Garbage In — No Retirement Out

garbage-in-garbage-outWhen you are using assumptions to determine whether you can retire, putting ‘garbage in’ may impact your ability to enjoy that retirement when you want.  There just may not be enough money.

Elements of creating a financial plan for your wealth and your retirement are the assumptions we put in.  When to invest can be the biggest determinant of reaching your goals.

One weekend, my wife and I were putting a garden into our yard.  It started with digging up the grass in this 4-foot by 12-foot area.  I am a financial advisor to entrepreneurs, giving them a plan for their business and personal finances, not a gardener.  So when I planned out my day of gardening, I completely underestimated how long it would take. The hardest part was digging up the grass in an arid environment such as Denver, Colorado. To this day my wife rags on me as to how poorly I estimated how long the project would take.

So I want to impress upon you the importance of using the right assumptions to create your personal financial plan.  The biggest error I see people make is over-estimating what their returns will be.   Three factors determine the returns achieved in stocks, bonds, real estate, and loans: (1) earnings, (2) growth of earnings, and (3) valuation.  John Hussman, President and Portfolio Manager of Hussman funds, has tracked this for stocks for the last 200 years and you would be amazed at the accuracy of the expected returns 10 and 15 years out.  See  January 13, 2014 – Hovering With An Anvil

The second risk is not accounting for surprises. You can’t plan hiccups, but you can have a “just in case” plan B in place. Having a plan B in place is a great way to make sure that your assumptions in your financial plan don’t turn out to be garbage for your retirement.

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