Life-Cycle Financial Planning

Your client’s career, family life, health and finances often take unexpected turns as he moves from early adulthood to retirement. Help him navigate this sometimes perilous path by developing the right financial plan for each stage of his life.

By Lisa Wahlgren

Life-cycle financial planning is based on a simple precept: Life tends to progress along a series of stages, and the portfolios of your clients need to be structured around the constraints and opportunities inherent within each of these stages.

Typically, life-cycle financial-planning models progress toward a 180-degree turn in terms of financial risk tolerance—from young adulthood to retirement, when the balance of aggressive to conservative assets is reversed. This means that clients in their early-earning years tend to have a higher tolerance for financial risk than retirees who are in a distribution, or capital-preservation, phase of their financial life cycle.

Advisors bring an added dimension to the planning process when they point out that careers, corporations, industries, marriages, family life, health and nature often take unexpected turns.

Life-cycle financial-planning models can serve as an invaluable guideline for making solid asset-allocation decisions. The problem, of course, is that fewer and fewer clients are fitting into an established mold. Some clients are already well aware of this; others are expecting that their lives will progress down a predictable path. In either case, advisors bring an added dimension to the planning process when they point out that careers, corporations, industries, marriages, family life, health and nature often take unexpected turns. The key is to build flexibility and contingencies into the financial plan.

Confronting commoditization
Further complicating the life-cycle financial-planning process is an increasing trend toward commoditization. Indeed, frequent coverage of life-cycle financial planning in business publications and programs over the past several years has led to the proliferation of models designed to facilitate the process. As a result, many consumers now have widespread access to a broad range of life-cycle financial-planning tools.

With a little bit of knowledge and a willingness to input basic income and demographic information, consumers can tap into a range of resources available from the internet and come up with a financial plan that is based on where they are in their life cycle.

A Google search on the words “life cycle financial planning” yields 28.7 million sites that offer untold templates and techniques for do-it-yourself money management and asset-allocation strategies. Among them: life-cycle funds that automatically adjust asset allocation over time to manage risk as an investor moves from young adulthood, to middle age to retirement. With a common goal of first growing and then later preserving principal, life-cycle funds tend to contain a diversified mix of stocks, bonds and cash. But for all its usefulness, the internet lacks one critical element: you.

“What the internet can give you is everything,” says Michelle L. Hoesly, CLU, ChFC, principal of Capital Resources in Norfolk, Va., and a member and past president of NAIFA-Norfolk. “But an advisor gives you what you need and what’s relevant to you.”

“Anybody can crank out a financial plan these days,” adds Andy Lord, CLU, ChFC, owner of Essential Planning in Portsmouth, N.H., and a member of NAIFA-New Hampshire. “You need to take it to the next level and allow clients to own the process. It’s hard to do that over the internet.”

Life-Cycle Financial Planning Your client’s life stages can be divided into early earning, established earning, preretirement and retirement. The financial portfolio of your client should change over time, depending on the life cycle he is in. To ensure success in helping your client, develop a high level of personal branding, act as your client’s consultant and help him build a flexible plan.

Powerful personal branding
While “taking it to the next level” means different things to different advisors, personal branding, combined with a distinct level of consultation, expertise and support, is proving to be the essential component of a new era in life-cycle financial planning. In Lord’s case, it means serving as “a breed of financial psychotherapist,” committed to empowering retirees so they can grasp the potential of their retirement years, he says.

For Jim Silver, ChFC, principal of Silver Investment and Retirement Services in Framingham, Mass., and NAIFA-Boston member, playing the role of “half professor, half rabbi and half talk show host,” has proven to be an effective formula. During his one-hour, afternoon radio show, Silver says he responds to call-in questions from people in every age group. Among the issues that he continually emphasizes is the need for the right asset-allocation formula based on a client’s circumstances and stage in life.

The financial counselor
After more than 28 years in the business, Hoesly’s role has evolved from a financial advisor to that of a “financial counselor,” she explains. During critical points in every life-cycle phase, “I consult with clients on a wide range of financial areas. Clients increasingly need someone who can help them think through financial decisions and refer them to other professionals, as needed,” she says.

Branding himself as a “lifestyle coach for retirees” Gregory Gagne, ChFC, with Affinity Investment Group, LLC, in Exeter, N.H., manages to stay in front of his market through ongoing seminars that he advertises in local newspapers. Gagne, who is immediate past president of NAIFA-New Hampshire and a member of the Million Dollar Round Table, has also co-authored a book on the subject, titled Asset Protection in Retirement: Avoiding Financial Disasters Caused by a Nursing Home Stay.

Solid foundation
Barbara Culver, CLU, CFP, ChFC, president of Resonate, Inc. in Cincinnati, Ohio, and a member of CAIFA, agrees that within the realm of life-cycle financial planning, “advisors need to expand the range of services that they offer.”

Nevertheless, she contends that a life-cycle planning framework remains a critical “foundation or starting point for building an individual blueprint around money for each client.”

