Insight: Holistic Financial Planning

“Do I have enough money to live the life I love, for the rest of my life?”

This, really, is the only question. How can you enjoy your life, your hobbies, your family, your children, your children’s children, your travels, your charities, your humanitarian efforts, and your simple pleasures in the way that you want, forever? How hard will you have to work? How much money will you need to have, in order to make living the life you love happen? How can you do it quicker, cheaper, and easier?

What happens if your investments perform better than expected? Or worse? What happens if you become disabled? Or die early? Or die late? Or need care? What happens if taxes rise? Or interest rates rise? What about inflation? How much do you need to educate your children? How can you cut taxes? Is it worth it to refinance? What’s the best way to save for retirement, a trip or a second home? What should be financed? What should be paid off? Do you have enough insurance or too much? Does your will operate correctly? How can you fix it? How do you grow your business? How do your business financials look? What can you glean from the financial data? Can you sell your business? To whom? For how much? When? How long do you need to work?

Completing the process of holistic financial planning is the only accurate way to answer these questions and not all financial planning tools are created equally. To be accurate, the tool must be based on Monte Carlo (multi-variable) probabilistic analysis. In some ways Monte Carlo analysis of financial instruments is similar to the stochastic models used by insurance companies to try to determine the probability of potential outcomes with inputs of random variables. For instance, if you retire at age 55 and spend $5,000/mo, with an investment portfolio return of somewhere between -10% and +10%, and inflation somewhere between 2% and 5%, what is the likelihood that you will run out of money before you die?

These answers would be nice to know BEFORE retirement, wouldn’t they?