Take a holistic perspective and start your wealth planning now! 

Issue 2, May 2024 I PCS Vision
The need for wealth planning has traditionally been seen in the context of trigger events. Getting married, staring into the eyes of your firstborn, experiencing a health scare, witnessing a freak event, structuring retirement, and wealth transfer can all provoke defensive action and initiate the search for stability. But Max Liao, PCS by Mercer Executive Director, thinks a change in perspective is needed – that wealth planning should be considered holistically – as both an “offensive” as well as a defensive priority.

What do you mean by “a holistic perspective on wealth planning”? 

It’s an Olympics year, so I am going to use a sporting analogy. In any sports arena, from boxing to volleyball, even the best defensive game can only get you so far. If you want to win, you need to look at your game holistically and also have a strong offensive strategy. 

So too in life. As insurance brokers, my colleagues and I often see clients in defense mode during, or after, they experience a trigger event, such as unexpected volatility in equity markets, or hearing a friend has received a surprising health diagnosis. That protective reaction is totally understandable and essential in terms of building future safeguards. But what would be even better is having an equally strong offensive game play already in place, giving you more resilience and helping you weather any adverse event from a better starting position. 

Early wealth planning – before actual needs arise – can help reduce the financial and emotional impact of trigger events, and it is arguably the most coherent outcome of taking a more holistic perspective.

You mentioned “early” – so, when should you start wealth planning? 

The short answer is as soon as possible. There are several reasons for this: 

From a purely financial perspective, your dollar today is worth more than the same dollar a year from now, so if you can, do something smart with it to maximize its value. Further, we note there is an age premium on almost every type of personal insurance so you can save money if you begin earlier; and of course there is the magic of compound interest, the power of which is really amplified by time.  

Another reason to start wealth planning early is that the younger you are, the higher your capacity is to absorb calculated risk. Take Microsoft stocks for example. Its initial public offering in March 1986 was for US$21.00 per share and there have been nine share splits since then.1 This means, if I had purchased one single stock then, I would now own 288 of them and have a (paper) profit of US$115,455.47 at today’s price.2 That’s because I started young and could ride the three bear markets in the US in the intervening years. Alas, I was only a little kid in 1986 and didn’t buy that share, but you get my point – starting early makes sense. 

From a life perspective, the traditional markers of adulthood are increasingly scrambled. Tertiary education, working up the corporate ladder, marriage, children, wealth accumulation, leadership, and retirement no longer have to be in sequence. Life is as we’ve never seen it before. Twenty-five of Forbes’ 2024 billionaires list are 33 and younger with a number of them self-made entrepreneurs, and many of them are not married nor have children.3 Beyond billionaires, millennials are less likely to get married and have children than their parents; your boss could be literally half your age; and retirement age is slowly increasing.4 All of this mean that wealth planning at an early age is increasingly important. 

A nearby café has an outdoor chalkboard, the content of which changes frequently. Last week it was, “Life is unpredictable, eat dessert first”.  It was right, life is unpredictable, so is risk. So, the decision is not whether you should, it’s what, where, and how do you want to protect it?

How does life insurance help you protect what you value?

Life insurance has evolved significantly, and there are numerous products that can be customized to suit both personal and business wealth planning goals. Life protection in 2024 can be considered as high-flexibility solutions that help build future financial wellbeing, whatever that might look like to you. 

At the most basic level, what are you are purchasing when incepting a policy are future cash, and discount. Both of which can come in a multitude of forms that suit individual needs and circumstances including, annuities, death benefits, estate equalization, savings plans, a financial safety net, ringfences for specific assets, income replacement, support for the growing financial needs of loved ones. retirement income, tax obligation provisions, portfolio diversification, ready liquidity, on-and offshore assets, generational wealth transfer, and business continuity. 

What the actual solution looks like depends on a client’s investment appetite, purpose, and the complexity of their wealth planning needs.

Can you talk briefly about wealth planning for generational wealth?

When working with our clients, the key questions we ask are: What would be your ideal outcome? What are your financial goals? Where do you want to have your assets? And how do you want to protect what you have? The method and solutions can then be customized.

Generally speaking, asset holdings become more complex the longer a family has been accumulating them. And the complexity of the assets is broadly corelated to how intricate and costly the eventual wealth transfer will be. So, for high net wealth and ultra-high net worth families, it is not unusual for inheritance processes to take up to two years. A smoother process might be enabled with good wealth planning, without which high conflict and litigation can be very real risks. 

Wealth planning – in its long-term nature – might not seem like a muscular approach, but the key thing to remember is that it can be a foundational strategy for your entire life as well as your legacy. Play the wealth planning game holistically – go early on the offensive – and its defensive benefits can be reaped for not just your generation, but for the ones to come.

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