It's not static.
Going through the process of financial planning and estate planning, many issues come to light. In a well-executed financial plan, not a stone in your personal life should be left unturned or unexamined.
But as you know, that plan is dated – the facts and circumstances that surrounded the analysis and recommendations in your plan are not static, and they change frequently. It may be that your assumptions have changed, the base facts have changed, your health has changed or your vision for the future has changed. Stuff happens and things change, and so should your financial plan.
Most financial plans start as a snapshot of your financial life. They begin with a complete construction and analysis of your assets, liabilities and cash flow. Then your planner will use these static numbers to roll the clock forward, and turn a set of numbers into a moving picture that may illustrate what your financial life may look like under a wide range of scenarios into the future. When it comes to forecasting using numbers and assumptions, everyone knows that things rarely turn out exactly as planned. If you let deviations from your original plan manifest over a period of years, it is possible that you are nowhere near your desired destination.
Each year it would be wise to review where you started the year and where it ended.
A lot of financial life goes on cruise control once it is set up, and having a set it and forget it attitude can become costly. Take a look at your 401K plan, for example. Most people set their allocation matrix when starting the plan and never look at it again. We hear this frequently from folks who hid their 401K investments in the low yielding guaranteed accounts ten years ago when markets were stressed. Some of them missed the entire ten year rally/recovery.
The same for your property and casualty insurance. We all get renewal notices in the mail when your policy is renewed, but how many of you actually read it? Even worse, how many of you have financial planners who never ask to see your renewals? Each renewal needs to be reviewed to be sure that your coverage selections will do the job in the event of your worst nightmare. You cannot assume that the renewal was the same exact coverage as last year or that it was the appropriate amount of coverage.
Estate plans aren’t often reviewed yearly, but there are parts of your estate plan that may be flat out useless if they are too old. Your health care powers of attorney or a durable power of attorney should be refreshed every 3 – 5 years, or as changes warrant revision. A thorough planner should still remind you annually about the moving parts and the people empowered inside your wills and trusts and be absolutely certain that you are using your trusts now to own everything from your bank account to your home and your business. Waiting until you pass to use your trusts could be costly and problematic.