A successful financial plan must address six core areas of a client’s life leading into retirement, and a “dynamic resource model” can help identify how healthy a client is in each of these areas, delegates heard at PortfolioConstruction’s Finology Summit last week.
The most important areas were physical health and finances, followed by social, while cognitive, motivational and emotional were grouped together as a set at the end, according to Dr Joanne Earl, associate professor at Flinders University.
The demonstrated model used a set of 35 questions to calculate how well “we might be focusing on finances, and no doubt it’s critical, but if we look at the symbiotic relationship between health and wealth, then we can start to understand how ignoring these other areas can all have an impact on wealth,” Earl said.
She gave the example that many clients plan on retiring at 65, but this presumes they will be in good enough health to work through until then. In reality, the average age of men (aged 45 years and older) exiting the workforce is 58.5 years, according to the Australian Bureau of Statistics’ 2012–13 multipurpose household survey.
“It’s not just about focusing on the single rabbit hole of finances at the expense of everything else, but thinking realistically how those other resources will play into those things,” Earl said.
“A lot of men will exit the workplace early because of physical and psychological [reasons]. What are you going to do ensure your client is well enough to get through to that stage? What are you going to be able to influence now to make that a reality?”
Earl added planners were not in a position to influence everything, but by being aware of them it would help in understanding why a plan was not working or where the problems could be, and thereby develop a more realistic plan.
The retirement resources inventory survey Earl has developed takes participants through 35 questions and scores across three categories:
RT3 (Retirement Type 3) scores physical health (such as muscle strength, flexibility) and financial resources (income, pension). RT2 scores social support and networks and RT1 scores emotional (social support and networks), cognitive (memory, problem solving) and motivational (goal setting, implementing plans) characteristics.
“If people are focusing on those other domains inadvertently … like focusing on the social stuff a bit too hard, maybe there is an opportunity to realigning that.
“The dynamic resource model can be one of the ways that you help to understand this more holistic need for planning, beyond just finances,” Earl said.
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