The cycles of life
Recognizing that different advisors and various planning models apply a range of names and dividing lines for the stages within a client’s life cycle, Culver has identified four basic phases. During the initial interviewing process with a client, she determines the degree to which the client fits within or deviates from one of the following phases:

• 20s to 35-40s (early-earning stage). During their postcollege years, clients are often paying off college loans while learning how to handle cash-flow issues and budgeting. They are focused on short- and medium-term savings objectives, perhaps to buy a car or make a down payment on a home. If they have children, they might have begun to think about a college fund for these children. They also have a high level of risk tolerance for long-term retirement savings.


• 35-40s to 55ish (established-earning stage). Saving for their children’s college education becomes paramount during this phase. At this point in a client’s life cycle, the percentage of equities in the portfolio begins to ratchet down. Advisors need to ensure that there is the right mix of international, domestic and emerging-market investments, depending on current cycles.


• Preretirement phase. While many clients are dealing with a range of financial issues resulting from a second marriage, this is the time to begin thinking about legacy planning and to position assets more conservatively.


• Retirement. As clients enter the asset-distribution phase of their life cycle, cash-flow issues once again become a primary focus. Long-term care insurance needs to be addressed if it has not been already, as well as other health issues. Many clients are looking at life insurance as a means to avoid estate taxes or to create an estate to leave as a legacy. Planned philanthropic giving is among the end-of-life issues that clients address as they examine what they want to spend, share and leave as a legacy.

Determining that a client does not fit within the general description of a particular phase can be even more important than determining that he does, Culver says, pointing out that the young inheritors with whom she works do not.

An integrated approach
The critical next step, Culver asserts, is to help clients understand the interconnectedness of “who we are as people and the decisions that we make about money.” A strong proponent of client-centered, values-based financial planning, Culver explains that when advisors work closely with clients to understand their beliefs, values and guiding life principles concerning saving, spending and sharing, it’s possible to create a financial plan that is integrated into who they are as people. Otherwise, “it’s the planners who plan, based on assumptions, or a desire to achieve the highest commissions,” Culver says.

To get to this point, Culver asks clients a series of “profound” financial questions. Here are some of them:

• What’s the most important lesson about money that you’ve learned so far in life?
• If you could pass on one lesson about money to your children, what would that lesson be?
• Who taught you about money?
• Growing up, how did you see money used? How does that have an impact on your relationship with money today?
• What are the three best things you have ever done with money?
• What are the three worst things?
• Is that relationship empowering you or hindering you?
• Over the next three years, what needs to happen financially, emotionally and spiritually to get you to where you want to be?

“We find that when clients are able to understand and work around the unconscious beliefs that they do not realize are controlling their behavior, they get more focused and get better results,” Culver says. This is particularly important when working with couples.

Personal branding, combined with a distinct level of consultation, expertise and support, is proving to be the essential component of a new era in life-cycle financial planning.

“Acknowledging that both have valid points and then finding a way to work through different positions without either giving up a principle, is the key to getting couples to fully accept a financial plan and take ownership of it,” Culver says.

Essentially, values-based financial planning is a further drilling down of the life-cycle financial-planning process, she explains.

Broadening the scope
Understanding and being connected to a broad range of financial issues that affect clients at a particular phase in their life cycle is a powerful market position. To an increasing degree, life-cycle financial planners are involved in the bigger picture of their clients’ lives.

This could mean being an expert on the new Medicare drug plan, being familiar with all of the assisted-living facilities in a community—or being able to refer clients to someone who is.

When Hoesly recently found out that the grown daughter of one of her retired clients did not carry health insurance, for example, she felt compelled to stress upon her clients the potentially devastating impact that situation could have on their own financial security.

Conversely, Lord says that as his retired clients face a diminishing capacity to take care of their financial affairs, he tries to get their children engaged in the process. Having specialized in the senior market for the past 12 years, Lord says that it’s important to recognize that there are distinct subcycles of seniors who have particular planning needs and concerns:

• Recently retired clients
• Clients who have settled into retirement
• Those who are in a state of physical or mental decline

Lord says that his recently retired clients tend to be “unaware of the power of their savings and their capital.” Generally speaking, retirees grew up during the more fiscally conservative, post-Depression era. As such, they are “hardwired not to feel financially secure.” The first goal is to help them transition into a successful retirement by showing them that they can afford to make gifts or give money away.

Values-based financial planning is a further drilling down of the life-cycle financial-planning process.

It’s also important to note that with longer life expectancies, the financial-planning horizon during retirement may well span three decades. For this reason, more advisors are maintaining a growth component in the portfolio of their retired clients.

Gagne points out that the primary factor that distinguishes this phase from the accumulation phases that precede it is that the goal of making and growing money is no longer the end game. “It’s the starting point,” he says. “We look at what is going to happen to their assets down the line, and we manage issues such as estate taxes, ease of transferring money, succession planning and protection of assets.”

The importance of careful planning during this phase cannot be overestimated, Gagne emphasizes. He frequently points out to his clients that “the last thing you want to do is get the ball to the one-yard line and fumble.”

Lisa Wahlgren is a regular contributor to Advisor Today.