BEING A FINANCIAL PLANNER IS (KIND OF) LIKE BEING A THERAPIST

What do you think is the number one issue prospective clients bring to us here at Prism? It’s likely not shocking. Here’s the big question:

Can I afford to retire and not run out of money?

Some folks understand that they’ll easily be able to retire and don’t need us to do complex calculations. Others know they’ll never be able to retire, and look to us to help remodel their ongoing lifestyle expectations.

But for those in between (and who we most frequently encounter), the calculation is not so straightforward. It’s an art as well as a science – and this is where our skill as financial planners is especially critical. In these cases, success or failure depends upon our ability to understand the emotions of our clients. Just as a therapist would, we seek to understand them on a subconscious level and come to see things about them that they are surprised to hear.

Understanding Your “Why”

Before we start any financial planning engagement, we work with clients to DREAM BIG. Using a series of life planning activities, we ask some interesting questions that help clients truly and seriously think about their ideal retirement lifestyle.

No, it’s likely not going to involve yachting around the globe.

But, could it involve purchasing a modest beach house? Could it involve assisting children and grandchildren in a more substantial way?

More significantly than what you want to do in retirement is your “why.” It’s important for us all to have a clear understanding of this why in case, for some reason, we cannot fully financially support a goal. This is where goal prioritization also comes into play. For example, a client wants to buy a second home and help pay for a grandchild’s college tuition, while still quitting his job at age 62. Those are all lofty goals, and prioritizing is key. Understanding why certain elements of these goals are important to a couple is crucial.

Continuing from the example above, say that we discover that extra family time is the biggest motivator for this client. Perhaps, instead of spending six figures immediately on a second home, this couple could consider taking the family on some extended vacations, or use a service like Airbnb for any lengthy trips. This could leave more money available to secure an early retirement and also assist with future tuitions.

Finding an Emotionally Comfortable Compromise

After discovering a couple’s optimal retirement, we assess their current situation. This involves the gathering of data. Keeping the future plan in mind, we organize and optimize. If some basic housekeeping needs to happen, we note that in our financial plan. Examples of “housekeeping” include completing tasks like creating an estate plan (if one does not exist), and making sure insurance coverage is sufficient.

Sometimes, major changes need to happen in order to achieve retirement goals. This is where we get creative, and where more compromising may need to come into play. This is where our ability to understand our clients emotionally is of highest importance. How do we find a way to achieve your goal without sacrificing your happiness? It’s a delicate balance, one that involves a great deal of listening and sensitivity.

Example:

Say we determine that a retirement at 62 is not feasible, given current spending and savings rates. Would this couple be willing to work a few extra years, if it means that they could afford a vacation home? If not, we note that early retirement is a non-negotiable, and we work other goals around that one fact.

Protection from Threats to Your Retirement

Sometimes our emotions blind us to see the realities of life that are staring us in the face, ones that make us vulnerable. This is where it’s important for the financial planner to be able to remove emotion from the equation and see the situation objectively in situations where the client can not.

It’s crucial to stress test the plan against unforeseen threats. Threats are “what ifs” that are beyond anybody’s control, and are often things nobody likes to think about (such as an expensive health care need, or several years of a bad economy).

It’s important leave a buffer in a financial plan to account for something bad happening because, more than likely, something will go awry (over a 30 or 40 year retirement). Not having a plan against these threats is the greatest vulnerability of all. But, fortunately, there are a variety of solutions to mitigate future risks – and it’s important to discuss and make sure you thoroughly understand how to protect your family.

For example, as obvious as this statement may seem, both spouses must be on the same page when it comes to their future. An unforeseen threat to a retirement plan could be divorce. According to MarketWatch, divorces for couples over 50 years old has gone up 109% in the past 20 years (Moore, 2018). This trend is driven by increased life expectancy, and not wanting to be stuck in a bad marriage for another 20 or 30 years.

However, gray divorce can cause much financial instability, especially in the case of a second marriage ending (and many demands on one’s finances). One way to help mitigate this risk? Make sure that the couple is on the same page when it comes to future planning. We want to make sure that we’re saving for retirement (instead of divorce attorneys!)

Goals are Key

Facts and figures are important, but they’re not the total equation. A good financial planner strives to understand the client’s emotions as a way of seeing the whole picture, past, present, and future. This enables the planner to better design a plan that better allows for goals to be prioritized effectively, for comfortable compromises to be reached, and that protects from threats.

Sources

Moore, Angela. (2018, June 2nd). This is why baby boomers are divorcing at a stunning rate. MarketWatch. Retrieved from https://www.marketwatch.com/story/your-failing-marriage-is-about-to-make-the-retirement-crisis-worse-2017-03-13