Perhaps it is the negative commercials from the political campaigns that are getting under my skin and thus making me more sensitive to what I see and hear.  Maybe it is the market jitters of the first quarter creating the nervous feeling in my belly.  Still yet, I think it is the recognition that expectations we have had for the future are coming to fruition.

Last year America watched as the first “baby boomer” applied for Social Security.  Wall Street, financial advisors and mutual funds have been waiting for this moment for years.  They know – as does my company – that this is the largest mass of individuals transitioning into a period of retirement and the need for “financial planning” has never been so large.  Even colleges are on the scene with over 100 universities offering four-year degrees in financial planning.

My frustration comes from the lack of understanding that exists for most individuals – including those in my industry.  We have college professors at the top financial universities in the nation talking about statistical models (these only work with large numbers or samples and certainly not an individual staring at themselves in the mirror) that provide guidance on the probability of your “successful” retirement.  They use big words like stochastic simulation or Monte Carlo simulation and attempt to tell you how much you will need to retire.  Sadly, the models simply don’t work.

After the three day debacle in January, where more than 10% of the companies in the Russell 3000 lost 15% or more of their value, an article appeared in the Wall Street Journal that caught my attention. Professor Mathew Rothman of the University of Chicago said “events that our models suggest would happen once every 10,000 years happened everyday for three days.”  When I hear commercials that imply you can find a particular number and rest comfortably at night, I get very concerned about our future.

The desire for certainty in financial scenarios, health, marriage, the safety of our children and just about everything under the sun is human nature.  We crave the warm feeling of absolute knowledge and understanding, yet we rarely find that utopia of wisdom.  Instead, we choose to find a substitute by looking at the situation today, talking with experts about the expectations of the masses, gathering as much data and information as possible and then convincing ourselves that all will be well or that we are doomed – take your pick!  The truth is most likely in the middle.

Don’t mistake my frustration as an excuse to not save and to avoid planning.  That would be a tragic error on your part, in my opinion.  We must plan for our future to the best of our ability.  What I question is the type of planning that goes on.  Programs allow you to put in inflation rate assumptions and return expectations, and numbers galore.   Rarely do they help you to understand the variables that can have just as a dramatic impact on your financial future, like tax rates, erratic returns, volatile fixed rate returns, health care and social entitlement reforms, and perhaps most importantly, your actual number of years left to live versus the calculated life expectancy.

Your plan needs to be a plan of action that has the ability to adapt to change that is most certain, as well as change that isn’t even imaginable today.  There is no concrete solution, asset allocation, or fixed distribution system that can be done once and left alone forever – in my opinion at least.  The plan must be able to adapt to all the paradigm shifts and technological changes that will occur.

The financial industry is creating products to “help” people find certainty and simplicity.  I greatly subscribe to the later, but I am incensed by the concept that there is a particular number that assures retirement success. 

The mutual fund industry is trying to create an entire new mechanism of mutual funds where you own a super-fund of funds that you can buy based on your anticipated retirement date.  They sound so simple, but I urge you to look under the hood of the products and find the real reality to the concept – an allocation that pays no attention to economic cycles and global trends, but rather a static allocation based on your desired retirement age.  Part of me wishes it were that simple, but after 20 years of watching market fluctuations, technological changes, and a host of other good and bad events, I can assure you that accepting a static allocation into an uncertain future would be a mistake.

The world has more information than it can digest my friends, but there seems to be a huge shortage of wisdom.  You need to develop a financial strategy – strategy meaning a plan that can adapt as needed but one that also has some expectations included – and make sure you can stick to that strategy emotionally and financially.  After that, everything you read, hear, and see only matters if it applies to your strategy.  Everything else that does not apply to your particular strategy – even from this column – is simply noise and must be ignored. 

The future will contain both good days and bad, changes we can’t even comprehend at this point, and a world where our daily lives may be vastly different from what we expected. The power to predict would be nice, but I have yet to meet the person or company that got it all right in the past. The ability to adapt to changes in the future will be the key to your financial happiness.