There are three terms that are used to describe a road map of your finances: financial plan, retirement plan, and estate plan. Because of these names, people believe that they are only to be created when you are at that point in your life – when you have a specific amount of assets (financial plan), planning to retire, or are in retirement (retirement plan), or preparing for the end of life (estate plan). Those who are just starting out believe that they don’t need a plan because they don’t make enough, that they don’t need a retirement plan until they retire, and that an estate plan can be ignored until well into your last years of life.

Waiting until you need to develop one of those plans can have financial implications. You may think that you are better off than you really are. You could also have higher tax implications or not be able to live the lifestyle you want. This is not something you want to experience, no matter the life stage. In reality, these plans are not three distinct separate plans that are made and created at specific stages in your life. Rather, they are one large continuous plan.

We tend to think of a financial plan, a retirement plan, and an estate plan as three separate books in a series. They happen at different times and have different plot lines, and you can read one without knowing what happened in the others. This is just not true. These plans are one collective series of books, just like The Lord of The Rings. Where one book ends, the next one picks up right where the previous one left off. What happens in the first has implications in the second and third books and you could not read book two or three and just ‘know’ what is happening. Let me show you how they are connected.

If you wait to build a plan between 60 and 65, it could come as a shock to realize that the amounts you were saving are not near enough to allow you to retire at 65, or you must live a lifestyle less than desired. The smallest decisions at the beginning can have impacts later in life. To show you what I mean, let’s look at when you are just starting your investment journey and opening an account for the first time, putting $50 biweekly into it. The decisions you make doing that – from the amount of money you deposit, how often you do it, and the account type all have an effect on your retirement as well as your estate. If you open an RRSP (Registered Retirement Savings Plan), there are tax implications on your retirement plan and estate plan. You receive a tax deduction now but at retirement, you will be taxed on all withdrawals. At end of life, the full amount in your RRSP will be taxed. Now let’s look at a different scenario – if you had opened a TFSA (Tax-Free Savings Account). You won’t get the tax deduction now, but in retirement and at the end of your life, you will not be taxed on the money in your account. One account type isn’t better than the other, it’s more about what account is best for you and your goals.

How you start your investment journey is just one thing to consider – the connections don’t stop there. The life insurance that you purchase to cover debts or protect your income also has an impact on your retirement lifestyle as well as your estate. High premium costs might affect your budget and could also reduce how much you can invest. However, life insurance not only protects your family now but also covers your estate taxes and any other costs you might incur as you reach the end of life.  If you purchase permanent insurance that lasts your lifetime, this can have tax benefits as well as leave a legacy for your children, grandchildren, or a charity of your choosing. This is vastly different than using term life insurance, which is designed for short-term needs, are not able to provide these end-of-life benefits to the same degree as permanent insurance does.

So, what does this all mean? It means that the decisions you make today are starting to write the text of your financial, retirement, and estate plans. You are not just making decisions for today, you are making decisions for your life regardless of what stage you are in. The reality is that you don’t create a retirement plan or estate plan without taking into consideration everything that has come before it. The financial decisions you make today have a ripple effect that you might not notice for years or decades to come. Not looking at things holistically could cost you years of extra work, a lackluster retirement lifestyle, or hundreds, if not thousands, of dollars in the long run.