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How Goals-Based Financial Planning Can Help You Achieve What Matters Most

What do you want to accomplish with your wealth? This question lies at the heart of goals-based financial planning, a strategy that helps you develop your goals and direct your financial decisions toward achieving them. With this approach, your money works in service of what matters most to you.

 

Maybe you have short-term plans, such as taking your kids and grandkids on an international vacation. Or perhaps you’re thinking about your long-term ambitions, like starting a charitable foundation or leaving a legacy for future generations. A goals-based framework can enable you to identify priorities and achieve what you set out to do. It can help transform numbers in a bank account into cherished memories with loved ones, a positive impact on your community and a comfortable future for your family.

 

A financial plan tailored to your goals can also increase your wealth. One study found that using a goals-based framework can lead to a remarkable 15% increase in wealth compared to a strategy that solely emphasizes funding retirement.1 According to a recent survey by the Economist Intelligence Unit (EIU), 64% of Americans2 at the highest wealth levels (at least $5 million in investable assets) express concerns regarding how they will guarantee their financial well-being over the long run. This statistic highlights the importance of thoughtful long-term planning.

 

While goals-based financial planning is a powerful tool, it’s challenging to navigate without the guidance of a skilled wealth advisor. Our advisors can help you identify your goals, review your options, create a comprehensive plan, understand the trade-offs and track your progress. Let’s examine this strategy and how it allows for a more meaningful and fulfilling approach to financial planning and wealth management.

Personal tax rates are probably going in one direction: Up.

Personal tax rates are probably going in one direction: Up.

Benefits of goals-based financial planning

Using a goals-based approach3 to financial planning can offer several advantages:

 

Achieve individual goals rather than chase the market

Imagine relaxing on a beach with your loved ones instead of agonizing about the latest drop in the stock market as you hunch over your phone. Goals-based planning focuses on achieving your personal aims rather than simply outperforming market benchmarks or chasing the latest hot stock. It recognizes that your investment portfolio is like the gas in your car—it’s there to help you reach your destination. By concentrating on your long-term goals, you can minimize the anxiety caused by short-term market fluctuations and focus on what you can control.

 

Increase your long-term savings

Goals-based planning involves setting specific financial targets, such as saving an additional $20,000 a year. However, achieving extra savings isn’t just about setting money aside; you also need to invest to reach those goals. A study4 discovered that when investors have multiple financial goals over an extended period, they are more effective at diversifying their portfolios by combining safer and riskier investments to pursue higher returns. Defining your goals helps to make your long-term investment strategy more disciplined.

 

With a clear road map, you can also prioritize (or deprioritize) purchases or savings based on whether they serve a goal, helping you navigate trade-offs and stay on track even in the face of competing priorities or unexpected challenges.

 

Maximize tax efficiency and wealth transfer

Without a goals-based approach, you might miss opportunities to reduce your tax burden, leading you to overpay and potentially leaving less for your legacy. By incorporating tax planning into your overall financial strategy, you can make more informed decisions about how to structure your investments, retirement accounts and estate plans to maximize tax efficiency and preserve your wealth for future generations.

 

For example, the Tax Cuts and Jobs Act (TCJA) nearly doubled the estate tax exemption to approximately $13 million per individual (or close to $26 million per married couple). But when the TCJA expires at the end of 2025, those exemptions may decrease to between $6 million and $7 million.5 A goals-based plan might direct you to gift proactively while the exemption limits are high. Cash donations are currently deductible up to 60% of your AGI (a limit that will revert to 50% after 2025), while the cap on donating appreciated non-cash assets such as long-term securities is 30% of your AGI. Strategically planning your charitable contributions now can have a significant impact on your legacy later.6

 

Enjoy the rewards of a comprehensive strategy

Goals-based planning serves as a North Star, guiding and integrating various facets of your financial life—including taxes, investments, insurance and estate planning—to support your ambitions. We are well equipped to deliver a comprehensive, goals-based strategy, with in-house coordination between financial planning, investment management, and tax and estate planning experts. By working with a diverse team of professionals who are all under one roof, you can be confident that your strategy is integrated and designed to help you achieve your desired outcomes.

 

This approach not only provides peace of mind, but it also has the potential to improve your portfolio’s performance. In fact, recent Vanguard research suggests that working with an advisor can add up to 3% in value7 to your net portfolio returns over time, emphasizing the importance of professional guidance in reaching your financial goals.

Defining your goals

So, what are your goals? It’s a broad question, and it can be intimidating to answer. This is where your wealth advisor can be of immense value by helping you consider all your options. 

One effective method for defining goals, tested in research by Morningstar,8 involves a three-step process:

  • Write your goals without guidance

  • Review a list of common financial goals

  • Reassess your priorities

This process often reveals new priorities and changes existing ones, reflecting more informed and thoughtful choices. The research shows that after this exercise, about 25% of people change their top goal, and 76% change at least one of their top three goals.9

 

The value of guided discovery

When thinking about financial goals, the obvious ones often come to mind first: Retiring by a certain age, funding a child’s education or buying a second home. However, through guided discovery with your advisor, you might uncover less obvious but equally important goals, such as securing adequate life insurance to protect your family or establishing an estate plan so that your assets are distributed according to your wishes.

 

Goals that consider your high net worth

According to the EIU survey,10 saving for retirement is a top goal for 34% of high-net-worth individuals, with 26% also listing preserving their wealth for their children. Saving for children’s education is among the top five financial goals for the highest earners. These findings underscore the importance of considering a wide range of goals, not just retirement, in the financial planning process.

