“The best time to review your financial plan was before the Coronavirus, the second-best time is today.”
Financial Planning Proverb
Rather than binge watch another show during this “break”, why not review your financial plan?
Without a plan (no matter what area of life), you (and I) are subject to emotional decisions. A plan not only provides an informed road map when everything goes as expected, it also provides a platform from which informed decisions can be made when things go awry.
Your financial plan creates the desired road map. It is based on your current level of spending, saving, investing and protecting. Your current plan provides direction. It guides when your plan needs adjusting.
Our plans included specific actions which were to be implemented if/when the market corrected. We’ll need new directions that address what to do when the market recovers. A plan before the fact provides opportunity and provides peace of mind ... knowing your decisions are based on logic rather than emotions.
I’ll share why today is the second-best day to review your financial plan with a special offer given the current environment.
Review your financial plan
I use the word review rather than create when referring to your financial plan. I do this because you have an existing plan. At its core, your financial plan is the summary of what you earn, spend, save, invest and protect. Your plan may not be formalized, but you have a plan.
The question is not whether you have a plan, the question is whether your plan provides the guidance needed to navigate changes in the markets (and your life). Reviewing and formalizing your plan provides the guidance needed to successfully navigate your financial path.
Formalizing your Financial Plan shouldn’t lead to … commissions
If you think ‘formalizing’ your financial plan will lead to a ‘sales pitch’, you are not alone. Sad to say, but I hear this too often. “I had a plan done before. In the end, ‘the plan’ was a ruse that led to the recommendation for commissioned annuities.” Of course, the plan was “free.”
Formalizing your Financial Plan shouldn’t include an expectation … relinquishing control of investments.
Formalizing your plan with a Certified Financial Planner®, should not automatically lead to the assumption you need ongoing management (with an AUM fee of 1% of more). Your plan should create a simple to follow road map that includes investment decisions.
You may decide a planner should manage your investments after the plan is complete, but that should be a separate decision. If you’ve done a good job managing your portfolio, why hand off responsibility? A plan review might confirm you’ve been making the right decisions. If that's the case, why pay someone to manage your investments going forward?
So, what should a financial plan lead to?
Your Financial Plan should lead to…CLARITY!
When you review your financial plan, your outcome should be a clear, easy to understand road map of your current and future financial picture. A well-constructed financial plan creates an opportunity to make informed, logic-based choices.
Today is the second-best day
For those who had a plan, financial decisions during this pandemic were simple. Finding toilet paper...that is a different story!
A Chinese proverb states “The best time to plant a tree was 20 years ago, the second best is now.” If you think you missed your opportunity, now is the second best option.
If you’ve been meaning to formalize your financial/retirement plan but haven’t gotten around to it, today is the second best day. There will be future challenges (and opportunities). Your plan will address both … logically rather than emotionally.
Hourly, Fee-Only Advice without traditional restrictions
Before I go any further, you may be wondering who I am and why I am writing about financial plans. My name is Bob Burger. I am the owner of Disciplined Money, LLC. I created the firm over four years ago. Prior to creating Disciplined Money, I worked for Fee-Only firms who typically restricted financial advice to those with $1,000,000 or more of investable assets and charged 1% annually (or more) to manage investments. There isn’t anything wrong with that model. I wanted to offer something different.
I believe financial planning advice should be delivered via an Hourly Fee-Only Model. The planner should be held to a Fiduciary Standard. This approach allows me to work with a diverse group of people without account minimum restrictions.
You do not need to have a million dollars to qualify. You don’t have to hand over your assets for management (no matter what your account balance) and you won’t ever buy a commissioned product.
Over the past twenty plus years, I’ve learned people want financial planning and investment advice geared to their specific needs and situation. They want advice and still be part of the decision making process.
If you choose to review your plan with Disciplined Money, your fee will be based on hours served rather than a percentage of assets. Most plans take between 8 (more than three years away from retirement) and 10 hours (within three years of retirement) to complete. Our hourly fee is currently $150 per hour which means plan reviews cost between $1,200 and $1,500.
Unique challenges … and opportunities.
While we practice ‘social distancing’ and ‘self-isolation’, I want to test whether financial plans can be properly reviewed 100% electronically. The current environment provides an opportunity to test the challenges of working remotely. If the process works well, it provides an opportunity to share our Hourly, Fee-Only model without local constraints.
If you’ve read this far, you are likely at least curious, so let me share what the process will look like.
The process and a special offer
We’ll review your plan in three simple steps. First, you’ll gain access to one of the most popular financial planning software programs in the industry. You’ll enter your information (nothing privacy related). You’ll enter birth dates, expectations, concerns, assets, liabilities, investments, insurance. In other words, you’ll summarize where you are today and start formalizing your vision of your financial future.
After you’ve entered your information, we’ll schedule a time to review...together (via phone or Zoom). We’ll review questions and measure your probability of success. This will likely raise questions which we’ll cover. Now, you get some homework.
After seeing your results, I want you to take a break. This may be the first time you’ve seen your financial future in this way. As you digest, I want you to answer a simple question.
“What would I do differently?”
If your plan projects a higher probability of success than you imagined (you are projected to die with a large portfolio balance) would you retire sooner? Spend more now? Spend more later? Travel more in retirement?
If your plan projects a lower probability of success than you imagined (run out of money) would you work longer? Would you spend less now (save more)? Would you spend less later?
