Year-End Planning Checklist

2012 Year-End Planning Checklist

The challenges of end-of-year planning have rarely been as complicated as they are this year due to the number of possibilities of what tax rates may look like next year. We may very well publish a 2012 v2.0 once the election outcome is known, and possibly even a 2012 v3.0 once the “lame duck” session of Congress has met.

As 2012 begins to wind down, we look forward to tax planning meetings with each of our clients (and their accountants when appropriate) to examine possibilities of different tax strategies that integrate within the client's overall financial plan. If we are not meeting with you before year-end to review the material with you, we hope you find the points of consideration helpful. The checklist can be found here.  Please don't hesitate to reach out with questions at any time. If you'd prefer a pdf version of the checklist, we are happy to send that directly as well.

Your Vital Role in Achieving Financial Freedom

Our current clients know that the process of becoming a client can feel like a starting a new exercise program. Hard work but they know it's worth it! Our thorough process of gathering the input components and integrating them into our planning process helps to create a fact-based plan that is designed to provide our clients the highest probability of achieving their financial goals, while taking the least amount of risk.

Computers can easily pull the latest values of your 401(k) plan and bank account balances into various evaluative software programs ( does a great job at this). You can model future returns on a variety of different portfolio combinations with a few mouse clicks, and future government income benefits are easily attainable online from the Social Security Administration. Isn't that enough? It's certainly easy enough.

But a great deal of hard work still falls on the shoulders of financial planning clients. People still have to figure out how much they expect to spend in retirement. You still have to make decisions about your future lifestyle, and estimate the costs of each component part - often by taking a closer look at your current expenses than you ever have before. THIS is the hard part. Wrestling with these questions will yield the difference between a simple projection and a more accurate version of your future. In fact, the exploration process itself is incredibly valuable as it forces you to think through these more life-defining questions.

And this, of course, is complicated by questions like whether you plan to work during the traditional retirement years, what hobbies you plan to pursue, whether you'll keep your current home or downsize, what your health (and health care options) will allow you to do, and how long you'll live. You look at the list of questions and realize that anything you write is an estimate or an attempt to quantify something that you cannot possibly know with precision. You can be forgiven for wondering: what's the point of all this effort? Why should I have to go through with this? Can't we just create a workable plan using current account information and what we know today (and avoid/suspend all these hard questions)?

The answer, alas, is no--and the reason is interesting, and not always well-understood. The truth is that being able to live a successful financial life by achieving your goals is far more dependent on your behavior than your financial planner's attempts to define the path. Even if we as financial planners were to get a consistent, extraordinary rate of return on your investments over a long period of time (and we believe this is not possible), how much you save and invest will still be a more important factor in how much you are able to accumulate. The amount of your future expenses will be more important still in whether you'll be able to fund your future lifestyle. Your human capital and your ability to manage the resulting income (and expenses) is still the number one contributor to your overall wealth - not your portfolio rate of return.

In addition, and related to this, it is important to know whether the amount you're saving and investing today is likely to be enough to meet your future expectations. If not, it's better to make a course-correction now while you have time to correct. Bad news rarely gets better with age.

In addition, it's always better to have an understanding of your future expectations, so you can start making concrete plans for that part of your life when work becomes optional (what we refer to as 'financial freedom'). For some people who enter their retirement years and look back, this advanced planning and preparation turned out to be the most valuable part of their financial planning relationship.

But isn't the future uncertain? Of course it is. That's why we, as an advisory profession, have been adopting new ways to do a better job of understanding and planning around that uncertainty. In the 1980s, most retirement plan projections were linear; that is, they assumed that each future year would achieve the same expected rate of return, year after year--which, as you might have noticed from your own investment experience, is hardly realistic. Today, many advisors use Monte Carlo analyses (we do), which look at tens of thousands of different sequences of possible returns, and determine how many times a retirement portfolio would fail using different assumptions. If the potential failure rate is unacceptably high, we will recommend more savings, a later retirement date or scaled back spending in retirement—or, adjustments in all three areas.

None of this analysis is possible, however, until the initial homework assignment has been completed (you decide on your new exercise routine) and you begin by providing your projected spending information after taking a hard look at your current spending habits. In the computer industry, "garbage in, garbage out," means that if the data that is used in an analysis isn't accurate or precise, the analysis will give you meaningless outputs. This is also true in financial planning, where no professional wants to create a “garbage” plan, and no client wants to receive one.

We believe this type of planning can have a profound impact on your ability to achieve financial freedom, and we take great pride and enjoyment in the opportunity to make a difference in your lives through this robust and integrated planning approach. We continue to strive to help you be accountable to your very best intentions.