Can Financial-Planning Tools Predict Your Future?
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What is the main topic discussed in this episode?
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Here's your Money Briefing for Wednesday, January 8th. I'm J.R.
How do new financial-planning tools let you simulate your future finances?
Whalen for The Wall Street Journal. A lot of people save for the future, but it's hard to know what your finances might look like down the road due to changes in the economy or stock market. Our personal finance bureau chief, Jeremy Olshan, tried to get a snapshot of his financial future by trying out the newest generation of financial planning tools.
it's worth using tools like this to have conversations with your future self. The biggest net effect is that person who still feels pretty distant is more real in a way since I've run variations on where I might end up.
Jeremy will join us to discuss how you can use these tools after the break.
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Twenty years ago, Wall Street Journal Personal Finance Bureau Chief Jeremy Olshan asked fortune tellers to predict his financial future. More recently, he plugged data into the newest generation of financial planning tools. So what did he learn? He joins me now. Jeremy, let's start with the financial planning tool. It put your personal finances through a stress test, which we usually only hear about associated with banks.
Which specific tools (Maxify and Bolden) did Jeremy test and what data do they require?
What are the benefits of that test?
The great thing about doing this is that it's more than just plugging in your numbers and getting an answer. The reason you want to do the stress test is really to imagine all the things that could happen in one's life, both good and bad. Maybe you win the lottery, write a best-selling novel, you lose your job, deal with some health crisis, and these are the kinds of impossible things to plan for in just a traditional retirement calculator. What the new tools let you do is really see, okay, you have all my info, you can project out what my situation may look like in 20 or 30 years, but then you can run different scenarios. So you can drop, well, what if my income drops
How do scenario and stress tests work to model income, inflation and market swings?
plummets to zero for this stretch for some number of years. Or the opposite, I get a big raise. How do these changes play out into the future? It's almost like going on an imaginative journey, both pleasant and sometimes harrowing. But I was blown away once you get into it. And there's initial little work, like a lot of data entry and finding different, all the pieces. But once you get the basics in place, it really lets you imagine a whole range of lives you might have.
Alright, so walk us through how people can actually use these kinds of tools.
These are at the level that used to be only available to financial professionals. One is called Maxify, which is sort of the brainchild of Lawrence Kotlikoff, who's an economist at Boston University. And the other is called Bolden. It asks for your current assets, your income, how much you're contributing. to your various accounts what do you own a home what that's worth how much debt you have mortgage debt student loan debt or anything else and then start to make assumptions based on and this is where it gets tricky based on thresholds you give for both optimistic and pessimistic market performance or economic data like is inflation going to remain average or elevated the way we had a few years ago and all that really changes somewhat dramatically what it looks like down the line so
So you see all these scenarios with your personal finances based on all sorts of events over the next several decades. What's the downside of using a financial tool like this?
It's asking you to make a lot of assumptions. Like, how long do you think you're going to live?
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:00–0:37
2
How do new financial-planning tools let you simulate your future finances?
0:37–2:08
3
Which specific tools (Maxify and Bolden) did Jeremy test and what data do they require?
2:08–2:50
4
How do scenario and stress tests work to model income, inflation and market swings?
2:50–4:47
5
What are the biggest downsides and user-error risks when using these tools?
4:47–6:23
6
How did Jeremy's boardwalk fortune-teller experience compare with the software results?
6:23–8:02
7
What practical lessons did Jeremy learn about saving and planning from running scenarios?
8:02–8:12
Speakers
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