Latest / Better Planner / #4 - Projections
Transcript
- Taylor Stewart: Welcome back. Another episode of the Better Planer podcast. Colin Page, how are you? Colin: Good Taylor, how are you? Taylor Stewart: lovely. What's new in your world? Colin: Oh man, not that we're just, you know, a couple of busy working parents in May and, you know, kids and after school activities and plays and stuff we have to go up for. Yeah, summer's coming, but man, it's a sprint to the finish. Taylor Stewart: Summer's coming. Summer is nice. Yeah, nice. I went to the zoo on Monday with my kids. I hadn't been to a zoo in like 20 years. And it was pretty fun. It was pretty fun. Yeah. Giraffes are super cool. We fed some giraffes at a bar stool, I call it. It was about 30 feet in the air, but the fella just moseyed up there and with his like two foot long tongue was he taking these giant leaves from kids. was like, this is freaking awesome. This is so cool. Colin: ⁓ yeah? It's pretty magical. ⁓ They're sticking that blue tongue out there. Taylor Stewart: It was crazy, yeah, like they're down in their pit. They're like way down there, but then yeah, their heads are like all the way up there. I was like, this is so cool. They're just giant creatures. And they're like, now I understand why like lions, takes like a, you know, a pack of them to take one down and they can just kick them and kill. It's just, they're incredible animals. Like just how, it's just crazy. So cool. So that's, yeah, just the Dallas Zoo isn't like the greatest zoo in the world, but it was, it was fun to see ⁓ just different animals hanging out and doing their thing. Colin: You Taylor Stewart: They seem pretty happy, so hopefully it's a good zoo. Colin: Yeah. Speaking of animals doing their thing, my 11 year old ⁓ likes to listen to NPR with us because it's just always on and there's a wait, wait, wait, wait, don't tell me episode or where they do the quiz. The quiz and ⁓ the poem was about ⁓ two ⁓ animals getting frisky or two animals not getting frisky, but getting flirty. Taylor Stewart: That's amazing. Colin: And that was like the hint given about events in the news. Turned out the answer was the pandas at the National Zoo are getting flirty, which is apparently a very rare thing for pandas to ⁓ get that way in captivity. And so that made the news. It made NPR and made my 11-year-old laugh. Taylor Stewart: Hmm. Mm-hmm. ⁓ Okay Okay. That's amazing. ⁓ This is a theme. Colin is a 70 year old man, just so everybody should know. And now his son is well on his way to being one himself. I love it. NPR in the car. That's great. We're going to talk about projections today and where they fit into the planning context. You ready to talk about that or anything else you want to get off your chest? Colin: Yeah. Now let's go for it from pandas being flirty to making projections. Taylor Stewart: Yeah, I don't have a good segue there. It was just on my mind and I just wanted to talk about it. like, because projections are this, know, this, you know, technically as a Kerdora podcast, we've kind of staked our claim on being a non-projection based planning platform and you'll be seeing more projections in the platform. I just want to talk a little bit more about what we actually mean by that. just projections are like, there's this weird thing, like advisors know they're wrong. Clients know they're wrong. They're kind of a pain to build and maintain. ⁓ Colin: Hahaha Taylor Stewart: but a lot of people still can't give them up. And so I just want to talk about like where I, how I use projections, how I think of them and where they fit and get your thoughts on it as well. Because I think, first of all, like a projection, you're trying to model out what you think life will look like. That's fine. ⁓ I think we all know that just the further out you go, the more uncertainty, the more inaccurate they'll be. I think it's still helpful to illustrate and help people visualize. and quantify things. think something like, I definitely forget sometimes is like, it's not that they don't, not that they're dumb, they just don't know that like $500,000 growing at 8 % for 30 years becomes a heck of a lot of money. They just don't always know that. And so sometimes it can be nice to show them visually where things can become, or what they can become. But what are your general thoughts on projections and how you think about them and use them in your practice? Colin: them. yeah, I think, ⁓ the, the phrase all models are wrong. Some models are useful comes to mind. ⁓ and I think the key with using any kind of projection is to really understand what are the inputs. Taylor Stewart: Yeah, yeah. Colin: to it that matter, that actually move the needle and not lose sight of that because I think so many tools out there try to cram in. Taylor Stewart: Mm-hmm. Yeah. Mm-hmm. Colin: dozens of variables and data points and changes over time and add a whole lot of complexity, but I'm not