Episode 169: The Importance of Your Financial Planning Assumptions: Part 1

In this episode, Alex and Wade are joined by Brian Bass from McLean Asset Management to discuss the complexities of financial planning assumptions, particularly focusing on Monte Carlo simulations and their implications for success rates in retirement planning. They discuss how different advisors may present varying success rates based on their underlying assumptions, emphasizing the importance of understanding them for consumers. Key topics include the significance of capital market assumptions, the magnitude of failure in financial plans, and the necessity for transparency and communication between advisors and clients. The conversation aims to equip listeners with the knowledge to critically evaluate financial plans and ask the right questions when consulting with advisors. Listen now to learn more!

Takeaways

• Consumers often lack awareness of the assumptions behind financial plans.
• Monte Carlo simulations are a common tool in financial planning.
• Success rates can be misleading without understanding underlying assumptions.
• Small changes in return assumptions can significantly impact success rates.
• Transparency in financial planning is crucial for informed decision-making.
• Clients should ask advisors about the inputs used in their financial plans.
• Different advisors may use varying assumptions leading to different outcomes.
• Understanding capital market assumptions is key to evaluating financial plans.
• Effective communication of financial concepts is essential for client understanding.

Chapters

00:00 Introduction to Financial Planning Assumptions
02:18 Understanding Monte Carlo Simulations
04:16 The Importance of Assumptions in Financial Planning
06:21 Defining Success Rates in Financial Plans
09:32 Magnitude of Failure vs. Success Rates
10:39 Capital Market Assumptions Explained
14:32 The Role of Returns and Volatility
15:19 Communicating Complex Concepts to Clients
18:29 The Impact of Long-Term Care on Financial Plans
21:33 Key Questions for Consumers to Ask Advisors
23:24 The Sensitivity of Return Assumptions

 

Links

Have a question about your financial plan? Schedule a 15-minute call with Jason Rizkallah from McLean Asset Management: https://calendly.com/jason-rizkallah/mclean-asset-management-introduction-call

Did you miss the Challenge? Join the Waitlist to be the first one notified when registration is open for the next session of the Retirement Income Challenge: risaprofile.com/podcast 

Click here to watch this episode on YouTube: https://youtu.be/7Cn0DUxIpvs

The Retirement Planning Guidebook: 2nd Edition has just been updated for 2025! Visit your preferred book retailer or simply click here to order your copy today: https://www.wadepfau.com/books/

This episode is sponsored by Retirement Researcher https://retirementresearcher.com/. Download their free eBook, 8 Tips to Becoming A Retirement Income Investor at retirementresearcher.com/8tips