We’re Broke! Why Do We Need a Financial Planner? Part 2

Once you have made the commitment to achieving financial independence and have selected your advisor, the next step is the discovery interview. It is at this point that your planner will be attempting to ascertain how you feel about money. While that may sound pretty straightforward, money is a highly charged matter for most of us; it has come to represent many of the key structures of our lives—like security, safety, power, prestige, independence, and even love. In American society, money—how much we have, how we earn it, and how we spend it—has become a stand-in for our moral character. It’s no wonder, then, that the act of putting a plan into writing can be a complicated and emotional process, especially when you are attempting to merge two visions into one.

Ohmer employs a construction analogy to describe the challenges which will emerge for a blended family at this stage of the game: up to this point, each of you has already broken ground and built a foundation for your financial lives. Since you have been working on that foundation for a number of years, building wealth (or not) according to your values and goals, it may be difficult to move. He likens the transition to a remodel; not only will parts of the existing structure need to be dismantled, but rebuilding your shared foundation will be more challenging, in many ways, than it was to build from the ground up.

I asked both Ohmer (john.ohmer@lpl.com) and Bagdasar (nbagdasar@wradvisors.com) whether it was ever advisable for a blended family to maintain separate financial plans; their answers reveal two distinct philosophies at work. John says no; in fact, he thinks it’s the worst thing you could do. The planning process is about empowering each partner to leave their separate site (though not their vision) behind, and begin to build a shared life plan. This is the time to reach consensus around specific goals and assets, and your financial planner will be an invaluable guide on that journey. Ohmer suggests that couples might discuss separating specific assets for a particular purpose, like education or travel, when the time is right, but the focus in the financial planning process is on collaboration, and the intangible reward to that is the relief couples can feel when they finally get on the same page, financially speaking.

Bagdasar, on the other hand, feels that separate portfolios might be appropriate when partners have dramatically disparate risk tolerances and/or financial goals. She tells the story of one blended family where it was necessary to create three financial plans—one for her, one for him, and one for them. Not only did he have a greater tolerance for high risk investment, but they had very different visions for their children’s educational future. He was raised in a family where he and his siblings had all gone to private university, and their parents had shouldered 100% of the cost. She had attended the state university, and paid many of her own expenses. He felt obligated to give his children what he had been given, but she felt that the state university was an excellent option. She also believed that her children should take some financial responsibility for their education, as a way to learn responsibility and gain independence. In this type of situation, it’s understandable that neither felt it was necessary or appropriate to compromise, and a separate college savings plan was created for each set of children. This is just one of many ways that your personal values will impact the course of your financial plan.

As my final question, I asked how the current economy affects the need for a financial plan. Both John and Niina agree that regardless of how you decide to manage your assets now, it is always necessary to have a shared vision and financial plan for your retirement.
Remember what John said— you are never too young or too poor to start saving. He is particularly adamant when it comes to instilling the habit of saving in your children, hopefully by modeling that behavior yourselves. Ohmer further suggested that the economy is less a factor than the current social paradigm shift—away from the days of guaranteed retirement income sources, like social security and 401K’s—and toward reliance on personal resources. In past generations, those guaranteed resources could be counted on to replace one half to one third of your pre-retirement income, but that is no longer the case. Even local and state government pension plans, renowned for their generosity and stability, will be completely redefined, as declining tax revenues make it impossible for them to meet their obligations. Corporations too, will be abandoning their private pension plans; as the number of retirees grows, demand will eventually exceed the value of the corporation.

In this environment, Ohmer insists that the greatest gift a parent can give to their child is financial independence. That doesn’t mean that you have to be independently wealthy yourself, but only that you are working in that direction and encouraging them to do the same. He recommends opening a Roth IRA for your children, and once they are employed, encouraging them to contribute monthly. It is equally important to teach them the discipline to leave that money alone. As they begin to see their investment grow, it becomes a self-motivating activity. Just imagine, if they have 50 or 60 years of saving ahead of them, this investment will be an integral part of achieving personal wealth and independence.

Ohmer warns us that “everyone is leaving the party”. It is up to each of us to achieve our own financial security. And yet, despite the plethora of dire predictions, many of us are still in denial. Those who embrace the coming changes and plan for them will be light years ahead of others in terms of achieving their financial goals. Don’t get caught unawares; make plans now to protect your family by seeking the advice and support of a financial planning expert.

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