Financial planning is probably the most important function we offer for clients of PSI Capital Management.
Most people would not think of beginning a long journey to somewhere you have never been before without looking at a map and planning for what you want to see and do and accomplish on your trip. This is exactly the function that financial planning serves for your life. We strongly encourage all our clients to have us work with them on developing a financial plan.
There are two keys to good financial planning, the software, and the advisor. Planning software should allow the advisor to model any financial situation for the client and allow the evaluation of the probable outcome of that situation. The “free” calculators that you find all over the internet merely calculate that if you start with X dollars and add Y dollars after so many years you end up with Z dollars that will produce this much income at a given interest rate. These calculators assume you earn the same rate of return every year. Most totally ignore inflation and taxes and, if they do include those factors, assume that they do not change. This obviously is not how the world works. Good financial planning software will allow for complex scenario analysis – the ability to test how the unexpected will affect your plan – so you can see how your plan will hold up over the years. The world does not work in a straight line, your financial plan shouldn’t be built on one.
A good financial advisor is invaluable in the financial planning process because financial planning software is very much a “garbage in, garbage out” process. If you give the software wrong data, you are going to get wrong answers about how financially successful your retirement will be. An experienced, knowledgeable advisor will be able to spot unrealistic data such as low spending estimates and make sure the plan uses reasonable expectations. Like any other planning process in business and life, the final step is taking action to ensure that the plan succeeds. A good, fee-only advisor is essential to clients taking the steps they need to take to make their plan successful. A fee-only advisor’s fiduciary duty ensures that the plan is implemented in the most cost-effective way for the client and that the steps are designed to enrich the client and not the advisor.
Most clients initially contact us with the question, “Have I saved enough to retire comfortably?” While we can answer that, to me, even higher value in good financial planning comes later in the ability to answer “what if” questions quickly and accurately. Life changes for all of us and changes quickly. For that reason, a financial plan must be a living breathing thing and adaptable to anything that may happen in our clients lives. When a client asks a question like, “My child needs financial help, can I help them and still meet my retirement goals?” We can give them an answer quickly that they can act on with confidence.