When you use the EvolveMyRetirement® app for the first time, you’ll no doubt have an initial emotional reaction to the resulting optimisation. This reaction depends both on the state of your finances and on your prior expectations. Unlike most retirement calculators, ours doesn’t just tell you whether or not you’ll run out of money. Instead, it calculates probabilities based on what you’ve entered. And more than that, it optimises your top-level planning decisions that give results most consistent with your goals. The headline item that it optimises is the sustainable level of discretionary spending; whereas discretionary spending is an end in itself, the other optimised items are a means to an end. Alongside this level of spending is the risk of running out of money. Optimisation balances risk with spending, taking your goals and attitudes into account.
Feedback from our users shows a spectrum of possible reactions to the tool’s optimisation. We’ve distilled these reactions down into three main groups:
- Amazement
- Relief
- Shock
Amazement at your safe spending level after optimisation
You may find that the tool calculates a safe level of spending that’s far higher than you expected. This might be because you’re richer than you thought, whether in terms of income or of assets. Or maybe you have a long way to go before retirement, giving you ample time to grow your retirement fund.
But if the optimisation seems way too high, you should make sure you haven’t missed out anything important from your plan. In particular, check that you’ve included all your essential spending. You should also check whether the tool’s assumptions about things like inflation and growth match your own. If not, you might consider which are the more realistic, and perhaps edit the tool’s assumptions.
If after double-checking everything it looks like you can afford a lot more spending, you may want to consider being less frugal.
Relief that you can spend without running out of money
You may start using the tool with trepidation, assuming that you’re way off track. Then, if the optimisation tells you that your current level of spending is reasonably safe, you’ll no doubt feel a sense of relief. But it’s a good idea to make sure it’s not a false sense of relief. You should check your plan and all the assumptions. For example, missing essential spending could have made a big difference.
Once you’re confident that you’re really on track, you should revisit and update your plan every so often. No plan is ever static. The economy and markets change. And so can your priorities and lifestyle. After some time, a fresh optimisation may give you changed results.
Shock at your risk of running out of money after optimisation
It’s possible that your optimisation will suggest a very low level of discretionary spending, coupled with a scarily high risk of running out of money. In this case, you might take one look at the results, and decide the tool must be faulty, and decide never to use it again. That would be a shame, because in the vast majority of cases unexpected results are caused by missing or erroneous input.
Or maybe after double-checking everything, the tool confirms your worst fears, and you simply give up on constructive retirement planning. This is dangerous, as finances very rarely improve without planning. There are almost always options to improve your results, such as:
- Debt restructuring
- Tight control of ‘essential’ spending
- Property downsizing (now or later)
- Deferring retirement
- Supplementary income
Sadly, those with the most pressing need for planning tend to be discouraged too early.
Don’t be a financial ostrich
It’s easy to become overwhelmed by the complexity of retirement planning. When retirement is some years off, it’s tempting to become a financial ostrich as suggested in this FT article. The other extreme, also mentioned in the same article, is trying to be over-precise in future cash flow forecasting. Using EvolveMyRetirement®, you’ll avoid relying on over-simplistic rules of thumb. You’ll also avoid ignoring uncertainties; you can also see how sensitive your results are to your underlying assumptions. Its unique optimisation feature may help you think outside the box.