In my blogs I have repeatedly discussed how I believe financial planning is an essential part of the wealth management process. It is similar to the GPS tool in your car – you plug in where you want to go (what are your goals?) and it maps out how to get there. At RBC Dominion Securities we offer different levels of financial planning depending on the complexity of your situation, but the plan I most commonly use for clients is, appropriately enough, called myGPS. MyGPS stands for my Goals, Priorities and Solutions. I am going to walk you through its sections so you can see what information a plan gives you and how you can use it.
Click here to open the sample myGPS plan in a separate window.
In this fictitious plan we have a couple, Chad and Maria Starling who live in Fredericton, New Brunswick. The first step in the planning process is to gather all the pertinent personal and financial information which you can see on pages 2 through 7. Most of the information is very straightforward and just requires some digging with perhaps the hardest question being “What do you spend in living expenses in a year?” The Starlings own a business and so you can see that in their case their corporate information must also be gathered.
Once that information is input then we can present the output which is broken down into two main sections: Net Worth (pages 9 to 15) , which is basically what you own minus what you owe, and Cash Flow (pages 16 to 26), which shows what cash is coming in and going out each year. The information is presented in picture form for those that like a visual overview and table form for those that like to see the detailed numbers.
As I mentioned in the last blog, I find the net worth section very helpful to reference when doing estate planning as it gives an estimate of the assets you will have each year. The cash flow section is helpful when determining where to draw income from in retirement to meet your needs and maximize tax efficiency. It also gives you an excellent idea of how much you can afford to spend in retirement and not run out of money.
A financial plan will also evaluate your insurance needs and give you an estimate of whether you have enough saved for your spouse and/or dependents in the event of your premature death (page 32), and the impact that taxes will have on your estate (page 27).
The other section that clients find really helpful is the retirement analysis (pages 33 and 34). This section looks at the impact of both factors that we can control (retirement age and savings, how much we spend), and not control (inflation, market corrections, and how long we’ll live) and shows you the impact on your retirement plan.
Finally, the other great use of a financial plan is, once done, it enables you to do “what if” analysis (e.g. What if I want to upsize my home or buy a cottage – what will the impact be on my financial situation?)
Hopefully you can now see the benefit of financial planning and why I believe it’s an integral part of the wealth management process.