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."