We recently reviewed a financial planner’s article about strategies for claiming Social Security. They had software to do a complex analysis. The software required inputs of some raw facts: estimated Social Security benefits at different ages, household cash flow requirements, financial balances.
But the software required inputs, answers to questions about the future:
How much will investments earn in the future?
What will tax rates be in the future?
What will inflation be in the future?
How will household cash flow needs change in the future?
Many software planning tools even ask for the answer to the ultimate question: what will the date on your death certificate be?
The problem is we can’t know the future. So calculating that financial balances would be a tiny amount higher 30 years from now if one course is chosen versus another is probably about as reliable as consulting a fortune teller. Especially when it comes to trying to guess when your retirement will “end”!
But when it comes out of a computer, with charts and graphs and year-by-year tables of numbers, presented by a well-dressed person with initials after their name, it seems real.
At the dawn of the computer age, a phrase was used to describe the analytical version of “you reap what you sow”: “garbage in, garbage out” (or GIGO).1 We might do well to remember it.
Clients, if you would like to puzzle through any financial issue, we would be happy to use real life dialogue to sort out how the alternatives might work out. Email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.