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When you need financial planning

In this video you'll learn:

  • how everyone can benefit from good financial planning;
  • about the times in life that professional advice becomes essential; and 
  • how having a good financial planner can help in a number of ways in retirement. 



Robin Powell: Hello there. It’s true that not everyone needs a financial adviser. But everyone can benefit from good financial planning. And there are some times in our lives when professional advice is essential. One of those is when we come to retire. Wade Pfau is a Professor of Retirement Income at the American College of Financial Services.

Wade Pfau: Retirement income planning is much more difficult than traditional wealth management. I like to use an analogy about climbing up a mountain: The goal is not just to make it to the top of the mountain, you have to get back down the mountain. And getting down the mountain is more dangerous. There is a lot more risk in retirement, there is a lot more potential to make irreversible decisions that could be very costly in the long term. And so, working with a well qualified financial adviser, who understands the retirement income problem, can do much to really improve a financial plan to allow for much more spending throughout retirement. It is very helpful, it’s a very complex task. Some people might want to do it on their own but they also have to think about surviving spouses, they also have to worry about cognitive decline. Having a good financial planner in place can really help in a great number of ways in retirement.

Robin Powell: So, how do you and your adviser go about devising a retirement income strategy? Well, first you need to find an answer to a very important question: How much money do you actually need to retire?

Wade Pfau: That is a difficult question to answer. If they have a good understanding about their budget and how much they want to spend, that makes the question a lot easier. I think it is important to really take into account all the assets that are available. Some of those assets will be income streams like pensions. But just figure out: "Ok, how much do I want to be able to spend? How much do I have from pensions or other income sources from outside my investment portfolio?" And then: "What kind of spending rate do I think will be sustainable from my investment portfolio?" And then you can calculate how much you need to save. For example, if you think you can spend at a 5% rate, you need 20 times what you want to be able to spend. That would become your target to try to achieve to allow for a transition to retirement.

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