Why Financial Planning is More Than Just Math

Math is one of the most important skills a financial planner can have. It allows them to give clients an idea of how big their nest eggs will be given a range of circumstances and environments. It also gives them an idea of when people will be able to retire comfortably. However, financial planning is not all about the numbers. There are other considerations that might need to come into play and play a huge role in an individual’s financial success.

Paying Off a House

Interest rates have been at near-record lows for nearly a decade. Even with several rate hikes by the Federal Reserve in the past couple of years, mortgage rates have stayed relatively low. Generally speaking, a portfolio of quality stocks or mutual funds will return more than the 4% or 5% mortgage interest rates. However, some people will want to pay off a mortgage for greater peace of mind. Paying off a mortgage can increase cash flow in the near term, and this can help people to relax a bit more in the present. There is no ability to invest that money if it was used to pay off a house, but for some people, paying off a mortgage quickly can make sense. A financial planner who listens can better meet the needs of clients.

Retiring Early

Most financial planners have their own opinion on the amount of money an individual needs to save for retirement. However, it’s still important for financial planners to take a person’s individual goals into consideration when recommending when a person can retire. Taking Social Security early might not make the most financial sense, but it can make sense for people who are looking to retire earlier and who have other means available.

Family History

Another number that planners will want to take into account, that’s not related to adding or multiplying returns, is a person’s life expectancy. Today, the Average American can expect to live to between 75 and 80. Some people have family histories with a much shorter life expectancy. Those people might want to stop working earlier if they can afford it, and a good financial planner will help them learn how they can even when the math might say to wait to retire until later. It might not make mathematical sense, but it can make sense from a quality of life standpoint.

Math definitely matters, but it’s only one piece of the puzzle in finance. Financial planners must get to know their clients to learn about the factors that can determine their future wealth, such as their lifestyle, family history, and retirement goals. Without getting to the root of the client, the numbers won’t be much help, no matter how accurate they are. 

Chris Jacob is a Registered Representative with Saxony Securities, Inc.. Securities offered through Saxony Securities Inc. (SSI). Member FINRA, SIPC. Non-security products and services or tax services are not offered through SSI. Cadeau is not affiliated with SSI.

Originally posted on ChristopherJacobMissouri.org.

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