We recently met with a prospective client who believed she was “behind” and not on the path to be able to retire on her terms. For the purpose of today’s email I’m going to refer to her as Carla.
Brief background: Carla’s 60-years-old, has approximately $1.8 million in investment assets, no debt, projected Social Security income of around $4,500 per month at 65.
Here is the most important factor, she wanted $5,500 per month net of taxes in today’s dollars.
She is by all reasonable explanation financially independent. Based on reasonable planning assumptions, she has a very high likelihood of maintaining her lifestyle for life.
Her current financial planning team met with her on a consistent basis, charged a reasonable advisory fee, and built a respectable low-cost diversified portfolio.
However, she still felt financially insecure. Why?
She felt like she couldn’t purchase a new car, take a family vacation, upgrade the kitchen appliances, etc.
Again, why?
There is a significant industry-wide default assumption problem. Obviously financial planning software can be a wonderful tool; however, the tool is only as good as the operator.
For whatever reason, Carla’s former advisory team didn’t give her the confidence and permission to spend, to live, to do fun things. From what I could gather they were much more interested in only accumulating and holding.
I’m not going to go any further projecting as to why, or what their motive may have been, but needless to say I’m extremely happy Carla messaged us and we’re now working together **(more on transitioning below).
How We (Know My Plan) Calculates Projections?
In our financial planning calculations, we use 7.8% to represent the long-term trendline returns of our stock market investments.
We want to use a number that we think is fair and reasonable. Historically, long-term returns of the U.S. stock market have been between 10%+ over approximately the past 100 years.
Returns are not guaranteed. They could be better or they could be worse, but we have found 7.8% to be a good, conservative proxy as the historical trendline return of the market within a financial plan.
For fixed income investments, we generally use 4%.
Again, I believe it’s worth noting that we feel these are conservative, but reasonable rate of return projections.
Of course, financial projections could provide unreasonable positive expectations (ex: 15% stock market returns) and conversely, we need to also map out potentially negative situations as well.
And as a financial planner, I believe we have a responsibility to be unapologetic truth tellers, good or bad. Sometimes, we get to share great news (gift more, spend more, retire now, financially independent, etc.…). Sometimes we have to share the bad news (work longer, cut back, save more, etc.…).
If you are hearing something that doesn’t feel right, reach out. Let’s review it. Let’s figure out exactly where you are. Let’s get to work.
**If you’re currently working with a financial advisor or advisory team and you feel like it’s time for a change, and/or they’re not right for you, please consider discussing with us. This is not a painful transition. It can be handled however you like, phone call, email, or nothing at all. There’s a process called ACAT: (Automated Customer Account Transfer Service) an electronic system that allows investors to transfer securities and cash between firms or banks without liquidating their positions or triggering a taxable event. We do this for new clients who’ve outgrown their current advisor all the time.
I’m not encouraging anyone to leave a happy situation, but if you’re not feeling the love and would like to work with us at Know My Plan, it’s honestly an easy process and yes, we are currently taking on great new clients.
–Nic
Hypothetical example based on an actual prospective client engagement. Individual results will vary. This is not a testimonial and the individual referenced was not a compensated client at time of the conversation. “Carla’s” name and details were modified for this example.
