Guaranteed Success in Retirement

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Attending webinars is a big part of this job.  I probably have time for about two per week but there are dozens more available on topics relating to all sorts of retirement products and strategies.  There’s definitely an opportunity in this business to be a professional student and I have to be fairly picky with my attendance so I have time for the more productive stuff as well.

Last week I was invited to a presentation on a new type of retirement calculator it ended up being a very good use of my time.  The methodology behind the calculations is what most impressed me and it’s similar to how I’ve run hypothetical scenarios for people but the output is much more detailed.  This new way to analyze outcomes for retirees compares quite favorably to strategies of the past and there is one major benefit answers one common question in very objective terms.

Where did strategies of the past go wrong?  In the early days, financial managers and calculators used what is called straight-line forecasting.  Starting with your assets and add a spending, inflation and growth rate.  Income increases along with asset value over time and if it worked that way in the real world then it would make a lot of people very happy.

The problem is that markets don’t produce consistent returns year after year.  Yield is random and sometimes negative so it’s foolish to just assume something like exactly 8% every year in retirement.  So people started using Monte Carlo simulations to create random returns.  Computers can kick out several thousand random examples in a matter of seconds.  The results are graphed and you get a probability of success.  The problem with this is it also has no bearing in reality so it’s impossible to draw any useful conclusions from it.

The new solution is called Aftcasting, which is similar to what I’ve been doing but again with much more detailed than I have.  This uses real-world market performance, interest rates and inflation across an actual sequence of events in the past.  There are no assumptions in terms of growth rates or inflation, it’s just how things would have actually happened if you had retired in a given year.

For the past few years I have been running a basic form of this where I take someone’s numbers and run the plan over the worst 20 year period in the market.  For instance, had you retired just before the Great Depression, how would your portfolio have performed?  This new software will run a retirement plan over every 20 year period since 1900 to show how many times throughout history a plan would have failed.

Once all inputs are added, the software produces the number of times a plan would have failed, depending on the date you retired going back more than 100 years.  Real performance, real interest rates and real inflation.  Whether it’s something that everyone wants to use is beside the point, because there’s one major benefit that would appeal to just about everyone I’ve met.

When the original output is read, if the plan doesn’t have an acceptable success rate, the user can click a button to ‘optimize the portfolio’ and the calculator computes the exact blend of safe and risk assets to use in a person’s portfolio.  I hope everyone realizes how beneficial that is to know how to blend assets just the right way to retire comfortably and successfully in just about every year in modern history.

No more trying to guess who’s right and which person to trust.  It’s an absolutely objective answer to how much money you should protect in retirement.  Which type of safe asset to use is still a decision you have to make but at least you can test the output of different options to see if one asset in particular gives you an advantage.

This is going to be a great new tool for providing comprehensive information to those who are serious about getting answers to retirement.  If you really want guaranteed success in retirement, I have yet to see a better way.  As I familiarize myself with the new calculator I will be sending out more information as to how it will be available to you.  Because it’s not my software I can’t advertise or make demonstrations publicly but I will use it to help anyone who is done kicking tires.

Call or email if you have any questions.

Bryan

5 replies
  1. George W Crum
    George W Crum says:

    I am still a little fuzzy on the value of this tool, since no 20 year periods will likely repeat the same occurrence in the future, I understand that it will give a range of past outcomes but how do you project accurately to the futre

    Reply
    • Bryan Anderson
      Bryan Anderson says:

      George – If I were able to predict the future then I would barely have enough time to post my phone number and tell people to call me. Being able to do real-time analysis is a far bit better than the random simulations that have been so popular with financial advisors lately. If you can develop a plan that would have never failed in the last 120 years then it would provide more assurance than anything I’ve seen. Plus, with the asset management and annuity sides being so opposed to each other it is nice to have a tool that shows an objective middle ground. The best case 20 year period suggests a person should have all assets at risk, while the worst 20 year period suggests all assets should be safe. Doing one or the other based on assumptions is foolish and the solution lies in the middle but it’s impossible to define. Absent the requirement to choose sides, I feel this is a wonderful compromise.

      Reply
  2. Harry Varnis
    Harry Varnis says:

    Bryan,
    That sounds like a very good tool that leverages the data and computing capabilities we have today.

    I am hopeful you may be able to run it on behalf of followers who might benefit from making a change as a result of using it.

    Reply
    • Bryan Anderson
      Bryan Anderson says:

      It’s a subscription based service so I am not at liberty to give it away but with permission in coming weeks I may be able to send the link so you can buy it yourself if you’d like.

      Reply

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