How to Fix Advisor Retirement Planning Models

After posting, we received the following comment on this post from David Blanchett: “While it's true some financial planning tools don't do the things you list, I wouldn't ascribe the problem to Monte Carlo models... since there are few, if any, limitations for Monte Carlo simulations. Therefore, you might want to change the header to something like "Common Financial Planning Problems" to reflect the fact it's not the model itself (Monte Carlo), rather the tools that have been built using the model that aren't as good as they could be (or likely will be as they evolve)!” We thank Mr. Blanchett for his constructive feedback and agree with him, but we point out that these problems are much more easily fixed in our deterministic actuarial models than in the Monte Carlo models typically used today by financial advisors.

Be Empowered to Own Your Own Retirement

In his July 17, 2020 Forbes article, Your Retirement Asset Drawdown Strategy Should Fit Your Personal Story, Steve Parrish says,

“Before addressing the legitimate assumptions tied to retirement planning, the advisor should first help create and tell a story for the retiree to show the bigger picture. An approach to drawing down retirement income should be laid out in order to see how true that story feels to the owner. If the story fits, the retirement plan has a better chance of blending with that retiree’s style.”

In this post, we will push back on Mr. Parrish’s premise that retirees need to be told stories about draw-down strategies as a first step in developing a plan for retirement, and we will propose following our Recommended Retirement Planning Process as a better alternative.