Safe Savings Rate plans are a new type of financial plan that focuses on two crucial issues: how much should your clients save, and how will your distributions change over time. Planning should focus on what we can actually control, and also recognize the realities of how distributions move through time.
How much Should you Save
For young clients, their savings rate is the most important thing in their financial life. Safe Savings Rate plans figure out what an appropriate savings rate is. By working iteratively, the software will figure out the appropriate savings rate based on the parameters of the plan. This also means that you can easily see how the savings rate changes based on different scenarios. For instance, if your client is willing to be more flexible with their distribution in the future, or accept a lower probability of success, how much less do they need to save now?
Financial Planning Software should include uncertainty
One of the only sure things about a financial plan is that we are not certain. Or, put another way, we are certain that it is wrong. Financial planning software should account for this. With our goals based plans we do this through continuous monitoring (which we do for safe savings rate plans as well), but with our Safe Savings Rate plans we take it a step further. We actually build that uncertainty into the analysis. All advisors know that distributions rarely, if ever, happen like they are planned. Most long term distributions are really based on a number of different rules of thumb when the distribution happens – in other words, they are determined in a dynamic manner. We incorporate that into plan. Financial planning is about trade-offs and those rules of thumb are a key part of the trade offs that people are making.
How Safe Savings Rate Plans can help your practice
Safe Savings Rate plans can help your clients in a number of ways, from simply providing a different way of thinking about planning, to providing a quick way to create plans for prospects, to contextualizing financial planning.
Just like anything else, different people respond to different things. Some people learn by reading, some by doing. The same thing applies to planning. Some people will react best to a goals based plan, but some clients need a different approach. A goals based plan gives you the flexibility to dive into all of the details, while a Safe Savings Rate plan allows you to simply focus on what your client needs to do today. Just like everything in financial planning, it all depends on the client.
Because a Safe Savings Rate plan can be completed quickly, with a relatively small amount of information, they are great tools for prospecting. If you can provide a prospect with a financial plan that tells them what they need to be doing to meet their goals, that is a powerful tool for converting those prospects. And all the better if you can do it quickly.
One of the most powerful ways that the safe savings rate plan can help your clients is by contextualizing financial planning. When you tell a client that they have an 86% probability of success with a goals based financial plan, very few clients can really interpret what that number means. It’s just a number. By changing the output to something that a client understands, they can do something with that information. Clients understand what saving 12% of their income means. They can grasp what that means for what they need to do today. By flipping the conversation to something that they understand, you clear the way to have more meaningful conversations that will allow you to strengthen your relationship with the client, and find even more ways to help them.