Financing the future.

• Position: Retirement planning

rverse engineering is another way of saying, "working backwards." a process that can be effective w hen solving a crime, finding out what's causing a health problem or locating a missing airplane. But sometimes we don't have the luxury of looking backwards, Take retirement planning, for instance: it's almost exactly the opposite of reverse engineering. We have very few knowns on which to base our plan, which, by definition, is forward-looking. You will not know whether you have reached your goal until it is too late.

Retirement planning is a moving target in mam ways. We depend on more assumptions than would ever be acceptable for a NASA engineer signing oil on a multi-billion dollar rocket launch. In fact, there are more variables we don't know than those we do. For example, we don't know what:

* Inflation will be in the future:

* The future holds lor income, capital gains and estate taxes;

* The equity or fixed income markets will do in the future:

* Our earnings ability to save and expenditures will be; and

* How long our money has to last.

So how can we possiby plan for the future when so little is within our control ? The old saying, "Without a map. any route will get you there." comes to mind. But wouldn't we rather have an idea of how likely we are to meet our ultimate financial goal?

What Good is 20/20 Hindsight, Anyway?

Retirement projections are quite possibly the best tool financial advisers have, using history to help estimate and extrapolate what lies ahead. What if you knew today how much the rest of your life was likely to cost in inflation-adjusted dollars? What if you knew based on the aforementioned "cost of life" that some dramatic changes needcd to be made to your savings/investment/tax planning efforts ? Or, what if you found out you were exaetly on track? Experience tells us that, with each passing year and update to our retirement projections, our planning becomes more accurate.Retirement planning is not a onetime project.

An evolved retirement projection can give a good idea as to whether the various inputs need to be changed to reach a famiy's goals. For example, if is appears that there is not enough money at the intended retirement age. spending might be cut. Or the required rate of return on the investment portfolio might be increased along with the increased risks of doing so . Of course, these or other changes have considerations that must be dealt with. They present the opportunity for us to assist our clients...