Important Information and Useful Tips
With the growing chorus of retirement worries, one question that is often asked, but rarely answered satisfactorily, is, "when will I run out of money?"
Eads & Heald Investment Counsel provides its proprietary "Retirement Spending Model" free of charge to guide you towards a reasonably accurate answer. Why is it only "reasonably accurate"? Well, the math in the model is entirely accurate. However, the results are only as good as your inputs, and situations change over time. For example, even though the model might show you running out of money in 15 years, perhaps you will receive a major, unexpected inheritance or start a very successful business later in life.
Also, there is an old computer saying: "GIGO". That is “garbage in, garbage out.” Any somewhat rigid computer forecasting model is an imperfect tool to gauge the future. Couple that with wild guesses (sometimes known as WAG’s) about key future variables and you must be skeptical about the end product of any model. By virtue of using this model you must understand these caveats and agree to them. So, as with all forward-looking models, this is only a "reasonably accurate" spending guide which should be reviewed and updated periodically.
We recommend running the model in a very conservative manner. That is, overstate inflation and the tax rate while you understate investment rates of return and income sources. All retirement plans need a margin of safety in case things do not turn out well. If you base your future on 1% inflation and 20% investment returns you will likely be very disappointed. At the other extreme, 4-5% inflation and a 5% return is certainly much more prudent. Likely, the ultimate truth will fall somewhere between these.
We want to start with a few words of caution, however. The current model is not robust enough to cover in detail every possible nuance of a person’s financial life. If your situation is very exotic and/or complex, the model could possibly be of little use.
Still, having stated the above, a model can be a powerful tool to gauge the sensitivity of your ultimate financial solvency as related to such variables as inflation, tax rates, investment rates of return, various income sources, etc. With a few keystrokes you can change the input rate of inflation, rate of return on investments and other key inputs. This allows you to gauge to what degree your ultimate financial well-being is affected by changing various inputs.
The model is largely self-explanatory. We want to avoid mind-numbing pages of instructions. Jump in and try it out. However, we do suggest that you “carefully” read all words for the model input boxes and the model's “Notes” which you can link to from within the model itself. You can also click on each column heading within the model for a definition of the column.
We should note a few of the model’s imperfections, if you care to know:
We are not on a crusade to change the lives of adults in regard to saving money, smoking, losing weight or anything else. We are on a crusade to help mature adults live their retirement years with a better understanding of spending, inflation, investment rates of return and like items so they can enjoy those years with financial confidence.
If all of this interests you, but you lie somewhere between being “slightly confused” and “having no idea in the world what we are talking about”, give us a call at 770-988-9556 and ask for help.
We wish you well.