The Five Critical Components of a Financial Plan for Retirees

Not only do you need to know what you’re going to do and whether you have enough money to do it, you need plans for income, taxes and your estate. Here’s how to build your plan.

Five wooden blocks with stars on them against a blue background.
(Image credit: Getty Images)

If you ask 10 people what a financial “plan” is, you’re likely to get 10 different answers. As a financial planner, my biggest issue with financial plans is that they aren’t actually plans. Plans say what you’re going to do. Most of the financial plans I see from other advisers are just projections to see whether you’ll have enough money.

Here’s a primer on the five necessary elements of a good retirement plan, along with some info on how to get them all in place.

1. Multiple destinations (aka goals)

Imagine your retirement as a road trip from Washington, D.C., to Los Angeles. Washington is your retirement date. Sunny Los Angeles is the day you die. You’re probably not going to drive the most direct route — there are places you want to see, people you want to visit, things you want to do. Those are your goals.

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2. Gas check (aka, do you have enough money?)

I drive an electric car, so this is not a good analogy for my situation. However, similarly, if I plug a destination into my GPS, it will tell me if I have enough charge to get there. Ideally, I do. If I don’t, I want to figure that out before leaving home so I can juice up. See where I’m going here?

You want to make sure you have enough money before you retire. I advise retirees to look at this at least once per year in retirement, too. If it looks like you are going to run out, you can adjust your goals or go back to work to gas up, hopefully.

3. An income plan

This one is so obvious, but it’s a major gap I see with many prospective clients. You not only need to know you have enough money, but also where it is going to come from. Are you going to pull your money from a bank account or IRA first? When will you claim Social Security? Which pension option will you elect, and how does that impact your spouse? You get the picture.

In this analogy that even I’m sick of at this point, this is the step-by-step route you are going to take. It will and should change as life goes on, goals evolve and tax laws change.

4. A tax plan

The last two components have to do with those two certain things — death and taxes. Pretty much every money move you make in retirement will show up positively or negatively on your tax return. There is a lot of upside and downside opportunity here. In general, you should approach the tax plan the way you shop at the grocery store. A year with low income is like a sale. Pay your taxes by withdrawing or converting funds from pre-tax accounts into a Roth IRA. When you have a high-income year, treat it like eggs at the end of 2022: Do anything you can to avoid buying them. In other words, defer taxes in high-income years.

Think of this like driving an aerodynamic car on your trip. You get no added benefit from paying more than you have to in taxes, just as you would get no benefit from having an inefficient vehicle on your trip.

5. A death plan

This is a depressing way to wrap things up, but I think this terminology more appropriately illustrates the need to have a plan in place for when you pass. Think of this like your car insurance.

As you age, accumulate assets and pay down debts. Your need for life insurance and disability insurance will diminish. Often, this part of your plan should entail figuring out if you’re overinsured and if you’re “right-sizing” your policies for your current stage of life.

Your estate documents also deserve attention. As a general rule, your estate plan should be reviewed every five years, or whenever your situation changes. Proper plans can illustrate how your assets would pass based on what your documents and accounts say.

The how

In my early years, I would print out the 100-page financial plans that would go from the back seat of the car to the junk drawer and then, finally, the trash. I think of these printed, now completely outdated plans, as MapQuest directions. They are good for that one moment in time when you press print. You would be insane to use them instead of a GPS. Good financial planning software, like a good GPS, can easily adapt to current conditions and new destinations. Here are the two options to obtain your plan:

Pay someone. The Financial Planning Association (FPA), CFP Board and XY Planning Network all have good tools to find CERTIFIED FINANCIAL PLANNER® professionals who are educated to build plans like the one above. Beware of other listing services, as many are just pay-to-play endorsements.

Build your own. There is no shortage of free software at this point, but it still isn’t usually the same caliber as what an adviser will use. Both Fidelity and Empower (formerly Personal Capital) have good tools to answer the basic questions of “Do I have enough?” and “Will it last?”

In the adviser world, the three most common software programs are eMoney, Money Guide Pro and RightCapital. Here is a free link to a more limited version of RightCapital that you can use to try building your own plan.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Evan T. Beach, CFP®, AWMA®
President, Exit 59 Advisory

After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification.  I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.