The Difference Between Real Life and an Algorithm

Humans don’t fit into an algorithm.

This is particularly true when we’re talking about humans and their money.

Because Humans + Money is a messy little cocktail that economists refer to as a complex adaptive system. Humans + Money is complex because cause and effect can only honestly be identified with the benefit of hindsight, and it’s adaptive because our interaction with the system changes it.

Try cramming that into an algorithm.

As much as we would all love a simple formula to tell us what to do with our money—and believe me, there are simple answers, and maybe they’re a good starting place—the more we try to fit the big money questions, such a retirement, into a neat little box, the more we find ourselves saying “it depends.”

So what works better instead?

The only way to navigate to a stress-free retirement is to plan with the big picture in mind. From my experience, the steps look like this:

1. When.?When do you want to stop the paychecks and transition to withdrawals?
2. Discover.?What will you need to have in monthly income to cover your reocurring expenses?
3. Reliable.?What sources of income will you have that are reliable;?pension, rental, annuity, Social Security?
4. Gap.?Determine how much income you are responsible for from your investments
5. Choose.?Do you want to rely on the potential for market growth to fund your retirement, or would you prefer automated income?
6. Design.?Your financial blueprint will help you feel more confident and in control of your finances. When you know where you’re headed and have a plan for getting there, you’re less likely to feel stressed or anxious about money

Now, keep in mind that the timeline for these steps is going to be driven by your situation. Are you retiring in five years? If so, this planning is rather urgent. The last thing you want is for things to blow up the year you had hoped to retire!

The important thing is to remember, humans don’t fit into an algorithm, so don’t try. Rather than looking for a simple calculator, just acknowledge the reality that life, markets, and money are messy. Leaving your retirement security up to chance might not be your best choice.