Recently, I considered writing an additional blog about basic retirement planning. As my thoughts began to solidify, I realized that “planning is planning,” and how many similarities there are between business planning and Retirement Planning. Since my career was spent practicing dentistry, I’ll use this business example to help explain retirement planning concepts and their necessity.
Initial Appointment (General Information)
Usually, my first appointment with a new patient (comparable to a self-appraisal in retirement planning) consisted of sitting down with the patient, introducing myself, and obtaining basic information. My concern here was getting baseline information, and formulating an opinion about the general status of each new patient.
In retirement planning, even before specific information is pursued, it’s necessary to evaluate and write down general information that will help in the retirement planning process. General health, marital status, work status, number of children, homeownership, and general information of this nature will help paint the bigger picture about the general welfare of a person or couple.
In both professional and retirement planning this general information is important in getting an overall picture of the person and their general situation (even if that person is you.) How old is the person? Is the person single or married? Does the person have a family? What does the person do for a living? How long have they been working at that job? How many years have they worked? Does the person have specific medical problems?
There was a list of questions similar to this that I went through with each new patient. The questionnaire was something the patient could have filled out individually, or could have been completed by one of my staff members. But, I felt it was important to evaluate each patient personally. I recommend that each person sit and write down general information that will be pertinent to their own planning process. General information for someone who is 25 years old will be very different from someone who is 65 years old. Someone who has significant medical problems and different longevity prospects differs from someone who is in good health.
This general information provides the overall context for retirement planning. In my practice, new patients were asked to complete a comprehensive questionnaire that memorialized many of the same questions on paper. In retirement planning, these are the same type of general questions that do-it-yourself investors (DIY) will need to answer.
Clinical (Financial) Information
Once I obtained general information, the next step was to gather more specific clinical information. For me, this was a comprehensive evaluation of the state of the present oral conditions and dental health: the number of remaining teeth, the number of missing teeth, the condition of the remaining teeth, any restorative treatment completed, the condition of the surrounding tissues, the condition of the bone supporting the teeth, the way the teeth fit together, oral lesions or irregularities, and any other pertinent information that was relevant to complete a comprehensive evaluation of this patient’s oral health. In retirement planning, this would be comparable to a Net Worth Statement.
A Net Worth Statement is a comprehensive listing of all assets owned by a person or family, and all debts owed to others. Similar to my need for specific information as a dental provider, it’s important for each person to have a specific and comprehensive picture (both good and bad) of their financial health.
For more information on this see the blogs titled: BEYOND THE NUMBERS: EXPLORING THE MEANING OF NET WORTH, CRAFTING A STRATEGIC INVESTMENT ROADMAP- LITE VERSION, CALCULATING YOUR FINANCIAL FORTITUDE: WHAT’S YOUR NET WORTH?)
X-Rays ( A Look at Hidden Information)
Routinely, the next step was a radiographic analysis using x-ray pictures to look inside teeth and bones. In many cases, teeth and bone structures that appeared normal exhibited problems when using radiographs as a diagnostic aid.
When doing a financial analysis, it is often necessary to look beyond the basic information to gain a more complete perspective. Assets or groups of assets that appear normal initially may exhibit different types of problems under closer scrutiny.
Are any assets illiquid? Are any assets being used as collateral for loans? Are any assets at risk of loss? Are assets high or low risk? It’s vitally important to understand any embedded problems that change the perception of assets. Why is this important?
In Dentistry, it’s important to have a sound foundation to support any future restorative treatment. In retirement planning, these assets provide the foundation for and support your future financial plan. Dental restorations such as fillings, crowns, or bridgework placed in or on teeth with undiscovered and untreated problems are doomed to fail eventually. In financial planning, building a plan with problematic assets will face a similar fate.
Make a Plan
Once all essential information has been collected, that information can then be organized and prioritized to form a comprehensive plan. In dentistry, this becomes a treatment plan or a treatment map.
In retirement planning, it becomes a plan of record or retirement Guide. The Treatment Plan will be followed throughout the treatment of the patient. It is a roadmap that contains sequential, progressive steps to the completion of initial treatment.
A retirement plan is very similar in the fact that the information collected is organized to provide a roadmap into retirement, with emphasis on available assets and potential spending.
Stress Testing (Work Up and Wax Up)
I never realized this before, but often I would “Stress Test” my treatment plans before commencing treatment. In Finance, Stress Testing is a process of introducing variables into a retirement plan to assess resilience and performance under extreme or unfavorable conditions. Stress Testing helps to identify potential risks, vulnerabilities, and weaknesses. Stress Testing also identifies strengths, and stress testing with changing variables can provide workable solutions to plan deficiencies.
