What happens when things go sideways in your financial journey? From market fluctuations, healthcare costs, and unexpected expenses, Ben and Adam talk about how we plan for worst-case scenarios. This allows clients to feel prepared no matter what life throws at them and they can continue living the life they want to live 📈💼🤔
Tracking # T006562
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For more insights on everyday financial planning questions, go to www.haasfinancialgroup.com
Contact Us:
Email us at info@haasfinancialgroup.com
Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.
What happens when things go sideways in your financial journey? From market fluctuations, healthcare costs, and unexpected expenses, Ben and Adam talk about how we plan for worst-case scenarios. This allows clients to feel prepared no matter what life throws at them and they can continue living the life they want to live 📈💼🤔
Tracking # T006562
Thanks for listening!
If you want to be notified when the next episode will be released, you can:
For more insights on everyday financial planning questions, go to www.haasfinancialgroup.com
Contact Us:
Email us at info@haasfinancialgroup.com
Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.
Benjamin Haas 00:03
Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now!
Adam Werner 00:26
Hello Ben! Time for another podcast.
Benjamin Haas 00:31
Yeah, let's do it. We kind of teased this, this is the third of the series really around, I guess how we do planning. Today being an interesting one as the title is going to be planning for worst case scenarios. This may be the more emotional side of the actual planning, right? I thought to kick it off, if I made a list of things that are made better by worrying, and I thought I'd share that on the podcast here.
Adam Werner 01:04
What's on your list?
Benjamin Haas 01:05
There's nothing there. Right? Nothing is made better by worrying and I'm glad we can chuckle, but the reality is a lot of the things that we talk about and a lot of the moments where we're called to help somebody is when they're going through a scary transition or they're having to make scary decisions. So part of what we need to do is acknowledge that, you know, hold a hand, but then planning, we want to share today is planning can be around well, then let's map out something that may not be comfortable or maybe scary and see how it goes. Then, we can work our way backwards from that point.
Adam Werner 01:46
Yeah, a couple different scenarios kind of running through my head when you said like, worst case scenario and there are some conversations that are the worst-case scenario around retirement can be potentially a little more like light hearted, worst case scenario, when you talk about like estate planning, that's a heavy conversation. So, I think there's obviously like, sliding scales but ultimately it does come down to, I think part of our role is to educate, provide perspective, get to give a little bit of context because I think we talked about this in a recent podcast when our brain just lacks information, it fills it in automatically with usually negative things, right? It's the what can go wrong or at least that's how my brain works. If I don't have clear insight, then I'm going to fill it with, well, this is how it's going to go wrong in my head, and then you just you start that cycle of just stress, anxiety, until you kind of at least for me, again, until you get to the point where you just have some clarity and you get some peace of mind, and you can kind of set things in a box and just, um, okay. Yeah, it's difficult, there's a lot of moving pieces and when it comes to these worst-case scenarios, just talking through it, I think, is maybe the biggest part just to get those thoughts out of your head.
Benjamin Haas 03:08
So, let's do some of that today as an example of how we would partner with somebody through this because you're right. We need to give ourselves permission to live in that worry a little bit, to explore what those actual outcomes or potential outcomes could be in an effort to move past it. So, we'll talk and I think there's some common ones, right? There's, the market goes sideways. It's health scares, what if I didn't save enough, my pension goes away, run out of money, like insert frightening ending to whatever you've been working towards. But let's go through it with the goal to kind of give people the permission to live the life they want to live today, having hopefully addressed in a way, some future scary thing.