sure that it adds a whole lot of clarity on the back end in terms of what's actually moving the needle in the projection. so, ⁓ Taylor Stewart: Mm-hmm. Mm-hmm. Mm-hmm. Colin: Yeah, mean, think projections are, ⁓ you have to do it in a sense, because that's what people are coming to us financial planners for, is to understand, like, what do I need to do to have a future that looks like this? ⁓ There's gonna be some kind of projection involved. Do we have to know how we're gonna get from point A to point B? ⁓ I think the mistake comes in in overselling, like, certainty in... or in not understanding what's really driving the model. ⁓ Taylor Stewart: Well, yeah, I think a couple of things come to mind. There's calculations that have to be done. I don't know where you draw the line between calculation and projection. I mean, there's calculations, but I don't really know. I'm probably thinking of the nice line that grows over 30 years. I call that a projection, but calculating an ending value is a calculation. it depends on how you define that, because I definitely don't think you have to use a projection. Certainly in your job, we're going to use calculations, though. So maybe that's semantics, but I also think that's a... Colin: Hmm. Hmm Taylor Stewart: something to think about. also think like, I don't know how it came about probably because my guess would be just once you were able to run these more like computers made it easier to run really more detailed calculations, therefore projections to visualize them, it started to look really cool. And we probably started to market it and people started to come to expect it. And if you look at like any of your, you know, big box commercials on it. Colin: Yeah. Taylor Stewart: Sunday on a golf term, it's gonna be like an advisor sitting there, probably it's gonna pay into a computer screen with some chart on there. And so I think just it's become kind of part of like the, I don't don't even know what the right word is, not ecosystem, but just like the expectations, like, yeah, there's gonna be a projection and let's see that. like, that's fine. Like projections can be fine, but like, I think where I see the new planners especially fall into is they think the projection is the plan or the projection is the product. And their job is to get a very detailed projection. Colin: Yeah. Taylor Stewart: And that's what I would say is like, I think it's absolutely misguided to think that's your product and your plan and what they're actually coming for. Projection is a conversation tool and a visualization tool. It's not the actual plan necessarily. And I think if we're gonna... certain software is probably center so much around that. We all know the probability of success issue. And it's like, what do you do with that? And that's actually like one of the core frustrations that led to the framework that became Kerdora was like, we build these, I would build these projections, sit in front of a client and be like, I don't know the hell to do with this. So you'll have a lot of money someday if things go well and you won't if you don't. What do I do? And that's where I was like, okay, this is fine to show like the effect of if you retire earlier or later, help people understand, but it didn't help me plan. It didn't help me tell them what to do next. So. Colin: Mm. Yeah. Yeah. Taylor Stewart: I don't know, that's like, absolutely, you have to do calculations in your job. Maybe you want to visualize it with a projection. But I think it's, you know, I think I want to free people from thinking they have to use a projection. You don't have to. If the client wants to see it to understand, sure, but no part of you has to show it. What are your thoughts? Colin: Yeah. ⁓ I mean, I love what you said. A projection is not a plan. ⁓ That, that, yeah, I think that is a trap that we can fall into and the software makes it easy to fall into because there's all these bells and whistles and knobs and dials you can play around with. ⁓ And I think what I realized, you know, fairly early was that, that, that the Taylor Stewart: Yeah. Colin: Those models didn't help me develop the plan. I would spend so much time trying to dial in ⁓ the inputs to get the most accurate possible projection. Then I'd go to the client meeting and they would completely blow it up because they didn't, ⁓ we didn't tell you about this. Taylor Stewart: Yeah. Colin: or there's actually this other account or, actually we're not gonna buy that house or actually more often it's, you know how we talked about, we really can't afford that house. Well, we put an offer on it ⁓ last week and didn't tell you about it. it like, the projection is now like all that time you spent dialing in the... Taylor Stewart: Yeah, that's so true. Colin: the details like completely out the window. And so like, where do you, where does the rubber meet the road with the planning? You know, how do you work with a client that or