Why You Need a Financial Plan

Andi McNamara, CFP®
Vice President, Director of Financial Planning
Washington Trust Wealth Management

If you are making decisions about money, you probably need a financial plan. Opportunities and risks often lie in the details, and a financial plan gives you a roadmap for using your resources wisely, protecting yourself against uncertainty, and aligning your money with your goals. Here’s how it can help.

1. Plan for Your Lifetime Income and Tax Liability, Not Just Your Tax Bracket

Many people focus only on their current tax bracket when making financial decisions. But taxes are a lifetime issue, not a single-year problem. A good plan looks at how your income and tax liability will change across decades, and how different sources of income are taxed.

• Understand how your income is taxed. Ordinary income (such as wages, pensions, or IRA withdrawals) is taxed at higher rates than long-term capital gains and qualified dividends. Knowing the difference—and planning withdrawals and sales strategically—can save you thousands over your lifetime.
• Build short- and long-term withdrawal strategies. Don’t rely on generic rules of thumb like “spend taxable accounts first.” The right approach depends on your circumstances, your retirement timeline, and future tax law changes. For example, newly retired individuals may benefit from deliberately pulling income forward—such as taking IRA withdrawals or making Roth conversions earlier—to take advantage of temporarily low tax brackets before Required Minimum Distributions (RMDs) kick in.
• Leverage charitable giving strategies. Philanthropy can also be a powerful tax tool, if structured well. Depending on your stage of life and income, you might benefit from:
  • Qualified Charitable Distributions (QCDs): Direct transfers from an IRA once you reach age 70½, which satisfy RMDs and avoid taxable income.
  • Donor-Advised Funds (DAFs): Useful for bunching deductions into high-income years.
  • Gifts of Appreciated Securities: Avoid capital gains while supporting causes you care about.
  • Cash gifts: Straightforward and effective when itemizing deductions.

Tax efficiency isn’t about rules of thumb—it’s about timing, income sources, and your personal goals.

2. Expect the Unexpected

Even the best-designed plan will encounter surprises. That’s why a financial plan should “stress test” your resources against different scenarios, rather than leaning on outdated spending rules.

• Recognize changing spending patterns. Retirees often experience “go-go, slow-go, and no-go” years. In early retirement, travel and lifestyle spending may be high, while later years may bring reduced discretionary spending but rising healthcare costs. This makes adhering to the rigid 4% rule—withdrawing 4% of your total retirement savings each year, adjusted for inflation—unreliable and unwise.
• Account for sequence of returns risk. If markets decline early in retirement, withdrawing too much too soon can permanently reduce your wealth. A plan helps you evaluate whether to stay the course, cut spending temporarily, or adjust investments, removing guesswork during volatile times.
• Plan for unusual but likely expenses. Beyond day-to-day spending, retirees often face big, unpredictable costs: major home repairs, replacing vehicles, or long-term care. A good financial plan anticipates them, ensuring that funds are available when needed without derailing your retirement lifestyle.

Think of this part of planning as building resilience: you hope not to face every risk, but you’ll be ready if you do.

5 Questions a Financial Plan Should Answer

1. How much do I need to live comfortably through all stages of retirement?
2. What is my lifetime tax liability, and how can I minimize it?
3. Am I protected against risks like market volatility, healthcare costs, or major expenses?
4. Which strategies—Roth conversions, Social Security timing, charitable giving—make the most sense for me?
5. How do I adjust when life changes?

3. Explore Financial Strategies Using Your Numbers

Perhaps the greatest danger in personal finance is relying too heavily on one-size-fits-all advice. Generic guidelines rarely optimize your outcomes. A financial plan uses your actual income, expenses, assets, and goals to identify strategies that make sense for you.

• Should you convert a portion of your IRA to a Roth while you’re in a lower tax bracket?
• Is it smarter to delay Social Security benefits for a higher lifetime payout, or claim earlier to preserve portfolio assets?
• Would funding a 529 plan for a child or grandchild provide meaningful tax savings while supporting education goals?
• Are advanced estate planning vehicles like Grantor Retained Annuity Trusts (GRATs) or Irrevocable Life Insurance Trusts (ILITs) appropriate for transferring wealth efficiently?
• If you’re charitably inclined, is a Donor-Advised Fund or a Qualified Charitable Distribution the right fit for your situation?

Each of these decisions carries trade-offs, and the “right” answer changes depending on your income, family needs, and long-term goals. Without a financial plan, you’re left guessing—or relying on advice meant for someone else.

Washington Trust Wealth Management Can Help

Money can be one of life’s greatest sources of stress, but it doesn’t have to be. At Washington Trust Wealth Management, our experienced advisors work with you to develop a financial plan that brings you clarity about where you stand today, a roadmap for where you want to go, and confidence that you can adapt when life changes. The sooner you put a plan in place, the more options you’ll have to build, protect, and enjoy your wealth on your own terms.