Let’s test various scenarios
Most second meetings begin with “Can we test what happens if...?” You may want to see the impact of saving an additional $500 per month now or spending an additional $500 per month in retirement. You might want to add a travel goal when you retire (or today). You might want to see how retiring one year earlier (or later) impacts your plan’s success. We’ll test your various scenarios and create your ‘base plan.’ From there we’ll take the next step.
Planning for what could go wrong
After finding your ‘base plan’ we’ll test what could go wrong. What would happen to your plan if you or your spouse died sooner than expected? What would happen if you were no longer able to work? What about medical costs? What about college expenses?
We’ll review, discuss and offer guidance on all of your questions (without selling you products). When we’ve discussed what is within your control (at least partially), we shift our focus to investments.
When considering investments, we don’t incorporate useless risk questionnaires. We won’t ask you… “on a scale of 1 to 10 how risk tolerant are you?” First of all, we don’t know what that means, and your risk score may have changed significantly over the past couple of weeks! We’ll use an approach less impacted by emotion and simpler to understand.
What would have happened if you retired in 2008?
We want to compare how various portfolios affect YOUR PLAN. We’ll test outcomes if you received an “Average Return” (same return EVERY year). We’ll also test what would happen if you retired into 2008...we call that “Bad Timing.” Finally, we’ll measure how many trials would be successful if you had varied returns (more realistic).
In other words, if you lived 1000 lives, how many would project success (not run out of money). This is referred to as a Monte Carlo scenario. If this sounds confusing, don’t worry, it will make sense when we get there.
What could go wrong?
Along the way, we’ll discuss potential insurance needs. We don’t sell insurance, we provide guidance. How would your plan be impacted if one passed? What happens if both pass? How will you handle long term care and other medical costs? We address these questions without the conflict of selling you commissioned solutions.
Taxes, Required Minimum Distributions and Social Security
While in the workforce, the typical tax objective is to minimize current taxation because you are in a high tax bracket. If you find yourself in a lower bracket (this may become applicable in 2020 given layoffs and furloughs), you might want to fund a Roth IRA (or 401k) instead of a Traditional IRA (or 401k). We’ll share why we might choose a Roth IRA over a Traditional IRA (or 401k) given the specifics of your situation.
If you are closing in on retirement, you may find yourself in a lower tax bracket, especially if you haven’t started collecting Social Security. Your plan may project a jump back into a higher tax bracket once you start taking Social Security and begin Required Minimum Distributions (RMDs).
The decision surrounding when to take Social Security benefits includes cash flow needs and taxation. A big picture viewpoint helps you make informed decisions based on your plan as a whole, rather than emotional choices without consideration of the overall plan.
We’ll put it in writing
Finally, we provide you a written plan that summarizes our discussions. We include a written summary (words written in English) for those who enjoy the ‘big picture’ (8 pages or so). We also provide output from the program (about 35 pages) with all the specifics for those of you who enjoy digging into details. Our goal is to provide you with a clear, informed road map of your financial future.
Testing online service
As mentioned earlier, we would typically charge between $1,200 to $1,500 for this service. I want to test if completing a plan fully online is a viable solution going forward. In other words, can I complete a plan from the beach (OK maybe too hard to focus on the beach but you get the idea). I will ask for your feedback on this process. I want to know if this is a service I should add going forward.
So rather than charge $1,200 or $1,500, I am going to charge $900 (for those 3 years or more from retirement) or $1,200 (for those within 3 years of retirement). The closer you are to retirement, the more choices available. Additional choices creates a longer process.
Paying for service
We usually collect half at the beginning of the process with the remainder collected when the plan is complete. I understand this may be a challenging time. If you need or want to stretch out payments, let me know, I am sure we can work something out.
Let me accept the risk
I know people are more confident with a formalized financial plan and I expect you will as well. You’ll have a clear list of what to do and more importantly, why you are doing it. You’ll automate steps when possible. You’ll stop questioning whether your current decisions are negatively impacting your financial future. An unexpected benefit is you enjoy life more without questioning every purchase. We’ll discuss this as we review your plan.
Although I see the benefit of having a formalized plan (and let’s face it, I have a bias), you may be questioning if this is for you. Let me help you with any uncertainty.
If you decide to formalize your financial plan with Disciplined Money and don’t walk away with a better understanding of your financial future, simply share what you expected when you first read this. I’ll refund the initial deposit and waive the remaining balance.
The next few weeks
You can sit home binge-watching Netflix over the next few weeks (hopefully no longer) or you can review your financial plan. The next financial disruption probably won’t be a Coronavirus (at least I hope not), but as you navigate life, you’ll have changes to your personal and financial lives. When the next one arrives, will you have a plan?
If you’re ready to get started today, simply send me your name and email address, I’ll create your initial sign-on. You’ll start entering information. We won’t collect the initial payment until the first meeting.
If you have questions you want to review before getting started, schedule a 15-minute call with me. We’ll address your questions and determine if you should move forward.
One last thing. This is a limited time offer. You’ll need to get started by April 30, 2020 and complete the process by June 30, 2020. After that, we’ll return to normal pricing. I am also limiting this offer to 15 people. If you want to have a plan for the next surprise (sadly there will be others), let me know today. I look forward to hearing from you.
Bob Burger, CFP®