How Bad is Bad? The Magnitude of Failure in Retirement Planning Scenarios
“How did you go bankrupt?”
“Two ways. Gradually, then suddenly.”
? Ernest Hemingway, The Sun Also Rises
Financial planners love numbers. They want some sort of quantifiable way to tell you whether or not you’re going to succeed in goals. Like the weatherman who says that there’s a 30% chance of rain (how come it’s never 38.73%?), financial planners want to give you a number that is the summation of all of their prognostications about what the future holds for you.
I am one of these. Step 1: admit you have a problem.
I am a self-confessed modeling junkie. I even co-authored a case study on Markov chain modeling when I was in business school. I enjoy Monte Carlo analysis. When I work with clients, I ask them all of the questions about their hopes, dreams, and fears. I have them too. I hope all of their hopes revolve around retiring early and globe hopping so that we’ll have a lot in common to talk about!
But, secretly, I want to get down to numbers. I want to get into nitty gritty about expenses, earnings, probabilities, returns, assumptions, and everything else that makes a quant jock tingle. When this happens to you, don’t get offended. I like you. I won’t work with someone I don’t like. I swallowed the distasteful too many times in my previous business to want to do the same thing again, so I get to choose this time. Therefore, if I work with you, I like you. I do care about your hopes, dreams, and goals.
But I really, really enjoy numbers and modeling. So, at some point in our relationship, I’m going to build some models about you, your family, your life, and all of the permutations that could potentially happen to you, both good and bad.
At the end, once I am done playing mad scientist, I will return with some projections. The projections will take the form of a discussion which will tell you that based on your current state, a set of assumptions, and a bunch of randomly chosen outcomes – which is what Monte Carlo analysis is – that the projected outcomes mean that you have an X% chance of succeeding if you follow the plan that we’ve discussed.
“X%!” you’ll cry out. “Why don’t you give me a number instead of a letter?”
OK. There will be a number instead of a letter. What I’ll be telling you, though, is that there’s a certain probability that you will have enough money when the Grim Reaper comes calling so that you can hit your life goals, such as…
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Jason Hull is a Fort Worth fee only, hourly financial planner who serves clients in Fort Worth, TX and Dallas, TX as well as serving clients nationwide.
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Hull Financial Planning is a Fort Worth, fee-only hourly financial advisor. The cities we serve in the Dallas-Fort Worth area include:
Arlington, Azle, Bedford, Benbrook, Blue Mound, Burleson, Colleyville, Crowley, Dalworthington Gardens, Edgecliff Village, Euless, Everman, Flower Mound, Forest Hill, Fort Worth, Grapevine, Grand Prairie, Haltom City, Haslet, Hurst, Keller, Kennedale, Lake Worth, Lakeside, Mansfield, Newark, North Richland Hills, Pantego, Pelican Bay, Rendon, Richland Hills, River Oaks, Saginaw, Sansom Park, Southlake, Trophy Club, Watauga, Westlake, Westover Hills, Westworth Village, and, White Settlement
Addison, Balch Springs, Cedar Hill, Carrollton, Cockrell Hill, Combine, Coppell, Dallas, DeSoto, Duncanville, Farmers Branch, Ferris, Garland, Glenn Heights, Grand Prairie, Grapevine, Highland Park, Hutchins, Irving, Lancaster, Lewisville, Mesquite, Ovilla, Richardson, Rowlett, Sachse, Sand Branch, Seagoville, Sunnyvale, University Park, Wilmer, and, Wylie
We also serve clients nationwide and can leverage technology to maintain our client contact and communication.
Hull Financial Planning, 2939 Crockett St. #315, Fort Worth TX 76107, (817)476-0584