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Should You Hire a Financial Manager? Human or Robot?
There’s nothing like a raging pandemic to bring home the reality that your mortality is not just a theoretical possibility. Not unlike the effect of knowing one will hang on the morrow, the current situation has motivated me to give some serious thought to what happens when I’m gone. While I’m quite comfortable managing our finances, my wife’s ability to find an excuse whenever I try to sit down and go over things makes me realize that she doesn’t share my zest for this financial stuff. So what would happen if I were no longer around to monitor our far-flung accounts, rebalance things periodically, and hunt for the best CD…
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Cabin Fever? Curl Up with a Good Finance Book
As the world hunkers down to weather the coronavirus, you find yourself in an alternate reality. Just weeks ago, you were busy working, volunteering, seeing friends, traveling, going out to restaurants and shows. Suddenly, you are confined to quarters, venturing out only for daily exercise and essential needs. You have unaccustomed time on your hands. You feel a certain sense of accomplishment from having binge-watched all twelve seasons of Red Dwarf, but what should you do next? “You’ve …binge-watched all twelve seasons of Red Dwarf, but what should you do next?” Here’s an idea: why not read some of those personal finance and retirement planning books you’ve been meaning to…
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Make Your Own Retirement Spreadsheet — Part II
In the previous post, I suggested reasons why you might want to create your own financial planning spreadsheet, and described the nuts and bolts of setting one up. But there’s still the problem of choosing reasonable inputs and interpreting results in a way that gives you insight into your financial future — rather than leading you astray. In this post, I go over how to make the most effective use of your spreadsheet plan: how to handle inflation, what you might assume about investment rate of return, how to do sensitivity and what-if analyses, and how to check your results against other tools. Inflation — What to Do With It…
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Make Your Own Retirement Spreadsheet
In my last post, I encouraged those so inclined to create their own financial planning spreadsheets. However, I didn’t provide enough detail to allow the motivated reader to go and set one up. This post fills that gap, providing enough specifics to enable anyone who knows how to use a spreadsheet to map out her financial future on a home computer. If this sounds like something you might want to do, read on! Why Go to the Trouble? But, you may ask, why should you put the time and energy into making your own planning spreadsheet from scratch when there are plenty of powerful software programs out there that will…
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What the Heck is Monte Carlo Analysis?
In reading about personal finance, you may have come across references, often hushed and worshipful, to a mysterious thing called Monte Carlo analysis. Perhaps you wondered: What is it? Is it really the gold standard for financial planning? Are there any alternatives? If this sounds like you, read on! What is it? Monte Carlo analysis, developed by mathematician and nuclear scientist Stanislaw Ulam while working at Los Alamos in the 1940s, is an important tool for modeling a complex system when a key variable is unpredictable, but whose possible values can be described with a distribution (such as a bell curve). Monte Carlo essentially substitutes an entire probability distribution…
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Retirement – What Could Go Wrong?
You’ve worked hard for 30 or 40 years, raised a bunch of kids and launched them into adulthood, and now you’re excited to embark on the next phase in your life – stepping back from the daily grind, traveling to far-off lands, having time to enjoy your hobbies, and trying new things. You’ve managed to accumulate a tidy nest egg and, with Social Security, don’t anticipate needing to withdraw more than 4% of it per year. (Bill Bengen would be proud!) Your mortgage is paid off, you have a plan for the future, and you’re still in love with your spouse. Things look good. What could possibly go wrong? Unfortunately,…
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Managing Money in Retirement II: Income for a Lifetime
This is the second of a series of posts on retirement withdrawal strategies. If you haven’t read Managing Money in Retirement I, please read it first! Most of us would feel more comfortable having a reliable source of income in retirement — at least enough to cover our essential needs – rather than being completely at the mercy of uncertain investments in stocks, bonds, real estate or more exotic things. As a practical matter, though, how can we go about building the floor of a floor-and-upside strategy? First, let’s define what we’d like in the ideal world. The best source of income would be an inflation-indexed payment, lasting for…