Adam Werner 03:56
Yeah and I'll apologize if I like steer us off track here to start, but this just popped into my head. So, the idea of if somebody's worst case scenario is and I hope this is not the case, but somebody's worst case scenario is, my portfolio lost, you know, 25% and now I lost all this money. That's the concern, then I think there's obviously follow up questions. Why is that the concern? Because usually there's the underlying, and I think you kind of alluded to it, it's getting to the heart of what's actually the concern. Right? It's not necessarily that the markets are going down. It's what's the side effect of the markets going down? Do I have to go back to work? Do I need to do something differently with my expenses? Those are the things that we can control and those are the things that you know, a lot of people, we don't want to have to do those things, right if we've already in retirement or if you've already made the decision to retire, making those difficult decisions are difficult, right? They lead to things that you may not have wanted to have to do. So then, let's go through kind of what that is but I'll share I think everyone's definition of failure or that worst case scenario is going to be different. We're reviewing failure in the context of your financial planning, which we talked about in the previous podcast. Our planning tool defines failure as running out of money before the day that you pass away so we're looking at it purely from a financial standpoint. But for other people that may not necessarily be running out of money, it may just mean having to make an adjustment. That could mean having to go back to work after I decide to fully retire, that may be failure in my mind or if I have to greatly change my spending. Usually that's on the discretionary side, right? That's a failure to me if I can't be comfortable and live the life that I want to live, that's potentially a failure. So, I think there's levels of failure too, but I think we're mainly looking at this through like the catastrophic. I'm going to run out of money and then what?
Benjamin Haas 06:15
Yeah, and I'll piggyback on that and then we can move into like those situations or build the scenarios. As you're saying that, I'm thinking about a conversation yesterday with the client who was not wrong to bring up, hey, I'm still X amount of dollars, I'm hundreds 1000’s of dollars below where it was two years ago. And I need to better understand because I believe I know the situation, you're not going to need all this money, you're not spending this money right now. You're 76 years old, you're still working, you're still consulting, you're still earning income because you want to, but I need to, you know, put myself in those shoes and ask those questions. It's all about what he's passing on to the next generation. So, what is keeping him up at night? It's not the scary markets like you said, it's not just the markets, it's, well, what does that actually mean to him? This is less money that I'm now potentially leaving behind the next generations, plural. So, helping us understand your definition of failure, what that worry is, absolutely puts us in the spot of that, okay, how can we help? Let's build scenarios. What are those bad things? Do we still see in our planning tool successes, and for things that we can control adjusting? Which maybe you know, another way to put it.
Adam Werner 07:33
Yeah, so I think we've already said it like multiple times now. One of those scenarios is just bad markets and we're kind of in the middle of one right now. 2022 bad year for pretty much all investments, risk assets. 2023, an OK year for a very small selection of stocks and then bonds again, just kind of treading water where interest rates are spiking back and forth. Depends on when people are listening to this, bonds might be up, they may still be down. But the idea of below expectations when it comes to market performance, what's the worst-case scenario there? And typically, what that leads to is just needing to rely on your investments more heavily. If you're taking withdrawals, right, it just may mean I need to take down more withdrawals because the market is down or you have the unplanned expenses in life that always seem to pop up. And God forbid, that coincides with a situation where the market is down and now you're feeling that double whammy. That hurts in the very, very long term.
Benjamin Haas 08:48
Yeah, you're taking a step back. So whether it's bad markets, bad health, something goes away, employment, right, plans are built around saving. At some point, you don't have to do anything other than live off these investments and if people perceive a bad market, that help having to take more withdrawals, it's taking a step backwards. Very natural to have anxiety and worries over that.
Adam Werner 09:13
So, I’m distinctly, is it okay to get into an example situation?
Benjamin Haas 09:22
You do you pal.
Adam Werner 09:24
It's just so crystallized in my brain. You know, this question that you asked during a meeting was so timely and it kind of got to the heart of what's truly important to this client. It was the scenario around retiring maybe a little bit earlier than they had anticipated. But, as I think we talked about this before, to a lot of people just getting through COVID. Now feeling inflation, just the dynamics have changed in the workforce and he was considering retiring very soon. But it was still all of these well, what if this? What if that? What if I retire and the market goes down and you just ask the point of question, right? What's the worst-case scenario to you, Mr. Client? What’s the worst thing that you can kind of picture? And his response was, I may just have to go back to work but he was okay with that as the solution in his mind. The worst thing that could happen if the market goes down, then I just have to go back and earn to give my portfolio, my savings time to just stay even or hopefully to start to rebound. As long as that was a palatable answer for him and it was, then we've kind of put a bow on that. If that's the worst thing you're worried about and really, you're actually not worried about it, then we're good here. You can have permission to retire when you want to retire, knowing that if things hit the fan, you have other options, to kind of, well, the parachute cord that you can pull.
