These two versions of the same question are the most common questions that any financial planner is asked.
They are difficult questions to answer because it depends… on expectations, lifestyle, mortality, risk tolerance and need.
Let’s break it down a little more and try to develop some clarity on the concept of:
Here your planner should ask such questions as:
With successful retirements it is well known that you must find a substitute for a “need”. For example, an extrovert needs people around them. The workplace filled this important need. When an extrovert retires they need people activities or they will resent the very retirement they have been looking forward to for over 40+ years!
An introvert needs different things, for example, quiet enjoyment and select individuals.
Your planner needs an idea of your mortality to build assumptions that are a fit for “YOU”. If your family typically lives into their 100s it is not practical or reasonable to create a plan where your money lasts to age 90. For instance, as of the 2011 census, the average woman in Saskatchewan lives to age 79.7 and the average man to age 78.7.
This is a difficult topic to talk about sometimes, but:
People resent the typical financial planner questionnaire about “risk” since most of us just want the highest return with the least risk possible. The questionnaire measures types of risk. (Market risk, inflation risk, concentration risk, currency risk, interest rate risk, liquidity risk, credit risk, longevity risk and foreign currency risk are examples that must be considered). It is critical for your planner to understand the risks affecting you and to get to know your unique approach to risk.
We planners need to know how you will react in a volatile market and how important safety and security are for you. Money personalities also give clues as to risk tolerance through measuring practiced beliefs and lifestyle choices. See our blog posts on the Money Personalities: Security Seeker, Flyer, Risk Taker, Spender, Saver, and the Coaster.
The truth is that we learn money from our parents and our parent’s parents – our way of doing money is instilled in us at an early age.
Also risk changes over time. As we age and get closer to retirement our earning capacity often reduces and we have lower tolerance to absorb fluctuations in our investment balances the same way we did when we were younger. In other words, our capacity to absorb risk decreases. In my 30s and 40s I was a risk maven – now that I am older I take a great deal more care to reduce volatility and balance fluctuations in my individual portfolio of investments.
An important factor we consider when we work with clients is how much risk the client needs to take to meet their goals and objectives. I once coached a retiree who was indicating a need to obtain a 10% plus rate of return in the portfolio. When we took a look at all of the needs, including the funds for children after death, a 4% rate of return was sufficient to meet those needs.
In mediation terms these are your interests (the factors that make you a unique individual). For example:
In summary, What is enough? is a complex question.
Do not accept a simple answer! Come and talk to us at Next Step – we will not try to sell you any financial products.
We will listen.
We will ask the “right” questions which allow us to act in your best interest.
Would like to get updates via email from us at Next Step Financial? You can sign up for our newsletter and get exclusive information about mediation and our financial services!Sign Up For Newsletter
© Copyright 2018 Next Step Finiancial Solutions