Assumptions matter most

Some people are enamored with the word tariffs. My new favorite word is assumptions.

I was listening to a podcast today and they told a story of a person who went to two financial planners seeking to determine if his retirement plan was sufficient. The first planner told him he had a 95% chance of success. The second said 75%. Naturally, he went with the first planner, but failed to ask the key question. What assumptions were used in the calculation?

There are so many assumptions to consider - spending levels and patterns, life expectancy, inflation over 30 years or so, risk tolerance, a legacy goal and then there is the biggy, investment returns and the variables within that investment mix and more. 

I never had to deal with this, but it sounds scary while extremely important.  As the podcast noted, even a 1% difference in investment return assumptions can make a significant difference in the projection - and the income reality in the future. 

Turns out in the example which enticed the individual, the 95% success, used aggressive investment return percentages with little deviation. Nevertheless, the - likely unrealistic 95% - was too enticing. 

I was surprised to learn from the planners on the podcast that hardly anyone asked about the assumptions used when they presented a client with a plan. 

I doubt I would know all the questions to ask, but I know using conservative assumptions would lower my stress even if it meant working a little longer. 

How about you? Do you know the assumptions your future is based upon? 

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