I’m always amused at financial planning meetings when the subject turns to financial planning software. More often than not, the more complicated software gets higher grades from planners than simple software. Many planners actually believe the plans they product are accurate. After all, isn’t that what you pay us for?
Think about working with your doctor.
When you visit your doctor do you expect he or she to tell you when you’re going to die? Why would you expect your financial planner to be able to tell you what’s going to happen to your finances twenty years down the road?
We can tell you that if you’re not saving, you’ll likely never retire. We can tell you that based on what’s happened in the past you need to save x amount of money to retire. I can tell you one thing, whatever it is we tell you to save is wrong. It’ll either be too much or too little.
It doesn’t take much to make your plan obsolete.
Little changes can have a big effect in a plan over twenty or thirty years. If we get a market meltdown the year that you retire your plan has just changed. If we get a tail wind for twenty years of positive market returns it just got a lot easier for you to hit your goals.
In the past ten years we’ve had two meltdowns that were only supposed to happen every hundred years. Many people believe we’re in for another one in the next few years. If that happens, what will that do to your plan?
It’s not getting a financial plan but financial planning that’s important.
The process of planning is what is important. Are you going in the right direction? Are you using various scenarios to test your assumptions? Those are two questions I think are important.
If your financial planner is giving you granular detail about your future I can tell you one thing; it’s probably wrong. You want to know if you’re doing approximately the right things. You want to stay flexible and be willing to do something else if your plan isn’t working out. Financial planning is about direction and not outcome.
If you continue to go in the right direction there’s a very good chance you’ll be happy with the outcome. If you do a plan once and think you’re done there is an excellent chance you’ll not like your end result.
This means you need a relationship with your planner.
If you’re going to be happy with your financial life you’re likely going to want to establish a long-term relationship with a planner. You’re going to want to meet with your planner and talk about any changes that happen in your life. If you’re going to have a child, talk with your planner. If you’re thinking about taking a new job, talk with your planner. If you’re going to get a divorce, well you get the idea.
If you don’t have a relationship with a planner that goes for years you’re going to be doing plans and not financial planning. Just like other types of planning it’s not the plan but the planning that counts.
I hope by now you’ve come to consider the possibility that direction is more important than what your plan might say. Are you going in the right direction with a fair amount of safety built in? If so, you’re probably on the right track. If not, well, that’s what planners are for.
We have a special report on the basics of retirement planning. This report will help you develop questions you should ask your planner next time you get together. To get a copy of this report, click on the button below.