As a financial planner, I spend a surprising amount of time building projections that I know will be wrong.
That probably isn’t the sentence you expected to hear from someone in my profession, but think about what goes into a long-term financial plan. We make assumptions about how much you’ll earn, how much you’ll save, what you’ll spend, when you’ll retire, what your investments might earn, what taxes might look like, and even how long you might live. Then, we project those assumptions out over twenty, thirty, or sometimes even forty years into the future.
Do we really expect every one of those numbers to be exactly right? Of course not.
Your actual life will almost certainly look different from the one we model today. At first glance, that might seem to make your financial plan useless. However, understanding that may be one of the most important parts of good financial planning.
The goal of a financial plan isn’t to predict your life. It’s to help you make better decisions as your life unfolds because the fact is that all financial plans are built on assumptions, not certainties.
Every financial plan has to start somewhere. We know certain things today, such as the assets you own, what you earn, how much you’re saving, what you’re spending, and perhaps when you would like to retire. From there, we have to make educated assumptions about everything we don’t know.
What will inflation average over the next twenty years? What will your investments earn? How will tax laws change? Will your spending increase or decrease in retirement? Will you live to 85? 95? 105?
And then there are the variables that don’t fit neatly into a spreadsheet. Maybe your child is going to get married and you want to pay for a big wedding. Maybe another wants to start a business or buy a new home, and you want to help. Maybe grandchildren come along and suddenly funding their education becomes important to you. Maybe you decide that the vacation home you’ve talked about for years is something you actually want to buy. Or maybe, after years of saying you’ll work until 65, you wake up at 61 and realize you’re ready.
Life has a funny way of ignoring our assumptions. So, if changing an assumption changes the outcome of the plan, does that mean the plan failed?
I would argue the opposite. In fact, that’s when the planning becomes most valuable. We have worked with many clients who have confronted unexpected life changes, and there can be tremendous value in not having to start from scratch. We may not have anticipated exactly what happened, but we already understand the client’s financial foundation, priorities, and available resources. Instead of asking, “What do we do now?” we can start asking, “What does this change?” I cannot emphasize enough just how valuable that foundation can be.
In my years of building out financial plans, I find that the most interesting questions and the most enlightening conversations usually start with, “What If?”
For example, suppose someone comes to us with what sounds like a simple question: “Can I retire at 65?”
We will certainly model that out and help the client understand what retiring at 65 might look like. But answering only that question leaves a lot on the table.
What if your spouse retires even two years earlier than planned, and now you suddenly want to join them in retirement? What if you want to spend more than originally planned during the first decade of retirement while you’re healthy and traveling? What if you buy the second home you’ve always wanted or want to give money to your children while you’re alive rather than leave all of it as an inheritance? What if investment returns are disappointing during your first several years of retirement? What if you live significantly longer than you expected?
Now we’re getting somewhere. Because a good financial plan doesn’t simply tell you whether Plan A works. It helps you understand what might happen when life gives you Plan B, C, or D.
That’s an important distinction because most significant financial decisions don’t happen in total isolation. Retiring two years earlier affects more than just two years of salary. You’re potentially giving up two years of income and savings while simultaneously adding two years that your assets need to support you. It may also affect your health insurance costs, your Social Security strategy, taxes, and when portfolio withdrawals will begin.
One decision can create a ripple effect across the rest of the plan. My job is to help you understand those ripples before you jump into the water, which is why something as simple as asking, “Can I afford it?” is probably the wrong question
Financial planners hear some version of that question all the time, and sometimes there is a fairly clear answer. But often, a better question might be, “If I do this, what changes?”
Suppose you did want to retire two years earlier than planned. Perhaps the financial plan tells us that you can, but doing so means spending a little less each year in retirement. Would you make that trade? Maybe buying the vacation home means working another year. Is having the home worth another year of stress in the office? Maybe giving money to your children today means leaving them less to inherit. But perhaps watching them use that money to buy their first home means far more to you than maximizing the inheritance they receive decades from now.
Those aren’t purely mathematical decisions. The math can help us understand the choices, but it doesn’t make the choices for us. And that is an important part of financial planning that can get lost when everything is reduced to account balances and projected rates of return. The objective isn’t necessarily to finish life with the largest possible number on a balance sheet. The objective is to understand what your money allows you to do, as well as understand what tradeoffs might come with those decisions.
