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Why build contingencies in your financial plan?

Carolyn Humphrey | Founder & Financial Strategist, Empowered Financial Strategies

With 2020 in the rear-view mirror, all adults eligible for vaccines, and the number of COVID-19 cases lower and trending in the right direction, it feels like there is light at the end of the tunnel. I am dating myself, but as I type this, I keep hearing Barry Manilow singing, “Looks Like We Made It” from the 70s. (Sorry for that.)

2020 was indeed a strange year for all. Businesses scrambled to work virtually, restaurants, bars, hotels, and resorts struggled to stay in business, and we all tried to find ways to connect with each other in lockdown. And, we’ll never forget the struggle to find chicken and Lysol wipes!

There is a saying, “If you are failing to plan then you are planning to fail.” I am not sure this goes far enough. I think it should say, “If you are failing to plan with many backups in place, you will surely fail.”

Human nature tends to be pretty optimistic. Most of us look at our future with a best-case scenario. We assume we will be healthy to work until we want to retire. We assume our company will continue to reward our hard work with raises and promotions and see us as a valuable part of the company until the day we choose to move on to another company or retire. We assume we will live a long healthy life without major medical issues. We also don’t think too much about what would happen if our retirement nest egg was not as large as we hoped due to higher inflation in retirement or higher taxes or a major market drop right after we retire.

One of the most important pieces of building a financial plan is building strategies for our clients that help them get to their goals and dreams regardless of what life has planned along the way. When a client tells me that it is the utmost importance for them to pay 100% of their children’s education or that they really want to retire at 60; they are not saying this is a want if the stars align properly. We cannot plan for our clients “assuming” all will go the way the client is expecting it to go.

It is imperative to look at how the eroding factors can impact our plans. These factors are things like: inflation, taxes, college costs, fees, technology changes, replacement costs, as well as risks like market risk, long-term care needs in old age, and overall health risks. We then need to explain these risks and show how they can disrupt our clients’ plans. By finding inefficiencies within the clients’ financial world, we can often shore up these risks and build in contingency planning with the ultimate goal of having the client reach their future goals while enjoying their life today with less risk for the unexpected events that life throws our way to disrupt our plans.

I feel that one of the best things I can offer my clients is true peace of mind by building strategies with many options for the “what ifs” life gives us.


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