Is your financial plan holistic? 6 questions you should ask

Shelly Gigante

By Shelly Gigante
Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Posted on Jan 28, 2022

It takes more than a basket of stocks to secure your financial future. It takes strategy, savings, and a commitment to tax efficiency. It takes holistic planning.

A holistic financial plan accounts for all facets of your financial life, ensuring that each piece of the puzzle works together to help you reach your goals. That includes your cash flow, taxable investments, retirement savings, insurance coverage, and your estate.

“Holistic planning means we aren’t just looking at insurance or investments,” said Charles Clark, a financial professional with Capital Financial Group in Memphis, Tennessee. “We’re looking at the global picture.”

And mapping that image means assessing six areas in particular:

In many cases, holistic financial planners work closely with other professionals, including accountants and estate planning attorneys, to manage risk and minimize tax burdens. They develop relationships with their clients to better understand their values, priorities, and concerns, enabling them to create a personalized road map for financial wellness. And by asking targeted questions along the way, holistic financial professionals play an important role in educating clients about their options and helping them define their vision. (Related: What is holistic planning and how can it help you?)

“My experience is that the minutia is where clients want counsel,” Clark said. “At the end of the day, clients know they need life insurance and money management, but they really want an architect of their entire financial picture.”

Not everyone needs a holistic financial plan, particularly those who are focused primarily on investment returns. A good candidate for holistic planning includes “someone who is intentional about taking great care of their family and does not have the time or education to do so on their own,” said Louis Holmes, a financial professional with LongView Planning Partners in Tupelo, Mississippi.

If you want to be sure that your own financial plan is comprehensive, ask yourself (or your financial professional) the following six questions:

Is my asset allocation appropriate?

Most investment portfolios are divided across multiple asset categories, including stocks, bonds, and cash. Your potential for returns — and corresponding level of risk — is determined largely by how those assets are allocated.

A portfolio heavy on stocks, for example, has the greatest potential for growth, but is also more likely to experience significant swings when the equity markets ebb and flow. By contrast, a portfolio composed mostly of cash and government bonds is more likely to be stable but will also produce minimal returns that may not keep pace with either inflation or your need for growth. (Learn more: Why identifying your risk profile is essential to investing)

To maximize risk-adjusted returns, most financial professionals suggest that stock portfolios include a mix of different sectors (industrials, financials, consumer staples, etc.) and sizes (large-cap, mid-cap, small-cap) while incorporating exposure to both domestic and international equities. The degree to which cash and bonds are represented in your portfolio depends on your age, risk profile, and financial goals.

Be aware that your asset allocation will likely change as you age, becoming more conservative over time. By working with your financial professional, you can create an asset allocation that reflects your unique financial profile. (Learn more: Asset allocation and diversification: Do you know where your financial eggs are?)

Am I saving enough for retirement?

For many working Americans, the biggest personal finance question is whether they are saving enough for a comfortable (and timely) retirement.

Most financial professionals recommend saving 10 percent to 15 percent of your income every year in a pretax account, such as a 401(k) or IRA. Not sure if you’ve saved enough based on your age? Here’s some general rules of thumb:

If you’re not currently stashing enough savings away, consider increasing your monthly contribution to your IRA or 401(k) and be sure you are taking advantage of any employer retirement savings match. (Learn more: Retirement savings catch up: 3 moves)

That can be done most easily by boosting your income or decreasing your expenses (nix that extra vacation each year). It can also be done pain free by allocating future bonuses or raises toward your retirement. (Calculator: How much should I save for retirement?)

Are my estate planning documents in order?

At its core, financial planning is really about protecting your interests. That includes your loved ones.

If you intend to leave a financial legacy to your heirs, you must have estate planning documents in place to ensure that your assets will be distributed according to your wishes after you die.

Such documents include beneficiary designations for your retirement accounts, a will, durable powers of attorney, a living will, and a living trust, which may also benefit you and your loved ones during your lifetime.

For example, the living will spells out your wishes for end-of-life care, relieving your family from having to make those difficult decisions at a stressful moment. And the powers of attorney documents identify the person you trust most to make medical and financial decisions on your behalf if you are unable to do so, which can help prevent infighting among those you leave behind. (Learn more: Wills and the basics of estate planning)

Do I have adequate insurance coverage?

