Building a Personal Finance Tool

What drives the best financial planning decisions? In this episode, Ben Felix and Mark McGrath sit down with Ben Mathew, a PhD in economics from the University of Chicago and author of Economics: The Remarkable Story of How the Economy Works. The discussion explores the lifecycle model of economics, a powerful yet underutilized framework for financial planning, and contrasts it with traditional approaches like safe withdrawal rates (SWR). Ben Mathew shares insights into the lifecycle model, its origins, and its practical applications in aligning financial decisions with personal goals over a lifetime. We also dig into Ben’s innovative financial planning tool, TPAW (Total Portfolio Allocation and Withdrawal) Planner, designed to bring the lifecycle model into practice. While the discussion delves into the complexities of financial planning, it’s packed with actionable insights for listeners seeking smarter, evidence-based strategies. Join us for a deep dive into the lifecycle model and discover how it compares to traditional safe withdrawal rates.

Key Points From This Episode:

(0:02:31) Identifying the main problem financial planning aims to solve and the biggest challenges in creating a plan for saving and spending across a lifetime.

(0:05:49) Exploring the effectiveness of simple rules of thumb, like the 4% rule, and the economic models available to analyze financial planning problems.

(0:09:16) Why the lifecycle model isn’t more widely adopted.

(0:12:06) The basic premise of the lifecycle model.

(0:16:45) How withdrawals in the lifecycle model relate to amortization and how risk affects amortization-based withdrawals.

(0:21:12) Examining how amortization-based variable spending aligns with consumption smoothing and responds to portfolio drops.

(0:25:25) How updating expected return assumptions mitigates behavioural worry during market drops.

(0:26:37) The variability in spending seen in historical simulations, how variable spending can be tailored to individual preferences, and the recommended frequency for updating financial calculations.

(0:38:30) What the lifecycle model advises about asset allocation.

(0:42:00) The importance of expected return assumptions in lifecycle asset allocation advice.

(0:45:28) Adjusting lifecycle advice for when you have limited information about expected returns and how retirement glide paths compare to the lifecycle model. (0:50:03) How asset allocation in the model changes based on the time horizon of the goal.

(0:54:10) The influence of different wealth levels on asset allocation in the lifecycle model.

(0:56:43) How the safe withdrawal rate methodology works and key problems with its approach.

(01:08:11) Connecting the probability of success metric to the utility function and differentiating variable safe withdrawal rates (SWR) from amortization-based withdrawals.

(01:17:02) An overview of Ben’s exciting online tool, TPAW (Total Portfolio Allocation and Withdrawal) Planner, for bringing the lifecycle model into practice.

Links From Today’s Episode:

Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ 

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemindRational Reminder on TikTok — www.tiktok.com/@rationalreminder

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://pwlcapital.com/our-team/

Cameron on X — https://x.com/CameronPassmore

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/ Mark McGrath on X — https://x.com/MarkMcGrathCFP

Ben Mathew — http://www.benmatheweconomics.com/

Ben Mathew on LinkedIn — https://www.linkedin.com/in/bmathecon/ 

TPAW Planner — tpawplanner.com

Bogleheads — https://www.bogleheads.org/wiki/Main_Page

Books From Today’s Episode:

Economics: The Remarkable Story of How the Economy Works — https://www.amazon.com/Economics-Remarkable-Story-Economy-Works/dp/0988669102

The Missing Billionaires: A Guide to Better Financial Decisions — https://www.amazon.com/Missing-Billionaires-Better-Financial-Decisions/dp/1119747910