A customized, well- designed financial plan is discussed at the inception of most relationships at Callan Capital. A financial plan encompasses all areas important to an estate, including investment management, debt management, tax-minimization, trust and estate planning, risk mitigation, philanthropic planning, education and financial independence. The primary purpose of a financial plan is to bring confidence and peace of mind to clients as they make important wealth decisions.
The first step in financial planning is data gathering and goal planning. We ask a series of questions to determine client objectives in the areas of retirement, risk tolerance, liquidity needs, spending needs, time horizon, philanthropic goals, sources of income, family dynamics, family and charitable gifting and asset and entity information. With this information, we then gather relevant documentation such as asset statements, wills, trusts, tax returns, stock options/RSU information, property and casualty and life insurance statements.
Retirement, or financial independence, is often the main objective of financial plans. Retirement typically means a client stops working and generating employment income and requires enough savings to live a specific lifestyle until life expectancy. Financial independence is the flexibility to retire without the desire to retire. In other words, many clients continue to work because they’re capable and enjoy it well beyond the point where they are financially capable of retiring.
We run a Monte Carlo analysis which includes a thousand possibilities on asset returns and shows the client a probability of success, or certain outcomes by using a set of assumptions. We prefer this method over a Straight-Line calculation, since the Straight-Line calculation assumes the same rate of return each year, which does not account for uncertainty or volatility. The Monte Carlo method is often used in investment and retirement planning to project the likelihood of achieving one’s retirement goals and whether or not a retiree will have enough income to live on for life, given a wide range of possible outcomes in the markets. The underlying assumptions for these calculations typically include life expectancy, interest rates, age, the amount of the investment portfolio that is withdrawn each year and the portfolio asset allocation. At Callan Capital, a successful outcome is 80% probability that the situation will occur.
Education planning has become an increasingly important part of a financial plan given recent tuition hikes and the rising cost of education. The 10-year historical inflation rate for education related costs is approximately 5%, while the 10-year average rate of inflation for non-education related expenses is much lower[1]. It is important to start early, and save frequently, and grow your money tax-free using either a 529 plan or a Coverdell ESA. To learn more about education planning, please read our article here.
Once a financial plan is designed and implemented, it’s important to monitor progress, review information and adjust the plan as necessary to take into account changing circumstances and objectives. The peace of mind offered by a well-constructed financial plan is invaluable to help clients navigate periods of market volatility and place them on a long-term strategy for financial success. Through the financial planning process, clients gain clarity, direction and discipline.
Disclaimer: * Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide our clients with, securities based financing, residential and commercial financing and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at www.adviserinfo.sec.gov.
[1] The College Board® https://www.collegeboard.org/