 

Your unique planning needs might include preserving wealth across generations, making substantial charitable contributions and developing complex estate plans. These plans might involve trusts or other structures to maintain control, provide privacy and reduce your taxes. Specific goals could include creating a charitable foundation or donor-advised funds to manage philanthropic activities or setting up educational trusts or 529 plans to support your grandchildren’s education.

 

Managing differing goals

For couples or families, goal-setting can uncover differing priorities and lead to important conversations that may be long overdue. Your advisor can help facilitate these discussions, modeling scenarios to find compromise and alignment. By taking the time to define your goals with the help of your advisor, you lay the foundation for a personalized, effective financial plan that reflects your values and aspirations. This process helps to set the stage for long-term financial success and personal fulfillment.

Monitoring progress and making adjustments

Your financial plan should be treated as a living document, with annual reviews to assess progress and make necessary adjustments. (For some clients, more frequent reviews might be needed.) According to the EIU survey, three-quarters of U.S. investors agree it’s more important than ever to future-proof your wealth, reflecting rising concerns about the possibility of outliving your savings.11 Regularly reviewing and adjusting your financial plan so that it remains aligned with evolving goals, market conditions and your longevity can help you protect the life you’ve built.

 

We can model various scenarios to illustrate the potential outcomes of different choices. For example, let’s say you’re considering purchasing a second home and weighing when to buy and how much to spend. Your advisor may show that you could afford a $1.5 million beach house, but it would require you to work for a few more years before retiring. Alternatively, you could retire now and purchase a $600,000 house. By presenting these scenarios within the context of your long-term financial plan, your advisor helps you understand the impact of each decision on your overall goals.

 

Balancing multiple (sometimes competing) goals is a common challenge that your wealth advisor can help you navigate. They’ll consider factors such as time horizons, distinguishing between near-term and long-term objectives. They can also use planning tools to model different paths and their potential outcomes. This process brings clarity to competing priorities and helps determine the best course of action.

Marrying your investment and tax strategy to your goals

You can’t save your way to your goals. You need to invest your way to them. This means applying the right investment strategy for you while ensuring it aligns with your time horizon for each goal.

 

For instance, medium-term goals like planning a vacation require a different investment approach compared with long-term goals such as saving for retirement. Your wealth advisor will help you create a road map that categorizes your goals into short-, medium- and long-term time frames. This road map will inform your investment strategy so that you’re investing appropriately for each goal based on its timeline.

 

Your advisor can also help you optimize your savings and investments across different account types. This involves taking a balanced approach that maximizes employer-sponsored retirement plans, tax-advantaged accounts like an IRA or Roth, and taxable accounts. Your advisor will guide you in making strategic decisions about where to allocate your funds based on your specific goals and tax situation.

 

For example, if you’re saving for a short-term goal that you plan to achieve in the next few years, your advisor may recommend that you do not put those funds into your IRA. Instead, they may suggest keeping some funds in a more flexible account that allows you to withdraw without incurring penalties. Your advisor will help you stay on track through a tailored investment approach, monitoring your progress and adjusting as needed.

Start with an action plan

The alternative to goals-based financial planning is setting no goals at all. Without a clear plan, you may find yourself chasing what’s out of your control, wondering why a particular stock is outperforming your portfolio or getting caught up in the day-to-day news cycle. A goals-based plan gives you assurance and peace of mind, no matter what’s happening in the market. It helps you to see the real impact of your wealth on your family and the causes you care about.

 

However, building a goals-based plan isn’t a one-time event. It takes ongoing collaboration to ensure you stay on track. Think of your wealth advisor as your accountability partner in this process. They can help you stay focused on your goals, make informed decisions and adjust your plan as needed.

 

If you’re ready to create your goals-based financial plan, the first step is to schedule a goal-setting discovery meeting with a wealth advisor. During this time, you’ll have the opportunity to explore your aspirations, define your ambitions and begin creating a personalized plan to achieve them. Call us today to learn more about our process and get started.

Think of the current estate tax breaks as a limited-time offer.

Think of the current estate tax breaks as a limited-time offer.

The current tax code has an expiration date, and the sunset is approaching faster than a filibuster in a contentious Senate debate.

 

Sources:

 

  1. Blanchett, D. (2015, June). The value of goals-based financial planning. Journal of Financial Planning.
  2. RBC Wealth Management. (n.d.). For high-net-worth investors in America, planning is key to confidence in financial goals.
  3. Andrews Federal Credit Union. (2023, September 1). The benefits of goals-based financial planning.
  4. Changwony, F. K., Campbell, K. & Tabner, I. (2021, March). Savings goals and wealth allocation in household financial portfolios. Journal of Banking & Finance.
  5. Johnson, B. (n.d.). The Tax Cuts and Jobs Act expires soon: Are you prepared? RWA Wealth Partners.
  6. Johnson, B. (n.d.). The Tax Cuts and Jobs Act expires soon: Are you prepared? RWA Wealth Partners.
  7. Vanguard. (2014). The added value of financial advisors.
  8. Morningstar. (2024, February 15). How to make goal-based investing more effective.
  9. Morningstar. (2024, February 15). How to make goal-based investing more effective.
  10. RBC Wealth Management. (n.d.). For high-net-worth investors in America, planning is key to confidence in financial goals.
  11. RBC Wealth Management. (n.d.). For high-net-worth investors in America, planning is key to confidence in financial goals.

 

Disclosures:

 

This material is for informational purposes only. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.