Financial Tip of the Day - Planning

[Monark]

Thanks for the feedback Huntingfool.

[Huntingfool]

I don't think predicting the future is the point. Planning for the future is the point. I have a money plan to live to 95 and support myself so as not to be a burden on anyone. I may die tomorrow & my family can have my savings. I have buddies that in their earlier days said "Que Sera, Sera" but are now having second thoughts when it's too late to plan.

Nailed it

those buddies you speak of are those who will be trying to live off of $1500 a month social security payments once they retire - tough way to live out your golden years

[scubasteven25]

Wow! Felt like I need a PhD to play around with the Portfolio Visualizer tools. My MBA doesn't understand all that math. The firecalc tool was definitely a lot easier to read and understand. Glad I've got someone smarter than me to figure out my finances.

[Shane]

These types of tools are very useful. But, remember..... the usefulness of the projections and simulations is directly proportional to the accuracy of your inputs. And that is directly proportional to your willingness to put time, effort, and brutal honesty into your prep work on the front end.

I'm a CFP, and I use tools like these every day with my clients. Today I was talking to a couple who have been clients for several years. They're retired now. He gets a couple of pension checks, and they both get Social Security checks. She is working part time for their church as well. Their combined annual income is about $100K. As we were reviewing their projections, I asked if the spending number ($4,000/month) that they gave me last year was still good. I explained that I like to make sure that we use a spending number that is on the high end of what they think it should be, just to be safe with our projections. They agreed that $4K/month was a good number. I asked if they were sure and suggested that we should plug in a higher number. They said they thought $4K was plenty.

So I asked if their bank account balances were increasing every month. They said no. They were staying about the same. I reminded them that they withdrew $20K from their investments last year, and they've withdrawn $10K so far this year. And they are bringing in almost $8,500/month. So they're now spending about $120K/year, not the $48K that they think they're spending. They were surprised to realize this. We adjusted our inputs accordingly. Their projections based on their previous spending goal numbers showed that they could live to be 100 years old and never run out of money. Updating to what they've been spending over the last year and a half and projecting that spending level to continue into the future showed that they'd run out of money in 10 years.

So they have an opportunity to make some important decisions now, before the decisions are made for them by zero account balances in a few more years. They can choose to continue to spend at these recent levels if they want to. It's their money. As long as they are making informed decisions, that's cool. They will likely choose to cut back though, just to be safe. They might live longer than 10 more years. They're only in their 60s.

These types of tools are very valuable in your planning and decision making processes. Just be honest with yourself as you use them. And plan for worst case scenarios, not best case.

[JeffJ]

Work hard
Play hard
Save hard
Invest hard
Hunt hard
Fish hard
Love hard

[STGS]

These types of tools are very useful. But, remember..... the usefulness of the projections and simulations is directly proportional to the accuracy of your inputs. And that is directly proportional to your willingness to put time, effort, and brutal honesty into your prep work on the front end.

I'm a CFP, and I use tools like these every day with my clients. Today I was talking to a couple who have been clients for several years. They're retired now. He gets a couple of pension checks, and they both get Social Security checks. She is working part time for their church as well. Their combined annual income is about $100K. As we were reviewing their projections, I asked if the spending number ($4,000/month) that they gave me last year was still good. I explained that I like to make sure that we use a spending number that is on the high end of what they think it should be, just to be safe with our projections. They agreed that $4K/month was a good number. I asked if they were sure and suggested that we should plug in a higher number. They said they thought $4K was plenty.

So I asked if their bank account balances were increasing every month. They said no. They were staying about the same. I reminded them that they withdrew $20K from their investments last year, and they've withdrawn $10K so far this year. And they are bringing in almost $8,500/month. So they're now spending about $120K/year, not the $48K that they think they're spending. They were surprised to realize this. We adjusted our inputs accordingly. Their projections based on their previous spending goal numbers showed that they could live to be 100 years old and never run out of money. Updating to what they've been spending over the last year and a half and projecting that spending level to continue into the future showed that they'd run out of money in 10 years.

So they have an opportunity to make some important decisions now, before the decisions are made for them by zero account balances in a few more years. They can choose to continue to spend at these recent levels if they want to. It's their money. As long as they are making informed decisions, that's cool. They will likely choose to cut back though, just to be safe. They might live longer than 10 more years. They're only in their 60s.

These types of tools are very valuable in your planning and decision making processes. Just be honest with yourself as you use them. And plan for worst case scenarios, not best case.

Great example of how important it is to know exactly where all of your money is going. I would venture to say, a vast majority of people do not have a clear understanding of this. Even if you think you do, unless you are doing a written budget/tracking process, today's ease of electronic spending makes it very difficult to tack and classify every single dollar.

Try it for a month and I bet you can find enough "fluff" to easily fund a new rifle, a ROTH IRA contribution, some extra cash in your emergency fund or something else......

[Rick]

You sound like someone with experience. I have only used Fidelity's calculators. Are those decent, reliable, outdated, believable? I have managed mine myself & done OK but at age 60, I'm thinking of using professionals.

I use Fidelity also. That is who my company used for 401K. I managed it myself for many years, but i did not feel that i was qualified enough to do that into my retirement years. over time, i gave them access to manage portions, results in general were better than what i was doing on my own. They now manage the entire account and i am very happy with my acct manager and relationship. Sometimes I wish it was someone local, but the few times i have needed to talk to him (outside of quarterly calls), he has called me back in less than 2 hours, usually 30 minutes or less