The week I caught up with an old friend for lunch. I say “old” because that is what he claims to be.
He had just turned 50.
He had also just bought a motorbike, to realise a childhood dream.
A recent brush with mortality (fortunately not his own) caused him to take stock of his life.
He realised he was statistically closer to the end than the beginning.
Physically and mentally his best years were long behind him.
Professionally he had topped out, treaded water, then climbed aboard the consultancy gravy train.
Initially believing he had sold out and was now prostituting himself. Eventually realising that had always been the case, the only difference now was the transparency of the arrangement.
His long-suffering wife didn’t appear to like him very much. A weekly commute had long masked the symptoms, but there was no hiding the fault lines now that he came home every night.
They shared a past and current parental responsibilities. However their hopes and dreams for the future, hopefully spent together, were worlds apart.
- Moving abroad or taking in elderly parents.
- Retiring to the countryside or living down the road from future grandchildren.
- Retracing the Silk Road on a restored antique motorbike versus working into their seventies.
The weekly commuter existence had meant more absence than presence throughout the lives of his teenage children. Having grown up without access to his help and guidance when they needed it meant it was now neither sought nor welcomed.
He hoped they could become friends as adults. So far he had been more placeholder than parent.
If not now, then when?
As a kid, I remember my mother disparaging those “silly men and their midlife crises”.
Little blue pills to make them feel virile.
Trophy girlfriends to make them feel young.
Little red sports cars to make them feel fast.
Hobby farms or beach houses to make them feel rich.
Whatever the “impractical self-indulgence”, the goal was an escape from the crushing weight of ever-present responsibilities.
To make them feel alive.
Even back then I recognised there was an element of observer bias at play in her perspective.
Her friends were the abandoned wives and single mothers discarded in pursuit of a fantasy.
Or so the narrative went. Leaving them the innocent victims of foolish men seeking to recapture their youth.
My father would generally nod in apparent agreement, before escaping to his own hobby farm.
Less expensive than a divorce.
Safer than a motorbike.
I once asked for his take on those experiencing a “midlife crisis”. His simple response surprised me:
“if not now, then when?”
I would like to believe that he meant folks should put together a definite plan for how and when they will attain their hopes and dreams, rather than endlessly deferring them until “someday”.
I am pretty sure he did not mean folks should head to the local shops intending to buy a loaf of bread, and instead come home with a shiny new Tesla.
My friend was looking forward to the day, less than five years away, when he could crack open his workplace pension. Apart from the equity trapped in his heavily mortgaged home, that pension was his only asset of note.
This is one of those exceedingly rare occasions when doing something to somebody, rather than with them, yields an optimal outcome. Compulsory savings can be a wonderful thing!
Having witnessed him become increasingly jaded with his chosen vocation, I suspect his time in the workforce will end before then.
His plan for the remainder of his life consisted of quitting work, pay off his mortgage, and riding his motorbike to China. All told that might keep him busy for the first three months.
When I challenged him on what happens then, he mused about doing a PhD just for fun.
That might keep him entertained for a couple more years.
At this point, he faltered.
Eventually, he conceded he had nothing.
His best guess was to find some non-demanding part-time work for some undefined local charity.
When I asked whether that would be in a volunteer capacity, he wore the same kind of dirty look a parking inspector might receive when issuing a parking fine.
I observed that would likely involve doing the same type of work he did today, for a lot less money. He started to object, then realised that after a career spent plying his specialist trade, there wasn’t much else he could do that an employer might pay for.
The curse of over specialisation.
This plan will self destruct in 120 seconds
It had taken less than two minutes to demonstrate his vague retirement plans would keep him occupied for less than 5 years. That wouldn’t even see him through to traditional retirement age!
His wife, kids, or potential future grandchildren didn’t make an appearance.
His fitness didn’t rate a mention. Nor his health.
No thought was given to the likely need for aged care, either for his elderly parents or for his future self.
There was no estate planning, to ensure his loved ones were provided for and inheritance tax minimised. The life insurance policy he enjoyed as part of his consultancy package would cease the moment he walked away.
I bought him a large slice of chocolate cake for dessert, as an apology for holding up a mirror to his undercooked post-retirement life plans.
His hopes and dreams were fine, as far as they went.
The problem was all that was missing. The things he had not thought about. The known unknowns.
A plan for a plan
According to the ONS life expectancy calculator, my friend can reasonably expect to live another 35 years.
There is a 1 in 4 chance he’ll see his 94th birthday.
The odds stretch out to roughly a 10% chance he’ll receive a birthday card from the Queen.
Think about that for a second.
Those are better odds than my winning the lottery.
Or captaining the Australian Cricket Team.
Or appearing in the next Star Wars movie.
I wouldn’t bet my house on any of them occurring, but a 1 in 10 chance is merely unlikely as opposed to highly improbable or downright impossible.
A good financial plan should help attain hopes and dreams, as it those that make life worth living.
Nobody remembers or rejoices in the daily minutiae, yet that is how we invest the majority of our time. The time spent buying groceries. Stuck in traffic. Participating in conference calls.
A good financial plan provides a path to achieve a sustainably acceptable standard of living for the whole of a person’s lifetime.
Living large for the first 10 years, then subsisting on food bank donations for the next 40 years is a planning fail.
The adjustment from enjoying a six-figure annual income to surviving on the princely sum of £8,767 provided by the full state pension would be brutal and ego-bruising.
