Advice for Savvy Retirement Planning

Financial Common Ground

Financial Common GroundOver the past few weeks, respected financial planner, author, and blogger, Tim Maurer addressed the financial planning community with what he saw as a breakdown in the authoritative qualities of our professional. More to the point, and to paraphrase what Tim said in his recent Forbes article, it seemed that the disagreement among various financial planners, bloggers, media personalities, and educators had become so vitriolic and uncomfortable that it has caused tremendous confusion in the eyes of the public.

So Tim set out to identify a series of principles that all financial professionals can agree on and live by. While there still remains many, many differences in the way professionals manage investments and dole out financial advice, the following are a list of the Principles that we agreed upon. In establishing these Principles, Tim reached out to the financial community to seek support, guidance, and collective wisdom in drafting these points.

His efforts culminated in his website entitled, Financial Common Ground – The Unifying Principles of Personal Finance. Here are the Principles that we agreed to:

  • Progress: The benchmark for success in personal financial planning is progress, not perfection. Excellence is more a product of good habits than a revolutionary event.
  • Discipline: A household must consistently spend less than it earns, regardless of the level of income. The foundation of financial success is a disciplined cash flow system (such as a budget), which is designed to make household spending decisions purposefully and in advance.
  • Debt: Debt wisely used can help build wealth, but fueling unsustainable lifestyles with borrowing is the quickest path to financial ruin. We are well-served to pursue an eventual debt-free path.
  • Buffer: Changes, surprises and failures are guaranteed, but their impact can be minimized through the creation of a financial buffer. This buffer—a cushion of cash savings—will help lessen the burden of emergencies and other unexpected events.
  • Risk: It is better to make an informed risk management decision than to act on a consequential reaction. Many risks can be adequately managed through risk avoidance, risk reduction or self-insuring through risk assumption. However, the potential for catastrophes from which a household could not survive financially should be transferred through insurance.
  • Investing: Investors have succeeded utilizing strategies on a continuum ranging from entirely passive to surprisingly active. None succeed purposefully, however, without following a disciplined strategy.
  • Taxes: Taxes are an important element of financial decisions, but rarely the most important. Tax minimization is wise while tax evasion is illegal.
  • Giving: Giving of time and money is good for everyone, donors and recipients alike, and may also result in a reduction in taxes.
  • Future: Plan for tomorrow, live for today. Failure to plan for major expenses, such as education and retirement, is folly; but deferring all gratification for the future strips the joy from life today.
  • Estate: Everyone, with very few exceptions, should have well-conceived and clearly written estate planning documents including, at minimum, a will (with or without a revocable trust), a durable financial power of attorney and advance directives (including a health care power of attorney and living will).
  • Legacy: Leaving a legacy—a relational impact on friends, family and community—is as or more important than leaving an estate—the sum of your assets less your liabilities at death.
  • Guidance: Whether from a book, blog, article, class, radio program, TV show, advisor or specialist, financial advice is only beneficial to the degree that it is consistent with your values and goals and leads to action.

Robert Henderson is the President of Lansdowne Wealth Management, an independent, fee-only advisory firm in Mystic, CT. His firm specializes in financial planning and investment management for retirement, with a special focus on the particular needs of women that are divorced or widowed. He is an Accredited Asset Management Specialist and a Certified Divorce Financial Analyst. Mr. Henderson can be reached at 860-245-5078 or bhenderson@lwmwealth.com. You can also view his personal finance blog,The Retirement Workshop at http://lwmwealth.com/blog and the firm’s website at http://www.lwmwealth.com.