Blog | CB Investment Management

How Best Practice Transforms Financial Planning.

“It would appear the federal government is banking on you not planning for IRMAA!”

Dan Mcgrath

Financial Planning depends on covering multiple key interacting cash flows over a lifetime. So  Financial Planning is complicated. Not only does it need to be simplified, to be useful, it also needs to be authentic, secure, stable and accurate.

The focus of this article is on Best Practice Financial Planning, which increasingly has significant distinctions from conventional Financial Planning.

There are three major problems with conventional Financial Plans:

  1. They typically adopt the same flawed approach as Defined Benefit Plans, which broadly failed.
  2. They fail to fully account for the biggest new factor in financial planning, IRMAA.
  3. This unsound foundation often leads to a suboptimal investment plan.

While some very good software is available, it is important for investors to understand, that many Financial Plans use software based on the failed valuation methodology of Defined Benefit (DB) Plans which were introduced around 50 years ago and are now being discontinued. Why? The assumptions did not work out on an industry wide basis!

I was an Actuarial Trainee auditing those DB Plans 40 odd years ago. I could see the problems then and they still remain in conventional plans today as described on my website.  

Furthermore, the astonishing additional failure of Financial Advisors to address IRMAA exposes a clear lack of due diligence in many Financial Plans.

Unless an advisor deeply understands the software and what the results really indicate the advice could easily be inadequate at best.  

When you are 80 and experiencing the consequences of your financial plan, today there are very few safety nets available to you.

Make sure that you have a check list and understand to what extent your financial plan is authentic, secure, stable and accurate. It should an obligation for an advisor to fulfill the requirements of informed consent.

Unfortunately, Best Practice is often not common practice.

It is strongly advised you take several precautionary steps before you accept any Financial Plan. 


I will describe Best Practice Financial Planning below. However, first it is important to understand the issues involved with conventional Financial Planning.

Financial Plan Issues

1. What software was used and make sure you have a complete list of all assumptions and results used in calculating the plan. Without informed consent it is very dangerous to accept the results of a financial plan. Do you want to use the the same approach that was used for the failed DB plans?

2. Most financial plans adopt a questionable methodology which projects asset values on the basis of a wide range of return assumptions. While there are typically a range of other assumptions too, the return assumptions have an outsized impact on the plan’s calculations. This means that any results are highly unreliable because the return assumptions are an unknowable guess. This makes this approach to financial planning unreliable and speculative. Furthermore, with the emphasis on market values your plan becomes unstable.

3. Realize that this methodology goes with a possibility of bankruptcy before death. Apparently, according to fiduciary standards a 20% possibility of bankruptcy is acceptable. I don’t know if you believe that is acceptable to you. It isn’t for me. The probability of bankruptcy could be much higher than 20%, depending on the assumptions made.

4. Realize that there is a clear incentive for your planner to assume a higher rather than a lower rate. The results will look better to you the client, which is what most people want to see and what the advisor wants to produce. This incentive contributed to the downfall of the whole DB approach. Actuaries naturally wanted to please their client, and the CEO and CFO naturally wanted to hear good news. No surprise. Pension funds ended up often with insufficient funds. How is conventional planning today any different?

The problems of Financial Planning can leak into Investment Plans compounding the problem

5. The problem is compounded if it is viewed that higher returns are needed to make the plan work and so a higher risk portfolio is chosen as a result. Financial Planners are not necessarily Investment specialists. Higher risk is not reliably correlated with higher long term returns. Furthermore, it will put at risk the security of your whole financial plan. 

6. It needs to be clearly understood that risk management, which is always important, is crucial in retirement. The ability to recover losses is particularly problematic for retirees. It needs to be understood that passive investing is not necessarily low risk investing. 

7. The investment plan and approach is key and again not widely understood by many Financial Planners who are not necessarily investment specialists. There should be a clear and appropriate Investment Plan that is defined in advance. 

8. There is also a place for a wider range of assets to be used for long term diversityThere needs to be consideration of longevity risk, taxes, IRMAA, investment risk management.

9. In selecting an investment management approach significant due diligence is needed. See best practice comments below. Best Investing practices are widely misunderstood.

Retirement Plans needs special attention, due to additional factors. For example, Withdrawal Rates from Pension Plans, Taxes and IRMAA all have a material impact.

10. In the best case a good lifetime Financial Plan should be able to accurately incorporate all these elements, however almost no Financial Planning software incorporates IRMAA, which can entirely change your retirement plan and require asset reorganization over many years. This has to be added in separately using software from

11. Once you understand IRMAA, you will realize that is a device for Medicare premiums to save Social Security. IRMAA is already a major factor in retirement planning and it is very likely to get much bigger over time.

Best Practice Financial Planning addresses all these issues.

A different approach is required to finally solve the problems raised by the DB plans. A sound approach to a financial plan should be based on factual financial data rather than assumptions, as much as possible. While “what-if” testing is very useful to have too, the base plan should be as free of assumptions as much as possible.

Key elements of Maxifi Financial Plans directly address the concerns of conventional Financial Plans. 

1. Maxifi assumes a retiree lives to be 100 years old. This builds in a lower risk constraint on the plan that makes a lot of sense. The purpose of the plan is to have sufficient funds in the case of longevity build in. 

2. Maxifi solves for the sustainable lifetime level of after tax spending you currently have. This is the most important information you need and the key variable you can best control yourself. It is also a much more stable than asset based analysis. It also accounts for after tax asset values, which solves for the difference between tax deferred assets and post tax assets.

3. The return assumption is limited to the long term real interest rate of Treasury Inflation Protected Securities (TIPS). Real interest rates are the most stable investment assumption and are also investible as there are long maturity TIPS available for investing. This is not an assumption!

4. This means that there is already a stable and secure baseline investment approach already incorporated in the plan, without the need for an arbitrary investment assumption.

5. This solid baseline leaves open a sound foundation on which to build an investment plan. A “bucket” approach is Best Practice. This means allocating separate portions of account value to key objectives. For example “Essential Goals”. “Inflation protection”, “long term growth”. Then to codify the parameters for each objective. Then also decide in advance assessment metrics.



6. All the elements mentioned in this investment plan are covered by “Best Investor” standards as covered in my book ” Invest Like The Best”.

7. I advise an IRMAA assessment by age 60. Only then can you be sure that you can take remedial action. IRMAA  Certified Planners, such as myself can guide you through it. 

8. Stay a part of an influential retirement network to keep up to date on financial intelligence and support through issues with the IRS, Medicare, and Social Security.


I hope you have a better understanding of what it means to have a Best Practice Financial Plan and what is often missed to guide you to an authentic, secure, stable and accurate Financial Plan. There are some major distinctions between the quality and consequences of different Financial Planning advice.

Best Practice is a matter of your Best Interest.

Education and a Commitment to Informed Consent is an Obligation.

Chris Belchamber is an IRMAA Certified Planner

Medicare’s IRMAA impacts every retirement plan. Learning how to mitigate it is available via IRMAA Certified Planners designation.

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