Date: To Be Determined
Updated: May 3, 2020
Financial Planning is a process involving many calculations, with a number of interrelated situations or scenarios, and a multitude of factors. However, the most difficult factor to pinpoint is longevity.
Currently in Canada, the average life expectancy is just short of age 83 (ladies still get a bit of an edge over the men). However, more and more, we are hearing of someone who is celebrating their 100th birthday. Unfortunately, only too often we are also learning of those who have left us much too early. The reality is, longevity is a moving target and a true unknown.
In the Financial Planning community, it is widely accepted that life expectancy is increasing, and planning defaults have moved from age 90 to age 95, and are likely to move to age 100 in the not too distant future. Eventually the differential ends up just being an anomaly for long term planning.
The real challenge is when one tries to determine a specific calculation to solve a specific question. For example, should one take CPP benefits at age 65 or earlier, or defer? It is possible to perform the calculations with fixed factors to obtain the most optimal solution, however
in application that practice is flawed. There are certain factors that just cannot be finite, and assumptions must be drawn. As mentioned earlier, longevity is definitely up in the air, as are future rates of return, income levels, tax legislation and the list goes on. The reality is that it
is impossible to make a guaranteed correct conclusion, simply because the input factors are ever-changing.
For that reason, Financial Planning is an ongoing process that needs to be updated and revisited on a regular basis. If your circumstances have changed and the projections from your last plan no longer seem in line then it is time to update your plan.
This is like using a GPS to help you navigate to a destination, but all of a sudden the pleasing GPS voice lets you know it’s “recalculating”. This could be because you opted to take a different route (your goals change) or there is a detour (maybe a change in tax legislation).
What is the lesson learned here? It is two-fold. First, it is important not to get too deep into the weeds when financial planning. There is most certainly a number of situations and scenarios that should be addressed, analyzed, and solutions provided. However, a laser focus on one specific calculation can often derail the positive effects of having an overall plan. Second, remember that a Financial Plan is a snapshot in time and it is more about the ongoing process and refinement than the document itself.
The financial planning process is more than just the numbers. It is about using years of experience and bearing witness to a vast number of client situations, to overlay those numbers, and to provide a compass for families to follow on their financial journey.
The one constant is that each family’s planning journey starts with the same action - engaging in the financial planning process. At Northland Wealth we utilize a Wealth Plan which addresses a wide array of financially related topics. It is never too early to start planning, however the longer you wait, the higher the likelihood that your previous actions, or lack there of, will not have sufficient time to be altered in order to have a positive impact. We look forward to hearing from you so that we can take the first step in mapping your financial journey.