Benjamin Haas 11:11
Yeah, and I guess that's the easiest way for us to try to combat whatever worry there is. Let's actually go through those scenarios and if you're okay with the outcomes that come from that, right, and it doesn't have to be completely pass fail, there's gray area, right? In this scenario, I can go back to work, I can earn again, for some people, it's I can just spend less whatever it is, those all fall in the same camp to me. Just the idea of how to combat it. How does planning for worst case scenario help? It lets you actually see potential outcomes as opposed to feeling this risk of the unknown.
Adam Werner 11:49
As I said earlier, a lot of this process is really just exploring what those potential pathways are, that if we come to a fork in the road because something needs to change, well, then let's just talk about what those options are. Then you can kind of rank them or clients can quickly off the bat say, nope, I don't want to have to go back to work, what are our other options? And then ultimately, we're just hoping to build those Plan B type ideas that should they ever need to occur, we've already had the thought, right? We've gone through the thought exercise of what may work or may not, you know, in those different scenarios.
Benjamin Haas 12:35
I'm thinking the other side of this coin, it's not, I'm thinking back to this analogy of okay, something's keeping you up at night, people tell you like, go write it down, just get it out of your head. Another way for us to combat this is to do this worst-case scenario planning and help somebody realize that they may not need to do anything different. It's just playing out that scenario or maybe we like to call it mental accounting or bucketing, it's now just viewing what you have differently, to be able to say, yes, I mean, you use parachute cord this, this is our parachute bucket, this is money that we just need to view as our complete safety net. Just in doing that, in talking through that, feeling like you have this built in buffer. We've seen that really work for people to just feel better about their situation and therefore be able to take the next step to whatever they weren't doing because they were worried, right? I'm wasn't going to gift to my kids or I wasn't going to gift to charity, or whatever it would be.
Adam Werner 13:38
Yeah, that's the perfect example of where we can often be our own worst enemy, right? We can create these hurdles for ourselves that when you take a step back and maybe with some additional advice or expertise, just somebody who has a different perspective, and in this instance, right, it's us. We've talked to so many people going through this, we have some experience to rely on, where you know, this client may have built up this hurdle in their head, if my pension goes away in retirement because you know, the company is no longer solvent, right? What do I do? Where's my cashflow going to come from? How am I going to replace that? It's just like getting to retirement a second time, right? How am I going to replace that paycheck? And just being able to talk through it again, coming up with okay, if this happens, then XYZ is kind of next in line for our solutions. Then I hope it allows people just kind of put it in the box and hopefully not worry about it as much. Obviously, everyone to a certain degree has their control of worries, some better than others, but we hope that it at least gives some flexibility to not be as stressed. If, as you said, if there’s nothing that we would do differently, we still think you're going to be okay. It's just sharing that information and hoping that it does sink in.
Benjamin Haas 15:14
Yeah, and in this case, I love this example that you shared, like the pension going away. I mean, we both remember that high level of planning that we needed to do that now is the basis for our work every year with this client. It was taking the very next important step to not just go, hey, you paid us? We're the professionals, we say, everything's going to be fine so don't worry about it. That's not going to fly. Right? So, it is to open ourselves up to go, let's create, and this is where it a little creativity comes, it's putting ourselves in their shoes, understand their history with money, why this might be a stressor, why this might be a worry. It probably comes from some other past experience and now be able to, again, combat it. In this case, didn't need to do anything different, didn't need to save more. Don't need to do that but now we've mentally bucketed you know, assets in different ways to be able to allow them to live the life they want to live right now, and do what they want to do and still feel secure. If this horrible Plan B scenario came to fruition.
