There’s this old observation that we tend to overestimate what we can accomplish in a year and underestimate what we can accomplish in ten. I think there is a financial version of that. We put enormous weight on projections that try to describe life decades from now, while underestimating what years of small, sensible decisions can accomplish.
I make retirement projections for a living, so I’m not arguing against them. They are useful when they help us make decisions. The trouble begins when we start treating them as predictions.
Imagine you are in your 40s, earning a decent living, contributing to your 401(k), and beginning to see your savings add up. You feel as though you are making progress. Then someone runs a projection and tells you that you’ll need $4 million to retire.
Four million dollars? Compared with what you have accumulated after years of work, it can feel less like a goal and more like climbing to the top of a mountain. Instead of motivating you, the number may leave you wondering why you should bother.
In that moment, you probably do not need to know exactly how you will reach $4 million. You need the next good decision: increase your contribution a little, build an emergency reserve, pay down expensive debt, or simply keep doing what is already working. The summit matters, but the next few steps matter even more.
There is another problem with projections: numbers decades into the future have a way of becoming enormous. A plan may show $5 million at age 70, which sounds extraordinary. But $5 million several decades from now will not buy what $5 million buys today.
Inflation quietly changes what those numbers mean. A projection may look precise, but the farther into the future it reaches, the less certainty that precision should imply.
A Projection Is a Map
The opposite problem occurs when a projection looks fantastic. The assets are there, the spending appears sustainable, Social Security and perhaps a pension are included, and the projections show a high probability of success. That’s encouraging, but it is not a guarantee.
Retirement projections are built on assumptions about returns, inflation, spending, taxes, life expectancy, and plenty of other things. Some will be close. Others will not. Over a 20- or 30-year retirement, life will also introduce things that were never in the original plan.
I think of a financial plan as a map. If I am driving from Cleveland to Boston, a route is useful. It gives me direction, a rough travel time, and the roads I am likely to take.
But the map is not the trip. There could be construction in Buffalo, traffic near Albany, or bad weather in Massachusetts. None of that makes the map useless. It simply means I need to keep looking at it and adjust as the trip unfolds. Retirement planning works the same way.
Planning Should Tell You What to Do Next
This is where planning earns its keep. A good plan should do more than announce that you need $3.7 million at age 67. It should help answer the questions in front of you: Am I saving enough now? Can I afford to spend more? Should I pay down debt? Can I retire next year, or would one more year of work make a meaningful difference?
It should also help with decisions about Social Security, investment risk, taxes, and the inevitable changes life brings. Those decisions—not a single target number—are what planning is supposed to help us make.
That matters even more when retirement is still far away. You do not have to solve your entire financial life at 35 or 45. You couldn’t if you tried. You do not know exactly what you will earn, what retirement will look like, what tax rates will be, or what markets and inflation will do.
What you can do is make the next good decision. Save a little more. Keep debt manageable. Take only the investment risk your plan requires. Build some flexibility, then return to the plan as life unfolds. Twenty years of those decisions can accomplish an awful lot.
I believe strongly in planning. I’ve simply become skeptical of the idea that a plan’s value is the number it produces. That number will change as markets, tax laws, your priorities, and your life change.
The goal is not to create a perfect projection and spend the next 30 years trying to make life conform to it. The goal is to choose a direction, make the best decisions you can with what you know today, and adjust when new information comes along.
A retirement projection can tell you where you are headed. It cannot tell you exactly where you will end up, and that is okay. You do not need the next 30 years figured out. You need to know what you are going to do next.
