The point of this section is not to provide you with a financial plan, but rather to discuss some important concepts that should be helpful when you do create a plan.
There is no perfect standard or resource for financial planning—no one has a silver bullet. There are certainly best practices and some approaches are better than others, but a financial plan is a tool that is part of the financial decision making process.
Be aware that the results generated by any planning tool or exercise are far from certain, so do not assume that you can just blindly follow the guidance or recommendations that come out of a plan with full confidence. Long-range financial projections are highly uncertain. Anyone who tells you otherwise is selling snake-oil, even if the results are generated through Monte Carlo simulations and are considered with varying degrees of confidence.
In addition, there are many different types of financial plans. For example, financial planning objectives and processes for a young family are naturally different than those for a person approaching retirement.
The most important aspect of a financial plan that focuses on your retirement is determining a reasonable and sustainable level of spending. Reasonable and sustainable mean that you have very little chance of running out of money during retirement.
Spending obviously requires resources. The point of a good financial plan is to figure-out the best way that your resources can be used to sustain your desired level of spending. In other words, where will your income come from during retirement—a period during which most of us will have little or no income from employment.
As discussed earlier, the income determination process will start with all known sources: Social Security; and pension income, and; any other guaranteed income sources such as a private annuity. From there, the exercise involves looking at ways that your remaining assets can be used to fund additional income needs.
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