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Why Financial Plans Are Worthless
Old 03-15-2010, 06:35 PM   #1
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Why Financial Plans Are Worthless

A sensational headline, but a good, brief blog entry in the NY Times about Financial Plans - or any plans, for that matter.
Why Financial Plans Are Worthless - Bucks Blog - NYTimes.com

From the article
Quote:
Financial plans are worthless, but the process of planning is vital. Let me explain the difference.
Quote:
So while the plan is important, the key to arriving safely is the pilotís ability to make the small and consistent course corrections. It is about the course corrections, not the plan.
I think it addresses the feeling that a lot of us have - despite all the planning, there are so many unknowns - how will we manage to make our assets last 40 to 50 years?
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Old 03-15-2010, 08:09 PM   #2
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Old 03-15-2010, 08:22 PM   #3
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Thanks for posting this. Of course planning is important. This is why when I tried to start a business with my sister back in 2008, and she told me business plans are for nerds, I called off the business venture. You can fail with a plan, but you're going to fail without one.
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Old 03-15-2010, 10:04 PM   #4
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Just when you think financial journalisim cannot get any worse, they reset the benchmark.

Plans involve the future. The future is uncertain. The further into the future and the more variables are involved the greater the uncertainty. Long range financial planning involves a lengthy time horizon and a material number of variables. No sensible person expects a financial plan to predict the future - that is not its purpose. The financial plan is there to provide (among other things) indications of what you need to do and what may be achievable in a given set of circumstances as well as providing a basis for measuing progress. The motivational factor is also one of the functions of a plan.
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Old 03-16-2010, 08:11 AM   #5
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I think the point of the article is that undertaking the process is more important than the details of the outcome.
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Old 03-16-2010, 09:54 AM   #6
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I think the point of the article is that undertaking the process is more important than the details of the outcome.
That's what I took from it too. A few on the board have professed to analysis-paralysis when it comes to planning for ER and taking the final leap.
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Old 03-16-2010, 10:10 AM   #7
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One page of K&E engineering graph paper with a couple of drawing notes. Upper and lower boundary lines 1977-2006. Benchmark 60/40 401k - cause that's what I perceived 'conventional' pension plans did.

Layed off 1993. Cut expenses and readjusted - aka ER'd even though I 'thought' I was unemployed til I made the mental shift between the ears.

heh heh heh - bad attitude, really cheap SOB early on, a little temp work, sold some rental property - morphed into a really high class ER
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Old 03-16-2010, 11:04 AM   #8
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During my I/T career I spent some time in Planning. I became a big fan of the planning process because 1) you are required to develop knowledge of your current and projected situation, and 2) having that knowledge and a concrete plan are invaluable for knowing how to approach the changes in circumstances that always happen.
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Old 03-16-2010, 12:26 PM   #9
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During my I/T career I spent some time in Planning. I became a big fan of the planning process because 1) you are required to develop knowledge of your current and projected situation, and 2) having that knowledge and a concrete plan are invaluable for knowing how to approach the changes in circumstances that always happen.
Exactly. A dynamic retirement plan, to be shifted when circumstances change, is a good thing. It gives one a starting point. Approaching decisions with no dynamic plan or guidelines sounds like an utter nightmare to me.

My plans have always included a lot of "what if"s, and still do. What if SS evaporates? What if we have another market crash? What if inflation eats away at my income? What if my portfolio earns substantially more (or less) than historical averages? What if I live to be 105? All of these and more are possibilities and could affect my plans. So, that is why I consider my financial/retirement plan to be dynamic and not static.
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Old 03-16-2010, 12:42 PM   #10
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"Course corrections" play a big part in Otar's book and Hebeler's method.
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Old 03-16-2010, 12:56 PM   #11
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I have this huge spreadsheet that has annual projected income & expenses (in more detail than that). I frequently update the number that represents my invested assets to match reality. All of the variables can be altered, too. If I see that number going down instead of at least staying where it was expected to be, I'll cut back on what I spend. I allowed for a lot of play money. Some years it might have to cover home repairs instead of play.

I'm counting down and planning to retire in mid-July this year so this has been an ongoing planning process - for maybe the past 2 years or so.

I can't imagine not planning - and I can't imagine assuming the assumptions won't change over time.
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Old 03-16-2010, 04:06 PM   #12
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Intel, like I suspect most MegaCorps, engaged in annual torture exercise called strategic long range planning. I think somewhat unusually, Intel involved all levels of the company, and included recent college grads as well middle and senior management.

Although, the forecasts of which products an individual group would put out were generally surprisingly accurate (due to Moore's Law). The forecasts of the market conditions were often way off. For instance very few plans made in the early to mid 1990s predicted that the internet and the world wide web would make much of an impact in the next 5 to 10 years.

After doing this for a couple of years, and seeing plans changed dramatically, (This was the tech business in the 80s after all) I ask my boss what was the point of generating all of these slides that we all knew were going to be mostly wrong. He explained that importance of the exercise was not the presentations but the process, and looking at the big picture and imagining what could change and how we should react.

I think financial planning is worthwhile for the same reasons. Ten years into my retirement, I've seen a technology stock collapse, and yet astounding increases in the importance of the internet a massive real estate bubble and it bursting, a truly dismal decade for stocks, and a great recession. I'll take credit for mostly foreseeing the first two, but everything else has been a big surprise. My optimistic and even average forecast on my financial condition turned out to be too optimistic, but my contingency plan actually proved useful. Although, the one thing I planned on "I'll go back to work if my money falls below X", didn't include the possibility that if I lost a lot money it would be hard to find work. The best laid plans of mice and men.....
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Old 03-16-2010, 04:09 PM   #13
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Course corrections could be built into your withdrawal plan. ESR Bob's 4%/95% has built in adjustments based on portfolio performance. Guyton demonstrated a withdrawal plan with built in adjustments for inflation, portfolio performance on both the upside and the downside.

Bob's site has links to some of these
Variable Withdrawals in Retirement

But that's just the financial aspects. Need to be able to adjust on other things based on health, changes in interest, relationships, deaths etc. & still thrive.
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