Adam Werner 16:17
Yeah, another one that just popped into my head when you said coming from the personal experience side of things, we hear from clients getting to retirement now or retiring, worried about health care and not necessarily just the rising cost of health care. But what if something bigger happens, I need long term care and I'm in a facility, I just need a higher level of care. We're seeing it's the sandwich generation that are still caring for aging parents, maybe still have kids or hopefully adult kids that are more independent at that point. But they've probably seen or have some experience with long term care or end of life health care and that's a big concern for people and it certainly can be a hugely impactful event to someone's finances. I mean, it's not cheap, everybody knows the cost of health care and especially long-term care is probably not going down anytime soon or ever again. But there are ways to potentially transfer some of that risk. So, just the idea of thinking all if I need long term care, and it's going to cost $100,000 a year plus, how am I going to pay for that sum? I know we've talked about this in other podcasts, sometimes it is just that mental accounting, if they're not yet retired, it could just be well, here's a type of insurance that may or may not necessarily solve the problem completely. Like, it's not just going to pay for every single cent of health care expenses, but it can greatly offset some of the costs and by the way, keep your other assets intact just by working, you know, an extra, whatever amount of time and mentally account for the cost that could come from that. We've seen that happen where it's just connecting those two dots, this is a concern of mine, long term care costs in the in the future. What can I do today to at least account for that possible scenario? What can I do? Is it save more? Is it buy insurance, whatever that may look like? Again, I think it's just talking through the options and trying to connect some dots so that at the end of the day, the client says, I'm worried about long term care, but now I have a plan in place or at least have options to go to if and when that should occur.
Benjamin Haas 18:41
Yeah, pass the risk, make it somebody else's problem. In this example that you're sharing, like planning for worst case scenario is now taking away that worst case scenario that I need this and don't have the money for it. Like, that is one that you may be able to just completely let go of, if you're able to just pay for the coverage. Yeah, I mean, are there other scenarios or do you want to kind of just button this up?
Adam Werner 19:08
I think I'm good. Do you have other scenarios?
Benjamin Haas 19:12
No, I think, hopefully we prove the point, though. I mean, part of life is just understanding that we can't know what is going to happen and that can be scary. But we want it to be clear, at least working with us, we can and we should still prepare for some of those things that may happen or outcomes that could happen. If nothing else, just be able to talk through it, even if it's a little uncomfortable so that we can if we need to just prepare differently and there's a lot of good that I think can come out of that for our clients.
Adam Werner 19:45
Yeah, and so I'll say one last thing. Sometimes it goes the other way to where may not necessarily be a concern on the client side. But that could be you know, you put the blinders on. I'm not worried about taking excess withdrawals or I'm not worried about the cost of long-term care and it may need to be us just raising that as a potential. Not as a potential worry but we would want to see a plan in place that should anything occur, that we still feel as good as maybe you do in the moment. So that those things don't come out of left field and now it's the will oh crap, we didn't plan for this, right? I wasn't worried about it when I was young and healthy but now here I am, I am worried about it and now it's too late to actually do anything about it. So sometimes it can work in reverse, where clients may not have a concern about it. But let's just check the box to make sure we go through the exercise and make sure that there's nothing that would need to change either.
Benjamin Haas 20:46
That's really well put because the point we're trying to make is it just helps us both, it helps the relationship if it's minimizing stress and the damage that can cause on your end. That's one thing, on the other side, it's helping educate us to know what options we can put in place for how we should talk about this when the next thing comes up that you're a little worried about, right? How you operate, how your rational brain works, you know, under good times and certainly some of the bad So, hopefully this is helpful, planning for worst case scenario is the other side of planning. You have goals or you have things that you want to get to do. Let's also make sure we're covering all bases if things go sideways, in your mind or in the plan. Okay, thanks. Well. Let's do this again sometime.
Adam Werner 21:40
I'd say maybe in like a week and a half.
Benjamin Haas 21:59
That sounds good. Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening!
Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.
Tracking # T006562