What's the Common Bond That All of Our Clients Share?

What's the Common Bond That All of Our Clients Share?
  1. Will you make it financially?
  2. Do you know your financial blindspots?

These two questions form the backbone of our holistic approach to personal financial planning. These questions also are the common bond that all of our clients share.

If your financial life is arranged so that you can maintain your current lifestyle for the balance of your life, the noise of daily life dulls into the background.  On the other hand, if you haven’t fully prepared for future financial realities, the ups and downs each day bring new angst. Recognizing where you have financial blindspots can be vital to crafting a rational plan towards a secure financial future.

Many important questions in life, these two included, require that you step back and assess priorities. No one has enough money to do everything they want. If retiring with more income is a priority, then making a tradeoff with current spending, (so that savings can increase), has to occur. One of the most prevalent blindspots we see is an unwillingness to accept tradeoffs.

No one wants to run out of money. Trying to determine if you have enough to sustain your lifestyle until very old age is more than just a simple math equation. The persistence of inflation; the exact ordering of investment returns; actual spending; and how long you will live are all important factors. Since none of these are knowable in advance, ongoing planning and course corrections should be expected.

Most financial blindspots can be traced directly to behavioral biases. These blindspots directly impact how you perceive risk. From being overly optimistic (overconfidence bias), to overweighting information that support your beliefs, (confirmation bias), the psychological blindspots are many. Professor David Hirshleifer, a finance professor at UC-Irvine recommends what he terms “self-distancing” in order to make better financial choices.

This involves considering the opposite side of the decision as a way of balancing the biases. We call this “dispassionate discipline”, a core component of what we provide our planning clients.  We all have these biases as they are “factory installed”. The key is acknowledging that these biases exist so that you don’t unnecessarily hobble your long-term financial objectives.

Our primary role is to help clients understand long-term financial history and use that overlay as a tool for better decision making. Rational and realistic financial planning can’t be built upon a foundation of myths and misconceptions. In the end, your ability to deal with question number two likely forms the answer to question number one.

James E. Wilson

James founded South Carolina’s first fee-only financial planning firm in 1982 and is a pioneer in the financial planning field. He has advised hundreds of successful individ ... Click for full bio

Retirement Planning Has Its Limits: How to Prepare

Retirement Planning Has Its Limits: How to Prepare

Retirement planning is one of the issues that commonly leads clients to consult financial advisers. One of its essential aspects is creating a plan to save and invest in order to provide a comfortable retirement income. Ideally, this starts many years ahead of retirement, even as early as your first paycheck.

As retirement comes closer, planning for it expands to take in a host of other considerations, such as deciding when to retire, where to live, and what kind of lifestyle you hope to have. When retirement becomes a reality, the focus shifts to carrying out the plan.

All of this planning is crucial. Yet, for both financial advisers and clients, it's good to keep in mind that planning has its limits. In the post-retirement years, it may be helpful to think in terms of preparing for old age rather than planning for it.

The older we get, the more important this distinction between planning and preparing becomes. Too many life-changing things can happen without regard to our best-laid plans. Often they occur unexpectedly, resulting in emergency situations where urgent decisions have to be made. A stroke or a fall, a diagnosis of terminal illness, a broken hip that leaves someone unable to go back to independent living—and suddenly, right now, the family needs to find an assisted living facility, arrange for live-in help, or sell a home.

What are some of the ways to prepare for these contingencies?

  • Explore housing options well ahead of time. Find out what assisted living, home care, and nursing home services and facilities are available where you live and whether they have waiting lists. Have family conversations about possibilities like relocating or sharing households.
  • Research the financial side of these options. Investigate the cost of hiring help at home, assisted living facilities, and nursing care centers. Find out what is and is not covered by Medicare and long-term care insurance. For example, people are sometimes surprised to learn that Medicare does not pay for nursing home care other than short-term medical stays.
  • Designate someone to take over decision-making, and do the paperwork. Execute documents like a living will, medical power of attorney, and contingent power of attorney. Update them as necessary, and give copies to your doctors, your financial planner, and appropriate family members.  
  • Start relatively early to downsize. Well before you're ready to let go of possessions or move into smaller housing, start considering what to do with your "stuff." Focus on the decisions rather than the distribution. There's no need to get rid of possessions prematurely, but decide what you want to do with them—and put in writing. Do this while it's still your choice, rather than something your family members do while you're in the hospital or nursing home
  • Do your best to practice flexibility and acceptance. No matter how strongly you want to live in your own home until the end of your life, for example, it may not be possible. The physical limitations of aging can limit our choices, and even the best options available may not be what we would like them to be. It is a profound gift to yourself and your family members to accept these realities with as much grace as you can muster.

Finally, please don't underestimate the importance of planning financially for retirement. Because the bottom line is that you can't plan for all the things that might happen as you age, but you can prepare to deal with them. One of the most useful tools to cope with those contingencies is having enough money.

Rick Kahler
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Rick Kahler, MSFP, ChFC, CFP is a fee-only financial planner, speaker, educator, author, and columnist.  Rick is a pioneer in integrating financial planning and psycholog ... Click for full bio