Evaluating Risks In Your Financial Plan

When it comes to wealth and the future, many people believe they have done their homework to determine what they will need to comfortably retire and plan for their heirs’ success. However, some do not consider the outcomes of significant risks which can cause hardships to their own life and to the lives of family members. One of the difficulties though is these risks are often hard to address because of their dire consequences.

For most people, losing X percent of one’s principal is considered risk. While this is true, there are other hazards that pose a greater threat to one’s future, both pre- and during retirement. Examining them now may be an unsettling process, but will likely pay dividends in the future.

One of the greatest risks which might impact us all is the risk of not living the life you want to live, and your savings not outpacing inflation. Isn’t it the life/retirement we want to live which drives us to work in the first place? Don’t we need to make certain we have enough money to buy the goods and services such as fuel, clothing, food, etc. to live this life? Unfortunately, automobiles, gas, heating bills, food and health care premiums are much more expensive now than 10, 20 or 30 years ago when many baby boomers graduated from college and bought their first car, home, and business suits. Well, your retirement might last 10, 20 or 30 years and there’s no reason to think that inflation will disappear. Ensuring assets are generating enough cash flow and consistently beating inflation should be considered.

Another significant peril is untimely (both sudden and drawn out) death. Heirs might face emotional and financial difficulties when a loved one passes away. Will lack of spending money require a child to hold too many jobs during high school preventing them from earning high marks which hurts their chances of going to the college of their choice? There might also be the dilemma for an older child who has to hold odd jobs in college. Does this thwart their chance of good grades and thus prevent them from landing a job with the employer of choice? These are all difficult questions, but the risks must be examined today to properly plan for tomorrow. There are many financial oriented precautions that can be taken now which can better your heirs’ quality of life.

There is also the risk of a debilitating medical condition which drains the family resources so it not only affects the family’s current situation, but their future as well. When one stops to think of various circumstances: cancer, stroke, ALS – there are numerous diseases and conditions which rob us of loved ones over long periods of time. Prolonging their life is essential to all of us, but their care will require money. These are tough and sensitive issues, but the sooner you begin talking about them now and begin proper planning the more prepared you and your heirs will be.

A final risk involves utilizing too many providers to “diversify” or ensure you are getting the best advice. One advisor for insurance, one for 529 plans, one for asset management, one for tax advice, etc. This can lead to disjointed, biased, tax inefficient and expensive solutions.

So, which of the above risks poses the greatest threat to one’s future? We need to ask ourselves which one have we focused on the most and which one have we avoided and only then will we be able to properly plan for the future.

Running a financial plan to determine the “family benchmark” ensures that your assets are earning the required rate of return to provide the life you want to live. This assumes that you have a risk management plan. Like any company, a family needs to address its threats. As a financial advisor, I believe it is critical to provide as many risk management solutions as possible, so that clients can capitalize on synergistic solutions, not to mention cost savings. Having one cohesive plan that addresses multiple scenarios, will always be in the client’s best interest and will allow them to live the life they and their families will want at retirement.

Next time you sit down with your advisor(s), ask them how they are not only helping you grow your assets, but how they are protecting your assets. We’ve heard the saying, “a chain is only as strong as the weakest link.” A comprehensive plan, which includes integrated tax, investment and risk planning will help ensure that you live the life you and your heirs want to live.

Adam G. Yofan is Vice President of Alpern Rosenthal Financial Services LLC. He can be reached at 412.281.2501, ext. 390 or at ayofan@alpern.com.