A good financial plan sets realistic expectations.
What is possible?
What is plausible?
What is likely?
What is required to achieve them?
Hopes and dreams differ from one person to the next. So do expectations.
This means there is be no “one size fits all” financial plan that will be appropriate for everyone.
However, there are some common elements that will apply to most people.
- There is a reasonable chance they live into the triple digits.
- Misaligned commercial interests burn money.
- Inheritance tax is largely optional.
- Churn is expensive.
- High fees are bad.
As for the rest, the answer is “it depends”.
Choose your own adventure
“Depends on what?” challenged my friend, around his mouthful of chocolate cake.
The list of questions I asked him wasn’t exhaustive, but they are all things that should be consciously considered when drawing up or reviewing a financial plan.
I’ve reproduced it below. In most cases, the question is followed by some examples to get you thinking.
- How do you invest your time today? (in a typical work week, weekend, and holiday)
- Which of these activities makes you happy? (socialising, family meals, gardening, pets)
- Which of these activities makes you miserable? (chores, commuting, dinner with in-laws)
- What activities would you do more of, if given the opportunity? (date nights, reading books)
- What activities would you skip if you could get away with it? (lawn mowing, car washing)
- What would your ideal non-holiday week look like? (no alarm, fulfilling, regular exercise)
Hopes and dreams
- What activities do you find rewarding, and provide self-satisfaction? (teaching, volunteering)
- What does your dream lifestyle look like? (living near grandkids, endless summer, ski-chalet)
- What experiences are on your “bucket list”? (concerts, living abroad, slow travel, vacations)
- Where do you hope to end up? (a country, a town, a street, a specific property)
- What do you do just for fun? What did you do for fun when you were a kid? (sports, hobbies)
- What are your short, medium, and long term goals? (get fit, learn the guitar, not die alone)
- What keeps you awake at night? (fear of running out of money, being alone, kids going feral)
- How much is “enough”? What is the bare minimum that would be acceptable?
- What is the backup plan if your family are unable or unwilling to assist you in your dotage?
- What would you do if you unexpectedly find yourself abandoned, divorced or widowed?
- What is your attitude towards risk? (play to win, play not to lose, not play at all)
- How much do you earn? (wages, salaries, commissions, bonuses)
- How much investment income do you make? (dividends, interest, rent, royalties)
- How much do you spend? (needs, wants, gifts, fun, taxes, investment expenses)
- What does it cost to be you today, to maintain your current lifestyle?
- How much of that cost goes away when you retire? (commuting, dry cleaning, lunches)
- What additional costs would be incurred to achieve your ideal lifestyle described earlier?
- How much, above your lifestyle cost, will it cost to tick off those “bucket list” items?
- What assets do you own? (businesses, collectables, home, investments, patents, vehicles)
- How much debt do you carry? How will it be paid off? (credit card, student loans, mortgage)
- Who is financially dependent upon you today? (spouse, children, employees)
- Who are you likely to become financially responsible for in the future? (elderly parents, grandchildren)
- Will your parents require financial support in their old age? Are you willing to provide it?
- Do you want to be able to provide “Bank of Mum and Dad” assistance to your children or grandchildren? (childcare fees, university fees, house deposits)
- What kind of legacy do you intend to leave? (inheritance, bequests, donations)
- Who will assume your responsibilities when you are no longer able? (supporting spouse, raising children, babysitting grandchildren, managing business)
- What are your success criteria for measuring a life well lived? (contentment, contribution to society, family, wealth)
- Who will care for you if you become ill or disabled? (spouse, children, friends, neighbours)
- Who would you like to attend your funeral? (old friends, distant relatives, former colleagues)
- How will you finance aged or nursing care? (reverse mortgage, sell assets, rely on the state)
- Do you know of any significant health issues that might impact your time horizons?
- Have you completed a legal will? An enduring power-of-attorney? A Do-Not-Resuscitate order? Registered to be an organ donor?
- Will your life insurance pay off the mortgage? Will your family lose you and their home?
- How do you want to be remembered?
- What would your eulogy say?
Managing the crisis
If your plan hasn’t considered all these types of questions, then you have some thinking to do. This is unlikely to be a comfortable process.
If you haven’t talked through the answers with your significant other, then you should do so. This will be controversial, as a lot of assumptions and disconnects about the future will be exposed.
If your financial planner isn’t asking these types of questions, regularly, then you should find a better planner.
Too many simply ask for your net worth and signature on a wealth management contract.
Their job isn’t simply to manage your money, nor to provide answers to these questions.
It is to help realise your dreams, and ensure alignment between your finances and your lifestyle.
Ultimately you are the one leading your life.
Setting your direction of travel.
Only you can make the choices necessary to achieve your desired outcome.
The one certainty is that if you haven’t given much thought to where you are headed, then you are unlikely to end up where you hoped to be, nor leading the lifestyle you always dreamed of during the journey.
- eMoney Advisor (2015), ‘60 Great Questions to Discover Your Client’s Deepest Motivations‘
- Gov.uk (2019), ‘The new State Pension‘
- Office of National Statistics (2019), ‘What is my life expectancy? And how might it change?‘
- Rumsfeld, D. H. (2002), ‘DoD News Briefing – Secretary Rumsfeld and Gen. Myers’, US Department of Defense