3 Things Most People Get Wrong About Financial Planning

I have a confession: My financial planning software is boring.

If you and I only use it to see if you’ll run out of money, we’ve both failed.

Over the years, I’ve noticed three big mistakes people make when planning for retirement. Mistakes that keep them from actually enjoying the wealth they’ve worked so hard to build. Let’s talk about them.

The Vision Gap is the difference between a client’s life or retirement vision and their ability to articulate it clearly to an advisor. Because most advisors are in a hurry to impress you with their fancy financial planning software and investment expertise, this gap is rarely explored. This perpetuates ineffective financial plans.

Many people approach financial planning with the same, reasonable question: “What’s the earliest I can retire?” It’s like planning a cross-country road trip and only asking, “What’s the cheapest gas station?” You’re missing the entire point of the journey.

You read about the “4% Rule” or safe withdrawal rates in retirement but forget what you’re actually withdrawing the money for. More time needs to be spent on moving from math to meaning.

Financial planning software is just a calculator. Anyone can enter numbers and get an answer. Most financial planners do exactly that and call it planning. They produce unimaginative plans that tell you when you can stop working but never ask what you’re retiring “to”.

Here’s what I mean: A financial plan (a noun) says you can spend $6,000 per month. Whereas financial planning (a verb) explains you can take your entire family to a villa in Portugal for your 40th anniversary because we stress-tested the big dream scenario.

The best plans I’ve created with clients include imagination, not just spreadsheets. Can you travel first class for the first 10 years? Can you gift meaningfully to your grandkids? Can you buy the “top shelf” without guilt?

Many clients first come to me for projections, but they really light up when we start talking about permissions. And by that, I mean permission to spend. They’re afraid to spend because nobody has shown them their upper limit. Planning isn’t about scarcity. It’s about clarity on what you can enjoy.

The financial planning industry is happy to answer your questions about things like retirement age, CPP timing, and withdrawal rates. They understand that life is variable, so today’s “answer” will be likely be outdated in two or three years.

That’s the business model: Here’s a report based on today’s assumptions about the future. You think the planner is great because they “answered” your question. They know either the assumptions will turn out to be inaccurate or your life won’t go according to plan. So, you’ll come back for more answers. The relationship continues.

But what if we spent more time on “understanding” why a certain age is appropriate for retirement or the timing of CPP for you? Then when life throws you a curveball, and it will, you’d have the framework to adapt your plan yourself.

I’d rather teach you the principles behind CPP timing than just tell you to “wait until 70”. If you understand that CPP is a guaranteed, inflation-indexed annuity, you won’t panic when the market drops 10% in retirement. You’ll recognize CPP’s role as part of your guaranteed income foundation and sleep better at night.

Answers have a shelf life. Understanding compounds like interest.

We live in an age where we can access all the information we’ll ever need. Translating that information into knowledge, i.e. knowing how, when, and why to apply it, is another ballgame. But even when you understand a strategy, it still needs to fit you.

It’s like dieting. If I don’t like fish but my doctor tells me a pescatarian diet is proven to be the world’s greatest diet to maintain good health, I’ll fail. Not because I don’t want to be healthy but because I’m not motivated to follow it.

Some people either follow generic advice, or invest and spend with no real purpose, then wonder why they feel uncomfortable or uncertain whether their approach is working.

Mathematically, carrying a low-interest mortgage while investing at a higher rate is “correct”. But if that debt keeps you awake at night, it’s a square peg in a round hole. It doesn’t “fit” you and you’ll likely struggle to keep with the strategy.

I see this constantly with incorporated professionals. First, they follow generic advice that everyone should incorporate if they are eligible. Then they piggyback that with taking 100% dividend income and saving any excess in their companies, while ignoring personal/spousal RRSPs and TFSAs, or potential corporate liability claims. They’re using strategies designed for someone else’s tax reality.

The financial influencer trap is real. People see a strategy on a subreddit and try to force it onto their situation. “Optimal” becomes the enemy of “sustainable”.

The best strategy is the one you’ll actually stick with through good and bad economies/markets. Not your neighbour’s strategy. Not the one that sounds impressive at dinner parties. Yours.

Financial planning should spark excitement for this next chapter of life you’ve worked so long to reach. If your plan feels like a math problem instead of a roadmap to your dreams, something’s missing.

You don’t need more financial products or performance charts designed to impress you. You need perspective.

Start here: Write down what a great day, week, or year looks like in retirement. Name your non-negotiables. Choose a date you’d like that life to start.

That’s where sound financial planning begins.

Want to talk through your own planning? Reply to this email with your biggest “why”: what matters most to you in retirement. I read every response.

David

A quick note: This post shares general insights from my work with clients, but every situation is different. Please don’t make major financial decisions based solely on what you read here. Talk to a qualified advisor who understands your specific circumstances.