how do you not use that? Hang on, waste time on creating the best model or projection you can and actually get to the heart of the matter. You know. Taylor Stewart: Mm-hmm. ⁓ Yeah. So I think, here's how I think about it. like, what is, if a projection isn't a plan, what is a plan? I think a plan is about identifying what you need to do next. It's about making changes. And so for me and what we build at Codora, it's opening or closing accounts, changing where your cashflow is going, paying off debt, maybe saving somewhere else, something like that, changing your investment allocation, changing your insurance and drafting some documents like. estate plans and beneficiary forms. Those are generally the changes you make and that's a financial plan is you need to change these things. ⁓ Now, how do you define those things? That's where the calculation projection thing can come in. So how do I know if I need to change where my cash flow is going? So here's how we do it in Cordoria. We say, okay, where is your cash flow going now? What are your goals? Do you want to retire? When do you want to retire? How much do want to spend? We'll calculate how much you need to save and then compare that to what you currently are and identify what needs to change. But that calculation, those assumptions, that's where the projection could come into play of like, really, because that, are you following what I'm saying or am I losing a little bit? Colin: Yeah, I mean, think the beauty... The projection itself is simple ⁓ or the calculation is simple. And so I think the most useful projections to have ⁓ and that lead to the best conversations with clients are those simple ones where we don't have all those variables. And so like you said, where is the projection helpful? Maybe it's helpful in determining what's the right savings rate compared to your goals. Taylor Stewart: Well, yeah, and that's where that. Colin: You know, when do you want to retire by? How much do need to save per year to get there? Or what percentage of your income does it take if you want to retire at 50? ⁓ like that's a good place for projection. And by the way, like you could answer that with, with one of these, you know, like I keep this on my desk and like, yeah, here we go for an audio. Yeah. One of the HP, ⁓ 10 B2 pluses, ⁓ here. And like, I still use it daily. ⁓ Taylor Stewart: Yeah. Yeah. Yes. Yes. He's holding up a calculator for the listeners there. He's just holding up a... Yeah. I love that so much. Yeah. Well... Colin: to just run like back of the napkin, ⁓ time value of money questions. Cause that's what, you know, that is a projection there. ⁓ Taylor Stewart: That's all it is? That's all it is? Yeah. But I'm saying, that's where, like, okay, so you are, that's our job is helping people understand, like, that's part of our job is helping people understand, okay, when do you want to retire, how much you want to spend, and then there's the math and calculations that go on to that. And where I draw the line of like, we won't just capture every variable in the sun just because you can, but it's like, what's going to meaningfully affect how much they save today? If I know I'm getting an inheritance in 15 years, let's include that. ⁓ If I know I'm gonna have to sell a business, let's include that. Those are the types of things that you need to allow for, but then just understand that you could be wrong. The amount could be wrong, the timing could be wrong, and those things. So is that a projection or a calculation? We're not necessarily displaying it in a chart of how it will look. if that's a projection, then I'm all for it. If that's just a calculation, then I'm all for calculations. Colin: It may be semantics, but I think I like that distinction of projections versus calculations. Taylor Stewart: Because then if you want to show a projection of what your financial, that's fine. And we actually have that as well now of like, here's what it would look like if you continue on your current path. That's great from an explanatory perspective, like it'll help people visualize, okay, cool. But then you just get into the math of like, what are you assuming? If you assume a linear rate of return, we know life's not gonna look that way. So then if you want to have variable returns, like then you're gonna do a Monte Carlo and it's gonna be this big old range and like, okay. That's nice. like, and I think where I, my thing was probably where I like professionally revolted against it was like, I don't need that. Like if, if returns are higher, it will be better. If they're worse, it will be worse. I don't need that. You know, and showing, and I work with mostly younger folks. like showing the 38 year old, never forget it, did this $1.084 billion or broke. There's no value in that. And so it's like, so. Colin: Yeah. Yeah. Yeah. Taylor Stewart: I think just, you know, calculations are important and the way I would think about modeling, however