Financial Planning - Life and Death?

1937: Dead End - William Wyler

Predicting the future is a pretty difficult task. There is a degree to which we probably all hope that someone knows what is going to happen, though of course we actually know rather better in practice. The media seem to love speculating about tomorrow, indeed the more I watch the output from media outlets, including the BBC, I'm struck by how much of the "reporting" is no more than speculation, obsessing over what might happen, rather than seeking to clarify the choices and consequences.

Financial planning has a degree of future prediction about it, which for some can feel all too like crystal ball gazing. Cards on the table, I don't believe that crystal balls have anything to tell us about the future. Indeed one might suggest that more can be revealed by someone's body language, tone and general demeanour about how the future is likely to look for them, something that an accomplished "reader" can interpret to their own advantage.

However, financial planning is about attempting to address estimates about the future. Starting with the end in mind, some very awkward thoughts about when you die (not a terribly British conversation)  is going to frame your financial plan. None of us know when this will be (unless we are determined to end our own life). This is perhaps the most significant assumption of all when it comes to financial planning. Assuming you live to 100 but then only living to 85 has implications. For example, your savings were assumed to be required for a further 15 years, which may have meant that you couldn't spend, give or have quite as much as you would have liked to have done. As your income was assumed to be needed for a further 15 years, perhaps your investments were assumed to need "to work" harder than they actually had to - by which I mean taking more investment risk for a higher return. Perhaps out of concern for a long life, you deferred some spending that was actually rather important to you. As you can see - lots of questions and resulting choices from a single assumption about when you die.

This is why a great financial planner will not only raise the issue (most don't seem to) but also explore the implications with you and revisit the agreed assumptions each year as part of the review/refocus process. Starting with the end in mind is vital when designing your financial plan. I wouldn't want to be a guest at your 95th birthday party if we had only planned for your money to last until 95. So think carefully about your assumptions, as many have said, to ass-u-me, can make an ass of you and me. Of course, living each day as though it were your last may have other implications too.