The Numbers are in and for what I paid I am less than amazed. My Disappointing Retirement Financial Plan results are mostly due to there being a huge disconnect between the financial planning industry and those who live a frugal lifestyle. I also see another trick being deployed. One that even the new fiduciary rules to protect investors can’t stop. This trick makes a big difference in the retirement financial plan calculation results as to the likelihood of long-term funding success.

The results were a little delayed as they had to be reworked. Due to what they call a misunderstanding in our projected funding needs.

This misunderstanding occurred even though I carefully printed out our yearly budget needs.  It included everything from day-to-day living expenses to travel and gifts. They took it upon themselves to add considerably to it. All because of what they said are normal spending trends.

I had to remind them that I didn’t make a huge salary during my career and was able to retire early at the age of 51. I think I understand what OUR NORMAL spending model is and that is the one that counts.

I had also included some one-time planned expenses for a home remodeling project, a trip to Hawaii this year, and replacing our primary car within the next year or two. That too was used as a basis to create a higher yearly expense-need. Which was added to our budget as “normal” for retirement spending.

Financial Industry Disconnect with Frugal Living

There is a disconnect between what the financial planning industry sees as “normal” and the way we live in our frugal lifestyle. That disconnect along with the deployment of their new trick caused our retirement funding results to only have a 55% success rate of not running out of money during our retirement.

Their “Normal Spending” misunderstanding added an extra $12,000 a year to the budget. An over 23% increase. That was then also indexed for inflation over our retirement in their final retirement financial plan success calculations.

After some back and forth I agreed to allow them to replace the $12,000 with $3,000 to be added to my budget as a worst case scenario. They reran the retirement financial plan calculations that was then reviewed at a later date.

My Disappointing Retirement Financial Plan Results

I had mentioned in a recent post “Is it Worth Paying for a Financial Planner?” that I had paid $1,100 to have them look at everything. Then for them to come-up with a comprehensive retirement financial plan when looking at mine and my wife’s combined portfolio. My expectation was that they put a plan together that is better than I could on my own.

In the end I felt let down and disappointed. It was for the most part ho-hum and as far as I am concerned any investment actions and moves that were recommended to be taken now should have been covered under my existing wrap-fees that I pay for my portfolio management.

I have under 2 years left on my SEPP 72t arrangement  that sends me a check each month to fund a large part of my early retirement.  I knew that there would be reasons to delay making any major changes or plans until after that expires.

That said here are the high-level highlights of my retirement financial plan:

Once my SEPP is over and IRA withdrawals are penalty free, finalize set-up for my retirement income structure.

Stagger the risk of our accounts to set up a steady income stream while protecting against market downturns.

The target amounts listed below can be adjusted if income needs change (i.e. sell to downsize our home). The structure below is in place so if our portfolio suffers a loss, we can draw down cash and give our investments time to recover.

• Keep 1 year of withdrawals in cash.
• Keep a 2nd year of withdrawals in short-term bonds.
• Invest 5 years of withdrawals in a medium term portfolio. Use this account to replenish cash as it is withdrawn (interest, dividends & systematic selling).
• Invest remaining funds for the long-term.

Sigh………

There were some investment change recommendations and a call to have me put my cash reserves under their control. I could request cash from them as needed and they would send me a monthly check to cover budget expenses above what my 72t funds me with.

That was recommended to get us used to living on a budget and used to living within a monthly allocation.

HELLO! I think we can handle that just fine.

I more or less paid $1,100 to tell me what I could have done myself. The juicy details that I had hoped these professionals would have supplied are on hold for a couple of years until after my SEPP 72t ends.

After adjusting their $12K budget misunderstanding my final results now show a 78% success rate of retirement funding. However as I will explain below that is because of their little trick that seems hard to get them to shake.

Financial Advisor’s Retirement Financial Plan Trick

So what is the trick? Their retirement financial plan trick is this. Everyone will live to age 100. Or at least that is the only way to run the numbers. Also assume maintaining the same spending rate with inflation until the end.

