Zeroing in on Wealth Management Goals
Wealth: Why does Goals Driven Wealth Management encourage specific rather than general goal setting?
Deiken Maloney: Every client has a unique set of goals. Goals Driven Wealth Management encourages clients to identify the size, timing and character of each financial goal. If we can understand each goal in more detail, we can add more precision to the asset management process and develop an asset allocation that focuses on meeting each specific goal over time.
Mary Ann Sisco: I think [late NFL Coach] Tom Landry said it best: “Setting a goal is not the main thing. It is deciding how you will go about achieving it and staying with that plan.” You need the specifics to create real action steps in order to be successful.
Wealth: How can Goals Driven Wealth Management assist in setting retirement goals to maintain a desired lifestyle?
Maloney: Goals Driven Wealth Management allows you to view your financial picture not only in the context of retirement, but also during years of employment. Properly planning for goals during years of employment is often what leads to entering retirement with confidence. Applying a detailed analysis of your assets and goals may provide reassurance that you are on track to meet current and future goals, or it may highlight where adjustments are needed. Identifying goals that need to be reduced is never desired, but it is always better to address these situations today rather than years from now when adjustments are more difficult to make and may need to be drastic to have a meaningful impact.
Sisco: Some of the first questions I ask clients are:
- What current expenses do you expect to continue, such as mortgage, utility and property tax payments?
- What expenses might increase as you move toward retirement, such as medical or travel costs?
- What expenses might decrease over time, such as purchasing less work-related clothing or eating out less?
Particularly with couples, it’s important to have an open dialogue about what each of their goals really means and agree to a collective vision. I hear from many couples, “When we retire, we want to travel more.” For one spouse, that might mean taking three two-week trips a year to four-star resorts, golfing every day and enjoying dinners out; for the other, it might mean spending more time visiting family. The cost to fund those two very different travel options varies greatly.
Wealth: How can clients set specific goals around protecting their family’s financial future?
Sisco: Family goals can be broad ranging, such as inheritance, education funding and providing for current living expenses. Clients should ask themselves specific questions regarding how they want to benefit family members now and in the future. For example, if you want to provide education funding:
- How much do you want to provide per year?
- For how many years do you want to provide funding (i.e., four years for an undergraduate degree or two additional years for a master’s degree)?
- How many generations will you include? Will you provide funding for nieces and nephews as well?
- Will you fund private schooling for elementary, junior high and high school, or will you focus simply on post-graduate studies?
Maloney: Setting goals needs to start with a full view of assets. Assets that are often overlooked include future cash flows, such as employment income, pensions, Social Security and other income. To remain conservative, you need to discount the value of any cash flow that may be in question, but a full picture of assets should be captured before setting financial goals. Itemizing all assets assists in adding precision around planning financial goals.
Establishing goals can be challenging, specifically when it comes to irrevocable wealth transfers, such as gifts to family members or charities. However, by focusing on assets first, you can then view these in the context of the size, timing and priority of your goals. Applying this level of detail to assets and goals often provides a clearer picture and more ease in establishing goals.
Wealth: How can clients set specific philanthropic legacy goals?
Sisco: The first step should be defining the type of legacy you want to leave. That definition will lead to the charitable vehicle or approach that is likely to best accomplish your goals, whether through outright gifts, a donor-advised fund, a private foundation or a charitable trust. Questions to help define your legacy include:
- Do you want to give during your lifetime, after you pass away or at both times?
- Do you want to get involved with a specific charity (i.e., a local branch) or give to a general cause, such as a national organization?
- Are you interested in funding brick-and-mortar, functional gifts, such as providing computers to or building a wing for a school? Or do you want to fund learning, such as an endowment or scholarship fund?
- Do you want to provide a lump sum amount or make multiple
contributions over time?
- Do you want to make an anonymous gift or gain family recognition for your gift?
- Will you involve your children and grandchildren? If so, how?
Wealth: How can clients set specific goals around future expenditures?
Sisco: This goal includes both major capital purchases and large expenditures in the near term. For example, if your goals include selling your business in the next year, you should probably plan for a large income tax bill you will need to fund come next April. Or, you might plan to purchase a vacation home or new boat, or even invest in a new business in the next year or two.
Regardless of the purchase or expenditure, consider certain questions:
- When will the expense arise?
- What will be the total cost?
- Will you make a one-time lump sum payment or installment payments over time?
- How long will payments continue?
Then you can come back to the dollar amount you need to set aside today in order to achieve the goal in the future.
Wealth: Should goals become more granular over time?
Maloney: Goals Driven Wealth Management is an iterative process. Goals and asset values change as time passes, so both need to be revisited and evaluated frequently to achieve success. However, the more granular we can be from day one, the more thoughtful we can be in selecting appropriate solutions to help achieve success in meeting those goals over time.
Wealth: What is the benefit of pinpointing specific goals?
Sisco: It will take some work upfront to go through this process and state your goals with a degree of specificity. But in the end, doing so pays huge dividends in confidence, quality of planning and a much greater probability of achieving your goals. We are here to assist you in that journey.
Deiken Maloney is a senior vice president and director of goals driven investing at Northern Trust.
Mary Ann Sisco is a senior vice president and regional wealth advisor at Northern Trust.