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Monday, August 15, 2011

How Hard is Financial Planning?

Michelle Singletary, financial columnist for The Washington Post, described on Sunday a friend's financial issues.  The friend is 65 years old, was recently laid off, and now is perplexed by numerous financial issues.  These include whether to take a lump sum or a pension, when to take Social Security, should she roll over her 401(k), etc.  The friend doesn't have the information at hand, hasn't thought about these issues, and Ms, Singletary claims, "She shouldn't feel guilty."

I disagree.  She should feel guilty.  These are issues people need to take responsibility for way before they reach 65 years old.  They need to either meet with a financial planner and sort them out or figure it out themselves.

The theme of this site, of course, is that most people can figure out much of it themselves.  The starting point is fairly straight forward and, rather than listing numerous questions that mix the issues up, I would rather that Ms. Singletary had proceeded systematically.  The starting point is to figure how you will get paid once you no longer are working at your primary job.  Anybody who is 50 or older and hasn't done this should stop reading and go do it.  Find out about Social Security, throw in your pension, and finally throw in 4% of your nest egg.  Add up and ask yourself if you can live off that number.  Most people can't and will have to continue saving and probably have to ramp up their saving.

Once you've started down the path to understanding your retirement situation, you'll want to get more sophisticated.  There are good calculators online, that are free and easy to use, that will automatically get you to answer the questions posed by Ms. Singletary.  One I like is FIRECalc, but there are a number of them that can be found by googling "retirement calculators."

For what it's worth, I think most people who don't know probably think financial planning is a horrendous undertaking  on par with doing your taxes.  Again, I would disagree; and I think many people are in my camp.  It can be an interesting eye opener to get a handle on your financial situation and strategize for that day when retirement arrives.

In terms of getting started, it makes a lot of sense to at least meet with a financial advisor and schedule at least two hours to go over the whole process--including an approach to managing investments.  In my experience, this  meeting typically more than pays for itself as the advisor shows the client some areas where taxes can be saved and expensive investments avoided.

For those who thumb their noses and go "neener, neener," I say "you are guilty."


  1. Well, if she does not count on much, she should not feel guilty.
    Perhaps she raised excellent very well-doing kids, who can pull her out of the financial hole.

    The guilt is the sign that her expectations does not match the reality. That is all.

  2. re: Financial Independence To me she is guilty of not giving some of these financial questions some thought before reaching the age of 65. It's like the homeowner who gives very little thought to the hole in the roof when it is nice and sunny and then is perplexed when the storm comes and the living room is flooded.
    Guilty I say!
    Thanks for stopping by.

  3. I have no experience in financial planning and have no idea what company I’m want to go with. I am in the beginning stages of checking into it.

  4. I think most people may not know people think that financial planning is a terrible promise to do your taxes in line. Get a handle on your financial situation and retirement strategy that day arrives, it can be an interesting eye-opener.

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  5. The financial planning process can be broken down into 7 simple steps:
    1. Gather financial information and data
    An adviser will obtain relevant financial information such as assets and liabilities,
    income and expenditure as well as your attitude toward risks.
    2. Identify a client’s goals and objectives
    What you want to achieve and when you want to achieve it. Your vision for the future.
    3. Identify any financial issues
    Once an adviser has gathered financial information and has an understanding of the client’s
    goals and objectives, they can identify any issues and barriers.
    4. Develop a financial strategy
    A strategy will be developed and discussed with all the necessary fine tuning required.
    This is an important step in the process and a good adviser will make sure it happens as
    it allows the process to be interactive rather than dogmatic.
    5. Provide a Statement of Advice (financial plan)
    Once strategy has been agreed to it will be provided in the form of a ‘Statement of Advice’
    which outlines the agreed course of action.
    6. Implement the Plan/Recommendations
    The written plan is agreed upon and implemented
    7. Review, revise and maintain the financial plan
    The plan and strategy is reviewed to ensure it is still meeting a your financial needs and
    investment goals. This last step is the most important part of the process. Many a good plan
    has fallen by the way side through a lack of proper review, apathy and lack of commitment on
    the behalf of both adviser and client.
    A proper review involves much more than a discussion of how your portfolio has
    performed over the last year. Find an adviser with a commitment to a comprehensive review
    process and you will have found a great adviser!
    There are many areas that stand to benefit from a sound plan and good advice.
    I think that you will agree they are not topics that should be left to chance:
    • Budgeting
    • Investment Planning
    • Gearing
    • Mortgages
    • Fund manager selection
    • Superannuation and Retirement Planning
    • Social Security
    • Tax Minimisation
    • Personal Insurance (life, trauma and income protection)
    • Estate Planning
    • Wealth Creation
    Ongoing Relationship
    Maintaining an ongoing relationship with your Adviser is critical.
    As your guide they join you on your journey towards your financial dreams. A good financial adviser should be able to give you support and answer any questions that may arise along the way. Once again, drawing on the comparison of the relationship between a top athlete and their coach we can see the journey travelled and the success achieved is made possible only by the combined and focused efforts of both parties.
    It is also important to understand and remember that the financial environment is always subject to change, as the rule books are always being revised and re-written.
    It may be important, if not crucial, in some cases for a change in strategy to take place if a particular event occurs or a new law is passed. Detailed and regular reviewing is key and if maintained, both parties may be able to act swiftly and promptly to ensure ongoing, lasting success. As the Chinese proverb says “The only constant is change”.

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  6. “These are issues people need to take responsibility for way before they reach 65 years old.” – I totally agree with you on this. Planning ahead is a serious thing. If you want to see yourself sitting in the porch of your dream home, or traveling to different countries, then you must start financial planning now, while you’re still young and capable. Don’t waste the time you have for not so important things in life. Focus on your goals, and save money! #Brooke Claudio