you do it, whether it's a software, Excel, calculator, whatever, if it's something you could know with a decent amount of confidence that will affect what you do today, then it's important. That like inheritance example, that's fine. But like you don't have to model like, well, if we sell our home in 30 years and downsize and move to Florida, what's the assumed growth rate on that? That's just, you're getting your way. You're getting in the way. And so I think, yeah, calculations are important. You don't need to calculate everything under the sun. Just what meaningfully affects the actions they're going to take today. And then on the flip side, sometimes you can't really even get there. Like you could run that and they need to save some number that's not plausible. So you just get back to like, what's the most you can save and it will be what it will be. And you know, maybe you can calculate that out like, hey, on this path is what that will become. But I don't know. I've never run a projection on my own financial life. Colin: Yeah. Yeah. Hmm. Taylor Stewart: It'll be what it'll be. I'm controlling what I can right now. don't know. mean, OK, great. Yeah, understand. If returns are really good, it'll be good. And if they aren't, they aren't. I don't need that. Just controlling what I can today. Colin: Yeah. Yeah, I think, you know, it's, taken experience and confidence to, be able to tell a client when you actually don't need a projection. Cause I, we all have those clients where they want to know like, Taylor Stewart: Yes, 100%. Colin: What's the return on investment if I do this versus do that? And, you know, I used to entertain those kinds of questions and, okay, well, let's plug it in. We'll see what the difference is. And like the difference, you know, usually comes out meaningless or it's just not a clear answer. ⁓ And so I think part of it is also knowing like, know where the projection is actually helpful. And I think the framework you said of ⁓ like, where is it going Taylor Stewart: Mm-hmm. sometimes. Mm-hmm. Colin: to actually change what we are doing today. And where is it just kind of like, you know, losing the forest for the trees? Taylor Stewart: Yeah, good. Well, the other thing, so this is where also Bristol is like, when I started out, it was all retirement planning. would do these nice 30, 40 year projections for people. Like this is your retirement plan. As if like that's the final say, you know, like, well, this is the plan. See you when you die. No, you, like I make decisions in the current day and like I generally don't need to project things out to know what to do today. Like does a Roth conversion make sense or not? I... maybe there's a loose calculation you need to do, like, you can also just decide that today most of the time. And so again, like I just, that pretty, like the getting bogged out, like you're modeling out all these different, like here's your Roth conversion map for the next 12 years. It doesn't matter. What are you doing today? Does it make sense today? Fine. That's it. Colin: Yeah. Yeah. ⁓ Taylor Stewart: Sorry. Colin: Yeah, you know, it takes like, I mean, I'm sympathetic or empathetic because like it takes, it takes having lots of conversations and, and knowing what moves the needle to be able to confidently say, you don't need that. ⁓ Taylor Stewart: It does. Yeah, and I'm sure that I'm probably being overly harsh. Like there are times, but I'm trying to think. I think the other, you know, it does come, like my biggest, yeah, it's that past year one, what are you gonna do? Like we can show, like here's the plan. Like let's use that, you know, we all, just really popular software is able to do that. Here's your Roth conversions for the next 11 years. It looks great, feels great. You look cool. But like, yeah, we'll check again next year. You know, like at the end of the day. So like, it's fun. Colin: Yeah. Yeah. Taylor Stewart: Okay, I don't know. I ⁓ don't know. ⁓ Colin: I mean, that's a more like, you know, better way of thinking about our role as planners anyways. You know, it's not like we are predictors of the future. You know, I do have actually a crystal ball behind me too, for when a client wants me to predict, you know, there you go, for when a client wants me to predict their future. Taylor Stewart: ⁓ you, yeah, it's perfect. Perfect. Perfect. Perfect. That's good. Colin: and I go consult the crystal ball. like, yeah, the reality is we want to get really clear on where they are today. ⁓ Taylor Stewart: Yeah. Colin: You know, that's point A. We want to really understand where they're trying to go, their goals. That's point B. And we try to send them in a trajectory to get there. But like then life's going to go all over the place. Tax law is going to change. They're going to get, someone's going to get sick in their family. You know, so the projection's only as good as, like setting that initial direction. ⁓ and then next year