In my office, I would “Stress Test” my treatment plans in many cases by duplicating the mounted study models of the patient and introducing variables in the form of different treatment options. This was usually done by means of a diagnosis wax-up. Teeth on the model were altered as needed and wax was added to replicate the needed restorative treatment. In this manner, I could identify the best treatment path while avoiding many treatment problems. If my treatment plan failed, it failed on diagnostic models and not on a living patient.
Stress-testing retirement plans can have the same result. If a stress-tested plan fails, then it needs to be reconfigured. Just like in my dental office, potential problems and failures can be reasonably determined by Stress Testing before proceeding on a path that may not be optimal.
Consultation
A consultation normally occurs after obtaining all general and specific information, collating information, and creating a plan with all variables considered and stress tested.
In a consultation, the first thing I did was provide a statement of the present condition. This was an overview of the patient’s general health and dental health. Next was a discussion of available treatment options. This information helped the patient to understand what types of treatment were available and possible, and how these treatments could be applied.
Next was a discussion of the pros and cons of each of the available treatment options. It is always important that a patient understand their available treatment options in order to best guide their treatment decisions.
Many of the same principles hold true in retirement planning. Retirees need to know and understand the different parts of their retirement plan, and what each of these different sections represent. It’s also important for each retiree to understand the good and bad things that can happen by following certain recommendations or plan paths.
Plan Implementation
Once a patient understood the proposed treatment and the different options available, they were usually able to choose a treatment path from the available options. Once the choice is made and finalized, then the plan can be implemented. Plan implementation is the process of following the preselected path, and following the steps in the order determined during the examination and stress testing process.
Was I able to provide perfect treatment because I followed all of these before-mentioned steps? I wish I could say yes, but the correct answer is NO!
It was very rare for a comprehensive dental restorative case to be completed without some modification to the original treatment plan. I always tried to build intermediate alternative treatment options. In retirement planning, this same process is called remaining “Agile.” Remaining agile with your retirement plan allows for individual variations and alternative retirement paths. An agile retirement plan has a pre-determined direction but also allows for plan changes as time progresses. Retirement plans are not written in stone. Think of a retirement plan being written on a sandy beach, and easily changed by smoothing the sand or completely washed away by the next big wave.
Plan Correction During Treatment
As stated, it is extremely rare to complete a complex restorative case without some modification of the original treatment plan. The treatment plan was always initiated with the end in mind. However, it was also understood that there are unknown considerations that can modify treatment.
It’s wise to understand that whatever retirement plan is formulated will be wrong. Retirement is a complex problem, meaning there is no solution. There are too many moving parts to have everything work properly 100% of the time. Rather than stressing out about things that need to be changed, it’s better to start your retirement journey, understanding that you will most likely end up at your destination, but maybe not by the route you mapped out initially.
Plan Monitoring
Once a treatment plan is implemented and completed, the patient is periodically examined, and completed treatment is monitored. Things change, things age, things break!
A retirement plan is also never truly completed until the person or couple is no longer alive. Like patients in my office, each person’s retirement plan needs to be monitored on a continuing basis.
Life continually happens! Health changes occur. People relocate in retirement. People tire of traveling. Someone dies. The plan will need to be monitored and modified as time passes. However, careful planning from inception to implementation will minimize plan corrections.
Final Thoughts
Planning is a necessary part of running a business, and plans are important and necessary in retirement planning. I’d never really considered this at length, but it’s a true statement.
In the same way, there are necessary steps in business plans, there are necessary steps in retirement planning. A sequential and organized approach to both business and retirement planning will produce the best results.
I have previously written blogs on budgeting, net Worth and Net Worth Statements, and forming a financial plan. See: BUILDING A RETIREMENT PIE: ONE SLICE AT A TIME, THE MONEY CHRONICLES: REFLECTING ON A YEAR OF SPENDING, CALCULATING YOUR FINANCIAL FORTITUDE: WHAT’S YOUR NET WORTH?, FROM PROBLEM TO SOLUTION: CRAFTING YOUR RETIREMENT PAYCHECK, AVOIDING A FINANCIAL HURRICANE BY CREATING AND UNDERSTANDING A FINANCIAL PLAN, MAPPING YOUR FUTURE: DO YOU HAVE A SOLID PLAN?
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