If you rely too much on the tools and tricks of the financial planning trade, you’re gambling with your future.
In my practice, I use sophisticated stochastic modeling tools to map out your retirement possibilities under any number of variables. These are also known as Monte Carlo simulations.
Already sounds like gambling, doesn’t it?
(Hint: it can be.)
Providing a road map
These simulations look at as many variables as we can possibly anticipate to find you the freedom you want in retirement.
Of course, an ideal retirement is a stretch for most of my clients—even the wealthy ones. So these simulations are really about helping you see the various open roads stretching in front of you and choosing which one to start driving down for retirement.
But even in the age of smartphones that tell you the fastest route to get from point A to point B, detours and road construction doesn’t always show up on your fancy digital roadmap.
In my opinion, it doesn’t matter how well GPS can pinpoint your current location if it doesn’t know anything about the major factors that could cost you time, headaches and money.
That’s where the simulations and modeling comes in handy. If your ideal retirement future requires a budget of $10,000 per year for travel and you want to pass on $1 million in assets to your kids, modeling can show you various roads to take you there, in theory.
Basically, to create a map for you.
Maybe you will do some consulting work to fund the travel while upping the ante on your investments to reach your asset goals. Or perhaps you’ll cut the general lifestyle budget and start saving more now to make sure you can still reach those two ideals you dream of for retirement.
Either road has the potential to take you to your ideal retirement. But whatever route you choose, know that a simulation is just that—a simulation.
And simulations will differ from reality.
Updating the map
Last week, I talked about how robots could steal your retirement because of technology advances. The week before I introduced to you my Agile Retirement Management system that takes into account the general volatility of markets—and life.
So let’s be honest, even with sophisticated modeling provided by computerized tools that predict as much of your future as possible, financial planners can’t see the future.
What I do see clearly are the present and the past. And that informs the “map,” but doesn’t tell you about the road construction on the way.
That’s why, no matter how much data you throw at a Monte Carlo simulation, and no matter how good that data is, you’re still gambling on an outcome if you chase it down full throttle.
Who’s to say the bridge won’t be out on the retirement road you chose? Your life is static in a simulation, but fluid in reality.
If I had all the data points of your life in the future, I could paint your retirement by numbers. But I don’t.
The best thing I can possibly do is run simulations that show how various gambles could play out, how unseen variables could impact you and generally guess at your best retirement future based on what I do know.
Then, when your retirement road takes a detour, I’m there to usher you back in the right direction.
I plan for the volatility of life constantly. Yeah, it’s freaky not knowing the future. I have my own fears about retirement, too.
But knowing that you are working with an adaptive, agile financial manager will help give you peace of mind.
The key is to have the little conversations that keep you on the right road—and to make sure you’re never blindsided by a railroad crossing you didn’t see coming.
When you’re gambling with your future
You gamble with your future most when you don’t use the tools available to you—or to your financial planner.
But here’s the gamble I see more often: relying too much on the roadmaps provided by those same tools.
Your retirement map needs to be fluid. Remember that and preparing for retirement won’t be so much of a gamble.
Question of the week:
What unexpected financial detours have come your way in life? Will those stop, slow or accelerate during retirement?
Answer in the comments below.