When people ask me what my job is, I tell them I am a Financial Planner to which I normally get two responses: (1) What should I be invested in? (2) Which is the best pension product?
I am not surprised by the way people react, as Financial Planning by its very nature is a relatively new topic to the Irish financial market. It’s also far easier to buy something like an investment or a pension than it is to take time to think about what you want to achieve before actually doing anything. Psychologists call it instant gratification, we live in a world where everything is immediate if not sooner. Add to this, the fact that, ‘buying stuff’ is made so much easier as most people have a credit card (and probably more than one), which means we buy now and elect to pay later which can also bring its own challenges.
For most people, the thoughts of creating a Financial Plan can be daunting. It means having to meet with a Financial Planner and be prompted to decide what their goals are for the rest of their life. As part of this process, they have to face the depressing and unbearable truth about planning for retirement, so the only rationale solution is ‘not’ to create a Financial Plan.
We live in an age where we have countless access to numerous sources of financial information via books, magazines and the internet. This very often leads to information overload and thus more confusion about Financial Planning. For most people, all they really want is to be shown ‘What to Do’
Many of the people we meet are at the top of what they do in their professional lives, yet when it comes to money matters, they are paralysed by the fear of making a mistake. Combined with the fact that they are busy people, spinning many plates and don’t have the time to spend researching financial solutions which often results in them doing nothing at all.
It’s not just the fear of making a mistake that holds us back, it’s also the mistakes we may have already made that we don’t want to own up to, ‘the skeletons in the closet’. For some, the thoughts of opening the ‘window envelopes’ that the postman delivers with credit card and bank statements can be stressful so they are left to pile up in the hope that something will happen to change the situation. What really needs to happen is a change in our behaviour, but that’s easier said than done.
When it comes to designing your Financial Plan, bear in mind that it really has nothing to do with what the financial markets are doing or the value of your house and everything to do with what is most important to you. It does not have to be an exact science, make the best guesses you can today, do not get too hung up on getting everything right as you can make amendments when things go off track.
On meeting with someone for the first time, we ask a few questions and do a lot of listening. One of the most challenging questions one can be asked is, Why is money really important to you? With a bit of teasing out, this question can serve as a statement of values, something that would act as a reminder why you work hard and save money. We want to help people identify what really matters to them, it can be a few things jotted down on a bit of paper or saved on your phone, upon which you can get very clear.
Once these have been identified, it’s then a case of going through the mechanics of the planning steps which are detailed below.
- Sorting out the “Shoe Box” or carrier bag full of the old policy documents and paperwork.
- Handing over time consuming administration to the experts.
- Secure electronic information.
- What does long term financial success look like for you?
Education and Behavioural Coaching
- Objectively trying to avoid poor financial decisions.
- Keeping focussed on systematic, structured investment paths.
- Acting as a sounding board.
- Providing an impartial second opinion.
- Implementing the Financial Plan.
- Recommending and sourcing the best possible financial solutions.
- Pulling together all financial resources in one place.
- Looking at future incomes and outflows
- Current and future expenditure
- Carrying out “What if Tests”
- Attitude to and need for risk.
- The Financial Plan
- The ongoing Financial reviews of the plan.
How Important Is It To get Started?
Irish Life published figures in mid – October 2018, here are their findings[i].
“The average member of a pension scheme with Ireland’s largest pensionfund provider is on target to retire with a pension of just 17 per cent of their salary, they analysed the company pension schemes that they administer (almost 1,400 across the State with about 38,000 members). It shows that, on average, people do not start saving towards a pension until they are 37 years of age.
They took the average current member, a male (58 per cent of the number surveyed), aged 43, earning €46,000, with six years of contributions to date and a current retirement amount of €45,000.
At current projections, this average member can expect a pension at retirement (aged 65) of €190,500, giving them an average pension of just €7,900, or 17 per cent of their salary.
If you include the State Pension at today’s rates (assuming it is still universally payable by then as it has its own looming funding crisis), this person can expect total retirement income of €19,900, or approximately 43 per cent of their gross working salary”.
It is worth noting that this survey only relates to a particular product, in this case a pension. However, is does highlight the reality that the vast majority of the population in Ireland are faced with the stark fact that they will not have the same level of income in the future that they enjoy today.
Simply by meeting with a Financial Planner, someone who will help you to identify what is really important to you and help you to make some choices, you will be better off than the vast majority of your neighbours, family or friends. Getting started is the key.
Author: Simon Thompson, Financial Planner with Accumulus Financial Planners. www.accumulus.ie
[i] Smarter Company Pensions, Irish Life July 2018