Lack of a Financial Plan
by Greg Hammond
Many people spend more time and care planning their vacations than they spend on their financial and estate planning. They will pore over travel guides and find the best rates online, all in anticipation of a week or two in their future. Probably because of our human impulses, planning for short-term fun can trump long-term gain. With the future uncertain, risks to be managed, a retirement for which we fear we may not have saved enough, and worse yet, death and taxes, many of us understandably lack the requisite enthusiasm and courage to address this area of planning with commitment, energy, and urgency. If you don’t know where you are going, any road will get you there. To plot a course for a significant legacy, you first need a plan for yourself. Only then will you have the confidence and clarity to plan for others.
One of people’s biggest fears, particularly as they approach retirement age, is that they won’t have enough money for themselves. They may wonder whether they might end up as somebody else’s charity case. That fear may be justified or it may be unfounded – and comprehensive financial planning will resolve any doubts. For some reason, people are prone to making presumptions about these things that simply aren’t based on facts or sound analysis. Emotion and gut instinct are hardly a reliable guide when it comes to your financial freedom (or lack thereof). We cannot accurately see where we are heading or what greater things might be possible if we don’t know where we are at this moment. It is not unlike using a GPS, that navigation tool we all are familiar with in some format. The technology is dependent on two critical inputs: current location and chosen destination.
Investment and asset management has been around for a long time, but financial planning as a professional discipline has been around for only about thirty years. And not everyone who calls this service financial planning is doing the same thing. There is a wide spectrum of approaches and of quality. As a result, very few people have a well-constructed and complete plan. With a current approach to planning, you actually may find you already can do far more than you think. One client of ours, the founder and principal of an executive coaching firm, had a net worth of approximately $10 million. He owned valuable property in Boston and on a lake in New Hampshire, with no mortgage on either. He had a solid income and sizable investment portfolio. Finally, he was a board member of a Fortune 100 company and expected to be paid a seven-figure executive compensation benefit at the end of his term as a director. He and his wife were motivated and intrigued with the idea of being more intentional and artful with their family legacy – and also by the prospect of becoming more active and impactful philanthropically. We estimated for him that he could leave a philanthropic legacy of seven figures plus. His existing investment advisory firm, however, had left them with the idea that they would be lucky if their children inherited a few hundred thousand dollars – and that they faced a real risk of not having enough assets to provide themselves with long-term retirement income for the remainder of their lifetimes. It turned out that his well-respected investment advisory firm had produced an “ultra-conservative” retirement analysis that was designed to build confidence, even in a doomsday scenario, about their financial independence. Unfortunately, the firm did not create a comprehensive plan to help the family see the more likely scenario from an estate and legacy planning perspective.
Sometimes, a “conservative” retirement-only analysis can be the equivalent of a quite “aggressive” estate analysis, in terms of tax exposure and other risks. The firm left the couple feeling fearful about their retirement, and, as such, they hadn’t even begun to consider family legacy or philanthropy in any meaningful way. How did this happen? The firm had disregarded the value of the couple’s two properties, the value of his coaching business, and the value of the executive compensation plan. Of his $10 million net worth, $7 million (which was not liquid at the time of the retirement analysis) had been ignored in the illustration that the firm created. Unfortunately, such an experience is not uncommon. Such incomplete planning holds back many people from doing more. ―Excerpt from chapter 4
Download a chapter of the book at domorethatmatters.com Greg Hammond, CFP®, CPA is a wealth impact strategist who works with individuals, families, closely‐held and family‐owned businesses, helping them grow and preserve wealth, plan for retirement and manage their charitable giving. You can reach Greg at 1-800-416-1655 or firstname.lastname@example.org for financially intelligent guidance or a Wealth Impact Assessment to show how you can build a legacy of your values, influence, and money without sacrificing your own lifetime goals and objectives.