We have discussed the foundation and fundamentals of financial life planning. We’ve laid the framework. Now we can create focus. The financial life planning model is a holistic model. To be truly client-centered is to view the individual in terms of all of his or her resources and aspects of life. It is focused on not only riches of life but also on what defines richness of life.
Financial issues have typically been the focus of planner interactions with clients. Such conversations have often revolved around the notion that individuals will need to replace a specific percentage of their working income once they retire. We arrive at a completer and more accurate picture of the lifestyle and quality of life that is non-negotiable by weaving together life planning and traditional financial planning. In some cases, a client may aspire to an income greater than that enjoyed during their working years. Another may find that their consumption needs for a thriving life after work would require only 50% of the after-tax income that was needed pre-retirement. Armed with this level of clarity, the planner in collaboration with the client can arrive at solutions, compromises and adjustments that reflect the intersection of the financial realities and a lifetime of comfort. Like financial assets, other aspects suddenly have a number bearing as well once they are considered.
Expanding the horizon
When we expand our questions about retirement preparation to include environment, the planning possibilities and possible additional constraints are highlighted. Consider the puzzle piece of where to live. Can the couple afford to live where they’ve always lived or do they need to go somewhere else? Is their current home conducive to the typical physical needs and capabilities of older individuals? Can their current community replace what money would have to buy otherwise? How do they view their current home? Is there emotional attachment? A hope of having grandchildren visit? Is it in an expensive state? Will a meaningful and supportive social community be lost if the clients move? Bio-medical is the label for a large container that holds all issues related to an individual’s physical wellbeing: family history, personal history, health promoting or health-inhibiting behaviors, insurance, access to care, cost of care, public policies, impact of environment, spousal impact, self-care and so on. In comprehensive holistic planning it’s not enough to simply ask how old an individual’s parents were when they died. Planning should consider current state of health, any existing diseases, current habits impacting health, and how individuals make healthcare decisions. Here we face one of the biggest uncertainties in life that can directly impact a client’s ability to thrive, just survive or face hardship down the road. We can only reduce and manage that uncertainty, not eliminate it. Our ability to engage in honest discussion that touches each of these areas is fundamental to successful planning. Health is a huge issue, but not only because of the cost of healthcare, but also the cost of not being very healthy or the cost of longevity.
The psycho-social environment
Perhaps the area that financial planners are most reluctant to explore with clients is the psycho-social element. But, the question arises: Who else is in a position to help the client consider the relationship of his or her emotional, psychological and social well-being in relation to their financial well-being? Often it is an issue arising from one of these factors that encourages someone to retire too soon or to avoid it unnecessarily.
Financial life planning is not concerned with exploring mental or emotional dysfunction, but it is concerned with exploring beliefs that may be unconsciously in the driver’s seat where decisions are concerned. It is concerned with behaviors, values, motivators, and emotions that are deeply connected to one’s ability to thrive, to implement recommendations and to bring the necessary vigor, resilience and focus necessary to meet the uncertainty that defines life. For some individuals there is a great fear of losing the social connection as well as losing an identity if they retire. This may be especially true in the academic environment. The sudden lack of daily structure and the loss of meaning that come with retirement can be devastating.
Deep assessment of what a client expects to gain and lose if retired is something financial planners must take some ownership of with their clients. In the wake of the economic meltdown, we are seeing how people are employing all of their resources in order to manage. They are drawing on their creativity and their community connection. They are engaging in conversations, becoming more conscious of spending habits and making more conscious decisions. They are seeking more guidance and support and the chance to re-examine what matters. They are wondering what it means to plan for the future in such uncertain times. Individuals are discovering that they are more resilient and resourceful than they realized and that the ability to be resilient and flexible is critical to thriving and realizing a life plan. Nurturing these qualities and tracking them is within the financial life planner’s realm of focus and concern. Helping clients find ways to move forward, to plan, to make decisions and to make choices that support their ability to maintain a quality of life at every stage of life is the goal.
Measuring success
How do financial planners measure success? How does rate of return translate into client satisfaction? What if in helping a client position himself or herself for a secure retirement, we have disregarded the client’s well-being in the here and now? Have we omitted attention to building joy, resiliency or meaning today by shifting so much of the clients’ resources to tomorrow? Is a successful plan one that smooths standard of living over a lifetime or is it the ability to help a client in a more dynamic way in response to changing goals, transitions, and opportunities? What is the ideal balance? These are challenging questions.
A financial life planner lives in the paradox and trade-offs that individuals must make between today’s quality of life and what will position one for a healthy quality of life in the future. The holistic model requires us to include both quantitative and qualitative measurements in defining success. In the quantitative column we would include:
• Tracking the probability of success of meeting specific goals through mathematical analysis
• Rise in net worth
• Decrease in debt level
• Investment rates of return
• Adequate savings to meet future goals
• Tax reduction
• Adequate risk protection for income in the event of illness, accident or death
• Asset allocation as it relates to funding goals, risk tolerance and market uncertainties
• Adequate reserves
• Adequate college funding
All of these can be measured. In terms of our Einstein quote, these can be counted.
The unmeasurable
But does this give us a complete picture of how the client is doing? What matters to the client? Research clearly tells us that over a certain amount, more money doesn’t equate with a state of greater happiness. What is the goal of financial planning then? Riches? Richness of life? And who gets to define the answer? On the qualitative side it would seem appropriate to assess our clients’ well-being in ways that cannot be counted, but that indeed, count. Does the individual have a greater sense of:
• Clarity and confidence
• Consciousness regarding money
• Resilience and decision-making capacity
• Energy, vigor, and optimism
• Focus
• Alignment with spouse
• Well-being
• Purpose and direction
• Control and peace of mind
• Discipline and commitment to those actions that will lead to success
• Health
• Satisfaction
It has been said that we make our decisions with our emotions and we rationalize them with our minds. The financial life planner who does not integrate emotions into the process of discovery and evaluating success will be challenged to create the impact she earnestly aspires to make in the lives of her clients. As human beings we have conflicting desires, competing aspirations and habits that sabotage our deepest wishes for our own well-being, especially where our finances are concerned.
The bottomline
So how do we embrace this?
Let’s take the example of a couple in their 60’s visiting their financial life planner. It becomes clear through a rich discovery process in the early meetings that there is a fundamental conflict. The couple is deeply committed to charitable work, to financial giving to those less fortunate and to living a life based on their values and spiritual beliefs. On the other hand, they come from a family of prominence and old money and have lived the lifestyle that seems expected. Over the years, however, their financial assets have diminished significantly through lifestyle spending related to maintaining the lifestyle to be expected of people in their social and cultural realm. The habits die hard.
A forced early retirement has acerbated the issue of having enough money and living a life of richness. Difficult choices have had to be made, but the shared understanding of what really matters to this couple has made those decisions less painful and provided a sense of resilience and clarity of purpose. First, the vacation home must be sold. In the face of the economic crisis, now the family home must be sold in order to maintain a lifestyle in the face of increasing health care costs and longevity uncertainty.
The answer is not to be found in simply making changes to asset allocation or asking the couple to stop their generosity to causes or to spending on their grandchildren. Through the conversation, through discovery and through collaboration the decision is made that selling the home and downsizing is the solution. It is not without tears or some sadness. This is real life. This is financial life planning. This is Keeping Life Current.
