by Chris Cahill, J.D., CFP®, CAP®, Principal, Family Office Services
I was meeting with an attorney friend of mine the other day, when she asked me a simple, but profound, question: “Who should have a financial plan?” Although my answer (“Anyone with a heartbeat.”) certainly sounded brash, her question got me thinking and I am not sure that I was wrong.
Like everyone, I take what I do for granted sometimes and assume that everyone has a comprehensive financial plan. Unfortunately, that is not the case. I do not know what the precise statistics are, but if my experience is reflective of real-world figures, the percentages of individuals and families that have a current financial plan is shockingly small. The reasons for this failure to plan are too numerous to list here. Suffice to say, most of these reasons are covering up one cold, hard truth – they are oftentimes scared to death of what the dreaded models will show.
The following are some examples of individuals and families that have recently benefited from the Twelve Points planning process:
Married Couple with Young Children:
Paying off the last of the college loans and making the decision to buy a home can be some of the most important financial decisions many of us will ever make. Taking the plunge into the adult world of home ownership can be disconcerting and stressful. A financial plan helped our clients feel more comfortable with the cash flow requirements of home ownership. We were also able to show them they could, and should, begin saving more seriously for retirement while at the same time starting to stash away a little money for college. (Like many of our clients, they wanted to put more towards college than we felt wise. As I always say, “Your children can borrow money to go to school, but no one will lend you money to retire.”) We got them to meet with an attorney and execute a core set of legal documents (Wills, Powers of Attorney, Healthcare Proxies and Living Wills) and acquire an appropriate amount of term life insurance to protect the family in the event either one of them passed prematurely.
Dual Income Family with Early Retirement & Vacation Home Aspirations:
A married couple with more established careers and older children was looking forward to an early retirement and a new vacation home in Hilton Head. The planning process showed that accomplishing both objectives would be difficult. They could either retire at 60 without the Hilton Head home or they could get the Hilton Head home and postpone retirement until age 65; but trying to buy the vacation home and retire at age 60 (without seriously reducing their current standard of living) resulted in a less than optimal percentage probability of success.
Business Owner Looking to Exit and Enjoy Retirement:
A married couple that started a successful local company was looking forward to selling it in the not too distant future. Absent a financial plan, they were merely guessing at how much money they would need to net from the sale of the business to meet their retirement and legacy planning objectives. Through the planning process, we were able to help them identify their true cash flow requirements (not an easy thing for many business owners, as they often times run so much of their personal items through the business). After coming to an agreement on a desired standard of living, and armed with a current business valuation, we were able to model a series of “what if” scenarios (the business sells for X, the business sells for X+ and the business sells for X-). To get from point A to point B was going to require some work. We recommended the company institute a new 401(k) Plan and that the two of them begin saving more seriously for retirement. We also recommended a business coach to come in and work directly with them to help grow the business. Since the husband was so integral to the day-to-day operations of the business, we also identified a huge potential retirement shortfall for the wife in the event that the husband was to pass away. An inexpensive term insurance policy helped to bridge this gap and provide financial security to the family.
High Wage -Earning Executives Who Want to Give to Children and Charity:
In this case, both spouses have high-profile, high-paying jobs, so money is not an issue. They clearly have “enough” to last them for the rest of their lives (particularly if they both keep earning the way that they are). They have three children and would like to make lifetime gifts to them now and they are also interested in increasing their charitable giving. The financial planning process was very helpful for showing the impact of various lifetime transfer techniques. Shifting assets outside of the estate today made all of the sense in the world to them. Locking in the desired inheritance for the children now freed them up to begin focusing on charitable planning strategies for the future. As the wife commented at our last meeting, “Going forward, we are working for our charities, and it makes us feel good.”
Brash I may be, but I honestly cannot think of one family wealth situation that would not benefit from a properly coordinated, comprehensive financial plan.
Knowledge is power. Financial Planning provides knowledge to our clients; ergo Financial Planning is Power! Seize the power for yourself and get a financial plan.