model good health outcomes as well as poor outcomes.

Additionally, a health scare is a crucial time to revisit your estate plan. Sometimes, the maturity levels of your beneficiaries have changed, or maybe you changed your mind for other reasons. You may have created a trust for your children when they were young, but now they are financially responsible and no longer need trusts. In this scenario, you will likely want to review your options with your financial planner as well as with your attorney.

When you come into a lot of money unexpectedly

Some people are fortunate enough to inherit enough money to help them buy a new vehicle or go on that dream vacation to the Greek Isles. That volume of inheritance has little effect on your longer-term financial planning. However, if you inherit money or assets with life-altering status (like a business or startup stock that you purchased before it skyrocketed), you'll need to revamp your entire financial plan to account for it.

[Surprise windfall, settlement, or inheritance? Here are 7 steps women may need to take after a sudden influx of cash.]

With the new wiggle room, you can consider the possibility of larger-scale lifestyle changes or aspirations that felt unreachable before. But before pulling the trigger on any significant life changes, always discuss your options with your financial planner to assess the sustainability of your plan.

Life’s one certainty rests in its uncertainty. The twists and turns of life are what keep you growing and changing. That’s why we build flexibility into every financial plan and encourage our clients to revisit and update their goals from time to time. If you're worried about big changes, you can put that worry to rest by tweaking or overhauling your plan so that it aligns with your current life.

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