The very nature of the word planning connotes preparing for a future. As planners, we evaluate current spending and saving, provide a variety of return assumptions based on past history, and confidently tell people how much they need to save so they can retire at a certain age. It sounds so pretty and straightforward. But is it the right thing for clients?
Emergency medicine is the specialty of unexpected illness. In my years as a practicing physician, I experienced daily the way these events hit suddenly and hard. Accidents, new diagnoses of cancer, sudden strokes or massive heart attacks – a life is changed forever (typically many lives, of course). In my planning practice, this has gnawed on my psyche for years. I focused so much on making people prepare financially for the future, yet in the back of my mind, I knew the future could be gone in the blink of an eye.
QuoteAccidents, new diagnoses of cancer, sudden strokes or massive heart attacks – a life is changed forever.
CHANGING THE CONVERSATION
A few years ago, uncomfortable with the exercise of preparing for a future I couldn’t predict, I begin taking a different tact to my planning process. Instead of focusing on future goals, we would primarily focus on a client’s current life situation. Does a client love her life now? Is he happy with his job? Is she happy with how she spends her time and money? What’s the status of his relationships?
We don’t say upfront that our focus is on planning for now. In fact, our initial meeting covers future goals because that is usually what clients come for and it’s important to focus on what a client wants to talk about. However, in that conversation, we make sure we ask plenty of questions about the present and what needs to improve.
What do we do with this information?
QuoteThe biggest outcome from these conversations often becomes a change in goals.
The biggest outcome from these conversations often becomes a change in goals. Instead of retirement because a client hates working, it may become an exploration of what else he or she can do. If a client doesn’t have the money to retire and upending the current income stream involves too much risk, our job becomes mitigating this risk and helping make exciting transitions with as little negative upheaval as possible.
We’ve had clients go back to school in their 40s and 50s, take a sabbatical or take a long-deferred trip. One client, a doctor locked in the same frustrating health care organization for 30 years, bought an RV and plans to travel the country and find medical work along the way until he can’t work anymore. He said if he grows unhappy wherever he is, he can pick up and go to a new job. For someone stuck in a rut for so many years, his energy and enthusiasm is renewed.
WHEN THE WORKING LIFE ENDS
We make certain clients are prepared for two possible events: the day they can no longer work or the day they are forced out of the labor market.
QuoteTo prepare for the day a client can no longer work, we optimize disability insurance and life insurance.
To prepare for the day a client can no longer work, we optimize disability insurance and life insurance. Spending is broken down into needs and wants, and an appropriate amount of current assets are invested conservatively to provide a safety net for unexpected life events. An investment policy statement is created around goals and the client’s psychological and financial ability to take risk after the safety net is taken into account.
Spending is the main determinant of success in meeting future cash flow needs. We help clients analyze waste or ways they are spending money that’s not bringing joy to their lives. Simplification of a lifetime of thoughtless accumulation and spending reduces future costs, saves time and allows a client to focus on what’s really important.
To prepare clients for the day they may be forced out of the labor market, we encourage constant challenges of skill. Exploring technology, pursuing continuing education, volunteering and community involvement are all ways to stay fresh and create networks that can support a client if changes in the labor market affect them.
This approach to planning takes time, thoughtful conversation and a client willing to explore different roads forward. It often has to be introduced unobtrusively by planting seeds of alternatives to slogging it out to age 65, then retiring to the stables. It may take a few years of exploring the concept before a client is ready to make a move. But once made, it can be a glorious feeling for all involved.
The days of creating financial plans predicting an unpredictable future will hopefully soon be gone. And with investment management being commoditized rapidly, financial planners who don’t step up their offerings will likely be forced out. By helping clients build resiliency and live a great life in the present, we can improve the odds we will have a great job in the future.
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