Planning with a safety net where there are no specific goals to meet and no specific timeline in mind presents an interesting problem. Some clients are in that enviable position where they have assets that do not play a role in their day to day finances and are not expected to be required to fund goals in retirement. However, this situation presents us with some questions as to how that money is to be managed and the value of our advice measured.
Without planned withdrawals, our best measurement must be the amount of growth we expect in the assets over time. So the first step must be to determine at what point in time we want to examine the expected values and why that particular time is chosen. One approach is to tie the valuation to an anticipated retirement date, such as one’s full Social Security retirement age or perhaps instead at one’s tabular life expectancy. These points are useful for helping one assess what amount of assets might be there for the client’s heirs, including family, charity and any other potential recipients.
The second step must be to determine what sort of risk level we are willing to take with the investment of these assets. That risk level must reflect the need to protect a substantial portion of the assets for the worst case – the client’s future need to draw on that safety net. However, we must also consider what will happen if there is no need for the funds for client goals and attempt to grow those assets for future recipients and their unknown needs.
The determination of an appropriate level of investment risk, in turn, helps us to begin to form an idea as to the appropriate investments we may recommend to fulfill the general intent for the accounts – safety net now, distribution to others later – and not only put those investments in place but then monitor them on a continuing basis.
So even without traditional spending goals, we can do a reasonably good job of sensibly investing.