How to Destroy Your Financial Plan: Part 1... Entropy

The Slow Rot

According to the dictionary, entropy can be defined as the gradual decline into disorder.

This is obvious. We see this everywhere. It’s why we have to do routine maintenance on everything (yes, I mean everything). It’s why we shower, why we get our cars oil changed, and why you have that weekly team meeting to get everyone on the same page (although this sometimes causes more disorder).

It's also why you should update your financial plan on a regular basis.

Your financial plan is not immune to the law of entropy. If you do not put energy into your plan to maintain it, the plan will fall part.

I imagine you are like most people I talk to. You had solid plan at one point. You maxed out your 401(k), signed your estate docs, picked an asset allocation.

You likely checked all the boxes.

For better or worse, the reality is life changes, markets move, and laws evolve. Entropy creeps in.

Without ongoing review, things quietly break down.

• Beneficiaries go out of date.

• RMDs get missed.

• IRMAA brackets sneak up.

• Portfolios drift out of alignment.

• Tax strategies no longer fit your situation.

• Laws change creating new opportunities.

It rarely happens in a day. But left unchecked, the unseen cost of financial entropy can add up to thousands of dollars lost to taxes, missed opportunities, and administrative messes.

A Client Story That Stuck With Me

Recently, a client of mine inherited around $500,000 from her mother.

My client was listed as the sole listed beneficiary.

But her mom had verbally told her to divide the money equally among her siblings.

Legally, she didn’t have to share a dime. But she did. Because she’s a person of high integrity. The rest of her family is fortunate to have someone like her in their lives.

This was still an administrative nightmare since the paperwork didn’t match the intent. She had to jump through hoops to avoid triggering certain taxes, file extra forms, and spread the disbursement out over multiple years.

It was a headache. And it was avoidable.

Good intentions don’t override bad documentation.

And good plans don’t work if they’re never updated.

But here’s the sneaky thing. Since most people make more money as they get deeper into their careers, the money masks the slow decay at the heart of their plan (or the lack of a plan in the first place).

The Hidden Cost of Inaction

Most people don’t “blow up” their financial life. They don’t make some massive, visible mistake.

Instead, they:

• Let tax strategies go stale.

• Miss an update after a life event.

• Forget to rebalance their portfolio for five years.

• Assume their old estate plan still works, even after a new grandchild or a divorce.

That’s how financial entropy works.

Not through explosions.

Through slow, quiet erosion.

If you want to know if this is happening to you, here’s a quick checklist:

·        Have your beneficiaries been updated in the last 2 years?

·        Has your tax return been reviewed by someone looking for long-term savings—not just this year’s refund?

·        Are you approaching an age milestone (59½, 65, 73) with a plan for what that means?

·        Has your estate plan been reviewed after any birth, death, marriage, or divorce?

·        Do you know when your portfolio was last rebalanced?

·        Are you confident your tax and income plan works whether you live to 75 or 95?

If you hesitated on any of those—entropy might already be costing you.

Financial entropy is real. Like everything else in life, your plan gradually goes from more order to less order.

And it doesn’t care. It doesn’t care how well your plan used to work.

It doesn’t care how much time you put into your research.

It doesn’t care how much money you spent.

You’ve worked too hard to let your strategy quietly fall apart.

Check in and tune up your plan.

If you want help, schedule a call.

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