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Simulating Your Retirement
Published Monday, February 13, 2017

Even successful CEOs who thought they had planned well for retirement need to question whether they really have enough saved, especially if they are paying to keep up a house or traveling extensively. The uncertainty of the economy, the market, as well as the financial demands facing the generation sandwiched between ailing parents and helping out their adult kids have some of them wondering whether they may need to go back to work.

Just as the neighbor in “The Graduate” had one word of advice for Benjamin as he was just starting out, there is one word of advice for those planning their second act in retirement … and it’s not plastics.

It’s simulations.

Do you think executives at Fortune 100 companies make a business decision without having an analyst run multiple simulations? Of course not. The question is, who’s running your retirement simulations? For any major business decision, you would simulate multiple futures to determine the likelihood of success, as well as areas of vulnerability. Retirement is no different.

The 80% Myth
You may have heard about the 80 percent retirement myth—that you can retire on 80 percent of your final income. The reality is lifestyle costs more after retirement. You probably have made a promise to yourself and your significant other that you’d spend more time traveling, going to the theatre and playing golf.

But being nervous that you might run out of money will steal your joy. Maybe you think you can just create an Excel spreadsheet and calculate your needs by yourself, but would you do that with your company’s financials? Of course not, because too many variables are missed without someone who has training and experience. And too much is on the line.

By having a professional conduct a retirement simulation and detailed plan, you can get peace of mind and the freedom to enjoy your lifestyle. This is because you can answer one of the most important questions: How likely is it that you can enjoy the kind of lifestyle you sacrificed for?

Simulating Success
It starts with the lifestyle you want, the income you have and your investments. Then you make some assumptions. These assumptions are then plugged into a simulation software program. The program will simulate thousands of possible futures, taking into account changes in “real-world” factors such as inflation, interest rates, dividends, cash flow and investment returns.

You gain a sense of how likely it is that you will be able to retire given your goals and desires.  The value of the simulation is not in trying to predict the future. It is seeking to understand the probability of your success. And it identifies the factors that will increase or decrease your success.

So what happens if you don’t like the likelihood of success? You’ll need to tweak the different variables like lifestyle or the amount of investment risk you are willing to accept. By changing your asset class mix, you change your level of risk and potentially increase your rate of return.  The trick is to take the least amount of investment risk that is required to hit your lifestyle goals.

A retirement specialist can regularly simulate the ups and the downs of the economy and the market to give you an ongoing sense of the probability of success, along with a clear path to follow. Using it, the retirement specialist can design an initial plan for you so you can use it to make further strategic adjustments. It’s like having Google maps tell you to adjust your course to stay on target.

It is a plan you can go through at least once a year or when something unusual pops up. Every possible concern you have gets answered.

Research has shown that less than a third of all Americans have an actual goal in mind for their retirement,  and only a small percentage of them have any strategy for reaching that goal.  On a day-to-day basis, there’s always going to be volatility in the economy and financial markets. Once you’ve done a simulation for retirement, you’ll have a strategic framework on which to respond to changes when they do occur.

Dan P. Hagler is co-founder and CEO of Granite State Retirement Planning Inc., a retirement planning services firm in Bedford. Mark Gagnon is co-founder and president of the firm. For more information, visit gsrpnh.com or call 603-472-4447.

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