it may be something totally different. You know, something's happened in their life. Taylor Stewart: Mm-hmm. Yeah. Yeah. Colin: wanted to take a job in another state and make a whole lot less money, but they're going to pursue something they love that actually gets them closer to that sense of well-being that they were lacking. ⁓ So yeah, no projection is going to say that's a good move financially, ⁓ but that's where the rubber meets the road in these planning relationships. Taylor Stewart: Hmm? Mm-mm. Mm-hmm. Mm-hmm. Yeah. Colin: you know, sometimes you throw the projection out. I mean, I throw it out all the time. You hold it lightly ⁓ because things change. Taylor Stewart: Yeah, yeah. We'll get to this in a second. I do think for retirement planning it's a slightly different thing, but I wanna talk about an example with a younger client. Say they're 35 years old. They have a rough idea for what they want retirement to look like, and they could receive somewhere between a one to five million dollar inheritance sometime in the future. I need determine how much they need to save. Because that five million dollars, they don't need to save if they get that. Colin: Yeah, how do you- Taylor Stewart: Does a projection help you with this? What do you model? Colin: What do you model? Yeah, I mean, we've had this conversation before about, guess, a similar client or maybe the same client, but yeah, you know, do they want to rely on that inheritance ⁓ or do they want to make sure that they would be, then here again, you know, using the language of certainty, make sure you can't make sure you can't know for certain, but do they want to be on a trajectory where they can afford to retire on their own or do we want to include that? you know, likely potential inheritance at some point. Yeah, I think you can, I think you can use a calculator to figure out here's what it looks like both ways. Here's what it looks like if we're wrong. Here's what it looks like if. Taylor Stewart: There's something I'm trying to get out there that I'm not sure. I'm thinking live on the spot, but like we acknowledge that that one's kind of crazy to know. You don't know, but you're still gonna just do the best you can today. But like, how is that very different than what you're assuming you're gonna spend later on? Isn't that kind of like, I don't know, maybe. We don't know. So like, doesn't it kind of all come back to like, what can you control today? Colin: Hmm. Ha Mmm. Yeah. Taylor Stewart: I don't know, I'm literally thinking this through on the spot. The inheritance example kind of lands like, ⁓ well obviously it's fluffy, we're not gonna really count on it, we don't know for sure, but we're gonna like, yes, we know you wanna spend this much money and inflation's gonna be this much for this many years and obviously, I don't know. That's where it just comes back to what can you do today, for me a lot of times. But I do wanna talk about retirement, because I think that's slightly different. think you can, it's slightly more deterministic. You are making decisions that will last, like social security is. more known than your salary will be, at least contractually speaking. You can have pensions and annuities that contractually can be more known, and so a projection can be more firm. I think, ⁓ still the three giant unknowns that make the whole thing not worthless, but just unknown is, when are you gonna die, what are investment returns gonna be, and what are tax rates gonna be? You still can't know the main things here. ⁓ But why do I say that? I'm thinking, again, thinking outside. Why do I think retirement projections are more important? I know, what are your thoughts on retirement projections? Colin: ⁓ think they're useful, but they're useful in the same way that they are for the younger person who's trying to figure out how much to save. They're useful to the extent that they tell us what we should be doing today. ⁓ And so if you're young and trying to save for future retirement, I want to know what percentage of my income should I be saving and investing. ⁓ Taylor Stewart: Mm-hmm. Mm-hmm. Mm-hmm. Colin: you know, a projection or a calculation, super helpful for framing like the levers that here's what you can control. And then here's all the other things you can't control. But we're gonna make a, we're gonna make a guess, you know, here's, you know, the average return over the last 30 years, or, you know, here's the worst 30 year return possible as like a baseline. Taylor Stewart: Mm-hmm. Mm-hmm. Mm-hmm. Mm-hmm. Colin: You know, that could be helpful because that tells the person who's trying to figure out their budget, you how much do I need to save? I think it's the same story for a retiree. ⁓ You're just trying to decide how much can I draw on my portfolio today. ⁓ Taylor Stewart: Mm-hmm, yeah, and where's it gonna come from? Yeah, yeah. Colin: that's what you can control. Yeah, and where's it gonna come