Investors are suffering from the apocryphal Chinese curse, "May you live in interesting times." An example of the fallout is an article I recently read in the Miami Herald headlined, "Back to the Rock Pile for Would-be Retirees." The story noted, "The collapsing financial markets have put retirement out of reach for many, leaving baby boomers working longer."

Academics may argue about whether the financial market meltdown is a three, four or five standard-deviation event; to investors, the statistics are irrelevant. What matters is how this bear market has affected the quality of their financial future and what to do about it. Because of the severity of the losses and the constant bombardment of negative news, many are like deer in the headlights, frozen into inaction. Others are like lemmings, racing over the edge of the precipice into cash and confusing certainty with safety. Unfortunately, very few investors have the resources to fund their long-term goals with the returns offered by cash. The fear of the investor is, "I'm back to the rock pile." The opportunity for the practitioners is, "with my help, maybe not."

A decade ago, H. Lynn Hopewell, one of the profession's great thinkers, penned a seminal article for the Journal of Financial Planning titled "Decision Making Under Conditions of Uncertainty: A Wakeup Call for the Financial Planning Profession." At the time Hopewell wrote his article, planners traditionally based their recommendations on "point estimates," that is, a specific targeted dollar goal.

For example, if a client wanted to fund a child's college education 10 years hence, a planner might assume an annual cost of $30,000, college inflation of 6% and an investment growth rate of 12%. With those assumptions, the practitioner would confidently tell the client, "in order to meet your college funding goal, you will need to save $xxx per year." The problem, as Hopewell so persuasively demonstrated, was that, although presented with great authority, our single "point" answer was almost certainly wrong.

In order to right this wrong, Hopewell introduced the profession to the use of Monte Carlo simulations as a strategy to incorporate the uncertainty of forward-looking estimates. Bob Curtis, another of our profession's great thinkers and the creative principal of PIEtech, the developers of MoneyGuide Pro financial planning software, suggests that we need to extend Hopewell's vision and move beyond our current limited "point" planning paradigm. By doing so, we can provide our clients with far more substantive advice during these tumultuous times than "tough luck" or "hang in there."

Reframing Goals

Curtis suggests that practitioners can significantly enrich the range and depth of the advice we provide by expanding the framing of clients' goals beyond the "point" estimate we currently use. In fact, he suggests a two dimensional expansion. Consider the plight of our clients, Joe and Mary Doe, who had originally indicated the following goals:

• A basic retirement income of $90,000/year;
• Gifting of $20,000/year to children; and
• An extra $10,000/year for travel.

When we created the Does' original plan, using Hopewell's recommended Monte Carlo simulation, we concluded that our clients had a better than 80% chance of achieving their goals. Revisiting the plan today, after recent significant market losses, we might conclude that the Does, now in their late fifties, have less than a 50% chance of success—not a particularly comforting answer. Curtis notes that the problem with this answer is analogous to Hopewell's critique of our former use of point estimates. Namely, we are continuing to use point estimates in many of our planning assumptions. For example, although the clients have estimated a $90,000 figure for retirement income, that is, in fact, a point estimate.

But if we think of this as an ideal goal and not as an absolute, discussion with our clients will likely lead to the conclusion that there is some lower figure (e.g., $80,000) that would still provide our clients with a comfortable retirement. This lower amount, although not ideal, is "acceptable." We might find a similar range for gifting (e.g., $20,000 to $10,000) and extra travel (e.g., $10,000 to $0). Setting these ideal/acceptable ranges is the first dimension. The second dimension relates to priority.

Although it is common today for practitioners to prioritize clients' goals, the process tends to be rigid and does not effectively distinguish between the goals' relative importance. The solution is to reframe the prioritization in a way that is more meaningful for the client by separating goals into three buckets.

• Needs: those goals that are critical. Failure to meet these goals would indicate a significant diminution of the client's quality of life.
• Wants: those goals that are not critical, but are important and very desirable. Failure to meet these goals would not necessarily mean that the client was destined to dine on cat food but it would reflect a less-than desirable quality of life.
• Wishes: goals that would be fun to fulfill as long as the needs and wants have been covered. Failure to meet these goals might mean that the client would have to settle for four-star hotels in lieu of five-star, but they could still enjoy their retirement.