like typing your desired retirement age into a robo-planner and following whatever the readout says you should do .
Alternatively , you can spend some time with an old-school road atlas before the journey begins , checking out the territory and the opportunities for detours — or even changes of destination if the trip doesn ’ t turn out as expected . This , of course , is more difficult than simply following the GPS . It ’ s easier to just take directions .
But what if life is becoming more fluid ? We might find it frustrating having a fixed route or destination ( where we say retire at age X , maintain income of Y and keep expenses regular and not exceeding Z ).
The alternative approach to planning considers direction over destination ( asking what you need in your life to be happy ), and taking shocks and detours for granted ( including career shifts and location changes ) instead of falling apart when they occur .
That ’ s all well and good , but how do you do this systematically and with actionable results ?
The Stanford Center on Longevity has tried to create a framework : the New Map of Life project , which it launched in 2018 . The center convened a cross-disciplinary body of researchers and experts to take on the problem of an aging society : It came up with a robust set of recommendations , including various ideas for new infrastructure and public program reform .
The New Map of Life requires a perspective on wealth management in the broadest sense , where wealth encompasses not only finances , but health , education and investing in the next generation .
Planning Versus ‘ The Plan ’
We don ’ t know what the next 30 days will bring , let alone the next 30 years . This creates a paradox : How can we plan for an unplannable future ?
If someone put a gun to my head and gave me five seconds to answer that question , I would probably say that we should use what ’ s called the “ personal funded ratio .” This is a powerful tool that helps us communicate the fundamental uncertainty of financial projections to clients , while
To calculate your future obligations , desired spending , and how much you need to save or invest , you need to understand what is important to you .
reassuring them that they are still OK . You may be more familiar with the ratio under another name : the “ resources / claims ratio .” In practice , it allows a client to gauge their financial situation by comparing what they have with what they owe , factoring in the discounted present value of future income and expenses as well .
The Personal Funded Ratio
The ratio is a way for clients to check in after life has thrown them a curveball ( if , say , they have a new child or a new dependent or they ’ ve suffered a business failure ) and see how things have changed . They can still make plans , as long as they never stop updating them .
But there is another important aspect to the ratio — it forces a conversation about meaning .
Money has a function that goes beyond simply putting a roof over your head ( just as financial planning — and life in general — is about more than avoiding insol-
Personal Funded Ratio
Resources
Expected Additions
Current Investments x1.3
Claims
Desired Spending
Necessary Spending vency ). Money is also a tool for making things you want to happen happen . To calculate your future obligations , desired spending , and how much you need to save or invest , you need therefore to understand what is important to you .
This can get complicated . For instance , what if your client has a spouse with differences of opinion about what matters , things that might not ever have been fully articulated ? Getting to these desires and resolving these conflicts should be the first step in the financial planning process .
There are many potential happy endings to a person ’ s story , even if only one or two of them turn out to be feasible . Knowing what constitutes a happy ending in one ’ s own specific case makes it possible to spot one when it comes around , or when a previous plan comes asunder .
If planning is done in this way — with readiness for the off-ramps , to extend the GPS metaphor — then those ramps , while inconvenient and stressful , are much less likely to threaten or derail a client ’ s happiness or sense of a life well-lived .
At the same time , no amount of excess retirement savings can make up for a deficit of meaning .
The Financial Tool Kit : Old And New
Some aspects of financial self-management never change . The old rules and guideposts on how to accumulate wealth ( for example , the importance of compounding and diversification ) are largely the same . So are the well-documented investing pitfalls ( such as volatility drag , tail risk , etc .).
While many things are within a client ’ s direct control , it ’ s no mean feat for them to navigate the rapids of an ungovernable
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