from? That's what you can control. You can control what you do today. You can't control when you're gonna die. You can't control what the market's gonna do until then. So I think the projection in that sense, it serves the same purpose. Like we're still trying to evaluate, here's what you can control. Here's the unknowns. Here's a reasonable like range for what those unknowns could be. You you're probably not gonna live past 105. You know, that's pretty safe assumption. You know, if we wanna be. Taylor Stewart: Mm-hmm. Hmm? Yeah. Yeah. Colin: a little bit more accurate, know, realistically you're not going to live past 90s. Okay, we can build that, we can model that in, you know, we can ⁓ make an assumption about... investment returns or what that safe spending rate might be, that safe withdrawal rate if you're going to live to 95 and if the market's going to do X. And that gives us a good starting point for like what to do today. So if that's, know, would you call that a projection? Yeah. Taylor Stewart: No, it's definitely modeling it out. ⁓ And I'm nodding along because I actually agree. And then I also realized at the end, probably you get to the same answer in seven seconds. Colin: Hmm Taylor Stewart: How old are they? How long do they want to withdraw? You can find a percentage that's going to answer all of that. Because that's the thing, the withdrawal rate, the safe withdrawal rate stuff, these rules of thumb are there for a reason. Because it's going to come down to, if you live to 105, it's a lot less. If you live to 90, it's a hell of a lot more. You won't know, so we're going to settle somewhere in between. Same with investment returns. If investment returns are really good, you can withdraw a lot more. If they're really bad, you can't. We're going to settle somewhere in between. And it's going to be around 40 % for a 30-year horizon, maybe 3.7, whatever your numbers are. Colin: Hmm. Yeah. Taylor Stewart: It's going to be almost the exact same unless they have some really unique thing like selling a business, a house, a property 20 years from now. That's where again, those are calculations and call it a projection. don't care. like, understand we still do all the same stuff, but I've realized over time, like it kind of comes back to when you're talking about sustainably drawing down on a portfolio. I actually think that's freeing that you said like the whole point of a retirement projection generally is to figure out how much to pull from investments and from where. And you just need to get to that answer. If you want to model it all out, great. If you don't need to, don't feel like you have to. That's the only answer. And sometimes there's no choice. It may be like, we can't touch this account, we can't touch that one. So it's coming from this one. And then how much it will be, you can go through the whole, let's model it out if you live. Seriously, like I actually, that was a light bulb moment for me. it's gonna settle around somewhere around that number. And then you can show a guard level. Well, if it goes above this, you can take more. Yeah, but you're doing it. You're making the decision today. You're gonna... Colin: Mmm, yeah. Yeah. Yeah. It's gonna be somewhere around four to five percent. You know, is what you could withdraw unless you're really old. Taylor Stewart: and you're gonna come back the next year when we're come back the next year and the market's gonna be up 20 % and I can draw more because you're older. But like, but the plan last year showed a different number, but you're gonna refresh it this year the same way you did last year. like, what the hell did you put the whole 30 year map together for? I understand why, but I just like, like, or I don't know. That's so freeing to realize. Like, I don't know. Yeah. Colin: Yeah. I mean, yeah, I think that's where all models, all projections, all calculations are gonna be wrong. Some are more useful than others. And that's where I've, you know, I don't do quote unquote Monte Carlo based projection planning in the sense that I'm not showing the client here's your percent of success. Cause really what does that mean? You know, it means in this many simulations you made it to death without. Taylor Stewart: Yeah. Mm-hmm. Colin: running out of money and then... Taylor Stewart: Mm-hmm. Colin: And the inverse of that is how many you ran out of money. And it's just not the realistic way that people live their lives. ⁓ We make adjustments over time. Nobody's going to stay on the same trajectory with blinders on to what's going on outside or what's happening to their portfolio. And so I think that the models that are more useful, the projections that are more useful, actually come back to like, what are we going to do today? ⁓ Taylor Stewart: Hmm? Colin: When do I need to worry about the withdrawal rate? ⁓ And that's where I, you know, I'm a fan of the guardrails framework or the more dynamic version that, you know, an