20 Apr 2018 Life-Changing Work

Yesterday, I had one of those wonderful opportunities to share life-changing news with a new client. I’ll call her Mary. During two prior meetings, Mary had shared how difficult her job was and how she would love to change to a less stressful and more rewarding job. She had proven herself indispensable to an employer that was in continual downsizing mode, heaping ever more responsibility and work on the survivors, with precious little  gratitude.

We had not met in a few months because Mary’s dad had passed away and she had been busy settling his estate on top of all she was carrying at work. Before our meeting yesterday, she provided me with details of the assets she would inherit from her father’s estate. While her inheritance wasn’t huge, combined with her own savings, the new total yielded a profound impact on her life plan. It indicated that Mary would not have to work another day in her life for salary, if she didn’t want to.

Mary’s plan had been carefully constructed to reflect all of her life goals and priorities for achieving them. Her plan reflected what was important to her and what was less important, should compromises need to be made along the way to meet her most important goals. But the new assets would virtually eliminate any chance of Mary’s falling short in her plan’s goals. Her confidence shot up to 99%, or essentially no chance of running out of money.

Before considering her dad’s estate, Mary’s plan had an 87% level confidence, if she continued working until she turned 65. Extra savings or more market risk were not viable options for her to retire sooner.

During one of our early meetings she asked if it was remotely possible for her to leave her job sooner for one paying half of her current wages. Unfortunately, my answer at the time was that there was only a 45% chance that she could meet her goals if she left her higher salary job before age 65. And nobody should live with coin-toss odds.

Remember, Monte Carlo or probability analysis is a process we use to determine the statistical confidence our clients’ plans have over their lifetimes through all kinds of market conditions. The system generates the confidence or probability by virtually living a client’s plan through 1,000 randomly-generated markets to determine how many goals are funded and for how long at a given level of portfolio risk.

Here’s what the numbers looked like for Mary before her father’s assets were included. Line 500 represents the 500th trial of Mary’s plan. It was that trial that ran out of money just before the end of her life. Stated another way, Mary has a 50% chance of her money lasting invested in the capital markets as long as she lasts, or a 50% chance of not having enough money to see her through.

With the blessing of her father’s remaining savings, Mary’s outlook is substantially improved. At the 50th percentile (the 500th trial) she would have $9.9 million at her death. Stated another way, there is a 50% chance she will have more than $9.9 million at her death.

Notice too that there is a 10% chance that Mary will have more than $29.9 million at her death and a 10% chance she will have less than $2.6 million. That’s a wide range. These two extremes represent the wide spread of possible outcomes presented by the uncertainty of the capital markets. Mary’s portfolio is only 45% invested in stocks. The ‘tails’ of the distribution curve (trials 10 and 990 above) spread further  (smaller at the 10 and bigger at the 990) as the stock component of a portfolio rises.

It’s my guess that you, one of our highly educated readers, also noticed that Mary’s new plan is hugely ‘over-funded’ at 99% confidence. The 990 line above indicates that she will have $2.6 million dollars at the end of her life, after fulfilling all of her goals at their ideal levels. Sadly, many advisors might leave it there.

But what if Mary doesn’t want to die with $2.6 million dollars. What if, with the continuing oversight and course-corrections made possible by Monte Carlo planning, Mary was able to use essentially all of her $2.6 million during her lifetime to give more, travel more, and work in more meaningful ways? What if we assured her that confidence of 83% was more than sufficient to meet and exceed her goals?

Reducing Mary’s plan to a more appropriate 83% level of confidence, by adding and expanding the goals that are important to her, she can define exactly how she wants to improve her lifestyle. By spending/giving more during her lifetime verses accumulating without purpose in bank and brokerage accounts Mary lives a more abundant life. To ensure that her confidence remains high throughout her life, we will walk alongside her, monitoring all aspects of her plan relative to life and market changes and making course corrections as indicated.

You may not have a larger-than-expected inheritance coming, but I’m pretty sure there are opportunities among your resources just waiting to be discovered that will improve the quality of your financial life. It’s that quest for discovery, that desire to improve the lives of every client we serve that is the WHY we do what we do. Let’s get together soon to discover your best way forward.