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Integrated Financial Planning


The Benefits of Integrated Financial Planning

At Five Seasons, Wealth Management includes ongoing financial planning services. These services may include retirement planning and projections, tax minimization strategies, insurance needs analyses and reviews, advice on debt management and on education funding, and so on. Clients derive considerable value from this integrated financial planning. Here are some recent findings from an extensive survey by the Financial Planning Standards Council:

  1. "[Individuals] who have engaged in comprehensive, integrated financial planning are significantly more optimistic about their personal well-being as compared with those who have not."
  2. "Individuals with comprehensive, integrated plans feel better prepared to deal with financial emergencies and manage through difficult economic times, and are more confident about reaching a wide spectrum of life goals."
  3. "... there is measureable proof that those who have engaged advisors for only piece-meal, "as needed" financial advice are being left behind by [those] engaged in comprehensive, integrated planning."

The Benefits of Professional Financial Planning 

 Survey after survey describe the precarious financial position in which many seniors, pre-retirees and parents find themselves because of a lack of adequate financial planning. Irrational overconfidence seems to manifest itself in all types of retirement-related decisions.  Recently the American College quizzed over a thousand people at retirement age with more than $100,000 in investible assets on a variety of retirement- and investment-related topics.  More than 90% of the test-takers were at least moderately confident in their ability to achieve a secure retirement.  Only 21% passed the test.

... it's time to start practicing what I preach: I'm going to get some help with my retirement planning. Yes, you can glean (and we hope you have) a lot of information from these pages and other resources. But let's be honest: Most of us don't have the expertise, and most of us don't take the time, to develop a solid financial plan for retirement.

- Wall St. Journal personal finance reporter Glenn Ruffenach, from his article entitled "OK, I Admit It. I Need Some Help."

The Benefits of Personalized Financial Planning

 In this day and age, there is an overabundance of free and low-cost resources to help with financial planning issues and concerns.  These resources range from well-meaning friends and family to TV pundits, and from financial articles replete with rules of thumb to online calculators.  But as is often the case, you get what you pay for:

Online Retirement Calculators Are Found Lacking

Many members of the public rely on online calculators to perform retirement projections for themselves. A recent research study calls into question the reliability of these online retirement calculators.  Researchers from Texas Tech. and UVU analyzed 36 different retirement calculators available online to the public and found "... that the advice provided from a majority of these tools is extremely misleading to households ..." and that "... households are overestimating tool effectiveness."

At the end of the day, there's an acronym often used by engineers that's applicable here: GIGO.  It stands for Garbage In, Garbage Out. And it means in this case that no matter how good your software is, if your inputs are inaccurate or unrealistic, your results will be unreliable.  So the real trick to performing valuable retirement projections comes in the experience to use valid inputs, and in the judgment to interpret the results.  


Rules of Thumb Are Unreliable

Articles about financial planning are rife with rules of thumb that downplay the effects of readers' individual circumstances on critical financial decisions.  "Your portfolio's percentage allocation to equities should be 100 minus your age".  "Life insurance coverage should be 5 times your current income".  "You need 20 times your annual gross income to retire."

A recently released academic study by professors Scholz and Seshadri of the U. of Madison-Wisconsin debunks another of these rules of thumb: "You'll need to replace 70% (or 80% or 90%, take your pick) of pre-retirement income once you retire".  In fact, the authors of the study concluded that no more than 15% of the population had an optimal income replacement ratio of between 65% and 90%. They found optimal replacement rates ranged between 23% and 240%, depending on a variety of factors.

"Rules-of-thumb are for people who want to decide things without thinking about them."

-Lynn Hopewell, former editor of The Journal of Financial Planning