Insurance protection products are the cornerstone of any financial plan, protecting your paycheck and your family against financial risk.

  • Life insurance provides a death benefit to your family if you should die prematurely, helping them pay the bills when your income should suddenly cease. But far too many Americans are either under or over insured. Others have the wrong type or amount of coverage for their specific needs. For example, term life insurance is least expensive because it provides a benefit for a limited amount of time, while permanent life insurance (which includes whole life insurance) is more costly but provides a guaranteed tax-free death benefit to your heirs regardless of how long you live, provided your policy remains in force. In addition to the death benefit protection, permanent life insurance can be designed to provide a source of future retirement income as needed. Your financial professional can offer guidance on how much life insurance protection your family needs and which type of coverage makes sense for you. (Calculator: How much life insurance do I need?)
  • Disability income insurance (DI), on the other hand, protects a percentage of your income in the event that you should become too ill or injured to work. Many workers mistakenly assume that their employer-sponsored DI coverage is enough. In fact, any benefits offered through employers may be taxable, it may limit coverage to your base salary, it may not provide coverage if you are able to work in even a minimum-wage job, and it may not be portable — meaning you may not be able to take the policy with you after you leave your job. Check your policy to be sure that you have the coverage you need. (Calculator: How much disability income insurance do I need?)
  • Finally, long-term care insurance offers a number of financial features that can protect both you and your family. By covering part of your expenses if you should require costly assisted living or residential care services as you age, you not only preserve your estate for your heirs but also relieve your loved ones from potentially having to leave their job to become a caregiver. (Learn more: 6 people who dismiss long-term care insurance, but maybe shouldn’t)

Are my assets optimized for tax efficiency?

Taxes take a toll on your investment returns and your estate. You can potentially keep more of your hard-earned savings by working closely with a tax or estate planning professional who can help you optimize for tax efficiency.

That may include strategies like tax-loss harvesting at year-end to offset capital gains, managing distributions from your taxable retirement accounts, transferring assets to a trust, and making financial gifts to younger generations or a charity. Life insurance, which is first and foremost designed to provide a death benefit for your loved ones, may also be used for estate planning purposes as the death benefit is generally income tax free to your named beneficiaries. (Learn more: 7 situations where a trust might help)

Additionally, you can assemble financial instruments in your portfolio to diversify your tax base, which may allow you to structure withdrawals in retirement to potentially increase the amount of after-tax spendable income. (Related: Income tax diversification defined)

What is my ideal retirement withdrawal rate?

As you reach your pre-retirement years, the conversation shifts from how much you need to save to how to convert your savings into income. And more importantly, how much you can safely withdraw from your savings each year so you don’t outlive your assets.

Your withdrawal strategy must be carefully calculated based on your life expectancy, the size of your portfolio, your expenses, and the amount of retirement income you have coming in. That may include Social Security, required minimum distributions from tax-deferred retirement accounts, pensions, and any annuities or trusts you may have.

The often-cited rule of thumb is that most retirees can safely withdraw 4 percent of their retirement savings during their first year of retirement and increase their withdrawal by 1 percent per year to adjust for inflation, thus maximizing the probability that they only ever spend their earnings and leave their principal untouched. But 4 percent may far exceed your ideal withdrawal rate, especially if you saved  too little or retired early. Or, it may be too conservative if you continue producing an income past the typical age of retirement or exceeded your savings goal. (Learn more: The ideal retirement withdrawal rate)

Your withdrawal rate may also be adjusted based on how the markets perform in the first few years of your retirement. (Learn more: Beware retirement’s overlooked risk: Sequence of returns)

“You need to consider the analogy of ‘climbing up the mountain and safely making it back down,” said Laurie Madenfort, a financial professional with Coastal Wealth in Ft. Lauderdale, Florida. “This refers to cash accumulation and preservation of capital to get up the mountain for a lifetime of financial security, but some never consider the most important part of the journey—the distribution phase. Can you take this bucket of savings and investments and safely extract income in the most tax-efficient way, or are you facing exposure to taxes and actually reducing your income unnecessarily?”

Madenfort said it is important to work with a financial professional early on who “thinks with the end in mind.”

Conclusion

Holistic planning creates a personalized pathway to financial well-being. By reviewing your investment strategy in context with your vision for your financial future, you can help ensure that you minimize risk, maximize investment returns, and protect the ones you love.

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The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.