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MRT 101: 2 Unknowables

MRT is not exclusively an income solution; it is a comprehensive retirement planning framework and process. Therefore, retirement income is a derivative of the MRT planning framework. Presuppositions propel and shape outcomes. The MRT paradigm was developed to address the beginning point of most retirement plan models that are sanitized, unrealistic and unhelpful. MRT believes unknown realities of the individual retirees in the real world form the context for all retirement planning.

There are two fundamental truths that must form the foundation of financial planning, particularly retirement planning.  First, the individual will never know with precision how long they will live and correspondingly how long their money will need to last.  It just simply cannot be done in the individual case.  It can be approximated for large groups of people but never for the individual.  It must be accepted and acknowledged that longevity will never be known for the individual, therefore, any financial planning framework must accommodate planning in the face of the unknowable.

Others have proffered dynamic withdrawal guidelines advisors can use for client portfolio withdrawals. These models are helpful if clients and advisors accept the premise that historical group results via longevity tables and portfolio Monte Carlo simulations should be applied to individual retirees. These models are only helpful if an individual believes that using group statistics for their plan is appropriate. In our view these models fail to help individuals steward all their wealth resources and attempt to predict the future for individuals through group statistics.

Secondly, once the retiree and their advisor accept the irrefutable fact that they cannot foresee the retiree’s longevity, they must also acknowledge that they cannot foresee what the retiree will face during the remaining year (or months or days) they have left.  This is what we refer to as “conditions within longevity”.  You just don’t know and can’t know when your spouse will die, when your child will be in an accident, when you will become disabled, when you will be laid off from your job, if you will have a negative sequence of returns upon retirement, etc.

MRT is specifically designed with these two unknowables as the basis of retirement planning for individuals. No one knows how long they will live (Longevity) nor what life will be like  (Conditions within Longevity).  MRT approaches the problems of retirement planning from this realistic, individual centered perspective.

MRT offers a plan that thinks through the individual retiree’s whole situation by helping thoughtfully to assess, weigh pros/cons, and navigate implications of possible decisions. So often, the modeling that is shown in research is like a sterile, sanitized lab. Instead, retirement is more like an organic garden environment where weeds and storms exist. MRT simply recognizes that the future for individuals is unknown. Planners and individuals cannot always know when a storm is coming, but can take steps to minimize the effects of unpredictable natural occurrences through careful planning using the MRT framework and planning process.

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About Jason Branning

Jason K. Branning, CFP® is co-founder of Modern Retirement Theory.

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