Implementing Life-Cycle Financial Planning

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bobcat2
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Implementing Life-Cycle Financial Planning

Post by bobcat2 » Sat Jul 14, 2018 11:25 am

Joe Tomlinson interviews financial planner Rick Miller about how he implements life-cycle economics in his financial planning practice. Lots of advice on several topics including risk assessment, projecting investment returns, annual spending adjustments, life insurance, disability insurance, life annuities, and LTCi.

Excerpt from article -
Miller earned his doctorate at the University of Chicago where he studied family economics, which includes lifetime planning. He taught economics at Johns Hopkins University for a few years, and then worked as a consultant and in the investment business. Through his work, he got involved in researching ways to extend investment management into a broader financial planning context, and this experience served as a basis for going out on his own and founding Sensible Financial in 2002.

Initially Miller focused on investment management for clients, but quickly recognized that clients asking the question – “How am I doing?” – were looking for more than a presentation about how their investments were performing against benchmarks. What they really wanted to know was how their overall financial plan would affect the way they lived. This led Miller to apply the economic concept of life-cycle planning to his work with his clients.
Tomlinson's conclusions.
Research on life-cycle economics and consumption smoothing has a rich history in economics stretching back almost 100 years, and more than a dozen Nobel laureates have contributed to the field of study. Unfortunately, this economics approach has not crossed over to the mainstream financial advice community. But, for the types of issues advisors encounter, it provides both a general unifying theme as well as sensible approaches for particular issues, and therefore deserves more attention.

Link to article - https://www.advisorperspectives.com/art ... 1563287591

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Horton
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Re: Implementing Life-Cycle Financial Planning

Post by Horton » Sat Jul 14, 2018 7:03 pm

Thanks for sharing. I always enjoy reading Joe Tomlinson’s work.

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Sandtrap
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Re: Implementing Life-Cycle Financial Planning

Post by Sandtrap » Sat Jul 14, 2018 7:08 pm

Thanks, Bob.
Particularly liked the explanation of the use of SPIA's/Annuities where it is applicable.
j
Annuities: Miller likes the mortality pooling benefits and simplicity provided by single-premium immediate annuities (SPIAs), but recognizes that these products are not a fit for all clients. For example, they can be good products for risk-averse clients without a strong bequest motivation, and they can help create additional risk capacity compared to using a TIPS benchmark. They are not a good fit for clients with ample risk capacity and a strong bequest motivation.


Miller’s client base tends to be affluent, so while he discusses SPIAs with most clients, only occasionally do clients buy them. For those cases where annuities are a strong recommendation, he notes that the annuity purchase decision typically takes place over an extended period of time, first with discussions that help clients understand the benefits of mortality pooling, and then with purchases over time so that clients can become accustomed to the benefits of an income flow independent of stock market performance

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cfs
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Re: Implementing Life-Cycle Financial Planning

Post by cfs » Sat Jul 14, 2018 7:56 pm

Thank You Mister Bob for the link to the article.

"He shows clients the dollar losses (not percentage losses) that their savings portfolios would suffer under these scenarios."

This is good and this is exactly what I have on my portfolio spreadsheet (dollar losses based on different scenarios).

Good luck, y gracias por leer ~cfs~
~ Member of the Active Retired Force since 2014 ~

heyyou
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Re: Implementing Life-Cycle Financial Planning

Post by heyyou » Sat Jul 14, 2018 11:26 pm

Past the end of the article, there is a link to other Joe Tomlinson articles in the archives of the magazine. Some of them are of interest, and some not.

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FIREchief
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Re: Implementing Life-Cycle Financial Planning

Post by FIREchief » Sat Jul 14, 2018 11:49 pm

bobcat2 wrote:
Sat Jul 14, 2018 11:25 am
Miller earned his doctorate at the University of Chicago where he studied family economics, which includes lifetime planning.

He taught economics at Johns Hopkins University for a few years, and then worked as a consultant and in the investment business.

Initially Miller focused on investment management for clients, but quickly recognized that clients asking the question – “How am I doing?” – were looking for more than a presentation about how their investments were performing against benchmarks. What they really wanted to know was how their overall financial plan would affect the way they lived.

This led Miller to apply the economic concept of life-cycle planning to his work with his clients.
With all due respect to this guy, it shouldn't take a doctorate, years of teaching economics and working as a consultant to "recognize" that clients are primarily interested in how their financial plan will affect their lifestyles. Isn't that what most on the forum are already focused on? :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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