I worked for a client couple who wanted to assume they would each need long-term care in the future. I discovered that the average stay in a long-term nursing facility was three years. To be conservative, I doubled that assumption to six years. I added the cost of 24-hour care and increased it by 6 percent a year, and together we estimated that they’d need it from ages 86-92. Then we backed in to how much they’d need to set aside today in order to fund that goal.
That’s what conservative, goals-based planning looks like, and it gave them tremendous comfort.
3. Run the numbers. Clients are often reticent to plan, sometimes assuming (incorrectly) that they can rely on rules of thumb to make their financial decisions. There is no one rule that applies to the specific goals my clients are trying to achieve. Generic saving or spending assumptions will get you only so far. For clients saving for retirement, we can calculate the specific wealth level they need to acquire to have the retirement they want.
However, the planning doesn’t stop once a client reaches a certain wealth level. I’ve had wealth advisors tell me: “My client has $100 million, they don’t need to do planning.” On that, I push back hard.
Yes, maybe that client has enough to take care of his or her needs. But after funding their lifestyle, what do they have left over? How much do they have to work with when it comes to wealth transfer or philanthropy, so they don’t give too much away? How much can they allocate to less-liquid alternative investments without endangering the money for their core needs up to age 95-100? A financial plan will illuminate that.
The numbers required to plan conservatively can be jarring—and they often spur clients to action.
4. Set a plan. Monitor. Adjust if needed. A financial plan is an ongoing conversation. I don’t set a plan and come back 30 years later to see if it worked. Actual portfolio performance should be tracked over time so clients can see how they’re doing relative to their goals. A wealth advisor should revisit the plan as often as needed, but typically I make changes only as new goals arise or if there is a meaningful change in our assumptions. Any change in investment strategy should be weighed against how it fits in with the overall plan.
With the technology available today, it is much easier to track my clients’ progress toward their goals. I can even set alerts so that I know immediately if their probability of success drops below a certain level. The plan is a living document, and I contact them if something needs attention.
A common fear clients at all wealth levels share is not having their money when they need it. They also fear having to rely on their children to support them when they get old. The way to avoid that is to do deep, comprehensive, planning as early as possible to make sure clients are positioning themselves in the best way possible.
My advice is to plan conservatively—and live to 100.
Matt Teich, CFA, CFP, is the director of financial planning for Cresset Wealth Advisors.