income lab tool runs. It's like, it all comes back to today. Here's what we're going to start you spending. You know, we think this is a safe. Taylor Stewart: ⁓ huh, that's everything. Yeah. Yeah. Yeah. Yeah. Colin: amount to be withdrawing, not that it's never going to change. You know, we think there's an 80 % likelihood that that's too low, a 20 % likelihood that that's too high and you'll have to reduce it at some point in the future. You know, go in with that kind of framework and then here's the guardrails. Here's, we're to make a change. You know, so to the extent that the model of the projection comes back to like, what do you do today? Taylor Stewart: Ahem. Colin: I think it's really useful if it's just, you know, ⁓ we went from a 90 % probability of success to a 75 % probability of success and the client's freaking out now. You know, like that doesn't tell me what to do today. That doesn't tell me if I need to make a change or if I should just stay the course. And so, you know. That's not a fault of the projection. mean, it's a fault in how you communicate what that projection means to the client. yeah, mean, stepping off soapbox. Taylor Stewart: Sure, yeah. Yeah, projection, here's one example of what it could look like. No, was like, here's projection, here's one example of what it could look like. That's what a projection is, one example. Right, I mean, I a couple thoughts coming out of what you said. First of all, Monte Carlo's now become like a bad word. People are, I don't use Monte Carlo projections. Monte Carlo was like as good as you got for random return generation. And casinos use it all the time and it works. So like. Colin: Yeah, yeah. Taylor Stewart: We just don't like the presenting the probability of success because of all the issues there. like you were talking about 80 % chance we might need to increase, 20 % we might need to decrease. Guess what's driving that? So like we're fine with Monte Carlo and like it's fine. It's helpful to know that 92 % of time that works. Okay, that's a nice interesting thing. It doesn't need to be the centerpiece of everything you're saying. And the guardrails approach is great, but you could also probably, my guess would be, you don't need a software to do that. You're gonna have your own guardrails right here. Colin: Yeah. Taylor Stewart: How much do need to withdraw? How much do have? Let me apply a percentage and tell you that we're gonna need to evaluate it next year. I know it's not as pretty and it doesn't communicate as well, but I'm trying to free people from getting out of thinking they have to do all this stuff. If the client needs it to understand it, okay, I know, I promise you don't have to do that. You don't have to if you don't want to. And I also, in a non-arrogant way, I've run. Colin: Yeah. Yeah. Sure. Taylor Stewart: probably a couple thousand of these at this point, and I didn't start out this way, but I wanna free people from having to go through all that, where you're like, okay, do I need to, sorry, I was gonna go on another rant of like, can I model if they save more of this than that? Do you need it to tell you you're gonna have more money? At some point, you just kinda get a feel for what is gonna happen here, and so, again, they can be helpful, they can be important, but just, yeah, what's gonna affect decisions today? That's it. Colin: Yeah. Taylor Stewart: I don't know, use responsibly, have fun. I mean, there's something about the advisor brain. We just like love like more details and more knobs and dials. like, mean, dude, you came from the hedge fund world, the models you all build over there, they're crazy detailed and they're pretty good at them too. So like, it's not bad. Colin: Stop wasting your time, know, bottling out these crazy... ⁓ Yeah. Taylor Stewart: I don't know, like, think probably, you know, with all of it though, it's just like, it's one example. Like there's a range of outcomes. I don't know, I'm getting too fired up. Yeah. Oh yeah, oh yeah. Colin: I love that about you. bring the passion. ⁓ Yeah, we did get to talk about, you know, Nassim Taleb and ⁓ Fool by Randomness. And there's so many great books on this subject that have shaped my thinking. I don't know, what are some of those for you? Yeah, I mean, you know, how did... Taylor Stewart: ⁓ Yeah. For books? You talking about books? Well, what was my line to you? I think I said, like, I would never trust an advisor who hasn't read Fooled by Randomness or something like that. I still mean it. I actually do mean it. Yeah, so I I wrote a book called Embracing an Uncertain Retirement almost five years ago now. And so this whole embracing uncertainty thing is pretty core to... Colin: Yeah. Taylor Stewart: how I think and who I am and just like, we're like, okay, all this is gonna be really, really wrong and you still do it to a point. Where was I going with this? I'll try to stay on track. like books, yeah, Nassim Taleb's