OK, I get it. I understand why that might be the advised way to run everyone’s numbers. In reality I think it only causes many financially responsible people to delay retirement and/or over-save for retirement.

I say financially responsible people because those who haven’t saved much are so far off from having enough for a fully funded retirement that it doesn’t matter what age is used.

Use Realistic Longevity Numbers

With the first run of our numbers and their mistakenly inflated budget I pointed them to what I had supplied about family longevity. My father had the record age for men in my family at age 70. We have an issue with cancer that seems to run in the family. On my mother’s side men were even worse off but for reasons related to WW2. So longevity unknown. The Federal actuary table  predicts for me age 81 which I think would be a fair number to start with and to round-up from.

My wife’s grandmother and great-grandmother on her mom’s side lived independently until just before age 90 and both passed soon after with a few months in nursing care. On her father’s side her grandmother only lived until her early 80s. The Federal actuary table predicts for my wife age 84. Far from age 100.

With a corrected budget model already in place and having them rerun the numbers with age 90 for me (of which I believe is a stretch) and 95 for my wife our calculated success rate through over 600 investment cycles on their proprietary calculator now came up at 100%.

What about keeping a constant spending rate?

The other trick is taking a stance that spending will stay at the same level plus inflation throughout retirement. I truly believe based on what I have seen with our parents and grandparents that spending significantly drops as we age. A study by Ty Bernicke, CFP  fully details this issue. Our world shrinks and we just don’t feel like putting up with all the BS or health issues to travel. People also don’t seek out entertainment like we do when we are younger.

There is something to be said of medical cost rising and filling that decreased spending void but that isn’t a sure thing. Someone could also make the case of including a new Global Warming homeowner’s insurance policy cost to our budget or any other guess at what other future costs will come to us in retirement requiring us to pad our savings even higher.

Is There Any Value to my or anyone’s Retirement Financial Plan?

I think there is some value because it does add a second set of eyes and a professional view of what we want to do. I run my numbers through the free online Monte Carlo type retirement calculator FIRECalc  using different retirement lengths, spending, and investment strategies and see very promising numbers. It uses over 100 investment cycles in its calculation.

• When paying for a retirement financial plan we also must have some financial sense so that CFPs don’t take the road of applying generic social norms to spending if we are people who aren’t into unbridled consumerism.
• We have to be proactive and challenge any CFP assumptions that may automatically be taken that are not necessarily true for us. In my case age 100 calculations.

I believe when digging through my retirement financial plan results that I can see some value even though nothing specific is being detailed or established for another couple of years.

That said, I don’t feel that what I did get warrants a $1,100 price tag. I will definitely not be paying them again for another retirement financial plan anytime soon and will argue that much of what they did tell me should have been covered under my wrap-fees. I explained my feelings over the results and they are keenly aware that I know enough that they cannot just meet with me on auto-pilot

Final Thoughts

If we are going to pay for a retirement financial plan then it is important to understand what our retirement lifestyle is really going to be. I have a few years of early retirement under my belt so I could easily call-out my financial advisor on their spending assumptions and calculation errors.

Having a realistic grasp on life longevity is another key factor for a solid retirement financial plan. Too long and even though it is a nice thought it may cause delaying retirement or other changes that negatively impact our retirement plans. Too short and without careful monitoring we can run out of money before we run out.

I am not taking a position that CFPs default to age 100 in their retirement financial plan calculations because of some sinister plan. Although it has crossed my mind that having as much money as possible for as long as possible under CFP control does reap higher yearly wrap-fees for the financial planning industry.

Developing a retirement financial plan is serious business but not an exact science. There are many unknowns. It should be based on sound personal details and logical assumptions.

In the end it will be up to us to make it work and will need constant monitoring over the years.

Have you ever paid for a retirement financial plan or plan to in the near future?