Another question I am often asked is, “Am I on track?” Answering yes is definitely one of the most reassuring things a financial planner can tell someone. But there’s a danger in interpreting that to mean, “Great. We never have to think about this again.”
Imagine that we create a plan today and everything looks good. But two years from now, your income has changed or your spending looks different than we projected. Maybe one of your children needs financial help, or tax laws have changed, or you’ve become more interested in charitable giving strategies. Or maybe simply retirement at 65 suddenly sounds much less appealing than retirement at 62. We have seen all of those scenarios play out.
Are you still on track? Maybe. But we shouldn't answer that question using information from two years ago. A real financial plan shouldn't be framed and hung on the wall. It should evolve alongside your life and work in tandem with your investment portfolio. If nothing in it ever changes, I’d probably be more concerned than impressed.
The value comes from revisiting that plan as new information becomes available. Sometimes that means making a simple adjustment to lifestyle choices. Sometimes it means simply mapping out a new scenario to answer some “What If” questions you might be kicking around. And sometimes the conclusion to the updates is that no change is necessary.
A financial plan is meant to evolve with your life, so there needs to be a deliberate process for making sure it does. Having an annual review process in place with your spouse or significant other to formally identify and discuss planning items is of paramount importance. What has changed during the past year (income, spending, savings, taxes, debt, family circumstances, health/insurance considerations, tax situation, employment, etc.)? What is likely to happen over the next year or several years that should be planned for now, rather than reacted to later?
Whether you are working with a professional or whether you are trying to do this type of planning on your own, the plan needs to be revisited every year. Having a formal review session can create engaging, productive discussions and allow us to update assumptions and model potential consequences. If something has changed, we dig into the plan to identify what else that change may affect (retirement sustainability, taxes, Social Security, portfolio withdrawals, estate/gifting decisions, etc.), and then you can decide what action, if any, is warranted. Sometimes the review produces changes. Sometimes it confirms you’re still on course.
Doing nothing can be a perfectly good planning decision, as long as it’s actually a decision that’s made with an understanding of the numbers, the alternatives, and the tradeoffs involved.
In many cases, the plan can be wrong without the planning being wrong. Imagine we build a financial plan for someone at age 55, and the projection assumes retirement at 65, a certain level of annual spending, a particular Social Security strategy, and a reasonable set of assumptions about investment returns, inflation, and longevity.
Fast-forward ten years. That person didn't retire at 65. They actually retired at 63 and they spent more on travel than we had anticipated in the plan. Maybe they moved closer to their new grandchildren, and somewhere along the way, their priorities changed.
Was the original financial plan wrong? Technically, yes.
But suppose that throughout those ten years, we revisited the plan every year. The client kept us updated on major life changes and shifting priorities. We modeled retiring earlier before the actual decision was made, adjusted spending assumptions as actual spending changed, and incorporated the move as priorities evolved. In that case, the original projection may have been wrong, but the planning process did exactly what it was supposed to do.
Success isn’t looking back thirty years from now and discovering that every number in your original financial plan was accurate. That would make my job boring and monotonous. Instead, success is being able to make meaningful decisions along the way without constantly wondering whether one choice will unintentionally derail everything else you have worked your entire life to build. Good planning doesn’t aim to keep the original plan “right.” It aims to have a process in place that keeps the plan relevant as your life changes.
So, yes. Your financial plan is probably wrong. Your actual life will almost certainly look different from the one we model on paper today. You’ll change. Markets will change. Tax laws will change. Your family may change. And the things that matter to you may change as well.
That isn’t a flaw in financial planning. It’s the reason planning should be an ongoing process.
We don't need to predict exactly where you'll be thirty years from now to make thoughtful decisions today. What we need is a reasonable starting point, an understanding of the variables that matter to you, and a willingness to revisit the assumptions when life inevitably gives us some new information.
So perhaps the question isn’t whether your financial plan will turn out to be right. It probably won’t.
The better question is whether your planning process is prepared to change along with you. Because when life inevitably looks different than expected, the most important thing may not be whether we predicted it.
It may be whether you understand your options when it happens.