books are incredible. I mean, that's just the gold standard if you wanna learn how to think about this stuff, in my opinion. Colin: Yeah, think if you want learn to think critically about the models that we're running and the mental shortcuts or shortcomings we have when thinking about, when thinking in the face of uncertainty, think that's, his whole series of books is great on that. mean, I think for... Taylor Stewart: Mm-hmm. Colin: practical advice and like someone who does this really well would be like a Carl Richards figure if you've read his, you know, one page plan book or his blog posts, you know, those are like how this is how you do planning ⁓ in the absence of all the bells and whistles and spreadsheets and stuff. How you communicate with people is like where the rubber meets the road. ⁓ Taylor Stewart: I think one of the biggest issues with the models too is it's generally only running random variables for investment returns, but that's just one variable. What about spending like, and then the problem is if you started doing that for all the variables, you get with this insanely wide chart that's unusable. Colin: Thank Yeah, right. Yeah. Well, yeah. Where's the model for, for, you get dementia at 55, you know, where are we going to model the probability of that happening? You know, at some point. Yeah. I was just saying at some point you've, you've just produced this huge, you you've just increased the range of outcomes even more. Taylor Stewart: Yeah, exactly. I mean, what do you end up doing? You go. Yeah. And what you do, the natural thing to do is minimax regret. You try to prevent the outcome you can't afford and that's all you can afford. And that's something I'll tell people. We can all afford the upside. Who cares if markets do, you know, break the model on the upside the whole time. You're trying to protect against the situation you can't afford. So we know if you retire later, die earlier, investments are great. You'll be in a better place. We're trying to define kind of what's that downside that we want to avoid and make the best decisions we can today under a set of assumptions and we'll adjust next year. Like that's, that's kind of to me. ultimately what the planning calculations are for. And that's how I think about it. That's like the models all run, they're the projection, whatever calculations all run, we'll assume a rate of return, probably dampen it down a little bit, just kind of dial everything back 1 % conservative just to get to that number and then show, know, hey, if it's better, it could be somewhere in there. that's to say like, so if I run a calculation for how much somebody should spend in retirement using like, let's say 3 % inflation, 6 % investment return, just for whatever, and come up with a number and tell them like, but you know, like it could be a lot less so if you don't hit this number don't freak out. That's kind how I would communicate that. Like this is just a ballpark. Let's try to get close to it. If it says $1,133 a month, it's not literal. It's just to get us to, is it 200 a month, is it 4,000 a month? Let's try to get close enough. We'll do the best we can. We'll adjust next year. And that's why planning's a process, not like a one-time event. Colin: Yeah. Yeah. mean, I think a lot of us, I don't want to speak too broad of generalities, but I think so many financial planners got into this because they love the spreadsheet. They love tracking the details and they probably did it in their personal life before they did it professionally. And so, you know, there's some selection bias in terms of who goes into this field. And it's generally people that love the spreadsheet. ⁓ Taylor Stewart: For sure. Colin: who are going to spend time perfecting that model. And I think just keeping in mind, like you said, embracing uncertainty is like the number one skill, not only as an advisor, but like just in life. You don't know what's gonna happen. And we just have to make the best decisions today in light of, like you said, protecting against those things we can't afford. ⁓ Taylor Stewart: Hmm? Yeah. Colin: a reasonable approximation of what future returns may look like if we save this much. Those are all good and the kind of projections we should be doing, but then don't lose sight of the fact that it's going to be wrong. yeah. Taylor Stewart: Well, it's all, yeah, projections are helpful for visualization and explaining as long as you don't confuse people with them. ⁓ But it's not a plan, and a plan is about what you can actually change and do today. So if a variable for a calculation projection helps with a pretty, like actually affect what they do today, then it's valuable. If it's just another thing you can model, you don't need to. So, good stuff, fun topic. Colin: Good stuff. Taylor Stewart: Yeah, I have no idea what we're gonna talk about next time, but I'll see you there. Colin: I'll see you next time. Bye. Taylor Stewart: there.