The good news is many Americans are planning for the future - with over half making long-term plans. The bad news is what "long-term" means to most Americans.
While 57% of Americans are making long-term plans, most people define "long-term" as just 4.4 years on average, according to a recent New York Life survey.
"It's surprising to me that 4.4 years would be considered 'long-term,' because we generally define long-term financial planning as ten-plus years," said Justin Richter, senior wealth advisor with Mariner Wealth Advisors.
Richter said a well-structured financial plan must be balanced across all time horizons, requiring trade-offs and careful consideration of a client's priorities and goals — which is why it's important to work with an advisor who can take the time to understand these things in order to address both near-term and long-range needs.
"It's important to convey how short-term decisions may impact long-term goals," Richter said. "Most people are, by nature, focused on the here and now, so I view it as a significant part of an advisor's job to help clients keep the big picture in mind. This may mean showing clients how maintaining a certain spending level today could result in the need to push back their retirement age from 60 to 65, for instance."
Many financial planners agree long-term likely should mean something that takes a look at when someone wants to retire.
"Long-term planning is really different for everyone, but a good point to start is at looking for a retirement date," said Kevin Ward, president of Park & Elm Investment Advisers in Indianapolis. "By creating a vision for retirement, we can better create a long-term plan of action beyond 4.4 years. This vision for the future can help take action steps in the present to better prepare."
Ward adds if someone is not sure when he wants to retire, he can work backwards, and figure out what he may want to accomplish with his time.
"Maybe start another business, go back to college, travel, etc.," he said. "By helping to create the vision, now we can determine the amount of money needed to fund this lifestyle. Creating a plan and action steps now will show exactly when this is achievable."
Ron Madey, president and chief investment officer of Wealthcare Capital Management, said a long-range plan isn't for an arbitrary length of time, but refers to planning for your life, from the moment one claims themselves as an independent to the moment they face end of life issues.
"A long-range plan means planning for life events and making adjustments as life unfolds," Madey said. "The specifics of retirement 30 years from now have a lot less visibility compared to five years from now. Planning for the next 4.4 years of your life is planning for something with high visibility, such as buying a house or getting married — these plans are for relatively near-term, visible and concrete goals."
Jack Cooney Jr., principal at Bleakley Financial Group in New Jersey, said planning your financial future in four- or five-year slices is a fundamentally flawed way to ensure a comfortable retirement.
"Planning over longer time periods, on the other hand, has many benefits, such as long-term compounded growth of assets, avoiding short-term uncertainty and minimizing the impact of volatility," he said. "The long-term can be defined as starting today and running through the completion of a person's longest goal."
Cooney said what is important is to set financial goals.
"A long-term financial plan should consider a person's full life expectancy," he said. "This time period could easily be 50-plus years."
He continues that many people do not realize that time is a key economic resource that must be managed wisely.
"This will mean that the plan will remain flexible and include contingencies for unexpected life changes," he adds.