Financial Planning (yawn)

Financial Planning might be one of the more boring phrases people hear. For some, the thought of it is downright terrifying. And with good reason; thinking about retirement is scary and trying to organize your household budget is a daunting task for many. Some people are fortunate and born organized. But for the rest of us, we’d rather clean out the garage. As with many things now driven by software, financial planning has come a long way. In the ‘80’s and ‘90’s, planning was done with what we’d now call a spreadsheet. It was all manual and it was largely out of date within weeks of its completion. Most planners worked on commission and for many, the plan was the vehicle used to sell expensive (and often poorly performing) products. Well, planning has come a long way. 

What are some of the issues a plan addresses and why would you need one? For most investors, a solid financial plan addresses the question, “Will I outlive my money?” First and perhaps most importantly, don’t wait to start the planning process until retirement is right around the corner. The earlier you start the process, the greater your chance of success will be. It begins with “discovery”, or getting answers to the following questions:

  1. Do you have enough money saved for retirement?
  2. How much money do you have coming into your household?
  3. How much do you have going out?
  4. How much income will you require in retirement?
  5. Where will it come from (social security, pensions, investment income, etc.)?
  6. What will your cost of living increases look like in retirement vis-a-vie inflation?
  7. What strategies do I need to consider that I am unaware of (reverse mortgage, relocation, etc.)?
  8. What impact does working two more years or a P/T job have on my retirement?
  9. How much risk is appropriate in my investments for someone like me?
  10. Can I afford to help loved ones when I’m retired or after I’m gone?

These questions and several more along these lines are the basis for “holistic planning”, or addressing the investor’s situation in its entirety. Anyone who holds themselves out as a financial advisor should be offering this service. Otherwise they are simply salespeople or brokers. As of this writing, the Securities and Exchange Commission is putting the final touches on its definition of an “advisor”. If they follow the leads of the U.K. and Australia, they will consider advisors to be fiduciaries who work on a fee-basis and all others to be salespeople who are held to a lower “suitability” standard. Fiduciaries have a legal obligation to place their client’s interests above their own. Real financial advisors act as a personal CFO if you will. Planning is labor and time intensive but we contend that it’s more important to the client’s success than the investments themselves. 

How is it you expect to arrive at some end point (retirement) without a map to get there! What pivots must you make when life throws you a curveball? Have you considered all the decisions you need to make in case of sudden forced retirement, unexpected health issues, old relationships ending, new relationships beginning, grandkids, relocation…the list really is never ending. These decisions shouldn’t be made ad hoc. They should be contemplated in advance with the input of an experienced, unemotional, trusted third party. This way when the unexpected occurs, you have a frame work in which to make a decision.