Two Outa Three Ain't Bad!
Some of you may have seen a clichéd-but-true sign that someone posted on LinkedIn a few days ago. It reads:
We have three kinds of service: Good, Fast and Cheap. You can only pick two. Good and Cheap won’t be Fast. Fast and Good won’t be Cheap. Fast and Cheap won’t be Good.
This actually applies to most goods and services. My dentist, my attorney, my stylist, and (for the most part) my mechanic are timely and good, but take a rather big bite out of my budget. Likewise is the restaurant, where my husband and I celebrated our anniversary. Then, there’s the printshop, where I do my business cards. It is competent and reasonable, so long as I don’t need a rush refill of cards. On the other hand, there is my 10-year old’s favorite dining establishments. They are fast and cheap, but not so good for those of us over 20 who don’t prize movie-themed plastic toys.
The same is true for financial services. Most large-ish financial institutions today have online options for financial planning. These range from total DIY to ones that lead to a review with one of the employees and from simple retirement projections to more complex calculations that cover several life areas. Online, automated or semiautomated planning tools targeted to the non-professional have been gaining in popularity because they are relatively fast. You can do them from the comfort of your own computer without commuting and the input required is usually limited to standard data that appears on forms and often shows up for tax season. They are also relatively inexpensive, compared with sitting down with a financial planner, particularly one that has the Certified Financial Planner® professional (CFP®) or similar designation. And if you have a very a simple standard situation (for example, being single, having no dependents, being early in your career, or having few investments beyond 401(k)), then the output from these tools might, possibly be, sometimes, probably good enough.
If you have a more complicated situation, though, you need to ask: “Are these standardized, mostly online financial planning options really sufficient?” For example, if you are a couple, especially if one person earns more than the other, then you already have to consider multiple scenarios. What happens if the two of you came into the marriage with very different amount of assets? Who should retire first? Who should draw Social Security first? Do we need long-term care insurance? What happens if one person becomes disabled or dies prematurely? Do we need to take into account other nuances for if we are a same-sex or unmarried couple?
If you have children, your scenarios multiply exponentially. What is the cost of childcare? Should one person be the “stay-at-home” parent? What about a nanny? Which parent has the better health coverage options? Do we pay for the children’s entire college education, or make our near-adult child earn some his/herself? What is the best college-funding mechanism? If you are in the “sandwich” generation, and your aging parents might need help, how to you balance that with your children’s needs and your own retirement? What about your parents’ long-term care options?
If one of your children or one of your siblings has a significant and permanent disability, then that is a distinct planning field all on its own. You will need to know how much, if any, will that person be able to earn? What about government benefits? Will the family member be eligible? How will working affect eligibility? How will those benefits change as this family member and you age? What are the rules and how must we plan to meet them? Is a Special Needs Trust necessary and how could we fund it? Should we consider an ABLE account? Should we leave more assets to the family member with a disability than to other heirs or not? How could our estate plans affect the person’s eligibility for benefits? Yes, there are many questions to consider.
Every financial planning software that I’ve used as a professional has limitations. None are set up to deal in a comprehensive way with all the aspects of special needs planning. In fact, for almost any kind of non-traditional planning—divorce, blended family, small business/self-employment, alternative investments—I’ve had to hand craft a work-around to get really representative results. The same is likely to be true if you want to use a standardized online tool to project any non-traditional financial planning needs. This is because standardized tools can only handle standardized input. Any data that cannot fit in to a pre-labeled “box” won’t get processed and will not impact your overall plan.
For example, suppose you have a 22-year-old with a disability, which is significant enough that the person could qualify for Supplemental Security Income (SSI) and Medicaid. You expect that s/he will need supported living arrangements. You also hope that this will be funded by a Medicaid Wavier, but you are not sure either 1) when s/he will qualify for the Waiver—could be any date from next year to the date of his/her second parent’s death or 2) how much s/he will be awarded—could be anywhere from $27,000 to $60,000 or above. The money is not income to your son or daughter who has the disability, is not taxable, and may change over her/his lifetime. If you try to plug this into an online “retirement” or “goal” calculator, watch for your computer to do a cartoonish sizzzzzle and POP as its circuits overload, and the software returns an “error, invalid input” message. If you call your broker-dealer or insurance agent’s help line, chances are, the agent will be confused.
The “three kinds of service” sign is a more colorful version of “you get what you pay for” or, perhaps, “penny wise, pound foolish”. It’s true of financial planning and it’s even truer of special needs planning. Find a planner that you are willing to invest in, and take the time to do the work. You’ll be surprised at how good the results are. You may have to give up the “fast” or the “cheap”, but never sacrifice the “good” in your financial planning.